B-97756, SEPTEMBER 15, 1950, 30 COMP. GEN. 105

B-97756: Sep 15, 1950

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TO COVER LOSSES SUSTAINED UNDER RELATED CONTRACT A CONTRACTOR WHO IS OBLIGATED BY THE TERMS OF A CONTRACT ENTERED INTO A GOVERNMENT AGENCY TO REFUND ANY AMOUNT RECEIVED AS PROFITS IN EXCESS OF A FIXED PERCENTAGE OF THE COSTS MAY NOT DEDUCT AND RETAIN FROM SUCH AMOUNT A SUM EQUAL TO A LOSS SUSTAINED UNDER A SEPARATE. 1950: REFERENCE IS MADE TO LETTER DATED AUGUST 14. AS HAVE BEEN FREQUENTLY POINTED OUT. SUBORDINATE OFFICIALS OTHER THAN DISBURSING OR CERTIFYING OFFICERS ARE NOT ENTITLED TO OBTAIN DECISIONS FROM THIS OFFICE (26 COMP. IT WILL BE ASSUMED THAT THE REQUEST IN THIS CASE WOULD BE APPROVED BY YOU. REPLY IS MADE ACCORDINGLY. THE QUESTION PRESENTED BY THE BUREAU'S LETTER IS. WHO IS OBLIGATED BY THE TERMS OF A CONTRACT WITH THE GOVERNMENT TO REFUND A PORTION OF A CONSIDERATION RECEIVED BY IT.

B-97756, SEPTEMBER 15, 1950, 30 COMP. GEN. 105

CONTRACTS - WITHHOLDING BY CONTRACTOR OF FUNDS DUE U.S. TO COVER LOSSES SUSTAINED UNDER RELATED CONTRACT A CONTRACTOR WHO IS OBLIGATED BY THE TERMS OF A CONTRACT ENTERED INTO A GOVERNMENT AGENCY TO REFUND ANY AMOUNT RECEIVED AS PROFITS IN EXCESS OF A FIXED PERCENTAGE OF THE COSTS MAY NOT DEDUCT AND RETAIN FROM SUCH AMOUNT A SUM EQUAL TO A LOSS SUSTAINED UNDER A SEPARATE, THOUGH RELATED, CONTRACT WITH THE SAME AGENCY AND COVERING THE SAME SUBJECT MATTER.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF THE NAVY, SEPTEMBER 15, 1950:

REFERENCE IS MADE TO LETTER DATED AUGUST 14, 1950, FROM THE CHIEF, BUREAU OF SUPPLIES AND ACCOUNTS--- FILE REFERENCE L4-1 (10/--- RELATIVE TO REDETERMINATION OF PRICES UNDER CONTRACTS NOS. N-140S-71668A AND N 140S- 70154A, BOTH DATED JUNE 5, 1945, WITH CUTTER LABORATORIES.

AS HAVE BEEN FREQUENTLY POINTED OUT, SUBORDINATE OFFICIALS OTHER THAN DISBURSING OR CERTIFYING OFFICERS ARE NOT ENTITLED TO OBTAIN DECISIONS FROM THIS OFFICE (26 COMP. GEN. 993); HOWEVER, IT WILL BE ASSUMED THAT THE REQUEST IN THIS CASE WOULD BE APPROVED BY YOU, AND REPLY IS MADE ACCORDINGLY.

THE QUESTION PRESENTED BY THE BUREAU'S LETTER IS, IN SUBSTANCE, WHETHER THE CONTRACTOR, WHO IS OBLIGATED BY THE TERMS OF A CONTRACT WITH THE GOVERNMENT TO REFUND A PORTION OF A CONSIDERATION RECEIVED BY IT, REPRESENTING PROFITS IN EXCESS OF A FIXED PERCENTAGE OF ITS COSTS, IS ENTITLED TO DEDUCT AND RETAIN THEREFROM A SUM EQUAL TO A LOSS CLAIMED TO HAVE BEEN SUSTAINED BY IT UNDER A SEPARATE, THOUGH RELATED, CONTRACT WITH THE SAME AGENCY.

IT IS THE PRIMARY CONTENTION OF THE CONTRACTOR, ACCORDING TO A MEMORANDUM ON ITS BEHALF FILED WITH YOUR DEPARTMENT AND INCLUDED IN THE FILE TRANSMITTED HERE, THAT BECAUSE THE TWO CONTRACTS DEALT WITH THE SAME SUBJECT MATTER--- TO WIT, PROCESSING OF HUMAN BLOOD--- AND WERE NEGOTIATED AS ONE WITH THE ORIGINAL INTENTION THAT ONLY ONE CONTRACT HAD, IN FACT, BEEN MADE. IN THE SUBMISSION IT IS ADMITTED (ALTHOUGH THERE IS NO REPORT OR FINDING BY THE CONTRACTING OFFICER IN THE FILE TRANSMITTED) THAT IT WAS ANTICIPATED THAT ONLY ONE CONTRACT WOULD BE MADE BUT IT IS EXPLAINED THAT THE USE OF TWO CONTRACTS WAS DECIDED ON IN ORDER TO SIMPLIFY THE ACCOUNTING OF PROPERTY FURNISHED FROM TWO DIFFERENT SOURCES, THE MATERIAL FOR ONE CONTRACT BEING BLOOD FRACTIONS OWNED BY THE GOVERNMENT AND THAT FOR THE OTHER BEING FRESH BLOOD SUPPLIED BY THE RED CROSS.

HOWEVER, REGARDLESS OF WHAT THE ORIGINAL INTENTIONS MAY HAVE BEEN OR WHAT UNDERLYING PURPOSES MAY HAVE INFLUENCED THE ACTION TAKEN, THE FACT OF THE MATTER IS THAT TWO SEPARATE CONTRACTS WERE EXECUTED, EACH CONTAINING DIFFERENT TERMS BY WHICH THE PARTIES ACQUIRED DIFFERENT LEGAL RIGHTS AND ASSUMED DIFFERENT LEGAL LIABILITIES. CONTRACT NO. N 140S-71668A PROVIDES FOR THE PROCESSING OF CERTAIN BLOOD FRACTIONS ALREADY ON HAND INTO DIFFERENT FORMS, AND THE PACKAGING AND STORAGE THEREOF, AT SPECIFIED UNIT PRICES, AND CONTAINS THE FURTHER PROVISION THAT UPON COMPLETION OF THE CONTRACT THE CONTRACTOR WILL REFUND TO THE GOVERNMENT ANY PROFIT IN EXCESS OF 9 PERCENT OF THE TOTAL COST OF PERFORMANCE. CONTRACT NO. N-140S-70154A PROVIDES FOR THE PRODUCTION, PACKAGING, AND DELIVERY FROM WHOLE BLOOD OF SERUM ALBUMIN AND FIBRIN FILM, AND FOR THE PROCESSING, PACKAGING, AND STORAGE OF THE RESIDUAL FRACTIONS FROM SUCH PRODUCTION, AT SPECIFIED UNIT PRICES, WITH A PROVISION FOR REDETERMINATION OF THE CONTRACT PRICES UPON THE BASIS OF COSTS INCURRED,"BUT THE TOTAL REDETERMINED PRICE SHALL IN NO EVENT EXCEED THE TOTAL CONTRACT PRICE SET FORTH IN THIS CONTRACT LESS ANY PART THEREOF APPLICABLE TO ANY TERMINATED PORTION OF THE WORK UNDER THIS CONTRACT.'

THE BUREAU SEEMS TO RECOGNIZE IN ITS LETTER THAT LEGALLY THE CONTRACTOR IS NOT ENTITLED TO HAVE THE TWO CONTRACTS CONSIDERED TOGETHER FOR THE PURPOSE OF OFFSETTING ITS LOSS UNDER ONE. RATHER, THE EQUITIES IN THE CONTRACTOR'S FAVOR ARE STRESSED. BUT IT HARDLY NEED BE STATED, SO WELL IS THE PRINCIPLE ESTABLISHED, THAT LEGAL RIGHTS OF THE UNITED STATES CANNOT BE WAIVED BY THIS OFFICE, HOWEVER IMPELLING THE EQUITIES MAY BE.

IT IS FURTHER CONTENDED ON BEHALF OF THE CONTRACTOR THAT THE LANGUAGE OF CONTRACT NO. N-140S-70155A, LIMITING THE REDETERMINED PRICES TO "THE TOTAL CONTRACT PRICE SET FORTH IN THIS CONTRACT" SHOULD BE CONSTRUED TO REFER TO THE ESTIMATED TOTAL PRICE OF $330,860, SO THAT THE CONTRACT UNIT PRICES COULD BE INCREASED UP TO SUCH AMOUNTS AS WOULD PRODUCE AN AGGREGATE PRICE FOR THE REDUCED QUANTITIES ACTUALLY FURNISHED NOT IN EXCESS OF THAT AMOUNT. SUCH A CONSTRUCTION WOULD WHOLLY IGNORE THE CONCLUDING LANGUAGE OF THE PROVISION "LESS ANY PART THEREOF APPLICABLE TO ANY TERMINATED PORTION OF THE WORK UNDER THIS CONTRACT," AND WOULD ALSO VIOLATE THE GENERAL PRINCIPLE OF CONSTRUCTION WHEREBY THE WORDS "CONTRACT PRICE" WOULD BE CONSIDERED AS MEANING THAT AMOUNT AS MODIFIED BY ANY AMENDMENTS TO THE CONTRACT. IN THIS CASE, IT IS NOTED THAT EACH OF THE THREE CHANGE ORDERS REDUCING THE QUANTITIES AND ITEMS TO BE FURNISHED UNDER CONTRACT NO. N- 140S-70154A CONTAINED AN EXPRESS STIPULATION THAT "THE ABOVE CHANGE WILL RESULT IN A TOTAL REDUCTION OF $---- IN THE TOTAL ESTIMATED AMOUNT OF THE CONTRACT," AND TWO OF THE THREE CHANGE ORDERS, INCLUDING THE LAST, ALSO STATED EXPRESSLY THAT "AS A RESULT OF THE ABOVE THERE WILL BE NO CHANGE IN THE UNIT PRICES.'

A FURTHER BASIS ASSERTED IN SUPPORT OF THE CONTRACTOR'S CLAIM IS THAT THE LOSS SUFFERED BY IT UNDER THE LATTER CONTRACT RESULTED FROM A BREACH BY THE GOVERNMENT, IN THAT THERE WAS A FAILURE TO FURNISH AN ADEQUATE SUPPLY OF WHOLE BLOOD TO PRODUCE THE CONTRACT QUANTITIES AND THAT THERE WAS NEVER FURNISHED A PRACTICABLE METHOD OF PROCESSING FRACTION IV, AS CALLED FOR BY ITEM 6 OF THE CONTRACT.

AS BEFORE INDICATED, THE QUANTITIES CALLED FOR BY THE LETTER CONTRACT WERE REDUCED BY THREE CHANGE ORDERS DATED, RESPECTIVELY, JUNE 10, 1946, NOVEMBER 1, 1946, AND AUGUST 4, 1947. BY THESE ORDERS THE ORIGINAL TOTAL CONTRACT PRICE WAS REDUCED FROM $330,860 TO $55,921.08.

SECTION 3 (B) OF THE GENERAL PROVISIONS OF THE CONTRACT PROVIDED AS FOLLOWS:

IF ANY CHANGE ORDER AFFECTS THE AMOUNT OR CHARACTER OF THE WORK TO BE DONE UNDER THIS CONTRACT OR THE TIME REQUIRED FOR ITS PERFORMANCE, OR OTHERWISE AFFECTS THE CONTRACTOR'S COST OF PERFORMANCE, THE CONTRACTOR MAY, AND AT THE REQUEST OF THE CONTRACTING OFFICER SHALL, SUBMIT TO THE CONTRACTING OFFICER A STATEMENT AS TO THE EFFECT OF SUCH CHANGE ORDER ON THE COST OF PERFORMING THE WORK AND A PROPOSAL FOR AN EQUITABLE INCREASE OR DECREASE IN CONTRACT PRICE AND FOR OTHER CHANGES IN THE CONTRACT TERMS. AT THE ELECTION OF THE CONTRACTOR, SUCH STATEMENT AND PROPOSAL MAY BE SUBMITTED ON A CUMULATIVE BASIS COVERING MORE THAN ONE CHANGE ORDER, BUT NO SUCH CUMULATIVE STATEMENT AND PROPOSAL MAY BE SUBMITTED LATER THAN FOUR MONTHS AFTER RECEIPT OF THE EARLIEST CHANGE ORDER COVERED BY THE STATEMENT AND PROPOSAL. UPON THE BASIS OF THE CONTRACTOR'S STATEMENT AND PROPOSAL AND ANY OTHER RELEVANT INFORMATION, AS EQUITABLE ADJUSTMENT IN THE CONTRACT PRICE AND IN SUCH OTHER PROVISIONS OF THIS CONTRACT AS MAY BE APPROPRIATE SHALL BE DETERMINED BY MUTUAL AGREEMENT BETWEEN THE CONTRACTOR AND THE CONTRACTING OFFICER AND SHALL BE SET FORTH IN AN AMENDMENT TO THIS CONTRACT. FAILURE TO AGREE TO SUCH ADJUSTMENT SHALL BE A DISPUTE CONCERNING A QUESTION OF FACT WITHIN THE MEANING OF THE SECTION OF THIS CONTRACT ENTITLED " DISPUTES.' UNLESS SUCH STATEMENT AND PROPOSAL ARE SUBMITTED WITHIN FOUR MONTHS FROM THE DATE OF RECEIPT OF THE CHANGE ORDER COVERED THEREBY OR WITHIN SUCH FURTHER TIME AS THE CONTRACTING OFFICER MAY ALLOW, NO INCREASE IN THE CONTRACT PRICE SHALL BE MADE.

THE RECORD DOES NOT INDICATE THAT THE CONTRACTOR MADE ANY EFFORT TO AVAIL ITSELF OF THE ABOVE PROVISIONS; ON THE CONTRARY, IT ACCEPTED ALL THE CHANGE ORDERS AS WRITTEN. IN VIEW OF THE FACT THAT THE TIME ORIGINALLY SPECIFIED FOR DELIVERY OF ITEMS 1 AND 2, WHICH MADE UP THE GREATER PART OF THE MATERIAL ACTUALLY FURNISHED UNDER THE CONTRACT, HAD ALL BUT EXPIRED AT THE DATE OF THE FIRST CHANGE ORDER, IT IS TO BE PRESUMED THAT THE COSTS OF PREPARATION FOR PERFORMANCE HAD BY THEN BEEN SUBSTANTIALLY ASCERTAINED, IF NOT ALREADY ACTUALLY INCURRED. THE FAILURE AT THAT POINT TO REQUEST PRICE ADJUSTMENT MAY HAVE BEEN DUE TO A MISUNDERSTANDING BY THE CONTRACTOR OF ITS CONTRACTUAL RIGHTS OR TO AN ERRONEOUS ASSUMPTION THAT THE TWO CONTRACTS WOULD BE RENEGOTIATED ON AN OVERALL BASIS. WHATEVER THE REASON, ITS FAILURE TO TAKE ADVANTAGE OF THE REMEDY PLAINLY PROVIDED FOR IN IT IN THE CONTRACT CONSTITUTES AN EFFECTIVE LEGAL BAR TO THE PRESENT CLAIM, WHICH IS, IN SUBSTANCE, FOR INCREASED UNIT PRICES BECAUSE OF ADDITIONAL COSTS RESULTING FROM THE CHANGES MADE.

IT IS FURTHER CONTENDED THAT THE CONTRACTOR IS ENTITLED TO RELIEF UNDER SECTIONS 17 AND 20 OF THE CONTRACT SETTLEMENT ACT OF JULY 1, 1944, 58 STAT. 665, 668. THIS OFFICE IS WITHOUT JURISDICTION TO GRANT RELIEF UNDER SAID ACT, ITS FUNCTIONS BEING NARROWLY RESTRICTED BY SECTION 16 THEREOF, 58 STAT. 664.

REFERENCE IS ALSO MADE TO RENEGOTIATION AGREEMENTS ENTERED INTO BETWEEN THE CONTRACTOR AND THE UNITED STATES UNDER THE RENEGOTIATION ACTS OF 1942, 56 STAT. 245, AND 1943, 57 STAT. 564. WITH RESPECT THERETO, THIS OFFICE IS ALSO WITHOUT JURISDICTION UNDER THOSE ACTS, BUT IT HAS BEEN UNIFORMLY HELD THAT SUCH AGREEMENTS CANNOT AFFECT THE DETERMINATION BY THIS OFFICE OF THE PROPRIETY OF PAYMENT OF AMOUNTS CLAIMED TO BE DUE UNDER FIXED PRICE CONTRACTS.

UPON THE WHOLE RECORD PRESENTED, IT IS CONCLUDED THAT THERE IS NO LEGAL BASIS FOR A DETERMINATION BY THIS OFFICE THAT THE GOVERNMENT IS INDEBTED TO THE CONTRACTOR UNDER CONTRACT NO. N-140S-70154A FOR ANY AMOUNT IN EXCESS OF THE CONTRACT PRICES; ACCORDINGLY, NO OFFSET MAY PROPERLY BE ALLOWED AGAINST THE INDEBTEDNESS OF THE CONTRACTOR FOR REFUND OF EXCESS PROFITS AS PROVIDED FOR BY CONTRACT NO. N-140S 71668A.