B-172086, AUG 19, 1971

B-172086, AUG 19, 1971

CONTRACT CANCELLATION - PERFORMANCE BY CONTRACTOR DECISION REVERSING A PARTIAL SETTLEMENT ALLOWED BY CLAIMS DIVISION ON A CLAIM BY INLAND POWER AND LIGHT COMPANY, AND GRANTING INLAND A FULL SETTLEMENT ON THE CLAIM. SINCE THE NEW EVIDENCE PRESENTED BY INLAND CLEARLY SHOWS THAT THE TRANSFORMERS WERE ORDERED BEFORE THE CORPS OF ENGINEERS CANCELLED THE PROJECT, GAO BELIEVES THAT THE ACTS OF THE PARTIES RESULTED IN AN IMPLIED CONTRACT UNDER WHICH THE GOVERNMENT WAS OBLIGATED TO PAY THE REASONABLE COST OF THE SERVICES RENDERED AND THE EQUIPMENT FURNISHED.

TO INLAND POWER AND LIGHT COMPANY:

SUBJECT: MARMES LEVEE TRANSFORMERS, CLAIM NO. Z 2426154

WE HAVE REVIEWED YOUR REQUEST OF FEBRUARY 1, 1971, FOR RECONSIDERATION OF OUR CLAIMS DIVISION'S PARTIAL DISALLOWANCE OF YOUR CLAIM, TOGETHER WITH YOUR LETTER OF APRIL 30, 1971, AND ENCLOSURES, CONTAINING FURTHER EXPLANATION REQUESTED BY US. ON THE BASIS OF THE ADDITIONAL INFORMATION CONTAINED IN THE TWO LETTERS, WE BELIEVE THAT YOUR CLAIM SHOULD BE ALLOWED IN FULL, AND OUR CLAIMS DIVISION HAS BEEN INSTRUCTED TO PREPARE A SETTLEMENT VOUCHER IN YOUR FAVOR IN THE ADDITIONAL AMOUNT OF $5,904.

CLAIMS DIVISION'S SETTLEMENT, DATED NOVEMBER 25, 1970, APPROVED PAYMENT OF A PORTION OF YOUR CLAIM IN THE AMOUNT OF $15,266.87. THE DISALLOWANCE OF THE BALANCE OF $5,904, REPRESENTING THE COST OF THE THREE SPECIALLY BUILT TRANSFORMERS, WAS BASED ON (1) THE LACK OF ANY EVIDENCE THAT YOUR COMPANY HAD PAID FOR THEM, AND (2) ON THE FACT THAT THE GOVERNMENT HAD NOT RECEIVED THE TRANSFORMERS AND HAD NO FURTHER NEED FOR THEM. THESE CONCLUSIONS WERE BASED ON INFORMATION FURNISHED BY THE CORPS OF ENGINEERS. BOTH GROUNDS FOR DISALLOWANCE HAVE NOW BEEN ANSWERED BY YOUR RECENT LETTERS.

THE FACT OF PAYMENT IS SHOWN BY YOUR LETTER OF FEBRUARY 1, 1971, WHICH ENCLOSES A COPY OF INLAND POWER AND LIGHT COMPANY VOUCHER CHECK NO. 51319A, DATED JANUARY 13, 1970, MAKING PAYMENT TO WESTINGHOUSE FOR THE THREE TRANSFORMERS. MOREOVER, YOUR APRIL 30TH LETTER SHOWS TO OUR SATISFACTION THAT THE THREE TRANSFORMERS WERE ACTUALLY ORDERED FROM WESTINGHOUSE ON NOVEMBER 8, 1968, IN RELIANCE UPON REQUESTS FROM THE CORPS OF ENGINEERS, AND NOT ON NOVEMBER 8, 1969, AS INADVERTENTLY INDICATED ON THE WESTINGHOUSE INVOICE.

AS TO THE FACT THAT THE GOVERNMENT HAS NOT RECEIVED THE TRANSFORMERS AND HAS NO FURTHER NEED FOR THEM, THE FILE DISCLOSES THE FOLLOWING CIRCUMSTANCES. IN SEPTEMBER 1968, THE CORPS OF ENGINEERS BEGAN TALKS WITH YOUR COMPANY ABOUT THE CONSTRUCTION OF A POWER LINE FOR CORPS' NEEDS TO THE MARMES LEVEE, PALOUSE RIVER, STATE OF WASHINGTON. ON NOVEMBER 6, 1968, THE COMPANY INFORMALLY AGREED TO FURNISH THE TRANSFORMERS THAT WOULD REDUCE THE VOLTAGE AND ELIMINATE THE NEED FOR GOVERNMENT-FURNISHED TRANSFORMERS AT THE SITE. ON NOVEMBER 8, 1968, OFFICIALS OF THE SEATTLE DISTRICT, CORPS OF ENGINEERS, CONTACTED THE CHIEF ENGINEER OF INLAND POWER AND AGREED THAT THE COMPANY WOULD FURNISH TRANSFORMERS AT THE SITE AND THAT THE CORPS WOULD FURNISH DRAWINGS TO THE COMPANY SO IT COULD PLAN THE INSTALLATION. ON THE SAME DAY, THE CHIEF ENGINEER PLACED A WRITTEN ORDER WITH WESTINGHOUSE ELECTRIC SUPPLY COMPANY, SPOKANE, WASHINGTON, FOR THE SUBSTATION TRANSFORMERS. THE COMPANY THEN PROCEEDED WITH THE CONSTRUCTION OF CONNECTING POWER LINES.

THE FOREGOING WAS DONE ON A "CRASH" BASIS BY THE COMPANY PRIOR TO THE EXECUTION OF A FORMAL UTILITY SERVICE CONTRACT, WITH THE KNOWLEDGE AND APPROVAL OF THE DISTRICT OFFICIALS OF THE CORPS OF ENGINEERS, BECAUSE OF THE URGENT NEED TO PROVIDE POWER FOR THE PUMPING STATION AT THE SITE. DECEMBER 20, 1968, THE OFFICE OF THE CHIEF OF ENGINEERS, DEPARTMENT OF THE ARMY, GRANTED APPROVAL TO NEGOTIATE AND ENTER INTO A CONTRACT WITH INLAND POWER, AND ON JANUARY 7, 1969, A FORMAL CONTRACT WAS SENT TO INLAND POWER. IT WAS NOT SIGNED BECAUSE THE COMPANY FELT IT SHOULD PROVIDE FOR A CONNECTION CHARGE. NEVERTHELESS, THE COMPANY AGREED TO CONTINUE WITH THE WORK PENDING NEGOTIATIONS ON THE FORMAL CONTRACT. ON FEBRUARY 12, 1969, THE COMPANY WROTE TO THE SEATTLE DISTRICT REQUESTING EITHER A PROVISION IN THE CONTRACT FOR A CONNECTION CHARGE OR A 20-YEAR TERM CONTRACT. BEFORE FURTHER NEGOTIATIONS COULD TAKE PLACE, THE MARMES LEVEE PROJECT SITE WAS FLOODED OUT ON FEBRUARY 23, 1969, AND THE CORPS OF ENGINEERS NOTIFIED INLAND POWER THAT AN ELECTRIC SERVICE CONTRACT WAS NO LONGER NEEDED.

INLAND POWER PROMPTLY NOTIFIED WESTINGHOUSE TO CANCEL THE ORDER FOR TRANSFORMERS, AND WESTINGHOUSE ADVISED THAT CANCELLATION CHARGES WOULD BE 100 PERCENT BECAUSE PRODUCTION WAS VIRTUALLY COMPLETE WHEN THE REQUEST WAS RECEIVED. WESTINGHOUSE WAS UNABLE TO DISPOSE OF THE TRANSFORMERS TO OTHER CUSTOMERS, BECAUSE THEY WERE SPECIALLY BUILT, AND IN DECEMBER 1969, IT SHIPPED THE UNITS TO ITS SPOKANE WAREHOUSE. THE TRANSFORMERS WILL BE DELIVERED TO THE CORPS WHEN PAYMENT IS MADE.

THE CORPS OF ENGINEERS, IN TRANSMITTING YOUR COMPANY'S CLAIM TO THE GENERAL ACCOUNTING OFFICE BY LETTER DATED JULY 24, 1970, ACKNOWLEDGED THAT "THE GOVERNMENT PERSONNEL CONCERNED WERE FULLY COGNIZANT THAT THE CLAIMANT WAS PERFORMING WORK AT THE PROJECT SITE" AND RECOMMENDED THAT THE CLAIM BE PAID.

WE BELIEVE THAT THE ACTS OF THE PARTIES RESULTED IN AN IMPLIED CONTRACT UNDER WHICH THE GOVERNMENT WAS OBLIGATED TO PAY THE REASONABLE COST OF THE SERVICES RENDERED AND THE EQUIPMENT FURNISHED. 38 COMP. GEN. 38, 43 (1958). THE FACT THAT THE PROJECT SITE FLOODED OUT ON FEBRUARY 23, 1969, BEFORE THE TRANSFORMERS WERE RECEIVED, DOES NOT PRECLUDE PAYMENT BECAUSE THE TRANSFORMERS, WHICH REQUIRED A LONG LEAD TIME FOR MANUFACTURE AND DELIVERY, HAD BEEN SPECIALLY ORDERED IN NOVEMBER 1968 WITH THE APPROVAL OF THE CORPS.

IN 41 COMP. GEN. 47, 56 (1961), WHERE A CONTRACT WAS CANCELLED BECAUSE OF A VIOLATION OF THE SMALL BUSINESS REQUIREMENTS, BUT WHERE THE CONTRACTOR HAD PROCEEDED WITH THE WORK AND ORDERED EQUIPMENT PRIOR TO THE TIME OF CANCELLATION, WE HELD THAT THE EQUIPMENT SCHEDULED FOR DELIVERY, AS WELL AS THAT ALREADY MANUFACTURED, SHOULD BE ACCEPTED AND PAID FOR. THE SAME PRINCIPLE APPLIES HERE. INLAND POWER ACTED IN GOOD FAITH IN ORDERING THE TRANSFORMERS PRIOR TO THE EXECUTION OF A FORMAL CONTRACT AND IT SHOULD BE REIMBURSED FOR THEIR COST, NOTWITHSTANDING THE SUBSEQUENT CANCELLATION OF THE PROJECT CAUSED BY THE FLOODING OF THE SITE.