B-169625, DEC. 10, 1970

B-169625, DEC. 10, 1970

BID PROTEST - NEGOTIATIONS - TAXES, DUTIES, & CHARGES FOR DOING BUSINESS DENIAL OF PROTEST OF INTERNATIONAL HYDRODYNAMICS, LTD. AGAINST THE AWARD OF A CONTRACT FOR BURIED AND NON-BURIED TORPEDO RECOVERY SERVICES ISSUED BY THE NAVAL SUPPLY CENTER, PUGET SOUND, WASHINGTON TO JACOBSON BROTHERS, INC., LOW BIDDER, AND AGAINST THE AMENDMENT TO THE CONTRACT AFTER THE AWARD. PROTESTANT CLAIMS THAT THE AMENDMENT TO THE CONTRACT WHICH GRANTED INCREASES TO JACOBSON TO COVER UNANTICIPATED CANADIAN TAX OBLIGATIONS UNDER THE "TAXES, DUTIES & CHARGES FOR DOING BUSINESS" CLAUSE WHICH PROVIDES THAT THE CONTRACT PRICE SHALL BE CORRESPONDINGLY INCREASED WHEN A TAX IS INCREASED, PROVIDED NO PART OF THE INCREASE WAS INCLUDED IN THE CONTRACT PRICE AS A CONTINGENCY RESERVE AND THAT LIABILITY FOR THE INCREASE WAS NOT INCURRED THROUGH FAULT OF THE CONTRACTOR, WAS NOT JUSTIFIED BECAUSE THE ACTION OF THE CANADIAN GOVERNMENT SUBSEQUENT TO THE AWARD WAS FORSEEABLE AND, THEREFORE, THE INCREASE VIOLATED THE PROVISIONS OF THE TAXES CLAUSE. WHERE ON THE ADVICE OF THEIR CANADIAN LAWYERS AND IN LIGHT OF SIMILAR GRANTS, JACOBSON COMPUTED ITS TAX ON THE BASIS OF BEING ALLOWED TO PAY 1/120TH OF THE TAX PER MONTH AND WITH THE WITHDRAWAL OF ITS BOAT THE "SONAR BELLE" FROM CANADIAN WATERS TAX PAYMENTS WOULD CEASE RESULTING IN ONLY 1/10 OF THE TOTAL TAX ASSESSMENT'S BEING PAID IN THE YEAR OF OPERATIONS CALLED FOR UNDER THE CONTRACT, THE DECISION OF THE CANADIAN GOVERNMENT TO DISALLOW INSTALLMENT PAYMENT ON THE BASIS OF THE BELIEF THAT A CANADIAN VESSEL OF CAPACITY SIMILAR TO THE "SONAR BELLE" EXISTED, WAS NOT TO BE ANTICIPATED AND, THEREFORE, JACOBSON QUALIFIED FOR AN INCREASE UNDER THE CLAUSE.

TO SURREY, KARASIK, GREENE AND HILL:

REFERENCE IS MADE TO YOUR LETTER OF AUGUST 12, 1970, AND PRIOR CORRESPONDENCE, ON BEHALF OF INTERNATIONAL HYDRODYNAMICS, LTD., REGARDING ITS PROTEST AGAINST THE AWARD OF CONTRACT NO. N00406-70-D 0719 DATED FEBRUARY 6, 1970, TO JACOBSON BROTHERS, INC., AND MODIFICATION P001 THERETO DATED APRIL 1, 1970. YOU REQUEST THAT THE CONTRACT BE CANCELLED AND THE PROCUREMENT READVERTISED. ALTERNATIVELY, YOU REQUEST THAT THE MODIFICATION BE CANCELLED AS ILLEGAL AND INVALID.

INVITATION FOR BIDS (IFB) NO. N00406-70-B-0215 WAS ISSUED ON JANUARY 14, 1970, BY THE NAVAL SUPPLY CENTER, PUGET SOUND, BREMERTON, WASHINGTON, FOR BURIED AND NON-BURIED TORPEDO RECOVERY SERVICES TO BE PERFORMED IN THREE LOCATIONS. THE INVITATION CONTEMPLATED THE AWARD OF A 12-MONTH INDEFINITE QUANTITY CONTRACT. TWO OF THE THREE LOCATIONS, NAMELY JERVIS AND NANOOSE RANGE, ARE IN CANADIAN WATERS. THE THIRD LOCATION IS DABOB BAY/HOOD CANAL WHICH IS IN UNITED STATES WATERS.

THE ESTIMATED MAXIMUM RECOVERIES IN EACH OF THE THREE AREAS WERE SET FORTH ON PAGE 5 OF THE INVITATION AS FOLLOWS:

LOCATION BURIED NON-BURIED

JERVIS 2 2

NANOOSE 5 50

DABOB BAY/HOOD CANAL 6 10 THE ADVERTISED ITEMS WERE BROKEN DOWN INTO INDIVIDUAL LOTS FOR EACH LOCATION AND TYPE (BURIED OR NON-BURIED) OF RECOVERY. THE INVITATION TREATED THE SERVICES FOR EACH LOCATION AS A SEPARATE LOT AND RESERVED THE RIGHT TO AWARD THE DIFFERENT LOTS BY SEPARATE CONTRACTS. THIS PROTEST RELATES ONLY TO THE JERVIS AND NANOOSE (CANADIAN) RANGES. INTERNATIONAL HYDRODYNAMICS - A CANADIAN COMPANY - DID NOT SUBMIT A BID FOR THE DABOB BAY/HOOD CANAL RANGE AND THE CONTRACT IN QUESTION DOES NOT INVOLVE THAT RANGE.

BIDS WERE OPENED ON FEBRUARY 4, 1970, AND, OF THE THREE BIDS RECEIVED, THE LOW BID WAS SUBMITTED BY JACOBSON BROTHERS, A UNITED STATES FIRM. THE RECORD INDICATES THAT AWARD WAS MADE TO JACOBSON BROTHERS ON FEBRUARY 6, 1970, FOR TORPEDO RECOVERY SERVICES AT THE JERVIS AND THE NANOOSE RANGES.

THE INVITATION PROVIDED THAT THE BID PRICES WERE TO INCLUDE ALL TAXES AND DUTIES APPLICABLE TO THE SERVICES. IN THIS REGARD, PAGE 5 OF THE INVITATION PROVIDED IN PERTINENT PART AS FOLLOWS:

"UNITED STATES FIRMS BIDDING ON REQUIREMENTS FOR NANOOSE AND JERVIS RANGES SHOULD CONTACT THE CANADIAN DEPARTMENT OF NATIONAL REVENUE FOR INFORMATION ON APPLICABLE TAXES. CANADIAN FIRMS BIDDING ON REQUIREMENTS FOR DABOB BAY/HOOD CANAL SHOULD CONTACT U.S. INTERNAL REVENUE SERVICE IN REGARD TO APPLICATION OF THE JONES ACT." THE PROVISION THAT BID PRICES WERE TO INCLUDE ALL APPLICABLE TAXES AND DUTIES WAS CONTAINED IN THE CLAUSE ENTITLED "TAXES, DUTIES, AND CHARGES FOR DOING BUSINESS (1966 OCT.)," SET FORTH ON PAGES 46 AND 47 OF THE INVITATION. THAT CLAUSE PROVIDES IN PERTINENT PART AS FOLLOWS:

"(C) EXCEPT AS MAY BE OTHERWISE PROVIDED IN THIS CONTRACT, THE CONTRACT PRICE INCLUDES ALL TAXES AND DUTIES IN EFFECT AND APPLICABLE TO THIS CONTRACT ON THE CONTRACT DATE, EXCEPT TAXES AND DUTIES (I) FROM WHICH THE GOVERNMENT OF THE UNITED STATES, THE CONTRACTOR, ANY SUBCONTRACTOR, OR THE TRANSACTIONS OR PROPERTY COVERED BY THIS CONTRACT ARE EXEMPT UNDER THE LAWS OF THE COUNTRY CONCERNED OR POLITICAL SUBDIVISION THEREOF, OR (II) WHICH THE GOVERNMENT OF THE UNITED STATES AND THE GOVERNMENT OF THE COUNTRY CONCERNED HAVE AGREED SHALL NOT BE APPLICABLE TO EXPENDITURES IN SUCH COUNTRY BY OR ON BEHALF OF THE UNITED STATES.

"(D) (1) IF THE CONTRACTOR IS REQUIRED TO PAY OR BEAR THE BURDEN--

(I) OF ANY TAX OR DUTY WHICH EITHER WAS NOT TO BE INCLUDED IN THE CONTRACT PRICE PURSUANT TO THE REQUIREMENTS OF PARAGRAPH (C) HEREOF, OR WAS SPECIFICALLY EXCLUDED FROM THE CONTRACT PRICE BY A PROVISION OF THIS CONTRACT; OR

(II) OF AN INCREASE IN RATE OF ANY TAX OR DUTY, WHETHER OR NOT SUCH TAX OR DUTY WAS EXCLUDED FROM THE CONTRACT PRICE; OR

(III) OF ANY INTEREST OR PENALTY ON ANY TAX OR DUTY REFERRED TO IN (I) OR (II) ABOVE, THE CONTRACT PRICE SHALL BE CORRESPONDINGLY INCREASED; PROVIDED THAT THE CONTRACTOR WARRANTS IN WRITING THAT NO AMOUNT OF SUCH TAX, DUTY, OR INCREASE THEREIN WAS INCLUDED IN THE CONTRACT PRICE AS A CONTINGENCY RESERVE OR OTHERWISE; AND PROVIDED FURTHER, THAT LIABILITY FOR SUCH TAX, DUTY, INCREASE THEREIN, INTEREST OR PENALTY WAS NOT INCURRED THROUGH THE FAULT OR NEGLIGENCE OF THE CONTRACTOR OR HIS FAILURE TO FOLLOW INSTRUCTIONS OF THE CONTRACTING OFFICER OR TO COMPLY WITH THE PROVISIONS OF SUBPARAGRAPH (E) (1) BELOW." SUBPARAGRAPH (E) (1), MENTIONED ABOVE, PROVIDES:

" *** THE CONTRACTOR SHALL TAKE ALL REASONABLE ACTION TO OBTAIN EXEMPTION FROM OR REFUND OF ANY TAXES OR DUTIES, INCLUDING INTEREST OR PENALTY, FROM WHICH THE UNITED STATES GOVERNMENT, THE CONTRACTOR, ANY SUBCONTRACTOR, OR THE TRANSACTIONS OR PROPERTY COVERED BY THIS CONTRACT ARE EXEMPT UNDER THE LAWS OF THE COUNTRY CONCERNED OR POLITICAL SUBDIVISIONS THEREOF, OR WHICH THE GOVERNMENT OF THE UNITED STATES AND THE GOVERNMENT OF THE COUNTRY CONCERNED HAVE AGREED SHALL NOT BE APPLICABLE TO EXPENDITURES IN SUCH COUNTRY BY OR ON BEHALF OF THE UNITED STATES."

THE GROUND FOR YOUR CLIENT'S PROTEST IS THAT THE CONTRACT WAS AWARDED PURSUANT TO AN INVITATION FOR BIDS WHICH WAS DEFECTIVE IN FAILING REALISTICALLY TO STATE THE ANTICIPATED REQUIREMENTS (MAXIMUM QUANTITY) WHICH THE PROSPECTIVE CONTRACTORS COULD BE CALLED UPON TO FULFILL. YOU CONTEND THAT THIS DEFECT, IN COMBINATION WITH THE CONTRACTING OFFICER'S POST-AWARD INCREASE OF THE CONTRACT PRICE WITHOUT CONSIDERATION, RENDERS THE AWARD VIOLATIVE OF THE APPLICABLE LAWS AND REGULATIONS GOVERNING COMPETITIVE BIDDING. YOU STATE THAT THE CONTRACT PRICE AS AMENDED EXCEEDS THE AMOUNT BID BY INTERNATIONAL HYDRODYNAMICS, LTD., THE UNSUCCESSFUL SECOND LOW BIDDER, ON THE BASIS OF THE ORIGINAL BIDS.

FOLLOWING AWARD OF THE CONTRACT, JACOBSON REQUESTED INCREASES IN THE UNIT PRICES SET FORTH IN THE CONTRACT TO COVER ALLEGEDLY UNANTICIPATED CANADIAN TAX OBLIGATIONS THAT WOULD BE INCURRED BY IT BEFORE ANY SERVICES WERE PERFORMED. YOU STATE THAT IN RESPONSE TO JACOBSON'S REQUEST FOR A PRICE INCREASE, THE NAVY ISSUED CONTRACT MODIFICATION NO. P001 ON APRIL 1, 1970, WHICH PURPORTS TO BE AUTHORIZED UNDER THE TAXES AND DUTIES CLAUSE. SUPPORT OF THE PRICE INCREASE, THE MODIFICATION RECITES THAT JACOBSON INCLUDED $14,000 IN ITS BID PRICE TO COVER APPLICABLE CANADIAN TAXES UPON ADVICE THAT THE APPLICABLE TAXES COULD BE PAID IN MONTHLY INSTALLMENTS AT THE RATE OF 1/120TH OF THE TOTAL TAX PAYABLE AND THAT AFTER AWARD JACOBSON WAS ADVISED THAT THE TOTAL AMOUNT OF TAX WOULD HAVE TO BE PAID BEFORE BEGINNING CONTRACT PERFORMANCE. THE MODIFICATION CONCLUDES THAT THE LIABILITY FOR THE INCREASE WAS NOT INCURRED THROUGH JACOBSON'S FAULT OR NEGLIGENCE. IN YOUR LETTER OF AUGUST 12, 1970, YOU CONTEND THAT THE ISSUANCE OF THIS MODIFICATION WAS ILLEGAL AND VOID IN THAT IT "(1) LACKED ANY CONSIDERATION AND (2) ALTHOUGH PREMISED ON THE CLAUSE ENTITLED 'TAXES, DUTIES, AND CHARGES FOR DOING BUSINESS' WAS, IN ACTUALITY, IN DIRECT VIOLATION OF THAT PROVISION."

IN REGARD TO YOUR CONTENTION THAT THE INVITATION FAILED TO REALISTICALLY STATE THE ANTICIPATED REQUIREMENTS, THE PROCURING ACTIVITY DENIES THAT SUCH WAS THE CASE. IN THIS RESPECT, OUR OFFICE MUST ACCEPT THE ADMINISTRATIVE STATEMENT OF FACTS IN THE ABSENCE OF CLEAR AND CONVINCING EVIDENCE TO THE CONTRARY. SEE 42 COMP. GEN. 126 (1962); 37 ID. 568 (1958). THE DETAILS OF THE NAVY'S POSITION IN THIS REGARD HAVE BEEN FURNISHED TO YOU AND, IN VIEW THEREOF, WE HAVE NO COMMENT TO OFFER OTHER THAN TO STATE THAT THE RECORD DEMONSTRATES THAT THE NAVY PROPERLY DISCHARGED ITS PROCUREMENT RESPONSIBILITIES WHEN IT DETERMINED ITS ANTICIPATED RECOVERY REQUIREMENTS.

THE PRINCIPAL QUESTION FOR OUR DETERMINATION IS WHETHER THE "TAXES, DUTIES, AND CHARGES FOR DOING BUSINESS" CLAUSE OF THE CONTRACT AUTHORIZED THE GOVERNMENT TO INCREASE THE CONTRACT PRICE BY THE AMOUNT OF THE INCREASED CANADIAN TAXES JACOBSON BROTHERS WAS REQUIRED TO PAY. YOU STATE THAT AMENDMENT P001 TO THE CONTRACT IS ILLEGAL AND VOID FOR THE FOLLOWING REASONS:

"1. JACOBSON WAS SPECIFICALLY ON NOTICE THAT CANADIAN TAX LAW AND ITS APPLICATION WAS IMPORTANT TO COSTING AND WAS CAUTIONED TO ASCERTAIN THE IMPACT OF SUCH CANADIAN TAXES.

"2. AT TIME OF BID AND AT TIME OF AWARD, JACOBSON WAS SPECIFICALLY AWARE OF THE PROBABILITY THAT THE CANADIAN AUTHORITIES WOULD NOT GRANT A WAIVER AND OF THE POSSIBILITY THAT THE CANADIAN GOVERNMENT WOULD REFUSE TO ALLOW HIM TO UTILIZE THE SO-CALLED '1/120TH' BASIS FOR BID.

"3. JACOBSON KNOWINGLY AND CONSCIOUSLY ASSUMED THE RISK THAT IT WOULD NOT BE ABLE TO SECURE A PRO RATED PAYMENT OF CANADIAN TAXES ON THE '1/120TH' BASIS ON ITS VESSEL.

"4. THERE WAS NO ACTION TAKEN BY THE CANADIAN GOVERNMENT SUBSEQUENT TO THE AWARD OF THE CONTRACT WHICH WAS UNFORSEEABLE BY JACOBSON AND JACOBSON HAD NO REASON TO BELIEVE THAT THE CANADIAN GOVERNMENT WOULD TAKE FAVORABLE ACTION.

"5. THERE IS NO AUTHORITY TO AMEND A CONTRACT MERELY UPON THE OCCURRENCE OF A CONTINGENCY AS TO WHICH THE CONTRACTOR HAS BEEN SPECIFICALLY PUT ON NOTICE AND RESPECTING WHICH THE CONTRACTOR HAS SPECIFICALLY ASSUMED THE RISK IN ORDER TO THEREBY ENHANCE HIS BID POSITION.

"6. DESPITE THE FACT THAT AMENDMENT P001 IS SPECIFICALLY PREMISED ON THE PROVISION ENTITLED 'TAXES, DUTIES, AND CHARGES FOR DOING BUSINESS,' IT IS NOT AUTHORIZED BY THAT CLAUSE."

WE HAVE CAREFULLY CONSIDERED THE REASONS ADVANCED BY YOU IN SUPPORT OF YOUR CONTENTION THAT THE INCREASE IN THE CONTRACT PRICE PREMISED UPON THE "TAXES, DUTIES, AND CHARGES FOR DOING BUSINESS" CLAUSE WAS UNAUTHORIZED. HOWEVER, WE DO NOT AGREE WITH YOUR POSITION. THE SELF EVIDENT PURPOSE OF THE TAX CLAUSE IS TO PREVENT CONTRACTORS FROM INCREASING THEIR BID PRICES IN ORDER TO PROTECT THEMSELVES AGAINST THE MERE POSSIBILITY THAT TAXES WILL SUBSEQUENTLY BE ENACTED OR INCREASED. THIS IS ACCOMPLISHED BY ENCOURAGING BIDDERS TO DEPEND UPON A PRICE ADJUSTMENT IF THEY FIND THEMSELVES FORCED TO PAY HIGHER TAXES, RATHER THAN TO SEEK TO PROTECT THEMSELVES IN ADVANCE BY RAISING THEIR PRICES TO COVER THE MERE POSSIBILITY OF A TAX INCREASE.

ALTHOUGH IT APPEARS THAT JACOBSON BROTHERS KNEW OF THE "POSSIBILITY" THAT THEY MIGHT NOT BE ABLE TO SECURE A PRORATED PAYMENT OF CANADIAN TAXES ON THE "1/120TH" BASIS, WE BELIEVE THAT THE COMPANY, IN PREPARING ITS BID, WAS JUSTIFIED IN RELYING ON THE PRICE ADJUSTMENT PROVIDED BY THE CLAUSE IN THE EVENT OF A TAX RATE INCREASE. THE GENERAL PURPOSE OF THE TAX CLAUSE CALLS FOR A LIBERAL INTERPRETATION OF THE CLAUSE'S COVERAGE. SEE, IN THIS REGARD, MORRISON-KNUDSEN CO., INC. V UNITED STATES, CT. CL. NO. 3-69, DECIDED JUNE 12, 1970.

IT IS REPORTED THAT IN DECEMBER 1969, THE CANADIAN GOVERNMENT ADVISED JACOBSON BROTHERS THAT THE TORPEDO RECOVERY OPERATIONS DO NOT CONSTITUTE COASTING TRADE UNDER THE CANADIAN SHIPPING AND CUSTOMS ACT AND THAT THE ACT DID NOT APPLY. HOWEVER, JACOBSON WAS ADVISED THAT ITS VESSEL AND ITS EQUIPMENT WOULD BE DUTIABLE AT 25 PERCENT OF VALUE AND A 12 PERCENT SALES TAX WOULD BE LEVIED ON THE DUTY PAID VALUE OF THE VESSEL AND ITS EQUIPMENT. THIS ADVICE WAS CONTAINED IN A LETTER DATED JANUARY 5, 1970, FROM THE DEPARTMENT OF NATIONAL REVENUE TO THE COMMANDING OFFICER OF THE NAVAL TORPEDO STATION, KEYPORT, WASHINGTON, BUT NO ADVICE WAS GIVEN AS TO THE METHOD OF PAYMENT, WHETHER INSTALLMENT OR LUMP SUM. WHILE IT APPEARS THAT THE CANADIAN AUTHORITIES NEVER ADVISED JACOBSON BROTHERS BEFORE BID OPENING THAT PAYMENT OF THE DUTIES AND TAXES WOULD BE PAYABLE AT A RATE OF 1/120TH PER MONTH, JACOBSON BROTHERS RELIED ON THE ADVICE OF ITS CANADIAN LAWYERS THAT PERMISSION TO PAY THE DUTIES AND TAXES AT THE 1/120TH RATE COULD BE GRANTED BY CANADIAN AUTHORITIES AND THAT THIS PERMISSION SHOULD BE OBTAINED AFTER JACOBSON BECAME THE SUCCESSFUL BIDDER. JACOBSON BROTHERS' LAWYERS ALSO ADVISED THAT THE CANADIAN FINANCIAL ADMINISTRATION ACT PROVIDED AUTHORITY FOR PAYMENT OF DUTIES AND TAXES IN MONTHLY INSTALLMENTS OVER A 10-YEAR PERIOD WHERE THERE IS NO CANADIAN VESSEL AVAILABLE WITH A SIMILAR CAPACITY AS THE FOREIGN VESSEL SEEKING ENTRY. THEY FURTHER ADVISED JACOBSON THAT A GOOD CASE COULD BE MADE FOR THE PAYMENT BY JACOBSON OF DUTIES AND TAXES ON THIS BASIS BECAUSE THERE WAS NO CANADIAN VESSEL WITH A CAPABILITY SIMILAR OR EQUAL TO JACOBSON BROTHERS' VESSEL, THE "SONAR BELLE."

THE NAVY REPORTS THAT THE "SONAR BELLE" AND THE SUBMARINE EMPLOYED BY INTERNATIONAL HYDRODYNAMICS CAN BOTH BE USED TO RECOVER TORPEDOES BUT THEY EMPLOY DIFFERENT OPERATIONAL METHODS FOR THIS WORK. THE "SONAR BELLE" USES A SERIES OF ANCHORS TO FIX ITS POSITION FOR OPERATIONS. ANCHORS ARE ALSO USED TO MOVE AND POSITION THE VESSEL'S UNDERWATER TELEVISION CAMERA AND TORPEDO RECOVERY GEAR. WE ARE ADVISED THAT INTERNATIONAL HYDRODYNAMICS USES A TWO-MAN, FREE SWIMMING SUBMARINE TO RECOVER TORPEDOES WITHOUT USING ANCHORS. HENCE, JACOBSON BROTHERS AND ITS LAWYERS DID NOT CONSIDER THE TWO CRAFTS TO HAVE SIMILAR CAPABILITIES AND, FOR THIS REASON, BELIEVED THAT PAYMENT OF DUTIES AND TAXES ON A BASIS OF 1/120TH PER MONTH WOULD BE PERMITTED. IN THIS REGARD, WE ARE ADVISED BY THE NAVY THAT PAYMENT ON SUCH A BASIS HAS BEEN ALLOWED OTHER AMERICAN COMPANIES USING VESSELS IN CANADIAN WATERS FOR PURPOSES OTHER THAN COASTING TRADE EVEN IN INSTANCES WHERE SIMILAR CANADIAN VESSELS WERE AVAILABLE. BASED ON ITS LAWYER'S ADVICE AND THE PRACTICE FOLLOWED WITH RESPECT TO OTHER AMERICAN COMPANIES, JACOBSON BROTHERS INCLUDED AN AMOUNT TO COVER 12 OF THE 120 PAYMENTS FOR DUTIES AND TAXES IN THE PRICE BID FOR THE TOTAL ESTIMATED QUANTITY OF TORPEDO RECOVERIES. THIS AMOUNTED TO 1/10TH OF THE TOTAL DUTIES AND TAXES. IT IS UNDERSTOOD THAT CANADA DOES NOT REQUIRE PAYMENT OF INSTALLMENTS AFTER A VESSEL IS REMOVED FROM CANADIAN WATERS EVEN THOUGH FEWER THAN 120 PAYMENTS HAVE BEEN MADE.

FOLLOWING AWARD OF THE CONTRACT, JACOBSON BROTHERS REQUESTED THE DEPARTMENT OF STATE TO ACT IN ITS BEHALF IN OBTAINING PERMISSION TO PAY CANADIAN DUTIES AND TAXES IN 120 PARTS. THE DEPARTMENT OF STATE DID SO BUT THE CANADIAN EMBASSY DENIED THE REQUEST STATING THAT THERE WAS ALREADY EQUIPMENT IN CANADA CAPABLE OF PERFORMING SALVAGE OPERATIONS AT THE STRAIT OF GEORGIA TORPEDO TEST RANGE AND, THEREFORE, JACOBSON BROTHERS WOULD BE REQUIRED TO PAY DUTIES AND TAXES IN A LUMP SUM.

THE QUESTIONED AMENDMENT WAS ISSUED PURSUANT TO THE "TAXES, DUTIES, AND CHARGES FOR DOING BUSINESS" CLAUSE OF THE CONTRACT. UNDER THE PROVISIONS OF THIS CLAUSE, THE GOVERNMENT AGREES WITH THE CONTRACTOR THAT THE CONTRACT PRICE SHALL BE CORRESPONDINGLY INCREASED IN THE EVENT THERE IS AN INCREASE IN THE RATE OF TAX OR DUTY, PROVIDED THAT THE CONTRACTOR WARRANTS THAT NO AMOUNT OF SUCH INCREASE WAS INCLUDED IN THE CONTRACT PRICE AS A CONTINGENCY RESERVE OR OTHERWISE, AND PROVIDED FURTHER THAT THE LIABILITY FOR THE INCREASE WAS NOT INCURRED THROUGH THE FAULT OR NEGLIGENCE OF THE CONTRACTOR. IN THIS REGARD, THE NAVY HAS ADVISED OUR OFFICE THAT THE RATE OF PAYMENT AND DUTIES WAS INCREASED FROM 1/10TH (12 PAYMENTS OF 1/120TH OF THE TAX DURING THE PERIOD OF THE CONTRACT) TO 100 PERCENT OF THE DUTIES AND TAXES. JACOBSON BROTHERS HAS WARRANTED THAT NO AMOUNT OF THIS INCREASE WAS INCLUDED IN THE CONTRACT PRICE AS A CONTINGENCY OR OTHERWISE. FURTHER, IT APPEARS THAT THE UNDERSTANDING JACOBSON BROTHERS HAD OR THE ASSUMPTION IT MADE THAT THE TAXES COULD BE PAID OVER 120 MONTHS WAS JUSTIFIED ON THE BASIS OF THE LEGAL ADVICE IT RELIED UPON. IN VIEW OF THESE CIRCUMSTANCES, WE BELIEVE THAT LIABILITY FOR THE INCREASE IN THE TAX RATE WAS NOT INCURRED THROUGH ITS FAULT OR NEGLIGENCE. THEREFORE, THE PREREQUISITES FOR PRICE ESCALATION ON ACCOUNT OF THE INCREASE IN THE RATE OF DUTIES AND TAXES WERE MET.

ACCORDINGLY, WE FIND NO LEGAL BASIS FOR QUESTIONING THE ISSUANCE OF AMENDMENT P001 TO THE CONTRACT AND YOUR PROTEST MUST BE DENIED.