B-152033, MAY 27, 1964

B-152033, MAY 27, 1964

TO THE SECRETARY OF THE ARMY:

THIS IS IN REFERENCE TO LETTER DATED APRIL 17, 1964, FROM THE ACTING ASSISTANT SECRETARY OF THE ARMY (FINANCIAL MANAGEMENT) WITH REGARD TO OUR LETTER OF JANUARY 3, 1964, B-152033, IN WHICH WE INFORMED THE SECRETARY OF THE ARMY THAT A CONTRACT FOR MOTOR GRADERS WHICH HAD BEEN AWARDED TO THE GALION IRON WORKS AND MANUFACTURING COMPANY ON JUNE 29, 1963, AT A PRICE OF $144,298, SHOULD BE CANCELLED AND AWARDED TO LETOURNEAU-WESTINGHOUSE IF SUCH COMPANY IS WILLING TO ACCEPT AN AWARD AT ITS ORIGINAL BID PRICE. IS REPORTED THAT LETOURNEAU-WESTINGHOUSE IS WILLING TO ACCEPT AN AWARD AT ITS ORIGINAL BID PRICE, BUT A QUESTION HAS ARISEN AS TO THE SOURCE OF FUNDS THAT MAY BE USED FOR THE PROCUREMENT.

IT IS STATED THAT THE ORIGINAL CONTRACT TO THE GALION IRON WORKS AND MANUFACTURING COMPANY OBLIGATED FUNDS OF THE APPROPRIATION OPERATION AND MAINTENANCE FOR THE FISCAL YEAR 1963; THAT THE GRADERS WERE A REQUIREMENT OF THAT FISCAL YEAR; AND THAT NO FUNDS TO COVER THEIR PURCHASES WERE INCLUDED IN THE FISCAL YEAR 1964 BUDGET. THE QUESTION PRESENTED FOR OUR DECISION IS WHETHER FISCAL YEAR 1963 FUNDS MAY BE USED FOR THE AWARD TO LETOURNEAU-WESTINGHOUSE, IT BEING STATED THAT DOUBT ARISES BECAUSE OF OUR DECISION OF SEPTEMBER 8, 1958, 38 COMP. GEN. 190, IN WHICH IT WAS SAID THAT WHERE THE ORIGINAL AWARD HAD BEEN DETERMINED INVALID, NO OBLIGATION WAS CREATED IN THE FIRST INSTANCE AND THE FUNDS COULD NOT BE REGARDED AS AVAILABLE FOR OBLIGATION IN A SUBSEQUENT FISCAL YEAR.

IN PRESENTING THE QUESTION FOR OUR DECISION THE ACTING ASSISTANT SECRETARY'S LETTER STATES:

"IT IS BELIEVED THAT A DISTINCTION EXISTS IN THE GALION CASE, SINCE YOUR LETTER OF 3 JAN. 1964, INDICATES THAT THE CONTRACTING OFFICER WAS JUSTIFIED IN REJECTING THE BID OF LETOURNEAU-WESTINGHOUSE. FURTHER, IT DID NOT STATE THAT THE GALION CONTRACT MUST BE CANCELLED IN THE EVENT THAT LETOURNEAU-WESTINGHOUSE WAS UNRECEPTIVE TO AN AWARD AT ITS ORIGINAL BID PRICE. IT APPEARS THAT YOUR LETTER TAKES THE POSITION THAT THE GALION CONTRACT WAS NOT VOID BUT VOIDABLE AT THE OPTION OF THE GOVERNMENT, AND ACCORDINGLY, THAT THE GALION CONTRACT CREATED A VALID, BINDING AND RECORDABLE OBLIGATION SUCH THAT FY 1963 FUNDS CITED IN THE GALION CONTRACT WERE MADE APPLICABLE IN THE SENSE OF 31 U.S.C. 712A "TO THE PAYMENT OF EXPENSES PROPERLY INCURRED, OR TO THE FULFILLMENT OF CONTRACTS PROPERLY MADE WITHIN THAT YEAR.' UNTIL THE GOVERNMENT EXERCISES ITS OPTION TO VOID THE GALION CONTRACT, THE FUNDS CITED REMAIN AVAILABLE, WITHIN THE USUAL LIMITATIONS UPON DISBURSEMENTS, FOR PAYMENT TO GALION. GALION WOULD BE PAID UPON DELIVERY, ACCEPTANCE AND INVOICE FOR ROAD GRADERS IN ACCORDANCE WITH THE PROVISIONS OF CONTRACT. THE OBLIGATION OF FUNDS WAS INCURRED IN FISCAL YEAR 1963 FOR THE SPECIFIC PURPOSE OF MEETING PARTICULAR REQUIREMENTS FOR ROAD GRADERS WHICH STILL EXIST.

"IT WOULD APPEAR THAT A CONTRACT CREATED DURING A PARTICULAR FISCAL YEAR WHICH IS VOIDABLE AT THE OPTION OF THE GOVERNMENT IS AN "EXPENSE PROPERLY INCURRED" OR ONE OF "CONTRACTS PROPERLY MADE WITHIN THAT YEAR" IN THE SENSE AND FOR THE PURPOSES OF 31 U.S.C. 712A. IF AN AWARD TO LETOURNEAU- WESTINGHOUSE IS SUBSTITUTED FOR THE AWARD TO GALION IT WILL BE UPON AN OFFER TO CONTRACT TENDERED IN FISCAL YEAR 1963, MADE IN RESPONSE TO THE SAME INVITATION FOR BIDS, FOR A REQUIREMENT OF THAT FISCAL YEAR, CONTEMPLATING THE OBLIGATION OF FUNDS OF THAT FISCAL YEAR.

HAD THE GALION CONTRACT BEEN INVALID, ON THE OTHER HAND, THIS PROCEDURE WOULD NOT HAVE BEEN POSSIBLE; A NEW PROCUREMENT ACTION USING FISCAL YEAR 1964 FUNDS WOULD HAVE BEEN NECESSARY. ,FULFILLMENT" OF A CONTRACT IS NOT A WORD OF LEGAL ART WITH THE LIMITING EFFECT OF EVEN SO BROAD A TERM AS "DISCHARGE.' THE CONTRACT FOR ROAD GRADERS MAY BE FULFILLED IN AY WAY WHICH DISPOSES OF ITS OBLIGATION. SUBSTITUTION OF LETOURNEAU-WESTINGHOUSE FOR GALION IS IN THE SENSE OF 31 U.S.C. 712A A FULFILLMENT OF A CONTRACT PROPERLY MADE WITHIN FISCAL YEAR 1963 AND THE FISCAL YEAR 1963 FUNDS PREVIOUSLY OBLIGATED BY THE CONTRACT WITH GALION MAY BE APPLIED TO A SUBSTITUTED CONTRACT WITH LETOURNEAU WESTINGHOUSE. TO HOLD OTHERWISE WOULD APPEAR TO FRUSTRATE THE PURPOSES OF THE FISCAL YEAR 1963 APPROPRIATION. SINCE NO FISCAL YEAR 1964 FUNDS ARE AVAILABLE, IT WILL NOT BE POSSIBLE TO AWARD A CONTRACT TO LETOURNEAU-WESTINGHOUSE IF FISCAL YEAR 1963 FUNDS MAY NOT BE ED.'

AS ABOVE-STATED, OUR DECISION OF JANUARY 3, 1964, B-152033, AUTHORIZED THE CANCELLATION OF THE GALION CONTRACT IF THE PROTESTING BIDDER WAS STILL WILLING TO ACCEPT AWARD AT ITS BID PRICE. THIS AUTHORIZATION WAS BASED UPON THE CONCLUSION THAT THE CONTRACT WAS LEGALLY DEFECTIVE IN SUCH A WAY AS TO RENDER IT VOIDABLE AT THE ELECTION OF THE GOVERNMENT. SINCE A VOIDABLE CONTRACT IS VALID AND BINDING UNTIL IT IS AVOIDED BY THE PARTY ENTITLED TO AVOID IT, IT IS CONCLUDED THAT A VALID OBLIGATION EXISTED ON JUNE 30, 1963, AGAINST THE 1963 FISCAL YEAR APPROPRIATION, WITHIN THE MEANING OF SECTION 1311 OF THE SUPPLEMENTAL APPROPRIATION ACT OF 1955, 68 STAT. 830, 31 U.S.C. 200.

WE WILL THEREFORE RAISE NO OBJECTION IN THIS CASE TO THE USE OF THE FISCAL YEAR 1963 APPROPRIATION FOR THE PROCUREMENT OF THE ROAD GRADERS FROM LETOURNEAU-WESTINGHOUSE, SUCH PROCUREMENT BEING FOR THE PURPOSE OF FULFILLMENT OF THE CONTRACT ENTERED INTO IN SAID FISCAL YEAR.