B-40036, MARCH 20, 1944, 23 COMP. GEN. 703

B-40036, MARCH 20, 1944, 23 COMP. GEN. 703

CONTRACTS - COST-PLUS - SHORTAGES IN LUMBER SHIPPED BY SUPPLIER WHERE THE SUPPLIER OF A COST-PLUS-A-FIXED-FEE CONTRACTOR SHIPPED SEVERAL CARS OF LUMBER UNDER AN AGREEMENT RESERVING TO THE SUPPLIER THE RIGHT TO MAKE A RETALLY IF A SHORTAGE WAS FOUND AT DESTINATION, BUT THE CONTRACTOR USED THE LUMBER WITHOUT NOTIFYING THE SUPPLIER OF ALLEGED SHORTAGES IN ITS TALLIES, THE CONTRACTOR, HAVING DEPRIVED THE SUPPLIER OF ITS RIGHT TO A RETALLY, MAY NOT SUBSTITUTE ITS TALLIES FOR THOSE OF THE SUPPLIER IN THE ABSENCE OF A SHOWING THAT THE SUPPLIER'S TALLIES WERE CLEARLY ERRONEOUS, AND, THEREFORE, THE SUPPLIER MAY BE PAID FOR THE LUMBER, AND, WHERE NO TALLIES WERE FURNISHED, ON THE BASIS OF TALLIES MADE AT DESTINATION.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF WAR, MARCH 20, 1944:

REFERENCE IS MADE TO YOUR LETTER OF FEBRUARY 8, 1944, AS FOLLOWS:

TRANSMITTED HEREWITH IS THE COMPLETE FILE RELATIVE TO THE CLAIM OF THE SULLIVAN LUMBER COMPANY, PRESTON, GEORGIA, IN THE AMOUNT OF $211.74 IN CONNECTION WITH LUMBER FURNISHED THE MELLON-STUART COMPANY, COST-PLUS-A- FIXED-FEE CONTRACTORS UNDER CONTRACT NO. W 1101 ENG-587 DATED JUNE 30, 1942, FOR CONSTRUCTING THE SHENANGO REPLACEMENT AND RECLASSIFICATION DEPOT, SHENANGO, PENNSYLVANIA.

AS YOU ARE UNDOUBTEDLY AWARE, EARLIER IN THE CONSTRUCTION PROGRAM, THERE WAS CREATED IN THE OFFICE OF THE QUARTERMASTER GENERAL, THE PROCUREMENT AND EXPEDITING SECTION, WHICH HAD FOR ITS PURPOSE THE PROCURING AND EXPEDITING OF LUMBER PURCHASES ON BEHALF OF COST-PLUS-A FIXED-FEE CONTRACTORS. AS A PRACTICAL MATTER UPON DETERMINING THE SIZES AND QUANTITIES OF LUMBER DESIRED, THE VARIOUS CONTRACTORS WOULD ADVISE THIS SECTION OF THEIR NEEDS AND WHEN SUFFICIENT REQUESTS WERE RECEIVED A LUMBER AUCTION WOULD BE CONDUCTED. PRESENT AT THESE AUCTIONS WERE GOVERNMENT EMPLOYEES WHO CONDUCTED THE AUCTIONS, CONTRACTORS' PURCHASING AGENTS AND VENDORS. ON THE DAY OF THE AUCTION THE PROCEDURE WAS AS FOLLOWS:

1. THERE WAS DISTRIBUTED AMONG THE VENDORS FORM 700 AND IT WAS ANNOUNCED THAT BIDS WOULD BE ACCEPTED IN ACCORDANCE WITH THE INFORMATION THEREIN CONTAINED. SAID FORM 700 IS FORWARDED HEREWITH MARKED EXHIBIT 1.

2. BIDS WERE THEN RECEIVED AND AWARDS MADE TO THE LOWEST BIDDER FOR THE PARTICULAR ITEM, EVIDENCED BY THE EXECUTION OF FORM C-E-105, BY THE VENDOR AND THE PURCHASING AGENT FOR THE CONTRACTOR, EXHIBIT 2 HEREWITH.

3. SUBSEQUENT TO THE AWARDS THERE WAS ISSUED BY THE CONTRACTOR HIS PURCHASE ORDER FOR THE ALLOCATED AMOUNT OF LUMBER AS SHOWN IN EXHIBIT 3 HEREWITH. IT WILL THUS BE SEEN THAT A VALID CONTRACT WAS EFFECTED BETWEEN THE PARTIES UPON THE HAPPENING OF THE AFOREMENTIONED EVENTS.

FOLLOWING THE ABOVE PROCEDURE THERE WAS CONDUCTED ON AUGUST 15, 1942, A LUMBER AUCTION AT MEMPHIS, TENNESSEE. THE SULLIVAN LUMBER COMPANY BEING LOW BIDDER FOR ITEMS 27, 28, AND 29 WERE AWARDED THE CONTRACT IN THE TOTAL AMOUNT OF $8,923.25, EXHIBIT 2. SUBSEQUENTLY, ON AUGUST 21, 1942, THE CONTRACTOR ISSUED HIS PURCHASE ORDER NO. 1046 FOR THE LUMBER, EXHIBIT 3. ON THE REVERSE OF SAID PURCHASE ORDER WILL BE FOUND RECORD OF ACCOMPLISHMENT, WHICH INDICATES THAT SHIPMENT WAS MADE IN NINE CARLOAD LOTS. SAID RECORD ALSO INDICATES THAT A TALLY SHEET ACCOMPANIED SIX OF THE CARS AND IN THE REMAINING THREE, TALLY SHEETS DID NOT ACCOMPANY THE SHIPMENT. UPON REACHING DESTINATION THE SHIPMENTS WERE UNLOADED, INSPECTED AND TALLIED BY GOVERNMENT AGENTS. WHEREUPON IT WAS DISCOVERED THAT SHORTAGES EXISTED IN MOST ALL THE CARS WITH REFERENCE TO THE SHIPPER'S TALLY AND INVOICES. IN VIEW OF THE FACT THAT THE LUMBER WAS URGENTLY NEEDED TO MEET CONSTRUCTION SCHEDULES, THE VENDOR WAS NOT ADVISED OF THE EXISTING SHORTAGES AT TIME OF UNLOADING, BUT RATHER WAS ADVISED THEREOF AT THE TIME OF PAYMENT OF EACH INVOICE. SEE EXHIBITS 7, 8, AND 9. WHEN FINAL PAYMENT WAS MADE THE TOTAL SHORTAGES WERE COMPUTED AND RESULTED IN THE GROSS DEDUCTION OF $211.74, EXHIBIT 10. BY LETTER DATED JUNE 30, 1943, THE CONTRACT WITH MELLON-STUART COMPANY WAS TERMINATED AND IN ACCORDANCE WITH THE PROVISIONS OF ARTICLE VI-3A OF THE PRIME CONTRACT THE GOVERNMENT HAS ASSUMED THE CONTRACTOR'S OBLIGATIONS.

THE VENDOR IS PROTESTING THIS DEDUCTION ON THE BASIS THAT THE SHIPMENTS WERE NOT HELD INTACT AND NOTICE WAS NOT GIVEN OF THE ALLEGED SHORTAGES AS IS PROVIDED BY THE "GRADING RULES" OF THE SOUTHERN PINE ASSOCIATION ALLOWING THE VENDOR OPPORTUNITY TO RECHECK THE SHIPMENTS AND CALLING ATTENTION TO THE REFERENCE IN THE SPECIFICATIONS AS IS SET FORTH IN EXHIBIT 1 AND TO THE FEDERAL SPECIFICATIONS, EXHIBIT 4 HEREWITH.

THE " LUMBER SPECIFICATIONS FOR TEMPORARY HOUSING" ATTACHED TO AND MADE A PART OF EXHIBIT 1, STATES IN PART " THE REFERENCE TO FED. SPEC. MM-L-751B, IS MEANT THAT SOFTWOOD LUMBER SHALL CONFORM TO THE GRADING RULES OF THE VARIOUS LUMBER ASSOCIATIONS IN EFFECT AT THE DATE OF INVITATION FOR THE BIDS WHERE SUCH GRADING RULES ARE APPROVED BY THE CENTRAL COMMITTEE ON LUMBER STANDARDS AS IN CONFORMANCE WITH " AMERICAN LUMBER STANDARDS.' COPY OF THE SOUTHERN PINE ASSOCIATION RULES IN EFFECT AT THE TIME OF BID IS FORWARDED HEREWITH AS EXHIBIT 5. ALSO A COPY OF AMERICAN LUMBER STANDARD RULES IS FORWARDED HEREWITH AND MARKED EXHIBIT 6. IT WILL BE NOTED THAT RULE 151 OF SOUTHERN PINE ASSOCIATION RULES PROVIDES " IN CASE OF COMPLAINT INVOLVING TALLY, THE ENTIRE SHIPMENT SHALL BE HELD INTACT FOR RETALLY.' IN VIEW OF THE FACT THAT THE REFERENCE IN THE INVITATION TO BID STATES THAT "THE GRADING RULES" SHALL APPLY, THIS OFFICE REQUESTED AN EXPRESSION OF OPINION FROM THE CHAIRMAN OF THE CENTRAL COMMITTEE ON LUMBER STANDARDS AS TO WHETHER THE TALLYING PROVISION CONTAINED IN THE SOUTHERN PINE LUMBER RULES REFERRED TO ABOVE, IS CONSIDERED A "GRADING RULE," WHICH OPINION IS FORWARDED HEREWITH AND MARKED EXHIBIT 11.

ON THE BASIS OF THE ABOVE FACTS, I AM OF THE OPINION THAT THE CLAIM IN PART, IS PROPER FOR ALLOWANCE. THAT THE GRADING RULES FOR SOUTHERN YELLOW PINE LUMBER WERE APPLICABLE TO THE PARTICULAR TRANSACTION IS EVIDENCED BY FORM 700 INVITATION TO BID AND FEDERAL SPECIFICATION MM-L 751B WHICH REFERENCE APPARENTLY INCORPORATED THESE RULES INTO THE CONTRACT BETWEEN THE PARTIES. FURTHER, SAID RULES PROVIDE, INSOFAR AS WE ARE HERE CONCERNED, THAT " IN CASE OF COMPLAINT INVOLVING TALLY, THE ENTIRE SHIPMENT SHALL BE HELD INTACT FOR RETALLY.' I AM OF THE OPINION, THAT THE ACTION OF THE CONTRACTOR IN FAILING TO ADVISE THE VENDOR OF THE EXISTING SHORTAGE, AS PROVIDED FOR IN THE AFOREMENTIONED RULES, IN THOSE CASES WHERE A TALLY SHEET ACCOMPANIED THE SHIPMENT, HAS THE EFFECT OF AN ESTOPPEL IN DENYING THE EXISTENCE OF THE QUANTITY AS SHOWN BY THE VENDOR'S TALLY. IN THOSE INSTANCES WHEREIN A TALLY SHEET DID NOT ACCOMPANY THE SHIPMENT, I AM OF THE OPINION THAT PAYMENT FOR THE ALLEGED SHORTAGES SHOULD NOT BE MADE.

IT IS THE VIEW OF THIS DEPARTMENT THAT PAYMENT SHOULD BE MADE TO THE VENDOR OF THE LUMBER AND THAT YOUR DECISION OF JULY 1, 1943, B 35137 IS NOT CONTROLLING UNDER THE FACTS HERE INVOLVED. THE FACTS IN THAT CASE AND THOSE IN THE INSTANT CASE DIFFER IN THREE MAJOR RESPECTS (1) REIMBURSEMENT TO A FIXED FEE CONTRACTOR IS NOT INVOLVED SINCE THE COST-PLUS-A-FIXED-FEE CONTRACT HAS BEEN TERMINATED AND THE REAL INQUIRY IS AS TO THE NATURE OF THE CONTRACTOR'S OBLIGATION TO THE VENDOR OF THE LUMBER WHICH THE GOVERNMENT ASSUMED UPON TERMINATION OF THE CONTRACT (2) THE RULES OF THE SOUTHERN PINE ASSOCIATION WERE IN THIS CASE MADE A PART OF THE CONTRACT AND (3) THE VENDOR OF THE LUMBER IN QUESTION HAS SPECIFICALLY QUESTIONED THE CORRECTNESS OF THE RECEIVING AND INSPECTION REPORTS.

ACCORDINGLY, IT IS REQUESTED THAT YOU ADVISE THIS DEPARTMENT AS TO WHETHER YOU CONCUR IN THE CONCLUSION THAT PAYMENT SHOULD BE MADE TO THE VENDOR ON THE BASIS OF ITS TALLY SHEETS IN THOSE INSTANCES WHERE TALLY SHEETS ACCOMPANIED THE SHIPMENTS AND THAT PAYMENT SHOULD NOT BE MADE FOR THE ALLEGED SHORTAGES WHEN TALLY SHEETS DID NOT ACCOMPANY SHIPMENTS.

THERE WAS INCLUDED IN THE FILE TRANSMITTED WITH YOUR LETTER A MEMORANDUM REPORT DATED NOVEMBER 24, 1943, FROM THE AREA ENGINEER, ASF REPLACEMENT DEPOT, CAMP REYNOLDS, TRANSFER, PENNSYLVANIA, TO THE OFFICE, CHIEF OF ENGINEERS, U.S. ARMY, WASHINGTON, ID.C., IN PERTINENT PART AS FOLLOWS:

2. THE LUMBER RECEIVED AT THIS PROJECT FROM VARIOUS VENDORS WAS URGENTLY NEEDED IN ORDER TO MEET A CONSTRUCTION SCHEDULE SET UP BY THE DIRECTIVE CONSECUTIVES. THEREFORE, WITH THE KNOWLEDGE AND CONSENT OF THIS OFFICE, THE MELLON-STUART COMPANY, PRIME CONTRACTOR FOR THIS JOB, DID NOT IN MOST CASES ATTEMPT TO NOTIFY THE VENDORS OF DISCREPANCIES IN THEIR DELIVERIES WITHIN TEN (10) DAYS OF RECEIPT, BUT DID NOTIFY THEM AT THE TIME THAT PAYMENT WAS MADE OF THE PARTIAL DELIVERIES OF ANY DISCREPANCY THAT EXISTED. THE CONTRACTOR ALSO NOTIFIED THE VENDOR THAT ON HIS FINAL BILLING AN ADJUSTMENT WOULD BE MADE FOR THE NET OVER OR SHORT SHIPMENTS ON ALL DELIVERIES AGAINST THEIR PARTICULAR PURCHASE ORDER.

3. HAD THE CONTRACTOR ELECTED TO NOTIFY THE VARIOUS VENDORS WITHIN TEN (10) DAYS THAT THERE WERE DISCREPANCIES IN THEIR SHIPMENTS, IT WOULD HAVE BEEN NECESSARY TO UNLOAD THIS LUMBER, STORE IT IN A SUITABLE SPOT, AND HOLD IT FOR THE CONVENIENCE OF THE VENDOR TO SEND A REPRESENTATIVE TO THE SITE AND MAKE A RECHECK. THIS WOULD HAVE DELAYED THE JOB BEYOND ALL REASON.

4. NUMEROUS DELIVERIES WERE ALSO RECEIVED AT THIS PROJECT IN WHICH THE CARS CONTAINED NO TALLY OF ANY SORT. SOME HAD TALLIES WRITTEN ON SCRAPS OF BROWN PAPER, OTHERS WERE WRITTEN ON SMALL PIECES OF BOARD OR EVEN WRITTEN ON THE INSIDE OF THE CAR. IN THOSE CASE IT WOULD HAVE BEEN IMPOSSIBLE TO NOTIFY THE VENDORS OF ANY DISCREPANCY BEFORE RECEIVING THEIR BILL AND CHECKING THEM WITH THE PROJECT TALLY.

WHILE IT APPEARS FROM THE " RECORD OF ACCOMPLISHMENT" ON THE REVERSE OF PURCHASE ORDER NO. 1046, ISSUED BY THE PRIME CONTRACTOR TO THE SULLIVAN LUMBER COMPANY, THAT SIX OF THE NINE CARS OF LUMBER SHIPPED UNDER THE AGREEMENT BETWEEN THE PRIME CONTRACTOR AND THE SAID COMPANY CONTAINED TALLY SHEETS, THE RECORD DOES NOT INDICATE WHETHER THESE TALLY SHEETS WERE SOME OF THOSE REFERRED TO BY THE AREA ENGINEER AS BEING IN SUCH CONDITION AS TO MAKE IT IMPOSSIBLE TO NOTIFY THE SHIPPER OF THE SHORTAGES BEFORE RECEIVING ITS BILLS.

IT IS APPARENT THAT THE AGREEMENT UNDER WHICH THE LUMBER WAS SHIPPED DID NOT PROVIDE, EITHER EXPRESSLY OR BY NECESSARY IMPLICATION, THAT THE TALLY SHEET REQUIRED TO BE FURNISHED BY THE SULLIVAN LUMBER COMPANY WOULD BE FINAL AND CONCLUSIVE ON THE PARTIES, AND THE PROVISION IN THE ,GRADING RULES" OF THE SOUTHERN PINE ASSOCIATION THAT, IN CASE OF COMPLAINT INVOLVING A TALLY, THE ENTIRE SHIPMENT WOULD BE HELD INTACT FOR RETALLY INDICATES THAT THE PARTIES UNDERSTOOD THAT THEY WERE NOT CONCLUSIVELY BOUND BY SUCH TALLY. SEE CARNEGIE DOCK AND FUEL CO. V. MIDLAND LUMBER AND COAL CO., 182 N.W. 515, AND THE CASES THERE CITED.

IT APPEARS FROM THE PAPERS ENCLOSED WITH YOUR SUBMISSION THAT NOT ONLY WERE SHORTAGES FOUND IN THE DIFFERENT GRADES OF LUMBER INCLUDED IN THE NINE CARLOADS SHIPPED UNDER THE AGREEMENT, BUT THAT, IN SEVERAL INSTANCES, OVERAGES, ALSO, WERE FOUND AS A RESULT OF THE TALLIES AT DESTINATION AND THAT THE SULLIVAN LUMBER COMPANY CLAIMS THE NET AMOUNT DUE ON THE BASIS OF ITS TALLIES, THEREBY TAKING INTO CONSIDERATION THE OVERAGES FOR WHICH PAYMENT APPEARS TO HAVE BEEN MADE. THE FOLLOWING LETTER DATED JANUARY 5, 1943, TO THE PRIME CONTRACTOR, IS REPRESENTATIVE OF THE PROTESTS MADE BY THE SULLIVAN LUMBER COMPANY WITH RESPECT TO THE SHORTAGES FOUND BY THE GOVERNMENT'S AGENTS:

WE HAVE YOUR CHECK IN SETTLEMENT OF CAR BRR-122274 AND NOTE YOU SHOW A SHORTAGE OF 975 FEET AND YOU DID NOT FIND ANY C GRADE CEILING IN THIS CAR, WHEREAS WE SHIPPED 312 FEET. IT SEEMS ON PRACTICALLY EVERY CAR YOU MAKE SETTLEMENT ON SOME SHORTAGE IS FOUND. WE CANNOT UNDERSTAND THIS, BECAUSE WE DO KNOW OUR CHECKERS ARE EXPERIENCED AND HAVE BEEN ON THIS DUTY FOR SEVERAL YEARS AND OUR SHIPMENTS TO OTHER CUSTOMERS HAVE BEEN FOUND SATISFACTORY. WHILE WE REALIZE IT IS POSSIBLE FOR OUR CHECKERS TO MAKE A MISTAKE, WE DO NOT FEEL A MISTAKE COULD BE MADE ON EACH AND EVERY SHIPMENT. WE ASK THAT YOU INVESTIGATE THE METHOD OF CHECKING THIS LUMBER AND ENDEAVOR TO FIND WHERE THIS TROUBLE IS FOR WE CANNOT ALLOW THESE SHORTAGES AS REPORTED. WE WANT TO PUT YOU ON NOTICE THAT WE EXPECT YOU TO MAKE PAYMENT OF INVOICES AS RENDERED.

CONSEQUENTLY, THE MATTER RESOLVES ITSELF INTO A DISPUTE BETWEEN THE SULLIVAN LUMBER COMPANY ON THE ONE HAND AND THE PRIME CONTRACTOR AND THE GOVERNMENT ON THE OTHER RELATIVE TO THE QUANTITY OF LUMBER ACTUALLY RECEIVED IN EACH SHIPMENT. WHILE, IN CASES OF THIS CHARACTER INVOLVING DISPUTED QUESTIONS OF FACT WHERE THIS OFFICE HAS NO DIRECT FIRST-HAND INFORMATION OF THE TRANSACTIONS INVOLVED, IT IS THE INVARIABLE RULE OF THE ACCOUNTING OFFICERS OF THE GOVERNMENT TO ACCEPT THE CORRECTNESS OF THE FACTS AS REPORTED BY THE RESPONSIBLE ADMINISTRATIVE OFFICIALS OF THE GOVERNMENT, NEVERTHELESS, AS POINTED OUT BY YOU, THE AGREEMENT UNDER WHICH THE LUMBER WAS SHIPPED PROVIDED A PROCEDURE BY WHICH THE SULLIVAN LUMBER COMPANY COULD MAKE A RETALLY IN THE EVENT A SHORTAGE WAS FOUND AT DESTINATION; AND UNDER SUCH TERMS OF THE AGREEMENT IT WAS THE PRIME CONTRACTOR'S DUTY, WHERE A SHORTAGE WAS INVOLVED, TO HOLD EACH SHIPMENT INTACT FOR RETALLY. THE PRIME CONTRACTOR DID NOT DO THIS. ON THE CONTRARY THE LUMBER WAS USED AND THE COMPANY WAS NOT NOTIFIED OF THE SHORTAGE IN EACH CASE UNTIL PAYMENT WAS TENDERED THEREFOR. UNDER SUCH CIRCUMSTANCES THE SULLIVAN LUMBER COMPANY WAS DEPRIVED OF ITS CONTRACT RIGHT TO RETALLY THE LUMBER AND THEREBY TO DETERMINE TO WHAT EXTENT A MISTAKE WAS MADE. THEREFORE, SINCE THE PRIME CONTRACTOR WAS SOLELY RESPONSIBLE FOR THE SITUATION WHICH OPERATED TO DEPRIVE THE SULLIVAN LUMBER COMPANY OF ITS RIGHT TO A RETALLY, IT COULD NOT INSIST UPON THE SUBSTITUTION OF THE TALLIES AT DESTINATION FOR THE QUANTITIES SHOWN ON THE TALLY SHEETS RECEIVED WITH THE LUMBER, IN THE ABSENCE OF A CLEAR SHOWING THAT THE SAID TALLY SHEETS WERE ERRONEOUS. BY ASSUMING THE AGREEMENT, THE GOVERNMENT IS IN NO BETTER POSITION IN THIS RESPECT THAN THE PRIME CONTRACTOR AND IS ENTITLED TO NO GREATER RIGHTS THAN THE PRIME CONTRACTOR POSSESSED UNDER THE TERMS OF THE AGREEMENT. ACCORDINGLY, ON THE BASIS OF THE FACTS REPORTED BY YOU IN THE MATTER, THIS OFFICE WILL NOT BE REQUIRED TO OBJECT TO PAYMENT FOR THE LUMBER ON THE BASIS OF THE QUANTITIES SHOWN ON OTHERWISE PROPER TALLY SHEETS FURNISHED WITH THE LUMBER, PAYMENT TO BE MADE ON THE TALLIES MADE AT DESTINATION IN THOSE CASES WHERE NO TALLY SHEETS WERE FURNISHED.