A-95061, MAY 27, 1938, 17 COMP. GEN. 1015

A-95061: May 27, 1938

Additional Materials:

Contact:

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

 

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

WHICH WAS AT A LOWER RATE THAN STATED IF OWNERSHIP REMAINED IN THE CONTRACTOR. WAS ACCEPTED AFTER THE TERMS OF THE CONTRACT WERE FULLY EXPLAINED TO THE CONTRACTOR. CONTRACTOR IS LEGALLY LIABLE TO FURNISH THE BOAT. IT MUST TAKE THE BOAT "AS IS. AS FOLLOWS: REFERENCE IS MADE TO CONTRACT PW-280.54 ENTERED INTO BY THE PUBLIC WORKS ADMINISTRATION WITH FRANK A. THE CIRCUMSTANCES IN CONNECTION WITH THE AWARD OF THIS CONTRACT ARE AS FOLLOWS: IN RESPONSE TO INVITATIONS ISSUED BY THE PROJECT ENGINEER FOR THE FURNISHING OF A BOAT. BIDS WERE RECEIVED FROM FRANK A. THE LOWEST BID WAS THAT OF FRANK A. IT WAS DEEMED ADVISABLE PRIOR TO THE AWARD OF THE CONTRACT TO FULLY EXPLAIN TO MR. THIS WAS DONE. BEGIN DELIVERY ACCORDING TO THE TERMS OF HIS OFFER IF IT WERE ACCEPTED BY THE GOVERNMENT.

A-95061, MAY 27, 1938, 17 COMP. GEN. 1015

CONTRACTS - RENTAL PURCHASE - MISTAKE IN BID - EQUIPMENT DISABLEMENT - CONTRACTOR'S LIABILITY DURING RENTAL PERIOD AND AT TIME OF EXERCISING OF OPTION WHERE CONTRACTOR'S OFFER TO RENT A BOAT, WITH OPTION TO PURCHASE AND APPLY ALL RENTAL PAYMENTS TO PURCHASE PRICE, WHICH WAS AT A LOWER RATE THAN STATED IF OWNERSHIP REMAINED IN THE CONTRACTOR, WAS ACCEPTED AFTER THE TERMS OF THE CONTRACT WERE FULLY EXPLAINED TO THE CONTRACTOR, AND THE BOAT BROKE DOWN WHILE IN USE, REQUIRING A NEW MOTOR, CONTRACTOR IS LEGALLY LIABLE TO FURNISH THE BOAT, OR ONE EQUALLY SUITABLE, FOR THE RENTAL PERIOD AT THE RENTAL STIPULATED, NOTWITHSTANDING THE ALLEGATION OF MISTAKE IN BID, BUT, AS HE DID NOT GUARANTEE THE BOAT TO BE IN ANY PARTICULAR CONDITION AT CONCLUSION OF RENTAL PERIOD, IF THE GOVERNMENT EXERCISES THE OPTION TO PURCHASE THE BOAT AT THAT TIME BY APPLICATION OF THE PAID RENTAL, IT MUST TAKE THE BOAT "AS IS," THE CONTRACTOR NOT BEING REQUIRED TO REPLACE THE MOTOR.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE ADMINISTRATOR, FEDERAL EMERGENCY ADMINISTRATION OF PUBLIC WORKS, MAY 27, 1938:

THERE HAS BEEN RECEIVED YOUR LETTER OF MAY 18, 1938, AS FOLLOWS:

REFERENCE IS MADE TO CONTRACT PW-280.54 ENTERED INTO BY THE PUBLIC WORKS ADMINISTRATION WITH FRANK A. JERNSTEDT, 3 LAIRD AVENUE, NEPTUNE CITY, NEW JERSEY, COVERING THE RENTAL OF A BOAT FOR USE IN THE INSPECTION OF THE BAYONNE, NEW JERSEY, PORT TERMINAL PROJECT.

THE CIRCUMSTANCES IN CONNECTION WITH THE AWARD OF THIS CONTRACT ARE AS FOLLOWS:

IN RESPONSE TO INVITATIONS ISSUED BY THE PROJECT ENGINEER FOR THE FURNISHING OF A BOAT, BIDS WERE RECEIVED FROM FRANK A. JERNSTEDT, ROBERT J. KIRKLAND, JR., AND LEWIS STACK. THE LOWEST BID WAS THAT OF FRANK A. JERNSTEDT UNDER ITEM 2 OF THE SPECIFICATIONS, WHICH GRANTED THE GOVERNMENT AN OPTION TO PURCHASE THE BOAT AT ANY TIME DURING THE RENTAL PERIOD WITH ALL OF THE RENT PAID AT THE TIME OF PURCHASE TO APPLY AGAINST THE PURCHASE PRICE. HOWEVER, IT SEEMED TO BE APPARENT THAT THE BIDDER HAD EITHER MADE A MISTAKE IN THE AMOUNT OF HIS BID OR THAT HE HAD MISUNDERSTOOD THE SPECIFICATIONS. UNDER ITEM 1, WHICH DIFFERED FROM ITEM 2 ONLY WITH RESPECT TO THE PURCHASE AGREEMENT, MR. JERNSTEDT PROPOSED TO RENT HIS BOAT FOR AN INDEFINITE TIME AT $450 PER MONTH, RETAINING FULL OWNERSHIP IN THE SAME; AND UNDER ITEM 2, HE PROPOSED TO RENT THE SAME BOAT, FURNISHING THE SAME SERVICE AND SUPPLIES, FOR $350 PER MONTH, WITH THE RENTAL TO APPLY AGAINST THE PURCHASE PRICE, WHICH WOULD RESULT IN HIS LOSS OF OWNERSHIP WITHIN A PERIOD OF A LITTLE MORE THAN FIVE MONTHS. IT WAS DEEMED ADVISABLE PRIOR TO THE AWARD OF THE CONTRACT TO FULLY EXPLAIN TO MR. JERNSTEDT JUST WHAT WOULD BE REQUIRED OF HIM UNDER THE TERMS OF THE CONTRACT. THIS WAS DONE, AND MR. JERNSTEDT STATED THAT ALTHOUGH HE HAD NOT INTENDED THAT THIS ENTIRE RENTAL WOULD BE APPLIED AGAINST THE PURCHASE PRICE, HE WOULD, NEVERTHELESS, BEGIN DELIVERY ACCORDING TO THE TERMS OF HIS OFFER IF IT WERE ACCEPTED BY THE GOVERNMENT. ACCORDINGLY THE AWARD WAS MADE AND SERVICE UNDER THE CONTRACT WAS BEGUN ON JANUARY 24, 1938.

CONSIDERABLE DIFFICULTY WAS EXPERIENCED WITH THE BOAT FURNISHED UNDER THE CONTRACT AND IT FINALLY BROKE DOWN, AND IT IS UNDERSTOOD THAT IT WILL NOW BE NECESSARY TO REPLACE THE MOTOR AT A COST OF $800. AT THE PRESENT TIME MR. JERNSTEDT IS FULFILLING THE TERMS OF THE CONTRACT BY FURNISHING A BOAT RENTED BY HIM FROM ROBERT J. KIRKLAND, JR., ONE OF THE UNSUCCESSFUL BIDDERS, AND THIS BOAT IS GIVING VERY SATISFACTORY SERVICE.

THE CONTRACTOR HAS NOW OBJECTED TO THE TERMS OF THE CONTRACT, AND THERE IS FORWARDED HEREWITH FOR YOUR CONSIDERATION THE FOLLOWING PAPERS:

1. LETTER DATED JANUARY 6, 1938, FROM THE REGIONAL DIRECTOR, P.W.A., ADDRESSED TO THE ASSISTANT ADMINISTRATOR, FORWARDING THE PROPOSALS, AND RECOMMENDING ACCEPTANCE OF THE BID OF ROBERT J. KIRKLAND, JR., UNDER ITEM 1 OF THE SPECIFICATIONS.

2. COPY OF LETTER DATED JANUARY 15, 1938, FROM THE EXECUTIVE OFFICER TO THE REGIONAL DIRECTOR, CALLING HIS ATTENTION TO THE FACT THAT THE LOWEST BID WAS THAT OF FRANK A. JERNSTEDT UNDER ITEM 2, AND ADVISING HIM THAT IN THE ABSENCE OF EVIDENCE THAT THE BOAT OFFERED WAS NOT SUITABLE, THERE WAS NO AUTHORITY TO REJECT THIS BID, AT THE SAME TIME ADVISING HIM OF THE APPARENT DISCREPANCY IN THE PROPOSAL.

3. THE REJECTED BIDS OF ROBERT J. KIRKLAND, JR. AND LEWIS STACK.

4. COPY OF LETTER DATED JANUARY 20, 1938, FROM THE PROJECT ENGINEER TO THE REGIONAL DIRECTOR, ADVISING HIM THAT THE BOAT HAD BEEN INSPECTED AND FOUND TO BE SUITABLE; THAT THE CONDITIONS OF THE CONTRACT HAD BEEN FULLY EXPLAINED TO MR. JERNSTEDT, AND THAT HE HAD AGREED TO MAKE DELIVERY ACCORDING TO THE TERMS OF HIS OFFER.

5. LETTER FROM THE REGIONAL DIRECTOR ADDRESSED TO THE EXECUTIVE OFFICER, FORWARDING A COPY OF THE NOTICE SENT TO MR. JERNSTEDT, ADVISING HIM THAT HIS OFFER HAD BEEN ACCEPTED, AND A COPY OF THE REPLY ACKNOWLEDGING RECEIPT OF THE SAME.

6. COPY OF A LETTER DATED APRIL 8, 1938, FROM THE PROJECT ENGINEER ADDRESSED TO THE REGIONAL DIRECTOR, WITH REFERENCE TO THE UNSATISFACTORY SERVICE RENDERED UNDER THE CONTRACT.

7. FORMAL REQUEST SUBMITTED BY FRANK A. JERNSTEDT FOR A REVISION IN THE TERMS OF THE CONTRACT TO PROVIDE THAT THE PURCHASE PRICE OF THE BOAT BE INCREASED FROM $1,800 TO $4,800.

UNDER THE TERMS OF THE CONTRACT THIS ADMINISTRATION SHOULD BECOME THE OWNER OF MR. JERNSTEDT'S BOAT IN GOOD CONDITION AT THE TIME THE TOTAL AMOUNT OF RENT PAID EQUALS THE PURCHASE PRICE, WHICH WILL BE ABOUT JULY 1, 1938. THIS BOAT AT PRESENT IS BROKEN DOWN AND IN NEED OF A NEW MOTOR COSTING APPROXIMATELY $800. THE QUESTION ARISES AS TO WHETHER THE PAYMENT OF THE MONTHLY RENTAL VOUCHERS SHOULD BE WITHHELD IN ORDER TO PROTECT THE INTEREST OF THE GOVERNMENT. AT THE SAME TIME, THE USE OF A BOAT IS ESSENTIAL TO THE INSPECTION OF THE PROJECT, AND IT IS UNDERSTOOD THAT IF THE RENTAL VOUCHERS ARE NOT PAID, MR. JERNSTEDT WILL NOT BE IN A POSITION TO PAY MR. KIRKLAND FOR THE BOAT NOW BEING USED, AND NEITHER OF THE BOATS WILL BE AVAILABLE.

YOUR ADVICE AS TO THE PROPER ACTION TO BE TAKEN UNDER THE CIRCUMSTANCES, AND AS TO WHAT EXTENT, IF ANY, THE CONTRACT CAN BE LEGALLY MODIFIED, IS REQUESTED.

THE INFERENCE AMOUNTS TO ALMOST A CERTAINTY THAT MR. JERNSTEDT WAS FULLY INFORMED AS TO THE CONDITION OF HIS BOAT AND THAT AT THE CONCLUSION OF THE RENTAL PERIOD--- OR EVEN BEFORE, AS HAS PROVEN TO BE THE CASE--- THE BOAT WOULD REQUIRE EXTENSIVE OVERHAULING, TO THE EXTENT, AT LEAST, OF A NEW MOTOR. IF SO, THERE WOULD BE REASON FOR THE CONTRACTOR SUBMITTING HIS BID IN THE FORM HE DID. IN ANY EVENT THE BID WAS ACCEPTED AND ITS IMPOSES ON THE CONTRACTOR THE LEGAL RESPONSIBILITY TO PERFORM IN ACCORDANCE WITH ITS TERMS OR TO PAY THE UNITED STATES ANY EXCESS COSTS RESULTING FROM DEFAULT IN PERFORMANCE. SEE UNITED STATES V. NEW YORK AND PORTO RICO STEAMSHIP CO., 239 U.S. 88, AND UNITED STATES V. PURCELL ENVELOPE CO., 249 U.S. 313. CONSEQUENTLY, THE CONTRACTOR IS UNDER A LEGAL RESPONSIBILITY TO FURNISH THE BOAT, OR ONE EQUALLY SUITABLE, FOR THE RENTAL PERIOD AT THE RENTAL STIPULATED IN THE CONTRACT.

HOWEVER, MR. JERNSTEDT DID NOT GUARANTEE THAT THE BOAT OR HER MOTOR WOULD BE IN ANY PARTICULAR CONDITION AT THE CONCLUSION OF THE RENTAL PERIOD. THE ABSENCE OF ANYTHING IN THE CONTRACT TO THE CONTRARY AND IF THE UNITED STATES EXERCISES THE OPTION TO PURCHASE THE BOAT AT THE END OF THE RENTAL PERIOD BY APPLICATION OF THE PAID RENTAL, THE GOVERNMENT MUST TAKE THE BOAT "AS IS.' THE CONTRACTOR IS NOT REQUIRED TO REPLACE THE MOTOR IN THE BOAT BEFORE DELIVERING TITLE THEREOF TO THE UNITED STATES, BUT HE IS LEGALLY REQUIRED TO FURNISH THE BOAT, OR ONE EQUALLY SUITABLE FOR USE OF THE GOVERNMENT DURING THE RENTAL PERIOD AT THE STIPULATED RENTAL.