B-154299, JUL. 9, 1964

B-154299, JUL. 9, 1964

TO MR. THOMAS B. JONES, AUTHORIZED CERTIFYING OFFICER, POST OFFICE DEPARTMENT:

REFERENCE IS MADE TO YOUR LETTER DATED MAY 22, 1964, WITH ENCLOSURES, REQUESTING OUR DECISION AS TO WHETHER CERTAIN CLAIMS OF FRUEHAUF TRAILER COMPANY, AS ASSIGNEE OF CONTRACTS ORIGINALLY AWARDED TO THE UNIVERSAL ECSCO CORPORATION (WHICH APPEARS TO HAVE BECOME A DIVISION OF FRUEHAUF, PRESUMABLY BY MERGER OR CONSOLIDATION), MAY BE CERTIFIED FOR PAYMENT.

THE CLAIMS ARE FOR REFUND OF DISCOUNTS TAKEN BY THE POST OFFICE DEPARTMENT IN MAKING PAYMENTS ON INVOICES SUBMITTED UNDER CONTRACT NO. 6-1 -9796 TO FURNISH AND INSTALL A MAIL-HANDLING SYSTEM IN THE UNITED STATES POST OFFICE, HOUSTON, TEXAS. THE CONTRACT WAS AWARDED ON STANDARD FORM 33 (OCTOBER 1957 EDITION WHICH INCORPORATES STANDARD FORM 32, OCTOBER 1957 EDITION), AND INCLUDED NOTICE 53 (POST OFFICE DEPARTMENT PROCEDURES ON PROGRESS PAYMENTS, DATED JUNE 1959). YOUR QUESTION IS WHETHER PARAGRAPH 7, STANDARD FORMS 32 AND 33 PRECLUDES TAKING DISCOUNTS ON INVOICES SUBMITTED DURING THE PERIOD PROGRESS PAYMENTS WERE BEING MADE.

THE ACCEPTED BID PROVIDES FOR DISCOUNT OF 1 PERCENT FOR PAYMENT IN 20 DAYS. A SUPPLEMENTAL AGREEMENT DATED APRIL 25, 1962, STATES AMONG OTHER THINGS, THAT THE ONE PERCENT REDUCTION FOR PAYMENT WITHIN 20 DAYS SHALL ALSO BE APPLICABLE TO PAYMENTS ON MONIES DUE ON ACCOUNT OF CHANGES AND AMENDMENTS MADE BETWEEN JUNE 20, 1960, AND THE DATE OF THE SUPPLEMENTAL AGREEMENT, AND SUBSEQUENT THERETO. PARAGRAPH 7 OF STANDARD FORMS 32 AND 33 PROVIDES THAT IN CONNECTION WITH DISCOUNT OFFERED, TIME WILL BE COMPUTED FROM DATE OF DELIVERY OF THE SUPPLIES TO CARRIER WHEN DELIVERY AND ACCEPTANCE ARE AT POINT OF ORIGIN, OR FROM DATE OF "DELIVERY" AT DESTINATION WHEN DELIVERY IS AT THAT POINT, OR FROM DATE CORRECT INVOICE OR VOUCHER IS RECEIVED IN THE OFFICE SPECIFIED BY THE GOVERNMENT IF THE LATTER DATE IS LATER THAN DELIVERY.

YOU STATE THAT SINCE THE CONTRACT INCLUDES THE INSTALLATION OF MECHANIZED EQUIPMENT IT HAS ELEMENTS OF A CONSTRUCTION CONTRACT. THE SPECIFICATIONS SHOW THAT ACCEPTANCE OF THE EQUIPMENT WILL BE ONLY AFTER COMPLETE INSTALLATION, TESTS AND RUN-IN PERIOD. THUS, PARAGRAPH 3-2 PROVIDES THAT IT SHALL BE THE RESPONSIBILITY OF THE CONVEYOR CONTRACTOR TO KEEP FULLY INFORMED AS TO THE PROGRESS OF THE BUILDING CONSTRUCTION WORK AS IT IS ESSENTIAL THAT THE MAIL-HANDLING SYSTEM BE COMPLETELY INSTALLED, RUN-IN TESTED, AND READY FOR 100 PERCENT OPERATION 30 DAYS PRIOR TO THE DATE THE BUILDING IS COMPLETED. THE SPECIFICATIONS FURTHER PROVIDE AS FOLLOWS:

"3-54 INSPECTION AND PRELIMINARY TESTS--- AT THE TIME OF THE FINAL INSPECTION, A PRELIMINARY OPERATING TEST OF 8 HOURS CONTINUOUS RUN WILL BE MADE ON THE BELT CONVEYORS. IF THIS TEST SHOWS THAT THE WORK IS DEFECTIVE IN ANY WAY OR DOES NOT COMPLY WITH THE SPECIFICATION REQUIREMENTS, THE CONTRACTOR MUST IMMEDIATELY MAKE ALL CHANGES NECESSARY TO CORRECT SAME AND TO REMEDY ALL DEFECTS TO THE SATISFACTION OF THE POST OFFICE DEPARTMENT.

"3-55 OPERATION TEST AND ACCEPTANCE--- AN ACTUAL 30-DAY OPERATING SERVICE TEST OF THE ENTIRE SYSTEM WILL BE MADE BY THE POST OFFICE DEPARTMENT BEFORE FINAL ACCEPTANCE OF CONVEYORS AND MAIL DISTRIBUTION EQUIPMENT. ANY DEFECTS IN MATERIALS OR WORKMANSHIP ARE EVIDENT DURING THIS TEST PERIOD, IT SHALL BE AN OBLIGATION OF THE CONTRACTOR TO REMEDY SUCH DEFECTS, WITHOUT EXPENSE TO THE GOVERNMENT, AS DIRECTED BY THE POST OFFICE DEPARTMENT. ALL WORK, INCLUDING THE MATERIAL AND EQUIPMENT, SHALL BE GUARANTEED BY THE CONTRACTOR FOR A PERIOD OF ONE YEAR FROM THE DATE OF FINAL ACCEPTANCE.'

THE DEPARTMENT'S POSITION IS STATED TO BE THAT IN A MECHANIZED CONTRACT SUCH AS HERE INVOLVED, PARAGRAPH 7 OF STANDARD FORMS 32 AND 33 DOES NOT PRECLUDE TAKING OF DISCOUNTS DURING THE PERIOD PROGRESS PAYMENTS ARE BEING MADE, EVEN IF THE INVOICES ARE NOT PAID WITHIN THE NUMBER OF CALENDAR DAYS SHOWN ON PAGE 1 OF STANDARD FORM 33. THIS IS FOR THE REASON THAT YOU BELIEVE THERE HAS BEEN NO "DELIVERY" PRIOR TO COMPLETE INSTALLATION, TESTS AND RUN-IN PERIOD. YOU STATE THAT ECSCO, THE CONTRACTOR, MADE NO OBJECTION TO THE TAKING OF THE DISCOUNTS PRIOR TO THE ASSIGNMENT. ALSO, YOU POINT OUT THAT UNDER PARAGRAPH 3C, POST OFFICE DEPARTMENT NOTICE 53, THE GOVERNMENT RESERVES THE RIGHT TO WITHHOLD PROGRESS PAYMENTS AND TO INCREASE THE LIQUIDATION RATE IF THE CONTRACTOR IS IN AN UNSATISFACTORY FINANCIAL CONDITION OR HAS FAILED TO MAKE PROGRESS. THEREFORE, YOU CONCLUDE THAT TO ACCEPT FRUEHAUF'S VIEW WOULD MEAN THAT THE GOVERNMENT WOULD, IN FACT, HAVE NO RIGHT TO ANY DISCOUNT IF IT SUSPENDED PROGRESS PAYMENTS OR ATTEMPTED TO RECOUP PREVIOUS PROGRESS PAYMENTS. IN THE CIRCUMSTANCES, YOU EXPRESS THE VIEW THAT THE SPECIFIC PROVISIONS OF THE CONTRACT OVERRIDE PARAGRAPH 7 OF STANDARD FORMS 32 AND 33, AND THAT THE SUPPLEMENTAL AGREEMENT DOES NOT PREJUDICE THE GOVERNMENT'S ENTITLEMENT TO THE DISCOUNTS.

WE FIND NO SPECIFIC PROVISIONS WITH REFERENCE TO THE COMPUTATION OF TIME IN CONNECTION WITH THE TAKING OF DISCOUNTS EXCEPT THOSE OF THE PARAGRAPH REFERRED TO. NEITHER YOUR NOTICE 53 (POST OFFICE DEPARTMENT PROCEDURES ON PROGRESS PAYMENTS), NOR THE SUPPLEMENTAL AGREEMENT OF APRIL 25, 1962, CONTAIN ANY PROVISION AT VARIANCE WITH OR PERTINENT TO THE SUBJECT MATTER OF THAT CLAUSE. THE EXPRESS LANGUAGE OF ARTICLE 2 OF THE SUPPLEMENTAL AGREEMENT OBLIGATES THE GOVERNMENT "TO PAY THE CONTRACTOR, AS PROGRESS PAYMENTS, 90 PERCENT OF THE CONTRACTOR'S TOTAL COSTS INCURRED UNDER THE CONTRACT," (INCLUDING BILLS OF SUPPLIERS AND SUBCONTRACTORS FOR MATERIALS AND SERVICES FURNISHED) SUBJECT TO THE LIMITATION THAT THE AGGREGATE AMOUNT OF PROGRESS PAYMENTS SHALL NOT EXCEED 90 PERCENT OF THE TOTAL CONTRACT PRICE, AND SUBJECT TO THE FURTHER CONDITION THAT FURTHER PROGRESS PAYMENTS MAY BE SUSPENDED IF THE CONTRACTOR FAILS TO PAY THE BILLS OF ITS SUPPLIERS AND SUBCONTRACTORS WITHIN 14 DAYS AFTER RECEIPT OF PROGRESS PAYMENTS ON ACCOUNT THEREOF.

WHILE ARTICLE 3 OF THE AGREEMENT PROVIDES THAT THE FINAL 10 PERCENT SHALL NOT BE PAID UNTIL AFTER FINAL INSPECTION AND ACCEPTANCE OF THE WORK AND UPON PRODUCTION BY THE CONTRACTOR OF EVIDENCE OF PAYMENT OF ALL SUPPLIERS AND SUBCONTRACTORS, THERE ARE NO SUCH PROVISIONS AFFECTING THE RIGHT OF THE CONTRACTOR TO PAYMENT OF THE STIPULATED PROGRESS PAYMENTS WHENEVER IT HAS INCURRED COSTS AND SUBMITTED ITS INVOICE THEREFOR.

IT IS STATED THAT THE DEPARTMENT'S PROCEDURES IN MAKING PROGRESS PAYMENTS REQUIRE THE CONTRACTOR'S BILLINGS TO BE REVIEWED AND APPROVED BY THE POSTAL RESIDENT ENGINEER; THE OFFICE OF RESEARCH AND ENGINEERING, AND THE CONTRACTING OFFICER PRIOR TO PAYMENT, AND THAT THE APPROVALS OR DISAPPROVALS OF NECESSITY TAKE SOME TIME SINCE THE OFFICIALS CONCERNED MUST MAKE CERTAIN, BY TESTING OR OTHERWISE, THAT THE CHARGES FOR LABOR AND MATERIALS FOR WHICH THE INVOICES ARE SUBMITTED ARE PROPER AND REASONABLE. YOU THEREFORE CONTEND THAT THE PERIOD FOR COMPUTING THE TIME FOR TAKING THE PROMPT PAYMENT DISCOUNT SHOULD NOT BE CONSIDERED TO COMMENCE UNTIL THE INVOICES HAVE BEEN APPROVED BY THESE OFFICIALS.

ARTICLE 7 OF STANDARD FORM 32 PROVIDES FOR PAYMENT UPON DELIVERY AND ACCEPTANCE OF GOODS OR SERVICES CALLED FOR BY THE CONTRACT. ARTICLE 7OF STANDARD FORM 33 STIPULATES THAT THE TIME WITHIN WHICH PAYMENT MUST BE MADE IN ORDER TO EARN A DISCOUNT FOR PROMPT PAYMENT IS TO BE COMPUTED FROM THE DATE OF DELIVERY OR SUBMISSION OF A PROPER INVOICE, WHICHEVER IS LATER. THE EFFECT OF THESE TWO PROVISIONS ON PAYMENTS OTHER THAN PROGRESS PAYMENTS IS THAT THE GOVERNMENT'S ACCEPTANCE AND PAYMENT MUST BE ACCOMPLISHED WITHIN THE DISCOUNT PERIOD.

IN THE PRESENT CASE, AS POINTED OUT ABOVE, THE CONTRACTOR IS ENTITLED TO A PROGRESS PAYMENT WHEN HE HAS INCURRED EXPENSES AND SUBMITTED A VOUCHER. HOWEVER, EXCEPT ON THE FINAL PAYMENT, AN INSPECTION ACCEPTANCE OR APPROVAL BY THE GOVERNMENT WOULD NOT APPEAR TO BE A CONDITION PRECEDENT TO PAYMENT. WHILE WE AGREE THAT PROPER ADMINISTRATIVE PROCEDURE SHOULD PRECLUDE PAYMENT WITHOUT APPROVAL, WHICH SHOULD BE BASED ON SOME KNOWLEDGE OF THE STATUS OF THE WORK, WE SEE NO BASIS FOR NOT INCLUDING THE TIME REQUIRED THEREFOR IN THE PERIOD WITHIN WHICH PAYMENT MUST BE MADE TO EARN THE PROMPT PAYMENT DISCOUNT. BOTH NOTICE 53 AND THE SUPPLEMENTAL AGREEMENT CONTAIN OTHER PROVISIONS FOR PROTECTION OF THE GOVERNMENT AGAINST LOSS BY REASON OF PAYMENTS MADE IN ADVANCE OF FORMAL ACCEPTANCE OF THE WORK, INCLUDING A PROVISION VESTING TITLE IN THE GOVERNMENT TO ALL WORK AND MATERIAL UPON THE MAKING OF A PROGRESS PAYMENT, AND PROVISIONS FOR RECOVERY OF UNLIQUIDATED PROGRESS PAYMENTS BY REDUCTION OF SUBSEQUENT PAYMENTS AND BY OBLIGATING BOTH THE CONTRACTOR AND ITS SURETY TO REFUND ANY SUCH UNLIQUIDATED PAYMENTS.

IN THE LIGHT OF THE EXPRESS PROVISIONS OF THE CONTRACT, WE MUST CONCLUDE THAT THE PROGRESS PAYMENT CLAUSE OF THE SUPPLEMENTAL AGREEMENT TAKES PRECEDENCE OVER THE PAYMENT PROVISION OF STANDARD FORM 32, AND THAT THE WORD "DELIVERY" IN THE DISCOUNT CLAUSE OF STANDARD FORM 33 MUST BE EQUATED TO THE INCURRING OF COSTS UNDER THE PROGRESS PAYMENT PROVISION. WHERE COSTS HAVE BEEN INCURRED PRIOR TO THE SUBMISSION OF AN INVOICE, A DISCOUNT SHOULD THEREFORE BE TAKEN ON THE AMOUNT OF ANY PROGRESS PAYMENT ONLY IF SUCH PAYMENT IS MADE WITHIN 20 DAYS OF THE RECEIPT OF THE CONTRACTOR'S INVOICE.

AS ILLUSTRATIVE OF THE CLAIMS INVOLVED YOU HAVE FORWARDED TWO INVOICES SUBMITTED BY THE CLAIMANT FOR REFUND OF DISCOUNT TAKEN ON PROGRESS PAYMENT INVOICES WHICH WERE PAID 29, 28, AND 31 DAYS AFTER THE INVOICE DATES. THE RECORD FURNISHED SHOWS THAT THE ORIGINAL PROGRESS PAYMENT INVOICES WERE SUBMITTED TO THE DEPARTMENT AT WASHINGTON, D.C., AS REQUIRED BY THE CONTRACT, AND PAID BY THE BUREAU OF FINANCE, ALSO AT WASHINGTON, D.C. ONE OF THE INVOICES SUBMITTED, WHICH IS DATED FEBRUARY 20, 1963, APPEARS TO HAVE BEEN FORWARDED TO THE COGNIZANT APPROVING AUTHORITY ON MARCH 1, 1963, OR NINE DAYS AFTER ITS DATE, AND APPROVED BY MEMORANDUM DATED MARCH 11, 1963; RECEIVED IN THE BUREAU OF FINANCE ON MARCH 18, 1963, WITH THE CONTRACTING OFFICER'S APPROVAL ENDORSED THEREON, AND PAID MARCH 22, 1963. THE MEMORANDUM ON WHICH THE CONTRACTING OFFICER'S APPROVAL APPARENTLY WAS BASED CONSISTS MERELY OF THE STATEMENT: "AS THE DIRECT LABOR AND MATERIAL HAVE THE APPEARANCE OF BEING IN THE PROPER AMOUNT, CONSIDERING THE STAGE OF CONTRACT COMPLETION, IT IS RECOMMENDED THAT THE CONTRACTOR BE PAID THE AMOUNT REQUESTED.' INASMUCH AS THE WORK INVOLVED WAS IN HOUSTON, TEXAS, IT SEEMS TO BE A REASONABLE INFERENCE THAT THE GREATER PART OF THE TWENTY DAYS IN WHICH PAYMENT SHOULD HAVE BEEN MADE WAS CONSUMED IN ADMINISTRATIVE HANDLING AND TRANSMITTAL RATHER THAN IN DETERMINING THAT PAYMENT SHOULD BE RECOMMENDED.

WHETHER OR NOT THE HANDLING OF SUCH PROGRESS PAYMENTS CAN BE EXPEDITED BY REVISION OF APPROVAL AND PAYMENT PROCEDURES IS, OF COURSE, A MATTER FOR CONSIDERATION BY THE DEPARTMENT. HOWEVER, UNDER THE PROVISIONS OF THE CONTRACT WE FIND NO BASIS FOR COMMENCING THE DISCOUNT PERIOD FROM THE DATE OF FINAL APPROVAL RATHER THAN FROM THE DATE OF RECEIPT OF THE INVOICE.

FOR THE REASONS STATED, THE CLAIMS FOR THE DISCOUNTS IN QUESTION APPEAR TO BE PROPER FOR ALLOWANCE, AND THE VOUCHERS THEREFOR, WHICH ARE RETURNED TOGETHER WITH THE FILES SUBMITTED, MAY BE CERTIFIED FOR PAYMENT IF OTHERWISE CORRECT.