B-158241, FEB. 2, 1966

B-158241: Feb 2, 1966

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PARAGRAPH 7 (B) OF THE TERMS AND CONDITIONS OF THE INVITATION FOR BIDS UNDER WHICH AWARD WAS MADE PROVIDED THAT: "/B) IN CONNECTION WITH ANY 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 OR PORT OF EMBARKATION WHEN DELIVERY AND ACCEPTANCE ARE AT EITHER OF THOSE POINTS. OR FROM DATE CORRECT INVOICE OR VOUCHER IS RECEIVED IN THE OFFICE SPECIFIED BY THE GOVERNMENT IF THE LATTER DATE IS LATER THAN THE DATE OF DELIVERY. PAYMENT IS DEEMED TO BE MADE. WAS DESIGNATED ON PAGE 1 OF THE INVITATION FOR BIDS AS THE RECEIVING OFFICE FOR THE INVOICES (PARTIAL PAY ESTIMATES).

B-158241, FEB. 2, 1966

TO MR. C. E. CARTER, CORPS OF ENGINEERS, UNITED STATES ARMY:

IN YOUR LETTER OF DECEMBER 7, 1965, REFERENCE ORNOC, YOU REQUEST A DECISION AS TO THE PROPRIETY OF YOUR WITHHOLDING FUNDS DUE CORBETT DAVIDSON AND SON, CONTRACTORS, MAYFIELD, KENTUCKY, UNDER EQUIPMENT RENTAL CONTRACT NO. DA-40-058-CIVENG-66-37 TO RECOVER AN OVERPAYMENT MADE TO THE SAME COMPANY UNDER A PREVIOUS EQUIPMENT RENTAL CONTRACT NO. DA-40-058- CIVENG-65-36. THE OVERPAYMENT RESULTED FROM THE FAILURE OF THE GOVERNMENT TO TAKE ADVANTAGE OF A PROMPT PAYMENT DISCOUNT OFFERED BY THE CONTRACTOR.

UNDER THE PROVISIONS OF CONTRACT NO. DA-40-058-CIVENG-65-36 DATED OCTOBER 19, 1964, HEREINAFTER REFERRED TO AS CONTRACT NO. 65-36, THE CONTRACTOR AGREED TO RENT TO THE GOVERNMENT CERTAIN CONSTRUCTION EQUIPMENT WITH OPERATING PERSONNEL, AT THE SPECIFIED HOURLY RATES DURING THE PERIOD BEGINNING OCTOBER 26, 1964, AND ENDING FEBRUARY 4, 1965. THE CONTRACT PROVIDED FOR PARTIAL PAYMENTS. PARAGRAPH 7 (B) OF THE TERMS AND CONDITIONS OF THE INVITATION FOR BIDS UNDER WHICH AWARD WAS MADE PROVIDED THAT:

"/B) IN CONNECTION WITH ANY 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 OR PORT OF EMBARKATION WHEN DELIVERY AND ACCEPTANCE ARE AT EITHER OF THOSE POINTS, OR FROM DATE CORRECT INVOICE OR VOUCHER IS RECEIVED IN THE OFFICE SPECIFIED BY THE GOVERNMENT IF THE LATTER DATE IS LATER THAN THE DATE OF DELIVERY. PAYMENT IS DEEMED TO BE MADE, FOR THE PURPOSE OF EARNING THE DISCOUNT, ON THE DATE OF MAILING OF THE GOVERNMENT CHECK.'

THE CONTRACT CONTAINS NO OTHER PROVISION RELATING TO THE COMMENCEMENT OF THE DISCOUNT PERIOD. THE UNITED STATES ARMY ENGINEER DISTRICT, NASHVILLE, P.O. BOX 1070, NASHVILLE, TENNESSEE 37202, WAS DESIGNATED ON PAGE 1 OF THE INVITATION FOR BIDS AS THE RECEIVING OFFICE FOR THE INVOICES (PARTIAL PAY ESTIMATES). THE CONTRACT PROVIDED FOR A DISCOUNT OF 2 PERCENT FOR PAYMENT WITHIN 10 CALENDAR DAYS.

THE RECORD SHOWS THAT EIGHT PARTIAL PAYMENTS WERE MADE DURING THE LIFE OF THE CONTRACT; THAT DURING AN AUDIT OF THE CONTRACT IT WAS DISCOVERED THAT DUE TO AN OVERSIGHT THE GOVERNMENT IN MAKING PAYMENT THEREUNDER HAD FAILED TO GIVE CONSIDERATION TO THE 2-PERCENT PROMPT PAYMENT DISCOUNT OFFERED BY CORBETT DAVIDSON AND SON AND THAT BECAUSE OF SUCH FAILURE THE CONTRACTOR WAS PAID THE FULL AMOUNT OF THE PARTIAL PAY ESTIMATES; THAT THE CONTRACTOR WAS BILLED FOR THE AMOUNT OF $1,051.61, REPRESENTING THE AMOUNT OF THE OVERPAYMENT, AND THAT THE CONTRACTOR REFUSED TO PAY THE AMOUNT BILLED, ALLEGING THAT PAYMENTS WERE NOT MADE BY THE GOVERNMENT WITHIN 10 DAYS AFTER SUBMISSION OF ITS INVOICES (PARTIAL PAY ESTIMATES). YOU STATE THAT LATER CORBETT DAVIDSON AND SON WAS AGAIN THE LOW BIDDER FOR RENTAL OF CONSTRUCTION EQUIPMENT AND THAT ON SEPTEMBER 2, 1965, IT WAS AWARDED CONTRACT NO. DA-40-058-CIVENG-66-37, HEREINAFTER REFERRED TO AS CONTRACT NO. 6-37; AND THAT IN MAKING THE FIRST PARTIAL PAYMENT UNDER CONTRACT NO. 66-37, THE DISBURSING OFFICER DEDUCTED $1,051.61 TO OFFSET THE OVERPAYMENT MADE UNDER CONTRACT NO. 65-36.

IN A LETTER DATED OCTOBER 6, 1965, THE CONTRACTOR PROTESTED THE ACTION OF THE DISBURSING OFFICER IN DEDUCTING $1,051.61 FROM THE FIRST PARTIAL PAYMENT DUE UNDER CONTRACT NO. 66-37.

BY LETTER DATED OCTOBER 13, 1965, YOU ADVISED THE CONTRACTOR AS FOLLOWS:

"REFERENCE IS MADE TO YOUR LETTER DATED 6 OCTOBER 1965 CONCERNING A DEDUCTION ON ESTIMATE NO. 1 UNDER YOUR CONTRACT NO. DA-40-058-CIVENG-66 37.

"YOUR QUOTE OF SECTION 7 (B) OF THE TERMS AND CONDITIONS OF THE INVITATION FOR BIDS IS CORRECT; HOWEVER, ON THE VERY FIRST PAGE, IN THE LOWER LEFT-HAND CORNER OF THAT SAME INVITATION FOR BIDS, IT IS STATED: "SUBMIT INVOICE FOR PAYMENT TO U.S. ARMY ENGINEER DISTRICT, NASHVILLE, P.O. BOX 1070, NASHVILLE, TENN. 37202.' IN ACCORDANCE WITH THE PROVISIONS OF SECTION 7 (B), THE TIME FOR COMPUTATION OF THE DISCOUNT WOULD BEGIN WHEN THE INVOICE WAS RECEIVED IN THE OFFICE SPECIFIED, SUBJECT TO ARTICLE 7 OF THE CONTRACT. PAYMENT IS DEEMED TO BE MADE FOR THE PURPOSE OF EARNING THE DISCOUNT, ON THE DATE OF MAILING OF THE GOVERNMENT CHECK.

"A COMPLETE REVIEW OF FACTS STATED IN YOUR LETTER DATED 21 SEPTEMBER 1965 BASED ON QUOTED PORTION OF THE CONTRACT IN PARAGRAPH NO. 2 ABOVE RESULTS IN THE FOLLOWING:

CHART ESTIMATE DATE SIGNED DATE REC-D DATE OF NUMBER OF NUMBER BY RESIDENT BY DISBURSING PAYMENT DAYS FROM

ENGINEER OFFICER END OF MONTH

1 11/30/64 12/1/64 12/8/64 8

2 12/31/64 1/4/65 1/8/65 8

3 1/29/65 2/1/65 2/9/65 9

4 2/26/65 3/1/65 3/8/65 8

5 3/26/65 3/29/65 3/31/65 0

6 4/26/65 4/27/65 5/5/65 5

7 5/26/65 5/27/65 6/10/65 10

8 6/24/65 6/25/65 7/7/65 7

THE TOTAL AMOUNT OF DISCOUNT WAS DEDUCTED BASED ON ARTICLE 7 OF CONTRACT WHICH READS: ,PAYMENTS--- UNLESS OTHERWISE PROVIDED IN THE SPECIFICATIONS, PARTIAL PAYMENTS WILL BE MADE AT THE END OF EACH CALENDAR MONTH, OR AS SOON THEREAFTER AS PRACTICABLE.' EACH PAYMENT WAS MADE ON OR BEFORE THE 10TH OF THE FOLLOWING MONTH.

"AFTER A REVIEW OF REFERENCED PORTIONS OF THE CONTRACT, IF YOU DESIRE TO MAKE CLAIM FOR DISCOUNT DEDUCTED, THE CLAIM WILL BE SUBMITTED TO THE GENERAL ACCOUNTING OFFICE, WASHINGTON, D.C. FOR A DECISION.'

IN ITS LETTER OF NOVEMBER 2, 1965, THE CONTRACTOR MAKES THE FOLLOWING CONTENTIONS:

(1) IN TRADE OR COMMERCIAL PRACTICE A PROMPT PAYMENT DISCOUNT MUST BE TAKEN AT THE TIME OF PAYMENT OR OTHERWISE IT IS LOST AND, THEREFORE, SINCE THE GOVERNMENT DID NOT TAKE THE DISCOUNT AT TIME OF PAYMENT IT IS NOT NOW ENTITLED TO SUCH DISCOUNT;

(2) THAT THE DISCOUNT PERIOD IS 10 CALENDAR DAYS FROM DATE OF THE INVOICE (PARTIAL PAY ESTIMATE) TO DATE OF CHECK;

(3) THAT THE DISBURSING OFFICER'S INTERPRETATION OF THE CONTRACT TERMS, TO THE EFFECT THAT A DISCOUNT MAY BE TAKEN IF PAYMENT IS MADE WITHIN THE FIRST 10 DAYS OF THE MONTH, IS INCORRECT SINCE THE CONTRACT PROVISION FOR TAKING OF THE PROMPT PAYMENT DISCOUNT IS BASED ON CALENDAR DAYS ONLY.

IN YOUR LETTER DATED DECEMBER 7, 1965, YOU SUGGEST THAT THERE MAY BE A QUESTION AS TO WHETHER THE GOVERNMENT IS ENTITLED TO WITHHOLDING A DISCOUNT IN RESPECT TO PARTIAL PAY ESTIMATES NOS. 7 AND 8. YOU STATE THAT THE DISBURSING OFFICER WITHHELD THESE PROMPT PAYMENT DISCOUNTS ON THE BASIS OF THE FACT THAT THE CONTRACT PROVIDED UNDER ARTICLE 7 OF THE FORMAL CONTRACT THAT: "UNLESS OTHERWISE PROVIDED IN THE SPECIFICATIONS, PARTIAL PAYMENTS WILL BE MADE AT THE END OF EACH CALENDAR MONTH, OR AS SOON THEREAFTER AS PRACTICABLE," AND THAT EACH PAYMENT WAS MADE ON OR BEFORE THE 10TH DAY OF THE MONTH.

IN THE LIGHT OF THE EXPRESS PROVISIONS OF THE CONTRACT, WE MUST CONCLUDE THAT THE COMMENCEMENT OF DISCOUNT PERIOD CLAUSE AS SPECIFICALLY SET FORTH IN PARAGRAPH 7 (B) OF THE TERMS AND CONDITIONS OF THE INVITATION FOR BIDS TAKES PRECEDENCE OVER THE PARTIAL PAYMENTS PROVISION APPEARING IN ARTICLE 7 OF THE CONTRACT FOR "HIRE OF PLANT OR EQUIPMENT BY GOVERNMENT (WITH OR WITHOUT OPERATING PERSONNEL).' THEREFORE, THE OTHER QUESTION FOR CONSIDERATION IS WHETHER UNDER THE REFERRED-TO COMMENCEMENT OF DISCOUNT PERIOD CLAUSE THE GOVERNMENT EARNED THE DISCOUNTS WHICH WERE TAKEN BY THE DISBURSING OFFICER. USING THE DATES LISTED IN THE SCHEDULE OF PAYMENTS SET FORTH IN YOUR LETTER OF OCTOBER 13, 1965, TO THE CONTRACTOR, IT APPEARS THAT THE GOVERNMENT DID EARN THE PROMPT PAYMENT DISCOUNTS TAKEN ON PARTIAL PAY ESTIMATES NOS. 1 THROUGH 6; HOWEVER, AS TO PARTIAL PAY ESTIMATES NOS. 7 AND 8, IT DOES NOT APPEAR THAT THE GOVERNMENT EARNED SUCH DISCOUNTS BECAUSE THE PAYMENTS WERE NOT MADE WITHIN THE DISCOUNT PERIOD SPECIFIED IN THE CONTRACT.

WHILE IT MAY BE THE TRADE OR COMMERCIAL PRACTICE TO TAKE A PROMPT PAYMENT DISCOUNT AT THE TIME OF PAYMENT OR ELSE LOSE SUCH DISCOUNT, SUCH PRACTICE DOES NOT APPLY TO GOVERNMENT OFFICERS WHO ARE REQUIRED TO MAKE PAYMENTS IN ACCORDANCE WITH THE TERMS OF A CONTRACT. IF A GOVERNMENT OFFICER IN MAKING PAYMENT FAILS TO FOLLOW THE CONTRACT TERMS, SUCH PAYMENT MUST BE REGARDED AS ERRONEOUS AND UNLAWFUL. INTERNATIONAL HARVESTER COMPANY, A CORPORATION V. UNITED STATES, CT.CL. NO. 436-58, DECIDED MARCH 12, 1965. SINCE A GOVERNMENT OFFICER HAS NO AUTHORITY TO MAKE AN OVERPAYMENT, THE GOVERNMENT HAS A DUTY TO SEEK A REFUND. ROYAL INDEMNITY CO. V. UNITED STATES, 313 U.S. 289.

IN UNITED STATES V. MUNSEY TRUST CO., 332 U.S. 234, 239 (1947), THE SUPREME COURT STATED THAT THE GOVERNMENT HAS THE SAME RIGHT AS ANY CREDITOR TO APPLY THE UNAPPROPRIATED MONIES OF ITS DEBTOR WHICH IT HOLDS TO EXTINGUISH THE DEBTS DUE TO IT. HENCE, IT DOES NOT APPEAR THAT THE SETOFF ACTION TAKEN BY THE DISBURSING OFFICER IN THIS CASE WAS ARBITRARY, AS ALLEGED BY THE CONTRACTOR.

SINCE PAYMENT FOR THE SERVICES COVERED BY PARTIAL PAY ESTIMATES NOS. 7 AND 8 WAS NOT MADE WITHIN 10 DAYS FROM THE DATE THE INVOICES WERE RECEIVED IN THE DESIGNATED OFFICE, THE UNEARNED DISCOUNTS SO DEDUCTED BY YOU MAY BE REFUNDED TO CORBETT DAVIDSON AND SON. A REFERENCE TO THIS DECISION SHOULD BE MADE ON THE VOUCHER COVERING SUCH REFUND.