A-63562, AUGUST 21, 1935, 15 COMP. GEN. 149

A-63562: Aug 21, 1935

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

THE LIABILITY OF THE FIRST DEFAULTING CONTRACTOR IS FIXED AT THE TIME THE SECOND CONTRACT IS MADE AND THE LIABILITY OF THE SECOND DEFAULTING CONTRACTOR IS FIXED AT THE TIME THE THIRD CONTRACT IS MADE. THE GENERAL RULE IS THAT THE LOW BID OF A FINANCIALLY RESPONSIBLE BIDDER FOR THE DELIVERY OF SUPPLIES SHOULD NOT BE REJECTED MERELY BECAUSE IT HAD DEFAULTED ON A PREVIOUS SIMILAR CONTRACT. " THERE WAS RECEIVED A REPORT DATED JUNE 7. CONTRACT W 285 CWS 1351 WAS PLACED WITH TITANINE. WAS AT THAT TIME. STILL IS. ORDER WAS ISSUED THAT FIRM ON OCTOBER 25TH. SEVERAL ATTEMPTS WERE MADE BY THAT COMPANY TO SUPPLY MATERIAL IN ACCORDANCE WITH THE SPECIFICATION. WITHOUT SUCCESS AND IT WAS NECESSARY TO GO INTO THE OPEN MARKET AND PURCHASE FOR THEIR ACCOUNT FROM GILBERT SPRUANCE COMPANY.

A-63562, AUGUST 21, 1935, 15 COMP. GEN. 149

CONTRACTS - DEFAULT - OPEN-MARKET PURCHASES WHERE IT BECOMES NECESSARY TO ENTER INTO A CONTRACT WITH A SECOND CONTRACTOR BECAUSE OF THE DEFAULT OF THE FIRST CONTRACTOR, AND BECAUSE OF THE PARTIAL DEFAULT OF THE SECOND CONTRACTOR A CONTRACT BECOMES NECESSARY WITH A THIRD CONTRACTOR, THE LIABILITY OF THE FIRST DEFAULTING CONTRACTOR IS FIXED AT THE TIME THE SECOND CONTRACT IS MADE AND THE LIABILITY OF THE SECOND DEFAULTING CONTRACTOR IS FIXED AT THE TIME THE THIRD CONTRACT IS MADE. THE GENERAL RULE IS THAT THE LOW BID OF A FINANCIALLY RESPONSIBLE BIDDER FOR THE DELIVERY OF SUPPLIES SHOULD NOT BE REJECTED MERELY BECAUSE IT HAD DEFAULTED ON A PREVIOUS SIMILAR CONTRACT.

COMPTROLLER GENERAL MCCARL TO THE SECRETARY OF WAR, AUGUST 21, 1935:

IN RESPONSE TO A REQUEST FROM THIS OFFICE FOR A REPORT AS TO THE FACTS WITH REFERENCE TO THE REJECTION OF A LOW BID FOR FURNISHING ENAMEL LACQUER FOR THE STATED REASON: "LOW BIDDER DEFAULTING ON PREVIOUS CONTRACT FOR MATERIAL," THERE WAS RECEIVED A REPORT DATED JUNE 7, 1935, FROM THE COMMANDING OFFICER, EDGEWOOD ARSENAL, AS FOLLOWS:

1. CONTRACT W 285 CWS 1351 WAS PLACED WITH TITANINE, INC., NEXT TO THE LOWEST BIDDER ON EDGEWOOD ARSENAL INVITATION FOR BID 35-124 COVERING 1,095 GALLONS LACQUER ENAMEL, O.D., SPECIFICATION 3-150, OPENED APRIL 24, 1935, AS THE LOW BIDDER, SHERWIN WILLIAMS COMPANY, WAS AT THAT TIME, AND STILL IS, A DEFAULTING CONTRACTOR ON THE SAME MATERIAL.

2. ON OCTOBER 25, 1934, EDGEWOOD ARSENAL OPENED PROPOSAL 35-38 COVERING 735 GALLONS LACQUER ENAMEL, O.D., SPECIFICATION 3-150, THE LOW BIDDER BEING SHERWIN WILLIAMS COMPANY, AND AS A RESULT, ORDER WAS ISSUED THAT FIRM ON OCTOBER 25TH. SEVERAL ATTEMPTS WERE MADE BY THAT COMPANY TO SUPPLY MATERIAL IN ACCORDANCE WITH THE SPECIFICATION, BUT WITHOUT SUCCESS AND IT WAS NECESSARY TO GO INTO THE OPEN MARKET AND PURCHASE FOR THEIR ACCOUNT FROM GILBERT SPRUANCE COMPANY, AT AN ADVANCE IN PRICE OF $0.0325 PER GALLON. GILBERT SPRUANCE COMPANY MADE SEVERAL SHIPMENTS AGAINST THEIR ORDER BUT ONLY 420 GALLONS WAS ACCEPTABLE MATERIAL AND IT WAS NECESSARY TO AGAIN GO INTO THE MARKET AND PROCURE THIS MATERIAL. THIS BALANCE OF 315 GALLONS WAS PURCHASED FROM TITANINE, INC., ON MAY 29, 1935, AT AN ADVANCE IN PRICE OF $0.032 OVER THAT ORDERED FROM GILBERT SPRUANCE COMPANY AND, AS YET, HAS NOT BEEN RECEIVED. HOWEVER, WE ARE RECEIVING SIMILAR MATERIAL FROM TITANINE, INC., ON ANOTHER CONTRACT, WHICH IS ACCEPTABLE. UNTIL FINAL DELIVERY AND ACCEPTANCE OF THE QUANTITY ORIGINALLY ORDERED FROM SHERWIN WILLIAMS COMPANY HAVE BEEN MADE, THE LOSS THE GOVERNMENT HAS SUSTAINED CANNOT BE ASCERTAINED.

3. IN THIS CONNECTION, THE FOLLOWING INFORMATION IS REQUESTED:

(A) IF TITANINE, INC., FURNISHES ACCEPTABLE MATERIAL, IS SHERWIN WILLIAMS CO. TO BE CHARGED WITH THE TOTAL EXCESS COST TO THE GOVERNMENT BETWEEN THE AMOUNT OF THEIR ORIGINAL ORDER AND THE AMOUNT THE GOVERNMENT FINALLY HAS TO PAY FOR THE MATERIAL, OR

(B) IS SHERWIN WILLIAMS COMPANY ONLY TO BE CHARGED THE DIFFERENCE OF THE EXCESS COST ON THE 420 GALLONS OF ACCEPTABLE MATERIAL SUPPLIED BY GILBERT SPRUANCE COMPANY AND GILBERT SPRUANCE COMPANY TO BE CHARGED THE EXCESS COST ON 315 GALLONS AT THE DIFFERENCE BETWEEN THE PRICE ORIGINALLY CONTRACTED WITH SHERWIN WILLIAMS COMPANY AND THAT OF TITANINE, INC., OR

(C) IS SHERWIN WILLIAMS COMPANY TO BE CHARGED THE EXCESS COST ON 735 GALLONS, THE DIFFERENCE BETWEEN THE PRICE ORIGINALLY CONTRACTED TO BE PAID THEM AND THE AMOUNT OF THE ORDER GIVEN GILBERT SPRUANCE COMPANY, GILBERT SPRUANCE COMPANY PAYING THE EXCESS COST ON THE 315 GALLONS AT THE DIFFERENCE BETWEEN THE PRICE SHOWN ON THE ORDER GIVEN THEM AND THE PRICE AT WHICH THE MATERIAL WAS PURCHASED FROM TITANINE, INC.

THE CONTRACT OF OCTOBER 25, 1934, WITH THE SHERWIN-WILLIAMS CO., CONTAINED A CONDITION, OR PROVISION, AS FOLLOWS:

3. IN CASE OF DEFAULT OF THE CONTRACTOR, THE GOVERNMENT MAY PROCURE THE ARTICLES OR SERVICES FROM OTHER SOURCES AND HOLD THE CONTRACTOR RESPONSIBLE FOR ANY EXCESS COST OCCASIONED THEREBY.

IT IS A GENERAL RULE OF LAW THAT WHEN A CONTRACTOR BREACHES ITS CONTRACT AND FAILS IN ITS PERFORMANCE, IT BECOMES LIABLE FOR WHATEVER DAMAGES SUCH BREACH OCCASIONED THE OTHER PARTY, AND THE MEASURE OF SUCH DAMAGES IS THE AMOUNT THAT WILL COMPENSATE FOR THE LOSS WHICH A FULFILLMENT OF THE CONTRACT WOULD HAVE PREVENTED.

IN THE INSTANT MATTER IT APPEARS THAT THE SHERWIN-WILLIAMS CO. FAILED TO MAKE DELIVERY OF THE REQUIRED 735 GALLONS OF LACQUER-ENAMEL PAINT IN ACCORDANCE WITH THE TERMS OF ITS CONTRACT THEREFOR DATED OCTOBER 25, 1934, THUS BREACHING ITS SAID CONTRACT; AND THAT SUCH BREACH OR DEFAULT CAUSED THE SUBSEQUENT PURCHASE OF THE MATERIAL IN THE OPEN MARKET FROM ANOTHER CONTRACTOR, TO WIT, THE GILBERT SPRUANCE CO., AT A PRICE OF $0.0325 PER GALLON IN EXCESS OF THE ORIGINAL CONTRACT PRICE THEREFOR. ALSO, IT APPEARS THAT THE SAID SECOND CONTRACTOR, GILBERT SPRUANCE CO. FURNISHED UNDER ITS CONTRACT ONLY 420 GALLONS OF THE REQUIRED 735 GALLONS; AND THAT IT BREACHED ITS CONTRACT FOR REQUIRED PAINT BY FAILING TO DELIVER 315 GALLONS THEREOF, WHICH BREACH OR DEFAULT NECESSITATED THE PURCHASE OF THE REQUIRED 315 GALLONS IN THE OPEN MARKET FROM ANOTHER CONTRACTOR, TO WIT, TITANINE, INC., AT A PRICE OF $0.032 PER GALLON IN EXCESS OF THE SECOND CONTRACT PRICE THEREFOR. IN LETTER OF JULY 11, 1935, TO THIS OFFICE, THE CHIEF, CHEMICAL WARFARE SERVICE, REPORTED THAT THE THIRD CONTRACTOR, THE TITANINE, INC., HAS FURNISHED ACCEPTABLE PAINT UNDER ITS SAID CONTRACT.

IN CASES SUCH AS THIS, THE LIABILITY OF THE FIRST DEFAULTING CONTRACTOR IS FIXED AT THE TIME THE SECOND CONTRACT IS MADE, AND, LIKEWISE, THE LIABILITY OF THE SECOND DEFAULTING CONTRACTOR IS FIXED AT THE TIME THE THIRD CONTRACT IS MADE. IN THIS CONNECTION SEE DECISIONS DATED SEPTEMBER 10, 1926, A-15576; OCTOBER 2, 1929, A-28785; AND MAY 8, 1935, A-59106.

ACCORDINGLY, THE THREE QUESTIONS PRESENTED ARE ANSWERED AS FOLLOWS:

(A) NO.

(B) NO.

(C) YES.

THE REJECTION OF THE BID OF THE SHERWIN-WILLIAMS CO. ON CONTRACT W 285 CWS 1351 WILL NOT BE FURTHER QUESTIONED AT THIS TIME, BUT THE GENERAL RULE IS THAT THE LOW BID OF A BIDDER FOR THE DELIVERY OF SUPPLIES THAT IS FINANCIALLY RESPONSIBLE SHOULD NOT BE REJECTED MERELY BECAUSE IT HAS DEFAULTED ON A PREVIOUS SIMILAR CONTRACT.