B-33352, APRIL 2, 1943, 22 COMP. GEN. 937

B-33352: Apr 2, 1943

Additional Materials:

Contact:

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

 

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

WHERE THE EFFECT OF THE LABOR SHORTAGE WAS NOT TO RENDER PERFORMANCE IMPOSSIBLE BUT ONLY TO INCREASE THE COST OF PERFORMANCE BECAUSE OF THE NECESSITY FOR PAYMENT OF HIGHER WAGES TO OBTAIN REPLACEMENTS FOR EMPLOYEES ENTERING THE MILITARY SERVICE OR TO RETAIN EMPLOYEES WHO OTHERWISE WOULD LEAVE THE CONTRACTOR'S EMPLOY TO ACCEPT EMPLOYMENT IN DEFENSE CENTERS AT HIGHER WAGES. 1943: I HAVE YOUR LETTER OF MARCH 23. DELIVERIES WERE MADE IN ACCORDANCE WITH THE TERMS OF THE CONTRACT FROM JULY 1. THAT HE WAS CLOSING HIS CREAMERY PLANT AS OF SEPTEMBER 30. NO DELIVERIES WERE MADE BY THE CONTRACTOR DIRECT FROM HIS PLANT AFTER SEPTEMBER 30. DELIVERIES WERE MADE BY HIM THROUGH THE FAIRMONT CREAMERY COMPANY.

B-33352, APRIL 2, 1943, 22 COMP. GEN. 937

CONTRACTS - DISCONTINUANCE OF CONTRACTOR'S BUSINESS DUE TO LABOR SHORTAGE AS EXCUSING NONPERFORMANCE A LABOR SHORTAGE, RESULTING IN THE DISCONTINUANCE BY A GOVERNMENT CONTRACTOR OF ITS BUSINESS, MAY NOT BE CONSIDERED AN "UNFORESEEABLE CAUSE" SUCH AS OPERATES TO RELIEVE THE DEFAULTING CONTRACTOR OF ITS CONTRACTUAL LIABILITY FOR EXCESS COSTS INCURRED BY THE GOVERNMENT IN SECURING THE CONTRACT MATERIAL FROM ANOTHER SOURCE, WHERE THE EFFECT OF THE LABOR SHORTAGE WAS NOT TO RENDER PERFORMANCE IMPOSSIBLE BUT ONLY TO INCREASE THE COST OF PERFORMANCE BECAUSE OF THE NECESSITY FOR PAYMENT OF HIGHER WAGES TO OBTAIN REPLACEMENTS FOR EMPLOYEES ENTERING THE MILITARY SERVICE OR TO RETAIN EMPLOYEES WHO OTHERWISE WOULD LEAVE THE CONTRACTOR'S EMPLOY TO ACCEPT EMPLOYMENT IN DEFENSE CENTERS AT HIGHER WAGES.

COMPTROLLER GENERAL WARREN TO THE ADMINISTRATOR OF VETERANS' AFFAIRS, APRIL 2, 1943:

I HAVE YOUR LETTER OF MARCH 23, 1943, AS FOLLOWS:

THE MORGAN CREAMERY COMPANY, 301 FIRST AVENUE NORTH, FARGO, NORTH DAKOTA, CONTRACTED TO DELIVER FRESH MILK, CREAM, BUTTERMILK AND COTTAGE CHEESE, TO THE VETERANS ADMINISTRATION FACILITY, FARGO, NORTH DAKOTA, DURING THE FISCAL YEAR JULY 1, 1942 TO JUNE 30, 1943.

DELIVERIES WERE MADE IN ACCORDANCE WITH THE TERMS OF THE CONTRACT FROM JULY 1, 1942 TO SEPTEMBER 30, 1942. ON THAT DATE THE CONTRACTOR NOTIFIED ALL HIS CUSTOMERS, INCLUDING THE MANAGER OF THE VETERANS ADMINISTRATION FACILITY, THAT HE WAS CLOSING HIS CREAMERY PLANT AS OF SEPTEMBER 30, 1942, BECAUSE OF LABOR SHORTAGE IN THAT COMMUNITY. NO DELIVERIES WERE MADE BY THE CONTRACTOR DIRECT FROM HIS PLANT AFTER SEPTEMBER 30, 1942. HOWEVER, FOR A PERIOD OF 30 DAYS FOLLOWING THE CLOSING OF HIS PLANT, OCTOBER 1, 1942 TO OCTOBER 31, 1942, INCLUSIVE, DELIVERIES WERE MADE BY HIM THROUGH THE FAIRMONT CREAMERY COMPANY, MOORHEAD, MINNESOTA. BEGINNING NOVEMBER 1, 1942, AND SINCE THAT DATE, MILK REQUIREMENTS FOR THE FACILITY HAVE BEEN OBTAINED FROM ANOTHER SOURCE AT A COST IN EXCESS OF THE PRICE CONTRACTED FOR BY THE MORGAN CREAMERY COMPANY. A COPY OF THE CONTRACT, VA37R-935, A LETTER FROM THE CONTRACTOR DATED OCTOBER 28, 1942, COPY OF REPLY THERETO BY THE MANAGER OF THE FACILITY DATED NOVEMBER 7, 1942, AND LETTER OF NOVEMBER 7, 1942, FROM THE MANAGER OF THE FACILITY TO THE DIRECTOR OF SUPPLIES, WITH A FINDING OF FACTS ATTACHED, ARE ENCLOSED HEREWITH.

IN VIEW OF THE CIRCUMSTANCES, THIS CASE IS BEING REFERRED TO YOU FOR DECISION AS TO WHETHER THE REASON (SHORTAGE OF LABOR) GIVEN BY THE CONTRACTOR IS SUFFICIENT TO AFFORD HIM RELIEF FROM THE EXCESS COSTS INCURRED BY THE GOVERNMENT IN THE PURCHASE OF MILK, CREAM, BUTTERMILK, AND COTTAGE CHEESE, REQUIRED BY THE VETERANS ADMINISTRATION FACILITY, FARGO, NORTH DAKOTA, DURING THE PERIOD OF DEFAULT, NOVEMBER 1, 1942 TO JUNE 30, 1943.

IT IS REQUESTED THAT DECISION IN THIS CASE BE EXPEDITED AND THE ENCLOSURES FORWARDED HEREWITH RETURNED WITH YOUR REPLY.

WITH RESPECT TO DELAYS AND DAMAGES, CONTRACT NO. VA37R-935 PROVIDED IN PERTINENT PART AS OLLOWS:

4. IF THE CONTRACTOR REFUSES OR FAILS TO MAKE DELIVERIES OF THE MATERIALS OR SUPPLIES WITHIN THE TIME SPECIFIED, OR ANY EXTENSION THEREOF, THE GOVERNMENT MAY BY WRITTEN NOTICE TERMINATE THE RIGHT OF THE CONTRACTOR TO PROCEED WITH DELIVERIES OR SUCH PART OR PARTS THEREOF AS TO WHICH THERE HAS BEEN DELAY. IN SUCH EVENT, THE GOVERNMENT MAY PURCHASE SIMILAR MATERIALS OR SUPPLIES IN THE OPEN MARKET OR SECURE THE MANUFACTURE AND DELIVERY OF THE MATERIALS AND SUPPLIES BY CONTRACT OR OTHERWISE, AND THE CONTRACTOR AND HIS SURETIES (IF ANY) SHALL BE LIABLE TO THE GOVERNMENT FOR ANY EXCESS COST OCCASIONED THE GOVERNMENT THEREBY: PROVIDED, THAT THE CONTRACTOR SHALL NOT BE CHARGED WITH ANY EXCESS COST OCCASIONED THE GOVERNMENT BY THE PURCHASE OF MATERIALS OR SUPPLIES IN THE OPEN MARKET OR UNDER OTHER CONTRACTS WHEN THE DELAY OF THE CONTRACTOR IN MAKING DELIVERIES IS DUE TO UNFORESEEABLE CAUSES BEYOND THE CONTROL AND WITHOUT THE FAULT OR NEGLIGENCE OF THE CONTRACTOR, INCLUDING, BUT NOT RESTRICTED TO, ACTS OF GOD OR OF THE PUBLIC ENEMY, ACTS OF THE GOVERNMENT, FIRES, FLOODS, EPIDEMICS, QUARANTINE RESTRICTIONS, STRIKES,FREIGHT EMBARGOES, UNUSUALLY SEVERE WEATHER, AND DELAYS OF A SUBCONTRACTOR DUE TO SUCH CAUSES UNLESS THE CONTRACTING OFFICER SHALL DETERMINE THAT THE MATERIALS OR SUPPLIES TO BE FURNISHED UNDER THE SUBCONTRACT ARE PROCURABLE IN THE OPEN MARKET, IF THE CONTRACTOR SHALL NOTIFY THE CONTRACTING OFFICER IN WRITING OF THE CAUSE OF ANY SUCH DELAY, WITHIN 10 DAYS FROM THE BEGINNING THEREOF, OR WITHIN SUCH FURTHER PERIOD AS THE CONTRACTING OFFICER SHALL, WITH THE APPROVAL OF THE HEAD OF THE DEPARTMENT OR HIS DULY AUTHORIZED REPRESENTATIVE, PRIOR TO THE DATE OF FINAL SETTLEMENT OF THE CONTRACT, GRANT FOR THE GIVING OF SUCH NOTICE. THE CONTRACTING OFFICER SHALL THEN ASCERTAIN THE FACTS AND EXTENT OF DELAY, AND HIS FINDINGS OF FACT THEREON SHALL BE FINAL AND CONCLUSIVE ON THE PARTIES HERETO, SUBJECT ONLY TO APPEAL WITHIN 30 DAYS BY THE CONTRACTOR TO THE HEAD OF THE DEPARTMENT CONCERNED OR HIS DULY AUTHORIZED REPRESENTATIVE, WHOSE DECISION ON SUCH APPEAL AS TO THE FACTS OF DELAY SHALL BE FINAL AND CONCLUSIVE, ON THE PARTIES HERETO. * * *

THE REFERRED TO LETTER OF OCTOBER 28, 1942, FROM THE CONTRACTOR, IS AS FOLLOWS:

THIS IS TO NOTIFY YOU THAT THE MORGAN CREAMERY COMPANY CAN NO LONGER DELIVER MILK, CREAM AND OTHER DAIRY PRODUCTS ON CONTRACT VA37R-935.

THE UNDERSIGNED IS FORCED TO ASK RELIEF AND CANCELLATION OF ABOVE CONTRACT BECAUSE THE PLANT IS BEING CLOSED FOR THE DURATION DUE TO INABILITY OF OBTAINING EXPERIENCED OR EVEN INEXPERIENCED HELP TO OPERATE OUR ESTABLISHMENT.

FORMER EMPLOYEES HAVE LEFT MY PLANT FOR BETTER PAYING POSITIONS IN DEFENSE CENTERS AND HAVING BEEN IN THE WORLD WAR I I FEEL THAT WORLD WAR II JOBS ARE MORE NECESSARY TO FILL ANYWAY.

WE HAVE MADE A REAL EFFORT TO KEEP GOING AND TRIED WOMEN AT THE LAST BUT THE WORK WAS TOO HEAVY FOR THEM. EQUIPMENT HAS BEEN SOLD AND REMOVED FROM THE ESTABLISHMENT AND THE PLANT IS CLOSED FOR THE DURATION DUE TO CAUSES BEYOND MY CONTROL OR WITHOUT NEGLIGENCE ON MY PART. THANK YOU.

IN VIEW THEREOF THE CONTRACTOR WAS NOTIFIED BY LETTER OF NOVEMBER 7, 1942, THAT ITS RIGHT TO PROCEED UNDER THE CONTRACT WAS TERMINATED. ALSO, BY LETTER OF THE SAME DATE THE MANAGER OF THE FACILITY TRANSMITTED TO THE DIRECTOR OF SUPPLIES, VETERANS' ADMINISTRATION, HIS FINDINGS IN THE MATTER, AS FOLLOWS:

1. THAT EFFECTIVE AS OF JULY 1, 1942, THE MORGAN CREAMERY CO., ENTERED INTO A VALID AND BINDING CONTRACT WITH THE VETERANS ADMINISTRATION TO FURNISH MILK, CHEESE, BUTTERMILK AND CREAM FOR THE FISCAL YEAR ENDING JUNE 30, 1943, SAID CONTRACT BEARING NUMBER VA37R 935.

2. THAT THE CONTRACTOR FULFILLED HIS OBLIGATIONS UNDER SAID CONTRACT UP TO AND INCLUDING SEPTEMBER 30, 1942, AT WHICH TIME HE NOTIFIED ALL OF HIS CUSTOMERS, INCLUDING THE VETERANS ADMINISTRATION, THAT HE WAS DISCONTINUING MILK DELIVERIES AS OF OCTOBER 1, 1942, BECAUSE OF INABILITY TO SECURE EMPLOYEES TO CARRY ON THE WORK.

3. THAT SINCE OCTOBER 1, 1942, THE SAID MORGAN CREAMERY CO. HAS MADE DELIVERIES UNDER ITS CONTRACT WITH THE VETERANS ADMINISTRATION THRU THE FAIRMONT CREAMERY CO., MOORHEAD, MINNESOTA, SUCH ARRANGEMENT CONTINUED UNTIL OCTOBER 31, 1942. THE DELIVERIES AS ABOVE DESCRIBED MET ALL REQUIREMENTS OF THE CONTRACT FIRST MENTIONED ABOVE.

4. THAT SINCE NOVEMBER 1, 1942, THE VETERANS ADMINISTRATION HAS PURCHASED ITS MILK, BUTTERMILK, CHEESE AND CREAM FROM THE FAIRMONT CREAMERY CO., MOORHEAD, MINNESOTA, AT A PRICE IN EXCESS OF THAT RESERVED IN THE CONTRACT WITH THE MORGAN CREAMERY CO.

5. THAT ASIDE FROM ITS INABILITY TO SECURE EMPLOYEES THE MORGAN CREAMERY CO., HAS SINCE OCTOBER 1, 1942, SOLD ITS EQUIPMENT AND SUPPLIES, RENDERING THE CONTRACTOR UNABLE TO FULFILL ITS CONTRACT WITH THE VETERANS ADMINISTRATION.

6. THAT A SERIOUS LABOR SHORTAGE EXISTS IN NORTH DAKOTA AND IN THE AREA SERVED BY THE MORGAN CREAMERY CO., CONTRACTOR, TO THE EXTENT THAT OFFICIAL NOTICE MAY BE TAKEN THEREOF BY THE VETERANS ADMINISTRATION SAID SHORTAGE RESULTING FROM THE INDUCTION OF MEN INTO MILITARY SERVICE AND EMPLOYMENT AT HIGHER WAGES IN DEFENSE INDUSTRIES.

7. THAT THE LABOR SHORTAGE HAS INCREASED MARKEDLY SINCE NEGOTIATIONS FOR SAID CONTRACT BETWEEN THE VETERANS ADMINISTRATION AND THE MORGAN CREAMERY CO., WERE IN PROGRESS PRIOR TO JULY 1, 1942, CULMINATING IN A BID SUBMITTED BY THE MORGAN CREAMERY CO. ON JUNE 16, 1942, WHICH WHEN ACCEPTED BY THE VETERANS ADMINISTRATION AS THE LOWEST BID BECAME CONTRACT VA37R- 935, EFFECTIVE AS OF JULY 1, 1942.

IT IS WELL SETTLED THAT HARDSHIPS OR INCONVENIENCES INVOLVED IN THE FULFILLMENT OF A CONTRACT WILL NOT RELIEVE A PARTY FROM PERFORMANCE THEREOF AND THAT PERFORMANCE OF A CONTRACT IS NOT EXCUSED BY UNUSUAL OR UNEXPECTED EXPENSE. SEE INDUSTRIAL ENGINEERING COMPANY V. UNITED STATES, 92 C.1CLS. 54, 60, AND CASES CITED THEREIN; ALSO SEE 18 COMP. GEN. 174, AND 19 ID. 560. THE COURT, IN THE CASE OF FARMERS' FERTILIZER COMPANY V. LILLE, 18 F. (2D) 197, STATED, AT PAGE 199, THAT- -

* * * AN ABNORMAL RISE IN THE PRICE OF GOODS, OR IN TRANSPORTATION CHARGES, DUE TO THE EXISTENCE OF WAR, OR UNUSUAL TRADE CONDITIONS, SUCH THAT DEFENDANT COULD NOT PERFORM ITS CONTRACT WITHOUT GREATER EXPENSE THAN ANTICIPATED, IS NOT SUCH AN IMPOSSIBILITY AS WILL EXCUSE PERFORMANCE. BRITISH RULING CASES, 538; WICKHAM CO. V. MINNESOTA CO. ( C.C.A. 7) 7 F. (2) 873. * * *

IN THE INSTANT CASE, IT APPEARS THAT THE EFFECT OF THE LABOR SHORTAGE WAS NOT TO RENDER IT IMPOSSIBLE FOR THE CONTRACTOR TO PERFORM ITS CONTRACT, BUT ONLY TO INCREASE THE COST OF PERFORMANCE THEREOF BECAUSE OF THE NECESSITY FOR PAYMENT OF HIGHER WAGES FOR LABOR--- THIS IN ORDER TO CONTINUE THE EMPLOYMENT OF SUCH PERSONS AS OTHERWISE WOULD LEAVE THE CONTRACTOR'S EMPLOY TO ACCEPT EMPLOYMENT IN DEFENSE CENTERS AT HIGHER WAGES OR IN ORDER TO SECURE THE EMPLOYMENT OF PERSONS TO REPLACE THOSE ENTERING THE MILITARY SERVICE. MOREOVER, IT DOES NOT APPEAR THAT THE CONTRACT REQUIRED THE CONTRACTOR TO FURNISH THE DAIRY PRODUCTS FROM ITS OWN PLANT--- IT BEING NOTED THAT FOR THE MONTH OF OCTOBER, 1942, SUCH PRODUCTS WERE DELIVERED BY THE CONTRACTOR THROUGH THE FAIRMONT CREAMERY COMPANY--- AND IN VIEW THEREOF AND SINCE THE DAIRY PRODUCTS CALLED FOR UNDER THE CONTRACT WERE READILY PROCURABLE BY THE CONTRACTOR FROM OTHER SOURCES AND NOW APPARENTLY ARE BEING SO PROCURED BY THE UNITED STATES, IT MUST BE HELD THAT THE CONDITIONS COMPLAINED OF ARE NOT SUCH AS TO RELIEVE CONTRACTOR FROM LIABILITY UNDER THE CONTRACT. SEE NEWELL V. NEW HOLSTEIN CANNING COMPANY, 119 WISC. 635, AND SUNSERI V. GARCIA AND MAGGINI COMPANY, 298 PA. 249, 67 A.L.R. 1428.

WHILE THE CONTRACTOR CONTENDS THAT THE CIRCUMSTANCES RESULTING IN THE CLOSING OF ITS PLANT WERE WITHOUT ITS FAULT OR NEGLIGENCE AND THUS SHOULD BE EXCUSED UNDER THE CONTRACT PROVISION, QUOTED ABOVE, IT IS TO BE NOTED THAT SAID PROVISION SPECIFIES THAT IN ORDER FOR THE CONTRACTOR'S FAILURE TO PERFORM TO BE EXCUSABLE, SUCH FAILURE MUST BE DUE TO "UNFORESEEABLE CAUSES.' THE BID IN THIS CASE WAS SUBMITTED BY THE CONTRACTOR ON JUNE 16, 1942, AT A TIME WHEN THE UNITED STATES HAD BEEN ENGAGED IN WAR FOR OVER SIX MONTHS. CONSEQUENTLY, THE LABOR PROBLEM ARISING FROM THE NEEDS OF THE MILITARY SERVICE AND THE CONTINUED INCREASE IN EMPLOYMENT IN DEFENSE CENTERS WAS A MATTER APPARENTLY PRESENT AT THE TIME, AND THE CONTRACTOR SHOULD HAVE TAKEN THE MATTER INTO CONSIDERATION WHEN SUBMITTING ITS BID. THE LABOR SHORTAGE MAY HAVE INCREASED MARKEDLY IN THE COURSE OF A FEW MONTHS OR BY SEPTEMBER, 1942, BUT IT MAY IN NOWISE BE CLASSED AS UNFORESEEABLE WITHIN THE MEANING OF THAT TERM AS USED IN THE CONTRACT. THE INSTABILITY OF THE DAIRY PRODUCTS MARKET WAS EMPHASIZED BY THE FACT THAT BIDS IN THIS CASE WERE INVITED ON AN ALTERNATE BASIS, NAMELY, FOR PERIODS COVERING (1) 30-DAY PERIOD ENDING JULY 31, 1942; (2) 3-MONTH PERIOD ENDING SEPTEMBER 30, 1942; (3) 6-MONTH PERIOD ENDING DECEMBER 31, 1942, AND (4) 12-MONTH PERIOD ENDING JUNE 30, 1943. FURTHERMORE, AS ABOVE NOTED, THE LABOR SHORTAGE DID NOT RENDER PERFORMANCE IMPOSSIBLE.

ACCORDINGLY, YOU ARE ADVISED THAT THE FACTS REPORTED BY YOU AFFORD NO LEGAL BASIS FOR RELIEVING CONTRACTOR OF LIABILITY FOR THE EXCESS COSTS INCURRED BY THE GOVERNMENT DUE TO DEFAULT OF THE CONTRACTOR IN THE MATTER.