B-134636, APRIL 17, 1958, 37 COMP. GEN. 685

B-134636: Apr 17, 1958

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CONTRACTS - MISTAKES - PRICE ADJUSTMENT - TO NEXT LOW BID UNDER A CONTRACT WHICH WAS AWARDED. PAYMENT AFTER DELIVERY IS LIMITED TO THE REASONABLE VALUE OF THE MATERIAL NOT TO EXCEED THE NEXT LOWEST CORRECT BID. AFTER PROVING THAT A DISCOUNT WAS NOT INTENDED. 1958: REFERENCE IS MADE TO LETTERS DATED MARCH 11 AND APRIL 8. REQUESTING A REFUND OF YOUR ERRONEOUSLY OFFERED PROMPT PAYMENT DISCOUNT ON THE GROUND THAT PAYMENT WAS NOT MADE BY THE GOVERNMENT WITHIN THE DISCOUNT PERIOD STATED IN YOUR BID SUBMITTED IN RESPONSE TO INVITATION NO. " TERMS WILL BE NET CASH THIRTY (30) DAYS FROM FIRST OF MONTH SUCCEEDING MONTH OF SHIPMENT.'. WHEN THE DISCOUNT WAS TAKEN INTO CONSIDERATION. YOUR BID WAS LOWER THAN THE FIVE OTHER BIDS RECEIVED.

B-134636, APRIL 17, 1958, 37 COMP. GEN. 685

CONTRACTS - MISTAKES - PRICE ADJUSTMENT - TO NEXT LOW BID UNDER A CONTRACT WHICH WAS AWARDED, WITHOUT KNOWLEDGE OF A PATENT AMBIGUITY IN THE PAYMENTS TERMS, ON THE BASIS OF TOTAL PRICE LESS PROMPT PAYMENT DISCOUNT, ALTHOUGH THE CONTRACTOR INTENDED THE PRICE TO BE NET AND HAS SUBSTANTIATED THE INTENDED NET PRICE, PAYMENT AFTER DELIVERY IS LIMITED TO THE REASONABLE VALUE OF THE MATERIAL NOT TO EXCEED THE NEXT LOWEST CORRECT BID, AND THE CONTRACTOR, AFTER PROVING THAT A DISCOUNT WAS NOT INTENDED, MAY NOT RECOVER THE DISCOUNT UPON THE GOVERNMENT'S FAILURE TO MAKE PROMPT PAYMENT.

TO THE INTERNATIONAL HARVESTER COMPANY, APRIL 17, 1958:

REFERENCE IS MADE TO LETTERS DATED MARCH 11 AND APRIL 8, 1958, FROM YOUR CREDIT AND COLLECTION DEPARTMENT, REQUESTING A REFUND OF YOUR ERRONEOUSLY OFFERED PROMPT PAYMENT DISCOUNT ON THE GROUND THAT PAYMENT WAS NOT MADE BY THE GOVERNMENT WITHIN THE DISCOUNT PERIOD STATED IN YOUR BID SUBMITTED IN RESPONSE TO INVITATION NO. DA-15-056-57-254.

IN RESPONSE TO INVITATION NO. DA-15-056-57-254, SOLICITING BIDS FOR FURNISHING OLIVER SUPER 55 OR EQUAL TRACTORS TO FORT CAMPBELL, KENTUCKY, YOU SUBMITTED A BID WITH PATENTLY AMBIGUOUS PAYMENT TERMS IN THAT IN STANDARD FORM 33 YOU OFFERED A UNIT PRICE OF $1,966.44 LESS A PROMPT PAYMENT DISCOUNT OF "21 PERCENT, 30 CALENDAR DAYS" WHEREAS IN THE COVER LETTER ACCOMPANYING THE STANDARD FORM YOU STATED," TERMS WILL BE NET CASH THIRTY (30) DAYS FROM FIRST OF MONTH SUCCEEDING MONTH OF SHIPMENT.' THE CONTRACTING OFFICER DID NOT NOTICE THE CONFLICT IN THE TERMS OF PAYMENT AND HE CONSIDERED YOUR BID TO BE $1,966.44 LESS 21 PERCENT, OR $1,553.49 NET. WHEN THE DISCOUNT WAS TAKEN INTO CONSIDERATION, YOUR BID WAS LOWER THAN THE FIVE OTHER BIDS RECEIVED, WHICH RANGED FROM $1,568.50 TO $2,643.48, AND IT WAS IN LINE WITH THE GOVERNMENT'S ESTIMATE OF $1,500. ACCORDINGLY, ON JUNE 27, 1957, THE CONTRACTING OFFICER MADE AN AWARD TO YOU FOR TWO TRACTORS IN THE TOTAL AMOUNT OF $3,932.88 LESS 21 PERCENT DISCOUNT, 30 CALENDAR DAYS.

AFTER YOU DELIVERED THE TRACTORS AND WERE TENDERED PAYMENT FOR THEM IN THE TOTAL AMOUNT OF $3,932.88 LESS THE 21 PERCENT DISCOUNT, YOU ALLEGED AN ERROR IN BID, EXPLAINED HOW THE ERROR OCCURRED, SUBMITTED A PHOTOSTATIC COPY OF YOUR WORKSHEET AS EVIDENCE THAT YOUR INTENDED UNIT PRICE WAS $1,966.44 NET, AND REQUESTED RELIEF. THE DEPARTMENT OF THE ARMY SUBMITTED THE MATTER TO OUR OFFICE FOR OUR CONSIDERATION. BY DECISION TO THE SECRETARY OF THE ARMY, B-134636, DATED JANUARY 10, 1958, WE HELD THAT YOU HAD SUFFICIENTLY ESTABLISHED THAT YOUR INTENDED UNIT PRICE WAS $1,966.44 NET, BUT WE LIMITED RELIEF TO $1,568.50, THE NEXT LOW BID.

NOW, IN YOUR LETTER DATED MARCH 11, 1958, YOU STATE:

WE FRANKLY ADMIT THE ERROR IN SHOWING THE INCORRECT AMOUNT OF DISCOUNT ON INVITATION TO BID FORM NO. 33, BUT WISH TO POINT OUT THAT PAYMENT FOR THE TRACTORS WAS NOT MADE WITHIN THE 30 CALENDAR DAYS WHICH WOULD PERMIT THE ALLOWANCE OF THE CASH DISCOUNT.

AS A GENERAL RULE, WHEN A UNILATERAL ERROR IS ALLEGED AFTER AWARD, THE CONTRACT IS PRESUMED IN LAW TO EXPRESS THE UNDERSTANDING OF THE PARTIES. HOWEVER, WHEN THE PARTY NOT IN ERROR SHOULD HAVE SUSPECTED OR HAD REASON TO KNOW OF THE EXISTENCE OF THE ERROR, RESCISSION OF THE CONTRACT IS ALLOWED. MOFFETT, HODGKINS AND CLARKE CO. V. CITY OF ROCHESTER, 178 U.S. 373; C. N. MONROE MANUFACTURING CO. V. UNITED STATES, 143 F.1SUPP. 449, AND CASES CITED THEREIN; 5 WILLISTON ON CONTRACTS 1578; 3 CORBIN ON CONTRACTS 610, 614; 52 A.L.R. 2D 802; AND ID. FOOTNOTE 9. IF WHEN THE CONTRACT IS RESCINDED, THE INTENDED GOODS HAVE BEEN DELIVERED, RESTITUTION IS MADE ON THE BASIS OF THE REASONABLE VALUE OF THE FULL PERFORMANCE, LIMITED TO THE NEXT LOWEST CORRECT BID. C. N. MONROE MANUFACTURING CO. V. UNITED STATES, SUPRA; SHEPARD V. UNITED STATES, 95 C.1CLS. 407; 26 COMP. DEC. 286; 2 COMP. GEN. 503; 17 ID. 841; AND 36 ID. 585. THE RATIONALE FOR LIMITING RELIEF TO THE NEXT LOWEST CORRECT BID IS THAT THE CONTRACTING OFFICER IS BOUND BY MANDATORY PROVISIONS OF LAW, 10 U.S.C. 2305 (B), TO MAKE THE AWARD TO THE LOWEST RESPONSIBLE BIDDER AND, THEREFORE, HAS NO AUTHORITY TO BIND THE GOVERNMENT TO OTHER THAN THE LOWEST CORRECT BID PRICE RECEIVED.

A SITUATION SIMILAR TO THE IMMEDIATE MATTER IS SHEPARD V. UNITED STATES, SUPRA. IN THAT CASE, THE CONTRACTOR, INTENDING TO SUBMIT TO THE GOVERNMENT A BID OF $3.75 PER TON TO SUPPLY 300 TONS OF COAL, SUBMITTED ERRONEOUSLY A PATENTLY AMBIGUOUS BID IN THAT IN ONE PLACE IN HIS BID HE OFFERED A PRICE OF $3.75 PER TON AND IN ANOTHER PLACE IN THE SAME BID OFFERED A PRICE OF $2.75 PER TON. THE CONTRACTING OFFICER DID NOT NOTICE THE $3.75 PRICE AND WHEN HE AWARDED THE CONTRACT HE INTENDED THE $2.75 PRICE TO APPLY. AFTER 150 TONS OF COAL HAD BEEN DELIVERED, THE CONTRACTOR DISCOVERED THE ERROR, CLAIMED HE WAS ENTITLED TO THE $3.75 RATE, AND COMPLETED DELIVERY OF THE REST OF THE COAL. THE GOVERNMENT PAID THE CONTRACTOR AT THE RATE OF $2.75 PER TON AND THE CONTRACTOR SUED FOR THE DIFFERENCE BETWEEN THE $2.75 AND $3.75 RATE. THE COURT OF CLAIMS HELD:

THE MISUNDERSTANDING HERE WAS DUE TO CARELESSNESS ON BOTH SIDES, AS A RESULT OF WHICH THE MINDS OF THE PARTIES DID NOT MEET ON THE VITAL SUBJECT OF PRICE. BUT THE DEFENDANT ( GOVERNMENT) RECEIVED THE COAL, AND IS, UNDER THE CIRCUMSTANCES HERE SHOWN, BOUND TO PAY FOR THE BENEFIT IT HAS THUS RECEIVED. A READY MEASURE OF THAT BENEFIT IS AVAILABLE, SINCE THE LOWEST UNAMBIGUOUS BID FOR THE SAME CONTRACT WAS TO FURNISH COAL AT $3.50 PER TON.

THE COURT DISREGARDED THE INTENTION OF THE CONTRACTING OFFICER AND, IN THE FACE OF THE CONTRACTOR'S PROVED INTENDED BID PRICE, ALLOWED HIM TO RECOVER NO MORE THAN THE DIFFERENCE BETWEEN THE AMOUNT PAID AFTER DELIVERY OF THE GOODS AND THE AMOUNT OF THE NEXT LOWEST BID. SIMILARLY, IN THE IMMEDIATE MATTER, THERE WAS NO "MEETING OF THE MINDS" ON THE SUBJECT OF PRICE AND THE INTENTION OF THE CONTRACTING OFFICER TO PROVIDE FOR A DISCOUNT IF PAYMENT IS MADE WITHIN 30 CALENDAR DAYS IS DISREGARDED AND PAYMENT IS LIMITED TO THE AMOUNT OF THE NEXT LOWEST BID.

ASSUMING THAT THE GOVERNMENT FAILED TO MAKE PAYMENT WITHIN 30 CALENDAR DAYS, THEN UNDER THE TERMS OF THE AWARDED CONTRACT YOU WOULD BE ENTITLED TO RECOVER $1,966.44, AN AMOUNT GREATER THAN THE NEXT LOW BID. HOWEVER, YOU HAVE ALLEGED AND PROVED THAT YOU NEVER INTENDED TO OFFER A PROMPT PAYMENT DISCOUNT, THAT IT WAS OFFERED IN ERROR AND THAT YOU INTENDED TO QUOTE A PRICE OF $1,966.44 NET. SINCE YOU NEVER INTENDED TO BE PAID UNDER THE TERMS OF THE PROMPT PAYMENT DISCOUNT, IN EFFECT, IT IS AS IF THOSE TERMS NEVER EXISTED AND YOU CANNOT NOW ELECT TO BE PAID ON THAT BASIS. ALLOW YOU TO PROVE THAT YOU DID NOT INTEND A PROMPT PAYMENT DISCOUNT AND THEN TO PERMIT YOU TO RECOVER THE DISCOUNT FOR THE GOVERNMENT'S FAILURE TO MAKE PROMPT PAYMENT WOULD BE INCONSISTENT. YOU PROVED THAT YOUR INTENDED PRICE WAS $1,966.44 NET AND ORDINARILY YOU WOULD HAVE BEEN ALLOWED THAT AMOUNT, BUT FOR THE RULE THAT CORRECTION BEYOND THE NEXT LOW BID IS UNAUTHORIZED.

ACCORDINGLY, WE AFFIRM OUR DECISION OF JANUARY 10, 1958, TO THE SECRETARY OF THE ARMY.

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