B-142557, NOV. 2, 1962

B-142557: Nov 2, 1962

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GENERAL SERVICES ADMINISTRATION: REFERENCE IS MADE TO YOUR LETTER OF JULY 27. THE INVOLVED CONTRACTS WERE ENTERED INTO PURSUANT TO THE DEFENSE PRODUCTION ACT OF 1950. THE INDICATED OVERPAYMENTS TO ALCOA WERE IN THE SUM OF $14. 313.80 BUT NO COLLECTIONS HAVE AS YET BEEN MADE. THE OVERPAYMENTS TO KAISER ARE REPORTED AS HAVING BEEN IN THE SUM OF $46. IT IS YOUR OPINION THAT THE CLAIMS FOR UNCOLLECTED AMOUNTS SHOULD BE WITHDRAWN AND THE AMOUNTS COLLECTED SHOULD BE REFUNDED TO THE CONTRACTORS. SINCE THE FACTS IN EACH CASE ARE BASICALLY THE SAME. REFERENCE HEREIN WILL BE MADE ONLY TO CONTRACT NO. GS-OOP/D/-12006 GAVE YOUR AGENCY THE RIGHT TO PURCHASE ANY ALUMINUM PRODUCED IN THE CONTRACT FACILITIES AND IT GAVE KAISER THE RIGHT TO TENDER TO THE GOVERNMENT ANY ALUMINUM PRODUCED IN THE CONTRACT FACILITIES THAT IT WAS UNABLE TO USE OR SELL.

B-142557, NOV. 2, 1962

TO ADMINISTRATOR, GENERAL SERVICES ADMINISTRATION:

REFERENCE IS MADE TO YOUR LETTER OF JULY 27, 1962, REQUESTING A REVIEW OF THE ACTION TAKEN BY THE CIVIL ACCOUNTING AND AUDITING DIVISION OF OUR OFFICE IN REQUESTING YOUR AGENCY TO EFFECT COLLECTION OF OVERPAYMENTS MADE TO THE ALUMINUM COMPANY OF AMERICA, KAISER ALUMINUM AND CHEMICAL CORPORATION AND REYNOLDS METALS COMPANY IN CONNECTION WITH PURCHASES OF ALUMINUM UNDER CONTRACTS NEGOTIATED IN 1950, 1951 AND 1952.

THE INVOLVED CONTRACTS WERE ENTERED INTO PURSUANT TO THE DEFENSE PRODUCTION ACT OF 1950, 50 U.S.C. APP. 2061, FOR THE PURPOSE OF INCREASING THE DOMESTIC CAPACITY FOR THE PRODUCTION OF PRIMARY ALUMINUM. THE INDICATED OVERPAYMENTS TO ALCOA WERE IN THE SUM OF $14,210, ALL OF WHICH HAS BEEN REPAID. THE OVERPAYMENTS TO REYNOLDS TOTALED $65,313.80 BUT NO COLLECTIONS HAVE AS YET BEEN MADE. THE OVERPAYMENTS TO KAISER ARE REPORTED AS HAVING BEEN IN THE SUM OF $46,290.66, OF WHICH $5,309.28 HAS BEEN COLLECTED BY SETOFF. THE ALLEGED OVERPAYMENTS REPRESENT INCREASED COSTS TO THE GOVERNMENT AS A RESULT OF SHIPMENTS OF ALUMINUM FROM NON- CONTRACT FACILITIES. IT IS YOUR OPINION THAT THE CLAIMS FOR UNCOLLECTED AMOUNTS SHOULD BE WITHDRAWN AND THE AMOUNTS COLLECTED SHOULD BE REFUNDED TO THE CONTRACTORS. SINCE THE FACTS IN EACH CASE ARE BASICALLY THE SAME, REFERENCE HEREIN WILL BE MADE ONLY TO CONTRACT NO. GS-OOP/D/-12006 WITH KAISER.

CONTRACT NO. GS-OOP/D/-12006 GAVE YOUR AGENCY THE RIGHT TO PURCHASE ANY ALUMINUM PRODUCED IN THE CONTRACT FACILITIES AND IT GAVE KAISER THE RIGHT TO TENDER TO THE GOVERNMENT ANY ALUMINUM PRODUCED IN THE CONTRACT FACILITIES THAT IT WAS UNABLE TO USE OR SELL. THE PRICE TO BE PAID WAS TO BE DETERMINED BY THE PRICES ON THE CONTRACTOR'S PRICE LIST INCLUDING THE APPLICABLE SALES TERMS AND CONDITIONS. THE PRICE LISTS THEN IN EFFECT PROVIDED FOR THE SALE OF ALUMINUM AT LIST PRICE, F.O.B. POINT OF ORIGIN, LESS A FREIGHT ALLOWANCE IN AN AMOUNT EQUAL TO THE LOWEST PUBLISHED COMMON CARRIER FREIGHT RATE INCLUDING TRANSPORTATION TAX. ARTICLE VI (B) OF THE CONTRACT PERMITTED THE CONTRACTOR, IN MAKING DELIVERIES TO THE GOVERNMENT, TO SUBSTITUTE AT ITS OPTION ALUMINUM PRODUCED IN NON-CONTRACT FACILITIES FOR ALUMINUM PRODUCED IN CONTRACT FACILITIES. THIS ARTICLE PROVIDED FURTHER THAT IF SUCH SUBSTITUTIONS WERE MADE, ANY NECESSARY INVOICE ADJUSTMENTS WOULD BE MADE SO THAT THE COST TO THE GOVERNMENT WOULD NOT BE INCREASED BY SUCH SUBSTITUTIONS.

THE ALUMINUM DELIVERED TO YOUR AGENCY BY THE CONTRACTOR WAS SHIPPED ON GOVERNMENT BILLS OF LADING. BY VIRTUE OF SPECIAL RATES NEGOTIATED BY THE GOVERNMENT UNDER SECTION 22, PART I, INTERSTATE COMMERCE ACT, 49U.S.C. 22, SOME ALUMINUM WAS SHIPPED FROM CONTRACT FACILITIES AT LESS COST THAN THE COMMON CARRIER FREIGHT ALLOWANCES GRANTED BY THE CONTRACTOR. HOWEVER, WHEN THE CONTRACTOR SHIPPED SOME ALUMINUM FROM NONCONTRACT FACILITIES THE GOVERNMENT LOST THE "SECTION 22" FREIGHT SAVINGS WHICH WOULD HAVE BEEN AVAILABLE TO IT IF THE MATERIAL HAD BEEN SHIPPED FROM CONTRACT FACILITIES.

ON OCTOBER 30, 1959, YOUR AGENCY PRESENTED A BILL TO THE CONTRACTOR REQUESTING A REFUND OF $46,290.66. THE CONTRACTOR REPLIED ON FEBRUARY 26, 1960, AND REJECTED THE GOVERNMENT'S CLAIM FOR VARIOUS REASONS BUT PRINCIPALLY BECAUSE (1) THE CONTRACT DID NOT SPECIFICALLY MENTION "SECTION 22, FREIGHT RATES AS A PROPER ELEMENT FOR CONSIDERATION IN DETERMINING COST TO THE GOVERNMENT AND (2) AT THE TIME THE SUBSTITUTIONS WERE APPROVED YOUR AGENCY DID NOT ADVISE IT THAT THE GOVERNMENT INTENDED TO CLAIM POTENTIAL "SECTION 22" SAVINGS AS AN ELEMENT OF COST.

THE DELIVERIES HERE INVOLVED WERE MADE DURING THE YEARS 1957 AND 1958. THE FIRST DELIVERIES UNDER THIS CONTRACT (NO. GS-OOP/D/-12006) HAD BEEN MADE IN 1954 PURSUANT TO A CALL BY YOUR AGENCY DATED MARCH 19, 1954, WHICH REQUIRED DELIVERY F.O.B. COMMON CARRIER'S CONVEYANCE, FREIGHT ALLOWED. MAY BE STATED AT THIS POINT THAT ALUMINUM IS CUSTOMARILY SOLD AT BASE PRICE F.O.B. CUSTOMER'S PLANT OR POINT WHERE BUYER TAKES CUSTODY IN THE UNITED STATES WITH NO TRANSPORTATION ALLOWANCE. THUS, THE PRODUCER BEARS THE COST OF FREIGHT FROM HIS PLANT TO DESTINATION. UNDER THE CONTRACT THE GOVERNMENT WAS ABLE TO SPECIFY DELIVERY F.O.B. COMMON CARRIER'S CONVEYANCE AT A BASE PRICE LESS AN ALLOWANCE FOR FREIGHT EQUAL TO THE FULL PUBLISHED RATE BETWEEN THE F.O.B. POINT AND YOUR AGENCY'S STORAGE SITE. THEN UNDER A "SECTION 22" QUOTATION THE GOVERNMENT COULD SAVE THE DIFFERENCE IN FREIGHT COSTS. THE BASIC PURPOSE FOR DEPARTURE FROM THE CUSTOMARY METHOD OF PURCHASING ALUMINUM APPEARS TO HAVE BEEN TO ALLOW THE GOVERNMENT TO TAKE ADVANTAGE OF ANY FREIGHT SAVINGS BETWEEN PUBLISHED COMMON CARRIER RATES AND RATES THE GOVERNMENT MIGHT BE ABLE TO NEGOTIATE SUCH AS "SECTION 22" RATES.

SUBSEQUENT TO THE CONTRACTOR'S ACCEPTANCE OF THE MARCH 1954 CALL A GOVERNMENT-ALUMINUM INDUSTRY CONFERENCE WAS HELD ON APRIL 8, 1954, WHEREIN THE ALUMINUM CONTRACTORS PROPOSED THAT THEY DEDUCT FROM THE BASE PRICE ONLY THE ACTUAL FREIGHT PAID BY THE GOVERNMENT. SUCH A PROPOSAL WOULD HAVE ALLOWED A GREATER NET PROFIT ON GOVERNMENT SALES THAN IF THEY SOLD TO PRIVATE INDUSTRY BETWEEN THE SAME POINTS OF ORIGIN AND DESTINATION. THEREFORE ANY NEGOTIATIONS BY THE GOVERNMENT TO SECURE A LOW "SECTION 22" QUOTATION WOULD ONLY RESULT IN GREATER PROFIT FOR THE CONTRACTORS. YOUR AGENCY DID NOT AGREE TO THE PROPOSAL OF THE CONTRACTORS. HOWEVER, IT WAS AGREED AT THE CONFERENCE, WITH RESPECT TO THE DELIVERIES DURING THE SECOND QUARTER OF 1954, THAT THE GOVERNMENT WOULD BE ALLOWED THE FULL DEDUCTION FROM THE BASE PRICE OF AN AMOUNT EQUAL TO THE LOWEST AVAILABLE COMMERCIAL FREIGHT COST FROM THE ACTUAL SHIPPING POINT TO THE ACTUAL DESTINATION IN ALL CASES (INCLUDING SHIPMENTS FROM SUBSTITUTED POINTS) WITHOUT INVOICE ADJUSTMENTS BASED ON "SECTION 22" FREIGHT SAVINGS. THIS AGREEMENT WAS FORMALIZED IN A LETTER FROM YOUR AGENCY DATED APRIL 20, 1954, ORDERING ADDITIONAL ALUMINUM FROM KAISER. UNDER THIS AGREEMENT THE GOVERNMENT LOST "SECTION 22" SAVINGS WHEN THE CONTRACTOR ELECTED TO SHIP FROM A NONCONTRACT FACILITY FOR WHICH NO "SECTION 22" QUOTATION WAS AVAILABLE, NOTWITHSTANDING THE REQUIREMENT UNDER ARTICLE VI (B) OF THE CONTRACT ,THAT THE COST TO THE GOVERNMENT SHALL NOT BE INCREASED THEREBY.' THE LETTER OF APRIL 20, 1954, CONTAINED A STATEMENT THAT THIS ARRANGEMENT WAS NOT TO BE USED AS A PRECEDENT FOR FUTURE PURCHASES BY THE GOVERNMENT. NEVERTHELESS, THIS ARRANGEMENT CONTINUED UNTIL 1957 WHEN IT WAS TERMINATED BECAUSE OF DISPUTES, ONE OF WHICH WAS THE INABILITY OF THE GOVERNMENT TO REALIZE "SECTION 22" FREIGHT SAVINGS ON SUBSTITUTED SHIPMENTS BY THE CONTRACTOR FROM ITS NONCONTRACT FACILITIES.

YOUR LETTER REFERS TO ANOTHER LETTER AGREEMENT BETWEEN YOUR AGENCY AND KAISER DATED SEPTEMBER 13, 1957, WHICH CONTAINS TWO PARAGRAPHS RELEVANT TO THIS MATTER. PARAGRAPH NUMBERED 10 PROVIDES THAT ALL SHIPMENTS ARE TO BE MADE F.O.B. POINT OF ORIGIN (OR SHIPPING POINT) FREIGHT ALLOWED. THE FREIGHT ALLOWANCE WAS TO BE AMOUNT EQUAL TO THE LOWEST PUBLISHED COMMON CARRIER FREIGHT RATE, INCLUDING TRANSPORTATION TAX. PARAGRAPH NUMBERED 3 STATES IN PART THAT "NOTHING CONTAINED HEREIN SHALL LIMIT YOUR (KAISER-S) RIGHT TO SUBSTITUTE METAL PRODUCED AT OTHER FACILITIES IN MAKING DELIVERIES TO THE GOVERNMENT, AS PROVIDED IN ARTICLE VI (B).' IT IS SIGNIFICANT TO NOTE THAT ARTICLE VI (B) WAS NOT AMENDED BUT WAS AGAIN SPECIFICALLY REFERRED TO IN CONNECTION WITH SUBSTITUTED SHIPMENTS FROM NONCONTRACT FACILITIES.

IT IS YOUR CONTENTION THAT THE NEW PARAGRAPH 10 NULLIFIES THAT PART OF ARTICLE VI (B) OF THE CONTRACT WHICH STATES THAT COSTS TO THE GOVERNMENT WOULD NOT BE INCREASED BY SUBSTITUTION SHIPMENTS BECAUSE IT REFERS TO FREIGHT ALLOWANCES FOR ALL SHIPMENTS. THE ONLY WAY IN WHICH THE COST TO THE GOVERNMENT COULD HAVE BEEN INCREASED BY REASON OF SUBSTITUTE SHIPMENTS FROM NONCONTRACT FACILITIES UNDER ARTICLE VI WAS THROUGH LOSS OF "SECTION 22" FREIGHT SAVINGS. AND SINCE THIS ARTICLE WAS INCORPORATED IN THE NEW AGREEMENT AND SINCE NO STATEMENT WAS MADE THAT THE USE OF "SECTION 22" QUOTATIONS WAS TO BE ELIMINATED IT MUST BE CONCLUDED THAT THE GOVERNMENT IS ENTITLED TO THE APPLICATION OF "SECTION 22" QUOTATIONS SO AS NOT TO INCREASE THE COST TO THE GOVERNMENT. THERE IS NO SHOWING THAT THERE WAS A MUTUAL MISTAKE IN INCLUDING ARTICLE VI AS PART OF THE AGREEMENT OF 1957. IN ANY EVENT, THERE IS NO SHOWING THAT THIS AGREEMENT IS APPLICABLE TO CONTRACTS WITH ALCOA AND REYNOLDS AND THEREFORE THERE EXISTS NO LEGAL BASIS FOR REFUNDING THE AMOUNT COLLECTED FROM ALCOA OR RELEASING REYNOLDS FROM ITS LIABILITY FOR THE REPORTED OVERPAYMENTS BECAUSE OF THE LOSS OF "SECTION 22" FREIGHT SAVINGS APPLICABLE TO SUBSTITUTE SHIPMENTS.