B-154170, JUN. 12, 1964

B-154170, JUN. 12, 1964

TO CHAIRMAN, U.S. ATOMIC ENERGY COMMISSION:

FURTHER REFERENCE IS MADE TO A LETTER, WITH ENCLOSURES, DATED MAY 11, 1964, SIGNED BY THE CONTROLLER OF THE ATOMIC ENERGY COMMISSION, REQUESTING OUR OFFICE TO REVIEW AND APPROVE A PROPOSED NEGOTIATED SETTLEMENT OF THE GOVERNMENT'S CLAIM FOR DELAY IN DELIVERY UNDER CONTRACT AT/29-2/-476 WITH THE INTERNATIONAL BUSINESS MACHINES CORPORATION. WE ARE INFORMED THAT THE TERMS OF THE PROPOSED SETTLEMENT ARE ACCEPTABLE TO THE COMMISSION AND TO THE COMPANY AND THAT, IF AUTHORIZED BY OUR OFFICE PURSUANT TO SECTION 305 OF THE BUDGET AND ACCOUNTING ACT, 1921, 42 STAT. 24, 31 U.S.C. 71, THE SETTLEMENT WILL BE INCORPORATED INTO THE CONTRACT BY MEANS OF MODIFICATION NO. 2, A SUPPLEMENTAL AGREEMENT BETWEEN THE PARTIES.

THE ORIGINAL CONTRACT ENTERED INTO ON NOVEMBER 20, 1956, CALLED FOR THE PURCHASE OF A LARGE COMPUTER SYSTEM WITH DESIGNATED AMOUNTS OF MEMORY ("STRETCH") AND FOR ITS INSTALLATION AT LOS ALAMOS SCIENTIFIC LABORATORY (LASL) WITHIN 42 MONTHS FOLLOWING RECEIPT BY THE CONTRACTOR OF A NOTICE TO PROCEED (I.E., BY JUNE 1960). THE GOVERNMENT WAS OBLIGATED TO PROVIDE SUITABLE QUARTERS OF SPECIFIED DIMENSIONS TO BE OCCUPIED BY THE LARGE MACHINE, BUT THE BUILDING INTENDED FOR THIS PURPOSE WAS NOT COMPLETED UNTIL OCTOBER 1960. THE UNIT WAS INSTALLED IN APRIL 1961, EQUIPPED WITH A TWO MILLION WORD DISK MEMORY WHICH DID NOT SATISFY THE CONTRACT SPECIFICATIONS AS AMENDED FOR A 4,000,000 WORD DISK MEMORY BUT WHICH MET THE GOVERNMENT'S NEEDS BETWEEN APRIL 1961 AND SEPTEMBER 1962. THE INSTALLATION OF TWO NEW TWO-MILLION WORD DISK MEMORIES IN SEPTEMBER 1962, IS STATED IN THE LETTER OF MAY 11 TO MATERIALLY SATISFY THE CONTRACT SPECIFICATIONS IN THAT REPORT.

THE PARTIES HAVE AGREED THAT AS A RESULT OF THE CONTRACTOR'S DELAY THE GOVERNMENT WAS DEPRIVED OF THE USE OF THE COMPUTER SYSTEM FOR SIX AND ONE- HALF MONTHS, FROM OCTOBER 1960 UNTIL APRIL 1961. DURING THIS TIME THE GOVERNMENT USED INSTEAD A LEASED "704" COMPUTER AT A RENTAL OF $40,000 PER MONTH OR $260,000 FOR THE PERIOD. SINCE THE RENTAL VALUE OF A "STRETCH" SYSTEM FOR THE SIX AND ONE-HALF MONTH PERIOD IS NOT READILY ASCERTAINABLE BECAUSE IT APPEARS THAT NO MACHINE EXACTLY LIKE IT HAS EVER BEEN BUILT, IT WAS AGREED THAT THE COMPENSATION TO WHICH THE GOVERNMENT WAS ENTITLED FOR THE DELAY SHOULD BE MEASURED BY THE RENTAL FOR THE PERIOD OF THE "704.'

IN FULL SETTLEMENT OF THIS CLAIM THE GOVERNMENT HAS AGREED TO ACCEPT TITLE TO EQUIPMENT WHICH WAS ALREADY THE SUBJECT OF RENTAL ORDERS (ALL OF WHICH IS RELATED TO THE "STRETCH" SYSTEM), HAVING TOTAL MARKET VALUE OF $291,000, AND TO PAY THE DIFFERENCE OF $31,000 TO THE COMPANY IN CASH.

DAMAGES FOR BREACH OF AN OBLIGATION ARE MEASURED BY THE LOSS THEREBY SUSTAINED BY THE INJURED PARTY. 35 COMP. GEN. 228. BASED ON THE DESCRIPTION OF THE CIRCUMSTANCES PRESENTED, IT APPEARS THAT MODIFICATION NO. 2 PROVIDES FOR COMPENSATION TO THE GOVERNMENT CONSISTENT WITH THE CITED PRINCIPLE AND, THEREFORE, WE HAVE NO OBJECTION TO ITS EXECUTION. SEE B-131875, MAY 27, 1957.