A-89844, AUGUST 2, 1938, 18 COMP. GEN. 114

A-89844: Aug 2, 1938

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CONTRACTOR'S CLAIM FOR REFUND OF CONTRACT PRICE DEDUCTIONS MAY NOT BE PAID WHERE BASED UPON AN AGREEMENT TO ACCEPT DELIVERIES FAR BELOW CONTRACT SPECIFICATIONS WITH ONLY A NOMINAL REDUCTION IN PRICE WHEN THE DIFFERENCE IN MARKET PRICE OF THE ARTICLES DELIVERED AND THOSE REQUIRED UNDER THE SPECIFICATIONS WAS MANY TIMES GREATER. PARTICULARLY WHERE THERE IS. 1938: YOU HAVE REQUESTED A REVIEW OF SETTLEMENT OF MARCH 7. THE CITED FEDERAL SPECIFICATIONS ARE IN PERTINENT PART AS FOLLOWS: TYPE. THUS YOU WERE CONTRACTUALLY OBLIGATED TO FURNISH OYSTERS AVERAGING NOT MORE THAN 250 TO THE GALLON. YOUR FIRST SHIPMENT WAS REJECTED BECAUSE IT AVERAGED ALMOST 400 OYSTERS TO THE GALLON. WAS ALMOST FOUR GRADES BELOW YOUR CONTRACT.

A-89844, AUGUST 2, 1938, 18 COMP. GEN. 114

CONTRACTS - MODIFICATIONS PREJUDICAL TO GOVERNMENT'S INTERESTS - PRICE REDUCTION DISPROPORTIONATE TO DELIVERY DEFICIENCIES AS CONTRACTING OFFICERS MAY NOT LEGALLY MODIFY EXISTING GOVERNMENT CONTRACTS EXCEPT IN THE INTEREST OF THE UNITED STATES, CONTRACTOR'S CLAIM FOR REFUND OF CONTRACT PRICE DEDUCTIONS MAY NOT BE PAID WHERE BASED UPON AN AGREEMENT TO ACCEPT DELIVERIES FAR BELOW CONTRACT SPECIFICATIONS WITH ONLY A NOMINAL REDUCTION IN PRICE WHEN THE DIFFERENCE IN MARKET PRICE OF THE ARTICLES DELIVERED AND THOSE REQUIRED UNDER THE SPECIFICATIONS WAS MANY TIMES GREATER, PARTICULARLY WHERE THERE IS, IN EFFECT, AN ADMISSION BY THE CONTRACTOR OF OVERPAYMENTS UNDER OTHER CONTRACTS AS A RESULT OF DELIVERIES OF LIKE SUPPLIES ALSO NOT MEETING THE SPECIFICATIONS.

ACTING COMPTROLLER GENERAL ELLIOTT TO HARRY ROCHESTER CO., INC., AUGUST 2, 1938:

YOU HAVE REQUESTED A REVIEW OF SETTLEMENT OF MARCH 7, 1938, DISALLOWING YOUR CLAIM FOR $47.52 DEDUCTED FROM YOUR INVOICE PRICE FOR 160 GALLONS OF OYSTERS FURNISHED THE VETERANS' ADMINISTRATION FACILITY, WADSWORTH, KANS., DURING OCTOBER 1936.

BY CONTRACT CONSISTING OF YOUR PROPOSAL OF SEPTEMBER 11, 1936, AND ACCEPTANCE OF SEPTEMBER 15, 1936, YOU AGREED TO DELIVER AT THE SAID FACILITY 160 GALLONS OF "OYSTERS PER FED.SPEC. PP-O-956-A; GRADE B," FOR $1.45 A GALLON, LESS 2 PERCENT DISCOUNT FOR PAYMENT WITHIN 10 DAYS, 80 GALLONS TO BE DELIVERED ON OCTOBER 15 AND 80 GALLONS ON OCTOBER 29. THE CITED FEDERAL SPECIFICATIONS ARE IN PERTINENT PART AS FOLLOWS:

TYPE.--- FRESH OYSTERS SHALL BE OF BUT ONE TYPE, AS SPECIFIED HEREIN.

GRADES.--- FRESH OYSTERS SHALL BE SUCH OF THE FOLLOWING GRADES AS MAY BE SPECIFIED IN INVITATION FOR BIDS:

GRADE A.--- AVERAGING 150-200 OYSTERS PER GALLON.

GRADE B.--- AVERAGING 200-250 OYSTERS PER GALLON.

GRADE C.--- AVERAGING 250-300 OYSTERS PER GALLON.

THUS YOU WERE CONTRACTUALLY OBLIGATED TO FURNISH OYSTERS AVERAGING NOT MORE THAN 250 TO THE GALLON. YOUR FIRST SHIPMENT WAS REJECTED BECAUSE IT AVERAGED ALMOST 400 OYSTERS TO THE GALLON. ALTHOUGH NOT COVERED BY THE FEDERAL SPECIFICATIONS, THIS SIZE, USING THE SCALE OF SUCH SPECIFICATIONS, WAS ALMOST FOUR GRADES BELOW YOUR CONTRACT. UPON YOUR REQUEST, THE SUPPLY OFFICER AT THE FACILITY KEPT AND USED THE SMALL OYSTERS SUBJECT TO A PRICE ADJUSTMENT, AND LATER ADVISED YOU THAT THE CONTRACT PRICE WOULD BE REDUCED 5 CENTS A GALLON. WHILE THIS NOTIFICATION WAS IN THE MAIL YOU WROTE THE SUPPLY OFFICER THAT THE LARGER OYSTERS WERE DIFFICULT TO OBTAIN AND THAT IF HE WOULD PERMIT YOU TO FURNISH OYSTERS OF NOT MORE THAN 350 TO THE GALLON YOU WOULD REDUCE YOUR CONTRACT PRICE 10 CENTS A GALLON ON THE REMAINING 80 GALLONS. THE SUPPLY OFFICER AGREED TO THIS BUT WHEN A VOUCHER WAS SUBMITTED FOR PAYMENT ON THE BASIS OF 80 GALLONS AT $1.40 A GALLON AND 80 GALLONS AT $1.35 A GALLON PURSUANT TO THESE ARRANGEMENTS WITH THE SUPPLY OFFICER, THE DIRECTOR OF FINANCE, VETERANS' ADMINISTRATION MADE A DEDUCTION OF $47.52 ON THE BASIS OF A DEPARTMENT OF AGRICULTURE REPORT THAT AT THE TIME AND PLACE OF DELIVERY THE DIFFERENCE IN MARKET VALUE BETWEEN THE OYSTERS CONTRACTED FOR AND THE OYSTERS FURNISHED WAS 35 CENTS A GALLON, AND THAT THE GOVERNMENT WAS ENTITLED TO THE OFFERED 2 PERCENT DISCOUNT FROM THE PRICE SO ADJUSTED TO $1.10 A GALLON BECAUSE DELAY IN PAYMENT WAS DUE TO YOUR FAILURE TO FURNISH OYSTERS IN ACCORDANCE WITH THE CONTRACT. YOUR CLAIM FOR PAYMENT OF THE AMOUNT SO DEDUCTED WAS REFERRED TO THIS OFFICE FOR SETTLEMENT ADMINISTRATIVELY DISAPPROVED BY THE VETERANS' ADMINISTRATION.

THE DISALLOWANCE OF YOUR CLAIM MUST BE SUSTAINED FOR THE FOLLOWING REASONS:

1. THERE APPEARS NO BASIS FOR HOLDING THAT THE REDUCTION OF 35 CENTS A GALLON WAS UNREASONABLE. NOT ONLY DID THE DEPARTMENT OF AGRICULTURE UPON PARTICULAR INVESTIGATION OF THE MATTER REPORT A DIFFERENCE OF 35 CENTS A GALLON IN THE MARKET PRICE AT THE TIME BETWEEN OYSTERS 200-250 TO THE GALLON AND OYSTERS 300-400 TO THE GALLON, BUT YOUR BID OF SEPTEMBER 11, 1936, SHOWS A DIFFERENCE OF 55 CENTS A GALLON BETWEEN GRADE A, 150-200 TO THE GALLON, AND GRADE B, 200-250 TO THE GALLON. IF THERE WAS A DIFFERENCE OF 55 CENTS A GALLON BETWEEN GRADE A AND GRADE B, THERE WOULD SEEM TO BE LITTLE QUESTION THAT THERE WAS AT LEAST A DIFFERENCE OF 35 CENTS BETWEEN GRADE B AND OYSTERS SOME THREE OR FOUR GRADES LOWER ON THE SAME SCALE.

2. CONTRACTING OFFICERS MAY NOT LEGALLY MODIFY EXISTING GOVERNMENT CONTRACTS EXCEPT IN THE INTEREST OF THE UNITED STATES. CHRISTIE V. UNITED STATES, 237 U.S. 234; PACIFIC HARDWARE CO. V. UNITED STATES, 49 CT.CLS. 327, 335, 337; BAUSCH AND LOMB OPTICAL CO. V. UNITED STATES, 78 CT.CLS. 584, 607; AMERICAN SALES CORPORATION V. UNITED STATES, 27 F./2D) 389, AFFIRMED 37 F./2D) 141, CERTIORARI DENIED, 280 U.S. 574; SHIPMAN V. DISTRICT OF COLUMBIA, 18 CT.CLS. 291; PREIS AND CO. V. UNITED STATES, 58 CT.CLS. 81. THE ACTION OF THE SUPPLY OFFICER HERE IN AGREEING TO ACCEPT OYSTERS BELOW CONTRACT SPECIFICATIONS AT A REDUCTION OF ONLY 5 AND 10 CENTS A GALLON WHEN THE DIFFERENCE IN MARKET PRICE WAS 35 CENTS A GALLON MAY NOT BE ACCEPTED AS BINDING THE UNITED STATES. THE ALLEGED CIRCUMSTANCE THAT DUE TO UNANTICIPATED CONDITIONS YOUR CONTRACT PRICE WAS TOO LOW TO AFFORD YOU A PROFIT IS NOT MATERIAL AND GAVE YOU NO RIGHT TO SUBSTITUTE INFERIOR SUPPLIES OR TO A CONTRACT PRICE ADJUSTMENT LESS THAN THE DIFFERENCE IN MARKET VALUE OF THE SUPPLIES.

3. IN YOUR LETTER OF OCTOBER 21, 1936, TO THE SUPPLY OFFICER REQUESTING TO BE PERMITTED TO FURNISH SMALLER OYSTERS THAN REQUIRED BY YOUR CONTRACT, YOU STATED:

THERE ARE OTHER INSTITUTIONS WITH WHICH WE HAVE CONTRACTS FOR GRADE B OYSTERS, AND THEY ACCEPT OYSTERS THAT ARE SMALLER THAN SPECIFICATIONS WITHOUT ANY COMPLAINTS. * * *

THIS INDICATES A POSSIBLE PRACTICE OF UNDER-BIDDING THE MARKET AND DEPENDING ON THE ACCEPTANCE OF INFERIOR SUPPLIES TO MAKE A PROFIT. HOWEVER THAT MAY BE, AS STATED IN THE DISALLOWANCE OF YOUR CLAIM, THIS STATEMENT IS IN EFFECT AN ADMISSION THAT YOU HAVE BEEN OVERPAID UNDER OTHER CONTRACTS. IN YOUR LETTER REQUESTING A REVIEW YOU EXPLAIN THE SAID STATEMENT AS FOLLOWS:

* * * THE FACTS ARE THAT WHEN WE DID THIS, THE SPECIFICATIONS SPECIFICALLY MENTIONED GRADE B OYSTERS EXCEPT AS TO SIZE.

AS SHOWN ABOVE, THE SPECIFICATION "GRADE B" REFERS ONLY TO SIZE AND NOT TO TYPE OR QUALITY. THEREFORE, YOUR EXPLANATION APPEARS DEVOID OF MERIT.