B-128404, AUG. 14, 1956

B-128404, AUG. 14, 1956

TO HONORABLE LEWIS L. STRAUSS, CHAIRMAN, ATOMIC ENERGY COMMISSION:

REFERENCE IS MADE TO LETTER DATED JUNE 21, 1956, FROM THE GENERAL MANAGER OF THE COMMISSION REQUESTING OUR APPROVAL OF A PROPOSED AMENDMENT TO NEGOTIATED CONTRACT NO. AT/49-1/-611. THE CONTRACT WAS ENTERED INTO ON OCTOBER 18, 1951, WITH THE BLOCKSON CHEMICAL COMPANY AND PROVIDED FOR THE RECOVERY OF URANIUM OXIDE FROM PHOSPHORIC ACID SOLUTION USED BY BLOCKSON FOR THE PRODUCTION OF PHOSPHATE CHEMICALS. THIS WAS TO BE ACCOMPLISHED BY DIVERSION OF PHOSPHORIC ACID SOLUTION THROUGH A SEPARATE URANIUM EXTRACTION FACILITY AND RETURN OF THE PHOSPHORIC ACID TO THE CONTRACTOR'S COMMERCIAL PRODUCTION LINE.

UNDER THE CONTRACT THE CONTRACTOR WAS TO BE PAID $0.80 FOR EACH POUND OF URANIUM OXIDE DELIVERED TO THE COMMISSION, PLUS CERTAIN SPECIFIED COSTS OF PRODUCTION. RELATIVE THERETO THE CONTRACT PROVIDED IN ARTICLE V AS FOLLOWS:

"1. THE CONTRACTOR SHALL BE REIMBURSED IN THE MANNER HEREINAFTER DESCRIBED FOR SUCH OF ITS ACTUAL COSTS AND EXPENSES IN THE PERFORMANCE OF THE WORK UNDER THIS CONTRACT AS MAY BE APPROVED OR RATIFIED BY THE COMMISSION AND AS ARE INCLUDED IN, BUT NOT LIMITED TO, THE FOLLOWING ITEMS

"D. COSTS OF ALL MATERIALS, CONTAINERS, TOOLS, MACHINERY, EQUIPMENT, UTILITIES AND SUPPLIES NECESSARY FOR EITHER TEMPORARY OR PERMANENT USE FOR THE BENEFIT OF THE WORK, EXCLUSIVE OF PHOSPHORIC ACID AND ALL COSTS INVOLVED IN THE PRODUCTION THEREOF.'

THE PHRASE IN THE FOREGOING ARTICLE "EXCLUSIVE OF PHOSPHORIC ACID AND ALL COSTS INVOLVED IN THE PRODUCTION THEREOF" WAS UNDERSTOOD BY THE CONTRACTING OFFICER TO BE INTENDED TO CONFIRM THE PARTIES' AGREEMENT THAT THERE WOULD BE NO CHARGE FOR THE USE OF THE PHOSPHATE SOLUTIONS IN THE URANIUM PLANT AND THAT NO PART OF THE COST OF PRODUCING PHOSPHORIC ACID OR THE PHOSPHATE SOLUTIONS WOULD BE A CHARGE AGAINST THE URANIUM PRODUCTION. IT DOES NOT APPEAR TO HAVE OCCURRED TO THE CONTRACTING OFFICER OR TO THE NEGOTIATORS FOR THE GOVERNMENT THAT THIS LANGUAGE MIGHT BE CONSTRUED TO PRECLUDE REIMBURSEMENT TO THE CONTRACTOR FOR LOSSES OF PHOSPHORIC ACID SOLUTION WHICH BOTH PARTIES RECOGNIZED WOULD BE UNAVOIDABLE IN THE EXTRACTION OF URANIUM OXIDE.

BOTH THE CONTRACTOR'S REPRESENTATIVES AND NEGOTIATORS FOR THE GOVERNMENT HAVE STATED IT WAS EXPRESSLY UNDERSTOOD THAT THE CONTRACTOR WOULD BE REIMBURSED FOR THE ACTUAL LOSS OF PHOSPHORIC ACID INCIDENT TO THE URANIUM EXTRACTION. HOWEVER, BECAUSE OF THE LANGUAGE USED IN ARTICLE V 1 D OF THE CONTRACT, REIMBURSEMENT HAS BEEN DENIED FOR THIS EXPENSE. IT IS PROPOSED TO REFORM THE CONTRACT TO EXPRESS THE ACTUAL INTENTION OF THE PARTIES BY ADDING TO ARTICLE V 1 D THE PARENTHETICAL PHRASE "EXCEPT LOSSES OF PHOSPHORIC ACID NORMALLY INCIDENT TO THE PERFORMANCE OF THE WORK UNDER THIS CONTRACT.'

IT IS APPARENT FROM THE EVIDENCE SUBMITTED THAT THE PARTIES INTENDED THE PHRASE "EXCLUSIVE OF PHOSPHORIC ACID" IN ARTICLE V 1 D TO PRECLUDE REIMBURSEMENT ONLY IN RESPECT TO THOSE COSTS RELATING TO THE MAIN STREAM OF PHOSPHORIC ACID SOLUTION PRODUCED IN THE CONTRACTOR'S PLANT, FOR WHICH REIMBURSEMENT MIGHT OTHERWISE BE DEEMED AUTHORIZED UNDER THAT ARTICLE. HOWEVER, IT IS EQUALLY APPARENT THAT THE PARTIES DID NOT INTEND THE EXCLUDING LANGUAGE TO PRECLUDE REIMBURSEMENT FOR THE ACTUAL LOSSES OF PHOSPHORIC ACID SOLUTION WHICH WERE UNAVOIDABLE IN THE EXTRACTION OF URANIUM OXIDE. IT IS NOTED THAT THE BLOCKSON CONTRACT WAS THE FIRST OF ITS KIND INVOLVING THE EXTRACTION OF URANIUM FROM PHOSPHATE SOLUTIONS, AND THAT SIMILAR SUBSEQUENT CONTRACTS SPECIFICALLY AUTHORIZE REIMBURSEMENT FOR SUCH LOSSES.

UNDER THE CIRCUMSTANCES, WE BELIEVE IT WOULD BE PROPER TO REIMBURSE THE CONTRACTOR UNDER THE INSTANT CONTRACT FOR THE LOSSES IN QUESTION WITHOUT THE NECESSITY OF A CONTRACT AMENDMENT. REFERENCE TO THIS DECISION SHOULD BE MADE ON THE FIRST SUCH REIMBURSEMENT VOUCHER.