B-32254, MARCH 1, 1943, 22 COMP. GEN. 846

B-32254, MARCH 1, 1943, 22 COMP. GEN. 846

CONTRACTS - PRICE ADJUSTMENT - COMPUTATION OF PROMPT PAYMENT DISCOUNTS WHERE A CONTRACT FOR SUPPLIES PROVIDES THAT, AS CONSIDERATION FOR FURNISHING THE ARTICLES INVOLVED, THE CONTRACTOR SHOULD BE PAID THE TOTAL SUM SPECIFIED THEREIN, SUBJECT TO A DISCOUNT FOR PROMPT PAYMENT, BUT THE CONTRACT PRICE ITSELF IS SUBJECT TO REDUCTION WITH RESPECT TO SUCH OF THE ARTICLES AS ARE CONSIGNED FOR EXPORT SHIPMENT, THE DISCOUNT WITH RESPECT TO ARTICLES SO CONSIGNED MAY BE COMPUTED ON THE REDUCED CONTRACT PRICE, THAT IS, AFTER DEDUCTION OF THE EXPORT DIFFERENTIAL, RATHER THAN ON THE FULL CONTRACT PRICE, EVEN THOUGH THERE IS NO PROVISION TO THAT EFFECT IN THE CONTRACT.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF WAR, MARCH 1, 1943:

I HAVE YOUR LETTER OF FEBRUARY 3, 1943, AS FOLLOWS:

THERE HAS BEEN RECEIVED BY THE ORDNANCE DEPARTMENT FOR TRANSMITTAL TO YOUR OFFICE THE ENCLOSED INQUIRY FROM THE MORSE TWIST DRILL AND MACHINE COMPANY, FIXED PRICE CONTRACTORS WITH THE UNITED STATES FOR VARIOUS ITEMS OF TOOLING. THE LETTER OUTLINES DIFFICULTIES INCURRED BY THE MORSE TWIST DRILL AND MACHINE COMPANY BECAUSE OF THE FACT THAT THE METHOD AS TO HOW THE DISCOUNT QUOTED IN THESE TOOL CONTRACTS SHALL BE TAKEN IS IN QUESTION.

AT PRESENT THE PROCEDURE FOLLOWED BY THE MORSE TWIST DRILL AND MACHINE COMPANY IS TO PRESENT A CLAIM TO YOUR OFFICE FOR THE DIFFERENCE BETWEEN THE DISCOUNT AS DEDUCTED BY THE GOVERNMENT ON THE PRICE QUOTED FOR DOMESTIC SHIPMENTS, AND THE PRICE ARRIVED AT BY DEDUCTING THE EXPORT DIFFERENTIAL. THIS AMOUNT IS CLAIMED AFTER PAYMENT OF EACH PARTIAL SHIPMENT EFFECTED UNDER THE VARIOUS CONTRACTS. IT IS UNDERSTOOD THAT APPROXIMATELY TWENTY FIVE SUCH CLAIMS ARE NOW BEFORE YOUR OFFICE FOR DIRECT SETTLEMENT, AND OTHERS, ILLUSTRATED BY THE ENCLOSED CASE, ARE COMING IN. IT IS THE DESIRE OF THE WAR DEPARTMENT TO GET A DECISION FROM YOUR OFFICE RELATIVE TO SUCH CASES AND IN THIS WAY RELIEVE THE CONTRACTOR, THE CLAIMS SECTION OF YOUR OFFICE, AND THE ADMINISTRATIVE AND DISBURSING OFFICERS IN THE WAR DEPARTMENT, OF THE NECESSITY OF PREPARING SO MANY CLAIMS.

ATTENTION IS DIRECTED TO THE FACT THAT MORE THAN ONE CONTRACT IS INVOLVED, BUT SINCE ALL OF THE CONTRACTS HAVE A SIMILAR DISCOUNT PROVISION IT IS THOUGHT BEST TO PARTICULARIZE THE CASE USING CONTRACT NO. DA W 241- ORD-339, DATED MARCH 30, 1942 (ORIGINAL COPY TRANSMITTED TO WAR CONTRACT SECTION OF GENERAL ACCOUNTING OFFICE) WHICH CONTRACT IS THE ONE INVOLVED IN THE ILLUSTRATIVE CLAIM ENCLOSED HEREWITH.

UNDER THE TERMS OF THIS CONTRACT ( DA W 241-ORD-339) THE CLAIMANT AGREED TO FURNISH CERTAIN MACHINE TOOLS F.O.B. ORIGIN, NEW BEDFORD, MASSACHUSETTS (OR F.O.B. NEW YORK, NEW YORK, IN THE EVENT SHIPMENT FOR EXPORT IS DIRECTED TO SAID POINT), FOR A CONSIDERATION OF $165,943.98,LESS DISCOUNT OF 2 PERCENT, 20 DAYS, SUCH PRICE BEING PREDICATED ON THE ARTICLES BEING PACKED FOR DOMESTIC SHIPMENT.

THE CONTRACT FURTHER PROVIDES ( ARTICLE I--- PAYMENTS--- " SPECIAL PROVISIONS" (A) (, THAT IF THE ARTICLES WERE PACKED AND BOXED FOR SHIPMENT TO THE BRITISH COMMONWEALTH OF NATIONS (EXCLUSIVE OF CANADA) THE PRICE UNDER ITEM 2 WOULD BE REDUCED BY AN AMOUNT EQUAL TO 20 PERCENT OF THE CONTRACT PRICE FOR SUCH ARTICLES AS ARE SO CONSIGNED.

IN THOSE CASES WHERE MATERIAL IS CONSIGNED TO A FOREIGN GOVERNMENT THERE IS A REDUCTION IN THE CONTRACT PRICE TO THE EXTENT DISCUSSED IN THE PRECEDING PARAGRAPH AND THIS ACTION LEADS DIRECTLY TO THE QUESTION HERE INVOLVED, I.E., SHOULD THE DISCOUNT BE TAKEN ON THE PRICE QUOTED FOR DOMESTIC SHIPMENT, OR ON THE NET FIGURE ARRIVED AT BY DEDUCTING THE EXPORT DIFFERENTIAL FROM THE DOMESTIC PRICE?

THE WAR DEPARTMENT IN COMPUTING THE PAYMENT DUE HAS DEDUCTED 20 PERCENT OF THE GROSS DOMESTIC PRICE AS REPRESENTING THE EXPORT DIFFERENTIAL AND HAS DEDUCTED A FURTHER 2 PERCENT OF THE GROSS DOMESTIC PRICE AS REPRESENTING CASH DISCOUNT. INASMUCH AS THE WAR DEPARTMENT HAS COMPUTED THIS 2 PERCENT DISCOUNT ON THE DOMESTIC PRICE BEFORE DEDUCTING THE EXPORT DIFFERENTIAL, THE TOTAL DEDUCTION CONSTITUTES 22 PERCENT OF THE GROSS DOMESTIC PRICE. THE CONTRACTOR CONTENDS, HOWEVER, THAT IN COMPUTING THE CASH DISCOUNT THERE SHOULD BE DEDUCTED ONLY 2 PERCENT OF THE EXPORT PRICE, I.E., 2 PERCENT OF THE GROSS DOMESTIC PRICE AFTER DEDUCTION OF THE EXPORT DIFFERENTIAL. UNDER THIS METHOD OF COMPUTATION, THE TOTAL DEDUCTION WOULD BE ONLY 21.6 PERCENT OF THE GROSS DOMESTIC PRICE.

THE CONTRACTOR, IN SUPPORT OF ITS CONTENTION, CALLS ATTENTION TO THE FACT THAT THE DISCOUNT IS GIVEN FOR PROMPT CASH PAYMENT AND ARGUES THAT SINCE THE PAYMENT INVOLVED IS THE EXPORT PRICE AFTER DEDUCTION OF THE EXPORT DIFFERENTIAL THE 2 PERCENT SHOULD BE COMPUTED ON THAT AMOUNT. THE CONTRACTOR'S POSITION IS CORRECT FOR THE FURTHER REASON THAT THE CUSTOM OF ALLOWING DISCOUNT IS BASED ON THE THEORY THAT THE USE OF THE MONEY TIED UP IN A SHIPMENT WILL BE WORTH TO THE VENDOR THE AMOUNT OF THE DISCOUNT OFFERED. THIS VIEW APPEARS SUBSTANTIATED BY THE ACTION OF THE CLAIMS DIVISION OF YOUR OFFICE, WHICH DIVISION, IN A RECENT CERTIFICATE OF SETTLEMENT, NO. 10697313, DATED OCTOBER 1, 1942, ALLOWED UNDER SIMILAR CIRCUMSTANCES, THE CLAIMS OF THE GEOMETRIC TOOL COMPANY OF NEW HAVEN, CONNECTICUT FOR THE DISCOUNT ERRONEOUSLY TAKEN.

IN VIEW OF THE DOUBT THAT THIS CASTS UPON THE METHOD OF COMPUTATION USED BY THE WAR DEPARTMENT, AND IN VIEW OF THE FACT, AS ABOVE POINTED OUT, THAT A NUMBER OF SIMILAR CLAIMS ARE NOW PENDING BEFORE YOUR OFFICE, OR WILL SOON COME UP FOR TERMINATION IN THIS OFFICE, IT WOULD BE APPRECIATED IF YOUR OFFICE WOULD GIVE CONSIDERATION TO THIS PROBLEM AND RENDER A DECISION AS TO THE PROPER METHOD OF COMPUTING THE DISCOUNT UNDER THESE AND SIMILAR CONTRACTS WHICH CONTAIN SUCH AN EXPORT DIFFERENTIAL CLAUSE.

AS IS STATED IN YOUR LETTER, ARTICLE 1 OF CONTRACT NO. DA-W-241-ORD 339 PROVIDES THAT, AS CONSIDERATION FOR FURNISHING THE ARTICLES INCLUDED IN ITEM 2 THEREOF, THE CONTRACTOR SHALL BE PAID A TOTAL SUM OF $165,943.98 SUBJECT TO A DISCOUNT OF 2 PERCENT FOR PAYMENT WITHIN 20 DAYS DATE OF DELIVERY OF THE ARTICLES OR FROM THE DATE OF RECEIPT OF A PROPERLY PREPARED INVOICE, WHICHEVER IS THE LATER. HOWEVER, SAID ARTICLE 1 PROVIDES ALSO, AS FOLLOWS:

THE TOTAL PRICE IS TO BE DETERMINED AS FOLLOWS:

"/A)THE FULL CONTRACT PRICE SPECIFIED UNDER ITEM 2 HEREOF SHALL BE PAID FOR THE ARTICLES SET FORTH THEREIN: PROVIDED, HOWEVER, THAT IN THE EVENT THAT ANY ARTICLE OR ARTICLES ARE CONSIGNED TO ANY MEMBER OF THE BRITISH COMMONWEALTH OF NATIONS (EXCLUSIVE OF THE DOMINION OF CANADA), OR ANY AGENCY THEREOF, THE FULL CONTRACT PRICE SPECIFIED UNDER ITEM 2 SHALL BE REDUCED BY AN AMOUNT EQUAL TO 20 PERCENT OF THE CONTRACT PRICE FOR SUCH ARTICLES AS ARE SO CONSIGNED. * * *" HENCE, IT IS SEEN THAT WHILE THE CONTRACT PRICE FOR THE ARTICLES INCLUDED IN ITEM 2 IS SUBJECT TO A DISCOUNT OF 2 PERCENT FOR PAYMENT WITHIN 20 DAYS, THE CONTRACT PRICE ITSELF IS SUBJECT TO REDUCTION BY AN AMOUNT EQUAL TO 20 PERCENT THEREOF WITH RESPECT TO SUCH OF THE ARTICLES AS ARE CONSIGNED FOR EXPORT SHIPMENT AS SPECIFIED THEREIN. WHILE THE CONTRACT DOES NOT PROVIDE EXPRESSLY THAT IN MAKING PAYMENT FOR ARTICLES SO CONSIGNED, THE PERCENT DISCOUNT SHALL BE TAKEN ON THE ADJUSTED PRICE, IT IS REASONABLE TO ASSUME THAT SUCH WAS THE INTENTION OF THE PARTIES IN VIEW OF THE EXPRESS PROVISION FOR ADJUSTMENT OF THE CONTRACT PRICE IN THE EVENT ANY OF THE ARTICLES WERE CONSIGNED FOR EXPORT SHIPMENT. SEE 18 COMP. GEN. 784.

ACCORDINGLY, YOU ARE ADVISED THAT IN MAKING FUTURE PAYMENTS FOR ARTICLES CONSIGNED FOR EXPORT SHIPMENT UNDER THE INSTANT CONTRACT OR OTHER CONTRACTS CONTAINING SIMILAR PROVISIONS, THE DISCOUNT SHOULD BE COMPUTED ON THE REDUCED CONTRACT PRICE PAYABLE FOR SUCH SHIPMENTS.

BUREAU VOUCHER NO. 43-5058 IN THE AMOUNT OF $14.85, IN FAVOR OF THE MORSE TWIST DRILL AND MACHINE COMPANY, WHICH WAS FORWARDED WITH YOUR LETTER OF FEBRUARY 3, AND WHICH REPRESENTS A CLAIM FOR REFUND OF DISCOUNT DEDUCTED IN MAKING PAYMENT UNDER CONTRACT NO. DA-W-241-ORD 339, SUPRA, WILL BE RETAINED IN THIS OFFICE FOR DIRECT SETTLEMENT AS A CLAIM AS REQUESTED BY THE DISBURSING OFFICER.