B-114807, JUN. 6, 1958

B-114807, JUN. 6, 1958

TO E. J. LAVINO AND COMPANY:

THE GENERAL SERVICES ADMINISTRATION HAS REFERRED TO OUR OFFICE THE MATTER OF YOUR REFUSAL TO PAY THE SUM OF $30,518.83, REQUESTED ON BILL NO. 001660 DATED FEBRUARY 4, 1958, AS A REFUND DUE THE GOVERNMENT FOR OVERPAYMENTS IN CONNECTION WITH THE DELIVERY OF APPROXIMATELY 654,000 LONG DRY TONS OF REFRACTORY GRADE CHROMIUM ORE BY YOUR COMPANY UNDER CONTRACT NO. GS-OOP- 373/SCM) DATED MARCH 26, 1951, AS AMENDED.

THE CONTRACT PROVIDED FOR DELIVERY C.I.F. U.S. PACIFIC AND/OR ATLANTIC PORTS OF ORE EXPORTED FROM THE PHILIPPINE ISLANDS, WITH THE SELECTION OF THE PORT OF DELIVERY BEING AT THE OPTION OF THE GOVERNMENT. THE PRICES PAYABLE FOR THE ORE WERE TO BE DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF ARTICLE 6 OF THE CONTRACT AND IT WAS PROVIDED IN ARTICLE 8 THAT THE COST OF SAMPLING AND ANALYSIS WOULD BE "DIVIDED EQUALLY BY BOTH PARTIES.' SO FAR AS THE MATTER NOW IN CONTROVERSY IS CONCERNED, ARTICLES 6 AND 8 OF THE CONTRACT CONTAIN THE FOLLOWING PERTINENT PROVISIONS:

"6. PRICE

"* * *. THE PRICE SHALL INCLUDE THE COST OF THE MATERIAL (THE PRICE THE CONTRACTOR PAYS TO ITS SUPPLIER, BENQUET CONSOLIDATED MINING COMPANY), FREIGHT, INSURANCE, AND CONTRACTOR'S FIXED FEE, AS MORE FULLY DESCRIBED BELOW.

"A. COST OF MATERIAL:

"THE PRICE PAID BY THE CONTRACTOR FOR THE MATERIAL MAY VARY EACH 6 (SIX) MONTHS PERIOD * * *. EVIDENCE OF SUCH PRICE PAID SHALL BE A DUPLICATE SIGNED ORIGINAL OR PHOTOSTAT COPY OF THE SIGNED ORIGINAL OF THE CONTRACTOR'S SUPPLIER'S WRITTEN NOTICE SPECIFYING THE FIGURE APPLICABLE DURING THE SIX-MONTHS PERIOD INVOLVED, ACCOMPANIED BY A DUPLICATE SIGNED ORIGINAL OR PHOTOSTAT COPY OF THE SIGNED ORIGINAL OF THE CONTRACTOR'S WRITTEN ACKNOWLEDGMENT. THE COST OF THE MATERIAL FOR THE FIRST SIX-MONTHS PERIOD, JANUARY 1, 1951 THROUGH JUNE 30, 1951, IS $12.00 PER LONG DRY TON, F.O.B. VESSEL, MASINLOC, PHILIPPINE ISLANDS, THE PRICE PAID BY THE CONTRACTOR TO ITS SUPPLIER FOR THE MATERIAL TO BE SHIPPED TO THE GOVERNMENT, HEREUNDER, SHALL NOT EXCEED THE PRICE THE CONTRACTOR PAYS TO ITS SUPPLIER FOR SIMILAR MATERIAL FOR ITS OWN CONSUMPTION OR FOR RESALE TO ITS COMMERCIAL CUSTOMERS AND IN NO EVENT SHALL EXCEED $25.00 PER LONG DRY TON, F.O.B. VESSEL, PHILIPPINE ISLANDS.

"D. FIXED FEE:

"CONTRACTOR'S FEE SHALL BE $0.60 PER LONG DRY TON WHICH FEE SHALL REMAIN FIXED FOR THE DURATION OF THE CONTRACT.

"8. SAMPLING AND ANALYSIS:

"SAMPLING AND ANALYSIS SHALL BE MADE BY A PUBLIC SAMPLER-ANALYST IN THE UNITED STATES WHO SHALL BE AGREED UPON BY BOTH PARTIES TO THE CONTRACT WITH THE COST OF SUCH SAMPLING AND ANALYSIS TO BE DIVIDED EQUALLY BY BOTH PARTIES. * * * IT SHALL BE MUTUALLY ARRANGED AS TO THE MANNER OF PAYMENT FOR THIS SERVICE. IF IT SHOULD BE AGREED THAT THE CONTRACTOR SHOULD PAY FOR THIS SERVICE, ONE HALF OF SUCH CHARGE SHALL BE BILLED AS A SEPARATE ITEM ON THE FINAL INVOICE FOR EACH SHIPMENT, ACCOMPANIED BY A PAID RECEIPT OF THE BILL. IF IT SHOULD BE AGREED THAT THE GOVERNMENT SHOULD PAY FOR THIS SERVICE, A COPY OF THE BILLING SHALL BE FURNISHED TO THE CONTRACTOR AND ONE HALF OF SUCH COST SHALL BE DEDUCTED FROM THE CONTRACTOR'S BILLING FOR THE MATERIAL (FINAL INVOICE ON EACH SHIPMENT).'

IT APPEARS TO HAVE BEEN AGREED THAT YOUR COMPANY WOULD PAY THE COST OF SAMPLING AND ANALYSIS. IN ANY EVENT, THE GOVERNMENT WAS BILLED FOR AND PAID A TOTAL OF $30,519.01 AS ITS SHARE OF SUCH COSTS. HOWEVER, AUDITS CONDUCTED BY OUR CIVIL ACCOUNTING AND AUDITING DIVISION AND BY THE AUDIT DIVISION, OFFICE OF THE COMPTROLLER, GENERAL SERVICES ADMINISTRATION, DISCLOSED THAT YOUR COMPANY RECOVERED ITS SHARE OF SUCH COSTS BY DEDUCTING ONE-HALF OF THE COSTS FOR SAMPLING AND ANALYSIS FROM PAYMENTS MADE TO YOUR SUPPLIER, AND THEN BILLING THE GOVERNMENT FOR THE GROSS PRICE OF THE ORE WITHOUT DEDUCTION OF THE SAMPLING AND ANALYSIS COST. THUS, THE TOTAL APPROXIMATE COST OF $61,037.84 FOR SAMPLING AND ANALYSIS APPEARS TO HAVE BEEN RECOVERED BY YOUR COMPANY FROM THE GOVERNMENT THROUGH PAYMENT OF THE SEPARATE CLAIMS FOR $30,519.01 AND PAYMENT ON YOUR INVOICES COVERING REIMBURSEMENT FOR THE BASIC COST OF THE ORE OF AN AMOUNT WHICH IS $30,518.83 IN EXCESS OF THAT PAID TO YOUR SUPPLIER. THE AUDITS FURTHER INDICATED THAT YOU WERE PAID A TOTAL OF $16,290,646.34 UNDER THE CONTRACT, INCLUDING $9,703,867.23 AS THE BASIC ORE COST AND $392,225.30 AS A FIXED FEE COMPUTED AT THE RATE OF $0.60 PER LONG DRY TON.

BILLING NO. 001660, REQUESTING A REFUND OF THE SUM OF $30,518.83, WAS RETURNED TO THE GENERAL SERVICES ADMINISTRATION BY YOUR LETTER DATED FEBRUARY 19, 1958, IN WHICH YOU STATED THAT THE CONTRACT CONTEMPLATED DELIVERY AT THE SAME COST TO THE GOVERNMENT AS INDUSTRY WOULD PAY DURING THE VARIOUS DELIVERY PERIODS, WITH THE SOLE EXCEPTION OF YOUR FIXED FEE WHICH WAS ADDED. IT WAS ALLEGED THAT IT HAS ALWAYS BEEN KNOWN THAT THE BENQUET CONSOLIDATED MINING COMPANY ABSORBED ONE HALF OF THE SAMPLING AND ANALYSIS COSTS AND THAT IT HAS ALWAYS BEEN KNOWN THAT THE BENGUET CONSOLIDATED MINING THE SUPPLIERS PAY ONE-HALF AND THE FINAL RECEIVERS THE BALANCE. IT WAS STATED THAT YOU FURNISHED EVIDENCE AS TO ALL COSTS INCLUDED IN YOUR BILLS AND THAT FINAL DELIVERY UNDER THE CONTRACT WAS MADE NEARLY TWO YEARS AGO.

THE BILLING WAS AGAIN FORWARDED TO YOUR COMPANY BY LETTER DATED MARCH 5, 1958, WHICH IS, IN PERTINENT PART, AS FOLLOWS:

"ALTHOUGH YOUR LETTER POINTS OUT THAT IT IS NORMAL PRACTICE TO DEDUCT ONE -HALF OF THE SAMPLING AND ANALYSIS CHARGES FROM THE PRICE PAID TO YOUR SUPPLIER, WE BELIEVE THAT, IN VIEW OF THE PRICE LIMITATION PROVISIONS OF ARTICLE 6 OF THE CONTRACT, THE CREDIT OF $30,518.83 AGAINST THE BASE PURCHASE PRICE, RECEIVED BY YOU FROM YOUR SUPPLIER, SHOULD HAVE BEEN PASSED ON TO THE GOVERNMENT.

"YOU ALSO ADVISED THAT YOU FURNISHED EVIDENCE AS TO ALL COSTS INCLUDED IN YOUR BILLS. IT IS OUR CONCLUSION THAT THE SUPPLIER'S WRITTEN NOTICE IS EVIDENCE ONLY OF THE PRICE APPLICABLE TO EACH SUCCEEDING SIX-MONTHS' PERIOD AND IS NOT DETERMINATIVE SINCE IT WAS FURNISHED IN ADVANCE.'

BY LETTER DATED APRIL 2, 1958, YOUR COMPANY AGAIN DENIED ANY LIABILITY TO THE GOVERNMENT AND STATED THAT THE GOVERNMENT'S CLAIM IS ENTIRELY LACKING IN EQUITY. IT WAS ARGUED THAT THE PRICE PAID BY THE GOVERNMENT TO LAVINO WAS NOT SUBJECT TO THE DEDUCTION OF ANY PART OF THE COST OF SAMPLING AND ANALYSIS PROVIDED FOR IN ARTICLE 8 OF THE CONTRACT; THAT SUCH ARTICLE MERELY PROVIDES WHAT PORTION OF THE PUBLIC SAMPLER-ANALYST COST SHALL BE PAID BY THE GOVERNMENT AND LAVINO; THAT LAVINO PAID THE ENTIRE COST OF SAMPLING AND ANALYSIS AND, WHEN IT WAS REIMBURSED FOR ONE-HALF ON THIS COST BY THE GOVERNMENT AND THE OTHER HALF BY THE SUPPLIER, LAVINO SIMPLY RECOUPED ITS OUTLAY SO THAT IT WAS IN NO WAY ENRICHED BY THE AMOUNT PAID BY THE SUPPLIER; THAT THE COST OF SAMPLING AND ANALYSIS WAS NOT A PART OF THE PRICE AS DEFINED IN ARTICLE 6; AND THAT IF THE PARTIES HAD CONTEMPLATED THAT SUCH COST WAS TO BE AN ELEMENT IN THE PRICE TO BE PAID TO THE CONTRACTOR, ARTICLE 6 SHOULD HAVE SO PROVIDED.

IT IS FURTHER ARGUED THAT THE COST LIMITATIONS OF SUBPARAGRAPH A OF ARTICLE 6 OF THE CONTRACT DO NOT SUPPORT THE GOVERNMENT'S CLAIM FOR A REFUND OF SAMPLING AND ANALYSIS COST AND STATED THAT IN EACH SIX MONTHS PERIOD LAVINO PAID ITS SUPPLIER, BENGUET CONSOLIDATED MINING COMPANY, THE SAME PRICE FOR ORE SOLD TO THE GOVERNMENT AS IT PAID FOR ORE WHICH LAVINO ITSELF CONSUMED OR SOLD TO COMMERCIAL CUSTOMERS. THE OPINION IS EXPRESSED THAT THE LETTER OF MARCH 5, 1958, FROM THE GENERAL SERVICES ADMINISTRATION, CONFUSES THE PRICE PAID BY THE GOVERNMENT TO THE CONTRACTOR WITH THE PRICE PAID BY THE CONTRACTOR TO ITS SUPPLIER.

WE BELIEVE THAT REFERENCE IN THE LETTER OF MARCH 5, 1958, TO THE PRICE LIMITATIONS OF ARTICLE 6 OF THE CONTRACT WAS INTENDED ONLY TO ADVISE YOUR COMPANY THAT, AS DISTINGUISHED FROM AN ORDINARY COMMERCIAL TRANSACTION, THE GOVERNMENT HAD AGREED IN ARTICLE 6 TO REIMBURSE YOU FOR THE BASIC COST OF THE MATERIAL, INCLUDING THE PRICE PAID TO YOUR SUPPLIER, FREIGHT AND INSURANCE COST, AND TO PAY A FIXED FEE OF $0.60 PER LONG DRY TON OF ORE DELIVERED. THE FACT THAT CERTAIN LIMITATIONS WERE PLACED ON THE PRICES WHICH YOU COULD PAY TO YOUR SUPPLIER AND CLAIM FULL REIMBURSEMENT THEREFOR FROM THE GOVERNMENT IS NOT CONSIDERED TO BE RELEVANT TO THE QUESTION AS TO WHETHER THE GOVERNMENT IS ENTITLED TO AN ADJUSTMENT UNDER THE PROVISIONS OF ARTICLE 8 OF THE CONTRACT WHICH PROVIDES SPECIFICALLY THAT THE COST OF SAMPLING AND ANALYSIS WOULD BE DIVIDED EQUALLY BY BOTH PARTIES.

THE TERM "BOTH PARTIES" OBVIOUSLY MEANT THE GOVERNMENT AND E. J. LAVINO AND COMPANY AND NOT THE GOVERNMENT AND YOUR SUPPLIER, THE BENGUET CONSOLIDATED MINING COMPANY. ALSO, SO FAR AS THE ENFORCEMENT OF THE SAMPLING AND ANALYSIS COST PROVISIONS OF ARTICLE 8 IS CONCERNED, IT IS OBVIOUS THAT IT SHOULD MAKE NO DIFFERENCE WHETHER OR NOT ANY REFERENCE WAS MADE TO SUCH COSTS IN ARTICLE 6 OR THAT A FIXED FEE OF $0.60 PER LONG DRY TON WAS AGREED TO BE PAID TO YOUR COMPANY IN ADDITION TO REIMBURSEMENT FOR THE BASIC COST OF THE ORE WHICH WAS TO INCLUDE ONLY THE PRICE PAID TO YOUR SUPPLIER, PLUS ALLOWABLE FREIGHT AND INSURANCE CHARGES.

IT IS WELL SETTLED THAT A CONTRACT SHOULD BE INTERPRETED TO GIVE EFFECT TO ALL ITS PROVISIONS, WHEREVER POSSIBLE, WITHOUT VIOLATING THE PLAIN LANGUAGE OF THE CONTRACT OR THE CLEAR INTENT OF THE PARTIES. BRODERICK WOOD PRODUCT COMPANY V. UNITED STATES, 195 F.2D 433. THE FIXED FEE PROVIDED FOR IN THE INSTANT CONTRACT APPEARS TO HAVE BEEN MORE THAN SUFFICIENT TO HAVE WARRANTED AN AGREEMENT ON THE PART OF YOUR COMPANY TO ABSORB ALL OR AT LEAST ONE-HALF OF THE SAMPLING AND ANALYSIS COSTS, AND WE DO NOT FEEL THAT IT IS UNREASONABLE TO INTERPRET ARTICLE 8 AS CONSTITUTING SUCH AN AGREEMENT. IN ADDITION TO PROVIDING THAT SUCH COSTS WOULD BE DIVIDED EQUALLY BY BOTH PARTIES, ARTICLE 8 PROVIDED FOR A SEPARATE BILLING TO THE GOVERNMENT FOR ONE HALF OF THE COST OF SAMPLING AND ANALYSIS IF YOU PAID FOR THE SERVICE AND FOR THE GOVERNMENT TO DEDUCT ONE-HALF OF THE COST OF SAMPLING AND ANALYSIS FROM YOUR BILLING FOR THE MATERIAL IF IT PAID FOR SUCH SERVICE.

SO INTERPRETED, THE LANGUAGE OF ARTICLE 8 CLEARLY NEGATIVES ANY SUGGESTION THAT YOUR COMPANY WOULD BE ENTITLED TO RECOUP ITS SHARE OF THE COST OF SAMPLING AND ANALYSIS THROUGH THE PROCESS OF OBTAINING ADJUSTMENTS FROM YOUR SUPPLIER AND THEN BILLING THE GOVERNMENT FOR THE GROSS PRICES OF THE ORE. IT FOLLOWS THAT, AS CONTENDED BY THE GENERAL SERVICES ADMINISTRATION, THE CREDITS THAT YOU RECEIVED FROM YOUR SUPPLIER SHOULD HAVE BEEN PASSED ON TO THE GOVERNMENT, PARTICULARLY SINCE THE GOVERNMENT WAS BILLED SEPARATELY FOR ITS SHARE OF THE SAMPLING AND ANALYSIS COSTS.

ACCORDINGLY, YOU ARE HEREBY REQUESTED TO REMIT TO OUR OFFICE THE AMOUNT OF $30,518.83 BY CERTIFIED CHECK MADE PAYABLE TO THE U.S. GENERAL ACCOUNTING OFFICE AND FORWARDED TO THE FOLLOWING ADDRESS: U.S. GENERAL ACCOUNTING OFFICE, P.O. BOX 2610, WASHINGTON 13, D.C. IF SUCH PAYMENT HAS NOT BEEN RECEIVED WITHIN 30 DAYS FROM THE DATE OF THIS LETTER, THE MATTER WILL BE REFERRED TO THE DEPARTMENT OF JUSTICE FOR THE INSTITUTION OF APPROPRIATE COLLECTION PROCEEDINGS.