B-164929, OCTOBER 2, 1968, 48 COMP. GEN. 168

B-164929: Oct 2, 1968

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THAT STATED "THIS IS A FIRM ORDER IF PRICE IS $50 OR LESS" TO A SUPPLIER WHOSE POLICY OF CHARGING A MINIMUM ORDER PRICE OF $50 IS SHOWN IN ITS QUOTATION IS AN ACCEPTANCE OF THE SUPPLIER'S TERMS AND THE PURCHASE ORDERS BECAME BINDING CONTRACTS FOR THE MINIMUM CHARGE UPON ACCEPTANCE AND PERFORMANCE OF THE ORDERS AND. ALTHOUGH THE MINIMUM CHARGE IS QUESTIONABLE. PROVISIONS SHOULD BE INCLUDED IN FUTURE BID SOLICITATIONS TO REQUIRE A SUCCESSFUL BIDDER TO AGREE THAT PRICES WILL NOT INCLUDE A MINIMUM BILLING CHARGE. THAT THE MINIMUM BILLING CHARGE WILL BE NO GREATER THAN THE AMOUNT STATED IN THE SOLICITATION. 1968: REFERENCE IS MADE TO THE LETTERS OF JULY 24 AND AUGUST 23. THE GRAVAMEN OF THE PROBLEM IS OUTLINED BY THE DISBURSING OFFICER IN HIS LETTER OF JULY 16.

B-164929, OCTOBER 2, 1968, 48 COMP. GEN. 168

CONTRACTS - PAYMENTS - MINIMUM BILLING CHARGE THE ISSUANCE OF TWO UNPRICED ORDERS, ONE FOR ITEMS VALUED AT 30 CENTS, THE OTHER FOR ITEMS WORTH $1.01, THAT STATED "THIS IS A FIRM ORDER IF PRICE IS $50 OR LESS" TO A SUPPLIER WHOSE POLICY OF CHARGING A MINIMUM ORDER PRICE OF $50 IS SHOWN IN ITS QUOTATION IS AN ACCEPTANCE OF THE SUPPLIER'S TERMS AND THE PURCHASE ORDERS BECAME BINDING CONTRACTS FOR THE MINIMUM CHARGE UPON ACCEPTANCE AND PERFORMANCE OF THE ORDERS AND, ALTHOUGH THE MINIMUM CHARGE IS QUESTIONABLE, THE VOUCHERS INCLUDING THE CHARGE MAY BE CERTIFIED FOR PAYMENT. IN ADDITION TO THE ADMINISTRATIVE ACTION TAKEN TO CONSOLIDATE FUTURE ORDERS FOR SMALL PURCHASES, PROVISIONS SHOULD BE INCLUDED IN FUTURE BID SOLICITATIONS TO REQUIRE A SUCCESSFUL BIDDER TO AGREE THAT PRICES WILL NOT INCLUDE A MINIMUM BILLING CHARGE, BUT SHOULD THEY, THAT THE MINIMUM BILLING CHARGE WILL BE NO GREATER THAN THE AMOUNT STATED IN THE SOLICITATION.

TO THE DIRECTOR, DEFENSE SUPPLY AGENCY, OCTOBER 2, 1968:

REFERENCE IS MADE TO THE LETTERS OF JULY 24 AND AUGUST 23, 1968, WITH ENCLOSURES, FROM THE CHIEF, ACCOUNTING AND FINANCE DIVISION, OFFICE OF THE COMPTROLLER, REQUESTING OUR DECISION AS TO THE VALIDITY OF THE PAYMENT OF TWO VOUCHERS TO THE CONTINENTAU MOTORS CORPORATION (CONTINENTAL) IN AMOUNTS OF $48.99 AND $49.70.

THE GRAVAMEN OF THE PROBLEM IS OUTLINED BY THE DISBURSING OFFICER IN HIS LETTER OF JULY 16, 1968, TO OUR OFFICE (ONE OF THE ENCLOSURES WITH THE LETTER OF JULY 24, 1968), WHERE HE SAID:

THE BASIS FOR MY DILEMMA IS THE CORPORATE POLICY OF THE CONTINENTAL MOTORS CORPORATION, MUSKEGON, MICHIGAN, TO CHARGE A MINIMUM ORDER PRICE OF FIFTY DOLLARS ($50) PER ORDER IRRESPECTIVE OF THE FACT THAT THE VALUE OF THE MATERIAL ORDERED MAY BE LESS THAN ONE DOLLAR. * * *

* * * CONTINENTAL MOTORS CORPORATION INVOICES REFLECT A UNIT PRICE AND AMOUNT FOR EACH ITEM ORDERED AND DELIVERED. BUT SUCH INVOICES ADD TO THE ITEM AMOUNT BILLED, A DIFFERENTIAL IDENTIFIED AS "MINIMUM BILLING" OR "SERVICE CHARGE" TO INCREASE THE TOTAL AMOUNT BILLED TO FIFTY DOLLARS ($50). * * * THE VALIDITY AND REASONABLENESS OF SUCH CHARGES ARE QUESTIONED. ACCORDINGLY, WE HAVE HONORED AND PAID ONLY THE ITEM, OR MATERIAL PRICE BILLED. THIS PROCEDURE WILL BE FOLLOWED UNTIL YOUR REPLY AND DECISION IS RECEIVED.

ACCORDING TO THE RECORD, UNPRICED PURCHASE ORDER NO. N-SB-N35-L G6836 WAS ISSUED ON SEPTEMBER 29, 1966, TO CONTINENTAL CALLING FOR 5 SPRING-POPPETS, MODEL 4-D277, TO BE DELIVERED TO THE CHIEF, NAVY ADVISORY GROUP, MILITARY ASSISTANCE COMMAND, VIETNAM. SAID PURCHASE ORDER WAS ISSUED ON DD FORM 1155, WHERE AT PARAGRAPH 5.1 ENTITLED "MONETARY LIMITATION," IT WAS STATED,"THIS IS A FIRM ORDER IF PRICE IS $15.00 OR LESS.' HOWEVER, ON APRIL 18, 1967, THIS PURCHASE ORDER WAS AMENDED SO AS TO INCREASE THE MONETARY LIMITATION TO $50. THEREAFTER ON OCTOBER 9, 1967, CONTINENTAL SUBMITTED ITS INVOICE ON DD FORM 250 BILLING AN AMOUNT OF $ .30 FOR THE 5 SPRINGS ORDERED AND A ,MIN BILLING" OF $49.70 FOR A TOTAL AMOUNT OF $50. THE INVOICE WAS SIGNED AND THE SPRINGS WERE RECEIVED BY AN AUTHORIZED GOVERNMENT REPRESENTATIVE ON THE SAME DATE.

UNPRICED PURCHASE ORDER NO. N00104-67-M-T594, ISSUED ON FEBRUARY 20, 1967, SPECIFIED A $50 LIMITATION FOR THE TWO LINE ITEMS ORDERED. TWO INVOICES WERE SUBMITTED BY CONTINENTAL AND ACCEPTED BY THE GOVERNMENT. INVOICE NO. 15999 BILLED $ .98 FOR LINE ITEM NUMBER 1 AND INVOICE NO. 22077 BILLED $ .03 FOR LINE ITEM NUMBER 2 AND ADDED $48.99 AS A "MINIMUM BILLING" FOR A TOTAL SUM OF $49.02; THE AGGREGATE AMOUNT OF BOTH INVOICES BEING $50.

THE RECORD ALSO REFLECTS THAT CONTINENTAL ISSUES A QUOTATION FORM ON REQUESTS FOR QUOTATIONS WHICH CLEARLY INDICATES THAT ONE OF THE TERMS OF THE QUOTATION IS A MINIMUM CHARGE OF $50 PER ORDER. THERE SEEMS TO BE LITTLE DOUBT THAT THE GOVERNMENT HAD NOTICE OF CONTINENTAL'S PRACTICE, FOR THE RAISING OF THE DOLLAR LIMITATION ON THE FIRST INVOICE FROM $15 TO $50 DOLLARS INDICATES THAT THIS PRACTICE HAD BEEN IN SOME WAY COMMUNICATED TO THE GOVERNMENT'S AGENT. THE DISBURSING OFFICER IN HIS LETTER OF JULY 16, 1968, STATED:

* * * CONTINENTAL MOTORS CORPORATION QUOTATION FORM INDICATES THAT MANY, IF NOT ALL, PURCHASING OR ORDERING ACTIVITIES AFFECTED ARE AWARE OF CONTINENTAL'S MINIMUM LINE ITEM OR DESTINATION CHARGE, MINIMUM CHARGE PER ORDER, AND MINIMUM CHARGE PER DIVERSION.

ALSO, THE CHIEF, ACCOUNTING AND FINANCE DIVISION, IN HIS LETTER OF AUGUST 23, 1968, STATED:

* * * THEREFORE, THE BUYING ACTIVITY WILL ISSUE AN ORDERING KNOWING THAT THE ACTUAL PRICE OF THE PARTICULAR ITEM IS FAR LESS THAN THE TOTAL OF THE CONTRACT.

FROM THE FOREGOING FACTS, WE HAVE TO CONCLUDE THAT BOTH UNPRICED PURCHASE ORDERS STATING "THIS IS A FIRM ORDER IF PRICE IS $50 OR LESS" BECAME BINDING CONTRACTS FOR THE MINIMUM CHARGE BY CONTINENTAL ONCE THEY WERE ACCEPTED BY CONTINENTAL AND PERFORMANCE WAS PERFECTED BY DELIVERY OF THE ITEMS SOUGHT, WHICH WERE ACCEPTED BY AN AUTHORIZED GOVERNMENT AGENT. WHILE WE QUESTION THE REASONABLENESS OF THE MINIMUM CHARGES, SINCE THEY WERE AGREED TO BY THE GOVERNMENT WE CAN FIND NO LEGAL BASIS TO QUESTION THEIR VALIDITY. THEREFORE THE DIFFERENTIAL AMOUNTS DESIGNATED AS ,MINIMUM BILLING" MAY BE CERTIFIED FOR PAYMENT.

WE FEEL STRONGLY, HOWEVER, THAT APPROPRIATE ACTION SHOULD BE TAKEN TO AVOID ADDITIONAL SMALL PURCHASES SUCH AS THOSE MADE IN THIS INSTANCE AND WE ARE PLEASED TO NOTE FROM THE RECORD THAT YOUR OFFICE HAS DIRECTED ALL DSA BUYING ACTIVITIES TO MAKE A CONCERTED EFFORT TO CONSOLIDATE THEIR FUTURE ORDERS. IN THIS CONNECTION, IF IT IS YOUR OPINION THAT THE PROBLEM IS OF SUFFICIENT MAGNITUDE, YOU MAY WISH TO CONSIDER THE ADVISABILITY OF INCLUDING APPROPRIATE PROVISIONS IN FUTURE BID SOLICITATIONS UNDER WHICH THE SUCCESSFUL BIDDER WILL BE REQUIRED TO AGREE TO SELL SPARE PARTS, FOR ITEMS OF THE CLASS AND TYPE BEING PROCURED, AT PRICES WHICH EITHER DO NOT INCLUDE ANY CHARGE FOR MINIMUM BILLING, OR WHICH ARE SUBJECT TO MINIMUM BILLING CHARGES NO GREATER THAN AN AMOUNT STATED IN THE SOLICITATION.

WE WOULD APPRECIATE YOUR ADVICE RELATIVE TO ANY CORRECTIVE MEASURES YOUR AGENCY MAY INSTITUTE.