B-143306, SEP. 15, 1960

B-143306: Sep 15, 1960

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6 BY 4 307 UNDER ITEM 1A IT IS STIPULATED AS FOLLOWS: "THE ABOVE ITEM IS SUBJECT TO FEDERAL EXCISE TAX AND THE BID PRICE INCLUDES SUCH TAX.'. UNDER ITEM 1B IT IS STIPULATED AS FOLLOWS: "THE ABOVE ITEM IS FOR EXPORT SHIPMENT AND IS THEREFORE EXEMPT FROM THE FEDERAL EXCISE TAX. THE BID PRICE DOES NOT INCLUDE ANY AMOUNT FOR SUCH TAX. * * *" THE TRUCKS WERE BUILT TO IDENTICAL SPECIFICATIONS. EXCEPT FOR MINOR VARIATIONS WHICH ARE CONSIDERED AS NOT AFFECTING PRICE. WERE MADE A PART OF THE INVITATION AND RESULTING CONTRACT. STATE AND LOCAL TAXES "/A) DEFINITIONS. * * * "/II) THE TERM "CONTRACT DATE" MEANS THE EFFECTIVE DATE OF THIS CONTRACT IF IT IS A NEGOTIATED CONTRACT. OR THE DATE SET FOR THE OPENING OF BIDS IF IT IS A CONTRACT ENTERED INTO AS A RESULT OF FORMAL ADVERTISING.

B-143306, SEP. 15, 1960

TO CAPTAIN A. DOLZISKI, FINANCE AND ACCOUNTING OFFICER:

YOUR LETTER OF JUNE 20, 1959, REQUESTS AN ADVANCE DECISION CONCERNING THE PROPRIETY OF PAYING A VOUCHER IN THE AMOUNT OF $81,257.55, WHICH HAS BEEN PRESENTED FOR PAYMENT UNDER CONTRACT NO. DA-20-113-ORD-20915, BY INTERNATIONAL HARVESTER COMPANY.

ON APRIL 18, 1956, THE U.S. ARMY ORDNANCE TANK-AUTOMOTIVE COMMAND, DETROIT, MICHIGAN, ISSUED IFB NO. ORD-20-113-56-939, CALLING FOR:

TABLE

ITEM NO. SUPPLIES OR SERVICES QUANTITY

1A TRUCK, TRACTOR, 10 TON, 6 BY 4 489

1B TRUCK, TRACTOR, 10 TON, 6 BY 4 307

UNDER ITEM 1A IT IS STIPULATED AS FOLLOWS:

"THE ABOVE ITEM IS SUBJECT TO FEDERAL EXCISE TAX AND THE BID PRICE INCLUDES SUCH TAX.'

UNDER ITEM 1B IT IS STIPULATED AS FOLLOWS:

"THE ABOVE ITEM IS FOR EXPORT SHIPMENT AND IS THEREFORE EXEMPT FROM THE FEDERAL EXCISE TAX. THE BID PRICE DOES NOT INCLUDE ANY AMOUNT FOR SUCH TAX. * * *"

THE TRUCKS WERE BUILT TO IDENTICAL SPECIFICATIONS, EXCEPT FOR MINOR VARIATIONS WHICH ARE CONSIDERED AS NOT AFFECTING PRICE.

ON JUNE 20, 1956, INTERNATIONAL HARVESTER COMPANY RECEIVED AN AWARD OF CONTRACT NO. DA-20-113-ORD-20915, WHICH INCLUDED $6,968.80 PER UNIT FOR ITEM 1A (489 UNITS) AND $6,524.24 PER UNIT FOR ITEM 1B (307 UNITS).

STANDARD FORM 32, NOVEMBER 1949 EDITION, INCLUDING THE "CHANGES" PROVISION AND AN ARTICLE ENTITLED "FEDERAL, STATE AND LOCAL TAXES" (ASPR 11-401, JANUARY 3, 1955) IN LIEU OF CLAUSE 10 OF FORM 32, WERE MADE A PART OF THE INVITATION AND RESULTING CONTRACT. THE TAX ARTICLE APPEARS IN THE CONTRACT, IN PART, AS FOLLOWS:

"FEDERAL, STATE AND LOCAL TAXES

"/A) DEFINITIONS. * * *

"/II) THE TERM "CONTRACT DATE" MEANS THE EFFECTIVE DATE OF THIS CONTRACT IF IT IS A NEGOTIATED CONTRACT, OR THE DATE SET FOR THE OPENING OF BIDS IF IT IS A CONTRACT ENTERED INTO AS A RESULT OF FORMAL ADVERTISING. FOR THE PURPOSE OF ANY ADDITIONAL PROCUREMENT OF SUPPLIES OR SERVICES CALLED FOR BY ANY AGREEMENT SUPPLEMENTAL HERETO, THE TERM "CONTRACT DATE" SHALL REFER TO THE DATE OF SUCH SUPPLEMENTAL AGREEMENT.

"/B) 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.

"/E) PRICE ADJUSTMENT. IF, AFTER THE CONTRACT DATE, (I) THE FEDERAL GOVERNMENT OR ANY STATE OR LOCAL GOVERNMENT EITHER IMPOSES OR INCREASES * * * ANY DIRECT TAX OR ANY TAX DIRECTLY APPLICABLE TO THE MATERIALS OR COMPONENTS USED IN THE MANUFACTURE OR FURNISHING OF THE COMPLETED SUPPLIES OR SERVICES COVERED BY THIS CONTRACT * * * AND IF * * * THE CONTRACTOR IS OBLIGED TO AND DOES PAY OR BEAR THE BURDEN OF ANY SUCH TAX * * * THE CONTRACT PRICE SHALL BE CORRESPONDINGLY INCREASED * * * IF, AFTER THE CONTRACT DATE, THE CONTRACTOR IS RELIEVED IN WHOLE OR IN PART FROM THE PAYMENT OR THE BURDEN OF ANY DIRECT TAX INCLUDED IN THE CONTRACT PRICE, OR ANY TAX DIRECTLY APPLICABLE TO THE MATERIALS OR COMPONENTS USED IN THE MANUFACTURE OR FURNISHING OF THE COMPLETED SUPPLIES * * * COVERED BY THIS CONTRACT * * * THE CONTRACT PRICE SHALL BE CORRESPONDINGLY DECREASED OR THE AMOUNT OF SUCH RELIEF PAID OVER TO THE GOVERNMENT. * * *"

SUBSEQUENT TO AWARD, THE QUANTITY OF ITEM 1A WAS INCREASED BY 8 UNITS, FROM 489 TO 497, AT THE SAME UNIT PRICE OF $6,968.80, BY MODIFICATION NO. 1 DATED AUGUST 14, 1956. THE MODIFICATION RECITES THAT THE UNIT PRICE INCLUDES FEDERAL EXCISE TAX AT THE RATE OF 8 PERCENT.

UNDER THE HIGHWAY REVENUE ACT OF 1956 THE RATE OF EXCISE TAX ON TRUCKS WAS INCREASED FROM 8 PERCENT TO 10 PERCENT AND THE RATE OF EXCISE TAX ON RUBBER USED IN THE MANUFACTURE OF TIRES FOR HIGHWAY VEHICLES WAS INCREASED FROM 5 CENTS A POUND TO 8 CENTS A POUND EFFECTIVE JULY 1, 1956. ALL 497 UNITS OF ITEM 1A (THE TRUCKS FOR DOMESTIC SHIPMENT) BECAME SUBJECT TO INCREASED RATES OF TAX, AND ON MARCH 7, 1957, THE PARTIES ENTERED INTO SUPPLEMENTAL AGREEMENT NO. 3 TO REFLECT AN INCREASE FROM A UNIT PRICE OF $6,968.80, TO A UNIT PRICE OF $7,116.04. THE PRICE OF ITEM 1B, BEING FOR EXPORT, AND NOT SUBJECT TO FEDERAL EXCISE TAX, WAS UNAFFECTED AND REMAINED UNCHANGED AT $6,524.24 PER UNIT.

THEREAFTER, THE GOVERNMENT DIVERTED 121 UNITS FROM ITEM 1B (EXPORT DESTINATIONS) TO ITEM 1A (DOMESTIC DESTINATIONS), THEREBY MAKING SUCH UNITS SUBJECT TO FEDERAL EXCISE TAX. THE CONTRACTOR PRESENTED A REQUEST FOR AN INCREASE IN CONTRACT PRICE IN THE AMOUNT OF $671.55 PER UNIT TO COVER THE FEDERAL EXCISE TAXES WITH RESPECT TO THE 121 DIVERTED UNITS, FOR WHICH IT BECAME LIABLE. DURING THE COURSE OF ANALYSIS OF CONTRACTOR'S REQUESTED INCREASE, IT BECAME APPARENT THAT THE ORIGINAL DIFFERENTIAL IN BID PRICES OF $444.56 FOR THE DOMESTIC SHIPMENTS AND FOR THE EXPORT SHIPMENTS) $6,968.80 LESS $6,524.24), WAS LESS THAN THE TOTAL APPLICABLE FEDERAL EXCISE TAX ON CHASSIS AND TIRES IN EFFECT ON THE CONTRACT DATE. IT FURTHER APPEARED THAT THE DIFFERENCE BETWEEN THE TWO BID PRICES ON THE CONTRACT DATE WAS THE SAME AMOUNT AS THE CHASSIS TAX ALONE, WITHOUT INCLUDING THE TAX ON RUBBER USED IN THE MANUFACTURE OF TIRES. IT IS NOT ESTABLISHED WHETHER A TAX ON RUBBER WAS INCLUDED BY THE CONTRACTOR IN HIS BID PRICE ON THE VEHICLES FOR EXPORT OR WAS EXCLUDED FROM HIS PRICE ON THE VEHICLES FOR DOMESTIC SHIPMENT. THE PRICE DIFFERENTIALS BETWEEN EXPORT AND DOMESTIC VEHICLES MAY BE SUMMARIZED AS FOLLOWS:

TABLE

PROPOSED BY CONTRACTOR

AS TO 121 VEHICLES DIVERTED

ORIGINAL BID MOD NO. 3 FROM EXPORT TO DOMESTIC 1A (DOMESTIC) $6,968.80

$7,116.04 $7,195.79 1B (EXPORT) 6,524.24 6,524.24

----------- ----------- DIFFERENCE $ 444.56 $ 591.80

YOU REPORT THAT SINCE COMPLIANCE WITH THE CONTRACTOR'S REQUEST WOULD INCREASE THE CONTRACT PRICE FOR THE DIVERTED UNITS TO A PRICE THAT IS GREATER THAN THE UNIT PRICES FOR THE SAME TRUCKS FOR DOMESTIC DESTINATIONS, THE CONTRACTING OFFICER HAS NOT AGREED TO THE AMOUNT REQUESTED BY THE CONTRACTOR AND HAS NOT ENTERED INTO ANY SUPPLEMENTAL AGREEMENT. YOU FURTHER REPORT THAT THE CONTRACTOR HAS PRESENTED THE VOUCHER FOR PAYMENT UNDER THE TAX ARTICLE INCLUDED IN THE CONTRACT AND THAT FUNDS ARE AVAILABLE IN THE AMOUNT OF THE REQUESTED ADJUSTMENT. BEFORE PAYMENT IS MADE YOU REQUEST OUR DECISION ON THE FOLLOWING QUESTIONS:

"A. IS THE LEGEND APPEARING UNDER ITEM 1B QUOTED ABOVE A REPRESENTATION OR WARRANTY BY THE BIDDER THAT THE BID PRICES DO NOT INCLUDE ANY FEDERAL EXCISE TAXES?

"B. IF THE LANGUAGE QUOTED UNDER ITEM 1B IS A REPRESENTATION OR WARRANTY, HAS IT BEEN BREACHED BY THE CONTRACTOR'S ACTION OF INCLUDING TAX PAID TIRES IN ITS COMPUTATIONS UPON WHICH IT DETERMINED ITS BID PRICE FOR VEHICLES FOR EXPORT, AND, IF SO, CAN THE GOVERNMENT RECOVER THE AMOUNT OF TIRE TAX ($72.50) INCLUDED IN THE ORIGINAL BID PRICE OF THE 186 VEHICLES WHICH WERE ULTIMATELY SHIPPED TO EXPORT DESTINATIONS?

"C. IF, AS THE CONTRACTOR STATES, ITS EXPORT BID PRICE WAS ACTUALLY TAX EXCLUSIVE (EVEN THOUGH BASED ON TAX PAID TIRES), AND THAT ITS BID PRICE ON DOMESTIC VEHICLES WAS THEREFORE LOWER THAN ITS INTENDED BID PRICE BY THE AMOUNT OF TIRE TAX, IS SUCH A MISTAKE ON THE CONTRACTOR'S PART A MISTAKE WHICH THE GOVERNMENT MAY TAKE ADVANTAGE OF AND USE AS A LIMITING FACTOR ON THE AMOUNT OF EQUITABLE ADJUSTMENT WHICH MAY BE REQUESTED BY THE CONTRACTOR WHEN THE GOVERNMENT DIVERTS ADDITIONAL VEHICLES IN THE SAME CONTRACT FROM EXPORT TO DOMESTIC DESTINATIONS?

"D. DOES THE FACT THAT THE CONTRACTOR INCLUDED TAX PAID TIRES IN THE ORIGINAL EXPORT BID PRICE CONSTITUTE A MISTAKE RESULTING IN A HIGHER PRICE THAN THE CONTRACTOR INTENDED TO BID SO THAT THE GOVERNMENT, UPON DISCOVERY OF SAME, MAY, ON ITS OWN INITIATIVE, COMPEL A DOWNWARD ADJUSTMENT IN THE ORIGINAL BID PRICE IN THE SAME MANNER AS THE GOVERNMENT ALLOWS CONTRACTORS TO CORRECT ERRORS IN BID WHICH HAVE RESULTED IN PRICES LOWER THAN INTENDED BID PRICES? IN OTHER WORDS, MAY THE GOVERNMENT ASSERT FOR ITSELF AN EQUIVALENT RIGHT TO THAT EXTENDED BY THE GOVERNMENT TO CONTRACTORS BY ASPR AND APP 2-405 AND THE COMPTROLLER GENERAL TO REQUEST REFORMATION OF THE CONTRACT BASED ON CONTRACTOR'S MISTAKE IN BID? (SEE DECISIONS B 91381 DATED 31 MAR 1950, B 101325 DATED 21 MAR 1951, B 109132 DATED 4 JUNE 1952 AND B 120281 DATED 29 JUN 1954).

"E. DOES THE PRICE DIFFERENTIAL BETWEEN EXPORT AND DOMESTIC VEHICLES ORIGINALLY BID BY THE CONTRACTOR, UPON AWARD BY THE GOVERNMENT, CONSTITUTE A LIMITING FACTOR ON THE AMOUNT OF EQUITABLE ADJUSTMENT TO WHICH THE CONTRACTOR WOULD BE ENTITLED UNDER THE "CHANGES" PROVISION IN THE EVENT THE GOVERNMENT DIVERTED VEHICLES FROM EXPORT TO DOMESTIC DESTINATIONS?

THE TAX CLAUSE OF THE CONTRACT PROVIDES FOR A PRICE ADJUSTMENT ONLY IF THE FEDERAL GOVERNMENT ,EITHER IMPOSES OR INCREASES" A TAX APPLICABLE TO THE CONTRACT SUPPLIES, PROVIDED, OF COURSE, THAT THE CONTRACTOR BEARS THE BURDEN THEREOF. THIS LANGUAGE, IN OUR VIEW, CONTEMPLATES EITHER THE IMPOSITION OF A NEW TAX OR AN INCREASE IN THE RATE OF AN EXISTING TAX, SUCH AS WAS DEALT WITH BY SUPPLEMENTAL AGREEMENT NO. 3 COVERING THE TAX INCREASES LEVIED BY THE HIGHWAY REVENUE ACT OF 1956. THE DISPUTED ADDITIONAL TAX REQUIRED TO BE PAID BY THE CONTRACTOR, BY REASON OF THE CHANGE IN DESTINATION FROM EXPORT TO DOMESTIC, RESULTED FROM THE GOVERNMENT'S EXERCISE OF ITS RIGHTS UNDER THE "CHANGED" CLAUSE OF THE CONTRACT, NOT FROM THE "IMPOSITION" OF A NEW TAX OR AN "INCREASE" IN EXISTING TAXES. WE DO NOT BELIEVE THAT THE PRICE ADJUSTMENT PROVIDED FOR BY THE TAX CLAUSE IS APPLICABLE TO SUCH A SITUATION.

THE "CHANGES" CLAUSE, OF COURSE, CONTEMPLATES AGREEMENT BETWEEN THE PARTIES AS TO THE AMOUNT OF THE EQUITABLE ADJUSTMENT, AND FAILURE TO REACH SUCH AGREEMENT IS MADE A DISPUTED QUESTION OF FACT SUBJECT TO RESOLUTION UNDER THE "DISPUTES" CLAUSE PROCEDURE. THE RECORD PRESENTED TO US INDICATES THAT THE TAX CLAIM HAS NOT YET BEEN CONSIDERED UNDER THE "DISPUTES" CLAUSE. WE BELIEVE IT WOULD THEREFORE BE PREMATURE FOR US TO EXPRESS AN OPINION NOW AS TO THE CONTRACTOR'S CLAIM. SEE 38 COMP. GEN. 749, 753; 18 ID. 870, 872.

ACCORDINGLY, THE MATTERS SUBMITTED HERE FOR DECISION SHOULD BE CONSIDERED IN ACCORDANCE WITH THE ADMINISTRATIVE PROCEDURES PRESCRIBED BY THE TERMS OF THE CONTRACT PRIOR TO ANY DETERMINATION BY THIS OFFICE.