B-3298, MAY 6, 1939, 18 COMP. GEN. 826

B-3298: May 6, 1939

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A CONTRACTING OFFICER MAY TERMINATE A CONTRACT WHICH HE WAS AUTHORIZED TO MAKE. PROVIDED THE AMOUNT AGREED UPON IS PROPER AND JUST AND IS ACCEPTED BY THE CONTRACTOR IN FULL AND FINAL SETTLEMENT OF ALL RIGHTS INCIDENT TO. THE DETERMINATION AS TO WHETHER THE PUBLIC INTEREST REQUIRES THE TERMINATION OF A CONTRACT IS A MATTER FOR ADMINISTRATIVE DECISION AND DOES NOT REST WITH THE GOVERNMENT ACCOUNTING OFFICERS WHO ARE CONCERNED PRIMARILY WITH THE AVAILABILITY OF THE APPROPRIATION FOR ANY EXPENDITURE RESULTING FROM THE TERMINATION. 1939: I HAVE YOUR LETTER OF APRIL 22. THE ORIGINAL OF WHICH IS ON FILE IN YOUR OFFICE. WAS EXECUTED AUGUST 13. BONDS WERE FURNISHED AND ACCEPTED BY THE DEPARTMENT AND THE CONTRACTOR.

B-3298, MAY 6, 1939, 18 COMP. GEN. 826

CONTRACTS - TERMINATION AND EXECUTION OF SUPPLEMENTAL SETTLEMENT AGREEMENT - ADMINISTRATIVE AUTHORITY AND DISCRETION WHEN THE PUBLIC INTEREST SO REQUIRES, A CONTRACTING OFFICER MAY TERMINATE A CONTRACT WHICH HE WAS AUTHORIZED TO MAKE, AND BY SUPPLEMENTAL CONTRACT, AGREE WITH THE CONTRACTOR UPON THE COMPENSATION TO BE PAID FOR THE WORK ALREADY PERFORMED, ETC., PROVIDED THE AMOUNT AGREED UPON IS PROPER AND JUST AND IS ACCEPTED BY THE CONTRACTOR IN FULL AND FINAL SETTLEMENT OF ALL RIGHTS INCIDENT TO, OR ARISING OUT OF, THE ORIGINAL AND SUPPLEMENTAL CONTRACTS, AND EVEN IF NO AMOUNT CAN BE AGREED UPON, THE CONTRACT, NEVERTHELESS MAY BE TERMINATED IF ADMINISTRATIVELY DEEMED IN THE INTEREST OF THE UNITED STATES, AND THE CONTRACTOR LEFT TO PRESENT HIS CLAIM TO THE GOVERNMENT ACCOUNTING OFFICERS OR THE COURTS. THE DETERMINATION AS TO WHETHER THE PUBLIC INTEREST REQUIRES THE TERMINATION OF A CONTRACT IS A MATTER FOR ADMINISTRATIVE DECISION AND DOES NOT REST WITH THE GOVERNMENT ACCOUNTING OFFICERS WHO ARE CONCERNED PRIMARILY WITH THE AVAILABILITY OF THE APPROPRIATION FOR ANY EXPENDITURE RESULTING FROM THE TERMINATION.

COMPTROLLER GENERAL BROWN TO THE SECRETARY OF THE TREASURY, MAY 6, 1939:

I HAVE YOUR LETTER OF APRIL 22, 1939, AS FOLLOWS:

ON AUGUST 13, 1938, THE PROCUREMENT DIVISION OF THIS DEPARTMENT AWARDED A CONTRACT IN THE AMOUNT OF $27,300.00 TO AGRIPPINO SINGARELLA, WHO HAD SUBMITTED THE LOWER BID IN RESPONSE TO ADVERTISEMENT, FOR THE EXTENSION OF A RAMP, ETC., AT THE COAST GUARD AIR STATION AT SALEM, MASSACHUSETTS. THE CONTRACT, NO. TLPB-4080, THE ORIGINAL OF WHICH IS ON FILE IN YOUR OFFICE, WAS EXECUTED AUGUST 13, 1938, UNDER A TRANSFER FROM THE COAST GUARD SERVICE TO THE PROCUREMENT DIVISION OF $33,250 WHICH HAD BEEN ALLOTTED TO THE COAST GUARD BY THE PUBLIC WORKS ADMINISTRATION UNDER THE PUBLIC WORKS ADMINISTRATION ACT OF 1938 (CH. 554 OF THE ACT OF JUNE 21, 1938, 52 STAT. 816). BONDS WERE FURNISHED AND ACCEPTED BY THE DEPARTMENT AND THE CONTRACTOR, ON SEPTEMBER 9, 1938, WAS ORDERED TO PROCEED WITH THE WORK.

THE SPECIFICATIONS OF THE CONTRACT REQUIRED THE CONTRACTOR TO CONSTRUCT AN EXTENSION OF THE SEAPLANE RAMP OF THE COAST GUARD AIR STATION AT SALEM, MASSACHUSETTS, AND TO DREDGE A PORTION OF THE BASIN USED AS AN APPROACH IN FRONT OF THE RAMP, THE EXTENT OF THE DREDGING TO BE INDICATED BY DRAWINGS. SEE SPECIFICATIONS, PARAGRAPHS 3-3 AND 4 1. CONTRACT DRAWING NO. 3-400, DATED JULY 12, 1938, WAS PREPARED BY THE PROCUREMENT DIVISION FROM INFORMATION FURNISHED IT BY THE COAST GUARD AND CONTAINS A PLAN WHICH PURPORTS TO INDICATE ELEVATIONS OF THE BOTTOM OF THE BASIN IN FRONT OF THE SEAPLANE RAMP IN RELATION TO THE MEAN LOW WATER LEVEL. A CERTAIN AREA OF THE BASIN IS MARKED ON THE CONTRACT DRAWING BY CROSS HATCHING AND CONTAINS THE NOTATION,"HATCHED AREA TO BE DREDGED TO A DEPTH OF ELEV.--- 10.0.' FIVE SMALL AREAS WITHIN THE HATCHED AREA ARE ENCIRCLED BY DOTTED LINES AND EACH IS NOTED ON THE PLAN AS,"ROCK," BUT THERE IS NO SPECIFIC INDICATION ON THE DRAWING AS TO THE TYPE OF MATERIAL TO BE FOUND IN THE REMAINDER OF THE BASIN BOTTOM AS OUTLINED BY THE CROSS HATCHING.

SOON AFTER COMMENCING WORK ON THE CONTRACT, THE CONTRACTOR ADVISED THE PROCUREMENT DIVISION THAT IN HIS DREDGING OPERATIONS HE WAS ENCOUNTERING CONSIDERABLY MORE ROCK THAN WAS INDICATED BY THE CONTRACT DRAWING NO. 3- 400 AND SUGGESTED THAT HE WOULD BE ENTITLED TO AN ALLOWANCE OF AN ADDITION TO HIS CONTRACT PRICE IN ACCORDANCE WITH ARTICLE 4 OF THE CONTRACT RELATING TO CHANGED CONDITIONS. THE CONTRACTOR'S POSITION IN THIS REGARD IS BASED ON THE CONTENTION THAT, SINCE THE CONTRACT DRAWING SPECIFICALLY INDICATED CERTAIN AREAS TO BE "ROCK," HE WAS JUSTIFIED IN ASSUMING THAT THE REMAINDER OF THE AREA WAS MADE UP OF SAND, SILT, MUD, AND OTHER USUAL SUBSTANCES. THIS CONTENTION IS FURTHER SUPPORTED BY THE STATEMENT IN PAR. 4-3 OF SECTION 4 OF THE ECIFICATION,"SEE DRAWINGS FOR LOCATION OF ROCK.'

FACTUALLY, THE CONTRACTOR'S STATEMENTS THAT THE ACTUAL EXTENT OF ROCK FOUND EXCEEDED THAT UNDERSTOOD TO HAVE BEEN DEFINITELY INDICATED ARE SUPPORTED BY A SURVEY DATED JANUARY 3, 1939, MADE BY THOMAS A. APPLETON, AN INDEPENDENT ENGINEER EMPLOYED BY THE GOVERNMENT FOR THAT PURPOSE, EXAMINED AND APPROVED BY WILLIAM E. BROWN, CONSTRUCTION ENGINEER, U.S. TREASURY DEPARTMENT, A COPY OF WHICH IS ATTACHED HERETO. THIS SURVEY SHOWS THAT IN ADDITION TO THE FEW ISOLATED AREAS OF ROCK AS SPECIFICALLY OUTLINED ON THE CONTRACT DRAWING NO. 3-400 A CONSIDERABLE PORTION OF THE REMAINDER OF THE BASIN BOTTOM TO BE DREDGED IS ROCK. THE CONTRACTOR HAS INDICATED THAT HIS BID OF $27,300 REFLECTED HIS ESTIMATE THAT THE PROJECT WOULD REQUIRE THE REMOVAL OF APPROXIMATELY 460 CUBIC YARDS OF ROCK AND 4,800 CUBIC YARDS OF EARTH. THE TREASURY'S CONSTRUCTION ENGINEER, IN A LETTER OF JANUARY 4, 1939, THE DATE ON WHICH WORK WAS SUSPENDED ON THE PROJECT, STATED THAT ALTHOUGH THERE HAD BEEN REMOVED TO DATE APPROXIMATELY 1,500 CUBIC YARDS OF ROCK AND 900 CUBIC YARDS OF EARTH, THERE STILL REMAINED TO BE REMOVED APPROXIMATELY 2,600 CUBIC YARDS OF ROCK PLUS AN UNKNOWN AMOUNT OF EARTH, PROBABLY ABOUT 400 CUBIC YARDS. IN VIEW OF THE FACT THAT IT IS MUCH MORE COSTLY TO REMOVE ROCK THAN EARTH, THE FACTS AS NOW ESTABLISHED CLEARLY SHOW THAT, IF THE CONTRACTOR WOULD BE ENTITLED TO AN ADDITION TO THE CONTRACT PRICE BECAUSE OF CHANGED CONDITIONS WITHIN THE MEANING OF ARTICLE 4 OF THE CONTRACT, THE COST TO COMPLETE THE DREDGING OF THE BASIN BOTTOM TO THE DEPTH REQUIRED BY CONTRACT DRAWING NO. 3-400 WOULD FAR EXCEED THE AVAILABLE FUNDS. THE CONTRACTOR HAS ESTIMATED THAT AN ADDITION OF $65,000 TO $75,000 TO THE CONTRACT PRICE WOULD BE REQUIRED TO COMPENSATE HIM FOR THE COMPLETION OF THE PROJECT.

THE PROCUREMENT DIVISION BELIEVES THAT THE CONTRACTOR DID ENCOUNTER "SUB- SURFACE AND/OR LATENT CONDITIONS AT THE SITE MATERIALLY DIFFERING FROM THOSE SHOWN ON THE DRAWINGS OR INDICATED IN THE SPECIFICATIONS, WITHIN THE PROVISIONS OF ARTICLE 4 OF THE CONTRACT AND, THEREFORE, WOULD BE ENTITLED TO AN INCREASE IN THE CONTRACT PRICE FOR ANY INCREASED COST RESULTING FROM THE ERROR IN THE GOVERNMENT'S DRAWING. IF IT IS ASSUMED THAT THE CONTRACTOR WOULD BE ENTITLED TO AN EXTRA ALLOWANCE FOR THE EXCAVATION OF ROCK BEYOND THAT INDICATED BY DRAWING NO. 3-400, IT WOULD APPEAR THAT THE ONLY POSSIBLE SOLUTION IN VIEW OF THE PRESENT AVAILABILITY OF FUNDS IS TO CANCEL THE CONTRACT AND TO REIMBURSE THE CONTRACTOR FOR THE WORK PERFORMED. EVEN THOUGH ADDITIONAL FUNDS WERE AVAILABLE, IT IS THE OPINION OF THE PROCUREMENT DIVISION THAT IT WOULD BE INADVISABLE TO COMPLETE THE PROJECT IN VIEW OF THE PRESENT ESTIMATES OF THE TOTAL COST INVOLVED.

ACCORDINGLY, THE CONTRACTOR WAS ORDERED TO STOP WORK JANUARY 24, 1939, AND NEGOTIATIONS WITH THE CONTRACTOR HAVE BEEN UNDERTAKEN IN AN ATTEMPT TO REACH A PROPER BASIS FOR SETTLEMENT IN THE EVENT THAT THE CONTRACT IS CANCELED BY THE GOVERNMENT. THE MOST RECENT PROPOSAL OF SETTLEMENT BY THE CONTRACTOR WAS SUBMITTED MARCH 6, 1939, IN THE AMOUNT OF $36,214.34. THE ITEMIZED PROPOSAL, TOGETHER WITH PHOTOSTATIC COPIES OF ALL SUPPORTING PAPERS, ARE ENCLOSED HEREWITH. THE PROCUREMENT DIVISION HAS ADMINISTRATIVELY CONSIDERED THIS CLAIM AND HAS DETERMINED THAT A SETTLEMENT IN THE AMOUNT OF $27,717.15 WOULD BE EQUITABLE, SUCH SUM, OF COURSE, TO BE SUBJECT TO A DEDUCTION OF $8,705.70 ALREADY PAID TO THE CONTRACTOR AS HEREINAFTER STATED. SEE ATTACHED STATEMENT OF ACCOUNT DATED APRIL 11, 1939. IN SUPPORT OF THIS CONCLUSION, YOU ARE REFERRED TO THE ATTACHED ADMINISTRATIVE REPORT OF THE PROCUREMENT DIVISION WHICH SETS OUT A DETAILED COMPARISON OF THE ITEMS OF THE CONTRACTOR'S PROPOSAL FOR SETTLEMENT IN THE EVENT OF CANCELLATION WITH THE DIVISION'S OPINION AS TO WHETHER THEY ARE PROPERLY CHARGEABLE TO THE GOVERNMENT, AND, IF SO, THE REASONABLE AMOUNT THEREOF. THIS REPORT ALSO EXPLAINS THE REASONS FOR THE DIVISION'S POSITION IN THE CASE OF THOSE ITEMS IN WHICH EXCEPTION IS TAKEN TO THE CONTRACTOR'S PROPOSAL. THE REPORT APPEARS COMPLETE AND IT IS NOT BELIEVED THAT FURTHER COMMENT IS NECESSARY WITH RESPECT TO THE MATTERS DISCUSSED THEREIN EXCEPT TO POINT OUT THAT THE PROPOSAL WAS CONSIDERED BY THE PROCUREMENT DIVISION ON THE THEORY THAT IF THE CONTRACT IS CANCELLED BY THE GOVERNMENT, THE CONTRACTOR WILL BE ENTITLED TO ACTUAL COST OF WORK DONE AT THE SITE, PLUS ACTUAL OVERHEAD AT THE SITE, PLUS A REASONABLE ALLOWANCE FOR ANTICIPATED PROFIT. SEE OPINION OF THE COMPTROLLER GENERAL, AUGUST 24, 1933, A-47777, A-47399.

THE CONTRACTOR HAS REFUSED TO CONSIDER FURTHER REDUCTION OF HIS PROPOSAL AND THE CONTRACT HAS NOT BEEN FORMALLY CANCELLED. ACCORDINGLY, THE ENTIRE MATTER IS SUBMITTED TO YOU FOR CONSIDERATION AND IT IS REQUESTED THAT YOU ADVISE THIS DEPARTMENT WHETHER IT IS AUTHORIZED TO CANCEL THE CONTRACT AND, IF SO, WHAT AMOUNT MAY BE PAID THE CONTRACTOR IN SETTLEMENT. YOU ARE ADVISED THAT PARTIAL PAYMENTS FOR WORK DONE IN THE TOTAL AMOUNT OF $8,705.70 HAVE BEEN MADE TO THE CONTRACTOR IN ACCORDANCE WITH THE CONTRACT PROVISIONS, AND THAT OF THE TOTAL ORIGINAL ALLOTMENT OF FUNDS FOR THIS PROJECT THERE REMAINS $22,212.46 AVAILABLE FOR ADDITIONAL PAYMENTS TO THE CONTRACTOR.

IN VIEW OF THE FACT THAT THE CONTRACTOR IS FORCED TO HOLD HIMSELF IN READINESS TO COMPLETE THE WORK UNTIL THE CONTRACT IS FORMALLY CANCELLED, ACTION ON WHICH WILL BE WITHHELD UNTIL YOUR OPINION IS RECEIVED, IT IS REQUESTED THAT THE MATTER BE EXPEDITED AS MUCH AS POSSIBLE.

ALL PERTINENT PAPERS ARE ENCLOSED HEREWITH, TOGETHER WITH A LIST THEREOF FOR YOUR CONVENIENCE, AND IT IS REQUESTED THAT THEY BE RETURNED WHEN THEY HAVE SERVED YOUR PURPOSE.

IT HAS BEEN HELD THAT WHEN THE PUBLIC INTEREST REQUIRES SUCH ACTION, A CONTRACTING OFFICER MAY TERMINATE A CONTRACT WHICH HE WAS AUTHORIZED TO MAKE AND THAT HE MAY, BY SUPPLEMENTAL CONTRACT, AGREE WITH A CONTRACTOR UPON THE COMPENSATION TO BE PAID FOR WORK ALREADY PERFORMED, ETC., PROVIDED THE AMOUNT AGREED UPON IS PROPER AND JUST AND THE CONTRACTOR WILL ACCEPT SUCH AMOUNT IN FULL AND FINAL SETTLEMENT OF ALL RIGHTS INCIDENT TO OR ARISING OUT OF THE ORIGINAL AND SUPPLEMENTAL CONTRACTS. SEE UNITED STATES V. CORLISS STEAM ENGINE CO., 91 U.S. 321; 14 COMP. DEC. 589, 15 ID. 439; 21 ID. 134; 26 ID. 170; AND 4 COMP. GEN. 526. THE DETERMINATION AS TO WHETHER THE PUBLIC INTEREST REQUIRES SUCH TERMINATION IS A MATTER FOR ADMINISTRATIVE DECISION AND DOES NOT REST WITH THIS OFFICE WHICH IS CONCERNED PRIMARILY WITH THE AVAILABILITY OF THE APPROPRIATION FOR ANY EXPENDITURE RESULTING FROM THE TERMINATION.

IT IS NOTED IN CONNECTION WITH THE PRESENT MATTER THAT THE CONTRACTOR ORIGINALLY CLAIMED $52,000 IN THE EVENT OF CANCELLATION OF THE CONTRACT; THAT THE CLAIM WAS LATER REDUCED TO $44,907; AND THAT IT HAS FINALLY BEEN REDUCED TO $36,214.34 (PLUS AN UNSIGNED CLAIM FOR $116.38). ROTHENBERG, CHIEF ESTIMATING ENGINEER, HAS STATED THAT THE CLAIMED AMOUNT IS CONSIDERED EXCESSIVE AND HE HAS DETERMINED THAT A REASONABLE ALLOWANCE WOULD BE $27,053.45. EARL H. LUND, ASSOCIATE CHIEF OFFICE ENGINEER, HAS DETERMINED THAT AN ALLOWANCE OF $27,717.15 (NOT CONSIDERING THE ITEM FOR $116.38) WOULD BE REASONABLE AND IT IS STATED IN YOUR LETTER OF APRIL 22, 1939, THAT THE ,PROCUREMENT DIVISION HAS ADMINISTRATIVELY CONSIDERED THIS CLAIM AND DETERMINED THAT A SETTLEMENT IN THE AMOUNT OF $27,717.15 WOULD BE EQUITABLE, SUCH SUM OF COURSE TO BE SUBJECT TO A DEDUCTION OF $8,705.70 ALREADY PAID TO THE CONTRACTOR.'

THE RECORD CLEARLY ESTABLISHES THAT THE CONTRACTOR IS CLAIMING MANY ITEMS NOT PROPERLY FOR CONSIDERATION AND OTHER ITEMS WHICH ARE EXCESSIVE IN AMOUNTS. THE TWO ESTIMATES OF GOVERNMENT ENGINEERS DIFFER SLIGHTLY IN THE ITEMS CONSIDERED PROPER FOR ALLOWANCE AND THE AMOUNTS THEREOF, BUT THE TOTALS ARE SUBSTANTIALLY THE SAME. UNDER THE CIRCUMSTANCES, IF IT IS CONSIDERED THAT AN ALLOWANCE OF $27,717.15, LESS THE SUM OF $8,705.70, REPORTED TO HAVE BEEN PAID, IS REASONABLE AND JUST AND WOULD BE AN EQUITABLE ADJUSTMENT OF THE MATTER, AND THE CONTRACTOR IS WILLING TO ACCEPT THAT SUM IN FULL AND FINAL SETTLEMENT OF ALL CLAIMS ARISING OUT OF THE TRANSACTION, THIS OFFICE IS NOT REQUIRED TO OBJECT TO THE EXECUTION OF A SUPPLEMENTAL CONTRACT TO THAT EFFECT. HOWEVER, IF THE CONTRACTOR IS NOT WILLING TO EXECUTE SUCH AN AGREEMENT, THE CONTRACT, NEVERTHELESS, MAY BE TERMINATED, IF IT BE ADMINISTRATIVELY DETERMINED THAT SUCH TERMINATION IS IN THE INTEREST OF THE UNITED STATES, LEAVING THE CONTRACTOR TO PRESENT TO THIS OFFICE OR TO THE COURTS SUCH CLAIM AS IT MAY HAVE ARISING OUT OF THE TRANSACTION.