A-63153, OCTOBER 25, 1935, 15 COMP. GEN. 335

A-63153, OCTOBER 25, 1935, 15 COMP. GEN. 335

CONTRACTS - SPECIFICATIONS - MARKETING AND PRICE ADJUSTMENT PROVISIONS CONTRACT AWARDS MAY NOT BE MADE ON THE BASIS OF ADVERTISED SPECIFICATIONS CONTAINING THE MARKETING AGREEMENT COMPLIANCE AND PRICE ADJUSTMENT CLAUSE SET OUT IN CIRCULAR LETTER NO. 89 OF THE PROCUREMENT DIVISION, TREASURY DEPARTMENT, BUT, WITH THE CLAUSE ELIMINATED, AWARD MAY BE MADE WHERE THE NEEDS OF THE GOVERNMENT ARE SO URGENT THAT READVERTISEMENT WOULD BE IMPRACTICABLE, OR, BECAUSE OF THE IMMEDIATE NEED, AWARD MAY BE MADE TO THE LOW BIDDER AFTER DELETION, WITH HIS CONSENT, OF THAT PART OF THE CLAUSE PROVIDING FOR PRICE ADJUSTMENT, BUT THE LOW BID MAY NOT BE REJECTED BECAUSE OF REFUSAL ON THE PART OF THE BIDDER TO AGREE TO THE REQUIREMENTS OF THE CLAUSE IN QUESTION. THE USE OF SUCH CLAUSE IN GOVERNMENT CONTRACTS SHOULD BE DISCONTINUED. 13 COMP. GEN. 181; 15 ID. 114, AND A-64860, SEPTEMBER 12, 1935, ID. 201, DISTINGUISHED HEREIN.

COMPTROLLER GENERAL MCCARL TO THE SECRETARY OF THE NAVY, OCTOBER 25, 1935:

THERE HAS BEEN RECEIVED YOUR LETTER OF OCTOBER 17, 1935, AS FOLLOWS:

THERE HAVE BEEN RECEIVED FROM THE GENERAL ACCOUNTING OFFICE SEVERAL COMMUNICATIONS ADDRESSED TO FIELD PURCHASING OFFICES REQUESTING AN EXPLANATION AS TO WHY CERTAIN CONTRACTS INCLUDED IN THE SPECIFICATIONS A PROVISION TO PERMIT OF AN ADJUSTMENT IN PRICE TO CONFORM TO THE PRICE STIPULATED IN APPLICABLE MARKETING AGREEMENTS AND/OR LICENSES EXECUTED UNDER THE AUTHORITY OF THE AGRICULTURAL ADJUSTMENT ACT. A LETTER TO THE OFFICER IN CHARGE, NAVY PURCHASING OFFICE, NEW YORK, DATED SEPTEMBER 25, 1935, IS ENCLOSED AS AN EXAMPLE.

AN ORDER OF THE DIRECTOR OF PROCUREMENT, TREASURY DEPARTMENT, DATED MAY 8, 1935, DIRECTED THAT THERE BE INCLUDED AS A PART OF ALL CONTRACTS FOR THE PURCHASE OF FLUID MILK AND/OR PRODUCTS OR INGREDIENTS THEREOF A PROVISION FOR COMPLIANCE WITH THE AGRICULTURAL ADJUSTMENT ACT. THE TEXT OF THIS CLAUSE READS AS FOLLOWS:

"THE CONTRACTOR SHALL COMPLY WITH THE PROVISIONS OF ANY AND ALL MARKETING AGREEMENTS, LICENSES, AND AMENDMENTS TO EITHER, IN EFFECT ON THE DATE OF THE AWARD OF THIS CONTRACT OR THEREAFTER EXECUTED OR ISSUED BY THE SECRETARY OF AGRICULTURE UNDER THE AGRICULTURAL ADJUSTMENT ACT OR SUPPLEMENTARY LEGISLATION, APPLICABLE TO ANY OF THE COMMODITIES TO BE FURNISHED UNDER THIS CONTRACT AND TO THE CONTRACTOR UNDER THE TERMS OF SUCH MARKETING AGREEMENTS, LICENSES, AND AMENDMENTS, REGARDLESS OF WHETHER THE CONTRACTOR IS A PARTY TO ANY OF SUCH AGREEMENTS OR AMENDMENTS THERETO. THE CONTRACTOR SHALL NOT ACCEPT FROM A SUBCONTRACTOR OR SUPPLIER IN THE PERFORMANCE OF THIS CONTRACT ANY OF THE COMMODITIES TO BE FURNISHED UNDER THIS CONTRACT, IF THE SUBCONTRACTOR OR SUPPLIER HAS NOT FILED WITH THE CONTRACTOR A CERTIFICATE OF COMPLIANCE IN FORM AS REQUIRED BY THE CONTRACTING OFFICER, OR IF THE SECRETARY OF AGRICULTURE HAS DETERMINED THAT SUCH SUBCONTRACTOR OR SUPPLIER IS FAILING IN THE COMPLIANCE TO WHICH HE HAS CERTIFIED AND THE CONTRACTOR HAS BEEN SO NOTIFIED IN WRITING THROUGH THE CONTRACTING OFFICER. IF THE CONTRACTOR VIOLATES OR FAILS TO COMPLY WITH ANY OF THE FOREGOING REQUIREMENTS, THE GOVERNMENT MAY, BY WRITTEN NOTICE TO THE CONTRACTOR, TERMINATE THE CONTRACTOR'S RIGHT TO PROCEED WITH THE DELIVERIES UNDER THIS CONTRACT AND PURCHASE IN THE OPEN MARKET OR OTHERWISE PROCURE THE UNDELIVERED PORTION OF THE COMMODITY OR COMMODITIES TO BE FURNISHED, AND THE CONTRACTOR AND HIS SURETY SHALL BE LIABLE TO THE GOVERNMENT FOR ANY EXCESS COST OCCASIONED THE GOVERNMENT THEREBY: PROVIDED, THAT THE DETERMINATION OF THE SECRETARY OF AGRICULTURE AS TO THE FAILURE OF COMPLIANCE BY THE CONTRACTOR OR SUBCONTRACTOR SHALL BE FINAL AND CONCLUSIVE UPON THE PARTIES HERETO: PROVIDED FURTHER, THAT IF THE COST TO THE CONTRACTOR OF THE COMMODITY OR COMMODITIES TO BE PROCURED HEREUNDER SHALL BE INCREASED OR DECREASED BY ANY MARKETING AGREEMENT, LICENSE, OR AMENDMENT TO EITHER, NOT IN EFFECT AT THE TIME THE CONTRACT WAS MADE, THEN THE PURCHASE PRICE TO THE GOVERNMENT OF THE COMMODITY OR COMMODITIES AFFECTED BY SUCH AMENDMENT OR NEW AGREEMENT OR LICENSE SHALL BE INCREASED OR DECREASED ACCORDINGLY: PROVIDED FURTHER, THAT THE CONTRACTOR SHALL, BEFORE FINAL PAYMENT, FURNISH TO THE CONTRACTING OFFICER SATISFACTORY EVIDENCE OF ANY SUCH INCREASE.'

IT IS ASSUMED THAT THE ORDER OF THE DIRECTOR OF PROCUREMENT (CIRCULAR LETTER NO. 89, DATED MAY 8, 1935) IS ON RECORD IN THE GENERAL ACCOUNTING OFFICE.

UPON RECEIPT OF THIS ORDER, ALL AGENCIES PURCHASING NAVAL SUPPLIES WERE DIRECTED TO INCLUDE THE PRESCRIBED CLAUSE IN ALL INVITATIONS FOR BIDS. IS THIS CLAUSE IN THE CONTRACTS WHICH IS NOW QUESTIONED BY THE GENERAL ACCOUNTING OFFICE.

YOUR DECISION A-63153, A-64398, DATED AUGUST 9, 1935, WAS CONSTRUED AS APPROVING THE CLAUSE WHERE NOT OBJECTED TO BY THE BIDDER. ON THE BASIS OF THIS DECISION, PURCHASING OFFICERS WERE DIRECTED TO ACCEPT THE OFFER OF A BIDDER DECLINING TO AGREE TO THE PROVISIONS OF THIS CLAUSE, IF OTHERWISE LOW, AND TO OMIT THE CLAUSE FROM THE EXECUTED CONTRACT AWARDED THEREON.

BY A LATER DECISION, A-64860, DATED SEPTEMBER 12, 1935, IT WAS HELD THAT THE OFFER OF A BIDDER REFUSING TO ACCEPT A CONTRACT CONTAINING A PROVISION REQUIRING COMPLIANCE WITH THE MARKETING AGREEMENTS AND/OR LICENSES ISSUED OR APPROVED BY THE DEPARTMENT OF AGRICULTURE SHOULD BE REJECTED. THE TWO DECISIONS MAY APPEAR INCONSISTENT IN THAT THE ONE HOLDS THAT A BID MAY NOT BE REJECTED AND THE OTHER APPROVES THE REJECTION FOR REFUSAL BY THE BIDDER TO COMPLY WITH THE MARKETING AGREEMENTS PRESCRIBED BY THE DEPARTMENT OF AGRICULTURE. WHILE THE CLAUSE QUOTED IN THE DECISION OF AUGUST 9TH CONTAINS ALL THE PROVISIONS OF THE CLAUSE QUOTED IN THE DECISION OF SEPTEMBER 12TH, THE FORMER DECISION CONTAINS CERTAIN ADDITIONAL REQUIREMENTS NOT STIPULATED IN THE CLAUSE QUOTED IN THE LATER DECISION. IT IS ASSUMED THAT THE VARIATIONS IN THE TWO CLAUSES ACCOUNT FOR THE SEEMINGLY CONFLICTING VIEWS IN THE TWO DECISIONS ON THE ACCEPTANCE OR REJECTION OF THE BIDS.

UNDER AN ADMINISTRATIVE PROCEDURE IN EFFECT THROUGHOUT THE NAVAL SERVICE, THE BIDS FOR THE MONTHLY PROVISIONS CONTRACTS ARE OPENED IN ALL FIELD PURCHASING OFFICES ON A UNIFORM DATE. THE ADVERTISEMENTS ISSUED FOR BIDS FOR THE MONTHLY CONTRACTS FOR THE MONTH OF NOVEMBER ARE SCHEDULED FOR OPENING ON OCTOBER 18TH, 1935. THESE INVITATIONS INCLUDE THE REQUIREMENTS PRESCRIBED BY THE PROCUREMENT DIVISION'S ORDER OF MAY 8TH. IT IS NECESSARY THAT AWARDS BE MADE FOR THE PROVISIONS FOR THE MONTH OF NOVEMBER IN SUFFICIENT TIME FOR THE CONTRACTS TO BECOME EFFECTIVE ON THE FIRST DAY OF THE MONTH; OTHERWISE IT WOULD BE NECESSARY TO MAKE MANY OPEN-MARKET PURCHASES WITH THE ATTENDING ADMINISTRATIVE EXPENSES AND PROBABLE HIGHER PRICES.

A DECISION OF THE COMPTROLLER GENERAL OF THE UNITED STATES IS REQUESTED, THEREFORE, ON THE FOLLOWING QUESTIONS:

(A) MAY THE DECISION OF AUGUST 9, 1935, BE CONSTRUED AS APPROVING THE USE OF THE CLAUSE PRESCRIBED BY THE DIRECTOR OF PROCUREMENT IN HIS ORDER OF MAY 8, 1935, AS A CONTRACT STIPULATION, IF NOT OBJECTED TO BY THE BIDDER; IF OBJECTION IS RAISED, THE AWARD TO BE MADE AND THE CONTRACT DRAWN WITH THE CLAUSE ELIMINATED?

(B) IF THE ANSWER TO PARAGRAPH (A) IS IN THE NEGATIVE, MAY AN AWARD BE MADE ON THE BIDS INVITED FOR OPENING ON OCTOBER 18, 1935, WHICH INCLUDE THE CLAUSE PRESCRIBED BY THE DIRECTOR OF PROCUREMENT, BY THE DELETION, WITH THE CONSENT OF THE BIDDER, OF THAT PART OF THE CLAUSE PROVIDING FOR A PRICE ADJUSTMENT READING AS FOLLOWS:

"PROVIDED FURTHER, THAT IF THE COST TO THE CONTRACTOR OF THE COMMODITY OR COMMODITIES TO BE PROCURED HEREUNDER SHALL BE INCREASED OR DECREASED BY ANY MARKETING AGREEMENT, LICENSE, OR AMENDMENT TO EITHER, NOT IN EFFECT AT THE TIME THE CONTRACT WAS MADE, THEN THE PURCHASE PRICE TO THE GOVERNMENT OF THE COMMODITY OR COMMODITIES AFFECTED BY SUCH AMENDMENT OR NEW AGREEMENT OR LICENSE SHALL BE INCREASED OR DECREASED ACCORDINGLY: PROVIDED FURTHER, THAT THE CONTRACTOR SHALL, BEFORE FINAL PAYMENT, FURNISH TO THE CONTRACTING OFFICER SATISFACTORY EVIDENCE OF ANY SUCH INCREASE.'

(C) WILL THE EXPLANATION HEREINBEFORE MADE OF THE REASONS FOR THE USE OF THE CLAUSE QUESTIONED BY THE GENERAL ACCOUNTING OFFICE BE ACCEPTED AS THE BASIS FOR THE APPROVAL OF ALL CONTRACTS HERETOFORE MADE WITH THE CLAUSE PRESCRIBED BY THE DIRECTOR OF PROCUREMENT INCORPORATED THEREIN?

BECAUSE OF THE URGENCY FOR PROVISIONS CONTRACTS EFFECTIVE ON NOVEMBER 1, 1935, AND AS SOME TIME IS REQUIRED TO MAKE THE AWARDS, DRAW THE CONTRACTS, AND NOTIFY REQUISITIONING AGENCIES, A PROMPT DECISION ON THESE SEVERAL MATTERS WOULD BE APPRECIATED.

THE DECISIONS OF AUGUST 9, 1935, A-63153, A-64398, 15 COMP. GEN. 114, AND SEPTEMBER 12, 1935, A-64860, 15 COMP. GEN. 201, REFERRED TO IN YOUR LETTER AS SEEMINGLY IN CONFLICT WERE DISCUSSED AT LENGTH IN DECISION OF OCTOBER 10, 1935, A-64860, TO THE ADMINISTRATOR OF VETERANS' AFFAIRS IN WHICH THE FORMER TWO DECISIONS WERE DISTINGUISHED. THERE IS INCLOSED HEREWITH FOR YOUR INFORMATION A COPY OF THE DECISION OF OCTOBER 10, 1935.

THE CLAUSE QUOTED FROM CIRCULAR LETTER NO. 89 DATED MAY 8, 1935, PROCUREMENT DIVISION OF THE TREASURY DEPARTMENT, IS SIMILAR TO ONE OF THE PROVISIONS CONSIDERED IN DECISION OF JANUARY 2, 1934, 13 COMP. GEN. 181, IN WHICH IT WAS HELD THAT SUCH PROVISION MAY NOT LEGALLY BE INCLUDED IN ADVERTISEMENTS AND CONTRACTS ON BEHALF OF THE UNITED STATES. THIS DECISION WAS MODIFIED BY THE DECISION OF AUGUST 9, 1935, TO THE EFFECT THAT SUCH PROVISION COULD BE CONSIDERED ONLY AS A REQUEST TO BIDDERS "THAT BIDS BE SUBMITTED UPON THE BASIS THAT THE CONTRACTOR SHALL COMPLY WITH THE PROVISIONS OF ANY AND ALL MARKETING AGREEMENTS AND LICENSES, AND AMENDMENTS TO EITHER, IN EFFECT AT THE TIME OF CONTRACTING OR THEREAFTER PLACED INTO EFFECT, AND THAT THE LOW BID, IF OTHERWISE PROPER, MAY NOT BE REJECTED BECAUSE SUCH BIDDER REFUSED TO AGREE TO ANY SUCH UIREMENT.' THE PRICE ADJUSTMENT CLAUSE WAS NOT APPROVED BY THAT DECISION.

IN THE DECISION OF SEPTEMBER 12, 1935, THERE WAS FOR CONSIDERATION THE FIRST CLAUSE CONSIDERED IN 13 COMP. GEN. 181, IN WHICH IT WAS HELD THAT THERE WAS NO LEGAL OBJECTION TO INCLUSION OF SUCH PARAGRAPH IN ADVERTISEMENTS AND CONTRACTS FOR THE PURCHASE OF AGRICULTURAL COMMODITIES AND PRODUCTS THEREOF. THAT CLAUSE DID NOT CONTAIN EITHER THE PRICE ADJUSTMENT PROVISION OR THE REQUIREMENT OF COMPLIANCE WITH AGREEMENTS THEREAFTER EXECUTED, OR SUPPLEMENTARY LEGISLATION. IT WAS HELD THAT REFUSAL OF A BIDDER TO AGREE TO COMPLY WITH THAT CLAUSE WHICH WAS CONSIDERED A PROPER AND LEGAL REQUIREMENT JUSTIFIED REJECTION OF HIS BID.

ACCORDINGLY---

(A) THE DECISION OF AUGUST 9, 1935, MAY NOT BE CONSTRUED AS APPROVING THE USE OF THE CLAUSE PRESCRIBED BY THE DIRECTOR OF PROCUREMENT IN CIRCULAR LETTER NO. 89, DATED MAY 8, 1935, AND CONTRACTS MAY NOT BE AWARDED ON THAT BASIS. WITH THE CLAUSE ELIMINATED THE AWARD MAY BE MADE AND THE CONTRACT EXECUTED IN CASES WHERE THE IMMEDIATE NEEDS OF THE GOVERNMENT ARE SO URGENT THAT READVERTISEMENT WOULD BE IMPRACTICABLE;

(B) AN AWARD MAY BE MADE TO THE LOW BIDDER ON THE BIDS RECEIVED FOR OPENING ON OCTOBER 18, 1935, AFTER DELETION, WITH THE CONSENT OF THE BIDDER, OF THAT PART OF THE CLAUSE PROVIDING FOR PRICE ADJUSTMENT, BUT THE LOW BID MAY NOT BE REJECTED BECAUSE OF REFUSAL ON THE PART OF THE BIDDER TO AGREE TO THE REQUIREMENTS OF THE CLAUSE IN QUESTION; AND

(C) IN VIEW OF THE EXPLANATION MADE THIS OFFICE WILL RAISE NO FURTHER QUESTION AS TO CONTRACTS CONTAINING THE CLAUSE PRESCRIBED BY THE DIRECTOR OF PROCUREMENT ON MAY 8, 1935, HERETOFORE EXECUTED, WITH THE UNDERSTANDING THAT THE USE OF SUCH CLAUSE IN GOVERNMENT CONTRACTS BE DISCONTINUED.