B-181599, DEC 26, 1974, 54 COMP GEN 527

B-181599: Dec 26, 1974

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GOVERNMENT DELAY OF WORK AND DEFAULT CLAUSES IS SUFFICIENT TO ESTABLISH ALL RIGHTS AND DUTIES OF PARTIES WITHOUT RESORT TO UNIFORM COMMERCIAL CODE. 1963) ARE DISTINGUISHABLE FROM INSTANT CASE REGARDING WHETHER TO REQUIRE PERFORMANCE OF ALREADY EXERCISED OPTION. GEN. 121 (1909) CANNOT BE FOLLOWED SINCE IT WAS BASED ON CONCEPTS OF EQUITY AND PRINCIPLES OF MORALITY. THERE IS NO AUTHORITY APPLICABLE TO CONSIDERING REQUEST FOR NO-COST CANCELLATION ON EQUITABLE BASIS. PINES CORPORATION (PINES) WAS AWARDED CONTRACT NO. THE GOVERNMENT EXERCISED ITS OPTION AND DELIVERY WAS TO HAVE OCCURRED WITHIN 150 DAYS THEREAFTER. THE GENERAL RULE IS THAT THE VALIDITY AND CONSTRUCTION OF CONTRACTS OF THE UNITED STATES AND THEIR CONSEQUENCES ON THE RIGHTS AND OBLIGATIONS OF THE PARTIES PRESENT QUESTIONS OF FEDERAL LAW NOT CONTROLLED BY THE LAWS OF ANY STATE.

B-181599, DEC 26, 1974, 54 COMP GEN 527

CONTRACTS - TERMINATION - "NO-COST" WHERE PARTY REQUESTS NO-COST CANCELLATION OF FIXED-PRICE SUPPLY CONTRACT ON BASIS OF SOVEREIGN ACTS OF GOVERNMENT (DOLLAR DEVALUATION AND EMBARGO) AND GENERAL INFLATION, ALTHOUGH CONTRACT DOES NOT CONTAIN EITHER ESCALATION OR EXCUSE BY FAILURE OF PRESUPPOSED CONDITION CLAUSE, FACT THAT CONTRACT DID CONTAIN CHANGES, GOVERNMENT DELAY OF WORK AND DEFAULT CLAUSES IS SUFFICIENT TO ESTABLISH ALL RIGHTS AND DUTIES OF PARTIES WITHOUT RESORT TO UNIFORM COMMERCIAL CODE. CONTRACTS - INCREASED COSTS - GOVERNMENT ACTIVITIES - SOVEREIGN CAPACITY REQUEST FOR NO-COST CANCELLATION OF CONTRACT OPTION BECAUSE OF INCREASED COSTS OF PERFORMANCE NOT GRANTED WHERE ALLEGED CAUSE FOR COST INCREASE DUE TO (1) ACTS DONE BY GOVERNMENT IN ITS SOVEREIGN CAPACITY (DOLLAR DEVALUATION AND EMBARGO), AND (2) TREMENDOUS INFLATIONARY PRESSURES, BECAUSE CONTRACT CONTAINED NO BASIS FOR SUCH CANCELLATION. MOREOVER, MERE FACT THAT CONTRACT PERFORMANCE BECOMES BURDENSOME OR EVEN RESULTS IN LOSS DUE TO UNANTICIPATED RISES IN MATERIAL COSTS DOES NOT ENTITLE FIXED-PRICE CONTRACTOR TO RELIEF. CONTRACTS - OPTIONS - EXERCISED - PERFORMANCE CASES DEALING WITH AGENCY DECISION TO EXERCISE OPTION (46 COMP. GEN. 874 (1967); B-151759, NOVEMBER 11, 1963) ARE DISTINGUISHABLE FROM INSTANT CASE REGARDING WHETHER TO REQUIRE PERFORMANCE OF ALREADY EXERCISED OPTION. GENERAL ACCOUNTING OFFICE - JURISDICTION - CONTRACTS - EQUITABLE JURISDICTION - SPECIFIC STATUTE REQUIREMENT HOLDING IN 28 OPS. ATTY. GEN. 121 (1909) CANNOT BE FOLLOWED SINCE IT WAS BASED ON CONCEPTS OF EQUITY AND PRINCIPLES OF MORALITY. GENERAL ACCOUNTING OFFICE EQUITABLE JURISDICTION CAN BE EXERCISED ONLY WHERE SPECIFICALLY GRANTED BY STATUTE. THERE IS NO AUTHORITY APPLICABLE TO CONSIDERING REQUEST FOR NO-COST CANCELLATION ON EQUITABLE BASIS.

IN THE MATTER OF THE R.H. PINES CORPORATION, DECEMBER 26, 1974:

THE R.H. PINES CORPORATION (PINES) WAS AWARDED CONTRACT NO. DSA700-73 C- 5299 BY THE DEFENSE SUPPLY AGENCY (DSA) ON MARCH 27, 1973, ON A FIXED PRICE BASIS FOR A QUANTITY OF BARBED WIRE. THE CONTRACT CALLED FOR DELIVERY OF A BASIC QUANTITY, WITHIN 150 DAYS AND ALSO PROVIDED FOR A 100- PERCENT OPTION AVAILABLE TO THE GOVERNMENT FOR 1 YEAR AFTER AWARD.

BY CONTRACT MODIFICATION NO. P00001, ISSUED MAY 8, 1973, THE GOVERNMENT EXERCISED ITS OPTION AND DELIVERY WAS TO HAVE OCCURRED WITHIN 150 DAYS THEREAFTER. SUBSEQUENT MODIFICATIONS REDUCED THE AMOUNT OF THE CONTRACT BY $1,170.45 WHILE EXTENDING THE DELIVERY DATE FOR THE OPTION QUANTITY UNTIL JUNE 15, 1974, AND THE DELIVERY DATE FOR THE ORIGINAL QUANTITY UNTIL MAY 18, 1974. IT APPEARS THAT DELIVERY OF THE BASIC QUANTITY HAS BEEN ACCOMPLISHED.

PINES, AFTER REQUESTING AND THEN WITHDRAWING A REQUEST FOR RELIEF UNDER PUBLIC LAW 85-804 (50 U.S. CODE 1431-1435), NOW CONTENDS THAT IN VIEW OF (1) TREMENDOUS INFLATIONARY PRESSURES, AND (2) SOVEREIGN ACTS OF THE GOVERNMENT - A SCRAP METAL EMBARGO AND DOLLAR DEVALUATION - THE CONTRACTUAL REQUIREMENT FOR DELIVERY OF THE OPTION QUANTITY HAS BECOME "COMMERCIALLY IMPRACTICABLE" TO PERFORM IN ACCORDANCE WITH UNIFORM COMMERCIAL CODE (UCC) SEC. 2-615, "EXCUSE BY FAILURE OF PRESUPPOSED CONDITIONS." PINES THEREFORE SEEKS A NO-COST CANCELLATION OF ITS EXISTING CONTRACT.

THE APPLICABILITY OF THE UCC TO GOVERNMENT CONTRACTS HAS BEEN ADDRESSED AT LENGTH IN MANY CASES. THE GENERAL RULE IS THAT THE VALIDITY AND CONSTRUCTION OF CONTRACTS OF THE UNITED STATES AND THEIR CONSEQUENCES ON THE RIGHTS AND OBLIGATIONS OF THE PARTIES PRESENT QUESTIONS OF FEDERAL LAW NOT CONTROLLED BY THE LAWS OF ANY STATE. UNITED STATES ET AL. V. COUNTY OF ALLEGHENY, 322 U.S. 174, 183 (1944); UNITED STATES V. LATROBE CONSTRUCTION COMPANY, 246 F.2D 357 (8TH CIR., 1957); BUT SEE, THE PADBLOC COMPANY, INC. V. UNITED STATES, 161 CT. CL. 369 (1963). IN THE ABSENCE OF ANY SUCH FEDERAL STATUTE, REGULATION OR CONTRACT PROVISIONS, OUR OFFICE HAS LOOKED TO THE UCC PRINCIPLES AS A SOURCE OF FEDERAL COMMON LAW. SEE 51 COMP. GEN. 613 (1972).

WITH REGARD TO THE INSTANT SITUATION, WE FEEL THAT, ALTHOUGH THE CONTRACT DID NOT CONTAIN EITHER AN ESCALATION OR AN EXCUSE BY FAILURE OF A PRESUPPOSED CONDITION CLAUSE, THE FACT THAT THE SUBJECT FIXED PRICE CONTRACT CONTAINED STANDARD CHANGES, GOVERNMENT DELAY OF WORK AND DEFAULT CLAUSES IS SUFFICIENT TO ESTABLISH ALL THE RIGHTS AND DUTIES OF THE PARTIES AND NO RESORT TO THE UCC IS NECESSARY.

IN MATTER OF VETERANS ADMINISTRATION, B-108902, MAY 17, 1974, OUR OFFICE WAS FACED WITH A REQUEST FOR A NO-COST "SETTLEMENT" UNDER THE TERMINATION FOR CONVENIENCE PROVISIONS OF THE CONTRACT IN QUESTION. THERE, WE HELD THAT:

A TERMINATION FOR CONVENIENCE CLAUSE IS DESIGNED FOR THE GOVERNMENT'S BENEFIT AND NOT AS A MEANS OF RELIEVING CONTRACTORS FROM THE BURDENS OF CONTRACT PERFORMANCE. IT APPEARS TO US, HOWEVER, THAT THE PRIMARY REASON FOR TERMINATING THESE CONTRACTS IS TO RELIEVE CERTAIN CONTRACTORS FROM THE INCREASED COSTS OF CONTRACT PERFORMANCE RESULTING FROM THE PASSAGE OF PUBLIC LAW 93-86. IN THIS CONNECTION, IT IS WELL ESTABLISHED THAT THE GOVERNMENT IS NOT LIABLE TO A CONTRACTOR BECAUSE OF ITS ACTS AS A SOVEREIGN. 53 COMP. GEN. 157 (1973); B-180054, DECEMBER 9, 1973. THEREFORE, WHILE WE RECOGNIZE THAT THE DECISION OF WHETHER TO TERMINATE THESE CONTRACTS RESTS WITH THE CONTRACTING AGENCY, WE DO NOT RECOMMEND IN FAVOR OF TERMINATING THESE CONTRACTS.

WHILE IN THE INSTANT CASE WE ARE NOT REQUESTED TO SANCTION AN ENDING OF EXISTING CONTRACTUAL OBLIGATIONS UNDER A TERMINATION FOR CONVENIENCE CLAUSE, WE FEEL THAT THE SAME REASONING MUST BE APPLIED TO ANY OTHER "NO- COST" METHODS OF RELIEVING THE CONTRACTOR OF HIS DUTY TO PERFORM.

SINCE, AS IN MATTER OF VETERANS ADMINISTRATION, SUPRA, THE CRITICAL ACTS HERE COMPLAINED OF WERE DONE BY THE GOVERNMENT IN ITS SOVEREIGN CAPACITY, WE DO NOT FEEL THAT ANY DIRECT GOVERNMENT LIABILITY EXISTS. SEE MATTER OF FERRY CREEK ROCK & CONCRETE, INC., B-172531, OCTOBER 24, 1974, AND 53 COMP. GEN. 157 (1973), WHERE WE DENIED REQUESTS FOR UPWARD CONTRACT MODIFICATIONS DUE TO INFLATION AND THE DEVALUATION OF THE DOLLAR. MOREOVER, THE MERE FACT THAT PERFORMANCE OF THE CONTRACT BECOMES BURDENSOME OR EVEN RESULTS IN A LOSS DUE TO UNANTICIPATED RISES IN MATERIAL COSTS DOES NOT ENTITLE A FIXED-PRICE CONTRACTOR TO RELIEF. SEE MATTER OF FERRY CREEK ROCK & CONCRETE, INC., SUPRA. ACCORDINGLY, WE FIND NO LEGAL AUTHORITY FOR GRANTING THE RELIEF REQUESTED.

46 COMP. GEN. 874 (1967) IS CITED BY PINES WHEREIN CIRCUMSTANCES WHICH INCREASED COST TO THE CONTRACTOR AS A RESULT OF POST-AWARD SOVEREIGN ACTS OF THE GOVERNMENT DO FORM A BASIS FOR THE GOVERNMENT TO EXCUSE THE PERFORMANCE OF SUBSEQUENT OPTIONS. IN THAT DECISION, DURING THE INITIAL PERIOD OF THE FIXED-PRICE CONTRACT, CONGRESS ENACTED THE SERVICE CONTRACT ACT OF 1965 (41 U.S.C. SEC. 351-357), WHICH PROVIDED FOR HIGHER WAGES TO BE PAID TO THE CONTRACTOR'S EMPLOYEES. WHILE OUR OFFICE DID NOT IN THAT INSTANCE RULE FAVORABLY ON A PROPOSED MODIFICATION WHICH WOULD HAVE RAISED THE CONTRACT PRICE, WE DID STATE THAT:

IN VIEW THEREOF, YOU ARE ADVISED THAT THIS OFFICE WILL NOT OBJECT TO FAILURE OF YOUR DEPARTMENT TO EXERCISE ANY REMAINING OPTIONS ON STORAGE CONTRACTS OF THE TYPE HERE INVOLVED WHEN IT IS DETERMINED BY THE CONTRACTING OFFICER, BASED UPON EVIDENCE SUBMITTED BY THE CONTRACTOR, THAT A REQUIREMENT FOR COMPLIANCE WITH THE SERVICE CONTRACT ACT OF 1965 ON OTHER CONTRACTS WILL, AS A PRACTICAL NECESSITY, ALSO REQUIRE THE PAYMENT OF WAGES FOR WORK TO BE PERFORMED UNDER THE OPTION CONTRACTS AT RATES WHICH WOULD NECESSARILY RESULT IN A NET LOSS TO THE CONTRACTOR IN PERFORMING THE OPTION CONTRACTS.

SEE, ALSO, B-151759, NOVEMBER 13, 1963.

WE FEEL THAT THOSE CASES ARE DISTINGUISHABLE FROM THE INSTANT SITUATION IN THAT BOTH CITED CASES DEAL WITH THE DECISION TO EXERCISE AN OPTION RATHER THAN, AS HERE, WHETHER TO REQUIRE PERFORMANCE UNDER AN ALREADY EXERCISED OPTION. ACCORDINGLY, WE SEE NO PRESENT NEED TO EITHER FURTHER DISCUSS OR REEXAMINE THE POSITION STATED IN THOSE CASES.

IN ADDITION, WE CANNOT FOLLOW THE HOLDING IN 28 OPS. ATTY. GEN. 121 (1909) CITED BY THE PROTESTER AS AN INSTANCE WHERE THE GOVERNMENT REFRAINED FROM COMPELLING PERFORMANCE OF AN EXERCISED LOSS OPTION. THAT OPINION WAS BASED UPON CONCEPTS OF EQUITY AND PRINCIPLES OF MORALITY. 46 COMP. GEN., SUPRA, WE STATED THAT THIS OFFICE EXERCISES EQUITABLE JURISDICTION ONLY WHERE SUCH JURISDICTION IS SPECIFICALLY GRANTED BY STATUTE. THERE IS NO AUTHORITY APPLICABLE TO OUR OFFICE CONSIDERING A REQUEST FOR A NO-COST CANCELLATION ON AN EQUITABLE BASIS.

WE DO NOTE THAT LEGISLATION HAS BEEN INTRODUCED IN THE CONGRESS WHICH WOULD GRANT RELIEF TO SMALL BUSINESSES WHICH PRESENTLY HAVE FIXED-PRICE GOVERNMENT CONTRACTS AND HAVE ENCOUNTERED SIGNIFICANT AND UNAVOIDABLE DIFFICULTIES DURING THE PERFORMANCE OF THEIR CONTRACTS BECAUSE OF THE ENERGY CRISIS OR RAPID AND UNEXPECTED COST ESCALATION. SEE H.R. 17125, 93RD CONG., 2ND SESS. (1974); S. 3619, 93RD CONG., 2ND SESS. (1974); H.R. 16207, 93RD CONG., 2ND SESS. (1974); H.R. 16014, 93RD CONG., 2ND SESS. (1974).