B-164112, MAY 28, 1968

B-164112, MAY 28, 1968

TO NORTHROP CORPORATION:

YOUR LETTER OF APRIL 18, 1968, REQUESTS OUR DECISION AS TO WHETHER YOUR CORPORATION ASSUMED THE RISK OF IMPOSSIBILITY OF PERFORMANCE UNDER CONTRACT NO. DA18-035-AMC-270 (A) WITH THE DEPARTMENT OF THE ARMY.

IT APPEARS FROM YOUR LETTER THAT THE CONTRACTING OFFICER HAS INDICATED AN INTENTION TO RENDER HIS "FINAL DECISION" FOR THE PURPOSE OF UNILATERALLY REDUCING THE PRICE OF THE CONTRACT. YOU STATE THAT IF SUCH DECISION IS RENDERED ON THE BASIS OF INFORMATION NOW AVAILABLE THE DECISION WILL BE CAPRICIOUS, ARBITRARY, GROSSLY ERRONEOUS AND UNSUPPORTED BY SUBSTANTIAL FACTS. IN VIEW THEREOF, YOU ASK THAT WE RENDER A DECISION THAT NORTHROP DID NOT ASSUME THE RISK OF IMPOSSIBILITY OF PERFORMANCE UNDER THE CONTRACT. YOU ALSO REQUEST OUR OPINION AS TO THE GOVERNMENT'S RIGHT TO REJECT PROTOTYPE HARDWARE DELIVERED UNDER THE INSTANT TYPE CONTRACT.

THE CONTRACT, AS AMENDED BY MODIFICATION NO. 1, IS A FIXED-PRICE CONTRACT ENTERED INTO PURSUANT TO TWO-STEP FORMAL ADVERTISING CALLING FOR SERVICES TO DESIGN AND BUILD A PROTOTYPE NEUTRON SPECTROMETER AND TO FABRICATE AND DELIVER TWO SETS OF NEUTRON SPECTROMETER DETECTORS IN ACCORDANCE WITH THE SPECIFICATIONS STATED THEREIN.

IT APPEARS FROM YOUR LETTER AND THE ATTACHMENTS THERETO THAT THE DETECTORS WERE DELIVERED TO THE GOVERNMENT AND IT HAS BEEN DETERMINED BY THE CONTRACTING OFFICER THAT THE DETECTORS DO NOT MEET THE MINIMUM REQUIREMENTS OF THE CONTRACT. THEREFORE, THE CONTRACTING OFFICER IS DEMANDING A REDUCTION OF APPROXIMATELY 30 PERCENT IN THE CONTRACT PRICE. IT IS YOUR CONTENTION THAT THE INSPECTION CLAUSE OF THE CONTRACT DOES NOT VEST IN THE GOVERNMENT ANY RIGHT TO REJECT THE DETECTORS; THAT THE SPECIFICATION REQUIREMENTS ARE IMPOSSIBLE OF PERFORMANCE; THAT YOU DID NOT ASSUME THE RISK OF IMPOSSIBILITY OF PERFORMANCE; AND THAT, THEREFORE, THE GOVERNMENT IS NOT ENTITLED TO A REDUCTION IN THE CONTRACT PRICE.

PARAGRAPH 11 OF THE GENERAL PROVISIONS OF THE CONTRACT PROVIDES THAT ALL DISPUTES CONCERNING A QUESTION OF FACT WHICH ARE NOT DISPOSED OF BY AGREEMENT SHALL BE DECIDED BY THE CONTRACTING OFFICER WHO SHALL REDUCE HIS DECISION TO WRITING AND FURNISH A COPY THEREOF TO THE CONTRACTOR. THEREAFTER, THE ADMINISTRATIVE APPEAL PROCEDURE IS AVAILABLE TO THE CONTRACTOR. YOU STATE THAT OUR OFFICE SHOULD RENDER AN OPINION ON THE QUESTIONS YOU PRESENT APPARENTLY BECAUSE YOU BELIEVE THAT THE CONTRACTING OFFICER WILL NOT RENDER AN IMPARTIAL DECISION.

IRRESPECTIVE AS TO WHETHER YOUR CONTENTION IS TRUE, WE THINK THAT CONSIDERATION OF THE MATTER BY OUR OFFICE AT THIS TIME WOULD BE PREMATURE. THE PARTIES TO THE CONTRACT HAVE AGREED AS TO HOW DISPUTES ARISING UNDER THE CONTRACT SHALL BE SETTLED. AND THE GOVERNMENT CANNOT BE DEPRIVED OF THE BENEFITS OF THE ADMINISTRATIVE MACHINERY IT HAS PROVIDED TO ADJUDICATE DISPUTES. SEE 37 COMP. GEN. 568 AND COURT CASES CITED THEREIN. FURTHERMORE, AS A SAFEGUARD TO CONTRACTORS, THE DISPUTES CLAUSE GIVES THE CONTRACTORS A RIGHT OF APPEAL IF THEY ARE AGGRIEVED BY THE CONTRACTING OFFICER'S DECISION. THE EXISTENCE OF THIS RIGHT OF APPEAL HAS A SALUTARY EFFECT IN PREVENTING ARBITRARY DECISIONS BY CONTRACTING OFFICERS.

ACCORDINGLY, WE WILL NOT RENDER AN OPINION ON THE QUESTIONS PRESENTED BY YOU AT THIS TIME.