B-165031, JUN. 6, 1969

B-165031, JUN. 6, 1969

TO ELECTRIC APPARATUS COMPANY:

WE REFER TO YOUR LETTER DATED MARCH 4, 1969, CONCERNING CONTRACT DSA 700- 67-C-E723, WHICH THE DEFENSE CONSTRUCTION SUPPLY CENTER (DCSC), DEFENSE SUPPLY AGENCY (DSA), AWARDED TO HOWELL ELECTRIC MOTORS COMPANY, HOWELL, MICHIGAN, ON APRIL 26, 1967, FOR THE FURNISHING OF ARMATURES FOR USE IN GENERATOR SETS BY THE MILITARY SERVICE. FOR THE REASONS STATED BELOW YOU REQUEST THAT YOU BE ALLOWED TO SHIP TO DCSC THE PROCUREMENT ITEMS AND BILL THE GOVERNMENT THEREFOR OR THAT YOU BE PERMITTED TO NEGOTIATE A SETTLEMENT WITH THE GOVERNMENT UNDER THE CONTRACT.

THE CONTRACT IN QUESTION WAS ONE OF EIGHT DSA CONTRACTS AWARDED IN THE NAME OF HOWELL ELECTRIC MOTORS COMPANY DURING THE PERIOD OCTOBER 5, 1966 TO MAY 25, 1967, WHICH WERE SPECIFICALLY ASSIGNED TO YOU UNDER DOCUMENTS EXECUTED ON JUNE 22 AND 23, 1967, WHEREBY YOU PURCHASED FROM HOWELL INTERNATIONAL, INC. (HOWELL INTERNATIONAL), THE FACILITY OPERATED UNDER THE NAME OF HOWELL ELECTRIC MOTORS COMPANY, AND ASSUMED CERTAIN RIGHTS AND OBLIGATIONS OF HOWELL INTERNATIONAL. BY WAY OF BACKGROUND, HOWELL ELECTRIC MOTORS COMPANY HAD FILED WITH THE STATE TREASURER OF MICHIGAN ON NOVEMBER 1, 1966, A CERTIFICATE OF AMENDMENT TO ITS ARTICLES OF INCORPORATION REFLECTING A CHANGE OF CORPORATE NAME TO HOWELL INTERNATIONAL, INC., PURSUANT TO A MAJORITY VOTE OF THE HOWELL ELECTRIC MOTORS COMPANY STOCKHOLDERS AT A MEETING HELD ON AUGUST 25, 1966. HOWEVER, NO RECORD OF THE CHANGE OF NAME WAS EVER FILED WITH DSA, AS PROVIDED IN ARMED SERVICES PROCUREMENT REGULATION (ASPR) 1-1603, WITH THE RESULT THAT DSA CONTINUED TO AWARD CONTRACTS IN THE NAME OF HOWELL ELECTRIC MOTORS COMPANY. FURTHER, HOWELL INTERNATIONAL REFUSED TO EXECUTE NOVATION AGREEMENTS, AS REQUIRED BY ASPR 1-1602, IN ORDER TO PERMIT DSA TO RECOGNIZE YOU AS THE SUCCESSOR IN INTEREST TO HOWELL ELECTRIC MOTORS COMPANY AND/OR HOWELL INTERNATIONAL UNDER ANY OF THE CONTRACTS IN QUESTION.

BY LETTER DATED NOVEMBER 28, 1967, YOU NOTIFIED THE DIRECTOR OF PROCUREMENT AND PRODUCTION, DCSC, OF YOUR PURCHASE OF THE HOWELL PLANT AND ASSUMPTION OF THE DUTIES, OBLIGATIONS AND LIABILITIES OF HOWELL INTERNATIONAL UNDER CERTAIN DSA CONTRACTS. SPECIFICALLY, YOU STATED THAT YOU HAD PRODUCED AND SHIPPED TO THE GOVERNMENT THE ITEMS COVERED BY THREE OF SUCH CONTRACTS BUT HAD NOT SUBMITTED ANY INVOICES TO DSA IN THE ABSENCE OF A NOVATION AGREEMENT FROM HOWELL INTERNATIONAL. YOU THEREFORE REQUESTED THAT DCSC NOT HONOR ANY INVOICES FROM HOWELL INTERNATIONAL UNDER THE THREE CONTRACTS.

IN A LETTER DATED MARCH 28, 1968, YOU ADVISED DCSC THAT YOU HAD PERFORMED TWO ADDITIONAL DSA CONTRACTS IN THE NAME OF HOWELL ELECTRIC MOTORS COMPANY ON WHICH HOWELL INTERNATIONAL LIKEWISE HAD REFUSED TO EXECUTE NOVATION AGREEMENTS. YOU REQUESTED, HOWEVER, THAT PAYMENT BE MADE TO THE MCPHERSON STATE BANK OF HOWELL IN WHOSE FAVOR HOWELL INTERNATIONAL HAD EXECUTED ASSIGNMENTS SUBSEQUENT TO THE SALE OF THE HOWELL FACILITY TO YOU AND HAD INSTRUCTED THE BANK TO REMIT THE PROCEEDS OF THE CONTRACTS TO YOU. DSA DECLINED TO ACCEPT SUCH PROCEDURE IN PLACE OF THE NOVATION AGREEMENTS REQUIRED BY THE PROCUREMENT REGULATIONS.

ON AUGUST 7, 1968, DSA FORWARDED TO OUR OFFICE FOR CONSIDERATION YOUR CLAIMS ON ALL FIVE OF THE ABOVE MENTIONED CONTRACTS, FOUR OF WHICH WERE LISTED IN THE SALES AGREEMENT EXECUTED BY YOU AND HOWELL INTERNATIONAL. THE CLAIMS FILE INCLUDED EVIDENCE OF RECEIPT AND ACCEPTANCE BY DCSC OF THE CONTRACT ITEMS PRODUCED BY YOU AND SHIPPED TO THE GOVERNMENT UNDER ALL FIVE CONTRACTS, COPIES OF THE DOCUMENTS COMPRISING THE SALES AGREEMENT BETWEEN YOU AND HOWELL INTERNATIONAL, AND COPIES OF DOCUMENTS SHOWING COMPLIANCE WITH THE LAWS OF THE STATE OF MICHIGAN RELATING TO THE TRANSACTION.

IN OUR DECISION B-165031, OCTOBER 10, 1968, 48 COMP. GEN. ----, WE ADVISED THE DIRECTOR, DSA, THAT IN LINE WITH SEABOARD AIR LINE RAILWAY V. UNITED STATES, 256 U.S. 655, AND PERTINENT DECISIONS OF OUR OFFICE, WE WOULD CONSIDER YOUR CLAIM AS SUCCESSOR IN INTEREST TO HOWELL ELECTRIC MOTORS COMPANY UNDER OUR CLAIMS SETTLEMENT AUTHORITY (31 U.S.C. 71) UPON RECEIPT OF RELEASES FROM HOWELL INTERNATIONAL AND FROM THE MCPHERSON STATE BANK. SUBSEQUENTLY, THE BANK EXECUTED RELEASES UNDER THE TWO ASSIGNMENTS, BUT HOWELL INTERNATIONAL REFUSED TO FURNISH THE RELEASES. ON THE BASIS, HOWEVER, THAT THE GOVERNMENT HAD ACCEPTED DELIVERY OF THE ITEMS WHICH YOU HAD PRODUCED AND ABSENT ANY CLAIM FROM THE CONTRACTOR OF RECORD OR HOWELL INTERNATIONAL UNDER ANY OF THE CONTRACTS, WE AUTHORIZED PAYMENT TO YOU IN JANUARY 1969 AS SUCCESSOR IN INTEREST TO THE CONTRACTOR OF RECORD.

WITH RESPECT TO CONTRACT DSA 700-67-C-E723, WHICH CALLED FOR DELIVERY WITHIN 420 DAYS AFTER RECEIPT OF ORDER, THE CONTRACTING OFFICER REPORTS THAT IN OCTOBER 1967 DCSC INVESTIGATED THE FEASIBILITY OF TERMINATING THE CONTRACT ON THE BASIS THAT THE GOVERNMENT NO LONGER HAD A NEED FOR THE ARMATURES DUE TO THE PHASING OUT FROM THE MILITARY SERVICE OF THE GENERATOR SETS IN WHICH THE ARMATURES WERE INTENDED TO BE USED AND THE TRANSFER OF THE GENERATOR SETS TO FOREIGN GOVERNMENTS UNDER THE MILITARY ASSISTANCE PROGRAM (MAP). HOWEVER, AFTER DCSC RECEIVED ADVICE ON FEBRUARY 28, 1968, FROM THE DEFENSE CONTRACT ADMINISTRATION SERVICES DISTRICT (DCASD), GRAND RAPIDS, MICHIGAN, THAT THE CONTRACTOR (IDENTIFIED AS HOWELL ELECTRIC MOTORS COMPANY) STATED THAT AS OF FEBRUARY 27 IT HAD ACCUMULATED $35,476.31 AGAINST THE CONTRACT AND EXPECTED TO COMPLETE THE CONTRACT WITHIN THREE OR FOUR WEEKS, NO ACTION WAS TAKEN BY DCSC TO TERMINATE THE CONTRACT.

THE JUNE 1968 PROGRESS REPORT ISSUED BY DCASD UNDER THE CONTRACT INCLUDED THE FOLLOWING PERTINENT NOTATIONS:

"PROBLEM: HOWELL ELECTRIC MOTORS FACILITY, FOR THE MANUFACTURE OF THE REQUIRED ITEM, WAS SOLD AND IS NOW KNOWN AS THE ELECTRIC APPARATUS CO. THE ELECTRIC APPARATUS CO. ACTS AS A SUBCONTRACTOR FOR HOWELL. BASIC PROBLEM CAUSING DELAY IS MONIES AT THIS TIME. ELECTRIC APPARATUS WILL NOT RELEASE MATERIALS UNTIL THEY HAVE BEEN ASSURED OF FULL PAYMENT.

"ACTION TAKEN: ALL ITEMS HAVE BEEN FABRICATED, PACKAGED AND INSPECTED BY THE GOVERNMENT. THE ITEMS ARE NOW HELD AT THE ELECTRIC APPARATUS CO. IN HOWELL, MICH. THE CONTRACTOR HAS MADE A VERBAL REQUEST FOR ASSIGNMENT OF CLAIMS, BUT WAS DENIED.

"ACTION REQUIRED: REQUEST PCO ADVISE ACO IF AND WHY CONTRACTOR'S VERBAL REQUEST FOR ASSIGNMENT OF CLAIMS WAS DENIED. ASSIGNMENT OF CLAIMS WILL GIVE FINANCIAL RELIEF REQUIRED BY ELECTRICAL APPARATUS CO.'

SUBSEQUENTLY, THE DCSC CONTRACTING OFFICER, AFTER VERIFYING THAT THE GOVERNMENT NO LONGER HAD A VALID REQUIREMENT FOR THE PROCUREMENT ITEM, DECIDED THAT HOWELL INTERNATIONAL'S FAILURE TO EXECUTE THE NOVATION AGREEMENT WAS THE REASON FOR THE DELINQUENT DELIVERY UNDER CONTRACT DSA 700-67-C-E723 AND CONCLUDED THAT SUCH FAILURE WAS NOT AN EXCUSABLE CAUSE OF DELAY AS PROVIDED IN PARAGRAPH 11 (C) OF STANDARD FORM 32 INCORPORATED IN THE CONTRACT. ACCORDINGLY, THE CONTRACTING OFFICER NOTIFIED HOWELL INTERNATIONAL ON AUGUST 14, 1968, BY TWX MESSAGE AND BY LETTER, THAT ITS RIGHT TO PROCEED WITH THE CONTRACT WAS TERMINATED DUE TO ITS DEFAULT IN FAILING TO MAKE TIMELY DELIVERIES AS WELL AS ITS FAILURE TO EXECUTE A NOVATION AGREEMENT WHEREBY THE GOVERNMENT COULD RECOGNIZE YOU AS SUCCESSOR IN INTEREST TO THE CONTRACTOR.

FOLLOWING RECEIPT FROM YOU OF A PROTEST DATED OCTOBER 18, 1968, AGAINST THE TERMINATION OF THE CONTRACT, AND RECEIPT OF A CONGRESSIONAL INQUIRY INCIDENT THERETO, DCSC INVESTIGATED THE POSSIBILITY OF PURCHASE OF THE SUPPLIES FROM YOU NOTWITHSTANDING THE DEFAULT TERMINATION. AS OF OCTOBER 23, 1968, HOWEVER, THE UNITED STATES ARMY INTERNATIONAL LOGISTICS CENTER ADVISED DCSC THAT WHILE A DEFINITE REQUIREMENT FOR THE ITEMS EXISTED, NO ESTIMATE OF THE MAGNITUDE OF THE REQUIREMENT OR OF THE DATE WHEN PURCHASE REQUESTS WOULD BE ISSUED COULD BE MADE DUE TO LACK OF MAP FUNDING. CURRENTLY, THE CONTRACTING OFFICER REPORTS, THERE ARE 91 UNITS ON HAND, WHICH IS EQUIVALENT ROUGHLY TO THREE YEARS' SUPPLY BASED ON AN ANTICIPATED AVERAGE QUARTERLY DEMAND RATE OF 8 UNITS FOR THE MAP PROGRAM.

IN YOUR PROTEST LETTER OF MARCH 4, 1969, YOU CONCEDE THAT YOU ELECTED NOT TO SHIP THE COMPLETED ITEMS UNDER CONTRACT DSA 700-67-C E723 AFTER LEARNING THAT THE SHIP AND BILL PROCEDURE WHICH YOU EMPLOYED ON FIVE PREVIOUS CONTRACTS (THE CONTRACTS WHICH WERE THE SUBJECT OF OUR DECISION OF OCTOBER 10, 1968, SUPRA) WAS NOT ACCEPTABLE TO DSA. HOWEVER, YOU COMPLAIN THAT WHILE THE GOVERNMENT HAD COMMUNICATED DIRECTLY WITH YOU BEFORE THE TERMINATION OF CONTRACT DSA 700-67-C-E723, THE ISSUANCE OF THE DEFAULT NOTICE DIRECTLY TO HOWELL INTERNATIONAL, WHO DID NOT ADVISE YOU THEREOF, PLACED YOU IN AN UNTENABLE POSITION. IN ADDITION, YOU STATE THAT TO DATE HOWELL INTERNATIONAL HAS REFUSED TO GRANT ANY RELEASES IN PURSUIT OF ITS INTENT TO THEREBY EFFECT A REDUCTION IN CERTAIN CLAIMS BY YOU INCIDENT TO YOUR PURCHASE OF THE HOWELL FACILITY AND ASSETS.

THE CONTRACTING OFFICER MAINTAINS THAT YOU WERE NEVER A PARTY TO THE CONTRACT SINCE YOU FAILED TO OBTAIN A NOVATION AGREEMENT THAT WAS SATISFACTORY TO BOTH HOWELL INTERNATIONAL AND THE GOVERNMENT, THE SALES AGREEMENT BETWEEN YOU AND HOWELL INTERNATIONAL NOT CONSTITUTING A NOVATION ABSENT ASSENT THERETO BY THE GOVERNMENT. IN ADDITION, THE CONTRACTING OFFICER CITES BALTIMORE AND OHIO RAILROAD COMPANY V. UNITED STATES, 261 U.S. 592, 598 (1923), FOR THE PRINCIPLE THAT A CONTRACT WILL NOT BE IMPLIED IN FACT WHERE THE CLAIMANT DID NOT EXPECT PAYMENT FROM THE GOVERNMENT OR UNDER THE CIRCUMSTANCES DID NOT HAVE REASON TO ENTERTAIN SUCH EXPECTATION OR WHEN THE GOVERNMENT UNDERSTOOD THAT THE CLAIMANT WOULD NEITHER EXPECT NOR DEMAND REMUNERATION OF IT. THIS PRINCIPLE IS APPLICABLE IN THE INSTANT CASE, IT IS URGED, BECAUSE THE RECORD INDICATES YOU FIRST RELIED ON THE PROCEDURE WHEREBY THE GOVERNMENT WOULD MAKE PAYMENT TO THE ASSIGNEE MCPHERSON STATE BANK, WHICH WOULD THEN REMIT THE CONTRACT PROCEEDS TO YOU, AND FAILING APPROVAL OF SUCH PROCEDURE BY DSA YOU DID NOT TURN TO THE GOVERNMENT FOR DIRECT PAYMENT BUT ELECTED NOT TO SHIP THE CONTRACT ITEMS PENDING RESOLUTION OF THE PROBLEM WITH THE GOVERNMENT AND/OR HOWELL INTERNATIONAL. FOR SUCH REASONS, THE CONTRACTING OFFICER TAKES THE POSITION THAT THERE IS NO BASIS FOR THE GRANT OF RELIEF TO YOU.

DSA HEADQUARTERS ASSERTS THAT YOU ARE RESPONSIBLE IN PART FOR YOUR PREDICAMENT BECAUSE OF YOUR REFUSAL TO SHIP THE ITEMS AFTER THEY HAD BEEN INSPECTED BY THE GOVERNMENT. FURTHER, THE DEFAULT TERMINATION IS CONSIDERED BY DSA TO BE A PROPER ACTION EVEN THOUGH IT WAS QUESTIONABLE AT THE TIME SUCH ACTION WAS TAKEN WHETHER THE GOVERNMENT HAD ANY REQUIREMENT FOR THE ITEMS. AS TO THE POSSIBILITY OF PURCHASE OF THE ITEMS FROM YOU AT THIS TIME, DSA STATES THAT THERE IS NO READY JUSTIFICATION THEREFOR IN VIEW OF THE FACT THAT NEW REQUIREMENTS ABOVE THE CURRENT STOCK LEVELS HAVE NOT MATERIALIZED. ACCORDINGLY, DENIAL OF YOUR REQUEST FOR RELIEF IS RECOMMENDED.

THE RECORD ESTABLISHES THAT YOU UNDERTOOK THE PRODUCTION OF THE PROCUREMENT ITEMS UNDER CONTRACT DSA 700-67-C-E723 WITHOUT THE PROTECTION OF A NOVATION AGREEMENT FROM HOWELL INTERNATIONAL OR ASSENT BY THE GOVERNMENT TO THE TERMS OF THE SALE OF THE HOWELL ELECTRIC MOTORS COMPANY FACILITY TO YOU WHEREBY SUCH AGREEMENT COULD BE REGARDED AS A NOVATION. THE RECORD FURTHER ESTABLISHES THAT NOTWITHSTANDING SUCH FACTORS, THE GOVERNMENT HAD INSPECTED AND APPROVED THE FINISHED PROCUREMENT ITEMS AND WAS APPARENTLY WILLING TO ACCEPT THEM FROM YOU AS OF THE DUE DELIVERY DATE IN JUNE 1968, BUT THE DECISION NOT TO SHIP THE ITEMS TO THE GOVERNMENT WAS YOURS. THE RESULT OF YOUR ACTION WAS TO MAKE PERFORMANCE OF THE CONTRACT DELINQUENT THEREBY GIVING RISE TO A RIGHT ON THE PART OF THE GOVERNMENT TO TERMINATE THE CONTRACT FOR DEFAULT. ACCORDINGLY, WE ARE UNABLE TO SEE WHERE YOUR NOT BEING PLACED ON TIMELY NOTICE OF THE DEFAULT TERMINATION OF AUGUST 14, 1968, WORSENED YOUR POSITION, THE DELINQUENCY BEING ALREADY OF TWO MONTHS' DURATION AT THE TIME. WE THEREFORE CONCUR WITH THE POSITION OF DSA THAT THE DEFAULT ACTION WAS PROPER, AND NO BASIS EXISTS FOR A TERMINATION SETTLEMENT.

FURTHER, SINCE THE RECORD DISCLOSES THAT THE GOVERNMENT DOES NOT HAVE AN EXISTING NEED FOR THE PROCUREMENT ITEMS, WE SEE NO BASIS ON WHICH PURCHASE OF THE ITEMS COULD NOW BE JUSTIFIED.