B-174859, FEB 8, 1972, 51 COMP GEN 491

B-174859: Feb 8, 1972

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SINCE THE BOARD'S HOLDING THAT THE FOREST SERVICE BREACHED ITS OBLIGATION TO FURNISH AGREED SUPPLIES IS NOT SUPPORTED BY THE EVIDENCE. BREACH OF CONTRACT CLAIMS ARE NOT PROPERLY COGNIZABLE BY BOARDS OF CONTRACT APPEALS. CONTRACTS - DAMAGES - GOVERNMENT LIABILITY - METHOD OF COMPUTATION THE "TOTAL COST" METHOD USED BY THE COURT OF CLAIMS IN COMPUTING DAMAGES WHEN THE GOVERNMENT'S RESPONSIBILITY FOR DAMAGES WAS CLEARLY ESTABLISHED. NO OTHER METHOD OF COMPUTING DAMAGES WAS AVAILABLE. THE CONTRACTOR'S BID WAS CONSIDERED REASONABLE IS NOT FOR APPLICATION WHERE PRIOR TO AWARD THE BID OF THE IMPROPERLY DEFAULTED CONTRACTOR WAS SO LOW THE CONTRACTING AGENCY BELIEVED THE CONTRACTOR WOULD BE UNABLE TO PERFORM.

B-174859, FEB 8, 1972, 51 COMP GEN 491

CONTRACTS - BREACH OF CONTRACT - BY GOVERNMENT - AUTHORITY TO DETERMINE THE FOREST SERVICE HAS AUTHORITY TO ENTER INTO AN AGREEMENT WITH A CONTRACTOR TO SETTLE TERMINATION COSTS INCIDENT TO THE AGRICULTURE BOARD OF CONTRACT APPEALS RULING THAT THE GOVERNMENT IMPROPERLY DEFAULTED A CONTRACT, BUT SINCE THE BOARD'S HOLDING THAT THE FOREST SERVICE BREACHED ITS OBLIGATION TO FURNISH AGREED SUPPLIES IS NOT SUPPORTED BY THE EVIDENCE, THE DAMAGES AWARDED BY THE BOARD FOR THE SUPPOSED BREACH MAY NOT BE SETTLED. BREACH OF CONTRACT CLAIMS ARE NOT PROPERLY COGNIZABLE BY BOARDS OF CONTRACT APPEALS, AND THE DEPARTMENT OF AGRICULTURE SHOULD MAKE AN INDEPENDENT ANALYSIS OF THE MERITS OF THE CLAIM AND A FULL EXAMINATION OF AVAILABLE DEFENSES, AND THEN DETERMINE IF A BREACH OCCURRED UNDER DECISIONS OF THE COURTS AND OR THE UNITED STATES GENERAL ACCOUNTING OFFICE, AND SHOULD PROVIDE THAT IN FUTURE PROCEEDINGS, THE BOARD SHALL NOT EXPRESS AN OPINION OR MAKE A FINDING OF CONTRACT BREACH. CONTRACTS - DAMAGES - GOVERNMENT LIABILITY - METHOD OF COMPUTATION THE "TOTAL COST" METHOD USED BY THE COURT OF CLAIMS IN COMPUTING DAMAGES WHEN THE GOVERNMENT'S RESPONSIBILITY FOR DAMAGES WAS CLEARLY ESTABLISHED, NO OTHER METHOD OF COMPUTING DAMAGES WAS AVAILABLE, AND THE CONTRACTOR'S BID WAS CONSIDERED REASONABLE IS NOT FOR APPLICATION WHERE PRIOR TO AWARD THE BID OF THE IMPROPERLY DEFAULTED CONTRACTOR WAS SO LOW THE CONTRACTING AGENCY BELIEVED THE CONTRACTOR WOULD BE UNABLE TO PERFORM.

TO THE SECRETARY OF AGRICULTURE, FEBRUARY 8, 1972:

WE REFER TO A REPORT (REFERENCE S. DOHERTY), DATED DECEMBER 28, 1971, FROM MR. MERWIN W. KAYE, DIRECTOR, RESEARCH & OPERATIONS DIVISION, TRANSMITTING A PROPOSED SETTLEMENT OF $15,000 ON THE CLAIMS OF TED C. FROME UNDER FOREST SERVICE CONTRACT NO. 26-147. THE REPORT STATES THAT THE AGRICULTURE BOARD OF CONTRACT APPEALS RULED THAT THE GOVERNMENT IMPROPERLY DEFAULTED THE CONTRACT, AS WELL AS BREACHED ITS OBLIGATION TO FURNISH THE AGREED NUMBER OF "GOOP" CANS TO THE CONTRACTOR; THAT THE BOARD CONVERTED THE DEFAULT TERMINATION INTO A TERMINATION FOR THE CONVENIENCE OF THE GOVERNMENT; THAT THE PROPOSED SETTLEMENT REPRESENTS TERMINATION FOR CONVENIENCE COSTS OF $3,000; AND THAT THE REMAINDER OF THE SETTLEMENT REPRESENTS DAMAGES FOR THE GOVERNMENT'S BREACH.

THE AUTHORITY OF AN ADMINISTRATIVE AGENCY TO ENTER INTO AN AGREEMENT WITH A CONTRACTOR FOR THE SETTLEMENT OF HIS CLAIM ARISING OUT OF THE TERMINATION OF A CONTRACT FOR THE CONVENIENCE OF THE GOVERNMENT HAS LONG BEEN RECOGNIZED BY OUR OFFICE. B-174568, DECEMBER 10, 1971; 44 COMP. GEN. 466 (1965). WHILE WE HAVE DOUBTS RELATIVE TO THE PROPRIETY OF THE METHOD ADOPTED FOR DETERMINING THE AMOUNT TO WHICH THE CONTRACTOR IS ENTITLED, IN VIEW OF THE APPARENT LACK OF CONTRACTOR'S RECORDS REFLECTING ACTUAL TERMINATION EXPENSES AND THE RELATIVELY SMALL AMOUNT PROPOSED, THIS OFFICE WILL NOT OBJECT TO PAYMENT OF $3,000 BY YOUR DEPARTMENT IN SETTLEMENT OF THE CONTRACTOR'S CLAIM FOR TERMINATION COSTS.

WITH RESPECT TO THE PROPOSAL TO SETTLE THE BREACH CLAIM FOR $12,000, SUCH PAYMENT IS APPARENTLY BASED ON THE BOARD'S CONCLUSION THAT THE GOVERNMENT'S FAILURE TO SUPPLY 11,000 "GOOP" CANS TO THE CONTRACTOR CONSTITUTED A BREACH OF CONTRACT.

WE QUESTION THE AUTHORITY OF THE BOARD TO FIND THAT THE GOVERNMENT BREACHED THE SUBJECT CONTRACT. IN THIS REGARD, THE SUPREME COURT HAS STATED THAT BREACH OF CONTRACT CLAIMS ARE NOT PROPERLY COGNIZABLE BY THE BOARDS OF CONTRACT APPEALS. SEE UNITED STATES V. UTAH CONSTRUCTION AND MINING CO. 384 U.S. 394 (1966). AS NOTED BY THE BOARD IN FOOTNOTE NO. 1 OF ITS OPINION, THE BOARD MAY MAKE FINDINGS OF FACT INVOLVING A CLAIM WHICH IS NOT OTHERWISE COGNIZABLE BY THE BOARD WITHOUT EXPRESSING AN OPINION OR MAKING A FINDING ON THE QUESTION OF LIABILITY. IT THEREFORE APPEARS THAT THE BOARD'S FINDING OF BREACH IN THE INSTANT CASE CONSTITUTED AN UNAUTHORIZED OPINION ON THE QUESTION OF THE GOVERNMENT'S LIABILITY, AND WE ARE CONCERNED THAT THIS OPINION MAY HAVE CONVINCED THE FOREST SERVICE THAT IT WAS PRECLUDED FROM INDEPENDENTLY ANALYZING THE MERITS OF THE CLAIM, AND MAY HAVE PREVENTED A FULL EXAMINATION OF AVAILABLE DEFENSES TO THE CLAIM BY YOUR DEPARTMENT BEFORE IT CONCEDED LIABILITY TO THE CONTRACTOR IN THE CLAIMED AMOUNT. CONSEQUENTLY, WE RECOMMEND THAT THE BOARD'S RULES BE AMENDED TO SPECIFICALLY PROVIDE THAT THE BOARD SHALL NOT EXPRESS AN OPINION OR MAKE A FINDING THAT THE DEPARTMENT HAS BREACHED A CONTRACT IN ANY FUTURE PROCEEDING.

SINCE THE BOARD'S FINDING OF BREACH WAS UNAUTHORIZED, AND THAT QUESTION DOES NOT APPEAR TO HAVE BEEN FULLY ARGUED BEFORE THE BOARD, WE DO NOT BELIEVE WE WOULD BE JUSTIFIED IN DECIDING, ON THE PRESENT RECORD, THAT THE GOVERNMENT DID, OR DID NOT BREACH THE CONTRACT. WE THEREFORE SUGGEST THAT AN INDEPENDENT ANALYSIS BE MADE BY YOUR DEPARTMENT SETTING FORTH IN DETAIL THE RELEVANT CONTRACTUAL PROVISIONS INVOLVED IN CONSIDERATION OF THE BREACH CLAIM, THE EXTENT TO WHICH THE GOVERNMENT COMPLIED WITH THESE PROVISIONS, THE EXTENT, IF ANY, TO WHICH THE GOVERNMENT FAILED TO COMPLY WITH THE PROVISIONS, AND A STATEMENT SHOWING WHY THE GOVERNMENT'S ACTIONS, OR LACK OF ACTIONS, WITH RESPECT TO THESE PROVISIONS SHOULD BE CONSIDERED A BREACH OF CONTRACT UNDER DECISIONS OF THE COURTS OR THIS OFFICE. THIS CONNECTION, THE PRESENT RECORD INDICATES IT MAY BE DESIRABLE THAT SUCH ANALYSIS BE PREPARED BY, OR INCLUDE THE COMMENTS OF, THE REGIONAL ATTORNEY WHO REPRESENTED THE DEPARTMENT BEFORE THE BOARD IN THE APPEAL OF THE CONTRACTOR.

WITH RESPECT TO THE QUESTION OF WHETHER DAMAGE RESULTED FROM THE ALLEGED BREACH, THE BOARD FOUND THAT THE CONTRACTOR WAS "PROBABLY" DELAYED BY THE GOVERNMENT'S FAILURE TO FURNISH THE ENTIRE SUPPLY OF CANS. HOWEVER, IT NOTED THAT THE CONTRACTOR WAS NOT USING ALL THE CANS THAT WERE AVAILABLE TO HIM AND THAT THE SHORTAGE OF CANS WAS PARTLY CAUSED BY THE FAILURE OF THE CONTRACTOR TO RETURN EMPTY CANS WHEN ARRIVING FOR NEW SUPPLIES. THE ONLY OTHER DATA IN THE PRESENT RECORD CONCERNING THE EFFECT ON THE CONTRACTOR'S WORK OF THE GOVERNMENT'S FAILURE TO SUPPLY 11,000 CANS IS STATED ON PAGE 5 OF THE STATEMENT OF THE REGIONAL ADMINISTRATIVE SERVICES OFFICER THAT THE BREACH OF CONTRACT "COULD PERHAPS" HAVE CAUSED AS MUCH AS 6 1/2 DAYS TOTAL DELAY.

IN THIS CONNECTION, THE COURT OF CLAIMS HAS NOTED THAT, ONCE A BREACH OF CONTRACT HAS BEEN ESTABLISHED, THE CONTRACTOR MUST STILL SHOW THAT DAMAGE ENSUED. SEE COMMERCE INTERNATIONAL COMPANY, INC. V. UNITED STATES, 167 CT. CL. 529, 536 (1964). ASSUMING, FOR THE PURPOSE OF DISCUSSION, THAT THE GOVERNMENT BREACHED THE CONTRACT BY FAILING TO DELIVER 11,000 CANS TO THE CONTRACTOR, WE CANNOT CONCLUDE THAT THE RECORD DEMONSTRATES THAT THE BREACH DELAYED THE CONTRACTOR OR THAT ANY DELAY RESULTED IN DAMAGE TO THE CONTRACTOR. FROM OUR REVIEW OF THE RECORD, WE BELIEVE IT IS EQUALLY REASONABLE TO CONCLUDE THAT THE DELAY WAS CAUSED BY THE CONTRACTOR'S FAILURE TO USE ALL AVAILABLE CANS AND TO RETURN EMPTY CANS WHEN ARRIVING FOR NEW SUPPLIES.

IN VIEW OF THE FOREGOING, IT IS OUR OPINION THAT THE INSTANT CLAIM IS FOR ALLOWANCE ONLY IF THE RECORD CLEARLY SUPPORTS A CONCLUSION THAT THE GOVERNMENT BREACHED ITS CONTRACTUAL OBLIGATION, AND IF A DETAILED STATEMENT OF THE CIRCUMSTANCES SURROUNDING THE DELAY INCURRED IN FURNISHING 11,000 CANS TO THE CONTRACTOR CLEARLY INDICATES HOW THE ALLEGED BREACH DELAYED THE CONTRACTOR, AND THE EXTENT OF SUCH DELAY. IN THIS CONNECTION IT WOULD APPEAR TO BE BOTH APPROPRIATE AND NECESSARY THAT AN ANALYSIS BE PREPARED BY, OR INCLUDE THE COMMENTS OF, THE ORIGINAL CONTRACTING OFFICER OR HIS SUCCESSOR ON THESE MATTERS.

IN THIS CONNECTION, WE NOTE THAT THE PROPOSED SETTLEMENT OF THE BREACH CLAIM FOR 6 1/2 DAYS OF GOVERNMENT-CAUSED DELAY IS BASED ON THE DAILY AVERAGE OF THE CONTRACTOR'S TOTAL COSTS. THE COURT OF CLAIMS HAS USED THE "TOTAL COST" METHOD OF COMPUTING DAMAGES WHEN THE GOVERNMENT'S RESPONSIBILITY FOR DAMAGES WAS CLEARLY ESTABLISHED, NO OTHER METHOD OF COMPUTING DAMAGES WAS AVAILABLE, AND THE CONTRACTOR'S BID WAS CONSIDERED REASONABLE. SEE J. D. HEDIN CONSTRUCTION CO., INC. V. UNITED STATES, 171 CT. CL. 70, 86 (1965). HOWEVER, IN THE SUBJECT CASE THE RECORD INDICATES THAT, BEFORE AWARD, FOREST SERVICE PERSONNEL CONSIDERED MR. FROME'S BID WAS SO LOW THAT HE WOULD NOT BE ABLE TO PERFORM. CONSEQUENTLY, WE QUESTION WHETHER THIS METHOD OF COMPUTING DAMAGES IS PROPERLY APPLICABLE TO THE CIRCUMSTANCES OF THE SUBJECT CASE.

SINCE THE PRESENT RECORD DOES NOT CONTAIN EVIDENCE WHICH, IN OUR OPINION, CLEARLY SUPPORTS A CONCLUSION THAT THE GOVERNMENT BREACHED THE CONTRACT, OR THAT THE CONTRACTOR HAS BEEN DAMAGED IN THE CLAIMED AMOUNT BY SUCH BREACH, OR THAT THE METHOD OF COMPUTING DAMAGES HERE WAS LEGALLY PROPER, WE ARE UNABLE TO CONCUR IN THE $15,000 SETTLEMENT PROPOSED BY YOUR ADMINISTRATION. WE WILL, OF COURSE, BE GLAD TO CONSIDER THE MATTER FURTHER IF RESUBMITTED IN ACCORDANCE WITH OUR OBSERVATIONS SET OUT ABOVE.

THE FILE FORWARDED WITH THE REPORT IS RETURNED.