B-125491, OCT. 25, 1955

B-125491: Oct 25, 1955

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TO THE HONORABLE SECRETARY OF THE ARMY: REFERENCE IS MADE TO LETTER DATED SEPTEMBER 13. IN ITS BID THE GOOD ROADS MACHINERY CORPORATION REPRESENTED THAT THE AGGREGATE NUMBER OF EMPLOYEES OF ITSELF AND ITS AFFILIATES WAS LESS THAN 500. IT IS STATED BY THE CONTRACTING OFFICER THAT THE COMPANY HAD BEEN INCLUDED ON THE "SMALL BUSINESS LIST" OF THE CHICAGO PROCUREMENT OFFICE SINCE 1953 BY REASON OF SIMILAR REPRESENTATIONS IN OTHER BIDS. THAT HE HAD NO INTIMATION IT WAS NOT A SMALL BUSINESS CONCERN UNTIL NEARLY TWO MONTHS AFTER THIS CONTRACT HAD BEEN AWARDED. THE CLEVELAND OFFICE OF THE SMALL BUSINESS ADMINISTRATION ADVISED THE ARMY PROCUREMENT OFFICE THAT THE GOOD ROADS MACHINERY CORPORATION WAS NOT A SMALL BUSINESS CONCERN EITHER AT THE TIME OF ITS BID OR AS OF THE DATE OF THE AWARD.

B-125491, OCT. 25, 1955

TO THE HONORABLE SECRETARY OF THE ARMY:

REFERENCE IS MADE TO LETTER DATED SEPTEMBER 13, 1955, WITH ENCLOSURES, FROM THE ASSISTANT SECRETARY OF THE ARMY (LOGISTICS), REQUESTING A DECISION AS TO THE ACTION WHICH SHOULD BE TAKEN WITH RESPECT TO CONTRACT NO. DA-11-184-ENG-13863, AWARDED JUNE 10, 1955, TO THE GOOD ROADS MACHINERY CORPORATION, MINERVA, OHIO, UNDER A PROCUREMENT RESTRICTED TO SMALL BUSINESS CONCERNS.

IN ITS BID THE GOOD ROADS MACHINERY CORPORATION REPRESENTED THAT THE AGGREGATE NUMBER OF EMPLOYEES OF ITSELF AND ITS AFFILIATES WAS LESS THAN 500. IT IS STATED BY THE CONTRACTING OFFICER THAT THE COMPANY HAD BEEN INCLUDED ON THE "SMALL BUSINESS LIST" OF THE CHICAGO PROCUREMENT OFFICE SINCE 1953 BY REASON OF SIMILAR REPRESENTATIONS IN OTHER BIDS, AND THAT HE HAD NO INTIMATION IT WAS NOT A SMALL BUSINESS CONCERN UNTIL NEARLY TWO MONTHS AFTER THIS CONTRACT HAD BEEN AWARDED. ON AUGUST 12 AND AUGUST 19, 1955, THE CLEVELAND OFFICE OF THE SMALL BUSINESS ADMINISTRATION ADVISED THE ARMY PROCUREMENT OFFICE THAT THE GOOD ROADS MACHINERY CORPORATION WAS NOT A SMALL BUSINESS CONCERN EITHER AT THE TIME OF ITS BID OR AS OF THE DATE OF THE AWARD. THIS DETERMINATION APPEARS TO HAVE BEEN PREDICATED UPON THE FACT THAT A MAJORITY OF THE CAPITAL STOCK OF THE CORPORATION WAS OWNED BY THE CLARK CONTROLLER COMPANY OF CLEVELAND, OHIO, A FIRM WHICH EMPLOYS OVER 1,000 PERSONS.

REFERENCE IS MADE IN THE LETTER OF SEPTEMBER 13, 1955, FROM THE ASSISTANT SECRETARY OF THE ARMY, TO OUR DECISION OF SEPTEMBER 3, 1954, 34 COMP. GEN. 115, WHEREIN IT WAS HELD THAT WHEN A PROCUREMENT IS LIMITED TO SMALL BUSINESS PURSUANT TO SECTION 214 OF THE SMALL BUSINESS ACT OF 1953, 67 STAT. 238, A LEGAL AND BINDING CONTRACT CANNOT BE MADE WITH A FIRM NOT IN THAT CATEGORY. IN VIEW OF THE POSSIBLE INVALIDITY OF THE INSTANT CONTRACT FOR THIS REASON, THE QUESTION IS PRESENTED WHETHER THE GOOD ROADS MACHINERY CORPORATION IS ENTITLED TO PAYMENT FOR DELIVERIES MADE UNDER THE CONTRACT, WHICH WERE COMPLETED ON SEPTEMBER 20, 1955.

THE INVITATION IN THE INSTANT CASE STATED THAT THE DEPARTMENT OF DEFENSE DEFINED SMALL BUSINESS AS "ANY CONCERN WHICH INCLUDING ITS AFFILIATES, EMPLOYS IN THE AGGREGATE, FEWER THAN FIVE HUNDRED EMPLOYEES.' THE GOOD ROADS MACHINERY CORPORATION, IN A LETTER DATED JANUARY 27, 1955, HAD ADVISED THE CLEVELAND OFFICE OF THE SMALL BUSINESS ADMINISTRATION OF ITS RELATIONSHIP WITH THE CLARK CONTROLLER COMPANY AND IT IS SUGGESTED THAT IT MIGHT HAVE CONSIDERED ITSELF QUALIFIED TO BID AS A SMALL BUSINESS CONCERN BECAUSE A RULING TO THE CONTRARY HAD NOT RESULTED FROM ITS LETTER. ARGUMENT COULD BE MADE, BASED ON ONE MEANING OF THE WORD "AFFILIATE," TO THE EFFECT THAT THE CLARK CONTROLLER COMPANY WAS NOT AN AFFILIATE OF THE GOOD ROADS MACHINERY CORPORATION, BUT THAT THE LATTER WAS AN AFFILIATE OF THE FORMER. HOWEVER, SUCH AN ARGUMENT OVERLOOKS AND STATUTORY REQUIREMENT IN SECTION 203 OF THE SMALL BUSINESS ACT THAT A SMALL BUSINESS CONCERN BE ,INDEPENDENTLY OWNED.'

THE PRIMARY QUESTION PRESENTED IN THE INSTANT CASE IS AS TO THE PROPRIETY OF PAYMENT TO THE GOOD ROADS MACHINERY CORPORATION FOR THE GOODS IT HAS DELIVERED. IT APPEARS THAT IT MAY BE UNNECESSARY, IN DECIDING THIS QUESTION, TO DETERMINE WHETHER OR NOT THE CONTRACT INVOLVED WAS VALID, VOIDABLE, OR VOID. IN THE CASE OF CLARK V. UNITED STATES, 95 U.S. 539, THE COURT CONSIDERED THE EFFECT OF FAILURE TO COMPLY WITH A STATUTE (R.S. 3744) WHICH REQUIRED GOVERNMENT CONTRACTS TO BE REDUCED TO WRITING AND SIGNED BY THE PARTIES. THE COURT STATED IN ITS OPINION (P. 542):

" * * * THERE IS NO CLASS OF CASES IN WHICH A STATUTE FOR PREVENTING FRAUDS AND PERJURIES IS MORE NEEDED THAN IN THIS. AND WE THINK THAT THE STATUTE IN QUESTION WAS INTENDED TO OPERATE AS SUCH. IT MAKES IT UNLAWFUL FOR CONTRACTING OFFICERS TO MAKE CONTRACTS IN ANY OTHER WAY THAN BY WRITING SIGNED BY THE PARTIES. THIS IS EQUIVALENT TO PROHIBITING ANY OTHER MODE OF MAKING CONTRACTS. EVERY MAN IS SUPPOSED TO KNOW THE LAW. PARTY WHO MAKES A CONTRACT WITH AN OFFICER WITHOUT HAVING IT REDUCED TO WRITING IS KNOWINGLY ACCESSORY TO A VIOLATION OF THE LAW. WE ARE OF OPINION, THEREFORE, THAT THE CONTRACT ITSELF IS AFFECTED * * * .'

HOWEVER, THE COURT WENT ON TO SAY THAT:

"WE DO NOT MEAN TO SAY THAT, WHERE A PAROL CONTRACT HAS BEEN WHOLLY OR PARTIALLY EXECUTED AND PERFORMED ON ONE SIDE, THE PARTY PERFORMING WILL NOT BE ENTITLED TO RECOVER THE FAIR VALUE OF HIS PROPERTY OR SERVICES. THE CONTRARY, WE THINK THAT HE WILL BE ENTITLED TO RECOVER SUCH VALUE AS UPON AN IMPLIED CONTRACT FOR A QUANTUM MERUIT.

ATTENTION IS ALSO INVITED TO A STATEMENT IN THE CASE OF CROCKER V. UNITED STATES, 240 U.S. 74, WHICH INVOLVED AN UNSUCCESSFUL SUIT FOR RECOVERY OF THE CONTRACT PRICE, THE PLAINTIFF HAVING FAILED TO OFFER ANY PROOF OF FAIR VALUE. THE COURT STATED IN ITS OPINION (P. 81):

"IT RESULTS THAT NO RECOVERY COULD BE HAD UPON THE CONTRACT WITH THE POSTMASTER GENERAL, BECAUSE IT WAS TAINTED WITH FRAUD AND RESCINDED BY HIM ON THAT GROUND. BUT THIS WAS NOT AN OBSTACLE TO A RECOVERY UPON A QUANTUM VALEBAT.'

THE CONTRACT IN THE PRESENT CASE HAS NOT BEEN RESCINDED AND, EVEN IF THE GOVERNMENT HAS THE RIGHT TO TAKE SUCH ACTION, IT DOES NOT APPEAR THAT ANY USEFUL PURPOSE WOULD NOW BE SERVED BY DOING SO, UNLESS THE DEPARTMENT OF THE ARMY IS WILLING AND ABLE TO RETURN THE SUPPLIES FURNISHED. ASSUMING THAT THE SUPPLIES ARE IN USE AND CANNOT READILY BE RETURNED, THE CASES CITED SUSTAIN THE PROPOSITION THAT THE GOOD ROADS MACHINERY CORPORATION IS ENTITLED TO BE PAID THE FAIR VALUE OF THE SUPPLIES EVEN THOUGH THE CONTRACT BE VOID OR VOIDABLE. IN VIEW OF THE FACT THAT THE CONTRACT PRICE WAS THE LOWEST RESPONSIVE BID RECEIVED AFTER ADVERTISING, IT SEEMS NOT UNLIKELY THAT IT MAY REPRESENT THE FAIR VALUE OF THE SUPPLIES.

YOU ARE ADVISED, THEREFORE, THAT, IF IT BE ADMINISTRATIVELY DETERMINED THAT THE FAIR VALUE OF THE SUPPLIES DELIVERED UNDER THE CONTRACT IS NOT LESS THAN THE CONTRACT PRICE, PAYMENT OF THE CONTRACT PRICE TO GOOD ROADS MACHINERY CORPORATION IS PROPER.