B-150044, OCT. 17, 1962

B-150044, OCT. 17, 1962

TO HERRICK L. JOHNSTON, INC.:

REFERENCE IS MADE TO YOUR LETTER OF SEPTEMBER 29, 1962, WITH ENCLOSURES, RELATIVE TO A CLAIM OF YOUR COMPANY FOR $7,049 WHICH AROSE OUT OF YOUR PERFORMANCE OF NAVY CONTRACT NO. N600/A/43898, COVERING THE DELIVERY OF 500-GALLON AND 150-GALLON CAPACITY LIQUID OXYGEN TANKS.

THE PAPERS FORWARDED WITH YOUR LETTER SHOW THAT THE CONTRACT WAS MODIFIED TO REQUIRE EXPORT PACKING FOR 23 OF THE 500-GALLON CAPACITY TANKS, AND TO PERMIT A REQUESTED CHANGE IN DOMESTIC PACKING FOR 34 UNITS OF 150-GALLON CAPACITY. THE CONTRACTING OFFICER DETERMINED THAT THE GOVERNMENT WAS ENTITLED TO A PRICE ADJUSTMENT OF $5,689 ON THE BASIS THAT THE EXPORT PACKING OF THE 23 UNITS DID NOT MEET SPECIFICATION REQUIREMENTS, AND TO A CREDIT OF $1,360, REPRESENTING SAVINGS EFFECTED AS THE RESULT OF THE AUTHORIZED CHANGE IN DOMESTIC PACKING FOR THE 34 TANKS. THE TOTAL SUM OF $7,049 WAS WITHHELD FROM PAYMENT TO YOUR COMPANY UNDER ANOTHER NAVY CONTRACT, AND YOU FILED AN APPEAL BEFORE THE ARMED SERVICES BOARD OF CONTRACT APPEALS SEEKING RECOVERY OF SUCH AMOUNT.

THE ARMED SERVICES BOARD OF CONTRACT APPEALS BY DECISION OF NOVEMBER 14, 1960, ASBCA NO. 5303, DETERMINED THAT THE ASSESSMENT OF $5,689 WAS IMPROPER FOR THE BASIC REASONS THAT YOU HAD QUOTED A SEPARATE PRICE FOR EXPORT PACKING, APPARENTLY WITHOUT REGARD TO ANY GOVERNMENT PACKING SPECIFICATIONS, AND THE FORM OF PACKING USED WAS SUPERIOR TO WHAT WAS REQUIRED FOR DOMESTIC PACKING. THE BOARD CONCLUDED THAT THE AUTHORIZED CHANGE IN DOMESTIC PACKING REQUIREMENTS FOR THE 34 UNITS RESULTED IN A SAVINGS TO YOUR FIRM BUT CONSIDERED THAT THE RECORD CONTAINED INSUFFICIENT INFORMATION TO DETERMINE THE AMOUNT OF THE SAVINGS. ON THAT POINT THE DECISION OF THE BOARD IS TO THE EFFECT THAT THE PARTIES SHOULD ATTEMPT TO NEGOTIATE AN EQUITABLE DOWNWARD ADJUSTMENT IN PRICE AND THAT, IF THEY FAILED TO AGREE ON SUCH ADJUSTMENT, THE MATTER SHOULD BE TREATED AS "A NEW DISPUTE PURSUANT TO THE DISPUTES CLAUSE.'

THE CONTRACTING OFFICER EVENTUALLY INDICATED AS HIS BELIEF THAT THE GOVERNMENT WAS ENTITLED TO A CREDIT OF $3,915, INSTEAD OF THE ORIGINALLY SPECIFIED AMOUNT OF $1,360. YOU CONSIDERED THE $3,915 FIGURE TO BE ENTIRELY UNTENABLE AND OFFERED A CREDIT OF ONLY $850. ALSO, SINCE YOU SUGGESTED IN A LETTER DATED AUGUST 17, 1962, THAT FURTHER NEGOTIATION WOULD SERVE NO USEFUL PURPOSE, THE NAVY TOOK THE POSITION THAT THE MATTER SHOULD AGAIN BE REFERRED TO THE ARMED SERVICES BOARD OF CONTRACT APPEALS FOR DECISION. A PROPOSED SUPPLEMENTAL AGREEMENT WOULD PERMIT PAYMENT TO YOU IN THE AMOUNT OF $3,134, REPRESENTING THE DIFFERENCE BETWEEN THE WITHHELD AMOUNT OF $7,049 AND THE ABOVE SUM OF $3,915.

YOU REQUEST ADVICE AS TO THE QUESTION OF PAYMENT OF THE BALANCE OF $5,689, ALREADY DECIDED IN YOUR FAVOR, IN THE EVENT THAT YOU SIGN THE PROPOSED SUPPLEMENTAL AGREEMENT. OUR EXAMINATION OF THAT DOCUMENT INDICATES THAT, IF YOU AGREE TO ITS TERMS, THE NAVY WOULD PAY THE SUM OF $3,134 AND RETAIN THE SUM OF $2,555 UNTIL THE ARMED SERVICES BOARD OF CONTRACT APPEALS HAS RENDERED A FINAL DECISION ON THE GOVERNMENT'S CURRENT CLAIM FOR $3,915 AS A CONTRACT PRICE ADJUSTMENT. WE WOULD NOT BE WARRANTED IN DIRECTING IMMEDIATE PAYMENT OF THE AMOUNT OF $5,689 SINCE IT IS AN ESTABLISHED RULE THAT THE GOVERNMENT MAY WITHHOLD AMOUNTS DUE A CONTRACTOR TO THE EXTENT NECESSARY TO SATISFY OUTSTANDING CLAIMS OF THE GOVERNMENT AGAINST THE CONTRACTOR. SEE 14 COMP. GEN. 849.

WITH RESPECT TO THE REMAINING QUESTIONS PRESENTED IN YOUR LETTER, IT DOES NOT APPEAR THAT INTEREST WOULD BE PAYABLE ON ANY PART OF YOUR CLAIM, AND IT WOULD NOT BE PROPER FOR US FROM A LEGAL STANDPOINT TO CONSIDER AT THIS TIME YOUR OFFER TO ALLOW A CREDIT OF ONLY $850 FOR SAVINGS EFFECTED IN MAKING DELIVERY OF THE 34 TANKS INVOLVED IN THE GOVERNMENT'S RESTATED PRICE ADJUSTMENT CLAIM. YOUR ADMINISTRATIVE REMEDIES UNDER THE CONTRACT MUST BE EXHAUSTED BEFORE WE WOULD BE AUTHORIZED TO ASSUME JURISDICTION OF THE MATTER. SEE UNITED STATES V. SMITH, 152 F.SUPP. 322. ..END :