B-121599, I-18751, FEB. 27, 1958

B-121599: Feb 27, 1958

Additional Materials:

Contact:

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

 

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

GENERAL SERVICES ADMINISTRATION: REFERENCE IS MADE TO YOUR LETTER OF FEBRUARY 6. 831.2349 SHORT TON UNITS AT NO COST TO THE CONTRACTOR AT A TIME WHEN THE GOVERNMENT WAS BUYING TUNGSTEN TRIOXIDE AND THAT MATERIAL WAS SELLING IN THE WORLD OPEN MARKET AT A MUCH HIGHER PRICE THAN THE GOVERNMENT WAS REQUIRED TO PAY UNDER THE WAH CHANG CONTRACT. YOUR PREDECESSOR CONCEDED THAT THE AUTHORITY FOR EXECUTION OF THE AMENDMENT WAS DOUBTFUL IN THAT IT PURPORTED TO WAIVE VESTED RIGHTS OF THE GOVERNMENT WITHOUT ANY CONSIDERATION AND HE STATED THAT GSA WAS IN THE PROCESS OF DETERMINING THE AMOUNT OF THE CLAIM WHICH WOULD BE ASSERTED AGAINST WAH CHANG IN THE MATTER. HAVE CONFERRED WITH MEMBERS OF OUR GENERAL COUNSEL'S STAFF ON THE VARIOUS LEGAL ASPECTS OF THE CASE.

B-121599, I-18751, FEB. 27, 1958

TO HONORABLE FRANKLIN G. FLOETE, ADMINISTRATOR, GENERAL SERVICES ADMINISTRATION:

REFERENCE IS MADE TO YOUR LETTER OF FEBRUARY 6, 1958, RELATIVE TO THE CLAIM FOR DAMAGES WHICH THE GENERAL SERVICES ADMINISTRATION HAS ASSERTED AGAINST WAH CHANG CORPORATION AS A RESULT OF ITS FAILURE TO DELIVER, BY 11,254.7641 SHORT TON UNITS, THE FULL QUANTITY OF TUNGSTEN TRIOXIDE REQUIRED TO BE FURNISHED TO THE GOVERNMENT UNDER CONTRACT SCM TS-21830, DATED FEBRUARY 27, 1950.

THE CLAIM AROSE AS A RESULT OF OUR LETTER OF FEBRUARY 18, 1955, B 121599, I-18751, TO YOUR PREDECESSOR, QUESTIONING THE VALIDITY OF AMENDMENT NO. 3 OF THE CONTRACT, DATED AUGUST 19, 1953, WHICH PURPORTED TO REDUCE THE OBLIGATION OF WAH CHANG CORPORATION WITH RESPECT TO MAKING DELIVERIES UNDER THE CONTRACT FROM 25,086 SHORT TON UNITS OF TUNGSTEN TRIOXIDE, THE ORIGINAL QUANTITY REQUIRED, TO 13,831.2349 SHORT TON UNITS AT NO COST TO THE CONTRACTOR AT A TIME WHEN THE GOVERNMENT WAS BUYING TUNGSTEN TRIOXIDE AND THAT MATERIAL WAS SELLING IN THE WORLD OPEN MARKET AT A MUCH HIGHER PRICE THAN THE GOVERNMENT WAS REQUIRED TO PAY UNDER THE WAH CHANG CONTRACT. IN REPLYING TO OUR LETTER OF FEBRUARY 22, 1955, YOUR PREDECESSOR CONCEDED THAT THE AUTHORITY FOR EXECUTION OF THE AMENDMENT WAS DOUBTFUL IN THAT IT PURPORTED TO WAIVE VESTED RIGHTS OF THE GOVERNMENT WITHOUT ANY CONSIDERATION AND HE STATED THAT GSA WAS IN THE PROCESS OF DETERMINING THE AMOUNT OF THE CLAIM WHICH WOULD BE ASSERTED AGAINST WAH CHANG IN THE MATTER. SINCE THAT TIME, MEMBERS OF YOUR GENERAL COUNSEL'S STAFF, INCLUDING MR. BYRON HARDING, ASSISTANT GENERAL COUNSEL, HAVE CONFERRED WITH MEMBERS OF OUR GENERAL COUNSEL'S STAFF ON THE VARIOUS LEGAL ASPECTS OF THE CASE. IT WAS GENERALLY AGREED THAT THERE IS SUBSTANTIAL BASIS FOR CONCLUDING THAT THE GOVERNMENT DOES HAVE A VALID CLAIM AGAINST WAH CHANG FOR BREACH OF CONTRACT, AND THAT THE DAMAGES SUSTAINED BY THE GOVERNMENT WERE TO BE CALCULATED BY OBTAINING THE DIFFERENCE BETWEEN THE CONTRACT PRICE FOR THE TUNGSTEN TRIOXIDE OF $18.96 PER SHORT TON UNIT AND THE MARKET PRICE THEREFOR PREVAILING AT THE TIME OF DEFAULT. AT THE CONFERENCE WHICH WAS HELD HERE ON DECEMBER 10, 1957, MR. HARDING ADVISED THAT UNDER ANOTHER CONTRACT WHICH HAD BEEN ENTERED INTO WITH WAH CHANG CORPORATION, NAMELY CONTRACT NO. GS-OOP-724 (SCM), DATED JUNE 22, 1951, WHICH RAN UNTIL OCTOBER, 1958, AND WAS THEN BEING PERFORMED, THE GENERAL SERVICES ADMINISTRATION WAS OBLIGATED TO ACCEPT DELIVERIES OF TUNGSTEN TRIOXIDE IN EXCESS OF THE AMOUNT INVOLVED IN THE INSTANT TRANSACTION AT PRICES FAR ABOVE THE PRESENT MARKET PRICE, WHEN THERE WAS ALSO NO PRESENT NEED FOR THE MATERIAL. MR. HARDING STATED THAT SEVERAL CONFERENCES HAD TAKEN PLACE BETWEEN REPRESENTATIVES OF THE CONTRACTOR AND GSA WITH REFERENCE TO PAYMENT BY THE CONTRACTOR OF AN AMOUNT TO COMPENSATE THE GOVERNMENT FOR DAMAGES IN THE TRANSACTION, BUT THE CONTRACTOR HAD REFUSED TO RECOGNIZE ANY RESPONSIBILITY IN THE MATTER; THAT IT WAS POSSIBLE, HOWEVER, THAT THE CONTRACTOR MIGHT BE WILLING TO RELIEVE THE GOVERNMENT FROM THE OBLIGATION OF TAKING THAT QUANTITY OF TUNGSTEN TRIOXIDE UNDER CONTRACT NO. GS-OOP-724 (SCM) WHICH, WHEN CONSIDERED IN RELATION TO THE PRICE STIPULATED IN THAT CONTRACT AND THE PREVAILING MARKET PRICE, WOULD EQUAL THE DAMAGES INCURRED BY THE GOVERNMENT UNDER CONTRACT NO. SCM-TS- 21830, AS MEASURED BY THE MARKET PRICE FOR TUNGSTEN TRIOXIDE PREVAILING ON AUGUST 19, 1953, THE DATE OF EXECUTION OF AMENDMENT NO. 3; AND THAT IF THIS COULD BE ACCOMPLISHED IT WOULD BE JUST AS ADVANTAGEOUS TO THE GOVERNMENT AS IF CASH SETTLEMENT WERE MADE FOR THE DAMAGES, AND, IN ADDITION, THE GOVERNMENT WOULD BE RELIEVED OF THE NECESSITY OF TAKING DELIVERY OF THAT MUCH TUNGSTEN WHICH IT DID NOT NEED. IT WAS GENERALLY AGREED THAT GSA WOULD APPROACH THE CONTRACTOR WITH THE PROPOSITION OUTLINED BY MR. HARDING.

IT APPEARS FROM YOUR PRESENT LETTER THAT THE MARKET PRICE OF TUNGSTEN TRIOXIDE ON AUGUST 19, 1953, WAS $42.50 PER SHORT TON UNIT AND THAT DAMAGES COMPUTED ON SUCH BASIS AMOUNT TO $264,937.17. YOU STATE THAT THE MARKET PRICE OF TUNGSTEN TRIOXIDE ON THE DATE WHEN NEGOTIATIONS WITH WAH CHANG WERE RESUMED WAS $13 PER SHORT TON UNIT AND THE PRICE REQUIRED TO BE PAID UNDER CONTRACT NO. GS-OOP-724 (SCM) IS $55 PER SHORT TON UNIT, OR $42 ABOVE THE MARKET PRICE, AND THAT THE ATTORNEYS FOR WAH CHANG HAVE ADVISED THAT THE CONTRACTOR IS WILLING TO AMEND THE CONTRACT SO AS TO REDUCE THE QUANTITY OF TUNGSTEN TRIOXIDE WHICH THE GOVERNMENT IS REQUIRED TO TAKE THEREUNDER BY 6308.0279 SHORT TON UNITS, THUS RELIEVING THE GOVERNMENT OF AN OBLIGATION TO PAY OUT A TOTAL OF $346,941.53 FOR MATERIAL WHICH THE GOVERNMENT DOES NOT DESIRE TO TAKE AND WHICH IS WORTH IN TODAY'S MARKET NO MORE THAN $82,004.36. YOU STATE THAT SINCE THE DIFFERENCE OF $264,937.17 WOULD, IN EFFECT, BE A RECOVERY BY THE GOVERNMENT OF THAT AMOUNT IN CONNECTION WITH THE CLAIM UNDER CONTRACT NO. SCM-TS-21830, YOU BELIEVE IT WOULD BE DEFINITELY ADVANTAGEOUS TO THE UNITED STATES TO ACCEPT THE WAH CHANG OFFER. ACCORDINGLY, YOU REQUEST APPROVAL OF THE EXECUTION BY GSA OF THE PROPOSED AMENDMENT TO CONTRACT NO. GS-OOP-724 (SCM) IN FULL SETTLEMENT OF THE GOVERNMENT'S CLAIM AGAINST WAH CHANG UNDER CONTRACT NO. SCM-TS- 21830.

THE GOVERNMENT, BY ITS COURSE OF ACTION SUBSEQUENT TO THE DATES WHEN DELIVERIES WERE DUE UNDER THE CONTRACT REASONABLY MAY BE HELD TO HAVE TACITLY AGREED TO EXTEND THE DELIVERY DATES A REASONABLE LENGTH OF TIME. UNDER THE CIRCUMSTANCES, AUGUST 19, 1953, MAY BE ACCEPTED AS TOLLING THE REASONABLE TIME PERIOD, AND THE DATE OF DEFAULT. THE AMOUNT OF $264,937.17 MAY, THEREFORE, BE SAID TO REPRESENT THE DAMAGES WHICH THE GOVERNMENT SUSTAINED AS A RESULT OF THE BREACH OF CONTRACT.

FOR THE REASONS HEREINABOVE SET FORTH, YOU ARE ADVISED THAT THE EXECUTION OF THE PROPOSED AMENDMENT TO CONTRACT NO. GS-OOP-724 (SCM) WOULD APPEAR TO BE PROPER AND IT HAS OUR FULL APPROVAL.

IT IS REQUESTED THAT WE BE FURNISHED WITH A COPY OF THE AMENDMENT WHEN IT HAS BEEN EXECUTED.