B-138422, MAY 12, 1959, 38 COMP. GEN. 749

B-138422, MAY 12, 1959, 38 COMP. GEN. 749

CONTRACTS - MODIFICATION - NATIONAL DEFENSE - DISPUTES - FAILURE TO FOLLOW CONTRACT REMEDIES THE ADMINISTRATIVE DENIAL OF A CONTRACTOR'S CLAIM UNDER TITLE II, FIRST WAR POWERS ACT, 50 U.S.C. APP. 611, OR UNDER PUBLIC LAW 85-804, 50 U.S.C. 1431, FOR RELIEF FROM LOSSES INCURRED IN PERFORMANCE OF AN ARMY CONTRACT ON THE BASIS THAT SUCH RELIEF WOULD NOT FACILITATE THE NATIONAL DEFENSE MAY NOT BE RECONSIDERED BY THE GENERAL ACCOUNTING OFFICE WHICH IS NOT ONE OF THE GOVERNMENT AGENCIES AUTHORIZED BY THE STATUTES AND RELATED EXECUTIVE ORDERS TO AMEND OR TO MODIFY NATIONAL DEFENSE CONTRACTS. A CONTRACTOR WHO REQUESTS A PRICE ADJUSTMENT FOR AN ALLEGEDLY UNREASONABLE DELAY BY THE GOVERNMENT IN FURNISHING GOVERNMENT-OWNED PROPERTY UNDER A CONTRACT WHICH CONTAINS A DISPUTES CLAUSE MAKING DETERMINATIONS OF THE CONTRACTING OFFICER FINAL AND CONCLUSIVE, IN THE ABSENCE OF A TIMELY APPEAL, MUST EXHAUST THE ADMINISTRATIVE REMEDIES PROVIDED IN THE CONTRACT AND, IN THE ABSENCE OF EVIDENCE THAT THE CONTRACT PROCEDURES WERE FOLLOWED, NO LEGAL BASIS EXISTS FOR ANY CONSIDERATION OF PRICE ADJUSTMENT. TER ARE RETURNED HEREWITH.

TO THE WORMAN-PILLIFANT COMPANY, MAY 12, 1959:

REFERENCE IS MADE TO YOUR APPLICATION FOR REIMBURSEMENT FOR EXCESSIVE COSTS ALLEGED TO HAVE BEEN INCURRED IN THE COMPLETION OF YOUR CONTRACT NO. DA-20-113-ORD-20380, DATED MARCH 13, 1956, WITH THE DETROIT ORDNANCE DISTRICT, DEPARTMENT OF THE ARMY.

THE CONTRACT COVERED THE MANUFACTURE AND DELIVERY OF 4,897 ENGINE CONTAINERS WITH DELIVERIES HAVING BEEN SCHEDULED AT THE RATE OF 600 UNITS PER MONTH FROM JULY 1956 THROUGH JANUARY 1957 AND DELIVERY OF THE BALANCE OF 697 UNITS IN FEBRUARY 1957. THE TIME FOR DELIVERY OF THE ENTIRE QUANTITY OF 4,897 UNITS WAS EXTENDED TO JUNE 25, 1957, BY CONTRACT MODIFICATION NO. 1, DATED APRIL 10, 1957. THE CONTAINERS WERE TO BE FURNISHED AT A PRICE OF $78.56 EACH, F.O.B. TOLEDO, OHIO, BUT THE TOTAL CONTRACT PRICE WAS INCREASED BY $3,966.06 UNDER CONTRACT MODIFICATIONS NOS. 2 AND 3 BY REASON OF CERTAIN CHANGES MADE IN THE F.O.B. POINT OF DELIVERY WITH RESPECT TO 1,862 UNITS. THE GOVERNMENT'S ADVERTISEMENT FOR BIDS HAD PROVIDED THAT THE CONTAINERS WERE TO BE IN ACCORDANCE WITH ORDNANCE DRAWING NO. F8723200 (SHEET NO. 1 DATED OCTOBER 4, 1955), (SHEET NO. 2 DATED JANUARY 10, 1955), AND IN ACCORDANCE WITH TECHNICAL ANALYSIS AND EVALUATION REPORT NO. 55-TA-5291 REVISION A DATED NOVEMBER 16, 1955. REFERENCE WAS MADE TO THE ORDNANCE STOCK NUMBER (G758-87-23200) AND THE DESCRIPTION OF THE ITEM ALSO INCLUDED THE NOTATION: " VEH. APPL. SNL G503, G740, G758 ( Y-4897).'

THE STATEMENT OF CLAIM SETS FORTH THAT YOU ARE FIGHTING DESPERATELY TO SAVE YOUR COMPANY FROM BANKRUPTCY, THAT THE LOSSES OCCASIONED IN THE PERFORMANCE OF THE CONTRACT WERE DUE TO CONDITIONS BEYOND YOUR CONTROL AND NOT TO POOR MANAGEMENT, AND THAT YOU HAVE RENDERED SATISFACTORY PERFORMANCE OF A NUMBER OF CONTRACTS ENTERED INTO WITH THE DEPARTMENT OF THE ARMY. YOU URGE THAT WE CHECK WITH EACH CONTRACTING OFFICER FOR CONFIRMATION OF YOUR STATEMENT THAT THE COMBINED EXCELLENT PERFORMANCE OF THE MANUFACTURING DIVISION OF LAUREL C. WORMAN, INC., AND THE WORMAN PILLIFANT COMPANY IN PRODUCING CRITICAL MILITARY ITEMS WAS NEVER CRITICIZED. ALSO, THE OPINION IS EXPRESSED THAT YOUR COMPANY IS ESSENTIAL TO DEFENSE IN THE EVENT OF WAR AND THAT DUE CONSIDERATION WILL JUSTIFY THE RELIEF REQUESTED IN THE INTEREST OF DEFENSE, YOUR EMPLOYEES AND THE GOVERNMENT'S PRESENT ATTITUDE TOWARD SMALL BUSINESS.

IN THE DISCUSSION OF THE ITEMS OF CLAIMED INCREASED COSTS IN THE TOTAL SUM OF $108,898.13, IT IS ALLEGED THAT A PILOT LOT OF 20 UNITS WAS COMPLETED ON SCHEDULE AND THAT THE CONTRACT PROVIDED THAT PRODUCTION SHOULD NOT BEGIN UNTIL THE PILOT LOT UNITS HAD BEEN TESTED WITH AN ENGINE INSTALLED IN THE CONTAINER. IT IS ALLEGED THAT THE TEST ENGINE WAS TO BE FURNISHED BY THE GOVERNMENT IN ACCORDANCE WITH THE PURCHASE DESCRIPTION WHICH WAS AND IS A PART OF THE CONTRACT. IT IS FURTHER ALLEGED THAT THE ENGINE WAS NOT FURNISHED UNTIL AUGUST 2, THAT SATISFACTORY PILOT TEST WAS MADE ON AUGUST 4, 1956, AND THEN PRODUCTION COMMENCED. IT IS STATED THAT THIS DELAY OF ONE MONTH CAUSED BY THE GOVERNMENT RESULTED IN A SUBSTANTIAL IMMEDIATE AND CONTINUOUS LOSS THROUGH THE PERFORMANCE OF THE CONTRACT.

OTHER DIFFICULTIES WHICH TENDED TO INCREASE THE COST OF PERFORMANCE ARE REFERRED TO, INCLUDING THE NECESSITY FOR THE NEGOTIATION OF A NEW LABOR CONTRACT WITH THE UNION WHICH REPRESENTED YOUR EMPLOYEES, A STEEL STRIKE WHICH OCCURRED DURING THE MONTH OF JULY 1956, AND THE FACT THAT SOME OF YOUR EXPERIENCED PERSONNEL ACCEPTED EMPLOYMENT WITH OTHER COMPANIES. APPARENTLY, THE EMPLOYEES INVOLVED WERE DISMISSED WITH THE EXPECTATION THAT THEY COULD BE REHIRED AT ANY TIME WHEN YOU WERE READY TO START PRODUCTION OF THE ENGINE CONTAINERS AND IT IS INDICATED THAT, WHEN THEY OBTAINED EMPLOYMENT ELSEWHERE, YOU WERE REQUIRED TO EMPLOY AND TRAIN A NUMBER OF UNSKILLED AND INEXPERIENCED LABORERS TO DO HIGHLY SPECIALIZED WORK TO MEET THE RIGID REQUIREMENTS OF ORDNANCE INSPECTION.

YOUR COMPANY PREVIOUSLY FILED A PETITION BEFORE THE ARMY CONTRACT ADJUSTMENT BOARD FOR RELIEF UNDER TITLE II, FIRST WAR POWERS ACT, 1941, AS AMENDED, 50 U.S.C. APP. 611, ON ACCOUNT OF LOSSES INCURRED IN THE PERFORMANCE ON CONTRACT NO. DA-20-113-ORD-20380. THE MATTER WAS CONSIDERED BY THE ARMY ORDNANCE CONTRACT ADJUSTMENT BOARD AND THE BOARD SUBMITTED ITS RECOMMENDATIONS TO THE CHIEF OF ORDNANCE. BY LETTER DATED MARCH 13, 1958, YOU WERE ADVISED BY THE CONTRACTING OFFICER THAT THE PETITION FOR RELIEF HAD BEEN DENIED BUT THAT THE UNFAVORABLE DECISION DID NOT PURPORT TO AFFECT WHATEVER RIGHTS AND REMEDIES MIGHT BE AVAILABLE TO YOU IN THE COURTS OR THE GENERAL ACCOUNTING OFFICE.

WE REQUESTED A REPORT ON YOUR CLAIM FROM THE DEPARTMENT OF THE ARMY AND SUGGESTED THE POSSIBILITY THAT THE DEPARTMENT MIGHT RECONSIDER THE ACTION TAKEN IN DENYING YOUR CLAIM FOR RELIEF UNDER THE PROVISIONS OF TITLE II, FIRST WAR POWERS ACT, 1941, AS AMENDED.

WE ARE ADVISED BY THE DEPARTMENT OF THE ARMY THAT THE CHIEFS OF THE TECHNICAL SERVICES AND COMMANDING GENERALS OF MAJOR OVERSEAS COMMANDS HAVE BEEN DELEGATED AUTHORITY TO DENY APPLICATIONS FOR RELIEF UNDER TITLE II, FIRST WAR POWERS ACT, 1941, AS AMENDED, AND PUBLIC LAW 85 804, APPROVED AUGUST 28, 1958, 72 STAT. 972, 50 U.S.C. 1431. IT IS STATED IN THE DEPARTMENTAL REPORT THAT THE CHIEF OF ORDNANCE, AFTER INDEPENDENT REVIEW OF THE WHOLE FILE, DENIED YOUR PETITION AND NOTIFIED YOUR COMPANY OF SUCH DECISION OF THE CHIEF OF ORDNANCE IN THE INSTANT CASE. A COPY OF THE RECOMMENDATIONS OF THE ARMY ORDNANCE CONTRACT ADJUSTMENT BOARD WAS SUBMITTED WITH THE REPORT. SINCE, IN THE BOARD'S OPINION, THE GRANTING OF THE REQUESTED RELIEF WOULD NOT FACILITATE THE NATIONAL DEFENSE, IT WAS RECOMMENDED BY THE BOARD THAT THE PETITION BE DENIED IN FULL.

OUR OFFICE IS NOT ONE OF THE GOVERNMENT AGENCIES AUTHORIZED BY STATUTES AND RELATED EXECUTIVE ORDERS TO AMEND OR MODIFY CONTRACTS WITHOUT CONSIDERATION ON THE BASIS THAT SUCH ACTION WOULD FACILITATE THE NATIONAL DEFENSE. WE ARE REQUIRED TO APPLY THE GENERAL RULES THAT OFFICERS OF THE GOVERNMENT HAVE NO AUTHORITY TO AMEND OR MODIFY EXISTING CONTRACTS UNLESS A COMPENSATING BENEFIT RESULTS TO THE UNITED STATES; AND THAT SUPERVENING EVENTS OR UNFORESEEN CAUSES WHICH RENDER CONTRACT PERFORMANCE MORE BURDENSOME OR LESS PROFITABLE, OR EVEN OCCASION A LOSS, ARE NOT SUFFICIENT TO ENTITLE A CONTRACTOR TO AN ADJUSTMENT IN THE CONTRACT PRICE. SEE J. J. PREIS AND CO. V. UNITED STATES, 58 C.1CLS. 81, 86; VULCANITE CEMENT CO. V. UNITED STATES, 74 C.1CLS. 692, 705; CHOUTEAU V. UNITED STATES, 95 1 U.S. 61, 68; AND DAY V. UNITED STATES, 245 U.S. 159, 161.

WITH RESPECT TO THE ALLEGATION THAT THE GOVERNMENT DELAYED ONE MONTH IN PROVIDING AN ENGINE FOR TESTING THE ENGINE CONTAINER, THE ARMY CONTRACT ADJUSTMENT BOARD STATED THAT THE ONLY DOCUMENTARY EVIDENCE PRESENTED TO IT CONCERNING A REQUEST FOR AN ENGINE IS A LETTER FROM YOUR COMPANY TO THE DETROIT ORDNANCE DISTRICT DATED JULY 26, 1956, INDICATING THAT THE 20 PILOT LOT UNITS NECESSARY FOR TESTING WERE COMPLETED ON JULY 23, 1956, AND THAT PRODUCTION WOULD NOT START UNTIL AN ENGINE WAS MADE AVAILABLE AND ACCEPTANCE TESTS OF THE PILOT LOT WERE COMPLETED. THE BOARD FOUND THAT THE CONTRACTING OFFICER ACTED PROMPTLY AND EXPEDITIOUSLY UPON NOTIFICATION BY YOU OF THE REQUIREMENT FOR A TEST ENGINE; THAT AN ENGINE FOR TESTING PURPOSES WAS NOT REQUIRED UNDER THE TERMS OF THE CONTRACT UNTIL A PILOT LOT OF 20 UNITS HAD BEEN COMPLETED ( JULY 23, 1956); THAT YOU SHOULD HAVE NOTIFIED THE CONTRACTING OFFICER A REASONABLE TIME IN ADVANCE REGARDING THE APPROXIMATE DATE A TEST ENGINE WOULD BE REQUIRED; AND THAT, INSTEAD OF SO NOTIFYING THE CONTRACTING OFFICER, YOU ELECTED TO ATTEMPT TO BORROW AN ENGINE FROM WILLYS MOTORS, INC.

IN THE PROCEEDINGS BEFORE THE BOARD IT WAS INDICATED THAT IN MAY 1956 YOU HAD EXPRESSED A DESIRE THAT THE GOVERNMENT MAKE AN ENGINE AVAILABLE TO YOU AND THAT, IN A LETTER DATED JUNE 29, 1956, YOU STATED THAT YOU WOULD BE READY TO MAKE THE REQUIRED TESTS ON JULY 8, 1956. IT APPEARS THAT THE DETROIT ORDNANCE DISTRICT TOOK THE POSITION THAT, WHILE THE GOVERNMENT WOULD FURNISH AN ENGINE FOR TESTING THE PILOT LOT OF 20 UNITS, THERE WAS NO OBLIGATION TO FURNISH AN ENGINE FOR PRODUCTION PURPOSES. AN ATTEMPT WAS MADE BY YOUR REPRESENTATIVES TO SHOW THAT, IF AN ENGINE HAD BEEN FURNISHED ON OR BEFORE JULY 1, 1956, IT WOULD HAVE BEEN POSSIBLE TO DETERMINE WHETHER OR NOT ONE OR MORE OF THE 20 PILOT LOT UNITS MET SPECIFICATIONS AND TO HAVE PROCEEDED WITH THE MANUFACTURE OF THE 600 UNITS REQUIRED FOR DELIVERY IN JULY 1956.

IT NOW APPEARS THAT WHATEVER CLAIM YOU MIGHT HAVE ON ACCOUNT OF AN ALLEGEDLY UNREASONABLE DELAY OF THE GOVERNMENT IN FURNISHING AN ENGINE SHOULD HAVE BEEN PRESENTED AND DISPOSED OF IN ACCORDANCE WITH GENERAL PROVISION NO. 33 OF THE CONTRACT AND THE ARTICLES ENTITLED " CHANGES" AND " DISPUTES.' UNDER THOSE CONTRACT PROVISIONS, THE ACTION TAKEN BY THE CONTRACTING OFFICER ON ANY SUCH CLAIM WOULD BE FINAL AND CONCLUSIVE IN THE ABSENCE OF AN APPEAL MAILED OR OTHERWISE FURNISHED TO THE CONTRACTING OFFICER AND ADDRESSED TO THE SECRETARY OF THE ARMY, WITHIN 30 DAYS AFTER RECEIPT OF A COPY OF THE CONTRACTING OFFICER'S DECISION.

THE BASIC CONTRACT DOES NOT CONTAIN ANY INFORMATION TO THE EFFECT THAT THE GOVERNMENT WOULD FURNISH AN ENGINE EITHER FOR TESTING OR PRODUCTION PURPOSES, BUT IT MAY VERY WELL BE THAT THE REFERENCE MATERIAL MADE A PART OF THE CONTRACT INDICATED THAT AN ENGINE WOULD BE FURNISHED TO TEST A PILOT LOT OF 20 UNITS AND THAT FULL PRODUCTION SHOULD NOT BE STARTED UNTIL AFTER SUCH TEST HAD BEEN MADE. ALSO, IN MODIFICATION NO. 2 OF THE CONTRACT IT WAS FORMALLY RECOGNIZED THAT YOUR PERFORMANCE WAS CONTINGENT UPON THE USE OF AN " ENGINE, STOCK NO. G740 7375025," THEN IN YOUR POSSESSION. MODIFICATION NO. 2 INCORPORATED A NEW GENERAL PROVISION NO. 33, ENTITLED " GOVERNMENT-1FURNISHED PROPERTY," WHICH STATES, IN PERTINENT PART, THAT:

* * * THE DELIVERY OR PERFORMANCE DATES FOR THE SUPPLIES OR SERVICES TO BE FURNISHED BY THE CONTRACTOR UNDER THIS CONTRACT ARE BASED UPON THE EXPECTATION THAT GOVERNMENT-FURNISHED PROPERTY SUITABLE FOR USE WILL BE DELIVERED TO THE CONTRACTOR AT THE TIME STATED IN THE SCHEDULE OR, IF NOT SO STATED, IN SUFFICIENT TIME TO ENABLE THE CONTRACTOR TO MEET SUCH DELIVERY OR PERFORMANCE DATES. IN THE EVENT THAT GOVERNMENT FURNISHED PROPERTY IS NOT DELIVERED TO THE CONTRACTOR BY SUCH TIME OR TIMES, THE CONTRACTING OFFICER SHALL, UPON TIMELY WRITTEN REQUEST MADE BY THE CONTRACTOR, MAKE A DETERMINATION OF THE DELAY OCCASIONED THE CONTRACTOR THEREBY, AND SHALL EQUITABLY ADJUST THE DELIVERY OR PERFORMANCE DATES OR THE CONTRACT PRICE, OR BOTH, AND ANY OTHER CONTRACTUAL PROVISION AFFECTED BY SUCH DELAY, IN ACCORDANCE WITH THE PROCEDURES PROVIDED FOR IN THE CLAUSE OF THIS CONTRACT ENTITLED " CHANGES," * * * THE FOREGOING PROVISIONS FOR ADJUSTMENT ARE EXCLUSIVE AND THE GOVERNMENT SHALL NOT BE LIABLE TO SUIT FOR BREACH OF CONTRACT BY REASON OF ANY DELAY IN DELIVERY OF GOVERNMENT-FURNISHED PROPERTY OR DELIVERY OF SUCH PROPERTY IN A CONDITION NOT SUITABLE FOR ITS INTENDED USE.

IT IS NOT OUR PURPOSE TO FORECLOSE YOUR COMPANY FROM PURSUING AND EXHAUSTING WHATEVER ADMINISTRATIVE REMEDIES IT MAY HAVE UNDER THE CONTRACT PROVISIONS. ON THE OTHER HAND, YOU ARE ADVISED THAT ANY CLAIM FOR AN EQUITABLE PRICE ADJUSTMENT UNDER GENERAL PROVISION NO. 33 MAY BE BARRED ON THE BASIS THAT IT WAS NOT TIMELY PRESENTED; AND THAT WE WOULD NOT, IN ANY EVENT, BE WARRANTED AT THIS TIME IN EXPRESSING AN OPINION AS TO THE MERITS OF ANY SUCH CLAIM. THE CONTRACT PROCEDURES MUST BE FOLLOWED IN ORDER TO PERMIT ANY ADJUSTMENT IN THE CONTRACT PRICE ON ACCOUNT OF THE ALLEGEDLY UNREASONABLE DELAY OF THE GOVERNMENT IN FURNISHING THE ENGINE. SEE SILAS MASON CO., INC. V. UNITED STATES, 90 C.1CLS. 266; ID. 105 C.1CLS. 27; UNITED STATES V. CALLAHAN WALKER CO., 317 U.S. 56, 61; UNITED STATES V. BLAIR, 321 U.S. 730, 735, 736; AND UNITED STATES V. HOLPUCH CO., 328 U.S. 234, 239, 240.

ACCORDINGLY, YOU ARE ADVISED THAT ON THE PRESENT RECORD THERE EXISTS NO LEGAL BASIS UPON WHICH WE WOULD BE WARRANTED IN AUTHORIZING PAYMENT OF ANY PART OF YOUR CLAIM FOR $108,898.13. SINCE THE DEPARTMENT OF THE ARMY HAS FINALLY DETERMINED THAT RELIEF MAY NOT BE GRANTED UNDER THE PROVISIONS OF TITLE II, FIRST WAR POWERS ACT, 1941, AS AMENDED, OR UNDER THE PROVISIONS OF PUBLIC LAW 85-804, WE ARE OF THE OPINION THAT YOUR ONLY RECOURSE IN THE MATTER WOULD BE TO FOLLOW THE PROCEDURES ESTABLISHED IN THE CONTRACT FOR THE CONSIDERATION OF CLAIMS BASED UPON ALLEGEDLY UNREASONABLE DELAYS IN THE FURNISHING OF GOVERNMENT PROPERTY FOR USE IN THE PERFORMANCE OF THE CONTRACT WORK. WE WOULD NOT UNDERTAKE TO STATE, HOWEVER, WHETHER THE CONTRACTING OFFICER WOULD REFUSE TO CONSIDER ANY SUCH CLAIM ON THE GROUND THAT IT HAD NOT BEEN TIMELY PRESENTED.

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