B-181491, AUG 19, 1974

B-181491: Aug 19, 1974

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

COST OF LIVING COUNCIL REMOVAL OF PRICE CONTROLS ON ZINC RESULTING IN GSA CONTRACTOR HAVING TO PAY GSA MORE FOR ZINC UNDER CONTRACT PAYMENT FORMULA THAN IT WAS ABLE TO CHARGE ITS CUSTOMERS CREATES NO LEGAL AUTHORITY FOR RELIEF TO CONTRACTOR FOR LOSSES SUFFERED UNDER CONTRACT FORMULA. SINCE REMOVAL OF PRICE CONTROLS IS SOVEREIGN ACT AND GOVERNMENT IS NOT LIABLE FOR CONSEQUENCES OF ITS SOVEREIGN ACTS. IT INCURRED A SUBSTANTIAL FINANCIAL LOSS FROM A PECULIAR SITUATION THAT WAS NOT CONTEMPLATED BY THE CONTRACT. OF THE CONTRACT SET OUT THE MANNER IN WHICH THE PURCHASE PRICE OF THE ZINC WAS TO BE DETERMINED. PURCHASES OF THE EXCESS ZINC FOR DIRECT SHIPMENT TO CONSUMERS OR WHICH WOULD NOT BE PROCESSED AT ITS (NJZ) PLANTS WERE TO BE PRICED AT THE AVERAGE DELIVERED DOMESTIC PRICE FOR PRIME WESTERN GRADE ZINC AS PUBLISHED IN METALS WEEK FOR THE MONTH IN WHICH SHIPMENT WAS MADE.

B-181491, AUG 19, 1974

COST OF LIVING COUNCIL REMOVAL OF PRICE CONTROLS ON ZINC RESULTING IN GSA CONTRACTOR HAVING TO PAY GSA MORE FOR ZINC UNDER CONTRACT PAYMENT FORMULA THAN IT WAS ABLE TO CHARGE ITS CUSTOMERS CREATES NO LEGAL AUTHORITY FOR RELIEF TO CONTRACTOR FOR LOSSES SUFFERED UNDER CONTRACT FORMULA, SINCE REMOVAL OF PRICE CONTROLS IS SOVEREIGN ACT AND GOVERNMENT IS NOT LIABLE FOR CONSEQUENCES OF ITS SOVEREIGN ACTS; AND IN ABSENCE OF AMBIGUITY OR FORFEITURE OF CONTRACTUAL RIGHTS BY CONDUCT, CONTRACT MUST BE ENFORCED AS WRITTEN.

NEW JERSEY ZINC COMPANY:

NEW JERSEY ZINC COMPANY (NJZ) PRESENTS TO OUR OFFICE A CLAIM REQUESTING CREDIT FOR CERTAIN LOSSES SUFFERED UNDER A CONTRACT WITH THE UNITED STATES. NJZ ENTERED INTO CONTRACT GS-00-DS/(S)-22183 AS OF APRIL 1, 1972, WITH THE UNITED STATES GOVERNMENT ACTING THROUGH THE ADMINISTRATOR, GENERAL SERVICES ADMINISTRATION (GSA), FOR THE PURCHASE AND DISPOSAL OF EXCESS STOCKPILE ZINC. NJZ ALLEGES THAT AS A RESULT OF THE COST OF LIVING COUNCIL'S (COLC) ACTION IN EXEMPTING ZINC METAL FROM PRICE CONTROLS DURING DECEMBER 1973, IT INCURRED A SUBSTANTIAL FINANCIAL LOSS FROM A PECULIAR SITUATION THAT WAS NOT CONTEMPLATED BY THE CONTRACT.

UNDER THE CONTRACT IN QUESTION , NJZ COMMITTED ITSELF TO THE PURCHASE OF CERTAIN QUANTITIES OF THE STOCKPILE EXCESS OVER A SPECIFIED PERIOD OF TIME. ARTICLE II, SECTION 5, OF THE CONTRACT SET OUT THE MANNER IN WHICH THE PURCHASE PRICE OF THE ZINC WAS TO BE DETERMINED. PURCHASES OF THE EXCESS ZINC FOR DIRECT SHIPMENT TO CONSUMERS OR WHICH WOULD NOT BE PROCESSED AT ITS (NJZ) PLANTS WERE TO BE PRICED AT THE AVERAGE DELIVERED DOMESTIC PRICE FOR PRIME WESTERN GRADE ZINC AS PUBLISHED IN METALS WEEK FOR THE MONTH IN WHICH SHIPMENT WAS MADE, LESS CERTAIN UNIFORM ALLOWANCES AS SET FORTH IN PARAGRAPH 5(F) OF ARTICLE II, PLUS THE AMOUNT, IF ANY, BY WHICH THE BUYER'S (NJZ) REALIZED PRICE (BASED ON THE INVOICE TO ITS CUSTOMERS FOR SUCH DIRECT SHIPMENTS) EXCEEDED THE ABOVE DEFINED PUBLISHED AVERAGE PRICE. PURCHASES OF EXCESS ZINC WHICH WERE TO BE SHIPPED TO NJZ'S PLANTS FOR REMELTING AND/OR REFINING WERE TO BE PRICED AT THE AVERAGE DELIVERED DOMESTIC PRICE FOR PRIME WESTERN GRADE ZINC AS PUBLISHED IN METALS WEEK FOR THE MONTH FOLLOWING THE MONTH IN WHICH SHIPMENT WAS MADE, AND SUBJECT TO THE SAME ADJUSTMENTS AS STATED ABOVE.

DURING THE MONTH OF NOVEMBER 1973, NJZ RECEIVED FOR PROCESSING 3,644,454 POUNDS OF GSA METAL. PURSUANT TO COMPUTATIONS MADE BY NJZ, IT WAS DETERMINED THAT AT LEAST, 3,254,970 POUNDS OF THE GSA METAL RECEIVED IN NOVEMBER WAS PROCESSED AND SHIPPED FROM ITS PLANT IN THAT MONTH AT THE METAL PRICE IN EFFECT FOR NOVEMBER AND EARLY DECEMBER. PURSUANT TO ARTICLE II, SECTION 5(B), OF THE CONTRACT, THE PRICE THAT NJZ WAS REQUIRED TO PAY GSA WOULD BE BASED ON THE DECEMBER 1973 AVERAGE DELIVERED DOMESTIC PRICE FOR PRIME WESTERN GRADE ZINC AS PUBLISHED IN METAL WEEK. HOWEVER, THE PRICE THAT NJZ WAS ABLE TO CHARGE ITS CUSTOMERS FOR THE NOVEMBER DELIVERY WAS THE PRICE AS DETERMINED BY THE COLC FOR NOVEMBER 1973.

HOWEVER, EXEMPTION OF ZINC METAL FROM PRICE CONTROLS ON DECEMBER 6, 1973, CAUSED AN INCREASE IN THE AVERAGE PRICE OF ZINC TO 27.365 CENTS IN DECEMBER FROM 20.353 CENTS PER POUND IN NOVEMBER. AS A RESULT, NJZ WAS REQUIRED BY GSA TO PAY THE HIGHER DECEMBER AVERAGE PRICES FOR ZINC PURCHASED UNDER THE CONTRACT WHEREAS ITS REALIZED PRICES WERE BASED UPON ACTUAL SALES MADE AT THE LOWER CONTROLLED PRICES FOR NOVEMBER. CONSEQUENTLY, NJZ PAID GSA MORE FOR THE ZINC THAN IT RECEIVED FROM ITS SALE CAUSING IT TO SUFFER A SUBSTANTIAL LOSS.

THEREFORE, NJZ CONTENDS THAT IT SHOULD BE MADE WHOLE AS A RESULT OF THE ACTION TAKEN BY THE COLC. NJZ STATES THAT SINCE THE PURPOSE OF THE ZINC DISPOSAL PROGRAM WAS TO ENABLE THE GOVERNMENT TO DISPOSE OF ITS EXCESS STOCKPILE OF ZINC THROUGH NORMAL MARKETING CHANNELS WITHOUT DISRUPTING THE MARKET, AND NOT TO ENABLE THE GOVERNMENT TO RECEIVE A WINDFALL PROFIT WHEN PRICE CONTROLS WERE LIFTED, IT SHOULD NOT BE MADE TO BEAR THE BURDEN OF THE RISK OF LOSS FROM MARKET FLUCTUATIONS.

GSA, ON THE OTHER HAND, CONTENDS THAT RELIEF SHOULD BE DENIED. BASING ITS ARGUMENT ON THE CONTRACT CLAUSES ABOVE CITED, GSA STATES THAT THE MONTH DELAY IN FIXING THE PRICE IN THE CASE WHERE METAL IS SHIPPED TO THE BUYER'S PLANT FOR REPROCESSING WAS DESIGNED TO GIVE NJZ, AND OTHERS, ADEQUATE TIME TO HAVE PROCESSED ZINC IN THEIR PLANTS AVAILABLE FOR SALE AT THE TIME THE PRICE IS FIXED. IT IS GSA'S POSITION THAT:

"*** APPARENTLY, NJZ DECIDED IT WOULD BE IN THE COMPANY'S BEST INTERESTS TO ACCELERATE THE PROCESSING OF THIS ZINC (THE ZINC DELIVERED, PROCESSED AND SHIPPED IN NOVEMBER AND EARLY DECEMBER) SO AS TO BE ABLE TO MAKE DELIVERY TO ITS CUSTOMERS IN NOVEMBER AND EARLY DECEMBER. IN MAKING THIS BUSINESS JUDGMENT NJZ INCURRED THE RISK THAT THE PRICE OF ZINC MIGHT RISE IN DECEMBER LEAVING NJZ WITH RECEIPTS BASED ON NOVEMBER PRICES AND PAYMENTS DUE GSA BASED ON THE AVERAGE OF DECEMBER PRICES. CONVERSELY NJZ CREATED THE OPPORTUNITY FOR PROFIT IN THE EVENT DECEMBER PRICE AVERAGES SHOULD HAVE DECLINED.

"THE BUSINESS JUDGMENT TO SERVE ITS CUSTOMERS THROUGH RAPID PROCESSING AND SALE OF THE ZINC WAS SPECULATIVE AND IN THE END HAS PROVEN TO BE AN IMPROVIDENT BUSINESS DECISION.

"CONTRARY TO WHAT IS CLAIMED BY NJZ, HAD PRICES OF ZINC BEEN ROLLED BACK IN DECEMBER, NJZ WOULD HAVE PROFITED FROM ITS SALES IN NOVEMBER AND THE GOVERNMENT WOULD HAVE HAD NO CONTRACTUAL BASIS TO RECOVER IT. THE CONTRACT PROVIDES IN PARAGRAPH 5(B) OF ARTICLE II THAT NJZ MUST PAY TO THE GOVERNMENT ANY AMOUNT BY WHICH ITS REALIZED PRICE EXCEEDS THE PUBLISHED AVERAGE PRICE. THE DEFINITION OF 'REALIZED PRICE' IS 'THE WEIGHTED AVERAGE PRICE OF ALL ITS INVOICED SALES OF SLAB ZINC ... FOR THE SAME PERIOD USED TO DETERMINE THE ABOVE DEFINED PUBLISHED AVERAGE PRICE.' THIS MEANS THAT NJZ WOULD HAVE BEEN OBLIGED TO PAY THE GOVERNMENT FOR ANY PREMIUMS RECEIVED AS COMPUTED ON DECEMBER SALES ONLY. NOVEMBER SALES ARE NOT INCLUDED IN 'THE SAME PERIOD USED TO DETERMINE THE ... PUBLISHED AVERAGE PRICE.' SPECIFIC LANGUAGE AUTHORIZING THE GOVERNMENT TO RECOUP THIS PROFIT OR REIMBURSE NJZ FOR ANY LOSS IS NOTICEABLY ABSENT."

THEREFORE, IT IS GSA'S BELIEF THAT NJZ WOULD HAVE THE GOVERNMENT BEAR THE COSTS OF THE RISK IT ASSUMED IN ITS BUSINESS TRANSACTIONS, AS NJZ ATTEMPTS TO SHIFT THE RESPONSIBILITY FOR THE LOSS TO THE COLC.

IN OUR OPINION, THE FACT THAT THE COLC REMOVED THE PRICE CONTROLS ON ZINC, ALLOWING THE PRODUCERS TO RAISE THEIR PRICES, HAS NO EFFECT ON NJZ'S OBLIGATIONS UNDER THE CONTRACT. OUR OFFICE HAS REPEATEDLY HELD THAT WHEN THE GOVERNMENT ACTS A SOVEREIGN, IT IS NOT LIABLE TO A CONTRACTOR FOR ITS SOVEREIGN ACTS. B-179997, NOVEMBER 14, 1973; B 179309, OCTOBER 2, 1973. MOREOVER, WE HAVE STATE THAT ECONOMIC ACTIONS TAKEN BY THE COLC ARE ACTIONS ATTRIBUTABLE TO THE GOVERNMENT IN ITS SOVEREIGN CAPACITY. 179997, SUPRA; B-175674, MAY 30, 1972. THEREFORE, THE SUDDEN MARKET PRICE FLUCTUATION RESULTING FROM THE COLC DECISION TO REMOVE THE PRICE CONTROLS ON ZINC DOES NOT RELIEVE NJZ FROM ITS OBLIGATIONS TO THE GOVERNMENT UNDER ITS CONTRACT.

AS WAS STATED IN 53 COMP. GEN. 157 (1973).

"*** IT IS WELL SETTLED THAT THE GOVERNMENT IS NOT LIABLE AS A CONTRACTOR FOR THE CONSEQUENCES OF ITS ACTS AS A SOVEREIGN. SEE HOROWITZ V. UNITED STATES, 267 U.S. 458 (1925); THE SUNSWICK CORP. V. UNITED STATES, 75 F. SUPP. 221, 109 CT. CL. 772 (1948). ALSO, WHERE A GOVERNMENT CONTRACT CONTAINS AN EXPRESS STIPULATION AS TO THE AMOUNT OF COMPENSATION TO BE PAID, AND NO PROVISION IS MADE FOR ANY INCREASE IN THE EVENT PERFORMANCE BECOMES MORE EXPENSIVE OR DIFFICULT, THE FACT THAT THE COST OF PERFORMANCE IS INCREASED BY FACTORS WHICH DO NOT CONSTITUTE UNDUE INTERFERENCE BY THE GOVERNMENT AS A CONTRACTOR DOES NOT ENTITLE THE CONTRACTOR TO ADDITIONAL COMPENSATION. SEE B-175674, SUPRA, AND CASES CITED THEREIN. AS WAS STATED IN PENN BRIDGE CO. V. UNITED STATES, 59 CT. CL. 892, 896 (1924) - -

"*** CONTRACTUAL RIGHTS ONCE FIXED IN A PROPER CONTRACT EXECUTED BY AUTHORITY ARE INVIOLATE. THEY MAY BE FORFEITED BY ONE PARTY OR THE OTHER, CONSTRUCTION IS PERMISSIBLE IF THE TERMS ARE AMBIGUOUS, BUT IN THE ABSENCE OF AMBIGUITY OR FORFEITURE OF RIGHTS BY CONDUCT, SUCH A CONTRACT CANNOT BUT BE ENFORCED AS WRITTEN.

CONSEQUENTLY, THE COLC'S DECISION TO EXEMPT ZINC FROM PRICE CONTROLS WAS A SOVEREIGN ACT AND THEREFORE AFFORDS NO BASIS TO ESTABLISH LIABILITY. ACCORDINGLY, WE FIND NO LEGAL AUTHORITY FOR GRANTING NJZ RELIEF FOR LOSSES SUFFERED UNDER THE CONTRACT PAYMENT FORMULA.