B-157999, MAR. 28, 1966

B-157999, MAR. 28, 1966

TO ADMINISTRATOR, GENERAL SERVICES ADMINISTRATION:

FURTHER REFERENCE IS MADE TO THE LETTER OF NOVEMBER 5, 1965, FROM THE ATTORNEYS FOR JACK BARRETT TRUCK AND AUTO LEASING, INC., (BARRETT) CONCERNING THE METHOD OF COMPUTING CHARGES FOR THE RENTAL OF AUTOMOBILES UNDER CONTRACT NOS. GS-09S-10514, GS-09S-12175, AND GS-09S 13846, WITH THE GENERAL SERVICES ADMINISTRATION (GSA). THIS MATTER WAS THE SUBJECT OF REPORTS DATED NOVEMBER 18 AND DECEMBER 28, 1965, FROM YOUR GENERAL COUNSEL. IN ADDITION TO THESE REPORTS, THE MATTER WAS ALSO REFERRED TO IN A REPORT DATED NOVEMBER 9, 1965, IN CONNECTION WITH ALFA AUTO RENTAL, INC., CONTRACT NO. GS-09S-13845 (OUR FILE B 157805) WHICH INCLUDES THE PROVISION IN QUESTION IN THE BARRETT CONTRACTS.

IN THE REFERENCED LETTER, BARRETT ASKS THAT OUR OFFICE APPROVE ITS INTERPRETATION OF THE SUBJECT CONTRACTS WITH RESPECT TO THE METHOD OF COMPUTING CHARGES IN ORDER THAT CERTAIN OUTSTANDING INVOICES WILL BE PAID AND A PROPOSED AUDIT OF PRIOR PAYMENTS WILL BE FOREGONE. IT IS THEREIN STATED THAT THE BASIS OF THE DISPUTE WITH GSA OVER THE PROPER METHOD OF COMPUTING CHARGES UNDER THE SUBJECT CONTRACTS IS A "UNIQUE INTERPRETATION BEING ASSERTED EX POST FACTO BY THE GAO.'

HOWEVER, THE RECORD SHOWS THAT, CONTRARY TO BARRETT'S STATEMENT, THIS MATTER BECAME A SUBJECT OF CONCERN IN JULY 1965 WHEN GSA AUDITORS TOOK EXCEPTION TO THE BILLINGS AND PAYMENTS MADE UNDER THE SUBJECT CONTRACTS AND SOUGHT AND RECEIVED ADVICE FROM THE GSA REGIONAL COUNSEL IN SAN FRANCISCO. ALL OF THE CONTRACTS, WHICH HAVE BEEN PERFORMED, PROVIDED UNDER THREE SCHEDULES FOR THE FURNISHING OF THREE TYPES OF VEHICLES AT RATES SPECIFIED FOR SIX DIFFERENT RENTAL PERIODS. AT THE END OF EACH SCHEDULE, IMMEDIATELY FOLLOWING THE SIX RENTAL PERIODS, THERE APPEARS THE FOLLOWING:

"NOTE: FOR EACH SUBITEM CONTRACTOR SHALL COMPUTE CHARGES FOR SERVICE AT THE LOWEST POSSIBLE COMBINATION OF RATES.'

IT IS THE INTERPRETATION AND APPLICATION OF THIS PROVISION WHICH HAS PRECIPITATED THE CONTROVERSY IN THIS CASE. GSA AUDITORS TAKE THE POSITION, CONCURRED IN BY THE GSA REGIONAL COUNSEL, THAT WHERE ANY COMBINATION OF RATES IS LESS THAN THE RATE FOR THE FULL PERIOD A VEHICLE WAS ACTUALLY RETAINED, THE LESSER RATES SHOULD BE APPLIED IN DETERMINING THE RENTAL DUE. THUS, USING THE RATES SPECIFIED UNDER SCHEDULE A OF CONTRACT NO. GS-09S-13846 FOR ILLUSTRATIVE PURPOSES, WHERE A VEHICLE WAS RETAINED FOUR FULL DAYS BARRETT APPLIED THE 24-HOUR DAY RATE ($12.95) FOR A TOTAL CHARGE OF $51.80. THE AUDITORS CONTEND THAT THE CHARGES IN THE EXAMPLE GIVEN SHOULD HAVE BEEN COMPUTED ON THE BASIS OF THE 5-DAY WEEK RATE, WHICH IS $41.75. UNDER CONTRACT NO. GS-09S-12175, WHERE EIGHT 12- HOUR DAY RATES WOULD BE LESS THAN BOTH FOUR 24-HOUR DAY RATES AND THE 5- DAY WEEK RATE, THE AUDITORS CONTEND THE 12-HOUR DAY RATE SHOULD BE APPLIED. PAYMENTS MADE UNDER ALL THREE CONTRACTS, AS WELL AS UNDER THE ALFA CONTRACT REFERRED TO, HAVE BEEN MADE ON THE BASIS OF THE CONTRACTOR'S INVOICES WHICH APPARENTLY REFLECT CHARGES COMPUTED AT THE RATE FOR THE ACTUAL RENTAL TIME WITHOUT REGARD TO WHETHER SUCH CHARGES ARE THE LOWEST POSSIBLE COMBINATION OF RATES. IN THIS CONNECTION, IT IS REPORTED THAT AN AUDIT OF ONE OR TWO MONTHS PAYMENTS UNDER TWO OF THE CONTRACTS INDICATED TOTAL OVERPAYMENTS OF APPROXIMATELY $10,000 AND $28,000, RESPECTIVELY.

BARRETT CONTENDS THAT THE "NOTE" AT THE END OF EACH SCHEDULE SHOULD NOT BE INTERPRETED AS THE AUDITORS AND REGIONAL COUNSEL HAVE INTERPRETED IT BECAUSE THIS WOULD BE, IN EFFECT, DISREGARDING THE 24 HOUR DAY RATE UPON WHICH THE ENTIRE RATE STRUCTURE DEPENDS; THAT TO DISREGARD THE 24-HOUR DAY RATE WOULD BE CONTRARY TO THE REPRESENTATION IN THE INVITATIONS UNDER WHICH BIDS WERE SOLICITED THAT 70 PERCENT OF THE RENTAL TRANSACTIONS WOULD BE FOR 24-HOUR PERIODS AND THEREFORE MISLEADING TO THE BIDDERS AS ALLOWANCES WHERE MADE IN VARIOUS OTHER RATES WHICH WOULD NOT HAVE BEEN MADE BUT FOR THIS REPRESENTATION; THAT APPROVAL AND PAYMENT OF THE INVOICES IN THE PAST CONSTITUTE CONCLUSIVE EVIDENCE THAT ITS METHOD OF COMPUTING CHARGES WAS AS INTENDED BY BOTH PARTIES; THAT THE EQUITABLE DOCTRINES OF LACHES AND ESTOPPEL PRECLUDED THE GOVERNMENT FROM NOW ASSERTING A DIFFERENT INTERPRETATION AS TO THE METHOD OF COMPUTING CHARGES; THAT ITS INTERPRETATION WAS CONFIRMED BY THE STATEMENT OF THE CONTRACTING OFFICER, APPARENTLY IN CONNECTION WITH ITS BID ON THE LAST CONTRACT, THAT "BIDS WOULD BE AWARDED ON THE SAME BASIS AS IN PRIOR YEARS; " THAT THE AUDITOR'S INTERPRETATION, WHICH WOULD IN EFFECT IGNORE THE 24- HOUR DAY RATE FAILS TO RECOGNIZE THE ECONOMICS OF THE AUTOMOBILE RENTAL BUSINESS AND THE REASON FOR A 12-HOUR DAY RATE LESS THAN HALF THE 24-HOUR RATE TO INDUCE EARLY RETURN OF VEHICLES SO THEY COULD BE RENTED AGAIN IN THE SAME 12-HOUR PERIOD; THAT THE "NOTE" WAS INTENDED TO APPLY WHERE A VEHICLE WAS RETAINED LONGER THAN THE PERIOD FOR WHICH IT WAS ORIGINALLY RENTED AND THE RATE FOR THE LONGER PERIOD WAS LESS THAN THE TOTAL OF THE SHORTER PERIOD RATES; AND IF THERE IS ANY AMBIGUITY IN THE CONTRACT IT MUST BE CONSTRUCTED AGAINST THE WRITER, THE GOVERNMENT.

THE CARDINAL RULE OF CONTRACT CONSTRUCTION IS TO ASCERTAIN AND GIVE EFFECT TO THE INTENTION EXPRESSED IN THE INSTRUMENT BEING CONSTRUED. GOLDEN GATE BRIDGE AND HIGHWAY DIST. OF CALIFORNIA V. UNITED STATES, 125 F.2D 872, 876. IN DETERMINING THE INTENTION EXPRESSED IN A WRITTEN CONTRACT, EFFECT MUST BE GIVEN TO EACH WORD, CLAUSE, OR TERM THEREIN, AND NONE OF THEM SHOULD BE REJECTED FOR LACK OF MEANING OR AS SURPLUSAGE. UNITED STATES V. HATHAWAY, 242 F.2D 897, 900, AND ROOSEVELT MATERIALS COMPANY V. NOLAND BROTHERS, INC., 264 F.2D 807. THE "NOTE" IN QUESTION CLEARLY REQUIRES THAT THE CONTRACTOR'S "CHARGES FOR SERVICE" BE COMPUTED ON THE "LOWEST POSSIBLE COMBINATION OF RATES.' THE ONLY POSSIBLE AMBIGUITY, IF ANY, IN THIS CLAUSE IS IN THE USE OF THE WORD "SUBITEM" TO DESCRIBE WHAT THE "CHARGES FOR SERVICE" RELATE TO. IN ORDER TO GIVE MEANING AND EFFECT TO THIS WORD AND THE "NOTE" AS A WHOLE,"SUBITEM" MUST REASONABLY BE INTERPRETED AS RENTAL" OR "RENTAL PERIOD.' THE "NOTE," THUS INTERPRETED, READS,"FOR EACH RENTAL OR RENTAL PERIOD CONTRACTOR SHALL COMPUTE CHARGES FOR SERVICE AT THE LOWEST POSSIBLE COMBINATION OF RATES.' THIS INTERPRETATION SUPPORTS THE AUDITORS' POSITION. TO ACCEPT BARRETT'S INTERPRETATION OF THIS CLAUSE WOULD BE, IN EFFECT, TO REWRITE IT RATHER THAN INTERPRET THE WORD "SUBITEM.' THERE IS NOTHING IN THE CLAUSE, OR ELSEWHERE IN THE CONTRACTS, TO INDICATE THAT THE ONLY INSTANCE WHERE THE ,CONTRACTOR SHALL COMPUTE CHARGES ... AT THE LOWEST POSSIBLE COMBINATION OF RATES" IS WHERE A VEHICLE IS KEPT A LONGER PERIOD THAN ORIGINALLY ORDERED FOR.

WHILE WE ARE COGNIZANT OF AND RECOGNIZE THE GENERAL PROPOSITION THAT ANY AMBIGUITY IN THE LANGUAGE OF A CONTRACT IS TO BE CONSTRUED MOST STRONGLY OR STRICTLY AGAINST THE AUTHOR OF SUCH LANGUAGE, AS STATED BY BARRETT, WE DO NOT BELIEVE THIS RULE IS FOR APPLICATION IN CONSTRUING THE MEANING OF THE "NOTE" IN QUESTION IN THE INSTANT CONTRACTS. THE MEANING OF THIS "NOTE" IS AMBIGUOUS ONLY IF IT CAN BE SAID THAT IT IS FAIRLY SUSCEPTIBLE OF MORE THAN ONE CONSTRUCTION. 17 C.J.S. CONTRACTS, SECTION 324. SINCE IT IS OUR OPINION THAT FOR THE "NOTE" TO HAVE ANY MEANING AT ALL IT IS FAIRLY SUSCEPTIBLE OF ONLY THE ONE CONSTRUCTION STATED ABOVE, WE MUST CONCLUDE THAT THE FOREGOING RULE REGARDING INTERPRETATION OF AMBIGUOUS LANGUAGE IS NOT APPLICABLE.

NEITHER CAN WE AGREE WITH BARRETT'S ARGUMENT CONCERNING THE EFFECT TO BE ASCRIBED TO PAYMENT OF ITS CHARGES UNDER ITS FIRST CONTRACT, COMPUTED IN ACCORDANCE WITH THE INTERPRETATION IT CONTENDS IS CORRECT, IN CONSTRUING THE LANGUAGE OF THAT CONTRACT. WHILE IT IS TRUE, AS A GENERAL PROPOSITION, THAT THE INTERPRETATION PLACED UPON THE TERMS OF A CONTRACT BY THE PARTIES DURING THE COURSE OF PERFORMANCE OF THE CONTRACT IS ENTITLED TO GREAT WEIGHT IN ASCERTAINING THE INTENT OF THE PARTIES, EASTMOUNT CONSTRUCTION CO. V. TRANSPORT MANUFACTURING AND EQUIPMENT CO., 301 F.2D 34 (1962), SUCH AN INTERPRETATION MUST BE THE CONSCIOUS ACTION OF A RESPONSIBLE AGENT OF THE PARTY AGAINST WHOM THE INTERPRETATION IS URGED. SEE JANSEN V. UNITED STATES, 344 F.2D 363 (1965), CITING DELORO SMELTERING AND REFINING COMPANY V. UNITED STATES, 317 F.2D 382 (1963), IN WHICH THE COURT SAID:

"* * * IN THIS CONNECTION, WE ATTRIBUTE LITTLE SIGNIFICANCE TO THE COURSE OF PAYMENTS BY DEFENDANT (IN 1951, 1952, AND 1953) USING THE DATE OF ACTUAL DELIVERY FOR THE COBALT MARKET PRICE QUOTATION OR FOR THE DOLLAR RATE OF EXCHANGE. THESE PAYMENTS WERE MADE, MORE OR LESS ROUTINELY, BY FISCAL AND ACCOUNTING EMPLOYEES WHO HAD NO PROCEDURES FOR DETERMINING WHETHER THE SHIPMENTS WERE LATE AND DID NOT CONCERN THEMSELVES WITH THAT PROBLEM. THE DEFENDANT'S CONTRACTING OFFICERS WERE WHOLLY UNAWARE OF THE BASIS OF THE PAYMENTS, OF PLAINTIFF'S FILING OF AMENDED INVOICES * * *, OR OF THE EXISTENCE OF ANY ISSUE BETWEEN THE PARTIES AS TO THE PROPER METHOD OF CALCULATION. IF THE GOVERNMENT OFFICIALS WHOSE ACTIONS WERE CITED AS REVEALING THE DEFENDANT'S OWN CONSTRUCTION OF A CONTRACT ARE NOT SIGNIFICANTLY TIED TO THE ADMINISTRATION OF CONTRACT PERFORMANCE, THEIR CONDUCT IS MEANINGLESS AS AN AID TO CONTRACT INTERPRETATION. WHEN THE CANON OF CONSTRUCTION SPEAKS OF GIVING WEIGHT TO THE "PARTIES" OWN INTERPRETATION, IT REFERS, SO FAR AS THE GOVERNMENT IS CONCERNED, TO A RESPONSIBLE OFFICER ASSIGNED THE FUNCTION OF OVERSEEING THE ESSENTIALS OF CONTRACT PERFORMANCE--- NOT TO ANY FEDERAL EMPLOYEE OR OFFICER WHOSE WORK HAPPENS TO BE CONNECTED WITH THE CONTRACT. AGENCY FISCAL OR FINANCE OFFICERS ARE NOT ORDINARILY A SIGNIFICANT PART OF THE PROCESS OF NEGOTIATING AND PERFORMING CONTRACTS. CF. UNITED STATES V. JOSEPH A. HOLPUCH CO., 328, U.S. 234, 240-241, 66 S.CT. 1000, 90 L.ED. 1192 (1946). THE AUDITOR'S PAYMENTS ON WHICH PLAINTIFF RELIES DO NOT, THEREFORE, ADVANCE ITS CAUSE.'

WE BELIEVE THE FOREGOING IS APPLICABLE TO THE INITIAL CONTRACTS AWARDED TO BOTH BARRETT AND ALFA AUTO RENTAL, SINCE THE INVOICES WERE SUBMITTED TO THE GSA OFFICE OF FINANCIAL MANAGEMENT, SAN FRANCISCO, AND APPARENTLY PAID, MORE OR LESS ROUTINELY, BY FISCAL AND ACCOUNTING EMPLOYEES WITHOUT CONCERN AS TO WHETHER THE METHOD OF COMPUTING CHARGES WAS, IN FACT, THE PROPER METHOD. ALSO, SEE JOHN ARBORIO, INC. V. UNITED STATES, 110 CT.CL. 432, 451.

ALTHOUGH THE IFBS PURSUANT TO WHICH THESE CONTRACTS WERE AWARDED DID INDICATE THAT THE MAJORITY OF THE RENTAL TRANSACTIONS WOULD BE 24-HOUR DAY RENTALS, WE DO NOT BELIEVE THE BIDDERS MAY EFFECTIVELY ARGUE THAT THIS FACTOR ALONE WAS A REPRESENTATION WHICH THEY PRUDENTLY RELIED ON TO THEIR DETRIMENT, AND THAT THEY ARE THEREFORE ENTITLED TO BE PAID AT RATES COMPUTED CONTRARY TO THE PROVISIONS OF THE CONTRACTS. THE IFBS CLEARLY INDICATED THAT THE STATEMENT OF THE NUMBER OF RENTAL TRANSACTIONS WAS FOR THE PURPOSE OF DETERMINING THE LOW BIDDER AND NOT TO INDICATE THE PROPORTION OF THE RENTAL TRANSACTIONS. NEITHER DOES THE STATEMENT ATTRIBUTED TO THE CONTRACTING OFFICER, ASSUMING ITS CORRECTNESS, LEND ANY SUPPORT TO BARRETT'S INTERPRETATION, AS IT RELATED ONLY TO THE BASIS OF AWARD AND WAS NOT A PURPORTED INTERPRETATION OF THE CONTRACT PROVISIONS RELATIVE TO THE METHOD OF COMPUTING CHARGES.

IT IS WELL ESTABLISHED THAT THE GOVERNMENT HAS THE RIGHT TO RECOVER FUNDS WHICH ITS AGENTS HAVE WRONGFULLY, ERRONEOUSLY, OR ILLEGALLY PAID. THIS RIGHT EXISTS WHETHER SUCH PAYMENTS WERE MADE UNDER MISTAKE OF LAW OR FACT, WHETHER BECAUSE IN EXCESS OF AUTHORITY OR BASED UPON AN ERRONEOUS INTERPRETATION OF A CONTRACT LATER FOUND TO BE INCORRECT. SEE CHORPENNING V. UNITED STATES, 94 U.S. 397, 399; STEELE V. UNITED STATES, 132 U.S. 406; UNITED STATES V. WURTS, 303 U.S. 414; UNITED STATES V. SUTTON CHEMICAL CO., 11 F.2D 24, 26. IT IS ALSO ESTABLISHED THAT THE GOVERNMENT IS NEITHER BARRED BY LACHES NOR ESTOPPEL TO ASSERT A CLAIM WHERE, AS HERE, MONEY IS ERRONEOUSLY PAID. SEE FANSTEEL METALLURGICAL CORPORATION V. UNITED STATES, 172 F.SUPP. 268, 270. WE THEREFORE CONCLUDE THAT, WITH RESPECT TO THE INITIAL CONTRACTS WITH BOTH BARRETT AND ALFA, (CONTRACT NOS. GS-09S-10514 AND 13845) ANY AMOUNTS PAID IN EXCESS OF CHARGES COMPUTED IN ACCORDANCE WITH THE FOREGOING ARE ERRONEOUS AND SHOULD BE RECOVERED.

THE SECOND AND THIRD BARRETT CONTRACTS (NOS. GS-09S-12175 AND 13846) CONTAIN THE SAME TERMS AND CONDITIONS AS THE FIRST, AND WHAT HAS BEEN SAID HERETOFORE CONCERNING THE PROPER INTERPRETATION OF THE FIRST CONTRACT THEREFORE IS ALSO APPLICABLE TO THEM. HOWEVER, WE BELIEVE THE CIRCUMSTANCES SURROUNDING THE SOLICITATION OF BIDS AND THE AWARDING OF THESE CONTRACTS ARE SUCH AS TO MILITATE AGAINST RECOVERY OF ANY AMOUNTS PAID UNDER THESE CONTRACTS IN EXCESS OF AMOUNTS COMPUTED IN ACCORDANCE WITH THAT INTERPRETATION. THUS, UNDER THE FIRST CONTRACT BARRETT APPARENTLY COMPUTED ITS CHARGES AT THE RATES FOR THE RENTAL PERIODS AUTOMOBILES WERE ACTUALLY RETAINED WITHOUT REGARD TO WHETHER THE CHARGES SO COMPUTED WERE THE LOWEST POSSIBLE COMBINATION OF RATES, AND INVOICES FOR SUCH CHARGES WERE SUBMITTED TO, APPROVED, AND PAID BY THE GSA OFFICE OF FINANCIAL MANAGEMENT THROUGHOUT PERFORMANCE OF THE CONTRACT. WHILE SUCH ACTION MAY NOT BE ACCORDED GREAT WEIGHT IN CONSTRUING THE INTENT OF THE PARTIES WITH REGARD TO THE PROPER METHOD OF COMPUTING CHARGES UNDER AN INITIAL CONTRACT, WE BELIEVE IT HAS AN IMPORTANT BEARING ON THE GOVERNMENT'S RIGHT TO RECOVER ANY EXCESS PAYMENTS ON SUBSEQUENT CONTRACTS. WHEN BIDDING ON THE SECOND CONTRACT, PURSUANT TO AN INVITATION CONTAINING PROVISIONS IDENTICAL TO THE INVITATION FOR THE FIRST CONTRACT, BARRETT COULD REASONABLY EXPECT THAT ITS CHARGES COMPUTED AS UNDER THE FIRST CONTRACT REPRESENTED A CORRECT INTERPRETATION OF THE CONTRACT PROVISIONS AND WOULD BE APPROVED AND PAID. IN THESE CIRCUMSTANCES, IT IS HIGHLY DOUBTFUL WHETHER THE RULE REGARDING RECOVERY BY THE GOVERNMENT OF FUNDS PAID UPON AN ERRONEOUS INTERPRETATION OF A CONTRACT, SUPRA, COULD SUCCESSFULLY BE ARGUED IN VIEW OF THE JUDICIAL RECOGNITION OF THE APPLICABILITY OF THE EQUITABLE DOCTRINE OF ESTOPPEL TO THE GOVERNMENT WHERE THE AUTHORIZED CONDUCT OF ITS AGENTS WAS SUCH AS TO BE MISLEADING. SMALE AND ROBINSON, INC. V. UNITED STATES, 123 F.SUPP. 457, 465; UNITED STATES V. CERTAIN PARCELS OF LAND, 131 F.SUPP. 65, 74, AND CASES CITED. IN THE WORDS OF THE COURT IN THE LATTER CASE---

"BOTH REASON AND POLICY, AND PRECEDENT AS WELL, ARGUE THAT PREJUDICIAL RELIANCE--- REASONABLE RELIANCE IN GOOD FAITH UPON PAST AND PRESENT CONDUCT * * *--- WARRANTS INVOKING THE DOCTRINE OF EQUITABLE ESTOPPEL AGAINST THE GOVERNMENT.'

SINCE THE CHARGES WERE PAID AS INVOICED UNDER THE SECOND CONTRACT AND THE INVITATION FOR THE THIRD CONTRACT CONTAINED PROVISIONS IDENTICAL TO THOSE PURSUANT TO WHICH THE TWO PRECEDING CONTRACTS WERE AWARDED, IT WOULD ALSO APPEAR THAT RECOVERY OF ANY OVERPAYMENTS UNDER THE THIRD CONTRACT WOULD BE PRECLUDED.

ACCORDINGLY, OUR OFFICE WOULD INTERPOSE NO OBJECTION TO A DECISION TO FOREGO EFFORTS TO RECOVER ANY OVERPAYMENTS UNDER BARRETT CONTRACT NOS. GS- 09S-12175 AND 13846. HOWEVER, ANY MONEY STILL OWING UNDER EITHER OF THESE CONTRACTS SHOULD BE WITHHELD AND SET-OFF AGAINST THE OVERPAYMENTS TO BE RECOVERED UNDER THE FIRST CONTRACT, NO. GS-09S 10514.

THE FILE ENCLOSED WITH THE DECEMBER 28 REPORT FROM YOUR GENERAL COUNSEL IS RETURNED.