B-169037, MAY 4, 1970

B-169037: May 4, 1970

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ESTIMATED AMOUNTS NOT WARRANTY WHERE REQUIREMENTS CONTRACT PROVIDED FOR ESTIMATED QUANTITIES ONLY IT IS NOT CONSIDERED GUARANTY OF EXACT REQUIREMENTS TO BE FURNISHED AND GOVERNMENT HAS RIGHT TO REQUIRE MORE OR LESS THAN QUANTITY ESTIMATED. FACT THAT REQUIREMENTS CONTRACT BECOMES UNPROFITABLE DUE TO SHARP REDUCTION IN QUANTITIES NEEDED DOES NOT JUSTIFY PRICE ADJUSTMENT WHERE ESTIMATED REQUIREMENTS ARE BASED ON BEST KNOWN ESTIMATES. IF BEST INFORMATION AVAILABLE IS MISREPRESENTED. CONTRACTOR IS ENTITLED TO DAMAGES. CONTRACTING AGENCIES HAVE AUTHORITY TO NEGOTIATE SETTLEMENTS FOR BREACH OF CONTRACT SUBJECT TO GAO APPROVAL. AS TO WHICH ARMY PROCUREMENT AND LEGAL PERSONNEL HAVE ARRIVED AT AN AGREED SETTLEMENT WITH THE CONTRACTOR IN THE AMOUNT OF $19.

B-169037, MAY 4, 1970

CONTRACTS--REQUIREMENTS--ESTIMATED AMOUNTS NOT WARRANTY WHERE REQUIREMENTS CONTRACT PROVIDED FOR ESTIMATED QUANTITIES ONLY IT IS NOT CONSIDERED GUARANTY OF EXACT REQUIREMENTS TO BE FURNISHED AND GOVERNMENT HAS RIGHT TO REQUIRE MORE OR LESS THAN QUANTITY ESTIMATED, CONTRACTOR ASSUMING RISK OF VARIATIONS FROM ESTIMATE. FACT THAT REQUIREMENTS CONTRACT BECOMES UNPROFITABLE DUE TO SHARP REDUCTION IN QUANTITIES NEEDED DOES NOT JUSTIFY PRICE ADJUSTMENT WHERE ESTIMATED REQUIREMENTS ARE BASED ON BEST KNOWN ESTIMATES, BUT IF BEST INFORMATION AVAILABLE IS MISREPRESENTED, CONTRACTOR IS ENTITLED TO DAMAGES, AND CONTRACTING AGENCIES HAVE AUTHORITY TO NEGOTIATE SETTLEMENTS FOR BREACH OF CONTRACT SUBJECT TO GAO APPROVAL. SEE COMP. GEN. DECS. CITED.

TO COLONEL H. O. MILLER:

BY LETTER COMPT-FAPT OF FEBRUARY 6, 1970, THE OFFICE OF THE CHIEF OF FINANCE AND ACCOUNTING, OFFICE OF THE COMPTROLLER OF THE ARMY, FORWARDED YOUR LETTER AHBBGE-FA OF FEBRUARY 3, 1970, REQUESTING OUR DECISION AS TO THE VALIDITY OF A CLAIM ARISING OUT OF REQUIREMENTS CONTRACT DABB19-69-D- 0008 WITH KAHOE SUPPLY COMPANY, INC; AS TO WHICH ARMY PROCUREMENT AND LEGAL PERSONNEL HAVE ARRIVED AT AN AGREED SETTLEMENT WITH THE CONTRACTOR IN THE AMOUNT OF $19,000, SINCE THERE IS NO PROVISION IN THE CONTRACT PROVIDING FOR AN EQUITABLE PRICE ADJUSTMENT IN THE CIRCUMSTANCES.

THE INVITATION FOR BIDS (IFB) FOR THE CONTRACT, ISSUED MAY 6, 1968, DESCRIBED THE SCOPE OF THE CONTRACT AS FOLLOWS:

"FURNISH LABOR, EQUIPMENT AND ALL NECESSARY WORK TO PROVIDE TRANSPORTATION FOR PUPILS RESIDING IN FORT BELVOIR AND ATTENDING THE FORT BELVOIR ELEMENTARY SCHOOLS IN ACCORDANCE WITH THE PROVISIONS OF THIS CONTRACT AND AS OUTLINED IN SCHEDULES A, B, AND C OVER ROUTES AND AT SUCH STOPS AS ARE DESIGNATED HEREIN OR BY THE CONTRACTING OFFICER'S REPRESENTATIVE, FORT BELVOIR, VIRGINIA." THE IFB PROVIDED FURTHER THAT THE CONTRACT PERIOD WOULD BE 1 YEAR COMMENCING JULY 1, 1968. OTHER PROVISIONS IN THE IFB STATED:

"THIS IS A REQUIREMENTS TYPE CONTRACT.

"MILEAGES, HOURS, SCHEDULES AND NUMBER OF PASSENGERS AS SHOWN ON ATTACHED SCHEDULES ARE BASED ON BEST KNOWN ESTIMATES AND MAY VARY FROM TIME TO TIME.

"* * * THE QUANTITIES OF SUPPLIES OR SERVICES SPECIFIED HEREIN ARE ESTIMATED 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.

"BUS ROUTES AND SCHEDULES: * * * IN THE EVENT DECREASES OR INCREASES IN EITHER SCHEDULING, ROUTING OR NUMBER OF ELIGIBLE PASSENGERS WHICH MAY REQUIRE THE USE OF ADDITIONAL OR SMALLER NUMBER OF BUSES, THE CONTRACTOR AGREES TO PROVIDE ADDITIONAL BUSES OR REMOVE BUSES FROM SERVICE SUBJECT TO THE APPROVAL OF THE CONTRACTING OFFICER, AT NO CHANGE IN UNIT PRICE SCHEDULE. * * *"

BIDDERS WERE REQUIRED TO SUBMIT PRICES PER BUS MILE FOR THREE SCHEDULES BASED UPON ESTIMATED DAILY MILEAGE AS FOLLOWS: SCHEDULE "A," 136 MILES; SCHEDULE "B," 35 MILES; AND SCHEDULE "C," 50 MILES. THE BID OPENING DATE WAS MAY 28, 1968. ONLY ONE BID WAS RECEIVED AND THAT WAS FROM KAHOE IN THE TOTAL ESTIMATED ANNUAL AMOUNT OF $89,547.10. THE CONTRACT WAS AWARDED TO KAHOE ON JUNE 6, 1968. THE CONTRACTOR WAS PAID $51,502.33 FOR THE MILES DRIVEN UNDER THE CONTRACT.

IN NOVEMBER 1967, WHICH WAS ABOUT 6 MONTHS PRIOR TO THE ISSUANCE OF THE IFB, THERE WERE PRELIMINARY DISCUSSIONS BETWEEN FORT BELVOIR AUTHORITIES AND REPRESENTATIVES OF THE FAIRFAX COUNTY, VIRGINIA, PUBLIC SCHOOLS AS TO THE POSSIBILITY OF TRANSFERRING SEVENTH GRADE STUDENTS FROM FORT BELVOIR SCHOOLS TO FAIRFAX COUNTY PUBLIC SCHOOLS. A TENTATIVE TRANSFER AGREEMENT WAS REACHED AT THAT TIME AND THE SUPERINTENDENT OF FAIRFAX COUNTY PUBLIC SCHOOLS BY LETTER DATED NOVEMBER 10, 1967, ADVISED THE COMMANDING GENERAL OF FORT BELVOIR THAT THE COUNTY WOULD ACCEPT FORT BELVOIR SEVENTH GRADERS IF A NEW FAIRFAX COUNTY SCHOOL COMPLEX, THEN UNDER CONSTRUCTION, WOULD BE READY BY SEPTEMBER OF 1968. ON NOVEMBER 29, 1967, THE COMMANDING GENERAL OF FORT BELVOIR REQUESTED THE SECRETARY OF THE ARMY TO APPROVE THE PROPOSED TRANSFER.

ON APRIL 4, 1968, THE FAIRFAX COUNTY SCHOOL BOARD ADOPTED A RESOLUTION APPROVING THE TRANSFER OF FORT BELVOIR SEVENTH GRADERS TO THE FAIRFAX COUNTY SCHOOL SYSTEM, PROVIDED THE SCHOOL WAS READY FOR OCCUPANCY BY SEPTEMBER OF 1968.

ON APRIL 17, 1968, THE FORT BELVOIR ELEMENTARY SCHOOL BOARD MET TO CONSIDER THE 1968-69 SCHOOL BUDGET. AT THE MEETING, THE BOARD APPROVED A $13,000 REDUCTION IN THE AMOUNT ALLOCATED FOR PUPIL TRANSPORTATION IN ANTICIPATION OF THE SEVENTH GRADE TRANSFER.

ALSO, IN APRIL, THE SCHOOL PRINCIPALS OF THE FORT BELVOIR SCHOOLS MAILED A CARD TO THE PARENTS OF EACH CHILD WHO WOULD BE IN THE SEVENTH OR EIGHTH GRADE IN THE 1968-69 SCHOOL YEAR, ADVISING THEM OF THE PENDING TRANSFER OF STUDENTS TO THE FAIRFAX COUNTY SCHOOL SYSTEM.

A REDISTRICTING PLAN BASED ON THE PROPOSED TRANSFER OF THE SEVENTH GRADE STUDENTS WAS APPROVED BY THE FORT BELVOIR ELEMENTARY SCHOOL BOARD ON MAY 15, 1968. UNDER THE PLAN SEPARATE KINDERGARTEN BUILDINGS WERE ELIMINATED AS THE TRANSFER OF THE SEVENTH GRADE STUDENTS WOULD LEAVE AVAILABLE CLASSROOM SPACE INTO WHICH THE KINDERGARTEN CLASSES WOULD BE MOVED. BECAUSE OF THE ELIMINATION OF THE SEPARATE KINDERGARTEN BUILDINGS, THERE WAS A FURTHER REDUCTION IN THE NUMBER OF MILES THAT CHILDREN WOULD HAVE TO BE TRANSPORTED EACH DAY.

THE SUPERINTENDENT OF THE FORT BELVOIR SCHOOLS STATED THAT BY THE END OF THE 1967-68 SCHOOL YEAR HE FELT REASONABLY SURE THAT THE TRANSFER WOULD PROCEED AS PLANNED, UNLESS THE PLAN WAS NOT APPROVED BY THE DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE (HEW) OR THE SECRETARY OF THE ARMY. ALTHOUGH THE SUPERINTENDENT OF SCHOOLS STATED THAT HE KNEW THAT IT WAS UNLIKELY THAT THE NEW FAIRFAX COUNTY SCHOOL WOULD BE COMPLETED BY SEPTEMBER 1968, HE FELT THAT FAIRFAX COUNTY WOULD TAKE THE SEVENTH GRADERS DESPITE THE CONDITION THAT THEY WOULD NOT BE TAKEN UNLESS THE NEW SCHOOL WAS FINISHED. HOWEVER, THE SUPERINTENDENT ALSO STATED THAT THE TRANSFER OF THE SEVENTH GRADE STUDENTS REMAINED UNCERTAIN BECAUSE OF THE REQUIREMENT OF APPROVAL BY THE DEPARTMENT OF THE ARMY AND HEW AND COMPLAINTS THAT HAD BEEN RECEIVED BY THE DEPARTMENT OF THE ARMY FROM PARENTS OF CHILDREN WHO WERE TO BE TRANSFERRED WHEN INFORMED IN AUGUST 1968 THAT THE NEW FAIRFAX COUNTY SCHOOL WOULD NOT BE COMPLETED BY SEPTEMBER 1968 AND THAT THE CHILDREN WOULD ATTEND HALF-DAY SESSIONS AT FAIRFAX COUNTY SCHOOLS.

THE TRANSFER OF THE SEVENTH GRADE STUDENTS WAS APPROVED BY THE UNITED STATES COMMISSIONER OF EDUCATION, HEW, ON AUGUST 6, 1968, AND BY THE ACTING SECRETARY OF THE ARMY ON AUGUST 22, 1968. THE FORT BELVOIR SCHOOLS SUPERINTENDENT WAS NOTIFIED OF THE APPROVAL WITHIN A FEW DAYS.

DURING THE 1967-68 AND 1968-69 SCHOOL YEARS, THE SUPERINTENDENT OF FORT BELVOIR SCHOOLS ACTED AS THE CONTRACTING OFFICER'S REPRESENTATIVE FOR THE SCHOOL BUSSING CONTRACTS. IN SUCH CAPACITY HE PREPARED THE PURCHASE REQUEST WHICH CONTAINED AN ESTIMATE OF THE DAILY MILEAGE REQUIREMENTS FOR THE 1968-69 SCHOOL YEAR.

THE TRANSFER OF THE SEVENTH GRADE STUDENTS TO THE FAIRFAX COUNTY SCHOOLS REDUCED THE GOVERNMENT'S TRANSPORTATION REQUIREMENTS UNDER THE CONTRACT IN OTHER RESPECTS AS WELL. AS PREVIOUSLY STATED, THE KINDERGARTEN CLASSES WERE CONSOLIDATED. IN ADDITION, TRANSPORTATION TO CRAFT SHOPS WAS ELIMINATED AS IT WAS REQUIRED ONLY FOR THE SEVENTH GRADE. THE SPECIAL CLASSES FOR RETARDED CHILDREN AT FORT BELVOIR WERE ALSO ELIMINATED DUE TO THEIR TRANSFER TO FAIRFAX COUNTY SCHOOLS THROUGH A VERBAL AGREEMENT WITH THE SUPERINTENDENT OF THE FAIRFAX COUNTY SCHOOLS.

A MEETING WAS HELD ON AUGUST 16, 1968, BETWEEN THE SUPERINTENDENT AND A REPRESENTATIVE OF KAHOE. IT WAS AT THIS TIME THAT KAHOE WAS FIRST OFFICIALLY ADVISED OF THE PENDING TRANSFER OF THE SEVENTH GRADE STUDENTS. IT IS REPORTED THAT THERE IS NO INDICATION THAT KAHOE HAD ANY ACTUAL KNOWLEDGE OF THE TRANSFER PRIOR TO THIS MEETING.

KAHOE HAS ALLEGED THAT THE PROPOSED DISCONTINUANCE OF THE SEVENTH GRADE AT FORT BELVOIR FOR THE 1968-69 SCHOOL YEAR WAS KNOWN OR SHOULD HAVE BEEN KNOWN BY THE CONTRACTING OFFICER PRIOR TO ACCEPTANCE OF KAHOE'S BID AND PRIOR TO THE ISSUANCE OF THE IFB. IT IS CONTENDED THAT THE FAILURE OF THE CONTRACTING OFFICER, OR HIS REPRESENTATIVE, TO INFORM KAHOE OF THE CHANGE AMOUNTED TO A MATERIAL MISREPRESENTATION OF THE FACTS UPON WHICH THE CONTRACT WAS BASED AND CONSTITUTED GROUNDS FOR RECOVERY OF DAMAGES.

ON APRIL 18, 1969, KAHOE FILED AN APPEAL WITH THE ARMED SERVICES BOARD OF CONTRACT APPEALS (ASBCA NO. 14113) FROM A DECISION OF THE CONTRACTING OFFICER DATED MARCH 24, 1969, DENYING KAHOE'S CLAIM FOR AN EQUITABLE PRICE ADJUSTMENT UNDER THE CONTRACT ON THE GROUND THAT THERE WAS NO PROVISION WITHIN THE CONTRACT TO PERMIT THE RELIEF CLAIMED. ON JULY 8, 1969, THE GOVERNMENT FILED A MOTION FOR DISMISSAL OF THE APPEAL ON THE GROUND THAT THE CASE WAS BEYOND THE JURISDICTION OF THE BOARD. ON MARCH 12, 1970, AT APPELLANT'S REQUEST, THE ASBCA ISSUED AN ORDER OF DISMISSAL TO PERMIT THE APPELLANT TO PURSUE THE CLAIM BEFORE OUR OFFICE WITH THE RIGHT TO REINSTATE THE APPEAL IF A SETTLEMENT IS NOT APPROVED AND PAID IN FULL BY JUNE 10, 1970.

SUBSEQUENT TO THE APPEAL TO THE BOARD, NEGOTIATIONS WERE CONDUCTED ON SEPTEMBER 9, 1969, BETWEEN REPRESENTATIVES OF THE ARMY AND KAHOE. THE PARTIES ARRIVED AT AN AGREED SETTLEMENT IN THE AMOUNT OF $19,000. HEW APPROPRIATIONS ARE TO BE UTILIZED FOR ANY SETTLEMENT OF THIS MATTER. HEW HAS INDICATED THAT FUNDS ARE AVAILABLE FOR SUCH PAYMENT.

REQUIREMENTS CONTRACTS ARE VALID AND ENFORCEABLE. WHEN, DURING THE TERM OF A REQUIREMENTS CONTRACT, THE BUYER'S ACTUAL REQUIREMENTS TAPER OFF, DIMINISH OR ALTOGETHER CEASE BECAUSE OF A CHANGE IN NEEDS, NO PROMISE TO CONTINUE TO HAVE REQUIREMENTS WILL BE READ INTO THE CONTRACT, SINCE THE BUYER DID NOT AGREE TO PURCHASE ANY SPECIFIC QUANTITIES, BUT ONLY HIS REQUIREMENTS. THE FACT THAT PERFORMANCE OF A REQUIREMENTS CONTRACT RESULTS IN A LOSS INSTEAD OF A PROFIT FOR THE CONTRACTOR CANNOT BE CONSIDERED AS A JUSTIFIABLE REASON FOR EQUITABLE RELIEF. HOWEVER, THERE IS A BASIS FOR RELIEF WHEN THE ESTIMATE OF THE REQUIREMENTS IS NOT BASED ON THE BEST INFORMATION AVAILABLE OR BAD FAITH, FRAUD OR MISREPRESENTATION WAS EXERCISED IN ESTIMATING THE REQUIREMENTS. SEE 37 COMP. GEN. 688 (1958), IN SUPPORT OF THE FOREGOING, AND B-158239, MARCH 11, 1966.

WITH RESPECT TO THE LAST STATEMENT, IT APPEARS THAT THE SUPERINTENDENT OF FORT BELVOIR SCHOOLS, WHO WAS THE CONTRACTING OFFICER'S REPRESENTATIVE AND PREPARED THE ESTIMATES FOR THE IFB UPON WHICH THE CONTRACT WAS BASED, KNEW AT THE TIME OF THE ISSUANCE OF THE IFB THAT THERE WAS A VERY STRONG LIKELIHOOD THAT THE SEVENTH GRADERS WOULD BE TRANSFERRED TO THE FAIRFAX COUNTY SCHOOLS. WHILE THE TRANSFER WAS THEN SUBJECT TO THE APPROVAL OF HEW AND THE SECRETARY OF THE ARMY, IT IS NOT APPARENT THAT AT THE TIME THE IFB WAS ISSUED OR THE CONTRACT WAS AWARDED THAT THE CONTRACTING OFFICER'S REPRESENTATIVE HAD ANY REAL DOUBT THAT THE TRANSFER WOULD NOT OCCUR. ANY RESERVATIONS ABOUT THE TRANSFER DO NOT APPEAR TO HAVE BEEN MANIFESTED UNTIL AFTER THE CONTRACT WAS AWARDED.

IN A WRITTEN STATEMENT THAT IS PART OF THE RECORD, THE SUPERINTENDENT OF THE FORT BELVOIR SCHOOLS STATED THAT IN APRIL 1968 HE DELETED FROM THE SCHOOL BUDGET $13,000 FOR PUPIL TRANSPORTATION TO REFLECT "THE COST REDUCTION WHICH WOULD FOLLOW THE TRANSFER OF THE SEVENTH GRADE STUDENTS." THE SUPERINTENDENT STATED FURTHER:

"PRIOR TO THE END OF 1967-1968 SCHOOL YEAR I FELT REASONABLY SURE THAT THE FORT BELVOIR SEVENTH GRADE STUDENTS WOULD BE TRANSFERRED TO THE FAIRFAX COUNTY PUBLIC SCHOOLS. * * *" IN ADDITION, THE SUPERINTENDENT STATED:

"PRIOR TO THE AWARD OF THE 1968-1969 CONTRACT, I REALIZED THAT THERE WAS A GOOD CHANCE THAT THE GOVERNMENT'S REQUIREMENTS WOULD BE LESS THAN THOSE ORIGINALLY ESTIMATED. I DID NOT, HOWEVER, ANTICIPATE THAT THE REDUCTION WOULD HAVE A SEVERE IMPACT ON ANY CONTRACTOR. NO ATTEMPT WAS MADE TO DETERMINE WHAT THE EFFECT OF THE TRANSFER WOULD BE UPON A CONTRACTOR. ALWAYS ASSUMED THAT ANY SUCH REDUCTION IN CONTRACT REQUIREMENTS WOULD FALL WITHIN THE SCOPE OF THOSE CONTRACT PROVISIONS WHICH ALLOW THE GOVERNMENT TO INCREASE OR DECREASE THE NUMBER OF BUS MILES REQUIRED BY THE CONTRACT."

FROM THE FOREGOING, IT IS APPARENT THAT THE CONTRACTING OFFICER'S REPRESENTATIVE ANTICIPATED A CHANGE IN REQUIREMENTS BUT, NONETHELESS, MADE NO EFFORT TO CHANGE THE ESTIMATED REQUIREMENTS DESPITE THE REPRESENTATION IN THE INVITATION THAT IT WAS "BASED ON BEST KNOWN ESTIMATES." IN THE CIRCUMSTANCES, THE REPRESENTATION THAT THE ESTIMATE IN THE INVITATION WAS BASED UPON THE BEST INFORMATION AVAILABLE WAS A MISREPRESENTATION FOR WHICH THE CONTRACTOR IS ENTITLED TO DAMAGES. SEE HELENE CURTIS INDUSTRIES, INC. V. UNITED STATES, 160 CT. CL. 437 (1963); 45 COMP. GEN. 698 (1966); 37 ID. 688 (1958).

THE BASIS FOR THE CONTRACTOR'S CLAIM FOR DAMAGES IS THAT IN THE PERFORMANCE OF THE CONTRACT IT HAS CERTAIN FIXED COSTS WHICH IT PRORATED OVER THE NUMBER OF MILES ESTIMATED IN THE IFB, AND THAT BUT FOR THE MISREPRESENTATION THE COST PER MILE BID WOULD HAVE BEEN HIGHER.

THE CONTRACTING AGENCIES OF THE GOVERNMENT CAN NEGOTIATE SETTLEMENTS FOR BREACH OF CONTRACT AND SUBMIT SUCH MATTERS FOR OUR APPROVAL. B 162868, JANUARY 9, 1969; B-155343, JULY 26, 1966.

IN THIS CASE, AGENCY REPRESENTATIVES HAVE REVIEWED THE CONTRACTOR'S COSTS AND HAVE NEGOTIATED A SETTLEMENT WITH THE CONTRACTOR IN THE AMOUNT OF $19,000. NO REASON IS APPARENT WHY OUR OFFICE SHOULD NOT APPROVE THE SETTLEMENT. ACCORDINGLY, OUR OFFICE HAS NO OBJECTION TO THE PROPOSED SETTLEMENT AS ADMINISTRATIVELY RECOMMENDED. THE VOUCHER SUBMITTED IS THEREFORE RETURNED FOR CERTIFICATION AND PAYMENT.