B-106566, JAN 24, 1952

B-106566: Jan 24, 1952

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PRECIS-UNAVAILABLE THE CHAIRMAN: THE AMERICAN BATTLE MONUMENT COMMISSION REFERENCE IS MADE TO YOUR LETTERS OF NOVEMBER 14 AND DECEMBER 21. RELATIVE TO CERTAIN QUESTIONS WHICH HAVE ARISEN IN CONNECTION WITH THE CESSATION OF WORK UNDER CONTRACT NO. THE CONTRACTOR WAS REQUIRED ON HIS OWN INITIATIVE TO ACT IN ANY EMERGENCY AFFECTING THE SAFETY OF LIFE. IT WAS PROVIDED THEREIN THAT ADDITIONAL COMPENSATION WOULD NOT BE PAID FOR EMERGENCY WORK "EXCEPT IN THE CASE OF EXCEPTIONAL CONTINGENCIES WHICH IN THE OPINION OF THE CONTRACTING OFFICER COULD NOT HAVE BEEN FORESEEN WHEN THE CONTRACT WAS SIGNED AND WHICH ARE BEYOND THE CONTROL OF THE CONTRACTOR.". THAT "THE CONTRACTOR SHALL EFFECT AND MAINTAIN SUCH INSURANCE AS WILL PROTEST THE COMMISSION AGAINST ALL RISKS AND DAMAGES THAT MAY BE CAUSED THE COMMISSION OR OTHER PARTIES.

B-106566, JAN 24, 1952

PRECIS-UNAVAILABLE

THE CHAIRMAN:

THE AMERICAN BATTLE MONUMENT COMMISSION

REFERENCE IS MADE TO YOUR LETTERS OF NOVEMBER 14 AND DECEMBER 21, 1951, RELATIVE TO CERTAIN QUESTIONS WHICH HAVE ARISEN IN CONNECTION WITH THE CESSATION OF WORK UNDER CONTRACT NO. ABM-R-22, DATED MARCH 28, 1951, ENTERED INTO BETWEEN THE UNITED STATES AND THE FIRM OF DOTT. ING. ENRICO VALLINI, OF ROME, ITALY.

UNDER THE TERMS OF THE CONTRACT, THE FIRM OF DOTT. ING. ENRICO VALLINI AGREED TO CONSTRUCT A RESERVOIR AND INTAKE STRUCTURE SPRINKLER AND STORM DRAINAGE SYSTEMS AT THE AMERICAN MILITARY CEMETERY, NETTUNO, ITALY, FOR A CONSIDERATION OF 29,500,000 LIRA, ITALIAN CURRENCY. ARTICLE 4 OF THE CONTRACT PROVIDES THAT ALL DIFFERENCES WHICH MIGHT ARISE BETWEEN THE PARTIES SHALL BE SETTLED BY AN ARBITRATION BOARD CONSISTING OF ONE MEMBER APPOINTED BY THE GOVERNMENT, ONE MEMBER APPOINTED BY THE ITALIAN ASSOCIASIONE NATIONALE CONTRUTTORI EDILI TO ACT ON BEHALF OF THE CONTRACTOR AND ONE MEMBER APPOINTED BY VIRTUE OF MUTUAL AGREEMENTS BETWEEN THE TWO AFOREMENTIONED MEMBERS. ARTICLE 8 OF THE GENERAL CONDITIONS FORMING A PART OF THE CONTRACT SETS FORTH VARIOUS RESPONSIBILITIES OF THE CONTRACTOR, INCLUDING THE RESPONSIBILITY TO "MAKE GOOD DAMAGES OF ANY NATURE WHATSOEVER CAUSED BY HIS OPERATIONS TO ANY PROPERTY, INCLUDING THAT OF THE COMMISSION." UNDER ARTICLE 26 OF THE GENERAL CONDITIONS, THE CONTRACTOR WAS REQUIRED ON HIS OWN INITIATIVE TO ACT IN ANY EMERGENCY AFFECTING THE SAFETY OF LIFE, OR THE WORK OR OF THE COMMISSION'S PROPERTY, AND IT WAS PROVIDED THEREIN THAT ADDITIONAL COMPENSATION WOULD NOT BE PAID FOR EMERGENCY WORK "EXCEPT IN THE CASE OF EXCEPTIONAL CONTINGENCIES WHICH IN THE OPINION OF THE CONTRACTING OFFICER COULD NOT HAVE BEEN FORESEEN WHEN THE CONTRACT WAS SIGNED AND WHICH ARE BEYOND THE CONTROL OF THE CONTRACTOR." ARTICLE 31 OF THE GENERAL CONDITIONS, ENTITLED "LIABILITY INSURANCE," PROVIDES, IN PERTINENT PART, THAT "THE CONTRACTOR SHALL EFFECT AND MAINTAIN SUCH INSURANCE AS WILL PROTEST THE COMMISSION AGAINST ALL RISKS AND DAMAGES THAT MAY BE CAUSED THE COMMISSION OR OTHER PARTIES, INCLUDING BUT NOT RESTRICTED TO FIRE OR OTHER DISASTER WHATSOEVER;" AND THAT "THE CONTRACTOR SHALL BE SOLELY RESPONSIBLE FOR ALL LOSS, RISK, DAMAGE, ETC., TO THE WORK UP UNTIL THE FINAL ACCEPTANCE THEREOF, INCLUDING ALL PARTS ALREADY IN PLACE FOR WHICH HE MAY HAVE RECEIVED PAYMENT ON ACCOUNT." ARTICLE 45 OF THE GENERAL CONDITIONS SETS FORTH THAT ALL DIFFERENCES OF OPINION BETWEEN THE COMMISSION AND THE CONTRACTOR SHALL BE SETTLED BY ARBITRATION WITHOUT APPEAL TO ANY CIVIL COURT, TRIBUNAL OF COMMERCE, JUSTICE OF THE PEACE OR ANY OTHER COURT; THAT "THE ARBITRATORS SHALL IN NO CASE AWARD TO EITHER PARTY ANY INDEMNITY OR DAMAGES WHATSOEVER FOR LOSS OR DAMAGES OTHER THAN MATERIALS;" AND THAT "THE DECISION OF THE ARBITRATORS SHALL NOT BE CONTRARY TO THE TERMS OF THIS CONTRACT."

THE FACTS OF THE CASE APPEAR TO BE THAT ON SEPTEMBER 25, 1951, AS THE RESULT OF A FLASH FLOOD, THE DRAINAGE SYSTEM, THEN UNDER CONSTRUCTION, WAS DAMAGED, AND THE RESERVOIR, THEN IN AN ADVANCED STAGE OF COMPLETION, WAS DISPLACED. THE CONTRACTOR, ON HIS OWN INITIATIVE, UNDERTOOK TO CORRECT SO FAR AS POSSIBLE THE DISPLACEMENT OF THE RESERVOIR BUT, DURING THE COURSE OF THESE OPERATIONS, COMPLETE STRUCTURAL FAILURE OCCURRED. THE WORK WAS NOT COVERED BY INSURANCE AGAINST FIRE OR OTHER DISASTERS AND IT APPEARS THAT THE COMMISSION'S ROME OFFICE HAD THERETOFORE MADE NO EFFORT TO ASCERTAIN WHETHER SUCH INSURANCE HAD BEEN OBTAINED. SUBSEQUENTLY, THE CONTRACTOR CONTENDED THAT IT WAS NOT POSSIBLE TO OBTAIN THE INSURANCE FROM ITALIAN INSURANCE COMPANIES; THAT HE COULD NOT BE HELD RESPONSIBLE FOR THE ORIGINAL DAMAGE UNDER THE ITALIAN LAW RELATING TO DAMAGE OR DESTRUCTION OF UNCOMPLETED PROJECTS; AND THAT HE IS ENTITLED TO COMPENSATION FOR THE ADDITIONAL WORK ON THE BASIS THAT THE STRUCTURAL FAILURE OF THE RESERVOIR WAS A CONTINUING RESULT OF THE FLOOD. THE CONTRACTOR'S INABILITY TO OBTAIN THE INSURANCE FROM ITALIAN INSURANCE COMPANIES WAS CONFIRMED BY THE COMMISSION'S ROME OFFICE BUT IT APPEARS THAT THE CONTRACTOR MADE NO EFFORT TO OBTAIN SUCH INSURANCE THROUGH FOREIGN COMPANIES OPERATING IN ITALY. THE CONTRACTOR HAS REQUESTED THAT THE MATTER BE SETTLED BY ARBITRATION IN THE EVENT THAT THE COMMISSION OTHERWISE WILL NOT MAKE PAYMENT ON THE CURRENT CLAIM AND RELEASE CERTAIN OTHER AMOUNTS WITHHELD FROM PAYMENT UNDER CONTRACT NO. ABM-R-22 AND UNDER CONTRACT NO. ABM-R-26.

UNDER THE CIRCUMSTANCES, YOU REQUEST ADVICE RELATIVE TO THE FOLLOWING QUESTION: (A), WHETHER THE REQUIREMENT THAT THE CONTRACTOR INSURED AGAINST DAMAGE FROM ANY OTHER CAUSE WHATSOEVER IS VOIDED BY THE IMPOSSIBILITY OF OBTAINING SUCH COVERAGE FROM ITALIAN INSURANCE COMPANIES; (B), WHETHER, BY OPERATION OF ITALIAN LAW, THE CONTRACTOR MUST BE HELD WITHOUT LIABILITY FOR DAMAGES CAUSED BY THE FLOOD OF SEPTEMBER 25, 1951; (C), WHETHER, IF THE ANSWER TO (A) AND (B) IS IN THE AFFIRMATIVE, THE CONTRACTOR IS LIKEWISE RELIEVED FROM LIABILITY FOR THE TOTAL LOSS OF THE RESERVOIR IN OPERATIONS SUBSEQUENT TO THE FLOOD; (D), WHAT ACTION SHOULD BE TAKEN BY THE COMMISSION TO PROTECT THE UNITED STATES FROM LOSS IF THE ANSWER TO THE FOREGOING QUESTIONS IS IN THE NEGATIVE; AND (E) WHETHER THE QUESTIONS OF LIABILITY FOR THE DAMAGES HERE INVOLVED ARE SUBJECT TO ARBITRATION PURSUANT TO ARTICLE 4 OF THE CONTRACT AND ARTICLE 45 OF THE GENERAL CONDITIONS.

IT MAY BE STATED AT THE OUTSET THAT IF THE FIRST THREE QUESTIONS PRESENTED IN YOUR LETTER OF NOVEMBER 14, 1951, COME WITHIN THE PURVIEW OF THE ARBITRATION CLAUSE OF THE CONTRACT, ANY DECISION THEREON BY THIS OFFICE WOULD NOT NECESSARILY BE CONCLUSIVE UPON EITHER CONTRACTING PARTY. CONSEQUENTLY, IF IT BE DECIDED THAT SUCH QUESTIONS ARE SUBJECT TO ARBITRATION, IT WOULD APPEAR THAT THEY SHOULD BE DETERMINED BY THE ARBITRATORS RATHER THAN BY THIS OFFICE.

ARTICLE 4 OF THE CONTRACT PROVIDES EXPRESSLY THAT "ALL DIFFERENCES WHICH MIGHT ARISE" BETWEEN THE PARTIES IN CONNECTION WITH THE EXECUTION OF THE CONTRACT WORK SHALL BE SETTLED BY ARBITRATION, AND BY ARTICLE 45 OF THE GENERAL CONDITIONS OF THE CONTRACT THE CONTRACTOR AGREED NEVER TO CARRY TO ANY COURT "ANY DIFFERENCE OF OPINION" THAT MIGHT ARISE BETWEEN THE PARTIES, AND THAT "ALL DIFFERENCES BETWEEN THE PARTIES" SHOULD BE SETTLED BY ARBITRATION WITHOUT APPEAL TO ANY COURT. THIS LANGUAGE IS VERY BROAD, AND APPEARS TO HAVE BEEN DESIGNED TO REQUIRE THE SETTLEMENT BY ARBITRATION OF ANY DISPUTES WHICH OTHERWISE MIGHT BE COGNIZABLE BY THE COURTS. THAT BE SO, IT SEEMS CLEAR THAT A DIFFERENCE OF OPINION AS TO THE CONTRACTOR'S RESPONSIBILITY UNDER CERTAIN CLAUSES OF THE CONTRACT AND THE COROLLARY QUESTION OF HIS LIABILITY THEREUNDER WOULD BE MATTERS WITHIN THE PURVIEW OF SUCH LANGUAGE.

HOWEVER, ARTICLE 45 OF THE GENERAL CONDITIONS ALSO PROVIDES THAT:

"*** THE ARBITRATORS SHALL IN NO CASE AWARD TO EITHER PARTY ANY INDEMNITY OR DAMAGES WHATSOEVER FOR LOSS OR DAMAGES OTHER THAN MATERIAL. MOREOVER, THE DECISION OF THE ARBITRATORS SHALL NOT BE CONTRARY TO THE TERMS OF THIS CONTRACT."

IT MIGHT BE ARGUED THAT THE LAST SENTENCE QUOTED ABOVE WAS INTENDED TO PERMIT EITHER PARTY, IN THE EVENT OF AN ADVERSE ARBITRATION AWARD, TO TEST THE VALIDITY OF THE AWARD IN COURT UPON THE GROUND THAT IT WAS CONTRARY TO THE TERMS OF THE CONTRACT. ON THE OTHER HAND, IT WOULD APPEAR THAT SETTLEMENT BY ARBITRATION OF ALMOST ANY DIFFERENCE OF OPINION WHICH MIGHT ARISE IN CONNECTION WITH THE EXECUTION OF THE CONTRACT WORK WOULD REQUIRE A DETERMINATION WHETHER THERE HAD BEEN COMPLIANCE WITH CERTAIN CONTRACT TERMS, AND, IN MANY CASES, AS HERE, NO SUCH DETERMINATION COULD BE MADE UNTIL THE MEANING AND LEGAL EFFECT OF THOSE TERMS OF THE CONTRACT HAD BEEN CLARIFIED. FROM A READING OF THE ARBITRATION CLAUSE AND THE CONTRACT AS A WHOLE, IT DOES NOT APPEAR TO HAVE BEEN INTENDED TO PRECLUDE THE ARBITRATORS FROM CONSIDERING DISPUTES MERELY BECAUSE THE SETTLEMENT THEREOF FIRST REQUIRED A DETERMINATION AS TO THE PROPER INTERPRETATION TO BE PLACED ON THE PERTINENT TERMS OF THE CONTRACT. UNDER SUCH A CONSTRUCTION OF THE CLAUSE THE APPARENT BROAD SCOPE THEREOF WOULD BE MORE APPARENT THAN REAL, AND IT MIGHT BE ARGUED BY THE CONTRACTOR THAT HIS AGREEMENT TO REFRAIN FROM RESORT TO THE COURTS WAS INTENDED TO APPLY ONLY TO SUCH DISPUTES AS WERE SUBJECT TO ARBITRATION.

IN VIEW OF THE FOREGOING IT IS CONCLUDED THAT THE FIRST THREE QUESTIONS PRESENTED IN YOUR LETTER OF NOVEMBER 14, 1951, PROPERLY MAY AND SHOULD BE SETTLED UNDER THE ARBITRATION CLAUSE OF THE CONTRACT, AND THAT PENDING THE OUTCOME OF THE ARBITRATION PROCEEDINGS AN AMOUNT SUFFICIENT TO COVER THE ESTIMATED DAMAGES TO THE GOVERNMENT SHOULD BE WITHHELD FROM PAYMENTS OTHERWISE DUE THE CONTRACTOR UNDER THE INSTANT AND OTHER CONTRACTS.