B-176472, AUG 7, 1972

B-176472, AUG 7, 1972

CONTRACT - DEFAULT REPLACEMENT COSTS DECISION THAT THE DEPARTMENT OF AGRICULTURE DOES NOT NEED TO ASSESS A DEFAULT REPLACEMENT COST CLAIM AGAINST HILL HIGH FOOD PRODUCTS, INC., WHICH FAILED TO COMPLETE DELIVERY OF CANNED APPLE JUICE AS REQUIRED BY CONTRACT. SINCE APPLE JUICE AND PINEAPPLE JUICE ARE "SIMILAR" PRODUCTS WITHIN THE MEANING OF THE DEFAULT CLAUSE, AND SINCE THE GOVERNMENT REALIZED A SAVINGS OF ABOUT $52,000, GAO WILL NOT OBJECT IF NO DEFAULT CLAIM IS ASSERTED IN THIS CASE.

TO MR. SECRETARY:

REFERENCE IS MADE TO A LETTER DATED JULY 6, 1972, WITH ENCLOSURES, FROM THE ASSISTANT SECRETARY, REQUESTING OUR DECISION CONCERNING A DEFAULT REPLACEMENT COST CLAIM AGAINST HILL HIGH FOOD PRODUCTS, INC., WHICH FAILED TO COMPLETE DELIVERY OF CANNED APPLE JUICE COVERED BY CONTRACT NO. 122522244.

ON NOVEMBER 30, 1971, THE CONSUMER AND MARKETING SERVICE (C&MS) OF THE DEPARTMENT ISSUED ANNOUNCEMENT NO. FV-563 FOR THE PURCHASE OF CANNED APPLE JUICE, PROCESSED FROM THE 1971 CROP. THE ANNOUNCEMENT INCORPORATED BY REFERENCE THE STANDARD PROVISIONS OF C&MS PURCHASE DOCUMENT NO. 1 (REVISED AUGUST 1969), "CONTRACT TERMS AND CONDITIONS FOR THE PURCHASE OF AGRICULTURAL PRODUCTS." THE CONTRACT WAS FOR A TOTAL OF 122,100 CASES OF 12 NO. 3 CYLINDER CANS OF APPLE JUICE PRICED AT $3.456 PER CASE. SHIPMENT WAS TO BE MADE IN THREE PERIODS IN 1972 AS FOLLOWS: (1) 40,700 CASES TO BE DELIVERED FROM FEBRUARY 7 THROUGH FEBRUARY 25; (2) 40,700 CASES TO BE DELIVERED FROM MARCH 6 THROUGH MARCH 24; AND (3) 40,700 CASES TO BE DELIVERED FROM APRIL 3 THROUGH APRIL 21.

DURING THE EARLY MONTHS OF 1972, THE PRICE OF JUICE APPLES ROSE SHARPLY AND THEIR AVAILABILITY ON THE MARKET DECLINED. ON MARCH 13, 1972, HILL HIGH REQUESTED A RAW MATERIAL PRICE ESCALATION ADJUSTMENT OF ITS CONTRACT PRICE. HILL HIGH WAS ADVISED THAT SINCE THE CONTRACT DID NOT AUTHORIZE PRICE ADJUSTMENT, IT SHOULD CONTINUE PERFORMANCE TO AVOID ASSESSMENT OF LIQUIDATED DAMAGES. AS OF MARCH 13, 1972, HILL HIGH HAD DELIVERED ONLY 47,210 CASES OUT OF 122,100 CASES. FROM MARCH 13 UNTIL HILL HIGH'S LAST SHIPMENT ON APRIL 3, AN ADDITIONAL 17,690 CASES WERE DELIVERED, OR A TOTAL OF 64,900 CASES.

SUBSEQUENT TO THE DELIVERY OF 64,900 CASES, HILL HIGH WAS ADVISED THAT DELIVERY OF THE REMAINING 57,200 CASES WAS TERMINATED FOR DEFAULT PURSUANT TO ARTICLE 38 OF THE CONTRACT. ARTICLE 38 PROVIDES AS FOLLOWS:

"(A) USDA MAY, BY WRITTEN NOTICE OF DEFAULT TO CONTRACTOR, TERMINATE ALL OR ANY PART OF THE CONTRACT IF CONTRACTOR FAILS TO MAKE SHIPMENT OR DELIVERY OF THE PRODUCT WITHIN THE TIME REQUIRED BY THE CONTRACT OR ANY EXTENSION OF SUCH TIME BY THE CONTRACTING OFFICER.

"(B) IF USDA TERMINATES ALL OR ANY PART OF THE CONTRACT, USDA MAY PROCURE A SIMILAR PRODUCT ELSEWHERE, OR SUCH TERMS AND IN SUCH MANNER AS THE CONTRACTING OFFICER MAY DEEM APPROPRIATE, AND CONTRACTOR SHALL BE LIABLE TO USDA FOR ANY EXCESS COST INCURRED IN PROCURING SUCH SIMILAR PRODUCT. CONTRACTOR SHALL, IN ADDITION TO SUCH EXCESS COST, BE LIABLE TO USDA FOR ANY OTHER COST OR DAMAGES SUSTAINED, AS DETERMINED BY USDA, INCLUDING BUT NOT LIMITED TO DAMAGES FOR DELAY IN SHIPMENT OR DELIVERY."

BECAUSE APPLE JUICE WAS IN SHORT SUPPLY AND BECAUSE IT WAS TOO LATE IN THE SEASON TO PURCHASE IT FORTIFIED WITH VITAMIN C, AS REQUIRED FOR USE IN THE NEEDY FAMILIES PROGRAM, THE PROCUREMENT ACTIVITY DECIDED TO PURCHASE ELSEWHERE CANNED PINEAPPLE JUICE, AS A PRODUCT SIMILAR TO APPLE JUICE. APRIL 25, 1972, SUCH A PROCUREMENT WAS EFFECTED IN REPLACEMENT OF THE APPLE JUICE UNDELIVERED BY HILL HIGH. AT THE TIME OF PURCHASE, THE PRICE OF PINEAPPLE JUICE, PLUS DELIVERY COSTS, WAS LESS THAN THE PRICE OF APPLE JUICE AND RESULTED IN A SAVINGS OF ABOUT $52,000. WE ARE ADVISED THAT PINEAPPLE JUICE IS AN EQUIVALENT AND SATISFACTORY SUBSTITUTE FOR APPLE JUICE AND HAS A HIGHER NUTRITIVE VALUE, EXCEPT FOR IRON, THAN APPLE JUICE. UNDER THE CIRCUMSTANCES, IT IS PROPOSED NOT TO ASSERT A DEFAULT REPLACEMENT COST CLAIM AGAINST HILL HIGH.

THE QUESTION THEN IS WHETHER PINEAPPLE JUICE IS A "SIMILAR" PRODUCT TO APPLE JUICE WITHIN THE MEANING OF THE QUOTED DEFAULT CLAUSE. WE THINK THE TWO JUICES ARE SIMILAR SINCE THEIR FOOD VALUES ARE SUBSTANTIALLY EQUIVALENT. THE COURT OF CLAIMS CONSIDERED THE WORD "SIMILAR" AS IT IS USED IN DEFAULT CLAUSES AND HELD THAT "SIMILAR" MEANS NEARLY CORRESPONDING; SOMEWHAT ALIKE; A GENERAL LIKENESS IN ESSENTIAL PARTICULARS. SEE ASSOCIATED TRADERS, INC. V. UNITED STATES, 169 F. SUPP. 502 (1959).

THEREFORE, OUR OFFICE WOULD HAVE NO OBJECTION IF NO DEFAULT REPLACEMENT COST CLAIM IS ASSERTED AGAINST HILL HIGH FOOD PRODUCTS, INC. ..END :