B-132594, OCT. 14, 1957

B-132594: Oct 14, 1957

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CONTRACTS GS-018-3267'S AND GS-018-3268'S WERE AWARDED TO THE JAMES J. NEW BIDS WERE OBTAINED IN DECEMBER. WHEN IT WAS FOUND THAT THEY WERE CONSIDERABLY LOWER. THE RENEWAL PRIVILEGES WERE EXERCISED. THE CONTRACTOR IMMEDIATELY NOTIFIED THAT THE RENEWALS WERE NOT ACCEPTABLE. STATING THAT OBLIGATIONS WERE CONSIDERED TO HAVE TERMINATED DECEMBER 31. APPEARS THAT ARRANGEMENTS HAVE BEEN MADE WHEREBY. THE CONTRACTOR WILL CONTINUE TO REMOVE THE WASTE PAPER AND REMIT ON ACCOUNT THE LOWER PRICES BID WHEN MARKET PRICES WERE TESTED. WHICH INSTRUCTED THAT BIDS FOR WASTE PAPER SHOULD BE OBTAINED FOR TWELVE-MONTH PERIODS ON THE BASIS OF AMOUNTS POTENTIAL BUYERS WERE WILLING TO PAY ABOVE OR BELOW AVERAGE PRICES PAID IN THE INDUSTRY AS PUBLISHED IN DESIGNATED TRADE JOURNALS.

B-132594, OCT. 14, 1957

TO THE HONORABLE FRANKLIN G. FLOETE, ADMINISTRATOR, GENERAL SERVICES ADMINISTRATION:

IN LETTER OF JULY 16, 1957, YOU REQUEST A DECISION AS TO THE PROPRIETY OF REVISING CURRENT CONTRACT ARRANGEMENT INVOLVING SALES OF WASTE PAPER IN BOSTON AREA TO THE JAMES J. GRAHAM PAPER COMPANY, INC.

CONTRACTS GS-018-3267'S AND GS-018-3268'S WERE AWARDED TO THE JAMES J. GRAHAM PAPER COMPANY, INC., ON JUNE 28, 1956, COVERING REMOVAL OF MIXED PAPER AT A SALES PRICE OF $11.28 PER TON, CORRUGATED CARDBOARD AT $16.11 PER TON, AND OBSOLETE FILE RECORD MATERIAL AT $23.05 PER TON, DURING THE SIX-MONTH PERIOD FROM JULY 1 TO DECEMBER 31, 1956. THESE CONTRACTS CONTAINED CLAUSES PERMITTING THE GOVERNMENT AT ITS OPTION TO RENEW THEM FOR AN ADDITIONAL PERIOD OF ONE YEAR ON THE SAME TERMS. NEW BIDS WERE OBTAINED IN DECEMBER, 1956, FOR THE PURPOSE OF TESTING MARKET PRICES FOR THE FOLLOWING SIX MONTHS, AND WHEN IT WAS FOUND THAT THEY WERE CONSIDERABLY LOWER, THE RENEWAL PRIVILEGES WERE EXERCISED. THE CONTRACTOR IMMEDIATELY NOTIFIED THAT THE RENEWALS WERE NOT ACCEPTABLE, STATING THAT OBLIGATIONS WERE CONSIDERED TO HAVE TERMINATED DECEMBER 31, 1956. APPEARS THAT ARRANGEMENTS HAVE BEEN MADE WHEREBY, PENDING SETTLEMENT OF THE CONTROVERSY, THE CONTRACTOR WILL CONTINUE TO REMOVE THE WASTE PAPER AND REMIT ON ACCOUNT THE LOWER PRICES BID WHEN MARKET PRICES WERE TESTED.

A MEMORANDUM PREPARED BY THE REGIONAL COMMISSIONER AT BOSTON INDICATES THAT THE PROCEDURE ESTABLISHED BY GENERAL SERVICES ADMINISTRATION CIRCULAR NO. 124, DATED APRIL 23, 1956, WHICH INSTRUCTED THAT BIDS FOR WASTE PAPER SHOULD BE OBTAINED FOR TWELVE-MONTH PERIODS ON THE BASIS OF AMOUNTS POTENTIAL BUYERS WERE WILLING TO PAY ABOVE OR BELOW AVERAGE PRICES PAID IN THE INDUSTRY AS PUBLISHED IN DESIGNATED TRADE JOURNALS, WAS NOT FOLLOWED. THIS CHANGE IN CONTRACTING PROCEDURE SEEMS TO HAVE BEEN ADOPTED IN VIEW OF THE FACT THAT THE WASTE PAPER MARKET IS AN EXTREMELY VOLATILE ONE, SUBJECT TO MARKED FLUCTUATIONS, AFTER EXPERIENCE OVER A PERIOD OF SEVERAL YEARS UNDER A PILOT CONTRACT. APPARENTLY, ALSO, IT IS FELT THAT PRIOR CONTRACT TERMS LACKED TRUE MUTUALITY OF OBLIGATION. UNDER A CANCELLATION CLAUSE, THE GOVERNMENT IS PERMITTED TO TERMINATE BY MERE WRITTEN NOTICE WHENEVER DESIRED; UNDER A PRICE INCREASE CLAUSE, THE CONTRACTOR IS REQUIRED TO INCREASE PRICES PAID THE GOVERNMENT PROPORTIONATELY TO INCREASING COMPARABLE PRICES TO OTHER CUSTOMERS; AND, UNDER THE RENEWAL CLAUSE, THE GOVERNMENT MAY RENEW THE CONTRACT FOR ONE YEAR UPON THE ORIGINAL TERMS.

IN PREPOSING TO RESCIND THE RENEWALS AND TO ADJUST SALES PRICES AFTER JANUARY 1, 1957, ON THE BASIS OF THE HIGHEST BIDS RECEIVED, YOU STATE, IN PART, THAT:

"THE INSISTENCE UPON SUCH UNILATERAL RIGHTS IN THE GOVERNMENT AS ARE CONTAINED IN THE ABOVE (ORIGINAL) CONTRACTS IS NOT THE POLICY OF THIS ADMINISTRATION AND WILL NOT BE CONDONED IN THE FUTURE. IN VIEW OF THE CONTRACTOR'S STATUS AS A SMALL BUSINESS AND THE LACK OF ESSENTIAL MUTUALITY OF OBLIGATION, IT IS MY BELIEF THAT THE GOVERNMENT SHOULD NOT REQUIRE ADHERENCE TO THE TERMS OF THE ORIGINAL CONTRACTS. * * *"

WE CANNOT HELP BUT AGREE THAT THE FORM OF CONTRACT EMPLOYED, WHICH OBVIOUSLY REQUIRES BOTH A CONTRACTOR AND THE GOVERNMENT TO GAMBLE ON A FIXED PRICE FOR EIGHTEEN MONTHS, MAY BE VERY DISADVANTAGEOUS TO THE GOVERNMENT. CONSEQUENTLY, THERE WOULD APPEAR TO BE INVOLVED NOT ONLY A QUESTION AS TO THE DESIRABILITY OF ATTEMPTING TO ENFORCE CONTESTED RENEWALS BUT THE PLACING OF THE GOVERNMENT IN SOUND POSITION WITH RESPECT TO WASTE PAPER SALES.

HOWEVER, THE CANCELLATION CLAUSE FROM WHICH MOST OF THE DOUBT AS TO MUTUALITY OF OBLIGATION APPEARS TO STEM CONTAINS, IT WILL BE NOTED, A PROVISION THAT TERMINATION "SHALL BE WITHOUT PREJUDICE TO * * * ANY CLAIMS WHICH THE CONTRACTOR MAY HAVE AGAINST THE GOVERNMENT.' THE PROTECTION AFFORDED TO THE CONTRACTOR THEREBY IN THE EVENT OF TERMINATION PRECLUDES CONSTRUCTION OF THE CANCELLATION CLAUSE AS BEING COMPLETELY UNILATERAL.

WHILE IT IS GENERALLY RECOGNIZED THAT WHETHER OR NOT THE PUBLIC INTEREST REQUIRES TERMINATION OF A CONTRACT IS A MATTER FOR ADMINISTRATIVE DECISION AND DOES NOT REST WITH THE ACCOUNTING OFFICERS, WHO ARE CONCERNED WITH SETTLEMENT OF THE RIGHTS AND LIABILITIES ARISING UNDER ANY TRANSACTIONS INVOLVED, IT IS BELIEVED THAT ON STRICT LEGAL PRINCIPLES THE ORIGINAL AND RENEWAL CONTRACTS OF THE JAMES J. GRAHAM PAPER COMPANY, INC., MUST BE REGARDED AS VALID AND ENFORCEABLE OBLIGATIONS, FROM WHICH THE CONTRACTOR MAY NOT PROPERLY BE RELIEVED UNLESS THE GOVERNMENT'S NEED NO LONGER EXISTS. WE COULD NOT, THEREFORE, ACQUIESCE IN RELIEVING THE CONTRACTOR OF THE OBLIGATIONS UNDERTAKEN.