B-140589, OCT. 9, 1959

B-140589: Oct 9, 1959

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YOU REQUEST A DECISION AS TO WHETHER PAYMENT ON THE VOUCHER IS AUTHORIZED. THE CONTRACT PROVISIONS AS TO PRICE ESCALATION ARE QUOTED IN YOUR LETTER AS FOLLOWS: " "PRICE ESCALATION: "/A) THE CONTRACTOR HEREBY WARRANTS THAT THE UNIT PRICES STATED HEREIN ON THE DATE SET FOR OPENING OF BIDS ARE NOT IN EXCESS OF THE CONTRACTOR'S APPLICABLE ESTABLISHED PRICES FOR LIKE QUANTITIES OF THE SUPPLIES COVERED BY THIS CONTRACT. SUBJECT TO THE FOLLOWING CONDITIONS: "/1) NO UNIT PRICE AS ADJUSTED SHALL EXCEED THE CONTRACTOR'S APPLICABLE ESTABLISHED PRICE. "/2) THE AGGREGATE OF THE INCREASES IN ANY UNIT PRICE MADE UNDER THIS PARAGRAPH SHALL NOT EXCEED TEN PERCENT (10 PERCENT) OF THE ORIGINAL APPLICABLE CONTRACT UNIT PRICE. "/3) NO ADJUSTED UNIT PRICE SHALL BE EFFECTIVE EARLIER THAN THE EFFECTIVE DATE OF ANY INCREASE IN THE APPLICABLE ESTABLISHED PRICE AND NO INCREASE SHALL BE GRANTED UNLESS THE CONTRACTOR'S APPLICABLE ESTABLISHED PRICE HAS INCREASED SUBSEQUENT TO THE DATE SET FOR OPENING OF BIDS. "/C) IN THE EVENT THE REQUESTED ADJUSTMENT IN ANY CONTRACT UNIT PRICE IS ACCEPTABLE TO THE CONTRACTING OFFICER.

B-140589, OCT. 9, 1959

TO CAPTAIN A. DOLZISKI, FINANCE AND ACCOUNTING OFFICER, DEPARTMENT OF THE ARMY:

THERE HAS BEEN RECEIVED FROM THE OFFICE OF THE CHIEF OF FINANCE, FIELD DIVISION, INDIANAPOLIS 49, INDIANA (REFERENCE FINXE-B 167/13 MAY 59 ALERT STEEL PRODUCTS COMPANY) YOUR LETTER OF MAY 13, 1959 (REFERENCE ORDEC-LT), WITH ITS ENCLOSURES, TRANSMITTING BUREAU VOUCHER NO. 5-219 DATED MAY 12, 1959, IN THE AMOUNT OF $796.34, STATED IN FAVOR OF ALERT STEEL PRODUCTS COMPANY, 3100 EAST 87TH STREET, CHICAGO 17, ILLINOIS. THE VOUCHER COVERS AN ADDITIONAL PAYMENT UNDER THE PRICE ESCALATION CLAUSE OF CONTRACT NO. DA -28-024-ORD-4551, DATED JUNE 12, 1956. YOU REQUEST A DECISION AS TO WHETHER PAYMENT ON THE VOUCHER IS AUTHORIZED.

THE CONTRACT REQUIRED ALERT STEEL PRODUCTS COMPANY TO DELIVER 199,375 POUNDS OF ANGLE STEEL WITHIN 90 DAYS FROM THE CONTRACT DATE. THE CONTRACT PROVISIONS AS TO PRICE ESCALATION ARE QUOTED IN YOUR LETTER AS FOLLOWS:

" "PRICE ESCALATION:

"/A) THE CONTRACTOR HEREBY WARRANTS THAT THE UNIT PRICES STATED HEREIN ON THE DATE SET FOR OPENING OF BIDS ARE NOT IN EXCESS OF THE CONTRACTOR'S APPLICABLE ESTABLISHED PRICES FOR LIKE QUANTITIES OF THE SUPPLIES COVERED BY THIS CONTRACT. THE CONTRACTOR SHALL NOTIFY THE CONTRACTING OFFICER OF EACH DECREASE IN ANY OF SUCH ESTABLISHED PRICES AND EACH APPLICABLE CONTRACT UNIT PRICE SHALL BE DECREASED ACCORDINGLY. ANY DECREASE IN A UNIT PRICE SHALL BECOME EFFECTIVE CONCURRENTLY WITH THE EFFECTIVE DATE OF EACH APPLICABLE DECREASE IN CONTRACTOR'S ESTABLISHED PRICE AND THE CONTRACT SHALL BE AMENDED ACCORDINGLY.

"/B) THE CONTRACTOR MAY AT ANY TIME, OR FROM TIME TO TIME, AFTER THE DATE SET FOR OPENING OF BIDS AND DURING THE PERFORMANCE OF THE CONTRACT REQUEST IN WRITING AN UPWARD ADJUSTMENT IN ANY OF THE CONTRACT UNIT PRICES TO BE EFFECTIVE AS FROM A DATE TO BE SPECIFIED BY THE CONTRACTOR, SUBJECT TO THE FOLLOWING CONDITIONS:

"/1) NO UNIT PRICE AS ADJUSTED SHALL EXCEED THE CONTRACTOR'S APPLICABLE ESTABLISHED PRICE.

"/2) THE AGGREGATE OF THE INCREASES IN ANY UNIT PRICE MADE UNDER THIS PARAGRAPH SHALL NOT EXCEED TEN PERCENT (10 PERCENT) OF THE ORIGINAL APPLICABLE CONTRACT UNIT PRICE.

"/3) NO ADJUSTED UNIT PRICE SHALL BE EFFECTIVE EARLIER THAN THE EFFECTIVE DATE OF ANY INCREASE IN THE APPLICABLE ESTABLISHED PRICE AND NO INCREASE SHALL BE GRANTED UNLESS THE CONTRACTOR'S APPLICABLE ESTABLISHED PRICE HAS INCREASED SUBSEQUENT TO THE DATE SET FOR OPENING OF BIDS.

"/C) IN THE EVENT THE REQUESTED ADJUSTMENT IN ANY CONTRACT UNIT PRICE IS ACCEPTABLE TO THE CONTRACTING OFFICER, HE SHALL NOT LATER THAN 20 DAYS AFTER THE DATE OF RECEIPT BY HIM OF THE REQUEST SO NOTIFY THE CONTRACTOR AND THE CONTRACT SHALL BE MODIFIED ACCORDINGLY. IF ANY SUCH REQUESTED ADJUSTMENT IN A UNIT PRICE IS NOT ACCEPTABLE TO THE CONTRACTING OFFICER, HE SHALL SO NOTIFY THE CONTRACTOR IN WRITING WITHIN 20 DAYS FROM THE DATE OF RECEIPT BY HIM OF THE CONTRACTOR'S SAID NOTICE; AND UNLESS AN AGREEMENT CAN BE REACHED AS TO THE AMOUNT OF INCREASE, THE GOVERNMENT MAY CANCEL WITHOUT LIABILITY TO EITHER PARTY THE CONTRACTOR'S RIGHT TO PROCEED WITH PERFORMANCE OF THE PORTION OF THE CONTRACT WHICH IS UNDELIVERED AT THE TIME OF SUCH CANCELLATION, EXCEPT THAT THE CONTRACTOR MAY MAKE DELIVERY OF ALL OR ANY OF THE SUPPLIES WHICH A DULY AUTHORIZED OFFICER OF THE COMPANY SHALL CERTIFY WERE COMPLETED OR IN PROCESS OF MANUFACTURE AT THE TIME OF RECEIPT OF NOTICE OF SUCH CANCELLATION, AND THE GOVERNMENT SHALL PAY FOR ALL SUPPLIES SO DELIVERED AT THE APPLICABLE UNIT PRICE CONTAINED IN CONTRACTOR'S SAID REQUEST AND THE CONTRACT SHALL BE MODIFIED ACCORDINGLY, PROVIDED, THAT SUCH CERTIFICATION IS MADE WITHIN 10 DAYS AFTER RECEIPT OF NOTICE OF SUCH CANCELLATION AND SUCH REQUESTED INCREASE SATISFIED ALL OF THE CONDITIONS AND DOES NOT EXCEED THE LIMITATIONS OF PARAGRAPH (B). SUPPLIES SHALL BE DEEMED TO BE IN THE PROCESS OF MANUFACTURE WHEN THE STEEL THEREFOR IS IN ANY STATE OF PROCESSING AFTER THE BEGINNING OF THE FURNACE MELT.

"/D) DURING THE PERIOD PRIOR TO SUCH CANCELLATION, THE CONTRACTOR SHALL CONTINUE DELIVERIES ACCORDING TO THE TERMS OF THE CONTRACT AND SHALL BE PAID THEREFOR AT THE APPLICABLE INCREASED UNIT PRICES SO REQUESTED, PROVIDED, SUCH REQUESTED INCREASES SATISFY ALL OF THE CONDITIONS AND DO NOT EXCEED THE LIMITATIONS OF PARAGRAPH (B).

"/E) IF NOTICE OF CANCELLATION IS NOT SENT TO THE CONTRACTOR WITHIN 30 DAYS AFTER RECEIPT BY THE CONTRACTING OFFICER OF THE CONTRACTOR'S REQUEST, SUPPLIES DELIVERED SUBSEQUENT TO THE DATE SPECIFIED IN SUCH REQUEST, AND PRIOR TO THE EFFECTIVE DATE OF ANY SUBSEQUENT INCREASE OR DECREASE IN CONTRACTOR'S APPLICABLE ESTABLISHED PRICES, SHALL BE PAID FOR AT THE APPLICABLE INCREASED UNIT PRICES SO REQUESTED, PROVIDED, SUCH REQUESTED INCREASES SATISFY ALL OF THE CONDITIONS AND DO NOT EXCEED THE LIMITATIONS OF PARAGRAPH (B).' (EMPHASIS ADDED)"

DELIVERIES AGGREGATING 198,570 POUNDS--- THE APPROXIMATE AMOUNT COVERED BY THE CONTRACT--- WERE MADE DURING THE PERIOD FROM OCTOBER 15 TO DECEMBER 13, 1956. IT IS STATED IN YOUR LETTER THAT THE DELINQUENT DELIVERIES WERE CONSIDERED EXCUSABLE BY REASON OF A STEEL STRIKE.

IN A LETTER DATED NOVEMBER 14, 1956, THE CONTRACTOR REQUESTED AN INCREASE OF $0.544 PER CWT. FOR THE ENTIRE CONTRACT QUANTITY, THE INCREASED PRICE TO BE EFFECTIVE JULY 7, 1956. UNDER DATE OF DECEMBER 7, 1956, THE CONTRACTOR STATED THAT THE PRICE INCREASE WAS ESTABLISHED AND EFFECTIVE AUGUST 10, 1956. YOU REPORT THAT A PRICE INCREASE OF $0.540 PER CWT. AS OF AUGUST 10, 1956, WAS ESTABLISHED. IN THE CONTRACTING OFFICER'S 4TH INDORSEMENT DATED JULY 17, 1959, IT IS STATED THAT PAYMENT HAS BEEN MADE AT THE REQUESTED ESCALATED PRICE FOR STEEL DELIVERED AFTER NOVEMBER 14, 1956, THE DATE OF THE CONTRACTOR'S REQUEST FOR A PRICE INCREASE. THE VOUCHER COVERS THE REQUESTED PRICE INCREASE FOR STEEL DELIVERED PRIOR TO NOVEMBER 14, 1956.

THE SPECIFIC QUESTION PRESENTED IS "WHETHER THE ESCALATION CLAUSE PERMITS THE PAYMENT OF THE INCREASE IN RESPECT TO QUANTITIES DELIVERED PRIOR TO THE WRITTEN REQUEST FOR AN ADJUSTMENT.' IN THIS CONNECTION, YOU REFER TO THE CONTRACTOR'S CONTENTION THAT IT IS ENTITLED TO SET THE EFFECTIVE DATE OF THE REQUESTED PRICE ADJUSTMENT EITHER PRIOR OR SUBSEQUENT TO ITS WRITTEN REQUEST FOR ADJUSTMENT, WHEREAS THE OPINION OF YOUR OFFICE IS THAT THE EFFECTIVE DATE OF THE INCREASE MUST BE SUBSEQUENT TO THE WRITTEN REQUEST OF THE CONTRACTOR.

IT IS A FUNDAMENTAL RULE OF CONTRACT CONSTRUCTION THAT A CONTRACT MUST BE CONSTRUED AS A WHOLE AND WHERE, AS HERE, THE CONTRACT IS DIVIDED INTO SEPARATE ITEMS UNDER CLAUSES SEEMING INCONSISTENT OR CONFLICTING, THEY MUST BE CONSTRUED SO AS TO GIVE EFFECT TO THE INTENTION OF THE PARTIES AS COLLECTED FROM THE ENTIRE INSTRUMENT AND ANY INCONSISTENT OR CONFLICTING PROVISIONS MUST BE RECONCILED, IN THE CIRCUMSTANCES, BY ANY REASONABLE INTERPRETATION. UNITED STATES V. ANSONIA BRASS AND COPPER CO. 218 U.S. 452; GREEN COUNTY V. QUINLAN, 211 U.S. 582; HEARIN V. STANDARD LIFE INSURANCE CO. 8 F.2D 202; CF. RUSHING V. MANHATTAN LIFE INSURANCE CO. OF NEW YORK, 224 F. 74, 76. ALSO, WHERE WORDS IN A CONTRACT, IF CONSTRUED LITERALLY, WOULD PRODUCE AN UNFAIR, UNUSUAL OR IMPROBABLE RESULT, SUCH CONSTRUCTION IS TO BE AVOIDED IF POSSIBLE. A. E. WEST PETROLEUM CO. V. ATCHISON, TOPEKA AND SANTA FE RY. CO., 212 F.2D 812.

A LITERAL INTERPRETATION OF PARAGRAPH (B) OF THE PRICE ESCALATION PROVISIONS ABOVE QUOTED WOULD SUPPORT THE CONTRACTOR'S CONTENTION THAT THE EFFECTIVE DATE OF A PRICE ADJUSTMENT MAY BE EITHER PRIOR OR SUBSEQUENT TO THE DATE OF THE REQUEST FOR ADJUSTMENT. HOWEVER, PARAGRAPH (C) CLEARLY CONTEMPLATES THAT THE CONTRACTING OFFICER SHALL HAVE AN EFFECTIVE CHOICE AS TO ACCEPTANCE OR REJECTION OF THE REQUESTED ADJUSTMENT, INCLUDING THE RIGHT TO TERMINATE THE CONTRACTOR'S RIGHT TO PROCEED WITH PERFORMANCE OF THE CONTRACT.

IN THE INSTANT MATTER, THE REQUEST FOR ADJUSTMENT WAS MADE ON NOVEMBER 14, 1956, AFTER 147,470 POUNDS OF STEEL HAD BEEN DELIVERED, LEAVING ONLY 51,100 POUNDS TO BE DELIVERED SUBSEQUENTLY. UNDER THE CONTRACTOR'S INTERPRETATION OF THE CONTRACT, THE GOVERNMENT WOULD BE OBLIGATED, IN ACCORDANCE WITH THE PROVISIONS OF PARAGRAPH (C) ABOVE QUOTED, TO PAY THE INCREASED PRICE FOR ALL STEEL PREVIOUSLY DELIVERED, AS NOW CLAIMED ON THE SUBJECT VOUCHER. MOREOVER, UNDER SUCH AN INTERPRETATION, A REQUEST FOR ADJUSTMENT OF PRICE MIGHT BE WITHHELD EVEN LONGER, THUS DEPRIVING THE CONTRACTING OFFICER OF THE RIGHT TO MAKE THE CHOICE ABOVE REFERRED TO, AND LEAVING THE GOVERNMENT NO ALTERNATIVE BUT TO PAY THE REQUESTED INCREASED PRICE FOR ANY AMOUNT OF STEEL THERETOFORE DELIVERED. IT IS NOT BELIEVED THAT SUCH A RESULT WAS CONTEMPLATED BY THE PARTIES TO THE CONTRACT OR SHOULD BE PERMITTED BY A LITERAL CONSTRUCTION OF PARAGRAPH (B) OF THE PRICE ESCALATION PROVISIONS.

FOR THE REASONS ABOVE SET OUT, IT IS CONCLUDED THAT, HAVING REGARD FOR THE PROVISIONS OF THE CONTRACT AS A WHOLE, A REQUESTED PRICE INCREASE COULD NOT BECOME EFFECTIVE PRIOR TO THE DATE OF THE REQUEST. THEREFORE, PAYMENT ON THE VOUCHER IS NOT AUTHORIZED.