B-137911, MARCH 19, 1959, 38 COMP. GEN. 618

B-137911: Mar 19, 1959

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AFTER A GOVERNMENT CONTRACT WITH A CORPORATION IS TERMINATED FOR DEFAULT AND EXCESS COSTS FOR PURCHASES ELSEWHERE ARE CHARGED TO THE CORPORATION. ALLEGATION IS MADE THAT THE INDIVIDUAL WHO SIGNED THE BID DID NOT HAVE AUTHORITY TO BIND THE CORPORATION. THE RECORD FAILS TO SHOW THAT THE CORPORATE OFFICERS WERE WITHOUT KNOWLEDGE OF THE CONTRACT OR THAT THEY PROMPTLY TOOK ACTION TO REPUDIATE THE CONTRACT. 1959: FURTHER REFERENCE IS MADE TO YOUR LETTER OF OCTOBER 21. WAS TERMINATED FOR DEFAULT ON JANUARY 16. WAS SIMILARLY TERMINATED FOR DEFAULT ON MARCH 8. THE REASONS SET FORTH IN YOUR LETTER ARE AS FOLLOWS: 1. IT IS OUR UNDERSTANDING THAT THE BID LIST APPLICATION ON FILE AT GENERAL STORES SUPPLY OFFICE NAMES H.

B-137911, MARCH 19, 1959, 38 COMP. GEN. 618

CONTRACTS - RATIONS - AGENTS - AUTHORITY WHERE, AFTER A GOVERNMENT CONTRACT WITH A CORPORATION IS TERMINATED FOR DEFAULT AND EXCESS COSTS FOR PURCHASES ELSEWHERE ARE CHARGED TO THE CORPORATION, ALLEGATION IS MADE THAT THE INDIVIDUAL WHO SIGNED THE BID DID NOT HAVE AUTHORITY TO BIND THE CORPORATION, BUT THE RECORD FAILS TO SHOW THAT THE CORPORATE OFFICERS WERE WITHOUT KNOWLEDGE OF THE CONTRACT OR THAT THEY PROMPTLY TOOK ACTION TO REPUDIATE THE CONTRACT, THE INDIVIDUAL WHO SIGNED THE CONTRACT MAY BE REGARDED AS EITHER HAVING IMPLIED AUTHORITY TO ACT FOR THE CORPORATION OR AS HAVING HIS ACTS RATIFIED BY THE CORPORATION.

TO THE AMERICAN ANCHOR AND CHAIN CORPORATION, MARCH 19, 1959:

FURTHER REFERENCE IS MADE TO YOUR LETTER OF OCTOBER 21, 1958, REQUESTING REVIEW OF THE ACTION TAKEN BY THIS OFFICE IN APPLYING FUNDS OTHERWISE DUE YOUR FIRM IN LIQUIDATION OF ITS INDEBTEDNESS TO THE UNITED STATES IN THE AMOUNT OF $9,893.32 ARISING FROM THE DEFAULT TERMINATION OF CONTRACTS N155 -25219 AND N155-25122, WITH THE DEPARTMENT OF THE NAVY.

CONTRACT N155-25122 AWARDED ON SEPTEMBER 14, 1956, DELIVERY TO BE MADE BY DECEMBER 13, 1956, WAS TERMINATED FOR DEFAULT ON JANUARY 16, 1957, IN ACCORDANCE WITH SECTION 11 OF THE GENERAL PROVISIONS OF THE CONTRACT. THE COST TO THE GOVERNMENT FOR THE MATERIALS PROCURED UNDER THE REPLACEMENT CONTRACT EXCEEDED THE PRICE FIXED FOR SUCH ARTICLES UNDER THE ORIGINAL CONTRACT BY $2,158.20.

CONTRACT N155-25219, AWARDED N SEPTEMBER 7, 1956, WAS SIMILARLY TERMINATED FOR DEFAULT ON MARCH 8, 1957. THE COST TO THE GOVERNMENT FOR THE PIPE FITTINGS UNDER THE REPLACEMENT CONTRACT EXCEEDED THE PRICE FIXED FOR SUCH ARTICLES UNDER THE ORIGINAL CONTRACT BY $7,735.12.

YOUR LETTER OF OCTOBER 21 REQUESTS THAT CONSIDERATION BE GIVEN TO THE FOLLOWING EXTENUATING CIRCUMSTANCES AND THAT YOU BE RELIEVED OF THE CHARGES ASSESSED AND THE MONIES WITHHELD RETURNED. THE REASONS SET FORTH IN YOUR LETTER ARE AS FOLLOWS:

1. H. L. LANDAUER'S TITLE AS WORKS MANAGER DID NOT AUTHORIZE HIM TO OBLIGATE THE CORPORATION IN ANY MATTERS BEYOND THE LIMITED SCOPE OF EVERY DAY BUSINESS.

2. IT IS OUR UNDERSTANDING THAT THE BID LIST APPLICATION ON FILE AT GENERAL STORES SUPPLY OFFICE NAMES H. L. LANDAUER AS THE PERSON AUTHORIZED TO SIGN BIDS AND IS SIGNED BY THE SAME H. L. LANDAUER. WE BELIEVE THAT THE CONTRACTING OFFICER WAS IN ERROR IN ACCEPTING SUCH AN APPLICATION AND CONSTRUING SAME AS SUFFICIENT AUTHORITY TO BIND A CORPORATE BODY, WHEN NOT AN OFFICER.

3. IT IS OUR UNDERSTANDING FROM CONVERSATION WITH THE PLANT FACILITY INSPECTOR THAT HE WAS COGNIZANT OF THE FACT THAT THE ITEMS REQUIRED WERE ENTIRELY BEYOND THE SCOPE OF THE PLANT FACILITIES AND THAT THE PRICES WERE RIDICULOUSLY LOW AS COMPARED WITH THOSE NORMALLY PAID FOR SIMILAR ITEMS BY THE GOVERNMENT. WE BELIEVE THAT THIS INFORMATION WAS INCORPORATED IN THE INSPECTOR'S REPORT.

4. WE CONTEND THAT THE CONTRACTING OFFICER ERRED IN AWARDING THIS CONTRACT AT THE RIDICULOUSLY LOW PRICES QUOTED WHEN COMPARED WITH THE PRICES OF OTHER BIDDERS ON THE INVITATIONS INVOLVED AND PREVIOUS PRICES AT WHICH THE GOVERNMENT HAD PURCHASED SIMILAR MATERIAL AND THAT THIS COUPLED WITH THE NEGATIVE REPORT OF THE FACILITY INSPECTOR, SHOULD HAVE BEEN SUFFICIENT FOR HIM TO AT LEAST REQUIRE PROPER CORPORATE APPROVAL BEFORE AWARDING THE CONTRACT INVOLVED.

REGARDING YOUR FIRST AND SECOND CONTENTIONS THE DEPARTMENT OF THE NAVY, WHILE ADMITTING THAT THE BIDDERS MAILING LIST APPLICATION AND THE BID WERE SIGNED BY MR. H. L. LANDAUER, WORKS MANAGER, HAS TAKEN THE POSITION THAT THE OFFICERS PERMITTED MR. LANDAUER TO EXERCISE SUCH FULL CONTROL OVER THE CORPORATE OPERATIONS AS TO JUSTIFY THIRD PARTIES DEALING WITH THE CORPORATION IN ASSUMING THAT HE WAS VESTED WITH AUTHORITY TO BIND THE CORPORATION. THE GENERAL STORES SUPPLY OFFICE ( G.S.S.O.), U.S. NAVY, PHILADELPHIA, PENNSYLVANIA, HAS REPORTED THAT THERE IS ON FILE AT THAT OFFICE A MEMORANDUM REPORTING A CONFERENCE BETWEEN LT. SHIRE, CONTRACTING OFFICER, AND MESSRS. E. J. MCGUINESS, LINNENBANK, AND MONEY, OF AMERICAN ANCHOR AND CHAIN CORP., HELD AT THE G.S.S.O. ON FEBRUARY 12, 1957. THE CONFERENCE WAS HELD FOR THE PURPOSE OF DISCUSSING CONTRACTS N155-25219, N155-24914, N155-25499, N155-26501 AND N155-25122. THE FOLLOWING STATEMENT IS QUOTED FROM THE MEMORANDUM:

THE DISCUSSION BEGAN WITH AN EXPLANATION AS TO WHY THE ABOVE COMPANY WAS HAVING DIFFICULTY IN PERFORMING CONTRACTS, SPECIFICALLY CONTRACTS N155- 25122 AND N155-219, THE FORMER HAVING BEEN TERMINATED FOR DEFAULT. THE WORKS MANAGER, MR. LANDAUER, AND ANOTHER EMPLOYEE HAD BEEN FIRED, APPARENTLY DUE TO THEIR INCOMPETENCE IN BIDDING ON THE TWO CONTRACTS PLUS OTHER FACTS.

THE REPORT FROM G.S.S.O. STATES THAT NOTHING WAS SAID AT THAT TIME TO INDICATE THAT MR. LANDAUER DID NOT HAVE ANY AUTHORITY TO SIGN THE BIDS. THE RECORD FURNISHED ALSO FAILS TO SHOW THAT THERE WAS ANY ALLEGATION THAT THE CORPORATE OFFICERS WERE WITHOUT KNOWLEDGE OF THE CONTRACTS IN QUESTION OR THAT THEY UNDERTOOK TO REPUDIATE THEM PROMPTLY UPON BECOMING AWARE OF THEIR EXISTENCE.

IN ADDITION THE REPORT RECEIVED FROM G.S.S.O., DATED FEBRUARY 10, 1959, REGARDING YOUR INDEBTEDNESS UNDER THE TWO DEFAULTED CONTRACTS STATES, IN PART, AS FOLLOWS:

4. IN ADDITION TO THE COPIES OF THE DOCUMENTS WHICH YOU REQUESTED IN CONNECTION WITH THE ALLEGATIONS IN THE CONTRACTOR'S PARAGRAPH 4, THERE IS FORWARDED A COPY OF THE PREAWARD SURVEY, REFERRED TO AS A REPORT OF THE FACILITY INSPECTOR ( ENCLOSURE 6). THE CONTRACTOR WAS FULLY AWARE OF THE PRICE DIFFERENTIAL. ACCORDING TO THE REPORT, THE QUESTION WAS FULLY DISCUSSED WITH THE BIDDER WHO SAID THAT ANY LOSS WOULD BE ABSORBED AND THAT HE DECLINED TO ASK FOR THE RELIEF WHICH MIGHT HAVE BEEN ACCORDED HIM. PREVIOUS TO THE REPORT OF THE INSPECTOR, THE BUYER HAD RECEIVED PRICE CONFIRMATION BY TELEPHONE, WHICH WAS LATER CONFIRMED BY LETTER.

5. CONTRARY TO THE STATEMENT MADE BY THE CONTRACTOR IN HIS PARAGRAPHS NUMBERED 3 AND 4, THE INSPECTOR REPORTED THAT THE MACHINERY AND FACILITIES OF THE CONTRACTOR WERE ADEQUATE TO PERFORM WITHIN THE REQUIRED TIME.

OUR OFFICE, HAVING NO FIRSTHAND KNOWLEDGE OF THE FACTS, MUST NECESSARILY RELY ON THE REPORT OF THE ADMINISTRATIVE OFFICE WITH RESPECT TO THE FACTUAL SITUATIONS PERTAINING TO THE CONTRACTS. IN THE ABSENCE OF EVIDENCE SUFFICIENT TO OVERCOME THE PRESUMPTION OF THE CORRECTNESS THEREOF, IT IS THE INVARIABLE RULE OF THE ACCOUNTING OFFICERS OF THE GOVERNMENT TO ACCEPT THE STATEMENT OF FACTS AS REPORTED BY THE ADMINISTRATIVE OFFICERS. ON THE PRESENT RECORD, WE FEEL THAT IT MAY REASONABLY BE INFERRED EITHER THAT MR. LANDAUER HAD IMPLIED AUTHORITY TO ACT IN THE PREMISES OR THAT HIS ACTS WERE RATIFIED.

THE ACTION TAKEN IN CHARGING YOU WITH THE EXCESS COSTS INVOLVED WAS TAKEN PURSUANT TO THE CONTRACT TERMS, WHICH PROVIDE THAT IF THE CONTRACTOR FAILS TO COMPLETE THE WORK WITHIN THE TIME SPECIFIED THE GOVERNMENT MAY TERMINATE THE RIGHT OF THE CONTRACTOR TO PROCEED AND DECLARE HIM IN DEFAULT, SECURE THE WORK ELSEWHERE, AND CHARGE THE CONTRACTOR WITH ANY RESULTING EXCESS COSTS.

ACCORDINGLY, THE ACTION IN APPLYING FUNDS OTHERWISE DUE YOUR CORPORATION IN LIQUIDATION OF YOUR INDEBTEDNESS TO THE UNITED STATES IN THE AMOUNT OF $9,893.32 IS SUSTAINED.