B-166094, AUG. 26, 1969

B-166094, AUG. 26, 1969

CONTRACTS - CONTINGENT FEE REAFFIRMATION OF DECISION OF MAY 29, 1969, J. E. HELSEL AND ASSOCIATES, INC., CONCLUDING THAT ACTION TO COLLECT CONTINGENT FEE ALLEGED TO BE OWED BY VAN NORMAN MACHINE INCIDENT TO CONTRACT WITH NAVY COULD NOT BE TAKEN.

TO J. E. HELSEL AND ASSOCIATES, INC.:

REFERENCE IS MADE TO YOUR LETTER OF JULY 16, 1969, REQUESTING OUR RECONSIDERATION OF OUR DECISION OF MAY 29, 1969, IN WHICH WE HELD THAT WE COULD NOT COLLECT EITHER ON YOUR BEHALF OR ON THE GOVERNMENT'S BEHALF THE CONTINGENT FEE YOU ALLEGED VAN NORMAN MACHINE COMPANY OWED YOU, ON ACCOUNT OF THEIR RECEIVING A CONTRACT PURSUANT TO INVITATION FOR BIDS (IFB) NO. N00600-68-B-0329, DATED JANUARY 16, 1968, ISSUED BY THE U.S. NAVY PURCHASING OFFICE, WASHINGTON NAVY YARD, WASHINGTON, D.C.

YOU HAVE REQUESTED THAT WE CONSIDER THE FOLLOWING FACTS: "1. THIS COMPANY DID OR DOES NOT INTEND THAT THE GOVERNMENT RECOUP ITS CLAIMED FEE FROM THE VAN NORMAN COMPANY. IT WAS STATED THAT WE DID NOT KNOW WHETHER THEY INTENDED TO PAY THIS CLAIM. IT IS NOW VERY APPARENT THAT THEY DO NOT DESPITE OUR PERSONAL FEELINGS THAT SATISFACTORILY COMPLETED WORK DESERVES ITS COMPENSATION UNDER ALMOST ANY CIRCUMSTANCES.'2. VAN NORMAN IN ITS BID STATED THE PRICE INCLUDED A FEE IN ACCORDANCE WITH AN ENCLOSED WORKING AGREEMENT WITH A BONA FIDE ESTABLISHED COMMERCIAL AGENCY, AMOUNTING TO 5 PERCENT OF THEIR BID PRICE. WHETHER VAN NORMAN COVERS THIS IN OVERHEAD OR ANYTHING ELSE IS IRRELEVANT TO THE FACT.'3. THIS AWARD PRICE INCLUDING THE 5 PERCENT FEE WAS PAID TO VAN NORMAN.'4. THIS FEE WAS NEVER PAID AS IT WAS INTENDED IN THE BID. (NOT A MISREPRESENTATION BUT A SUBSEQUENT HAPPENING). IN ESSENCE THIS CONSTITUTED A CHANGE IN THE BID NEGATING THE CONTINGENCY FEE PAYMENT BECAUSE OF THE CANCELLATION OF OUR CONTRACT WITH VAN NORMAN.'5. AS TAXPAYERS WE FEEL THE GOVERNMENT SHOULD BE AWARE OF THE NONPAYMENT OF THIS FEE AND TAKE MEASURES DEEMED APPROPRIATE TO HAVE THIS MONEY RETURNED.'

WE AGREE WITH YOUR INITIAL STATEMENT THAT IT IS VERY APPARENT THAT VAN NORMAN MACHINE COMPANY DOES NOT INTEND TO PAY YOU A CONTINGENT FEE FOR WHATEVER SERVICES YOU RENDERED IN OBTAINING THE CONTRACT UNDER CONSIDERATION. IN RENDERING OUR DECISION OF MAY 29TH, WE WERE COGNIZANT OF THIS FACT AND EMPHASIZED IN THAT DECISION THAT VAN NORMAN FELT THAT THEY HAD NO OBLIGATION TO PAY YOU A CONTINGENT FEE, SINCE THEY ALLEGED THAT THEIR CONTRACT WITH YOUR FIRM HAD EXPIRED PRIOR TO THE DATE OF CONTRACT AWARD. THE GOVERNMENT CANNOT INVOLVE ITSELF IN DISPUTES BETWEEN ITS CONTRACTORS AND THIRD PARTIES HAVING CLAIMS AGAINST THEM.

WE ALSO AGREE WITH YOUR CONTENTIONS THAT VAN NORMAN STATED IN ITS BID THAT A CONTINGENT FEE OF 5 PERCENT WOULD BE PAID; THAT THE CONTRACT PRICE WAS THE SAME AS THE BID PRICE SO THAT IT COULD BE ARGUED THAT THE GOVERNMENT WAS IN REALITY PAYING THE CONTINGENT FEE; AND THAT THE CONTRACT PRICE HAS, BUT THE FEE HAS NOT, BEEN PAID. WE CANNOT AGREE, HOWEVER, WITH YOUR CONTENTION THAT THESE FACTS CONSTITUTE A CHANGE IN VAN NORMAN'S ORIGINAL BID, OR IN ANY WAY EFFECTED ANY CHANGE IN THE RESPECTIVE CONTRACTUAL RIGHTS OF VAN NORMAN OR THE GOVERNMENT. YOUR POSITION CARRIED TO ITS LOGICAL CONCLUSION WOULD REQUIRE A CONTRACTOR, EVEN THOUGH HE WAS AWARDED A FIRM FIXED-PRICED CONTRACT, TO DECREASE HIS PRICE OR REFUND TO THE GOVERNMENT ANY SAVINGS REALIZED ON ANY ELEMENT OF COST ON WHICH HIS BID WAS BASED. SUCH A CONCLUSION IGNORES THE NATURE AND PURPOSE OF A FIRM FIXED-PRICED CONTRACT.

FIXED-PRICED CONTRACTS MAY, AND SOMETIMES DO, HAVE PRICE ADJUSTMENT PROVISIONS TO PERMIT PRICE ESCALATION OR MODIFICATION IN CERTAIN SPECIFIED CIRCUMSTANCES (SEE ARMED SERVICES PROCUREMENT REGULATION (ASPR) 2-104.3), BUT IN THE ABSENCE OF SUCH PROVISIONS THE PRICE IS NOT SUBJECT TO ADJUSTMENT BY REASON OF THE COST EXPERIENCE OF THE CONTRACTOR IN THE PERFORMANCE OF THE CONTRACT (SEE B-160063, FEBRUARY 10, 1967 AND ASPR 3- 404.2 (A) ). BOTH THE RISK OF LOSS AND THE POSSIBILITY OF GAIN ARE FOR THE ACCOUNT OF THE CONTRACTOR.

SINCE THE CONTRACT UNDER CONSIDERATION WAS A FIRM FIXED-PRICE CONTRACT WHICH WAS AWARDED UNDER ADVERTISED PROCUREMENT PROCEDURES, THE PROCURING ACTIVITY'S CONCERN WAS IN ASSURING THAT IT RECEIVED THE OVERALL LOW BID, IRRESPECTIVE OF WHETHER A CONTINGENT FEE WAS BEING PAID BY THE LOW BIDDER.

THE ONLY BASIS FOR DEDUCTION OF THE AMOUNT OF A CONTINGENT FEE IS A VIOLATION OF THE COVENANT AGAINST CONTINGENT FEES, WHICH WAS QUOTED IN OUR PREVIOUS DECISION AND WHICH IS PRESCRIBED BY 10 U.S.C. SEC. 2306 (B). THAT CLAUSE THE CONTRACTOR IS NOT REQUIRED TO WARRANT THAT HE WILL PAY SUCH A FEE EXCEPT TO A BONA FIDE EMPLOYEE OR A BONA FIDE COMMERCIAL OR SELLING AGENCY MAINTAINED BY HIM FOR THE PURPOSE OF SECURING BUSINESS.

FOR THE ABOVE REASONS, WE FIND NO BASIS FOR MODIFICATION OF OUR PREVIOUS DECISION.