B-134051, NOVEMBER 7, 1957, 37 COMP. GEN. 310

B-134051: Nov 7, 1957

Additional Materials:

Contact:

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

 

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

WAS ADVISED THAT CONTRACT TERMINATION PROVISIONS WOULD BE INVOKED MAY NOT HAVE SUSTAINED THE ALLEGATION THAT THE CANCELLATION WAS UNJUSTIFIED OR ARBITRARY. INASMUCH AS THE REPURCHASE WAS MADE 16 DAYS AFTER THE DATE OF TERMINATION FROM THE SECOND LOWEST BIDDER ON THE ORIGINAL INVITATION TO BID AND AT THE SAME PRICE OFFERED ORIGINALLY BY THAT BIDDER. THE GOVERNMENT MAY BE CONSIDERED TO HAVE ACTED PROPERLY. EXCESS COSTS ARE CHARGEABLE TO THE DEFAULTING CONTRACTOR. WAS CHARGED EXCESS REPURCHASE COSTS UNDER A PURCHASE ORDER WHICH DID NOT CONTAIN A "DISPUTES" CLAUSE IS. 1957: REFERENCE IS MADE TO YOUR LETTER OF OCTOBER 5. YOU WERE ADVISED TO SUSPEND SHIPMENT OF 7. 200 UNITS AND THAT YOU WERE ASKED WHETHER A NO- COST CANCELLATION OF THAT NUMBER OF UNITS WOULD BE ACCEPTED.

B-134051, NOVEMBER 7, 1957, 37 COMP. GEN. 310

CONTRACTS - DAMAGES - DEFAULT TERMINATION - PURCHASE ORDERS - DISPUTES CLAUSES CONTRACTOR WHO, AFTER FAILING TO FURNISH SUPPLIES MEETING THE SPECIFICATIONS ON THE DELIVERY DATE AND AFTER FAILING TO AGREE TO REVISED DELIVERY SCHEDULES FOR REPLACEMENTS, WAS ADVISED THAT CONTRACT TERMINATION PROVISIONS WOULD BE INVOKED MAY NOT HAVE SUSTAINED THE ALLEGATION THAT THE CANCELLATION WAS UNJUSTIFIED OR ARBITRARY, AND, INASMUCH AS THE REPURCHASE WAS MADE 16 DAYS AFTER THE DATE OF TERMINATION FROM THE SECOND LOWEST BIDDER ON THE ORIGINAL INVITATION TO BID AND AT THE SAME PRICE OFFERED ORIGINALLY BY THAT BIDDER, THE GOVERNMENT MAY BE CONSIDERED TO HAVE ACTED PROPERLY, AND EXCESS COSTS ARE CHARGEABLE TO THE DEFAULTING CONTRACTOR. A CONTRACTOR WHO, AFTER DEFAULT, WAS CHARGED EXCESS REPURCHASE COSTS UNDER A PURCHASE ORDER WHICH DID NOT CONTAIN A "DISPUTES" CLAUSE IS, NEVERTHELESS, LIABLE FOR EXCESS COSTS UNDER THE COMMON LAW REMEDY FOR DAMAGES SUSTAINED AS A RESULT OF A BREACH OF CONTRACT.

TO ACME LITHO PLATE GRAINING, INC., NOVEMBER 7, 1957:

REFERENCE IS MADE TO YOUR LETTER OF OCTOBER 5, 1957, PROTESTING THE ACTION OF THE CORPS OF ENGINEERS, DEPARTMENT OF THE ARMY, IN TERMINATING YOUR RIGHT TO PROCEED AND PURCHASING AGAINST YOUR ACCOUNT IN CONNECTION WITH CONTRACT NO. DA-30-075-ENG-5878, DATED NOVEMBER 27, 1953, AND PURCHASE ORDER NO. 27-924-MAP-27, DATED JANUARY 27, 1954.

UNDER THE TERMS OF THE AFOREMENTIONED CONTRACT YOU AGREED TO FURNISH 16,800 LITHOGRAPHIC OFFSET PLATES, CONFORMING TO DESIGNATED SPECIFICATIONS FOR DELIVERY TO THE NEW YORK PORT OF EMBARKATION ON JANUARY 6, 1954, OR SOONER. THE " DEFAULT" CLAUSE OF THE CONTRACT PROVIDED, IN PERTINENT PART, THAT IF YOU FAILED TO MAKE DELIVERY OF THE SUPPLIES WITHIN THE TIME SPECIFIED, OR ANY EXTENSION THEREOF, OR IF YOU FAILED TO PERFORM ANY OF THE OTHER PROVISIONS OF THE CONTRACT, THE GOVERNMENT COULD TERMINATE THE WHOLE OR ANY PART OF THE CONTRACT, PROCURE THE SUPPLIES FROM ANOTHER SOURCE, AND CHARGE YOU WITH ANY EXCESS COSTS OCCASIONED THEREBY.

THE RECORD SHOWS THAT BY TELEGRAM OF DECEMBER 29, 1953, YOU WERE ADVISED TO SUSPEND SHIPMENT OF 7,200 UNITS AND THAT YOU WERE ASKED WHETHER A NO- COST CANCELLATION OF THAT NUMBER OF UNITS WOULD BE ACCEPTED. AT THIS TIME YOU HAD PURCHASED ALL OF THE PLATES CALLED FOR AND HAD GRAINED APPROXIMATELY 6,000. WHILE YOU WERE ADVISED ON DECEMBER 30, 1953, THAT SHIPMENT--- NOT PRODUCTION--- WAS TO BE SUSPENDED PENDING THE CONSIDERATION OF REQUIREMENTS AND TERMINATION, YOU DISCONTINUED PRODUCTION, APPARENTLY FOR THE REASON THAT YOUR FACTOR WOULD NOT PROVIDE FURTHER FINANCING BECAUSE OF THE TELEGRAM OF DECEMBER 29, 1953.

IT APPEARS THAT, PURSUANT TO AN ARRANGEMENT BETWEEN YOU AND THE GOVERNMENT, SAMPLES OF THE PLATES THAT HAD BEEN PRODUCED WERE TESTED BY NEW YORK TESTING LABORATORIES, INC. THIS FIRM REPORTED ON FEBRUARY 25, 1954, THAT THE SPECIMENS DID NOT MEET THE APPLICABLE SPECIFICATIONS AS TO BENDING AND HARDNESS AND LEAD CONTENT. IN THIS REGARD, IT IS REPORTED THAT NO RETEST WAS EVER PERFORMED, NOR DID YOU EVER REQUEST A RETEST. ADDITION, IT APPEARS THAT YOUR SUPPLIER REFUSED TO SUPPLY CONFORMING PLATES WHICH, IT WAS CONTENDED, WOULD "LOWER THEIR STANDARDS.' THERE FOLLOWED A SERIES OF NEGOTIATIONS REGARDING DELIVERY SCHEDULES AND OFFERS ON YOUR PART TO REDUCE THE CONTRACT PRICE BY AS MUCH AS 25 PERCENT. HOWEVER, SINCE IT WAS THE PROCURING AGENCY'S POSITION THAT IT WAS IN THE GOVERNMENT'S BEST INTERESTS TO SECURE PLATES MEETING THE SPECIFICATIONS, AND SINCE THE MATTER OF DELIVERIES COULD NOT BE RESOLVED, YOU WERE ADVISED ON APRIL 19, 1954, THAT THE CONTRACT WAS TERMINATED BECAUSE OF YOUR FAILURE TO EFFECT DELIVERIES BY JANUARY 6, 1954, AND THAT THE PLATES WOULD BE PURCHASED AGAINST YOUR ACCOUNT.

BY LETTER OF MAY 13, 1954, YOU APPEALED FROM THE DECISION OF THE CONTRACTING OFFICER AND THE MATTER WAS MADE THE SUBJECT OF A HEARING BEFORE THE ARMED SERVICES BOARD OF CONTRACT APPEALS ON DECEMBER 28 AND 29, 1955. YOU ARE, OF COURSE, FAMILIAR WITH THE DECISION OF THAT BODY WHICH SUSTAINED THE ACTION OF THE CONTRACTING OFFICER IN TERMINATING YOUR RIGHT TO PROCEED AND CHARGING YOU WITH THE EXCESS COSTS INCURRED BY REASON OF THE PURCHASE OF THE SUPPLIES FROM ANOTHER SOURCE.

WE HAVE REVIEWED THE OPINION OF THE ARMED SERVICES BOARD OF CONTRACT APPEALS AND FIND NO LEGAL BASIS FOR QUESTIONING ITS CONCLUSION. CONTRARY TO YOUR CONTENTION IT DOES NOT APPEAR THAT THE CANCELLATION WAS UNJUSTIFIED OR ARBITRARY, OR THAT THE GROUNDS FOR CANCELLATION WERE NOT SUFFICIENT BECAUSE OF THE NATURE OF THE VARIATIONS. THE TERMS OF THE CONTRACT REGARDING TERMINATION ARE CLEAR AND UNAMBIGUOUS AND THEY WERE INVOKED BY THE CONTRACTING OFFICER AFTER YOU HAD FAILED TO FURNISH THE SUPPLIES ON THE DATE FIXED IN THE AGREEMENT AND BECAUSE, FOLLOWING LENGTHY NEGOTIATIONS, THE PARTIES WERE UNABLE TO COME TO AN AGREEMENT REGARDING REVISED DELIVERY SCHEDULES FOR REPLACEMENTS MEETING THE SPECIFICATIONS. AS INDICATED IN THE OPINION RENDERED ON YOUR APPEAL, THE QUESTION OF WHETHER SUPPLIES COMPLY SUBSTANTIALLY WITH SPECIFICATIONS IS ONE PRIMARILY FOR ADMINISTRATIVE DETERMINATION AND, AS STATED BY THE BOARD, THE MERE FACT THAT ONE HAS ACCEPTED AND USED A CERTAIN ITEM IN THE PAST DOES NOT MEAN THAT HE MUST ACCEPT IT AGAIN WHEN THE CONTRACT CALLS FOR SOMETHING DIFFERENT THAN THAT TENDERED.

REGARDING THE EXCESS COSTS OF $8,335.31, THE RECORD SHOWS THAT THE REPURCHASE WAS MADE WITHIN 16 DAYS AFTER THE DATE OF TERMINATION FROM THE SECOND LOWEST BIDDER ON THE ORIGINAL INVITATION TO BID AND AT THE SAME PRICE ($1.95 PER UNIT) OFFERED ORIGINALLY BY THAT BIDDER. IN THE CIRCUMSTANCES, WE FEEL THAT THE GOVERNMENT ACTED PROPERLY IN MAKING THE REPLACEMENT PURCHASE, THERE BEING NO CONCLUSIVE EVIDENCE THAT THE REPURCHASE COULD HAVE BEEN MADE AT A CONSIDERABLY LESS COST, AND NOTWITHSTANDING YOUR SELF-SERVING STATEMENT THAT YOU COULD HAVE DELIVERED THE MATERIAL FROM ANOTHER FOREIGN SUPPLIER AT A LOWER COST.

IT IS NOTED THAT SINCE PURCHASE ORDER NO. 27-924-MAP-27 DOES NOT CONTAIN THE " DISPUTES" CLAUSE THE ARMED SERVICES BOARD OF CONTRACT APPEALS PROPERLY DISMISSED YOUR APPEAL THEREON FOR LACK OF JURISDICTION. HOWEVER, IT MAY BE STATED THAT THE ACTION OF THE CONTRACTING OFFICER IN CHARGING YOU WITH EXCESS COSTS IN THE AMOUNT OF $87.30 BY REASON OF YOUR DEFAULT UNDER THAT ORDER AND THE SUBSEQUENT REPURCHASE WAS LEGALLY CORRECT UNDER THE COMMON LAW REMEDY FOR DAMAGES SUSTAINED AS A RESULT OF A BREACH OF CONTRACT.

THE LAW IS WELL SETTLED THAT ONE WHO FAILS TO PERFORM HIS CONTRACT IS BOUND TO PLACE THE OTHER PARTY IN AS GOOD POSITION PECUNIARILY AS HE WOULD HAVE BEEN IN HAD PERFORMANCE BEEN ACCOMPLISHED. SEE MILLER V. ROBERTSON, 266 U.S. 243, 257. THE COURTS ALSO HAVE RULED THAT THOSE INDEBTED TO THE UNITED STATES MUST PAY THEIR DEBTS IN FULL AND NO EMPLOYEE OR OFFICIAL OF THE GOVERNMENT HAS THE AUTHORITY GRATUITOUSLY TO WAIVE OR SURRENDER ITS RIGHTS. SEE UNITED STATES V. AMERICAN SALES CORPORATION, 27 F.2D 389, AFFIRMED 32 ID. 141, CERTIORARI DENIED, 280 U.S. 574.

ACCORDINGLY, IT IS REQUESTED THAT YOUR CERTIFIED CHECK OR MONEY ORDER, MADE PAYABLE TO THE " UNITED STATES GENERAL ACCOUNTING OFFICE," BE FORWARDED TO THE CLAIMS DIVISION OF OUR OFFICE WITHOUT FURTHER DELAY.