B-125792, DECEMBER 5, 1955, 35 COMP. GEN. 328

B-125792, DECEMBER 5, 1955, 35 COMP. GEN. 328

CONTRACTS - MODIFICATION - TITLE II OF THE FIRST WAR POWERS ACT A REQUEST FOR RELIEF UNDER TITLE II OF THE FIRST WAR POWERS ACT BY A SUBCONTRACTOR WHO HAS COMPLETED WORK AND RECEIVED FINAL PAYMENT FROM TWO PRIME CONTRACTORS WITH THE ATOMIC ENERGY COMMISSION, AND WHO REQUESTS RELIEF FROM THE COMMISSION BECAUSE THE LOSSES SUSTAINED WILL AFFECT HIS ABILITY TO CONTINUE PRODUCTION UNDER OTHER CONTRACTS FOR THE ARMY, NAVY, AND AIR FORCE, IS NOT PROPERLY FOR CONSIDERATION BY THE COMMISSION WHOSE DEFENSE ACTIVITIES WILL NOT BE FACILITATED BY THE CONTINUED OPERATIONS OF THE SUBCONTRACTOR; HOWEVER, THE REQUEST MAY BE CONSIDERED BY THOSE AGENCIES WHOSE DEFENSE FUNCTIONS WILL BE AFFECTED BY THE DISCONTINUANCE OF THE CONTRACTOR'S OPERATIONS.

TO THE CHAIRMAN, ATOMIC ENERGY COMMISSION, DECEMBER 5, 1955:

REFERENCE IS MADE TO LETTER OF OCTOBER 13, 1955, FROM THE ACTING GENERAL MANAGER OF THE COMMISSION, REQUESTING OUR OPINION ON QUESTIONS WHICH HAVE ARISEN IN CONNECTION WITH APPLICATIONS MADE BY THE ULTRASONIC CORPORATION, CAMBRIDGE, MASSACHUSETTS, FOR RELIEF UNDER TITLE II OF THE FIRST WAR POWERS ACT.

ON APRIL 15, 1955, ULTRASONIC FILED REQUESTS WITH F. H. MCGRAW AND COMPANY AND PETER KIEWIT SONS' COMPANY, COST-TYPE CONTRACTORS OF THE ATOMIC ENERGY COMMISSION, IN THE AMOUNTS OF $225,175 AND $536,262, RESPECTIVELY, FOR RELIEF UNDER THE FIRST WAR POWERS ACT IN CONNECTION WITH CERTAIN CONTRACTS BETWEEN ULTRASONIC AND THE TWO COMPANIES NAMED. THESE REQUESTS WERE FORWARDED THROUGH THE TWO PRIME CONTRACTORS TO THE COMMISSION FOR REVIEW AND APPROPRIATE ACTION.

THE STATED BASIS FOR THE REQUESTS FOR RELIEF IS THAT THE MONITOR CONTROLLER COMPANY DIVISION OF ULTRASONIC (WHICH WAS ACQUIRED BY ULTRASONIC IN 1952) WAS AWARDED TWELVE SUBCONTRACTS BY KIEWIT TOTALLING $601,778 AND SEVEN SUBCONTRACTS BY MCGRAW TOTALLING $214,352 DURING THE PERIOD FROM FEBRUARY 1953 TO FEBRUARY 1955; THAT PERFORMING THE KIEWIT SUBCONTRACTS WAS $1,138,040 AND THE MCGRAW SUBCONTRACTS $439,527, REPRESENTING A TOTAL LOSS OF $761,437; AND THAT THIS LOSS HAS SO SERIOUSLY AFFECTED THE OPERATIONS OF ULTRASONIC THAT ITS ABILITY TO CONTINUE PRODUCTION UNDER ITS CURRENT DEFENSE CONTRACTS (TOTALLING SOME $13,625,000) IS THREATENED. ALL WORK CALLED FOR UNDER THE MCGRAW AND KEIWIT SUBCONTRACTS HAS BEEN COMPLETED. FINAL PAYMENT UNDER TWO OF THESE SUBCONTRACTS WAS MADE IN 1953, UNDER FIFTEEN IN 1954, AND UNDER THE REMAINING TWO IN 1955.

THE ACTING GENERAL MANAGER'S LETTER OF OCTOBER 13, 1955, RAISES THE QUESTION WHETHER, ON THE BASIS OF THE FACTS OUTLINED ABOVE, THE REQUESTS FOR RELIEF COME WITHIN THE SCOPE OF THE FIRST WAR POWERS ACT AND THE EXECUTIVE ORDERS ISSUED UNDER THE ACT. MENTION IS MADE IN THIS CONNECTION OF TWO DECISIONS OF OUR OFFICE, 24 COMP. GEN. 723 AND 31 COMP. GEN. 685. THE HOLDING IN THESE TWO DECISIONS IS TO THE EFFECT THAT THE AUTHORITY GIVEN BY THE FIRST WAR POWERS ACT TO AMEND CONTRACTS WITHOUT CONSIDERATION CANNOT BE EXERCISED IN THE CASE OF CONTRACTS WHICH HAVE CEASED TO EXIST BY REASON OF COMPLETE PERFORMANCE ON BOTH SIDES, THAT IS, AFTER COMPLETION OF THE WORK BY THE CONTRACTOR AND FINAL PAYMENT THEREFOR. IT WAS HELD IN THE LATER DECISION, HOWEVER, THAT WHERE A REQUEST FOR RELIEF HAD BEEN FILED DURING PERFORMANCE OF A CONTRACT AND PRIOR TO WHAT OTHERWISE WOULD HAVE BEEN FINAL PAYMENT, SUCH A REQUEST COULD BE CONSIDERED AND GRANTED AFTER COMPLETION OF THE WORK AND PAYMENT THEREFOR.

THE APPLICATIONS FOR RELIEF IN THE PRESENT CASE RAISE ADDITIONAL QUESTIONS NOT CONSIDERED IN THE TWO DECISIONS MENTIONED. ULTRASONIC IS REQUESTING RELIEF AS A SUBCONTRACTOR, NOT AS A CONTRACTOR WITH THE UNITED STATES. FURTHERMORE, THE RELIEF REQUESTED IS NOT NECESSARY TO THE COMPLETION EITHER OF ITS SUBCONTRACTS OR OF THE PRIME CONTRACTS TO WHICH THEY RELATE. THE ADDITIONAL COMPENSATION REQUESTED FROM THE ATOMIC ENERGY COMMISSION IS ALLEGED TO BE NECESSARY TO ENABLE ULTRASONIC TO CONTINUE PRODUCTION UNDER CURRENT CONTRACTS WITH THE ARMY, NAVY, AND AIR FORCE, AND UNDER SUBCONTRACTS WITH PRIME CONTRACTORS OF THOSE DEPARTMENTS.

IN OUR OPINION, TITLE II OF THE FIRST WAR POWERS ACT AND THE APPLICABLE EXECUTIVE ORDERS DO NOT CONTEMPLATE OR AUTHORIZE THE GRANTING OF RELIEF BY THE ATOMIC ENERGY COMMISSION IN SUCH CIRCUMSTANCES. AFTER TITLE II OF THE FIRST WAR POWERS ACT, 50 U.S.C. APP. 611, WAS REACTIVATED ON JANUARY 12, 1951, THE PRESIDENT ON FEBRUARY 2, 1951, ISSUED EXECUTIVE ORDER NO. 10210 WHICH SET FORTH REGULATIONS IMPLEMENTING THE ACT. THOSE REGULATIONS PROVIDED, AMONG OTHER THINGS, THAT---

4. THE DEPARTMENT OF DEFENSE MAY BY AGREEMENT MODIFY OR AMEND * * * CONTRACTS HERETOFORE OR HEREAFTER MADE * * * WHENEVER, IN THE JUDGMENT OF THE SECRETARIES OF DEFENSE, THE ARMY, THE NAVY, OR THE AIR FORCE, RESPECTIVELY, OR THEIR DULY AUTHORIZED REPRESENTATIVES, THE NATIONAL DEFENSE WILL BE THEREBY FACILITATED. AMENDMENTS AND MODIFICATIONS OF CONTRACTS MAY BE WITH OR WITHOUT CONSIDERATION. * * *

THEREAFTER, BY EXECUTIVE ORDER NO. 10216, ISSUED FEBRUARY 23, 1951, THE ATOMIC ENERGY COMMISSIONED WAS AUTHORIZED, SUBJECT TO THE LIMITATIONS AND REGULATIONS CONTAINED IN EXECUTIVE ORDER NO. 10210, TO EXERCISE AS TO THE COMMISSION ALL THE AUTHORITY GRANTED TO THE SEVERAL SECRETARIES NAMED IN THE PREVIOUS EXECUTIVE ORDER.

THE ONLY CONTRACTS WHICH CAN BE AMENDED BY THE ATOMIC ENERGY COMMISSION OR BY ANY OTHER AGENCY EXERCISING FIRST WAR POWERS ACT AUTHORITY ARE ITS OWN CONTRACTS. IN OTHER WORDS, THE ONLY CONTRACTS WHICH COULD BE AMENDED BY THE ATOMIC ENERGY COMMISSION FOR THE BENEFIT OF ULTRASONIC IN THE PRESENT CASE ARE THOSE WITH THE MCGRAW AND KEIWIT COMPANIES. THESE COMPANIES OWE NO LEGAL OBLIGATIONS TO ULTRASONIC, AND DO NOT NEED RELIEF IN THEIR OWN BEHALF. FURTHERMORE, IT IS STATED IN THE LETTER OF OCTOBER 13, 1955, THAT ULTRASONIC IS NOT ESSENTIAL TO THE ATOMIC ENERGY COMMISSION TO THE EXTENT THAT ITS CONTINUED EXISTENCE WOULD FACILITATE THE NATIONAL DEFENSE ACTIVITIES OF THE COMMISSION. THERE HAVE BEEN FURNISHED TO THE COMMISSION LETTERS FROM THE ARMY, NAVY, AND AIR FORCE TO THE EFFECT THAT CONTINUED OPERATION OF ULTRASONIC CORPORATION UNDER CERTAIN CURRENT CONTRACTS WITH THOSE DEPARTMENTS WILL FACILITATE THE NATIONAL DEFENSE. THE QUESTION IS THUS PRESENTED WHETHER FUNDS APPROPRIATED FOR THE PURPOSES OF ONE AGENCY SHOULD BE USED TO FACILITATE THE NATIONAL DEFENSE FUNCTIONS OF ANOTHER AGENCY.

SECTION 3678, REVISED STATUTES, 31 U.S.C. 628, REQUIRES THAT APPROPRIATED FUNDS "SHALL BE APPLIED SOLELY TO THE OBJECTS FOR WHICH THEY ARE RESPECTIVELY MADE, AND FOR NO OTHERS.' IT SEEMS ONLY LOGICAL, THEREFORE, THAT WHATEVER RELIEF IS NECESSARY SHOULD BE GRANTED FROM THE APPROPRIATIONS OF THOSE AGENCIES ADMINISTERING THE CONTRACTS UNDER WHICH CONTINUED PRODUCTION IS ESSENTIAL TO THE DEFENSE EFFORT.

ANOTHER COMPELLING REASON FOR THIS CONCLUSION LIES IN THE FACT THAT THE PRIME PURPOSE OF THE FIRST WAR POWERS ACT IS NOT TO GRANT MONETARY RELIEF TO DISTRESSED CONTRACTORS BUT TO FACILITATE THE NATIONAL DEFENSE. HENCE, THE RELIEF WHICH MAY BE GRANTED SHOULD BE MEASURED IN TERMS OF THE AMOUNT NEEDED TO INSURE CONTINUED PRODUCTION. IT IS APPARENT THAT A DETERMINATION OF THE EXTENT OF THE RELIEF NECESSARY TO AVOID IMPAIRMENT OF THE CONTRACTOR'S ABILITY TO PRODUCE SUPPLIES ESSENTIAL TO THE DEFENSE EFFORT CAN BEST BE MADE BY THE AGENCY OR AGENCIES PROCURING SUCH SUPPLIES. THE PRESENT CASE AFFORDS A GOOD ILLUSTRATION OF THE ANOMALOUS SITUATION WHICH WOULD ARISE IF ONE AGENCY WERE TO ATTEMPT TO MEASURE THE EXTENT OF THE RELIEF NECESSARY TO ENABLE A CONTRACTOR TO CONTINUE PRODUCTION DEEMED ESSENTIAL TO THE NATIONAL DEFENSE NEEDS OF ANOTHER AGENCY. ULTRASONIC HAS OVER 60 CURRENT CONTRACTS AND SUBCONTRACTS WITH THE ARMY, NAVY, AND AIR FORCE AND WITH PRIME CONTRACTORS OF THESE DEPARTMENTS. IN RESPONSE TO INQUIRY FROM THE ATOMIC ENERGY COMMISSION, THE ARMY HAS STATED THAT ONLY SIX OF THESE CAN BE IDENTIFIED AS PERTAINING TO THE DEPARTMENT OF THE ARMY, OF WHICH ULTRASONIC IS PRESENTLY THE SOLE SOURCE OF SUPPLY UNDER ONLY TWO, AND THAT

* * * THE DEPARTMENT OF THE ARMY CONSIDERS THAT CONTINUED OPERATION OF ULTRASONIC CORPORATION WILL FACILITATE THE NATIONAL DEFENSE. * * *

THE NAVY HAS STATED THAT ULTRASONIC IS ESSENTIAL TO THE NATIONAL DEFENSE BECAUSE OF PRODUCTION UNDER EIGHT CONTRACTS AND SUBCONTRACTS. THE AIR FORCE HAS STATED THAT THE COMPANY IS DEEMED ESSENTIAL TO "CERTAIN CURRENT PROCUREMENT PROGRAMS" WITHOUT SPECIFYING THE PARTICULAR CONTRACTS OR SUBCONTRACTS INVOLVED. APPARENTLY CONTINUED PRODUCTION UNDER ALL 60 OF ULTRASONIC'S CURRENT CONTRACTS IS NOT ESSENTIAL TO THE NATIONAL DEFENSE. FURTHERMORE, VARYING DEGREES OF URGENCY UNDOUBTEDLY EXIST WITH RESPECT TO THE ARTICLES AND SERVICES NOW UNDER PRODUCTION BY ULTRASONIC, AND IT IS POSSIBLE THAT AN EXTENSION OF DELIVERY TIME ON CERTAIN CONTRACTS MIGHT BE COMPATIBLE WITH DEFENSE NEEDS AND ALSO AFFECT THE MEASURE OF MONETARY RELIEF NECESSARY TO AVOID IMPAIRMENT OF THE CONTRACTOR'S PRODUCTIVE ABILITY. THESE AND ALL OTHER PERTINENT FACTORS MUST BE CONSIDERED IN ATTEMPTING TO ARRIVE AT ANY DETERMINATION AS TO THE QUANTUM OF RELIEF WHICH PROPERLY SHOULD BE GRANTED ULTRASONIC UNDER THE FIRST WAR POWERS ACT. CERTAINLY, ON THE BASIS OF INFORMATION NOW BEFORE IT, THE ATOMIC ENERGY COMMISSION IS NOT IN A POSITION TO EVALUATE THESE FACTORS.

IN VIEW OF THE CONSIDERATIONS STATED ABOVE, IT IS OUR OPINION THAT ANY RELIEF WHICH MAY BE GRANTED ULTRASONIC CORPORATION IN ORDER TO FACILITATE THE NATIONAL DEFENSE SHOULD BE GRANTED BY THOSE AGENCIES TO WHOSE DEFENSE FUNCTIONS THE CONTRACTOR'S CONTINUED OPERATION IS ESSENTIAL.