B-131639, MAY 14, 1957

B-131639, MAY 14, 1957

TO THE SECRETARY OF THE ARMY:

REFERENCE IS MADE TO A LETTER DATED APRIL 22, 1957, WITH ENCLOSURES, FROM THE ASSISTANT SECRETARY OF THE ARMY (LOGISTICS), REQUESTING OUR DECISION AS TO THE ADDITIONAL LIABILITY, IF ANY, OF SAM KAUFMAN AND SON METAL COMPANY, CANANDAIGUA, NEW YORK, FOR SCRAP MATERIALS PURCHASED BY IT FROM THE SENECA ORDNANCE DEPOT, ROMULUS, NEW YORK, UNDER CONTRACT NO. DA (S/-30 -121-AI-118, DATED JUNE 5, 1956.

THE CONTRACT REFERRED TO REASONABLY CONTEMPLATED THE SALE TO THE SAM KAUFMAN AND SON METAL COMPANY OF ALL LOOSE STEEL SCRAP, UNDER 1/8 INCH THICKNESS, ACCUMULATED AT THE SENECA ORDNANCE DEPOT THROUGHOUT THE PERIOD JUNE THROUGH NOVEMBER 1956. THE QUANTITY OF SCRAP LISTED IN THE INVITATION WAS AN ESTIMATED 500 GROSS TONS. HOWEVER, WITH RESPECT TO THE MATTER OF "QUANTITY," ARTICLE 20 OF THE GENERAL SALES TERMS AND CONDITIONS PROVIDED, IN PERTINENT PART:

"* * * THE QUANTITIES LISTED IN THE INVITATION IS (ARE) BASED UPON THE BEST INFORMATION AVAILABLE AND REPRESENTS THE ESTIMATED AND NOT THE ACTUAL AMOUNT WHICH WILL BE AVAILABLE FOR DELIVERY DURING THE PERIOD STATED HEREIN. EXCEPT AS OTHERWISE STATED HEREIN, THE FACT THAT SPECIFIC QUANTITY AVAILABLE FOR DELIVERY VARIES FROM THE QUANTITY LISTED HEREIN WILL NOT RELIEVE THE GOVERNMENT OF ITS OBLIGATION TO DELIVER TO THE PURCHASER THE ACTUAL AMOUNT AVAILABLE FOR DELIVERY AND WILL NOT RELIEVE THE PURCHASER FROM HIS OBLIGATION TO PURCHASE ALL SUCH AMOUNT. * * *"

THE RECORD DISCLOSES THAT ON JULY 10, 1956, OR A LITTLE MORE THAN A MONTH FOLLOWING THE AWARD MADE ON JUNE 5, 1956, THE SENECA ORDNANCE DEPOT RECEIVED AUTHORITY FROM THE ORDNANCE AMMUNITION DEPOT, JOLIET, ILLINOIS, TO CLASSIFY AS "SCRAP" 5,000 GROSS TONS OF CLUSTER ADAPTERS THEN MAINTAINED IN CURRENT STOCK AT THE SENECA DEPOT. THERE WERE ON HAND AT THE TIME 73,094 ADAPTERS, ORIGINALLY COSTING $25 EACH, BOXED INDIVIDUALLY, AND WEIGHING 148 POUNDS EACH. THE PROPERTY DISPOSAL OFFICER WAS OF THE OPINION THAT THE CLUSTER ADAPTERS THEN CONSTITUTED SCRAP MATERIALS OF THE CLASS CONTEMPLATED BY THE CONTRACT, AND THAT THE SAM KAUFMAN AND SON METAL COMPANY WAS THEREFORE ENTITLED TO RECEIVE THEM IN ACCORDANCE WITH THE CONTRACT TERMS. FINDING, HOWEVER, THAT THE COST TO THE GOVERNMENT OF REMOVING THE ADAPTERS FROM THE BOXES WAS ESTIMATED BY THE OPERATIONS DIVISION AT $100,000, AND FEARING ADVERSE CRITICISM IF THE UNBOXING WERE ACCOMPLISHED BY BURNING, HE OBTAINED THE CONSENT OF THE CONTRACTOR TO ACCEPT THE ADAPTERS BOXED, SPACE TO BE PROVIDED AT THE DEPOT FOR UNPACKING BY THE CONTRACTOR, AND PAYMENT TO BE MADE ONLY FOR THE STEEL CONTENTS. THESE TERMS WERE EMBODIED IN SUPPLEMENTAL AGREEMENT NO. 1, WHICH ALSO STIPULATED THAT ALL OTHER TERMS OF THE CONTRACT REMAINED IN EFFECT.

THE PAYMENT PROVISIONS OF THE CONTRACT (ARTICLE 17) WERE AS FOLLOWS:

"THE PRICE PER GROSS TON THAT THE PURCHASER WILL PAY TO THE GOVERNMENT FOR SCRAP STEEL DELIVERED UNDER THIS CONTRACT WILL BE ARRIVED AT BY DEDUCTING THE PURCHASER'S BID OFFERING FROM THE AVERAGE MARKET PRICE OF NUMBER 2 BUNDLES DELIVERED AT BUFFALO, NEW YORK, AS QUOTED IN THE AMERICAN METAL MARKET FOR THE DATE OF ACCEPTED WRITTEN SHIPPING ORDER FROM THE PURCHASER FOR A SPECIFIC CARRIER LOAD, OR DATE OF ACTUAL SHIPMENT IN THE EVENT NO WRITTEN SHIPPING ORDER IS RECEIVED. * * *

(EXAMPLE)

MARKET PRICE NUMBER 2 BUNDLES AT BUFFALO ................ $50.00 G.T.

LESS PURCHASER'S BID .................................... $20.00 G.T.

PAID TO THE GOVERNMENT FOR SCRAP DELIVERED .............. $30.00 G.T.'

UNDER DATE OF JULY 18, 1956, THE PURCHASER REQUESTED THE PROPERTY DISPOSAL OFFICER TO SHIP 5,000 TONS OF LIGHT IRON (STEEL) SCRAP AND THIS REQUEST WAS APPARENTLY ACCEPTED BY THE OFFICER AS A "WRITTEN SHIPPING ORDER FROM THE PURCHASER FOR A SPECIFIC CARRIER LOAD," AND PAYMENT WAS MADE ON THE BASIS OF THE MARKET PRICE AS OF THAT DATE, ALTHOUGH NONE OF THE MATERIAL WAS THEN IN CONDITION TO BE SHIPPED.

THE ADAPTERS WERE UNCRATED BY THE CONTRACTOR'S PERSONNEL, AT A COST ESTIMATED AT FROM $24,000 TO $36,000 AND APPROXIMATELY 280 PICK-UP DELIVERIES WERE MADE OF THESE ITEMS OVER A THREE-MONTH PERIOD ENDING AROUND OCTOBER 5, 1956. OF THE 5,182 GROSS TONS SHIPPED UNDER THE BASIC CONTRACT, AS AMENDED, 4,829 GROSS TONS CONSISTED OF THE CLUSTER ADAPTERS, AND 353 GROSS TONS REPRESENTED ALL OTHER LOOSE SCRAP STEEL GENERATED AT THE SENECA DEPOT.

UPON THE BASIS OF THE AMERICAN METALS MARKET PRICE OF LIGHT STEEL SCRAP AT BUFFALO, NEW YORK, AS OF JULY 18, 1956, THE CONTRACTOR HAS MADE PAYMENTS APPROXIMATING $127,988.47. IT IS REPORTED BY THE ARMY AUDIT AGENCY THAT, HAD PAYMENTS BEEN MADE BY THE CONTRACTOR UPON THE BASIS OF THE MARKET PRICES OF SCRAP STEEL AS OF THE ACTUAL DATES OF SHIPMENT OF THE ITEMS, THE GOVERNMENT WOULD HAVE REALIZED A TOTAL PRICE OF $174,181.05, OR AN AMOUNT $46,192.58 IN EXCESS OF THAT REALIZED ON THEIR SALE.

THE BASIC CONTRACT, WHEN VIEWED IN ITS ENTIRETY, MAY REASONABLY BE INTERPRETED AS EMBRACING THE SALE OF ALL THE ACCUMULATION OF LIGHT STEEL SCRAP AT THE SENECA ORDNANCE DEPOT DURING THE PERIOD JUNE THROUGH NOVEMBER, 1956. HENCE, THE TRUE SUBJECT MATTER OF THE CONTRACT WAS NOT THE ESTIMATED QUANTITY OF 500 GROSS TONS OF STEEL SCRAP, AS ORIGINALLY SPECIFIED, BUT RATHER, THE TOTAL ACCUMULATION OF SUCH SCRAP AT THAT DEPOT DURING THE PERIOD MENTIONED. SEE DRAWLEY V. UNITED STATES, 96 U.S. 168, 171-172; PINE RIVER LOGGING AND IMPROVEMENT CO. V. UNITED STATES 186 ID. 279, 288, 289; LIPSHITZ AND COHEN V. UNITED STATES, 269 ID. 90, 92; BROCK, ET AL. V. UNITED STATES, 84 C.CLS. 453, 458; NATIONAL PUBLISHING COMPANY V. INTERNATIONAL PAPER COMPANY, 269 F. 903.

IN VIEW OF THE RECITAL IN THE SUPPLEMENTAL AGREEMENT, WHICH WAS APPROVED BY FIRST ARMY HEADQUARTERS, THAT THE CLUSTER ADAPTERS CONSISTED OF "MATERIAL WITHIN THE DESCRIPTION OF THE BASIC CONTRACT," WE DO NOT BELIEVE THAT THE GOVERNMENT COULD SUCCESSFULLY MAINTAIN THE POSITION THAT THEIR SALE WAS WHOLLY UNAUTHORIZED.

HOWEVER, SINCE WE INTERPRET THE PRICING PROVISIONS OF ARTICLE 17 AS CONTEMPLATING THAT THERE WOULD BE MATERIAL ACTUALLY READY AND AVAILABLE FOR IMMEDIATE SHIPMENT BEFORE THERE COULD BE A VALID "ACCEPTED WRITTEN SHIPPING ORDER * * * FOR A SPECIFIC CARRIER LOAD," AND FOR THE FURTHER REASON THAT ARTICLE 18 PROHIBITED DELIVERY OF MATERIAL VALUED IN EXCESS OF THE TOTAL DEPOSIT HELD BY THE GOVERNMENT TO THE CREDIT OF THE PURCHASER, WE CANNOT CONSIDER THE ORDER OF JULY 18, 1956, AS EFFECTIVE TO FIX THE PRICE TO BE PAID UNDER THE CONTRACT. YOU ARE THEREFORE ADVISED THAT DEMAND SHOULD BE MADE UPON THE PURCHASER FOR SETTLEMENT ON THE BASIS OF PRICES IN EFFECT ON THE DATES OF ACTUAL SHIPMENT.