B-112959, AUGUST 19, 1954, 34 COMP. GEN. 76

B-112959: Aug 19, 1954

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THE GOVERNMENT IS NOT LIABLE FOR ROLLS OF PAPER WHICH FAILED TO MEET CONTRACT REQUIREMENTS WHEN INSPECTED AND WHICH WERE DESTROYED BY FLOOD IN GOVERNMENT WAREHOUSE PRIOR TO ANY COMPLETE ACTION BY THE GOVERNMENT IN REJECTING THEM AS NOT MEETING CONTRACT SPECIFICATIONS. 1954: REFERENCE IS MADE TO YOUR LETTER OF JULY 22. IN WHICH THE ADMINISTRATOR OF GENERAL SERVICES WAS ADVISED THAT YOUR CLIENT. WHICH WAS DELIVERED ON JUNE 22. WAS DESTROYED BY FLOOD WATERS ON JULY 13. THAT THE PAPER FAILED TO MEET SPECIFICATIONS AND THAT THERE WAS NO UNREASONABLE DELAY IN ADVISING OF THE REJECTION. IT WAS HELD THAT THE GOVERNMENT HAD NOT EXPRESSLY OR IMPLIEDLY AGREED TO ASSUME RISK OF LOSS DURING THE PERIOD ALLOWED FOR INSPECTION AND ACCEPTANCE OR REJECTION.

B-112959, AUGUST 19, 1954, 34 COMP. GEN. 76

CONTRACTS - DELIVERIES - REJECTION - INSPECTION AFTER DELIVERY - DESTRUCTION PRIOR TO REJECTION UNDER A CONTRACT WHICH PROVIDES THAT FAILURE TO INSPECT AND ACCEPT OR REJECT SUPPLIES SHALL NEITHER RELIEVE THE SELLER FROM RESPONSIBILITY FOR SUCH SUPPLIES AS DO NOT MEET THE CONTRACT SPECIFICATIONS NOR IMPOSE LIABILITY ON THE GOVERNMENT THEREFOR, THE GOVERNMENT IS NOT LIABLE FOR ROLLS OF PAPER WHICH FAILED TO MEET CONTRACT REQUIREMENTS WHEN INSPECTED AND WHICH WERE DESTROYED BY FLOOD IN GOVERNMENT WAREHOUSE PRIOR TO ANY COMPLETE ACTION BY THE GOVERNMENT IN REJECTING THEM AS NOT MEETING CONTRACT SPECIFICATIONS.

ACTING COMPTROLLER GENERAL WEITZEL TO ALLAN Y. COLE, ESQUIRE, AUGUST 19, 1954:

REFERENCE IS MADE TO YOUR LETTER OF JULY 22, 1954, REQUESTING RECONSIDERATION OF DECISION DATED JULY 22, 1953, B-112959, IN WHICH THE ADMINISTRATOR OF GENERAL SERVICES WAS ADVISED THAT YOUR CLIENT, THE RITTENHOUSE PAPER COMPANY, SHOULD NOT BE PAID FOR 7,548 ROLLS OF NONSPECIFICATION TELETYPE PAPER DELIVERED UNDER CONTRACT NO. GS-00S 1808.

THE IMPORTANT FACTS APPEAR TO BE THAT THE PAPER, WHICH WAS DELIVERED ON JUNE 22, 1951, FAILED TO MEET CONTRACT REQUIREMENTS WHEN INSPECTED ON JUNE 27, AND WAS DESTROYED BY FLOOD WATERS ON JULY 13, IN THE ABSENCE OF NOTIFICATION OF ANY KIND TO THE CONTRACTOR.

THE DECISION OF JULY 22, 1953, POINTED OUT THAT THE ADMINISTRATOR OF GENERAL SERVICES HAD DETERMINED, PURSUANT TO THE "DISPUTES" APPEAL CLAUSE OF THE CONTRACT (SECTION 12 OF GENERAL PROVISIONS, STANDARD FORM 32), THAT THE PAPER FAILED TO MEET SPECIFICATIONS AND THAT THERE WAS NO UNREASONABLE DELAY IN ADVISING OF THE REJECTION. SECTION 12 STATED THAT SUCH DETERMINATION OF QUESTIONS OF FACT "SHALL BE FINAL AND CONCLUSIVE.' ALSO, IT WAS HELD THAT THE GOVERNMENT HAD NOT EXPRESSLY OR IMPLIEDLY AGREED TO ASSUME RISK OF LOSS DURING THE PERIOD ALLOWED FOR INSPECTION AND ACCEPTANCE OR REJECTION.

YOU NOW CONTEND (1) THAT THE GOVERNMENT ASSERTED DOMINION OVER THE PAPER CONSTITUTING ACCEPTANCE, (2) THAT DELAY IN NOTIFYING THE CONTRACTOR AS TO REJECTION WAS UNREASONABLE, (3) THAT THE ADMINISTRATIVE DETERMINATION AS TO ONLY REASONABLE DELAY WAS UNWARRANTED, AND (4) THAT SECTION 6 OF THE GENERAL PROVISIONS SHOULD BE CONSTRUED AS PLACING THE RISK OF LOSS ON THE GOVERNMENT.

THE LAST SENTENCE OF SUBSECTION 5 (C) OF THE GENERAL PROVISIONS READS:

FINAL ACCEPTANCE OR REJECTION OF THE SUPPLIES SHALL BE MADE AS PROMPTLY AS PRACTICABLE AFTER DELIVERY, EXCEPT AS OTHERWISE PROVIDED IN THIS CONTRACT; BUT FAILURE TO INSPECT AND ACCEPT OR REJECT SUPPLIES SHALL NEITHER RELIEVE THE CONTRACTOR FROM RESPONSIBILITY FOR SUCH SUPPLIES AS ARE NOT IN ACCORDANCE WITH THE CONTRACT REQUIREMENTS NOR IMPOSE LIABILITY ON THE GOVERNMENT THEREFOR.

IN YOUR DISCUSSION OF THE FIRST THREE POINTS EMPHASIS IS PLACED UPON STATEMENTS IN THE DECISION OF JULY 22, 1953, THAT THE PAPER "WAS REJECTED ON JUNE 27, 1951," AND THAT THE CONTRACTOR "WAS NOT NOTIFIED OF SUCH REJECTION UNTIL AUGUST 24, 1951.' THESE STATEMENTS, MADE WITHOUT FURTHER EXPLANATION IN CONCLUDING THAT THE RECORD ADEQUATELY SUPPORTED THE ADMINISTRATIVE FINDINGS, APPARENTLY HAVE MADE POSSIBLE AN UNINTENDED INFERENCE THAT DISPOSITION OF THE CLAIM WAS PREDICATED UPON REJECTION OF THE PAPER BY THE GOVERNMENT EITHER AS OF JUNE 27 OR AUGUST 24. THE PLAIN FACT SEEMS TO BE THAT THE PAPER WAS LOST PRIOR TO ANY COMPLETE ACTION BY THE GOVERNMENT EITHER IN ACCEPTING OR REJECTING IT.

THE COURT IN CUDAHY V. UNITED STATES, 75 F.1SUPP. 239, TO WHICH YOU REFER, CONSIDERED LANGUAGE SUBSTANTIALLY SIMILAR TO THAT OF SUBSECTION 5 (C) AND POINTED OUT THAT ITS OBJECTIVE WAS TO PERMIT THE GOVERNMENT TO TAKE OR REJECT TITLE, DEPENDING UPON DETERMINATIONS REACHED THROUGH INSPECTION, AT A TIME WITHIN ITS CONVENIENCE TO COMPLETE SUCH ACTION THAT MIGHT BE REASONABLE.

YOUR SUGGESTION THAT THE GOVERNMENT ASSERTED DOMINION OVER THE PAPER WHEN, PRIOR TO ADVISING OF ITS FAILURE TO MEET THE SPECIFIED REQUIREMENTS, SOME DISCUSSION WAS CARRIED ON WITH THE AGENCY FOR WHICH THE PROCUREMENT WAS MADE CONCERNING POSSIBLE USE OF THE INFERIOR PRODUCT ON THE BASIS OF AN EQUITABLE PRICE REDUCTION, DOES NOT APPEAR TO BE TENABLE. IN THIS CONNECTION, IT IS CLEAR FROM THE PROVISION IN SUBSECTION 5 (B/--- TO THE EFFECT THAT, UNLESS THE CONTRACTOR IS ABLE TO REPLACE THE DEFECTIVE PRODUCT WITHIN THE REQUIRED DELIVERY SCHEDULE AND ELECTS TO DO SO AFTER NOTIFICATION, IT MAY BE RETAINED ON THE BASIS OF AN APPROPRIATE REDUCTION IN PRICE--- THAT CERTAIN NEGOTIATIONS IN THIS RESPECT WERE CONTEMPLATED AS A NECESSARY INCIDENT TO EXERCISE BY THE GOVERNMENT OF ITS PREROGATIVE. CONSEQUENTLY, SUCH NEGOTIATIONS IN NO WAY DEPARTED FROM PROCEDURES THE GOVERNMENT WAS ENTITLED TO FOLLOW IN DETERMINING WHETHER TO ACCEPT OR REJECT THE PAPER.

YOUR SECOND AND THIRD CONTENTIONS ATTACK THE REASONABLENESS OF DELAY IN REJECTING THE INFERIOR PAPER AND SUGGEST THAT, AS IN THE CUDAHY CASE DELAY IN GIVING NOTICE EXTENDED SLIGHTLY MORE THAN TWO MONTHS FOLLOWING INSPECTION. A PERISHABLE ITEM (EGGS) WAS FURNISHED FOR USE BY THE PURCHASING AGENCY AT THE DELIVERY POINT. IN THE PRESENT MATTER, FOLLOWING PHYSICAL INSPECTION ON JUNE 27, A DELAY OF ONLY SLIGHTLY MORE THAN TWO WEEKS HAD OCCURRED WHEN THE GOODS WERE LOST BY FLOOD ON JULY 13. IN THE LIGHT OF THE LESS PERISHABLE NATURE OF PAPER, THE FACT THAT PROCUREMENT WAS BY A GENERAL PURCHASING AGENCY FOR THE BENEFIT OF A DIFFERENT CONSUMING AGENCY OF THE GOVERNMENT AND THE NECESSITY OF TIME CONSUMING NEGOTIATIONS BETWEEN THOSE TWO AGENCIES, FAILURE TO ACT UPON THE PHYSICAL INSPECTION UP TO THE TIME OF THE FLOOD WAS NOT UNUSUAL OR UNREASONABLE. THE DELAY WHICH OCCURRED BETWEEN JULY 13 AND NOTIFICATION ON AUGUST 24, ATTRIBUTABLE TO SALVAGE OPERATIONS, ETC., APPEARS TO HAVE BEEN UNAVOIDABLE AND, UNDER THE CIRCUMSTANCES, NOT UNREASONABLE. THE FACTUAL SITUATION DIFFERS SO EXTENSIVELY FROM THAT OF THE CUDAHY CASE THAT THE CONCLUSION REACHED THERE AS TO UNREASONABLE DELAY AND CONSEQUENT LIABILITY MAY NOT BE REGARDED AS CONTROLLING.

WITH RESPECT TO YOUR CONTENTION THAT SECTION 6 SHOULD BE CONSTRUED AS PLACING THE RISK OF LOSS ON THE GOVERNMENT DURING THE PERIOD PRIOR TO NOTICE OF REJECTION, ANY SUCH INFERENCE FROM THE LANGUAGE EMPLOYED IN SUBSECTION (II) ("THE CONTRACTOR SHALL BEAR ALL RISKS AS TO REJECTED SUPPLIES AFTER NOTICE OF REJECTION") IS NEGATIVED COMPLETELY BY OTHER CONTRACT PROVISIONS. IT IS CLEAR THAT THE TERMS OF SECTION 6 WERE INTENDED TO ELIMINATE RESPONSIBILITIES WHICH MIGHT ATTACH PRIOR TO DELIVERY AT DESTINATION IN CONNECTION WITH GOODS INSPECTED AND FOUND SATISFACTORY, BUT NOT ACCEPTED, AT POINT OF ORIGIN, AND TO ELIMINATE RESPONSIBILITY COMPLETELY FOR UNACCEPTABLE GOODS AFTER NOTICE OF REJECTION. THE INTERPRETATION URGED WOULD DISREGARD THE PERTINENT PROVISION OF SUBSECTION 5 (C), THAT FAILURE WITHIN A REASONABLE TIME TO ACCEPT OR REJECT "SHALL NEITHER RELIEVE THE CONTRACTOR FROM RESPONSIBILITY FOR SUCH SUPPLIES AS ARE NOT IN ACCORDANCE WITH THE CONTRACT REQUIREMENTS NOR IMPOSE LIABILITY ON THE GOVERNMENT THEREFOR," WHICH RULES OF CONSTRUCTION REQUIRE BE GIVEN EFFECT.

IT FOLLOWS THAT NO LEGAL BASIS EXISTS FOR DISTURBING THE DECISION OF JULY 22, 1953, THAT THE RITTENHOUSE PAPER COMPANY'S CLAIM SHOULD BE DENIED.