B-164751, AUG. 13, 1968

B-164751, AUG. 13, 1968

TO MR. SECRETARY:

WE REFER TO THE JUNE 26, 1968, LETTER FROM THE DIRECTOR, FOREIGN BUILDINGS OPERATIONS, REQUESTING THIS OFFICE'S DETERMINATION WHETHER UNDER THE TERMS OF CONTRACT NO. S-218-FBO-95, THE CONTRACTOR, ORIENTAL BUILDING AND FURNISHING COMPANY PRIVATE LIMITED (ORIENTAL), SHOULD BE PAID THE SUM OF RUPEES STATED ON THE CONTRACT OR A GREATER AMOUNT BASED ON THE EXCHANGE RATE OF RUPEES AT TIME OF PERFORMANCE. THE CONTRACT, FOR THE CONSTRUCTION OF AN AMERICAN CONSULATE GENERAL OFFICE BUILDING IN MADRAS, INDIA, WAS APPROVED BY THE STATE DEPARTMENT IN WASHINGTON UNDER A BUDGET WHICH ALLOTED $1,700,000.00 FOR THE PROJECT.

TWO FIRMS WERE SOLICITED TO OFFER PROPOSALS ON THE PROJECT, BUT BECAUSE BOTH PRICES WERE GREATER THAN THE $1,700,000.00 BUDGETED, AWARD COULD NOT BE MADE. THE CONTRACTING OFFICER THEN ENTERED INTO NEGOTIATIONS WITH THE TWO FIRMS TO LOWER THEIR PRICES BY SUBSTITUTING ALTERNATIVE MATERIALS AND BY DELETING ITEMS FROM THE PROJECT. THESE NEGOTIATIONS RESULTED IN AN AWARD TO ORIENTAL IN THE AMOUNT OF 8,087,750RUPEES, WHICH SUM WAS AT THAT TIME THE EXACT EQUIVALENT OF THE $1,700,000.00 BUDGETED FOR THE PROJECT.

ON JUNE 6, 1966, WHEN CONSTRUCTION WAS APPROXIMATELY ONE-QUARTER COMPLETED, THE INDIAN GOVERNMENT REVALUED THE RUPEE EXCHANGE RATE FROM 4.75 TO 7.5 RUPEES TO THE DOLLAR. THIS REVALUATION IS THE BASIS FOR ORIENTAL'S CLAIM FOR AN ADDITIONAL SUM OF RUPEES WHICH REPRESENT A CORRESPONDING RAISE IN THE PRICE OF THE CONTRACT FOR THAT PORTION NOT PERFORMED AT THE TIME OF REVALUATION.

IN ACCORDANCE WITH ARTICLE 21 OF THE GENERAL CONDITIONS (CONSTRUCTION CONTRACTS) FORM DS-1231, AND THE AGREEMENT ON PAGE ONE OF FORM DS-1166, THE DEPARTMENT OF STATE AUTHORIZED PAYMENT FOR IMPORTED MATERIALS USED IN CONSTRUCTION IN DOLLAR EQUIVALENTS AT THE TIME OF PAYMENT; PAYMENT HAS BEEN MADE ON THAT BASIS.

ORIENTAL CONTENDS THAT BECAUSE NEGOTIATIONS LEADING TO THE CONTRACT AWARD WERE PREMISED UPON THE $1,700,000.00 PROJECT BUDGET, RATHER THAN ITS COST IN RUPEES, ORIENTAL WAS LED TO BELIEVE THAT THE FULL CONTRACT PAYMENT WAS A DOLLAR AMOUNT, TO BE PAID IN RUPEES AT THE EXCHANGE RATE PREVAILING AT THE TIME OF PAYMENT. AS PROOF OF ITS CONTENTIONS, ORIENTAL OFFERS ITS LETTER OF JUNE 23, 1965, TO THE AMERICAN EMBASSY PROPOSING CONSTRUCTION MODIFICATIONS DESIGNED TO BRING THE PROJECT COST WITHIN THE $1,700,000.00 BUDGET LIMITATION.

THE STATE DEPARTMENT, IN ITS LETTER OF JUNE 26, 1968, TO THIS OFFICE, TAKES THE POSITION, WITH RESPECT TO OTHER THAN IMPORTED MATERIALS, THAT THE DEPARTMENT DID NOT INTEND TO ISSUE A DOLLAR EQUIVALENCY CONTRACT,THAT THE CONTRACT DOES NOT CONTAIN A DOLLAR EQUIVALENCY CLAUSE, AND THAT THE CONTRACT TERMS ARE NOT OTHERWISE OPEN TO THE INTERPRETATION THAT A DOLLAR EQUIVALENCY PAYMENT WAS INTENDED. THE STATE DEPARTMENT CONTENDS THAT PRICE NEGOTIATIONS WERE CONDUCTED IN TERMS OF DOLLAR AMOUNTS FOR THE CONVENIENCE OF DEPARTMENT PERSONNEL IN EVALUATING PROPOSALS IN LIGHT OF THE BUDGET LIMITATIONS, AND WERE NOT INTENDED TO DEFINE THE GOVERNMENT'S PAYMENT OBLIGATIONS UNDER THE ENSUING CONTRACT.

IT IS FURTHER CONTENDED THAT FOR THOSE PORTIONS OF THE CONTRACT WHERE THE PARTIES INTENDED TO PROVIDE FOR PAYMENT IN DOLLAR EQUIVALENTS, THE CONTRACT SO STATES, AS AT ARTICLE 37 PROVIDING FOR LIQUIDATED DAMAGE PAYMENTS.

THE CONTRACT, ON ITS FIRST PAGE, PROVIDES FOR PAYMENT IN THE FOLLOWING LANGUAGE: "TOTAL LUMP SUM CONTRACT PRICE IS EIGHT MILLION EIGHTY SEVEN THOUSAND

SEVEN HUNDRED FIFTY

(AMOUNT IN WORDS) 8,087,750 . THIS IS PAYABLE IN INDIAN RUPEES WITH THE POSSIBLE --------- --------- (AMOUNT IN FIGURES) EXCEPTION OF IMPORTED MATERIALS.

THE COSTS OF IMPORTED MATERIALS TO BE ORDERED BY THE CONTRACTOR FOR THIS PROJECT, WHICH ARE INCLUDED IN THE ABOVE STATED CONTRACT PRICE, WILL BE PAID BY THE GOVERNMENT DIRECTLY TO SUPPLIERS, AND THE DOLLAR EQUIVALENT OF SUCH PAYMENTS WILL BE CONSIDERED PAYMENTS MADE AGAINST THE ABOVE STATED LUMP SUM CONTRACT PRICE. * * *"

THIS LANGUAGE APPEARS TO PERMIT ONLY ONE REASONABLE INTERPRETATION ON ITS FACE, THAT THE PARTIES INTENDED TO PROVIDE FOR PAYMENT IN THE STATED LUMP SUM OF RUPEES, EXCEPT FOR THE PORTION OF THE CONTRACT PRICE ASCRIBABLE TO IMPORTED MATERIALS. THE PRICE STRUCTURE OF THE CONTRACT IS CLEARLY BASED ON INDIAN RUPEES. THAT MONEY WAS THE MEASURE OF THE OBLIGATION OF THE UNITED STATES. IN THE ABSENCE OF A PROVISION FOR THE PAYMENT OF THE CONTRACTUAL OBLIGATION IN UNITED STATES DOLLARS OR IN RUPEES AT A GIVEN RATE OF EXCHANGE, THE FLUCTUATION IN THE VALUE OF THE RUPEE IS NOT A BASIS FOR INCREASING OR DECREASING THE OBLIGATION OF THE UNITED STATES EITHER UP OR DOWN DEPENDING ON THE DIRECTION OF THE REVALUATION. SEE B-148297, APRIL 16, 1962.

ACCORDINGLY, THE CONTRACTOR'S CLAIM SHOULD BE DENIED. THE ENCLOSURES TO YOUR LETTER ARE RETURNED AS REQUESTED.