A-85580, JULY 12, 1937, 17 COMP. GEN. 17

A-85580: Jul 12, 1937

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ADJUSTMENT IN PRICE IS UNAUTHORIZED. 1937: THERE WAS RECEIVED YOUR LETTER OF APRIL 16. COLLECTIONS AGGREGATING $529.20 WERE ACCEPTED AND. INFORMATION WAS REQUESTED AS TO THE ACTION TAKEN TO ENFORCE COLLECTION OF $793.80 REMAINING DUE. WAS BASED UPON AN ESTIMATED QUANTITY OF 36. 000 POUNDS PER MONTH PROPORTIONATE TO MEMBERSHIP OF THE HOME AT THE TIME REQUIREMENTS WERE ADVERTISED. THE MEMBERSHIP WAS GREATLY DECREASED AS A RESULT OF THE PROVISIONS OF THE ECONOMY ACT AND THE CONTRACTOR. COLLECTIONS OF $44.10 WERE ACCEPTED TO THE END OF THE FISCAL YEAR AND APPARENTLY NO QUESTION WAS RAISED UNTIL THE GENERAL ACCOUNTING OFFICE LETTER OF JULY 31. WAS REFERRED TO THE STATION FOR REPORT. IT WAS STATED COLLECTIONS OBVIOUSLY HAD NOT BEEN MADE IN ACCORDANCE WITH CENTRAL OFFICE INSTRUCTIONS AND A STATEMENT PREPARED BY THE COMMISSARY OFFICER WAS SUBMITTED TO SHOW THE AMOUNT OF GARBAGE ACCUMULATED MONTH BY MONTH.

A-85580, JULY 12, 1937, 17 COMP. GEN. 17

SALES - ESTIMATED QUANTITIES - PARTIAL FAILURE TO FURNISH - PRICE ADJUSTMENT WHERE A CONTRACT PROVIDES FOR THE SALE OF GARBAGE FROM A VETERANS' ADMINISTRATION FACILITY ON AN ESTIMATED BASIS WITHOUT GOVERNMENT WARRANTY AS TO QUANTITY OF GARBAGE OR NUMBER OF PERSONS TO BE MAINTAINED AT THE HOSPITAL, ADJUSTMENT IN PRICE IS UNAUTHORIZED, NOTWITHSTANDING THE CONSIDERABLE REDUCTION IN GARBAGE BECAUSE OF THE DECREASE IN NUMBER OF PERSONS, THE CONTRACT PROVISION FOR TERMINATION OF THE CONTRACT NOT FORMING A LEGAL BASIS FOR MODIFICATION OF THE CONTRACT TERMS IN LIEU OF TERMINATION.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE ADMINISTRATOR OF VETERANS' AFFAIRS, JULY 12, 1937:

THERE WAS RECEIVED YOUR LETTER OF APRIL 16, 1937, AS FOLLOWS:

THE ATTENTION OF THIS ADMINISTRATION HAS BEEN DIRECTED TO CONTRACT VAM- 5135 WITH MORTON BROTHERS, JOHNSON CITY, TENNESSEE, FOR THE SALE OF SLOP AND GARBAGE DURING THE FISCAL YEAR 1934 AT THE FACILITY, JOHNSON CITY, UNDER WHICH THE CONTRACTOR AGREED TO PAY $110.25 MONTHLY OR A TOTAL OF $1,323.00. COLLECTIONS AGGREGATING $529.20 WERE ACCEPTED AND, IN GENERAL ACCOUNTING OFFICE LETTER OF JULY 31, 1936, INFORMATION WAS REQUESTED AS TO THE ACTION TAKEN TO ENFORCE COLLECTION OF $793.80 REMAINING DUE.

THE BID OF THIS FIRM, SUBMITTED JANUARY 27, 1933, WAS BASED UPON AN ESTIMATED QUANTITY OF 36,000 POUNDS PER MONTH PROPORTIONATE TO MEMBERSHIP OF THE HOME AT THE TIME REQUIREMENTS WERE ADVERTISED. HOWEVER, PRIOR TO OPERATION OF THE CONTRACT, THE MEMBERSHIP WAS GREATLY DECREASED AS A RESULT OF THE PROVISIONS OF THE ECONOMY ACT AND THE CONTRACTOR, ASSERTING HIS RIGHTS UNDER THE CANCELLATION CLAUSE, REQUESTED TERMINATION OF THE AGREEMENT OR AN ADJUSTMENT OF THE PRICE STIPULATED THEREIN.

CENTRAL OFFICE LETTER OF AUGUST 3, 1933, OUTLINED AN ADJUSTMENT REQUIRING PAYMENT IN PROPORTION TO THE ACTUAL AMOUNT OF REFUSE COLLECTED AND THE MANAGER UNDER THAT AUTHORITY FIXED A MONTHLY CHARGE OF $44.10 OR 40 PERCENT OF THE AGREED PRICE FOR THE MONTHS JULY TO OCTOBER 1933 BASED ON A SURVEY OF THE THEN CURRENT GARBAGE COLLECTIONS AND ADVISED THE SUPPLY OFFICER THAT PAYMENTS THEREAFTER SHOULD BE COMPUTED ON ACTUAL DELIVERIES AS PRESCRIBED BY CENTRAL OFFICE. COLLECTIONS OF $44.10 WERE ACCEPTED TO THE END OF THE FISCAL YEAR AND APPARENTLY NO QUESTION WAS RAISED UNTIL THE GENERAL ACCOUNTING OFFICE LETTER OF JULY 31, 1936, WAS REFERRED TO THE STATION FOR REPORT.

IN REPLY THERETO, IT WAS STATED COLLECTIONS OBVIOUSLY HAD NOT BEEN MADE IN ACCORDANCE WITH CENTRAL OFFICE INSTRUCTIONS AND A STATEMENT PREPARED BY THE COMMISSARY OFFICER WAS SUBMITTED TO SHOW THE AMOUNT OF GARBAGE ACCUMULATED MONTH BY MONTH, WHICH REPORT INDICATED ADDITIONAL MONEY TO BE DUE THE GOVERNMENT. THE GENERAL ACCOUNTING OFFICE CONCURRED IN THE AMOUNT OF INDEBTEDNESS IN LETTER OF NOVEMBER 3, 1936, AND MORTON BROTHERS WAS REQUESTED TO REMIT $241.98 BUT REFUSED ON THE GROUND THAT GARBAGE EQUAL TO THE AMOUNT STATED HAD NEVER BEEN OBTAINED.

IT IS TO BE NOTED THAT THE REPORTS OF THE COMMISSARY OFFICER SUBMITTED AUGUST 17, 1936, AND THOSE OF THE MANAGER COVERED IN MEMORANDA DATED AUGUST 9 AND SEPTEMBER 30, 1933, DIFFER AS TO QUANTITY SOLD FOR THE PERIOD JULY TO OCTOBER 1933, ALSO THAT THE NUMBER OF POUNDS NAMED BY THE FORMER IS IN EACH INSTANCE CALCULATED AS 25 PERCENT AND 75 PERCENT OF THE RATIONS FOR DOMICILIARY AND HOSPITAL, RESPECTIVELY.

IN VIEW OF THESE CONFLICTING STATEMENTS AND THE FACT THAT THE PRESENT MANAGER HAS ADVISED THAT AFTER HAVING GONE INTO THE MATTER THOROUGHLY WITH THE CONTRACTOR IT IS HIS BELIEF AMPLE COMPENSATION HAS BEEN RECEIVED, THE CASE IS PRESENTED FOR YOUR DECISION AS TO WHAT ADDITIONAL ADJUSTMENT, IF ANY, IS REQUIRED. COPIES OF LETTERS FROM THE CONTRACTOR DATED JULY 27, 1933, AND DECEMBER 9, 1936, CENTRAL OFFICE LETTER OF AUGUST 3, 1933, AND COMMUNICATIONS FROM THE FACILITY BEARING DATES OF AUGUST 9 AND SEPTEMBER 30, 1933, AUGUST 17 AND DECEMBER 9, 1936, AND JANUARY 12, 1937, ARE INCLUDED IN THIS SUBMISSION.

THE CONTRACT FOR THE SALE OF THE GARBAGE FROM THE HOSPITAL TO MORTON BROTHERS STATED "ESTIMATED QUANTITY 36,000 POUNDS PER MONTH," AND ALSO EXPRESSLY STIPULATED WITH RESPECT TO SUCH ESTIMATE THAT--- DURING THE CONTRACT PERIOD, THE ESTIMATED QUANTITY SHOWN HEREIN IS FURNISHED FOR INFORMATION ONLY AND MAY BE INCREASED OR DECREASED IN ACCORDANCE WITH ACTUAL ACCUMULATIONS OF THE ITEMS COVERED HEREUNDER, IT BEING UNDERSTOOD THAT THE VETERANS' ADMINISTRATION WILL NOT BE RELIEVED OF ITS OBLIGATION TO SELL TO THE CONTRACTOR ALL ITEMS COVERED BY THIS CONTRACT THAT MAY ACCUMULATE FOR SALE FROM TIME TO TIME DURING THE CONTRACT PERIOD AND SHALL NOT IN ANY CASE RELIEVE THE CONTRACTOR OF HIS OBLIGATION TO PURCHASE ALL SUCH ITEMS UNLESS IN SUBMITTING HIS BID HE DEFINITELY LIMITS THE TOTAL QUANTITY WHICH HE AGREES TO PURCHASE. * * *

THIS STIPULATION CLEARLY NEGATIVED ANY GOVERNMENT WARRANTY OF THE AMOUNT OR APPROXIMATE AMOUNT OF GARBAGE WHICH WOULD BE AVAILABLE, AND IT DID NOT WARRANT OR REPRESENT ANY NUMBER OR APPROXIMATE NUMBER OF PERSONS WHO WOULD BE MAINTAINED AT THE HOSPITAL. AS TO THESE MATTERS THE CONTRACTORS TOOK THE RISK, AND AGREED TO PAY $110.25 A MONTH FOR WHATEVER GARBAGE ACCUMULATED. HAD THE HOSPITAL POPULATION BEEN GREATLY INCREASED, THE GOVERNMENT COULD NOT HAVE DEMANDED ADDITIONAL COMPENSATION FROM THE CONTRACTOR, AND MANIFESTLY, THE CONTRACTOR HAVING ASSUMED THE RISK, WAS NOT ENTITLED TO A REDUCTION IN THE CONTRACT PRICE BECAUSE THE HOSPITAL POPULATION WAS REDUCED. AS WAS SAID BY THE COURT IN COCKE V. UNITED STATES (62 CT.CLS. 108, 114), INVOLVING A SIMILAR SITUATION---

* * * MEN IN LARGE NUMBERS WERE BEING TRAINED FOR THE WAR; NO DEFINITE NUMBER WOULD BE IN CAMP CONTINUOUSLY, AND HENCE THE GOVERNMENT WAS CAREFUL NOT TO GUARANTEE A DEFINITE QUANTITY OF GARBAGE. THE PLAINTIFF WAS AWARE OF THIS SITUATION AND ACCEPTED THE HAZARD. * * *

IN DECISION OF JULY 6, 1932, A-42865, TO THE SECRETARY OF WAR, IT WAS SAID:

THE CONTRACTOR HAVING BEEN, UNDER THE TERMS OF THE CONTRACT, ENTITLED TO SUCH QUANTITIES OF GARBAGE SLOP AS ACCUMULATED FROM DAY TO DAY, DEPENDING UPON THE NUMBER OF TROOPS STATIONED IN THE PLACES SPECIFIED IN THE CONTRACT, AND THE GOVERNMENT HAVING BEEN UNDER OBLIGATION TO DELIVER ONLY THE ENTIRE AMOUNT OF GARBAGE SLOP THAT ACCUMULATED, THE TRANSFERRING OF TROOPS TO ANOTHER STATION WAS A HAZARD ASSUMED BY THE CONTRACTOR, AND THERE IS NO AUTHORITY UNDER THE CONTRACT, OR OF LAW, FOR THE MODIFICATION OF THE CONTRACT SO AS TO PERMIT REMOVAL OF THE GARBAGE SLOP THAT ACCUMULATED FROM DAY TO DAY, AT A LESSER PRICE THAN SPECIFIED IN THE CONTRACT, OR TO RELIEVE THE CONTRACTOR FROM HIS OBLIGATION UNDER THE CONTRACT. * * *

IN DECISION OF APRIL 14, 1932, A-41719 (A COPY OF WHICH APPEARS TO HAVE BEEN TRANSMITTED TO YOU), INVOLVING THE CONTRACT OF F. O. WILLIAMS FOR COLLECTION AND REMOVAL OF GARBAGE FROM THE VETERANS' ADMINISTRATION HOME AT LOS ANGELES, CALIF., THE CONTRACTOR WAS ADVISED --

THERE WAS BEFORE THIS OFFICE A CONTRACT OF JULY 15, 1927, FOR THE REMOVAL OF GARBAGE FROM MARE ISLAND NAVY YARD DURING THE PERIOD FROM JULY 1, 1927, TO JUNE 30, 1931, WHERE THE CONTRACTOR ALLEGED THAT HE WAS UNABLE TO CONTINUE PERFORMANCE OF THE CONTRACT BECAUSE THE GARBAGE WAS FED TO HOGS AND THE MARKET PRICE OF HOGS HAD DROPPED SEVERAL CENTS PER POUND (A- 40609); ALSO, A CONTRACT OF MAY 15, 1931, FOR THE REMOVAL OF GARBAGE FROM THE UNITED STATES NAVAL AIR STATION AT SAN DIEGO, CALIFORNIA (A-41380). IN BOTH OF THESE CASES THIS OFFICE WAS COMPELLED TO HOLD THAT THERE WAS NO AUTHORITY UNDER THE LAW FOR THE MODIFICATIONS OF THE CONTRACTS SO AS TO PERMIT THE REMOVAL OF GARBAGE AT LESSER PRICES THAN THOSE NAMED IN THE CONTRACTS NOR TO RELIEVE THE CONTRACTORS FROM FURTHER RESPONSIBILITY FOR THE PERFORMANCE OF THE CONTRACTS DURING THE REMAINDER OF THEIR TERM.

A SIMILAR ANSWER MUST BE MADE TO YOUR REQUEST OF MARCH 25, 1932, AND YOU ARE ADVISED THAT THE CONTRACT IS FOR PERFORMANCE IN ACCORDANCE WITH ITS TERMS. * * *

THESE DECISIONS WERE ALL RENDERED PRIOR TO THE ADMINISTRATIVE ACTION IN THE PRESENT CASE, PURPORTING TO MODIFY THE CONTRACT BY SUBSTANTIALLY REDUCING THE AMOUNT THEREUNDER THE CONTRACTORS HAD AGREED TO PAY, WITH NO COMPENSATING REDUCTION IN THE CONTRACTUAL OBLIGATIONS OF THE GOVERNMENT, OR OTHER CONSIDERATION MOVING TO THE UNITED STATES IN SUPPORT OF SUCH MODIFICATION.

THE CONTRACT PROVIDED:

THIS PROPOSAL IF ACCEPTED SHALL BECOME A CONTRACT AND SHALL REMAIN IN FORCE DURING THE PERIOD ABOVE STATED (JULY 1, 1933, TO JUNE 30, 1934, INCLUSIVE) UNLESS TERMINATED AT THE REQUEST OF EITHER PARTY AFTER THIRTY (30) DAYS' NOTICE IN WRITING.

UNDER DATE OF JULY 27, 1933, THE CONTRACTORS WROTE THE MANAGER OF THE VETERANS' ADMINISTRATION HOME AT JOHNSON CITY, TENN., IN PART, AS FOLLOWS:

* * * WE FEEL SOME ADJUSTMENT SHOULD BE MADE, BASED ON THE MONTHLY POPULATION OR TONNAGE OF GARBAGE PRODUCED AND UNLESS THIS OR A SIMILAR ADJUSTMENT CAN BE MADE AT ONCE WE WILL BE FORCED TO NOTIFY YOU BY AUGUST 1ST, THAT WE CANNOT CONTINUE AT A LOSS.

THIS WAS NOT A NOTICE OF TERMINATION OF THE CONTRACT AND IN NO WAY COMMITTED OR BOUND THE CONTRACTORS, BUT WAS MERELY ADVISORY THAT UNLESS AN ADJUSTMENT WAS MADE THEY WOULD BE FORCED IN THE FUTURE TO GIVE NOTICE THAT THEY COULD NOT "CONTINUE AT A LOSS.' WHETHER ACTUAL NOTICE OF TERMINATION OF THE CONTRACT WOULD HAVE BEEN GIVEN IS PROBLEMATICAL. HOWEVER THIS MAY BE, THE RIGHT RESERVED IN THE CONTRACT TO TERMINATE IT UPON 30 DAYS' WRITTEN NOTICE GAVE THE CONTRACTORS NO LEGAL RIGHT TO A MODIFICATION OF THE CONTRACT TERMS IN LIEU OF A TERMINATION OF THE CONTRACT, AND UNLESS AND UNTIL THE CONTRACT WAS ACTUALLY TERMINATED IN ACCORDANCE WITH THE RESERVATION, IT REMAINED IN FULL FORCE AND EFFECT BINDING ALIKE ON THE GOVERNMENT AND THE CONTRACTORS. HAD THE CONTRACT ACTUALLY BEEN TERMINATED UNDER THE RESERVATION IT WOULD HAVE BEEN RELET AFTER ADVERTISING AND COMPETITIVE BIDDING, WHICH IS AN ENTIRELY DIFFERENT MATTER FROM PERMITTING THE CONTRACTORS, IN LIEU OF TERMINATION, TO OBTAIN THE ADVANTAGE OF THE EXISTING CONTRACT AT A GREATLY REDUCED PRICE. RESPECTING A SOMEWHAT SIMILAR SITUATION IT WAS SAID IN DECISION OF OCTOBER 14, 1930, A-33244, TO THE SECRETARY OF THE INTERIOR:

THERE IS NO SHOWING OR EVEN AN ALLEGATION THAT THE CONTRACTOR WOULD NOT BE ABLE TO CONTINUE BUSINESS WITHOUT A REDUCTION OF THESE CHARGES, OR THAT THE COMPANY WAS UNWILLING TO GO AHEAD WITH ITS CONTRACT OR EVEN THAT IT WAS NOT MAKING REASONABLE PROFITS UNDER THE TERMS OF THE CONTRACT. AND, HOWEVER THAT MAY BE, THE CONTRACT DOES NOT GUARANTEE THE PROFITS OF THE CONTRACTOR OR REQUIRE THE REDUCTION OF CHARGES AT THE EXPENSE OF THE UNITED STATES TO PUT THE CONTRACTOR IN A STRONGER COMPETITIVE POSITION AGAINST INDEPENDENT DEALERS. THE CONTRACT WAS APPARENTLY LET UPON A COMPETITIVE BASIS AND IS SUPPORTED BY A BOND OF $25,000 FOR ITS FAITHFUL PERFORMANCE. THE CONTRACTOR, DEALING AT ARM'S LENGTH AND WITH ITS EYES OPEN, MADE ITS BARGAIN, PRESUMABLY ON WHAT IT CONSIDERED PROFITABLE TERMS, AND UNDER NO CONCEPTION OF CONTRACT LAW EITHER IN ITS LEGAL OR ITS EQUITABLE ASPECTS IS THE CONTRACTOR ENTITLED TO A REDUCTION OF ITS OBLIGATIONS, AT THE EXPENSE OF THE UNITED STATES, TO INCREASE ITS BUSINESS AND PROFITS UNDER THE CONTRACT.

THE GENERAL MANAGER OF THE RAILROAD CITES AS AUTHORITY FOR THE REDUCTION THE PROVISION CONTAINED IN PARAGRAPH 4 OF THE CONTRACT THAT "THE AGREEMENT MAY BE MODIFIED OR TERMINATED AT ANY TIME BY MUTUAL FORMAL WRITTEN CONSENT OF THE PARTIES HERETO.' THIS PROVISION, HOWEVER, DOES NOT AUTHORIZE THE GENERAL MANAGER, GRATUITOUSLY AND AT THE EXPENSE OF THE UNITED STATES, TO RELEASE THE CONTRACTOR FROM ITS CONTRACT OBLIGATIONS. THE GENERAL MANAGER, AS CONTRACTING OFFICER, MERELY ACTS, OF COURSE, AS AN AGENT OF THE UNITED STATES. THAT SUCH AGENTS HAVE NO AUTHORITY TO RELEASE OR MODIFY WITHOUT ADEQUATE CONSIDERATION THE VESTED CONTRACT RIGHTS OF THE UNITED STATES, SEE UNITED STATES V. AMERICAN SALES CORPORATION, 27 FED. (2D) 389, AFFIRMED 32 FED. (2D) 141, AND CASES CITED.

SEE, ALSO, 14 COMP. GEN. 468, THAT NO OFFICER OR AGENT OF THE GOVERNMENT HAS AUTHORITY TO MODIFY A GOVERNMENT CONTRACT EXCEPT IN THE INTEREST OF THE UNITED STATES; PACIFIC HARDWARE CO. V. UNITED STATES, 49 CT.CLS. 327, 335, THAT "IT IS UNQUESTIONABLY TRUE THAT AN OFFICIAL OF THE GOVERNMENT IS NOT AUTHORIZED TO GIVE AWAY OR REMIT A CLAIM DUE THE GOVERNMENT; " AND BAUSCH AND LOMB OPTICAL CO. V. UNITED STATES, 78 CT. CLS. 584, 607, THAT "AGENTS AND OFFICERS OF THE GOVERNMENT HAVE NO AUTHORITY TO GIVE AWAY THE MONEY OR PROPERTY OF THE UNITED STATES, EITHER DIRECTLY OR UNDER THE GUISE OF A CONTRACT THAT OBLIGATES THE GOVERNMENT TO PAY A CLAIM NOT OTHERWISE ENFORCEABLE AGAINST IT.'

IT MUST BE HELD, ACCORDINGLY, THAT THE ATTEMPTED ADMINISTRATIVE REDUCTION OF THE CONTRACT PRICE IN THIS CASE WAS NOT AUTHORIZED AND WAS WITHOUT LEGAL EFFECT TO MODIFY THE OBLIGATIONS OF THE CONTRACTORS. THE BALANCE OF THE CONTRACT PRICE AT $110.25 A MONTH FOR THE ENTIRE PERIOD OF THE CONTRACT SHOULD BE COLLECTED FROM THE CONTRACTORS, AND, IF THE CONTRACTORS REFUSE OR FAIL TO PAY THE WHOLE AMOUNT DUE, THE BALANCE OF THE INDEBTEDNESS SHOULD BE REPORTED TO THIS OFFICE FOR SUCH ACTION AS MAY BE REQUIRED TO EFFECT COLLECTION.