B-111661, JANUARY 21, 1953, 32 COMP. GEN. 328

B-111661, JANUARY 21, 1953, 32 COMP. GEN. 328

CONTRACTS - DEFAULTING CONTRACTORS - EXTENT OF EXCESS COST LIABILITY - PROMPT PAYMENT DISCOUNTS THE AMOUNT OF EXCESS COSTS INCURRED BY THE GOVERNMENT UNDER REPLACEMENT CONTRACTS AWARDED TO VARIOUS FIRMS AS RESULT OF A DEFAULT OF A CONTRACT CONTAINING PROMPT PAYMENT DISCOUNT CLAUSE IS THE DIFFERENCE BETWEEN THE AGGREGATE AMOUNT OF THE VARIOUS REPLACEMENT CONTRACTS AND THE ORIGINAL CONTRACT PRICE LESS THE DISCOUNT. 4 COMP. GEN. 807, OVERRULED IN PART.

ACTING COMPTROLLER GENERAL YATES TO THE ADMINISTRATOR OF VETERANS AFFAIRS, JANUARY 21, 1953:

REFERENCE IS MADE TO YOUR LETTER OF AUGUST 27, 1952, TRANSMITTING THE CASE OF THE RENIE METALS PRODUCTS COMPANY, MANSFIELD, OHIO, A DEFAULTING CONTRACTOR UNDER CONTRACT NO. V1001P-9462, DATED JANUARY 12, 1951, AND REQUESTING TO BE ADVISED AS TO WHETHER THE LIABILITY OF SUCH DEFAULTING CONTRACTOR FOR EXCESS COSTS SHOULD BE COMPUTED ON THE AGGREGATE AMOUNT OF THE REPURCHASE OR ON AN ITEM BY ITEM BASIS.

THE RECORD INDICATES THAT UNDER THE ABOVE-MENTIONED CONTRACT THE RENIE METALS PRODUCTS COMPANY AGREED TO FURNISH TO THE GOVERNMENT VARIOUS QUANTITIES OF STEEL SHELVING AT UNIT PRICES STIPULATED THEREIN, OR A TOTAL CONTRACT PRICE OF $7,607.25, AND PROVIDED A DISCOUNT ALLOWANCE OF ONE PERCENT OR ONE-HALF PERCENT IN THE EVENT PAYMENT THEREFOR WAS MADE WITHIN TEN CALENDAR DAYS AND TWENTY CALENDAR DAYS, RESPECTIVELY. UPON FAILURE TO MAKE DELIVERY, THE CONTRACT WAS TERMINATED, AND THEREFORE IT BECAME NECESSARY FOR THE GOVERNMENT TO PURCHASE THE MATERIAL FROM OTHER SOURCES THROUGH THE MEDIUM OF THREE REPLACEMENT CONTRACTS, I.E.: TWO WITH THE UNIVERSAL STEEL EQUIPMENT CORPORATION AND ONE WITH THE GENERAL STEEL PRODUCTS CORPORATION. THE SHELVING PROCURED FROM THE UNIVERSAL COMPANY AMOUNTED TO $4,323.61 AS AGAINST THE NET PRICE OF $4,226.06 ORIGINALLY OFFERED BY THE DEFAULTING CONTRACTOR, THEREBY RESULTING IN EXCESS COSTS AMOUNTING TO $97.55. ON THE OTHER HAND, THE BALANCE OF THE EQUIPMENT PURCHASED FROM THE GENERAL STEEL PRODUCTS CORPORATION WAS OBTAINED FOR THE SUM OF $3,208.70, OR $96.42 LESS THAN OFFERED BY THE RENIE COMPANY, WHICH AMOUNT, WHEN APPLIED AGAINST THE SUM OF $97.50 LEAVES A BALANCE OF $1.13 TOTAL EXCESS COSTS OCCASIONED THE GOVERNMENT.

PARAGRAPH 11 (C) OF THE GENERAL PROVISIONS WHICH BECAME A PART OF THE CONTRACT WITH THE RENIE METAL PRODUCTS COMPANY, PROVIDES IN PERTINENT PART AS FOLLOWS:

IN THE EVENT THE GOVERNMENT TERMINATES THIS CONTRACT IN WHOLE OR IN PART AS PROVIDED IN PARAGRAPH (A) OF THIS CLAUSE, THE GOVERNMENT MAY PROCURE, UPON SUCH TERMS AND IN SUCH MANNER AS THE CONTRACTING OFFICER MAY DEEM APPROPRIATE, SUPPLIES OR SERVICES SIMILAR TO THOSE SO TERMINATED, AND THE CONTRACTOR SHALL BE LIABLE TO THE GOVERNMENT FOR ANY EXCESS COSTS FOR SUCH SIMILAR SUPPLIES OR SERVICES * * *. (ITALICS SUPPLIED)

MANIFESTLY, THE FOREGOING PROVISIONS CONTEMPLATED THAT IN THE EVENT OF A FAILURE TO PERFORM, THE DEFAULTING CONTRACTOR WOULD STAND LIABLE FOR WHATEVER EXCESS COST MIGHT BE OCCASIONED THE GOVERNMENT IN THE PROCUREMENT OF SUPPLIES SIMILAR TO THOSE ORIGINALLY BARGAINED FOR--- WHICH, IN THE INSTANT CASE WERE 96 RACKS AT AN AGGREGATE PRICE OF $7,607.25, LESS THE DESIGNATED DISCOUNT. NOTWITHSTANDING THE FACT THAT IT BECAME NECESSARY TO AWARD REPLACEMENT CONTRACTS TO THREE DIFFERENT FIRMS, THE ENTIRE LOT ACTUALLY WAS PURCHASED FOR THE DEFAULTING CONTRACTOR'S ACCOUNT AT PRICES AMOUNTING TO ONLY $1.13 IN EXCESS OF THE ORIGINAL PRICE; ACCORDINGLY, THERE IS PERCEIVED NO LOGICAL BASIS FOR COMPUTING THE EXCESS COSTS EXCEPT ON THE CONTRACT AS A WHOLE.

AS IS IMMEDIATELY OBVIOUS, THE FOREGOING CALCULATIONS HAVE TAKEN INTO CONSIDERATION THE DISCOUNT OFFERED BY THE DEFAULTING CONTRACTOR, SINCE THE EXCESS COSTS INVOLVED PROPERLY MUST BE VIEWED AS REPRESENTING THE DIFFERENCE BETWEEN THE PRICE AT WHICH THE MATERIAL COULD HAVE BEEN PROCURED, AND THE ACTUAL COST AT WHICH IT ULTIMATELY WAS PURCHASED. MOREOVER, AT THE TIME OF EXECUTING THE ORIGINAL CONTRACT THE GOVERNMENT WAS ENTITLED TO THE CONTRACT PRICE OF $7,607.25 LESS A DISCOUNT OF ONE PERCENT, OR A NET OF $7,531.18; PROVIDED, OF COURSE, PAYMENT THEREFOR WAS MADE WITHIN A PERIOD OF TEN DAYS. IN THIS CONNECTION, ATTENTION IS INVITED TO THE CASE OF DOEHLER METAL FURNITURE CO. V. UNITED STATES, 149 F.2D, 130. SUCH COMPUTATION ALSO FINDS SUPPORT IN THE FUNDAMENTAL PRINCIPLE OF THE LAW OF DAMAGES THAT ONE INJURED BY A BREACH OF CONTRACT OR BY A WRONGFUL OR NEGLIGENT ACT OR OMISSION SHALL HAVE FAIR AND JUST COMPENSATION COMMENSURATE WITH THE LOSS SUSTAINED IN CONSEQUENCE OF THE DEFENDANT'S ACT WHICH GAVE RISE TO THE ACTION. ILLINOIS CEN. R. CO. V. CRAIL, 281 U.S. 57; MILLER V. ROBERTSON, 266 U.S. 243. AND, IN GENERAL, THE DAMAGES AWARDED SHOULD BE EQUAL TO, AND PRECISELY COMMENSURATE WITH, THE INJURY SUSTAINED. BIRDSALL V. COOLIDGE, 93 U.S. 64, AND DOW V. HUMBERT, 91 U.S. 294.

IN VIEW OF THE FOREGOING, EXCESS COSTS IN THE INSTANT CASE SHOULD BE PREMISED UPON THE BASIS THAT THE MATERIALS WOULD HAVE BEEN AVAILABLE AT AN AGGREGATE NET PRICE OF $7,531.18 HAD TIMELY PERFORMANCE BEEN EFFECTUATED AND PAYMENT THEREFOR MADE WITHIN THE PRESCRIBED DISCOUNT PERIOD. GOVERNMENT AGENCIES ARE REQUIRED TO TAKE CASH DISCOUNTS IF POSSIBLE AND, WHILE IN PARTICULAR CASES THEY MAY FAIL TO DO SO, IT NECESSARILY MUST BE PRESUMED IN CASES SUCH AS THIS THAT THE GOVERNMENT WOULD HAVE PAID THE DEFAULTING CONTRACTOR IN TIME TO TAKE ADVANTAGE OF THE CASH DISCOUNT OFFERED BY HIM. CERTAINLY, THE DEFAULTING CONTRACTOR IS IN NO POSITION TO COMPLAIN AS IT WAS HIS DEFAULT THAT DEPRIVED THE GOVERNMENT OF THE OPPORTUNITY OF TAKING THE DISCOUNT.

THE RULE STATED IN 4 COMP. GEN. 807 TO THE EXTENT IT MAY BE IN CONFLICT WITH WHAT IS STATED HEREIN SHOULD NO LONGER BE FOLLOWED.