B-161559, NOV. 28, 1967

B-161559, NOV. 28, 1967

CONTRACTS - DELIVERIES - EXCESS DECISION TO PHILLIPS-VAN HEUSEN CORPORATION REAFFIRMING HOLDING IN COMP. GEN. DECISION OF AUG. 10, 1967 DENYING CLAIM FOR OVERRUN IN MANUFACTURER OF SHIRTS FOR DSA. ALTHOUGH SUPPLEMENTAL ADMINISTRATIVE REPORT SUBSTANTIATES CONTRACTOR'S CONTENTION CONCERNING INACCURATE INFORMATION IN COMP. GEN. DECISION OF AUGUST 10, 1967, AS TO QUANTITY OF SHIRTS PRODUCED BY SUBCONTRACTOR AND PERFORMANCE OF THE CUTTING OF TOTAL QUANTITY PRODUCED, THE BASIC FACTS REMAIN THAT CONTRACTOR AGREED TO FURNISH A STATED QUANTITY FROM GOVT.- SUPPLIED MATERIAL, SUBJECT TO A PENALTY IN EVENT OF UNAUTHORIZED OVERRUN, THAT THERE WAS AN OVERRUN AND THAT GOVT. IS ENTITLED THERETO WITHOUT LIABILITY. THEREFORE CONTRACTOR IS NOT ENTITLED TO AN ADJUSTMENT.

TO PHILLIPS-VAN HEUSEN CORPORATION:

REFERENCE IS MADE TO YOUR LETTER DATED SEPTEMBER 12, 1967, REQUESTING RECONSIDERATION OF OUR DECISION B-161559, AUGUST 10, 1967, WHICH DENIED YOUR CLAIM INVOLVING A PRODUCTION OVERRUN OF MEN'S SHIRTS MANUFACTURED FROM GOVERNMENT SUPPLIED MATERIAL UNDER CONTRACT NO. DSA 100-3894, DATED JUNE 1, 1966, WITH THE DEFENSE PERSONNEL SUPPORT CENTER, DEFENSE SUPPLY AGENCY (DSA), PHILADELPHIA, PENNSYLVANIA.

THE TOTAL QUANTITY OF SHIRTS MANUFACTURED UNDER THE CONTRACT WAS 102,424. PURSUANT TO THE CONTRACT PROVISIONS, DSA PAID YOU FOR 100,500 SHIRTS, REPRESENTING THE BASIC QUANTITY OF 100,000 UNITS PLUS A PERMISSIBLE OVERRUN OF 500 UNITS (OR ONE-HALF OF ONE PERCENT OF THE BASIC QUANTITY) AT THE CONTRACT PRICE, AND YOU WERE PERMITTED TO RETAIN 257 IRREPARABLE UNITS AT A REDUCED PRICE. YOUR CLAIM COVERED AN ADDITIONAL QUANTITY OF 1,667 FIRST-QUALITY UNITS WHICH DSA REQUESTED THAT YOU RETURN TO THE GOVERNMENT AS REQUIRED BY CERTAIN PROVISIONS IN THE CONTRACT. HOWEVER, ON THE GROUNDS THAT THE ONE-HALF OF ONE PERCENT QUANTITY VARIATION PROVIDED IN THE CONTRACT WAS TOO LOW AND THAT THE EXCESS OVERRUN RESULTED FROM YOUR EFFORTS, WHICH INCLUDED SUBCONTRACTING OF A PORTION OF THE REQUIREMENT, TO ACCELERATE DELIVERY AT THE REQUEST OF THE GOVERNMENT, YOU REQUESTED OUR OFFICE EITHER TO AUTHORIZE PAYMENT TO YOU OF THE COST OF THE MATERIAL USED IN THE SHIRTS OR TO PERMIT YOU TO RETAIN THE SHIRTS.

OUR DECISION OF AUGUST 10 WAS BASED ON A REPORT RECEIVED FROM DSA, WHICH INCLUDED STATEMENTS THAT YOUR CONTRACT WAS ONE OF 16 CONTRACTS WHICH DSA AWARDED AT ONE TIME FOR THE PRODUCTION OF THE SHIRTS; THAT MOST OF THE OTHER CONTRACTORS HAD NOT EXCEEDED THE ONE-HALF OF ONE PERCENT QUANTITY VARIATION WHICH HAD BEEN INCLUDED IN EACH CONTRACT; AND THAT SINCE THE SUBCONTRACTOR WHICH YOU HAD USED HAD DELIVERED ONLY THE PRECISE SUBCONTRACT QUANTITY AND SINCE ALL OF THE CUTTING WAS PERFORMED IN ONE PLANT, PRODUCTION WAS WITHIN YOUR CONTROL. IN ADDITION, OUR DECISION CITED THE SPECIFIC PROVISION IN YOUR CONTRACT TO THE EFFECT THAT ACCELERATION OF DELIVERIES WOULD BE AT NO EXPENSE TO THE GOVERNMENT AND THE FACT THAT APPROVAL OF THE SUBCONTRACTING ARRANGEMENTS HAD BEEN GRANTED BY DSA ON CONDITION THAT ANY ADDITIONAL COSTS TO THE GOVERNMENT AND ANY INCREASED COSTS OF PERFORMANCE TO YOU INCIDENT THERETO WOULD BE BORNE BY YOU. OUR DECISION ALSO POINTED OUT THAT RESPONSIBILITY FOR DETERMINING THE QUANTITY OF GOVERNMENT MATERIAL REQUIRED FOR PERFORMANCE OF THE CONTRACT RESTED WITH YOU. THEREFORE, AND IN LINE WITH OUR UNPUBLISHED DECISION B-146401, JANUARY 11, 1963, IN A SOMEWHAT SIMILAR CASE, WE HELD THAT THE QUANTITY VARIATION PROVISIONS IN YOUR CONTRACT, WHICH DESIGNATED UNAUTHORIZED OVERRUNS AS THE SOLE PROPERTY OF THE GOVERNMENT, WITH NO ALLOWANCE OF COMPENSATION OR MATERIAL CREDIT TO YOU, WERE ENFORCEABLE. (WE ENCLOSE A COPY OF B-146401, SUPRA, FOR YOUR INFORMATION.)

IN YOUR LETTER OF SEPTEMBER 12, YOU AGAIN ASSERT THAT THE CONTRACT QUANTITY VARIATION ALLOWANCE OF ONE-HALF OF ONE PERCENT WAS UNREASONABLE. YOU STATE THAT UNDER THE WORTH STREET RULES, WHICH ARE ALLEGED TO BE STANDARD FOR YOUR INDUSTRY, A TEN-PERCENT QUANTITY VARIATION, PLUS OR MINUS, IS ACCEPTABLE AND THAT SHELBURNE, ONE OF THE LARGEST MANUFACTURERS OF SHIRTS IN THE INDUSTRY, HAS INFORMED YOU THAT IT USES A FIVE-PERCENT QUANTITY VARIATION, PLUS OR MINUS, WITHOUT COMPLAINT FROM ITS CUSTOMERS. ACCORDINGLY, YOU REQUEST THAT CONSIDERATION BE GIVEN TO APPLYING INDUSTRY STANDARDS TO YOUR CONTRACT.

YOU ALSO ASSERT THAT THERE ARE TWO MISSTATEMENTS OF FACT IN OUR DECISION; THAT IS, YOUR SUBCONTRACTOR DID NOT DELIVER THE EXACT SUBCONTRACT QUANTITY OF 32,200 UNITS BUT HAD A FIVE-PERCENT UNDERRUN, AND THE SUBCONTRACTOR PERFORMED ITS OWN CUTTING. ACCORDINGLY, YOU CLAIM THAT YOU DID NOT HAVE CONTROL OVER THE ENTIRE MANUFACTURING RUN.

IN ADDITION TO THE FOREGOING, YOU REPEAT AN ALLEGATION WHICH YOU HAVE MADE IN PREVIOUS CORRESPONDENCE WITH THE CONTRACTING OFFICER AND IN 4OUR ORIGINAL CLAIM BEFORE OUR OFFICE, THAT THE CONTRACTING OFFICER HAD ADVISED YOU VERBALLY BEFORE YOU FILED YOUR CLAIM THAT THE GOVERNMENT WOULD ACCEPT THE 1,667 SURPLUS FIRST-QUALITY UNITS AT A REDUCED PRICE.

IN A SUPPLEMENTAL ADMINISTRATIVE REPORT, DSA HAS ADVISED OUR OFFICE THAT 12 OF THE OTHER 15 FIRMS THAT WERE AWARDED CONTRACTS SIMILAR TO YOURS STAYED WITHIN THE PRESCRIBED QUANTITY LIMITATION; THAT YOU AND SHELBURNE WERE AMONG THE FOUR CONTRACTORS WHO DID NOT ABIDE BY THE LIMITATION; AND THAT SHELBURNE HAD AN UNDERRUN OF ABOUT ONE PERCENT. MAKING NOTE OF THE FACT THAT THE DETERMINATION OF A QUANTITY VARIATION INVOLVES JUDGMENT ON THE PART OF THE CONTRACTING AGENCY AND THAT ARMED SERVICES PROCUREMENT REGULATION 1-325.1 PROVIDES THAT THE VARIATION SHOULD BE NO LARGER THAN NECESSARY TO AFFORD THE CONTRACTOR REASONABLE PROTECTION, DSA CONCLUDES THAT IN THE LIGHT OF THE PERFORMANCE OF A LARGE MAJORITY OF THE CONTRACTORS, IT CANNOT BE SAID THAT THE ONE-HALF PERCENT QUANTITY VARIATION WAS SUCH AN ARBITRARY OR UNREASONABLE EXERCISE OF JUDGEMENT OR DISCRETION AS TO BE IMPROPER.

WITH SPECIFIC REFERENCE TO THE WORTH STREET RULES, THE CONTRACTING OFFICER NOTES THAT SUCH RULES APPLY TO TEXTILES RATHER THAN SHIRTS, AS YOU HAVE RECOGNIZED, AND FURTHER NOTES THAT THE VARIATION IN QUANTITY APPARENTLY DEPENDS UPON THE ITEM MANUFACTURED; FOR EXAMPLE, THE CONTRACTING OFFICER OBSERVES, FOR "FINE STAPLE GREY GOODS" AND "CARDED GREY GOODS," THE TOLERANCE MAY VARY FROM ONE-HALF PERCENT(LESS THAN HALF OF AN AVERAGE BALE) TO A MAXIMUM OF FIVE PERCENT AND FOR ,FINE FANCY GOODS" AND "COTTON AND SYNTHETIC YARN MIXTURES" THE VARIATION MAY RANGE FROM 900 YARDS PLUS ONE PERCENT WITH A MAXIMUM OF TEN PERCENT, THE MAXIMUM IN EACH CASE BEING APPLICABLE ONLY WHEN THE QUANTITY IS LESS THAN 10,000 YARDS. THE CONTRACTING OFFICER ASSERTS, HOWEVER, THAT REGARDLESS OF THE CUSTOM OF THE COMMERCIAL TRADE, YOU AGREED TO BE BOUND BY CERTAIN TERMS AND CONDITIONS AND THAT ALLOWANCE OF LARGE VARIATIONS WOULD ADVERSELY AFFECT THE GOVERNMENT'S ABILITY TO CONTROL ITS STOCKS OF SUPPLIES AND ITS FUNDING.

REGARDING THE QUANTITY WHICH WAS PRODUCED UNDER THE SUBCONTRACT, DSA REPORTS THAT THE INFORMATION IN ITS ORIGINAL REPORT INDICATING THAT THE SUBCONTRACTOR HAD MANUFACTURED AND DELIVERED 32,200 UNITS,OR THE EXACT SUBCONTRACT QUANTITY, HAD BEEN BASED ON VERBAL ADVICE WHICH THE SUBCONTRACTOR'S PLANT MANAGER HAD GIVEN TO THE DSA QUALITY ASSURANCE REPRESENTATIVE, WHO HAD PERFORMED QUALITY ASSURANCE DUTIES AT BOTH THE SUBCONTRACTOR'S PLANT AND YOUR PLANT. HOWEVER, A REQUEST BY THE CONTRACTING OFFICER FOR VERIFICATION OF THE SUBCONTRACT PRODUCTION FIGURES, IN THE LIGHT OF YOUR LETTER OF SEPTEMBER 12, RESULTED IN AN AMENDMENT BY THE PLANT MANAGER OF HIS ORIGINAL STATEMENT, TO THE EFFECT THAT THE SUBCONTRACTOR HAD MANUFACTURED AND DELIVERED ONLY 31,038 UNITS, OR A MINUS VARIATION OF 1,162 UNITS EQUIVALENT TO ABOUT 3.6 PERCENT OF THE SUBCONTRACT QUANTITY OF 32,200 UNITS.

WITH RESPECT TO THE CUTTING OPERATION, DSA EXPLAINS THAT A STATEMENT IN ITS ORIGINAL REPORT THAT THE "CONTRACTOR PERFORMED ITS OWN CUTTING IN ONLY ONE PLANT" HAD REFERENCE TO THE NUMBER OF UNITS, 67,800, WHICH YOU EXPECTED TO CUT AND MANUFACTURE OVER AND ABOVE THE SUBCONTRACT OF 32,200 UNITS IN ORDER TO FULFILL THE BASIC REQUIREMENT FOR 100,000 UNITS. BASED ON THE INITIAL REPORT OF THE SUBCONTRACT PRODUCTION QUANTITY, DSA ORIGINALLY CONCLUDED THAT YOU HAD MANUFACTURED 70,224 OF THE TOTAL OF 102,424 UNITS WHICH WERE REPORTED TO HAVE BEEN MANUFACTURED; THAT SINCE THERE WAS NO OVERRUN UNDER THE SUBCONTRACT, THE ENTIRE OVERRUN OF 2,424 UNITS WAS ATTRIBUTABLE TO YOU; AND THAT SUCH OVERRUN COULD HAVE BEEN AVOIDED BY YOU WITH THE EXERCISE OF PROPER CONTROL OVER THE CUTTING. ALTHOUGH THE RECORD NOW SHOWS THAT YOUR SUBCONTRACTOR HAD AN UNDERRUN, THE CONTRACTING OFFICER NOTES THAT SUCH INFORMATION INDICATES THAT YOU PRODUCED AN EVEN LARGER OVERRUN THAN WAS ORIGINALLY REPORTED (3,586 UNITS AS OPPOSED TO 2,424 UNITS), AND HE THEREFORE ADHERES TO HIS VIEW THAT CONTROL OVER THE CUTTING PERFORMED BY YOU WAS THE KEY TO CONTROL OF THE TOTAL PRODUCTION.

THE SUPPLEMENTAL REPORT CONCLUDES WITH A STATEMENT TO THE EFFECT THAT IN VIEW OF THE CLEAR TERMS OF THE CONTRACT, IT IS DSA'S POSITION THAT THERE IS NO BASIS, LEGAL OR EQUITABLE, UPON WHICH PAYMENT OF YOUR CLAIM MAY BE MADE; DSA AGAIN RECOMMENDS THAT YOUR CLAIM BE DENIED.

IT IS A UNIVERSALLY ACCEPTED RULE OF LAW THAT VALID CONTRACTS ARE TO BE ENFORCED AND PERFORMED AS WRITTEN, AND THE FACT THAT SUPERVENING OR UNFORESEEN CAUSES RENDER PERFORMANCE MORE BURDENSOME OR LESS PROFITABLE, OR EVEN OCCASION A LOSS, IS NOT SUFFICIENT TO EXCUSE PERFORMANCE OR TO ENTITLE A CONTRACTOR TO ADDITIONAL COMPENSATION. 22 COMP. GEN. 1059, 1061. FURTHER, IN THE ABSENCE OF A STATUTE SPECIFICALLY SO PROVIDING, ACCOUNTING AND ADMINISTRATIVE OFFICERS OF THE GOVERNMENT HAVE NO AUTHORITY TO GIVE AWAY OR SURRENDER A RIGHT VESTED IN OR ACQUIRED BY THE GOVERNMENT UNDER A CONTRACT. 22 COMP. GEN. 260.

WHILE THE SUPPLEMENTAL ADMINISTRATIVE REPORT SUBSTANTIATES YOUR STATEMENTS CONCERNING THE INACCURACY OF THE INFORMATION REFLECTED IN OUR DECISION OF AUGUST 10 RELATING TO THE QUANTITY PRODUCED BY YOUR SUBCONTRACTOR AND THE PERFORMANCE OF THE CUTTING OF THE TOTAL QUANTITY PRODUCED, THE BASIC FACTS REMAIN UNCHANGED: THAT IS, YOU AGREED TO MANUFACTURE A STATED QUANTITY OF SHIRTS FROM GOVERNMENT SUPPLIED MATERIAL SUBJECT TO A PENALTY IN THE EVENT OF AN UNAUTHORIZED OVERRUN, YOU INCURRED SUCH AN OVERRUN, AND THE GOVERNMENT IS DEMANDING DELIVERY TO IT OF THE EXCESS UNITS WITHOUT ANY COMPENSATION TO YOU AS PROVIDED IN THE CONTRACT. MOREOVER, IN OUR OPINION, THE FACT THAT 12 OTHER CONTRACTORS MANAGED TO ABIDE BY SIMILAR QUANTITY VARIATION PROVISIONS SUPPORTS THE VIEW OF THE CONTRACTING AGENCY THAT THE PROVISIONS WERE NOT UNREASONABLE OR IMPROPER, AND THE ADDITIONAL FACT THAT YOUR SUBCONTRACTOR HAD A PRODUCTION UNDERRUN SUBSTANTIATES THE POSITION OF THE CONTRACTING OFFICER THAT IT WAS THE EXCESS CUTTING WHICH YOU PERFORMED THAT OCCASIONED THE UNAUTHORIZED OVERRUN. FURTHER, ALTHOUGH THERE IS NOTHING OF RECORD TO SUPPORT THE VARIOUS STATEMENTS WHICH YOU HAVE MADE CONCERNING THE ADVICE ALLEGEDLY GIVEN TO YOU BY THE CONTRACTING OFFICER REGARDING ACCEPTANCE BY THE GOVERNMENT OF THE EXCESS UNITS AT A REDUCED PRICE, IT IS CLEAR THAT UNDER THE PRINCIPLES ENUNCIATED IN THE TWO PUBLISHED DECISIONS CITED ABOVE YOUR CONTRACT IS TO BE PERFORMED AS WRITTEN AND ANY SUCH PROMISE WAS UNAUTHORIZED AND IS THEREFORE UNENFORCEABLE.

IN THE CIRCUMSTANCES, WE MUST AFFIRM OUR ORIGINAL DECISION UPHOLDING THE POSITION OF DSA.