B-78613, OCT 22, 1948

PRECIS-UNAVAILABLE

THE HONORABLE, THE SECRETARY OF THE AIR FORCE:

REFERENCE IS MADE TO LETTERS FROM THE UNDER SECRETARY OF THE AIR FORCE, DATED JULY 21 AND OCTOBER 6, 1948, REQUESTING TO BE ADVISED WHETHER THE GENERAL ACCOUNTING OFFICE WOULD BE REQUIRED TO OBJECT TO THE EXECUTION AND APPROVAL OF A PROPOSED SUPPLEMENTAL AGREEMENT TO CONTRACT NO. W 27-004 Q (S.C.-1)-1 WITH THE DERRY LAUNDRY, INC. DERRY, NEW HAMPSHIRE.

THE ORIGINAL CONTRACT WITH THE LAUNDRY WAS ENTERED INTO ON AUGUST 9, 1943, UNDER THE AUTHORITY OF THE FIRST WAR POWERS ACT, 1941, AND EXECUTIVE ORDER 9001, AND PROVIDES FOR THE FURNISHING BY THE CONTRACTOR OF LAUNDRY AND DRY CLEANING SERVICES TO GRENIER AIR FORCE BASE, MANCHESTER, NEW HAMPSHIRE, AT VARIOUS UNIT PRICES STIPULATED IN THE CONTRACT FOR SPECIFIC ITEMS OF CLOTHING AND BEDDING. AMONG OTHERS, THE CONTRACT CONTAINS THE FOLLOWING PROVISIONS:

"1. CONTRACT PERIOD. ANY CONTRACT AWARD AS A RESULT OF BIDS SUBMITTED UNDER THIS INVITATION WILL EXTEND FROM JULY 1, 1943 FOR THE DURATION OF THE WAR PLUS SIX (6) MONTHS, BOTH DATES INCLUSIVE, UNLESS SOONER TERMINATED UNDER THE PROVISIONS OF THIS CONTRACT.

"2. TRANSPORTATION. TRANSPORTATION WILL BE FURNISHED BY GOVERNMENT VEHICLES.

"GENERAL PROVISIONS

"14. TERMINATION. ANY CONTRACT ENTERED INTO AS A RESULT OF THIS INVITATION FOR BIDS SHALL BE BINDING UNTIL THE DATE OF EXPIRATION, UNLESS SOONER TERMINATED. PROVIDED THAT THE PURCHASING AND CONTRACTING OFFICER GIVES NOTICE OF TERMINATION TO THE CONTRACTOR IN WRITING 30 DAYS PRIOR TO THE DATE THE CONTRACT WILL BE TERMINATED. THE GOVERNMENT RESERVES THE RIGHT TO TERMINATE ANY CONTRACT ARISING FROM SUCCESSFUL BIDDER'S AGREEMENT UNDER THIS INVITATION FOR BIDS."

IT WAS PROVIDED FURTHER BY THE CONTRACT THAT:

"IN ORDER TO OBTAIN SERVICES ESSENTIAL TO THE PROSECUTION OF THE WAR, THIS CONTRACT IS ENTERED INTO FOR THE PERIOD OF THE DURATION PLUS SIX MONTHS. *** THE VALIDITY OF THIS CONTRACT BEYOND THE FISCAL YEAR 1944 IS CONTINGENT UPON THE AUTHORIZATION OF FUNDS MADE AVAILABLE UNDER APPROPRIATION BY CONGRESS FOR THIS PURPOSE, AND AT SUCH TIME AS FUNDS ARE ALLOTTED FOR THE SUCCEEDING FISCAL YEARS, A CHANGE ORDER WILL BE ISSUED INDICATING THE ALLOTMENT CHARGEABLE."

IT IS STATED THAT THE CONTRACT HAS BEEN EXTENDED BY THE GOVERNMENT FROM FISCAL YEAR TO FISCAL YEAR WITHOUT CHANGE IN THE UNIT PRICES STIPULATED THEREIN. THERE IS NO PROVISION IN THE CONTRACT PERMITTING AN INCREASE IN THE CONTRACT UNIT PRICES IN THE EVENT OF INCREASED MATERIAL OR LABOR COSTS, AND IT IS PROVIDED BY PARAGRAPH 11 OF THE GENERAL CONDITIONS THAT THE CONTRACTOR SHALL BE LIABLE TO THE GOVERNMENT FOR ANY EXCESS COST INCURRED BY IT IN PROCURING SERVICES ELSEWHERE IN THE EVENT OF DEFAULT BY THE CONTRACTOR.

IT IS STATED IN THE LETTER OF JULY 21, 1948, THAT THE UNIT PRICES ESTABLISHED IN THE ORIGINAL CONTRACT WERE BASED ON COSTS PREVAILING IN 1943, AND THAT OPERATING COSTS HAVE INCREASED SUBSTANTIALLY SINCE THEN, PARTICULARLY SINCE THE DISESTABLISHMENT OF THE OFFICE OF PRICE ADMINISTRATION AND THE REMOVAL OF PRICE CONTROLS. THE VOLUME OF BUSINESS UNDER THE CONTRACT IS STATED TO HAVE REMAINED SUBSTANTIALLY CONSTANT AT BETWEEN $3,000 AND $4,000 PER MONTH FROM THE INCEPTION OF THE CONTRACT UNTIL APRIL 1946, WHEN THE GRENIER AIR FORCE BASE CLOSED DOWN EXCEPT FOR A SMALL MAINTENANCE CREW, RESULTING IN A DROP IN THE VOLUME OF SERVICES REQUIRED UNDER THE CONTRACT TO APPROXIMATELY $100 PER MONTH. THE BASE REMAINED IN AN INACTIVE MAINTENANCE STATUS UNTIL MAY 1947, WHEN IT WAS REACTIVATED, WITH A RESULTANT INCREASE TO NEARLY $3,000 A MONTH IN THE VOLUME OF BUSINESS UNDER THE CONTRACT. IT IS STATED FURTHER THAT THE CONTRACTOR CONTINUED TO FURNISH SERVICES DURING THE PERIOD FROM APRIL 1946 TO MAY 1947, WHEN THE VOLUME OF BUSINESS WAS ONLY NOMINAL, AND HAS CONTINUED TO DO SO TO THE PRESENT TIME.

HOWEVER, THE CONTRACTOR HAS PROTESTED AGAINST FURNISHING SERVICES AT THE ORIGINAL CONTRACT PRICES SINCE THE REACTIVATION OF THE BASE ON THE GROUNDS THAT ITS OPERATING COSTS HAVE INCREASED MATERIALLY AND THAT THIS CONNECTION, THERE HAVE BEEN SUBMITTED OPERATING STATEMENTS INDICATING THAT, FOR THE SEVEN-MONTH PERIOD FROM OCTOBER 1, 1947, TO APRIL 30, 1948, THE CONTRACTOR SUSTAINED A NET LOSS OF $706.47 ON TOTAL SALES OF $66,964.73, INCLUDING SALES UNDER THE CONTRACT AMOUNTING TO $20,523.69 UNDER THE CONTRACT WAS $3,123.86. IT IS ALLEGED THAT THE LOSSES BEING SUSTAINED ON WORK UNDER THE CONTRACT ARE DUE TO INCREASED MATERIAL AND LABOR COSTS AND, IN THIS CONNECTION, IT WAS STATED BY THE CONTRACTOR IN FEBRUARY 1948 THAT THE INCREASES SINCE 1943 ON THE ITEMS LISTED BELOW WERE THEN AS FOLLOWS:

1943 1948

SOAP, PER POUND $0.07 $0.29

FUEL, PER TON 8.35 12.43

LABOR, PER HOUR .40 .67

PAPER, PER POUND .08 .17 1/2

CLEANING FLUID, PER DRUM 42.00 80.50

THE EFFECT OF THE PROPOSED AMENDMENT, SUBMITTED WITH THE LETTER OF JULY 21, WOULD BE TO INCREASE CERTAIN OF THE UNIT PRICES THEREIN BY 20 PERCENT, AND IT IS STATED IN THE SAID LETTER THAT SUCH ACTION WOULD APPEAR TO BE IN THE INTEREST OF THE GOVERNMENT FOR THE FOLLOWING REASONS:

(A) IF THE DERRY LAUNDRY, INC. DISCONTINUES OPERATIONS, THE GOVERNMENT WILL HAVE TO PAY MORE FOR SIMILAR SERVICES THAN IT WOULD UNDER THE AMENDED CONTRACT.

(B) IF THE DERRY LAUNDRY, INC. DISCONTINUES OPERATIONS, THE GOVERNMENT PROBABLY WILL HAVE TO PLACE TWO OR MORE CONTRACTS FOR THE WORK IN QUESTION, RESULTING IN INCREASED CONTRACT ADMINISTRATION AND SERVICING EXPENSE TO THE GOVERNMENT.

ALSO, IT IS STATED THAT THE INCREASED COST AND INCONVENIENCE WHICH OTHERWISE WILL BE OCCASIONED THE GOVERNMENT SHOULD BE RECOGNIZED AS A BASIS FOR AMENDING THE ORIGINAL CONTRACT AS PROPOSED. IN THE LETTER OF OCTOBER 6, 1948, IT IS STATED THAT IT IS NOW PROPOSED TO AMEND THE CONTRACT BY A SUPPLEMENTAL AGREEMENT PROVIDING THAT THE CONTRACTOR PERFORM ALL PICKING-UP AND DELIVERY SERVICES REQUIRED IN CONNECTION WITH THE WORK, IN CONSIDERATION OF AN INCREASE OF 25 PERCENT IN THE UNIT PRICES SET FORTH IN THE ORIGINAL CONTRACT, AND A DECISION IS REQUESTED AS TO WHETHER THIS OFFICE WOULD BE REQUIRED TO OBJECT TO SUCH AN AMENDMENT. IN CONNECTION WITH THE SAID PROPOSED AMENDMENT, IT IS STATED IN A LETTER DATED SEPTEMBER 24, 1948, FROM HEADQUARTERS STRATEGIC AIR COMMAND, THAT IT IS ORDINARILY ADVISABLE TO HAVE PICK-UP AND DELIVERY SERVICES OF THE NATURE HERE INVOLVED PERFORMED BY THE CONTRACTOR, AND THAT MOST CONTRACTS CURRENTLY BEING EXECUTED SO PROVIDE. IT IS STATED FURTHER IN SAID LETTER OF SEPTEMBER 24, 1948, THAT THE 25 PERCENT INCREASE IN THE CONTRACT PRICES PROPOSED BY THE AMENDMENT WOULD RESULT IN ADDITIONAL COSTS TO THE GOVERNMENT WHICH ARE NOT UNREASONABLY AT VARIANCE WITH THE PRESENT COST TO THE GOVERNMENT OF PERFORMING THE PICK-UP AND DELIVERY SERVICES ITSELF. ALSO, IT IS STATED THAT THE CONTRACTOR HAS ADVISED THAT THE ADDITIONAL INCOME FROM THE UTILIZATION OF ITS PICK-UP AND DELIVERY SERVICE WILL ENABLE IT TO OPERATE UNDER THE CONTRACT WITHOUT FURTHER LOSS.

WHILE THERE MAY BE SOME DOUBT AS TO WHETHER, DESPITE THE MATTERS SET FORTH IN THE LETTER OF JULY 21, 1948, THE CONTRACT COULD BE AMENDED AS ORIGINALLY PROPOSED, SINCE THE AMENDMENT PROPOSED BY THE LETTER OF OCTOBER 6, 1948, WOULD BE BASED UPON A VALID LEGAL CONSIDERATION, AND OTHERWISE WOULD BE ADVANTAGEOUS TO THE GOVERNMENT, YOU ARE ADVISED THAT THIS OFFICE WILL NOT BE REQUIRED TO OBJECT TO THE AMENDMENT OF THE SUBJECT CONTRACT TO PROVIDE FOR AN INCREASE OF 25 PERCENT IN THE CONTRACT PRICES IN RETURN FOR THE ASSUMPTION BY THE CONTRACTOR OF RESPONSIBILITY FOR PICKUP AND DELIVERY SERVICE UNDER THE CONTRACT.