B-115069, OCTOBER 22, 1953, 33 COMP. GEN. 180

B-115069: Oct 22, 1953

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CONTRACTS - APPROVAL - CONTRACTOR'S LIABILITY UPON AWARD A VALID AND BINDING CONTRACT COMES INTO EXISTENCE UPON THE ACCEPTANCE OF A BID BY AN AUTHORIZED GOVERNMENT CONTRACTING OFFICER EVEN THOUGH THE CONTRACT BY ITS EXPRESS TERMS WAS NOT BINDING UNTIL FORMALLY APPROVED BY A HIGHER GOVERNMENT AUTHORITY. UNLESS THERE IS A FINDING OF MUTUAL MISTAKE IN CONNECTION WITH THE CONTRACT COMPTROLLER GENERAL WARREN TO THE SECRETARY OF THE ARMY. 1953: I HAVE YOUR LETTER OF MAY 1. DETZEL COMPANY ALLEGES WERE MADE IN ITS BID ON WHICH CONTRACT NO. IS BASED. DETZEL COMPANY SUBMITTED A BID IN WHICH PRICES WERE QUOTED AS FOLLOWS: CHART ITEM NO. 1. WAS MAILED TO THE COMPANY CONTAINING THE FOLLOWING CLAUSE: * * * A FORMAL CONTRACT BEARING THE ABOVE CONTRACT NUMBER WILL BE PREPARED FOR EXECUTION.

B-115069, OCTOBER 22, 1953, 33 COMP. GEN. 180

CONTRACTS - APPROVAL - CONTRACTOR'S LIABILITY UPON AWARD A VALID AND BINDING CONTRACT COMES INTO EXISTENCE UPON THE ACCEPTANCE OF A BID BY AN AUTHORIZED GOVERNMENT CONTRACTING OFFICER EVEN THOUGH THE CONTRACT BY ITS EXPRESS TERMS WAS NOT BINDING UNTIL FORMALLY APPROVED BY A HIGHER GOVERNMENT AUTHORITY, AND THEREFORE A CONTRACTOR WHO ALLEGES ERROR IN BID AFTER ACCEPTANCE BY CONTRACTING OFFICER BUT PRIOR TO APPROVAL BY HIGHER AUTHORITY MAY NOT BE PAID ANY AMOUNT IN EXCESS OF THE PRICE FIXED IN THE CONTRACT OR BE RELEASED FROM ANY OBLIGATION UNDER THE CONTRACT, UNLESS THERE IS A FINDING OF MUTUAL MISTAKE IN CONNECTION WITH THE CONTRACT

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF THE ARMY, OCTOBER 22, 1953:

I HAVE YOUR LETTER OF MAY 1, 1953, WITH ENCLOSURES, RELATIVE TO ERRORS WHICH THE GEORGE E. DETZEL COMPANY ALLEGES WERE MADE IN ITS BID ON WHICH CONTRACT NO. DA-33-058-AII-19 DATED MARCH 17, 1953, IS BASED. YOU REQUEST A DECISION AS TO WHETHER THE CONTRACT PRICE MAY BE INCREASED FROM $71,793 TO $72,893.

THE LORDSTOWN ORDNANCE DEPOT, WARREN, OHIO, BY INVITATION NO. 33-058 53- 16 REQUESTED BIDS--- TO BE OPENED MARCH 6, 1953--- FOR FURNISHING ALL PLANT, LABOR, MATERIALS AND EQUIPMENT AND PERFORMING ALL WORK FOR THE RENOVATION OF RAILROAD TRACKS LOCATED AT THE DEPOT. IN RESPONSE THERETO, THE GEORGE E. DETZEL COMPANY SUBMITTED A BID IN WHICH PRICES WERE QUOTED AS FOLLOWS:

CHART ITEM NO. 1--- REPLACING 27,000 TRACK FEED OF CROSS TIES

AT $1.69 PER FOOT----------------------------------------- $45,630 ITEM NO. 2--- REPLACING 27 SETS OF SWITCH TIES AT

$689 PER SET---------------------------------------------- 18,603 ITEM NO. 3--- REPLACING 27 SETS OF SWITCH POINTS AT

$280 PER SET---------------------------------------------- 7,560

TOTAL--------------------------------------------- $71,793

A NOTICE OF AWARD DATED MARCH 17, 1953, WAS MAILED TO THE COMPANY CONTAINING THE FOLLOWING CLAUSE:

* * * A FORMAL CONTRACT BEARING THE ABOVE CONTRACT NUMBER WILL BE PREPARED FOR EXECUTION. IF APPROVAL OF THE CONTRACT IS REQUIRED BY ITS EXPRESS TERMS, THE CONTRACT IS NOT FULLY EXECUTED UNTIL SUCH APPROVAL IS OBTAINED.

THE COMMANDING OFFICER AT THE DEPOT REPORTED THAT UPON RECEIPT OF THE NOTICE OF AWARD THE CONTRACTOR ADVISED THE ASSISTANT CONTRACTING OFFICER BY TELEPHONE ON MARCH 20, 1953, THAT ERRORS HAD BEEN MADE IN THE COMPUTATION OF ITS BID PRICE. BY CONFIRMING LETTER DATED MARCH 21, 1953, THE COMPANY FORWARDED ITS WORKSHEET AND EXPLAINED THE ALLEGED ERRORS AS FOLLOWS:

IN LINE WITH YOUR VERBAL INSTRUCTIONS WE ARE ENCLOSING ORIGINAL COPY OF OUR WORK SHEET WHICH SHOWS IN BLACK PENCIL FIGURES, THE ORIGINAL TABULATION OF LABOR AND MATERIAL COSTS FOR ITEMS 1, 2, AND 3 COVERED BY YOUR UNIT PRICE SCHEDULE. IN REVIEWING YOU WILL NOTE THAT ON OUR WORK SHEET WE ALSO CARRY ITEM 4 WHICH COVERS OUR FOREMAN AND ODD COSTS CHARGEABLE TO THE JOB PLUS ITEM 5 WHICH CARRIES THE PORTION OF INSURANCE AND OTHER ITEMS CHARGEABLE TO THIS JOB. ITEMS 4 AND 5 WERE THEN TAKEN AND DISTRIBUTED PERCENTAGE-WISE OVER THE BALANCE OF THE JOB AND IN THIS MANNER WE ARRIVED AT OUR UNIT COST FIGURES.

THE ERRORS WHICH HAVE OCCURRED IN ADDITION IN THE SET UP OF THIS JOB, ARE FIRST--- UNDER THE TABULATION OF UNIT NUMBER 2, UNDER THE COLUMN OF MATERIAL, IN TAKING OUR ALLOWABLE 10 PERCENT PROFIT FIGURE YOU WILL NOTE THE ITEM IN BLACK PENCIL OF $2.00, WHEREAS 10 PERCENT OF $115.00 SHOULD HAVE GIVEN US $12.00. THIS WOULD HAVE MADE THE TOTAL ON THE MATERIAL $127.00. THIS $127.00 ADDED TO THE TOTAL LABOR ITEM WOULD MAKE THE TOTAL COST OF BASIC CONSTRUCTION COST $15,768.00, WHEREAS THE BLACK PENCIL FIGURES WILL SHOW YOU $15,758.00. WE HAVE PENCILED IN RED AS OF MARCH 20, 1953, THE FIGURES WHICH ARE CORRECT AND SHOULD BE IN THESE COLUMNS.

SECONDLY, ON THE FOURTH ITEM ON THE BACK PAGE OF THE WORK SHEET, UNDER THE FIRST COLUMN WHICH REPRESENTS LABOR COSTS, WE AGAIN COME TO AN ERROR IN EXTENSION. THE 10 PERCENT FIGURE SET DOWN WAS LISTED AS $641.00 WHICH WAS A MISTAKE IN CALCULATION AND SHOULD HAVE BEEN $741.00. AGAIN IN THIS COLUMN WE HAVE A MISTAKE IN ADDITION, WHICH WITH THE ADDITIONAL $100.11 JUST MENTIONED ABOVE, WOULD GIVE US A TOTAL UNDER THE LABOR COLUMN OF $8,149.00. WHEN THE MATERIAL COST IN THE OPPOSITE COLUMN IS ADDED IN THIS WOULD GIVE US A TOTAL OF $10,536.00. THIS ITEM NO. 4 WAS THEN COMBINED WITH ITEM NO. 5 AND ON THE ORIGINAL BID SHEET WE CAME UP WITH A TOTAL FIGURE OF $10,978.00 WITH THE PENCIL NOTATION, PRO-RATED OVER 1, 2, AND 3. THIS WILL NOW BE CHANGED AS SHOWN IN RED FIGURES, ADDED MARCH 20, AND THE TOTAL SHOULD BE $12,078.00, PRO-RATED OVER ITEMS 1, 2, AND 3.

THE COMPANY REQUESTED THEREIN THAT ITS BID PRICES BE CHANGED TO READ AS FOLLOWS:

CHART ITEM NO. 1----------------------------------------- $1.716 PER FOOT. ITEM NO. 2----------------------------------------- $699.96 PER SET. ITEM NO. 3----------------------------------------- $284.07 PER SET.

TOTAL PRICE---------------------------------- $72,893.

WITH ITS ABOVE REFERRED-TO LETTER, THE COMPANY RETURNED COPIES OF THE CONTRACT WHICH IT HAD EXECUTED ON MARCH 17, 1953, CONTAINING ON ITS FACE THE FOLLOWING LEGEND---

THIS INSTRUMENT SHALL BE SUBJECT TO THE WRITTEN APPROVAL OF THE PROCUREMENT REVIEW OFFICE, FOR THE COMMANDING GENERAL, HEADQUARTERS SECOND ARMY AND SHALL NOT BE BINDING UNTIL SO APPROVED.

BY LETTER OF AUGUST 10, 1953, THE OFFICE OF CHIEF OF FINANCE, FORWARDED A TELETYPE FROM THE COMMANDING GENERAL, HEADQUARTERS, SECOND ARMY, FORT GEORGE G. MEADE, MARYLAND, ADVISING THAT THE ABOVE-CITED CONTRACT WAS APPROVED ON APRIL 13, 1953. IN A TELETYPE DATED JUNE 16, 1953, THE COMMANDING GENERAL STATED THAT IT WAS INTENDED TO SET FORTH ON THE CONTRACT THAT IT WAS "SUBJECT TO CORRECTION BY THE GENERAL ACCOUNTING OFFICE.'

WHILE NOT SPECIFICALLY RAISED IN YOUR LETTER OR ENCLOSURES, THE REAL QUESTION IN THIS CASE IS WHETHER A VALID AND BINDING CONTRACT WAS CONSUMMATED UPON THE ACCEPTANCE OF THE COMPANY'S BID BY THE CONTRACTING OFFICER--- THAT IS, PRIOR TO IS APPROVAL BY HIGHER AUTHORITY. THE DETERMINATION OF THAT QUESTION IS CONTROLLING SINCE, IF NO CONTRACT CAME INTO BEING UPON APPROVAL WAS GIVEN, THE ALLEGATION OF ERROR WAS MADE PRIOR TO THE COMING INTO EXISTENCE OF BINDING CONTRACT CONFERRING RIGHTS AND OBLIGATIONS WHICH MAY THEREAFTER BE ALTERED ONLY UPON A FINDING OF MUTUAL MISTAKE. THE CONTRACTING OFFICER ADMITTEDLY HAD NO ACTUAL KNOWLEDGE OF MISTAKE PRIOR TO HIS ACCEPTANCE OF THE BID. MOREOVER, THERE WAS NOTHING ON THE FACE OF THE BID OF THE COMPANY TO INDICATE ERROR THEREIN. THE ABSTRACT OF BIDS SHOWS THAT THE FIVE OTHER BIDS WERE IN THE AGGREGATE AMOUNTS OF $83,187, $85,066.20, $107,190, $119,340, AND $128,653.65. BECAUSE OF THE WIDE RANGE IN THE BIDS, IT DOES NOT APPEAR THAT THE CONTRACTING OFFICER HAD, OR SHOULD HAVE HAD, CONSTRUCTIVE NOTICE OF ERROR. THUS, THERE IS NO BASIS FOR RELIEF ON THE GROUNDS OF MUTUAL MISTAKE. THIS LEADS TO THE QUESTION OF WHETHER THE LACK OF THE APPROVAL SPECIFIED LEFT THE BIDDER FREE TO WITHDRAW HIS BID.

IN THE CASE OF UNITED STATES V. NEW YORK AND PORTO RICO STEAMSHIP COMPANY, 239 U.S. 88, 92, AND 93, THE SUPREME COURT HELD, WITH RESPECT TO THE SUIT BROUGHT BY THE UNITED STATES UNDER CONTRACT WHICH WAS NOT IN WRITING AS REQUIRED BY STATUTE THAT---

THERE IS NO PRINCIPLE OF MUTUALITY APPLICABLE TO A CASE LIKE THIS, ANY MORE THAN THERE NECESSARILY IS IN A STATUTE REQUIRING A WRITING SIGNED BY THE PARTY SOUGHT TO BE CHARGED. THE UNITED STATES NEEDS THE PROTECTION OF PUBLICITY, FORM, REGULARITY OF RETURNS AND AFFIDAVIT (CITING STATUTES) IN ORDER TO PREVENT POSSIBLE FRAUDS UPON IT BY OFFICERS. A PRIVATE PERSON NEEDS NO SUCH PROTECTION AGAINST A WRITTEN UNDERTAKING SIGNED BY HIMSELF. THE DUTY IS IMPOSED UPON THE OFFICERS OF THE GOVERNMENT NOT UPON HIM. SEE NO REASON FOR EXTENDING THE IMPLICATION OF THE ACT BEYOND THE EVIL THAT IT SEEKS TO PREVENT. * * *

THE SUPREME COURT HAS OFTEN REITERATED THIS PRINCIPLE THAT CONTRACTING FORMALITIES IMPOSED UPON THE GOVERNMENT ARE FOR THE SOLE BENEFIT OF THE GOVERNMENT AND MAY NOT BE ENFORCED AGAINST IT BY A CONTRACTOR TO AVOID HIS OBLIGATION. SEE CLARK V. UNITED STATES, 95 U.S. 539; ACKERLIND V. UNITED STATES, 240 ID. 531; PURCELL ENVELOPE COMPANY V. UNITED STATES, 249 ID. 313; AMERICAN SMELTING AND REFINING COMPANY V. UNITED STATES, 259 ID. 75.

THE LEGAL EFFECT OF THE APPROVAL REQUIREMENT WAS RESOLVED IN THE CASE OF DISTRICT OF COLUMBIA V. SINGLETON, ET AL., 81 A.2D 335, AFFIRMED 198 F.2D 945, WHEREIN THE MUNICIPAL COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA HELD, QUOTING FROM THE SYLLABUS---

THE STATUTE PROVIDING THAT NO CONTRACT OF $1,000 OR MORE SHALL BE BINDING UPON THE DISTRICT OF COLUMBIA UNTIL APPROVED BY THE DISTRICT COMMISSIONERS RENDERS UNAPPROVED CONTRACTS UNENFORCEABLE AGAINST DISTRICT BUT BINDING UPON OTHER PARTY, AND THEREFORE SUCCESSFUL BIDDER MAY NOT REFUSE TO EXECUTE CONTRACT, AND THUS PREVENT APPROVAL BY COMMISSIONERS AND THEREBY RELIEVE HIMSELF OF CONSEQUENCES OF HIS DEFAULT.

WHILE THAT CASE INVOLVED A STATUTE WHICH, IN SPECIFIC TERMS, PROVIDED THAT NO CONTRACT SHALL BE BINDING UPON THE DISTRICT OF COLUMBIA UNTIL APPROVED, A READING OF THE DECISION OF BOTH COURTS INDICATES THAT THE HOLDINGS THEREIN WERE BASED ON THE RULINGS OF THE SUPREME COURT REFERRED- TO ABOVE, AND, ALSO, ON THE BASIS THAT "APPROVAL" IS SOLELY FOR THE BENEFIT OF THE GOVERNMENT. HENCE, IT APPEARS THAT THE PARTICULAR LANGUAGE USED IN THE DISTRICT OF COLUMBIA STATUTE WAS NOT THE CONTROLLING FACTOR IN THE CONCLUSION REACHED. THE RATIONALE OF THE DECISION OF THE APPELLATE COURT IS FOUND IN THE FOLLOWING STATEMENT (198 F.2D 945, 948/---

SUCH CASES (REFERRING TO THE CITED SUPREME COURT DECISIONS) CLEARLY CONTEMPLATES THE EXISTENCE OF AN OBLIGATION ON THE PART OF THE BIDDER PRIOR TO THE CREATION OF A CONTRACT WHICH WILL BIND THE PUBLIC BODY.

HENCE, IT MUST BE HELD THAT THE ACCEPTANCE OF THE COMPANY'S BID UNDER THE CIRCUMSTANCES HERE APPEARING GAVE RISE TO A VALID AND BINDING CONTRACT, INSOFAR AS THE COMPANY IS CONCERNED, UNDER WHICH THE GOVERNMENT WAS VESTED WITH THE RIGHT TO HAVE PERFORMANCE STRICTLY IN ACCORDANCE WITH THE TERMS THEREOF. SINCE THE COMPANY ALONE WAS RESPONSIBLE FOR THE SUBMISSION OF ITS BID, ANY ERROR THEREIN WAS DUE SOLELY TO ITS OWN NEGLIGENCE AND WAS NOT INDUCED OR CONTRIBUTED TO IN ANY MANNER BY THE GOVERNMENT. THE ERROR WAS UNILATERAL AND NOT MUTUAL, AND, THEREFORE, DOES NOT ENTITLE THE COMPANY TO RELIEF. SEE 20 COMP. GEN. 652, 30 ID. 509, AND THE CASES CITED THEREIN.

ACCORDINGLY, I HAVE TO ADVISE THAT THERE IS NO LEGAL BASIS TO PAY THE COMPANY ANY AMOUNT IN EXCESS OF THE PRICE FIXED IN THE CONTRACT OR TO RELEASE IT FROM ANY OF ITS OBLIGATIONS UNDER THE CONTRACT.