B-138340, DECEMBER 28, 1959, 39 COMP. GEN. 473

B-138340: Dec 28, 1959

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CONTRACTS - PRICE ADJUSTMENT DETERMINATIONS - CONFORMANCE TO PRESCRIBED PROCEDURES - VALIDITY UNDER AN INVITATION FOR CAPEHART HOUSING CONSTRUCTION BIDS WHICH PROVIDED THAT BIDS WERE TO BE SUBMITTED IN STRICT ACCORDANCE WITH THE TERMS OF COPIES OF THE LETTER OF ACCEPTABILITY AND IN THE AMOUNTS STATED IN THE BID SCHEDULE. FIXED THE RIGHTS AND OBLIGATIONS OF THE PARTIES AND A HIGHER PRICE STATED IN THE CONTRACT DOCUMENTS IS TO BE REGARDED AS AN ATTEMPT TO CHANGE THE RIGHTS AND OBLIGATIONS WITHOUT CONSIDERATION. THE ADOPTION OF A NEGOTIATED PRICE INCREASE UNDER A CAPEHART HOUSING CONSTRUCTION CONTRACT BY THE CONTRACTOR AND THE CORPS OF ENGINEERS CONTRARY TO THE PRESCRIBED PROCEDURES FOR DETERMINATION OF A PRICE ADJUSTMENT BY THE FEDERAL HOUSING ADMINISTRATION COMMISSIONER IS A NULLITY.

B-138340, DECEMBER 28, 1959, 39 COMP. GEN. 473

CONTRACTS - PRICE ADJUSTMENT DETERMINATIONS - CONFORMANCE TO PRESCRIBED PROCEDURES - VALIDITY UNDER AN INVITATION FOR CAPEHART HOUSING CONSTRUCTION BIDS WHICH PROVIDED THAT BIDS WERE TO BE SUBMITTED IN STRICT ACCORDANCE WITH THE TERMS OF COPIES OF THE LETTER OF ACCEPTABILITY AND IN THE AMOUNTS STATED IN THE BID SCHEDULE, THE ISSUANCE OF A LETTER OF ACCEPTABILITY WHICH OBLIGATED THE CONTRACTOR BY THE FEDERAL HOUSING ADMINISTRATION COMMISSIONER PURSUANT TO PRESCRIBED PROCEDURES, FIXED THE RIGHTS AND OBLIGATIONS OF THE PARTIES AND A HIGHER PRICE STATED IN THE CONTRACT DOCUMENTS IS TO BE REGARDED AS AN ATTEMPT TO CHANGE THE RIGHTS AND OBLIGATIONS WITHOUT CONSIDERATION. THE ADOPTION OF A NEGOTIATED PRICE INCREASE UNDER A CAPEHART HOUSING CONSTRUCTION CONTRACT BY THE CONTRACTOR AND THE CORPS OF ENGINEERS CONTRARY TO THE PRESCRIBED PROCEDURES FOR DETERMINATION OF A PRICE ADJUSTMENT BY THE FEDERAL HOUSING ADMINISTRATION COMMISSIONER IS A NULLITY, AND ANY AGREEMENT ENTERED INTO ON THE ASSUMPTION THAT ADOPTION WAS VALID COULD NOT BE ENFORCED. UNDER A CONTRACT WHICH PROVIDES FOR A PRICE ADJUSTMENT TO BE DETERMINED BY A THIRD PARTY, THE CONCLUSIONS OF SUCH PARTY ARE BINDING ON THE CONTRACTING PARTIES IN THE ABSENCE OF GROSS ERROR, FRAUD, OR SIMILAR CIRCUMSTANCE SO LONG AS THE CONCLUSIONS ARE IN ACCORDANCE WITH THE PRESCRIBED PROCEDURES, AND THE THIRD PARTY IS NOT REQUIRED TO CONFER WITH THE CONTRACTING PARTIES WHO HAVE PREVIOUSLY AGREED TO PERFORM AT THE PRICE AS DETERMINED BY THE ARBITRATOR OR APPRAISER. IN THE ABSENCE OF AN ACTUAL DELEGATION OF AUTHORITY BY THE COMMISSIONER OF THE FEDERAL HOUSING ADMINISTRATION TO THE CORPS OF ENGINEERS WITH RESPECT TO PRICE ADJUSTMENT DETERMINATIONS UNDER CAPEHART HOUSING CONSTRUCTION CONTRACTS, SUCH AUTHORITY MAY NOT BE IMPLIED EVEN THOUGH THE COMMISSIONER IS PERMITTED UNDER 12 U.S.C. 1702 TO UTILIZE THE SERVICES OF OTHER FEDERAL AGENCIES AND OFFICERS.

TO THE GERSTEN CONSTRUCTION COMPANY, DECEMBER 28, 1959:

WE REFER TO YOUR LETTER OF NOVEMBER 17, 1959, CONTESTING THE CONCLUSIONS DRAWN IN OUR LETTER OF NOVEMBER 6, 1959, 39 COMP. GEN. 355, THAT THE FOUR FT. BELVOIR CAPEHART HOUSING CONTRACT PRICES WERE OVERSTATED, AND DIRECTING THE MORTGAGOR BUILDERS TO CONSERVE THEIR ASSETS BY REFUSING TO PAY THE CONTRACT PRICES TO THE EXTENT THEY WERE OVERSTATED.

PURSUANT TO THE BID DOCUMENTS AND THE LETTER OF ACCEPTABILITY, THE LOW BIDDER, THE GERSTEN CONSTRUCTION COMPANY, WAS OBLIGATED TO PERFORM THE WORK CALLED FOR AT THE BID PRICE AS ADJUSTED FOR CHANGES IN THE PREVAILING WAGE RATE SCHEDULE FINALLY SET BY THE SECRETARY OF LABOR IN AN AMOUNT "* * * DETERMINED BY THE FEDERAL HOUSING COMMISSIONER * * * TO REPRESENT THE DIFFERENCE IN THE " TOTAL ESTIMATE OF REPLACEMENT COST OF THE PROPERTY OR PROJECT," COMPUTED ACCORDING TO THE WAGE SCHEDULE ATTACHED TO THE INVITATION FOR BIDS AND COMPUTED ACCORDING TO THE WAGE SCHEDULE AS AMENDED * * *.' TO COMPENSATE FOR THE INCREASES IN THE AMENDED WAGE SCHEDULE, THE CORPS OF ENGINEERS AND THE BUILDER NEGOTIATED A PRICE INCREASE OF $242,609.81, SUBJECT TO THE CONCURRENCE OF THE FEDERAL HOUSING ADMINISTRATION. THE ENGINEERS ADVISED THE FHA D.C. INSURING OFFICE OF THE NEGOTIATED INCREASE BY LETTER AND REQUESTED CONCURRENCE ON THE ADJUSTMENT. THE D.C. INSURING OFFICE DID NOT REPLY TO THE LETTER BUT ISSUED AN INSURANCE COMMITMENT IN AN AMOUNT COVERING THE BID PRICE AS INCREASED BY THE AGREEMENT. THE BUILDER AND THE ENGINEERS, THEREFORE, CONSIDERED THAT THE FHA HAD AGREED TO THE AMOUNT OF THE INCREASE. SUBSEQUENTLY, THE FHA DETERMINED THAT THE INCREASE COMPUTED UNDER THE PRESCRIBED METHOD SHOULD HAVE BEEN $150,392.

IN OUR LETTER OF NOVEMBER 6 WE TOOK THE POSITION THAT WITH RESPECT TO SUCH INCREASE THE FHA COMMISSIONER WAS IN THE POSITION OF A THIRD PARTY APPRAISER WHOSE ESTABLISHMENT OF A VALUE OR AMOUNT IS, UNDER THE CONTRACT, BINDING ON THE PARTIES. HOWEVER, SUCH AN APPRAISER'S VALUATION IS BINDING ONLY TO THE EXTENT THAT IT IS MADE IN ACCORDANCE WITH THE SUBMISSION OR PROCEDURE SET OUT BY THE CONTRACT. WE NOTED THAT THE D.C. INSURING OFFICE DID NOT OBJECT TO THE INCREASE NEGOTIATED BY THE ENGINEERS AND THE CONTRACTOR BECAUSE THE TOTAL CONTRACT AMOUNT INCLUDING THE INCREASE WAS STILL LESS THAN THE FHA ESTIMATE OF THE PROJECT REPLACEMENT COST. THEREFORE, THE ACQUIESCENCE IN THE NEGOTIATED FIGURE BY THE FHA WAS NOT A FINDING IN ACCORDANCE WITH THE PRESCRIBED PROCEDURE AND IS INVALID. NOTWITHSTANDING WHAT THE RULE MIGHT BE AS BETWEEN PRIVATE PARTIES, WE TOOK THE POSITION THAT NO AGENT OF THE GOVERNMENT HAS THE AUTHORITY TO AMEND AN EXISTING CONTRACT EXCEPT IN THE INTEREST OF THE UNITED STATES. THUS, THE CONTRACTING OFFICER COULD NOT AGREE TO A CONTRACT AMENDMENT UNDER WHICH THE UNITED STATES WOULD BE REQUIRED TO PAY A GREATER AMOUNT WITHOUT SOME COMPENSATING BENEFIT TO THE GOVERNMENT. WE CONCLUDED THAT THE PROPER CONTRACT PRICE SHOULD HAVE BEEN THE SUM OF THE BID PRICE PLUS THE INCREASE AS COMPUTED BY THE FHA IN ACCORDANCE WITH THE TERMS OF THE PRESCRIBED PROCEDURE.

IT IS CONTENDED IN YOUR LETTER OF NOVEMBER 17, 1959, THAT THE CONTRACTS AS WRITTEN WHICH IN TOTAL PROVIDE FOR THE PAYMENT TO THE ELIGIBLE BUILDER FOR THE PROJECTS OF $9,808,535.81 ARE VALID, BINDING, AND CONCLUSIVE UPON THE CONTRACTING PARTIES.

SUCH VIEW NECESSARILY ASSUMES THAT THE CONTRACT TERMS ARE LIMITED TO THOSE CONTAINED WITHIN THE FOUR CORNERS OF THE DEFINITIVE CONTRACT DOCUMENTS. THE INVITATION FOR BIDS DATED MARCH 20, 1958, TOGETHER WITH THE ATTACHED DOCUMENTS, CONTAINED ALL OF THE MATERIAL PROVISIONS OF THE CONTRACTS OTHER THAN THOSE SUPPLIED BY THE BIDDER WITH HIS BID. THE FIRST PARAGRAPH OF THE BID FORM ON WHICH THE SUCCESSFUL BID WAS SUBMITTED SPECIFICALLY PROVIDED THAT THE BID WAS BEING SUBMITTED "* * * IN STRICT ACCORDANCE WITH THE TERMS OF THE SPECIMEN COPIES OF THE LETTER OF ACCEPTABILITY AND THE HOUSING CONTRACT ATTACHED TO THE SAID INVITATION FOR BIDS, IN THE AMOUNTS STATED IN THE BID SCHEDULE ATTACHED.' GENERALLY, THE ACCEPTANCE OF A BID WHERE NONE OF THE MATERIAL CONDITIONS REMAIN UNSETTLED EFFECTS A BINDING CONTRACT EVEN THOUGH THE PARTIES CONTEMPLATE A LATER EXECUTION OF A MORE FORMAL DOCUMENT. CONTI V. UNITED STATES, 158 F.2D 581. A BINDING CONTRACT AROSE UPON ISSUANCE OF THE LETTER OF ACCEPTABILITY SUBJECT TO AN INCREASE OR DECREASE IN THE PRICE AS DETERMINED BY THE FHA COMMISSIONER IN ACCORDANCE WITH THE PRESCRIBED PROCEDURE, AND WAS NOT DEPENDENT UPON THE SIGNING OF THE CONTRACTS. WHERE, AS HERE, THE RIGHTS AND OBLIGATIONS OF THE PARTIES BECOME FIXED UPON ACCEPTANCE OF A BID ANY ATTEMPT TO CHANGE SUCH RIGHTS AND OBLIGATIONS BY CHANGE IN THE FORMAL CONTRACT IS UNJUSTIFIED FOR WANT OF CONSIDERATION. POWER SERVICE CORP. V. JOSLIN, 175 F.2D 698. THEREFORE, THE CORRECT CONTRACT PRICE IS THAT OFFERED IN THE ACCEPTED BID AS MODIFIED IN ACCORDANCE WITH THE FHA FINDING NOTWITHSTANDING THAT THE FORMAL CONTRACT DOCUMENTS STATED A HIGHER PRICE.

YOU NEXT CONTEND THAT THE CASE OF ST. PAUL FIRE AND MARINE INS. V. ELDRACHER, 33 F.2D 675, CERTIORARI DENIED, 280 U.S. 604, IS NOT APPLICABLE BECAUSE THE AMOUNT THERE INVOLVED WAS INDEFINITE AND THE CONTRACT PROVIDED FOR A PROCEDURE TO ESTABLISH A DEFINITE VALUE WHEREAS IN THE SUBJECT CASE THE AMOUNT IS DEFINITE AND THE PARTIES AGREED TO THE PRICE PRIOR TO EXECUTION, DELIVERY, AND ACCEPTANCE. THE CITED CASE, AS WELL AS OTHERS INCLUDING UNION TRUST CO. V. BOARD OF EDUCATION, 180 N.E. 819, CONSIDERED INSTANCES WHERE BY CONTRACT A THIRD PARTY WAS TO ESTABLISH A GIVEN VALUE BINDING ON THE CONTRACTING PARTIES. IT WAS HELD THAT THE DETERMINATIONS OF THE THIRD PARTIES WERE NOT BINDING WHERE NOT DRAWN IN ACCORDANCE WITH THE SCOPE OF THE PROCEDURE SET OUT BY THE CONTRACT.

IT IS TRUE THAT IN BOTH CITED CASES ONE OF THE PARTIES REFUSED TO ACCEPT THE CONCLUSIONS OF THE APPOINTED APPRAISER, WHEREAS IN THIS INSTANCE THE CONTRACTING PARTIES HAD REACHED A MUTUALLY AGREEABLE FIGURE. IN THE ST. PAUL CASE THE COURT NOTED THAT THE AWARD OF THE APPRAISERS WAS VOID TO THE EXTENT THAT IT WAS BEYOND THE SCOPE OF THE PRESCRIBED PROCEDURE AND IF TOTALLY BEYOND SUCH SCOPE IT WOULD BE "WHOLLY VOID.' THE TERM "VOID" IN NORMAL LEGAL USAGE MEANS UNENFORCEABLE, WITHOUT LEGAL EFFECT, INCAPABLE OF RATIFICATION. WEBBER V. SPENCER, 27 N.W.2D 824, 830; SEE, ALSO, 44 WORDS AND PHRASES 319. THUS, THE ADOPTION OF THE NEGOTIATED PRICE INCREASE BY THE FHA IS A NULLITY, AND IT WOULD APPEAR THAT AN AGREEMENT ENTERED INTO ON THE ASSUMPTION THAT THE ADOPTION WAS VALID COULD NOT BE ENFORCED EVEN IF BETWEEN PRIVATE PARTIES. IN ADDITION, AS WE NOTED IN OUR EARLIER LETTER, THE CONTRACTING OFFICER AS AN AGENT OF THE GOVERNMENT HAD NO AUTHORITY TO AGREE TO THE AMENDMENT OF AN EXISTING CONTRACT WITHOUT SOME COMPENSATING BENEFIT TO THE UNITED STATES.

IT IS NEXT STATED IN YOUR LETTER THAT THE CORPS OF ENGINEERS WAS BETTER QUALIFIED TO ESTABLISH THE PRICE INCREASE BASED ON THE CHANGE IN THE PREVAILING WAGE RATE THAN WAS THE FHA. WE HAVE NO INFORMATION WITH RESPECT TO THE RELATIVE QUALIFICATIONS OF THE TWO AGENCIES CONCERNED; HOWEVER, EVEN ADOPTING YOUR CONCLUSION ON THE POINT, IT DOES NOT APPEAR THAT THEIR RELATIVE QUALIFICATIONS CAN AFFECT THE VALIDITY OF THE CONTRACT PROVISION.

YOU NOTE ALSO THAT TRADE BREAKDOWNS WHICH WERE APPROVED BY THE FHA AND INCORPORATED INTO THE CONTRACTS AND THE BUILDING AND LOAN AGREEMENTS INCLUDED THE NEGOTIATED PRICE INCREASE. FOR THE REASONS STATED ABOVE, WE CANNOT AGREE THAT SUCH INCLUSION SUPPORTS THE VALIDITY OF THE NEGOTIATED PRICE INCREASE.

IT IS FURTHER ALLEGED IN YOUR LETTER THAT IN ARRIVING AT THE CORRECT PRICE INCREASE THE FHA DID NOT CONFER WITH THE CONTRACTOR NOR DID IT GIVE THE CONTRACTOR AN OPPORTUNITY TO BE HEARD OR TO QUESTION OR ACCEPT THE FHA FIGURES. FURTHER, YOU STATE THAT THE CONTRACTOR WAS NOT GIVEN THE OPTION OF ADOPTING THE FHA FIGURE OR WITHDRAWING ITS BID.

WHERE A CONTRACT PROVIDES FOR A PRICE ADJUSTMENT TO BE DETERMINED BY A THIRD PARTY, THE CONCLUSIONS OF SUCH PARTY, AS NOTED IN OUR EARLIER LETTER, ARE BINDING ON THE CONTRACTING PARTIES IN THE ABSENCE OF GROSS ERROR, FRAUD, OR SIMILAR CIRCUMSTANCE SO LONG AS SUCH CONCLUSIONS ARE IN ACCORDANCE WITH THE TERMS OF THE PRESCRIBED PROCEDURE. UNDER THE CONTRACT TERMS THE CONTRACTOR HAD ALREADY AGREE TO PERFORM FOR THE BID PRICE AS ADJUSTED BY THE DIFFERENCE IN THE TWO COMPUTATIONS OF REPLACEMENT COSTS BY THE FHA. WE ARE AWARE OF NO BASIS FOR REQUIRING THE FHA TO CONFER WITH THE PARTIES; NOR ARE WE AWARE OF ANY BASIS, OTHER THAN UPON THE CONTINGENCY DESCRIBED IN SECTION 5 OF THE INVITATION WHICH DID NOT OCCUR IN THIS CASE, FOR PERMITTING THE CONTRACTOR TO WITHDRAW IF HE OBJECTS TO THE FHA'S FINDING PURSUANT TO THE PRESCRIBED PROCEDURE OR FOR ANY OTHER REASON.

FINALLY, YOU STATE THAT UNDER 12 U.S.C. 1702 THE COMMISSIONER, FHA, MAY UTILIZE THE SERVICES OF OTHER FEDERAL AGENCIES AND OFFICERS IN CARRYING OUT THE PROVISIONS OF THE NATIONAL HOUSING ACT. FOR EXAMPLE, FHA DELEGATED DUTIES TO THE CORPS OF ENGINEERS WITH RELATION TO CHANGE ORDERS UNDER THE CONTRACT. YOU ALLEGE THAT FHA ALSO DELEGATED DUTIES WITH RESPECT TO DETERMINING THE PROPER PRICE ADJUSTMENT. THEREFORE, YOU STATE THAT THE ADJUSTMENT FIGURE ARRIVED AT BY THE CORPS OF ENGINEERS WAS AN ACT OF THE COMMISSIONER, FHA, THROUGH HIS DULY AUTHORIZED AGENTS.

IT IS WELL RECOGNIZED THAT THE GOVERNMENT IS NOT BOUND BY THE APPARENT AUTHORITY OF ITS AGENTS. WILBER NATIONAL BANK V. UNITED STATES, 294 U.S. 120; COLEMAN V. UNITED STATES, 100 F.2D 903. THEREFORE, IN THE ABSENCE OF AN ACTUAL DELEGATION, THE AUTHORITY TO ACT IN THIS MATTER FOR THE FHA CANNOT BE IMPUTED TO CORPS OF ENGINEERS PERSONNEL. WHILE THE COMMISSIONER, FHA, MAY HAVE THE AUTHORITY TO DELEGATE THE DUTY IN QUESTION TO THE CORPS OF ENGINEERS, WE ARE AWARE OF NO AFFIRMATIVE ACTION ON HIS PART EFFECTING SUCH DELEGATION. IN FACT, ASHMI LETTER NO. 29, DATED MAY 5, 1959, FROM THE DEPUTY COMMISSIONER, FHA, TO THE DIRECTORS OF ALL FIELD OFFICES, STATE WITH RESPECT TO THE MATTER," THE RESPONSIBILITY FOR PROCESSING WAGE DETERMINATIONS IS SOLELY THE RESPONSIBILITY OF FHA AND CANNOT BE DELEGATED TO ANY OTHER AGENCY.' THE THE FOREGOING QUOTATION IS INCONSISTENT WITH ANY INTENT TO DELEGATE THE AUTHORITY IN QUESTION.

IN ANY CASE, THE COMMISSIONERS' DETERMINATION WHETHER MADE BY HIMSELF OR BY A DULY AUTHORIZED AGENT WITHIN OR OUTSIDE HIS AGENCY WOULD BE VALID ONLY IF MADE WITHIN THE SCOPE OF THE PRESCRIBED PROCEDURE--- THE DIFFERENCE BETWEEN THE ESTIMATED REPLACEMENT COST USING THE INITIAL AND AMENDED PREVAILING WAGE DETERMINATIONS. SINCE CLEARLY THE AMOUNT AGREED TO BY THE CORPS OF ENGINEERS WAS NOT COMPUTED IN THAT MANNER IT ALSO WAS NOT COMPUTED IN ACCORDANCE WITH THE PRESCRIBED PROCEDURE AND, PURSUANT TO THE CITED AUTHORITIES, IS NOT BINDING.

THEREFORE, THERE EXISTS NO BASIS FOR WITHDRAWING THE DEMAND STATED IN OUR LETTER OF NOVEMBER 6, THAT THE ASSETS OF THE MORTGAGOR BUILDERS BE CONSERVED BY REFUSING TO PAY MORE THAN THE CONTRACT PRICE TO THE ELIGIBLE BUILDER.

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