B-163920, DEC. 16, 1969

B-163920, DEC. 16, 1969

AIRCRAFT--CHARTER--ADDITIONAL CHARGES--CHANGE ORDERS OVERCHARGE OF $228,189.82 DETERMINED DUE UNITED STATES FOR ADDITIONAL FLIGHTS UNDER MILITARY AIRLIFT COMMAND (MAC) CHARTER SERVICES CONTRACT RESULTING FROM CARRIER NOT USING CIVIL AERONAUTICS BOARD GREAT CIRCLE MILEAGES AS BASIS FOR DETERMINING ALLOWABLE CHARGES IS SUSTAINED AND SINCE SUFFICIENT DOUBT EXISTS AS TO PROPRIETY FOR USING OTHER THAN GREAT CIRCLE MILEAGES IN COMPUTING ALLOWABLE CHARGES, DOUBT MUST BE RESOLVED IN FAVOR OF GOVERNMENT, PARTICULARLY SINCE CARRIER DID NOT OBJECT TO ISSUANCE OF SERVICE ORDERS REFERRING TO PART II OF CONTRACT AS AUTHORITY FOR ADDITIONAL SERVICES UNDER EXPANDABILITY PROVISIONS OF BASIC CONTRACT AND IN INSTANCES WHERE MAC FREQUENTLY ADJUSTED ALLOWABLE CHARGES TO THOSE COMPUTED ON BASIS OF REDUCED MILEAGES. SET-OFF--AUTHORITY--GENERAL ACCOUNTING OFFICE WHILE CARRIER'S CLAIM THAT AUTHORITY FOR SET-OFF TO LIQUIDATE $228,189.82 DEBT RESULTING FROM OVERCHARGES FOR ADDITIONAL SERVICES UNDER CHARTER SERVICES CONTRACT IS CONTAINED SOLELY IN 49 U.S.C. 66 AND 3-YEAR LIMITATION PROVISION IS NOT APPLICABLE TO DEDUCTIONS CONNECTED WITH SERVICES OF THIS NATURE, GENERAL ACCOUNTING OFFICE WILL NOT ARGUE QUESTION WHETHER LIMITATION CONTAINED IN 49 U.S.C. 66 MAY BE REGARDED AS APPLICABLE TO TRANSACTIONS IN QUESTION SINCE CHARGES INVOLVED WERE NOT CONTAINED IN TARIFFS ON FILE WITH CIVIL AERONAUTICS BOARD, BUT IT DOES NOT AGREE WITH CARRIER'S POSITION THAT RECOVERY BY SET-OFF IS NOT AUTHORIZED IN PRESENT CASE SINCE SET-OFF POWER IS INHERENT IN AUTHORITY RESERVED TO GENERAL ACCOUNTING OFFICE UNDER 31 U.S.C. 71 REQUIRING SETTLEMENT AND ADJUSTMENT OF ALL CLAIMS FOR OR AGAINST UNITED STATES.

TO PAN AMERICAN WORLD AIRWAYS:

PLEASE REFER TO YOUR LETTER OF NOVEMBER 14, 1969, IN WHICH YOU STATE THAT YOU FIND NO BASIS TO SUPPORT EITHER THE CLAIM OR SETOFF FOR OVERCHARGES IN THE AMOUNT OF $228,189.82. IN OUR DECISION OF OCTOBER 9, 1969, WE AFFIRMED OUR PREVIOUS CONCLUSION THAT YOU OWED THE UNITED STATES $228,189.82 IN CONNECTION WITH MILITARY AIRLIFT COMMAND (MAC) SERVICE ORDERS COVERING SO-CALLED REST AND RECUPERATION FLIGHTS PROCURED DURING THE PERIOD JULY THROUGH DECEMBER 1966.

NOTWITHSTANDING THE FACT THAT THE SERVICE ORDERS IN QUESTION WERE EXPLICITLY ISSUED PURSUANT TO THE PROVISIONS OF PART II A OF THE CONTRACT, YOU CONTINUE TO MAINTAIN THAT PART II A WAS INAPPLICABLE. IN EFFECT, THEN, YOUR POSITION IS THAT THE SERVICE ORDERS IN QUESTION, AS ACCEPTED BY YOUR COMPANY, REPRESENTED INDEPENDENT CONTRACTS. SINCE THERE WAS NO AUTHORITY UNDER THE CONTRACT TO ARRANGE FOR THE ADDITIONAL SERVICES, YOU SAY THAT THE CAB GREAT CIRCLE COMPUTED MILES FROM AIRPORT TO AIRPORT ARE NOT REQUIRED TO BE OBSERVED. THIS PREMISE AVOIDS CONSIDERING THE APPLICABILITY OF PART I, NOTE 1, PP. 3D AND 3E, AND PART II B(4), P. 10, OF THE CONTRACT.

IN SUPPORT OF YOUR CONTENTION THAT THESE SERVICES WERE NOT PROCURED UNDER PART II A OF THE CONTRACT, YOU POINT OUT THAT THE ASSISTANT SECRETARY OF DEFENSE (INSTALLATIONS & LOGISTICS) HAS LIMITED THE EFFECT OF THE NATIONAL EMERGENCY (ORIGINALLY DECLARED IN PROCLAMATION 2914, 64 STAT. A454 AND CONFIRMED IN LATER PROCLAMATIONS) ONLY TO ASSIST LABOR SURPLUS AREAS AND SMALL BUSINESS CONCERNS AND TO PROCUREMENTS ENTERED INTO PURSUANT TO THE BALANCE OF PAYMENTS RESTRICTED ADVERTISING METHOD OF PROCUREMENT (ASPR 3- 201.2). HOWEVER, THE NATIONAL EMERGENCY PROVISION IS ONLY ONE OF SEVERAL PROVISIONS RELATING TO PROCUREMENTS UNDER THE EXPANDED CAPABILITY SECTION.

WE PREVIOUSLY MENTIONED THE VIEW OF MR. ARTHUR W. PURKEL, CHIEF, CONTRACT AIRLIFT DIVISION, DIRECTORATE OF PROCUREMENT, DEPARTMENT OF THE AIR FORCE, HEADQUARTERS, MILITARY AIRLIFT COMMAND, SCOTT AIR FORCE BASE, ILLINOIS. HIS VIEW IS THAT THE ADDITIONAL REST AND RECUPERATION AIRLIFT SERVICES "WERE PROCURED JUST AS ADDITIONAL SERVICES WERE PROCURED FROM OTHER AIRLINES UNDER CONTRACT WITH MAC." HE FEELS THAT THE LAST SENTENCE IN SUBPARAGRAPH 4 OF PART II A WAS INTENDED TO SET UP A FOURTH CONDITION "UNDER WHICH THE GOVERNMENT MIGHT ORDER EXPANDED SERVICE, A CONDITION OF VOLUNTARY EXPANSION UNDER PEACE TIME UNCONNECTED WITH ANY STAGE OF CRAF."

FROM WHAT MR. PURKEL SAYS, MAC HAS ON VARIOUS OCCASIONS ORDERED ADDITIONAL SERVICES SIMILAR TO THOSE NOW UNDER DISPUTE PURSUANT TO THE PROVISIONS OF THE BASIC CONTRACT AND IT APPEARS TO BE HIS POSITION THAT THE SERVICE ORDERS IN QUESTION WERE ISSUED UNDER THE TERMS OF THE BASIC CONTRACT. THESE SERVICE ORDERS, IN HIS VIEW, WERE NOT TO BE CONSIDERED SEPARATE CONTRACTS. THE FACT THAT ALL THE DISPUTED SERVICE ORDERS SHOW THAT THEY WERE ISSUED UNDER THE AUTHORITY OF PART II A LENDS EMPHASIS TO THE GOVERNMENT'S POSITION THAT BOTH THE CARRIER AND THE GOVERNMENT UNDERSTOOD THE PROVISIONS OF THE ORIGINAL CONTRACT TO REMAIN APPLICABLE AND THAT GREAT CIRCLE MILEAGES WERE TO BE USED IN COMPUTING THE ALLOWABLE CHARGES. THUS, IT WAS PROPER FOR MAC TO ISSUE CORRECTIONS TO THE SERVICE ORDERS SO THAT THE CHARGES COULD BE ADJUSTED TO THE BASIS OF GREAT CIRCLE MILEAGES.

PAN AMERICAN MADE NO OBJECTION TO THE ISSUANCE OF SERVICE ORDERS SHOWING REFERENCE TO PART II A AS AUTHORITY FOR THE REQUEST FOR ADDITIONAL SERVICES AND THE PRACTICE OF ISSUING SUCH SERVICE ORDERS UNDER THE EXPANDABILITY PROVISIONS OF THE BASIC CONTRACT IS INDICATED TO BE ONE FREQUENTLY EMPLOYED BY MAC. ALSO, NO OBJECTION ORDINARILY IS MADE BY THE CARRIERS IN INSTANCES WHERE MAC FINDS IT NECESSARY TO ADJUST THE ALLOWABLE CHARGES TO THOSE COMPUTED ON THE BASIS OF REDUCED MILEAGES. IN SOME INSTANCES IN THE PAST, THE VARIOUS CONTRACTING CARRIERS, INCLUDING PAN AMERICAN, RECEIVED ADDITIONAL AMOUNTS BASED ON UPWARD REVISIONS IN THE MILEAGE COMPUTATIONS TO CONFORM TO THE GREAT CIRCLE MILEAGES. THE FACT THAT A SUBSEQUENT CONTRACT DID INCLUDE A PROVISION WHICH, ACCORDING TO YOU, IS DESIGNED TO CREATE AN ADDITIONAL CONDITION GRANTING THE GOVERNMENT THE RIGHT TO ORDER EXPANSION SERVICES DOES NOT SERVE TO ESTABLISH THE ABSENCE OF SIMILAR AUTHORITY IN CONNECTION WITH EXPANSION SERVICES UNDER THE TERMS OF THE EARLIER CONTRACTS. WE BELIEVE THAT SUFFICIENT DOUBT EXISTS AS TO THE PROPRIETY OF USING OTHER THAN GREAT CIRCLE MILEAGES TO JUSTIFY REQUIRING ADHERENCE TO THOSE MILEAGES AS THE PROPER BASIS FOR DETERMINING THE CHARGES ALLOWABLE FOR THE SERVICES HERE IN QUESTION AS WELL AS THE SERVICES ORIGINALLY ORDERED IN THE BASIC CONTRACT. THE DOUBT MUST BE RESOLVED IN FAVOR OF THE GOVERNMENT.

CONTRIBUTING TO THE DOUBT IN THIS INSTANCE IS THE FACT THAT A CASH COLLECTION VOUCHER, CR11, ISSUED BY MAC ON FEBRUARY 17, 1967, SHOWS THAT YOUR COMPANY REFUNDED (CHECK NO. 519165, FEBRUARY 9, 1967) $33,690.34, BECAUSE OF INCORRECT MILEAGE SHOWN ON SERVICE ORDER 67-72, WHICH AS MAC WROTE YOUR COMPANY ON JANUARY 27, 1967, "WAS CORRECTED BY MOD 1 AFTER" THE BILLS INVOLVED WERE PAID. THOSE BILLS APPARENTLY WERE NOS. 756-000002 AND 756-000004, PAID IN JANUARY 1967. THAT SERVICE ORDER DOES NOT DIFFER IN ANY MATERIAL RESPECT FROM THE DISPUTED SERVICE ORDERS SHOWN TO HAVE BEEN ISSUED UNDER PART II A OF CONTRACT AF11(626) 754.

YOU MAKE A POINT OF THE UNILATERAL NATURE OF THE CHANGE ORDERS WHICH RESULTED IN ADJUSTMENTS IN THE MILEAGES AND, THEREFORE, IN THE TOTAL CHARGES FOUND TO BE COLLECTIBLE UNDER THE CONTRACT. YOU SAY THAT SUCH MODIFICATIONS WERE NOT AGREED TO BY YOUR COMPANY, THAT YOU PERFORMED THE SERVICES IN GOOD FAITH IN ACCORDANCE WITH THE TERMS OF THE SERVICE ORDERS, AND THAT THE BILLINGS WERE SUBSEQUENTLY MADE BASED UPON THE THEN ESTABLISHED MILEAGES. WHILE YOU MAINTAIN THAT YOU NEVER RECOGNIZED THE RIGHT OF MAC TO SO UNILATERALLY CHANGE CONTRACTUAL TERMS, RECOGNITION OF MAC'S AUTHORITY TO MAKE CHANGES IN THE MILEAGES TO CONFORM TO GREAT CIRCLE MILEAGES SEEMS TO BE IMPLIED BY YOUR VOLUNTARY REFUND IN CONNECTION WITH SERVICE ORDER 67-72. ALSO, YOUR COMPANY MADE NO OBJECTION TO THE CHANGE ORDERS NOW IN DISPUTE UNTIL SEVERAL MONTHS AFTER THEY WERE ISSUED, WHEN THE MATTER WAS BROUGHT TO YOUR ATTENTION AGAIN BY OUR OFFICE.

YOUR FINAL POINT DEALS WITH THE QUESTION CONCERNING THE APPLICABILITY OF THE THREE-YEAR LIMITATION ON ADMINISTRATIVE RECOVERY, SET FORTH IN 49 U.S.C.66. YOU SEEM TO BE OF THE IMPRESSION THAT THE AUTHORITY FOR SETOFF IN ORDER TO LIQUIDATE THE DEBT OF $228,189,82 IS CONTAINED SOLELY IN 49 U.S.C. 66, AND THAT SINCE THE LIMITATION PROVISION IS NOT APPLICABLE IN THE CASE OF DEDUCTIONS CONNECTED WITH SERVICES OF THIS NATURE, OUR OFFICE CANNOT MAKE ANY DEDUCTIONS. WHILE WE WILL NOT ARGUE THE QUESTION WHETHER THE THREE-YEAR LIMITATION CONTAINED IN 49 U.S.C. 66 MAY BE REGARDED AS APPLICABLE TO THE TRANSACTIONS IN QUESTION, SINCE TECHNICALLY THE CHARGES INVOLVED WERE NOT CONTAINED IN TARIFFS LAWFULLY ON FILE WITH THE CIVIL AERONAUTICS BOARD, WE DO NOT AGREE WITH YOUR POSITION THAT RECOVERY BY SETOFF IS NOT AUTHORIZED IN THIS CASE.

THE GOVERNMENT HAS THE RIGHT TO APPLY ANY CREDITS IN ITS POSSESSION THAT MAY BE DUE ITS DEBTOR IN SATISFACTION OF ANY DEBT OWED TO IT BY THAT DEBTOR. THIS IS THE SAME RIGHT THAT BELONGS TO EVERY CREDITOR. UNITED STATES V. MUNSEY TRUST CO; 1947, 332 U. S. 234. THE SETOFF POWER IS INHERENT IN THE AUTHORITY RESERVED TO THE GENERAL ACCOUNTING OFFICE UNDER THE PROVISIONS OF 31 U.S.C. 71, WHICH REQUIRES US TO SETTLE AND ADJUST ALL CLAIMS AND DEMANDS FOR OR AGAINST THE UNITED STATES. IN THE ABSENCE OF YOUR VOLUNTARY REFUND WE ARE TAKING THE NECESSARY ACTION TO RECOVER THE $228,189.82 BY SETOFF.