B-165031, NOV 25, 1974

B-165031, NOV 25, 1974

CLAIMANT'S REQUEST FOR RECONSIDERATION OF B-165031, JUNE 6, 1969, DENYING ITS CLAIM UNDER A CONTRACT BETWEEN THE GOVERNMENT AND A THIRD PARTY WHICH WAS TERMINATED FOR DEFAULT BECAUSE THE CONTRACTOR OF RECORD HAD REFUSED TO EXECUTE A NOVATION AGREEMENT IN ORDER TO ALLOW THE CONTRACTING AGENCY TO RECOGNIZE THE CLAIMANT AS THE SUCCESSOR IN INTEREST PRIOR TO TERMINATING THE CONTRACT IS AFFIRMED SINCE THE CLAIMANT HAS PROVIDED NO FACTUAL INFORMATION OR SUBSTANTIVE ARGUMENTS DIFFERENT FROM THOSE UPON WHICH PRIOR DECISION WAS BASED.

ELECTRIC APPARATUS COMPANY:

IN A DECISION DATED JUNE 6, 1969, THIS OFFICE CONCLUDED THAT A CLAIM BY ELECTRIC APPARATUS COMPANY ARISING UNDER A CONTRACT WITH THE DEFENSE SUPPLY AGENCY SHOULD BE DENIED. BY LETTERS DATED JUNE 7, 1974 AND OCTOBER 2, 1974, ELECTRIC APPARATUS HAS REQUESTED RECONSIDERATION OF OUR PRIOR DECISION.

A REVIEW OF THE RECORD INDICATES THAT THE CONTRACT IN QUESTION WAS ONE OF EITHT DSA CONTRACTS AWARDED IN THE NAME OF HOWELL ELECTRIC MOTORS COMPANY DURING THE PERIOD OCTOBER 5, 1966 TO MAY 25, 1967. ON NOVEMBER 1, 1966, HOWELL ELECTRIC MOTORS FILED WITH THE TREASURER OF THE STATE OF MICHIGAN A CERTIFICATE OF AMENDMENT TO ITS ARTICLES OF INCORPORATION STATING THAT THE CORPORATION NAME HAD BEEN CHANGED TO HOWELL INTERNATIONAL, INC. ON JUNE 22, AND JUNE 23, 1967, HOWELL INTERNATIONAL JOINED IN AN AGREEMENT WITH ELECTRIC APPARATUS WHEREBY THE LATTER PURCHASED FROM HOWELL INTERNATIONAL THE HOWELL MANUFACTURING FACILITY AND OTHER PROPERTY ORIGINALLY HELD BY HOWELL ELECTRIC MOTORS. AS PART OF THE TRANSACTION, HOWELL INTERNATIONAL, EXECUTED AN ASSIGNMENT TO ELECTRIC APPARATUS WHICH INCLUDED CONTRACT NO. DSA 700-67 C-E723, THE CONTRACT IN QUESTION. IN THIS CONNECTION, IT IS REPORTED THAT HOWELL INTERNATIONAL, INC. REFUSED TO EXECUTE NOVATION AGREEMENTS IN ORDER TO PERMIT DSA TO RECOGNIZE THE CLAIMANT AS THE SUCCESSOR IN INTEREST TO HOWELL ELECTRIC MOTOR COMPANY AND/OR HOWELL INTERNATIONAL UNDER ANY OF THE CONTRACTS. IN OUR DECISION AT 48 COMP. GEN. 196 (1968) THIS OFFICE NEVERTHELESS AUTHORIZED PAYMENT TO THE CLAIMANT AS SUCCESSOR IN INTEREST TO HOWELL UNDER FIVE OF THE EIGHT CONTRACTS SINCE THE CLAIM FILE INCLUDED EVIDENCE OF RECEIPT AND ACCEPTANCE BY DCSC OF THE CONTRACT ITEMS PRODUCED BY THE CLAIMANT AND SHIPPED TO THE GOVERNMENT UNDER THOSE CONTRACTS, PROVIDED HOWEVER THAT THE CLAIMANT FURNISHED (IN PART) RELEASES FROM THE CONTRACTOR OF RECORD. CONTRACT E723 WAS NOT INCLUDED AMONG THOSE FIVE CONTRACTS.

IN B-165031, JUNE 6, 1969, WE CONSIDERED ELECTRIC APPARATUS COMPANY'S FURTHER CLAIM UNDER CONTRACT E723. THE PERTINENT FACTS SET FORTH IN OUR DECISION WERE AS FOLLOWS:

"WITH RESPECT TO CONTRACT DSA 700-67-C-E723, WHICH CALLED FOR DELIVERY WITHIN 420 DAYS AFTER RECEIPT OF ORDER, THE CONTRACTING OFFICER REPORTS THAT IN OCTOBER 1967 DCSC INVESTIGATED THE FEASIBILITY OF TERMINATING THE CONTRACT ON THE BASIS THAT THE GOVERNMENT NO LONGER HAD A NEED FOR THE ARMATURES DUE TO THE PHASING OUT FROM THE MILITARY SERVICE OF THE GENERATOR SETS IN WHICH THE ARMATURES WERE INTENDED TO BE USED AND THE TRANSFER OF THE GENERATOR SETS TO FOREIGN GOVERNMENTS UNDER THE MILITARY ASSISTANCE PROGRAM (MAP). HOWEVER, AFTER DCSC RECEIVED ADVICE ON FEBRUARY 28, 1968, FROM THE DEFENSE CONTRACT ADMINISTRATION SERVICES DISTRICT (DCASD), GRAND RAPIDS, MICHIGAN, THAT THE CONTRACTOR (IDENTIFIED AS HOWELL ELECTRIC MOTORS COMPANY) STATED THAT AS OF FEBRUARY 27 IT HAD ACCUMULATED $35,476.31 AGAINST THE CONTRACT AND EXPECTED TO COMPLETE THE CONTRACT WITHIN THREE OR FOUR WEEKS, NO ACTION WAS TAKEN BY DCSC TO TERMINATE THE CONTRACT.

"THE JUNE 1968 PROGRESS REPORT ISSUED BY DCASD UNDER THE CONTRACT INCLUDED THE FOLLOWING PERTINENT NOTATIONS:

'PROBLEM: HOWELL ELECTRIC MOTORS FACILITY, FOR THE MANUFACTURE OF THE REQUIRED ITEM, WAS SOLD AND IS NOW KNOWN AS THE ELECTRIC APPARATUS CO. THE ELECTRIC APPARATUS CO. ACTS AS A SUBCONTRACTOR FOR HOWELL. BASIC PROBLEM CAUSING DELAY IS MONIES AT THIS TIME. ELECTRIC APPARATUS WILL NOT RELEASE MATERIALS UNTIL THEY HAVE BEEN ASSURED OF FULL PAYMENT.

'ACTION TAKEN: ALL ITEMS HAVE BEEN FABRICATED, PACKAGED AND INSPECTED BY THE GOVERNMENT. THE ITEMS ARE NOW HELD AT THE ELECTRIC APPARATUS CO. IN HOWELL, MICH. THE CONTRACTOR HAS MADE A VERBAL REQUEST FOR ASSIGNMENT OF CLAIMS, BUT WAS DENIED.

'ACTION REQUIRED: REQUEST PCO ADVISE ACO IF AND WHY CONTRACTOR'S VERBAL REQUEST FOR ASSIGNMENT OF CLAIMS WAS DENIED. ASSIGNMENT OF CLAIMS WILL GIVE FINANCIAL RELIEF REQUIRED BY ELECTRIC APPARATUS CO.

"SUBSEQUENTLY, THE DCSC CONTRACTING OFFICER, AFTER VERIFYING THAT THE GOVERNMENT NO LONGER HAD A VALID REQUIREMENT FOR THE PROCUREMENT ITEM, DECIDED THAT HOWELL INTERNATIONAL'S FAILURE TO EXECUTE THE NOVATION AGREEMENT WAS THE REASON FOR THE DELINQUENT DELIVERY UNDER CONTRACT DSA 700-67-C-E723 AND CONCLUDED THAT SUCH FAILURE WAS NOT AN EXCUSABLE CAUSE OF DELAY AS PROVIDED IN PARAGRAPH 11(C) OF STANDARD FORM 32 INCORPORATED IN THE CONTRACT. ACCORDINGLY, THE CONTRACTING OFFICER NOTIFIED HOWELL INTERNATIONAL ON AUGUST 14, 1968, BY TWX MESSAGE AND BY LETTER, THAT ITS RIGHT TO PROCEED WITH THE CONTRACT WAS TERMINATED DUE TO ITS DEFAULT IN FAILING TO MAKE TIMELY DELIVERIES AS WELL AS ITS FAILURE TO EXECUTE A NOVATION AGREEMENT WHEREBY THE GOVERNMENT COULD RECOGNIZE YOU AS SUCCESSOR IN INTEREST TO THE CONTRACTOR.

"FOLLOWING RECEIPT FROM YOU OF A PROTEST DATED OCTOBER 18, 1968, AGAINST THE TERMINATION OF THE CONTRACT, AND RECEIPT OF A CONGRESSIONAL INQUIRY INCIDENT THERETO, DCSC INVESTIGATED THE POSSIBILITY OF PURCHASE OF THE SUPPLIES FROM YOU NOTWITHSTANDING THE DEFAULT TERMINATION. AS OF OCTOBER 23, 1968, HOWEVER, THE UNITED STATES ARMY INTERNATIONAL LOGISTICS CENTER ADVISED DCSC THAT WHILE A DEFINITE REQUIREMENT FOR THE ITEMS EXISTED, NO ESTIMATE OF THE MAGNITUDE OF THE REQUIREMENT OR OF THE DATE WHEN PURCHASE REQUESTS WOULD BE ISSUED COULD BE MADE DUE TO LACK OF MAP FUNDING. CURRENTLY, THE CONTRACTING OFFICER REPORTS, THERE ARE 91 UNITS ON HAND, WHICH IS EQUIVALENT ROUGHLY TO THREE YEARS' SUPPLY BASED ON AN ANTICIPATED AVERAGE QUARTERLY DEMAND RATE OF 8 UNITS FOR THE MAP PROGRAM.

"IN YOUR PROTEST LETTER OF MARCH 4, 1969, YOU CONCEDE THAT YOU ELECTED NOT TO SHIP THE COMPLETED ITEMS UNDER CONTRACT DSA 700-67-C E723 AFTER LEARNING THAT THE SHIP AND BILL PROCEDURE WHICH YOU EMPLOYED ON FIVE PREVIOUS CONTRACTS (THE CONTRACTS WHICH WERE THE SUBJECT OF OUR DECISION OF OCTOBER 10, 1968, SUPRA) WAS NOT ACCEPTABLE TO DSA. HOWEVER, YOU COMPLAIN THAT WHILE THE GOVERNMENT HAD COMMUNICATED DIRECTLY WITH YOU BEFORE THE TERMINATION OF CONTRACT DSA 700-67-C-E723, THE ISSUANCE OF THE DEFAULT NOTICE DIRECTLY TO HOWELL INTERNATIONAL, WHO DID NOT ADVISE YOU THEREOF, PLACED YOU IN AN UNTENABLE POSITION. IN ADDITION, YOU STATE THAT TO DATE HOWELL INTERNATIONAL HAS REFUSE TO GRANT ANY RELEASES IN PURSUIT OF ITS INTENT TO THEREBY EFFECT A REDUCTION IN CERTAIN CLAIMS BY YOU INCIDENT TO YOUR PURCHASE OF THE HOWELL FACILITY AND ASSETS.

"THE CONTRACTING OFFICER MAINTAINS THAT YOU WERE NEVER A PARTY TO THE CONTRACT SINCE YOU FAILED TO OBTAIN A NOVATION AGREEMENT THAT WAS SATISFACTORY TO BOTH HOWELL INTERNATIONAL AND THE GOVERNMENT, THE SALES AGREEMENT BETWEEN YOU AND HOWELL INTERNATIONAL NOT CONSTITUTING A NOVATION ABSENT ASSENT THERETO BY THE GOVERNMENT. IN ADDITION, THE CONTRACTING OFFICER CITES BALTIMORE & OHIO RAILROAD COMPANY V. UNITED STATES, 261 U.S. 592, 598 (1923), FOR THE PRINCIPLE THAT A CONTRACT WILL NOT BE IMPLIED IN FACT WHERE THE CLAIMANT DID NOT EXPECT PAYMENT FROM THE GOVERNMENT OR UNDER THE CIRCUMSTANCES DID NOT HAVE REASON TO ENTERTAIN SUCH EXPECTATION OR WHEN THE GOVERNMENT UNDERSTOOD THAT THE CLAIMANT WOULD NEITHER EXPECT NOR DEMAND REMUNERATION OF IT. THIS PRINCIPLE IS APPLICABLE IN THE INSTANT CASE, IT IS URGED, BECAUSE THE RECORD INDICATES YOU FIRST RELIED ON THE PROCEDURE WHEREBY THE GOVERNMENT WOULD MAKE PAYMENT TO THE ASSIGNEE MCPHERSON STATE BANK, WHICH WOULD THEN REMIT THE CONTRACT PROCEEDS TO YOU, AND FAILING APPROVAL OF SUCH PROCEDURE BY DSA YOU DID NOT TURN TO THE GOVERNMENT FOR DIRECT PAYMENT BUT ELECTED NOT TO SHIP THE CONTRACT ITEMS PENDING RESOLUTION OF THE PROBLEM WITH THE GOVERNMENT AND/OR HOWELL INTERNATIONAL. FOR SUCH REASONS, THE CONTRACTING OFFICER TAKES THE POSITION THAT THERE IS NO BASIS FOR THE GRANT OF RELIEF TO YOU."

ON THESE FACTS WE DENIED THE CLAIM STATING THAT:

"THE RECORD ESTABLISHES THAT YOU UNDERTOOK THE PRODUCTION OF THE PROCUREMENT ITEMS UNDER THE CONTRACT DSA 700-67-C-E723 WITHOUT THE PROTECTION OF A NOVATION AGREEMENT FROM HOWELL INTERNATIONAL OR ASSENT BY THE GOVERNMENT TO THE TERMS OF THE SALE OF THE HOWELL ELECTRIC MOTORS COMPANY FACILITY TO YOU WHEREBY SUCH AGREEMENT COULD BE REGARDED AS A NOVATION. THE RECORD FURTHER ESTABLISHES THAT NOTWITHSTANDING SUCH FACTORS, THE GOVERNMENT HAD INSPECTED AND APPROVED THE FINISHED PROCUREMENT ITEMS AND WAS APPARENTLY WILLING TO ACCEPT THEM FROM YOU AS OF THE DUE DELIVERY DATE IN JUNE 1968, BUT THE DECISION NOT TO SHIP THE ITEMS TO THE GOVERNMENT WAS YOURS. THE RESULT OF YOUR ACTION WAS TO MAKE PERFORMANCE OF THE CONTRACT DELINQUENT THEREBY GIVING RISE TO A RIGHT ON THE PART OF THE GOVERNMENT TO TERMINATE THE CONTRACT FOR DEFAULT. ACCORDINGLY, WE ARE UNABLE TO SEE WHERE YOUR NOT BEING PLACED ON TIMELY NOTICE OF THE DEFAULT TERMINATION OF AUGUST 14, 1968, WORSENED YOUR POSITION, THE DELINQUENCY BEING ALREADY OF TWO MONTHS' DURATION AT THE TIME. WE THEREFORE CONCUR WITH THE POSITION OF DSA THAT THE DEFAULT ACTION WAS PROPER, AND NO BASIS EXISTS FOR A TERMINATION SETTLEMENT.

"FURTHER, SINCE THE RECORD DISCLOSES THAT THE GOVERNMENT DOES NOT HAVE AN EXISTING NEED FOR THE PROCUREMENT ITEMS, WE SEE NO BASIS ON WHICH PURCHASE OF THE ITEMS COULD NOW BE JUSTIFIED."

IN REQUESTING RECONSIDERATION, THE CLAIMANT CONTENDS THAT IT HAS "ADDITIONAL PROOF OF ERRORS OF FACT." SPECIFICALLY, THE CLAIMANT STATES THAT IT HAS PROOF FROM THE GOVERNMENT CONTRACT INSPECTOR THAT THE CLAIMANT HAD COMPLETED PERFORMANCE ON "APRIL 22, 1968 WELL IN ADVANCE OF THE (CONTRACT) TERMINATION DATE" IN AUGUST 1968. IN CONNECTION WITH "OUR FAILURE TO REQUEST A NOVATION AGREEMENT," THE CLAIMANT CONTENDS THAT THIS ALSO IS AN ERROR SINCE "WHEN THE CONTRACT WAS LET ON APRIL 26, 1967, WE WERE KNOWN AS HOWELL ELECTRIC MOTOR COMPANY, 409 N. ROOSEVELT, IN THE INTRAMURAL PERIOD BETWEEN 1967 AND COMPLETION OF THE CONTRACT APRIL 1968." THE CLAIMANT CONTINUES AS FOLLOWS:

"THE COMPANY WAS PURCHASED BY MR. MCCONNELL BUT A NOVATION AGREEMENT WAS NOT IN ORDER DUE TO THE FACT THAT WE ARE STILL LOCATED AT 409 N. ROOSEVELT AVE., HOWELL, MICHIGAN, AND STILL USE THE NAME HOWELL RED BAND MOTORS. MR. MCCONNELL PURCHASED SAID COMPANY AND ALL ASSETS ON JUNE 13, 1967, BUT BEING OUR NAME DID NOT CHANGE NOR OUR ADDRESS NOR OUR PRODUCT, WE WERE ADVISED THAT A NOVATION AGREEMENT WAS NOT NECESSARY.

ALTHOUGH ELECTRIC APPARATUS HAS SUBMITTED EVIDENCE INDICATING THAT IT SATISFACTORILY COMPLETED PERFORMANCE ON THE CONTRACT ITEMS IN ADVANCE OF THE REQUIRED DELIVERY DATE, THIS ISSUE HAS NEVER BEEN IN DISPUTE. THE DSA HAS CONCEDED, AND OUR EARLIER DECISIONS RECOGNIZED, THAT THE ITEMS HAD BEEN COMPLETED PRIOR TO THE DATE REQUIRED FOR DELIVERY. THE DEFAULT DETERMINATION, HOWEVER, WAS BASED ON THE REFUSAL OF ELECTRIC APPARATUS TO MAKE DELIVERY OF THE ITEMS FOR A PERIOD OF AT LEAST TWO MONTHS AFTER THE REQUIRED DELIVERY DATE AFTER THEY HAD BEEN INSPECTED AND APPROVED BY THE GOVERNMENT.

FURTHERMORE, AS NOTED ABOVE, HOWELL INTERNATIONAL REFUSED TO EXECUTE A NOVATION AGREEMENT IN ORDER TO PERMIT DSA TO RECOGNIZE ELECTRIC APPARATUS AS THE SUCCESSOR IN INTEREST TO HOWELL ELECTRIC MOTORS COMPANY UNDER THE CONTRACT IN QUESTION. ALTHOUGH ELECTRIC APPARATUS REPORTS THAT IT WAS ADVISED THAT A NOVATION AGREEMENT WAS NOT NECESSARY, ON THE BASIS OF THE RECORD WE MUST CONCLUDE THAT SUCH ADVICE WAS ERRONEOUS.

THEREFORE, SINCE ELECTRIC APPARATUS' REQUEST FOR RECONSIDERATION CONTAINS NO FACTUAL INFORMATION OR SUBSTANTIVE ARGUMENTS DIFFERENT FROM THOSE UPON WHICH OUR DECISION OF JUNE 6, 1969 WAS BASED, WE FIND NO REASON TO CHANGE OUR POSITION. ACCORDINGLY, THE CLAIM IS DENIED.