B-131228, OCTOBER 18, 1957, 37 COMP. GEN. 258

B-131228: Oct 18, 1957

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EFFECTIVELY BINDING CONTRACT OR IS MERELY AN OFFER WHICH MUST BE ACCEPTED EITHER BY EXPRESS CONSENT OF THE OFFEROR OR BY PERFORMANCE IS MATTER FOR DETERMINATION FROM NOT MERELY THE WORDS USED BUT FROM THE INTENT OF THE PARTIES AND THE CIRCUMSTANCES SURROUNDING THE TRANSACTION. NO OBJECTION WILL BE MADE IN SEVERAL CASES TO THE CORRECTION OF MISTAKES IN PRICE QUOTATIONS SUBMITTED ON THE REQUEST FOR QUOTATION FORM ( DD FORM 747) PRIOR TO THE FORMAL ACCEPTANCE OF THE PURCHASE ORDER. PROVIDED PROCUREMENT PERSONNEL ARE GIVEN EXPLICIT INSTRUCTIONS IN THE FUTURE THAT THE USE OF THE REQUEST FOR QUOTATION FORM AND THE ISSUANCE OF A PURCHASE ORDER WILL NOT CONSTITUTE AN EFFECTIVE ACCEPTANCE OF AN OFFER.

B-131228, OCTOBER 18, 1957, 37 COMP. GEN. 258

CONTRACTS - OFFER AND ACCEPTANCE - PURCHASE ORDER ISSUANCE - ORAL QUOTATIONS OR REQUEST FOR QUOTATION FORMS - MISTAKES ALTHOUGH THE QUESTION OF WHETHER THE ISSUANCE OF A PURCHASE ORDER IN RESPONSE TO AN ORAL QUOTATION OR THE USE OF A REQUEST FOR QUOTATION FORM ( DD FORM 747) CREATES A VALID, EFFECTIVELY BINDING CONTRACT OR IS MERELY AN OFFER WHICH MUST BE ACCEPTED EITHER BY EXPRESS CONSENT OF THE OFFEROR OR BY PERFORMANCE IS MATTER FOR DETERMINATION FROM NOT MERELY THE WORDS USED BUT FROM THE INTENT OF THE PARTIES AND THE CIRCUMSTANCES SURROUNDING THE TRANSACTION, NO OBJECTION WILL BE MADE IN SEVERAL CASES TO THE CORRECTION OF MISTAKES IN PRICE QUOTATIONS SUBMITTED ON THE REQUEST FOR QUOTATION FORM ( DD FORM 747) PRIOR TO THE FORMAL ACCEPTANCE OF THE PURCHASE ORDER, PROVIDED PROCUREMENT PERSONNEL ARE GIVEN EXPLICIT INSTRUCTIONS IN THE FUTURE THAT THE USE OF THE REQUEST FOR QUOTATION FORM AND THE ISSUANCE OF A PURCHASE ORDER WILL NOT CONSTITUTE AN EFFECTIVE ACCEPTANCE OF AN OFFER.

TO THE SECRETARY OF THE ARMY, OCTOBER 18, 1957:

REFERENCE IS MADE TO LETTER DATED MARCH 21, 1957, FROM THE ASSISTANT SECRETARY ( LOGISTICS), REQUESTING A DECISION IN CONNECTION WITH CLAIMS ASSERTED BY FIVE FIRMS AS A RESULT OF ALLEGED MISTAKES IN PRICE QUOTATIONS SUBMITTED IN RESPONSE TO ORAL REQUESTS FOR QUOTATIONS OR DD FORM 747 ( REQUEST FOR QUOTATIONS).

THE SUBMISSION PRESENTS FOR CONSIDERATION THE QUESTION WHETHER THE ISSUANCE OF A PURCHASE ORDER, BASED ON A PRICE QUOTATION MADE ORALLY OR THROUGH THE USE OF DD FORM 747, CONSTITUTES A VALID ACCEPTANCE EFFECTIVELY BINDING THE SELLER, OR WHETHER IT CONSTITUTES ONLY AN OFFER BY THE GOVERNMENT WHICH MUST BE ACCEPTED BY THE VENDOR BEFORE A VALID AND BINDING CONTRACT IS CONSUMMATED.

IT IS STATED TO BE THE VIEW OF YOUR DEPARTMENT, AS SET FORTH IN A MEMORANDUM BY THE JUDGE ADVOCATE GENERAL, THAT SUCH A PURCHASE ORDER IS MERELY AN OFFER, WHICH MUST BE ACCEPTED EITHER BY EXPRESS CONSENT OR BY PERFORMANCE; AND THAT THEREFORE UPON AN ALLEGATION OF ERROR PRIOR TO ACCEPTANCE THE CONTRACTING OFFICER MAY EITHER CANCEL OR CORRECT THE ORDER.

IT IS POINTED OUT IN THE MEMORANDUM THAT "PRICE QUOTATIONS" HAVE A DEFINITE STATUS AND MEANING IN BOTH LEGAL AND COMMERCIAL PRACTICE, AND THAT A MERE QUOTATION OF PRICE MUST BE DISTINGUISHED FROM AN OFFER. STRICTLY SPEAKING,"A "QUOTATION OF PRICE" IS NOT AN OFFER TO SELL IN THE SENSE THAT A COMPLETE CONTRACT WILL ARISE OUT OF THE MERE ACCEPTANCE OF THE RATE OFFERED OR THE GIVING OF AN ORDER FOR THE MERCHANDISE IN ACCORDANCE WITH THE PROPOSED TERMS. IT REQUIRES THE ACCEPTANCE BY THE ONE NAMING THE PRICE OF THE ORDER SO MADE TO COMPLETE THE TRANSACTION. UNTIL THUS COMPLETED, THERE IS NO MUTUALITY OF OBLIGATION.' (35 WORDS AND PHRASES, 676, QUOTING BUCKBERG V. WASHBURN CROSBY COMPANY, 92 S.W. 733, 734, 115 MO.APP. 701).

THE COURTS HAVE FREQUENTLY HELD THAT PRICE QUOTATIONS BY SUPPLIERS, EVEN WHERE COMMUNICATED TO ONLY ONE PERSON, DO NOT CONSTITUTE AN OFFER, ALTHOUGH THE GENERAL RULE APPEARS TO BE THAT WHERE THE PROPERTY SOLD IS ACCURATELY DEFINED AND AN AMOUNT IS STATED AS THE PRICE IN A COMMUNICATION TO ONE PERSON INDEPENDENTLY, THERE IS AN OFFER TO SELL THE PROPERTY DESCRIBED AT THE PRICE STATED (1 WILLISTON ON CONTRACTS 27). IT IS ARGUED, HOWEVER, THAT EVEN THOUGH A PARTICULAR COMMUNICATION NAMING A PRICE MAY BE CONSIDERED AN OFFER, WHEN SUCH A PRICE QUOTATION IS RECEIVED IN RESPONSE TO A SOLICITATION MADE ORALLY OR THROUGH THE USE OF DD FORM 747 ( REQUEST FOR QUOTATION) AND NEITHER THE SOLICITATION NOR THE QUOTATION MAKES ANY REFERENCE TO THE CONTRACT CLAUSES CONTAINED ON THE VARIOUS GOVERNMENT PURCHASE ORDER FORMS, THE ISSUANCE OF SUCH A PURCHASE ORDER MAY NOT BE CONSIDERED AS AN ACCEPTANCE, SINCE THE PURCHASE ORDER INTRODUCES NEW TERMS NOT INCLUDED IN THE PROPOSAL MADE ON FORM 747, WHICH TERMS MUST BE ACCEPTED BY THE PERSON WHO GAVE THE QUOTATION, EITHER FORMALLY OR BY RENDERING PERFORMANCE, BEFORE A VALID AND BINDING CONTRACT IS CONSUMMATED.

IT IS STATED BY THE JUDGE ADVOCATE GENERAL THAT THE PRIMARY CAUSE OF THE DIFFICULTY APPEARS TO BE THE FAILURE OF CONTRACTING PERSONNEL TO REALIZE THE DISTINCTION BETWEEN THE INTENDED USES OF THE VARIOUS FORMS. DD FORM 747 AND INSTRUCTIONS RELATIVE TO ITS USE AS SET FORTH IN ASPR 16-201 ARE SAID TO HAVE BEEN DESIGNED ONLY TO OBTAIN PRICE, COST, DELIVERY, OR OTHER INFORMATION FROM SUPPLIERS, WHICH INFORMATION IS THEN TO BE USED AS THE BASIS FOR NEGOTIATING A CONTRACT; IN THOSE CASES WHERE IT IS DESIRED TO OBTAIN OFFERS FROM SUPPLIERS WHICH UPON ACCEPTANCE BY THE GOVERNMENT WOULD CREATE A VALID AND BINDING CONTRACT WITHOUT FURTHER ACTION, FORMS DD 746 AND 746-2, REQUEST FOR PROPOSALS, PROPOSAL AND ACCEPTANCE, SHOULD BE UTILIZED ( ASPR 16-203).

WE HAVE NO QUESTION AS TO THE SOUNDNESS OF THE GENERAL LEGAL PROPOSITIONS STATED IN THE JUDGE ADVOCATE GENERAL'S MEMORANDUM. IT IS EQUALLY WELL SETTLED, HOWEVER, THAT THE DETERMINATION OF WHETHER A COMMUNICATION BY ONE PARTY TO ANOTHER IS AN OPERATIVE OFFER CREATING A POWER OF ACCEPTANCE, OR MERELY A PRELIMINARY NEGOTIATION, IS A MATTER OF INTERPRETATION IN THE LIGHT OF ALL THE SURROUNDING CIRCUMSTANCES. SUCH INTERPRETATION INVOLVES NOT MERELY THE WORDS USED, BUT THE MEANING INTENDED BY THE PARTY USING THEM, AND THE MEANING WHICH HE KNEW OR HAD REASON TO ANTICIPATE WOULD BE PLACED ON THEM BY THE OTHER PARTY. 1 CORBIN, CONTRACTS, SEC. 23. THE LANGUAGE OF DD FORM 747 IS BY NO MEANS SO CLEAR AS TO PRECLUDE ITS USE OR INTERPRETATION AS A BINDING OFFER; THE PARTY SUBMITTING OR SIGNING IT IS REFERRED TO IN TWO PLACES AS THE " OFFER; " IT CONTAINS A BOX FOR THE REPRESENTATIONS AS TO SMALL BUSINESS STATUS AND CONTINGENT FEES REQUIRED IN FORMAL BIDS; AND WHILE IT STATES THAT IT IS A REQUEST FOR PRICE, COST, DELIVERY, OR OTHER INFORMATION, AND THAT IT DOES NOT COMMIT THE GOVERNMENT TO PROCURE OR CONTRACT FOR THE SUPPLIES OR SERVICES, THIS RATHER TENDS TO EMPHASIZE THE LACK OF ANY CORRESPONDING STATEMENT THAT IT DOES NOT COMMIT THE OFFEROR. ALSO, AS USED IN THE CASES INCLUDED IN THIS SUBMISSION, IT CONTAINS ADDITIONAL WORDING RESERVING TO THE GOVERNMENT THE RIGHT TO "MAKE AN AWARD" ON ALL OR NONE OR ON ANY COMBINATION OF ITEMS. ALL THESE FEATURES FURNISH SUPPORT FOR AN UNDERSTANDING ON THE PART OF THE PARTY RECEIVING A REQUEST FOR A QUOTATION ON THIS FORM THAT BY EXECUTING AND RETURNING IT HE IS SUBMITTING A BINDING OFFER WHICH CONFERS UPON THE GOVERNMENT A POWER TO BIND HIM BY ACCEPTANCE.

WHILE THE SECTIONS OF ASPR REFERRED TO INDICATE THAT FORMS 746 AND 746 (1) SHOULD BE USED FOR THE SOLICITATION OF OFFERS WHICH WILL EFFECT BINDING CONTRACTS UPON ACCEPTANCE, THEY DO NOT CLEARLY AND UNEQUIVOCALLY STATE THAT FORM 747 MAY NOT BE SO USED. SECTION 16-201 AUTHORIZES THE USE OF FORM 747 "WHEN IT APPEARS REASONABLY CERTAIN THAT THE PROCUREMENT WILL BE CONSUMMATED BY (1) A PURCHASE ORDER * * *" AND WE FIND NO STATEMENT THAT A PURCHASE ORDER SO ISSUED MAY NOT BE CONSIDERED A BINDING ACCEPTANCE. THERE APPEARS TO BE NO QUESTION BUT THAT MANY CONTRACTING AND PURCHASING OFFICERS IN FACT OPERATE UPON THE THEORY THAT A PURCHASE ORDER DOES CONSTITUTE AN EFFECTIVE ACCEPTANCE OF AN OFFER ON FORM 747, AND THIS IS BELIEVED TO BE THE FIRST INSTANCE, OUT OF MANY SUBMISSIONS INVOLVING SUCH PURCHASE ORDERS, IN WHICH WE HAVE BEEN ADVISED OF ANY DEPARTMENTAL VIEW TO THE CONTRARY.

AS TO THE POINT THAT THE PURCHASE ORDER FORM CONTAINS TERMS AND CONDITIONS NOT APPEARING IN FORM 747, IT WOULD NOT BE TOO DIFFICULT IN MANY CASES, TO CONCLUDE THAT BY REASON OF PRIOR DEALINGS OF THE SAME KIND, OR POSSIBLY EVEN BY VIRTUE OF NOTICE OF STATUTES AND REGULATIONS PRESCRIBING THE TERMS OF SUCH ORDERS, THE SELLER WAS FULLY AWARE OF THE CONDITIONS OF THE STANDARD GOVERNMENT PURCHASE ORDER AND SUBMITTED HIS OFFER WITH THE UNDERSTANDING THAT SUCH CONDITIONS WOULD FORM A PART OF THE RESULTING CONTRACT. AS STATED BY CORBIN, OP.CIT., AT PAGE 69,"WE MUST NOT JUMP TOO READILY TO THE CONCLUSION THAT A CONTRACT HAS NOT BEEN MADE FROM THE FACT OF APPARENT INCOMPLETENESS * * *. THE PARTIES MAY NOT GIVE VERBAL EXPRESSION TO SUCH VITALLY IMPORTANT MATTERS AS PRICE, PLACE AND TIME OF DELIVERY, TIME OF PAYMENT, AMOUNT OF GOODS, AND YET THEY MAY ACTUALLY HAVE AGREED UPON THEM. THIS MAY BE SHOWN BY THEIR ANTECEDENT EXPRESSIONS, THEIR PAST ACTION AND CUSTOM, AND OTHER CIRCUMSTANCES.'

HOWEVER, IN VIEW OF THE OPINION OF THE JUDGE ADVOCATE GENERAL, PARTICULARLY AS TO THE INTERPRETATION OF THE PROVISIONS OF PART 16 OF THE ASPR, AND WITH THE UNDERSTANDING THAT SUCH INTERPRETATION WILL BE PROMPTLY BROUGHT TO THE ATTENTION OF ALL PROCUREMENT PERSONNEL OF YOUR DEPARTMENT WITH EXPLICIT INSTRUCTIONS AS TO PROCEDURES TO BE FOLLOWED IN THE FUTURE IN USING THE PRESCRIBED FORMS OF REQUESTS, INVITATIONS, BIDS AND ACCEPTANCES, AND PURCHASE ORDERS, WE HAVE NO OBJECTION TO THE GRANTING OF APPROPRIATE RELIEF TO THE SELLERS INVOLVED IN THE FIVE CASES TRANSMITTED WITH THE SUBJECT LETTER. IT APPEARS FROM THE FILES TRANSMITTED THAT IN THREE OF THE FIVE CASES THE CONTRACTING OFFICER WAS CHARGEABLE WITH NOTICE OF PROBABLE ERROR SO THAT BINDING ACCEPTANCES COULD NOT HAVE BEEN MADE EVEN ON FORMAL BIDS.

IT IS STATED THAT IT IS PROPOSED TO CLARIFY THE ARMY PROCUREMENT PROCEDURE BY ISSUING IMPLEMENTING INSTRUCTIONS AND THAT AN OPPORTUNITY IS DESIRED TO DISCUSS THE PROPOSED IMPLEMENTING INSTRUCTIONS WITH REPRESENTATIVES OF OUR OFFICE. WE WILL BE MOST PLEASED TO RENDER ANY ASSISTANCE POSSIBLE AND IT IS SUGGESTED THAT YOUR REPRESENTATIVE CONTACT MR. J. E. WELCH, ASSOCIATE GENERAL COUNSEL. IN THIS CONNECTION, WE ARE ADVISED THAT THE SAME SUBJECT MATTER HAS BEEN UNDER CONSIDERATION BY A STUDY GROUP OF THE TASK FORCE FOR REVIEW OF GOVERNMENT POLICIES AND PROCEDURES, AND THAT TENTATIVE RECOMMENDATIONS HAVE BEEN PREPARED CALLING FOR CLARIFICATION OF THE FORMS AND PROCEDURES ALONG THE SAME LINES AS PROPOSED BY YOU.