B-134987, FEB. 10, 1958

B-134987: Feb 10, 1958

Additional Materials:

Contact:

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

 

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

TO PENTAGON MANUFACTURING INC.: REFERENCE IS MADE TO YOUR LETTER OF JANUARY 22. IS COMPOSED OF SEVERAL ELEMENTS OF INCREASED COSTS. FEDERAL EXCISE TAXES WHICH WERE ERRONEOUSLY INCLUDED IN THE CONTRACT PRICE AT 5 RATHER THAN 8 PERCENT. 8. 907.43 THE ELEMENTS OF YOUR CLAIM WILL BE TREATED IN INVERSE ORDER. THE FOLLOWING LANGUAGE APPEARS: "THE ABOVE ITEM NO. 1 IS SUBJECT TO FEDERAL EXCISE TAX AND THE BID PRICE INCLUDES SUCH TAX.'. FIVE OTHER BIDS WERE ALSO RECEIVED AND RANGED FROM $179 TO $323.10 PER UNIT. SINCE YOUR BID WAS THE LOWEST RECEIVED. THE CONTRACT WAS AWARDED TO YOU ON JUNE 21. THE CONTRACT PRICE WAS REDUCED TO $306. IT IS STATED IN YOUR "PETITION FOR REPRICING. YOU CALCULATED YOUR FEDERAL EXCISE TAX BURDEN AT 5 PERCENT UNDER THE MISTAKEN BELIEF THAT THE 8 PERCENT TAX THEN IN EFFECT WAS GOING TO BE REDUCED ON APRIL 1.

B-134987, FEB. 10, 1958

TO PENTAGON MANUFACTURING INC.:

REFERENCE IS MADE TO YOUR LETTER OF JANUARY 22, 1958, WITH ENCLOSURES, REQUESTING RECONSIDERATION OF OFFICE SETTLEMENT DATED JANUARY 22, 1958, WHICH DISALLOWED YOUR CLAIM FOR $55,248.43, REPRESENTING ADDITIONAL COMPENSATION ALLEGED TO BE DUE IN CONNECTION WITH THE PERFORMANCE OF CONTRACT NO. DA-20-113-ORD-20988 DATED JUNE 21, 1956.

YOUR CLAIM, AS PRESENTED THROUGH THE DEPARTMENT OF THE ARMY, IS COMPOSED OF SEVERAL ELEMENTS OF INCREASED COSTS, AS FOLLOWS:

TABLE

1. AN APPROXIMATE INCREASE OF 8 PERCENT IN THE COST OF STEEL AND OTHER MATERIALS AFTER THE CONTRACT DATE. $17,600

2. INTEREST COSTS IN FINANCING CONTRACT WORK REQUIRED IN THE ABSENCE OF PARTIAL PAYMENTS.

5,400

3. ERROR IN ESTIMATING COST OF A SUB-ASSEMBLY WHICH, THOUGH PROCURED FROM THE GOVERNMENT, RESULTED IN ADDITIONAL COST. 16,200

4. INCREASED PACKAGING COSTS DUE TO DEFAULT OF ORIGINAL SUBCONTRACTOR.

7,141

5. FEDERAL EXCISE TAXES WHICH WERE ERRONEOUSLY INCLUDED IN THE CONTRACT PRICE AT 5 RATHER THAN 8 PERCENT. 8,907.43

THE ELEMENTS OF YOUR CLAIM WILL BE TREATED IN INVERSE ORDER.

IN RESPONSE TO INVITATION TO BID DATED APRIL 11, 1956, YOU TENDERED A BID TO FURNISH THE SPECIAL PURPOSE KITS AT A UNIT PRICE OF $173.20, OR $311,760 FOR THE 1,800 KITS REQUIRED. ON THE SAME PAGE OF THE INVITATION, WHEREIN YOU ENTERED YOUR BID PRICE, THE FOLLOWING LANGUAGE APPEARS:

"THE ABOVE ITEM NO. 1 IS SUBJECT TO FEDERAL EXCISE TAX AND THE BID PRICE INCLUDES SUCH TAX.'

FIVE OTHER BIDS WERE ALSO RECEIVED AND RANGED FROM $179 TO $323.10 PER UNIT. SINCE YOUR BID WAS THE LOWEST RECEIVED, THE CONTRACT WAS AWARDED TO YOU ON JUNE 21, 1956. THEREAFTER, BY MODIFICATION NO. 1, THE CONTRACT PRICE WAS REDUCED TO $306,803.50 IN ORDER THAT THERE MIGHT BE FURNISHED CERTAIN GOVERNMENT-OWNED FORGINGS WHICH HAD BEEN REQUESTED BY YOU. IT IS STATED IN YOUR "PETITION FOR REPRICING,"AS AMENDED, THAT, IN PREPARING YOUR BID, YOU CALCULATED YOUR FEDERAL EXCISE TAX BURDEN AT 5 PERCENT UNDER THE MISTAKEN BELIEF THAT THE 8 PERCENT TAX THEN IN EFFECT WAS GOING TO BE REDUCED ON APRIL 1, 1956, TO 5 PERCENT; THAT SUCH BELIEF WAS BASED UPON YOUR AUDITOR'S ADVICE; AND THAT SUBSEQUENTLY YOU LEARNED THAT THE 8 PERCENT RATE WAS EXTENDED THROUGH APRIL 1, 1957.

PARAGRAPH 13 (F) (B) OF THE CONTRACT SPECIAL TERMS AND CONDITIONS PROVIDES:

"FEDERAL TAXES. EXCEPT AS MAY BE OTHERWISE PROVIDED IN THIS CONTRACT, THE CONTRACT PRICE INCLUDES ALL APPLICABLE FEDERAL TAXES IN EFFECT ON THE CONTRACT DATE.'

IT IS TO BE NOTED THAT, WHILE SUBPARAGRAPH (C) PROVIDED FOR PRICE ADJUSTMENT IN THE EVENT FEDERAL TAXES ARE INCREASED, SUCH RELIEF IS AVAILABLE ONLY WHEN THE INCREASE IS EFFECTED AFTER THE CONTRACT DATE. COURSE, SUCH PROVISION HAS NO APPLICATION HERE WHERE THERE WAS NO INCREASE IN TAX BY THE FEDERAL GOVERNMENT AFTER THE CONTRACT DATE.

ALTHOUGH YOU HAVE FURNISHED A PRICE BREAKDOWN WHICH, IT IS ALLEGED, WAS SUBMITTED TO THE CONTRACTING OFFICER PRIOR TO AWARD, THERE IS NOTHING THEREIN THAT WOULD HAVE PLACED THE CONTRACTING OFFICER ON NOTICE OF THE PROBABILITY OF ERROR IN COMPUTING YOUR BID PRICE INSOFAR AS THE CORRECT PERCENTAGE OF EXCISE TAX IS CONCERNED. MOREOVER, AS INDICATED ABOVE, THE INVITATION LEFT NO ROOM FOR DOUBT THAT BIDS WERE DESIRED ON THE BASIS OF A FIXED PRICE WHICH WOULD INCLUDE ALL APPLICABLE TAXES IN EFFECT AT THE TIME. THE PREPARATION OF A BID SUBMITTED IN RESPONSE TO SUCH INVITATION WAS YOUR SOLE RESPONSIBILITY. SEE FRAZIER-DAVIS CONSTRUCTION COMPANY V. UNITED STATES, 100 C.CLS. 120, 163. IT IS CLEAR THAT SUCH ERROR AS WAS MADE HERE WAS DUE TO YOUR OWN NEGLIGENCE AND WAS IN NO WAY INDUCED OR CONTRIBUTED TO BY THE GOVERNMENT. THE ERROR WAS UNILATERAL--- NOT MUTUAL- -- AND, THEREFORE, DOES NOT AFFORD ANY LEGAL BASIS FOR ALLOWANCE OF THE AMOUNT CLAIMED UNDER ITEM NO. 5 ABOVE. SALIGMAN, ET AL. V. UNITED STATES, 56 F.SUPP. 505, AND 26 COMP. GEN. 426.

ITEMS NOS. 4, 3 AND 1 OF YOUR CLAIM HAVE REFERENCE TO CONTRACT COSTS WHICH INCREASED AFTER THE CONTRACT DATE OVER THOSE ESTIMATED IN YOUR LUMP- SUM BID. YOUR CONTRACT, AS FINALLY EXECUTED, DID NOT CONTAIN A PRICE ESCALATION CLAUSE OR ANY OTHER PROVISION AUTHORIZING AN INCREASE IN THE CONTRACT PRICE BASED EITHER UPON YOUR SUBCONTRACTOR COSTS OR UPON ANY INCREASE IN THE COST OF MATERIALS. IN THE CIRCUMSTANCES, THE CONCLUSION IS INESCAPABLE THAT THE CONTRACT, AS WRITTEN, MERGED ALL PREVIOUS NEGOTIATIONS BETWEEN THE PARTIES THERETO, AND EXPRESSED THEIR FINAL UNDERSTANDING AS TO THE AMOUNT PROPERLY PAYABLE THEREFOR. NEITHER DOES FAILURE TO REALIZE THE RETURN EXPECTED ON A CONTRACT CONSTITUTE A LEGAL BASIS FOR MODIFYING THE TERMS OF A CONTRACT WHICH EXPRESSLY STIPULATES THE AMOUNT OF RECOVERY FOR PERFORMANCE. SEE BRAWLEY V. UNITED STATES, 96 U.S. 168, 173; SIMPSON V. UNITED STATES, 172 U.S. 372; 23 COMP. GEN. 596.

INTEREST COSTS (ITEM NO. 2) INCURRED IN THE FINANCING OF YOUR PERFORMANCE OF THE CONTRACT WORK IS STATED TO HAVE BEEN THE RESULT OF THE GOVERNMENT'S FAILURE TO PROVIDE PARTIAL PAYMENTS. HOWEVER, SINCE THE RIGHTS AND LIABILITIES OF THE PARTIES TO THIS CONTRACT ARE DETERMINED SOLELY ON THE BASIS OF ITS TERMS AND CONDITIONS, AUTHORITY FOR ALLOWANCE OF INTEREST CHARGES IN LIEU OF PARTIAL PAYMENTS MUST BE FOUND IN THE CONTRACT. MUST BE CONCEDED THAT THE CONTRACT CONTAINED NO PROVISION RESPECTING PARTIAL PAYMENTS OR THE ALLOWANCE OF INTEREST ON BORROWED CAPITAL. THE UNITED STATES IS NOT LIABLE FOR INTEREST EXCEPT WHERE INTEREST IS STIPULATED FOR IN LEGAL AND PROPER CONTRACTS, OR WHERE THE ALLOWANCE OF INTEREST IS SPECIFICALLY DIRECTED BY STATUTE. SEE ANGARICA V. BAYARD, 127 U.S. 251; SEABOARD AIR LINE RAILWAY COMPANY V. UNITED STATES, 261 U.S. 299, AND GENERALLY 27 COMP. GEN. 690.

ACCORDINGLY, ON THE BASIS OF THE PRESENT RECORD, OUR OFFICE HAS NO ALTERNATIVE OTHER THAN TO HOLD THAT NO LEGAL BASIS EXISTS FOR PAYMENT OF ANY PART OF YOUR CLAIM. THE SETTLEMENT OF JANUARY 22, 1958, IS, THEREFORE, SUSTAINED.