The record shows that after the aforementioned audit was completed the State agency withheld further payments under the program to Culver and requested Culver to refund all payments received. In a reply to that request dated May 24, 1965, Culver set forth the following contentions:

1. The application agreement used by the State agency for fiscal years 1962 and 1963 made no mention of food service agreements. 2. When the revised form for fiscal year 1964 was received, Culver advised the State agency on May 22, 1963, that it had a food service management contract and asked how to get it approved; however, Culver was not asked to submit the contract for approval.

3. Culver complied with all of the instructions received from the State agency, and if there was a problem it should have been resolved after the May 22, 1963, letter.

4. If Culver should be found in violation of the program regulations, waiver of refund should be granted in view of the extenuating circumstances. Refund would cause a severe hardship as the funds were used to the greatest extent possible to further milk consumption and to meet regular food service expenses.

5. If Culver should be found ineligible for the regular school year and waiver of refund is not allowed, then the refund should exclude payments for the summer school program since the summer schools would normally be eligible for participation in the program with a food service contract upon approval of the contract by the Department of Agriculture.

The Assistant Secretary states that the State agency does not dispute Culver's statements, except for the inference that no action was taken on the May 23, 1963 letter. The record shows that a State agency official visited Culver on June 14, 1963, and in a report confirmed the concept that Culver had of the food service contract, namely, that the food service facilities were operated by Culver. The Assistant Secretary states that it is unfortunate that the State agency official did not insist that the contract be submitted for approval, regardless of the information he was given, and that the State agency did not request such referral by letter or confirm the understanding obtained from the visit.

The State agency has now requested the Department of Agriculture to concur in a determination which would allow Culver's summer school claims in the amount of $25,674.67, require Culver to refund $43,750.12, and disallow unpaid claims in the amount of $10,692.57.

The Assistant Secretary states that because of the Department of Agriculture's view that Culver's food service management contract would have been approved by the Department, subject to modifica

tion to provide for a fixed fee, the Department recommends that Culver be allowed $25,674.67 for its summer school program. Also, he states that it is the Department's opinion that providing for a fixed fee for its management service could have been arranged without difficulty between Culver and the food service management company. In addition, the Department recommends that Culver be allowed to retain the entire $69,424.79 paid to it. It is stated that nothing has been established to show that the payments were not used in full accordance with the legislative purpose of the program which is to encourage the consumption of milk by children and so it can be said that there was no loss to the Government. Therefore, it is the Department's view that it would not be proper to require Culver to repay any part of the $69,424.79, especially since they complied with all instructions received from the State agency and used the funds for program purposes. However, it is the Department's opinion that the so-called technical violation of the aforementioned regulations warrants disallowance of the unpaid claims in the amount of $10,692.57. For the same reason the Department recommends disallowance of additional claims of $8,217.90 for the post audit period of February 1965 through June 1965.

The record now shows that Culver has canceled its food service management contract and now qualifies for the Special Milk Program for Children, both for the school year and the summer program.

In conclusion, the Assistant Secretary raises the question as to what action, if any, should be taken against the State agency regarding the funds paid in violation of the regulations, and states that it is the opinion of the Department that a claim against the State agency for all or any part of the $69,424.79 would not be justified.

The Special Milk Program for Children is carried out under the authority of the act of July 1, 1958, Public Law 85-478, 72 Stat. 276, as amended (7 U.S.C. 1446 note). The operations of the program are governed by regulations published as Part 215 of Title 7, Code of Federal Regulations. The cited act authorizes the appropriation and directs the expenditure of stated funds to increase the consumption of fluid milk by children in specified types of institutions. The cited regulations set forth the terms and conditions upon which payments under the act will be made. While there is no express provision in the basic act authorizing you to issue regulations relating to the program established thereby, the amendment thereto enacted by section 402 of the Agricultural Act of 1961, approved August 8, 1961, Public Law 87-128, 75 Stat. 319, 7 U.S.C. 1446 note, authorized the promulgation of such rules and regulations as you may deem in the public interest. Hence, the terms and conditions prescribed by

the cited regulations are statutory regulations, and, as such, cannot ordinarily be waived in particular instances.

The cited regulations, which were made a part of the agreement between the Department and the State agency by reference, set forth in section 215.7, quoted above in part, specific requirements which must be met in order for a school or child-care institution to participate in the program. It is the responsibility of the State agency in its administration of the program to determine that any school or child-care institution that makes application for participation has complied with such requirements prior to approving its participation in the program. Since the regulations governing participation intend that payments under the program shall be made only to qualified schools and child-care institutions, it is our view that such regulations are essential substantive program requirements which must be adhered to in order to carry out the intent of the regulations.

It is clear that under the provisions of 7 CFR 215.7 (c) Culver was ineligible to participate in the program during the regular school year due to the fact that its dining hall was operated by a food service management company. While it may be contended that there was no loss to the Government on the basis that nothing has been established to show that the payments to Culver were not used for the purpose of the program, there is nothing in the regulations authorizing the waiver of the aforementioned eligibility requirement on the basis that an ineligible school may participate and receive payments under the program in the event such payments are used for the purpose of the program. Waiving a substantive program requirement on such a basis would, for all practical purposes completely negate and defeat the intent of the regulation.

Therefore, the funds, in the amount of $43,750.12, that the State agency paid to Culver in violation of 7 CFR 125.7 (c) should be recovered.

Under the provisions of 7 CFR 215.7 (e) child-care institutions such as Culver's summer schools may be eligible to participate in the program even though its food or milk service is operated under a contractual agreement by a food service management company after such arrangement has been approved by the Department. Also, to be approved by the Department the contractual arrangement must provide for a fixed fee. In the instant case Culver's contractual arrangement with a food service management company to operate its dining hall during summer camps was not approved by the Department and the contract did not provide for a fixed fee. However, the record shows that Culver advised the State agency that its dining hall was operated under a contractual arrangement with a food service management company and requested to be advised as to what

steps should be taken to have the contract approved. In your letter of February 15, 1966, you state, in effect, that if Culver's contract had been submitted it would have been approved by the Department, subject to modification to provide for a fixed fee. Regarding such modification, in a letter to our Office dated June 2, 1966, your General Counsel states, in effect, that from the Department's experience with summer camps and management companies operating camp feeding programs, it can be assumed that the company managing Culver's dining hall during the summer camps would have readily agreed to a revision of its contract with Culver to provide for a specific fee. Thus, if Culver had been properly instructed by the State agency, the management contract and Culver's participation in the program during its summer camp period could have been regularized from

the start.

Therefore, in view of the foregoing explanation and since Culver properly could have participated in the program during its summer school while having its dining hall operated under a management contract, you are advised that if the payments of $25,674.67 to Culver for its summer school programs are otherwise proper, they need not be further questioned.

[B-159498]

Contracts-Specifications-Failure to Furnish Something Required-Bid Bond-Failure to Furnish "May Be" Cause For Rejection

The failure of a bidder unable to obtain a bid bond to comply with the invitation requirement for submission of a bond may not be waived as an informality or minor irregularity on the basis that the invitation stated that such failure may be cause for rejection and therefore rejection is not required, a clause prescribed by section 1-10.103-3 of the Federal Procurement Regulations and correctly stating in connection with the named situations in section 1-10.103-4 in which failure to furnish a required bid bond is waivable, that such failure "may be" cause for rejection, and even though the clause would be more precise and more informative to bidders if it stated that failure to furnish a bid bond will require rejection of the bid in all cases except those listed in section 1-10.103-4 and may be cause for rejection even then, the regulations having the force and effect of law, the failure of the bidder to furnish a bid bond cannot be waived and requires bid rejection.

To Kahr Bearing Corporation, Marine Division, July 6, 1966:

Reference is made to your telegram of June 21 and letter of June 22, 1966, protesting the rejection of your bid under Coast Guard invitation for bids No. 916406-0 issued May 20, 1966.

The invitation, which solicited bids for the furnishing of three ship sets of joiner materials, elicited three bids by bid opening on

June 16, 1966, yours in the amount of $624,000, and two others in the amounts of $734,700 and $857,340. The invitation contained the following requirement:

BONDS:

Bid Bond: Bid bond in the amount of 20% of bid price, but not to exceed $3,000,000.00 is required. Failure to furnish a bid bond at the time set for opening of bids may be cause for rejection of bid. Payment and Performance Bonds:

The successful bidder shall be required to furnish a payment bond and a performance bond in an amount equal to 50% of the contract award price.

No bid bond was submitted with your bid. In your letter of June 22, 1966, you state that you made every effort to obtain a bid bond but were unable to do so because of your current financial status.

You argue that the invitation states merely that failure to furnish a bid bond may be cause for rejection, not that rejection is required, and that the omission should be waived as an informality or minor irregularity. You cite in this connection the Adelhardt case, 123 Ct. Cl. 456, 107 F. Supp. 845, decided in 1952.

The question as to the materiality of a bidder's failure to furnish a required bid bond has been before our Office many times. Prior to our decision in 1959 at 38 Comp. Gen. 532 the rule was that an inadvertent failure to furnish a required bid bond should be waived, provided the failure was not due to the bidder's inability to secure such a bond. Thus, even under that rule, a waiver of your failure would not have been proper. In the case of Brookfield Construction Company, Inc., 234 F. Supp. 94 (1964), the court upheld a decision of our Office which required rejection of a bid bond which was accompanied by a bid bond deficient in amount ($1,100,000 instead of $1,173,500) despite the fact that an adequate bond was offered after bid opening. The court stated:

This Court may not set aside the decision of the Comptroller General, first, because it is not erroneous as a matter of law, but merely refuses to make an exception to a rigid rule; and also, because no justiciable controversy is presented ***.

It should be noted that the regulations promulgated as a result of our decision in 1959, e.g., section 1-10.103-4 of the Federal Procurement Regulations (FPR), which impose an even stricter rule, were not applicable in the Brookfield case.

Section 1-10.103-4 of the FPR does, however, apply to the instant procurement. It states that where an invitation for bids requires the submission of a bid bond "The bid shall be rejected" for noncompliance, except in four named situations, none of which is applicable here. Section 1-10.103-3 of the FPR prescribes the clause to be used in the invitation, which was used in the present case. Because of the four situations in which failure to furnish a required bid bond is waivable, the clause is correct in stating that such failure "may