B-122522, MAY 24, 1956

B-122522: May 24, 1956

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DEPARTMENT OF THE ARMY: REFERENCE IS MADE TO YOUR LETTER OF DECEMBER 16. THE RECLAIMED AMOUNTS WERE PREVIOUSLY PAID THE CHRYSLER CORPORATION ON VOUCHERS COVERING COSTS OF CERTAIN ITEMS OF MACHINE TOOLING AND RELATED EQUIPMENT ACQUIRED BY IT IN THE PERFORMANCE OF COST REIMBURSEMENT CONTRACT NO. THESE AMOUNTS WERE SUBSEQUENTLY RECOUPED TO SATISFY EXCEPTIONS ISSUED BY OUR DIVISION OF AUDITS. FOLLOWING EXECUTION OF THE LETTER CONTRACT (WHICH WAS SUPERSEDED BY THE DEFINITIVE CONTRACT). WERE PLACED WITH THE CINCINNATI MILLING AND GRINDING MACHINES. REFUSED TO COMMIT ITSELF ON THE MATTER OF PRICE WHEN THE ORDERS FOR TOOLING MACHINERY AND EQUIPMENT ORIGINALLY WERE PLACED WITH IT BY THE PRIME CONTRACTOR.

B-122522, MAY 24, 1956

TO CAPTAIN HOWARD T. PEAT, DISBURSING OFFICER, DEPARTMENT OF THE ARMY:

REFERENCE IS MADE TO YOUR LETTER OF DECEMBER 16, 1955, WITH ENCLOSURES, TRANSMITTED HERE BY FIRST INDORSEMENT DATED DECEMBER 30, 1955, FROM THE CHIEF OF FINANCE (FINEY 167/16 DEC 55), REQUESTING AN ADVANCE DECISION AS TO THE PROPRIETY OF MAKING PAYMENTS ON RECLAIM VOUCHERS NOS. 821 THROUGH 825, TOTALING $104,351.53, IN FAVOR OF THE CHRYSLER CORPORATION, DETROIT, MICHIGAN.

THE RECLAIMED AMOUNTS WERE PREVIOUSLY PAID THE CHRYSLER CORPORATION ON VOUCHERS COVERING COSTS OF CERTAIN ITEMS OF MACHINE TOOLING AND RELATED EQUIPMENT ACQUIRED BY IT IN THE PERFORMANCE OF COST REIMBURSEMENT CONTRACT NO. DA-20-089-ORD-10891, DATED JANUARY 26, 1951. THESE AMOUNTS WERE SUBSEQUENTLY RECOUPED TO SATISFY EXCEPTIONS ISSUED BY OUR DIVISION OF AUDITS, ON THE GROUND THAT THE AMOUNTS PAID INCLUDED OVERPAYMENTS UNDER THE PURCHASE ORDERS ISSUED BY CHRYSLER TO ITS SUPPLIERS, THE TAYLOR- THOMPSON MACHINERY COMPANY, DETROIT, MICHIGAN, AND THE CINCINNATI MILLING AND GRINDING MACHINES, INC., CINCINNATI, OHIO.

AS TO THE MATTER OF REIMBURSEMENT TO THE CONTRACTOR, TITLE IV, ARTICLE 11, SUBPARAGRAPH 2 OF THE DEFINITIVE CONTRACT, PROVIDED:

"2. THE CONTRACTOR SHALL BE REIMBURSED * * * FOR ALL COSTS AND EXPENDITURES UNDER TITLE II AND III AS MAY BE APPROVED OR RATIFIED BY THE CONTRACTING OFFICER * * * INCLUDING BUT NOT LIMITED TO THE FOLLOWING:

"B. COST OF EQUIPMENT, MACHINERY AND OTHER FACILITIES PROCURED FROM SOURCES OTHER THAN CONTRACTOR'S OWN MANUFACTURE:(1) THE NET INVOICE PRICE TO THE CONTRACTOR * * *.'

FOLLOWING EXECUTION OF THE LETTER CONTRACT (WHICH WAS SUPERSEDED BY THE DEFINITIVE CONTRACT), AND CONTINUING FOR SEVERAL MONTHS THEREAFTER, CHRYSLER SOLICITED QUOTATIONS ON AND PLACED ORDERS FOR MACHINE TOOLING WITH THE TWO SUBCONTRACTORS MENTIONED. MOST OF SUCH ORDERS, INVOLVING THE GREATER PROPORTION OF THE EXPENDITURES HERE INVOLVED, WERE PLACED WITH THE CINCINNATI MILLING AND GRINDING MACHINES, INC. DUE TO THE KOREAN EMERGENCY AND THE SCARCITIES AND THE INFLATIONARY TRENDS WHICH FOLLOWED IN THE WAKE OF OUR NATIONAL EFFORTS TO CONVERT RAPIDLY FROM A NORMAL TO A WAR-TIME ECONOMY, IT BECAME VIRTUALLY IMPOSSIBLE TO SECURE FIRM QUOTATIONS ON MACHINE TOOLING, AND THE CINCINNATI MILLING AND GRINDING MACHINES, INC., REFUSED TO COMMIT ITSELF ON THE MATTER OF PRICE WHEN THE ORDERS FOR TOOLING MACHINERY AND EQUIPMENT ORIGINALLY WERE PLACED WITH IT BY THE PRIME CONTRACTOR. AS A CONSEQUENCE, THE ACCEPTANCE BY THAT SUPPLIER OF CHRYSLER'S ORDERS WAS CONDITIONED BY A PRICE ESCALATOR CLAUSE, OF WHICH THERE WERE THREE FORMS (NOS. 5011, 5105 OR 5109) IN USE DURING THE TIME INVOLVED. THE WORDING OF THESE ESCALATOR CLAUSES VARIED SOMEWHAT BUT, IN GENERAL, THEY PROVIDED THAT THE PRICES QUOTED WERE "SUBJECT TO CHANGE WITHOUT NOTICE" AT ANY TIME PRIOR TO CONFIRMATION OR ACCEPTANCE OF THE ORDERS BY THEIR HOME OFFICE, OR PRIOR TO SHIPMENT OF THE ORDERED EQUIPMENT FROM THE FACTORY. SUCH CLAUSES FURTHER PROVIDED FOR PERCENTAGE LIMITATIONS UPON THE PRICE INCREASES AUTHORIZED, DEPENDING UPON WHETHER THE ITEMS WERE OF A ,STANDARD" OR "SPECIAL" TYPE OR MAKE, AND UPON THE TIME OF SHIPMENT. WHILE THE ESCALATOR TERMS OF FORM NO. 5011 ARE UNQUESTIONABLY AMBIGUOUS AS TO WHETHER THE SPECIFIED PERCENTAGE LIMITATIONS ON THE AMOUNTS OF THE AUTHORIZED PRICE INCREASES ARE APPLICABLE TO STANDARD ITEMS, OR ONLY TO SPECIAL TYPES, THIS AMBIGUITY WAS RESOLVED BY THE ESCALATOR TERMS OF THE SUPERSEDING FORM NO. 5105, APPLICABLE TO MOST OF THE INSTANT PURCHASES, WHICH READ:

"1. PRICES.

(A) ARE F.O.B. OUR FACTORY

(B) WILL BE IN ACCORDANCE WITH GOVERNMENT CEILING PRICE REGULATIONS.

(C) ARE SUBJECT TO CHANGE WITHOUT NOTICE AT ANY TIME PRIOR TO ACCEPTANCE OF ORDER BY OUR HOME OFFICE.

(D) BECOME FIRM UPON ACCEPTANCE OF ORDER EXCEPT THAT WE RESERVE THE RIGHT TO INVOICE

(1) STANDARD ITEMS IN OUR PRICE LISTS AT THE REGULARLY ESTABLISHED PRICES IN EFFECT AT DATE OF SHIPMENT, AND

(2) SPECIAL ITEMS OR ITEMS NOT IN OUR PRICE LISTS AT PRICES INCREASED RELATIVELY TO INCREASED COSTS BUT SUCH INCREASE SHALL NOT EXCEED 15 PERCENT AS TO SHIPMENTS MADE LESS THAN 12 MONTHS, NOR 20 PERCENT AS TO SHIPMENTS MADE MORE THAN 12 MONTHS, AFTER DATE OF ORDER. WE WILL NOT EXERCISE THE RIGHT TO INVOICE AT AN INCREASED PRICE UNLESS NOTICE OF SUCH INCREASE HAS BEEN GIVEN AT LEAST SIXTY DAYS PRIOR TO SHIPMENT.'

THUS, IT IS CLEAR THAT THE ONLY LIMITATION OR RESTRICTION PLACED UPON THE PRICES OF "STANDARD" TYPES OF EQUIPMENT WAS THAT SUCH PRICES SHOULD NOT EXCEED THE ESTABLISHED O.P.S. CEILING PRICE FIXED FOR THE PARTICULAR ITEM OF EQUIPMENT AT TIME OF SHIPMENT, AND THAT THE AUTHORIZED PRICE INCREASE OF EITHER 15 OR 20 PERCENT WAS INTENDED FOR APPLICATION ONLY TO THOSE "SPECIAL" ITEMS WHICH DO NOT REGULARLY APPEAR IN THE SUPPLIER'S STANDARD CATALOGUE. IT WILL BE NOTED THAT THE QUOTED WORDING IS IN HARMONY WITH THE SUBCONTRACTOR'S EARLIER ADVICE OF APRIL 10, 1951, WHICH DIRECTED CHRYSLER'S ATTENTION TO N.P.A. REGULATION M-41, EFFECTIVE APRIL 1, 1951, REQUIRING THE MANUFACTURERS TO REALLOCATE AND REVISE THEIR PRODUCTION AND DELIVERY SCHEDULES ON MACHINE TOOLING, AND ALSO TO CERTAIN PENDING CHANGES IN THE O.P.S. CEILING PRICES FOR SUCH ITEMS. AT THE SAME TIME, THE SUPPLIER ALSO NOTIFIED THE CHRYSLER CORPORATION "* * * WE CAN NAME NEITHER DEFINITE DELIVERIES NOR FIRM PRICES TO YOU," AND FURTHER, THAT "ALL PRICES INCLUDED IN ALL OUTSTANDING QUOTATIONS * * * WE CAN NAME NEITHER DEFINITE DELIVERIES NOR FIRM PRICES TO YOU," AND FURTHER, THAT "ALL PRICES INCLUDED IN ALL OUTSTANDING QUOTATIONS * * * MUST BE CONSIDERED AT THE MOMENT AS APPROXIMATE PRICES AND ARE TO BE USED FOR ESTIMATING PURPOSES ONLY.' SIMILAR IMPORT WAS THE SUPPLIER'S COMMUNICATION OF MAY 7, 1951, ACKNOWLEDGING CHRYSLER'S ORDER NO. 70087, AND ACCEPTING IT SUBJECT TO THE CONDITION THAT SUCH ORDER WOULD CONTAIN THE REVISED TERMS AND CONDITIONS OF ITS FORM NO. 5105 WHICH, BY REFERENCE, WAS MADE A PART THEREOF.

IN HIS FINDINGS OF FACT DATED AUGUST 25, 1954, AND DECEMBER 2, 1955, THE CONTRACTING OFFICER FOR THE BIRMINGHAM ORDNANCE DISTRICT FOUND THAT THE NUMEROUS PURCHASE ORDERS THEREIN LISTED, INCLUDING MOST OF THOSE HERE UNDER CONSIDERATION, COVERED THE PROCUREMENT OF "STANDARD" ITEMS OF EQUIPMENT, AND THAT SUCH PURCHASES WERE MADE SUBJECT TO THE PROVISIONS OF THE SUPPLIER'S FORM NO. 5105. THE CONTRACTING OFFICER ALSO MADE A DETERMINATION THAT THE MAXIMUM PRICE PAYABLE UNDER ANY OF THESE PURCHASE ORDERS IS "THE REGULARLY ESTABLISHED PRICE IN EFFECT THE DATE OF SHIPMENT SUBJECT TO THE THEN EXISTING O.P.S. CEILING PRICE.'

CONCERNING RECLAIM VOUCHER NO. 821, FOR $9,551.60, THE RECORD ESTABLISHES THAT ON MARCH 19, 1951, OR PRIOR TO ISSUANCE BY THE CHRYSLER CORPORATION OF ITS PURCHASE ORDERS NOS. 70413, 70669, 70746 AND 70747, THE TAYLOR- THOMPSON MACHINERY COMPANY RECEIVED A NOTICE FROM ITS MANUFACTURER, THE THOMPSON GRINDER COMPANY, THAT ALL SUBSEQUENT QUOTATIONS MADE BY THEM SHOULD CONTAIN A PRICE ESCALATOR CLAUSE READING, AS FOLLOWS:

"PRICES QUOTED ARE SUBJECT TO CHANGE WITHOUT NOTICE, AND IF AWARDED ORDER, BILLING WILL BE RENDERED AT PRICES PREVAILING AT THE TIME OF SHIPMENT, SUBJECT TO GOVERNMENT REGULATIONS.'

IT APPEARS, HOWEVER, THAT THROUGH ERROR THE TAYLOR-THOMPSON MACHINERY COMPANY FAILED OR NEGLECTED TO NOTIFY THE CHRYSLER CORPORATION OF ITS INTENTION TO INCORPORATE THE QUOTED ESCALATOR CLAUSE INTO THE TERMS OF ITS QUOTATIONS ON MACHINE TOOLING UNTIL MARCH 3 AND 4, 1952, OR APPROXIMATELY ONE YEAR LATER, WHEN THE ORDERED MACHINERY WAS READY FOR SHIPMENT. IT IS ALSO ESTABLISHED THAT THE INCREASED PRICES CLAIMED FOR SUCH EQUIPMENT HAD BEEN APPROVED BY THE OFFICE OF PRICE STABILIZATION, AND IT IS UNDERSTOOD THAT THE SUBCONTRACTOR HAD REFUSED TO DELIVER THE MACHINERY TO THE PRIME CONTRACTOR UNTIL PAYMENT OF THE CLAIMED INCREASES HAD BEEN AUTHORIZED. THEREUPON, UNDER DATES OF MARCH 5 AND 11, 1952, THE CHRYSLER CORPORATION, WITH THE APPROVAL OF THE GOVERNMENT CONTRACTING OFFICER, ISSUED APPROPRIATE CHANGE ORDERS AUTHORIZING PAYMENT OF THE CLAIMED INCREASES TO THE SUPPLIER.

IT LONG HAS BEEN RECOGNIZED THAT A UNILATERAL ERROR ON THE PART OF A GOVERNMENT CONTRACTOR OR SUBCONTRACTOR AFFORDS NO LEGAL JUSTIFICATION FOR OBLIGATING THE GOVERNMENT TO PAY MORE THAN THE STIPULATED CONTRACT PRICE OF AN ARTICLE. SEE SALIGMAN, ET AL. V. UNITED STATES, 56 F.SUPP. 505, 507. THE LAW IS EQUALLY CLEAR THAT NO OFFICER OR AGENT OF THE UNITED STATES POSSESSES AUTHORITY TO GRATUITOUSLY WAIVE OR SURRENDER ANY OF ITS VESTED RIGHTS. SEE BAUSCH AND LOMB OPTICAL COMPANY V. UNITED STATES, 78 C.CLS. 584. HOWEVER, THESE PRINCIPLES ARE NOT NECESSARILY FOR APPLICATION TO COMMERCIAL DEALINGS OR TRANSACTIONS BETWEEN PRIVATE CONTRACTORS. THE LATTER SITUATION, THERE ARE NO STATUTORY LIMITATIONS OR RESTRICTIONS UPON THE RIGHTS OF THE INDIVIDUAL TO SURRENDER, WITHOUT ADEQUATE CONSIDERATION, AN ENFORCEABLE CONTRACTUAL OBLIGATION OR OTHER VESTED RIGHT. AS A MATTER OF FACT, IT IS A MATTER OF COMMON KNOWLEDGE THAT PRICE ADJUSTMENTS UNSUPPORTED BY LEGAL CONSIDERATION FREQUENTLY ARE MADE BETWEEN BUSINESSMEN ENGAGED IN PRIVATE ENTERPRISE FOR REASONS WHICH SOUND BUSINESS PRACTICE HAS DETERMINED TO BE IN THEIR OWN ULTIMATE SELF INTEREST AS, FOR EXAMPLE, UNINTERRUPTED PRODUCTION OR THE EXPECTATION OF COMPENSATING OR RECIPROCAL BENEFITS TO BE DERIVED FROM FUTURE DEALINGS OR TRANSACTIONS.

IN THE INSTANT CASE, IT IS ESTABLISHED THAT THE PRIME CONTRACTOR'S ACTION, WITH THE APPROVAL OF THE CONTRACTING OFFICER, IN AGREEING TO THE SUBCONTRACTOR'S DEMAND FOR A PRICE INCREASE ON THE MACHINE TOOLING WAS INSTRUMENTAL IN SECURING ITS PROMPT RELEASE FOR UTILIZATION IN MANUFACTURING AND ASSEMBLING NEEDED MILITARY EQUIPMENT, AND IT MAY THEREFORE REASONABLY BE CONCLUDED THAT IT REACTED TO THE ULTIMATE BENEFIT OF THE UNITED STATES.

IN THE CIRCUMSTANCES, WE CONCLUDE THAT THE CONTRACTING OFFICER'S APPROVAL OF REIMBURSEMENT TO THE PRIME CONTRACTOR FOR THE PRICES ACTUALLY INVOICED AND PAID ON THE PURCHASES COVERED BY RECLAIM VOUCHERS NOS. 821 THROUGH 825 CANNOT BE CONSIDERED TO HAVE BEEN UNJUSTIFIED OR IN EXCESS OF HIS AUTHORITY UNDER THE CONTRACT. ACCORDINGLY, NO FURTHER OBJECTION WILL BE RAISED TO THE PAYMENTS ..END :