B-150434, FEB. 7, 1963

B-150434, FEB. 7, 1963

TO ALLOYS AND CHEMICALS CORPORATION:

REFERENCE IS MADE TO YOUR LETTER OF NOVEMBER 29, 1962, REQUESTING REVIEW OF SETTLEMENT DATED NOVEMBER 23, 1962, WHICH DISALLOWED YOUR CLAIM FOR $14,609.38 REPRESENTING AN AMOUNT ALLEGED TO BE DUE AS AN ADJUSTMENT IN THE CONTRACT PRICE OF A QUANTITY OF SCRAP ALUMINUM TURNINGS PURCHASED FROM THE DEPARTMENT OF THE ARMY UNDER CONTRACT NO. DA/S/28-013 AI-378.

BY SALES INVITATION NO. 28-013-S-62-63, THE CONSOLIDATED SURPLUS SALES OFFICE, FORT DIX, NEW JERSEY, REQUESTED BIDS ON A UNIT PRICE BASIS FOR THE PURCHASE AND REMOVAL OF SCRAP METAL GENERATED AT THE FRANKFORD ARSENAL, PHILADELPHIA, PENNSYLVANIA, DURING THE PERIOD BEGINNING JANUARY 2, 1962, AND ENDING JUNE 29, 1962. ITEM 1 COVERED AN ESTIMATED QUANTITY OF 800,000 POUNDS OF SCRAP ALUMINUM TURNINGS. IN RESPONSE YOU SUBMITTED A BID OFFERING TO PURCHASE THE ALUMINUM TURNINGS COVERED BY ITEM 1 AT A PRICE OF $0.08639 PER POUND. YOUR BID AS TO ITEM 1 WAS ACCEPTED ON DECEMBER 19, 1961.

IN A LETTER DATED MARCH 14, 1962, YOU REQUESTED AN ADJUSTMENT IN THE CONTRACT PRICE OF THE ALUMINUM TURNINGS ON THE GROUND THAT SUCH MATERIAL CONTAINED A HIGHER MOISTURE AND OIL CONTENT THAN THAT WHICH YOU HAD ESTIMATED AT THE TIME YOU COMPUTED YOUR BID PRICE. YOU STATED THAT IT WAS YOUR OPINION THAT THE INCREASE IN MOISTURE CONTENT WAS DUE TO A CHANGE IN THE STORAGE PROCEDURE PREVIOUSLY USED BY THE FRANKFORD ARSENAL AND THAT THE INCREASE IN THE OIL CONTENT WAS DUE TO THE FACT THAT THE ARSENAL IN MACHINING THE ALUMINUM SOLIDS USED A CUTTING OIL WHICH WAS HEAVIER THAN THAT PREVIOUSLY USED BY IT. YOU ALSO STATED THAT THE RATE OF GENERATION OF THE TURNINGS WAS GREATER THAN YOU HAD ESTIMATED. THE RECORD SHOWS THAT BECAUSE OF THE RAPID RATE OF GENERATION OF THE ALUMINUM TURNINGS, THE CONTRACT WAS TERMINATED BY THE GOVERNMENT AFTER YOU HAD RECEIVED DELIVERY OF 857,700 POUNDS OF ALUMINUM TURNINGS. SUBSEQUENTLY, YOU FILED WITH OUR OFFICE A CLAIM FOR $14,609.38 AS A PARTIAL REFUND OF THE PURCHASE PRICE OF 857,700 POUNDS OF CONTAMINATED ALUMINUM TURNINGS WHICH WERE DELIVERED, BASED ON 32.16 PERCENT OIL CONTAMINATION OVER AND ABOVE THE 15.50 PERCENT ON WHICH YOU COMPUTED YOUR BID PRICE FOR ITEM 1. YOUR CLAIM WAS DISALLOWED BY SETTLEMENT DATED NOVEMBER 23, 1962, FOR THE REASONS STATED THEREIN.

IN YOUR LETTER REQUESTING REVIEW YOU STATE THAT YOU ARE WELL AWARE OF THE DISCLAIMER OF WARRANTY CLAUSES IN THE CONTRACT BUT THAT IT IS YOUR OPINION THAT SUCH CLAUSES ARE NOT FOR APPLICATION IN THE PRESENT CASE. THE BASES FOR YOUR CONTENTION ARE THAT NO OPPORTUNITY FOR PRIOR INSPECTION OF ALL THE MATERIAL EXISTED FOR BIDDERS SINCE THE MATERIAL TO BE PURCHASED UNDER THE CONTRACT WAS TO BE GENERATED OVER A PERIOD OF SIX MONTHS; AND THAT SINCE YOUR BID PRICE HAD TO BE BASED ON AN INSPECTION OF THE MATERIAL ON HAND BEFORE THE TIME SET FOR OPENING OF BIDS, THE FRANKFORD ARSENAL OWED YOU A DUTY NOT TO CHANGE THE PROCEDURES USED BY IT IN ACCUMULATING AND STORING THE ALUMINUM TURNINGS INSPECTED BY YOU WITHOUT GIVING YOU NOTICE THEREOF.

THE CONTRACT IN QUESTION DOES NOT CONTAIN ANY REPRESENTATIONS OR GUARANTEES THAT THE GOVERNMENT WILL USE A CERTAIN GRADE OF OIL IN MACHINING THE ALUMINUM SOLIDS; THAT THERE WILL BE A CERTAIN RATE OF GENERATION OF THE ALUMINUM TURNINGS EACH MONTH; OR THAT A SPECIFIED METHOD WILL BE USED IN STORING THE ALUMINUM TURNINGS. IN THE ABSENCE OF SUCH REPRESENTATIONS OR GUARANTEES IN THE CONTRACT, WE ARE OF THE OPINION THAT THE FRANKFORD ARSENAL HAD A RIGHT TO CHANGE THE MACHINING, ACCUMULATION AND STORAGE METHODS WHICH YOU QUESTION.

THE FACTS IN YOUR CASE ARE SOMEWHAT SIMILAR TO THE FACTS IN THE CASE OF STANDARD MAGNESIUM CORPORATION V. UNITED STATES, 241 F.2D. 677, WHICH INVOLVED THE SALE OF SURPLUS WHEELS. IN THAT CASE THE COURT STATED AT PAGE 679 AS FOLLOWS:

"/1) IT IS APPARENT FROM THE AUTHORITIES THAT THE USUAL GOVERNMENT SURPLUS GOODS CONTRACT IS NOT GOVERNED BY THE USUAL NICETIES OF CONTRACT LAW. THEY ARE "WHERE IS, AS IS" SALES WITH WARRANTIES AND REPRESENTATIONS EXPRESSLY NEGATIVED. INSPECTION PRIOR TO BIDDING IS URGED. THE RULE OF CAVEAT EMPTOR IN SUCH SALES "WAS CERTAINLY INTENDED TO BE APPLIED TO THE FURTHEST LIMIT THAT CONTRACT STIPULATIONS COULD ACCOMPLISH IT.' THE SUBJECT MATTER IS NECESSARILY DESCRIBED GENERALLY BECAUSE IT IS CONSIDERED AS JUNK BY THE SELLER. THE BUYER HAS A FAIR OPPORTUNITY TO INSPECT, IN ORDER TO DECIDE WHETHER TO RISK A PURCHASE. IN THIS CASE, STANDARD DID INSPECT THE WHEELS AS THE INVITATION URGED. WHAT IT SAW IT ACCEPTED AS WHEELS. THE LITIGATION HERE AROSE, HOWEVER, ONLY BECAUSE THEY WERE CONTAMINATED IN LARGER QUANTITIES THAN STANDARD FOUND TO BE DESIRABLE. STANDARD HAS RECEIVED OVER 15,000 POUNDS OF WHEELS WITH BRAKE DRUMS AND RIMS WITHOUT PROTEST. IT WAS ONLY WHEN LARGER AMOUNTS OF DRUMS AND RIMS THAN HOPED FOR ACCOMPANIED THE DELIVERIES THAT STANDARD CONCLUDED A PROPER DEFINITION OF "WHEELS" DID NOT INCLUDE THE ATTACHED ITEMS. THE ACTIONS OF THE PARTIES TOGETHER WITH THE ENTIRE DESCRIPTION OF WHEELS, INCLUDING THE ADJECTIVES "MISC., " "/SALVAGE)," "ITEMS MAY BE CONTAMINATED," LEAD TO THE CONCLUSION THAT THERE WAS NO UNCERTAINTY OF SUBJECT MATTER.'

IN THAT CASE THE COURT WAS ALSO FACED WITH THE QUESTION AS TO WHETHER STANDARD WOULD BE REQUIRED TO ACCEPT 148,840 POUNDS OF WHEELS, CONSIDERABLY IN EXCESS OF THE ESTIMATED 30,000 POUNDS, OR PAY DAMAGES FOR ITS REFUSAL. THE COURT HELD THAT SINCE THE SUBJECT MATTER OF THE CONTRACT WAS THE AMOUNT "GENERATED" DURING THE CONTRACT TERM, STANDARD WAS REQUIRED TO ACCEPT THE 148,840 POUNDS OF WHEELS, OR PAY DAMAGES FOR ITS REFUSAL.

IN THE LIGHT OF THE FOREGOING, THERE IS NO LEGAL BASIS FOR THE ALLOWANCE OF YOUR CLAIM AND ACCORDINGLY THE SETTLEMENT OF NOVEMBER 23, 1962, IS SUSTAINED.