B-155069, OCT. 13, 1964

B-155069: Oct 13, 1964

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INCORPORATED: FURTHER REFERENCE IS MADE TO YOUR LETTER DATED AUGUST 25. THAT YOU WERE PAID FOR ALL QUANTITIES DELIVERED BEFORE DISCOVERY OF THE FACT THAT THE MATERIAL DID NOT FULLY MEET THE REQUIREMENTS OF THE APPLICABLE CONTRACT SPECIFICATION. WHEN THIS DISCOVERY WAS MADE THERE REMAINED ON HAND 8. THE CONTRACTING OFFICER REFERRED TO THE FACT THAT YOU WERE PREVIOUSLY INFORMED THAT THE CUSIONING MATERIAL DID NOT CONFORM TO THE CONTRACT SPECIFICATION WITH RESPECT TO MAXIMUM COMPRESSION RESISTANCE AND COMPRESSION SET. THAT FORMAL NOTICE WAS GIVEN TO YOU THAT THE NONCONFORMING MATERIAL WAS WITHIN THE SCOPE OF SECTION 23 OF THE GENERAL PROVISIONS OF THE CONTRACTS CONCERNING DEFECTS OR NONCONFORMANCE IN DELIVERED ARTICLES.

B-155069, OCT. 13, 1964

TO LOCKPORT MILLS, INCORPORATED:

FURTHER REFERENCE IS MADE TO YOUR LETTER DATED AUGUST 25, 1964, PROTESTING A DEMAND MADE UPON YOUR COMPANY BY THE DEFENSE SUPPLY AGENCY FOR PAYMENT OF THE AMOUNT OF $1,902.18 PLUS INTEREST THEREON AT THE RATE OF 6 PERCENT PER YEAR BEGINNING FEBRUARY 16, 1962, AS PRICE ADJUSTMENTS ON 8,097 SHEETS OF CUSHIONING MATERIAL DELIVERED BY YOUR COMPANY UNDER NAVY CONTRACTS NOS. N155-50026 AND N155-53737, DATED DECEMBER 4, 1959, AND MAY 4, 1960, RESPECTIVELY. THE DEFENSE SUPPLY AGENCY HAS SUBMITTED THE CASE TO US IN ACCORDANCE WITH THE PROCEDURE ESTABLISHED BY OUR OFFICE FOR REPORTING ADMINISTRATIVELY UNCOLLECTIBLE DEBTS OWING TO THE UNITED STATES.

IT APPEARS THAT IN PERFORMING THE TWO CONTRACTS YOU DELIVERED VARIOUS QUANTITIES OF CUSHIONING MATERIAL WHICH THE GOVERNMENT INTENDED FOR USE IN PACKAGING OF AERONAUTICAL INSTRUMENTS FOR SHIPMENT, AND THAT YOU WERE PAID FOR ALL QUANTITIES DELIVERED BEFORE DISCOVERY OF THE FACT THAT THE MATERIAL DID NOT FULLY MEET THE REQUIREMENTS OF THE APPLICABLE CONTRACT SPECIFICATION--- ,MIL-07769 AMENDMENT 1 DATED 27 DECEMBER 1951, TYPE IV.' WHEN THIS DISCOVERY WAS MADE THERE REMAINED ON HAND 8,097 SHEETS OF THE MATERIAL FOR WHICH THE GOVERNMENT HAD PAID THE TOTAL AMOUNT OF $5,472.92, CONSISTING OF $387.04 PAID AT A UNIT PRICE OF $0.82 FOR 472 SHEETS AND $5,085.88 PAID AT A UNIT PRICE OF $0.667 FOR 7,625 SHEETS.

IN A LETTER TO YOU OF DECEMBER 14, 1961, THE CONTRACTING OFFICER REFERRED TO THE FACT THAT YOU WERE PREVIOUSLY INFORMED THAT THE CUSIONING MATERIAL DID NOT CONFORM TO THE CONTRACT SPECIFICATION WITH RESPECT TO MAXIMUM COMPRESSION RESISTANCE AND COMPRESSION SET, AND THAT FORMAL NOTICE WAS GIVEN TO YOU THAT THE NONCONFORMING MATERIAL WAS WITHIN THE SCOPE OF SECTION 23 OF THE GENERAL PROVISIONS OF THE CONTRACTS CONCERNING DEFECTS OR NONCONFORMANCE IN DELIVERED ARTICLES. UNDER THAT SECTION OF THE GENERAL PROVISIONS IT WAS WARRANTED THAT, NOTWITHSTANDING PRIOR INSPECTION AND ACCEPTANCE OF SUPPLIES, THE SUPPLIES WOULD CONFORM TO THE CONTRACT SPECIFICATION, AND THE GOVERNMENT WAS GRANTED THE OPTION EITHER TO RETURN DEFECTIVE SUPPLIES FOR REPLACEMENT WITH MATERIAL WHICH WOULD CONFORM STRICTLY WITH THE SPECIFICATION, OR TO RETAIN THE MATERIAL SUBJECT TO THE MAKING OF AN EQUITABLE REDUCTION IN THE CONTRACT PRICE FOR SUCH MATERIAL.

YOU WERE ADVISED IN THE LETTER OF DECEMBER 14, 1961, THAT THE MATERIAL ON HAND WAS NOT SUITABLE FOR PACKAGING AERONAUTICAL INSTRUMENTS BUT THAT IT COULD BE USED FOR PACKAGING LESS CRITICAL TEMS; THAT THE TYPE OF CUSHIONING MATERIAL NORMALLY PURCHASED FOR THAT PURPOSE COULD BE PROCURED AT AN APPROXIMATE COST OF $0.30 PER SHEET; THAT ACCEPTANCE OF THE NONCONFORMING MATERIAL AT AN EQUITABLE PRICE REDUCTION WAS CONSIDERED THE BEST SOLUTION; AND THAT THE CONTRACTING OFFICER WAS OF THE OPINION THAT ALLOWANCE OF A UNIT PRICE OF $0.37 PER SHEET FOR THE 8,097 SHEETS OF NONCONFORMING MATERIAL ON HAND WOULD CONSTITUTE AN EQUITABLE ADJUSTMENT OF THE PRICES PAID THEREFOR. ON SUCH BASIS, THE CONTRACTING OFFICER REQUESTED PAYMENT OF THE SUM OF $2,477.03, REPRESENTING THE DIFFERENCE BETWEEN THE ABOVE AMOUNT OF $5,472.92 AND THE AMOUNT OF $2,995.89, OR 8097 TIMES $0.37. HOWEVER, SINCE THE ALLOWANCE OF $2,995.89 DID NOT TAKE INTO CONSIDERATION THE FACT THAT YOUR CONTRACT PRICES INCLUDED TRANSPORTATION CHARGES,THE AMOUNT CLAIMED BY THE GOVERNMENT WAS REDUCED FROM $2,477.03 TO $1,902.18 BY LETTER DATED FEBRUARY 16, 1962, FROM THE CONTRACTING OFFICER TO YOUR COMPANY.

BY DECISION OF MARCH 22, 1963, THE CONTRACTING OFFICER INDICATED THAT HE HAD CONSIDERED YOUR OBJECTIONS TO THE DEMAND FOR PAYMENT OF THE AMOUNT OF $1,902.18; THAT HE STILL CONSIDERED THAT SUCH AMOUNT WAS DUE THE GOVERNMENT AS PRICE REDUCTIONS UNDER THE TWO CONTRACTS, COMPUTED AT THE RATES OF $0.3484 AND $0.2279 FOR THE RESPECTIVE QUANTITIES OF 472 AND 7,625 SHEETS OF THE CUSHIONING MATERIAL; AND THAT YOU HAD THE RIGHT TO MAKE AN APPEAL FROM HIS DECISION WITHIN 30 DAYS, WHICH APPEAL, IF FILED, WOULD BE CONSIDERED BY THE ARMED SERVICES BOARD OF CONTRACT APPEALS AS THE REPRESENTATIVE OF THE HEAD OF THE DEPARTMENT CONCERNED, UNDER THE DISPUTES CLAUSES OF THE TWO CONTRACTS. AN APPEAL WAS FILED BY YOU BUT THE BOARD DISMISSED THE APPEAL ON THE GROUND THAT IT HAD NOT BEEN SUBMITTED ON TIME. ALTHOUGH YOU HAD AGREED TO PAY THE SUM OF $1,902.18, PLUS INTEREST BEGINNING FEBRUARY 16, 1962, IF THE BOARD SUSTAINED THE CONTRACTING OFFICER'S DECISION OR DISMISSED YOUR APPEAL WITHOUT DECISION, YOU REFUSED TO PAY ANY AMOUNT IN ACCORDANCE WITH SUCH AGREEMENT ON THE BASIS THAT YOU DID NOT EXPECT THAT THE BOARD WOULD REFUSE TO CONSIDER THE CASE ON ITS MERITS.

IT IS INDICATED IN YOUR LETTER OF AUGUST 25, 1964, THAT YOU RECEIVED AN INVITATION FOR BIDS FROM THE NAVY CONCERNING A REQUIREMENT FOR MATERIAL AS TO WHICH YOU WERE NOT INFORMED AS TO THE NAVY'S EXACT NEEDS. YOU ALLEGED THAT YOU WERE UNABLE TO OBTAIN A COPY OF THE APPLICABLE SPECIFICATION BEFORE CONTRACT AWARD BUT SENT A SAMPLE OF THE MATERIAL WHICH YOU PROPOSED TO FURNISH WITH YOUR BID; THAT YOU FOUND THE SPECIFICATION TO BE MORE RIGOROUS THAN ANTICIPATED BUT DECIDED TO MANUFACTURE THE MATERIAL IN ACCORDANCE WITH THE SPECIFICATION AND HAD THE MATERIAL TESTED BY AN INDEPENDENT LABORATORY BEFORE SHIPMENT TO THE GOVERNMENT; THAT THE GOVERNMENT WAS THEREBY SAVED APPROXIMATELY 30 PERCENT OF THE COST OF PROCUREMENT IF MADE FROM OTHER SOURCES; AND THAT THE NAVY PROBABLY WOULD NOT HAVE QUESTIONED THE QUALITY OF THE MATERIAL REMAINING ON HAND WHEN YOU WERE NOTIFIED OF ITS FAILURE TO MEET ALL OF THE REQUIREMENTS OF THE SPECIFICATION IF THE NAVY HAD NOT RECEIVED COMPLAINTS FROM OTHER MANUFACTURERS OF CUSHIONING MATERIAL.

YOU CONTENDED THAT THE CUSHIONING MATERIAL DELIVERED UNDER YOUR CONTRACTS IS SUITABLE FOR PACKAGING OF AERONAUTICAL INSTRUMENTS, THAT YOU LOST MONEY IN PRODUCING THE MATERIAL TO PROVIDE A SAVING TO THE GOVERNMENT, THAT A GREAT DEAL OF THE MATERIAL WAS USED BY THE NAVY IN PACKAGING AERONAUTICAL INSTRUMENTS WITH ENTIRELY SATISFACTORY RESULTS, AND THAT KIMPAK X-81, CONSIDERED BY THE GOVERNMENT AS ADEQUATE FOR PACKAGING OF LESS CRITICAL ITEMS, IS MUCH MORE FLIMSY AND LESS DESIRABLE THAN THE TYPE OF CUSHIONING MATERIAL WHICH YOU DELIVERED.

THE RECORD BEFORE US DOES NOT SHOW THE PRICES QUOTED BY OTHER BIDDERS ON CUSHIONING MATERIAL MEETING THE REQUIREMENTS OF THE SPECIFICATION MADE A PART OF EACH OF YOUR TWO CONTRACTS. HOWEVER, INSOFAR AS THE QUESTION OF THE VALIDITY OF THE CHARGES HERE INVOLVED IS CONCERNED, IT IS BELIEVED IMMATERIAL WHETHER OR NOT YOUR PRICES WERE AS MUCH AS 30 PERCENT LESS THAN THOSE QUOTED BY OTHER CONCERNS WHICH MAY HAVE KNOWN THE REQUIREMENTS OF THE SPECIFICATION AND INTENDED TO FURNISH AN ITEM STRICTLY IN ACCORDANCE THEREWITH. WITH RESPECT TO THE ALLEGATION THAT YOU WERE NOT FURNISHED A COPY OF THE SPECIFICATION BEFORE BIDDING ON THE FIRST CONTRACT, IT IS CLEAR THAT YOU CONSCIOUSLY TOOK THE CHANCE THAT NO SERIOUS DIFFICULTY WOULD BE EXPERIENCED IN MEETING THE SPECIFICATION AND THAT YOU MUST HAVE KNOWN THAT THE SUBMISSION OF A SAMPLE COULD NOT IN ITSELF BE CONSIDERED AS A BID QUALIFICATION BECAUSE THE INVITATION FOR BIDS STATED AT PAGE 4 THAT "IF SAMPLES ARE SUBMITTED AS A PART OF THE BID * * * THE BIDDER WARRANTS THAT SUCH SAMPLE * * * CONFORMS TO ALL OF THE SPECIFICATIONS CONTAINED HEREIN, UNLESS IT IS SPECIFICALLY STATED OTHERWISE IN THE BID.'

REGARDLESS OF THE CIRCUMSTANCES WHICH LED TO AN INVESTIGATION DISCLOSING THAT YOUR MATERIAL DID NOT FULLY COMPLY WITH THE CONTRACT SPECIFICATION, THE GOVERNMENT IS NOT TO BE PLACED IN THE POSITION OF HAVING TO RELINQUISH ITS RIGHT TO CLAIM EQUITABLE PRICE ADJUSTMENTS FOR THE 8,097 SHEETS OF MATERIAL WHICH WERE UNUSED WHEN THE APPARENT DEVIATIONS FROM THE SPECIFICATION WERE BROUGHT TO YOUR ATTENTION AND YOU REPORTEDLY OFFERED TO ALLOW THE GOVERNMENT RELATIVELY SLIGHT ADJUSTMENTS IN THE DELIVERED PRICES.

IT IS UNFORTUNATE THAT, IN DETERMINING THE AMOUNTS OF THE CONTRACT PRICE ADJUSTMENTS, IT WAS FOUND NECESSARY TO CONSIDER THE APPROXIMATE COST OF ANOTHER TYPE OF CUSHIONING MATERIAL WHICH, YOU ALLEGE, IS NOT EQUAL IN QUALITY TO THE MATERIAL DELIVERED BY YOUR COMPANY. HOWEVER, KIMPAK X-81 REPORTEDLY IS ADEQUATE FOR THE PACKAGING OF ITEMS LESS CRITICAL THAN AERONAUTICAL INSTRUMENTS AND IT IS APPARENT THAT THE CONTRACTING OFFICER CORRECTLY CONCLUDED THAT THE COST OF KIMPAK X-81, OR AN AMOUNT SLIGHTLY IN EXCESS THEREOF,REPRESENTED THE VALUE TO THE GOVERNMENT OF THE UNUSED 8,097 SHEETS OF YOUR CUSHIONING MATERIAL WHEN DETERMINED THAT YOUR MATERIAL SHOULD NO LONGER BE USED FOR THE PACKAGING OF AERONAUTICAL INSTRUMENTS.

THE QUESTIONS AS TO WHETHER OR NOT THE MATERIAL DELIVERED UNDER YOUR CONTRACTS MET ALL OF THE ESSENTIAL REQUIREMENTS OF THE CONTRACT SPECIFICATION, AND WHETHER OR NOT SUCH MATERIAL COULD BE USED SATISFACTORILY FOR ITS ORIGINALLY INTENDED PURPOSE, ARE PROPERLY FOR DECISION BY THE COGNIZANT PROCUREMENT OFFICIALS AND NOT BY OUR OFFICE. IS TRUE THAT SOME OF YOUR CUSHIONING MATERIAL WAS USED FOR THE PACKAGING OF AERONAUTICAL INSTRUMENTS BUT IT HAS BEEN ADMINISTRATIVELY DETERMINED THAT IT IS NOT SUITABLE THEREFOR; AND IT DOES NOT APPEAR THAT SUCH DETERMINATION WAS ARBITRARY IN ANY RESPECT.

ACCORDINGLY, AND IN VIEW OF THE FINALITY ATTACHED TO ADMINISTRATIVE DECISIONS RENDERED ON DISPUTES CONCERNING QUESTIONS OF FACT ARISING OUT OF YOUR CONTRACTS, WE FIND NO LEGAL BASIS FOR CANCELLATION OR MODIFICATION OF THE REPORTED INDEBTEDNESS OF YOUR COMPANY TO THE UNITED STATES WITH REFERENCE TO CONTRACTS NOS. N155-50026 AND N155 53737. IT IS THEREFORE REQUESTED THAT THE AMOUNT OF $1,902.18, PLUS INTEREST THEREON AT THE RATE OF 6 PERCENT PER YEAR BEGINNING FEBRUARY 16, 1962, BE REMITTED TO THE CLAIMS DIVISION OF OUR OFFICE BY CERTIFIED CHECK MADE PAYABLE TO THE TREASURER OF THE UNITED STATES WITHIN 30 DAYS FROM THE DATE OF THIS LETTER. OTHERWISE, WE WILL BE REQUIRED TO REFER THE MATTER TO THE DEPARTMENT OF JUSTICE FOR THE INSTITUTION OF APPROPRIATE COLLECTION PROCEEDINGS.