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decreases in freight charges paid to private lines would not be consequent upon changes in rates prevailing on the Panama Railroad or the Panama Railroad Steamship Line." [Italics supplied.]
Your decision indicates that the question presented for your consideration was whether the provision of paragraph GC-46 of the General Conditions made part of the Army contracts could be interpreted in such a fashion as to permit adjustment of payments to such contractors on the basis of fluctuation in the rates of the Panama Railroad Steamship Line even though the shipment was made over a private steamship line. Concededly, such an interpretation of the language used would be improper in a case involving shipment over a private line where the rates of that line bear no relation to the rates on the Panama Railroad Steamship Line. However, the italicized portion of the excerpt from your decision quoted above indicates the possibility that not all of the facts with reference to the rates "prevailing" on the Panama Railroad Steamship Line were before you at the time that decision was made. I therefore wish to call to your attention the following additional facts.
The Panama Railroad Steamship Line, hereinafter called the Panama Line, has no south-bound freight rates prevailing as rates of the line. On the contrary, the Panama Railroad Company, which owns and operates the Panama Line is a member of the conference known as the Atlantic & Gulf/Panama Canal Zone, Colon & Panama City Conference. This conference is made up of the Panama Line, Grace Line, Lykes Bros. Steamship Company, Quaker Line, Standard Fruit and Steamship Company, United Fruit Company, and States Steamship Company. It is believed that these companies operate all the steamship lines running vessels of American registry on regular schedules from New York or Gulf ports to the Canal Zone. The members of this conference have adopted a conference tariff which is the schedule of rates prevailing not only on the Panama Line, but on all of the other named lines so far as concerns shipments from New York or from Gulf ports to the Canal Zone. The rate is the same whether the cargo is carried from New York or from Gulf ports. There is only the one schedule applicable to all the member lines.
Under the circumstances, it is believed that the provision here in question might well be interpreted to permit the adjustment of contract payments on the basis of fluctuation in the conference rate prevailing on the Panama Line as well as the lines operated by the other companies belonging to the same conference in any case where the particular shipment involved was carried by any member of the conference.
The interest of the Panama Canal in this matter arises from the fact that there is included in several Panama Canal contracts for third locks work a provision identical to the provision in paragraph GC-46 here in question which provision is inserted as a subparagraph in a paragraph entitled "Services and supplies furnished by the Government." Admittedly, the title of the whole paragraph militates in favor of the narrow construction of the subparagraph as set forth in your decision of November 14th. However, it is thought that the factual basis hereinabove set out, when considered in connection with the wording of the subparagraph itself, justifies the broader interpretation herein contended for. We do not, of course, contend that any adjustment in payment can be made on the basis of fluctuation of freight rates when shipment is made by lines other than those operated by members of the Atlantic & Gulf/Panama Canal Zone, Colon & Panama City Conference since the rates prevailing on such outside lines would have no relation to those prevailing on the Panama Line.
In view of the foregoing, it is respectfully requested that you review your decision of November 14, 1940, in the light of the further facts herein set out and advise as to whether the Panama Canal may make adjustment of payments to contractors under certain of its third locks contracts on the basis of fluctuation in freight rates prevailing on the Panama Line and all other lines operated by the members of the same conference whenever shipments are made by the vessels of any of those lines.
In the event that you do not deem the additional facts herein presented suffielent to warrant a departure from your decision of November 14, 1940, it is respectfully requested that you advise as to whether contracting officers may, under Article 3 of the Standard Form of Construction Contract (U. S. Standard Form No. 23) issue a change order substituting for the subparagraph referred to herein, the following:
"It is understood and agreed that the contractor's bids are based in part upon the freight rates prevailing on the Panama Railroad at the time the award is
made and that if such rates are changed at any time during the life of the contract, thereafter each monthly or other periodic or final payment to the contractor shall be increased or decreased in the amount of any consequent increased or decreased cost for freight due to increase or decrease in the freight rates actually paid by the contractor for shipments on account of the contract during the period to which said payment applies.
"By the submission of a bid hereunder and its acceptance by the Panama Canal it is agreed that if any increase or decrease in the ocean freight rates applicable to the articles, materials, supplies, or equipment furnished is made by the Steamship Conference operating in the trade involved, or is prescribed by the United States Maritime Commission, the contract price will be increased or decreased accordingly: Provided, That any such increase in the contract price shall not be more than the amount by which the ocean freight charges actually paid exceed the ocean freight charges based on Steamship Conference rates in effect on date of opening of bids: And provided further, That delay in payment of the amount representing any such increase shall not affect the right of the Panama Canal to prompt payment discount on the remainder of the contract price."
The first of the two paragraphs quoted above, which it is proposed to substitute for the adjustment paragraph now contained in certain third locks contracts, is identical to that paragraph except that there have been deleted therefrom the words "and the Panama Steamship Line."
The second of the two paragraphs is intended to take care of the fluctuation in steamship rates whether the transportation be over the Panama Line or any other line. This second paragraph was considered by the Acting Comptroller General in his decision of March 6, 1940, B-8744, in which he stated that your office would have no objection to the insertion of that paragraph in contracts to which it might be applicable.
In view of the present conditions in ocean carriage, particularly the congestion existing at various ports and the lack of sufficient ships to carry the cargo offered, it is considered to be in the Government's interest to make this change. In other words, it is believed that the Government would benefit from such a change for the reason that it would remove any incentive for contractors engaged on defense projects in the Canal Zone to attempt to have all their materials and supplies transported over the Panama Line merely in order to secure an adjustment in the amount of payment due them consequent upon a raise in freight rates. As your office is no doubt aware, the Panama Line cannot carry expeditiously all the cargo which is now destined to the Canal Zone from the port of New York.
The question of adjustments to compensate for fluctuations in freight rates applicable to contracts involving deliveries to the Canal Zone first was considered by this office in the Acting Comptroller General's decision of March 6, 1940, B-8744, rendered at the request of the then Chief of Office of the Panama Canal. As stated in the Acting Governor's letter, the provision considered in that decision was identical with the second grammatical paragraph of the provision now suggested by the Acting Governor for inclusion by change order in
No attempt was made, in the decision of March 6, 1940, to interpret the effect of the provision there considered, and it was held merely that this office would not object to the inclusion of such provision in contracts to which it might be applicable. It is noted, however, that the submission by the Panama Canal in that instance contained this statement:
Most of the shipments involved will be made by lines governed by steamship conferences. However, it is likely that some of the shipments will be made by tramp steamers, which makes necessary the first proviso of the proposed specification provision
It appears, therefore, that the provision considered in the decision of March 6, 1940, was drawn to provide for adjustments in freight rates on ocean shipments moving by the Panama Railroad Steamship Line, by other conference lines, or by tramp steamers, and I have no doubt that the provision would accomplish that result.
The question of adjustments in freight rates on shipments to the Canal Zone was next considered in my decision of November 14, 1940, in response to a request by the Secretary of War for interpretation of paragraph GC-46 of the General Conditions for Projects in the Panama Department, as revised March 18, 1940. That paragraph is quoted in the first paragraph of the Acting Governor's letter, and is stated to be identical with a provision inserted in current contracts of the Panama Canal, under the heading "Services and Supplies Furnished by the Government."
In my decision of November 14, 1940, to the Secretary of War, it was held that the provision in paragraph GC-46 authorized additional payments to contractors on account of increased freight rates only in those instances where shipments moved over the Panama Railroad or the Panama Railroad Steamship Line. As indicated by the excerpt quoted in the Acting Governor's letter, the decision was based, in part, upon the fact that the provision for adjustment was contained in a paragraph, the heading and context of which clearly related to services to be obtained from the Government or from Government agencies, thus affording a strong inference that the adjustment provision was intended to apply only when the services were so obtained. Also, the decision was based in part upon the fact that the provision relates to adjustment of freight costs "consequent" upon increased or decreased freight rates of the Panama Railroad or the Panama Railroad Steamship Line, and it was stated that increases or decreases in freight charges paid to private lines would not be consequent upon changes in rates prevailing upon the Panama Railroad or the Panama Railroad Steamship Line.
It is stated in the Acting Governor's letter of May 31, supra, that the rates prevailing on the Panama Railroad Steamship Line are fixed by the Atlantic & Gulf/Panama Canal Zone, Colon and Panama City Conference, and the view is expressed in said letter that increases or decreases in freight rates paid to any member of the conference are, in effect, consequent upon changes in rates prevailing upon the Panama Railroad Steamship Line. On that basis, it is suggested that the provision in question might be regarded as authorizing adjustment of freight rates where the shipment moves over any conference line, although it is conceded that adjustment would not be proper where shipment is not made by conference lines.
As admitted in the Acting Governor's letter, the insertion of the adjustment provision in a paragraph headed "Services and Supplies
Furnished by the Government" supports the construction that the freight adjustment provision is applicable only where the freight charges represent services furnished by the Government. The inference from the heading that such a construction was intended appears to be even stronger in the case of the Panama Canal contracts than under the War Department contracts considered in my prior decision, and, in itself, might well be considered sufficient to resolve any ambiguity apparent in the wording of the provision appearing under the heading.
Furthermore, it would appear that if it had been intended that the adjustment provision apply to shipments over any conference line, the provision would have been drawn to require that bids be based upon prevailing conference rates, rather than upon "rates prevailing on the Panama Railroad and the Panama Railroad Steamship Line." In this connection, it may be observed that the Secretary of War, in submitting the question which was answered in my decision of November 14, 1940, stated
that it was the in
The Constructing Quartermaster has explained tent of paragraph GC-46 of the General Conditions to restrict the application of revisions in freight rates, either upward or downward, to shipments made by contractors over the Panama Railroad and Panama Railroad Steamship Line. As will be shown hereinafter, a careful reading of this paragraph shows that this is the reasonable and logical interpretation of the express terms of this paragraph
In the request of the Panama Canal for decision as to the propriety of including in its contracts the provision which is now proposed to be included by change order in current contracts, nothing appeared to indicate that any provision for freight adjustments theretofore had been included in such contracts. It is assumed, therefore, that the provision which now appears in existing contracts and which is identical with paragraph GC-46 of the General Conditions for Projects in the Panama Department, as revised March 18, 1940, was not included in contracts of the Panama Canal prior to the Acting Comptroller General's decision of March 6, 1940. Since the provision which was approved in that decision clearly would authorize adjustment of freight rates regardless of the shipping line employed, it is not understood why that provision was abandoned and paragraph GC-46 adopted unless it was intended thereby to limit freight adjustments to cases where shipments moved via the Panama Line. While it is stated in the Acting Governor's letter that the member companies of the conference are believed to operate all of the steamship lines running vessels of American registry on regular schedules from New York or Gulf ports to the Canal Zone, it would seem likely from the above-quoted statement from the prior submission of the Panama Canal in this matter, that shipments under current contracts have been or will be made on tramp steamers. It does not
appear, therefore, that the adoption of the interpretation now suggested for paragraph GC-46, or for the provisions of current contracts of the Panama Canal which are identical therewith, would result in making the adjustment provision applicable to all ocean carriers which contractors might desire to employ, or which they might find it necessary to employ-in view of present congested shipping conditions-in order to make timely deliveries to the Canal Zone.
It appears from the foregoing that the questioned provision of paragraph GC-46 was drawn with the intention that the freight adjustment therein provided for should be made only when shipments move by the Panama Railroad or the Panama Railroad Steamship Line, and that the provision logically is susceptible of that interpretation whether considered with or apart from the headings under which it has been used both in contracts of the War Department and in contracts of the Panama Canal. I find nothing in the record to indicate that the provision was inserted in the contracts of the Panama Canal with the intent to provide for any other result than that which the wording of the provision impels. Accordingly, the interpretation of the freight-adjustment provision of paragraph GC-46 as set forth in my decision of November 14, 1940, B-13299, is adhered to, and what is said therein likewise applies to the same provision as used in the contracts of the Panama Canal.
Article 3 of the Standard Form of Contract No. 23 (Construction) contemplates that the contracting officer may make changes in the contract price when the specifications are so modified as to alter the contractor's obligations under the contract. As the terms of the contracts apparently permit ocean shipments by any means the contractors may select, and as the proposed change order also would leave the means of ocean shipments to the contractors' election, the change order would not effect such a change in the specifications as would authorize the contracting officer to provide for adjustment of the contract price under article 3 of the standard form contracts.
Contracting officers may, however, modify or amend existing contracts, and such modifications or amendments may include provisions for increasing payments to contractors, if the interests of the United States will be served thereby. See, generally, 18 Comp. Gen. 826. Cf. 20 Comp. Gen. 245, and authorities there cited. Such action presupposes, of course, that some new consideration will move to the United States as a result of the modification or amendment.
It appears that, as a result of the provisions of the contracts with respect to freight adjustments, contractors are delaying shipments to the Canal Zone until facilities of the Panama Line are available. In this respect, your letter of July 8, 1941, is in pertinent part as follows: