B-154530, JUL. 15, 1964

B-154530: Jul 15, 1964

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YOU REPORT THAT THE AWARD WAS IMPROPERLY MADE TO THE CONTRACTOR IN THAT THE CONTRACTOR'S BID HAD NOT INCLUDED THE REQUIRED TIME OF DELIVERY. WE HAVE NO OBJECTION TO CANCELLATION OF THE AWARD AS PROPOSED. YOU ALSO ASK HOW YOUR AGENCY SHOULD TREAT FUTURE CASES WHERE IMPROPER AWARDS ARE MADE. YOU ASK WHETHER IT IS PROPER TO USE TERMINATION FOR CONVENIENCE IN THE CASE OF AN ILLEGAL AWARD. IT HAS LONG BEEN ESTABLISHED THAT THE GOVERNMENT IS NOT LIABLE FOR PAYMENT OF COSTS INCURRED BY A CONTRACTOR UNDER A CANCELLED INVALID CONTRACT. IT IS RECOGNIZED THAT THE UNITED STATES HAS POWER TO ACT ONLY THROUGH ITS AGENTS WHOSE AUTHORITY AND THE MANNER OF EXERCISE THEREOF IS PRESCRIBED AND LIMITED BY STATUTE AND IMPLEMENTING REGULATION.

B-154530, JUL. 15, 1964

TO THE HONORABLE JOHN S. GLEASON, JR., ADMINISTRATOR OF VETERANS AFFAIRS, VETERANS ADMINISTRATION:

THIS REFERS TO THE LETTER OF JUNE 19, 1964, (REFERENCE: 074B), WITH ENCLOSURES, FROM YOUR DIRECTOR OF SUPPLY MANAGEMENT SERVICE REQUESTING OUR DECISION RELATIVE TO THE CONTRACTING OFFICER'S RECOMMENDATION FOR TERMINATION OF AN AWARD TO ALBRITTON ENGINEERING CORPORATION FOR 102 ALUMINUM WINDOWS.

YOU REPORT THAT THE AWARD WAS IMPROPERLY MADE TO THE CONTRACTOR IN THAT THE CONTRACTOR'S BID HAD NOT INCLUDED THE REQUIRED TIME OF DELIVERY. THE OTHER HAND, YOU REPORT THAT THE CONTRACT SPECIFICATIONS FAIL TO STATE THE MINIMUM REQUIREMENTS OF THE GOVERNMENT. YOU FURTHER REPORT THAT THE CONTRACTING OFFICER PLANS TO READVERTISE THIS REQUIREMENT USING IMPROVED SPECIFICATIONS, AND THAT THE CONTRACTOR HAS AGREED TO A TERMINATION WITHOUT ANY CLAIM FOR COMPENSATION PROVIDED THAT IT BE PERMITTED TO BID ON THE READVERTISEMENT.

YOU ASK WHETHER THE CONTRACT MAY BE TERMINATED ON THE BASIS PROPOSED.

UNDER THE CIRCUMSTANCES, WE HAVE NO OBJECTION TO CANCELLATION OF THE AWARD AS PROPOSED, WITHOUT ANY CLAIMS BY THE CONTRACTOR OR THE GOVERNMENT. FURTHER, WE SEE NO REASON WHY SUCH CANCELLATION SHOULD PREJUDICE THE CONTRACTOR'S RIGHT TO BID ON A READVERTISEMENT.

YOU ALSO ASK HOW YOUR AGENCY SHOULD TREAT FUTURE CASES WHERE IMPROPER AWARDS ARE MADE. SPECIFICALLY, YOU ASK WHETHER IT IS PROPER TO USE TERMINATION FOR CONVENIENCE IN THE CASE OF AN ILLEGAL AWARD.

IT HAS LONG BEEN ESTABLISHED THAT THE GOVERNMENT IS NOT LIABLE FOR PAYMENT OF COSTS INCURRED BY A CONTRACTOR UNDER A CANCELLED INVALID CONTRACT. SEE 40 COMP. GEN. 447 AND THE CASES CITED. IT IS RECOGNIZED THAT THE UNITED STATES HAS POWER TO ACT ONLY THROUGH ITS AGENTS WHOSE AUTHORITY AND THE MANNER OF EXERCISE THEREOF IS PRESCRIBED AND LIMITED BY STATUTE AND IMPLEMENTING REGULATION; AND THAT TO MAKE THE GOVERNMENT LIABLE FOR OTHER THAN BENEFITS RECEIVED WOULD, IN EFFECT, PERMIT AGENTS OF THE GOVERNMENT TO OBLIGATE THE UNITED STATES IN DIRECT CONTRAVENTION OF THOSE LIMITATIONS AND PRESCRIPTIONS; SO THAT THE BASIC PURPOSES OF THE STATUTES AND IMPLEMENTING REGULATIONS WOULD BE NULLIFIED--- A RESULT CONTRARY TO THE PUBLIC INTEREST. RECENTLY, IN JOHN REINER AND COMPANY V. UNITED STATES (CT.CL., 1963) 325 F.2D 438, 440, THE COURT OF CLAIMS STATED:

"IN TESTING THE ENFORCEABILITY OF AN AWARD MADE BY THE GOVERNMENT, WHERE A PROBLEM OF THE VALIDITY OF THE INVITATION OR THE RESPONSIVENESS OF THE ACCEPTED BID ARISES AFTER THE AWARD, THE COURT SHOULD ORDINARILY IMPOSE THE BINDING STAMP OF NULLITY ONLY WHEN THE ILLEGALITY IS PLAIN. IF THE CONTRACTING OFFICER HAS VIEWED THE AWARD AS LAWFUL, AND IT IS REASONABLE TO TAKE THAT POSITION UNDER THE LEGISLATION AND REGULATIONS, THE COURT SHOULD NORMALLY FOLLOW SUIT. ANY OTHER COURSE COULD PLACE THE CONTRACTOR IN AN UNFORTUNATE DILEMMA. * * * IT IS THEREFORE JUST TO THE CONTRACTOR, AS WELL AS TO THE GOVERNMENT, TO GIVE HIM THE BENEFIT OF REASONABLE DOUBTS AND TO UPHOLD THE AWARD UNLESS ITS INVALIDITY IS CLEAR. * * *"

THE COURT HELD THAT OUR RULING OF CANCELLATION SHOULD BE TREATED IN THAT CASE--- AND IN SIMILAR CASES--- AS ONE FOR TERMINATION. SEE BROWN AND SON ELECTRIC COMPANY V. UNITED STATES (CT.CL. 1963) 325 F.2D 466.

IN ACCORDANCE WITH OUR STATUTORY AUTHORITY (31 U.S.C. 74), WHERE WE FIND THAT A CONTRACT AWARD IS ILLEGAL--- AWARDED CONTRARY TO LAW--- WE MAY REQUIRE CANCELLATION OF THE AWARD. TO DETERMINE WHETHER AN AWARD IS ILLEGAL, WE APPLY PREVAILING STANDARDS OF LAW; NO OTHER STANDARD IS FOR APPLICATION. SEE B-153717, JUNE 4, 1964. UPON CANCELLATION, THE CANCELLED CONTRACTOR IS ENTITLED TO A RECOVERY MEASURED SOLELY BY THE BENEFITS RECEIVED BY THE GOVERNMENT. OF COURSE, THE CONTRACTOR MAY JUDICIALLY CHALLENGE THE VALIDITY OF THE CANCELLATION. THIS IS WHAT HAPPENED IN REINER AND BROWN. THE COURT OF CLAIMS IN EACH OF THE TWO CASES HELD THAT THE CANCELLED AWARD, AS A MATTER OF LAW, WAS A LEGAL AWARD; AND THAT THIS OFFICE ERRED WHEN IT RULED THAT EACH OF THE AWARDS WAS VOID. HAVING REACHED THIS CONCLUSION, THE COURT HELD THAT THE CANCELLATIONS SHOULD BE TREATED AS TERMINATIONS FOR CONVENIENCE.

WE DO NOT DISAGREE WITH THE COURT'S REASONING THAT CANCELLATION OF A VALID AWARD ENTITLES THE CONTRACTOR TO PAYMENT AS FOR A CONVENIENCE TERMINATION. HOWEVER, IT WAS AND IS OUR POSITION THAT IF AN AWARD IS CONTRARY TO STATUTORY AND REGULATORY REQUIREMENTS IT CANNOT OPERATE TO CREATE A VALID CONTRACT; THAT ANY PURPORTED CONTRACT THUS MADE IS A NULLITY AND VOID; AND THAT THE CANCELLED CONTRACTOR IS LIMITED TO RECOVERY OF BENEFITS RECEIVED. THUS IN ANSWER TO YOUR QUESTION, WE BELIEVE THAT A CONTRACTOR UNDER A CLEARLY ILLEGAL AWARD IS NOT ENTITLED TO A TERMINATION FOR CONVENIENCE.