B-127764, OCTOBER 11, 1956, 36 COMP. GEN. 302

B-127764: Oct 11, 1956

Additional Materials:

Contact:

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

 

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

OR SUSPENSIONS CAUSED BY THE GOVERNMENT IN ITS CONTRACTUAL CAPACITY WHEN THE CONTRACTOR WOULD NOT HAVE BEEN OTHERWISE DELAYED MAY BE INCLUDED IN GOVERNMENT CONSTRUCTION CONTRACTS. OR SUSPENSIONS CAUSED BY THE GOVERNMENT IN ITS CONTRACTUAL CAPACITY WHERE THE CONTRACTOR WOULD NOT HAVE BEEN OTHERWISE DELAYED. THERE IS NO LEGAL OBJECTION TO THE INCLUSION IN GOVERNMENT CONTRACTS OF A PROVISION PERMITTING CHANGES AND SUSPENSIONS BY THE GOVERNMENT AND PROVIDING FOR ADDITIONAL PAYMENT THEREFOR. 29 OP. WE HAVE HELD THAT A CONTRACT MAY BE MODIFIED TO PROVIDE FOR ADDITIONAL COMPENSATION TO THE CONTRACTOR AS REIMBURSEMENT FOR INCREASED COSTS RESULTING FROM DELAYS CAUSED BY THE GOVERNMENT. SOMEWHAT SIMILAR PROVISIONS ARE PRESENTLY INCLUDED IN CONSTRUCTION CONTRACTS BY THE ATOMIC ENERGY COMMISSION AND THE CORPS OF ENGINEERS.

B-127764, OCTOBER 11, 1956, 36 COMP. GEN. 302

CONTRACTS - PRICE ADJUSTMENT - UNREASONABLE DELAYS, INTERRUPTIONS, SUSPENSIONS BY GOVERNMENT A CLAUSE WHICH WOULD PROVIDE FOR AN EQUITABLE ADJUSTMENT TO THE CONTRACTOR FOR ADDITIONAL COSTS INCURRED BY HIM ON ACCOUNT OF UNREASONABLE DELAYS, INTERRUPTIONS, OR SUSPENSIONS CAUSED BY THE GOVERNMENT IN ITS CONTRACTUAL CAPACITY WHEN THE CONTRACTOR WOULD NOT HAVE BEEN OTHERWISE DELAYED MAY BE INCLUDED IN GOVERNMENT CONSTRUCTION CONTRACTS.

TO THE SECRETARY OF THE INTERIOR, OCTOBER 11, 1956:

A LETTER FROM THE ADMINISTRATIVE ASSISTANT SECRETARY DATED APRIL 30, 1956, REQUESTS OUR OPINION AS TO THE LEGALITY OF A CLAUSE ENTITLED " PRICE ADJUSTMENT FOR INTERRUPTION, DELAY, OR SUSPENSION OF THE WORK" PROPOSED TO BE INCLUDED IN APPROPRIATE CONSTRUCTION CONTRACTS BY THE BUREAU OF RECLAMATION. THE CLAUSE WOULD PROVIDE FOR PAYMENT OF AN EQUITABLE ADJUSTMENT TO THE CONTRACTOR AS COMPENSATION FOR ADDITIONAL COSTS INCURRED BY HIM ON ACCOUNT OF UNREASONABLE DELAYS, INTERRUPTIONS, OR SUSPENSIONS CAUSED BY THE GOVERNMENT IN ITS CONTRACTUAL CAPACITY WHERE THE CONTRACTOR WOULD NOT HAVE BEEN OTHERWISE DELAYED.

THERE IS NO LEGAL OBJECTION TO THE INCLUSION IN GOVERNMENT CONTRACTS OF A PROVISION PERMITTING CHANGES AND SUSPENSIONS BY THE GOVERNMENT AND PROVIDING FOR ADDITIONAL PAYMENT THEREFOR. 29 OP. ATTY. GEN. 285. FURTHER, WE HAVE HELD THAT A CONTRACT MAY BE MODIFIED TO PROVIDE FOR ADDITIONAL COMPENSATION TO THE CONTRACTOR AS REIMBURSEMENT FOR INCREASED COSTS RESULTING FROM DELAYS CAUSED BY THE GOVERNMENT. B 83498, APRIL 26, 1949.

AS INDICATED IN THE LETTER OF APRIL 30, SOMEWHAT SIMILAR PROVISIONS ARE PRESENTLY INCLUDED IN CONSTRUCTION CONTRACTS BY THE ATOMIC ENERGY COMMISSION AND THE CORPS OF ENGINEERS, CIVIL FUNCTIONS, DEPARTMENT OF THE ARMY. THOSE PROVISIONS, HOWEVER, LIMIT RECOVERY TO ADDITIONAL COSTS INCURRED BY THE CONTRACTOR AS A RESULT OF SUSPENSIONS OFFERED BY COMPENSATION FOR DELAYS ON A MUCH BROADER SCALE. FOR THAT REASON, AND TO INSURE THE PROPER AUDIT CONTROL OF ADDITIONAL AMOUNTS AUTHORIZED FOR PAYMENT, WE PROPOSE THE FOLLOWING MODIFICATIONS TO THE CLAUSE.

ALTHOUGH YOU STATE THAT THE PURPOSE OF THE PROPOSED CLAUSE WOULD BE TO PERMIT THE PAYMENT THROUGH CONTRACT MODIFICATION OF THOSE ADDITIONAL COSTS WHICH COULD OTHERWISE BE RECOVERED BY THE CONTRACTOR THROUGH LITIGATION, THE CLAUSE IN ITS PRESENT FORM WOULD AUTHORIZE EQUITABLE ADJUSTMENTS FOR "UNREASONABLE INTERRUPTIONS, DELAYS OR SUSPENSIONS INCIDENT TO CHANGES OR CHANGED CONDITIONS.' IT HAS BEEN HELD THAT WHERE CHANGES ARE PERMITTED UNDER A CONTRACT, DELAYS INCIDENT TO SUCH CHANGES DO NOT MAKE THE GOVERNMENT LIABLE FOR ADDITIONAL COSTS THEREBY INCURRED BY THE CONTRACTOR. UNITED STATES V. RICE, 317 U.S. 61; NEWPORT NEWS SHIPBUILDING CO. V. UNITED STATES, 79 C.1CLS. 1. THE DECISIONS CITED, HOWEVER, WERE GOVERNED BY THE PROVISIONS OF THE PARTICULAR CONTRACTS INVOLVED IN THOSE CASES. THEY, THEREFORE, WOULD NOT PRECLUDE PAYMENT OF ADDITIONAL COSTS RESULTING FROM UNREASONABLE DELAYS INCIDENT TO CHANGES OR CHANGED CONDITIONS WHERE SPECIFICALLY AUTHORIZED BY APPROPRIATE CONTRACTUAL PROVISION.

THE SECOND PROVISO IN THE CLAUSE SHOULD BE AMENDED TO REQUIRE THAT THE CLAIM BE MADE IN WRITING AND INCLUDE A WRITTEN ITEMIZATION OF THE ADDITIONAL COSTS. WHILE IT MAY HAVE BEEN INTENDED THAT THIS WOULD FOLLOW IN ANY CASE, IT APPEARS DESIRABLE TO EXPRESSLY REQUIRE SUCH INFORMATION WHICH WE REGARD AS ESSENTIAL FOR AUDIT PURPOSES. INSTRUCTIONS TO CONTRACTING OFFICERS CONCERNING THE CLAUSE SHOULD PROVIDE THAT THE CLAIM AND ACCOMPANYING ITEMIZATION OF COSTS WILL BECOME A PERMANENT PART OF THE RECORD.

THE LETTER OF APRIL 30 INDICATES THAT "NO ADJUSTMENT WILL BE PERMITTED WITHOUT THE APPROVAL OF THE COMMISSIONER OR SUCH OTHER OFFICIAL AS HE MAY DESIGNATE.' THE PROPOSED CLAUSE, HOWEVER, PROVIDES ONLY THAT THE FINDINGS OF THE CONTRACTING OFFICER SHALL BE SUBJECT TO REVIEW" OF THE COMMISSIONER OR AN OFFICIAL DESIGNATED BY HIM. IN ORDER TO AVOID ANY MISUNDERSTANDING AS TO THE REQUIRED APPROVAL OF THE COMMISSIONER OR HIS REPRESENTATIVE, WE FEEL THAT THE CLAUSE SHOULD BE AMENDED TO REQUIRE AFFIRMATIVE APPROVAL BY THE COMMISSIONER OR HIS REPRESENTATIVE BEFORE THE CONTRACTING OFFICER'S FINDINGS BECOME EFFECTIVE. AS TO ANY DESIGNATED REPRESENTATIVE, IT IS OUR VIEW THAT HE SHOULD BE AN OFFICIAL NOT CONNECTED WITH THE PROCUREMENT ACTIVITY.

THE CLAUSE AS ORIGINALLY PROPOSED EXCEPTS FROM CONSIDERATION UNDER ITS TERMS, DELAYS, INTERRUPTIONS, OR SUSPENSIONS DUE TO LACK OF APPROPRIATIONS OR FUNDS, OR DUE TO WEATHER CONDITIONS. WE WOULD ADD DELAYS, INTERRUPTIONS, OR SUSPENSIONS DUE TO CAUSES BEYOND THE CONTROL OF AND WITHOUT THE FAULT OR NEGLIGENCE OF THE GOVERNMENT. WE FEEL STRONGLY THAT THE GOVERNMENT SHOULD BE PLACED IN THIS REGARD ON AN EQUAL FOOTING WITH THE CONTRACTOR WHO IS EXEMPT FROM LIABILITY FOR SUCH DELAYS BY THE DAMAGES FOR DELAY PROVISION OF STANDARD FORM 23A. IN LIGHT OF THE PREVIOUSLY STATED PRINCIPLE THAT THE PRIMARY PURPOSE OF A PROVISION SUCH AS THE PROPOSED CLAUSE IS TO PERMIT PAYMENT BY ADMINISTRATIVE ACTION OF AMOUNTS WHICH WOULD OTHERWISE BE COLLECTIBLE BY THE CONTRACTOR THROUGH LITIGATION AS DAMAGES, IT SHOULD BE NOTED THAT THE SUPREME COURT IN UNITED STATES V. HOWARD P. FOLEY CO., INC., 329 U.S. 64, LAID GREAT EMPHASIS IN HOLDING IN FAVOR OF THE GOVERNMENT ON THE FACT THAT THE AGENTS OF THE GOVERNMENT WORKED WITH GREAT DILIGENCE AND WERE WITHOUT FAULT AS TO THE DELAY FOR WHICH DAMAGES WERE CLAIMED. CF. RIPLEY V. UNITED STATES, 223 U.S. 695. NOTE ALSO THE EMPHASIS OF SUCH FACT BY THE COURT OF CLAIMS IN DISTINGUISHING THE FOLEY CASE. KEHM CORPORATION V. UNITED STATES, 119 C.1CLS. 454; AND GEORGE A. FULLER CO. V. UNITED STATES, 108 C.1CLS. 70.

THE EFFECT OF THE PROPOSED CLAUSE IS TO INJECT A COST ELEMENT INTO A FIXED-PRICE CONTRACT WHICH CAN BE VERIFIED ONLY FROM THE CONTRACTOR'S RECORDS. FOR AUDIT PURPOSES, WE THEREFORE SUGGEST THE INCLUSION OF AN ADDITIONAL SENTENCE WHEREBY THE CONTRACTOR AGREES TO MAKE HIS RECORDS AS TO ADDITIONAL COMPENSATION CLAIMED UNDER THE PROVISIONS OF THE PROPOSED CLAUSE AVAILABLE, UPON REQUEST, TO REPRESENTATIVES OF OUR RESPECTIVE AGENCIES.

IN ADDITION TO THE FOREGOING, WE WOULD MAKE CERTAIN CHANGES, MORE OR LESS EDITORIAL IN NATURE, WHICH WE BELIEVE WOULD RESULT IN GREATER CLARITY. FOR GREATER EMPHASIS WE WOULD STATE THE REQUIREMENTS THAT THE CONTRACTOR MITIGATE DAMAGES AND THAT THE DELAYS SHOULD NOT OTHERWISE HAVE OCCURRED AS PROVISOS, THE FORMER AS A CONDITION PRECEDENT TO RELIEF. THE FIRST PROVISO WOULD BE SHORTENED WITHOUT CHANGE TO MEANING OR PURPOSE. THE FINDINGS REQUIRED TO BE MADE BY THE CONTRACTING OFFICER WOULD BE CONDENSED INTO ONE SENTENCE. FINALLY, REFERENCES TO OTHER CLAUSES (PRESUMABLY IN STANDARD FORM 23A) WOULD BE CHANGED FROM NUMBER TO NAME.

WE HAVE NO OBJECTION TO THE USE OF THE PROPOSED CLAUSE, MODIFIED IN ACCORDANCE WITH THE ABOVE, TO READ AS FOLLOWS:

PRICE ADJUSTMENT FOR INTERRUPTION, DELAY, OR SUSPENSION OF THE WORK

IF THE PERFORMANCE OF THE WORK UNDER THIS CONTRACT IS UNREASONABLY INTERRUPTED, DELAYED, OR SUSPENDED DUE SOLELY TO (1) ANY ACTION OF THE CONTRACTING OFFICER IN THE ADMINISTRATION OF THIS CONTRACT, INCLUDING UNREASONABLE INTERRUPTIONS, DELAYS OR SUSPENSIONS INCIDENT TO CHANGES OR CHANGED CONDITIONS, OR (2) TO ANY FAILURE OF THE GOVERNMENT IN ITS CONTRACTUAL CAPACITY TO DO ANY ACT REQUIRED OR AUTHORIZED BY THIS CONTRACT WITHIN THE TIME SPECIFIED FOR SUCH ACT, OR IF NO TIME BE SPECIFIED, WITHIN A REASONABLE TIME, AN EQUITABLE ADJUSTMENT, IN ADDITION TO THE EXTENSION OF TIME OTHERWISE PROVIDED FOR BY THE CONTRACT, WILL BE MADE FOR ANY INCREASE IN THE COST OF PERFORMANCE OF THIS CONTRACT, EXCLUSIVE OF PROFIT, NECESSARILY CAUSED BY SUCH INTERRUPTION, DELAY, OR SUSPENSION AND THE ADJUSTMENT WILL BE MODIFIED IN WRITING ACCORDINGLY; PROVIDED HOWEVER, THAT NO ADJUSTMENT WILL BE MADE UNDER THIS PARAGRAPH FOR ANY PERIOD PRIOR TO THE DATE OF RECEIPT BY THE CONTRACTING OFFICER OF WRITTEN NOTICE FROM THE CONTRACTOR THAT A DELAY, INTERRUPTION, OR SUSPENSION IS BEING EXPERIENCED AND THAT A CLAIM FOR ADJUSTMENT WILL BE MADE; PROVIDED FURTHER, THAT THE CONTRACTOR SHALL BE REQUIRED TO MITIGATE ADDITIONAL COSTS AS A CONDITION PRECEDENT TO RELIEF UNDER THIS PARAGRAPH; AND PROVIDED FURTHER, THAT THE CLAIM INCLUDING AN ITEMIZATION OF THE COSTS MUST BE SUBMITTED IN WRITING TO THE CONTRACTING OFFICER WITHIN 30 DAYS AFTER THE TERMINATION OF THE INTERRUPTION, DELAY, OR SUSPENSION FOR WHICH CLAIM IS BEING MADE; AND PROVIDED FURTHER, THAT NO EQUITABLE ADJUSTMENT SHALL BE MADE TO THE EXTENT THAT DELAYS OF THE CONTRACTOR WOULD HAVE PREVENTED PERFORMANCE EVEN IF THE GOVERNMENT'S OBLIGATIONS HAD BEEN MET IN A TIMELY MANNER. THE CONTRACTING OFFICER SHALL SUBMIT IN WRITING TO THE COMMISSIONER OF RECLAMATION OR TO AN OFFICIAL DESIGNATED BY SUCH COMMISSIONER FINDINGS AS TO THE PERIOD DURING WHICH THE CONTRACTOR WOULD HAVE BEEN ABLE TO PROCEED WITH THE WORK UNDER THE CONTRACT EXCEPT FOR SAID DELAY, INTERRUPTION, OR SUSPENSION AND THE AMOUNT TO WHICH THE CONTRACTOR IS EQUITABLY ENTITLED BY REASON OF THE DELAY, INTERRUPTION OR SUSPENSION. SUCH FINDINGS SHALL NOT BE SERVED UPON THE CONTRACTOR, NOR SHALL THEY BECOME EFFECTIVE, UNTIL APPROVED BY THE COMMISSIONER OR HIS DESIGNATED REPRESENTATIVE. ANY DISPUTE CONCERNING A QUESTION OF FACT ARISING UNDER THIS PARAGRAPH SHALL BE DEEMED A DISPUTE UNDER THE DISPUTES CLAUSE. THIS PARAGRAPH SHALL NOT APPLY TO DELAYS, INTERRUPTIONS, OR SUSPENSIONS (1) DUE TO LACK OF NECESSARY APPROPRIATIONS AND RESERVATIONS OF FUNDS, (2) DUE TO WEATHER CONDITIONS, (3) OR DUE TO CAUSES BEYOND THE CONTROL OF THE GOVERNMENT AND NOT DUE TO ITS FAULT OR NEGLIGENCE. THE CONTRACTOR'S RECORDS OF COSTS OCCASIONED BY THE DELAY, INTERRUPTION, OR SUSPENSION FOR WHICH CLAIM IS MADE WILL BE MADE AVAILABLE FOR EXAMINATION BY REPRESENTATIVES OF THE DEPARTMENT OF THE INTERIOR AND THE GENERAL ACCOUNTING OFFICE UPON THE REQUEST OF AUTHORIZED REPRESENTATIVES OF EITHER AGENCY.