B-174345, OCT 17, 1972

B-174345, OCT 17, 1972

CONTRACT - INACCURATE ESTIMATE OF NEEDS - LOSS OF EQUIPMENT - PROMPT PAYMENT DISCOUNTS DECISION ALLOWING IN PART THE CLAIM OF JOHN B. YOUNG, D/B/A YOUNG'S CUSTODIAN SERVICE, ARISING OUT OF A REQUIREMENTS-TYPE CONTRACT FOR JANITORIAL SERVICES AWARDED HIM AT WESTOVER AFB, MASS., IN 1970. RELIEF WILL NOT BE GRANTED WHERE HARDSHIP RESULTS FROM SUBSTANTIAL VARIATIONS FROM THE ESTIMATES STATED IN A REQUIREMENTS CONTRACT IF SUCH ESTIMATES WERE ARRIVED AT IN GOOD FAITH. SEE BRAWLEY V. UNITED STATES, 96 U.S. 168 (1877). HOWEVER, WHERE THE GOVERNMENT MAKES A DETERMINATION OF ITS REQUIREMENTS AND DOES NOT BASE IT UPON THE BEST INFORMATION AVAILABLE, AS IN THIS CASE, IT IS NOT ACTING IN GOOD FAITH. SEE B-173356, SEPTEMBER 27, 1971. THEREFORE, THE CONTRACTOR IS ENTITLED TO BE RELIEVED OF ANY LOSSES REASONABLY IDENTIFIED AND DIRECTLY ATTRIBUTABLE TO HIS RELIANCE UPON THE EXCESSIVE GOVERNMENT REQUIREMENTS ESTIMATE, BUT NOT FOR THE FULL AMOUNT OF THE ESTIMATED SERVICES, WHETHER OR NOT PERFORMED. SINCE A SPECIFIC DISCLAIMER OF LIABILITY FOR LOSS OF EQUIPMENT WAS MADE BY THE GOVERNMENT IN THE CONTRACT, THE CONTRACTOR IS DEEMED TO HAVE ASSUMED THE RISK FOR THAT LOSS AND MAY NOT BE REIMBURSED THEREFOR. WHERE PROMPT PAYMENT DISCOUNTS ARE GREATER FOR LONGER PERIODS OF PAYMENT THAN FOR THE SHORTEST PERIOD, THEY ARE OBVIOUSLY ERRONEOUS AND THE CONTRACTING OFFICER IS ON CONSTRUCTIVE NOTICE OF SUCH ERROR AT THE TIME OF AWARD, AND ALL DISCOUNTS TAKEN IN EXCESS OF THOSE INTENDED BY THE CONTRACTOR SHOULD BE REFUNDED.

TO MR. SECRETARY:

THIS IS IN REFERENCE TO A LETTER DATED FEBRUARY 1, 1972, FROM THE CHIEF, CONTRACT ADJUSTMENT DIVISION, OFFICE OF DCS/PRODUCTION AND PROCUREMENT, AND A LETTER OF JUNE 12, 1972, FROM THE ACTING CHIEF, CONTRACT SUPPORT BRANCH, CONTRACT MANAGEMENT DIVISION, DIRECTORATE OF PROCUREMENT POLICY, DCS/S&L, AND ENCLOSURES, REPORTING ON THE CLAIM FILED WITH OUR OFFICE BY THE LAW FIRM OF BACON, WELTMAN & COHEN ON BEHALF OF MR. JOHN B. YOUNG, D/B/A YOUNG'S CUSTODIAN SERVICE, UNDER CONTRACT F19617-70-C-0189. THE CONTRACT WAS A REQUIREMENTS TYPE CONTRACT FOR JANITORIAL SERVICES AT WESTOVER AIR FORCE BASE, MASSACHUSETTE, DURING THE 1970 CALENDAR YEAR.

SEVERAL BASES HAVE BEEN PRESENTED IN SUPPORT OF THIS CLAIM. IT IS CONTENDED THAT PAYMENT SHOULD BE MADE FOR THE ENTIRE QUANTITY OF SERVICES ESTIMATED IN THE SOLICITATION, EVEN THOUGH A PORTION OF SUCH SERVICES WAS NEITHER REQUIRED NOR PERFORMED. MR. YOUNG ALSO REQUESTS REIMBURSEMENT FOR THE VALUE OF CERTAIN EQUIPMENT STOLEN FROM GOVERNMENT FURNISHED STORAGE AREAS, AND HE CLAIMS THAT THE GOVERNMENT SHOULD NOT HAVE DEDUCTED PROMPT PAYMENT DISCOUNTS, WHICH WERE OBVIOUSLY ERRONEOUSLY OFFERED, FROM THE AMOUNTS BILLED THE GOVERNMENT.

THE REFERENCED REQUIREMENTS TYPE CONTRACT CONTAINED ESTIMATED QUANTITIES OF SERVICES TO BE PERFORMED IN VARIOUS BUILDINGS. AS REQUIRED BY ARMED SERVICES PROCUREMENT REGULATION 7-1102.2, THE CONTRACT CONTAINED THE STANDARD "REQUIREMENTS" CLAUSE WHICH PROVIDES, IN PERTINENT PART, AS FOLLOWS:

"REQUIREMENTS (1966 OCT)

"(A) THIS IS A REQUIREMENTS CONTRACT FOR THE SUPPLIES OR SERVICES SPECIFIED IN THE SCHEDULE, AND FOR THE PERIOD SET FORTH THEREIN. DELIVERY OF SUPPLIES OR PERFORMANCE OF SERVICES SHALL BE MADE ONLY AS AUTHORIZED BY ORDERS ISSUED IN ACCORDANCE WITH THE CLAUSE ENTITLED "ORDERING." THE QUANTITIES OF SUPPLIES OR SERVICES SPECIFIED HEREIN ARE ESTIMATES ONLY, AND ARE NOT PURCHASED HEREBY. EXCEPT AS MAY BE OTHERWISE PROVIDED HEREIN, IN THE EVENT THE GOVERNMENT'S REQUIREMENTS FOR SUPPLIES OR SERVICES SET FORTH IN THE SCHEDULE DO NOT RESULT IN ORDERS IN THE AMOUNTS OR QUANTITIES DESCRIBED AS 'ESTIMATED' OR 'MAXIMUM' IN THE SCHEDULE, SUCH EVENT SHALL NOT CONSTITUTE THE BASIS FOR AN EQUITABLE PRICE ADJUSTMENT UNDER THIS CONTRACT.

"(B) EXCEPT AS OTHERWISE PROVIDED IN THIS CONTRACT, THE GOVERNMENT SHALL ORDER FROM THE CONTRACTOR ALL THE SUPPLIES OR SERVICES SET FORTH IN THE SCHEDULE WHICH ARE REQUIRED TO BE PURCHASED BY THE GOVERNMENT ACTIVITY IDENTIFIED IN THE 'ORDERING' CLAUSE.

"(C) THE GOVERNMENT SHALL NOT BE REQUIRED TO PURCHASE FROM THE CONTRACTOR, REQUIREMENTS IN EXCESS OF THE LIMIT ON TOTAL ORDERS UNDER THIS CONTRACT, IF ANY."

THE RECORD SHOWS THAT REQUIREMENTS DIMINISHED DUE TO THE ELIMINATION OF VARIOUS ORGANIZATIONS AT WESTOVER, AND PARTICULARLY BECAUSE OF THE REMOVAL OF THE EIGHTH AIR FORCE FROM THAT BASE. MR. YOUNG'S CORRESPONDENCE POINTS OUT THAT WHILE THE SERVICES ESTIMATED IN THE CONTRACT WERE VALUED AT $129,265.79, HE RECEIVED PAYMENTS TOTALLING ONLY $72,174.64. (THE SUPPORTING DOCUMENTS SUBMITTED ACTUALLY SHOW PAYMENTS TOTALLING $72,274.64). THE AIR FORCE ISSUED A BLANKET DELIVERY ORDER FOR THE CUSTODIAL SERVICES COVERING THE PERIOD OF JANUARY 1 THROUGH JUNE 30, 1970, WHICH PROVIDED, IN PART, THAT THE "AGGREGATE MONETARY TOTAL OF ALL DELIVERIES MADE AGAINST THIS DELIVERY ORDER SHALL NOT EXCEED $53,674 UNLESS AUTHORIZED IN WRITING BY THE CONTRACTING OFFICER." A SECOND DELIVERY ORDER WAS ISSUED ON JUNE 30, 1970, GIVING THE SAME TYPE OF INFORMATION FOR THE REMAINDER OF THE CONTRACT TERM. THESE DOCUMENTS, AS MODIFIED, PROVIDED THAT EXPENDITURES WERE NOT TO EXCEED $110,713. DELETIONS AND ADDITIONS TO BOTH BLANKET DELIVERY ORDERS WERE EFFECTED BY "MODIFICATIONS" WHICH WERE ISSUED TO REFLECT THE GOVERNMENT'S ACTUAL REQUIREMENTS AS THEY VARIED THROUGHOUT THE CONTRACT TERM.

GENERALLY, REQUIREMENTS CONTRACTS ARE RECOGNIZED AS VALID AND ENFORCEABLE, AND A REASONABLY PRUDENT CONTRACTOR MUST BE HELD TO HAVE CONTEMPLATED THE RISK THAT LATER EVENTS MAY PROVE AN ESTIMATE INACCURATE. RELIEF WILL NOT BE GRANTED WHERE HARDSHIP RESULTS FROM SUBSTANTIAL VARIATIONS IN THE ESTIMATES STATED IN REQUIREMENTS CONTRACTS, IF SUCH ESTIMATES WERE ARRIVED AT IN GOOD FAITH. SEE BRAWLEY V. UNITED STATES, 96 U.S. 168 (1877); SMOOT V. UNITED STATES, 237 U.S. 38 (1915); SHADER CONTRACTORS, INC., ET AL. V. UNITED STATES, 149 CT. CL. 535, 276 F.2D 1 (1960) AND 47 COMP. GEN. 365, 370 (1968). HOWEVER, WHERE A CONTRACTING PARTY MAKES A DETERMINATION OF ITS ESTIMATED REQUIREMENTS WHICH IS NOT BASED ON THE BEST INFORMATION AVAILABLE AT THE TIME SUCH ESTIMATES ARE FORMULATED, IT CANNOT BE SAID THAT SUCH PARTY HAS ACTED IN GOOD FAITH. SEE B-173356, SEPTEMBER 27, 1971.

OUR INVESTIGATION SHOWS THAT THE WESTOVER AIR FORCE BASE CIVIL ENGINEER ADVISED THE EIGHTH AIR FORCE BY LETTER OF SEPTEMBER 23, 1969, OF HIS UNDERSTANDING THAT A NEW PROCUREMENT FOR CUSTODIAL SERVICES BEYOND THE EXPIRATION DATE OF THE EXISTING CONTRACT (DECEMBER 31, 1969) WOULD NOT BE MADE IN VIEW OF THE PHASE-OUT OF THE EIGHTH AIR FORCE HEADQUARTERS. LETTER OF SEPTEMBER 26, 1969, THE EIGHTH AIR FORCE ADVISED THE BASE ENGINEER THAT IT HAD DECIDED TO CONTINUE CUSTODIAL SERVICES IN THE EIGHTH AIR FORCE HEADQUARTERS COMPLEX BY CONTRACT UNTIL MARCH 31, 1970, THE FREQUENCY AND SCOPE OF SERVICES TO BE THE SAME AS THE THEN CURRENT CONTRACT. THE LETTER FURTHER REQUESTED INITIATION OF APPROPRIATE CONTRACTUAL ACTIONS TO FURNISH THESE SERVICES. ALTHOUGH THERE WAS NO INDICATION THAT THE EIGHTH AIR FORCE WOULD NEED THE SERVICES BEYOND MARCH 31, WESTOVER ISSUED ITS SOLICITATION ON NOVEMBER 7, 1969, ON THE BASIS OF FULL OCCUPANCY OF ALL THE BUILDINGS INVOLVED FOR THE ENTIRE CALENDAR YEAR. THE EXPLANATION GIVEN BY THE CONTRACTING OFFICER FOR THIS ACTION IS AS FOLLOWS:

"A. THE UNCERTAINTY AND MAGNITUDE AND TIME OF 8 AF DEPARTURE.

"B. THE LATITUDE PROVIDED IN THE CONTRACT'S REQUIREMENTS PROVISION.

"C. THE INTENTION OF SUBSEQUENTLY OCCUPYING THE SAME BUILDINGS WITH OTHER BASE UNITS ..."

WE BELIEVE THE EVIDENCE OF RECORD REQUIRES THE CONCLUSION THAT THE AIR FORCE DID NOT BASE ITS ESTIMATES ON THE BEST AVAILABLE INFORMATION AND THAT MR. YOUNG IS THEREFORE ENTITLED TO BE RELIEVED OF ANY LOSSES WHICH CAN BE REASONABLY IDENTIFIED AND WHICH ARE DIRECTLY ATTRIBUTABLE TO HIS RELIANCE UPON THE EXCESSIVE AIR FORCE ESTIMATES IN THE PREPARATION OF HIS BID. SPECIFICALLY, THE RECORD SHOWS THAT AT THE TIME OF THE ISSUANCE OF THE INVITATION FOR BIDS IT WAS THE POSITION OF THE EIGHTH AIR FORCE THAT IT WOULD NOT NEED THE CUSTODIAL SERVICES BEYOND MARCH 31. MOREOVER, THE RECORD DOES NOT CONTAIN ANY FACTS INDICATING THAT THE VACATED BUILDINGS WOULD BE REOCCUPIED BY OTHER UNITS IMMEDIATELY, OR SHORTLY AFTER, THE DEPARTURE OF THE EIGHTH AIR FORCE. WHILE THE USE OF A REQUIREMENTS TYPE CONTRACT WAS APPARENTLY TO PROTECT THE GOVERNMENT AGAINST THE POSSIBILITY OF A FURTHER DELAY IN THE PHASE-OUT DATE OF THE EIGHTH AIR FORCE, THE PROVISIONS OF THE STANDARD "REQUIREMENTS" CLAUSE DO NOT NEGATE THE CONTRACTING AGENCY'S DUTY TO USE THE BEST AVAILABLE INFORMATION IN PREPARING ITS ESTIMATES FOR THE PROCUREMENT.

ALTHOUGH IT IS OUR VIEW THAT WESTOVER WAS NOT JUSTIFIED IN BASING ITS ESTIMATES ON UNINTERRUPTED OCCUPANCY OF THE BUILDINGS, WE DO NOT AGREE WITH MR. YOUNG'S CONTENTION THAT HE IS ENTITLED TO BE PAID FOR THE ESTIMATED SERVICES WHETHER OR NOT PERFORMED. HOWEVER, IF MR. YOUNG CAN REASONABLY SHOW TO THE DEPARTMENT THAT HE SUFFERED ACTUAL DAMAGES FROM HIS RELIANCE UPON THE EXCESSIVE ESTIMATES, HE IS ENTITLED TO BE COMPENSATED FOR SUCH DAMAGES. SEE B-169037, MAY 4, 1970, WHEREIN WE ALLOWED PAYMENT OF CERTAIN FIXED COSTS WHICH THE CONTRACTOR HAD PRORATED OVER THE ESTIMATED REQUIREMENTS SINCE THE UNIT BID PRICE WOULD HAVE BEEN HIGHER BUT FOR THE MISREPRESENTED ESTIMATE GIVEN BY THE GOVERNMENT.

IT IS ALSO CLAIMED THAT DURING THE COURSE OF THE CONTRACT CERTAIN EQUIPMENT VALUED AT $724.30 WAS STOLEN FROM GOVERNMENT FACILITIES USED FOR STORING THE EQUIPMENT, AND MR. YOUNG REQUESTS COMPENSATION THEREFOR. THIS CONNECTION THE CONTRACT PROVIDED IN TECHNICAL PROVISION 1-05, THAT THE GOVERNMENT WOULD PROVIDE JANITORIAL CLOSETS FOR THE EXCLUSIVE USE BY THE CONTRACTOR IN THE AREAS TO BE SERVICED AND THAT THE CONTRACTOR WOULD BE PERMITTED TO USE A LOCK APPROVED BY THE CONTRACTING OFFICER FOR SAFEGUARDING STORED PROPERTY. HOWEVER, THIS CONTRACT CLAUSE SPECIFICALLY DISCLAIMS ANY RESPONSIBILITY ON THE PART OF THE GOVERNMENT FOR LOSS "OCCASIONED BY FIRE, THEFT, ACCIDENT OR OTHERWISE TO THE CONTRACTOR'S STORED SUPPLIES, MATERIALS, OR EQUIPMENT; THE SUPPLIES, MATERIALS, OR EQUIPMENT KEPT THROUGHOUT THE BUILDING IN JANITOR'S CLOSETS; OR THE CONTRACTOR EMPLOYEE'S PERSONAL BELONGINGS BROUGHT INTO THE BUILDING." VIEW OF THE SPECIFIC DISCLAIMERS IN THE CONTRACT, WE MUST CONCLUDE THAT MR. YOUNG ASSUMED THE RISK FOR LOSS OF EQUIPMENT RESULTING FROM THEFT, AND WE THEREFORE ARE UNABLE TO FIND THAT HE IS ENTITLED TO COMPENSATION IN THIS REGARD.

THE REMAINING BASIS OF THIS CLAIM RELATES TO THE PROMPT PAYMENT DISCOUNTS TAKEN BY THE AIR FORCE. (MR. YOUNG'S CORRESPONDENCE REFLECTS THAT THE GOVERNMENT DEDUCTED PROMPT PAYMENT DISCOUNTS OF SIX PERCENT, TOTALING $4,557.22.) THE RECORD SHOWS THAT THE BID SUBMITTED BY MR. YOUNG AND ACCEPTED BY THE GOVERNMENT CONTAINED THE FOLLOWING DISCOUNTS FOR PROMPT PAYMENT: 5% - 10 DAYS; 6% - 20 DAYS; 6% - 30 DAYS. MR. YOUNG STATES THE DISCOUNTS ACTUALLY INTENDED WERE: 5% - 10 DAYS; 1% - 15 DAYS; .5% - 30 DAYS. WHILE THE AIR FORCE CONTENDS THAT THE MISTAKE WAS NOT DISCOVERED UNTIL AFTER CONTRACT AWARD, WE BELIEVE THE DISCOUNTS WHICH WERE GREATER FOR THE LONGER PERIODS OF PAYMENT THAN FOR THE SHORTEST PERIOD WERE OBVIOUSLY ERRONEOUS, AND THE CONTRACTING OFFICER MUST BE REGARDED AS HAVING HAD CONSTRUCTIVE NOTICE OF THE ERROR AT TIME OF AWARD. THE RECORD SHOWS THAT MR. YOUNG'S BID PRICE WAS LOW IRRESPECTIVE OF THE DISCOUNTS OFFERED AND THAT ACTUAL NOTICE OF THE MISTAKE WAS RECEIVED BY THE CONTRACTING OFFICER PRIOR TO FINAL PAYMENT. HAD THIS MATTER BEEN DISCOVERED PRIOR TO AWARD, THE ERRONEOUS DISCOUNTS WOULD HAVE BEEN DISREGARDED IN EVALUATING BIDS (17 COMP. GEN. 493 (1937)) AND THE AWARD MADE TO MR. YOUNG WOULD HAVE INCLUDED THE CORRECTED DISCOUNT RATE. 29787, OCTOBER 30, 1942. ACCORDINGLY, REFUND SHOULD BE MADE BY YOUR DEPARTMENT OF ALL DISCOUNTS TAKEN IN EXCESS OF THOSE ACTUALLY INTENDED BY MR. YOUNG.

IN ATTEMPTING TO ARRIVE AT A SETTLEMENT OF THAT PORTION OF MR. YOUNG'S CLAIM FOR DAMAGES ATTRIBUTABLE TO THE EXCESSIVE ESTIMATES, HE SHOULD BE REQUESTED TO FURNISH ANY RECORDS, ETC., WHICH MIGHT TEND TO ESTABLISH THE AMOUNT OF SUCH DAMAGES. ALTHOUGH ANY ALLEGED DAMAGES SHOULD BE REASONABLY SUPPORTED, WE HAVE NOT REQUIRED IN SOMEWHAT ANALOGOUS SETTLEMENTS THAT THE AMOUNT OF DAMAGES BE DETERMINED WITH PRECISE ACCURACY, OR IN ACCORDANCE WITH STRICT ACCOUNTING PRINCIPLES. B-169037, MAY 4, 1970, SUPRA; B- 162397, APRIL 11, 1968; B-155343, DECEMBER 22, 1964. WHEN YOUR DEPARTMENT HAS ARRIVED AT AN AMOUNT, IF ANY, WHICH IS CONSIDERED TO BE DUE MR. YOUNG FOR THE ACTUAL DAMAGES INCURRED, AND IF SUCH AMOUNT IS ACCEPTABLE TO HIM IN FULL SETTLEMENT OF THAT PORTION OF HIS CLAIM, THE PROPOSED SETTLEMENT SHOULD BE SUBMITTED TO THIS OFFICE FOR APPROVAL, TOGETHER WITH A STATEMENT AND PERTINENT DATA SHOWING THE METHOD AND FACTORS INVOLVED IN DETERMINING THE AMOUNT RECOMMENDED FOR PAYMENT.

THE FILES TRANSMITTED WITH YOUR REPORTS ARE RETURNED.