B-147608, FEB. 7, 1962

B-147608, FEB. 7, 1962

TO HABITANT SHOPS, INC.:

FURTHER REFERENCE IS MADE TO YOUR LETTER DATED NOVEMBER 13, 1961, PROTESTING THE ACTION OF THE GENERAL SERVICES ADMINISTRATION IN HOLDING THAT YOUR CONCERN IS LIABLE FOR CERTAIN EXCESS COSTS INCURRED BY THE GOVERNMENT ARISING OUT OF OPEN MARKET PURCHASES OF FURNITURE FOLLOWING CANCELLATION OF CONTRACT NO. GS-00S-33439, DATED FEBRUARY 1, 1961, BETWEEN YOUR CONCERN AND THAT AGENCY. IT WAS STATED IN YOUR LETTER, AMONG OTHER THINGS, THAT BECAUSE YOU FOUND IT IMPOSSIBLE TO CONTINUE IN THE FURNITURE MANUFACTURING BUSINESS YOU DISCONTINUED OPERATIONS UNDER THE INDICATED CONTRACT DURING JUNE 1961, AND THAT AFTER CONFERRING WITH REPRESENTATIVES OF THE NATIONAL BUYING DIVISION, GSA, THE CONTRACT WAS CANCELLED BY THAT AGENCY. FOR THE REASONS STATED IN YOUR LETTER YOU EXPRESSED THE VIEW THAT NO CLAIM SHOULD BE ASSERTED AGAINST YOU FOR THE REPORTED EXCESS COSTS.

THERE HAS ALSO BEEN RECEIVED YOUR LETTER DATED DECEMBER 18, 1961, WHEREIN THERE WERE SET FORTH AT LENGTH CERTAIN FACTS WHICH YOU STATED RESULTED IN YOUR DECISION TO CLOSE THE MANUFACTURING OPERATION, EFFECTIVE MAY 31, 1961, AND ON PAGE FOUR THEREOF YOU EXPRESSED THE VIEW THAT IT WOULD BE UNFAIR FOR THE GOVERNMENT TO INSIST UPON PAYMENT OF THE EXCESS COSTS SINCE SUCH ACTION WOULD RESULT IN FURTHER FINANCIAL LOSSES ON YOUR PART. YOUR LETTER ALSO CONTAINED THE FOLLOWING STATEMENT:

"* * * ON THE OTHER HAND, WE HAVE REASON TO BELIEVE THAT SIMILAR FURNITURE AT EQUAL PRICES COULD HAVE BEEN PURCHASED IN THE OPEN MARKET TO FULFILL THE ORDER REQUIREMENTS, WITHOUT INCURRING EXCESS EXPENSES.'

WITH RESPECT TO THE QUOTED LANGUAGE, IT IS NOTED THAT YOU DID NOT GIVE THE REASONS FOR YOUR BELIEF AND NEITHER DID YOU INDICATE THE SOURCE FROM WHICH THE FURNITURE COULD HAVE BEEN PROCURED AT "EQUAL PRICES.'

THE RECORD IN THIS CASE INDICATES THAT DUE TO LABOR AND FINANCIAL PROBLEMS ENCOUNTERED IN THE PERFORMANCE OF THE INDICATED CONTRACT, YOU REQUESTED RELIEF FROM FURTHER RESPONSIBILITY THEREUNDER. AFTER A REVIEW OF THE FACTS AND CIRCUMSTANCES INVOLVED, THE GENERAL SERVICES ADMINISTRATION CONCLUDED THAT UNDER THE CONTRACT PROVISIONS PERFORMANCE THEREUNDER COULD NOT BE WAIVED AND THAT, THEREFORE, THAT AGENCY WAS OBLIGED TO INSTITUTE DEFAULT ACTION AGAINST YOU. THEREAFTER, YOU WERE DECLARED TO BE IN DEFAULT, EFFECTIVE JULY 7, 1961. THE RECORD SHOWS THAT YOU WERE ADVISED OF YOUR RIGHT TO APPEAL FROM THE CONTRACTING OFFICER'S DECISION TO TERMINATE THE UNDELIVERED ORDERS AND TO CHARGE YOU WITH THE EXCESS COSTS RESULTING FROM PROCUREMENT FROM OTHER SOURCES. IT IS REPORTED, HOWEVER, THAT YOU DID NOT AVAIL YOURSELF OF THE RIGHT TO APPEAL WITHIN THE 30-DAY PERIOD PRESCRIBED IN THE CONTRACT.

UNDER DATE OF AUGUST 14, 1961, THE GENERAL SERVICES ADMINISTRATION ISSUED A NOTICE TO GOVERNMENT ORDERING AGENCIES TO THE EFFECT THAT SUCH AGENCIES SHOULD TERMINATE ALL UNDELIVERED ORDERS AND PROCURE SUCH REQUIREMENTS IN THE OPEN MARKET. THE NOTICE CONTAINED THE FOLLOWING PARAGRAPH:

"THE ABOVE CONTRACT WAS BASED ON A CORRELATED GROUP OF SOFT WOOD (KNOTTY PINE). TO OUR KNOWLEDGE THERE IS NO OTHER SOURCE OF A CORRELATED GROUP OF FURNITURE MADE OF SOFT WOOD (KNOTTY PINE). ACCORDINGLY, CARE SHOULD BE TAKEN THAT PURCHASES BE OF COMPARABLE QUALITY, THOUGH NOT IDENTICAL, IN ORDER TO PRESERVE THE INTEGRITY OF CHARGING EXCESS COSTS, IF ANY, TO THE DEFAULTED CONTRACTOR.'

PARAGRAPH 21--- "DEFAULT"--- OF THE GENERAL PROVISIONS FOR FEDERAL SUPPLY SCHEDULE CONTRACTS--- INCORPORATED INTO THE CONTRACT BY REFERENCE--- PROVIDES THAT IF THE CONTRACTOR FAILS TO MAKE DELIVERY OF THE SUPPLIES WITHIN THE TIME SPECIFIED IN THE CONTRACT OR ANY EXTENSION THEREOF, THE GOVERNMENT MAY BY WRITTEN NOTICE OF DEFAULT TO THE CONTRACTOR TERMINATE THE WHOLE OR ANY PART THEREOF. THIS PARAGRAPH PROVIDES FURTHER THAT IN THE EVENT THE GOVERNMENT TERMINATES THE CONTRACT FOR THE REASON STATED ABOVE, THE GOVERNMENT MAY PROCURE, UPON SUCH TERMS AND IN SUCH MANNER AS THE CONTRACTING OFFICER MAY DEEM APPROPRIATE, SUPPLIES SIMILAR TO THOSE SO TERMINATED, AND THAT THE CONTRACTOR SHALL BE LIABLE TO THE GOVERNMENT FOR ANY EXCESS COSTS FOR SUCH SIMILAR SUPPLIES.

IT APPEARS FROM A LETTER DATED JANUARY 26, 1962, FROM THE GENERAL SERVICES ADMINISTRATION, THAT AS OF THAT DATE ONLY TWO ORDERING AGENCIES HAD FURNISHED INFORMATION REGARDING "BUY-AGAINST" ACTIONS CONDUCTED BY THEM--- ONE BY THE CENTRAL PROCUREMENT DIVISION, FORT BENJAMIN HARRISON, INDIANA, REPORTED EXCESS COST AMOUNTING TO $7.42, PAYMENT OF WHICH YOU DECLINED IN YOUR LETTER OF SEPTEMBER 27, 1961, AND THE OTHER BY THE VETERANS ADMINISTRATION HOSPITAL, DEARBORN, MICHIGAN, WHICH REPORTED EXCESS COSTS AMOUNTING TO $228.71, ARISING OUT OF PURCHASES AGAINST YOUR ACCOUNT. IN THE LATTER CASE IT WAS INDICATED THAT THE REPURCHASES COVERED FURNITURE MADE FROM WHITE OAK OR WHITE PINE RATHER THAN "KNOTTY PINE" AS CALLED FOR BY THE CONTRACT. THE GENERAL SERVICES ADMINISTRATION EXPRESSED THE VIEW THAT ON THE BASIS OF THE INFORMATION AVAILABLE TO THAT AGENCY, THE FURNITURE AS PURCHASED APPEARS TO BE GENERALLY COMPARABLE IN QUALITY AND WORKMANSHIP TO THAT TO BE FURNISHED UNDER YOUR CONTRACT. THE GENERAL SERVICES ADMINISTRATION ALSO POINTS OUT THAT WHILE "KNOTTY PINE" IS OBVIOUSLY DIFFERENT FROM THE WOOD USED IN THE REPLACEMENT FURNITURE PURCHASED BY THE VETERANS ADMINISTRATION, AT THE SAME TIME THE REPURCHASES WERE OF THE CLOSEST FEASIBLE SIMILAR TYPE OF FURNITURE.

THE LAW APPEARS TO BE WELL SETTLED THAT WHERE THE CONTRACT ARTICLE IS NOT READILY AVAILABLE IN THE COMMERCIAL MARKET, OR OTHERWISE IS UNOBTAINABLE, THE INCREASED EXPENSE INCURRED BY THE AGGRIEVED PARTY IN SECURING THE BEST AVAILABLE SUBSTITUTE, EVEN THOUGH OF A DIFFERENT TYPE OR CHARACTER, MAY BE CHARGED TO THE DEFAULTING CONTRACTOR AS THE CORRECT MEASURE OF DAMAGES RESULTING FROM THE BREACH. SEE TRI-BULLION SMELTING AND DEVELOPMENT COMPANY V. JACOBSEN, 233 F. 646; BROOKE COUNTY COURT V. U.S. FIDELITY AND GUARANTY COMPANY, 121 S.E. 422; GRUEN V. GEORGE A. OHL AND COMPANY, 80 A. 547; AND 78 C.J.S. SALES, SECTION 549.

THE RECORD ESTABLISHES THAT THE "KNOTTY PINE" FOR THE FURNITURE TO BE SUPPLIED UNDER YOUR CONTRACT WAS NOT OTHERWISE AVAILABLE AND THUS THE GOVERNMENT WAS REQUIRED TO RESORT TO THE NEXT COMPARABLE AVAILABLE SUBSTITUTE. UNDER THE RULE LAID DOWN IN THE CITED CASES THE PROPER MEASURE OF DAMAGES RECOVERABLE IN THIS CASE IS THE ADDITIONAL COST INCURRED BY THE UNITED STATES IN PROCURING SUBSTITUTE ITEMS FROM OTHER AVAILABLE SOURCES OF SUPPLY. ALSO, THE RIGHT TO RECOVER THE EXCESS COSTS IN THIS CASE IS SPECIFICALLY CONFERRED BY THE PROVISIONS OF THE "DEFAULT CLAUSE" OF THE CONTRACT, REFERRED TO ABOVE, AND WE KNOW OF NO LEGAL BASIS UNDER WHICH THAT RIGHT MAY BE WAIVED. IT SEEMS CLEAR THAT YOUR DEFAULT WAS NOT EXCUSABLE UNDER THE PROVISIONS OF THE CONTRACT AND UPON THE BASIS OF THE RECORD BEFORE US IT APPEARS THAT THE PROCUREMENT OF THE DEFAULTED ITEMS WAS IN ACCORDANCE WITH THE CONTRACT PROVISIONS. ACCORDINGLY, WE ARE OF THE VIEW THAT YOU ARE LIABLE FOR THE INCREASED COSTS INCURRED BY THE GOVERNMENT ARISING OUT OF YOUR DEFAULT.

UNDER DATE OF OCTOBER 24, 1961, THE VETERANS ADMINISTRATION HOSPITAL AT DEARBORN, MICHIGAN, REPORTED TO OUR CLAIMS DIVISION AS UNCOLLECTIBLE A CLAIM AGAINST YOU IN THE AMOUNT OF $228.71, REPRESENTING EXCESS COSTS INCURRED IN PURCHASING CERTAIN FURNITURE FROM OTHER SOURCES DUE TO YOUR DEFAULT UNDER THE CONTRACT OF FEBRUARY 1, 1961. BY YOUR LETTER DATED SEPTEMBER 27, 1961, TO THE VETERANS ADMINISTRATION HOSPITAL, YOU DECLINED TO MAKE PAYMENT OF THE AMOUNT CLAIMED. IN VIEW OF OUR HOLDING HEREIN THAT YOU ARE LIABLE TO THE UNITED STATES FOR THE EXCESS COSTS RESULTING FROM YOUR DEFAULT, IT IS REQUESTED THAT YOU REMIT TO OUR CLAIMS DIVISION WITHIN TWENTY DAYS FROM THE DATE OF THIS LETTER THE INDICATED AMOUNT OF $228.71. IN THE EVENT OF YOUR REFUSAL TO MAKE PAYMENT OF THESE EXCESS COSTS OUR CLAIMS DIVISION WILL, WITHOUT FURTHER NOTICE TO YOU, TAKE APPROPRIATE ACTION TO REFER THE MATTER OF YOUR INDEBTEDNESS TO THE DEPARTMENT OF JUSTICE FOR COLLECTION ACTION.