B-22324, DECEMBER 15, 1941, 21 COMP. GEN. 574

B-22324, DECEMBER 15, 1941, 21 COMP. GEN. 574

APPROPRIATIONS - OBLIGATION - LETTER OF INTENT TO CONTRACT FOLLOWED BY FORMAL CONTRACT IN SUBSEQUENT FISCAL YEAR A GOVERNMENT "LETTER OF INTENT TO CONTRACT" WHICH RESERVED THE OPTION EITHER TO ORDER CERTAIN ARTICLES, OR TO REIMBURSE THE COMPANY FOR COSTS INCURRED IF THE ORDER WAS WITHHELD, OBLIGATED THE GOVERNMENT, AT THE TIME OF ITS ACCEPTANCE BY THE CONTRACTOR, FOR REIMBURSEMENT OF THE CONTRACTOR'S COSTS SO INCURRED, AND, AS THE AGREEMENT CONTEMPLATED IMMEDIATE ACTION BY THE COMPANY, THE FISCAL YEAR APPROPRIATION WHICH BECAME SO OBLIGATED IS AVAILABLE FOR THE PRICE OF SUCH ARTICLES EVEN THOUGH THE FORMAL CONTRACT FOR THEIR MANUFACTURE, WHICH MERGED THE GOVERNMENT'S OBLIGATION UNDER THE FIRST AGREEMENT, WAS NOT EXECUTED UNTIL THE FOLLOWING FISCAL YEAR AND THE EXACT AMOUNT OF THE GOVERNMENT'S LIABILITY WAS NOT KNOWN UNTIL THAT TIME.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF THE NAVY, DECEMBER 15, 1941:

I HAVE YOUR LETTER OF DECEMBER 2, 1941, AS FOLLOWS:

IN A LETTER OF INTENT DATED FEBRUARY 19, 1941, THE NAVY DEPARTMENT AUTHORIZED FARRAND OPTICAL COMPANY TO ACQUIRE SUCH EQUIPMENT AS MIGHT BE NECESSARY FOR THE PRODUCTION OF CERTAIN TELESCOPES AND TO PROCURE OR PRODUCE SUCH JIGS, DIES, TOOLS, FIXTURES, AND MATERIALS AS MIGHT BE NECESSARY FOR THE PRODUCTION OF CERTAIN TELESCOPES AND PACKING CASES. A SUPPLEMENTARY LETTER OF INTENT DATED JUNE 20, 1941, THE ORIGINAL LETTER OF INTENT WAS MODIFIED TO INCLUDE CERTAIN PERISCOPES. COPIES OF THE ABOVE -MENTIONED LETTERS ARE ENCLOSED.

ON JUNE 30, 1941, THE NAVY DEPARTMENT ENTERED INTO A CONTRACT ( NO. NOS- 82348) WITH FARRAND OPTICAL COMPANY FOR THE TELESCOPES COVERED BY THE ORIGINAL LETTER OF INTENT. BY A LETTER DATED AUGUST 12, 1941, THE TIME FOR THE CONSUMMATION OF A CONTRACT FOR THE PERISCOPES WAS EXTENDED TO OCTOBER 15, 1941, AND BY A DESPATCH DATED OCTOBER 15, 1941, THE TIME WAS FURTHER EXTENDED TO DECEMBER 15, 1941. COPIES OF THE LETTER AND DISPATCH ARE ENCLOSED.

BY THE SUPPLEMENTARY LETTER OF INTENT OF JUNE 20, 1941, WORK WAS AUTHORIZED ON THE PERISCOPES IN ANTICIPATION OF A FORMAL CONTRACT AS A CHARGE TO THE APPROPRIATION 1710702, ORDNANCE AND ORDNANCE STORES, NAVY, 1941. CONDITIONS AROSE WHICH MADE IT IMPRACTICABLE TO CONSUMMATE A FORMAL CONTRACT FOR THE PERISCOPES PRIOR TO THE END OF THE FISCAL YEAR. HOWEVER, FUNDS WERE RESERVED FROM THE APPROPRIATION 1710702, ORDNANCE AND ORDNANCE STORES, NAVY, 1941, FOR THESE PERISCOPES AND IT IS PROPOSED TO EXECUTE A FORMAL CONTRACT FOR THE PERISCOPES ON THE BASIS OF THE SUPPLEMENTARY LETTER OF INTENT, AS AMENDED.

YOUR ADVICE IS REQUESTED AS TO WHETHER THE SUPPLEMENTARY LETTER OF INTENT OF JUNE 20, 1941, MAY BE RECOGNIZED AS SETTING UP AN OBLIGATION AGAINST THE APPROPRIATION 1710702, ORDNANCE AND ORDNANCE STORES, NAVY, 1941, FOR THE PAYMENT FOR THE PERISCOPES.

THE COPY OF THE DEPARTMENT'S LETTER OF FEBRUARY 19, 1941, TO THE FARRAND OPTICAL CO., IS AS FOLLOWS:

THIS IS TO CONFIRM THE ADVICE GIVEN YOU THAT IT WAS ANTICIPATED THAT THE NAVY DEPARTMENT WOULD PLACE WITH YOU AN ORDER COVERING THE MANUFACTURE OF SEVEN HUNDRED FIFTY (750) TELESCOPES MARK LX, EACH WITH PACKING CASE, AT A TOTAL COST NOT TO EXCEED $1,494,600.00, CONTINGENT UPON THE GOVERNMENT PAYING FOR, AND TAKING TITLE TO, ADDITIONAL EQUIPMENT AT AN ESTIMATED MAXIMUM COST OF $225,000.00. THIS ORDNANCE MATERIAL AND EQUIPMENT TO BE PURCHASED FROM FUNDS APPROPRIATED AND NOW AVAILABLE FOR USE BY THE NAVY OR UNDER AUTHORIZATION FOR THE CONSUMMATION OF CONTRACTS.

THE TELESCOPES ARE TO BE DELIVERED, AS FOLLOWS:

10 BY FEBRUARY 1, 1942.

10 BY MARCH 1, 1942.

15 BY APRIL 1, 1942.

20 BY MAY 1, 1942.

30 BY JUNE 1, 1942.

40 BY JULY 1, 1942.

50 BY AUGUST 1, 1942, AND CONTINUING AT THE RATE OF 50 PER MONTH

UNTIL COMPLETION.

THE SECRETARY OF THE NAVY FINDS THAT IN THE INTEREST OF NATIONAL DEFENSE, IT IS NECESSARY THAT PRODUCTION BE NOT DELAYED AWAITING THE PLACING OF THE AFORESAID ORDER. YOU ARE HEREBY AUTHORIZED TO ACQUIRE SUCH ADDITIONAL EQUIPMENT AS MAY BE NECESSARY FOR THE PRODUCTION OF THIS MATERIAL SUBJECT TO THE APPROVAL OF THE CHIEF OF THE BUREAU OF ORDNANCE, AND TO PROCURE OR PRODUCE SUCH JIGS, DIES, TOOLS, FIXTURES, AND MATERIALS AS ARE NECESSARY FOR PRODUCTION OF THE TELESCOPES AND PACKING CASES, IN ANTICIPATION OF THE CONTRACT, SUBJECT TO THE RECEIPT BY THE PURCHASING OFFICER OF NOTIFICATION OF THE ITEMS TO BE PURCHASED OR PRODUCED, WITH ESTIMATED MAXIMUM PRICES, AND CONFIRMATION BY THE PURCHASING OFFICER OF AUTHORIZATION TO PROCEED WITH SUCH PURCHASE OR PRODUCTION.

IN THE EVENT THAT THE ORDER FOR THIS MATERIAL IS NOT PLACED WITH YOU PRIOR TO 15 APRIL 1941, THE GOVERNMENT WILL, UPON DEMAND MADE PRIOR TO 15 MAY 1941, REIMBURSE YOU FOR THE COST INCURRED BY YOU AND WILL ASSUME YOUR OBLIGATION FOR ANY COMMITMENT WHICH YOU HAVE MADE IN THIS CONNECTION. UPON PAYMENT AND ASSUMPTION BY THE GOVERNMENT, TITLE TO SUCH MATERIAL AND EQUIPMENT, INCLUDING RIGHTS UNDER COMMITMENTS ASSUMED, WILL VEST IN THE GOVERNMENT.

YOU WILL AGREE IN CONNECTION WITH THE PURCHASE OF SUCH MATERIALS AND EQUIPMENT AS AFORESAID THAT YOU WILL COMPLY WITH ALL LAWS PERTAINING OR RELATING TO THE PURCHASE OF SUCH MATERIALS AND EQUIPMENT. ALL APPLICABLE CONTRACT CLAUSES REQUIRED BY FEDERAL LAW TO BE INCORPORATED IN CONTRACTS FOR ARTICLES OF THE KIND HEREIN CONTRACTED FOR ARE HEREBY INCORPORATED HEREIN BY REFERENCE. YOUR ATTENTION IS INVITED TO THE NATIONAL DEFENSE CLAUSE INCLUDED IN LATER CONTRACTS.

IF THE FOREGOING IS ACCEPTABLE TO YOU WILL YOU KINDLY SO INDICATE ON THE ENCLOSED THREE (3) COPIES OF THIS LETTER AND RETURN TO THE PURCHASING OFFICER ON OR PRIOR TO 10 MARCH 1941, THEREBY CONSTITUTING THIS LETTER A CONTRACT.

A PREFERENCE RATING OF A-1-B WILL BE ASSIGNED TO THE EQUIPMENT REQUIRED FOR PRODUCTION OF THESE TELESCOPES, AND PREFERENCE RATINGS AS FOLLOWS TO THE TELESCOPES:

A-1-C FOR 710.

A-1-C FOR 40.

VERY TRULY YOURS,

RAY SPEAR, REAR ADMIRAL, S.C., U.S.N.,

CONTRACTING OFFICER,

PAYMASTER GENERAL OF THE NAVY.

APPROVED:

(S) JAMES FORRESTAL,

ACTING SECRETARY OF THE NAVY.

ACCEPTED FEB. 26, 1941.

FARRAND OPTICAL COMPANY,

BY (S) C. L. FARRAND,

PRESIDENT.

THE COPY OF THE DEPARTMENT'S SUPPLEMENTARY LETTER OF JUNE 20, 1941, TO THE FARRAND OPTICAL CO., IS AS FOLLOWS:

IN THE NAVY DEPARTMENT'S LETTER OF 19 FEBRUARY 1941, YOU WERE ADVISED OF AN ANTICIPATED ORDER TO YOUR COMPANY COVERING THE MANUFACTURE OF SEVEN HUNDRED FIFTY (750) TELESCOPES MARK LX, EACH WITH PACKING CASE, AT A TOTAL COST NOT TO EXCEED $1,494,600.00, CONTINGENT UPON THE GOVERNMENT PAYING FOR, AND TAKING TITLE, TO, ADDITIONAL EQUIPMENT AT AN ESTIMATED MAXIMUM COST OF $225,000.00.

IT NOW BECOMES NECESSARY FOR THE NAVY DEPARTMENT TO AMEND THE LETTER OF INTENT OF 19 FEBRUARY 1941, TO INCLUDE THE FOLLOWING:

CHART

ITEM NO. DELIVERY PERISCOPE FOR SUBMARINE ATTACK

TEACHER 10 1 UNIT IN JAN. 1942.

1 UNIT IN FEB. 1942.

1 UNIT IN MAR. 1942.

1 UNIT IN APR. 1942.

1 UNIT IN MAY 1942.

2 UNITS IN DECEMBER 1942.

1 UNIT IN JUNE 1943.

1 UNIT IN NOVEMBER 1943.

1 UNIT IN JUNE 1943.

THIS ORDNANCE MATERIAL WILL BE PURCHASED FROM FUNDS APPROPRIATED AND NOW AVAILABLE FOR USE BY THE NAVY OR UNDER AUTHORIZATION FOR THE CONSUMMATION OF CONTRACTS.

THE SECRETARY OF THE NAVY FINDS THAT IN THE INTEREST OF NATIONAL DEFENSE, IT IS NECESSARY THAT PRODUCTION BE NOT DELAYED AWAITING THE PLACING OF THE AFORESAID ORDER. YOU ARE HEREBY AUTHORIZED TO PURCHASE SUCH MATERIALS AND EQUIPMENT AS ARE NECESSARY FOR THE MANUFACTURE OF THE PERISCOPES IN ANTICIPATION OF THE PLACING OF SUCH ORDER, SUBJECT TO THE RECEIPT BY THE PURCHASING OFFICER OF NOTIFICATION OF THE ITEMS TO BE PURCHASED WITH ESTIMATED MAXIMUM PRICES AND CONFIRMATION BY THE PURCHASING OFFICER OF AUTHORIZATION TO PROCEED WITH SUCH PURCHASES. ALL THE TERMS AND CONDITIONS OF THE ORIGINAL LETTER SHALL APPLY TO THIS ADDITIONAL EQUIPMENT. IN THE EVENT THE ORDER FOR THIS ORDNANCE MATERIAL IS NOT PLACED WITH YOU PRIOR TO 15 AUGUST 1941, THE GOVERNMENT WILL, UPON DEMAND MADE PRIOR TO 15 SEPTEMBER 1941, REIMBURSE YOU FOR THE COST INCURRED BY YOU AND WILL ASSUME YOUR OBLIGATION FOR ANY COMMITMENTS YOU HAVE MADE IN THIS CONNECTION.

YOU WILL AGREE IN CONNECTION WITH THE PURCHASE OF SUCH MATERIALS AND EQUIPMENT AS AFORESAID THAT YOU WILL COMPLY WITH ALL LAWS PERTAINING OR RELATING TO THE PURCHASE OF SUCH MATERIALS AND EQUIPMENT. ALL APPLICABLE CONTRACT CLAUSES REQUIRED BY FEDERAL LAW TO BE INCORPORATED IN CONTRACTS FOR ARTICLES OF THE KIND HEREIN CONTRACTED FOR ARE HEREBY INCORPORATED HEREIN BY REFERENCE. YOUR ATTENTION IS INVITED TO THE NATIONAL-DEFENSE CLAUSE INCLUDED IN LATER CONTRACTS.

A PREFERENCE RATING OF A-1-C WILL BE ASSIGNED THIS ADDITIONAL ITEM OF ORDNANCE MATERIAL.

IF THE FOREGOING IS ACCEPTABLE TO YOU, WILL YOU KINDLY SO INDICATE ON THE ENCLOSED THREE (3) COPIES OF THIS LETTER AND RETURN TO THE PURCHASING OFFICER ON OR PRIOR TO 5 JULY 1941, THEREBY CONSTITUTING THIS LETTER AN AMENDMENT TO THE LETTER OF INTENT DATED 19 FEBRUARY 1941, WHICH LETTER CONSTITUTES A CONTRACT UNTIL THE EXECUTION OF A FORMAL CONTRACT, AT WHICH TIME THE LETTER OF INTENT AND THIS AMENDMENT THERETO WILL BECOME NULL AND VOID.

VERY TRULY YOURS,

RAY SPEAR, REAR ADMIRAL, S.C., U.S.N.,

CONTRACTING OFFICER,

PAYMASTER GENERAL OF THE NAVY.

APPROVED.

(S) JAMES FORRESTAL.

SECRETARY OF THE NAVY.

ACCEPTED JUNE 25, 1941.

FARRAND OPTICAL COMPANY,

BY (S) C. L. FARRAND,

PRESIDENT.

SECTION 3690, REVISED STATUTES, 31 U.S.C. 712, PROVIDES:

EXCEPT AS OTHERWISE PROVIDED BY LAW, ALL BALANCES OF APPROPRIATIONS CONTAINED IN THE ANNUAL APPROPRIATION BILLS AND MADE SPECIFICALLY FOR THE SERVICE OF ANY FISCAL YEAR, AND REMAINING UNEXPENDED AT THE EXPIRATION OF SUCH FISCAL YEAR, SHALL ONLY BE APPLIED TO THE PAYMENT OF EXPENSES PROPERLY INCURRED DURING THAT YEAR, OR TO THE FULFILLMENT OF CONTRACTS PROPERLY MADE WITHIN THAT YEAR; AND BALANCES NOT NEEDED FOR SUCH PURPOSES SHALL BE CARRIED TO THE SURPLUS FUND. THIS SECTION, HOWEVER, SHALL NOT APPLY TO APPROPRIATIONS KNOWN AS PERMANENT OR INDEFINITE APPROPRIATIONS.

WHILE THE ABOVE-QUOTED LETTER OF FEBRUARY 19 STATES THAT IT IS TO CONSTITUTE A CONTRACT, AND WHILE THE SUPPLEMENTARY LETTER OF JUNE 20 STATES THAT IT IS "AN AMENDMENT TO THE LETTER OF INTENT DATED 19 FEBRUARY 1941, WHICH LETTER CONSTITUTES A CONTRACT UNTIL THE EXECUTION OF A FORMAL CONTRACT," THE SUPPLEMENTARY LETTER DID NOT BIND THE GOVERNMENT TO ENTER INTO A FORMAL CONTRACT FOR THE MANUFACTURE OF THE PERISCOPES, BUT GAVE THE DEPARTMENT A CHOICE OF TWO ALTERNATIVES: (1) TO ORDER THE MANUFACTURE OF THE PERISCOPES AND ENTER INTO A FORMAL CONTRACT THEREFOR; OR (2) TO WITHHOLD THE CONTEMPLATED ORDER AND REIMBURSE THE COMPANY FOR COSTS INCURRED--- UNDER THE CONDITIONS STATED IN THE LETTER--- IN PURCHASING MATERIALS AND EQUIPMENT IN ANTICIPATION OF THE PLACING OF SUCH ORDER.

ALTHOUGH THE BARE RESERVATION OF THE OPTION TO PLACE AN ORDER FOR THE PERISCOPES CREATED NO CONTRACTUAL OBLIGATION UPON THE UNITED STATES, 19 COMP. GEN. 980, THE GOVERNMENT CLEARLY WAS BOUND BY THE FARRAND OPTICAL CO.- ACCEPTANCE--- PRIOR TO THE EXPIRATION OF THE FISCAL YEAR 1941 OF THE GOVERNMENT'S OFFER TO REIMBURSE THE COMPANY FOR COSTS INCURRED IN PURCHASING MATERIALS AND EQUIPMENT FOR THE MANUFACTURE OF SAID PERISCOPES. IT WAS NOT DETERMINED, WHEN THE AGREEMENT WAS MADE, WHETHER THE GOVERNMENT THEREBY WOULD BE OBLIGATED TO PAY SUCH COSTS AS REIMBURSEMENT FOR MATERIALS AND EQUIPMENT PURCHASED BY THE COMPANY, OR AS AN INSEPARABLE PART OF THE PRICE TO BE PAID UNDER A SUBSEQUENT FORMAL CONTRACT FOR THE MANUFACTURE OF THE PERISCOPES. HOWEVER IT IS OBVIOUS THAT THE AGREEMENT CONTEMPLATED IMMEDIATE ACTION BY THE COMPANY TO SUPPLY WHAT WAS THEN CHARACTERIZED AS AN URGENT NEED OF THE GOVERNMENT, AND THE EXPENSES INCURRED IN CONNECTION THEREWITH ARE CHARGEABLE TO THE APPROPRIATION FOR THE FISCAL YEAR IN WHICH THE AGREEMENT WAS MADE, NOTWITHSTANDING THE EXACT AMOUNT OF THE GOVERNMENT'S LIABILITY WAS NOT DETERMINED DURING THAT FISCAL YEAR. 18 COMP. GEN. 363.

ACCORDINGLY, THE QUESTION PRESENTED IN THE CONCLUDING PARAGRAPH OF YOUR LETTER IS ANSWERED IN THE AFFIRMATIVE.