B-128111, JULY 3, 1956, 36 COMP. GEN. 5

B-128111, JULY 3, 1956, 36 COMP. GEN. 5

CONTRACTS - DEFAULT - DEFECTIVE SUPPLIES, MATERIALS, ETC. THE REJECTION OF PATENTLY DEFECTIVE MATERIALS AFTER THE INSPECTION AND ACCEPTANCE BY THE GOVERNMENT OF MATERIALS OF THE SAME QUALITY AND CONSTRUCTION IS SO DISADVANTAGEOUS TO THE CONTRACTOR AS TO WARRANT THE CANCELLATION OF EXCESS COSTS INCIDENT TO THE TERMINATION OF THE CONTRACT.

TO THE ADMINISTRATOR, GENERAL SERVICES ADMINISTRATION, JULY 3, 1956:

REFERENCE IS MADE TO YOUR LETTER OF JUNE 1, 1956, REQUESTING OUR CONSIDERATION OF ASSESSMENTS OF EXCESS COSTS MADE AGAINST THE S. WEINSTEIN SUPPLY COMPANY, NEW YORK, NEW YORK, AND THE FRANKSON COMPANY, NEW YORK, NEW YORK, IN THE RESPECTIVE AMOUNTS OF $994.19 AND $1,944.56, AS THE RESULT OF INDICATED DEFAULTS UNDER THEIR RESPECTIVE CONTRACTS NOS. TC-GS- 09S-1166 DATED JUNE 18, 1954, AND TC-GS-09S-580 DATED DECEMBER 20, 1954.

THE CONTRACT WITH THE S. WEINSTEIN SUPPLY COMPANY WAS AWARDED ON THE BASIS OF ITS BID PRICES ON FIVE TYPES OF AXES WHICH THE GOVERNMENT MIGHT ORDER FROM DATE OF AWARD THROUGH DECEMBER 31, 1955, FOR DELIVERY TO THE DENVER FEDERAL CENTER, DENVER, COLORADO, AND TO GSA WAREHOUSES IN SAN FRANCISCO, CALIFORNIA, WILMINGTON, CALIFORNIA, AND SEATTLE, WASHINGTON. EACH CONTRACTOR STIPULATED THAT THE ARTICLES FURNISHED WOULD BE MANUFACTURED BY THE RIXFORD MANUFACTURING COMPANY, EAST HIGHGATE, VERMONT, AND A REPRESENTATIVE FROM THE BOSTON REGIONAL OFFICE OF YOUR ADMINISTRATION WAS ASSIGNED TO INSPECT AND ACCEPT PROPOSED DELIVERIES PRIOR TO SHIPMENT.

ON DECEMBER 6, 1954, A PURCHASE ORDER WAS PLACED WITH THE S. WEINSTEIN COMPANY FOR DELIVERY OF 630 AXES ( STOCK ITEM NO. 41-A-1210) AND 3,348 AXES ( STOCK ITEM NO. 41-A-1214). A LOT OF 360 AXES, ITEM NO. 41-A-1210, WAS INSPECTED AND RELEASED FOR SHIPMENT ON FEBRUARY 16, 1955. A LOT OF 900 AXES, ITEM NO. 41-A-1214 WAS INSPECTED AND RELEASED FOR SHIPMENT ON APRIL 5, 1955. FOLLOWING RECEIPT OF COMPLAINTS FROM THE FOREST SERVICE, TO WHICH SOME OF THE AXES PREVIOUSLY DELIVERED HAD BEEN ISSUED, THAT THEY WERE NOT IN ACCORDANCE WITH SPECIFICATIONS, ADDITIONAL LOTS OF 628 AND 1,620 AXES, TENDERED FOR DELIVERY AS ITEM NO. 41-A-1214, WERE REJECTED. THE CONTRACTOR'S RIGHT TO PROCEED WITH DELIVERY WAS TERMINATED ON JUNE 28, 1955, AND A PURCHASE OF 2,448 AXES, ITEM NO. 41-A-1214, WAS MADE AGAINST THE CONTRACTOR'S ACCOUNT AT AN EXCESS COST OF $994.19.

ON MARCH 18, 1955, A PURCHASE ORDER WAS PLACED WITH THE FRANKSON COMPANY FOR DELIVERY OF 1,673 BUSH HOOKS, 620 TO SAN FRANCISCO AND 1,053 TO WILMINGTON. ANOTHER PURCHASE ORDER WAS ISSUED ON MAY 13, 1955, FOR DELIVERY OF 1,128 BUSH HOOKS TO WILMINGTON. A LOT OF 624 BUSH HOOKS CONSIGNED TO SAN FRANCISCO AND 480 BUSH HOOKS CONSIGNED TO WILMINGTON WAS INSPECTED FOR QUALITY AND RELEASED FOR SHIPMENT ON MAY 3, 1955. HOWEVER, FOLLOWING COMPLAINTS BY THE FOREST SERVICE AND DETERMINATION THAT RIXFORD COMPANY WAS NOT PREPARED TO PRODUCE HOOKS OF THE DESIRED STANDARDS, THE CONTRACTOR'S RIGHT TO PROCEED WITH DELIVERY WAS TERMINATED ON JULY 18, 1955, AND A PURCHASE OF 1,524 BUSH HOOKS WAS MADE AGAINST THE CONTRACTOR'S ACCOUNT, WITH A RESULTING EXCESS COST OF $1,944.56.

YOUR LETTER SETS FORTH THAT THE CONTRACTORS AND THEIR SUBCONTRACTOR ARE SMALL BUSINESS CONCERNS AND THAT THE GOVERNMENT MAY HAVE IN SOME MEASURE UNINTENTIONALLY CAUSED THE CONTRACTORS AND THEIR SUBCONTRACTOR TO REACH THE POSITION IN WHICH THEY NOW FIND THEMSELVES. YOU STATE THAT THE MANUFACTURER POINTS TO THE ACTION OF THE GOVERNMENT INSPECTOR IN ACCEPTING THE FIRST LOTS TENDERED FOR DELIVERY, WHICH IT CLAIMS WERE NO DIFFERENT IN DESIGN AND CONSTRUCTION FROM SUBSEQUENTLY REJECTED TENDERS; AND THAT THE MANUFACTURER CONTENDS THAT TIMELY NOTICE OF DEFICIENCIES WOULD HAVE PERMITTED IT TO MAKE CORRECTIONS IN PRODUCTION BEFORE INCURRING CONSIDERABLE EXPENSE FOR RAW MATERIALS AND WORK IN PROGRESS, INCLUDING SOME FINISHED MATERIAL, WHICH ARE NOW WORTHLESS EXCEPT FOR SALVAGE VALUE. FURTHER, THE MANUFACTURERS REFERRED TO A NUMBER OF DELIVERIES SINCE JUNE 1953 OF IDENTICAL ITEMS TO THE GENERAL SERVICES ADMINISTRATION AND SUGGESTED, IN EFFECT, THAT IT IS UNFAIR AND INEQUITABLE FOR THE GOVERNMENT TO SUDDENLY REJECT ITS PRODUCT AND INFLICT IT WITH SEVERE DAMAGES BY WAY OF EXCESS COSTS WHEN THE SAME TYPES OF ITEMS HAVE BEEN ACCEPTED IN MOST PART WITHOUT QUALIFICATION BY SO MANY GOVERNMENT OFFICES OVER A CONSIDERABLE PERIOD OF TIME.

SECTION 300, RESTATEMENT OF THE LAW, CONTRACTS, STATES:

ACCEPTANCE OF DEFECTIVE PERFORMANCE OF A CONDITION OR A PROMISE DOES NOT OPERATE AS AN ASSENT TO RECEIVE FURTHER SIMILAR PERFORMANCE EXCEPT WHERE SUCCESSIVE ACCEPTANCES OF SUCH PERFORMANCE JUSTIFY THE BELIEF THAT PERFORMANCE OF THAT CHARACTER IS SATISFACTORY, AND INDUCED THEREBY THE PARTY RENDERING PERFORMANCE MATERIALLY CHANGES HIS POSITION.

ALSO, AT PAGE 1118 OF VOLUME 32, AMERICAN LAW REPORTS, ANNOTATED, 2D SERIES, IT IS STATED THAT:

A SUBSTANTIAL MAJORITY OF THE CASES UPON THE SUBJECT HAVE AGREED IN HOLDING THAT AN ACCEPTANCE BY THE BUYER OF ONE OR MORE SHIPMENTS OF GOODS DEFECTIVE IN QUALITY DOES NOT, IN THE ABSENCE OF CIRCUMSTANCES RAISING AN ESTOPPEL, AMOUNT TO A WAIVER OF THE DEFECT AS TO THE ENTIRE CONTRACT, PRECLUDING THE BUYER FROM REJECTING SUBSEQUENT SHIPMENTS SIMILARLY DEFECTIVE. IT IS IMPLICIT IN MOST OF THE CASES SO HOLDING, HOWEVER, THAT SUCH AN ACCEPTANCE MAY PRECLUDE THE REJECTION OF SUBSEQUENT SHIPMENTS OF THE SAME QUALITY WHERE THE CIRCUMSTANCES LEAD THE SELLER TO REASONABLY BELIEVE THAT GOODS OF THE KIND DELIVERED WILL BE ACCEPTED IN THE FUTURE, AND HE CHANGES HIS POSITION TO HIS DISADVANTAGE IN RELIANCE ON SUCH BELIEF.

ASIDE FROM THE APPARENTLY CONCEDED FACT THAT SIMILAR ITEMS OF RIXFORD MANUFACTURE WERE DELIVERED TO AND IN MOST INSTANCES ACCEPTED BY THE GENERAL SERVICES ADMINISTRATION DURING A PRIOR PERIOD OF APPROXIMATELY 2 YEARS, IT IS NOT UNREASONABLE TO CONCLUDE THAT, WHEN THE INITIAL QUANTITIES OF BUSH HOOKS AND AXES TENDERED FOR DELIVERY UNDER THE PURCHASE ORDER HERE INVOLVED WERE INSPECTED AND RELEASED FOR SHIPMENT BY THE GOVERNMENT REPRESENTATIVE ASSIGNED TO MAKE INSPECTIONS AND TO ACCEPT THE ARTICLES ON BEHALF OF THE GOVERNMENT, THE MANUFACTURER WAS JUSTIFIED IN ASSUMING THAT THE GOVERNMENT WOULD ACCEPT FUTURE DELIVERIES OF ITEMS OF THE SAME QUALITY AND CONSTRUCTION. THERE SEEMS NO DOUBT THAT THE MANUFACTURER MATERIALLY CHANGED ITS POSITION TO ITS DISADVANTAGE WHEN THE FIRST LOTS OF HOOKS AND AXES WERE INSPECTED, ACCEPTED, AND RELEASED FOR SHIPMENT.

IN THE CIRCUMSTANCES, AND CONSIDERING THE FURTHER FACT THAT THE REPORTED DEFECTS WERE NOT LATENT DEFECTS, WE ARE OF THE OPINION THAT THE GOVERNMENT HAS NO VALID CLAIM IN EITHER OF THESE CASES AND YOU ARE ADVISED THAT WE WILL NOT OBJECT TO THE CANCELLATION OF THE REPORTED ASSESSMENTS AGAINST THE S. WEINSTEIN SUPPLY COMPANY AND THE FRANKSON COMPANY.