B-146108, SEP. 1, 1961

B-146108: Sep 1, 1961

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TO THE SECRETARY OF THE ARMY: REFERENCE IS MADE TO A LETTER OF JUNE 7. THE CONTRACT FOR 500 GROSS TONS OF UNPREPARED STEEL SCRAP CONSISTING OF MUTILATED 50 CALIBER MACHINE GUNS WAS AWARDED TO BUFF AND BUFF. THE METHOD OF ACCOMPLISHING THE CUTS WAS NOT STATED. SAMPLES OF CUT GUNS SHOWING THE REQUIRED DEMILITARIZATION WERE DISPLAYED FOR INSPECTION BY BIDDERS. THE GOVERNMENT WAS OBLIGATED BY THE CONTRACT TO PROVIDE PERSONNEL TO SEE THAT MUTILATION WAS PERFORMED IN COMPLIANCE WITH REGULATIONS. WILL BE SUBJECT TO A STORAGE CHARGE (SEE ARTICLE 7. STORAGE CHARGES WILL BE COMPUTED ON THE FOLLOWING BASIS:FOR EACH OF THE FIRST FIVE (5) DAYS. THE MINIMUM STORAGE CHARGE FOR PROPERTY HELD BEYOND THE FORTY (40) DAY PERIOD WILL BE ONE DOLLAR AND TWENTY-ONE CENTS ($1.21).'.

B-146108, SEP. 1, 1961

TO THE SECRETARY OF THE ARMY:

REFERENCE IS MADE TO A LETTER OF JUNE 7, 1961, FROM THE DEPUTY ASSISTANT SECRETARY (LOGISTICS) REQUESTING A DECISION CONCERNING ASSESSMENT OF STORAGE CHARGES FOR DELAY IN REMOVING PROPERTY PURCHASED BY BUFF AND BUFF, INC. UNDER CONTRACT O.I. (S) 30-127-59-165.

THE CONTRACT FOR 500 GROSS TONS OF UNPREPARED STEEL SCRAP CONSISTING OF MUTILATED 50 CALIBER MACHINE GUNS WAS AWARDED TO BUFF AND BUFF, AT THE BID PRICE OF $8.56 PER TON, TOTAL $4,280, ON SEPTEMBER 26, 1958. THE CONTRACT REQUIRED THE PURCHASER TO MUTILATE AND DEMILITARIZE THE MACHINE GUNS BY CUTTING THE RECEIVERS IN TWO PLACES AND CUTTING OR BENDING THE BARRELS. THE METHOD OF ACCOMPLISHING THE CUTS WAS NOT STATED, BUT SAMPLES OF CUT GUNS SHOWING THE REQUIRED DEMILITARIZATION WERE DISPLAYED FOR INSPECTION BY BIDDERS. THE GOVERNMENT WAS OBLIGATED BY THE CONTRACT TO PROVIDE PERSONNEL TO SEE THAT MUTILATION WAS PERFORMED IN COMPLIANCE WITH REGULATIONS, TO REMOVE THE GUNS FROM THE WAREHOUSE, TO TRANSPORT THEM TO THE MUTILATION SITE AND TO RETURN UNCUT GUNS TO LOCKED SECURITY AT THE CLOSE OF EACH WORKING DAY.

CLAUSE 7 OF THE GENERAL SALE TERMS AND CONDITIONS OF THE CONTRACT PROVIDED THAT IF THE PURCHASER FAILED TO REMOVE THE PROPERTY WITHIN THE SPECIFIED TIME, THE GOVERNMENT HAD THE RIGHT TO CHARGE THE PURCHASER AND COLLECT UPON DEMAND A REASONABLE STORAGE CHARGE. CLAUSE 36 FURTHER PROVIDED AS FOLLOWS:

"36. STORAGE CHARGES: STORAGE CHARGES FOR NONREMOVAL OF PROPERTY. ALL PROPERTY NOT REMOVED WITHIN FORTY (40) CALENDAR DAYS AFTER NOTICE OF AWARD (TIME TO BE COMPUTED FROM THE DATE OF MAILING SAID NOTICE), WILL BE SUBJECT TO A STORAGE CHARGE (SEE ARTICLE 7, GENERAL SALES TERMS AND CONDITIONS, PAGE 2 OF CONTRACT). STORAGE CHARGES WILL BE COMPUTED ON THE FOLLOWING BASIS:FOR EACH OF THE FIRST FIVE (5) DAYS, OR FRACTION THEREOF INCLUDING SUNDAYS AND HOLIDAYS (NATIONAL, STATE OR MUNICIPAL), THREE AND THREE-QUARTERS CENTS (?03 3/4) PER ONE HUNDRED (100) POUNDS OR FRACTION THEREOF. FOR THE SIXTH AND EACH SUCCEEDING DAY OR FRACTION THEREOF INCLUDING SUNDAYS AND HOLIDAYS (NATIONAL, STATE OR MUNICIPAL), SEVEN AND ONE-HALF CENTS (?07 1/2) PER ONE HUNDRED (100) POUNDS OR FRACTION THEREOF. THE MINIMUM STORAGE CHARGE FOR PROPERTY HELD BEYOND THE FORTY (40) DAY PERIOD WILL BE ONE DOLLAR AND TWENTY-ONE CENTS ($1.21).'

THERE WAS AN INITIAL DELAY OF APPROXIMATELY THREE WEEKS BECAUSE OF THE CONTRACTOR'S INABILITY TO OBTAIN A SPECIAL CUTTING TORCH TO USE IN DEMILITARIZING THE GUNS. HOWEVER, SEVERAL MAJOR CAUSES OF DELAY WHICH OCCURRED SUBSEQUENTLY WERE PRIMARILY ATTRIBUTABLE TO THE GOVERNMENT. THE RATE OF DELIVERY TO THE CUTTING SITE SCHEDULED BY THE GOVERNMENT DID NOT ALLOW THE CONTRACTOR TO OBTAIN FULL UTILIZATION OF HIS WORK FORCE. TIME CONSUMED BY THE GOVERNMENT IN DELIVERING GUNS TO THE MUTILATION AREA IN THE MORNING AND RETURNING UNCUT GUNS TO LOCKED SECURITY IN THE AFTERNOON REDUCED THE WORKDAY OF THE CONTRACTORS' LABOR FORCE BY APPROXIMATELY THREE HOURS, TO FIVE HOURS PER DAY. WHEN APPROXIMATELY ONE-HALF OF THE GUNS HAD BEEN DEMILITARIZED, IT WAS FOUND THAT THE REMAINDER WERE PACKED IN COSMOLENE AND THAT 619 WERE WATER COLLED TYPES WHICH REQUIRED ADDITIONAL DEMILITARIZATION. NEITHER OF THOSE FACTS WERE DISCLOSED BY THE CUT SAMPLES DISPLAYED BEFORE BIDDING. BECAUSE OF THE FIRE AND SAFETY HAZARD INVOLVED IN USING A CUTTING TORCH ON GUNS PACKED IN COSMOLENE, THE GOVERNMENT REQUIRED THE CONTRACTOR TO OBTAIN A POWER CUTTING MACHINE. DIFFICULTIES IN SETTING UP THE MACHINE, INCLUDING DELAY BY THE GOVERNMENT IN FURNISHING POWER, INTERRUPTED PERFORMANCE FOR 15 DAYS. THE CONTRACTING OFFICER RECOGNIZED THAT THE ORIGINAL 40 DAY PERFORMANCE TIME WAS INADEQUATE, AND IN VIEW OF THE GOVERNMENT'S RESPONSIBILITY FOR A MAJOR PORTION OF THE CAUSES OF DELAY HE GRANTED TWO EXTENSIONS OF TIME. LATER, A SUPPLEMENTAL AGREEMENT, DATED OCTOBER 28, 1958, EXTENDED THE TIME OF PERFORMANCE TO MARCH 2, 1959.

DUE TO MUDDY GROUND CONDITIONS IN THE LAST WEEK OF DECEMBER 1958, GOVERNMENT VEHICLES WERE BECOMING EMBEDDED IN THE MUD AND WERE UNABLE TO DELIVER GUNS TO THE MUTILATION AREA AT ANY APPRECIABLE RATE. IN AN EFFORT TO ACCELERATE PERFORMANCE, THE CONTRACTOR VOLUNTEERED TO USE HIS OWN TRUCK AND LABORERS AND TRANSPORTED THE GUNS TO HIS WORK AREA AT HIS OWN EXPENSE FROM DECEMBER 29, 1958, THROUGH FEBRUARY 2, 1959. TO ACCOMPLISH THIS, THE CONTRACTOR WAS REQUIRED TO EMPLOY A SECOND TRUCK AND DRIVER TO PERFORM WORK PREVIOUSLY DONE BY THE GOVERNMENT.

ALL DEMILITARIZATION WAS COMPLETED ON FEBRUARY 6, 1959. REMOVAL OF THE DEMILITARIZED SCRAP FROM THE HOLDING AREA WAS BEGUN ON FEBRUARY 3, 1959, AND COMPLETED ON MARCH 31, 1959. WEATHER CONDITIONS DURING THE REMOVAL PERIOD RESULTED IN LARGE QUANTITIES OF METAL BEING FROZEN INTO THE GROUND. THIS METAL SCRAP COULD BE REMOVED ONLY BY SWEEPING THE AREA WITH A MAGNET ON A CRANE, AND THE CONTRACTING OFFICER, RECOGNIZING THE IMPOSSIBILITY OF COMPLETING THE REMOVAL WHILE THE GROUND WAS FROZEN, GRANTED A VERBAL EXTENSION UNTIL SUCH TIME AS THE GROUND THAWED TO PERMIT THE REMOVAL. THE VERBAL EXTENSION WAS NEVER REDUCED TO WRITING AND STORAGE CHARGES AT THE RATES PROVIDED IN CLAUSE 36 OF THE GENERAL SALES TERMS AND CONDITIONS WERE SUBSEQUENTLY COMPUTED IN THE AMOUNT OF $160.24 FOR THE PERIOD MARCH 3 THROUGH MARCH 31, 1959.

AS WE OBSERVE IN 40 COMP. GEN. 143, IF THE AMOUNTS AGREED UPON AS LIQUIDATED DAMAGES BEAR A REASONABLE RELATION TO ACTUAL DAMAGES THAT MIGHT BE CAUSED BY DELAY, THE COURTS HAVE HELD THE PROVISION FOR LIQUIDATED DAMAGES TO BE VALID AND ENFORCEABLE. CONVERSELY, IF A PROVISION FOR LIQUIDATED DAMAGES IS UNREASONABLE, IT CONSTITUTES A PENALTY AND WILL NOT BE ENFORCED. PRIEBE AND SONS, INC. V. UNITED STATES (1947) 332 U.S. 407.

THE RECORD SUBMITTED HERE WITH THE REQUEST FOR A DECISION REGARDING ASSESSMENT OF STORAGE CHARGES DOES NOT CONTAIN ANY INFORMATION CONCERNING THE REASONABLENESS OF THE CHARGES IN CLAUSE 36. WE HAVE NO DOUBT, HOWEVER, THAT A REASONABLE RELATIONSHIP COULD BE SHOWN BETWEEN THE STORAGE CHARGES SET FORTH IN THE CONTRACT AND THE COSTS INCURRED BY THE GOVERNMENT DURING THE TIME IT PROVIDED WAREHOUSE SPACE, SECURITY GUARDS AND PERSONNEL FOR SUPERVISION OF DEMILITARIZATION. THE QUESTION OF REASONABLENESS IS MORE DIFFICULT DURING THE PERIOD AFTER DEMILITARIZATION WAS COMPLETED WHEN THE GOVERNMENT WAS NO LONGER INCURRING COSTS FOR FURNISHING WAREHOUSE SPACE OR FOR SALARIES OF GUARDS AND INSPECTORS. THE RECORD SUBMITTED DOES NOT DISCLOSE THAT THE GOVERNMENT PERFORMED ANY SERVICES RELATING TO THE DEMILITARIZED SCRAP OR THAT IT INCURRED ANY COSTS DUE TO DELAY DURING THE PERIOD MARCH 3 THROUGH MARCH 31, 1959, WHEN THE SCRAP WAS FROZEN INTO THE GROUND.

IN OUR OPINION, THE GOVERNMENT'S PARTICIPATION IN THE CAUSES FOR DELAY JUSTIFIED THE SUPPLEMENTAL AGREEMENT EXTENDING THE TIME OF PERFORMANCE TO MARCH 2, 1959. IF IT COULD BE SHOWN THAT THE GOVERNMENT INCURRED ADDITIONAL COSTS FROM THAT DATE TO MARCH 31, 1959, WHEN THE REMOVAL WAS COMPLETED, STORAGE CHARGES FOR THAT PERIOD WOULD NOT BE REGARDED AS A PENALTY AND MIGHT LEGALLY HAVE BEEN ASSESSED, UNLESS THE DELAY COULD BE CONSIDERED TO HAVE BEEN EXCUSABLE. IN THIS CONNECTION IT MUST BE NOTED THAT THE DELAY CAUSED BY INCLEMENT WEATHER CANNOT BE ATTRIBUTED SOLELY TO THE CONTRACTOR IN VIEW OF THE CONTRIBUTION OF THE GOVERNMENT TO PREVIOUS DELAYS, WITHOUT WHICH THE CONTRACT COULD HAVE BEEN COMPLETED BEFORE THE START OF THE FREEZING WEATHER.

UNDER THE PROVISIONS OF 41 U.S.C. 256A, AS INTERPRETED IN 40 COMP. GEN. 143, 146, THE DEPUTY ASSISTANT SECRETARY OF THE ARMY HAS RECOMMENDED THAT ALL STORAGE CHARGES UNDER THIS CONTRACT BE REMITTED. ASSUMING THAT ANY CHARGES WERE PROPERLY FOR ASSESSMENT, WE BELIEVE THAT REMISSION WOULD BE JUST AND EQUITABLE IN THE CIRCUMSTANCES OF THIS CASE. ACCORDINGLY, THE CHARGES HERETOFORE ASSESSED MAY BE CANCELED AND NO FURTHER ACTION NEED BE TAKEN TO ASSESS OR COLLECT STORAGE CHARGES UNDER THE CONTRACT.