B-155467, MAR. 19, 1965

B-155467, MAR. 19, 1965

TO MAJOR GENERAL W. C. HANEKE, CHIEF OF FINANCE, DEPARTMENT OF THE ARMY:

BY FIRST INDORSEMENT OF FEBRUARY 2, 1965, THE FINANCE CENTER, INDIANAPOLIS, INDIANA, FORWARDED TO OUR OFFICE THE REQUEST OF HEADQUARTERS, ARMY SUPPLY AND MAINTENANCE COMMAND, BY LETTER DATED DECEMBER 28, 1964, FOR AN ADVANCE DECISION ON THE PROPRIETY OF MAKING PAYMENT OF INVOICES SUBMITTED BY THE INTERNATIONAL BUSINESS MACHINES CORPORATION (IBM), COVERING THE RENTAL OF FOUR ,1410" COMPUTER SYSTEMS INSTALLED AT THE LEXINGTON BLUE GRASS ARMY DEPOT, THE SACRAMENTO ARMY DEPOT, THE TOBYHANNA ARMY DEPOT AND THE DEFENSE DEPOT OGDEN (THE FORMERUTAH ARMY DEPOT) THE INVOICES COVER ALLEGED PERIODS OF USE DURING MAY AND JUNE 1962 WHEN THE "1410" COMPUTER SYSTEMS WERE DELIVERED AND INSTALLED AS REPLACEMENTS FOR "650" IBM COMPUTER SYSTEMS. IN EACH CASE THE REPLACED MACHINE APPARENTLY HAD BEEN RENTED PURSUANT TO THE TERMS AND CONDITIONS OF FEDERAL SUPPLY SCHEDULE CONTRACT NO. GS-005-34846, WITH IBM, EFFECTIVE WITH RESPECT TO THE TIME OF ISSUING ORDERS FOR THE FISCAL YEAR BEGINNING ON JULY 1, 1961, AND ENDING ON JUNE 30, 1962.

BASED UPON THE CONTENTION THAT THE DATES ON WHICH THE 1410 COMPUTERS WERE INSTALLED AND READY USE SHOULD BE APPLIED IN COMPUTING THE MONTHLY RENTALS THEREFOR, REGARDLESS OF ANY OVERLAPPING OF RENTAL PAYMENTS FOR THE USE OF THE 650 COMPUTERS DURING THE REPLACEMENT PERIODS, IBM CLAIMS THE AMOUNTS OF $10,660.53, $8,343, $5,098.53 AND $4,468.50 AS RENTALS DUE ON THE 1410 COMPUTERS FOR THE PERIODS MAY 9 THROUGH MAY 31, 1962, MAY 14 THROUGH MAY 31, 1962, MAY 15 THROUGH JUNE 11, 1962, AND JUNE 11 THROUGH JUNE 19, 1962, RESPECTIVELY, IN CONNECTION WITH THE REPLACEMENTS MADE AT THE FOUR DEPOTS.

THE ARMY SUPPLY AND MAINTENANCE COMMAND RECOMMENDED DISAPPROVAL OF THE FOUR CLAIMS SINCE ARMY REGULATION 1-251 PROHIBITS OVERLAPPING OF RENTAL PAYMENTS FOR THE USE OF AUTOMATIC DATA PROCESSING EQUIPMENT DURING THE PERIOD OF CONVERSION OF EQUIPMENT OF ONE MANUFACTURER TO OTHER EQUIPMENT OF THE SAME MANUFACTURER. HOWEVER, THE LETTER OF DECEMBER 28, 1964, INDICATES THAT OTHER ISSUES ARE INVOLVED SUCH AS WHETHER VALID ORDERS FOR REPLACEMENTS WERE ISSUED AND WHETHER THE ORDERS WERE ACCEPTED BY IBM. THE ORDERS REPORTEDLY SPECIFIED BOTH DELIVERY AND INSTALLATION DATES AS TO WHICH THE GENERAL SERVICES ADMINISTRATION SPECIFICALLY COMMENTED THAT THE ARMY DEPOTS' INCLUSION IN THEIR DELIVERY ORDERS OF A "DELIVERY DATE" AS WELL AS AN "INSTALLATION DATE" IS NOT WITHIN THE PURVIEW OF THE FEDERAL SUPPLY SCHEDULE CONTRACT. THE DECEMBER 28 LETTER ALSO MAKES REFERENCE TO THE FACT THAT IBM'S LETTER OF JANUARY 20, 1964, PRESENTING THE FOUR INVOICES, OMITTED CERTAIN OF THE LANGUAGE OF SECTION 7 OF THE SPECIAL TERMS AND CONDITIONS OF THE FEDERAL SUPPLY SCHEDULE CONTRACT, WHEN SETTING FORTH ITS PROVISIONS IN THE FOOTNOTE AT PAGE 6 OF THE IBM LETTER.

THE SEPARATE ADMINISTRATIVE REPORTS OF THE FOUR DEPOTS MAY BE SUMMARIZED AS FOLLOWS:

THE LEXINGTON-BLUE GRASS ARMY DEPOT COMMENCED NEGOTIATIONS WITH IBM IN APRIL 1962 FOR REPLACEMENT OF THE 650 COMPUTER SYSTEM WITH A 1410 COMPUTER SYSTEM. IN A LETTER DATED APRIL 3, 1962, THE CONTRACTING OFFICER ADVISED IBM THAT AN INSTALLATION DATE OF JULY 1, 1962, WITH A DELIVERY DATE OF MAY 15, WAS REQUIRED. THE LETTER ALSO STATED THAT NO OVERLAP RENTALS WOULD BE PAID BETWEEN THE PERIOD MAY 15 THROUGH JUNE 30 "PENDING RESOLUTION OF THIS POINT BETWEEN THE OFFICE OF THE SECRETARY OF DEFENSE AND THE IBM CORPORATION.' IBM'S REPLY OF APRIL 13 STATED ITS POSITION AS BEING THAT THE FEDERAL SUPPLY SCHEDULE CONTRACT DOES NOT PROVIDE AN ADJUSTMENT OF RENTAL COSTS FOR EITHER SYSTEM WHILE THEY ARE BOTH AVAILABLE FOR USE AND THAT THE COMPANY ANTICIPATED RENTAL WOULD BE PAID ON BOTH SYSTEMS DURING THE CONVERSION PERIOD, BEGINNING ON THE DATE FOLLOWING CERTIFICATION TO THE GOVERNMENT THAT THE 1410 COMPUTER WAS READY FOR USE. ON MAY 2 THE CONTRACTING OFFICER INFORMED IBM THAT THE INSTALLATION DATE WAS CHANGED TO JUNE 1 BUT THAT THE DELIVERY DATE OF MAY 15 REMAINED UNCHANGED. IBM PROTESTED THE USE OF AN INSTALLATION DATE OF JUNE 1, NOTIFIED THE DEPOT THAT THE EQUIPMENT WAS INSTALLED ON MAY 8 AND STATED THAT RENTAL WOULD COMMENCE ON MAY 9. THE CONTRACTING OFFICER THEN ADVISED IBM THAT NO RENTAL WOULD BE PAID FOR USE OF THE EQUIPMENT PRIOR TO JUNE 1 WITH EXCEPTION OF RENTAL FOR PREPARATORY OPERATION EXCEEDING 40 HOURS OF PROGRAM-TEST TIME. THE DEPOT SUGGESTS THAT THE PAYMENT CLAUSE OF THE FEDERAL SUPPLY SCHEDULE CONTRACT INDICATES THAT MONTHLY RENTAL PAYMENTS ON A NEW MACHINE AND A REPLACED MACHINE SHOULD NOT OVERLAP. ITS REPORT ALSO REFERS TO DA MESSAGE NO. 304778 OF JUNE 7, 1962, AS AUTHORIZING PAYMENT OF OVERLAPPING RENTALS WHEN "BOTH EXISTING EQUIPMENT AND THE REPLACED EQUIPMENT MUST BE OPERATED TO AVOID INTERRUPTION OF WORK.' HOWEVER, THE REPORT STATES THAT 18.4 HOURS OF USAGE WAS RECORDED DURING THE PERIOD IN QUESTION AND THAT "THIS WAS TESTING TIME, ONLY.' ACCORDINGLY, THE DEPOT RECOMMENDED THAT PAYMENT OF RENTAL ON THE 1410 COMPUTER FOR THE PERIOD MAY 9 TO MAY 31, 1962, SHOULD NOT BE AUTHORIZED.

THE SACRAMENTO ARMY DEPOT'S ORIGINAL ORDER WAS CHANGED TO PROVIDE FOR AN INSTALLATION DATE OF MAY 15, 1962, AND IBM WAS ADVISED BY SUCH MODIFICATION THAT "NO OVERLAP RENTALS WILL BE PAID UNDER THE TERMS OF ARTICLE A7 OF GSA FEDERAL SUPPLY SCHEDULE, ITEM 132-1, CONTRACT NO. GS 00S -34846.' SUBSEQUENTLY, THE ORDER FOR REPLACEMENT WAS AGAIN MODIFIED TO SHOW AN INSTALLATION DATE OF JUNE 1 AND A DELIVERY DATE OF MAY 15. RENTAL OF $8,343 WAS PAID TO IBM ON THE NEW COMPUTER FOR THE PERIOD MAY 14 THROUGH MAY 31, BUT THIS AMOUNT WAS RECOUPED ON MAY 28, 1963, ON THE BASIS OF DEPARTMENTAL POLICY, AS INDICATED IN AR-1-251, AGAINST THE PAYMENT OF OVERLAPPING RENTALS WHERE THE ARMY INSTALLATION IS CONVERTING FROM ONE AUTOMATIC DATA PROCESSING MACHINE TO ANOTHER OF THE SAME MANUFACTURER. IN THE CASE OF THE REPLACEMENT ORDER ISSUED BY THE LEXINGTON-BLUE GRASS ARMY DEPOT, THE IBM NEGOTIATORS REMAINED FIRM IN THEIR BELIEF THAT RENTAL ON THE 1410 COMPUTER SHOULD START ON THE FIRST SCHEDULED WORKDAY FOLLOWING THE DATE THE EQUIPMENT WAS CERTIFIED BY IBM AS READY FOR USE. THE EQUIPMENT WAS PHYSICALLY INSTALLED AND CERTIFIED READY FOR USE ON FRIDAY, MAY 11, THE POWER WAS TURNED ON AT 7:50 A.M., MONDAY, MAY 14, AND THE EQUIPMENT WAS USED FOR 18 DAYS PRIOR TO THE AGREED UPON INSTALLATION DATE OF JUNE 1. USE OF THE 650 COMPUTER WAS DISCONTINUED AT MIDNIGHT, JULY 6, AND THE TWO SYSTEMS HAD AT SUCH TIME BEEN OPERATED SIMULTANEOUSLY FOR A PERIOD OF 54 DAYS, MAY 14 TO JULY 6, INCLUSIVE.

THE TOBYHANNA ARMY DEPOT'S ORDER, AS MODIFIED, CALLED FOR AN INSTALLATION DATE OF JUNE 1, 1962, WITH A DELIVERY DATE OF MAY 15. THE EQUIPMENT WAS INSTALLED AND UTILIZED ON MAY 15, BUT DUE TO OPERATIONAL DIFFICULTIES, THE EQUIPMENT COULD NOT BE USED FROM MAY 26 THROUGH JUNE 11. IBM'S CLAIM FOR $5,098.53 ALLOWS A CREDIT FOR THE TIME THAT THE 1410 COMPUTER WAS NOT USED, AND THE DEPOT HAS RECOMMENDED ALLOWANCE OF THE NET AMOUNT CLAIMED.

THE FORMER UTAH ARMY DEPOT'S ORDER WAS ISSUED FOLLOWING A PERIOD OF NEGOTIATIONS UNDER WHICH THE IBM'S PRINCIPAL REPRESENTATIVE REPORTEDLY HAD PERSONAL KNOWLEDGE OF ARMY'S POLICY AGAINST THE MAKING OF OVERLAPPING RENTAL PAYMENTS ON AUTOMATIC DATA PROCESSING MACHINES OF THE SAME MANUFACTURE. THE DEFENSE DEPOT OGDEN'S REPORT ALSO INDICATES THAT THE IBM REPRESENTATIVE AGREED AFTER OR SOMETIME IMMEDIATELY PRIOR TO DELIVERY OF THE 1410 COMPUTER THAT RENTAL ON THE REPLACEMENT WOULD BEGIN ON JUNE 20 AND THAT RENTAL ON THE 650 MACHINE WOULD END ON JUNE 19. THE ABOVE-CITED ARMY MESSAGE NO. 304778 OF JUNE 7, 1962, WAS NOT RECEIVED BY DEPOT PERSONNEL UNTIL JUNE 18, BUT THE IBM REPRESENTATIVE INDICATED BY STATEMENTS MADE PRIOR TO JUNE 18 THAT HE KNEW THE MESSAGE HAD BEEN SENT AND WAS AWARE OF ITS CONTENTS. ON JUNE 8 IBM ISSUED A CERTIFICATE OF READINESS WHICH NORMALLY WOULD HAVE BEEN EFFECTIVE ON THE FOLLOWING MONDAY, JUNE 11. ALTHOUGH THE ARMY MESSAGE OF JUNE 7 PURPORTED TO AUTHORIZE PAYMENT OF OVERLAPPING RENTALS IN THE EVENT THAT USE OF BOTH THE EXISTING EQUIPMENT AND THE NEW EQUIPMENT WAS REQUIRED TO AVOID INTERRUPTION OF WORK, IT WAS NOT NECESSARY TO OPERATE THE TWO COMPUTER SYSTEMS FOR SUCH PURPOSE AND THE 1410 COMPUTER SYSTEM WAS USED FOR PROGRAM TESTING ONLY UNTIL JUNE 29. ACCORDINGLY, DEFENSE DEPOT OGDEN RECOMMENDED THAT NO RENTAL ON THE 1410 COMPUTER SYSTEM BE PAID FOR THE PERIOD JUNE 11 THROUGH JUNE 19. IN ADDITION TO EMPHASIZING THE APPARENT FACT THAT IBM WAS ON ACTUAL NOTICE OF THE DEPARTMENTAL POLICY AGAINST THE PAYMENT OF OVERLAPPING RENTALS IN CASES OF THIS NATURE, THE REPORT SUGGESTS THAT IBM MUST IN ANY EVENT BE PRESUMED TO HAVE BEEN ON CONSTRUCTIVE NOTICE OF THE ARMY REGULATION IN VIEW OF THE "FUNDAMENTAL AND WELL ESTABLISHED CONCEPT OF GOVERNMENT CONTRACT LAW THAT PERSONS DEALING WITH THE GOVERNMENT MUST ASCERTAIN, AT THEIR OWN RISK, THE EXTENT OF THE AUTHORITY OF THE CONTRACTING OFFICER AND OTHER PERSONS ACTING AS AGENTS FOR THE GOVERNMENT.'

THE TERM "INSTALLATION DATE" IS DEFINED IN THE FEDERAL SUPPLY SCHEDULE CONTRACT WITH IBM AS THE DATE ON WHICH THE CONTRACTOR MUST HAVE ORDERED EQUIPMENT READY FOR USE BY THE GOVERNMENT AND ON WHICH HE CERTIFIES THIS FACT IN WRITING. SECTION 2 OF THE SPECIAL TERMS AND CONDITIONS OF THE CONTRACT PROVIDES:

"IBM AGREES TO INSTALL EQUIPMENT ORDERED UNDER THIS CONTRACT, READY FOR USE, ON A DATE MUTUALLY AGREED TO BY IBM AND THE GOVERNMENT. THE INSTALLATION DATE SHALL BE WRITTEN INTO THE ORDER FOR THE EQUIPMENT AND PROMPTLY CONFIRMED IN WRITING BY IBM. ANY CHANGES BY THE GOVERNMENT TO AN ORDER, OR ANY PART THEREOF, MAY REQUIRE THE ESTABLISHMENT OF A NEW AND/OR AN ADDITIONALLY MUTUALLY AGREED TO INSTALLATION DATE WHICH SHALL BE CONFIRMED PROMPTLY IN WRITING BY IBM. THE GOVERNMENT AGREES TO HAVE THE SITE PREPARED IN ACCORDANCE WITH IBM'S WRITTEN SITE SPECIFICATIONS 60 DAYS BEFORE THE INSTALLATION DATE SO AS TO ENABLE IBM TO INSTALL THE EQUIPMENT READY FOR USE, BY THE INSTALLATION DATE.'

SECTION 4 PROVIDES IN PART THAT "WHEN THE EQUIPMENT IS READY FOR USE, IBM SHALL CERTIFY THIS FACT IN WRITING. THE PERFORMANCE PERIOD SHALL BEGIN ON THE FIRST SCHEDULED WORKDAY FOLLOWING SUCH CERTIFICATION. SHOULD IT BE NECESSARY, THE GOVERNMENT MAY DELAY THE START OF THIS PERFORMANCE PERIOD, BUT SUCH DELAY SHALL NOT EXCEED 30 CONSECUTIVE CALENDAR DAYS SUBJECT TO SUBPARAGRAPH (A) BELOW.' THAT SUBPARAGRAPH STATES: "SHOULD THE GOVERNMENT DELAY THE START OF THE PERFORMANCE PERIOD, RENTAL CHARGES SHALL BE PAID CURRENTLY FOR THAT PERIOD OF TIME BETWEEN THE FIRST SCHEDULED WORKDAY FOLLOWING THE DATE THE EQUIPMENT WAS INSTALLED AND THE START OF THE PERFORMANCE PERIOD.'

SECTION 7 REQUIRES THE CONTRACTOR TO ASSIST THE GOVERNMENT IN PROCURING USE ON EQUIPMENT COMPATIBLE WITH THAT USED BY THE GOVERNMENT "TO MEET EMERGENCIES SUCH AS A MAJOR BREAKDOWN, CONVERSION FROM ONE SYSTEM TO ANOTHER, UNFORESEEN PEAK LOADS, ETC.' (THE FOOTNOTE AT PAGE 6 OF IBM'S LETTER DATED JANUARY 20, 1964, ADDED THE PHRASE "BUT NOT RESTRICTED TO" FOLLOWING THE WORDS ,SUCH AS" AND OMITTED THE PHRASE "CONVERSION FROM ONE SYSTEM TO ANOTHER.''

SECTION 18, ENTITLED "INVOICES AND PAYMENT," PROVIDES, IN PERTINENT PART, AS FOLLOWS:

"SUBJECT TO THE PROVISIONS OF ACCEPTANCE OF EQUIPMENT AND STANDARD OF PERFORMANCE AS SET FORTH IN PARAGRAPH 4 OF THIS CONTRACT, RENTAL CHARGES SHALL BEGIN ON THE FIRST SCHEDULED WORKDAY FOLLOWING IBM'S WRITTEN NOTIFICATION THAT THE EQUIPMENT IS INSTALLED, READY FOR USE.

"* * * A MACHINE INSTALLED TO REPLACE ANOTHER MACHINE SHALL BE BILLED FOR THE NUMBER OF DAYS SUCH REPLACEMENT MACHINE IS INSTALLED READY FOR USE THROUGH THE LAST DAY OF THE CALENDAR MONTH. THE REPLACED MACHINE SHALL BE BILLED FOR ITS BASIC MONTHLY CHARGE LESS 1/30TH OF SUCH CHARGES FOR EACH DAY BILLED FOR THE NEW MACHINE.'

THE SPECIAL TERMS AND CONDITIONS OF THE CONTRACT ALSO REFER TO PROGRAM TESTING TIME ALLOWANCES TO BE GRANTED TO THE GOVERNMENT IN CONNECTION WITH EACH NEWLY INSTALLED SYSTEM WHEN COMPUTING EXTRA USE CHARGES UNDER THE PROVISIONS OF SECTION 5. THERE IS NO PROVISION IN THE CONTRACT TO THE EFFECT THAT THE INSTALLATION DATE SPECIFIED IN AN ORDER WOULD BE CONTROLLING IN DETERMINING THE TIME THAT THE CONTRACTOR'S RIGHT TO RECEIVE MONTHLY RENTAL WOULD FIRST ACCRUE. THE CONTRACTOR WOULD BE CHARGEABLE FOR LIQUIDATED DAMAGES UNDER THE PROVISIONS OF SECTION 3 OF THE SPECIAL TERMS AND CONDITIONS IF EQUIPMENT WAS NOT INSTALLED ON OR BEFORE THE AGREED UPON INSTALLATION DATE, BUT IT IS EVIDENT FROM THE PROVISIONS OF SECTIONS 4 AND 18 THAT THE PARTIES TO THE CONTRACT CONTEMPLATED THAT MONTHLY RENTAL ON NEW EQUIPMENT WOULD BEGIN ON THE FIRST SCHEDULED WORKDAY FOLLOWING CERTIFICATION BY THE CONTRACTOR THAT THE EQUIPMENT WAS INSTALLED AND READY FOR USE. PRESUMABLY IT WAS EXPECTED THAT IN MOST INSTANCES THE EQUIPMENT WOULD BE INSTALLED AND READY FOR USE BEFORE THE LIMITING DATE SET FOR INSTALLATION AND WE FIND NOTHING IN THE CONTRACT TO WARRANT A CONCLUSION THAT IT PRECLUDES PAYMENT OF A PRO-RATA MONTHLY RENTAL FROM THE TIME ORDERED EQUIPMENT IS ACTUALLY INSTALLED AND READY FOR USE, PROVIDED THAT NO RENTAL WOULD BE DUE FOR NONWORKDAYS IMMEDIATELY FOLLOWING THE DATE OF THE CONTRACTOR'S WRITTEN CERTIFICATION OF INSTALLATION AND READINESS FOR USE. IT DOES NOT APPEAR THAT THE USE OF DELIVERY DATES IN THE ORDERS ISSUED BY THE FOUR DEPOTS MATERIALLY AFFECTED THE RIGHTS OF THE CONTRACTOR, ALTHOUGH THE GENERAL SERVICES ADMINISTRATION HAS INDICATED THAT THE SPECIFICATION OF A DELIVERY DATE IS NOT WITHIN THE PURVIEW OF THE FEDERAL SUPPLY SCHEDULE CONTRACT. IN ALL PROBABILITY THE 1410 COMPUTER SYSTEMS WOULD HAVE BEEN INSTALLED AT ABOUT THE SAME DATES AS INDICATED FOR DELIVERY IF THE ORDERS HAD SPECIFIED ONLY INSTALLATION DATES INSTEAD OF BOTH DELIVERY AND INSTALLATION DATES. IBM MIGHT HAVE OBJECTED TO THE USE OF DELIVERY DATES BUT WE SEE NO BASIS FOR TAKING THE POSITION THAT THE ORDERS WERE INVALID FOR SUCH REASON OR THAT IBM DID NOT ACCEPT THE ORDERS AS SUBSTANTIALLY MEETING THE REQUIREMENTS OF THE FEDERAL SUPPLY SCHEDULE CONTRACT.

SECTION 7 OF THE SPECIAL TERMS AND CONDITIONS OF THE CONTRACT SPECIFICALLY REFERS TO THE POSSIBILITY THAT NEW MACHINES MIGHT BE REQUIRED AS REPLACEMENTS IN THE CONVERSION FROM ONE COMPUTER SYSTEM TO ANOTHER, AND SECTION 18 CONTAINS NO EXCEPTION WITH RESPECT TO POSSIBLE DIFFERENCES BETWEEN THE MECHANICAL FEATURES OF A COMPUTER ALREADY IN USE AND THAT ORDERED AS A REPLACEMENT. WE THEREFORE SEE NO ALTERNATIVE TO THE CONCLUSION THAT THE CONTRACT DOES NOT AUTHORIZE THE PAYMENT OF OVERLAPPING RENTALS IN THE USUAL CASE OF THE FURNISHING OF A NEW COMPUTER AS A REPLACEMENT FOR ANOTHER IBM COMPUTER. HOWEVER, WE AGREE WITH THE CONCLUSION REACHED IN THE CITED ARMY MESSAGE OF JUNE 7, 1962, THAT THE CONTRACT SHOULD NOT BE CONSIDERED AS PRECLUDING PAYMENT OF OVERLAPPING RENTALS WHEN BOTH COMPUTERS HAVE BEEN USED TO AVOID INTERRUPTION OF DATA PROCESSING WORK AT THE PARTICULAR DEPOT OR OTHER GOVERNMENT INSTALLATION.

ARMY REGULATION 1-251 WAS ISSUED ON NOVEMBER 30, 1961, FOR THE PURPOSE OF COMBINING IN ONE DOCUMENT PLANS, POLICIES, RESPONSIBILITIES, OBJECTIVES, ETCETERA, APPROPRIATE TO THE USE AND FURTHER EXPLOITATION OF AUTOMATIC DATA PROCESSING SYSTEMS AND PUNCH CARD MACHINE SYSTEMS THROUGHOUT THE DEPARTMENT OF THE ARMY. THE REGULATION CONSISTED OF TWO CHAPTERS AND CHAPTER 3 WAS ADDED BY CHANGE 1, DATED AUGUST 1, 1962. IT APPEARS THAT CHAPTER 3 IN THE FIRST PUBLISHED DOCUMENT OF THE DEPARTMENT WHICH SETS FORTH ANY OBJECTION TO THE PAYMENT OF OVERLAPPING RENTALS FOR NEW AND REPLACED EQUIPMENT. HOWEVER, IT SEEMS TO BE CLEARLY RECOGNIZED IN THE REGULATION THAT THE DEPARTMENT SHOULD COMPLY SUBSTANTIALLY WITH THE TERMS AND CONDITIONS OF FEDERAL SUPPLY SCHEDULE RENTAL CONTRACTS, SINCE IT IS PROVIDED THAT "THE DURATION OF THE PERIOD OF CONVERSION WILL BE THE SUBJECT OF LOCAL NEGOTIATION WITHIN THE PROVISIONS OF THE APPLICABLE FEDERAL SUPPLY SCHEDULE AND WILL BE CONCLUDED PRIOR TO ISSUANCE OF THE PROCUREMENT ORDER.'

CHAPTER 3 OF AR 1-251 SUPERSEDED AR 1-250, CHANGE 1 OF WHICH IN REFERRING TO FEDERAL SUPPLY SCHEDULE RENTAL CONTRACTS, STATED IN PART THAT "DELIVERY OF EQUIPMENT" MEANS THE PHYSICAL DELIVERY ON-SITE OF THE COMPONENTS OF THE ADPE CONFIGURATION, WITHOUT REGARD TO WHETHER OR NOT THEY HAVE BEEN UNPACKED, PLACED IN FINAL POSITION, OR INTERCONNECTED. THAT CHANGE ALSO REFERS TO THE TERM ,INSTALLATION DATE," AS USED IN THE FEDERAL SUPPLY SCHEDULE RENTAL AGREEMENTS. HENCE, THERE APPEARS TO BE, EVEN ON TECHNICAL GROUNDS, NO BASIS FOR HOLDING THAT INSERTION OF DELIVERY DATES AS WELL AS INSTALLATION DATES IN THE FOUR ORDERS HERE INVOLVED CONSTITUTED UNAUTHORIZED ACTIONS ON THE PART OF THE CONTRACTING OFFICIALS.

SINCE THE FEDERAL SUPPLY SCHEDULE CONTRACT WITH IBM WAS NOT MADE MANDATORY FOR USE BY THE DEPARTMENT OF THE ARMY, IBM WAS NOT REQUIRED TO ACCEPT ORDERS THEREUNDER FOR INSTALLATION OF THE EQUIPMENT WHICH WAS REPLACED IN MAY AND JUNE 1962. HOWEVER, THERE IS A SUBSTANTIAL QUESTION AS TO WHETHER, ONCE HAVING PERFORMED THE INITIAL INSTALLATIONS, IBM WAS REQUIRED UNDER THE PROVISIONS OF SECTION 7 OF THE SPECIAL TERMS AND CONDITIONS OF THE FEDERAL SUPPLY SCHEDULE CONTRACT TO ACCEPT ORDERS FOR REPLACEMENTS. WE BELIEVE THAT BOTH PARTIES WERE BOUND TO FOLLOW THE PROVISIONS OF THE CONTRACT IN CONNECTION WITH ANY ORDERED REPLACEMENT DURING THE FISCAL YEAR ENDING ON JUNE 30, 1962, EXCEPT TO THE EXTENT THAT IBM MAY HAVE AGREED IN THE COURSE OF NEGOTIATIONS FOR CONVERSIONS FROM ONE SYSTEM TO ANOTHER TO RELINQUISH ANY CONTRACT RIGHTS.

IN VIEW OF THE LIMITED USE OF THE 1410 COMPUTER DURING THE PERIOD OF CONVERSION AT THE LEXINGTON-BLUE GRASS ARMY DEPOT, WE FIND NO PROPER BASIS FOR APPROVING PAYMENT OF IBM'S CLAIM FOR $10,660.53, AND SUCH CLAIM SHOULD BE REJECTED BY YOUR DEPARTMENT. SIMILARLY, THE CLAIM FOR $4,468.50, RELATING TO THE REPLACEMENT MADE AT THE FORMER UTAH ARMY DEPOT, SHOULD BE REJECTED NOT ONLY BECAUSE OF THE APPARENTLY LIMITED USE OF THE 1410 COMPUTER DURING THE CONVERSION PERIOD BUT BECAUSE OF IBM'S APPARENT AGREEMENT TO ACCEPT JUNE 20, 1962, AS THE DATE ON WHICH RENTAL ON THE NEW EQUIPMENT WOULD BEGIN. HOWEVER, IN VIEW OF THE REPORTED FACTS AND CIRCUMSTANCES CONCERNING THE 1410 COMPUTERS INSTALLED AT THE SACRAMENTO AND TOBYHANNA DEPOTS, IT IS APPARENT THAT THERE COULD BE NO REASONABLE OBJECTION TO THE FAVORABLE CONSIDERATION OF IBM'S CLAIMS FOR $8,343 AND $5,098.53, AND PAYMENT OF SUCH AMOUNTS IS HEREBY AUTHORIZED, SUBJECT TO VERIFICATION OF THE CHARGES MADE.

THE CORRESPONDENCE AND DOCUMENTS OF THE CASE, WITH EXCEPTION OF THE LETTER DATED DECEMBER 28, 1964, AND THE INDORSEMENT OF THE FINANCE CENTER, INDIANAPOLIS, INDIANA, ARE FORWARDED HEREWITH.