B-162987, DEC. 20, 1967

B-162987: Dec 20, 1967

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AN AIRLIFT SERVICE CONTRACT PRICE WHICH WAS BASED ON AN INCORRECT CAB CARGO RATE MAY BE INCREASED TO REFLECT THE CORRECT RATE NOTWITHSTANDING THAT THE CONTRACT CONTAINED A PRICE REVISION PROHIBITION SINCE TO CONSTRUE THE CONTRACT AS PRECLUDING REVISION WOULD FRUSTRATE THE OVERALL DESIGN OF THE CONTRACT TO ADOPT THE PROPER CARGO RATE ESTABLISHED BY CAB. SECRETARY: REFERENCE IS MADE TO A LETTER DATED NOVEMBER 27. IN CONNECTION WITH THE COST OF AIRLIFT SERVICES THE CONTRACT PROVIDES THAT RATES WILL CONFORM TO THE CAB MINIMUM RATES WHEN ESTABLISHED FOR FY 68. MINIMUM RATES FOR FY 68 WERE ESTABLISHED BY THE CAB IN A RULE DATED MAY 25. ER-494) AND THE REFERENCED CONTRACT WAS AMENDED TO REFLECT THESE RATES ON JUNE 19.

B-162987, DEC. 20, 1967

CONTRACTS - MISTAKES - REFORMATION DECISION TO SEC. OF AIR FORCE APPROVING REVISION OF CONTRACT OF MILITARY AIRLIFT COMMAND WITH SATURN AIRWAYS, INC., TO REFLECT RATE INCREASE ESTABLISHED BY CAB. AN AIRLIFT SERVICE CONTRACT PRICE WHICH WAS BASED ON AN INCORRECT CAB CARGO RATE MAY BE INCREASED TO REFLECT THE CORRECT RATE NOTWITHSTANDING THAT THE CONTRACT CONTAINED A PRICE REVISION PROHIBITION SINCE TO CONSTRUE THE CONTRACT AS PRECLUDING REVISION WOULD FRUSTRATE THE OVERALL DESIGN OF THE CONTRACT TO ADOPT THE PROPER CARGO RATE ESTABLISHED BY CAB.

TO MR. SECRETARY:

REFERENCE IS MADE TO A LETTER DATED NOVEMBER 27, 1967, FROM YOUR GENERAL COUNSEL REQUESTING A DECISION AS TO WHETHER THE MILITARY AIRLIFT COMMAND (MAC) MAY LEGALLY INCREASE THE PRICE OF ITS CONTRACT (F11626-67-C-0023) WITH SATURN AIRWAYS, INC., FOR AIRLIFT SERVICES DURING FISCAL YEAR 1968 (FY 68) TO REFLECT THE RATE INCREASE ESTABLISHED BY THE CIVIL AERONAUTICS BOARD (CAB) ON JULY 21, 1967.

IN CONNECTION WITH THE COST OF AIRLIFT SERVICES THE CONTRACT PROVIDES THAT RATES WILL CONFORM TO THE CAB MINIMUM RATES WHEN ESTABLISHED FOR FY 68. THE CONTRACT FURTHER PROVIDES THAT "...THE PRICES SET FORTH IN THIS CONTRACT SHALL REMAIN IN EFFECT THROUGHOUT THE PERIOD OF PERFORMANCE OF THIS CONTRACT UNLESS THE CIVIL AERONAUTICS BOARD DETERMINES THAT INEQUITIES WOULD RESULT TO EITHER THE DEPARTMENT OF DEFENSE OR THE DOMESTIC OR INTERNATIONAL INDUSTRY UNDER CONTRACT TO MAC AND THEN ONLY PROVIDED THAT THE INEQUITY RESULTS FROM NEW FACTS NOT AVAILABLE FOR SUBMISSION TO THE BOARD WHEN IT ESTABLISHED THE RATE LEVELS FOR THIS CONTRACT YEAR.'

MINIMUM RATES FOR FY 68 WERE ESTABLISHED BY THE CAB IN A RULE DATED MAY 25, 1967 (REG. NO. ER-494) AND THE REFERENCED CONTRACT WAS AMENDED TO REFLECT THESE RATES ON JUNE 19, 1967. HOWEVER, BY A RULE DATED JULY 21, 1967 (REG. NO. ER-499) THE CAB, ACTING UPON SATURN'S PETITION FOR RECONSIDERATION, RAISED THE MINIMUM ONE-WAY CARGO RATE APPLICABLE TO THIS CONTRACT BECAUSE IT HAD ,INADVERTENTLY OVERLOOKED" CERTAIN COST DATA IN REACHING ITS ORIGINAL DETERMINATION.

OUR OPINION IS REQUESTED AS TO WHETHER THE CONTRACT PRICE CAN BE ADJUSTED TO REFLECT THE CORRECTED RATE DETERMINATION, IN VIEW OF THE ABOVE-QUOTED CONDITIONS PRECEDENT TO ADJUSTMENTS AFTER THE ESTABLISHMENT OF THE FY 68 RATE.

IT IS A WELL-ESTABLISHED PRINCIPLE THAT A CONTRACT INCLUDES NOT ONLY THE PROMISES SET FORTH IN EXPRESS WORDS, BUT IN ADDITION ALL SUCH IMPLIED PROVISIONS AS ARE INDISPENSABLE TO EFFECTUATE THE INTENTION OF THE PARTIES AND AS ARISE FROM THE LANGUAGE OF THE CONTRACT AND THE CIRCUMSTANCES UNDER WHICH IT WAS MADE. CHOCTAW NATION V. UNITED STATES, 121 F.SUPP. 206.

WE ARE OF THE OPINION THAT THE PROPOSED ADJUSTMENT IS NOT SUCH A CHANGE AS WAS CONTEMPLATED AND INTENDED TO BE PRECLUDED BY THE CONTRACT'S PRICE REVISION CLAUSE, SINCE HERE THE INITIAL RATE DETERMINATION IS STATED BY THE BOARD TO HAVE BEEN ERRONEOUS, THROUGH NO FAULT OF EITHER CONTRACTING PARTY, AND THE SUBSEQUENT RULE WAS ISSUED IN THE FORM OF A NEW RATE ONLY BECAUSE THE CAB PROCEDURAL RULES PROVIDE NO OTHER METHOD FOR CORRECTION OF ERRORS. TO CONSTRUE THE CONTRACT AS PRECLUDING REVISION IN THIS SITUATION WOULD FRUSTRATE THE OBVIOUS OVERALL DESIGN OF THE CONTRACT TO ADOPT AS THE CONTRACT RATE FOR FY 68 A RATE PROPERLY AND CORRECTLY ESTABLISHED BY THE CAB. YOUR STATEMENT THAT IF THE REVISION IS NOT PERMISSIBLE ACTION WILL BE TAKEN TO TERMINATE THE CONTRACT INDICATES YOUR BELIEF EITHER THAT THE CONTRACT WOULD OTHERWISE BE UNENFORCEABLE, OR THAT ITS ENFORCEMENT WOULD BE INEQUITABLE OR OTHERWISE UNDESIRABLE. THIS APPEARS TO GIVE FURTHER SUPPORT FOR OUR CONCLUSION, SINCE AN INTERPRETATION WHICH WOULD MAKE THE CONTRACT INEFFECTIVE SHOULD NOT BE ADOPTED IF ANY OTHER IS POSSIBLE.

YOU ARE THEREFORE ADVISED THAT WE FIND NO OBJECTION TO REVISION OF THE CONTRACT TO REFLECT THE BOARD'S CORRECTED RATE.

THE ENCLOSURES TO THE GENERAL COUNSEL'S LETTER OF NOVEMBER 27 ARE RETURNED.