Settlement of Alleged Breach of Contract

B-191329: Sep 16, 1980

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An advance decision was requested as to the legality of paying for settlement of an alleged breach of contract between the National Park Service (NPS) and a utility. Whether GAO should consider the matter was also to be determined. NPS and the utility entered into an agreement under which the utility agreed to provide water service to a recreation area. Under the agreement, the utility was to construct a water line from its water lines outside the recreation area to the area's boundary, and was solely responsible for maintenance, repair, and replacement of the line and any necessary equipment, facilities, and pumps. The Government was to pay for the actual cost of construction. Additionally, the agreement provided that NPS purchase and pay for water service furnished in accordance with the Water District's applicable rate schedules or a minimum charge of $50.00 per month, whichever was greater. NPS could terminate the agreement by giving notice to the Water District at least 90 days prior to the effective date of termination. NPS continued to pay the monthly minimum fee for 9 years after the water system went into effect, but did not use the lines because the area's water needs did not materialize as anticipated. When the contract was terminated, the NPS proposed settlement was accepted by the utility. However, the utility maintained that NPS breached the contract by failing to construct a connecting line within the area so that it could purchase water from the facility. GAO considered the case because both parties had not agreed that a breach of contract occurred, or that the settlement would be final without further review. Regarding the NPS liability for the alleged breach of contract, GAO found that it was clear that NPS agreed only to pay for water actually furnished, or a $50.00 monthly charge. Since NPS did in fact pay the monthly charge over the life of the contract, GAO believed it fulfilled any obligation to purchase and pay for water which arguably existed under the contract. It was held that by reimbursing the utility for the cost of constructing the water line, paying the monthly minimum charge as agreed, and terminating the agreement as provided in the contract, NPS fully discharged all of the obligations required of it under the terms of the contract. No grounds for additional payment existed.