B-174314, APR 6, 1972

B-174314, APR 6, 1972

CONTRACTS - RIGHT TO TERMINATE - INTERPRETATION OF TERMS DECISION DENYING THE RIGHT OF BALDWIN-LIMA-HAMILTON CORPORATION (BLH), TO TERMINATE A CONTRACT AWARDED UNDER AN IFB BY THE NASHVILLE DISTRICT CORPS OF ENGINEERS FOR THE DESIGN, MANUFACTURE, AND DELIVERY OF A HYDRAULIC TURBINE. IN VIEW OF THE FACT THAT NO FUNDS HAVE YET BEEN ALLOTTED FOR SCHEDULE II WORK AND SINCE THE SECOND NOTICE TO PROCEED WAS NOT ISSUED UNTIL DECEMBER 30, 1971, BLH CONTENDS THAT IT CAN TERMINATE THE CONTRACT UNDER PARAGRAPH SC-10(H) OF THE SPECIAL CONDITIONS. IT IS THE OPINION OF THE COMP. GEN. THAT BLH COULD LEGALLY HAVE TERMINATED THE CONTRACT ONLY IF THE SECOND NOTICE TO PROCEED HAD NOT BEEN ISSUED DURING 1971 OR WITHIN A REASONABLE TIME THEREAFTER, AS PROVIDED BY PARAGRAPH SC-1. HOWEVER, THE PROVISIONS OF SC-10(H) ARE ONLY APPLICABLE TO THOSE PERIODS OF TIME DURING WHICH WORK IS TO BE PERFORMED AND PAYMENTS BECOME DUE. IN THE INSTANT CIRCUMSTANCES, BLH HAS NO RIGHT TO TERMINATE ITS OBLIGATIONS UNDER THE AGREEMENT.

TO SELLERS, CONNER & CUNEO:

WE REFER TO YOUR LETTER OF FEBRUARY 28, 1972, AND PRIOR CORRESPONDENCE, REQUESTING OUR OPINION AS TO THE RIGHT OF THE BALDWIN LIMA-HAMILTON CORPORATION (BLH) TO TERMINATE CONTRACT NO. DACW62-70-C 0012 WITH THE NASHVILLE DISTRICT CORPS OF ENGINEERS, NASHVILLE, TENNESSEE.

THE CONTRACT, WHICH COVERS THE DESIGN, MANUFACTURE, AND DELIVERY OF A 98,000-HORSEPOWER HYDRAULIC TURBINE, WAS AWARDED BLH ON AUGUST 18, 1969, UNDER INVITATION FOR BIDS (IFB) NO. DACW62-69-B-0020, ISSUED OCTOBER 22, 1968. THE WORK THEREUNDER WAS TO BE COMPLETED PURSUANT TO 2 SCHEDULES, EACH SCHEDULE TO BE COMMENCED ONLY AFTER ISSUANCE OF THE FIRST AND THE SECOND NOTICES TO PROCEED RESPECTIVELY. THE FIRST NOTICE TO PROCEED WAS ISSUED ON AUGUST 18, 1969, AT WHICH TIME WORK WAS BEGUN ON THE DESIGN, CONSTRUCTION, AND TESTING OF A MODEL TURBINE AS PROVIDED FOR UNDER SCHEDULE I. THE LAST INVOICE THEREUNDER WAS PRESENTED BY BLH ON SEPTEMBER 8, 1971, FOR PAYMENT OF $6,500 RETAINED BY THE GOVERNMENT PENDING SUCCESSFUL COMPLETION OF THAT PORTION OF THE CONTRACT. PAYMENT OF THIS SUM WAS DELAYED DUE TO THE GOVERNMENT'S REQUEST FOR CERTAIN ADDITIONAL INFORMATION, THE FURNISHING OF WHICH WAS CONSIDERED PART OF THE SCHEDULE I WORK REQUIREMENTS. THE LAST OF THIS INFORMATION WAS SUCCESSFULLY FURNISHED BY BLH WITH ITS LETTER OF OCTOBER 26, 1971, AND PROCESSING OF THE INVOICE FOR PAYMENT WAS SUBSEQUENTLY APPROVED. THE SECOND NOTICE TO PROCEED INITIATING SCHEDULE II, WHICH ENCOMPASSES THE REMAINING WORK UNDER THE CONTRACT, WAS ISSUED ON DECEMBER 30, 1971.

AMENDMENT NO. 6 TO THE IFB PROVIDED THAT IN PLANNING OPERATIONS FOR FISCAL YEAR 1970 THE CONTRACTOR COULD EXPECT A MAXIMUM OF $70,000 FOR THE WORK TO BE ACCOMPLISHED UNDER THE FIRST NOTICE TO PROCEED. ALTHOUGH THESE MONIES WERE REDUCED BY $5,000 ON NOVEMBER 10, 1970, THEY WERE SUFFICIENT TO ALLOW PAYMENT FOR THE COMPLETED WORK UNDER SCHEDULE I. SINCE, HOWEVER, NO FUNDS WERE ALLOTED FOR SCHEDULE II WORK DURING FISCAL YEAR 1971 OR ORIGINALLY PROGRAMMED THEREFOR DURING FISCAL YEAR 1972 AND SINCE THE SECOND NOTICE TO PROCEED WAS NOT ISSUED UNTIL DECEMBER 30, 1971, BLH CONTENDS THAT, NOTWITHSTANDING ISSUANCE OF THE SECOND NOTICE TO PROCEED, IT CAN TERMINATE THE CONTRACT UNDER PARAGRAPH SC-10(H) OF THE SPECIAL CONDITIONS. THAT PARAGRAPH PROVIDES:

"(H) SHOULD CONGRESS FAIL TO PROVIDE ADDITIONAL FUNDS THE CONTRACT MAY BE TERMINATED AND CONSIDERED TO BE COMPLETED, AT THE OPTION OF THE CONTRACTOR, WITHOUT PREJUDICE TO HIM OR LIABILITY TO THE GOVERNMENT, AT ANY TIME SUBSEQUENT TO 90 DAYS AFTER PAYMENTS ARE DISCONTINUED, OR AT ANY TIME SUBSEQUENT TO 90 DAYS AFTER THE PASSAGE OF THE ACT WHICH WOULD HAVE BUT DID NOT CARRY AN APPROPRIATION FOR CONTINUING THE WORK OR AFTER THE ADJOURNMENT OF THE CONGRESS WHICH FAILED TO MAKE THE NECESSARY APPROPRIATIONS. HOWEVER, IF THE FUNDS CITED IN THE CONTRACT ARE ENOUGH TO EXTEND THE WORK BEYOND THE END OF THE FISCAL YEAR, THE CONTRACTOR MUST FIRST EXHAUST ALL THE CITED FUNDS AND THEREAFTER HE MAY, AT HIS OPTION, EXERCISE THE RIGHTS PROVIDED IN THIS PARAGRAPH ANY TIME AFTER PAYMENTS ARE DISCONTINUED."

IT IS THE CONTENTION OF THE CORPS OF ENGINEERS THAT PARAGRAPH SC 10(H) BECOMES OPERATIVE ONLY UPON ISSUANCE OF A NOTICE TO PROCEED AND THAT ITS APPLICABILITY ENDS UPON COMPLETION OF WORK BEGUN UNDER SUCH NOTICE. CONSEQUENTLY, IT IS CONTENDED THAT THE PROVISIONS BECAME APPLICABLE AGAIN ONLY UPON ISSUANCE OF THE SECOND NOTICE TO PROCEED. IT IS STATED THAT AMENDMENT NO. 4 OF THE IFB, WHICH AMENDED PARAGRAPH SC-1 OF THE SPECIAL CONDITIONS, CLEARLY PROVIDED THAT THE SECOND NOTICE TO PROCEED MIGHT NOT BE ISSUED BEFORE THE END OF CALENDAR YEAR 1971 OR WITHIN A REASONABLE TIME THEREAFTER. THE PERTINENT PORTION OF AMENDMENT NO. 4 STATES:

"(C) IT IS EXPECTED THAT THE SECOND NOTICE TO PROCEED WILL BE ISSUED DURING THE CALENDAR YEAR 1971. IN THE EVENT THAT THE SECOND NOTICE TO PROCEED IS ISSUED SUBSEQUENT TO THE END OF CALENDAR YEAR 1971, THE SPECIFIED DELIVERY AND COMPLETION SCHEDULE SHALL REMAIN UNCHANGED, UNLESS THE CONTRACTOR, WITHIN 30 CALENDAR DAYS AFTER RECEIPT OF THE SECOND NOTICE TO PROCEED, NOTIFIES THE CONTRACTING OFFICER IN WRITING THAT THE SPECIFIED SCHEDULE DATES ARE NO LONGER ACCEPTABLE, IN WHICH EVENT THE SCHEDULE DATES WILL BE REDETERMINED BY MUTUAL AGREEMENT BETWEEN THE CONTRACTING OFFICER AND THE CONTRACTOR AND THE CONTRACT MODIFIED ACCORDINGLY."

HOWEVER, BLH CONTENDS THAT BECAUSE AMENDMENT NO. 4 WAS ADDED TO PARAGRAPH SC-1 BY THE PROCURING ACTIVITY, WHEREAS THE PAYMENTS CLAUSE (PARAGRAPH SC- 10(H)) IS STANDARD TO ALL CIVIL WORKS CONTRACTS, THE RULE TO BE APPLIED IS THAT A SPECIAL PROVISION INSERTED INTO A CONTRACT IS NOT TO RENDER A STANDARD CONTRACT CLAUSE NUGATORY. IT IS ALSO ASSERTED THAT ALTHOUGH BOTH PARAGRAPHS SC-1 AND SC-10 ARE PART OF THE CONTRACT SPECIAL CONDITIONS, PARAGRAPH SC-10 IS REFERENCED IN PARAGRAPH 8 OF THE INVITATION SCHEDULE AS FOLLOWS:

"8. PAYMENTS. PAYMENTS TO THE CONTRACTOR WILL BE MADE IN ACCORDANCE WITH PARAGRAPH 7 OF THE GENERAL PROVISIONS AS AMPLIFIED BY PARAGRAPH SC 10, PAYMENTS, OF THE SPECIFICATIONS."

IT IS CONTENDED THAT, SINCE PARAGRAPH SC-10 IS REFERENCED IN THE INVITATION SCHEDULE, IT IS ENTITLED TO A HIGHER ORDER OF PRIORITY THAN PARAGRAPH SC-1 IN THE RESOLUTION OF THE CONFLICT BETWEEN PARAGRAPHS SC 1 AND SC-10(H) BECAUSE OF THE ORDER OF PRECEDENCE SET FORTH IN PARAGRAPH 19 OF THE SOLICITATION INSTRUCTIONS AND CONDITIONS. THAT PARAGRAPH PROVIDES:

"19. ORDER OF PRECEDENCE. IN THE EVENT OF AN INCONSISTENCY BETWEEN PROVISIONS OF THE SOLICITATION, THE INCONSISTENCY SHALL BE RESOLVED BY GIVING PRECEDENCE IN THE FOLLOWING ORDER: (A) THE SCHEDULE; (B) SOLICITATION INSTRUCTIONS AND CONDITIONS; (C) GENERAL PROVISIONS; (D) OTHER PROVISIONS OF THE CONTRACT, WHETHER INCORPORATED BY REFERENCE OR OTHERWISE; AND (E) THE SPECIFICATIONS."

FINALLY, IT IS CONTENDED THAT BECAUSE PARAGRAPH SC-10(H) WAS INTENDED TO PROTECT THE CONTRACTOR FROM MATERIAL INCREASES IN COSTS OF PERFORMANCE CAUSED BY EXTENSIVE DELAYS IN IMPLEMENTATION OF THE CONTRACT BY THE GOVERNMENT, NOT TO ALLOW TERMINATION BY BLH UNDER THE PRESENT CIRCUMSTANCES WOULD BE CONTRARY TO THE INTENT OF THAT PORTION OF THE CONTRACT.

WE ARE OF THE OPINION THAT BLH COULD HAVE LEGALLY TERMINATED ITS OBLIGATIONS UNDER THE CONTRACT ONLY HAD THE SECOND NOTICE TO PROCEED NOT BEEN ISSUED DURING THE CALENDAR YEAR 1971 OR WITHIN A REASONABLE TIME AFTER THE CLOSE OF 1971. PARAGRAPH SC-10(H) OF THE SPECIAL CONDITIONS IS, WE BELIEVE, ADDRESSED TO A SITUATION IN WHICH SUSPENSION OF ON-GOING WORK BECOMES NECESSARY DUE TO A LACK OF FUNDS NECESSARY TO CONTINUANCE OF THE WORK, UNLESS THE CONTRACTOR CHOOSES TO CONTINUE PERFORMANCE UNDER THE CONTRACT AND AWAIT COMPENSATION WHEN FUNDS BECOME AVAILABLE. UNDER THE PRESENT CIRCUMSTANCES, BLH COULD NOT PROCEED WITH WORK UNDER THE CONTRACT SINCE THE SECOND NOTICE TO PROCEED HAD NOT BEEN ISSUED PRIOR TO DECEMBER 30, 1971. CONSEQUENTLY, PAYMENTS COULD NOT BE DISCONTINUED BECAUSE NO FURTHER PAYMENTS WERE TO BECOME DUE UNTIL WORK UNDER SCHEDULE II HAD BEEN COMMENCED. THIS INTERPRETATION DOES NOT NEGATE THE APPLICATION OF PARAGRAPH SC-10(H), BUT MERELY LIMITS ITS APPLICATION TO THOSE PERIODS OF TIME DURING WHICH WORK IS TO BE PERFORMED AND PAYMENTS ARE TO BECOME DUE. THIS INTERPRETATION IS CONSISTENT WITH THE TERMS OF PARAGRAPH SC-10(H) AND WITH AMENDMENT NO. 4 OF THE INVITATION, WHICH INDICATED WHEN ISSUANCE OF THE SECOND NOTICE TO PROCEED MIGHT BE EXPECTED. IT IS FURTHER CONSISTENT WITH THE RULE THAT, IF POSSIBLE, A CONTRACT SHOULD BE CONSTRUED SO AS TO GIVE EFFECT TO ALL OF ITS PROVISIONS. CONSEQUENTLY, IN VIEW OF THE FACT THAT WE FIND NO INCONSISTENCY TO EXIST BETWEEN PARAGRAPHS SC-1 AND SC- 10(H), WE SEE NO REASON TO CONSIDER WHETHER ONE PROVISION OR ANOTHER MIGHT HAVE PRIORITY UNDER THE ORDER OF PRECEDENCE CLAUSE.

ACCORDINGLY, WE DO NOT BELIEVE THAT BLH HAS ESTABLISHED A BASIS FOR TERMINATION OF ITS CONTRACT.