JULY 15, 1921, 1 COMP. GEN. 18

JULY 15, 1921, 1 COMP. GEN. 18

INCREASE IN FREIGHT RATES WHERE PRIOR TO CANVASSING BIDS FOR FURNISHING MATERIAL TO BE USED IN THE CONSTRUCTION OF A RIVER AND HARBOR IMPROVEMENT THE GOVERNMENT REQUESTED RAILROAD COMPANIES TO QUOTE WHAT THE TARIFF RATES WOULD BE ON MATERIAL OFFERED BY THE BIDDERS, AND THE RAILROAD COMPANIES QUOTED THE PUBLISHED COMMERCIAL TARIFF RATES IN FORCE AT THAT TIME WITH LAND-GRANT DEDUCTIONS WHEN APPLICABLE, WHICH WERE ACCEPTED BY THE GOVERNMENT, NO SUCH CONTRACTUAL RELATION EXISTED AS TO OBLIGATE THE RAILROAD COMPANIES TO CONTINUE TO SHIP THE MATERIAL AT THE QUOTED RATES THROUGHOUT THE ENTIRE TIME THE IMPROVEMENT WAS IN COURSE OF CONSTRUCTION, BUT THE RAILROAD COMPANIES WERE ENTITLED TO ANY INCREASE IN TARIFF RATES AUTHORIZED BY THE INTERSTATE COMMERCE COMMISSION.

COMPTROLLER GENERAL MCCARL TO THE SECRETARY OF WAR, JULY 15, 1921:

I HAVE YOUR LETTER OF JULY 6, 1921, TRANSMITTING PAPERS IN REFERENCE TO THE GOVERNMENT'S LIABILITY TO PAY AN ADVANCED FREIGHT RATE UPON CERTAIN STONE USED IN THE CONSTRUCTION OF SILT DIVERSION WORKS FOR THE PROTECTION OF LOS ANGELES AND LONG BEACH HARBORS, AUTHORIZED BY THE RIVER AND HARBOR ACTS OF JULY 27, 1916, 39 STAT., 391, 404, AND MARCH 2, 1919, 40 STAT., 1284.

IN THE SPECIFICATIONS FOR THE SAID WORKS WAS A PROVISION AS FOLLOWS:

THE PRICES BID FOR STONE WILL INCLUDE ALL EXPENSE OF FURNISHING AND PLACING IT, EXCEPTING RAILROAD FREIGHT CHARGES FROM THE QUARRY TO THE RAILROAD STATION OR SIDETRACK NEAREST THE WORK. IF THE TRANSPORTATION IS OVER LINES ON WHICH THE GOVERNMENT IS ENTITLED TO REDUCED RATES, THE STONE WILL BE TAKEN OVER AT THE QUARRY AND TRANSPORTED ON GOVERNMENT BILLS OF LADING, AND IF NO REDUCED RATE IS AVAILABLE TO THE GOVERNMENT THE CONTRACTOR WILL HANDLE THE TRANSPORTATION AND BE REIMBURSED FOR ITS COST, NOT INCLUDING ANY DEMURRAGE FOR WHICH HE MAY BE RESPONSIBLE. EACH BIDDER WILL STATE THE LOCATION OF THE QUARRY OR QUARRIES FROM WHICH IT IS PROPOSED TO OBTAIN THE STONE, AND THE COST TO THE UNITED STATES FOR ITS TRANSPORTATION WILL BE CONSIDERED AS A FACTOR IN MAKING AWARD. HE WILL ALSO SUBMIT SAMPLES OF STONE FROM EACH QUARRY NAMED. SUITABLE STONE IS AVAILABLE AT SEVERAL PRIVATELY OWNED QUARRIES AND BIDDERS MAY ALSO BE ABLE TO PROCURE IT FOR SUCH A PUBLIC WORK AT A QUARRY OWNED BY THE LOS ANGELES COUNTY FLOOD CONTROL DISTRICT OR AT A QUARRY OPERATED BY THE CITY OF LOS ANGELES AT CATALINA ISLAND.

IT APPEARS THAT PRIOR TO CANVASSING THE BIDS FOR THIS STONE THE DISTRICT ENGINEER WROTE TO EACH OF THE RAILROADS CONCERNED TO LEARN WHAT WOULD BE THE FREIGHT RATES UPON THE STONE OFFERED BY THE BIDDER, AND RATES WERE QUOTED BY THE SOUTHERN PACIFIC CO. UPON STONE FROM DECLEZ, CALIF., FROM WHICH PLACE ALL THE STONE USED ON THE WORKS HAS BEEN SHIPPED. THE COMMUNICATION OF THE DISTRICT ENGINEER TO THE RAILROAD COMPANIES STATES:

YOU ARE REQUESTED TO QUOTE THE FREIGHT CHARGE YOU WOULD MAKE CONSIDERING THE LAND-GRANT STATUS OF A PORTION OF THE ROUTE AND THAT THE STONE IS FOR A FEDERAL PROJECT FOR HARBOR PROTECTION.

THE COMPANY ON JULY 22, 1919, QUOTED THE PUBLISHED COMMERCIAL TARIFF RATE ON STONE RIP-RAP, CARLOAD, EFFECTIVE AT THE TIME FROM DECLEZ TO ELFTMAN, CALIF., AT 80 CENTS PER TON OF 2,000 POUNDS, AND FROM DECLEZ TO LONG BEACH AT $1 PER TON OF 2,000 POUNDS, MINIMUM CARLOAD WEIGHT 60,000 POUNDS, AS PUBLISHED IN SOUTHERN PACIFIC TARIFF 230-B, I.C.C. 3891. THE RATES THUS QUOTED WERE IN EFFECT ONE YEAR, ONE MONTH, AND THREE DAYS AFTER THE QUOTATION, WHEN THEY WERE INCREASED ON AUGUST 26, 1920, BY ORDER OF THE INTERSTATE COMMERCE COMMISSION IN ORDER "EX PARTE 74" DATED JULY 29, 1920, PURSUANT TO THE PROVISIONS OF SECTION 15 A OF THE INTERSTATE COMMERCE ACT TO INCREASE THE FREIGHT REVENUE OF CARRIERS BY RAIL TO A BASIS THAT WOULD ENABLE THEM TO EARN AN AGGREGATE ANNUAL NET RAILWAY OPERATING INCOME AS NEARLY AS MAY BE TO 6 PERCENT UPON THE AGGREGATE VALUE OF THE RAILWAY PROPERTY OF SUCH CARRIERS.

THE QUESTION IS RAISED WHETHER THE INCREASED FREIGHT RATES WHICH INVOLVE THE DISBURSING OF PUBLIC MONEY CAN BE ALLOWED, AND WHETHER IT MAY BE HELD THAT A CONTRACTUAL RELATION BECAME ESTABLISHED FOR FREIGHT RATES ON STONE TO BE SHIPPED TO THE SILT DIVERSION WORKS BY THE ACCEPTANCE BY THE GOVERNMENT OF THE RATE ORIGINALLY QUOTED ON BEHALF OF THE RAILROAD COMPANY WHICH WOULD PRESERVE THE ORIGINAL RATES THROUGHOUT THE DURATION OF THE CONSTRUCTION WORK WHICH IS NOW NEARLY COMPLETED, IT APPEARING THAT ABOUT 30 PERCENT OF THE STONE REQUIRED HAD BEEN SHIPPED PRIOR TO THE INCREASE IN FREIGHT RATES.

THE RATES FROM DECLEZ, CALIF., TO ELFTMAN AND LONG BEACH OF 80 CENTS AND $1 PER TON, RESPECTIVELY, WERE RATES MADE EFFECTIVE JUNE 25, 1918, HAVING SUPERSEDED THE LOWER RATES THAT BECAME EFFECTIVE DECEMBER 31, 1913. THE RATES THAT BECAME EFFECTIVE JUNE 25, 1918, WERE INCREASED AUGUST 26, 1920, FROM DECLEZ TO ELFTMAN AND LONG BEACH, TO $1 AND $1.30 PER TON, RESPECTIVELY. THESE RATES ARE SUBJECT TO LAND-GRANT DEDUCTION, NO QUESTION BEING RAISED ON ACCOUNT OF SAID DEDUCTION. THERE APPEARS TO HAVE BEEN NO AGREEMENT WITH THE CARRIERS THAT THE RATE NAMED FOR THE TRANSPORTATION SERVICE, WHICH WAS THE REGULAR COMMERCIAL RATE WHICH ON ACCOUNT OF GOVERNMENT BUSINESS WAS SUBJECT TO LAND-GRANT DEDUCTION, WOULD BE MAINTAINED UNTIL ALL DELIVERIES HAD BEEN MADE. THE QUOTATION WAS MERELY THE QUOTATION OF THE TARIFF RATE AND THE TARIFF RATE WAS INCREASED BY ORDER OF THE INTERSTATE COMMERCE COMMISSION. THERE THUS APPEARS TO BE NO OBLIGATION ON THE PART OF THE CARRIER TO MAINTAIN THE LOWER RATE ON ACCOUNT OF THE GOVERNMENT SHIPMENT. THERE APPEARS TO BE NOTHING IN THE ARRANGEMENT REQUIRING THE RAILROAD COMPANY TO MAINTAIN THE RATES FIRST QUOTED, AND IN VIEW OF THE INCREASED RATE BEING DULY AUTHORIZED BY GOVERNMENT AUTHORITY--- NAMELY, THE INTERSTATE COMMERCE COMMISSION--- AND NOT BY THE VOLITION OF THE CARRIER, THERE APPEARS TO BE NO REASON WHY PAYMENT AT THE INCREASED RATE SHOULD NOT BE MADE. PAYMENT IN ACCORDANCE WITH THE EFFECTIVE TARIFF RATE AT THE TIME OF THE SERVICE, WITH PROPER LAND GRANT DEDUCTION THEREFROM, MAY THEREFORE BE MADE.