B-126871, MAR. 28, 1956

B-126871, MAR. 28, 1956

TO THE HONORABLE FRANKLIN G. FLOETE, ADMINISTRATOR, GENERAL SERVICES ADMINISTRATION:

REFERENCE IS MADE TO LETTER DATED FEBRUARY 2, 1956, FROM THE ASSISTANT ADMINISTRATOR REQUESTING OUR INTERPRETATION OF CERTAIN PAYMENT PROVISIONS IN CONTRACT NO. GS-00P-98/SCM-ECA).

THE CONTRACT WAS EXECUTED ON OCTOBER 9, 1950, BETWEEN THE UNITED STATES, SMAG, A MINING COMPANY OF FRENCH MOROCCO, AND THE DELORO SMELTING AND REFINING COMPANY OF CANADA. UNDER ITS TERMS, COBALT CONCENTRATES WERE TO BE FURNISHED BY THE MINING COMPANY TO DELORO FOR REFINING, AND THE LATTER WAS TO DELIVER COBALT METAL TO THE UNITED STATES. THE TERMS OF PAYMENT CONTEMPLATED THAT DELORO AND THE UNITED STATES WOULD SHARE THE COST OF THE CONCENTRATES EQUALLY, AND THE UNITED STATES WOULD PAY DELORO AN ADDITIONAL AMOUNT UPON DELIVERY OF THE REFINED COBALT.

UNDER ARTICLE 2.4 OF THE CONTRACT DELORO OBLIGATED ITSELF TO MAKE DELIVERIES OF COBALT METAL AT LEAST EVERY THIRTY DAYS, BEGINNING 120 DAYS AFTER RECEIPT OF THE FIRST SHIPMENT OF CONCENTRATES, EACH DELIVERY TO CONTAIN NOT LESS THAN 40,000 POUNDS AND ALL DELIVERIES TO BE COMPLETED NOT LATER THAN JUNE 30, 1953. THE SCHEDULE OF DELIVERIES OF COBALT METAL TO BE MADE BY DELORO WAS CONTINGENT UPON RECEIPT BY IT OF THE COBALT CONCENTRATES. IT IS UNDERSTOOD THAT DELIVERIES OF CONCENTRATES, ALTHOUGH SOMEWHAT DELAYED, WERE MADE IN TIME TO PERMIT DELORO TO FULFILL ITS DELIVERY SCHEDULE.

ARTICLE 2.6 OF THE CONTRACT PROVIDED THAT THE PRICE TO BE PAID TO DELORO FOR COBALT WOULD BE $1.497 PER POUND, PLUS ONE-HALF THE PRICE OF THE CONCENTRATES. HOWEVER, ARTICLE 2.6 FURTHER PROVIDED THAT AFTER APRIL 1, 1951, IN THE EVENT THE PUBLISHED DOMESTIC MARKET PRICE FOR COBALT METAL SHOULD BE ABOVE $1.85 PER POUND, THE PAYMENT TO DELORO WOULD BE COMPUTED AS OF THE DATE OF DELIVERY OF THE METAL AT 80.92 PERCENT OF THE THEN CURRENT MARKET PRICE.

THE FIRST MONTHLY DELIVERY OF COBALT METAL BY DELORO WAS DUE BY MARCH 10, 1951. BY LETTER OF FEBRUARY 13, 1951, DELORO REQUESTED AN EXTENSION ON THIS DELIVERY TO APRIL 10, 1951, WITHOUT EXTENSION OF THE TIME FOR COMPLETION OF THE TOTAL CONTRACT. THE LETTER ALSO CONTAINED THE FOLLOWING PARAGRAPH CONCERNING PRICE:

"ARTICLE 2.6/B) PROVIDES FOR AN INCREASE IN THE PRICE TO BE PAID BY THE GOVERNMENT AFTER APRIL 1ST, 1951, IN THE EVENT OF AN INCREASE IN THE MARKET QUOTATION FOR COBALT METAL SUCH AS HAS NOW TAKEN PLACE. IN VIEW OF THE ABOVE REQUEST FOR EXTENSION, WE NOW PROPOSE, AND WILL ACCEPT, THAT THE SHIPMENT OF THE FIRST 40,000 LBS. OF COBALT METAL BY DELORO SHALL BE PRICES IN THE SAME MANNER AS IF DELIVERY HAD BEEN MADE PRIOR TO APRIL 1ST, 1951.'

THE CONTRACTING OFFICER FOR GENERAL SERVICES ADMINISTRATION REPLIED BY LETTER DATED FEBRUARY 23, 1951, AS FOLLOWS:

"IN VIEW OF THE CIRCUMSTANCES YOUR REQUEST FOR A POSTPONEMENT OF THE FIRST DELIVERY DATE FOR A MAXIMUM OF THIRTY DAYS TO APRIL 10, 1951, IS GRANTED WITH THE UNDERSTANDING THAT THIS DELAY IN THE INITIAL SHIPMENT WILL NOT MEAN AN EQUAL EXTENSION IN TIME OF COMPLETION OF THE TOTAL CONTRACT, AND THAT THE SHIPMENT OF THE FIRST 40,000 POUNDS OF COBALT METAL BY DELORO SHALL BE PRICED IN THE SAME MANNER AS IF DELIVERY HAD BEEN MADE PRIOR TO APRIL 1, 1951.'

DELIVERIES OF COBALT METAL BY DELORO BEGAN IN MAY 1951 AND CONTINUED THEREAFTER THROUGH MARCH 1954. HOWEVER, MONTHLY DELIVERIES USUALLY WERE LESS THAN 40,000 POUNDS AND SOME MONTHS NO DELIVERIES WERE MADE. THE MARKET PRICE OF COBALT METAL INCREASED TO $2.10 PER POUND, APPARENTLY PRIOR TO APRIL 1, 1951. THE PRICE WENT TO $2.40 PER POUND BETWEEN SEPTEMBER AND NOVEMBER 1951, AND TO $2.60 PER POUND IN OCTOBER OR NOVEMBER 1953. ALL DELIVERIES MADE BY DELORO AFTER THE FIRST 40,000 POUNDS WERE BILLED ON THE BASIS OF THE MARKET PRICE CURRENT AT THE TIME OF ACTUAL DELIVERY AND WERE PAID FOR AS BILLED UNTIL 1954. IN FEBRUARY 1954, DELORO WAS ADVISED THAT ITS BILLINGS SHOULD HAVE BEEN MADE ON THE BASIS OF THE MARKET PRICE CURRENT AT THE TIME DELIVERIES WERE DUE UNDER THE CONTRACT SCHEDULE RATHER THAN THE PRICE CURRENT AT THE TIME DELIVERIES WERE ACTUALLY MADE, AND THE AMOUNT OF $56,957.84 WAS DEDUCTED FROM ITS JANUARY 1954 BILLING TO COVER PAST OVERPAYMENTS. SIMILAR DEDUCTIONS WERE MADE FROM THE NEXT FOUR DELIVERIES, MAKING AN AGGREGATE OF $100,628.32 SO DEDUCTED. NO DELIVERIES HAVE BEEN MADE SINCE MARCH 1954, AND DELORO STILL HAS COBALT CONCENTRATES FROM WHICH A LARGE QUANTITY OF COBALT SHOULD BE PRODUCED AND DELIVERED TO THE GOVERNMENT. THESE CONCENTRATES IN DELORO'S POSSESSION REPRESENT AN EXPENDITURE FOR THEIR PURCHASE OF ABOUT $129,000 EACH BY DELORO AND THE GOVERNMENT.

DELORO TAKES THE POSITION THAT IT IS ENTITLED UNDER THE CONTRACT TO BE PAID ON THE BASIS OF THE MARKET PRICE OF COBALT CURRENT AT TIME OF ACTUAL DELIVERY, AND HAS REFUSED TO MAKE FURTHER DELIVERIES WITHOUT ASSURANCE THAT IT WILL BE PAID THAT RATE FOR PAST AND FUTURE DELIVERIES. THE CORRECTNESS OF ITS POSITION DEPENDS UPON THE EFFECT OF THE CONTRACT PROVISION CALLING FOR COMPUTATION OF THE PRICE "AS OF THE DATE OF DELIVERY OF THE COBALT METAL" CONSIDERED IN CONNECTION WITH THE MINIMUM MONTHLY DELIVERIES WHICH DELORO AGREED TO MAKE.

THE GENERAL PRINCIPLES INVOLVED IN THE SITUATION PRESENTED HAVE BEEN BEFORE THE ACCOUNTING OFFICERS FREQUENTLY IN THE PAST, AND WE HAVE CONSISTENTLY REFUSED TO ALLOW PRICE INCREASES RESULTING FROM EVENTS OCCURRING AFTER THE TIME DELIVERIES WERE DUE. WE BELIEVE THAT UNDER CONTRACTS OF THIS KIND THE CONTRACTOR HAS NO RIGHT TO INCREASE THE COST OF SUPPLIES TO THE GOVERNMENT BY HIS OWN FAILURE OR REFUSAL TO DELIVER BY THE TIME HE PROMISED. SEE 34 COMP. GEN. 565, 567, AND CASES THERE CITED.

WITH RESPECT TO THE OTHER QUESTION RAISED IN THE LETTER OF FEBRUARY 2, 1956, INVOLVING THE EFFECT OF THE CANADIAN EXCHANGE RATE ON PAYMENTS MADE BY THE GOVERNMENT, ARTICLE 2.14 OF THE CONTRACT SPECIFICALLY PROVIDES THAT IF THERE BE NO OFFICIAL RATE OF EXCHANGE ESTABLISHED BY THE CANADIAN GOVERNMENT AT THE DATE OF DELIVERY OF COBALT METAL, THERE SHALL BE USED THE "FINAL DAILY QUOTATION PUBLISHED IN THE NEW YORK TIMES ON THE NEW YORK FOREIGN EXCHANGE MARKET.' THIS LANGUAGE IS CLEAR AND UNAMBIGUOUS. SINCE THERE WAS NO "OFFICIAL RATE OF EXCHANGE * * * ESTABLISHED BY THE CANADIAN GOVERNMENT," COMPUTATIONS SHOULD HAVE BEEN MADE ON THE BASIS OF THE DAILY QUOTATION PUBLISHED IN THE NEW YORK TIMES AND NOT, AS CONTENDED BY DELORO, ON THE BASIS OF THE EXCHANGE RATE ESTABLISHED BY THE BANK OF CANADA. WHILE IT NOT FOLLOW THAT OTHER BANKS WOULD BE COMPELLED TO ADOPT THE EXCHANGE RATE USED BY THE BANK OF CANADA, AS WOULD BE THE CASE IF THE CANADIAN GOVERNMENT IN THE EXERCISE OF ITS SOVEREIGN POWERS ESTABLISHED AN OFFICIAL RATE OF EXCHANGE.

YOU ARE THEREFORE ADVISED IT IS OUR VIEW THAT THE POSITION TAKEN BY YOU IN CONNECTION WITH THE PAYMENT OF CONTRACT NO. GS-00P-98 (SCM-ECA) IS CORRECT. ANY ACTION WHICH MAY BE TAKEN BY REASON OF DELORO'S REFUSAL TO AGREE WITH THIS POSITION IS, OF COURSE, FOR DETERMINATION BETWEEN YOUR AGENCY AND THE DEPARTMENT OF JUSTICE.