B-135494, MARCH 26, 1958, 37 COMP. GEN. 642

B-135494, MARCH 26, 1958, 37 COMP. GEN. 642

CONTRACTS - DURATION - WATER CONTRACTS - AMORTIZATION PERIOD V. CONTRACT TERM - INCREASED COSTS A CONTRACT WHICH REQUIRES A CITY TO FURNISH WATER TO A FEDERAL INSTALLATION FOR TWENTY YEARS IN CONSIDERATION FOR THE CONSTRUCTION OF A FILTER PLANT WITH FEDERAL FUNDS, PURSUANT TO A STATUTE SPECIFYING THAT WATER WAS TO BE SUPPLIED AT RATES WHICH WOULD AMORTIZE THE CONSTRUCTION COSTS NOT LATER THAN THIRTY YEARS, MAY NOT BE REGARDED AS TERMINATED IF COMPLETE AMORTIZATION IS ACCOMPLISHED PRIOR TO THE TWENTY YEAR TERM IN THE ABSENCE OF A CONTRACT TERMINATION OR MODIFICATION PROVISION; AND, EVEN THOUGH INCREASED COSTS AND OTHER FACTORS ARE OPERATING TO THE DISADVANTAGE OF THE CITY, THERE IS NO LEGAL BASIS FOR PAYMENT OF RATES IN EXCESS OF THOSE STIPULATED IN THE CONTRACT DURING THE TWENTY-YEAR TERM.

TO THE ATTORNEY GENERAL, MARCH 26, 1958:

REFERENCE IS MADE TO A LETTER DATED MARCH 12, 1958, WITH ENCLOSURES, FROM YOUR ADMINISTRATIVE ASSISTANT, REQUESTING A DECISION CONCERNING THE CLAIM OF THE CITY OF EL RENO, OKLAHOMA, FOR $22,444.75, REPRESENTING AN ADDITIONAL AMOUNT FOR WATER FURNISHED THE SOUTHWESTERN REFORMATORY AT EL RENO AS OF FEBRUARY 20, 1958, OVER AND ABOVE THE RATES STIPULATED IN CONTRACT J1C-6504, DATED JULY 16, 1938.

THE CITY CONTENDS THAT ITS OBLIGATION TO FURNISH WATER AT THE RATES STIPULATED IN THE ABOVE CONTRACT TERMINATED UPON AMORTIZATION OF THE SEDIMENTATION AND FILTER PLANT CONSTRUCTED BY THE BUREAU OF PRISONS UNDER AUTHORITY OF THE " DEPARTMENT OF JUSTICE APPROPRIATION ACT, 1939" APPROVED APRIL 27, 1938, 52 STAT. 263. ON THE OTHER HAND, IT APPEARS TO BE THE VIEW OF THE DEPARTMENT AND THE BUREAU THAT UNDER THE PROVISIONS OF ARTICLE X OF THE CONTRACT THE CONTRACT WILL NOT TERMINATE UNTIL AUGUST 20, 1960, OR TWENTY YEARS FROM THE DATE THE PLANT WAS PUT INTO OPERATION, AND THAT THE QUESTION OF AMORTIZATION OF THE PLANT, WHETHER ACTUALLY ACCOMPLISHED IN FACT OR NOT, IS IMMATERIAL.

IN THE ABOVE ACT THERE WAS APPROPRIATED "NOT TO EXCEED $86,600 FOR CONSTRUCTION OF A SEDIMENTATION BASIN, FILTER PLANT, AND OTHER REQUIRED APPURTENANCES TO BE OPERATED BY THE CITY OF EL RENO, OKLAHOMA, AS PART OF THE WATER FACILITIES OF SAID CITY, ON PROPERTY TO WHICH THE UNITED STATES SHALL HAVE ACQUIRED AN EASEMENT, FOR THE PURPOSE OF ASSURING TO THE UNITED STATES A SATISFACTORY WATER SUPPLY FOR THE FEDERAL REFORMATORY AT EL RENO:PROVIDED, THAT NO PART OF THIS APPROPRIATION SHALL BE AVAILABLE FOR EXPENDITURE FOR THIS PURPOSE UNTIL A CONTRACT HAS BEEN ENTERED INTO BETWEEN THE CITY OF EL RENO AND THE ATTORNEY GENERAL OF THE UNITED STATES UNDER THE TERMS OF WHICH THE CITY SHALL BE OBLIGATED TO FURNISH A SATISFACTORY WATER SUPPLY AT SUCH RATES AS COMPARED WITH EXISTING RATES AS WILL ACCOMPLISH THE AMORTIZATION WITHIN A PERIOD OF THIRTY YEARS OF THE COST OF SUCH CONSTRUCTION, TO BE EXPENDED UNDER THE DIRECTION OF THE ATTORNEY GENERAL BY CONTRACT OR PURCHASE OF MATERIAL AND HIRE OF LABOR AND SERVICES AND UTILIZATION OF LABOR OF UNITED STATES PRISONERS AS THE ATTORNEY GENERAL MAY DIRECT, * * *.'

WHILE THE ACT PROVIDES FOR AMORTIZATION WITHIN A PERIOD OF THIRTY YEARS, IT APPEARS THAT THE NEGOTIATIONS WITH THE CITY WERE ON A TWENTY YEAR BASIS, IT BEING ESTIMATED THAT ON THE BASIS OF THE RATES AGREED UPON THE AMORTIZATION COULD BE ACCOMPLISHED WITHIN THE SHORTER PERIOD.

THE CONTRACT RECITES AS FOLLOWS:

NOW THEREFORE, IN CONSIDERATION OF THE AGREEMENT HEREIN CONTAINED BETWEEN THE CITY AND THE GOVERNMENT, THE GOVERNMENT WILL CONSTRUCT A PURIFICATION PLANT, AND THE CITY WILL MAINTAIN AND OPERATE THE ENTIRE WATER SUPPLY SYSTEM, INCLUDING BOTH THE EXISTING PLANT OWNED BY THE CITY AND THE PURIFICATION PLANT AND APPURTENANCES TO BE CONSTRUCTED BY THE GOVERNMENT, AND WILL SUPPLY ALL WATER REQUIRED FOR THE OPERATION OF THE UNITED STATES SOUTHWESTERN REFORMATORY, THE GOVERNMENT AGREEING TO PURCHASE FROM THE CITY ALL WATER REQUIRED FOR USE OF SAID UNITED STATES SOUTHWESTERN REFORMATORY EXCEPT CERTAIN WATER USED IN FARM OPERATION AND BOTH PARTIES AGREEING THAT THE PROVISIONS AS TO RATES OF PAYMENT SET FORTH HEREIN SHALL BE ACCEPTED AS BEING IN COMPLIANCE WITH THE REQUIREMENTS OF THE ACT MAKING APPROPRIATIONS FOR THE DEPARTMENT OF JUSTICE FOR THE FISCAL YEAR 1939, APPROVED APRIL 27, 1938, TO THE EFFECT THAT "THE CITY SHALL BE OBLIGATED TO FURNISH A SATISFACTORY WATER SUPPLY AT SUCH RATES AS COMPARED WITH EXISTING RATES AS WILL ACCOMPLISH THE AMORTIZATION WITHIN A PERIOD OF TWENTY (20) YEARS OF THE COST OF SUCH CONSTRUCTION" UNDER THE FOLLOWING PROVISIONS AND CONDITIONS:

ARTICLES IV AND X PROVIDE AS FOLLOWS:

ARTICLE IV. IN CONSIDERATION OF THE INVESTMENT BY THE GOVERNMENT IN THE PURIFICATION PLANT AND THE COOPERATIVE ARRANGEMENT HEREIN SET FORTH, THE CITY SHALL FURNISH WATER TO THE GOVERNMENT AT THE FOLLOWING RATES:

FOR THE FIRST TWO MILLION (2,000,000) GALLONS CONSUMED PER MONTH, TEN CENTS (10 CENTS) PER THOUSAND GALLONS.

FOR THE NEXT THREE MILLIONS (3,000,000) GALLONS CONSUMED PER MONTH, EIGHT CENTS (8 CENTS) PER THOUSAND GALLONS.

FOR ALL OVER FIVE MILLION (5,000,000) GALLONS CONSUMED PER MONTH, SIX CENTS (6 CENTS) PER THOUSAND GALLONS. PROVIDED THAT, IN CASE THE CONSUMPTION BY THE GOVERNMENT EXCEEDS ONE HUNDRED MILLION (100,000,000) GALLONS PER ANNUM, A REVISION OF THE ABOVE RATES MAY BE REQUIRED BY EITHER PARTY, BUT SUCH REVISED RATES SHALL NOT RESULT IN AN AVERAGE COST PER THOUSAND GALLONS TO THE GOVERNMENT IN EXCESS OF THE AVERAGE COST OBTAINED IN COMPUTING ONE-TWELFTH ( 1/12TH) OF ONE HUNDRED MILLION GALLONS AT THE ABOVE RATES.

ARTICLE X. THE TERMS OF THIS AGREEMENT SHALL COMMENCE ON THE 16TH DAY OF JULY, 1938, BUT THE CITY SHALL NOT BE REQUIRED TO FURNISH WATER AT THE RATES SPECIFIED UNTIL THE PLANT TO BE CONSTRUCTED BY THE GOVERNMENT HAS BEEN COMPLETED AND IS READY FOR OPERATION. UNTIL THAT TIME THE RATES PROVIDED IN CONTRACT DATED AUGUST 1, 1932, AND SUPPLEMENTS THERETO, SHALL APPLY. THIS AGREEMENT SHALL CONTINUE IN FORCE FROM YEAR TO YEAR WITHOUT FURTHER NOTICE FOR A PERIOD OF TWENTY (20) YEARS FROM THE DATE THE PURIFICATION PLANT IS PUT INTO OPERATION. IT SHALL BE UNDERSTOOD, HOWEVER, THAT THESE PROVISIONS DO NOT OBLIGATE ANY APPROPRIATION UNTIL AFTER THE DATE OF ITS AVAILABILITY.

ORIGINALLY, IT APPEARS THAT THE CITY CONCEDED THAT IT WAS "STRUCK WITH THE SITUATION UNTIL AUGUST 1960, OR THE TERMINATION OF THE 20-YEAR PERIOD UNDER WHICH CONTRACT WAS MADE.' SUBSEQUENTLY, HOWEVER, THE CITY ADOPTED THE VIEW THAT NOTWITHSTANDING THE TERM OF TWENTY YEARS AS SPECIFIED IN THE CONTRACT THE TERM WOULD TERMINATE AUTOMATICALLY AT SUCH TIME AS THE TOTAL DIFFERENCE BETWEEN THE PAYMENTS ACTUALLY MADE BY THE BUREAU AND THE EXISTING RATES PREVAILING AT THE DATE OF THE CONTRACT, NAMELY, 11 1/4 CENTS PER 100 CUBIC FEET OF WATER, EQUALED $86,600. AS OF FEBRUARY 20, 1958, THE CITY, BASED UPON THE ABOVE FORMULA, FOUND THAT THE PLANT HAD BEEN OVERAMORTIZED BY $22,444.75. THE BUREAU, ON THE OTHER HAND CONTENDS THAT, EVEN IF IT BE CONCEDED THAT THE CITY'S THEORY IS CORRECT, THE PLANT HAS NOT BEEN AMORTIZED SINCE THE CITY IN COMPUTING THE AMOUNT OF ITS CLAIM FAILED TO TAKE INTO CONSIDERATION THE ENGINEER'S SALARY PAID BY THE GOVERNMENT, MAINTENANCE AND OPERATION EXPENSES IN EXCESS OF $500 PER ANNUM AND REPAINTING THE WATER TANK IN 1953 AT A COST OF $1,135. AS TO THESE LATTER ITEMS THE CITY CONTENDS THEY REPRESENT OPERATING ACCOUNTS AND THEREFORE THEY ARE NOT CHARGEABLE AS CAPITAL INVESTMENTS.

THE EFFECT OF THE ABOVE-QUOTED STATUTE IS MERELY TO REQUIRE A CONTRACT UNDER WHICH THE CITY WILL BE OBLIGATED TO FURNISH A SATISFACTORY WATER SUPPLY AT SUCH RATES AS COMPARED WITH EXISTING RATES AS WILL ACCOMPLISH AMORTIZATION OF THE COST OF CONSTRUCTION IN A PERIOD NOT LONGER IN TIME THAN THIRTY YEARS OR, TO PUT IT ANOTHER WAY, NOT LATER THAN THIRTY YEARS FROM THE EFFECTIVE DATE OF THE CONTRACT. THE STATUTE MERELY SPECIFIES A PERIOD WITHIN WHICH THE AMORTIZATION SHALL BE ACCOMPLISHED. IT GOES NO FURTHER. NOTHING IS CONTAINED IN THE STATUTE OR THE LEGISLATIVE HISTORY WHICH MAY BE REGARDED OR CONSTRUED AS EVINCING ANY INTENTION THAT THE TERM OF THE CONTRACT SHOULD TERMINATE IN THE EVENT OF COMPLETION OF AMORTIZATION PRIOR TO THE STIPULATED TERM OF THE CONTRACT. NOR IS THERE ANY SHOWING THAT THE PARTIES AT THE TIME OF EXECUTING THE CONTRACT HAD ANY SUCH INTENTION. ON THE CONTRARY, ARTICLE X SHOWS A CLEAR PURPOSE THAT THE CONTRACT TERM SHOULD CONTINUE FOR A FIXED TERM OF TWENTY YEARS EVEN IF AMORTIZATION SHALL HAVE BEEN COMPLETED PRIOR THERETO. ARTICLE X EXPRESSLY PROVIDES THAT THE CONTRACT "SHALL CONTINUE IN FORCE FROM YEAR TO YEAR WITHOUT FURTHER NOTICE FOR A PERIOD OF TWENTY (20) YEARS FROM THE DATE THE PURIFICATION PLANT IS PUT INTO OPERATION," THAT IS TO SAY, TWENTY YEARS FROM AUGUST 20, 1940, TO AUGUST 20, 1960. THEREFORE, EVEN IF IT BE CONCEDED THAT AMORTIZATION OF THE CONSTRUCTION COST OF THE PLANT NOW HAS BEEN ACCOMPLISHED AS CONTENDED FOR BY THE CITY, THE CONTRACT MAY NOT BE TERMINATED BY THE CITY PRIOR TO THE END OF THE TERM IN THE ABSENCE OF SOME NEW OR ADDITIONAL CONSIDERATION MOVING TO THE UNITED STATES.

IT MAY BE TRUE THAT THE INCREASED WATER CONSUMPTION AT THE REFORMATORY AND THE INCREASED PRODUCTION COSTS SINCE THE EXECUTION OF THE CONTRACT ARE OPERATING TO THE DISADVANTAGE OF THE CITY, BUT THESE FACTORS MAY NOT BE REGARDED AS VESTING ANY ADDITIONAL RIGHTS IN THE CITY, NOT PROVIDED FOR IN THE CONTRACT. INCREASED COSTS OF PERFORMANCE, WHETHER FORESEEN OR UNFORESEEN, ARE ONE OF THE HAZARDS OF A CONTRACT WHICH NEITHER EXCUSES NONPERFORMANCE NOR ENTITLES THE CONTRACTOR TO ADDITIONAL COMPENSATION. WAS OBSERVED BY THE COURT OF CLAIMS IN THE CASE OF SATTERLEE ADMX. UNITED STATES, 30 C.1CLS. 31,"* * * IF A PARTY ENGAGES TO DO SOMETHING AND FAILS TO PROVIDE AGAINST CONTINGENCIES, THE NONPERFORMANCE IS NOT EXCUSED BY A CONTINGENCY NOT FORESEEN AND WHICH BY ITS CONSEQUENCE INCREASES THE COST AND DIFFICULTY OF PERFORMANCE.'

SINCE THE CONTRACT CONTAINS NO PROVISION FOR TERMINATION OR MODIFICATION IN THE EVENT OF COMPLETION OF AMORTIZATION PRIOR TO THE EXPIRATION OF THE CONTRACT TERM, THERE IS NO LEGAL BASIS FOR PAYMENT OF WATER RATES IN EXCESS OF THE RATES STIPULATED IN ARTICLE IV OF THE CONTRACT DURING THE CONTRACT TERM WHICH BY THE EXPRESS PROVISION IN ARTICLE X WILL CONTINUE IN FORCE UNTIL AUGUST 20, 1960.

ACCORDINGLY, IN OUR OPINION THERE IS NO AUTHORITY OF LAW FOR PAYMENT OF THE CITY'S CLAIM FOR THE ADDITIONAL AMOUNT OF $22,444.75 STATED TO BE DUE AS OF FEBRUARY 20, 1958.