B-127211, AUG. 30, 1956

B-127211: Aug 30, 1956

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THE CONTRACT WAS AWARDED ON AUGUST 18. UNDER WHICH IT WAS AGREED THAT THE CONTRACT PRICES WOULD BE INCREASED OR DECREASED IN THE SAME RATIO AS PRICES FOR ITS NEAREST COMMERCIAL EQUIVALENT TO THE CONTRACT ARTICLES SUBJECT TO A MAXIMUM INCREASE OF 20 PERCENT. IT IS AGREED BY THE CONTRACTOR AND THE GOVERNMENT THAT THE NEAREST COMMERCIAL EQUIVALENT OF THE MATERIAL COVERED BY THIS CONTRACT IS (ALLIS-CHALMERS TYPE BZO OIL CIRCUIT BREAKERS WITH PRICES AS SHOWN IN ALLIS-CHALMERS PRICE BOOK SECTION 2602. IS $ * 60. PRICE BOOK WAS NOT MARKED OUT AS IT WAS IN THE BID SUBMITTED TO THE COMMISSION. NO PRICE WAS GIVEN. THIS DISCREPANCY WAS CALLED TO THE CONTRACTOR'S ATTENTION WHEN REQUEST WAS MADE FOR AN ESCALATION INCREASE.

B-127211, AUG. 30, 1956

TO THE HONORABLE LEWIS L. STRAUSS, CHAIRMAN, ATOMIC ENERGY COMMISSION:

CONSIDERATION HAS BEEN GIVEN MR. FIELDS' LETTER OF MARCH 5, 1956, CONCERNING THE CLAIM OF THE ALLIS-CHALMERS MANUFACTURING COMPANY FOR AN ESCALATION INCREASE IN THE PRICE OF CERTAIN ELECTRICAL EQUIPMENT FURNISHED THE ATOMIC ENERGY COMMISSION UNDER CONTRACT NO. AT/40-1/ 1460.

THE CONTRACT WAS AWARDED ON AUGUST 18, 1952, AFTER ADVERTISING, AND CALLED FOR FURNISHING A QUANTITY OF OIL CIRCUIT BREAKERS AND RELATED EQUIPMENT. THE CONTRACT CONTAINED AN ESCALATION CLAUSE, UNDER WHICH IT WAS AGREED THAT THE CONTRACT PRICES WOULD BE INCREASED OR DECREASED IN THE SAME RATIO AS PRICES FOR ITS NEAREST COMMERCIAL EQUIVALENT TO THE CONTRACT ARTICLES SUBJECT TO A MAXIMUM INCREASE OF 20 PERCENT. FOR COMPARISON PURPOSES, PARAGRAPH C OF THE ESCALATION CLAUSE CALLED FOR THE DESIGNATION BY THE CONTRACTOR OF ITS NEAREST COMMERCIAL EQUIVALENT TO THE CONTRACT ARTICLES AND THE CURRENT PRICE THEREFOR.

IN THE BID SUBMITTED TO THE COMMISSION THE CONTRACTOR FILLED OUT PARAGRAPH C OF THE ESCALATION CLAUSE AS FOLLOWS:

"C. FOR THE PURPOSE OF THIS SECTION, IT IS AGREED BY THE CONTRACTOR AND THE GOVERNMENT THAT THE NEAREST COMMERCIAL EQUIVALENT OF THE MATERIAL COVERED BY THIS CONTRACT IS (ALLIS-CHALMERS TYPE BZO OIL CIRCUIT BREAKERS WITH PRICES AS SHOWN IN ALLIS-CHALMERS PRICE BOOK SECTION 2602, PAGE 104 DATED DEC. 12, 1950,) AND THAT THE ESTABLISHED PRICE THEREFOR, AT THE DATE OF THIS CONTRACT, IS $ * 60,000.00.'

IN THE COPY OF THE BID RETAINED BY THE CONTRACTOR, THE REFERENCE TO PAGE 21, SECTION 2602 OF ITS DECEMBER 12, 1950, PRICE BOOK WAS NOT MARKED OUT AS IT WAS IN THE BID SUBMITTED TO THE COMMISSION, AND NO PRICE WAS GIVEN. THIS DISCREPANCY WAS CALLED TO THE CONTRACTOR'S ATTENTION WHEN REQUEST WAS MADE FOR AN ESCALATION INCREASE.

THE CONTRACTOR CONTENDS THAT THE BID SUBMITTED TO THE COMMISSION WAS ERRONEOUS IN THIS RESPECT, AND THAT NO REFERENCE SHOULD HAVE BEEN MADE TO PAGE 104 OF ITS PRICE BOOK OR TO A PRICE OF $60,000. IT APPEARS THAT PAGE 104, ALTHOUGH IN EXISTENCE AT THE TIME OF THE BID WAS NOT A PUBLISHED PRICE SECTION AND WAS NOT DISTRIBUTED EITHER TO THE PUBLIC OR WITHIN THE CONTRACTOR'S OWN ORGANIZATION. THE CONTRACTOR STATES THAT PAGE 104 WAS PRINTED ONLY FOR THE USE OF ITS BOSTON WORKS IN ESTIMATING APPROXIMATE PRICES FOR ITEMS WHICH THE COMPANY HAD NOT PREVIOUSLY MANUFACTURED AND FOR WHICH THERE WAS NO ESTABLISHED COMPANY PRICE; ALSO THAT THE APPROXIMATE OR SUGGESTED PRICES LISTED THEREIN WERE PURPOSELY HIGH. THE CONTRACTOR FURTHER STATES THAT REFERENCE PROPERLY SHOULD HAVE BEEN MADE TO PAGE 21, SECTION 2602, OF ITS DECEMBER 12, 1950, PRICE BOOK AND TO ITS TYPE BZO 160161K BREAKERS. THIS DESCRIPTION APPLIED TO BREAKERS SIMILAR TO THOSE CALLED FOR BY THE CONTRACT, EXCEPT THAT THE LARGEST BREAKER LISTED AT 161 KV HAD A RATING OF 5,000,000 KVA RATHER THAN 10,000,000 KVA AS CALLED FOR UNDER THE CONTRACT. IT IS STATED BY THE CONTRACTOR, AND IT APPEARS TO BE THE VIEW OF THE ATOMIC ENERGY COMMISSION, THAT THE "NEAREST COMMERCIAL EQUIVALENT" TO THE BREAKERS CALLED FOR BY THE CONTRACT--- IN THE SENSE OF ITEMS WHICH HAD ACTUALLY BEEN PRODUCED FOR COMMERCIAL USE--- WAS TYPE BZO- 160-161K RATED 5,000,000 KVA AND PRICED AT $44,000 IN ALLIS-CHALMERS' PRICE BOOK OF DECEMBER 12, 1950. THE ESTABLISHED PRICE FOR THIS COMMERCIAL BREAKER WAS INCREASED TO $48,000 BY ALLIS CHALMERS' PUBLISHED PRICE BOOK DATED JUNE 15, 1953. BY ITS CIRCULAR LETTER NO. 47 DATED MAY 15, 1953, THE CONTRACTOR HAD ALSO ANNOUNCED A GENERAL INCREASE OF TEN PERCENT IN THE PRICE OF SPARE PARTS FOR CIRCUIT BREAKERS. NO DELIVERIES WERE MADE OR REQUIRED UNDER THE INSTANT CONTRACT UNTIL AFTER JUNE 15, 1953.

IN VIEW OF THESE FACTS, IT IS RECOMMENDED IN THE LETTER OF MARCH 5, 1956, THAT THE CONTRACTOR BE GIVEN AN INCREASE OF TEN PERCENT ON THE SPARE PARTS CALLED FOR UNDER THE CONTRACT AND AN INCREASE OF 4/44'S OR 9.09 PERCENT ON THE CONTRACT CIRCUIT BREAKERS.

THE QUESTION FOR DECISIONS IS WHETHER OR NOT THE CONTRACTOR, BY DESIGNATING A CERTAIN MODEL AT A SPECIFIED PRICE IN THE ESCALATION CLAUSE, IS THEREBY COMMITTED TO THAT MODEL AND PRICE AS A BASIS FOR ESCALATION, REGARDLESS OF THE FACT THAT THE DESIGNATED MODEL WAS NOT A COMMERCIAL PRODUCT, HAD NEVER BEEN MANUFACTURED, AND HAD NEVER BEEN SOLD FOR THE PRICE SPECIFIED. IN OUR OPINION, THE ESCALATION CLAUSE CONTEMPLATES COMPARISON OF PRICES AT THE TIME OF BID AND TIME OF DELIVERY OF AN ACTUAL COMMERCIAL EQUIVALENT. OF COURSE, DIFFERENT SITUATIONS COULD ARISE WHICH WOULD PREVENT THE PARTICULAR PRICE COMPARISON CONTEMPLATED IN THE ESCALATION CLAUSE, AS WOULD BE THE CASE WHERE THE NEAREST COMMERCIAL EQUIVALENT DESIGNATED IN THE BID HAD BEEN DISCONTINUED BY THE CONTRACTOR PRIOR TO DELIVERY UNDER THE CONTRACT. IN OUR OPINION, HOWEVER, THIS WOULD NOT NECESSARILY PRECLUDE ESCALATION IN EVERY CASE. IT IS CLEARLY ESTABLISHED HERE THAT THERE WAS A GENERAL PRICE INCREASE ON ALL CIRCUIT BREAKERS OF THE TYPE COVERED BY THE CONTRACT. IF THE CONTRACTOR'S NEAREST COMMERCIAL EQUIVALENT IN FACT WAS THE $44,000 BZO-160-161K BREAKER RATED AT 5,000,000 KVA, AS IS STATED BOTH BY THE CONTRACTOR AND THE COMMISSION, THERE IS NO DISPUTE THAT ITS PRICE INCREASED TO $48,000. ASSUMING THIS MODEL TO BE THE CONTRACTOR'S NEAREST COMMERCIAL EQUIVALENT AT THE TIME OF ITS BID, AND CONSIDERING YOUR RECOMMENDATION IN THE MATTER, WE WILL INTERPOSE NO OBJECTION TO ESCALATION ON THE BASIS SUGGESTED IN THE LETTER OF MARCH 5, 1956.