B-196472, NOV 14, 1979

B-196472: Nov 14, 1979

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THE UNAVAILABILITY WAS ASSERTED TO BE DUE TO THE ECONOMIC STABILIZATION PROGRAM INITIATED BY PRESIDENT NIXON. WHILE THE CONTRACT WITH GSA WAS ENTERED INTO AT A PRICE CONSIDERED TO BE REASONABLE ($ .1975 PER POUND). THE CONTRACT CONTAINED AN ESCALATION CLAUSE WHICH SUBSTANTIALLY INCREASED THE FINAL PRICE PAID (IN INCREMENTS UP TO $.34066 PER POUND) BECAUSE DELIVERIES WERE MADE AFTER PRICE CONTROLS WERE LIFTED. ULTIMATELY THE ZINC PURCHASED FROM THE GOVERNMENT (GSA) WAS RETURNED TO THE GOVERNMENT (NAVY) WITHOUT ACTUAL OUT OF POCKET LOSS TO THE GOVERNMENT. WHILE THE FOREGOING IS NOT DISPOSITIVE OF THE SETTLEMENT ISSUE BECAUSE THE MCGRAIL CONTRACT WAS VALID AND BINDING ON THE FIRM AND WAS ENTERED INTO WITH FULL KNOWLEDGE OF THE ESCALATION PROVISIONS IN THE CONTRACT.

B-196472, NOV 14, 1979

SUBJECT: MCGRAIL EQUIPMENT COMPANY, INC. - COMPROMISE OFFER:

CHIEF, DEBT BRANCH, MILTON SOCOLAR:

BY MEMORANDUM DATED OCTOBER 10, 1979, YOU REQUESTED OUR CONSIDERATION OF THE COMPROMISE OFFER OF $12,000 IN SETTLEMENT OF THE CLAIM OF THE UNITED STATES AGAINST MCGRAIL EQUIPMENT COMPANY, INC. (MCGRAIL) IN THE AMOUNT OF $58,847.78, PRIOR TO REFERRAL TO THE DEPARTMENT OF JUSTICE.

THE DEBT REPRESENTS THE VALUE OF ZINC PURCHASED FROM THE GENERAL SERVICES ADMINISTRATION FROM ITS STOCKPILE FOR USE IN A CONTRACT TO PROVIDE GALVANIZED ITEMS TO THE DEPARTMENT OF THE NAVY. GSA AGREED TO FURNISH THE ZINC TO MCGRAIL AFTER THE FIRM CERTIFIED THE UNAVAILABILITY OF THAT METAL ON THE OPEN MARKET. THE UNAVAILABILITY WAS ASSERTED TO BE DUE TO THE ECONOMIC STABILIZATION PROGRAM INITIATED BY PRESIDENT NIXON, WHICH FROZE PRICES AT LOW LEVELS. WHILE THE CONTRACT WITH GSA WAS ENTERED INTO AT A PRICE CONSIDERED TO BE REASONABLE ($ .1975 PER POUND), THE CONTRACT CONTAINED AN ESCALATION CLAUSE WHICH SUBSTANTIALLY INCREASED THE FINAL PRICE PAID (IN INCREMENTS UP TO $.34066 PER POUND) BECAUSE DELIVERIES WERE MADE AFTER PRICE CONTROLS WERE LIFTED. MCGRAIL HAS PAID THE UNESCALATED CONTRACT PRICE TO GSA IN AUGUST 1974. ULTIMATELY THE ZINC PURCHASED FROM THE GOVERNMENT (GSA) WAS RETURNED TO THE GOVERNMENT (NAVY) WITHOUT ACTUAL OUT OF POCKET LOSS TO THE GOVERNMENT.

WHILE THE FOREGOING IS NOT DISPOSITIVE OF THE SETTLEMENT ISSUE BECAUSE THE MCGRAIL CONTRACT WAS VALID AND BINDING ON THE FIRM AND WAS ENTERED INTO WITH FULL KNOWLEDGE OF THE ESCALATION PROVISIONS IN THE CONTRACT, WE AGREE THAT THE PRESENT FINANCIAL CONDITION OF THE FIRM AS DISCLOSED BY THE RECORD FURNISHED TO THIS OFFICE WARRANTS APPROVAL OF YOUR RECOMMENDATION THAT THE OFFER OF COMPROMISE BE ACCEPTED.