B-118402, FEBRUARY 17, 1954, 33 COMP. GEN. 364

B-118402: Feb 17, 1954

Additional Materials:

Contact:

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

 

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

A CONTRACTOR IS ENTITLED TO REFUND OF AMOUNT OF CASH OR PROMPT PAYMENT DISCOUNT TAKEN BY GOVERNMENT ON THAT AMOUNT PAID TO CONTRACTOR UNDER BASIC CONTRACT PRICE WHICH WAS IN EXCESS OF AMOUNT FINALLY DETERMINED TO BE DUE ON CONTRACT AFTER REVISION OF THE PRICE UNDER THE PRICE REDETERMINATION CLAUSE. YOU HAVE REQUESTED AN ADVANCE DECISION AS TO THE PROPRIETY OF MAKING PAYMENT ON THE SAID VOUCHER. 799.61 WERE TAKEN ON ALL OF THE INVOICES PRESENTED BY THE CONTRACTOR UNDER THE BASIC CONTRACT. IT IS UNDERSTOOD THAT ALL OF THE SAID DISCOUNTS WERE EARNED SINCE THE PAYMENTS ON THE CONTRACTOR'S INVOICES WERE MADE WITHIN THE 10- DAY PERIOD SPECIFIED. THAT THE DISCOUNT RATE WAS COMPUTED AT ONE PERCENT OF THE THEN PREVAILING CONTRACT VALUE OF THE SUPPLIES AMOUNTING.

B-118402, FEBRUARY 17, 1954, 33 COMP. GEN. 364

CONTRACTS - DISCOUNTS - DOWNWARD REVISION OF CONTRACT PRICE UNDER PRICE REDETERMINATION CLAUSE - REFUND OF EXCESS DISCOUNT DEDUCTION UNDER A CONTRACT CONTAINING CASH OR PROMPT PAYMENT DISCOUNT PROVISIONS AND A PRICE REDETERMINATION CLAUSE, A CONTRACTOR IS ENTITLED TO REFUND OF AMOUNT OF CASH OR PROMPT PAYMENT DISCOUNT TAKEN BY GOVERNMENT ON THAT AMOUNT PAID TO CONTRACTOR UNDER BASIC CONTRACT PRICE WHICH WAS IN EXCESS OF AMOUNT FINALLY DETERMINED TO BE DUE ON CONTRACT AFTER REVISION OF THE PRICE UNDER THE PRICE REDETERMINATION CLAUSE.

COMPTROLLER GENERAL WARREN TO LIEUTENANT E. V. ALLEN, DEPARTMENT OF THE ARMY, FEBRUARY 17, 1954:

THERE HAS BEEN RECEIVED BY REFERENCE FROM THE OFFICE OF THE CHIEF OF FINANCE, FINEY 167/82969, YOUR LETTER OF DECEMBER 29, 1953, ACCOMPANIED BY BUREAU VOUCHER NO. 12-286, FOR $32.86, IN FAVOR OF TITEFLEX, INC., SPRINGFIELD, MASSACHUSETTS, PROPOSING REFUND OF AN ALLEGED EXCESSIVE DISCOUNT DEDUCTION MADE IN EFFECTING PAYMENTS FOR SUPPLIES FURNISHED THE DEPARTMENT OF THE ARMY UNDER CONTRACT NO. DA-19-059-ORD-1039, DATED JUNE 18, 1952, AS AMENDED. YOU HAVE REQUESTED AN ADVANCE DECISION AS TO THE PROPRIETY OF MAKING PAYMENT ON THE SAID VOUCHER.

THE RECORD DISCLOSES THAT PROMPT PAYMENT DISCOUNTS TOTALING $1,799.61 WERE TAKEN ON ALL OF THE INVOICES PRESENTED BY THE CONTRACTOR UNDER THE BASIC CONTRACT, AS AMENDED BY SUPPLEMENTAL AGREEMENT NO. 5, DATED JANUARY 12, 1953. IT IS UNDERSTOOD THAT ALL OF THE SAID DISCOUNTS WERE EARNED SINCE THE PAYMENTS ON THE CONTRACTOR'S INVOICES WERE MADE WITHIN THE 10- DAY PERIOD SPECIFIED; AND THAT THE DISCOUNT RATE WAS COMPUTED AT ONE PERCENT OF THE THEN PREVAILING CONTRACT VALUE OF THE SUPPLIES AMOUNTING, IN THE AGGREGATE, TO $179,960.66.

HOWEVER, SUBSEQUENT TO THE PAYMENTS AFORESAID, THE PARTIES, PRESUMABLY ACTING PURSUANT TO THE PRICE REDETERMINATION CLAUSE CONTAINED IN THE CONTRACT, AGREED TO A REVISION OF THE UNIT PRICE OF THE COMMODITY TO $2.56 EACH, AND ACCORDINGLY, THERE WAS ISSUED ON JULY 24, 1953, SUPPLEMENTAL AGREEMENT NO. 16 PROVIDING FOR A REVISED CONTRACT CONSIDERATION OF $176,640 FOR THE 69,000 UNITS INVOLVED, IN LIEU OF $179,960.66, AS PREVIOUSLY ESTABLISHED UNDER SUPPLEMENTAL AGREEMENT NO. 5, SUPRA.

IN RESPONSE TO THE DEPARTMENT'S DEMAND FOR REFUND OF THE EXCESS OF $3,320.66 PAID UNDER THE CONTRACT, THE CONTRACTOR ON OR ABOUT AUGUST 24, 1953, MAILED A CHECK FOR $3,285.66, REPRESENTING THE AMOUNT OF THE SAID EXCESS OF $3,320.66, MINUS THE SUM OF $35 WHICH PREVIOUSLY HAD BEEN WITHHELD FROM THE PROCEEDS OF D.O. VOUCHER NO. 411,381 OF YOUR MAY, 1953, ACCOUNT. HOWEVER, IN ITS LETTER OF NOVEMBER 25, 1953, TO YOU, THE CONTRACTOR REQUESTED A REFUND OF THE $32.86 DISCOUNT CLAIMED TO BE DUE ON THE SAID EXCESSIVE PAYMENT OF $3,285.66, ALLEGING THAT SINCE THE DISCOUNT ORIGINALLY TAKEN BY THE GOVERNMENT HAD BEEN COMPUTED UPON THE BASIS OF THE ORIGINAL CONSIDERATION OF $179,960.66, SUCH DISCOUNT NOW WAS SUBJECT TO ADJUSTMENT UPON THE BASIS OF THE LESSER CONSIDERATION ESTABLISHED IN SUPPLEMENTAL AGREEMENT NO. 16.

YOU HAVE QUESTIONED THE PROPRIETY OF GRANTING THE ADJUSTMENT REQUESTED BY THE CONTRACTOR UPON THE GROUNDS THAT THE CASH OR PROMPT PAYMENT DISCOUNT WAS OFFERED BY THE CONTRACTOR AS CONSIDERATION TO INDUCE THE EARLIER OR MORE EXPEDITIOUS RELEASE OF MONEYS DUE UNDER THE CONTRACT, AND SINCE PRIORITY WAS GIVEN TO PAYMENT OF THE CONTRACTOR'S INVOICES, AS PRESENTED, IT APPEARS THAT YOU CONSIDER THE DISCOUNTS THUS TAKEN MAY HAVE BEEN EARNED.

IN TRADE OR COMMERCIAL PRACTICE, DISCOUNT GENERALLY IS REGARDED AS AN ALLOWANCE OR PERCENTAGE DEDUCTION OFFERED BY THE OBLIGEE FOR THE PREPAYMENT OR PROMPT PAYMENT OF AN ACCOUNT, AND, IN ITS LEGAL SENSE, THE WORD DISCOUNT IS CONSIDERED TO BE A SUM DEDUCTED, IN CONSIDERATION OF CASH OR PROMPT PAYMENT, FROM THE PRICE OF A THING USUALLY SOLD ON CREDIT. SEE CARROLL V. DRURY, 49 N.E. 311, 312; WORDS AND PHRASES, VOL. 12, P. 565. AS USED IN THE INSTANT CONTRACT, THERE CAN BE LITTLE, IF ANY, DOUBT THAT THE DISCOUNT OFFERED THEREIN ACTUALLY WAS INTENDED BY THE PARTIES TO BE COMPUTED UPON A PERCENTAGE OF THE TRUE CONTRACT VALUE OF THE ITEMS, AS FIXED BY THE TERMS OF THE INSTRUMENT ITSELF. THUS, WHILE IT IS TRUE THAT THE CASH DISCOUNTS DEDUCTED ON THE CONTRACTOR'S ORIGINAL INVOICES MIGHT BE CONSIDERED AS HAVING BEEN EARNED AS OF THE TIME THE PAYMENTS THEREON WERE MADE, IT MUST BE BORNE IN MIND THAT THE ONE PERCENT DISCOUNT OFFERED BY THE CONTRACTOR IN THIS INSTANCE UNQUESTIONABLY WAS INTENDED FOR COMPUTATION UPON A CONTRACT PRICE WHICH ADMITTEDLY WAS SUBJECT TO REVISION UNDER THE PRICE REDETERMINATION CLAUSE REFERRED TO AND, THEREFORE, COULD BE ALTERED SUBSEQUENT TO THE DATES UPON WHICH THE ORIGINAL PAYMENTS WERE MADE. THAT BEING SO, IT REASONABLY FOLLOWS THAT THE INSTANT CONTRACT CARRIED WITH IT THE IMPLIED CONDITION THAT THE DISCOUNT OFFERED IS FOR COMPUTATION ON THE TRUE CONTRACT VALUE OF THE SUPPLIES, AS ULTIMATELY FIXED MUTUALLY AGREED TO BY THE PARTIES. CF. 18 COMP. GEN. 784, 787. PERMIT THE GOVERNMENT TO RETAIN THE EXCESS DISCOUNT COMPUTED ON THE HIGHER CONTINGENT CONTRACT PRICE WOULD OPERATE TO IMPOSE A DOUBLE HARDSHIP UPON THE VENDOR OF COMPELLING THE LATTER TO ABSORB NOT ONLY THE LOSS INCIDENT TO THE DOWNWARD REVISION OF THE CONTRACT PRICE, BUT ALSO THE DISCOUNT PREVIOUSLY DEDUCTED ON THE AMOUNT BY WHICH THE CONTRACT WAS DECREASED.