B-119294, MAR. 7, 1961

B-119294, MAR. 7, 1961

TO ADMINISTRATOR, GENERAL SERVICES ADMINISTRATION:

WE HAVE A LETTER OF JANUARY 26, 1961, WITH ENCLOSURES, SIGNED BY THE ACTING ADMINISTRATOR, REQUESTING OUR ADVICE AS TO THE VALIDITY OF CERTAIN CLAIMS AGAINST CALUMET AND HECLA, INCORPORATED, ARISING OUT OF CONTRACT NO. GS-00P/D/-12164, DATED JANUARY 8, 1952.

THE CONTRACT WAS ENTERED INTO PURSUANT TO SECTION 303 (C) OF THE DEFENSE PRODUCTION ACT OF 1950, AS AMENDED, 50 U.S.C. APP. 2093 (C), WHICH PROVIDES FOR THE PAYMENT OF SUBSIDIES ON DOMESTICALLY PRODUCED RAW MATERIALS WHERE THE PRESIDENT FINDS THAT GENERALLY FAIR AND EQUITABLE CEILING PRICES WILL RESULT IN A DECREASE IN SUPPLIES FROM HIGH-COST SOURCES. THE CONTRACT, BETWEEN THE UNITED STATES ACTING THROUGH THE DEFENSE MATERIALS PROCUREMENT AGENCY AND THE CLAIMANT'S PREDECESSOR, PROVIDED THAT THE GOVERNMENT WOULD PAY THE CONTRACTOR THE DIFFERENCE BETWEEN THE STATED BASE PRICE FOR COPPER, FROM EACH OF FOUR DESIGNATED MINES, AND THE CEILING PRICE ESTABLISHED BY THE OFFICE OF PRICE STABILIZATION OR OTHER GOVERNMENT AGENCIES. IT WAS FURTHER PROVIDED THAT THE CONTRACT WOULD TERMINATE FOR EACH MINE AT A SET DATE, OR UPON WRITTEN NOTICE 60 DAYS IN ADVANCE BY EITHER PARTY, OR UPON THE REMOVAL OF THE PRICE CEILING.

BY AMENDMENT NO. 1, DATED AUGUST 11, 1952, SUBSIDY PAYMENTS FOR ONE OF THE MINES WERE SUSPENDED AS OF MAY 1952. ON SEPTEMBER 24, 1952, THE CONTRACTOR ADVISED GSA THAT THE EMPLOYEES OF THE MINES WERE OUT ON STRIKE FOR HIGHER WAGES AND IT WAS PROPOSED IN CORRESPONDENCE BETWEEN THE PARTIES DURING THE PERIOD SEPTEMBER 1952-FEBRUARY 1953 THAT THE CONTRACT REMAIN IN FORCE DURING THE STRIKE AND THAT A NEW BASE PRICE BE NEGOTIATED AFTER PRODUCTION HAD BEGUN AGAIN. IT APPEARS THE STRIKE ENDED ON OR BEFORE NOVEMBER 1, 1952. ON FEBRUARY 25, 1953, THE CEILING PRICE ON THE MATERIAL IN QUESTION WAS REMOVED AND ON APRIL 17, 1953, AMENDMENT NO. 2 WAS EXECUTED BY THE PARTIES FOR THE CHANGE IN BASE PRICE AS CONTEMPLATED. THAT AMENDMENT WAS BY ITS TERMS MADE RETROACTIVE TO NOVEMBER 1, 1952. LETTER OF APRIL 14, 1960 FROM THE CONTRACTOR INDICATES THAT AGREEMENT WAS REACHED ON NOVEMBER 1, 1952, AND THE PARTIES BEGAN OPERATING PURSUANT TO THE AGREEMENT ON THAT DAY. A LEGAL MEMORANDUM OF JANUARY 26, 1961, FROM YOUR GENERAL COUNSEL SETS THE ACTUAL DATE OF AGREEMENT AT NOVEMBER 13, 1952.

A QUESTION HAS BEEN RAISED WITH RESPECT TO THE VALIDITY OF THE SECOND AMENDMENT IN VIEW OF THE FACT THAT THE FORMAL DOCUMENT WAS EXECUTED AFTER THE PRICE CEILINGS WERE REMOVED WHEN, BY ITS OWN TERMS, THE CONTRACT WAS AUTOMATICALLY TO EXPIRE.

THE CLEAR PURPOSE OF THE LEGISLATION PURSUANT TO WHICH THE CONTRACT WAS EXECUTED WAS TO ENCOURAGE THE CONTINUED PRODUCTION OF RAW MATERIALS FROM DOMESTIC HIGH-COST SOURCES BY PROVIDING FOR THE PAYMENT TO THE SUPPLIER OF A SUBSIDY REPRESENTING THE DIFFERENCE BETWEEN HIS ACTUAL COST AND THE CEILING PRICE. THE ENCLOSURES TO THE LETTER OF JANUARY 26, 1961, INDICATE THAT THE PARTIES HAD AGREED SOME TIME PRIOR TO THE REMOVAL OF THE PRICE CEILING ON THE EFFECTIVE TERMS OF THE SECOND AMENDMENT, EVEN THOUGH THE DOCUMENT REFLECTING THAT AMENDMENT WAS NOT SIGNED UNTIL SOME TIME LATER.

SINCE THE CITED STATUTORY PROVISION AS AMENDED CONTAINS NO LIMITATION ON THE AMOUNTS OF THE SUBSIDIES AND SINCE THE BASE PRICE APPEARS TO HAVE BEEN INTENDED TO BE SUFFICIENT ONLY TO INSURE MAXIMUM PRODUCTION WITHOUT EITHER LOSS OR PROFIT, IT IS CLEAR THAT THE GOVERNMENT COULD INCREASE THE BASE PRICE WHERE JUSTIFIED BY CURRENT PRODUCTION COST INCREASES WITHOUT CONSIDERATION PURSUANT TO TITLE II OF THE FIRST WAR POWERS ACT, 1941, AS AMENDED, 50 U.S.C. APP. 611, AND EXECUTIVE ORDER NO. 10281, AUGUST 28, 1951. FURTHERMORE, THE DELEGATION BY THE PRESIDENT TO THE DEFENSE MATERIALS PROCUREMENT ADMINISTRATOR OF THE CONTRACTING AUTHORITY AUTHORIZED BY THE ACT ELIMINATED THE NORMAL STATUTORY LIMITATIONS ON THE POWERS OF CONTRACTING OFFICERS AND IN EFFECT CLOTHED HIM WITH AUTHORITY TO REPRESENT THE GOVERNMENT TO SUBSTANTIALLY THE SAME EXTENT AS EXERCISED BY OFFICERS OF PRIVATE CORPORATIONS. IN VIEW THEREOF, AND SINCE, AS INDICATED IN YOUR GENERAL COUNSEL'S MEMORANDUM ON THE MATTER, THE EXISTENCE OF AN AGREEMENT IS PRIMARILY A QUESTION OF FACT, WE HAVE NO OBJECTION TO THE PAYMENT MADE UNDER THE CONTRACT, AS AMENDED, UPON YOUR DETERMINATION THAT PRIOR TO THE DATE OF THE REMOVAL OF THE PRICE CEILING THE PARTIES HAD EFFECTIVELY AGREED UPON THE ADJUSTMENTS IN THE CONTRACT PRICE, LEAVING FOR A LATER TIME ONLY THE EXECUTION OF THE FORMAL CONTRACT AMENDMENT.

THE QUESTION IS ALSO PRESENTED AS TO THE PROPRIETY OF PAYMENT OF THE SUBSIDY, THE DIFFERENCE BETWEEN THE CEILING PRICE AND THE BASE PRICE, AS TO COPPER WHICH THE CONTRACTOR HAD IN FACT SOLD AT A PRICE HIGHER THAN THE CEILING PRICE AFTER REMOVAL OF THE CEILING. IT APPEARS THAT 730,412 POUNDS OF COPPER WERE SOLD BY THE CONTRACTOR, AFTER THE REMOVAL OF PRICE CEILINGS, AT $0.3066 PER POUND. THE PRIOR CEILING PRICE FOR THAT COPPER HAD RANGED FROM APPROXIMATELY $0.29 TO $0.275 PER POUND.

THE ORIGINAL CONTRACT PROVIDES AT ARTICLE VI FOR THE PAYMENT OF A SUBSIDY DEFINED IN ARTICLE I (E) AS THE DIFFERENCE BETWEEN THE BASE PRICE AND THE CEILING PRICE. AMENDMENT 2 TO THE CONTRACT PROVIDES AT ARTICLE II FOR THE PAYMENT TO THE CONTRACTOR OF A SUBSIDY REPRESENTING THE DIFFERENCE BETWEEN THE CEILING PRICE AND THE BASE PRICE. BOTH DOCUMENTS SPECIFICALLY REQUIRED PAYMENT OF THE SUBSIDY ON ALL ORES MINED PRIOR TO TERMINATION AND PROCESSED IMMEDIATELY FOLLOWING TERMINATION.

IN SUPPORT OF THE POSITION TAKEN BY YOUR COMPTROLLER THAT THE CONTRACTOR IS NOT ENTITLED TO RETAIN SUBSIDIES PAID ON COPPER SOLD AFTER REMOVAL OF PRICE CEILINGS, IT IS POINTED OUT THAT ARTICLE III OF THE ORIGINAL CONTRACT SPECIFICALLY PROVIDES:

"CONTRACTOR SHALL DISPOSE OF SUCH PRODUCTION IN ACCORDANCE WITH ITS CUSTOMARY PRACTICE, AT THE APPLICABLE CEILING PRICE, AND IN COMPLIANCE WITH ALL APPLICABLE GOVERNMENTAL REGULATIONS.'

IT IS FURTHER POINTED OUT THAT AMENDMENT NO. 2 ALSO PROVIDES AT ARTICLE I (B) THAT THE CONTRACTOR SHALL DISPOSE OF THE COPPER AT THE APPLICABLE CEILING PRICE. IT IS THEREFORE ARGUED THAT THE CONTRACTOR BREACHED THE EXPRESS PROVISION OF THE CONTRACT BY DISPOSING OF CERTAIN OF THE COPPER AT A PRICE IN EXCESS OF THE CEILING. HOWEVER, THIS ARGUMENT IGNORES THE WORD "APPLICABLE" IN THE PROVISION RELIED ON. AT THE TIME OF THE SALES IN QUESTION, THERE WAS NO "APPLICABLE" CEILING PRICE, AND WE THEREFORE CANNOT AGREE THAT THE SALES CONSTITUTED A BREACH OF THE CONTRACTOR'S OBLIGATIONS. WHILE THE SUBSTITUTION OF THE SELLING PRICE FOR THE CEILING PRICE AS THE BASIS FOR MEASURING THE SUBSIDY PAYMENTS WOULD HAVE BEEN AN ENTIRELY EQUITABLE BASIS FOR SETTLEMENT, WE CAN FIND NO BASIS IN THE UNAMBIGUOUS TERMS OF THE CONTRACT FOR DENYING THE RIGHT OF THE CONTRACTOR TO RECEIVE THE SUBSIDY, MEASURED IN ACCORDANCE WITH THE CONTRACT PROVISION, ON ALL ORE PRODUCED UP TO THE DATE OF REMOVAL OF PRICE CEILINGS, PROVIDED ONLY THAT SUCH ORE WAS ..END :