B-73902, APRIL 9, 1948, 27 COMP. GEN. 621

B-73902, APRIL 9, 1948, 27 COMP. GEN. 621

CONTRACT - INCREASED COSTS DUE TO SHORTAGE OF SUPPLY; DEBARMENT OF BIDDERS UNDER THE PROVISIONS OF THE STANDARD FORM OF GOVERNMENT SUPPLY CONTRACTS WHEREBY CONTRACTORS ARE EXCUSED FROM LIABILITY FOR DAMAGES FOR FAILURE TO MAKE DELIVERIES WHEN DUE TO "UNFORESEEABLE CAUSES * * * INCLUDING BUT NOT RESTRICTED TO ACTS OF GOD OR OF THE PUBLIC ENEMY, ACTS OF THE GOVERNMENT, FIRES, FLOODS," ETC., THE MERE HAPPENING OF THE ACT OR EVENT ENUMERATED MAY NOT BE REGARDED, IPSO FACTO, AS EXCUSING THE CONTRACTOR, UNLESS IT FIRST BE CONSIDERED WHETHER SUCH EVENT OR CAUSE WAS SO ABNORMAL, EXTRAORDINARY OR UNUSUAL, AS TO RENDER IT UNFORESEEABLE. A PROPOSED STATEMENT TO ALL ORDERING ACTIVITIES AND CONTRACTORS OF PETROLEUM PRODUCTS THAT FAILURE TO DELIVER IN ACCORDANCE WITH THE CONTRACT TERMS OF REASON OF THE EXISTING SHORTAGE OF SUPPLY WOULD EXCUSE PERFORMANCE UNDER THE CONTRACT STANDARD DEFAULT CLAUSE MAY NOT BE REGARDED AS A BASIS FOR EXCUSING THE CONTRACTORS, UPON DEFAULT, FROM LIABILITY FOR EXCESS COSTS UNDER SAID CONTRACT DEFAULT CLAUSE ON ACCOUNT OF PURCHASES IN THE OPEN MARKET OF OTHERWISE AVAILABLE PETROLEUM PRODUCTS. A PROPOSED STATEMENT TO ALL ORDERING ACTIVITIES AND SUPPLIERS OF PETROLEUM PRODUCTS UNDER STANDARD GOVERNMENT SUPPLY CONTRACTS TO THE EFFECT THAT FAILURE TO MAKE DELIVERIES WHERE SUPPLIES ARE AVAILABLE BUT WHICH ARE ALLOCATED PURSUANT TO A VOLUNTARY PLAN OF ALLOCATION OR PRIORITY, OR BY PLAN OF DISTRIBUTION WITHOUT DISCRIMINATION BETWEEN LIKE CLASSES OF USERS, MAY NOT BE REGARDED AS A BASIS FOR RELIEVING DEFAULTING CONTRACTORS OF LIABILITY FOR EXCESS COSTS OCCASIONED THE GOVERNMENT IN MAKING PURCHASES IN THE OPEN MARKET. IN VIEW OF THE LONG ESTABLISHED RULE THAT THE LOW BID OF A RESPONSIBLE BIDDER MAY NOT BE REJECTED MERELY BECAUSE THE BIDDER HAS DEFAULTED UNDER A PRIOR SIMILAR CONTRACT, A PROPOSED STATEMENT TO ALL ORDERING ACTIVITIES AND SUPPLIERS OF PETROLEUM PRODUCTS UNDER STANDARD GOVERNMENT SUPPLY CONTRACTS THAT, IN GENERAL, A RECORD OF INEXCUSABLE DEFAULT WILL BE REGARDED AS ESTABLISHING A BIDDER AS NOT RESPONSIBLE IS OBJECTIONABLE.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF THE TREASURY, APRIL 9, 1948:

THERE HAS BEEN CONSIDERED YOUR LETTER OF FEBRUARY 20, 1948, SETTING FORTH CERTAIN FACTUAL SITUATIONS WHICH HAVE ARISEN IN CONNECTION WITH VARIOUS INDEFINITE QUANTITY TERM CONTRACTS ENTERED INTO BY THE BUREAU OF FEDERAL SUPPLY FOR FURNISHING GASOLINE, FUEL OIL AND OTHER PETROLEUM PRODUCTS FOR USE BY GOVERNMENT AGENCIES IN THE CONTINENTAL UNITED STATES, EXCLUDING ALASKA AND THE DISTRICT OF COLUMBIA, AND SETTING FORTH ALSO A STATEMENT OF PRINCIPLES PROPOSED TO BE ISSUED TO ALL ORDERING ACTIVITIES AND TO ALL CONTRACTORS OUTLINING THE ACTION TO BE TAKEN UNDER THE PROVISIONS OF THE PERTINENT CONTRACTS IN THE EVENT OF DEFAULT IN DELIVERY OF SUCH PRODUCTS BY ANY SUCH CONTRACTOR. YOU REQUEST MY APPROVAL OF THE ISSUANCE OF SAID STATEMENT OF PRINCIPLES.

IT IS STATED IN YOUR LETTER THAT THERE ARE APPROXIMATELY 424 SUCH CONTRACTS IN EFFECT AT THE PRESENT TIME; THAT SAID CONTRACTS ARE LET TO THE LOWEST RESPONSIBLE BIDDER AFTER ADVERTISING, ARE FOR SPECIFIC PERIODS, USUALLY SIX MONTHS, AND COVER SPECIFIED ZONES; THAT RECENTLY INVITATIONS HAVE, IN MANY CASES, ELICITED ONLY ONE BID OR NONE AT ALL; AND THAT IN THE OPINION OF THE DEPARTMENT SUCH SITUATIONS HAVE ARISEN FROM A WIDE-SPREAD UNCERTAINTY AS TO THE MEANING AND APPLICATION IN THE EXISTING SITUATION IN THE OIL INDUSTRY OF THE STANDARD GOVERNMENT DEFAULT CLAUSE CONTAINED IN SUCH CONTRACTS. IN THIS CONNECTION IT IS SET FORTH THAT AS LONG AGO AS LAST SUMMER A SERIOUS SHORTAGE OF PETROLEUM PRODUCTS WAS PREDICTED BY QUALIFIED GOVERNMENT AND PRIVATE CONOMISTS; THAT THE CONTRACTS NOW IN EFFECT WERE VIRTUALLY ALL AWARDED SUBSEQUENT TO SUCH TIME; THAT IN DECEMBER THE ORDERING ACTIVITIES BEGAN TO ENCOUNTER DIFFICULTIES IN OBTAINING DELIVERY UNDER SAID CONTRACTS AND THAT THESE DIFFICULTIES HAVE INCREASED STEADILY TO THE PRESENT TIME. IT IS STATED THAT UNDER DATE OF DECEMBER 23, 1947, THE BUREAU ISSUED A CIRCULAR LETTER TO ORDERING ACTIVITIES INSTRUCTING THEM HOW TO TERMINATE A CONTRACTOR'S RIGHT TO PROCEED AND HOW TO MAKE PURCHASES AGAINST HIS ACCOUNT IN THE EVENT OF DEFAULT. IT IS REPORTED THAT SINCE THAT TIME, IN MANY INSTANCES, ORDERING ACTIVITIES HAVE PLACED CONTRACTORS IN DEFAULT AND HAVE MADE PURCHASES BY THE GOVERNMENT IN THE OPEN MARKET AGAINST A CONTRACTOR'S ACCOUNT DO NOT CONSTITUTE A DETERRENT TO DEFAULT WHEN THE CONTRACTOR CAN SELL OIL AT A PRICE IN EXCESS OF THE PRICE GENERALLY PREVAILING IN THE OPEN MARKET. ALSO, IT IS STATED THAT SUPPLIERS ARE AWARE THAT DEFAULTS ARE OFTEN MADE UP OUT OF NAVY OR OTHER GOVERNMENT STOCKS SO THAT THE ADDITIONAL COST, IF ANY, CHARGEABLE TO THE DEFAULTING CONTRACTOR MAY BE QUITE SMALL; THAT, UNDER THE CIRCUMSTANCES, THE RISK OF BEING CLASSED AS IRRESPONSIBLE WHEN BIDDING ON FUTURE GOVERNMENT BUSINESS MAY BE THE ONLY EFFECTIVE SANCTION TO SECURE PERFORMANCE OF CONTRACTS BUT THAT IT IS EFFECTIVE ONLY IF THE CONTRACTOR KNOWS WHAT STANDARDS OF PERFORMANCE ARE ADEQUATE.

THE CONTRACTOR PROVISION IN QUESTION--- REPORTED TO BE INCLUDED IN THE SEVERAL CONTRACTS INVOLVED--- AUTHORIZES THE GOVERNMENT, IN THE EVENT OF THE REFUSAL OR FAILURE OF THE CONTRACTOR TO MAKE DELIVERIES WITHIN THE TIME SPECIFIED, TO TERMINATE THE CONTRACTOR'S RIGHT TO PROCEED AND TO PURCHASE SIMILAR MATERIALS OR SUPPLIES IN THE OPEN MARKET CHARGING ANY EXCESS COSTS OCCASIONED THEREBY TO THE CONTRACTOR SUBJECT, HOWEVER, TO THE FOLLOWING EXPRESS PROVISO:

PROVIDED, THAT THE CONTRACTOR SHALL NOT BE CHARGED WITH ANY EXCESS COST OCCASIONED THE GOVERNMENT BY THE PURCHASE OF MATERIALS OR SUPPLIES IN THE OPEN MARKET OR UNDER OTHER CONTRACTS WHEN THE DELAY OF THE CONTRACTOR IN MAKING DELIVERIES IS DUE TO UNFORESEEABLE CAUSES BEYOND THE CONTROL AND WITHOUT THE FAULT OR NEGLIGENCE OF THE CONTRACTOR, INCLUDING BUT NOT RESTRICTED TO ACTS OF GOD OR OF THE PUBLIC ENEMY, ACTS OF THE GOVERNMENT, FIRES, FLOODS, EPIDEMICS, QUARANTINE RESTRICTIONS, STRIKES, FREIGHT EMBARGOES, UNUSUALLY SEVERE WEATHER, AND DELAYS OF A SUBCONTRACTOR DUE TO SUCH CAUSES UNLESS THE CONTRACTING OFFICER SHALL DETERMINE THAT THE MATERIALS OR SUPPLIES TO BE FURNISHED UNDER THE SUBCONTRACT ARE PROCURABLE IN THE OPEN MARKET * * *.

THE REFERRED-TO INSTRUCTIONS ISSUED TO ORDERING OFFICERS UNDER DATE OF DECEMBER 23, 1947, PROVIDE, SO FAR AS APPEARS MATERIAL HERE, THAT IN RECOGNITION OF THE SHORTAGE OF GASOLINE AND FUEL OILS THROUGHOUT THE ENTIRE INDUSTRY, EVERY CONSIDERATION SHOULD BE GIVEN TO A CONTRACTOR TO AFFORD HIM THE OPPORTUNITY TO MAKE DELIVERY UNDER ANY PURCHASE ORDER BEFORE DECLARING SUCH CONTRACTOR IN DEFAULT AND TO THAT END SAID INSTRUCTIONS RECOMMENDED THAT UPON THE REFUSAL OR FAILURE OF ANY CONTRACTOR TO MAKE DELIVERY UNDER A PURCHASE ORDER, A WRITTEN NOTICE BE FORWARDED TO THE CONTRACTOR STATING THAT UNLESS THE DELAYED DELIVERY BE MADE WITHIN 48 HOURS FROM THE DATE OF SAID NOTICE IN THE CASE OF TANK WAGON DELIVERY, OR SHIPMENT BE MADE FROM THE BULK PLANT WITHIN 48 HOURS IN THE CASE OF TANK-CAR AND TRANSPORT-TRUCK DELIVERY, THE RIGHT TO PROCEED UNDER THE PURCHASE ORDER WOULD BE TERMINATED. ALSO, SAID INSTRUCTIONS URGED THAT, IN FURTHER COOPERATION WITH CONTRACTORS, EACH ORDERING AGENCY NOT ORDER MORE GASOLINE OR FUEL OIL THAN ACTUALLY WOULD BE NEEDED AT ANY GIVEN TIME PLUS A SAFE MARGIN FOR RESERVE AND URGED FURTHER THAT THE MARGIN FOR RESERVE BE AS CONSERVATIVELY LOW AS WOULD BE CONSISTENT WITH SAFETY.

THE STATEMENT NOW PROPOSED TO BE ISSUED TO ALL ORDERING ACTIVITIES AND CONTRACTORS IS AS OLLOWS:

1. IF THE EVIDENCE ESTABLISHED THAT A CONTRACTOR REASONABLY ANTICIPATED AT THE TIME OF BIDDING THAT HE WOULD BE ABLE TO PERFORM, AND IF HE ESTABLISHES THAT HE MADE EVERY EFFORT TO PERFORM, BUT WAS FRUSTRATED BY THE EXISTING SHORTAGE WHICH MADE IT PHYSICALLY IMPOSSIBLE FOR HIM TO OBTAIN SUPPLIES, AN ADEQUATE EXCUSE FOR FAILURE TO PERFORM IS SHOWN UNDER THE DEFAULT CLAUSE, AND THE EXCESS COST OF OPEN MARKET PURCHASES IS NOT REQUIRED TO BE CHARGED AGAINST THE CONTRACTOR'S ACCOUNT.

2. IF A CONTRACTOR CONFORMS TO A VOLUNTARY PLAN OF ALLOCATION OR PRIORITY IN EFFECT IN THE ZONE WHERE HE OPERATES, PUT IN EFFECT TO ASSURE A FAIR DISTRIBUTION OF AVAILABLE SUPPLIES AND TO MEET THE REQUIREMENTS OF PREFERRED CLASSES OF USERS SUCH AS HOSPITALS, SCHOOLS, AND HOMES, SUCH CONFORMITY WILL EXCUSE A FAILURE TO SUPPLY GOVERNMENT REQUIREMENTS IN FULL, SO LONG AS THEY ARE SUPPLIED IN ACCORDANCE WITH THE PLAN IN EFFECT IN THAT REGION.

3. IF NO VOLUNTARY PLAN OF ALLOCATION OR PRIORITY IS IN EFFECT, A CONTRACTOR WILL NOT BE DEEMED TO BE IN DEFAULT IF HE DOES NOT DISCRIMINATE BETWEEN GOVERNMENT COMMITMENTS AND PRIVATE COMMITMENTS WITH RESPECT TO LIKE CLASSES OF USERS, FOR EXAMPLE AS BETWEEN A GOVERNMENT HOSPITAL AND A PRIVATELY OPERATED HOSPITAL, AND IF HE MAKES AVAILABLE TO THE GOVERNMENT A PORTION OF THE SUPPLY AVAILABLE TO HIM WHICH IS FAIR AND EQUITABLE IN THE LIGHT OF ALL HIS COMMITMENTS.

4. INABILITY, FAILURE, OR REFUSAL TO PERFORM CAUSED PRIMARILY BY AN INCREASE IN THE COST OF THE PRODUCT TO THE CONTRACTOR WILL NOT BE REGARDED AS EXCUSABLE UNDER THE DEFAULT CLAUSE, SINCE ALL CONTRACTS NOW IN EFFECT WERE ENTERED INTO SUBSEQUENT TO YOUR DECISION B-59792, OF JULY 8, 1947, WHICH LAID DOWN THE RULE THAT FACTS OF THIS CHARACTER WERE NOT REGARDED AS EXCUSABLE CAUSES.

5. IF ANY CONTRACTOR COMMITS A DEFAULT WHICH IS NOT EXCUSABLE ACCORDING TO THE FOREGOING PRINCIPLES, HIS DEFAULT WILL BE TAKEN INTO CONSIDERATION IN DETERMINING HIS STATUS AS A RESPONSIBLE BIDDER WHEN FUTURE GOVERNMENT CONTRACTS ARE AWARDED. IN GENERAL, A RECORD OF INEXCUSABLE DEFAULT WILL BE REGARDED AS ESTABLISHING THAT A BIDDER IS NOT RESPONSIBLE. IT IS THEREFORE IMPORTANT FOR CONTRACTORS TO PRESERVE AND SUBMIT EVIDENCE TO ESTABLISH THAT ANY FAILURE TO PERFORM WAS EXCUSABLE, WHETHER OR NOT THERE ARE ANY EXCESS COSTS TO BE CHARGES TO THE CONTRACTOR- ACCOUNT.

IT IS TO BE UNDERSTOOD AT THE OUTSET THAT THE APPLICATION OF THE EXCUSABLE CAUSES ENUMERATED IN THE CONTRACT PROVISION IN QUESTION IS DEPENDENT UPON THE FACTUAL SITUATION PRESENT IN A GIVEN CASE. THAT IS TO SAY, IT IS WELL ESTABLISHED THAT THE MERE HAPPENING OF AN EVENT OR CAUSE ENUMERATED IN THE CONTRACT MAY NOT BE REGARDED, IPSO FACTO, AS EXCUSING THE CONTRACTOR, BUT THERE IS FIRST FOR CONSIDERATION WHETHER SUCH EVENT OR CAUSE WAS SO ABNORMAL, EXTRAORDINARY OR UNUSUAL, AS TO RENDER IT UNFORESEEABLE. SEE 23 COMP. GEN. 25; UNITED STATES V. BROOKS CALL AWAY COMPANY, 318 U.S. 120. THUS, ASIDE FROM ANY CONSIDERATION OF THE SPECIFIC PRINCIPLES SET FORTH IN YOUR LETTER, SERIOUS DOUBT WOULD APPEAR TO EXIST AS TO THE PROPRIETY OF ISSUING TO CONTRACTORS, GENERALLY, A STATEMENT OF PRINCIPLES OUTLINING FACTUAL SITUATIONS WHICH WOULD BE CONSIDERED AS EXCUSING DELAY OR DEFAULT UNDER CONTRACTS WITH THE UNITED STATES AS IS HERE PROPOSED. MOREOVER, FOR THE REASONS HEREINAFTER SET FORTH THE CIRCUMSTANCES OUTLINED IN SAID STATEMENT WOULD NOT APPEAR TO CONSTITUTE EXCUSABLE CAUSES WITHIN THE MEANING OF THAT TERM AS CONTAINED IN THE REFERRED-TO STANDARD GOVERNMENT DEFAULT CLAUSE.

IT IS A WELL SETTLED RULE OF LAW THAT IF A PARTY BY A CONTRACT CHARGES HIMSELF WITH A LAWFUL OBLIGATION POSSIBLE TO BE PERFORMED HE MUST MAKE IT GOOD UNLESS ITS PERFORMANCE IS RENDERED IMPOSSIBLE BY AN ACT OF GOD, THE LAW OR THE OTHER PARTY, OR IS EXCUSED UNDER THE TERMS OF THE CONTRACT. AND IT CONSISTENTLY HAS BEEN HELD WHERE SUPPLIES ARE READILY PROCURABLE FROM OTHER SOURCES, THE FACT THAT CAUSES WHICH OTHERWISE MIGHT BE DEEMED TO EXCUSE PERFORMANCE INTERFERE WITH OR EVEN PREVENT PERFORMANCE BY A CONTRACTOR WILL NOT EXCUSE PERFORMANCE BY SUCH CONTRACTOR OR RELIEVE HIM FROM LIABILITY FOR ANY EXCESS COSTS OCCASIONED THE GOVERNMENT IN THE PROCUREMENT THEREOF. 16 COMP. GEN. 983; 18 IBID. 174; 19 IBID. 965; 22 IBID. 937; SUNSERI V. GARCIA AND MAGGINI COMPANY, 298 P. 249. CLEARLY, ON THE BASIS OF THE FOREGOING AUTHORITY THE FACTUAL SITUATION DESCRIBED IN PARAGRAPH 1 OF SAID STATEMENT, I.E., FAILURE TO DELIVER BY REASON OF EXISTING SHORTAGE OF SUPPLY, BUT WHERE SUPPLIES ARE OTHERWISE AVAILABLE IN THE OPEN MARKET, COULD NOT BE VIEWED AS EXCUSABLE UNDER THE PERTINENT CONTRACT PROVISION.

FURTHERMORE, THE LAW, AS ABOVE STATED, WITH RESPECT TO THE SANCTITY OF CONTRACTS WOULD APPEAR, A FORTIORI, TO PROHIBIT EXCUSING A CONTRACTOR FOR FAILURE TO DELIVER WHERE ADMITTEDLY SUPPLIES ARE AVAILABLE BUT SUCH SUPPLIES ARE ALLOCATED PURSUANT TO A VOLUNTARY PLAN OF ALLOCATION OR PRIORITY IN EFFECT IN THE ZONE IN WHICH IT OPERATES OR, IF NO SUCH VOLUNTARY PLAN OF ALLOCATION OR PRIORITY IS IN EFFECT, BY THE DISTRIBUTION BY A CONTRACTOR OF ITS SUPPLIES WITH RESPECT TO LIKE CLASSES OF USERS WITHOUT DISCRIMINATION, AS APPEARS TO BE INCLUDED IN PARAGRAPH 2 AND 3 OF SAID STATEMENT.

IN VIEW OF THE LANGUAGE OF PARAGRAPH 4 OF THE STATEMENT DISCUSSION THEREOF APPEARS UNNECESSARY.

PARAGRAPH 5 OF THE STATEMENT PROVIDES THAT A DEFAULT BY A CONTRACTOR NOT FOUND TO BE EXCUSABLE ACCORDING TO THE ANNOUNCED PRINCIPLES WILL BE TAKEN INTO CONSIDERATION IN DETERMINING THE CONTRACTOR'S STATUS AS A RESPONSIBLE BIDDER WHEN FUTURE GOVERNMENT CONTRACTS ARE AWARDED AND THAT, IN GENERAL, A RECORD OF INEXCUSABLE DEFAULT WILL BE REGARDED AS ESTABLISHING THAT A BIDDER IS NOT RESPONSIBLE.

WHILE IT IS RECOGNIZED, OF COURSE, THAT THERE MAY BE CASES IN WHICH THE PRIOR DEFAULT OF A BIDDER PROPERLY MAY AND SHOULD BE CONSIDERED IN SOME SUCH CASES THE CIRCUMSTANCES MAY JUSTIFY THE ACTUAL DEBARMENT OF A DEFAULTING BIDDER AS IRRESPONSIBLE, IT LONG HAS BEEN HELD THAT THE LOW BID OF A RESPONSIBLE BIDDER MAY NOT BE REJECTED MERELY BECAUSE SUCH BIDDER HAS DEFAULTED UNDER A PRIOR SIMILAR CONTRACT. 15 COMP. GEN. 149; B-69641, DATED NOVEMBER 17, 1947; B-70156, DATED OCTOBER 22, 1947. THUS, WHILE IT MAY WELL BE THAT THE FACTUAL SITUATIONS DESCRIBED IN THE REFERRED-TO STATEMENT COULD NOT BE VIEWED AS EXCUSING PERFORMANCE UNDER AN EXISTING CONTRACT, NEVERTHELESS SUCH FACTS OBVIOUSLY COULD AND PRESUMABLY WOULD--- ASSUMING THE CONTRACTOR TO BE OTHERWISE RESPONSIBLE--- MILITATE AGAINST A DETERMINATION THAT A DEFAULT BY THE CONTRACTOR UNDER SUCH CIRCUMSTANCES WOULD CONSTITUTE A BAR TO THE CONSIDERATION OF FUTURE BIDS SUBMITTED BY IT FOR FURNISHING SUPPLIES TO THE GOVERNMENT.

UPON THE BASIS OF THE FOREGOING, IT WOULD APPEAR THAT THE MATTERS CONTAINED IN THE PROPOSED STATEMENT LEGALLY ARE OBJECTIONABLE OR ARE NOT FOR GENERAL APPLICATION AND, ACCORDINGLY, I AM UNABLE TO APPROVE THE ISSUANCE THEREOF.