B-158394, NOV. 15, 1966

B-158394: Nov 15, 1966

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TO LEONE AND REAL: FURTHER REFERENCE IS MADE TO YOUR LETTER OF JANUARY 17. WHETHER A VALID CONTRACT WAS CONSUMMATED BETWEEN YOUR CLIENT AND THE GOVERNMENT. - YOU WERE GRANTED A CONTINUANCE BY THE BOARD IN ORDER TO PRESENT THE MATTER TO THIS OFFICE FOR ITS CONSIDERATION. THE ITEMS WERE DESCRIBED IN THE PURCHASE ORDER AS FOLLOWS: "THERMOSWITCH ASSEMBLY. REQUEST FOR QUOTATIONS (RFQ) NO. 921779 WAS ISSUED BY THE AGENCY COVERING THE PROCUREMENT OF 230 THERMOSWITCH ASSEMBLIES IDENTICAL TO THOSE DESCRIBED ABOVE. WHEREBY THE QUANTITY OF THERMOSWITCH ASSEMBLIES TO BE DELIVERED UNDER THE PURCHASE ORDER WAS INCREASED FROM 10 TO 240 (A TOTAL OF THE ITEMS INVOLVED UNDER THE RFQ AND THE PURCHASE ORDER).

B-158394, NOV. 15, 1966

TO LEONE AND REAL:

FURTHER REFERENCE IS MADE TO YOUR LETTER OF JANUARY 17, 1966, AND SUBSEQUENT CORRESPONDENCE PROTESTING, ON BEHALF OF THE SCAICO DIVISION OF WAVETRONICS INDUSTRIES, INC. (SCAICO), THE ADMINISTRATIVE ASSESSMENT OF EXCESS COSTS RESULTING FROM THE REPROCUREMENT OF SUPPLIES COVERED BY UNITED STATES ARMY MATERIEL COMMAND PURCHASE ORDER NO. 11-070-005 05585 FOLLOWING ITS TERMINATION FOR DEFAULT.

YOUR PROTEST REFERENCES APPEAL NO. 10997, CURRENTLY PENDING BEFORE THE ARMED SERVICES BOARD OF CONTRACT APPEALS (ASBCA) INVOLVING THE SAME SET OF FACTS AND ISSUES. SINCE YOUR APPEAL BEFORE THE ASBCA INVOLVES THE DETERMINATION OF A LEGAL QUESTION, I.E., WHETHER A VALID CONTRACT WAS CONSUMMATED BETWEEN YOUR CLIENT AND THE GOVERNMENT--- WHICH IF DECIDED IN THE NEGATIVE WOULD RENDER THE APPEAL MOOT--- YOU WERE GRANTED A CONTINUANCE BY THE BOARD IN ORDER TO PRESENT THE MATTER TO THIS OFFICE FOR ITS CONSIDERATION.

FOLLOWING SEVERAL UNSUCCESSFUL ATTEMPTS BY THE GOVERNMENT TO PURCHASE VARIOUS QUANTITIES OF THE ITEMS DESCRIBED BELOW, THE ROCK ISLAND ARSENAL, ON OCTOBER 27, 1964, AWARDED THE SUBJECT PURCHASE ORDER TO SCAICO PURSUANT TO ITS TELEPHONIC OFFER TO SUPPLY TEN OF THE ITEMS FOR $24.80 EACH. THE ITEMS WERE DESCRIBED IN THE PURCHASE ORDER AS FOLLOWS:

"THERMOSWITCH ASSEMBLY. PART NR. 8427083 AS PER DRG. C8427083, DATED 8/13/64 AND INCLUDING DETAILED INFORMATION SHOWN ON DRG. C8427084, DATED 8/13/64, AND MIL. STD. 130B, DATED 4/24/62.'

ON NOVEMBER 6, 1964, REQUEST FOR QUOTATIONS (RFQ) NO. 921779 WAS ISSUED BY THE AGENCY COVERING THE PROCUREMENT OF 230 THERMOSWITCH ASSEMBLIES IDENTICAL TO THOSE DESCRIBED ABOVE. SCAICO RESPONDED TO THE RFQ AND SUBMITTED THE LOWEST UNIT PRICE QUOTATION OF $17.77. THE NEGOTIATIONS THEREAFTER CONDUCTED WITH SCAICO PURSUANT TO THE RFQ RESULTED IN A MODIFICATION TO THE PURCHASE ORDER ON DECEMBER 23, 1964, WHEREBY THE QUANTITY OF THERMOSWITCH ASSEMBLIES TO BE DELIVERED UNDER THE PURCHASE ORDER WAS INCREASED FROM 10 TO 240 (A TOTAL OF THE ITEMS INVOLVED UNDER THE RFQ AND THE PURCHASE ORDER), AT A UNIT PRICE OF $8.75. CONSIDERATION FOR THE PRICE DECREASE FROM $24.80 EACH TO $8.75 EACH, THE MODIFICATION ALSO PROVIDED FOR THE DELETION OF SEVERAL OF THE QUALITY ASSURANCE PROVISIONS WHICH HAD BEEN ORIGINALLY MADE PART OF THE PURCHASE ORDER.

IT IS ADMINISTRATIVELY REPORTED THAT SCAICO THEREAFTER FAILED TO SATISFACTORILY COMPLY WITH THE TERMS OF THE PURCHASE ORDER AND AFTER SEVERAL WARNINGS IT WAS TERMINATED FOR DEFAULT ON JUNE 3, 1965. PURSUANT TO PARAGRAPH NO. 16 OF THE ADDITIONAL GENERAL PROVISIONS OF THE PURCHASE ORDER, ENTITLED TERMINATION FOR DEFAULT, THE GOVERNMENT THEN REPROCURED THE ITEMS FROM ANOTHER SOURCE AND ASSESSED SCAICO FOR THE EXCESS COSTS INCURRED THEREBY.

YOUR APPEAL OF THIS ACTION BEFORE THE ASBCA AND OUR OFFICE IS PREDICATED UPON THE CONTENTION THAT BECAUSE SCAICO'S AUTHORIZED BARGAINING REPRESENTATIVE ALLEGEDLY ACTED IN A MANNER INIMICAL TO THE BEST INTERESTS OF HIS PRINCIPAL DURING THE AFOREMENTIONED NEGOTIATION PROCEEDINGS, THE PRICE SHOULD BE CONSIDERED AS HAVING RESULTED FROM A MISTAKE IN BID AS TO WHICH THE CONTRACTING OFFICER SHOULD HAVE BEEN ON CONSTRUCTIVE NOTICE.

UPON REVIEW, WE FIND THAT AT NO TIME DURING THE NEGOTIATION PROCEEDINGS CONDUCTED PURSUANT TO THE RFQ DID SCAICO'S AGENT EVER SUBMIT A QUOTATION THAT COULD NOW BE INTERPRETED AS HAVING BEEN TENDERED AS THE RESULT OF A MISTAKE. YOUR ALLEGATION THAT THE AGENT INTENTIONALLY ACTED CONTRARY TO THE INTERESTS OF HIS PRINCIPAL THROUGHOUT THE NEGOTIATION PROCEEDINGS IS NOT SUPPORTED BY THE RECORD; NEITHER IS THERE ANY INDICATION THEREIN THAT THE GOVERNMENT REPRESENTATIVES WERE COGNIZANT OF THE AGENT'S ALLEGED IMPROPER ACTIONS. THE CONTRACT PRINCIPLE HERE PERTINENT IS THAT AN ALLEGED UNILATERAL MISTAKE DOES NOT, IPSO FACTO, RENDER A TRANSACTION VOIDABLE BY THE OFFEROR. ALSO PERTINENT IS THE BASIC PREMISE OF CONTRACT LAW THAT AN OFFER IS JUDGED BY ITS OBJECTIVE MANIFESTATIONS, NOT BY ANY MENTAL RESERVATIONS OR SUBJECTIVE INTERPRETATIONS OR INTENTIONS OF THE OFFEROR. SEE BACH V. FRIDEN CALCULATING MACHINE CO., 155 F.2D 361; NOLAND COMPANY V. GRARER TANK AND MANUFACTURING CO., 301 F.2D 43.

WITH FURTHER REFERENCE TO THE ALLEGED MISCONDUCT OF THE CONTRACTOR'S FORMER GENERAL MANAGER WHO NEGOTIATED THE CONTRACT PRICE MODIFICATION, WE NOTE THAT THE PRICE OF $8.75 PER UNIT WAS ARRIVED AT THROUGH INFORMAL DISCUSSIONS; THAT AT NO TIME WAS THE GOVERNMENT NEGOTIATOR AWARE OF ANY IRREGULARITY ON THE PART OF SUCH PERSON OR THAT HE WAS NOT AUTHORIZED BY THE CONTRACTOR TO NEGOTIATE CONTRACTS; AND THAT AFTER CONSUMMATION OF THE MODIFICATION, THE PRESIDENT OF THE COMPANY VERIFIED AND CONFIRMED THE TRANSACTION WITHOUT QUESTION. IN THESE CIRCUMSTANCES WE CANNOT AGREE THAT AN "ERROR" WAS MADE BY THE CONTRACTOR IN NEGOTIATING THE PURCHASE ORDER PRICE AS MODIFIED. THE GOVERNMENT HAD NO REASON TO SUSPECT THAT THE GENERAL MANAGER MAY HAVE OVERREACHED HIS AUTHORITY--THIS WAS NOT ALLEGED UNTIL AFTER THE CONTRACTOR FOUND ITSELF IN DIFFICULTY. WE THEREFORE BELIEVE THAT THE PRINCIPLE APPLICABLE HERE IS THAT STATED IN 3 AM.JUR.2D; AGENCY, SECTION 76, TO THE EFFECT THAT A PRINCIPAL IS ESTOPPED FROM DENYING HIS AGENT'S AUTHORITY WHERE HE PLACED THE AGENT IN SUCH A POSITION THAT A PERSON OF ORDINARY PRUDENCE CONVERSANT WITH BUSINESS USAGES AND THE NATURE OF THE PARTICULAR BUSINESS IS JUSTIFIED IN ASSUMING THAT SUCH AGENT HAS AUTHORITY TO PERFORM A PARTICULAR ACT AND DEAL WITH THE AGENT UPON THAT ASSUMPTION. UNDER THESE CIRCUMSTANCES, A PRINCIPAL WILL NOT BE PERMITTED TO PROVE THAT THE AGENT'S AUTHORITY WAS, IN FACT, LESS EXTENSIVE THAN THAT WITH WHICH HE WAS APPARENTLY CLOTHED.

ACCORDINGLY, WE FIND NO LEGAL BASIS TO CONCLUDE THAT THE PURCHASE ORDER WAS LEGALLY DEFECTIVE AS ALLEGED.