B-151998, OCTOBER 18, 1963, 43 COMP. GEN. 392

B-151998, OCTOBER 18, 1963, 43 COMP. GEN. 392

CONTRACTS - INCREASED COSTS - GOVERNMENT ACTIVITIES - TEST OF STATE PRICING STATUTE ADDITIONAL COMPENSATION CLAIMS FOR DAIRY PRODUCTS PURCHASED BY THE UNITED STATES IN CALIFORNIA PREDICATED ON THE FACT THAT THE GOVERNMENT, WHICH HAD BROUGHT A COURT ACTION TO DETERMINE THE APPLICABILITY OF THE CALIFORNIA MILK STABILIZATION LAW (CALIFORNIA AGRICULTURAL CODE, DIVISION 6, CHAPTER 17, SECTIONS 4200-4420), FAILED TO RESPOND TO AN APPLICATION FOR A STAY OF ACTION FILED BY THE STATE OF CALIFORNIA IN THE SUPREME COURT OF THE UNITED STATES THEREBY FORCING THE DISTRIBUTOR TO PAY MINIMUM PRODUCER PRICES AND TO MAKE DELIVERIES AT CONTRACT PRICES, MAY NOT BE PAID IN THE ABSENCE OF CONSIDERATION, AND THE CONTRACTS CONTAINING NO PROVISION FOR PRICE ADJUSTMENT IN THE EVENT THE CONTRACTOR SHOULD BE OBLIGED TO PAY MINIMUM PRICES, THE ACCEPTANCE OF THE BIDS GAVE RISE TO VALID AND BINDING CONTRACTS VESTING IN THE UNITED STATES A LEGAL RIGHT TO PERFORMANCES AT BID PRICES.

TO VAUGHAN, BRANDLIN, ROBINSON AND ROEMER, OCTOBER 18, 1963:

REFERENCE IS MADE TO YOUR LETTER OF MAY 21, 1963, REQUESTING, ON BEHALF OF THE KNUDSEN CREAMERY CO. OF CALIFORNIA, LOS ANGELES, CALIFORNIA, REVIEW OF SETTLEMENT DATED FEBRUARY 1, 1962, WHICH DISALLOWED THE COMPANY'S CLAIM FOR $695.30 REPRESENTING AN ADDITIONAL AMOUNT ALLEGED TO BE DUE ON DAIRY PRODUCTS PURCHASED DURING THE MONTH OF SEPTEMBER 1961 BY THE VETERANS ADMINISTRATION HOSPITAL, SAN FERNANDO, CALIFORNIA, UNDER CONTRACT NO. V5104P-374. BY LETTERS DATED JUNE 26 AND JULY 10, 1963, YOU ADVISED OUR OFFICE THAT THE COMPANY WAS INCREASING THE AMOUNT OF ITS CLAIM TO $2,768.28 TO COVER THE DAIRY PRODUCTS FURNISHED DURING THE PERIOD FROM OCTOBER 1 TO DECEMBER 31, 1961. YOU ALSO HAVE REQUESTED, THROUGH THE VETERANS ADMINISTRATION, REVIEW OF SETTLEMENT DATED MARCH 12, 1962, WHICH DISALLOWED THE COMPANY'S CLAIM FOR $2,523.35 REPRESENTING AN ADDITIONAL AMOUNT ALLEGED TO BE DUE ON DAIRY PRODUCTS PURCHASED DURING THE SAME PERIOD BY THE VETERANS ADMINISTRATION HOSPITAL, SEPULVEDA, CALIFORNIA, UNDER CONTRACT NO. V5240P-137.

BY INVITATION NOS. 62-1 AND 62-6 THE HOSPITALS AT SAN FERNANDO AND SEPULVEDA REQUESTED BIDS FOR FURNISHING DAIRY PRODUCTS DURING THE PERIOD BEGINNING JULY 1 AND ENDING DECEMBER 31, 1961. THE RECORD INDICATES THAT KNUDSEN SUBMITTED THE LOWEST BIDS ON GROUP "A" OF EACH INVITATION AND THAT ON JUNE 8 AND 23, 1961, CONTRACT NOS. V5104P-374 AND V5240P-137, RESPECTIVELY, WERE AWARDED TO KNUDSEN.

IT APPEARS THAT AFTER COMPLETING ITS DELIVERIES FOR THE MONTH OF SEPTEMBER 1961, KNUDSEN SUBMITTED TO THE CONTRACTING OFFICER FOR PAYMENT TWO REGULAR INVOICES AND TWO SPECIAL INVOICES FOR THE DAIRY PRODUCTS FURNISHED TO THE HOSPITALS DURING THAT MONTH. THE RECORD INDICATES THAT THE TWO SPECIAL INVOICES SUBMITTED BY KNUDSEN WERE FORWARDED BY THE VETERANS ADMINISTRATION (VA) TO OUR CLAIMS DIVISION FOR SETTLEMENT AS CLAIMS FOR ADDITIONAL COMPENSATION UNDER THE CONTRACTS INVOLVED. SETTLEMENTS DATED FEBRUARY 1 AND MARCH 12, 1962, THE COMPANY'S CLAIMS FOR ADDITIONAL COMPENSATION WERE DISALLOWED.

IN YOUR LETTER REQUESTING REVIEW YOU STATED THAT YOU ARE ASSUMING THAT THE SETTLEMENT OF FEBRUARY 1, 1962, IS TO BE DEEMED THE CONTRACTING OFFICER'S DECISION IN THE MATTER AND THAT IF SUCH ASSUMPTION IS CORRECT YOU WISH TO APPEAL TO THE ADMINISTRATOR OF VETERANS AFFAIRS PURSUANT TO THE PROVISIONS OF THE DISPUTES ARTICLE, PARAGRAPH 12 OF THE GENERAL PROVISIONS (SUPPLY CONTRACT), STANDARD FROM 32, 1957 ED., WHICH WAS INCORPORATED INTO THE CONTRACT BY REFERENCE. IN OUR OPINION THE CLAIM DISALLOWED BY THE SETTLEMENT INVOLVED BASICALLY A QUESTION OF LAW AND THE SETTLEMENT OF COURSE WAS ISSUED BY OUR OFFICE. THE SETTLEMENT THEREFORE MAY NOT BE CONSIDERED AS THE CONTRACTING OFFICER'S DECISION IN THE MATTER. FURTHER IN THAT REGARD, WE ARE OF THE OPINION THAT THERE DOES NOT EXIST A DISPUTED QUESTION OF FACT PROPERLY FOR FINAL SETTLEMENT AS A DISPUTE UNDER PARAGRAPH 12 OF THE GENERAL PROVISIONS OF THE CONTRACT PURSUANT TO WHICH THE CONTRACTING OFFICER IS REQUIRED TO DECIDE SUCH MATTERS AND TO FURNISH A COPY OF THE WRITTEN DECISION TO THE CONTRACTOR WHO MAY THEN EXERCISE THE RIGHT OF APPEAL.

IN YOUR LETTER OF OCTOBER 30, 1963, TO THE CONTRACTING OFFICER, YOU STATED THAT IN 1960 THE UNITED STATES BROUGHT A COURT ACTION IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA, UNITED STATES V. WARNE (DIRECTOR OF AGRICULTURE OF THE STATE OF CALIFORNIA), 190 F.SUPP. 645 (1960), TO DETERMINE THE APPLICABILITY OF THE CALIFORNIA MILK STABILIZATION LAW (CALIFORNIA AGRICULTURAL CODE, DIVISION 6, CHAPTER 17, SECTIONS 4200-4420) TO PURCHASES MADE BY THE UNITED STATES THROUGH ARMY AND AIR FORCE PROCUREMENT OFFICERS OF MILK AND MILK PRODUCTS FROM LOCAL PRODUCERS AND DISTRIBUTORS FOR ON-BASE CONSUMPTION AT CERTAIN MILITARY INSTALLATIONS LOCATED IN THE STATE OF CALIFORNIA; AND THAT BY ORDER OF MARCH 27, 1961, THE DISTRICT COURT ENJOINED OFFICIALS OF THE CALIFORNIA DEPARTMENT OF AGRICULTURE FROM ENFORCING ITS MINIMUM WHOLESALE PRICE REGULATIONS AGAINST PRODUCERS AND DISTRIBUTORS WITH RESPECT TO MILK SOLD TO THE UNITED STATES. YOU FURTHER STATED THAT ON MAY 17, 1961, THE HOSPITAL AT SEPULVEDA ISSUED INVITATION NO. 62-6 FOR FURNISHING DAIRY PRODUCTS AND THAT RELYING ON THE DECISION OF THE DISTRICT COURT, KNUDSEN, IN RESPONSE TO THE INVITATION, QUOTED PRICES WHICH WERE BELOW THOSE SET BY THE STATE OF CALIFORNIA; THAT SUBSEQUENTLY CALIFORNIA APPEALED TO THE DISTRICT COURT TO STAY ITS INJUNCTION BUT WITHOUT SUCCESS; AND THAT IN MAY 1961, CALIFORNIA RENEWED ITS MOTION FOR STAY OF THE INJUNCTION, THIS TIME LIMITING ITS APPLICATION FOR STAY TO THE REGULATION OF MINIMUM PRODUCERS' PRICES, BUT THAT THE UNITED STATES RESISTED THE APPLICATION WITH SUCCESS. IT IS FURTHER STATED THAT IN JUNE 1961, CALIFORNIA ADDRESSED ITS MOTION FOR STAY OF INJUNCTION AS TO THE LAWS AND REGULATIONS ESTABLISHING MINIMUM PRODUCER PRICES TO THE UNITED STATES SUPREME COURT AND THAT THE APPLICATION WAS ASSIGNED TO MR. JUSTICE DOUGLAS; THAT AT THIS STAGE OF THE PROCEEDINGS FOR REASONS THEN UNKNOWN, THE DEPARTMENT OF DEFENSE REVERSED ITS LEGAL POSITION AND REQUESTED THE SOLICITOR GENERAL TO APPRISE THE SUPREME COURT OF HIS INTENTION NOT TO RESIST THE GRANT OF STAY REQUESTED BY CALIFORNIA; AND THAT AS A RESULT, MR. JUSTICE DOUGLAS, SPECIFICALLY NOTING THAT THE UNITED STATES HAD BEEN ACCORDED AN OPPORTUNITY BUT HAVING FILED NO RESPONSE TO THE APPLICATION FOR STAY, GRANTED THE PARTIAL STAY OF THE INJUNCTION ON JULY 3, 1961, AS REQUESTED BY CALIFORNIA. IT IS FURTHER STATED THAT CALIFORNIA THEN NOTIFIED ALL DISTRIBUTORS THAT COMMENCING SEPTEMBER 1, 1961, IT WOULD ENFORCE MINIMUM PRODUCER PRICES AND THAT THE NET RESULT OF THIS ACTION BY THE UNITED STATES WAS TO CHANGE THE PRICE OF MILK WHICH THE DISTRIBUTOR (KNUDSEN) HAD TO PAY TO THE PRODUCER AND AT THE SAME TIME DEMANDING THAT KNUDSEN SUPPLY THE MILK PRODUCTS AT THE PRICES SET FORTH IN THE CONTRACTS.

YOU STATE THAT THE UNITED STATES HAS, AS A MATTER OF "PROCUREMENT POLICY," CHANGED THE FACTS UPON WHICH THE INVITATIONS WERE LET AND THE BIDS ACCEPTED BY THE UNITED STATES; THAT THESE FACTS ARE NOT SUPERVENING EVENTS NOR UNFORESEEN CAUSES, BUT A DELIBERATE COURSE OF CONDUCT BY THE UNITED STATES GOVERNMENT IN WAIVING IMMUNITY FROM THE PRICE WHICH THE DISTRIBUTOR HAD TO PAY BUT DEMANDING THE SAME IMMUNITY ON THE PRICE WHICH THE DISTRIBUTOR MUST RECEIVE ON THE RESALE OF THE MILK PRODUCTS. YOU CONTEND THAT THE UNITED STATES HAS BEEN GUILTY OF A GRAVE INJUSTICE TO KNUDSEN AND THAT ANY ATTEMPT TO ENFORCE THE CONTRACT PRICE WITHOUT RECOGNITION OF THE INCREASE IN THE PRICE FROM THE PRODUCER TO THE DISTRIBUTOR CAUSED BY THE UNITED STATES IS A FLAGRANT ABUSE OF GOVERNMENTAL AND BUSINESS ETHICS AND A VIOLATION OF THESE CONTRACTS.

IN A DECISION DATED JANUARY 14, 1963, THE SUPREME COURT OF THE UNITED STATES HELD IN PAUL V. UNITED STATES, 371 U.S. 245, THAT THE CALIFORNIA DEPARTMENT OF AGRICULTURE COULD NOT ENFORCE ITS MINIMUM WHOLESALE PRICE REGULATIONS AGAINST DISTRIBUTORS WITH RESPECT TO MILK SOLD TO THE UNITED STATES FOR CONSUMPTION AT CERTAIN MILITARY INSTALLATIONS AND PAID FOR WITH APPROPRIATED FUNDS. AS ONE OF THE BASES FOR ITS DECISION THE SUPREME COURT STATED THAT CALIFORNIA'S PRICE-FIXING REGULATIONS WERE IN CONFLICT WITH THE FEDERAL PROCUREMENT POLICY SINCE THE STATE POLICY EFFECTIVELY ELIMINATES COMPETITION WHEREAS THE FEDERAL POLICY REQUIRES COMPETITION. IN THIS CONNECTION, SEE, ALSO, UNITED STATES V. GEORGIA PUBLIC SERVICE COMMISSION, 371 U.S. 285, DECIDED BY THE SUPREME COURT ON THE SAME DAY AS THE PAUL CASE.

IN THE INSTANT CASE THE CONTRACTS DID NOT CONTAIN ANY PROVISIONS FOR ADJUSTMENT OF THE CONTRACT PRICES IN THE EVENT THE CONTRACTOR SHOULD BE OBLIGED TO PAY THE MINIMUM PRICES TO THE MILK PRODUCERS. THE ONLY BASIS FOR THE CLAIMS IS THAT THE GOVERNMENT DID NOT ELECT TO DEFEND THE POSITION THAT THE ESTABLISHED MINIMUM PRICES WHICH THE DISTRIBUTORS WERE REQUIRED TO PAY TO THE MILK PRODUCERS DID NOT APPLY WHERE THE DISTRIBUTORS SOLD THE MILK AND MILK PRODUCTS TO THE GOVERNMENT. EVEN IF THE GOVERNMENT HAD ELECTED TO DEFEND THIS POSITION AND THE COURT RULED AGAINST THE GOVERNMENT, THE CONTRACTOR WOULD BE IN THE SAME POSITION IT NOW FINDS ITSELF. THE ACCEPTANCE OF THE BIDS OF KNUDSEN GAVE RISE TO VALID AND BINDING CONTRACTS AND CLEARLY VESTED IN THE UNITED STATES THE LEGAL RIGHT TO HAVE THE MILK AND MILK PRODUCTS DELIVERED AT THE BID PRICES SPECIFIED THEREIN. SEE BRAWLEY V. UNITED STATES, 96 U.S. 168; AND SIMPSON V. UNITED STATES, 172 U.S. 372. A GOVERNMENT CONTRACT MAY NOT BE MODIFIED OR AMENDED EXCEPT ON THE BASIS OF ADDITIONAL CONSIDERATION AND IN THE INTEREST OF THE UNITED STATES. SEE UNITED STATES V. AMERICAN SALES CORPORATION, 27 F.2D 389, AFFIRMED 32 F.2D 141, AND CERTIORARI DENIED 280 U.S. 574; PACIFIC HARDWARE CO. V. UNITED STATES, 49 CT.CL. 327, 335; BAUSCH AND LOMB OPTICAL CO. V. UNITED STATES, 78 CT.CL. 584, 607.

ACCORDINGLY, THE SETTLEMENTS OF FEBRUARY 1 AND MARCH 12, 1962, MUST BE AND ARE SUSTAINED.