B-151772, SEP. 12, 1963

B-151772, SEP. 12, 1963

TO CHAIRMAN ATOMIC ENERGY COMMISSION:

WE HAVE A LETTER OF JUNE 11, 1963, WITH ENCLOSURES, FROM THE CONTROLLER REQUESTING OUR ADVISE ON A QUESTION OF POSSIBLE OVERPAYMENTS BY THE GENERAL ELECTRIC COMPANY, AS PRIME OPERATING CONTRACTOR FOR THE COMMISSION AT RICHLAND, WASHINGTON, UNDER CONTRACTS WITH THE GENERAL CHEMICAL DIVISION OF ALLIED CHEMICAL CORPORATION FOR THE PURCHASE OF ALUMINUM NITRATE MONOHYDRATE.

THE INITIAL CONTRACT, G-316, DATED JULY 3, 1950, RAN FROM MAY 1, 1951 THROUGH APRIL 30, 1954. THE CONTRACT SET A FIXED PRICE FOR THE FINAL PRODUCT WITH PROVISION FOR ESCALATION UP OR DOWN DEPENDING ON QUANTITY PURCHASED AND THE COST OF NITRIC ACID USED.

AT THE TIME THE CONTRACT WAS ENTERED INTO THE SELLER, GENERAL CHEMICAL DIVISION, DID NOT HAVE THE FACILITIES TO PRODUCE NITRIC ACID AT ITS PLANT AT HEDGES, WASHINGTON. IT WAS CONTEMPLATED THAT SUCH A FACILITY WOULD BE CONSTRUCTED AND, IN THE INTERIM, THE NITRIC ACID WOULD BE OBTAINED FROM DUPONT, WASHINGTON, OR OTHER SOURCES. IT WAS PROVIDED FURTHER THAT IN THE EVENT THE NITRIC ACID WAS NOT OBTAINED FROM THE DUPONT, WASHINGTON, PLANT, THE PRICE WOULD BE ADJUSTED BASED ON ACTUAL TANK CAR RENTAL CHARGES PAID LESS APPLICABLE MILEAGE CREDITS COMPARED TO THE THREE CARS ESTIMATED TO BE NEEDED FOR DELIVERIES FROM DUPONT.

IN APRIL 1952, GENERAL BEGAN PRODUCING NITRIC ACID AT HEDGES AND APPARENTLY FROM THAT TIME ON ALL OF THE NITRIC ACID REQUIRED UNDER THE ORIGINAL AND SUBSEQUENT CONTRACTS WERE SATISFIED FROM THAT SOURCE, HOWEVER, NO ADJUSTMENT WAS MADE TO REFLECT THE SAVINGS IN TANK CAR COSTS.

EFFECTIVE JUNE 2, 1954, CONTRACT G-316 WAS MODIFIED BY SUPPLEMENT NO. 2 TO PROVIDE FOR A SUPPLY OF THE END PRODUCT DURING THE PERIOD MAY 1, 1954 THROUGH APRIL 30, 1956. WHILE IDENTIFIED AS A SUPPLEMENT THE MODIFICATION IN FACT SET FORTH A COMPLETE RESTATEMENT OF THE RIGHTS AND OBLIGATIONS OF THE PARTIES AND PROVIDED THAT EXCEPT FOR RIGHTS AND OBLIGATIONS ACCRUED PRIOR TO MAY 1, 1954, THE INITIAL CONTRACT WAS SUPERSEDED IN ITS ENTIRETY. THE NEW PRICE ADJUSTMENT CLAUSE CONTAINED NO REFERENCE TO CAR RENTAL CHARGES.

SUBSEQUENTLY, CONTRACT NO. RO-33 WAS ENTERED INTO AUGUST 23, 1956, CALLING FOR A CONTINUING SUPPLY OF THE END PRODUCT DURING THE PERIOD MAY 1, 1956 THROUGH APRIL 30, 1959. THIS CONTRACT CONTAINED NO PRICE ADJUSTMENT CLAUSE BASED UPON THE COST OF NITRIC ACID AND IT MADE NO REFERENCE TO TANK CAR RENTAL CHARGES.

THE POSSIBILITY HAS BEEN ASSERTED THAT REFERENCE TO TANK CAR RENTAL CHARGES WERE OMITTED FROM SUPPLEMENT NO. 2 AND RO-33 BY MUTUAL MISTAKE AND THAT THOSE CONTRACTS MAY BE REFORMED TO PROVIDE FOR THE INCLUSION OF A TANK CAR RENTAL FACTOR ON THE SAME BASIS AS THE ORIGINAL CONTRACT, G-316. THE FILE FORWARDED WITH THE LETTER OF JUNE 11, 1963, CONTAINS CORRESPONDENCE FROM BOTH OF THE CONTRACTING FIRMS CLEARLY INDICATING THAT THE TANK CAR RENTAL PROVISION WAS OMITTED FROM SUPPLEMENT NO. 2AND CONTRACT RO-33 BY DESIGN RATHER THAN BY INADVERTENCE. IN FACT, THE PRODUCTIVE EXISTENCE OF THE NITRIC ACID PLANT AT HEDGES FOR MORE THAN TWO YEARS PRIOR TO THE EXECUTION OF SUPPLEMENT NO. 2 AND ALMOST FOUR AND A HALF YEARS BEFORE CONTRACT RO-33 WAS ENTERED INTO AND THE CLEAR CONTEMPLATION THAT SUCH PLANT WOULD CONSTITUTE THE SOURCE OF NITRIC ACID FOR USE UNDER THE CONTRACT WOULD BE INCONSISTENT WITH THE INCLUSION OF A PROVISION FOR PRICE ADJUSTMENT BASED ON TANK CAR USE. ACCORDINGLY, IN OUR VIEW THERE EXISTS NO BASIS FOR THE ASSERTION OF A CLAIM BASED ON TANK CAR RENTAL SAVINGS UNDER SUPPLEMENT NO. 2 AND RO 33.

AS TO CONTRACT NO. G-316 PRIOR TO THE EFFECTIVE DATE OF SUPPLEMENT NO. 2, IT IS CLEAR THAT AN ADJUSTMENT SHOULD PROPERLY HAVE BEEN MADE TO REFLECT THE SAVINGS IN TANK CAR RENTALS FROM THE TIME THE HEDGES PLANT WAS UTILIZED AS THE SOURCE OF NITRIC ACID. UNDER THE LAW OF THE STATE OF WASHINGTON THE STATUTE OF LIMITATIONS WITH RESPECT TO A MATTER ARISING UNDER A WRITTEN CONTRACT IS SIX YEARS. RCWA 4.16.040. SINCE ANY CLAIM WHICH THE GOVERNMENT MIGHT ASSERT AGAINST GENERAL CHEMICAL UNDER THE CONTRACT WOULD HAVE TO BE BASED UPON ITS POSITION AS ASSIGNEE OF GENERAL ELECTRIC, THE GOVERNMENT'S RIGHT TO BRING ACTION FOR RECOVERY WOULD BE NO BETTER THAN THE ASSIGNOR-S. UNITED STATES V. KAUFMAN, (ED MO. 1949) 84 F.SUPP. 550. THEREFORE, IT APPEARS THAT THE STATUTE OF LIMITATIONS HAS RUN AGAINST ANY ACTION THAT COULD BE ASSERTED IN CONNECTION WITH THE ORIGINAL CONTRACT. HOWEVER, THE LANGUAGE OF THE STATUTE MAKES IT CLEAR THAT IT LIMITS ONLY THE REMEDY AND NOT THE RIGHT SO THAT THE CLAIM COULD STILL BE ASSERTED BY WAY OF SET-OFF. WE HAVE NO INFORMATION AS TO THE AVAILABILITY OF SET-OFF AGAINST ALLIED GENERAL CHEMICAL CORPORATION OR THE GENERAL CHEMICAL DIVISION.

IN ANY CASE, WE NOTE THAT GENERAL HAS OFFERED TO SETTLE THE MATTER BY THE PAYMENT OF $18,000 REPRESENTING ACTUAL RENTAL CHARGES OF $3,000 PER TANK CAR PER YEAR FOR TWO YEARS. A QUESTION HAS BEEN RAISED AS TO THE ADEQUACY OF SUCH SETTLEMENT BASED UPON A GENERAL INTERNAL MANAGEMENT PROPOSAL REPORT DATED AUGUST 29, 1950, ALMOST TWO MONTHS AFTER THE EXECUTION OF THE ORIGINAL CONTRACT, SHOWING AN ESTIMATED COST OF $4.50 A TON FOR TANK CAR RENTALS. BASED ON THAT FIGURE THE CLAIM WOULD BE SIGNIFICANTLY LARGER THAN $18,000. IN OUR VIEW, THE FIGURE IN THE MANAGEMENT PROPOSAL REPORT WHICH IS SAID BY GENERAL TO HAVE BEEN BASED UPON A CONSERVATIVE ESTIMATE OF QUANTITY REQUIREMENTS IS NOT NECESSARILY DETERMINATIVE OF THE AMOUNT ACTUALLY DUE PURSUANT TO THE TANK CAR RENTAL ADJUSTMENT PROVISION. IF IN FACT THE SETTLEMENT OFFER REASONABLY REPRESENTS THE RENTAL OF THE THREE CARS CUT OUT AS A BASIS FOR ADJUSTMENT WE ARE OF THE OPINION THAT ITS ACCEPTANCE WOULD BE PROPER.