B-131942, JUL. 29, 1957

B-131942: Jul 29, 1957

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REQUESTING AN ADVANCE DECISION WHETHER PAYMENT IS AUTHORIZED ON A VOUCHER IN FAVOR OF MT. 330.79 WHICH WAS WITHHELD IN EFFECTING A PARTIAL PAYMENT UNDER CONTRACT NO. THE CONTRACT WAS AWARDED ON THE BASIS OF DELIVERY F.O.B. 266 POUNDS WERE MADE ON MAY 23 AND MAY 26. THE CONTRACTOR AGREED TO THIS PROPOSAL AND WAS PAID THE SUM OF $20. SUBSEQUENT INSPECTIONS OF ALL THE CLOTHS SHIPPED BY THE CONTRACTOR WERE MADE IN JAPAN AND IT HAS BEEN CONCLUDED THAT THE REJECTION PERCENTAGE AMOUNTS TO AT LEAST 41 PERCENT. IT IS BECAUSE OF THIS EXTRAORDINARILY HIGH PERCENTAGE OF DEFECTIVE MATERIAL THAT THE QUESTION OF THE PROPRIETY OF PAYMENT OF THE SUBJECT VOUCHER HAS ARISEN. IN YOUR LETTER YOU STATE THAT SUSPICIONS THAT THE CONTRACTOR POSSIBLY HAD INTENTIONALLY ATTEMPTED TO CIRCUMVENT CONTRACT SPECIFICATION REQUIREMENTS WERE NOT SUBSTANTIATED.

B-131942, JUL. 29, 1957

TO CAPTAIN F. W. CLAYTON, FINANCE OFFICER, DEPARTMENT OF THE ARMY:

BY SECOND INDORSEMENT DATED MAY 21, 1957, THE CHIEF OF FINANCE REFERRED TO OUR OFFICE YOUR LETTER OF SEPTEMBER 18, 1956, REQUESTING AN ADVANCE DECISION WHETHER PAYMENT IS AUTHORIZED ON A VOUCHER IN FAVOR OF MT. VERNON WIPING CLOTH CORPORATION, COVERING THE AMOUNT OF $2,330.79 WHICH WAS WITHHELD IN EFFECTING A PARTIAL PAYMENT UNDER CONTRACT NO. DA-04-505-QM- 19360, DATED MARCH 17, 1955.

UNDER THE TERMS OF THE CONTRACT THE CONTRACTOR AGREED TO FURNISH A QUANTITY OF WHITE COTTON WIPING RAGS IN ACCORDANCE WITH DESIGNATED SPECIFICATIONS FOR THE PRICE OF ?1377 PER POUND. THE CONTRACT WAS AWARDED ON THE BASIS OF DELIVERY F.O.B. POINT OF ORIGIN. REGARDING INSPECTION, PARAGRAPH 5 (D) OF THE GENERAL PROVISIONS OF THE CONTRACT PROVIDES, IN PERTINENT PART, AS FOLLOWS:

"* * * EXCEPT AS OTHERWISE PROVIDED IN THIS CONTRACT, FINAL ACCEPTANCE SHALL BE CONCLUSIVE EXCEPT AS REGARDS LATENT DEFECTS, FRAUD, OR SUCH GROSS MISTAKES AS AMOUNT TO FRAUD.'

IT APPEARS THAT TWO SHIPMENTS TOTALING 169,266 POUNDS WERE MADE ON MAY 23 AND MAY 26, 1955, AND THE CONTRACTING OFFICER, BECAUSE OF LOW MOISTURE CONTENT IN THESE SHIPMENTS AND REPORTS OF DEFECTIVE RAGS BEING RECEIVED UNDER OTHER CONTRACTS WITH THE SUBJECT CONTRACTOR RECOMMENDED THAT PAYMENT THEREFOR BE SUSPENDED. THE SUCCESSOR CONTRACTING OFFICER ADVISED THE CONTRACTOR THAT, IN VIEW OF THE DOUBT AS TO MOISTURE CONTENT DETERMINED AT THE TIME OF ORIGIN INSPECTION, A RE-EXAMINATION OF THE CLOTHS WOULD BE HAD AT DESTINATION AND THAT, PENDING THE RE EXAMINATION, 10 PERCENT OF ITS FINAL INVOICE OF $23,307.93, OR $2,330.79, THE AMOUNT NOW CLAIMED, WOULD BE WITHHELD. THE CONTRACTOR AGREED TO THIS PROPOSAL AND WAS PAID THE SUM OF $20,977.14.

SUBSEQUENT INSPECTIONS OF ALL THE CLOTHS SHIPPED BY THE CONTRACTOR WERE MADE IN JAPAN AND IT HAS BEEN CONCLUDED THAT THE REJECTION PERCENTAGE AMOUNTS TO AT LEAST 41 PERCENT. IT IS BECAUSE OF THIS EXTRAORDINARILY HIGH PERCENTAGE OF DEFECTIVE MATERIAL THAT THE QUESTION OF THE PROPRIETY OF PAYMENT OF THE SUBJECT VOUCHER HAS ARISEN.

IN YOUR LETTER YOU STATE THAT SUSPICIONS THAT THE CONTRACTOR POSSIBLY HAD INTENTIONALLY ATTEMPTED TO CIRCUMVENT CONTRACT SPECIFICATION REQUIREMENTS WERE NOT SUBSTANTIATED. RATHER, IT WAS CONCLUDED ADMINISTRATIVELY THAT THE GOVERNMENT INSPECTOR CONCERNED WAS EITHER TOTALLY UNAWARE OF THE PROPER INSPECTION PROCEDURES TO BE FOLLOWED RELATIVE TO THE COMMODITY PROCURED OR WAS GROSSLY NEGLIGENT IN THE PERFORMANCE OF HIS DUTIES, AS A RESULT OF WHICH HE AND THE SUPERVISORY INSPECTOR INVOLVED WERE SUBJECTED TO ADMINISTRATIVE DISCIPLINARY ACTION.

ON EACH OF THE FIVE INSPECTION AND RECEIVING REPORTS PREPARED AT POINT OF ORIGIN THERE APPEARS AN UNQUALIFIED CERTIFICATE BY THE AUTHORIZED GOVERNMENT INSPECTOR THAT THE ITEMS LISTED THEREON HAVE BEEN INSPECTED AND FOUND TO CONFORM TO THE CONTRACT REQUIREMENTS. THEREFORE, UNDER THE INSPECTION PROVISION OF THE CONTRACT, THE INSPECTION MUST BE HELD TO BE CONCLUSIVE UNLESS THERE BE FOUND LATENT DEFECTS, FRAUD, OR SUCH GROSS MISTAKES AS AMOUNT TO FRAUD. SEE ELECTRIC FIREPROOFING COMPANY V. UNITED STATES, 39 C.CLS. 307, 315; KERCHNER V. UNITED STATES, 7 C.CLS. 579, 584.

IT HAS BEEN CONSISTENTLY HELD BY THE COURTS THAT A LATENT DEFECT IS ONE WHICH A REASONABLY CAREFUL INSPECTION WILL NOT REVEAL. SCHAFF V. ELLISON, 255 S.W. 680; AND L. MCMANUS CO. V. DREXEL FURNITURE CO., 68 S.E. 859. ALSO, TO CONSTITUTE A "LATENT DEFECT" THE DEFECT MUST BE HIDDEN FROM THE KNOWLEDGE AS WELL AS FROM THE SIGHT AND MUST BE ONE WHICH COULD NOT BE DISCOVERED BY THE EXERCISE OF ORDINARY AND REASONABLE CARE. SMITH V. MORROW, 230 ILL.APP. 382. IN THE PRESENT CASE, DETAILED PROVISIONS AS TO TESTS FOR MOISTURE CONTENT WERE CONTAINED IN THE CONTRACT SPECIFICATIONS AND IT SEEMS CLEAR THAT ADEQUATE INSPECTIONS AT POINT OF ORIGIN WOULD HAVE REVEALED THAT THE MATERIAL DID NOT MEET THE CONTRACT REQUIREMENTS, BOTH AS TO MOISTURE CONTENT AND OTHERWISE. IN THIS REGARD, SEE BENJAMIN COLITZ AND CO. V. DAVIS, 62 P.2D 67, 69, WHEREIN IT WAS HELD THAT A BUYER WHO, BY REASON OF SELECTING AN INCOMPETENT OR CARELESS INSPECTOR, BOUGHT AN ARTICLE WHICH HE COULD NOT USE FOR THE PURPOSE INTENDED COULD NOT HOLD THE SELLER LIABLE AND WAS PRECLUDED FROM CLAIMING DAMAGES ON ACCOUNT OF BREACH OF EXPRESS OR IMPLIED WARRANTY, INVOLVING DEFECTS READILY DISCOVERABLE ON INSPECTION.

IN VIEW OF THE FOREGOING, AND SINCE THE RECORD DOES NOT ESTABLISH FRAUD OR BAD FAITH OR SUCH GROSS ERROR AS TO IMPUTE BAD FAITH ON THE PART OF THE CONTRACTOR, THE HIGH PERCENTAGE OF DEFECTIVE MATERIAL AS DISCOVERED UPON SUBSEQUENT INSPECTIONS CONDUCTED AT THE DESTINATION POINT CANNOT SERVE TO OVERCOME THE LEGAL EFFECT OF THE INSPECTION AT POINT OF ORIGIN WHICH WAS CONCLUSIVE ON THE PARTIES AS TO WHETHER THE MATERIAL FURNISHED MET THE CONTRACT SPECIFICATION REQUIREMENTS.

ACCORDINGLY, THE VOUCHER TOGETHER WITH SUPPORTING PAPERS, IS RETURNED AND YOU ARE ADVISED THAT PAYMENT THEREON IS AUTHORIZED IF OTHERWISE CORRECT.