B-147600, MAY 4, 1962, 41 COMP. GEN. 730

B-147600, MAY 4, 1962, 41 COMP. GEN. 730

CONTRACTS - STATUS - SCHEDULE OF RATES TYPE--- CONTRACTS - STATUS - MASTER AGREEMENTS--- CONTRACTS - MODIFICATION - CONSIDERATION - PROPRIETY MODIFICATION OF A SCHEDULE OF RATES TYPE CONTRACT FOR STEVEDORING SERVICES TO PERMIT A PROSPECTIVE CHANGE IN RATES TO INCLUDE ADDITIONAL PAYMENT FOR A MECHANIZATION FUND ASSESSMENT ESTABLISHED AS A RESULT OF A NEW COLLECTIVE BARGAINING AGREEMENT IS PROPER UNDER SUCH A SCHEDULE OF RATES TYPE CONTRACT, WHICH IS A CONTINUING OFFER RIPENING INTO A CONTRACT BY PERFORMANCE OF THE CARGO SERVICE AND UNDER WHICH THE GOVERNMENT ESTABLISHES THE RATES AND, THEREFORE, MAY PROSPECTIVELY CHANGE THE RATES. MODIFICATION OF A MASTER STEVEDORING AGREEMENT, UNDER WHICH RATES ARE NEGOTIATED ON A JOB BASIS, TO INCLUDE WITH THE COMMODITY TYPE RATE AN ADDITIONAL MECHANIZATION FUND ASSESSMENT ESTABLISHED AS A RESULT OF A NEW COLLECTIVE BARGAINING AGREEMENT IS NOT SUBJECT TO LEGAL OBJECTION UNDER SUCH A MASTER TYPE AGREEMENT, WHICH REQUIRES ONLY THAT THE CONTRACTING OFFICER OBTAIN A FAIR PRICE, AND WHETHER A FAIR PRICE, INCLUDING THE ADDITIONAL ASSESSMENT COSTS, HAS BEEN OBTAINED DOES NOT GO TO THE LEGALITY OF THE AGREEMENT OR ITS MODIFICATION. MODIFICATION OF NEGOTIATED AND ADVERTISED STEVEDORING CONTRACTS, WHICH CONTAINED PROVISIONS AUTHORIZING PRICE ESCALATION AND REVISION UPON THE OCCURRENCE OF CERTAIN CONTINGENCIES AND TERMINATION BY EITHER PARTY, WITHOUT CAUSE, TO PERMIT REVISION OF THE MECHANIZATION FUND ASSESSMENT ON A PER REVENUE TON RATHER THAN A PER MAN-HOUR BASIS, AS A RESULT OF A NEW COLLECTIVE BARGAINING AGREEMENT, DOES NOT REQUIRE ADDITIONAL CONSIDERATION, THE PRICE REVISION CLAUSE GIVING THE GOVERNMENT THE BENEFIT OF A BETTER PRICE CONSTITUTES AN EFFECTIVE PART OF THE CONSIDERATION FOR THE REVISION, AND UNDER THE TERMINATION CLAUSE THE FORBEARANCE OF THE CONTRACTOR FROM EXERCISING HIS TERMINATION RIGHT CONSTITUTES ADEQUATE CONSIDERATION FOR THE MODIFICATION.

TO COLONEL W. E. VIDLOCK, DEPARTMENT OF THE ARMY, MAY 4, 1962:

REFERENCE IS MADE TO LETTER DATED NOVEMBER 14, 1961, FROM THE DIRECTOR, FIELD DIVISION OPERATIONS, FINANCE CENTER, U.S. ARMY, TRANSMITTING YOUR COMMUNICATION DATED AUGUST 22, 1961, AND SUBSEQUENT CONFERENCES WITH MEMBERS OF THE DEPARTMENT OF THE ARMY WASHINGTON STAFF REGARDING THE PAYMENT OF TWO VOUCHERS SUBMITTED TO YOU BY PACIFIC FAR EAST LINE, INC., AND THE ROTHSCHILD-1INTERNATIONAL STEVEDORING COMPANY, REPRESENTING SO- CALLED MECHANIZATION FUND ASSESSMENTS UNDER CERTAIN CONTRACTS WHICH YOU ADVISE ARE IN FOUR GROUPS, AS FOLLOWS:

1. SCHEDULE OF RATES, SCHEDULE Q. THIS IS A SCHEDULE OR UNILATERAL CONTRACT SETTING FORTH THE CONDITIONS AND RATES UNDER WHICH ORDERS ARE PLACED WITH STEAMSHIP COMPANIES FOR RENDERING STEVEDORING SERVICES AT COMMERCIAL FACILITIES. CHANGE 5 EFFECTIVE APRIL 3, 1961 PROVIDED FOR PAYMENT OF THE MECHANIZATION FUND ASSESSMENTS AS AN ADDITIONAL PAYMENT.

2. CONTRACT NOS. DA-04-197-931 TC 3671/3685 FOR STEVEDORING SERVICES RENDERED IN THE WASHINGTON-1OREGON AREA. THESE CONTRACTS SET FORTH THE CONDITIONS AND RATE CLASSIFICATION SCHEDULES UNDER WHICH PAYMENT WILL BE MADE BUT DO NOT CONTAIN RATES. PRICES ARE NEGOTIATED FOR EACH JOB IN ADVANCE AND ARE INCORPORATED INTO THE DELIVERY ORDER ISSUED THEREFOR. REFERENCE TO MECHANIZATION FUND ASSESSMENTS IS REFERRED TO IN THE BASIC CONTRACT NOR HAS A MODIFICATION BEEN ISSUED IN CONNECTION THEREWITH.

3. CONTRACT NOS DA-04-197-931 TC-3521, 3643 AND 3526 FOR STEVEDORING AND RELATED SERVICES RENDERED IN THE LONG BEACH-LOS ANGELES AREA, THE PORT OF STOCKTON AND SAN FRANCISCO BAY AREA COMMERCIAL FACILITIES, RESPECTIVELY. THESE ARE NEGOTIATED CONTRACTS FOR WHICH ALL CONDITIONS AND RATES UNDER WHICH PAYMENT MAY BE MADE ARE PRESCRIBED. THESE CONTRACTS WERE AMENDED EFFECTIVE APRIL 3, 1961 TO PROVIDE FOR PAYMENT OF MECHANIZATION FUND ASSESSMENTS AS A SEPARATE ITEM.

4. CONTRACT NO. DA-04-197-931 TC-3525 FOR STEVEDORING SERVICES RENDERED BY CALIFORNIA STEVEDORE AND BALLAST COMPANY AT SAN FRANCISCO BAY AREA ARMY FACILITIES. THUS CONTRACT IS SIMILAR IN MOST RESPECTS TO CONTRACTS NOS DA -04-197-931 TC-3521 AND 3643 EXCEPT THAT IT IS A FORMALLY ADVERTISED CONTRACT. IT WAS ALSO MODIFIED EFFECTIVE APRIL 3, 1961, TO PROVIDE FOR SEPARATE PAYMENT OF MECHANIZATION FUND ASSESSMENTS.

YOU ADVISE THAT YOUR RELUCTANCE TO PAY THESE VOUCHERS IS PREMISED UPON YOUR BELIEF THAT THE ABOVE-MENTIONED AMENDMENTS OF APRIL 3, 1961, PURSUANT TO THE ISSUANCE OF A MODIFICATION 2 ON THE SAME DATE, WHICH WILL BE DISCUSSED LATER HEREIN, AMOUNT TO AMENDMENTS WITHOUT SUFFICIENT CONSIDERATION. IN SUPPORT OF THIS POSITION, YOU HAVE REFERRED TO NUMEROUS OPINIONS WHICH HAVE BEEN RENDERED BY THIS OFFICE.

AS A MATTER OF BACKGROUND, IT APPEARS THAT THE PROBLEM OF ASSESSMENTS FOR A MECHANIZATION FUND ORIGINALLY AROSE BECAUSE OF AN AUGUST 10, 1959, COLLECTIVE BARGAINING AGREEMENT BETWEEN THE PACIFIC MARITIME ASSOCIATION AND THE INTERNATIONAL LONGSHOREMEN'S AND WAREHOUSEMEN'S UNION. THIS AGREEMENT, IN EFFECT WHEN CURRENT CONTRACTS WERE ENTERED INTO, PROVIDED FOR THE ESTABLISHMENT OF A FUND OF $1,500,000 TO BE USED FOR THE BENEFIT OF UNION MEMBERS TO COMPENSATE FOR ANY LOSS TO THEM WHICH MIGHT BE DUE TO MECHANIZATION PRACTICES AUTHORIZED BY THE AGREEMENT. TO ESTABLISH THIS FUND, THE PUBLIC MARITIME ASSOCIATION ASSESSED ITS MEMBERS, INCLUDING STEVEDORING FIRMS, 6 1/2 CENTS PER HOUR FOR EVERY HOUR EACH LONGSHOREMAN WAS EMPLOYED IN HANDLING CARGO. STEVEDORING FIRMS, IT IS REPORTED, KNOWING THAT THEY HAD TO PAY THIS ASSESSMENT, INCLUDED THIS ELEMENT IN THEIR COSTS IN COMPUTING THE COMMODITY RATES. ACCORDINGLY, THE CONTRACTS MENTIONED UNDER 3 AND 4 ABOVE INCLUDED IN THE COMMODITY AND MANHOUR RATES AN AMOUNT TO COVER THE 6 1/2 CENT MAN-HOUR ASSESSMENT MADE UPON ITS MEMBERS BY THE PUBLIC MARITIME ASSOCIATION UNDER THE COLLECTIVE BARGAINING AGREEMENT, WHICH RATES HERETOFORE HAVE BEEN PAID WITHOUT QUESTION. IT IS UNDERSTOOD THAT THE SCHEDULE Q RATES IN EFFECT PRIOR TO CHANGE 5 ALSO INCLUDED SUCH ASSESSMENT.

ON OCTOBER 18, 1960, THE COLLECTIVE BARGAINING AGREEMENT WAS REVISED. THE AMOUNT OF THE MECHANIZATION FUND WAS RAISED FROM $1,500,000 TO $29,000,000, AND A PERIOD OF 5 YEARS WAS SET FOR THE ACCUMULATION OF THE FUND. IN ORDER TO RAISE THIS NEW AMOUNT, THE PACIFIC MARITIME ASSOCIATION CHANGED ITS METHOD OF ASSESSMENT FROM 6 1/2 CENTS PER MAN-HOUR TO 27 1/2 CENTS PER REVENUE TON. IT IS STATED THAT THE NEW METHOD OF ASSESSMENT PRESENTED A PROBLEM TO THE GOVERNMENT BECAUSE THE NEW ASSESSMENT WOULD BE CHARGED ON A REVENUE TON, EITHER WEIGHT OR MEASUREMENT, AND THE COMMODITY RATES IN THE CONTRACTS WERE BASED UPON A MEASUREMENT TON. WHILE TRANSLATION OF THE 6 1/2 CENTS PER MAN-HOUR INTO COMMODITY RATES WAS A FAIRLY SIMPLE MATTER, IT IS STATED THAT AS THE SITUATION EXISTED AT THE TIME THE NEW COLLECTIVE BARGAINING AGREEMENT BECAME EFFECTIVE, TRANSLATION OF THE 27 1/2 CENTS PER REVENUE TON INTO THE COMMODITY RATES WAS NOT PRACTICAL IN THAT THE CONTRACTING OFFICER HAD NO BASIS FOR DETERMINING IF THE RATES WOULD BE FAIR AND REASONABLE. THE CONTRACTING OFFICER, THEREFORE, FELT THAT IT BECAME THE OBLIGATION OF THE GOVERNMENT, UPON DEMAND OF THE CONTRACTOR, TO MODIFY THE CLASS 3 AND 4 CONTRACTS TO INCLUDE THE NEW MECHANIZATION FUND ASSESSMENT.

BOTH THE NEGOTIATED AND THE ADVERTISED CONTRACTS CLASSIFIED IN 3 AND 4 ABOVE CONTAIN PRICE ESCALATION AND PRICE REVISION CLAUSES. THE ADVERTISED CONTRACT PROVIDES ( GP 11) THAT IF THERE ARE CHANGES IN THE WAGE RATES, ALLOWANCES AND CONDITIONS PERTAINING TO EMPLOYEES AS A RESULT OF MODIFICATIONS TO THE COLLECTIVE BARGAINING AGREEMENTS, THEN AN EQUITABLE ADJUSTMENT WILL BE MADE IN THE COMMODITY AND MAN-HOUR RATES. THE NEGOTIATED CONTRACTS PROVIDED FOR NEGOTIATIONS TO REVISE THE CONTRACT PRICES UPON DEMAND OF EITHER PARTY. IT IS REPORTED THAT UNDER THESE PROVISIONS, THE CONTRACTORS DEMANDED REVISION OF RATES BECAUSE OF THE MODIFICATION TO THE COLLECTIVE BARGAINING AGREEMENT. IT IS TO BE NOTED ALSO THAT BOTH TYPES OF CONTRACT PERMITTED VOLUNTARY TERMINATION BY EITHER PARTY UPON 30 OR 60 DAYS NOTICE. IN THE CIRCUMSTANCES IT IS THE VIEW OF THE JUDGE ADVOCATE GENERAL THAT THE CONTRACTING OFFICER HAD THE FOLLOWING CHOICES:

1.REFUSE TO NEGOTIATE AN EQUITABLE ADJUSTMENT, WHICH IN HIS OPINION WOULD HAVE BEEN A BREACH OF CONTRACT. IT IS ALSO HIS VIEW THAT REFUSAL TO CONSIDER THE INCREASED ASSESSMENT AS A COST WOULD HAVE CAUSED THE CONTRACTOR TO TERMINATE AND MADE NECESSARY A REPURCHASE OF THE STEVEDORING SERVICES REQUIRED.

2. NEGOTIATE WITH A VIEW TO INCLUDING THE 27 1/2 CENTS PER REVENUE TON IN THE COMMODITY RATES.

3. NEGOTIATE WITH A VIEW TO PAYING THE ASSESSMENT AS AN ITEM SEPARATE FROM COMMODITY RATES.

THE GENERAL COUNSEL, TRANSPORTATION CORPS, ADVISES THAT HAD THE REVISED ASSESSMENT REMAINED ON THE BASIS OF MAN-HOURS, THE ALTERNATIVE SET FORTH IN ITEM NUMBERED 2 ABOVE WOULD HAVE BEEN ADOPTED. HOWEVER, THE CHANGE FROM MAN-HOURS TO REVENUE TONS AS THE BASIS FOR THE 27 1/2 CENTS ASSESSMENT COMPLICATED THE PROBLEM, FOR THE REASON THAT AT THE TIME THE RATE INCREASES WERE TO BE NEGOTIATED THERE WAS NO PRACTICAL BASIS UPON WHICH TO TRANSLATE THE 27 1/2 CENTS REVENUE TON ASSESSMENT INTO COMMODITY RATES APPLICABLE TO ALL RATES INVOLVED. AN EXAMPLE STATED WAS THAT AS THE CONDITIONS EXISTED AT THE TIME, A CONEX CONTAINER MIGHT HAVE BEEN ASSESSED ON EITHER A WEIGHT OR MEASUREMENT TON BASIS, DEPENDING ON THE TYPE OF CARGO WITHIN THE CONTAINER. THEREFORE, IN ORDER TO REALISTICALLY TRANSLATE THE 27 1/2 CENTS REVENUE TON ASSESSMENT INTO COMMODITY RATES, IT WOULD HAVE BEEN NECESSARY TO KNOW WHAT TYPE OF SUPPLIES WOULD BE SHIPPED IN THE FUTURE IN CONEX CONTAINERS, THUS MAKING THIS FACTOR SPECULATIVE. THE GENERAL COUNSEL, IN HIS OPINION DATED SEPTEMBER 22, 1961, CONTINUES AS FOLLOWS:

IT IS GENERALLY TRUE THAT A CONTRACTOR FACED WITH AN UNKNOWN OR SPECULATIVE FACTOR WILL FIND IT NECESSARY TO INCLUDE IN HIS BID A "CUSHION" TO ABSORB THE RISK. THIS IS TRUE WHETHER A NEW BID OR NEGOTIATION FOR REVISION OF RATES IS INVOLVED. IN THIS CASE, AT THE TIME THE AMENDMENT TO THE CONTRACT WAS UNDER DISCUSSION, THE CONTRACTING OFFICER WAS WITHOUT A PRACTICAL BASIS TO MEASURE FAIR AND EQUITABLE COMMODITY RATES. NEGOTIATIONS FOR REVISION OF COMMODITY RATES WOULD HAVE RESULTED, IN THE BEST JUDGMENT OF ALL CONCERNED, IN UNREALISTIC RATES DETRIMENTAL EITHER TO THE CONTRACTOR OR TO THE GOVERNMENT. IF, UNDER THE RATES THUS ESTABLISHED, A CONTRACTOR FINDS BY EXPERIENCE THAT HE IS INCURRING A SUBSTANTIAL LOSS, HE WILL TERMINATE THE CONTRACT UNDER THE TERMINATION CLAUSE. IT IS TO BE REMEMBERED THAT THE TERMINATION CLAUSE IN A STEVEDORING CONTRACT DIFFERS FROM THE ORDINARY CONTRACT TERMINATION CLAUSE AND IS OPTIONAL, WITHOUT COST, TO EITHER THE CONTRACTOR OR THE GOVERNMENT. THE CONTRACTING OFFICER MAY ALSO TERMINATE IF EXPERIENCE SHOWS THE GOVERNMENT IS PAYING UNREALISTICALLY HIGH RATES. HOWEVER, IF EITHER PARTY HAD TERMINATED AND HAD NEW PROCUREMENT OF SERVICES BEEN SOUGHT AT THAT TIME, BIDS RECEIVED WOULD WITHOUT DOUBT HAVE ALSO CONTAINED A "CUSHION" IN THE RATES TO PROTECT THE CONTRACTOR, OR, THE GOVERNMENT WOULD HAVE PROVIDED IN THE IFB FOR SEPARATE PAYMENT FOR THE FUND ASSESSMENT. ( ITALICS SUPPLIED.)

FACED WITH SUCH SITUATION, THE CONTRACTING OFFICER WAS REQUIRED TO ACT IN THE BEST INTERESTS OF THE GOVERNMENT. WITH UNKNOWNS INVOLVED, MODIFICATION OF COMMODITY RATES AND TERMINATION WERE TO BE AVOIDED. THE REMAINING ALTERNATIVE WAS TO AMEND THE CONTRACT SO THAT THE GOVERNMENT'S CONTRACTUAL OBLIGATION TO EFFECT A CHANGE WHEN CONTRACTOR'S COSTS INCREASED BY VIRTUE OF COLLECTIVE BARGAINING AGREEMENT, MIGHT BE PLACED ON A FAIR AND EQUITABLE BASIS. AT THE TIME, THE BEST METHOD APPEARED TO BE PAYMENT OF THE 27 1/2 CENTS ASSESSMENT PER REVENUE TON ON A MONTHLY BASIS, AND MODIFY THE COMMODITY RATES TO REMOVE THEREFROM THE 6 1/2 CENTS PER MAN -HOUR ASSESSMENT WHICH HAD BEEN INCLUDED IN THE CONTRACT PRICE.

THE MODIFICATIONS REFERRED TO ABOVE REMOVED THE 6 1/2 CENTS PER MAN PER HOUR FROM THE CONTRACT COMMODITY AND MAN-HOUR RATES EFFECTIVE APRIL 3, 1961, AND PROVIDED FOR A CREDIT TO THE GOVERNMENT AS A RESULT OF RETROACTIVE REFUNDS TO THE CONTRACTOR AND NONPAYMENT BY THE CONTRACTOR OF THE 6 1/2 CENT ASSESSMENTS, AND FOR PAYMENT TO THE CONTRACTOR OF THE 27 1/2 CENT PER REVENUE TON ASSESSMENTS FOR THE PERIOD JANUARY 16 THROUGH APRIL 2, 1961, WITH RESPECT TO CARGOES HANDLED UNDER THE SEVERAL CONTRACTS.

WITH RESPECT TO THE LEGALITY OF ACTION ON EACH OF THE FOUR TYPES OF CONTRACTS REFERRED TO ABOVE, THE GENERAL COUNSEL EXPRESSED HIS OPINION AS FOLLOWS:

A. SCHEDULE OF RATES--- SCHEDULE Q CONTRACTS. THIS IS A TYPE OF CONTINUING OFFER RIPENING INTO A CONTRACT BY ACT OF ACCEPTANCE BY THE CONTRACTOR; THAT IS, BY PERFORMING A CARGO SERVICE. THERE IS NO REQUIREMENT ON THE CONTRACTOR TO ACCEPT THE CARGO FOR LOADING AND THE ONLY AGREEMENT BETWEEN THE GOVERNMENT AND THE CONTRACTOR IS THAT, IN THE EVENT SERVICES ARE PERFORMED, A SPECIFIED RATE WILL BE PAID. THUS, ONCE A CARGO IS ACCEPTED AND LOADED BY THE CONTRACTOR, HE BECOMES ENTITLED TO THE APPLICABLE RATES IN EFFECT UNDER SCHEDULE Q AT THE TIME OF THE PERFORMANCE OF THE WORK. THE RATES ARE ESTABLISHED BY THE GOVERNMENT AND MAY BE CHANGED PROSPECTIVELY BY THE GOVERNMENT, AT ITS OPTION, TO STATE THAT THE REVISED MECHANIZATION FUND ASSESSMENT OF 27 1/2 CENTS PER REVENUE TON TO THE VESSEL OPERATOR WILL BE PAYABLE ON A REIMBURSEMENT BASIS. IF THIS CHANGE IS UNSATISFACTORY TO THE STEVEDORE CONTRACTOR, HE MAY REFUSE TO ACCEPT THE CARGO FOR LOADING. UNDER THIS ARRANGEMENT, THERE IS NO LEGAL BASIS FOR RETROACTIVE MODIFICATION OF SCHEDULE Q RATES. THUS, A CONTRACTOR MAY NOT BE REQUIRED TO REPAY THE GOVERNMENT 6 1/2 CENTS PER MAN -HOUR ASSESSMENT PREVIOUSLY INCLUDED IN THE PUBLISHED RATES, NOR MAY THE CONTRACTOR RECEIVE FROM THE GOVERNMENT, BY VIRTUE OF WORK PERFORMED AT THE PUBLISHED RATE, ANY INCREASED COST SUCH AS AN INCREASED ASSESSMENT DUE TO A COLLECTIVE BARGAINING AGREEMENT.

B. MASTER STEVEDORING AGREEMENTS. THIS TYPE OF AGREEMENT DOES NOT SPECIFY RATES AND DOES NOT, OF COURSE, CONTAIN A PRICE ESCALATION CLAUSE. WHEN WORK IS TO BE PERFORMED UNDER A MASTER AGREEMENT, THE RATES ARE NEGOTIATED ON A JOB BASIS. ONCE THE RATES ARE MUTUALLY AGREED UPON THEY ARE INCORPORATED IN A DELIVERY ORDER. THE NEGOTIATED RATE CONSTITUTES A FIRM CONTRACT REGARDLESS OF INCLUSION THEREIN, OR FAILURE TO INCLUDE ASSESSMENTS OF ANY TYPE. A CONTRACTOR THEREFORE HAS NO LEGAL RIGHT TO CLAIM ADDITIONAL COMPENSATION BECAUSE HE FAILED TO INCLUDE IN THE NEGOTIATED RATE AN ASSESSMENT MADE AGAINST HIM FOR A MECHANIZATION FUND OR ANY OTHER FUND. HOWEVER, THE CONTRACTOR HAS THE LEGAL RIGHT TO NEGOTIATE ON ANY BASIS, NOT ONLY ON A COMMODITY RATE BASIS. HE MAY OFFER, AND THE GOVERNMENT MAY ACCEPT, A COMMODITY RATE PLUS COMPENSATION FOR A MECHANIZATION FUND ASSESSMENT ON A REVENUE TON BASIS. THE LIMITATION ON THE CONTRACTING OFFICER IS, UNDER COMPETITIVE CONDITIONS, TO OBTAIN A FAIR PRICE FOR THE GOVERNMENT. WHETHER A FAIR PRICE HAS INCLUDED ANY ASSESSMENT OR OTHER CONTRACTOR COSTS DOES NOT GO TO THE LEGALITY OF THE AGREEMENT. C. NEGOTIATED CONTRACT. THIS IS A CONTRACT, WITH A PRICE REVISION CLAUSE, FOR SERVICES TO BE PERFORMED OVER A SPECIFIED PERIOD OF TIME. AS STATED ABOVE, THE ORIGINAL CONTRACT RATES INCLUDED THE 6 1/2 CENTS PER MAN HOUR ASSESSMENT MADE AGAINST THE CONTRACTOR BY VIRTUE OF THE MECHANIZATION FUND COLLECTIVE BARGAINING AGREEMENT. AS ALSO STATED ABOVE, IT IS THE OPINION OF THIS OFFICE THAT THE INCREASE IN THE ASSESSMENT FOR THE MECHANIZATION FUND IMPOSED AN OBLIGATION ON THE GOVERNMENT TO NEGOTIATE NEW RATES. THE PRICE REVISION CLAUSE OF THIS CONTRACT PERMITS A REVISION OF PRICES UPON DEMAND, WHEN CHANGES IN WAGES, WORKING CONDITIONS OR "OTHER CONDITIONS" OCCUR. A CHANGE IN A COLLECTIVE BARGAINING AGREEMENT WHICH WILL RESULT IN AN INCREASED COST TO THE CONTRACTOR IS, AND HAS FOR A LONG PERIOD OF TIME BEEN CONSIDERED A CHANGE OR CONDITION WARRANTING NEGOTIATION OF MODIFIED RATES. UNDER THIS CLAUSE, THERE IS NO YEARLY PERCENTAGE LIMITATION ON INCREASES OR DECREASES IN THE CONTRACT PRICE. THE PROVISION ENVISIONS A REVISION OF THE COMMODITY RATES AND DOES NOT LIMIT HOW THE RATES ARE EXPRESSED. THIS CONTRACT WAS PROPERLY AMENDED BY DECREASING THE COMMODITY RATE AND ESTABLISHING ANOTHER METHOD OF ABSORBING THE COST OF THE ADDITIONAL ASSESSMENT. AS IN THE CASE OF MOST COLLECTIVE BARGAINING AGREEMENTS, WHEN AN ADDITIONAL BURDEN IS IMPOSED UPON THE CONTRACTOR, THE QUESTION OF BENEFIT TO THE GOVERNMENT IS NOT INVOLVED. OBVIOUSLY, AN INCREASE IN WAGES IS NOT A BENEFIT TO THE GOVERNMENT AS A CONTRACTING PARTY. FRINGE BENEFITS WHICH ACCRUE TO LABOR AND INCREASE CONTRACTOR COST CANNOT BE SAID TO BENEFIT THE GOVERNMENT AS A CONTRACTING PARTY. WHETHER THE INCREASED ASSESSMENTS BENEFITS THE GOVERNMENT IS NOT AT ISSUE. THE ISSUE IS THAT WHETHER, UNDER THE PRICE REVISION CLAUSE ABOVE, THE CONTRACTING OFFICER, UPON DEMAND, MAY NEGOTIATE A NEW PRICE WHICH INCLUDES THIS ELEMENT OF INCREASED CONTRACTOR COST. THE OPINION OF THIS OFFICE, ABSORPTION OF THIS INCREASED COST BY THE GOVERNMENT IS INESCAPABLE ACCORDING TO THE CONTRACT.

D. FORMALLY ADVERTISED CONTRACTS.

(I) CONTRACT NO. DA 104-197-931-TC-3525 WAS AWARDED PURSUANT TO THE FORMAL ADVERTISING PROCEDURE. IT CONTAINS A PRICE ESCALATION CLAUSE WHICH DIFFERS FROM THE PRICE REVISION CLAUSE DISCUSSED IN THE PRECEDING SUB- PARAGRAPH. THIS CLAUSE PROVIDES THAT IF THERE ARE INCREASED OR DECREASES IN WAGE RATES, ALLOWANCES AND CONDITIONS PERTAINING TO THE CONTRACTOR'S EMPLOYEES AS A RESULT OF EFFECTIVE COLLECTIVE BARGAINING AGREEMENTS, THE PARTIES SHALL NEGOTIATE AN EQUITABLE ADJUSTMENT IN THE COMMODITY AND MAN- HOUR RATES. THE CLAUSE LIMITS UPWARD ADJUSTMENT TO 10 PERCENT DURING THE FIRST YEAR AND AN ADDITIONAL 10 PERCENT DURING THE ENSUING YEAR. THE INTENT OF THIS PROVISION WAS THAT A TOTAL INCREASE OF 20 PERCENT WAS PERMISSIBLE DURING THE TWO-YEAR TERM.

(II) AS ABOVE STATED * * * IT WAS DETERMINED TO BE TO THE BENEFIT OF THE GOVERNMENT TO AMEND THE CONTRACT TO PROVIDE FOR PAYMENT OF THE INCREASED CONTRACTOR COST, INCURRED BY VIRTUE OF A MODIFICATION OF THE MECHANIZATION FUND COLLECTIVE BARGAINING AGREEMENT, BY OTHER MEANS THAN CHANGE IN THE COMMODITY AND MAN-HOUR RATES. AS THE CONTRACT PROVIDED ONLY FOR A CHANGE IN THE COMMODITY AND MAN-HOUR RATES, IT WAS NECESSARY TO AMEND THIS PROVISION OF THE CONTRACT BASED ON CONSIDERATION FLOWING TO THE GOVERNMENT. HAD THE CONTRACT BEEN MODIFIED IN ACCORDANCE WITH ITS ORIGINAL TERMS, THAT IS, MODIFIED COMMODITY AND MAN-HOUR RATES, ADDITIONAL CONSIDERATION WOULD NOT HAVE BEEN REQUIRED. HOWEVER, TO MODIFY THE TERMS OF THE CONTRACT, CONSIDERATION WAS NECESSARY.

WITH RESPECT TO THE SCHEDULE Q CONTRACTS AND THE MASTER STEVEDORING AGREEMENTS, WE FIND NO BASIS FOR QUESTIONING THE CONCLUSIONS OF THE GENERAL COUNSEL. SINCE THE VOUCHERS SUBMITTED BY YOU INVOLVE SERVICES PERFORMED UNDER ONE OR THE OTHER OF THOSE TYPES OF AGREEMENT, THEY ARE PROPERLY FOR PAYMENT IF OTHERWISE CORRECT.

AS TO THE NEGOTIATED AND ADVERTISED CONTRACTS LISTED AS CLASSES 3 AND 4, YOU HAVE SUBMITTED NO VOUCHERS FOR PAYMENTS DUE OR CLAIMED UNDER THE MODIFICATIONS DISCUSSED. THE QUESTION OF THE VALIDITY OF THOSE MODIFICATIONS IS THEREFORE NOT, STRICTLY SPEAKING, BEFORE US. HOWEVER, IN VIEW OF THE REPRESENTATIONS OF THE TRANSPORTATION CORPS THAT THE PROBLEM IS URGENT, AND IN ORDER TO AVOID THE FURTHER DELAY INVOLVED IN RESUBMISSION OF THE MATTER WITH PROPER VOUCHERS, WE WILL INDICATE OUR CONCLUSIONS CONCERNING THE PROPRIETY OF THE MODIFICATIONS.

PRELIMINARY TO THE CONSIDERATION OF THE PARTICULAR CIRCUMSTANCES HERE INVOLVED, WE TAKE NOTE OF TWO PRINCIPLES NOT FULLY DEVELOPED EITHER IN YOUR MEMORANDUM OR THAT OF THE GENERAL COUNSEL.

FIRST, REVISION OF A CONTRACT PURSUANT TO PROVISIONS THEREOF WHICH SPECIFICALLY REQUIRE REVISION UPON THE OCCURRENCE OF STATED CONTINGENCIES DOES NOT REQUIRE ADDITIONAL BENEFIT TO THE GOVERNMENT. THE BENEFIT TO THE GOVERNMENT IS PART OF THE CONSIDERATION FOR THE ORIGINAL CONTRACT AND THE REVISION CLAUSE, AND CONSISTS OF THE ELIMINATION FROM THE ORIGINAL PRICING PROVISIONS OF ANY ALLOWANCE FOR THE CONTINGENCY UPON WHICH THE REVISION IS TO TAKE PLACE. BY ELIMINATING THE RISK TO THE CONTRACTOR OF THE PARTICULAR CONTINGENCY, THE GOVERNMENT OBTAINS THE BENEFIT OF CLOSER PRICING IN THE INITIAL AGREEMENT, AND THIS BENEFIT CONSTITUTES AN EFFECTIVE PART OF THE CONSIDERATION FOR THE REVISION IF AND WHEN THE CONTINGENCY OCCURS.

SECONDLY, WHERE A CONTRACT CREATES A RIGHT IN THE CONTRACTOR TO TERMINATE HIS OBLIGATIONS THEREUNDER AT HIS WILL, WITHOUT LIMIT AS TO CAUSE, HIS FORBEARANCE FROM EXERCISING THAT RIGHT MAY IN ITSELF BE ADEQUATE CONSIDERATION FOR MODIFICATION OF THE TERMS OF THE CONTRACT. DETERMINATIONS OF THE NEED OF THE GOVERNMENT FOR CONTINUATION OF THE CONTRACT, AND OF THE PRICE WHICH WILL BE TO THE INTEREST OF THE GOVERNMENT TO PAY THEREFOR, ARE IN THE SOUND DISCRETION OF THE CONTRACTING OFFICER, AND HIS ACTION IN SUCH CIRCUMSTANCES WILL NOT ORDINARILY BE QUESTIONED BY OUR OFFICE UNLESS CLEARLY ARBITRARY OR UNREASONABLE.

BEARING THESE PRINCIPLES IN MIND, IN THE LIGHT OF THE FACTUAL BACKGROUND AND LEGAL INTERPRETATIONS SET FORTH ABOVE PERTAINING TO THE MODUS OPERANDI OF THE MECHANIZATION FUND, AND THE POTENTIALLY SERIOUS LABOR SITUATION WHICH LED TO THE ISSUANCE OF MODIFICATION NO. 2, WE ARE IN AGREEMENT WITH THE GENERAL COUNSEL, TRANSPORTATION CORPS, THAT, UNDER THE UNIQUE CIRCUMSTANCES PREVAILING THERE WAS NO SATISFACTORY ALTERNATIVE EXCEPT TO ISSUE THE MODIFICATIONS. WITH RESPECT TO THE OTHER DETAILED ARGUMENTS PRESENTED BY YOU WE ARE INCLINED TO ACCEPT AS REASONABLE THE FOLLOWING STATEMENTS OF THE COMMANDING GENERAL, TRANSPORTATION TERMINAL COMMAND, PACIFIC:

* * * IT MUST BE OBSERVED THAT THE GOVERNMENT, IN THE ADVERTISED CONTRACT, HAS ALREADY BENEFITED FROM A LIBERALIZATION OF EMPLOYEE WORKING CONDITIONS. ONE EXAMPLE IS THAT VENDOR-OWNED PALLETS MUST BE LOADED BY THE CONTRACTOR DIRECTLY TO THE SHIP WITHOUT REHANDLING, AS BEFORE, AND THE STEVEDORING IS, THEREFORE PAID FOR AT 70 PERCENT OF THE CONTRACT COMMODITY RATE. ALTHOUGH THE CONTRACTOR IS NOT REQUIRED TO FURNISH LABOR FOR THE REHANDLING, THE COST OF THIS LABOR WOULD HAVE BEEN LESS THAN 30 PERCENT OF THE RATE. THUS, ALTHOUGH THE CONTRACTOR HAS NOT THEREBY DECREASED HIS CONTRACT COSTS SO AS TO BE SUBJECT TO A DEMAND FOR REDUCTION OF COMMODITY RATES, NEVERTHELESS, THE GOVERNMENT HAS RECEIVED A DIRECT BENEFIT FROM THE LIBERALIZATION OF EMPLOYMENT CONDITIONS. THE BENEFIT DERIVED IS ESTIMATED TO BE APPROXIMATELY $18,500 FOR A ONE-MONTH PERIOD. IT IS ANTICIPATED THAT IN THIS CONTRACT, AND IN THE NEGOTIATED CONTRACTS, THE CONTRACTOR WILL BE ABLE TO ELIMINATE MEN IN GANGS, CLERKS AND OTHER EMPLOYEES. WHEN THIS OCCURS, STEPS WILL BE TAKEN TO DEMAND A REDUCTION IN COMMODITY OR MANHOUR RATES UNDER THE CONTRACT CLAUSES.

IN THE CONTRACTS HAVING PRICE ESCALATION CLAUSES, THE GOVERNMENT HAS BENEFITED SINCE THE INCEPTION OF THE CONTRACT PERIOD, AS THE CONTRACTOR WAS THEREBY PRECLUDED FROM QUOTING A RATE WHICH CONTAINED AN ALLOWANCE FOR THE CONTINGENCY OF AN INCREASE IN THE AMOUNT OF MECHANIZATION FUND ASSESSMENT.

IT MUST BE FURTHER NOTED THAT, UNDER SOME CONTRACTS, THE GOVERNMENT HAS ALREADY RECOUPED THE MECHANIZATION FUND ASSESSMENT OF 6 1/2 CENTS PER MANHOUR WHICH WAS INCLUDED IN CONTRACT RATES SINCE THEIR COMMENCEMENT DATE. IN ADDITION, THE COMMAND, UNDER ITS TERMINAL TARIFF I-B ADMINISTERED BY THE FINANCE AND ACCOUNTING OFFICER, HAS BEEN COLLECTING THE MECHANIZATION FUND ASSESSMENT, IN ADDITION TO COMMODITY RATES, FROM VESSEL OPERATORS UNDER CIRCUMSTANCES WHEN THE ARMY PERFORMS LOADING OR DISCHARGING FOR THE ACCOUNT OF THE VESSEL OPERATORS (THE REVERSE SITUATION FROM SCHEDULE Q).

IN CONCLUSION, THEREFORE, AND WHILE WE APPRECIATE YOUR CONCERN IN THE MATTER, PARTICULARLY IN THE LIGHT OF THE MANY DECISIONS OF THIS OFFICE CITED IN YOUR MEMORANDUM, WE BELIEVE THAT THE SITUATION HEREIN DESCRIBED IS DISTINGUISHABLE FROM THE SITUATIONS EXISTING IN THE OPINIONS CITED AND, ACCORDINGLY, WE PERCEIVE NO LEGAL OBJECTION TO PAYMENT OF VOUCHERS BASED UPON THE AFOREMENTIONED MODIFICATIONS NO. 2, DATED APRIL 3, 1961, TO THE CONTRACTS ENUMERATED IN YOUR SUBMISSION.