B-171731, APR 6, 1971

B-171731, APR 6, 1971

CONTRACTS - DISCOUNT LIMITATION CLAUSE - REWORDING RECOMMENDING THAT THE DISCOUNT LIMITATION CLAUSE, WHICH DEFENSE PERSONNEL SUPPORT CENTER HAS BEEN INCLUDING IN ITS INVITATIONS FOR BIDS, BE MODIFIED SO AS TO MORE CLEARLY STATE THE GOVERNMENTS INTENTION. AS THIS CLAUSE HAS ALREADY BEEN THE SUBJECT OF TWO PROTESTS AND IS PRESENTLY A QUESTION IN PENDING LITIGATION, CLARIFICATION IS NEEDED.

TO GENERAL HEDLUND:

WE REFER TO A CLAUSE ENTITLED "DISCOUNT LIMITATION," WHICH THE DEFENSE PERSONNEL SUPPORT CENTER (DPSC) HAS BEEN INCLUDING, SINCE MAY 1969, IN VARIOUS INVITATIONS FOR BIDS. THE CLAUSE, A VARIATION OF WHICH IS ALSO INCLUDED BY THE DEFENSE GENERAL SUPPLY CENTER AS PARAGRAPH J2-1, DGSC FORM 431, READS AS FOLLOWS:

"IT IS UNDERSTOOD AND AGREED THAT, FOR THE PURPOSE OF PAYMENTS UNDER THIS CONTRACT, AN OFFER OF PROMPT PAYMENT DISCOUNT IN EXCESS OF TWO PERCENT SHALL BE CONSIDERED AS A TRADE OR SPECIAL DISCOUNT WHICH SHALL BE AVAILABLE TO THE GOVERNMENT AS A REDUCTION FROM THE PRICES QUOTED, WITHOUT REGARD TO WHETHER INVOICES ARE ACTUALLY PAID WITHIN THE DESIGNATED DISCOUNT PERIOD. OFFERORS WHO DESIRE TO DO SO MAY QUOTE CUSTOMARY TERMS OF DISCOUNT (NOT IN EXCESS OF TWO PERCENT), FOR PROMPT PAYMENT IN ADDITION TO ANY TRADE OR SPECIAL DISCOUNT AVAILABLE TO THE GOVERNMENT, PROVIDED SUCH DISCOUNTS ARE STATED SEPARATELY IN THEIR OFFERS. UNLESS SUCH TRADE OR SPECIAL DISCOUNTS ARE SEPARATELY STATED, THE OFFEROR AGREES THAT, WHEN THE DISCOUNT OFFERED EXCEEDS TWO PERCENT, THE ENTIRE DISCOUNT WILL BE CONSIDERED AS A TRADE OR SPECIAL DISCOUNT AND WILL NOT BE TREATED AS A DISCOUNT FOR PROMPT PAYMENT."

OUR OFFICE HAS ALREADY ISSUED DECISIONS ON TWO SEPARATE BID PROTESTS RELATING TO THE INTERPRETATION OF THE CLAUSE BY DPSC AS PERMITTING DEDUCTION OF BOTH A PROMPT PAYMENT DISCOUNT FOR ONE PERIOD IN EXCESS OF 2 PERCENT, AFTER CONVERSION TO A TRADE DISCOUNT, AND A PROMPT PAYMENT DISCOUNT OF 2 PERCENT OR LESS FOR ANOTHER PERIOD. SEE 49 COMP. GEN. 364 (1969) AND B-168469, JANUARY 13, 1970, COPIES ENCLOSED. WE CURRENTLY HAVE FOR CONSIDERATION A CLAIM BY A DPSC CONTRACTOR FOR REFUND OF ONE OF SUCH DISCOUNTS UNDER A DPSC CONTRACT WHICH INCLUDED THE SAME CLAUSE.

IN ADDITION, YOUR ATTENTION IS INVITED TO THE FACT THAT A CLAIM BY ANOTHER DPSC CONTRACTOR FOR REFUND OF A DISCOUNT DEDUCTION WAS THE SUBJECT OF A DECISION BY THE ARMED SERVICES BOARD OF CONTRACT APPEALS UNDER DATE OF FEBRUARY 20, 1970. SEE CHIC DE PARIS HANDBAG COMPANY, ASBCA NO. 14622. FURTHER, A FOURTH DPSC CONTRACTOR HAS A SUIT PENDING IN THE COURT OF CLAIMS TO OBTAIN RECOVERY OF A 10-DAY PROMPT PAYMENT DISCOUNT WHICH WAS CONVERTED TO A TRADE DISCOUNT UNDER THE CLAUSE. SEE E.C.T. CORPORATION V UNITED STATES, COURT OF CLAIMS NO. 375-70.

WHILE OUR DECISIONS SUPPORT THE DPSC INTERPRETATION, IN VIEW OF THE NUMBER OF APPARENT MISINTERPRETATIONS BY BIDDERS WE RECOMMEND THAT THE CLAUSE (AS WELL AS ANY SIMILAR CLAUSE WHICH MAY NOW BE IN USE BY ANY OTHER DEFENSE SUPPLY AGENCY PROCURING ACTIVITY) BE REWORDED SO AS TO MORE CLEARLY STATE THE GOVERNMENT'S INTENTION, IN ORDER TO MINIMIZE FURTHER QUESTIONS BY BIDDERS AS TO THE EFFECT OF THE CLAUSE. IN THIS CONNECTION, YOUR ATTENTION IS INVITED TO SECTION 236 OF THE LEGISLATIVE REORGANIZATION ACT OF 1970, WHICH REQUIRES THAT YOU SUBMIT WRITTEN STATEMENTS OF THE ACTION TAKEN WITH RESPECT TO THE RECOMMENDATION. THE STATEMENTS ARE TO BE SENT TO THE HOUSE AND SENATE COMMITTEES ON GOVERNMENT OPERATIONS NOT LATER THAN 60 DAYS AFTER THE DATE OF THIS LETTER AND TO THE COMMITTEES ON APPROPRIATIONS IN CONNECTION WITH THE FIRST REQUEST FOR APPROPRIATIONS SUBMITTED BY YOUR AGENCY MORE THAN 60 DAYS AFTER THE DATE OF THIS LETTER.

WE WOULD APPRECIATE ADVICE OF WHATEVER ACTION IS TAKEN ON OUR RECOMMENDATION.