B-164070, JUN. 7, 1968

B-164070, JUN. 7, 1968

TO MR. J. E. PERRY:

WE HAVE YOUR LETTER OF APRIL 11, 1968, READING IN PART AS FOLLOWS: "THERE HAS BEEN PRESENTED TO ME FOR CERTIFICATION AND PAYMENT THE ENCLOSED VOUCHER IN THE AMOUNT OF $449,098.00 IN FAVOR OF THE PENNSYLVANIA TRANSFORMER DIVISION, MCGRAW-EDISON COMPANY. THIS VOUCHER REPRESENTS THE CLAIM OF THIS COMPANY FOR THE BALANCE OF THE PURCHASE PRICE FOR AUTOTRANSFORMERS DELIVERED TO THE GOVERNMENT IN APRIL OF 1967. "THE BONNEVILLE POWER ADMINISTRATION CONTRACTED WITH THE PENNSYLVANIA TRANSFORMER DIVISION, MCGRAW-EDISON COMPANY, UNDER COMPETITIVE BID FOR THE PURCHASE OF THREE 500 KV AUTOTRANSFORMERS, CERTAIN SPARE PARTS AND SERVICES OF AN INSTALLATION ENGINEER. TOTAL CONTRACT PRICE WAS IN THE AMOUNT OF $634,840. NOTICE OF AWARD WAS MAILED TO PENNSYLVANIA TRANSFORMER DIVISION ON OCTOBER 9, 1963. THE CONTRACT REQUIRED DELIVERY OF THE TRANSFORMERS ORDERED THEREUNDER WITHIN 600 DAYS. DELIVERY DATE WAS THUS ESTABLISHED AS JUNE 1, 1965. ACTUAL FINAL DELIVERY OF THE LAST OF THE THREE TRANSFORMERS WAS COMPLETED IN APRIL OF 1967, ALMOST TWO YEARS LATE. "THE CONTRACT CONTAINS NO LIQUIDATED DAMAGES CLAUSE BUT DOES INCLUDE STANDARD FORM 32, SEPTEMBER 1961 EDITION, GENERAL PROVISIONS (SUPPLY CONTRACT) WHICH SPECIFICALLY RESERVES TO THE GOVERNMENT ANY OTHER RIGHTS AND REMEDIES PROVIDED BY LAW. "THE TRANSFORMERS ORDERED UNDER THIS CONTRACT WERE FOR INSTALLATION AT BONNEVILLE'S VANTAGE SUBSTATION FOR INTEGRATION OF PRODUCTION FROM THE WASHINGTON PUBLIC POWER SUPPLY SYSTEM'S HANFORD NUCLEAR PLANT. BONNEVILLE HAD PURCHASED THE ENTIRE OUTPUT OF THIS GENERATING PLANT UNDER A -TAKE OR PAY- TYPE CONTRACT WHICH REQUIRED PAYMENT OF AN AGREED AMOUNT WITHOUT REGARD TO THE AMOUNT OF POWER GENERATED. THE HANFORD PLANT WAS SCHEDULED FOR INITIAL OPERATION IN THE SPRING OF 1965. THESE TRANSFORMERS WERE REQUIRED FOR INTEGRATION OF THE OUTPUT INTO THE COORDINATED NORTHWEST HYDROELECTRIC TRANSMISSION GRID. WITHOUT THEM THE OPERATION OF THE GENERATING PLANT WAS LIMITED TO THE MAXIMUM ELECTRICAL CAPACITY OF THE EXISTING TRANSMISSION SYSTEM AND AVAILABLE TRANSFORMERS, THIS BEING 230 KV (400 MEGAWATT) AND 345 KV (600 MEGAWATT) OPERATION. "DURING THE PERIOD FROM 1965 UNTIL 1967 THE PACIFIC NORTHWEST EXPERIENCED THE MOST CRITICAL WATER AND POWER SITUATION IN OVER 15 YEARS. IN AUGUST OF 1966 THE BONNEVILLE POWER ADMINISTRATION WAS REQUIRED TO NOTIFY ITS INDUSTRIAL CUSTOMERS THAT INTERRUPTIBLE POWER WOULD BE CURTAILED. INTERRUPTIBLE LOADS WERE DROPPED FROM AUGUST 26, 1966 UNTIL NOVEMBER 14, 1966. DURING THIS PERIOD OF TIME THE GENERATION OF THE HANFORD NPR WAS UTILIZED TO THE FULLEST EXTENT POSSIBLE IN THE ABSENCE OF THE PENNSYLVANIA 500 KV TRANSFORMERS. ,ON THE BASIS OF ACTUAL PRODUCTION RECORDS, BONNEVILLE'S POWER OPERATIONS BRANCH HAS DETERMINED THAT IT SUFFERED A LOSS IN INDUSTRIAL SALES OF $899,414. THIS FIGURE HAS BEEN DERIVED BY SUBTRACTING ACTUAL PLANT GENERATION FROM ACTUAL PLANT CAPABILITY HAD THE 500 KV TRANSFORMERS ORDERED UNDER THIS CONTRACT BEEN INSTALLED. IT IS BASED ON 2.03 MILLS PER KILOWATT HOUR, BONNEVILLE'S AVERAGE INDUSTRIAL SALES PRICE, AND ALLOWS CREDIT FOR AVERAGE LINE LOSS AND CONSIDERS INCREMENTAL PRODUCTION COSTS. IT IS THE OPINION AND BELIEF OF THE RESPONSIBLE ENGINEERS WITHIN BONNEVILLE THAT EVERY ADDITIONAL KILOWATT WHICH COULD HAVE BEEN GENERATED DURING THE 78 DAY PERIOD WOULD HAVE BEEN SOLD. THE FAILURE TO USE THE HANFORD PLANT TO CAPACITY WAS DUE SOLELY TO THE ABSENCE OF 500 KV TRANSFORMATION AT THE VANTAGE SUBSTATION.'

ON THE FACTS STATED, YOU REQUEST OUR DECISION AS TO WHETHER YOU MAY PROPERLY CERTIFY A VOUCHER FOR ANY AMOUNT UNTIL SUCH TIME AS THE AMOUNT RECOVERABLE FROM THE CONTRACTOR IS FINALLY DETERMINED, AND IF SO, WHAT AMOUNTS, IF ANY, SHOULD BE WITHHELD.

IT IS STATED IN YOUR LETTER THAT THE LOSS IN INDUSTRIAL SALES OF $899,414 WAS DETERMINED ON THE BASIS OF ACTUAL PRODUCTION RECORDS, AND THAT TO MITIGATE DAMAGES THE GOVERNMENT CONSTRUCTED A TEMPORARY BY-PASS AT VANTAGE WHICH ENABLED IT TO USE ANOTHER 500 KV LINE WHICH WAS ENERGIZED ON NOVEMBER 23, 1966. THE NET COST OF THIS BY-PASS WAS FIXED AT $8,848, THEREBY ESTABLISHING CLAIMED DAMAGES IN THE AMOUNT OF $908,262 AS THE RESULT OF THE CONTRACTOR'S BREACH OF CONTRACT. IN ADDITION, YOU SAY THE CLAIMANT HAS EXPLICIT CONTRACTUAL LIABILITY FOR COSTS OF REPLACEMENT OF A LIGHTNING ARRESTER AND PARTS IN AN ESTIMATED AMOUNT OF $6,000 (WHICH COSTS APPARENTLY WILL BE FINALIZED UPON COMPLETION OF THE REPLACEMENT WORK), THEREBY MAKING A TOTAL LIABILITY BY THE CONTRACTOR TO THE GOVERNMENT OF APPROXIMATELY $914,262. YOU STATE THAT WHILE YOU ARE AWARE OF THE LONG LINE OF AUTHORITIES CONCERNING THE GOVERNMENT'S RIGHT TO SET OFF FROM AMOUNTS IT OWES A CONTRACTOR THE AMOUNT OF A LIQUIDATED CLAIM OF THE GOVERNMENT AGAINST SUCH CONTRACTOR, AND ALSO THE OBLIGATION OF ACCOUNTABLE OFFICERS TO EFFECT REASONABLE WITHHOLDINGS OF FUNDS TO PROTECT THE GOVERNMENT'S INTERESTS, IN THE INSTANT CASE NONE OF THE GOVERNMENT'S CLAIMS IS LIQUIDATED IN THE SENSE THAT IT IS FOR AN AMOUNT CERTAIN, AGREED TO BY THE CONTRACTOR OR SUPPORTED BY FINAL ADMINISTRATIVE DECISION OR LEGAL JUDGMENT.

THE CONTRACTOR HAS CONTENDED THAT HIS FAILURE TO MEET THE SPECIFIED DELIVERY DATE WAS OCCASIONED BY CAUSES WHICH ARE EXCUSABLE UNDER THE CONTRACT, BUT THE CONTRACTING OFFICER HAS FOUND, BY DECISION DATED JANUARY 9, 1968, THAT THE DELAY WAS NOT EXCUSABLE. WHILE THAT DECISION HAS BEEN APPEALED BY THE CONTRACTOR, WE FIND NO COMPELLING REASON IN THE RECORD FOR THE TAKING OF ADMINISTRATIVE ACTION NOT IN CONSONANCE WITH THE CONTRACTING OFFICER'S DECISION UNTIL SUCH TIME AS THAT DECISION IS ACTUALLY OVERRULED OR MODIFIED BY THE DEPARTMENT OF THE INTERIOR BOARD OF CONTRACT APPEALS OR A COURT OF COMPETENT JURISDICTION.

ACCORDINGLY, ON THE BASIS OF THE INFORMATION PRESENTED YOU SHOULD, PENDING FINAL DECISION ON THE CONTRACTOR'S APPEAL, CONTINUE TO WITHHOLD FROM THE BALANCE DUE UNDER THE CONTRACT SUCH AMOUNT THEREOF AS MAY BE NECESSARY TO COVER THE GOVERNMENT'S REASONABLE ESTIMATE OF DAMAGES RESULTING FROM THE DELAY.

IN THIS CONNECTION, WE BELIEVE THAT THE GOVERNMENT'S ACTUAL LOSS WHICH WOULD RESULT FROM DELAY IN DELIVERY OF THE TRANSFORMERS IS THE KIND OF DAMAGE WHICH WAS REASONABLY FORESEEABLE AND SHOULD BE CONSIDERED TO HAVE BEEN CONTEMPLATED BY THE PARTIES.

HOWEVER, THE RULE APPEARS TO BE THAT THE MEASURE OF DAMAGES FOR DELAY IN FURNISHING MACHINERY OR EQUIPMENT, IN THE ABSENCE OF A RENTAL VALUE FOR THE USE OF SIMILAR EQUIPMENT IF AVAILABLE, IS THE LOSS OF PROFITS DURING THE PERIOD OF DELAY. SEE RESOLUTE INSURANCE CO. V PERCY JONES, INC., 198 F.2D 309, AND AUTHORITIES THERE CITED. SINCE IT IS STATED IN YOUR LETTER THAT THE BONNEVILLE POWER OPERATIONS BRANCH HAS DETERMINED THAT IT SUFFERED A LOSS IN INDUSTRIAL SALES IN THE AMOUNT OF $899,414, WE ARE UNABLE TO JUDGE WHETHER THAT FIGURE REPRESENTS LOST PROFITS WITHIN THE MEANING OF THE RULE SET OUT ABOVE, ALTHOUGH IT IS STATED THAT CREDIT WAS ALLOWED FOR AVERAGE LINE LOSSES AND CONSIDERATION WAS GIVEN TO INCREMENTAL PRODUCTION COSTS. IF THERE BE ANY DOUBT AS TO WHETHER THE POWER OPERATIONS BRANCH'S ESTIMATE COULD BE EXPECTED TO BE ACCEPTED BY A COURT OF COMPETENT JURISDICTION AS A REALISTIC ESTIMATE OF PROFITS ON THE LOST SALES, WE SUGGEST THAT THE ESTIMATE BE REVIEWED AND RECOMPUTED, IF NECESSARY.