B-172531, OCT 24, 1974

B-172531, OCT 24, 1974

IN ABSENCE OF ESCALATION CLAUSE IN CONTRACT, NO BASIS EXISTS TO COMPENSATE CONTRACTOR FOR ABNORMAL INFLATION OF MATERIAL COSTS BECAUSE VALID CONTRACTS MUST BE ENFORCED AS WRITTEN.

FERRY CREEK ROCK & CONCRETE, INC.:

FERRY CREEK ROCK & CONCRETE, INC. (FERRY CREEK), WAS THE SUCCESSFUL LOW BIDDER UNDER INVITATION FOR BIDS NO. R6-74-6 AND WAS AWARDED CONTRACT NO. 004152C BY THE UNITED STATES FOREST SERVICE FOR THE RECONSTRUCTION OF BROKEN ARROW CAMPGROUND ROAD NO. 271E, UMPQUA NATIONAL FOREST, DOUGLAS COUNTY, OREGON. FERRY CREEK COMMENCED WORK ON THE PROJECT SEPTEMBER 5, 1973, AND PURSUANT TO THE SUSPEND AND RESUME WORK ORDER, ISSUED BY THE CONTRACTING OFFICER'S REPRESENTATIVE ON SEPTEMBER 24, 1973, WORK WAS SUSPENDED AS OF SEPTEMBER 19, 1973, DUE TO WINTER WEATHER CONDITIONS. WAS SCHEDULED TO RESUME ITS WORK ON JUNE 4, 1974. HOWEVER, BY LETTER OF MAY 30, 1974, FERRY CREEK WROTE THE GENERAL ACCOUNTING OFFICE (GAO) THAT SINCE FERRY CREEK HAD TENDERED ITS BID, ABNORMAL ECONOMIC INFLATION HAD DRIVEN ITS COST FOR MATERIAL TO $58,094 IN EXCESS OF ITS BID PRICE OF $372,525.65, A 15.59 PERCENT INCREASE. SINCE THE CONTRACT CONTAINS NO ESCALATION CLAUSE, FERRY CREEK SEEKS MODIFICATION.

IT APPEARS THAT BY LETTER DATED APRIL 16, 1974, FERRY CREEK WROTE THE CONTRACTING OFFICER AND REQUESTED AN ADJUSTMENT TO THE CONTRACT FOR INCREASED COSTS OF MATERIALS WHICH OCCURRED DURING THE DELAY IN WORK AS A RESULT OF THE WORK SUSPENSION. THIS REQUEST WAS DENOMINATED UNDER PARAGRAPH "D" OF THE CHANGES CLAUSE OF THE GENERAL PROVISIONS OF THE CONTRACT. IN DENYING THE REQUEST BY HIS LETTER OF APRIL 26, 1974, THE CONTRACTING OFFICER INDICATED THAT THE WORK HAD PROPERLY BEEN SUSPENDED UNDER THE AUTHORITY OF CLAUSE 3.1,B OF THE FOREST SERVICE GENERAL PROVISIONS, 6300-42 (8168), ENTITLED CONTRACT ADMINISTRATION. THE CONTRACTING OFFICER STATED HIS OPINION THAT THE SUSPENSION DID NOT CREATE A CHANGE OF CONDITIONS COMPENSABLE UNDER THE CONTRACT. HE FURTHER STATED THAT IF FERRY CREEK DISAGREED WITH THE DECISION, THEN FURTHER DOCUMENTATION SHOULD BE SUBMITTED WHICH WOULD RESULT IN A DECISION "APPEALABLE UNDER THE DISPUTES CLAUSE." BY LETTER DATED MAY 7, 1974, FERRY CREEK ACKNOWLEDGED THE CONTRACTING OFFICER'S LETTER AND INDICATED THAT FURTHER CORRESPONDENCE ON THE MATTER WOULD BE FORTHCOMING. HOWEVER, AT THAT POINT FERRY CREEK CEASED CORRESPONDENCE WITH THE FOREST SERVICE.

SINCE THERE IS NO FACTUAL DISPUTE, THE ONLY MATTER FOR OUR CONSIDERATION IS WHETHER ANY BASIS EXISTS TO COMPENSATE FERRY CREEK FOR THE UNANTICIPATED AND UNPRECEDENTED RISE IN MATERIAL COSTS BETWEEN THE TIME THE CONTRACT WORK WAS SUSPENDED AND RESUMED. SECTION 3.2(A)(2) OF THE FOREST SERVICE GENERAL PROVISIONS, 6300-42, PROVIDES FOR AN EQUITABLE ADJUSTMENT OF THE CONTRACT PRICE IN THE EVENT OF A PARTIAL SUSPENSION OF WORK NOT DUE TO ANY FAULT OR NEGLIGENCE ON THE PART OF THE CONTRACTOR, WHILE SECTION 3.2(A)(1) PROVIDES THAT NO CHARGE SHALL BE MADE AGAINST CONTRACT TIME DURING A TOTAL SUSPENSION OF WORK NOT DUE TO THE FAULT OR NEGLIGENCE OF THE CONTRACTOR. THE LATTER CLAUSE IS APPLICABLE HERE. THE ABSENCE OF AN ESCALATION CLAUSE IN THE CONTRACT, THERE IS NO PROVISION IN THE CONTRACT THAT WOULD SERVE AS A BASIS TO AFFORD THE RELIEF REQUESTED.

WE RECOGNIZE THAT FERRY CREEK HAS SUFFERED A FINANCIAL HARDSHIP AS A RESULT OF UNFORESEEN CIRCUMSTANCES, BUT THE COURTS HAVE HELD THAT VALID CONTRACTS MUST BE ENFORCED AND PERFORMED AS WRITTEN. THE FACT THAT PERFORMANCE OF THE CONTRACT BECOMES BURDENSOME, OR EVEN RESULTS IN A PECUNIARY LOSS DOES NOT ENTITLE THE CONTRACTOR TO ADDITIONAL COMPENSATION. SEE PENN BRIDGE CO. V. UNITED STATES, 59 CT. CL. 892 (1924); 53 COMP. GEN. (B-179255, SEPTEMBER 4, 1973); B-180413, APRIL 5, 1974.

WE NOTE, HOWEVER, THAT LEGISLATION HAS BEEN INTRODUCED IN THE CONGRESS (S. 3619, 93D CONG., 2D SESS. (1974); H.R. 16014, 93D CONG., 2D SESS. (1974); H.R. 16207, 93D CONG. 2D SESS. (1974)) WHICH WOULD PROVIDE RELIEF TO SMALL BUSINESS CONCERNS WHICH ENCOUNTER SIGNIFICANT AND UNAVOIDABLE DIFFICULTIES DURING CONTRACT PERFORMANCE BECAUSE OF PROBLEMS ATTENDANT TO THE ENERGY CRISIS OR RAPID AND UNEXPECTED ESCALATIONS OF CONTRACT COSTS. FERRY CREEK HAS INQUIRED WHETHER ANY CONTEMPLATED LEGISLATION WOULD APPLY RETROACTIVELY. SECTION 3 OF THE PROPOSED HOUSE BILLS PROVIDES IN PERTINENT PART:

"(A) THE HEAD OF ANY AGENCY OF THE FEDERAL GOVERNMENT OR HIS DELEGATE SHALL MAKE APPROPRIATE MODIFICATION IN THE TERMS OF AN EXISTING FIXED PRICE CONTRACT OR A FIXED PRICED CONTRACT COMPLETED AFTER DECEMBER 31, 1972, WITH A SMALL BUSINESS CONCERN WHICH DEMONSTRATES THAT (1) DURING THE PERFORMANCE OF THE CONTRACT, IT HAS EXPERIENCED SIGNIFICANT UNANTICIPATED COST INCREASES DIRECTLY RELATED TO THE CONTRACT, AND (2) THE CONDITIONS WHICH CAUSED SUCH INCREASES WERE NOT PECULIAR TO THAT PARTICULAR SMALL BUSINESS CONCERN BUT WERE GENERALLY EXPERIENCED BY OTHER SMALL BUSINESS CONCERNS IN THE MARKET AT THAT TIME.

"(C) TO PROTECT THE INTERESTS OF BOTH THE FEDERAL GOVERNMENT AND SMALL BUSINESS CONCERNS, EACH AGENCY OF THE FEDERAL GOVERNMENT SHALL INCLUDE IN ANY FIXED PRICE CONTRACT WITH A SMALL BUSINESS CONCERN AN ECONOMIC PRICE ADJUSTMENT CLAUSE WHICH PROVIDES FOR UPWARD OR DOWNWARD ADJUSTMENTS IN THE CONTRACT PRICE BASED ON COST INCREASES OR DECREASES EXPERIENCED BY THE SMALL BUSINESS CONCERN IN THE PERFORMANCE OF THE CONTRACT."

SECTION 4 OF THE SENATE BILL PROVIDES IN PERTINENT PART:

"(A). PURSUANT TO AN APPLICATION BY A SMALL BUSINESS CONCERN, THE HEAD OF ANY EXECUTIVE AGENCY MAY TERMINATE FOR THE CONVENIENCE OF THE GOVERNMENT ANY FIXED-PRICE CONTRACT BETWEEN THAT AGENCY AND SUCH SMALL BUSINESS CONCERN, UPON A SHOWING THAT -

(1) DURING THE PERFORMANCE OF THE CONTRACT, THE CONCERN HAS EXPERIENCED OR IS EXPERIENCING SIGNIFICANT UNANTICIPATED COST INCREASES DIRECTLY RELATED TO THE CONTRACT; AND

(2) THE CONDITIONS WHICH HAVE CAUSED OR ARE CAUSING SUCH COST INCREASES WERE, OR ARE, BEING EXPERIENCED GENERALLY BY OTHER SMALL BUSINESS CONCERNS IN THE MARKET AT THE SAME TIME AND ARE NOT CAUSED BY NEGLIGENCE, UNDERBIDDING, OR OTHER SPECIAL MANAGEMENT FACTORS PECULIAR TO THAT SMALL BUSINESS CONCERN."

SECTION 6 OF THE SENATE BILL PROVIDES:

"(A) THE AUTHORITY PRESCRIBED IN SECTION 3(A) SHALL APPLY ONLY TO CONTRACTS ENTERED INTO DURING THE PERIOD FROM AUGUST 15, 1971, THROUGH APRIL 30, 1974.

(B) THE AUTHORITY CONFERRED BY THIS ACT SHALL TERMINATE UPON THE EXPIRATION OF TWELVE MONTHS AFTER THE DATE OF ENACTMENT OF THIS ACT."

HOWEVER, THE REQUEST FOR CONTRACT PRICE ADJUSTMENT IS DENIED.