B-121098, APRIL 5, 1955, 34 COMP. GEN. 499

B-121098: Apr 5, 1955

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1955: REFERENCE IS MADE TO YOUR LETTER OF DECEMBER 10. N160S- 8352 WAS $8. " AND THIS DISCOUNT APPEARS TO HAVE BEEN TAKEN BY THE GOVERNMENT ON PAYMENTS AGGREGATING 90 PERCENT OF THE STIPULATED CONTRACT PRICES. THE INSTANT CLAIMS ARE CONCERNED ONLY WITH THE 10 PERCENT AUTHORIZED TO BE WITHHELD PENDING FINAL REDETERMINATION OF THE CONTRACT PRICES. IT IS YOUR CONTENTION THAT YOUR DISCOUNT OFFER WAS INTENDED AS AN INDUCEMENT TO PROMPT PAYMENT OF YOUR INVOICES. THAT SUCH OFFER WAS INDEPENDENT OF. - WAS NOT MADE BY THE GOVERNMENT UNTIL FEBRUARY 26. THE GOVERNMENT WAS NOT ENTITLED TO THE DISCOUNTS DEDUCTED WITH RESPECT TO ANY OF YOUR INVOICES PRESENTED MORE THAN 20 DAYS PRIOR TO SUCH PAYMENT.

B-121098, APRIL 5, 1955, 34 COMP. GEN. 499

CONTRACTS - PRICE REDETERMINATION - DISCOUNT PERIOD UNDER CONTRACTS WHICH CONTAINED A PROMPT PAYMENT DISCOUNT OFFER AND PROVIDED FOR PRICE REDETERMINATION AFTER PARTIAL PERFORMANCE, AND FOR PAYMENT OF NOT MORE THAN 90 PERCENT OF THE ORIGINAL CONTRACT PRICE PRIOR TO PRICE REDETERMINATION, THE PERIOD DURING WHICH THE GOVERNMENT COULD TAKE A DISCOUNT FOR PROMPT PAYMENT ON THE REMAINING 10 PERCENT DID NOT BEGIN UNTIL THE FINAL PRICE HAD BEEN DETERMINED IN THE MANNER EXPRESSLY PRESCRIBED IN THE CONTRACTS.

ASSISTANT COMPTROLLER GENERAL WEITZEL TO SOUTHERN STATES IRON ROOFING CO., APRIL 5, 1955:

REFERENCE IS MADE TO YOUR LETTER OF DECEMBER 10, 1954, RELATIVE TO YOUR CLAIM FOR REFUND OF DISCOUNT, AMOUNTING TO $2,507.88, DEDUCTED IN MAKING PAYMENT TO YOU FOR PREFABRICATED BUILDINGS DELIVERED TO THE BATON ROUGE ENGINEERING DEPOT, SHARPE STATION, BATON ROUGE, LOUISIANA, PURSUANT TO CONTRACTS NOS. N160S-8352 AND N160-249S-10228, DATED MARCH 7 AND JUNE 28, 1952, RESPECTIVELY.

EACH CONTRACT CONTAINS A PRICE-REDETERMINATION CLAUSE, PROVIDING IN SUBSTANCE, THAT AFTER DELIVERY OF 50 PERCENT OF THE SPECIFIED QUANTITY OF ITEMS THE CONTRACTOR SHALL SUBMIT TO THE CONTRACTING OFFICER A "BREAKDOWN OF COSTS INCURRED AND AN ESTIMATE OF COSTS EXPECTED TO BE NCURRED" IN THE PERFORMANCE THEREOF, AND THAT UPON THE BASIS OF SUCH INFORMATION AND SUCH OTHER DATA AS MAY BE AVAILABLE TO THE CONTRACTING OFFICER THE CONTRACT PRICE SHALL BE REDETERMINED BY AGREEMENT BETWEEN THE PARTIES. PARAGRAPH (B) OF THE RENEGOTIATION CLAUSE IN EACH CONTRACT FURTHER PROVIDES FOR THE PAYMENT TO THE CONTRACTOR OF AMOUNTS NOT TO EXCEED 90 PERCENT OF THE TOTAL SPECIFIED CONTRACT PRICE, PENDING, OF COURSE, FINAL REDETERMINATION OF SUCH CONTRACT PRICE.

THE TOTAL CONTRACT PRICE ORIGINALLY STIPULATED FOR CONTRACT NO. N160S- 8352 WAS $8,275,480, AND FOR CONTRACT NO. N160-2495-10228, $2,677,485.30, MAKING $10,952,965.30 THE TOTAL CONSIDERATION UNDER BOTH CONTRACTS.

EACH CONTRACT OFFERED A DISCOUNT OF " 1/2 OF 1 PERCENT 20 DAYS," AND THIS DISCOUNT APPEARS TO HAVE BEEN TAKEN BY THE GOVERNMENT ON PAYMENTS AGGREGATING 90 PERCENT OF THE STIPULATED CONTRACT PRICES. THUS, THE INSTANT CLAIMS ARE CONCERNED ONLY WITH THE 10 PERCENT AUTHORIZED TO BE WITHHELD PENDING FINAL REDETERMINATION OF THE CONTRACT PRICES.

BASICALLY, IT IS YOUR CONTENTION THAT YOUR DISCOUNT OFFER WAS INTENDED AS AN INDUCEMENT TO PROMPT PAYMENT OF YOUR INVOICES, AND THAT SUCH OFFER WAS INDEPENDENT OF, AND TOTALLY UNRELATED TO, THE PRICE REDETERMINATION CLAUSE OF YOUR CONTRACTS. HENCE, YOU CONTEND THAT SINCE PAYMENT ON YOUR SEVERAL INVOICES, AGGREGATING $418,838.68--- SUBMITTED UNDER CONTRACT NO. N160S- 8352, AND BEARING DATES RANGING FROM JANUARY 9 THROUGH FEBRUARY 9, 1953--- WAS NOT MADE BY THE GOVERNMENT UNTIL FEBRUARY 26, 1953, THE GOVERNMENT WAS NOT ENTITLED TO THE DISCOUNTS DEDUCTED WITH RESPECT TO ANY OF YOUR INVOICES PRESENTED MORE THAN 20 DAYS PRIOR TO SUCH PAYMENT. SIMILARLY, YOU CONTEND WITH RESPECT TO THE 37TH AND FINAL PAYMENT MADE UNDER CONTRACT NO. N160-249S 10228 THAT SINCE PAYMENT WAS NOT MADE WITHIN 20 DAYS FROM THE DATES OF YOUR SEVERAL INVOICES THE GOVERNMENT IS NOT ENTITLED TO THE DISCOUNT TAKEN THEREON, AND THE FACT THAT THE PAYMENTS HAD BEEN WITHHELD PENDING A REDETERMINATION OF THE TOTAL CONTRACT PRICES WAS IMMATERIAL INSOFAR AS YOUR RIGHT TO RECLAIM SUCH DISCOUNT IS CONCERNED.

IT IS ALSO YOUR POSITION THAT SINCE THE AMENDMENTS TO THE CONTRACTS WERE NOT ISSUED PROMPTLY AFTER THE CONCLUSION OF THE CONFERENCES HELD AT PORT HUENEME, CALIFORNIA, THE GOVERNMENT LOST ITS RIGHT TO THE DISCOUNT OFFERED FOR PAYMENT WITHIN 20 DAYS.

CONCERNING THE DISCOUNT RECLAIMED UNDER CONTRACT NO. N160S-8352, THE RECORD SHOWS THAT SEVERAL CONFERENCES WERE SCHEDULED AND HELD AT PORT HUENEME, CALIFORNIA, DURING THE MONTH OF JANUARY 1953, BETWEEN REPRESENTATIVES OF YOUR COMPANY AND THE GOVERNMENT, FOR THE PURPOSE OF ASSEMBLING AND REVIEWING THE COST DATA ESSENTIAL TO A PROPER DETERMINATION OF THE TOTAL CONTRACT PRICE PAYABLE FOR THE SERVICES RENDERED. THESE CONFERENCES ULTIMATELY RESULTED IN THE ISSUANCE ON FEBRUARY 26, 1953, OF AMENDMENT NO. 7 TO THE CONTRACT, AUTHORIZING PAYMENT TO YOU OF THE UNIT PRICE OF $2,068.87 ORIGINALLY QUOTED BY YOU, THUS MAKING A TOTAL CONTRACT PRICE OF $8,285,824.35 FOR ALL THE ITEMS DELIVERED THEREUNDER. THE ADDENDUM WAS ISSUED PURSUANT TO THE EXPRESS TERMS OF THE PRICE- REDETERMINATION CLAUSE OF THE CONTRACT AND THE DOCUMENT BEARS EVIDENCE OF ITS ACCEPTANCE BY YOUR EXECUTIVE VICE PRESIDENT, AND BY THE GOVERNMENT CONTRACTING OFFICER, ON MARCH 27, 1953. THE 46TH AND FINAL PAYMENT UNDER THE CONTRACT WAS MADE ON FEBRUARY 26, 1953, OR ON THE ACTUAL DATE OF ISSUANCE OF AMENDMENT NO. 7. CONSEQUENTLY, THERE WAS DEDUCTED A DISCOUNT OF $2,094.19, REPRESENTING ONE-HALF OF ONE PERCENT OF THE WITHHELD AMOUNT OF $418,838.68.

THE RECORD SHOWS THAT THE 37TH PARTIAL PAYMENT UNDER CONTRACT NO. N160- 249S-10228 WAS MADE BY TREASURY CHECK DATED JULY 21, 1953, ISSUED THREE DAYS AFTER THE RECEIPT BY THE FINANCE OFFICER OF THE CONTRACTING OFFICER'S TELEGRAM OF JULY 18, 1953, AUTHORIZING THE RELEASE OF ADDITIONAL PAYMENTS UP TO 95 PERCENT OF THE CONTRACT PRICE. THE 38TH AND FINAL PAYMENT UNDER THE CONTRACT, ON WHICH A DISCOUNT OF $288.69 WAS TAKEN, WAS MADE ON NOVEMBER 5, 1953, OR WITHIN SIX DAYS FROM DATE OF ISSUANCE OF AMENDMENT NO. 5 ON OCTOBER 30, 1953, AUTHORIZING PAYMENT UNDER THE PRICE- REDETERMINATION CLAUSE OF THE SPECIFIED CONTRACT PRICE OF THE ITEMS.

ANSWERING YOUR CONTENTION THAT THE PRICE-REDETERMINATION CLAUSE IS UNRELATED TO YOUR DISCOUNT OFFER FOR PROMPT PAYMENT, THERE MUST NOT BE OVERLOOKED THE FACT THAT, 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 A STRICTLY LEGAL SENSE, IT 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, N.E. 311, 312; 33 COMP. GEN. 364. OF COURSE, IT IS REALIZED THAT UNDER THE STANDARD DISCOUNT CLAUSE USUALLY APPEARING IN GOVERNMENT SUPPLY CONTRACTS, THE DISCOUNT PERIOD IS CONSIDERED AS COMMENCING EITHER FROM THE DATE OF DELIVERY OF THE SUPPLIES, OR FROM DATE OF RECEIPT OF THE VENDOR'S INVOICES IN THE PROPER FINANCE OFFICE, WHICHEVER IS LATER. HERE, THE PAYMENT PROVISIONS ARE ENTIRELY DIFFERENT IN THAT, BY THE EXPRESS TERMS OF EACH CONTRACT, PAYMENTS THEREUNDER WERE AUTHORIZED ONLY TO THE EXTENT OF 90 PERCENT OF THE STIPULATED CONTRACT PRICE OF THE ITEMS. FURTHERMORE, BY THEIR TERMS, THE BALANCE OF 10 PERCENT WAS NOT EVEN DUE OR PAYABLE TO THE CONTRACTOR UNTIL SUCH TIME AS THE FINAL CONTRACT PRICE HAD BEEN REDETERMINED--- AFTER A COMPLETE REVIEW OF ALL AVAILABLE COST DATA--- AND THE CONTRACT WAS FORMALLY MODIFIED SO AS TO SHOW THE FINAL REDETERMINATION PRICE. CERTAINLY, THERE COULD NOT REASONABLY BE AN EXPECTATION OF ANY PAYMENT BY THE CONTRACTOR UNTIL SUCH PAYMENT ACTUALLY FELL DUE AND, IN THIS CASE, THE RETAINED PERCENTAGES WERE NOT DUE AND PAYABLE UNTIL THE FINAL PRICE HAD BEEN DETERMINED IN THE MANNER EXPRESSLY PRESCRIBED IN THE CONTRACTS THEMSELVES. HENCE, UNDER THE ORDINARY RULES OF CONTRACT CONSTRUCTION, PAYMENTS ON THE INVOICES HERE IN QUESTION WERE DUE ONLY AFTER THE CONTRACT PRICES HAD BEEN FINALLY ESTABLISHED, AND THE CONTRACTS FORMALLY AMENDED TO PROVIDE FOR PAYMENT IN THE CORRECT AMOUNTS DUE. THUS, ANY PAYMENTS MADE WITHIN 20 CALENDAR DAYS FROM DATE OF ISSUANCE OF THE CONTRACT MODIFICATIONS MUST BE REGARDED AS HAVING BEEN MADE WITHIN THE SPECIFIED DISCOUNT PERIOD, AND ANY DEDUCTIONS MADE AS DISCOUNT FROM THE PROCEEDS OF YOUR INVOICES MUST BE CONSIDERED AS EARNED BY THE GOVERNMENT.

CERTAINLY THERE WAS SOME DELAY BETWEEN THE DATES OF THE CONFERENCES REFERRED TO AND THE DATES OF ISSUANCE OF THE FORMAL AMENDMENTS TO YOUR CONTRACT UNDER THE PRICE REDETERMINATION CLAUSE; HOWEVER, WHEN THERE IS CONSIDERED THE TIME NECESSARILY REQUIRED IN THE ASSEMBLY, EXAMINATION AND COMPLETE REVIEW OF THE VOLUMINOUS COST RECORDS AND OTHER DATA AFFECTING PAYMENTS UNDER CONTRACTS OF THIS SIZE AND CHARACTER, THE CONCLUSION IS REQUIRED THAT THERE WAS NO UNREASONABLE OR UNNECESSARY DELAY IN THE ISSUANCE OF THE AMENDMENTS TO THESE CONTRACTS.