B-150278, DEC. 28, 1962

B-150278: Dec 28, 1962

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

TO THE SECRETARY OF STATE: REFERENCE IS MADE TO A LETTER. 298 REPRESENTS DEMURRAGE CHARGES WHICH THE CONTRACTOR WAS REQUIRED TO PAY BECAUSE CERTAIN IMPORTED MATERIALS WERE HELD IN CUSTOMS AN UNDULY LONG PERIOD OF TIME FOLLOWING ARRIVAL AT THE PORT OF ENTRY. WE HAVE BEEN ADVISED INFORMALLY THAT THE CONTRACTOR'S CLAIM HAS BEEN VERIFIED AS TO AMOUNT BY REPRESENTATIVES OF THE EMBASSY. IT WAS REPORTED IN THE LETTER RECEIVED NOVEMBER 13. WHEN THE IMPORTED MATERIALS WERE RECEIVED AT THE POINT OF ENTRY. MOST OF THEM WERE HELD IN CUSTOMS FOR AN UNDUE PERIOD OF TIME. ALTHOUGH IN ACCORDANCE WITH THE CONTRACT MATERIALS WERE CONSIGNED TO THE AMBASSADOR AND IT WAS THE OBLIGATION OF THE UNITED STATES TO OBTAIN DUTY-FREE ENTRY THEREFOR.

B-150278, DEC. 28, 1962

TO THE SECRETARY OF STATE:

REFERENCE IS MADE TO A LETTER, WITH ENCLOSURES, RECEIVED NOVEMBER 13, 1962, FROM THE ACTING DEPUTY UNDER SECRETARY FOR ADMINISTRATION, SUBMITTING FOR OUR CONSIDERATION TWO CLAIMS OF SHAHIN AND JANABI, AL WAIHBA SQUARE NAJI KHUDEIRI'S BUILDING, BAGHDAD, IRAQ, FOR THE SUMS OF $3,298 AND $306,530, ALLEGED TO BE DUE FOR EXTRA COSTS AND EXPENSES INCURRED IN PERFORMANCE OF CONTRACT NO. S-80-FBO-32, ENTERED INTO WITH YOUR DEPARTMENT UNDER DATE OF JUNE 25, 1957, FOR THE CONSTRUCTION OF THE EMBASSY OFFICE BUILDING AND RESIDENCE AT BAGHDAD.

THE FIRST CLAIM IN THE AMOUNT OF $3,298 REPRESENTS DEMURRAGE CHARGES WHICH THE CONTRACTOR WAS REQUIRED TO PAY BECAUSE CERTAIN IMPORTED MATERIALS WERE HELD IN CUSTOMS AN UNDULY LONG PERIOD OF TIME FOLLOWING ARRIVAL AT THE PORT OF ENTRY. IN SUPPORT OF THE CLAIM THE CONTRACTOR SUBMITTED A DETAILED SUMMARY OF THE DEMURRAGE CHARGES, THERE BEING SHOWN THEREON AN AMOUNT WHICH THE CONTRACTOR CONSIDERED TO BE HIS PROPORTION OF SUCH CHARGES AS WELL AS THE PROPORTION ALLEGEDLY CHARGEABLE AGAINST THE EMBASSY. WE HAVE BEEN ADVISED INFORMALLY THAT THE CONTRACTOR'S CLAIM HAS BEEN VERIFIED AS TO AMOUNT BY REPRESENTATIVES OF THE EMBASSY.

IT WAS REPORTED IN THE LETTER RECEIVED NOVEMBER 13, 1962, THAT DURING AND SUBSEQUENT TO THE IRAQI REVOLUTION OF JULY 1958, THERE EXISTED A GREAT DEAL OF HOSTILITY AGAINST THE UNITED STATES GOVERNMENT; THAT AS A RESULT, WHEN THE IMPORTED MATERIALS WERE RECEIVED AT THE POINT OF ENTRY, MOST OF THEM WERE HELD IN CUSTOMS FOR AN UNDUE PERIOD OF TIME, THEREBY INCURRING DEMURRAGE CHARGES, ALTHOUGH IN ACCORDANCE WITH THE CONTRACT MATERIALS WERE CONSIGNED TO THE AMBASSADOR AND IT WAS THE OBLIGATION OF THE UNITED STATES TO OBTAIN DUTY-FREE ENTRY THEREFOR; THAT THE CONTRACTOR OFFERED TO PAY THE CUSTOMS DUTIES IN ORDER TO OBTAIN THE RELEASE OF THE MATERIALS BUT THAT THE EMBASSY REFUSED TO ALLOW SUCH PAYMENT ON THE GROUND THAT IMPORTED MATERIALS CONSIGNED TO THE AMBASSADOR WERE ENTITLED TO FREE ENTRY. HOWEVER, WHILE THE EMBASSY WAS OBTAINING DUTY-FREE CLEARANCE THE DEMURRAGE WAS MOUNTING, AND WHEN CLEARANCE WAS FINALLY OBTAINED THE CONTRACTOR WAS REQUIRED TO PAY THE ACCRUED DEMURRAGE CHARGES.

IT IS STATED TO BE THE POSITION OF YOUR DEPARTMENT THAT UNDER ARTICLE 1.23 OF THE GENERAL CONDITIONS OF THE CONTRACT THE GOVERNMENT IS PRECLUDED FROM HONORING THE CONTRACTOR'S CLAIM FOR DEMURRAGE CHARGES; BUT THAT IT WOULD BE INEQUITABLE AND CAUSE AN UNDUE HARDSHIP ON THE CONTRACTOR TO DENY APPROVAL OF HIS CLAIM.

THE CITED ARTICLE 1.23 OF THE GENERAL CONDITIONS OF THE CONTRACT PROVIDES AS FOLLOWS:

"THE CONTRACTOR MAY IMPORT MATERIALS WHICH HE IS REQUIRED TO FURNISH FOR USE IN THE CONSTRUCTION. THESE MAY BE BROUGHT IN DUTY FREE IF THE SHIPMENTS ARE CONSIGNED TO THE REPRESENTATIVE OF THE UNITED STATES OF AMERICA, AT THE POST, IN CARE OF THE CONTRACTOR. THE CONTRACTOR IS TO PAY ALL COSTS CONNECTED WITH DUTY FREE CLEARANCE OF ALL IMPORTED MATERIALS, TRANSPORTATION TO THE SITE AND INCORPORATION INTO THE BUILDING. SPECIAL ATTENTION IS CALLED TO THIS DUTY FREE PRIVILEGE IN ORDER TO ASSIST THE CONTRACTOR IN EFFECTING EVERY POSSIBLE SAVINGS.'

THE QUESTION FOR CONSIDERATION IN THE CASE APPEARS TO BE WHETHER THE REQUIREMENT THAT THE CONTRACTOR "IS TO PAY ALL COSTS CONNECTED WITH THE DUTY-FREE CLEARANCE OF ALL IMPORTED MATERIALS," IMPOSED UPON HIM AN OBLIGATION TO PAY THE DEMURRAGE CHARGES INVOLVED HEREIN. IN THIS CONNECTION, THE COURTS HAVE HELD THAT DOUBTFUL LANGUAGE IN CONTRACTS SHOULD BE INTERPRETED MOST STRONGLY AGAINST THE PARTY WHO USES IT.

IT IS ALSO A FUNDAMENTAL RULE OF CONSTRUCTION THAT AGREEMENTS MUST RECEIVE A REASONABLE INTERPRETATION ACCORDING TO THE INTENTION OF THE PARTIES AT THE TIME OF EXECUTING THEM, IF THAT INTENTION CAN BE CONSTRUED FROM THE LANGUAGE CITED. 12 AMER.JUR., CONTRACTS, SECTION 250. IN THE CASE OF MONTROSE CONTRACTING COMPANY, INC. V. COUNTY OF WESTCHESTER, 80 F.2D 841, CERTIORARI DENIED, 298 U.S. 662, THE CIRCUIT COURT APPEALS FOR THE SECOND CIRCUIT HELD THAT---

"* * * THE GREAT DESIDERATUM IS TO ASCERTAIN THE TERMS UPON WHICH THE MIND OF THE PARTIES MET AND THE SENSE IN WHICH THEY WERE USED WHEN THE PARTIES MADE THE AGREEMENT.'

IT IS NOT CLEAR THAT IN USING THE CITED LANGUAGE YOUR DEPARTMENT INCLUDED IT AS A "CATCH-ALL" PROVISION INTENDED TO COVER EVERY CONCEIVABLE COST THAT MIGHT ARISE IN THE COURSE OF DELIVERY OF IMPORTED MATERIALS. UNDER THE CONTRACT THE GOVERNMENT WAS OBLIGATED TO OBTAIN THE CLEARANCE OF THE MATERIALS THROUGH THE IRAQI CUSTOMS, AND WE BELIEVE THAT A REASONABLE INTERPRETATION OF THE CONTRACTOR'S OBLIGATION TO PAY "ALL COSTS CONNECTED WITH" THE DUTY-FREE CLEARANCE WOULD BE THAT IT WAS LIMITED TO THE NORMAL COSTS ORDINARILY APPLICABLE TO THE DUTY-FREE ENTRY OF THE MATERIALS.

THE CONTRACT INVOLVED WAS DATED JUNE 25, 1957, AND IT IS PERFECTLY OBVIOUS THAT THE CONSEQUENCES FLOWING FROM THE IRAQI REVOLUTION IN JULY 1958 COULD NOT HAVE BEEN IN THE MINDS OF THE PARTIES AT THE TIME THE CONTRACT WAS EXECUTED. ASSUMING, NEVERTHELESS, THAT THE LANGUAGE OF THE CONTRACT WAS SUCH THAT THE RISK OF THE DELAY ENCOUNTERED RESTED WITH THE CONTRACTOR, AND THAT THE GOVERNMENT WAS OBLIGATED ONLY TO EXERCISE REASONABLE DILIGENCE IN SEEKING TO OBTAIN DUTY-FREE CLEARANCE, WE BELIEVE THAT THE CONTRACTOR SHOULD HAVE BEEN ENTITLED TO MINIMIZE ITS COSTS BY PAYING THE DUTY AS IT OFFERED TO DO, AND THAT IF THE GOVERNMENT AS A MATTER OF POLICY FELT THAT IT COULD NOT PERMIT SUCH PAYMENT IT SHOULD ASSUME THE BURDEN OF REIMBURSING THE CONTRACTOR FOR ADDITIONAL COSTS THEREBY INCURRED. IT APPEARS THAT THE AMOUNT OF SUCH COSTS HAS BEEN DETERMINED TO BE $3,298, AND REIMBURSEMENT TO THE CONTRACTOR OF THE INDICATED AMOUNT IS HEREBY AUTHORIZED.

THERE REMAINS FOR CONSIDERATION THE CONTRACTOR'S CLAIM FOR SUMS AGGREGATING $306,530, STATED IN THE LETTER OF NOVEMBER 13, 1962, AS REPRESENTING CONTINUING OVERHEAD COSTS DURING PROLONGATION OF THE CONTRACT, INCREASED COST OF LABOR, AND REDUCTION IN LABOR PRODUCTIVITY. THE RECORD INDICATES THAT AS A BASIS FOR THIS CLAIM, THE CONTRACTOR ALLEGED THAT AS A RESULT OF THE IRAQI REVOLUTION THE NEW REGIME ISSUED VARIOUS DECREES, AMONG THEM INCREASED WAGES AND A SHORTER WORKDAY, AND YOUR DEPARTMENT REPORTED THAT THESE DECREES INCREASED THE CONTRACTOR'S COSTS CONSIDERABLY ON THE UNFINISHED PORTION OF THE CONTRACT. THE CONTRACTOR CONTENDS THAT AS A RESULT OF THE DELAY HE INCURRED CONSIDERABLE COSTS WHICH HE OTHERWISE WOULD NOT HAVE INCURRED AND REQUESTS THAT HE BE REIMBURSED BY THE UNITED STATES GOVERNMENT FOR HIS LOSS.

THE FOREGOING CLAIM WAS CONSIDERED BY YOUR DEPARTMENT AND REJECTED IN ITS ENTIRETY. YOUR DEPARTMENT'S POSITION RESPECTING THIS CLAIM WAS SET FORTH IN YOUR CW-6700 OF FEBRUARY 23, 1962, AND APPEARS TO BE FULLY IN ACCORD WITH JUDICIAL PRECEDENTS. WE THEREFORE AGREE THAT NO PART OF THIS CLAIM MAY BE ALLOWED.