B-145184, JUNE 12, 1961, 40 COMP. GEN. 679

B-145184: Jun 12, 1961

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WHICH DEVIATIONS THE CONTRACTING OFFICER WAS WITHOUT AUTHORITY TO WAIVE SO THAT NO VALID AWARD ON THE BASIS OF THE NONCONFORMING BID WAS CONSUMMATED. WHEN ADDED TO DEVIATIONS THAT ARE MAJOR AFFECTING BOTH THE QUALITY AND PRICE. IS NOT FOR APPLICATION. A BIDDER WHO WAS AWARDED A TEXTILE CONTRACT ON THE BASIS OF SUBSTITUTE MATERIAL AND WHO ALLEGES LACK OF KNOWLEDGE THAT THE CONTRACTING OFFICER DID NOT HAVE AUTHORITY TO CONTRACT FOR MATERIAL DEVIATING FROM THE SPECIFICATIONS CANNOT AVOID THE CONSEQUENCES OF THE LIMITATIONS ON THE AUTHORITY OF THE OFFICER UNDER THE RULE THAT PERSONS ENTERING INTO AGREEMENTS WITH THE GOVERNMENT TAKE THE RISK OF ACCURATELY ASCERTAINING THAT THE AGENT IS ACTING WITHIN THE SCOPE OF HIS AUTHORITY.

B-145184, JUNE 12, 1961, 40 COMP. GEN. 679

CONTRACTS - AWARD ON BASIS OF SAMPLE DEVIATING FROM SPECIFICATIONS WHEN, AFTER THE AWARD OF A TEXTILE CONTRACT ON THE BASIS OF AN UNTESTED SAMPLE UNDER AN INVITATION WHICH DID NOT PROVIDE FOR ALTERNATE BIDS, TESTS ON A REPRODUCTION QUANTITY REVEAL THAT THE BIDDER HAD SUBSTITUTED MATERIAL MADE WITH A DIFFERENT PLY YARN AND A REDUCED THREAD COUNT CONTRARY TO THE SPECIFICATIONS, THE BID MUST BE REGARDED AS CONTAINING MATERIAL DEVIATIONS AFFECTING BOTH THE QUALITY AND PRICE, WHICH DEVIATIONS THE CONTRACTING OFFICER WAS WITHOUT AUTHORITY TO WAIVE SO THAT NO VALID AWARD ON THE BASIS OF THE NONCONFORMING BID WAS CONSUMMATED. MINOR DEVIATIONS IN A BID WHICH, WHEN ADDED TO DEVIATIONS THAT ARE MAJOR AFFECTING BOTH THE QUALITY AND PRICE, EXTEND THE DEGREE OF VARIANCE EVEN FURTHER AND, THEREFORE, MUST BE CONSIDERED MATERIAL. AN AWARD TO A BIDDER WHO DID NOT OFFER TO FURNISH CLOTH CONFORMING TO THE TERMS OF AN INVITATION FOR MATERIAL FOR MILITARY UNIFORMS MUST BE REGARDED AS AN AWARD IN VIOLATION OF 10 U.S.C. 2305 (C) AND SECTION 4-406, OF THE ARMED SERVICES PROCUREMENT REGULATION, WHICH REQUIRE AWARDS TO THE RESPONSIBLE BIDDER WHOSE BID CONFORMS TO THE INVITATION SO THAT THE DOCTRINE OF EQUITABLE ESTOPPEL, WHICH PRECLUDES THE GOVERNMENT FROM DENYING THE EXISTENCE OF A VALID CONTRACT, IS NOT FOR APPLICATION, THE UNITED STATES NOT BEING BOUND OR ESTOPPED BY ACTS OF ITS OFFICERS IN ENTERING INTO AGREEMENTS TO DO WHAT THE LAW DOES NOT PERMIT. A BIDDER WHO WAS AWARDED A TEXTILE CONTRACT ON THE BASIS OF SUBSTITUTE MATERIAL AND WHO ALLEGES LACK OF KNOWLEDGE THAT THE CONTRACTING OFFICER DID NOT HAVE AUTHORITY TO CONTRACT FOR MATERIAL DEVIATING FROM THE SPECIFICATIONS CANNOT AVOID THE CONSEQUENCES OF THE LIMITATIONS ON THE AUTHORITY OF THE OFFICER UNDER THE RULE THAT PERSONS ENTERING INTO AGREEMENTS WITH THE GOVERNMENT TAKE THE RISK OF ACCURATELY ASCERTAINING THAT THE AGENT IS ACTING WITHIN THE SCOPE OF HIS AUTHORITY. REFUSAL ON THE PART OF THE GOVERNMENT TO ACCEPT DELIVERY OF CLOTH WHICH DID NOT CONFORM TO THE SPECIFICATIONS PRECLUDES PAYMENT TO THE CONTRACTOR ON ANY LEGAL BASIS, THE RIGHT OF RECOVERY ON A QUANTUM VALEBAT BASIS BEING PROPER ONLY WHEN THE GOVERNMENT HAS RECEIVED SOMETHING FROM THE CONTRACTOR.

TO EDWIN J. MCDERMOTT, JUNE 12, 1961:

WE REFER TO YOUR LETTERS OF FEBRUARY 27, AND MARCH 14, 1961, SUBMITTING ON BEHALF OF PRESTEX, INC; A PROTEST AGAINST THE ACTION OF THE CONTRACTING OFFICER IN REFUSING TO ACCEPT DELIVERY OF 25,000 YARDS OF COTTON DUCK UNDER CONTRACT DESIGNATED ORDER NO. 60-B3418, ISSUED ON JANUARY 29, 1960, BY THE UNITED STATES MILITARY ACADEMY.

THE RECORD SHOWS THAT INVITATION FOR BIDS MA30-145-60-153 WAS ISSUED NOVEMBER 2, 1959, BY THE MILITARY ACADEMY, FOR 25,000 YARDS OF WHITE COTTON DUCK CONFORMING TO SPECIFICATION MIL-D-1645 FOR USE IN MAKING SUMMER UNIFORMS FOR CADETS. THE SPECIFICATION DESCRIBED THE CLOTH AS DUCK, WHITE, 8.5 OZ; 29 1/2-30 INCHES ( 1 USMA) AND REQUIRED THAT THE YARN FOR THE FILLING BE 4-PLY AND THAT THE THREAD COUNT PER INCH BE 112 FOR WARP AND 32 FOR FILLING.

THE FUNCTION OF PRESTEX AS A "CONVERTER" WAS TO BUY CLOTH FROM GREIGE MILLS AND TO ARRANGE TO HAVE IT FINISHED TO A CUSTOMER'S PARTICULAR NEEDS, BUT AFTER CONTRACTING ABOUT THIRTY MILLS, PRESTEX WAS UNABLE TO FIND A MILL TO SUPPLY CLOTH MEETING THE SPECIFICATIONS. THE HIGH SLEY OF THE FABRIC, 112 THREADS PER INCH FOR THE WRAP, RESULTED IN GENERATION OF A LARGE QUANTITY OF SECONDS AND THE MILLS DID NOT CONSIDER IT ECONOMICALLY FEASIBLE TO WEAVE CLOTH MEETING THE SPECIFICATIONS. PRESTEX THEREFORE OBTAINED A SAMPLE OF DOUBLE-FILLED ENAMELLING DUCK WHICH IT THOUGHT MIGHT BE AN ACCEPTABLE SUBSTITUTE. THE SUBSTITUTE MATERIAL IS USED COMMERCIALLY FOR WHITE UNIFORMS FOR WORKERS SUCH AS COOKS AND BAKERS.

THE INVITATION DID PROVIDE FOR ALTERNATE BIDS, BUT PRESTEX SUBMITTED A SAMPLE OF THE DOUBLE-FILLED ENAMELLING DUCK WITH ITS BIDS AND INSERTED WITH PEN AND INK: " BIDDING ON ENCLOSED SAMPLE 35/36.' THE SAMPLE WAS CUT FROM THE "HEAD END" AND WAS OF SUFFICIENT SIZE THAT IT COULD EASILY BE TESTED TO DETERMINE COMPLIANCE WITH THE MILITARY SPECIFICATION.

THE ACADEMY DID NOT HAVE TEST FACILITIES OR QUALIFIED PERSONNEL TO TEST TEXTILES AND IT CONDUCTED ONLY VISUAL INSPECTION OF THE SAMPLE. ON THAT BASIS, IT WAS DECIDED THAT THE BID OF PRESTEX WAS RESPONSIVE WITH THE ONLY VARIANCE BEING THE WIDTH OF THE MATERIAL, WHICH WAS CONSIDERED A MINOR DEVIATION THAT COULD BE WAIVED.

THE CONTRACT WAS AWARDED TO PRESTEX ON JANUARY 29, 1960, CONTAINING ALL THE PROVISIONS OF THE INVITATION AS TO APPLICABLE SPECIFICATIONS AND IN ADDITION THE PHRASE: "/PER SAMPLE SUBMITTED 35/36 INCHES).' THE CONTRACT DESIGNATED THE PLACE OF MANUFACTURE AND CALLED FOR SUBMISSION OF A 5-YARD PREPRODUCTION SAMPLE. IT FURTHER PROVIDED FOR DELIVERY OF THE ENTIRE 25,000 YARDS BY APRIL 20, 1960.

BY LETTER OF FEBRUARY 8, 1960, PRESTEX REQUESTED A CHANGE OF THE PLACE OF MANUFACTURE AND TATED: "1THE GOODS WE PLAN TO FURNISH WILL BE THE SAME AS PER OUR SUBMITTED SAMPLE.' THE REQUESTED CHANGE WAS GRANTED BY THE CONTRACTING OFFICER IN CHANGE ORDER NO. 1 DATED FEBRUARY 10, 1960.

PRESTEX PLACED AN ORDER FOR THE ENTIRE AMOUNT OF THE CLOTH, OBTAINED A 5- YARD SAMPLE FROM THE PRODUCTION RUN AND SUBMITTED IT AS A PREPRODUCTION SAMPLE TO THE ACADEMY ON APRIL 11, 1960. WHEN THE SAMPLE WAS SENT TO A GOVERNMENT LABORATORY FOR TESTING FOR COMPLIANCE WITH SPECIFICATION MIL-D- 1645, IT WAS FOUND THAT THE SAMPLE DID NOT COMPLY AS TO WEIGHT SINCE IT WAS 7.8 OUNCE INSTEAD OF 8.5 OUNCE, THE THREAD COUNT WAS 91 WRAP AND 28 FILLING INSTEAD OF 112 AND 33, THE YARN FOR FILLING WAS 2-PLY INSTEAD OF 4 -PLY AND THE SIZING CONTENT WAS 2.1 PERCENT INSTEAD OF A MAXIMUM OF 2 PERCENT.

THE CONTRACTING OFFICER ADVISED PRESTEX BY TELEPHONE ON MAY 4, 1960, AND BY LETTER ON MAY 13, 1960, OF THE RESULTS OF THE TESTS OF THE PREPRODUCTION SAMPLE WHICH SHOWED NONCOMPLIANCE WITH SPECIFICATION MIL D- 1645. BY LETTERS OF MAY 12 AND 17, 1960, PRESTEX REPLIED THAT ITS BID WAS FOR FURNISHING CLOTH CONFORMING TO THE BID SAMPLE, THAT THE "PREPRODUCTION" SAMPLE CONFORMED TO THE BID SAMPLE AS DID THE ENTIRE ORDER OF 25,000 YARDS WHICH HAD ALREADY BEEN PRODUCED AND WAS READY FOR DELIVERY.

THE CONTRACTING OFFICER'S LETTER OF JUNE 15, 1960, NOTIFIED PRESTEX TO STOP ALL WORK UNDER THE CONTRACT AND EXPRESSED THE CONCLUSION THAT NO VALID CONTRACT EVER CAME INTO EXISTENCE FOR THE COTTON DUCK IN QUESTION. THE CONTRACTING OFFICER STATED HIS UNDERSTANDING WAS THAT THE BID SAMPLE DEVIATED FROM THE SPECIFICATIONS IN SIZE ONLY.

PRESTEX FILED A TIMELY APPEAL FROM THE DECISION OF THE CONTRACTING OFFICER BEFORE THE ARMED SERVICES BOARD OF CONTRACT APPEALS, REQUESTING A DETERMINATION THAT A VALID CONTRACT CAME INTO EXISTENCE. THE BOARD, IN A DECISION DATED JANUARY 30, 1961, DETERMINED THAT IT WAS WITHOUT JURISDICTION TO GRANT THE REQUESTED RELIEF AND DISMISSED THE APPEAL.

PRESTEX STILL HAS THE 25,000 YARDS OF CLOTH ON HAND FOR DELIVERY AND IT CONTENDS THAT THE CLOTH IS SUITABLE FOR THE INTENDED PURPOSE, WHILE REPRESENTATIVES ON THE MILITARY ACADEMY INSIST THE CLOTH IS NOT SUITABLE AND THAT A HIGHER GRADE OF CLOTH IS REQUIRED FOR UNIFORMS FOR MILITARY CADETS THAN IS CUSTOMARILY USED FOR COOKS AND BAKERS.

ALTHOUGH YOU CONTEND THAT PRESTEX HAD A VALID AND BINDING CONTRACT AND THE UNITED STATES IS OBLIGATED TO ACCEPT DELIVERY AND PAY THE GOODS WHICH PRESTEX HAS ON HAND FOR DELIVERY, BOTH OF THE DECISIONS OF OUR OFFICE WHICH YOU CITE, 39 COMP. GEN. 832 AND 30 ID. 179, REACHED THE CONCLUSION THAT AN AWARD WAS ERRONEOUS WHEN MADE TO A BIDDER WHO OFFERED A PRODUCT THAT VARIED MATERIALLY FROM THE SPECIFICATIONS IN THE INVITATION.

THIS PROCUREMENT WAS UNDERTAKEN PURSUANT TO 10 U.S.C. 2304 (A) WHICH PROVIDES THAT PURCHASE OF PROPERTY OF THE KIND UNDER CONSIDERATION SHALL BE MADE BY FORMAL ADVERTISING, WITH CERTAIN EXCEPTIONS NOT MATERIAL HERE. IT IS FURTHER PROVIDED AT 10 U.S.C 2305 (C) AND REPEATED IN SECTION 4-406 OF THE ARMED SERVICES PROCUREMENT REGULATION THAT AWARDS SHALL BE MADE WITH REASONABLE PROMPTNESS BY GIVING WRITTEN NOTICE TO THE RESPONSIBLE BIDDER WHOSE BID CONFORMS TO THE INVITATION AND WILL BE MOST ADVANTAGEOUS TO THE GOVERNMENT, PRICE AND OTHER FACTORS CONSIDERED. IN THE INSTANT CASE, THERE HAS BEEN NO CONTENTION THAT THE CLOTH OFFERED BY PRESTEX CONFORMS TO THE SPECIFICATIONS IN THE INVITATION, BUT YOU HAVE ASSERTED THAT THE DOUBLE-FILLED ENAMELLING DUCK IS SUITABLE FOR CADET UNIFORMS AND THEREFORE THE DEVIATIONS FROM THE INVITATION SHOULD BE WAIVED.

OUR OFFICE HAS REPEATEDLY HELD THAT A DEVIATION WHICH AFFECTS THE PRICE, QUALITY OR QUANTITY OF AN ARTICLE OFFERED IS A MAJOR DEVIATION WHICH CANNOT BE WAIVED. 39 COMP. GEN. 570; 36 ID. 251 AND 30 ID. 179. IN OUR OPINION THE SUBSTITUTION OF 2-PLY YARN FOR 4-PLY YARN AND THE REDUCTION OF THE THREAD COUNT FROM 112 WARP AND 33 FILLING TO 91 WARP AND 28 FILLING ARE DEVIATIONS AFFECTING BOTH QUALITY AND PRICE. MOREOVER, THE WEIGHT OF 7.8 OUNCE INSTEAD OF 8.5 OUNCE AND THE SIZING CONTENT OF 2.1 PERCENT INSTEAD OF A MAXIMUM OF 2 PERCENT MIGHT NOT BE MAJOR DEVIATIONS IF CONSIDERED ALONE, BUT ADDED TO DEVIATIONS THAT ARE ALREADY MAJOR, THEY EXTEND THE DEGREE OF VARIANCE EVEN FURTHER AND MUST BE CONSIDERED MATERIAL. WE MUST CONCLUDE THAT THE CONTRACTING OFFICER HAD NO AUTHORITY TO WAIVE DEVIATIONS AS GREAT AS THESE, AND THEREFORE HE HAD NO AUTHORITY TO AWARD A CONTRACT ON THE BASIS OF A BID WHICH DID NOT CONFORM TO THE TERMS OF THE INVITATION.

WE AGREE WITH YOUR CONTENTION THAT THE CONTRACTING OFFICER HAD AMPLE OPPORTUNITY TO TEST THE BID SAMPLE FOR CONFORMITY WITH THE SPECIFICATIONS. HOWEVER, WHETHER THE CONTRACTING OFFICER HAD NO NOTICE, HAD ACTUAL NOTICE OR IS CHARGED WITH CONSTRUCTIVE NOTICE OF THE DEVIATIONS, HE DID NOT HAVE AUTHORITY TO WAIVE SUCH MATERIAL DEVIATIONS, AND NO VALID AWARD COULD BE MADE ON THE BASIS OF THE NONCONFORMING BID. UNDER COMPETITIVE BIDDING PROCEDURES, A CONTRACT WHICH IS AWARDED ON A BID CONTAINING MATERIAL VARIANCES FROM THE INVITATION IS INVALID AND CONFERS NO RIGHTS ON THE PURPORTED CONTRACTOR. UNITED STATES V. ELLICOTT (1911), 223 U.S. 524; NEW YORK MAIL AND NEWSPAPER TRANSPORTATION CO. V. UNITED STATES (1957), 139 CT. CL. 751; KONIG V. MAYOR, ETC; OF BALTIMORE (1MD. 1915), 95 A. 478.

YOU CONTEND THAT UNDER THE PRINCIPLE OF EQUITABLE ESTOPPEL THE GOVERNMENT MAY NOT DENY THAT A VALID CONTRACT EXISTS. HOWEVER, NONE OF THE CASES CITED IN SUPPORT OF YOUR CONTENTION DEALS WITH A SITUATION INVOLVING A CONTRACT AWARDED IN VIOLATION OF A STATUTORY REQUIREMENT. WE BELIEVE THE CORRECT RULE TO BE APPLIED IS SET FORTH IN UTAH POWER AND LIGHT CO. V. UNITED STATES (1916), 243 U.S. 389, 409, WHEREIN THE COURT HELD THAT THE UNITED STATES IS NEITHER BOUND NOR ESTOPPED BY ACTS OF ITS OFFICERS IN ENTERING INTO AN AGREEMENT TO DO WHAT THE LAW DOES NOT PERMIT.

THE INVITATION DID NOT PROVIDE FOR ALTERNATE BIDS, BUT PRESTEX SUBMITTED ITS BID ON A SUBSTITUTE MATERIAL AND YOU SUGGEST THAT PRESTEX HAD NO NOTICE THAT THE CONTRACTING OFFICER LACKED AUTHORITY TO CONTRACT FOR CLOTH WHICH DEVIATED FROM THE SPECIFICATIONS. IN OUR OPINION, PRESTEX CANNOT AVOID THE CONSEQUENCES OF THE LIMITATIONS ON THE AUTHORITY OF THE CONTRACTING OFFICER UNDER THE WELL-ESTABLISHED RULE WHICH WAS RESTATED IN FEDERAL CROP INSURANCE CORP. V. MERRILL (1947), 332 U.S. 380, 384:

WHATEVER THE FORM IN WHICH THE GOVERNMENT FUNCTIONS, ANYONE ENTERING INTO AN ARRANGEMENT WITH THE GOVERNMENT TAKES THE RISK OF HAVING ACCURATELY ASCERTAINED THAT HE WHO PURPORTS TO ACT FOR THE GOVERNMENT STAYS WITHIN THE BOUNDS OF HIS AUTHORITY. THE SCOPE OF THIS AUTHORITY MAY BE EXPLICITLY DEFINED BY CONGRESS OR BE LIMITED BY DELEGATED LEGISLATION, PROPERLY EXERCISED THROUGH THE RULE-MAKING POWER. AND THIS IS SO EVEN THOUGH, AS HERE, THE AGENT HIMSELF MAY HAVE BEEN UNAWARE OF THE LIMITATIONS UPON HIS AUTHORITY. SEE, E.G; UTAH POWER AND LIGHT CO. V. UNITED, 243 U.S. 389, 409; UNITED STATES V. STEWART, 311 U.S. 60, 70, AND SEE, GENERALLY, THE FLOYD ACCEPTANCES, 7 WALL. 666.

IN OUR OPINION, NO VALID CONTRACT CAME INTO EXISTENCE FOR CLOTH WHICH DID NOT CONFORM TO THE TERMS OF THE INVITATION, BUT THERE REMAINS THE QUESTION WHETHER PRESTEX HAS A RIGHT TO PAYMENT ON A QUANTUM VALEBAT OR QUANTUM MERUIT BASIS. THE RIGHT TO SUCH RECOVERY HAS BEEN SPECIFICALLY DECIDED BY THE SUPREME COURT IN THE CASE OF UNITED STATES V. MISSISSIPPI VALLEY GENERATING CO., U.S. SUP. CT., JANUARY 9, 1961, WHERE IT WAS STATED IN FOOTNOTE NO. 22:

THE RESPONDENT ALSO CONTENDS THAT EVEN IF THE CONTRACT IS NOT ENFORCEABLE, A RECOVERY QUANTUM VALEBAT SHOULD BE DECREED. HOWEVER, SUCH A REMEDY IS APPROPRIATE ONLY WHERE ONE PARTY TO A TRANSACTION HAS RECEIVED AND RETAINED TANGIBLE BENEFITS FROM THE OTHER PARTY. SEE CROCKER V. UNITED STATES, 240 U.S. 74, 81-82. SINCE THE GOVERNMENT HAS RECEIVED NOTHING FROM THE RESPONDENT, NO RECOVERY QUANTUM VALEBAT IS IN ORDER.

IN THE INSTANT CASE, THE GOVERNMENT HAS NOT ACCEPTED DELIVERY OF THE NONCONFORMING CLOTH AND THERE IS NO LEGAL BASIS FOR ANY PAYMENT WHATEVER. WHILE THIS MAY SEEM UNDULY HARSH TO A BIDDER WHO ACTED IN GOOD FAITH, THE COURT IN THE CASE OF FEDERAL CROP INSURANCE CORP. V. MERRILL, SUPRA, POINTED OUT THAT THE OFT-QUOTED OBSERVATION THAT "MEN MUST TURN SQUARE CORNERS WHEN THEY DEAL WITH THE GOVERNMENT," DOES NOT REFLECT A CALLOUS OUTLOOK, BUT MERELY EXPRESSES THE DUTY OF ALL COURTS TO OBSERVE THE CONDITIONS DEFINED BY CONGRESS FOR CHARGING THE PUBLIC TREASURY.

IN ACCORDANCE WITH THE FOREGOING, WE MUST CONCLUDE THAT THERE IS NO LEGAL BASIS UPON WHICH WE MAY GIVE FAVORABLE CONSIDERATION TO YOUR CLAIM THAT PRESTEX IS ENTITLED TO BE PAID FOR THE CLOTH WHICH IT TENDERS.