B-164266, OCT. 1, 1968

B-164266: Oct 1, 1968

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TO LABRUM AND DOAK: THIS IS IN REPLY TO YOUR LETTERS OF MAY 3 AND AUGUST 30. THE TOTAL ANNUAL ESTIMATED REQUIREMENT FOR THE ITEM WAS SPECIFIED AS 2. NONE WAS ORDERED BY THE GOVERNMENT DURING THE CONTRACT TERM. AS FOLLOWS: "* * * THE QUANTITIES OF SUPPLIES OR SERVICES SPECIFIED HEREIN ARE ESTIMATES ONLY. ARE NOT PURCHASED HEREBY. AS FOLLOWS: "THIS CENTER WILL MAKE PURCHASES AGAINST THIS CONTRACT TO SATISFY REQUIREMENTS WITHIN THE TERMS OF THE CONTRACT. YOU ARE CAUTIONED. YOU ARE DOING SO AT YOUR OWN RISK.'. IT IS YOUR POSITION THAT THE GOVERNMENT IS LEGALLY LIABLE FOR EXPENSES ACTUALLY INCURRED BY THE CONTRACTOR IN PURCHASING 250. WHILE SEVERAL REASONS HAVE BEEN CITED IN SUPPORT OF THE REASONABLENESS OF THE INCURRENCE OF EXPENSES BY SEABOARD.

B-164266, OCT. 1, 1968

TO LABRUM AND DOAK:

THIS IS IN REPLY TO YOUR LETTERS OF MAY 3 AND AUGUST 30, 1968, AND ENCLOSURES, IN WHICH YOU ASSERT A CLAIM IN BEHALF OF SEABOARD MANUFACTURING LABORATORIES, INC., AGAINST THE UNITED STATES FOR PAYMENT OF $5,895 AS COMPENSATION FOR CERTAIN EXPENSES INCURRED IN ANTICIPATION OF PURCHASES BY THE GOVERNMENT UNDER REQUIREMENTS CONTRACT NO. DSA-400-67-C- 7636, AWARDED APRIL 12, 1967.

UNDER THE TERMS OF THE SUBJECT CONTRACT THE DEFENSE GENERAL SUPPLY CENTER, RICHMOND, VIRGINIA, AGREED TO PURCHASE FROM SEABOARD AT THE BID PRICE ALL OF ITS REQUIREMENTS FOR 2 OUNCE CONTAINERS OF LINDANE INSECTICIDE FOR THE PERIOD APRIL 12, 1967, THROUGH JANUARY 31, 1968. THE TOTAL ANNUAL ESTIMATED REQUIREMENT FOR THE ITEM WAS SPECIFIED AS 2,200,000 CONTAINERS. HOWEVER, NONE WAS ORDERED BY THE GOVERNMENT DURING THE CONTRACT TERM.

WITH REGARD TO THE ESTIMATED QUANTITIES IT SHOULD BE NOTED THAT THE INVITATION PROVIDED, IN PERTINENT PART, AS FOLLOWS: "* * * THE QUANTITIES OF SUPPLIES OR SERVICES SPECIFIED HEREIN ARE ESTIMATES ONLY, AND ARE NOT PURCHASED HEREBY. EXCEPT AS MAY BE OTHERWISE PROVIDED HEREIN, IN THE EVENT THE GOVERNMENT'S REQUIREMENTS FOR SUPPLIES OR SERVICES SET FORTH IN THE SCHEDULE DO NOT RESULT IN ORDERS IN THE AMOUNTS OF QUANTITIES DESCRIBED AS -ESTIMATED- OR -MAXIMUM- IN THE SCHEDULE, SUCH EVENT SHALL NOT CONSTITUTE THE BASIS FOR AN EQUITABLE PRICE ADJUSTMENT UNDER THIS CONTRACT.'

IN ADDITION, THE CONTRACTING OFFICER'S LETTER TO SEABOARD IN AWARDING THE CONTRACT PROVIDES, IN PERTINENT PART, AS FOLLOWS: "THIS CENTER WILL MAKE PURCHASES AGAINST THIS CONTRACT TO SATISFY REQUIREMENTS WITHIN THE TERMS OF THE CONTRACT. YOU ARE CAUTIONED, HOWEVER, THAT IN THE EVENT YOU ELECT TO MANUFACTURE OR STORE SUPPLIES IN ANTICIPATION OF RECEIVING AN ORDER FOR DELIVERY, YOU ARE DOING SO AT YOUR OWN RISK.'

IT IS YOUR POSITION THAT THE GOVERNMENT IS LEGALLY LIABLE FOR EXPENSES ACTUALLY INCURRED BY THE CONTRACTOR IN PURCHASING 250,000 METAL CONTAINERS UPON A REASONABLE ANTICIPATION THAT SOME ORDERS FOR INSECTICIDE WOULD BE PLACED BY THE GOVERNMENT. WHILE SEVERAL REASONS HAVE BEEN CITED IN SUPPORT OF THE REASONABLENESS OF THE INCURRENCE OF EXPENSES BY SEABOARD, THE REQUEST FOR COMPENSATION IS MADE ON THE LEGAL BASIS THAT THE QUANTITY ESTIMATES OF THE GOVERNMENT'S ,REPRESENTATIVES, EVEN IF INADVERTENT, AMOUNTED TO EITHER NEGLIGENT MISREPRESENTATION OR BAD FAITH UNDER THE PRINCIPLES REAFFIRMED BY THE COURT OF CLAIMS AS RECENTLY AS TRAVIS T. WOMACK, JR., ET AL. V U.S., (389 F.2D 793, 182 CT. CL. 399) DECIDED ON JANUARY 19, 1968 * * *.'

IT IS YOUR BELIEF THAT THE CITED CASE STANDS FOR THE PRINCIPLE THAT "THE GOVERNMENT IS UNDER AN OBLIGATION TO EXERCISE A SUBSTANTIAL DEGREE OF CARE TO DETERMINE THE FACTS ON WHICH IT BASES ESTIMATES GIVEN TO CONTRACTORS ABOUT TO BID ON A -REQUIREMENTS' TYPE CONTRACT.'

THE WOMACK CASE INVOLVED A BID INVITATION AND ENSUING FIXED-PRICE CONTRACT WHICH REQUIRED THE PREPARATION OF A MASTER TITLE PLAT, A USE STATUS PLAT, AND A HISTORICAL INDEX, FROM AN ESTIMATED NUMBER OF CARDS TO BE PROVIDED BY THE GOVERNMENT, AND FURTHER, THAT ALL ESTIMATED QUANTITIES IN THE CONTRACT WERE SUBJECT TO A 25 PERCENT INCREASE OR DECREASE. DURING THE PERFORMANCE OF THE CONTRACT, THE CONTRACTOR WAS FURNISHED AND COMPENSATED FOR A NUMBER OF CARDS IN EXCESS OF THE 25 PERCENT VARIATION CLAUSE. IN RESPONSE TO THE CONTRACTOR'S REQUEST FOR COMPENSATION FOR PERFORMANCE AS TO THE CARDS WITHIN THE CONTRACT'S VARIATION CLAUSE, THE COURT ALLOWED THE CLAIM BY HOLDING THAT THE GOVERNMENT WAS NEGLIGENT IN NOT EXERCISING REASONABLE CARE TO CONSIDER AVAILABLE INFORMATION WHICH WOULD HAVE ALERTED IT BEFORE AWARD TO THE SUBSTANTIAL INCORRECTNESS OF ITS ESTIMATED CARD QUANTITY WHICH THE COURT CONSIDERED TO BE A MATERIAL MATTER. ACCORDINGLY, THE COURT EXPRESSLY REJECTED THE GOVERNMENT'S CONTENTION THAT WOMACK WAS NOT ENTITLED TO COMPENSATORY DAMAGES FOR A CARD OVERRUN WITHIN THE 25 PERCENT GENERAL VARIANCE IN QUANTITY CLAUSE UNLESS IT COULD FIND THAT AT THE TIME OF AWARD THE GOVERNMENT ACTUALLY KNEW THAT THERE WOULD BE A CARD OVERRUN IN EXCESS OF 25 PERCENT AND IT DELIBERATELY WITHHELD THAT INFORMATION FROM WOMACK.

IT IS CLEAR THAT THE WOMACK CASE INVOLVED A TYPE OF CONTRACT WHEREIN THE ONLY MEASURE OF QUANTITY PROVIDED THE CONTRACTOR WAS THE ESTIMATED FIGURE. HENCE, THE ESTIMATE WAS CONSIDERED TO BE A MATERIAL MATTER IN THAT NO REFERENCE WAS MADE TO ANY OTHER INDEPENDENT DOMINANT MEASURE, SUCH AS A PARTY'S ACTUAL REQUIREMENTS. WE PERCEIVE NO WAY IN WHICH THE "WOMACK CONTRACT" AND THE PRINCIPLES DERIVED FROM THAT CASE CAN BE CONSTRUED AS PERTAINING TO REQUIREMENTS CONTRACTS SINCE, BY DEFINITION, THE DOMINANT MEASURE OF QUANTITY IN A REQUIREMENTS TYPE CONTRACT IS THE AMOUNT WHICH THE CONTRACTING OFFICER, IN GOOD FAITH, JUDGES WILL BE NEEDED AS THE TERM OF THE CONTRACT PROGRESSES. INDEED, THE COURT OF CLAIMS HAS STATED THAT WHERE THE UNDERSTANDING OF PARTIES, AS EMBODIED IN LANGUAGE OF A REQUIREMENTS CONTRACT, IS FOR SUPPLYING WHATEVER AMOUNTS OF GOODS THE BUYER MAY REQUIRE, THEN INCLUSION OF A QUANTITY ESTIMATE WILL NOT BE VIEWED AS ANYTHING MORE THAN A DEVICE TO ASSIST PARTIES IN COMING TO TERMS. IT IS WELL SETTLED THAT COURTS WILL PROTECT THE AGGRIEVED PARTY FROM UNFAIR USAGE OF A REQUIREMENTS CONTRACT BY APPLYING ONLY A TEST OF GOOD FAITH TO THE OTHER PARTY'S ACTIONS. SHADER CONTRACTORS, INC., V U.S., 276 F.2D 1; M.W. KELLOGG CO. V STANDARD STEEL FABRICATING CO., 189 F.2D 629; AND BRAWLEY V U.S., 96 U.S. 168.

THE RECORD IN THE PRESENT CASE INDICATES THAT PROCUREMENT DIRECTIVE S- 10538-6293-0-A, WAS ISSUED BY THE DIRECTORATE OF SUPPLY OPERATIONS TO THE DIRECTORATE OF PROCUREMENT AND PRODUCTION ON OCTOBER 20, 1966, WITH THE REQUEST THAT A REQUIREMENTS TYPE CONTRACT BE ESTABLISHED FOR A PERIOD OF ONE YEAR FOR THE SUBJECT ITEM. THE RECORD FURTHER INDICATES THAT AT THE TIME THE DIRECTIVE WAS ISSUED THE DIRECTORATE OF SUPPLY OPERATIONS ASCERTAINED THAT THEY HAD 1,245,235 UNITS EITHER ON HAND OR DUE IN AND AN AVERAGE MONTHLY DEMAND OVER THE PREVIOUS 12 MONTHS OF 176,812 UNITS. ACCORDINGLY, THEY ANTICIPATED THAT THEY WOULD REACH THE REORDER POINT BY THE TIME ANOTHER CONTRACT COULD BE ENTERED INTO. THE 2,200,000 CAN FIGURE FOR USE IN THE REQUIREMENTS CONTRACT WAS BASED ON AN AVERAGE MONTHLY DEMAND OF 176,812 UNITS MULTIPLIED BY 12 MONTHS.

IT IS APPARENT THAT THE FAILURE OF THE GOVERNMENT TO MAKE ANY PURCHASES UNDER THE SUBJECT CONTRACT RESULTED FROM A COMBINATION OF FACTORS WHICH CAME TO BEAR SUBSEQUENT TO ISSUANCE OF THE PURCHASE DIRECTIVE. DOCUMENTED REPORT SUBMITTED BY THE DEFENSE SUPPLY AGENCY INDICATES THAT THE AVERAGE MONTHLY DEMAND FOR THE ITEM DURING THE CONTRACT TERM DECREASED 71 PERCENT FROM THE GOVERNMENT'S PRIOR USAGE FIGURE UPON WHICH THE REQUIREMENTS ESTIMATE WAS BASED. STATION RETURNS AND INVENTORY ADJUSTMENTS RESULTED IN A GAIN TO STOCK OF 834,896 AND 176,016 CANS, RESPECTIVELY. IT WAS ALSO ASCERTAINED THAT THE GOVERNMENT'S USE OF LINDANE IN 25 POUND PAILS INCREASED BY 10,073 PAILS, THE EQUIVALENT OF 2,014,600 2 OUNCE CANS, FROM FEBRUARY 1967 THROUGH JANUARY 1968, AS COMPARED WITH THE PREVIOUS PERIOD. ALSO, IT IS REPORTED THAT USE OF THE SUBJECT ITEM IN VIETNAM HAD DECREASED BY REASON OF THE USE OF ANOTHER INSECTICIDE.

SINCE THE RECORD IN THIS CASE INDICATES THAT AT THE TIME THE PROCUREMENT DIRECTIVE WAS PREPARED FOR SUBJECT CONTRACT THE ESTIMATE OF REQUIREMENTS THEREIN WAS DERIVED FROM RECENT RECORDS OF PREVIOUS USAGE OF THE ITEM AND FROM CONTEMPORARY RECORDS OF STOCKS AVAILABLE FOR USE, WE BELIEVE THE GOVERNMENT HAS DEMONSTRATED ITS GOOD FAITH IN THIS MATTER.

WHILE YOUR LETTERS ALSO MAKE REFERENCE TO VARIOUS FACTS AND CIRCUMSTANCES AND TO CERTAIN PROVISIONS IN THE ARMED SERVICES PROCUREMENT REGULATION FOR THE PURPOSE OF ESTABLISHING THAT THE PURCHASE OF METAL CONTAINERS BY THE CONTRACTOR REPRESENTED A REASONABLE BUSINESS JUDGMENT, WE DO NOT PERCEIVE ANY BASIS THEREIN FOR QUESTIONING THE BONA FIDES OF THE PROCUREMENT OFFICIALS -- WHICH AS ESTABLISHED IN THE CASES CITED ABOVE IS THE SOLE TEST FOR RELIEF -- EITHER IN EFFECTING THIS REQUIREMENTS CONTRACT OR IN THE ENSUING FAILURE TO MAKE ANY PURCHASES.