B-180453, SEP 24, 1974

B-180453: Sep 24, 1974

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WHICH IS OPERATING THE DENISON DAM (LAKE TEXOMA) ON THE RED RIVER (REFERRED TO IN THE CONTRACT AS THE "PROJECT"). TEXACO ARGUES THAT IT IS ENTITLED TO DO SO BECAUSE OF THE FOLLOWING SENTENCE IN ARTICLE 3A(1). TEXACO FEELS THAT THIS LANGUAGE INDICATES THAT THE INTENTION OF THE PARTIES WAS TO PERMIT TERMINATION BEFORE THE END OF THE 15-YEAR PERIOD. WHICHEVER IS LESS.". THE DISCONTINUANCE OF THE PROJECT IS THE ONLY CIRCUMSTANCE IN THE CONTRACT WHICH REASONABLY COULD CALL FOR THE TERMINATION PAYMENTS STIPULATED IN ARTICLE 3A(1). WE CONCLUDE THAT TEXACO IS BOUND TO THE FULL 15-YEAR TERM OF THE CONTRACT IN ACCORDANCE WITH ARTICLE 4 SUBJECT ONLY TO CONTINUATION OF THE PROJECT.

B-180453, SEP 24, 1974

NO LEGAL BASIS EXISTS TO GRANT REQUEST FOR UNILATERAL TERMINATION OR CANCELLATION (ABSENT A BREACH) OF 15-YEAR WATER SUPPLY STORAGE CONTRACT WITH CORPS OF ENGINEERS IN EFFECT SINCE 1967 WHEN REASONABLE INTERPRETATION OF CONTRACT COMPELS CONCLUSION THAT ONLY CIRCUMSTANCE CALLING FOR TERMINATION OR CANCELLATION RESTS WITH GOVERNMENT ALONE AND NO CONTRACT PROVISION CONFERS ANY TERMINATION OR CANCELLATION RIGHTS ON CONTRACTOR.

TEXACO INC.:

THE DEPARTMENT OF THE ARMY, OFFICE OF THE CHIEF OF ENGINEERS, HAS REQUESTED OUR DECISION RELATIVE TO THE REQUEST OF TEXACO INC. FOR CANCELLATION OF WATER SUPPLY STORAGE, CONTRACT NO. DACW56-68-C-0070, ENTERED INTO ON NOVEMBER 10, 1967, FOR A 15-YEAR TERM WITH THE TULSA DISTRICT, CORPS OF ENGINEERS (CORPS), WHICH IS OPERATING THE DENISON DAM (LAKE TEXOMA) ON THE RED RIVER (REFERRED TO IN THE CONTRACT AS THE "PROJECT").

BY LETTER DATED AUGUST 7, 1973, TEXACO GAVE NOTICE THAT IT DESIRED TO CANCEL THE CONTRACT. TEXACO ARGUES THAT IT IS ENTITLED TO DO SO BECAUSE OF THE FOLLOWING SENTENCE IN ARTICLE 3A(1), "CONSIDERATION AND PAYMENT":

"*** PAYMENT FOR ANY FRACTIONAL PART OF A YEAR WHICH MAY RESULT FROM TERMINATION OF THIS CONTRACT SHALL BE PRORATED ON THE BASIS OF THE ANNUAL CHARGE."

TEXACO FEELS THAT THIS LANGUAGE INDICATES THAT THE INTENTION OF THE PARTIES WAS TO PERMIT TERMINATION BEFORE THE END OF THE 15-YEAR PERIOD.

THE CORPS RECOMMENDS THAT TEXACO BE HELD TO THE 15-YEAR TERMS OF THE CONTRACT AS STATED IN ARTICLE 4:

"*** CONTRACT TERM. THIS CONTRACT SHALL BECOME EVVECTIVE AS OF THE DATE OF APPROVAL BY THE SECRETARY OF THE ARMY AND SHALL CONTINUE IN FULL FORCE AND EFFECT FOR A TERM OF 15 YEARS FROM THE DUE DATE OF THE FIRST PAYMENT UNDER THIS CONTRACT OR LIFE OF THE PROJECT, WHICHEVER IS LESS."

DISTRICT COUNSEL FOR THE CORPS POINTS OUT THAT THE CONTRACT TERM IN ARTICLE 4 MAY NOT BE NULLIFIED BY RELYING UPON THE UNRELATED SENTENCE IN ARTICLE 3A(1) WHICH RELATES TO PAYMENT AND CONSIDERATION UNDER THE CONTRACT.

THE CONTRACT PROVIDES NO BASIS UPON WHICH TEXACO MAY CANCEL OR TERMINATE UNILATERALLY THE CONTRACT PRIOR TO THE EXPIRATION OF THE PRESCRIBED 15- YEAR TERM WITHOUT THE CANCELLATION OR TERMINATION BEING CONSIDERED A BREACH. THE DISCONTINUANCE OF THE PROJECT IS THE ONLY CIRCUMSTANCE IN THE CONTRACT WHICH REASONABLY COULD CALL FOR THE TERMINATION PAYMENTS STIPULATED IN ARTICLE 3A(1). IN THE ABSENCE OF ANY OTHER SPECIFIC CLAUSES CONFERRING TERMINATION RIGHTS ON TEXACO, WE CONCLUDE THAT TEXACO IS BOUND TO THE FULL 15-YEAR TERM OF THE CONTRACT IN ACCORDANCE WITH ARTICLE 4 SUBJECT ONLY TO CONTINUATION OF THE PROJECT.