A-92824, MAY 31, 1938, 17 COMP. GEN. 1030

A-92824: May 31, 1938

Additional Materials:

Contact:

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

 

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

IS DEDUCTED FROM THE CONTRACT PRICE UNDER GENERAL SCHEDULE OF SUPPLY CONTRACTS IN CONNECTION WITH SHIPMENTS TO POINTS OTHER THAN WASHINGTON ON GOVERNMENT BILLS OF LADING. IS AS FOLLOWS: REFERENCE IS MADE TO CERTIFICATES OF SETTLEMENTS NOS. 0477375 AND 0476151. WHICH WERE ISSUED IN FAVOR OF HENRY ALLEN. ATTENTION IS INVITED TO INTEGRAL PARTS OF CONTRACT TPS-14434 WHICH QUOTE: "/1) DISCOUNT WILL BE ALLOWED FOR PROMPT PAYMENT AS FOLLOWS: 10 CALENDAR DAYS. DISCOUNT WAS CONSIDERED IN CERTIFICATE OF SETTLEMENT NO. 0477375. PROPERLY FOR TAKING AFTER TRANSPORTATION TO WASHINGTON WAS DEDUCTED. DISCOUNT WAS COMPUTED IN CERTIFICATE OF SETTLEMENT NO. 0476151 INCLUDING TRANSPORTATION FROM THE CONTRACTOR'S SHIPPING POINT TO DESTINATION.

A-92824, MAY 31, 1938, 17 COMP. GEN. 1030

CONTRACTS - DISCOUNTS - GENERAL SCHEDULE OF SUPPLY CONTRACT PRICES INCLUSIVE OF FREIGHT CHARGES WHERE FREIGHT COST TO WASHINGTON, D.C., IS DEDUCTED FROM THE CONTRACT PRICE UNDER GENERAL SCHEDULE OF SUPPLY CONTRACTS IN CONNECTION WITH SHIPMENTS TO POINTS OTHER THAN WASHINGTON ON GOVERNMENT BILLS OF LADING, THE PROMPT PAYMENT DISCOUNT SHOULD BE TAKEN ON THE BASIC CONTRACT PRICE FOR WASHINGTON DELIVERY PRIOR TO SUCH FREIGHT DEDUCTION, AND NOT ON THE NET PRICE AS THUS ADJUSTED.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE SECRETARY OF THE TREASURY, MAY 31, 1938:

LETTER OF JANUARY 4, 1938, FROM THE CHIEF, FINANCE DIVISION, PROCUREMENT DIVISION, TREASURY DEPARTMENT, IS AS FOLLOWS:

REFERENCE IS MADE TO CERTIFICATES OF SETTLEMENTS NOS. 0477375 AND 0476151, PAID ON DISBURSING OFFICE VOUCHERS NOS. 955042 AND 938133, DECEMBER 20, 1937, AND DECEMBER 16, 1937, RESPECTIVELY, ACCOUNTS OF G. F. ALLEN, SYMBOL 101-100, WHICH WERE ISSUED IN FAVOR OF HENRY ALLEN, 435 BROOME STREET, NEW YORK, NEW YORK.

ATTENTION IS INVITED TO INTEGRAL PARTS OF CONTRACT TPS-14434 WHICH QUOTE:

"/1) DISCOUNT WILL BE ALLOWED FOR PROMPT PAYMENT AS FOLLOWS: 10 CALENDAR DAYS, 1 PERCENT.

"/2) FOR DIRECT DELIVERY FROM CONTRACTOR'S SHIPPING POINT ON GOVERNMENT BILL OF LADING IN ACCORDANCE WITH PARAGRAPH 6 OF SPECIAL CONDITIONS.'

DISCOUNT WAS CONSIDERED IN CERTIFICATE OF SETTLEMENT NO. 0477375, PROPERLY FOR TAKING AFTER TRANSPORTATION TO WASHINGTON WAS DEDUCTED.

DISCOUNT WAS COMPUTED IN CERTIFICATE OF SETTLEMENT NO. 0476151 INCLUDING TRANSPORTATION FROM THE CONTRACTOR'S SHIPPING POINT TO DESTINATION.

CERTIFICATE OF SETTLEMENT NO. 0477375 PROVIDED ADDITIONAL RELIEF TO THE CONTRACTOR IN THE AMOUNT OF $0.09, BEING A REDUCTION OF THE TRANSPORTATION CHARGE TO WASHINGTON, D.C., ASSESSED BY THIS OFFICE. THIS REDUCTION IS APPARENTLY BASED ON A WATER RATE (THIRD CLASS) OF $0.50 PER CWT. FOR A SHIPMENT WEIGHING 262 POUNDS MOVING FROM NEW YORK, NEW YORK, THE CONTRACT SHIPPING POINT TO WASHINGTON, D.C. ($1.31).

THIS RATE DOES NOT PROVIDE FOR DELIVERY "WITHIN THE DOORS OF THE STOREROOM" IN WASHINGTON, D.C. IN ACCORDANCE WITH THE TERMS OF THE CONTRACT THE UNIT PRICE QUOTED PROVIDES FOR SUCH DELIVERY. ATTENTION IS INVITED TO THE RAIL RATE OF $0.53 PER CWT. APPLICABLE FOR A SIMILAR SHIPMENT MOVING BETWEEN THE SAME POINTS WHICH INCLUDES PICK UP AND DELIVERY SERVICE ($1.39).

IT HAS ALWAYS BEEN THE INTERPRETATION OF THIS OFFICE THAT DISCOUNTS FOR PROMPT PAYMENT WERE PROPERLY FOR TAKING ON THE UNIT PRICE QUOTED IN THE CONTRACT IN THE MANNER FOLLOWED IN CERTIFICATE OF SETTLEMENT NO. 0476151. THE DEDUCTION OF TRANSPORTATION COSTS PRIOR TO THE COMPUTATION OF TIME DISCOUNT, WHERE THE PRICE BID INCLUDES AN INDETERMINATE ELEMENT OF TRANSPORTATION, WOULD NOT APPEAR TO BE IN ACCORDANCE WITH THE TERMS OF THE CONTRACT NOR IN THE BEST INTERESTS OF THE UNITED STATES. YOUR FURTHER ADVICE IN THIS MATTER IS REQUESTED.

THE QUESTIONED COMPUTATION OF DISCOUNT IN SETTLEMENT NO. 0477375 WAS IN ACCORDANCE WITH DECISION A-53852, APRIL 4, 1934, BY THE FORMER COMPTROLLER GENERAL TO THE ADMINISTRATOR OF VETERANS' AFFAIRS, HOLDING THAT WHERE FREIGHT IS DEDUCTED FROM THE CONTRACT PRICE UNDER GENERAL SUPPLY CONTRACTS FOR DELIVERIES TO POINTS OTHER THAN WASHINGTON, D.C., SHIPPED ON GOVERNMENT BILLS OF LADING, THE PROMPT PAYMENT DISCOUNT SHOULD BE TAKEN ONLY ON THE NET PRICE AS THUS ADJUSTED.

THE MATTER IS NOT FREE FROM DOUBT, HOWEVER, AND APPLYING THE PRINCIPLES INVOLVED IN AGREEMENTS FOR PROMPT PAYMENT DISCOUNTS TO THE TERMS OF THE PRESENT CONTRACT, THE VIEW APPEARS WARRANTED THAT THE GOVERNMENT WAS ENTITLED TO THE DISCOUNT ON THE GROSS CONTRACT PRICE, THAT IS, ON THE BASIC PRICE FOR WASHINGTON DELIVERY PRIOR TO DEDUCTION FOR FREIGHT PAID BY THE GOVERNMENT FOR DELIVERY AT SOME OTHER POINT.

THE CONTRACT IN QUESTION IS GENERAL SCHEDULE OF SUPPLY CONTRACT NO. TPS- 14434, DATED OCTOBER 16, 1936, WITH HENRY ALLEN, NEW YORK CITY, FOR FURNISHING CERTAIN HOSPITAL SUPPLIES AS ORDERED DURING THE PERIOD OCTOBER 1, 1936, TO SEPTEMBER 30, 1937. THE CONTRACTOR'S ACCEPTED BID, BY EXPRESS REFERENCE MADE A PART OF THE CONTRACT, IS IN PART AS FOLLOWS:

IN COMPLIANCE WITH YOUR INVITATION FOR BIDS TO FURNISH MATERIALS AND SUPPLIES LISTED ON THE ACCOMPANYING SCHEDULE, THE UNDERSIGNED, HENRY ALLEN * * * HEREBY PROPOSES TO FURNISH, WITHIN THE TIME SPECIFIED, THE MATERIALS AND SUPPLIES AT THE PRICES STATED OPPOSITE THE RESPECTIVE ITEMS LISTED ON THE SCHEDULE. * * *

DISCOUNT WILL BE ALLOWED FOR PROMPT PAYMENT AS FOLLOWS: 10 CALENDAR DAYS 1 PERCENT * * *.

PARAGRAPH 4 OF THE SPECIAL CONDITIONS, WHICH WERE A PART OF THE BID AND WHICH BY EXPRESS REFERENCE WERE MADE A PART OF THE FORMAL CONTRACT, PROVIDED THAT "PRICES BID MUST COVER DELIVERY TO THE ORDERING OFFICE IN WASHINGTON, D.C., AS PROVIDED FOR IN PARAGRAPH 6 BELOW.' PARAGRAPH 6 PROVIDED THAT "DELIVERIES IN THE DISTRICT OF COLUMBIA MUST BE MADE, AT THE EXPENSE OF THE CONTRACTOR, WITHIN THE DOORS OF THE STOREROOM DESIGNATED IN THE ORDER.' IT IS CLEAR, THEREFORE, THAT THE "PRICES STATED OPPOSITE THE RESPECTIVE ITEMS LISTED ON THE SCHEDULE," ON WHICH THE PROMPT PAYMENT DISCOUNT WAS OFFERED, WERE BASED ON THE PAYMENT BY THE CONTRACTOR OF ALL TRANSPORTATION CHARGES TO COMPLETE DELIVERY IN THE DISTRICT OF COLUMBIA.

WHILE THESE PRICES, ON THE AMOUNTS OF WHICH THE PROMPT PAYMENT DISCOUNT WAS OFFERED, WERE BASED ON WASHINGTON DELIVERY, PARAGRAPH 6 (B) OF THE SPECIAL CONDITIONS PROVIDED THAT SHIPMENTS WEIGHING MORE THAN 100 POUNDS MOVING TO ANY POINT OTHER THAN WASHINGTON, D.C., SHOULD BE MADE ON GOVERNMENT BILL OF LADING, AND THAT THE CONTRACTOR THEREUPON SHOULD DEDUCT FROM THE CONTRACT (WASHINGTON) PRICE "THE COST OF FREIGHT FROM HIS SHIPPING POINT TO WASHINGTON, BASED ON THE LOWEST REGULARLY ESTABLISHED RATE AS PUBLISHED BY OR ON FILE WITH THE INTERSTATE COMMERCE COMMISSION OR THE UNITED STATES SHIPPING BOARD.' THE EFFECT OF THIS IS MERELY THAT THE GOVERNMENT WOULD ITSELF PAY TRANSPORTATION CHARGES ON SHIPMENTS (OF MORE THAN 100 POUNDS) ORDERED FOR DELIVERY AT POINTS OTHER THAN WASHINGTON, THUS SAVING THE CONTRACTOR THE AMOUNT INCLUDED IN THE CONTRACT PRICES FOR TRANSPORTATION TO WASHINGTON, AND IN RETURN THE CONTRACTOR SHOULD DEDUCT THE AMOUNT THUS SAVED FROM HIS CONTRACT PRICE, GIVING THE CONTRACTOR THE SAME NET RETURN HE WOULD HAVE HAD IF THE SHIPMENT HAD BEEN MADE TO WASHINGTON WITH TRANSPORTATION COSTS PREPAID, AS PRIMARILY CONTEMPLATED BY THE CONTRACT. THE QUESTION IS WHETHER IN SUCH EVENT THE GOVERNMENT IS ENTITLED TO THE PROMPT PAYMENT DISCOUNT ON THE BASIC (WASHINGTON) CONTRACT PRICE, ON WHICH THE DISCOUNT WAS OFFERED, OR ONLY ON THE NET AMOUNT TO BE PAID IN CASH AFTER THE DEDUCTION OF TRANSPORTATION COSTS TO WASHINGTON. IF THE DISCOUNT BE TAKEN ONLY ON THE AMOUNT ACTUALLY TO BE PAID AFTER DEDUCTION OF TRANSPORTATION COSTS INCLUDED IN THE BASIC CONTRACT PRICE, THE RESULT IS TO GIVE THE CONTRACTOR A LARGER NET RETURN ON SHIPMENTS TO OTHER POINTS THAN ON SHIPMENTS TO WASHINGTON. THIS IS NOT CONTEMPLATED BY THE CONTRACT.

IN DECISION OF APRIL 27, 1926, 5 COMP. GEN. 868, 869, IT WAS SAID:

* * * THE CUSTOM OF ALLOWING DISCOUNTS FOR PROMPT PAYMENT, OR PAYMENT WITHIN A SPECIFIED TIME, IS BASED ON THE THEORY THAT USE OF THE MONEY TIED UP IN THE SHIPMENT WILL BE WORTH TO THE VENDOR THE AMOUNT OF THE DISCOUNT OFFERED. AND FROM THE STANDPOINT OF THE VENDEE, IN DETERMINING WHETHER THE OPTION TO PAY WITHIN THE DISCOUNT PERIOD SHALL BE EXERCISED, THERE IS FOR CONSIDERATION WHETHER THE USE OF THE MONEY BEYOND THE DISCOUNT PERIOD WILL BE OF MORE BENEFIT THAT THE AMOUNT OF THE DISCOUNT. THEREFORE, IT IS IMMATERIAL AS TO WHAT PART OF THE AMOUNT INVOLVED REPRESENTS TO THE VENDOR ORIGINAL COST, HANDLING CHARGES, PROFIT, DELIVERY CHARGES, ETC.

IN THE PRESENT CASE THE CONTRACTOR AGREED IN ADVANCE TO ALLOW THE GOVERNMENT A PROMPT PAYMENT DISCOUNT ON CONTRACT PRICES INCLUDING PREPAID TRANSPORTATION COSTS TO WASHINGTON. SUCH PRICES REPRESENTED THE AMOUNTS "TIED UP IN THE SHIPMENT" IF DELIVERY ACTUALLY WAS MADE AT WASHINGTON. SHIPMENTS TO OTHER POINTS, WHILE THE CONTRACTOR WAS NOT REQUIRED TO TIE UP HIS OWN MONEY IN TRANSPORTATION COSTS, THE REASON FOR THIS WAS THAT SHIPMENT WAS MADE ON GOVERNMENT BILL OF LADING FURNISHED IN ADVANCE, THE GOVERNMENT THUS SAVING THE CONTRACTOR THE NECESSITY OF ADVANCING HIS OWN MONEY SO THAT HE HAD THE USE OF SUCH MONEY EVEN BEFORE THE TIME STIPULATED FOR PAYMENT TO EARN THE DISCOUNT. IN EFFECT THE GOVERNMENT PAID THE BASIC CONTRACT PRICE PARTLY IN CASH AND PARTLY BY ASSUMING IN ADVANCE THE TRANSPORTATION COSTS INCLUDED IN THE CONTRACT PRICE, AND AS THE CONTRACTOR THUS HAD THE USE OF THE TRANSPORTATION MONEY WHICH OTHERWISE HE WOULD HAVE BEEN REQUIRED TO LAY OUT, THERE APPEARS NO COMPELLING REASON FOR EXCLUDING SUCH PART OF THE CONTRACT PRICE IN THE COMPUTATION OF THE PROMPT PAYMENT DISCOUNT OFFERED ON THE CONTRACT PRICE.

THE CASE WOULD BE ENTIRELY DIFFERENT, OF COURSE, IF THERE HAD BEEN NO PRIOR AGREEMENT BETWEEN THE PARTIES FOR A PROMPT PAYMENT DISCOUNT BASED ON STIPULATED PRICES, AND, WITHOUT ANY SUCH PROVISION, THE CONTRACTOR IN BILLING THE GOVERNMENT FOR THE NET CASH BALANCE DUE FOR THE SUPPLIES HAD VOLUNTARILY OFFERED A DISCOUNT FOR PROMPT PAYMENT. BUT HERE THE DISCOUNT ON THE STIPULATED PRICES WAS A MATTER OF PRIOR AGREEMENT, AND THE COMPUTATION OF THE DISCOUNT ON SUCH STIPULATED PRICES, EVEN THOUGH THE GOVERNMENT WAS ENTITLED TO A DEDUCTION THEREFROM FOR TRANSPORTATION FURNISHED, IS IN HARMONY WITH THE LONG ESTABLISHED RULE THAT PROMPT PAYMENT DISCOUNTS ACCRUE TO THE GOVERNMENT ON THE WHOLE CONTRACT PRICE IRRESPECTIVE OF DEDUCTIONS DUE THE GOVERNMENT FOR LIQUIDATED DAMAGES. SEE 6 COMP. GEN. 692. SEE, ALSO, 17 COMP. GEN. 580, HOLDING THAT PROMPT PAYMENT DISCOUNT ACCRUES TO THE GOVERNMENT ON THE WHOLE CONTRACT PRICE FOR NEW AUTOMOBILES, EVEN THOUGH A PART OF SUCH PRICE IS LIQUIDATED BY THE TRADE-IN OF OLD AUTOMOBILES.

IT IS HELD, ACCORDINGLY, THAT ON THE TRANSACTION IN QUESTION, THE GOVERNMENT WAS ENTITLED TO TAKE THE DISCOUNT ON THE WHOLE CONTRACT PRICE, INSTEAD OF ON THE BALANCE AFTER DEDUCTION OF TRANSPORTATION COSTS, AS COMPUTED IN THE SETTLEMENT. TO THE EXTENT THAT THE DECISION OF APRIL 4, 1934, SUPRA, TO THE ADMINISTRATOR OF VETERANS' AFFAIRS IS TO THE CONTRARY, IT WILL NO LONGER BE FOLLOWED.

RESPECTING THE MATTER OF COMPUTING DEDUCTIONS FOR TRANSPORTATION FURNISHED BY THE GOVERNMENT TO INCLUDE THE COST OF DELIVERY "WITHIN THE DOORS OF THE STOREROOM" AT WASHINGTON, AS EXPRESSLY REQUIRED BY THE CONTRACT, YOU ARE ADVISED THAT AS THE REGULARLY ESTABLISHED AND PUBLISHED RAIL RATES FOR PRACTICALLY ALL LESS-THAN-CARLOAD SHIPMENTS TO WASHINGTON, D.C., INCLUDE AS AN INTEGRAL PART THEREOF THE COST OF LOCAL DELIVERY AT WASHINGTON, THAT IS,"PICK UP AND DELIVERY," 218 I.C.C. 441, AND AS GENERAL SUPPLY CONTRACTS OBLIGATE CONTRACTORS FOR THE STIPULATED CONTRACT PRICES TO MAKE DELIVERIES WITHIN THE STOREROOM DOORS AT WASHINGTON, DEDUCTIONS FROM THE CONTRACT PRICE FOR TRANSPORTATION FURNISHED BY THE GOVERNMENT TO OTHER POINTS SHOULD ORDINARILY BE BASED ON SUCH PUBLISHED RAIL RATES INCLUDING LOCAL DELIVERY AT WASHINGTON. HOWEVER, SUCH CONTRACTS EXPRESSLY PROVIDE FOR DEDUCTION ONLY OF THE CONTRACTOR'S COST OF FREIGHT TO WASHINGTON BASED ON "THE LOWEST REGULARLY ESTABLISHED RATE AS PUBLISHED BY OR ON FILE WITH THE INTERSTATE COMMERCE COMMISSION OF THE UNITED STATES SHIPPING BOARD" AND WHERE SUCH LOWEST PUBLISHED RATE FOR THE COMMODITY OR CHARACTER OF SHIPMENT INVOLVED, WHETHER BY RAIL OR WATER, DOES NOT INCLUDE LOCAL DELIVERY AT WASHINGTON, THE CITED CONTRACT LANGUAGE MIGHT WELL BE TAKEN AS EXCLUDING A DEDUCTION OF SUCH DELIVERY COSTS IN ADDITION TO FREIGHT TO WASHINGTON AT SUCH LOWEST PUBLISHED RATES. IF IT BE ADMINISTRATIVELY CONSIDERED THAT THE LOCAL DELIVERY COSTS SHOULD BE DEDUCTED IN ALL SUCH CASES--- AND THIS WOULD APPEAR CONSISTENT WITH THE GENERAL PURPOSE CONTEMPLATED BY THE CONTRACTS TO GIVE THE CONTRACTOR THE SAME NET RETURN ON SHIPMENTS MADE EITHER TO WASHINGTON OR TO FIELD POINTS- -- THE CONTRACT LANGUAGE SHOULD BE MODIFIED TO PROVIDE EXPRESSLY FOR SUCH DEDUCTION WHERE LOCAL DELIVERY AT WASHINGTON IS NOT INCLUDED IN THE LOWEST PUBLISHED RATE. THE PROVISION FOR SUCH DEDUCTION SHOULD PREFERABLY BE AT A STIPULATED FIXED RATE, SUCH AS THE 5 CENTS PER HUNDRED POUNDS USED BY THE RAIL CARRIERS IN MAKING ALLOWANCES TO CONSIGNEES OR OTHERS MAKING THEIR OWN DELIVERIES WHERE THE PUBLISHED RATE INCLUDES PICK UP AND DELIVERY.