B-161563, JUNE 22, 1967, 46 COMP. GEN. 874

B-161563: Jun 22, 1967

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1967: THIS IS IN REFERENCE TO A SUBMISSION DATED MAY 12. THE CONTRACTS IN QUESTION WERE AWARDED IN 1965 TO A NUMBER OF STORAGE FIRMS IN THE WASHINGTON. THE RATE MODIFICATIONS ARE ALLEGEDLY NEEDED TO ALLEVIATE AN ECONOMIC BURDEN PLACED ON THESE CONTRACTS DUE TO INCREASED LABOR COSTS CAUSED BY ENACTMENT OF THE SERVICE CONTRACT ACT OF 1965 (41 U.S.C. 351-357). RIMESTAD STATES THAT IT IS NO LONGER A PRACTICE OF THE DEPARTMENT TO REQUIRE A CONTRACTOR TO BIND HIMSELF TO A FIXED PRICE OVER SUCH A PERIOD. WITH REGARD TO THE SUBJECT AGREEMENTS HE STATES THAT THEY HAVE BEEN RENEWED FOR 1966 AND 1967 ON THE THEORY THAT "TERMINATION OR MODIFICATION WOULD BE IMPROPER WHILE THE DEPARTMENT HAS A CONTINUING NEED FOR THE SERVICES.'.

B-161563, JUNE 22, 1967, 46 COMP. GEN. 874

CONTRACTS - LABOR STIPULATIONS - SERVICE CONTRACT ACT OF 1965 - RELIEF FOR INCREASED WAGES ALTHOUGH THE RATES OF STORAGE IN CONTRACTS CONTAINING RENEWAL OPTIONS MAY NOT BE MODIFIED TO ALLEVIATE THE ECONOMIC BURDEN PLACED ON CONTRACTORS DUE TO INCREASED LABOR COSTS UNDER THE SERVICE CONTRACT ACT OF 1965 (41 U.S.C. 351-357) AS NO COMMENSURATE BENEFITS WOULD FLOW TO THE GOVERNMENT, THE FURTHERANCE OF THE POLICY SET OUT IN THE ACT NOT CONSTITUTING SUPPORT FOR MODIFICATION, THE REMAINING CONTRACT RENEWAL OPTIONS NEED NOT BE EXERCISED UPON DETERMINATION BY THE CONTRACTING OFFICER THAT COMPLIANCE WITH THE ACT WOULD RESULT IN A NET LOSS TO THE CONTRACTOR IN PERFORMING THE OPTION CONTRACTS.

TO THE SECRETARY OF STATE, JUNE 22, 1967:

THIS IS IN REFERENCE TO A SUBMISSION DATED MAY 12, 1967, FROM MR. IDAR RIMESTAD, DEPUTY UNDER SECRETARY FOR ADMINISTRATION, IN WHICH HE SOUGHT AUTHORIZATION TO CONDUCT NEGOTIATIONS SEEKING RATE MODIFICATIONS OF CERTAIN STORAGE CONTRACTS. THE CONTRACTS IN QUESTION WERE AWARDED IN 1965 TO A NUMBER OF STORAGE FIRMS IN THE WASHINGTON, D.C. AREA PURSUANT TO PARAGRAPHS (4) AND (5) OF SECTION 911 OF THE FOREIGN SERVICE ACT OF 1946, AS AMENDED (22 U.S.C. 1136). THE RATE MODIFICATIONS ARE ALLEGEDLY NEEDED TO ALLEVIATE AN ECONOMIC BURDEN PLACED ON THESE CONTRACTS DUE TO INCREASED LABOR COSTS CAUSED BY ENACTMENT OF THE SERVICE CONTRACT ACT OF 1965 (41 U.S.C. 351-357).

THE 1965 STORAGE CONTRACTS PROVIDED THAT THE DEPARTMENT COULD RENEW THEM FROM YEAR TO YEAR FOR FIVE 1-YEAR PERIODS AT THE SAME RATES CHARGED INITIALLY. MR. RIMESTAD STATES THAT IT IS NO LONGER A PRACTICE OF THE DEPARTMENT TO REQUIRE A CONTRACTOR TO BIND HIMSELF TO A FIXED PRICE OVER SUCH A PERIOD. BUT WITH REGARD TO THE SUBJECT AGREEMENTS HE STATES THAT THEY HAVE BEEN RENEWED FOR 1966 AND 1967 ON THE THEORY THAT "TERMINATION OR MODIFICATION WOULD BE IMPROPER WHILE THE DEPARTMENT HAS A CONTINUING NEED FOR THE SERVICES.' SINCE THE RENEWALS WERE EXECUTED SUBSEQUENT TO THE ENACTMENT OF THE SERVICE CONTRACT ACT, AT THE 1965 RATES, AND GOVERNMENT BUSINESS CONSTITUTES A SUBSTANTIAL PORTION OF THE TOTAL BUSINESS OF THE CONTRACTORS IN QUESTION, AS A PRACTICAL MATTER THE CONTRACTORS CONTEND THAT THEY HAVE BEEN FORCED TO INCREASE WAGE PAYMENTS AND FRINGE BENEFITS FOR WORK ON ALL CONTRACTS IN LINE WITH THE STRICTURES OF THE ACT, EVEN THOUGH THE ACT DOES NOT APPLY TO AGREEMENTS WHICH WERE IN FORCE PRIOR TO THE EFFECTIVE DATE OF THE LAW (JANUARY 20, 1966).

INITIALLY, MR. RIMESTAD RECOGNIZES THAT WE HAVE DENIED AUTHORIZATION OF CONTRACTUAL MODIFICATIONS WITHOUT THE PRESENCE OF COMMENSURATE BENEFITS FLOWING TO THE GOVERNMENT. B-157241, AUGUST 27, 1965; 35 COMP. GEN. 56. HE SUGGESTS IN EFFECT, HOWEVER THAT THE PUBLIC POLICY FORMING THE BASIS OF THE STATUTE WOULD CONSTITUTE VALUABLE CONSIDERATION TO SUPPORT MODIFICATION TO COMPENSATE THE CONTRACTOR FOR ADHERENCE TO, AND COMPLIANCE WITH, THE REQUIREMENTS OF THE ACT. WHILE WE FEEL THAT THE GOVERNMENT IN ITS CAPACITY AS LAW MAKER WOULD RECEIVE MEASUREABLE BENEFITS FROM THE CONTRACTORS IN THE FORM OF ADVANCEMENT OF THE POLICY OBJECTIVES OF THE REFERENCED ACT, WE FAIL TO SEE HOW THE GOVERNMENT, AS A CONTRACTOR, COULD BE SAID TO OBTAIN SUCH CONSIDERATION AS WOULD SUPPORT MODIFICATION OF THE CONTRACTS AS A MATTER OF LAW. IN CASES WHERE THIS OFFICE HAS HELD THERE WAS SUFFICIENT CONSIDERATION PRESENT TO SUPPORT MODIFICATION OF A CONTRACT, SUCH CONSIDERATION AROSE FROM THE PARTICULAR CONTRACT IN QUESTION AND BENEFITED THE GOVERNMENT IN ITS CONTRACTUAL CAPACITY. WE ARE THEREFORE UNABLE TO CONCLUDE THAT ANY FURTHERANCE OF THE POLICY SET OUT IN THE SERVICE CONTRACT ACT AS MAY RESULT FROM PAYMENT OF HIGHER WAGES THAN WOULD OTHERWISE BE REQUIRED CONSTITUTES SUCH CONSIDERATION AS WOULD SUPPORT MODIFICATION OF THE INSTANT CONTRACTS.

IT IS ALSO CLAIMED THAT AN EXCEPTION SHOULD BE MADE IN THE INSTANT CASE BECAUSE THE OPTION CLAUSE IN QUESTION MAY BE FOUND TO BE "UNCONSCIONABLE" AND STRICKEN BY THE COURTS. WHILE IT IS DIFFICULT TO PREDICT HOW A COURT MIGHT APPLY THIS EQUITABLE CONCEPT TO THE SUBJECT CONTRACTS THIS OFFICE EXERCISES JURISDICTION ON EQUITABLE GROUNDS ONLY WHERE SUCH JURISDICTION IS SPECIFICALLY GRANTED BY STATUTE. SEE, FOR EXAMPLE, 31 U.S.C. 236 AND 41 U.S.C. 256A. IN VIEW THEREOF, IT IS OUR OPINION THAT ANY CLAIMS BASED UPON A CONTENTION THAT ENFORCEMENT OF THE CONTRACTS IS UNCONSCIONABLE SHOULD PROPERLY BE LEFT TO DETERMINATION BY THE COURTS.

IT IS FURTHER ARGUED THAT THE FAVORABLE PRICE THE GOVERNMENT IS OBTAINING UNDER THE PRESENT CONTRACTS IS ILLUSORY IN THAT THE CONTRACTORS MAY BE EXPECTED TO DEVOTE ONLY PERFUNCTORY ATTENTION TO THESE CONTRACTS IN ORDER TO MINIMIZE COSTS. WHILE SUCH EXPECTATIONS MAY BE CORRECT, IT WOULD APPEAR THAT INSISTENCE UPON PROPER PERFORMANCE IS BOTH THE RIGHT AND THE DUTY OF THE CONTRACTING AGENCY, AND WE CANNOT SANCTION A MODIFICATION OF THE CONTRACT IN ORDER TO EASE THE AGENCY'S BURDEN OF CONTRACT ADMINISTRATION IN THIS RESPECT.

WHILE WE MUST THEREFORE CONCLUDE THAT THE PROPOSED MODIFICATIONS WOULD BE IMPROPER UNLESS THE GOVERNMENT IN ITS CONTRACTUAL CAPACITY RECEIVES ADDITIONAL CONSIDERATION, IT SHOULD BE NOTED THAT UNDER APPROPRIATE CIRCUMSTANCES IT MAY NOT BE NECESSARY TO EXERCISE THE OPTIONS REMAINING UNDER THE CONTRACTS IN QUESTION. IN THIS CONNECTION, SEE OUR DECISION B- 151759, NOVEMBER 13, 1963, WHEREIN WE ADVISED AS FOLLOWS: HOWEVER, IN VIEW OF THE DETERMINATION BY THE DEPARTMENT OF LABOR THAT WORK UNDER A NEW OR RENEWAL CONTRACT WOULD BE SUBJECT TO THE MINIMUM WAGE REQUIREMENTS OF THE FAIR LABOR STANDARDS ACT, AS AMENDED, AND SINCE IT APPEARS THAT UNDER THAT ACT YOU WOULD HAVE BEEN REQUIRED TO PAY WORKERS EMPLOYED ON THE CONTRACT WORK AT RATES IN EXCESS OF THE RATES RECEIVED BY YOU FROM THE GOVERNMENT, WE ARE NOT REQUIRED TO OBJECT TO THE DECISION OF THE CONTRACTING OFFICER NOT TO ATTEMPT TO EXERCISE THE OPTION AT THE ORIGINAL RATES.

SEE ALSO 28 OP. ATTY. GEN. 121, WHICH WE CONSTRUE AS SUPPORTING TERMINATION OF A CONTRACT UNDER ANALOGOUS CIRCUMSTANCES, RATHER THAN MODIFICATION AS SUGGESTED IN MR. RIMESTAD'S LETTER OF MAY 12.

IN VIEW THEREOF, YOU ARE ADVISED THAT THIS OFFICE WILL NOT OBJECT TO FAILURE OF YOUR DEPARTMENT TO EXERCISE ANY REMAINING OPTIONS ON STORAGE CONTRACTS OF THE TYPE HERE INVOLVED WHEN IT IS DETERMINED BY THE CONTRACTING OFFICER, BASED UPON EVIDENCE SUBMITTED BY THE CONTRACTOR, THAT A REQUIREMENT FOR COMPLIANCE WITH THE SERVICE CONTRACT ACT OF 1965 ON OTHER CONTRACTS WILL, AS A PRACTICAL NECESSITY, ALSO REQUIRE THE PAYMENT OF WAGES FOR WORK TO BE PERFORMED UNDER THE OPTION CONTRACTS AT RATES WHICH WOULD NECESSARILY RESULT IN A NET LOSS TO THE CONTRACTOR IN PERFORMING THE OPTION CONTRACTS.