B-108902, MAY 17, 1974

B-108902: May 17, 1974

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SINCE TERMINATION FOR CONVENIENCE CLAUSE IS DESIGNED PRIMARILY FOR THE GOVERNMENT'S BENEFIT AND NOT AS A MEANS OF RELIEVING CONTRACTORS FROM BURDENS OF CONTRACT PERFORMANCE. MOST OF THE CONTRACTS IN QUESTION WERE AWARDED ON AN ANNUAL BASIS PRIOR TO ENACTMENT OF PUBLIC LAW 93-86 ON AUGUST 10. IT IS REPORTED THAT AS A RESULT OF THIS LAW. MANY OF THESE MILK SUPPLIERS ARE LOSING MONEY. THE VETERANS ADMINISTRATION PROPOSES THAT IN THOSE CASES WHERE THE CONTRACTOR DESIRES TERMINATION OF ITS CONTRACT AND CAN ESTABLISH THAT COMPLIANCE WITH THE CONTRACT WILL RESULT IN A NET LOSS UNDER THAT CONTRACT BECAUSE OF MILK MARKETING ORDERS. A DETERMINATION WILL BE MADE THAT TERMINATION OF THE CONTRACT WOULD OPERATE FOR THE OVERALL BENEFIT OF THE GOVERNMENT.

B-108902, MAY 17, 1974

SINCE TERMINATION FOR CONVENIENCE CLAUSE IS DESIGNED PRIMARILY FOR THE GOVERNMENT'S BENEFIT AND NOT AS A MEANS OF RELIEVING CONTRACTORS FROM BURDENS OF CONTRACT PERFORMANCE, GAO DOES NOT RECOMMEND IN FAVOR OF TERMINATING VARIOUS FIXED-PRICE CONTRACTS FOR DELIVERIES OF MILK AND DAIRY PRODUCTS AT "NO COST" BECAUSE OF UNFORESEEN INCREASED COSTS TO CONTRACTORS.

TO VETERANS ADMINISTRATION:

VETERANS ADMINISTRATION REQUESTS THE ADVICE OF THIS OFFICE AS TO WHETHER WE WOULD OBJECT TO ITS TERMINATING VARIOUS FIXED-PRICE CONTRACTS FOR DELIVERIES OF MILK AND DAIRY PRODUCTS TO VETERANS ADMINISTRATION HOSPITALS. MOST OF THE CONTRACTS IN QUESTION WERE AWARDED ON AN ANNUAL BASIS PRIOR TO ENACTMENT OF PUBLIC LAW 93-86 ON AUGUST 10, 1973, WHICH ESTABLISHED THE PRICE OF MILK TO BE SUPPORTED AT NOT LESS THAN 80 PERCENT OF PARITY BETWEEN AUGUST 10, 1973, AND MARCH 31, 1975. IT IS REPORTED THAT AS A RESULT OF THIS LAW, MANY OF THESE MILK SUPPLIERS ARE LOSING MONEY.

THE CONTRACTS DO NOT CONTAIN ANY PROVISION FOR ESCALATION OR DE ESCALATION OF PRICES OR OTHER RELIEF BUT THE CONTRACTS DO INCLUDE A "TERMINATION FOR CONVENIENCE OF THE GOVERNMENT" CLAUSE AS SET FORTH IN FPR 1-8.705-1. THE VETERANS ADMINISTRATION PROPOSES THAT IN THOSE CASES WHERE THE CONTRACTOR DESIRES TERMINATION OF ITS CONTRACT AND CAN ESTABLISH THAT COMPLIANCE WITH THE CONTRACT WILL RESULT IN A NET LOSS UNDER THAT CONTRACT BECAUSE OF MILK MARKETING ORDERS, A DETERMINATION WILL BE MADE THAT TERMINATION OF THE CONTRACT WOULD OPERATE FOR THE OVERALL BENEFIT OF THE GOVERNMENT, THEREBY JUSTIFYING A "NO COST" SETTLEMENT (FPR 1-8.209-4) UNDER THE "TERMINATION FOR CONVENIENCE OF THE GOVERNMENT" CLAUSE SET FORTH IN THE CONTRACTS.

THE VETERANS ADMINISTRATION CONTENDS THAT TERMINATION WOULD BE ADVANTAGEOUS TO THE GOVERNMENT BECAUSE OF TWO FACTORS:

(1) TERMINATION IS ESSENTIAL TO SECURE ADEQUATE COMPETITION FOR FUTURE MILK REQUIREMENTS.

(2) TERMINATION IS NECESSARY TO ASSURE THE ORDERLY ENFORCEMENT OF THE AGRICULTURE AND CONSUMER PROTECTION ACT OF 1973 AND THE MILK MARKETING ORDERS ISSUED BY THE DEPARTMENT OF AGRICULTURE THEREUNDER.

WITH REGARD TO THE SECURING OF COMPETITION, IT SEEMS TO US THAT THE INCLUSION OF APPROPRIATE CONTRACT CLAUSES IN FUTURE SOLICITATIONS, RATHER THAN THE TERMINATION OF EXISTING CONTRACTS, WOULD BETTER ACCOMPLISH THE DESIRED RESULT. AS TO THE ORDERLY ENFORCEMENT OF THE AGRICULTURE AND CONSUMER PROTECTION ACT OF 1973, AND THE MILK MARKETING ORDERS, WE ASSUME THE VETERANS ADMINISTRATION HAS IN MIND THE ECONOMIC HARDSHIP WHICH ITS MILK AND DAIRY PRODUCT CONTRACTORS WILL SUFFER UNLESS "NO COST" TERMINATIONS ARE GRANTED. WE RECOGNIZE THE PROBLEM BUT AT THE SAME TIME WE ARE ALSO CONCERNED WITH THE ORDERLY PERFORMANCE OF GOVERNMENT CONTRACTS.

A TERMINATION FOR CONVENIENCE CLAUSE IS DESIGNED FOR THE GOVERNMENT'S BENEFIT AND NOT AS A MEANS OF RELIEVING CONTRACTORS FROM THE BURDENS OF CONTRACT PERFORMANCE. IT APPEARS TO US, HOWEVER, THAT THE PRIMARY REASON FOR TERMINATING THESE CONTRACTS IS TO RELIEVE CERTAIN CONTRACTORS FROM THE INCREASED COSTS OF CONTRACT PERFORMANCE RESULTING FROM THE PASSAGE OF PUBLIC LAW 93-86. IN THIS CONNECTION, IT IS WELL ESTABLISHED THAT THE GOVERNMENT IS NOT LIABLE TO A CONTRACTOR BECAUSE OF ITS ACTS AS A SOVEREIGN. 53 COMP. GEN. 157 (1973); B-180054, DECEMBER 9, 1973. THEREFORE, WHILE WE RECOGNIZE THAT THE DECISION OF WHETHER TO TERMINATE THESE CONTRACTS RESTS WITH THE CONTRACTING AGENCY, WE DO NOT RECOMMEND IN FAVOR OF TERMINATING THESE CONTRACTS.