B-85968, AUGUST 2, 1949, 29 COMP. GEN. 57

B-85968: Aug 2, 1949

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THE ACCEPTANCE AND USE BY THE GOVERNMENT OF SUPPLIES INCLUDED IN A DELINQUENT DELIVERY AS TO WHICH THE CONTRACTOR'S RIGHT TO PROCEED HAD NOT BEEN TERMINATED IN WRITING AS REQUIRED BY THE STANDARD CONTRACT CONDITION RESPECTING DELAYED DELIVERIES CONSTITUTE A WAIVER OF WHATEVER RIGHTS THAT MIGHT HAVE ACCRUED BY REASON OF THE DELAYED DELIVERY. THE CONTRACTOR IS NOT LIABLE FOR EXCESS COSTS OCCASIONED THE GOVERNMENT AS A RESULT OF PURCHASES ELSEWHERE. 1949: REFERENCE IS MADE TO YOUR LETTER OF APRIL 29. THE FACTS GIVING RISE TO THESE QUESTIONS ARE AS FOLLOWS: THE VETERANS ADMINISTRATION EXECUTES AGREEMENTS KNOWN AS "DROP SHIPMENT" CONTRACTS ON SAID STANDARD FORM 33 ( REVISED) FOR DIRECT DELIVERIES DURING 3-MONTH PERIODS OF SUBSISTENCE ITEMS TO VARIOUS HOSPITALS AND CENTERS AS LISTED THEREIN.

B-85968, AUGUST 2, 1949, 29 COMP. GEN. 57

CONTRACTS - INCREASED COSTS - DELAYED DELIVERIES - WRITTEN NOTICE REQUIREMENT UNDER THE STANDARD CONTRACT CONDITION PROVIDING THAT THE GOVERNMENT MAY BY WRITTEN NOTICE TERMINATE THE CONTRACTOR'S RIGHT TO PROCEED WITH DELIVERIES AS TO WHICH THERE HAS BEEN DELAY AND HOLD THE CONTRACTOR LIABLE FOR EXCESS COSTS OCCASIONED THE GOVERNMENT BY PURCHASES ELSEWHERE, EXCESS COSTS OCCASIONED BY THE LOCAL PROCUREMENT OF ITEMS WHICH A CONTRACTOR HAD FAILED TO DELIVER ON SCHEDULE MAY NOT BE CHARGED AGAINST THE CONTRACTOR UNLESS THE CONTRACTOR'S RIGHT TO PROCEED WITH DELAYED DELIVERIES HAD BEEN TERMINATED BY WRITTEN NOTICE TO THE CONTRACTOR. THE ACCEPTANCE AND USE BY THE GOVERNMENT OF SUPPLIES INCLUDED IN A DELINQUENT DELIVERY AS TO WHICH THE CONTRACTOR'S RIGHT TO PROCEED HAD NOT BEEN TERMINATED IN WRITING AS REQUIRED BY THE STANDARD CONTRACT CONDITION RESPECTING DELAYED DELIVERIES CONSTITUTE A WAIVER OF WHATEVER RIGHTS THAT MIGHT HAVE ACCRUED BY REASON OF THE DELAYED DELIVERY, AND, THEREFORE, THE CONTRACTOR IS NOT LIABLE FOR EXCESS COSTS OCCASIONED THE GOVERNMENT AS A RESULT OF PURCHASES ELSEWHERE.

ACTING COMPTROLLER GENERAL FISHER TO THE ADMINISTRATOR OF VETERANS AFFAIRS, AUGUST 2, 1949:

REFERENCE IS MADE TO YOUR LETTER OF APRIL 29, 1949, IN WHICH YOU SUBMIT FOR CONSIDERATION TWO QUESTIONS, BOTH OF WHICH INVOLVE THE CONSTRUCTION AND APPLICATION TO CERTAIN STATED FACTS OF PARAGRAPH 4 OF THE CONDITIONS APPEARING ON THE REVERSE SIDE OF STANDARD FORM 33 ( REVISED) SHORT FORM CONTRACT. THIS PARAGRAPH, IN PERTINENT PART, READS:

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: * * * (ITALICS SUPPLIED.)

THE FACTS GIVING RISE TO THESE QUESTIONS ARE AS FOLLOWS: THE VETERANS ADMINISTRATION EXECUTES AGREEMENTS KNOWN AS "DROP SHIPMENT" CONTRACTS ON SAID STANDARD FORM 33 ( REVISED) FOR DIRECT DELIVERIES DURING 3-MONTH PERIODS OF SUBSISTENCE ITEMS TO VARIOUS HOSPITALS AND CENTERS AS LISTED THEREIN; THE CONTRACTOR FREQUENTLY FAILS TO MAKE DELIVERY ON SCHEDULE AND THE HOSPITAL OR CENTER IS REQUIRED TO PURCHASE THE ITEMS INVOLVED FROM LOCAL MERCHANTS AT PRICES IN EXCESS OF THOSE FIXED BY THE CONTRACT; THE HOSPITAL OR CENTER CONCERNED NOTIFIES THE CONTRACTING OFFICER LOCATED IN WASHINGTON, D.C., OF SUCH ACTION, BUT BEFORE THAT OFFICIAL CAN TAKE THE NECESSARY STEPS TO TERMINATE THE RIGHT OF THE CONTRACTOR TO PROCEED WITH THE PARTICULAR DELIVERY, SUCH DELIVERY HAS BEEN TENDERED TO AND ACCEPTED BY THE HOSPITAL OR CENTER INVOLVED.

UNDER THE CIRCUMSTANCES AS OUTLINED ABOVE, YOU ASK, FIRST, WHETHER OR NOT YOUR ADMINISTRATION MUST, BY WRITTEN NOTICE, TERMINATE THE CONTRACTOR'S RIGHT TO PROCEED WITH THE DELAYED DELIVERY OR DELIVERIES BEFORE CHARGING HIM WITH THE EXCESS COST OCCASIONED BY THE LOCAL PROCUREMENT OF THE ITEMS INVOLVED IN SUCH DELAYED DELIVERY OR DELIVERIES.

IN VIEW OF THE PLAIN AND UNAMBIGUOUS LANGUAGE OF PARAGRAPH 4 HEREINBEFORE QUOTED, IT APPEARS THAT THIS QUESTION MUST BE ANSWERED IN THE AFFIRMATIVE. INDEED, IT SEEMS THAT PARAGRAPH 4 WAS SPECIFICALLY DRAFTED TO MEET FACTUAL SITUATIONS OF THE NATURE HERE PRESENTED. THE LANGUAGE OF SAID PARAGRAPH DEALS WITH A PARTIAL BREACH OF THE CONTRACT- - APPLYING, AS IT DOES, ONLY TO DELIVERIES WHICH ARE BEHIND SCHEDULE--- AND PROVIDES FOR THE PROCEDURE NECESSARY IN ORDER THAT THE GOVERNMENT MAY HOLD THE CONTRACTOR FOR DAMAGES RESULTING FROM SUCH PARTIAL DEFAULT. ONE OF THE SPECIFIC REQUIREMENTS OF THAT PROCEDURE IS THAT WRITTEN NOTICE OF TERMINATION WILL BE GIVEN TO THE CONTRACTOR. WHILE SUCH A REQUIREMENT MAY BE IN DEROGATION OF THE RIGHTS THAT MIGHT ACCRUE TO THE GOVERNMENT UPON THE BREACH WERE THE AGREEMENT SILENT ON THE QUESTION OF NOTICE, HAVING SIGNED A CONTRACT CONTAINING A REQUIREMENT FOR WRITTEN NOTICE, THE PARTIES ARE BOUND THEREBY.

THE LANGUAGE OF PARAGRAPH 4 DIFFERS FROM THAT OF PARAGRAPH 3, WHICH PROVIDES THAT A CONTRACTOR MAY BE HELD FOR EXCESS COST "IN CASE OF DEFAULT" WITHOUT MENTIONING NOTICE OF ANY KIND. IT SEEMS OBVIOUS THAT PARAGRAPH 3 CONTEMPLATES A COMPLETE AND FINAL BREACH OF THE CONTRACT INVOLVED, IN WHICH CASE THE GOVERNMENT SECURES AN IMMEDIATE AND ABSOLUTE RIGHT TO DAMAGES MEASURED BY THE EXCESS COST OF PROCURING THE GOODS OR SERVICES ELSEWHERE. THUS, WHERE A CONTRACTOR INDICATES AN ENTIRE REPUDIATION OR ABANDONMENT OF HIS OBLIGATIONS UNDER THE CONTRACT, HIS ACTION CONSTITUTES A DEFAULT" WITHIN THE MEANING OF PARAGRAPH 3, WITH ATTENDANT LIABILITY FOR DAMAGES, AND NO WRITTEN NOTICE IS REQUIRED. SEE MOBLEY V. N.Y. LIFE INS. CO., 295 U.S. 632; ROEHM V. HORST, 178 U.S. 1; GEORGIA WHOLESALE CO. V. UNITED STATES, 84 C.CLS. 150.

YOUR SECOND QUESTION IS:

IS A CONTRACTOR LIABLE FOR EXCESS COSTS OCCASIONED THE GOVERNMENT AS THE RESULT OF LOCAL PROCUREMENT OF SUPPLIES FOR WHICH THE CONTRACTOR FAILS TO MAKE DELIVERY AS SCHEDULED IN THE CONTRACT EVEN THOUGH THE DELINQUENT DELIVERY IS ACCEPTED AND USED AND THE RIGHT OF THE CONTRACTOR TO PROCEED WITH THE DELIVERY HAS NOT BEEN TERMINATED IN WRITING?

THE ANSWER TO THIS QUESTION MUST BE IN THE NEGATIVE, NOT ONLY BECAUSE OF THE FAILURE TO GIVE WRITTEN NOTICE OF TERMINATION, BUT ALSO BY REASON OF THE FACT THAT THE DELAYED DELIVERY IS ACCEPTED AND USED. THE ACCEPTANCE AND USE OF THE MATERIALS INCLUDED IN THE DELIVERY WOULD, BY SETTLED LEGAL PRINCIPLES, CONSTITUTE A WAIVER OF WHATEVER RIGHTS MIGHT HAVE ACCRUED BY REASON OF THE FACT THAT SUCH DELIVERY WAS NOT MADE AS SCHEDULED IN THE AGREEMENT. CF. CARROLL V. UNITED STATES, 69 C.CLS. 435. ..END :