A-79169, OCTOBER 7, 1936, 16 COMP. GEN. 348

A-79169: Oct 7, 1936

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CONTRACTS - STATE PRICE-FIXING LAWS - CONTRACTOR'S COMPLIANCE THERE IS NO OBJECTION TO THE CANCELATION OF A CONTRACT FOR FURNISHING OF MILK AND CREAM BECAUSE OF NONCOMPLIANCE WITH A STATE MILK CONTROL STATUTE WHERE THE AWARD WAS NOT MADE ON THE BASIS OF BONA FIDE COMPETITION. UPON INVITATIONS FOR BIDS CONTAINING RESTRICTIVE REQUIREMENTS OF SHOWING COMPLIANCE WITH STATE PRICE-FIXING LAWS RELATING TO COMMODITIES OR ARTICLES NECESSARY TO BE PURCHASED BY THE UNITED STATES UNTIL THERE HAS BEEN AN AUTHORITATIVE AND FINAL JUDICIAL DETERMINATION THAT SUCH STATE STATUTES ARE APPLICABLE TO SUCH PURCHASES. YOU ARE ADVISED THAT THERE IS IN EFFECT IN THE COMMONWEALTH OF PENNSYLVANIA A MILK-CONTROL LAW WHICH PROVIDES FOR A MILK- CONTROL BOARD.

A-79169, OCTOBER 7, 1936, 16 COMP. GEN. 348

CONTRACTS - STATE PRICE-FIXING LAWS - CONTRACTOR'S COMPLIANCE THERE IS NO OBJECTION TO THE CANCELATION OF A CONTRACT FOR FURNISHING OF MILK AND CREAM BECAUSE OF NONCOMPLIANCE WITH A STATE MILK CONTROL STATUTE WHERE THE AWARD WAS NOT MADE ON THE BASIS OF BONA FIDE COMPETITION, BUT, APPROPRIATED FUNDS MAY NOT BE USED FOR PAYMENTS UNDER AWARDS MADE AFTER OCTOBER 31, 1936, UPON INVITATIONS FOR BIDS CONTAINING RESTRICTIVE REQUIREMENTS OF SHOWING COMPLIANCE WITH STATE PRICE-FIXING LAWS RELATING TO COMMODITIES OR ARTICLES NECESSARY TO BE PURCHASED BY THE UNITED STATES UNTIL THERE HAS BEEN AN AUTHORITATIVE AND FINAL JUDICIAL DETERMINATION THAT SUCH STATE STATUTES ARE APPLICABLE TO SUCH PURCHASES.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE ADMINISTRATOR OF VETERANS' AFFAIRS, OCTOBER 7, 1936:

THERE HAS BEEN CONSIDERED YOUR LETTER OF AUGUST 24, 1936, AS FOLLOWS:

WITH REFERENCE TO YOUR LETTER OF AUGUST 6, 1936 (A-79169) RELATIVE TO A COMMUNICATION RECEIVED BY YOUR OFFICE ON BEHALF OF ROHRER'S MED-O FARMS DAIRY OF R. NUMBER 5, LANCASTER, PA., PROTESTING CANCELLATION OF CONTRACT FOR FURNISHING MILK AND CREAM TO THE VETERANS' ADMINISTRATION FACILITY, COATESVILLE, PA., YOU ARE ADVISED THAT THERE IS IN EFFECT IN THE COMMONWEALTH OF PENNSYLVANIA A MILK-CONTROL LAW WHICH PROVIDES FOR A MILK- CONTROL BOARD, ONE OF THE FUNCTIONS OF WHICH IS TO ESTABLISH REGULATIONS PRESCRIBING MINIMUM PRICES AT WHICH MILK AND CREAM MAY BE SOLD IN THE COMMONWEALTH OF PENNSYLVANIA AND IN ORDER TO COOPERATE WITH THAT COMMONWEALTH IN THE ENFORCEMENT OF SAID LAW THE VETERANS'ADMINISTRATION FACILITY, COATESVILLE, PA., WAS INSTRUCTED TO INCLUDE THE FOLLOWING PROVISION IN INVITATIONS FOR BIDS:

"IN SUBMITTING THIS BID THE BIDDER CERTIFIES THAT NONE OF THE PRICES BID BY HIM ARE BELOW THE MINIMUM PRESCRIBED BY THE MILK CONTROL BOARD OF THE COMMONWEALTH OF PENNSYLVANIA, PURSUANT TO AUTHORITY VESTED IN SAID BOARD BY THE MILK-CONTROL BOARD LAW OF THE COMMONWEALTH OF PENNSYLVANIA, FOR SALES TO HOSPITALS, AND AGREES THAT IF HIS BID IS ACCEPTED, THEREBY CONSTITUTING A CONTRACT BETWEEN HIM AND THE VETERANS' ADMINISTRATION FACILITY, COATESVILLE, PA., AND SUBSEQUENTLY THERETO IT IS DETERMINED BY COMPETENT AUTHORITY THAT HIS CERTIFICATE WAS FALSE IN ANY RESPECT, HIS CONTRACT MAY BE TERMINATED AND THE COMMODITIES COVERED THEREBY PURCHASED IN THE OPEN MARKET OR OTHERWISE AND ANY EXCESS COSTS COLLECTED FROM HIM OR THE SURETY ON HIS BOND.'

IT WILL BE NOTED THAT THE PROVISION QUOTED SUPRA STIPULATES THAT CONTRACT MAY BE TERMINATED IN THE EVENT IT IS DETERMINED BY COMPETENT AUTHORITY THAT THE CERTIFICATE OF THE CONTRACTOR WAS FALSE IN ANY RESPECT AND THE COMMODITIES PURCHASED IN THE OPEN MARKET OR OTHERWISE AND ANY EXCESS COSTS COLLECTED FROM THE CONTRACTOR OR THE SURETY ON HIS BOND.

THE VETERANS' ADMINISTRATION FACILITY, COATESVILLE, PA., AWARDED CONTRACT NO. VA-111H-1080 TO ROHRER'S MED-O-FARMS DAIRY, LANCASTER, PA., FOR FURNISHING MILK AND CREAM DURING THE PERIOD JULY 1 TO SEPTEMBER 30, 1936, INCLUSIVE, WHICH CONTRACT CONTAINED THE PROVISION QUOTED SUPRA. SUBSEQUENTLY TO AWARDING THIS CONTRACT THE DEPARTMENT OF JUSTICE OF THE COMMONWEALTH OF PENNSYLVANIA IN LETTER DATED JULY 3, 1936, COPY ENCLOSED, SIGNED BY HARRY POLIKOFF, DEPUTY ATTORNEY GENERAL, STATED THAT THE DISCOUNT OFFERED BY ROHRER'S MED-O-FARMS DAIRY VIOLATED OFFICIAL GENERAL ORDER AS AMENDED BY THE MILK-CONTROL BOARD. THIS STATEMENT WAS CORROBORATED IN LETTER DATED JULY 8, 1936, COPY ENCLOSED, FROM THE MILK- CONTROL BOARD. IT BEING CONSIDERED THAT BOTH OF THESE AGENCIES OF THE COMMONWEALTH OF PENNSYLVANIA WERE COMPETENT TO DETERMINE WHETHER ROHRER'S MED-O-FARMS DAIRY VIOLATED THE REGULATIONS OF THE MILK-CONTROL BOARD, THE VETERANS' ADMINISTRATION FACILITY WAS INSTRUCTED UNDER DATE OF JULY 13, 1936, COPY ENCLOSED, TO TERMINATE CONTRACT AND TO MAKE A NEW CONTRACT, AFTER SOLICITING COMPETITIVE BIDS, TO COVER THE UNEXPIRED PORTION OF THE TERMINATED CONTRACT; THE FACILITY WAS FURTHER INSTRUCTED TO PURCHASE ITS REQUIREMENTS IN THE OPEN MARKET AT THE LOWEST PRICES AVAILABLE, PENDING CONSUMMATION OF A NEW CONTRACT, AND TO CHARGE TO ROHRER'S MED-O-FARMS DAIRY ANY EXCESS COSTS INCURRED IN THE PROCUREMENT OF MILK AND CREAM AFTER TERMINATION OF CONTRACT NO. VA-111H-1080.

IN YOUR DECISION OF DECEMBER 13, 1934 (A-58970) TO THE SECRETARY OF THE TREASURY, YOU PERMITTED CANCELATION OF THE CONTRACT WHICH VIOLATED THE FLORIDA STATE MILK-CONTROL LAW AND AGAIN UNDER YOUR DECISION OF AUGUST 30, 1935 (A-64437) TO THE VETERANS' ADMINISTRATION YOU PERMITTED THE CANCELATION OF A CONTRACT WHICH VIOLATED THE MILK-CONTROL LAW OF THE STATE OF MONTANA. IN VIEW OF THESE DECISIONS THE PROVISION QUOTED SUPRA WAS INCLUDED IN THE INVITATION FOR BIDS ISSUED BY THE VETERANS' ADMINISTRATION FACILITY, COATESVILLE, PA., SO THAT THE VETERANS' ADMINISTRATION MIGHT NOT ONLY COOPERATE WITH THE COMMONWEALTH OF PENNSYLVANIA IN AN ENDEAVOR TO ENFORCE ITS MILK CONTROL LAW BUT MIGHT ALSO PROTECT THE INTERESTS OF THE UNITED STATES.

IF THE PROCEDURE FOLLOWED BY THE VETERANS' ADMINISTRATION IN THIS CASE WAS IMPROPER OR SHOULD IN ANY RESPECT BE MODIFIED, EARLY ADVICE WILL BE APPRECIATED AND AS THERE ARE A NUMBER OF STATES THAT HAVE MILK CONTROL LAWS, THE MATTER IS OF VITAL INTEREST TO THE VETERANS' ADMINISTRATION.

FOR THE REASONS STATED IN A LETTER TODAY ADDRESSED TO COUNSEL WHO FILED PROTEST IN THE NAME OF MR. ROHRER (COPY HEREWITH) THIS OFFICE IS NOT REQUIRED TO OBJECT, ON THE FACTS NOW APPEARING, TO THE ACTION OF THE VETERANS' ADMINISTRATION IN CANCELING ROHRER'S CONTRACT, THE BID ON WHICH THE CONTRACT WAS BASED APPARENTLY NOT BEING RESPONSIVE TO THE INVITATION ON WHICH OTHER DEALERS SUBMITTED THEIR BIDS AND THEREFORE SUBVERSIVE OF BONA FIDE COMPETITION. IT WILL BE OBSERVED, HOWEVER, THAT THE DECISIONS A -58970, DATED DECEMBER 10, 1934, AND A-64437, DATED AUGUST 30, 1935, OF THE FORMER COMPTROLLER GENERAL, TO WHICH YOUR LETTER REFERS, ARE NOT AUTHORITY FOR THE ADMINISTRATIVE ACTION TAKEN IN THE PRESENT CASE. THE VIOLATION OF THE STATE LAWS APPEARED CONCEDED IN THE CASES CONSIDERED IN THE CITED DECISIONS AND THE HOLDING IN EACH INSTANCE WAS THAT THIS OFFICE WOULD NOT BE REQUIRED TO OBJECT TO CANCELATION OF THE CONTRACT IF REQUEST SHOULD BE FILED IN WRITING BY THE CONTRACTOR TO BE RELIEVED ON SUCH GROUND OF FURTHER OBLIGATION TO PERFORM.

THE CONTRACTOR IN THE PRESENT CASE NEITHER CONCEDES HIS LOW BID VIOLATED STATE LAWS NOR HAD HE REQUESTED IN WRITING TO BE RELEASED FROM THE CONTRACT ON THAT GROUND. TO THE CONTRARY, COUNSEL INSISTS IN THE PRESENT CASE THAT THE STATE LAW HAS NO APPLICATION TO SALES MADE TO THE UNITED STATES, THAT THE LOW BID OF ROHRER WAS NOT IN VIOLATION OF STATE LAW, AND THAT THE CONTRACT IN ALL RESPECTS WAS VALID.

IN DECISION A-77901 RENDERED BY ME TO THE SECRETARY OF THE INTERIOR ON JULY 31, 1936, 16 COMP. GEN. 97, IT WAS HELD AS FOLLOWS:

* * * SPECIFICATIONS ADVERTISED PURSUANT TO SECTION 3709, REVISED STATUTES, FOR THE DRAYAGE OF FEDERAL SUPPLIES MAY NOT RESTRICT THE COMPETITION TO BIDDERS QUOTING RATES PRESCRIBED BY THE PUBLIC UTILITIES COMMISSIONER OF OREGON. FURTHERMORE, IT IS NOT THE DUTY OR RESPONSIBILITY OF CONTRACTING OFFICERS OF THE FEDERAL GOVERNMENT, BY MEANS OF RESTRICTIVE SPECIFICATIONS, TO ENFORCE CARRIERS TO COMPLY WITH THE REQUIREMENTS OF MOTOR TRANSPORTATION ACTS OF A STATE.

THERE IS LANGUAGE IN THE OPINION RENDERED BY THE SUPREME COURT IN THE CASE OF PANHANDLE OIL CO. V. STATE OF MISS. EX REL KNOX, 277 U.S. 218, 56 A.L.R. 583, WHICH, WHILE USED IN CONNECTION WITH THE CONSTRUCTION OF A STATE TAXING STATUTE, NEVERTHELESS WOULD SEEM TO APPLY WITH EQUAL REASON IN THE CONSTRUCTION OF STATE STATUTES REGULATING THE SALE PRICE OF MILK OR OTHER COMMODITIES NECESSARY TO BE PURCHASED BY THE UNITED STATES. IN THIS CONNECTION THE COURT STATED THE PRINCIPLE AS FOLLOWS:

* * * THE RIGHT OF THE UNITED STATES TO MAKE SUCH PURCHASES IS DERIVED FROM THE CONSTITUTION. THE PETITIONER'S RIGHT TO MAKE SALES TO THE UNITED STATES WAS NOT GIVEN BY THE STATE AND DOES NOT DEPEND ON STATE LAWS; IT RESULTS FROM THE AUTHORITY OF THE NATIONAL GOVERNMENT UNDER THE CONSTITUTION TO CHOOSE ITS OWN MEANS AND SOURCES OF SUPPLY. WHILE MISSISSIPPI MAY IMPOSE CHARGES UPON PETITIONER FOR THE PRIVILEGE OF CARRYING ON TRADE THAT IS SUBJECT TO THE POWER OF THE STATE, IT MAY NOT LAY ANY TAX UPON TRANSACTIONS BY WHICH THE UNITED STATES SECURES THE THINGS DESIRED FOR ITS GOVERNMENTAL PURPOSES.

THE EXACTIONS DEMANDED FROM PETITIONER INFRINGE ITS RIGHT TO HAVE THE CONSTITUTIONAL INDEPENDENCE OF THE UNITED STATES IN RESPECT OF SUCH PURCHASES REMAIN UNTRAMMELED. * * *

A RESTRICTION FIXING A MINIMUM PRICE AT WHICH MILK OR CREAM MAY BE SOLD TO THE UNITED STATES FOR CONSUMPTION BY PATIENTS IN A GOVERNMENT HOSPITAL WOULD APPEAR AT LEAST AN EQUAL INFRINGEMENT OF THE CONSTITUTIONAL INDEPENDENCE OF THE UNITED STATES.

ADVERTING TO THE FINAL PARAGRAPH OF YOUR LETTER, SUPRA, CONCERNING WHETHER EXISTING PROCEDURE, AS DESCRIBED BY YOU, IS PROPER, YOU ARE INFORMED THAT THERE WOULD APPEAR TO BE AT LEAST DOUBT WHETHER STATE PRICE- FIXING STATUTES OF THE CHARACTER HERE INVOLVED HAVE ANY APPLICATION TO SALES MADE TO THE UNITED STATES OR TO ANY OF ITS AGENCIES, AND IN THAT SITUATION, THE PROCEDURE SHOULD BE SUCH AS WILL NOT PREJUDICE BUT WILL CONSERVE THE INTERESTS OF THE UNITED STATES. THEREFORE, UNTIL THERE HAS BEEN AN AUTHORITATIVE AND FINAL JUDICIAL DETERMINATION TO THE EFFECT THAT SUCH STATE STATUTES ARE APPLICABLE IN THE CASE OF SALES TO AND PURCHASES BY THE UNITED STATES, THE USES OF APPROPRIATED FUNDS MAY NOT BE APPROVED FOR THE MAKING OF ANY PAYMENTS UNDER AWARDS MADE AFTER OCTOBER 31, 1936, WHEN THE INVITATIONS ON WHICH THE AWARDS ARE MADE CONTAIN A RESTRICTIVE REQUIREMENT OF SHOWING COMPLIANCE WITH STATE PRICE-FIXING LAWS RELATING TO COMMODITIES OR ARTICLES NECESSARY TO BE PURCHASED BY THE UNITED STATES.