B-156634, MAY 19, 1965

B-156634, MAY 19, 1965

TO THE HONORABLE SECRETARY OF THE ARMY:

REFERENCE IS MADE TO LETTER FINCY-T OF APRIL 21, 1965, FROM THE DEPUTY CHIEF, FIELD SERVICE OFFICE, FINANCE CENTER, INDIANAPOLIS, INDIANA, PRESENTING FOR CONSIDERATION A QUESTION WHETHER ITALIAN LAW PERTAINING TO INCREASES IN CONTRACT PRICES AS A RESULT OF INCREASES IN LABOR OR MATERIAL COSTS MAY BE APPLIED TO CONSTRUCTION CONTRACT DA-91 211-ENG-360 WITH GEOM. LUIGI SALVI AND COMPANY.

THE RECORD FURNISHED OUR OFFICE SHOWS THAT UPON RECEIPT OF A REQUEST FOR PROPOSAL, THE CONTRACTOR WROTE TO THE CONTRACTING OFFICE AND INQUIRED WHETHER IT WOULD BE ALLOWED, AS PROVIDED BY ITALIAN LAW, TO REVISE ITS CONTRACT PRICE IN THE EVENT OF AN INCREASE IN LABOR AND MATERIAL COSTS. THE CONTRACTING OFFICER REPLIED THAT THE CONTRACT WOULD BE A FIRM FIXED- PRICE CONTRACT FINANCED WITH APPROPRIATED FUNDS AND THAT IN HIS OPINION THE ITALIAN LAW WOULD NOT BE APPLICABLE AND NO INCREASE IN PRICE WOULD BE PERMISSIBLE. DURING CONTRACT NEGOTIATIONS THE CONTRACTOR RAISED THE QUESTION AGAIN. THE CONTRACTING OFFICER ADVISED THAT HIS OPINION REMAINED UNCHANGED. HOWEVER, THE ISSUE WAS NOT SETTLED BECAUSE THE CONTRACTOR INSISTED THAT ITALIAN LAW APPLIED. THE CONTRACTOR SUBMITTED A WRITTEN STATEMENT AS FOLLOWS:

"I HAVE INCLUDED NO MONETARY CONTINGENCY IN MY PROPOSAL TO COVER INCREASE IN CONSTRUCTION COSTS, BECAUSE I BELIEVE I AM PROTECTED UNDER ITALIAN LAWS. HOWEVER, IF MY BELIEF IS NOT CORRECT, I HAVE ASSUMED THIS RISK.'

THEREAFTER, ON DECEMBER 13, 1963, CONSTRUCTION CONTRACT DA-91-211 ENG- 360, PREPARED ON STANDARD FORM 23, WAS EXECUTED BY THE CONTRACTOR AND THE CONTRACTING OFFICER.

ON DECEMBER 21, 1964, THE CONTRACTOR SUBMITTED TO THE CONTRACTING OFFICE A REQUEST FOR REVISION OF THE CONTRACT PRICE ON THE BASIS THAT THE LAWS APPLICABLE TO ITALIAN MINISTRY OF PUBLIC WORKS CONTRACTS AND ARTICLE 1664 OF THE ITALIAN CIVIL CODE PROVIDE FOR IT. THE REQUEST WAS DENIED ON FEBRUARY 8, 1965. ON MARCH 4, 1965, THE CONTRACTOR WROTE TO OUR OFFICE, THROUGH THE CONTRACTING OFFICER, REQUESTING A RULING ON THE LAW. THE CONTRACTING OFFICER'S REPORT ACCOMPANYING THE MARCH LETTER STATES THAT THE LETTER HAS REDUCED THE AMOUNT OF THE ORIGINAL CLAIM. IT IS EXPLAINED THAT THE AMOUNT OF THE CLAIM HAS BEEN REDUCED BECAUSE THE CONTRACTOR NOW CONCEDES THAT THE LAWS APPLICABLE TO ITALIAN MINISTRY OF PUBLIC WORKS CONTRACTS DO NOT APPLY, ALTHOUGH PERSISTING THAT ARTICLE 1664 OF THE ITALIAN CIVIL CODE DOES APPLY. ARTICLE 1664 PROVIDES AS FOLLOWS:

"ARTICLE 1664 - SUPERVENING HARDSHIP OR DIFFICULTY IN EXECUTION.

"IF FOR UNFORESEEABLE CIRCUMSTANCES THERE OCCUR SUCH INCREASES OR REDUCTIONS IN THE COST OF LABOR OR OF THE MATERIALS AS TO CAUSE AN INCREASE OR A REDUCTION IN EXCESS OF ONE-TENTH OF THE TOTAL PRICE AGREED UPON, THE INDEPENDENT CONTRACTOR OR THE EMPLOYER MAY REQUEST SUCH PRICE TO BE REVISED.

"THE REVISION MAY ONLY BE GRANTED FOR THAT PART OF THE DIFFERENCE WHICH IS IN EXCESS OF ONE-TENTH.'

IT APPEARS THAT THERE WAS NO MUTUAL UNDERSTANDING BETWEEN THE PARTIES TO THE CONTRACT AS TO THE LAW WHICH WAS TO APPLY TO THE CONTRACT. THE CONTRACTING OFFICER, ON THE ONE HAND, ENTERED INTO THE CONTRACT WITH A VIEW THAT ITALIAN LAW DID NOT APPLY WHEREAS THE CONTRACTOR WAS OF THE OPPOSITE VIEW. THE CONTRACT DOES NOT SHOW ANY AGREEMENT AS TO THE LAW WHICH WAS TO APPLY.

ITALY IS THE PLACE WHERE THE CONTRACT WAS MADE AND WAS PERFORMED. IN THE ABSENCE OF AN AGREEMENT TO THE CONTRARY, THE RIGHTS AND LIABILITIES IMPOSED BY CONTRACT ARE DETERMINED BY THE LAW OF THE PLACE OF THE CONTRACT. 16 AM. JUR. 2D, CONFLICT OF LAWS, SECTIONS 39 AND 47. THE FACTS OF THIS CASE AS SET OUT ABOVE SHOW THAT NO SUCH AGREEMENT EXISTED HERE. THEREFORE, ARTICLE 1664 OF THE CIVIL CODE GOVERNS THE CONTRACTOR'S CLAIM AND THE CONTRACTING OFFICER IS AUTHORIZED TO CONSIDER THE MERITS OF THE CLAIM TO THE EXTENT THAT IT MEETS THE CONDITIONS OF THE ARTICLE.