B-144379, DEC. 8, 1960

B-144379, DEC. 8, 1960

TO HERBERT D. VOGEL, CHAIRMAN, TENNESSEE VALLEY AUTHORITY:

THERE HAS COME TO OUR ATTENTION THE MATTER OF SUPPLEMENT NO. 48, DATED MAY 2, 1960, TO CONTRACT NO. TV-8229A, ENTERED INTO ON SEPTEMBER 14, 1951, FOR THE SUPPLY OF COAL TO THE TVA BY THE SOUTHERN COAL COMPANY, INC. (SINCE SUCCEEDED BY THE PEABODY COAL COMPANY), OVER A PERIOD OF TEN AND ONE-HALF YEARS BEGINNING JULY 1952.

SECTION NO. 1 OF THE CONTRACT ORIGINALLY PROVIDED:

"1. COAL TO BE FURNISHED: CONTRACTOR SHALL FURNISH, SELL, AND DELIVER TO AUTHORITY AND AUTHORITY SHALL PURCHASE FROM CONTRACTOR A TOTAL OF APPROXIMATELY 5,000,000 TONS OF COAL, TO BE DELIVERED AT A UNIFORM RATE OF APPROXIMATELY 41,677 TONS PER MONTH DURING THE TERM SPECIFIED IN PARAGRAPH 3; PROVIDED, HOWEVER, THAT AUTHORITY SHALL HAVE THE RIGHT AT ANY TIME DURING THE TERM OF THE CONTRACT TO INCREASE OR DECREASE THE MONTHLY RATE OF DELIVERY SPECIFIED ABOVE UP TO 20 PERCENT WITHOUT CHANGE IN THE PURCHASE PRICE BY GIVING CONTRACTOR NOT LESS THAN THIRTY (30) DAYS ADVANCE WRITTEN NOTICE OF EACH SUCH CHANGE IN RATE OF DELIVERY, AND AS SUCH CHANGES IN THE RATE OF DELIVERY ARE MADE THE TOTAL QUANTITY OF COAL TO BE PURCHASED AND SOLD HEREUNDER SHALL BE AUTOMATICALLY CHANGED ACCORDINGLY.

THE RECORD SHOWS THAT ON MAY 1, 1953, TVA EXERCISED ITS OPTION UNDER THE SECTION AND REDUCED DELIVERY REQUIREMENTS BY 20 PERCENT, FROM 41,667 TONS TO 33,334 TONS PER MONTH. THE DECREASED RATE OF DELIVERY WAS MAINTAINED UNTIL MAY 2, 1960, WHEN SUPPLEMENT NO. 48 WAS ENTERED INTO, PROVIDING FOR AN INCREASE OF 13,000 TONS PER WEEK (ABOUT 56,000 TONS PER MONTH) FOR THE BALANCE OF THE CONTRACT TERM "UNTIL A TOTAL OF 1,800,000 (ADDITIONAL) TONS HAS BEEN DELIVERED.' SINCE THE RATE OF INCREASE WAS WELL IN EXCESS OF THE MAXIMUM PERMISSIBLE UNDER SECTION NO. 1, OUR AUDITORS SUGGESTED THE POSSIBILITY THAT THE INCREASED DELIVERY PROVIDED UNDER THE SUPPLEMENT IN EXCESS OF THE MAXIMUM POSSIBLE UNDER THE ORIGINAL CONTRACT AMOUNTED TO THE NEGOTIATION OF A PROCUREMENT CONTRARY TO THE PROVISIONS OF SECTION 9 (B) OF THE TVA ACT, AS AMENDED, 16 U.S.C. 831H (B) REQUIRING THAT ALL CONTRACTS FOR SUPPLIES (WITH CERTAIN EXCEPTIONS NOT HERE RELEVANT) BE MADE ONLY AFTER ADVERTISING.

BY LETTER OF SEPTEMBER 27, 1960, YOUR GENERAL COUNSEL TOOK THE POSITION THAT SINCE THE TOTAL AMOUNT TO BE DELIVERED UNDER THE CONTRACT WOULD NOT EXCEED THE MAXIMUM PERMISSIBLE TOTAL UNDER SECTION NO. 1 (5,000,000 TONS PLUS 20 PERCENT OF THAT AMOUNT, OR 6,000,000), THE INCREASED DELIVERY PROVIDED BY THE SUPPLEMENT DID NOT REQUIRE THE SOLICITATION OF COMPETITIVE BIDS. SPECIFICALLY, IT WAS STATED:

"YOU HAVE RAISED THE QUESTION WHETHER SUPPLEMENT NO. 48 IS CONSISTENT WITH THE PRINCIPLES OF COMPETITIVE BIDDING. IN MY OPINION, THE ANSWER IS CLEARLY IN THE AFFIRMATIVE. SINCE CONTRACT TV-8229A WHICH WAS AWARDED ON THE BASIS OF COMPETITIVE BIDS PROVIDED FOR THE PURCHASE OF UP TO 6 MILLION TONS OF COAL, THE DELIVERY OF ANY AMOUNT UNDER THE CONTRACT WITHIN THAT MAXIMUM WOULD BE ON THE BASIS OF AND PURSUANT TO COMPETITIVE BIDS. WHILE SECTION 1 OF THE CONTRACT INDICATED THAT ANY INCREASE IN DELIVERIES ABOVE THE NOMINAL 5 MILLION TONS WOULD BE ACCOMPLISHED BY INCREASES OF UP TO 20 PERCENT IN THE MONTHLY DELIVERY RATE, WE SEE NO REASON WHY THE PARTIES COULD NOT BY MUTUAL AGREEMENT OBTAIN THE SAME RESULT BY PROVIDING FOR A GREATER INCREASE IN THE MONTHLY DELIVERY RATE OVER A SHORTER PERIOD OF TIME. TVA FREQUENTLY ARRANGES WITH A CONTRACTOR FOR THE AMENDMENT OF THEIR CONTRACT WHERE IT APPEARS IN TVA'S INTEREST TO DO SO, AND WE HAVE NO DOUBT THAT AS LONG AS THE PARTIES STAY WITHIN THE BASIC FRAMEWORK OF THE CONTRACT, SUCH AMENDMENTS ARE CONSISTENT WITH COMPETITIVE BIDDING AND OTHERWISE COMPLETELY PROPER.'

THE COURTS AND THE ACCOUNTING OFFICERS OF THE GOVERNMENT HAVE ADOPTED THE RULE THAT WHERE A CONTRACT IS REQUIRED TO BE LET AFTER ADVERTISING, ITS SCOPE MAY NOT, SUBSEQUENT TO AWARD, BE INCREASED BY AMENDMENT EXCEPT WHERE COMPETITIVE BIDDING WOULD BE USELESS OR DISADVANTAGEOUS, AS WHERE THE ORIGINAL AND ADDITIONAL WORK WOULD HAVE TO BE PERFORMED BY THE SAME CONTRACTOR OR WHERE ADDITIONS ARE SO INCIDENTAL TO THE ORIGINAL WORK AS NOT TO AMOUNT TO A NEW UNDERTAKING, OR WHERE AN EXCEPTION TO THE ADVERTISING REQUIREMENT MAY PROPERLY BE INVOKED. TODD DRY DOCK V. CITY OF NEW YORK, 54 F.2D 490; HANNA V. BOARD OF EDUCATION, 87 A.2D 846, 849; 135 A.L.R. 1265; 37 COMP. GEN. 524, 527. SEE ALSO SCHNEIDER V. UNITED STATES, 19 CT.CL. 547 AND 13 OP.ATTY.GEN. 174. EXCEPT FOR THE RULE, THE ADVERTISING REQUIREMENT COULD READILY BE CIRCUMVENTED BY NEGOTIATING PROCUREMENTS AS AMENDMENTS TO EXISTING CONTRACTS.

WE DEEM IT REASONABLE TO CONCLUDE FROM THE FOREGOING THAT THE RULE IS FOR APPLICATION IN THOSE INSTANCES WHERE THE AMENDMENT MIGHT, IF IT COULD HAVE BEEN ANTICIPATED PRIOR TO AWARD, HAVE AFFECTED THE BIDDING. WHILE IN THIS INSTANCE IT IS TRUE THAT THE MAXIMUM POSSIBLE AMOUNT OF COAL TO BE FURNISHED UNDER THE ORIGINAL CONTRACT WILL NOT BE EXCEEDED BY VIRTUE OF THE SUPPLEMENT, THERE IS A REASONABLE POSSIBILITY THAT THE BUILD-UP IN THE RATE OF DELIVERY TOWARD THE END OF THE CONTRACT PERIOD MIGHT WELL HAVE RESULTED IN BIDS DIFFERING FROM THOSE ACTUALLY RECEIVED.

IN 15 COMP. GEN. 954, WE HELD, IN PART, THAT A CONTRACT FOR SUPPLIES IN A DEFINITE QUANTITY WITH AN OPTION IN THE GOVERNMENT TO INCREASE OR DECREASE THE AMOUNT COULD NOT AFTER THE EXPIRATION DATE BE AMENDED RETROACTIVELY TO PERMIT EXERCISE OF THE OPTION TO INCREASE, BUT RATHER THAT THE ADDITIONAL QUANTITY WOULD HAVE TO BE LET BY ADVERTISING. IN VIEW OF THE DELIVERY AND PAYMENT PROVISIONS IN SECTION NOS. 1 AND 12 RESPECTIVELY, WE BELIEVE THAT THE INSTANT CONTRACT MAY BE REGARDED AS SEVERABLE. AS SUCH, IT IS OUR VIEW THAT THERE IS NO MORE SUBSTANTIAL BASIS TO JUSTIFY A RETROACTIVE ADJUSTMENT IN THE MONTHLY DELIVERY RATE IN THIS INSTANCE THAN THERE WAS FOR THE ATTEMPTED RETROACTIVE ADJUSTMENT IN THE CITED CASE. SEE ALSO 19 COMP. GEN. 980.

YOUR GENERAL COUNSEL, IN SUPPORT OF HIS THESIS, CITES OUR DECISIONS AT 34 COMP. GEN. 219 AND 19 COMP. GEN. 662. WHILE BOTH OF THE DECISIONS PROVIDE SUPPORT FOR THE PROPOSITION THAT THE CONTRACTING OFFICER MAY AGREE TO CONTRACT MODIFICATIONS IN THE INTERESTS OF THE GOVERNMENT, IN NEITHER CASE WAS AN INCREASE IN QUANTITY UNDER CONSIDERATION; NOR ARE THE SITUATIONS THEREIN DESCRIBED ANALOGOUS TO THAT AT HAND. IT IS ALSO NOTED IN THE LETTER OF SEPTEMBER 27, 1960, THAT PART OF THE CONSIDERATION FOR THE SUPPLEMENT WAS THE SETTLEMENT OF PENDING CLAIMS AND LITIGATION ARISING OUT OF THE ACQUISITION BY THE TVA OF LAND AND PROPERTY RIGHTS. BASED ON THAT FACT, THE CONTENTION IS MADE THAT THE SUPPLEMENTARY AGREEMENT COULD BE ENTERED INTO UNDER THE AUTHORITY OF THAT PORTION OF SECTION 9 (B) OF THE TVA ACT, AS AMENDED, UNDER WHICH THE CORPORATION MAY ENTER INTO SUCH CONTRACTS AND IN SUCH MANNER AS MAY BE DEEMED NECESSARY. WE NOTE, HOWEVER, THAT THE CITED AUTHORITY IS SPECIFICALLY MADE SUBJECT TO THE OTHER PROVISIONS OF THE ACT, ONE OF WHICH, AS PREVIOUSLY STATED, REQUIRES THAT CONTRACTS FOR SUPPLIES BE ENTERED INTO AFTER ADVERTISING.

IN VIEW OF THE FOREGOING, AND SINCE WHATEVER DEGREE OF ADVERTISING MAY BE REQUIRED BY THE TERMS OF SECTION 9 (B) WAS CLEARLY NOT HAD IN THE EXECUTION OF THE SUPPLEMENTAL AGREEMENT, WHICH AMOUNTS TO A PURCHASE OF APPROXIMATELY ONE AND A QUARTER MILLION TONS OF COAL, WHICH COULD NOT HAVE BEEN OBTAINED UNDER THE EXISTING CONTRACT WITHOUT AMENDMENT, YOUR VIEWS ARE REQUESTED AS TO WHY NEGOTIATED AGREEMENTS INCREASING THE QUANTITY OF SUPPLIES TO BE FURNISHED UNDER AN EXISTING CONTRACT, AS IN THIS INSTANCE, SHOULD NOT BE REGARDED AS IN CONTRAVENTION OF THE ADVERTISING REQUIREMENT.