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On March 23, 1943, the question was presented to the Comptroller General of the United States for determination as to whether or not the reason claimed by the contractor, namely, shortage of labor, was sufficient to afford the Morgan Creamery Co. relief from the excess costs incurred by the Government in the purchase of milk, cream, buttermilk, and cottage cheese for the period of default. November 1, 1942, to June 30, 1943. There is enclosed copy of a decision rendered by the Comptroller General of the United States on April 2, 1943 (B-33352), in which he stated that there was no legal basis for relieving the contractor of any liability for the excess costs incurred by the Government due to default in the matter. On April 7, 1943, the contractor was advised of the Comptroller General's decision and informed that it would be necessary for him to reimburse the Government for any excess costs incurred.

There was due the Morgan Creamery Co. the sum of $395.37 for deliveries made to the Veterans Administration by that company under the contract for the period July 1, 1942, to October 31, 1942, and a voucher in favor of the Morgan Creamery Co. in that amount has been applied against the total indebtedness of the company under its contract amounting to $920.64, leaving a balance of $525.27 representing excess costs due and yet to be collected from the contractor.

The bill, H. R. 4224, would permit payment of $920.64 to the Morgan Creamery Co. in full settlement of all claims against the United States, as part of the excess cost alleged to have been incurred by the United States by reason of the failure of said company to perform its contract. It will be noted that the $920.64 wbich would be payable under the provisions of the bill includes $525.27, which is still owing to the United States.

It is suggested if further consideration is to be given H. R. 4224, that the hill be revised so as to relieve the Morgan Creamery Co. of its liability of $920.64 as the excess costs to the United States by reason of the failure of the Morgan Creamery Co. to perform its part of the contract, and authorize and direct the Comptroller General of the United States to settle its liability on that basis.

In view of the fact that settlement of the claim in this case is a matter under the jurisdiction of the Comptroller General of the United States, your committee may desire to secure his comments on the merits of the bill.

For the reasons stated in the decision of the Comptroller General, the Veterans Administration is unable to recommend favorable consideration of the bill.

Advice has been received from the Bureau of the Budget that there would be no objection by that office to the submission of this report to your committee. Very truly yours,

Frank T. HINES, Administrator.

GENERAL ACCOUNTING OFFICE,

Washington, February 29, 1944. Hon. Dan R. McGEHEE, Chairman, Committee on Claims,

House of Representatives. MY DEAR MR. CHAIRMAN: Further reference is made to your letter of February 23, 1944, acknowledged February 24, requesting a report on H. R. 4224, Seventy-eighth Congress entitled, “A bill for the relief of the Morgan Creamery Company," which bill provides, in pertinent part, as follows:

"That the Secretary of the Treasury be, and he is hereby, authorized and directed to pay, out of any money in the Treasury not otherwise appropriated, the sum of $920.64, to the Morgan Creamery Company, of Fargo, North Dakota, in full settlement of all claims against the United States as part of the excess cost alleged to have been incurred by the United States by reason of the failure of the Morgan Creamery Company to perform under contract numbered VA37r-935, entered into on June 25, 1942, with the United States Veterans' Administration to deliver fresh milk, cream,' buttermilk, and cottage cheese to the Veterans' Administration facilities, Fargo, North Dakota, during the fiscal year ended June 30, 1943

Under date of June 2, 1942, the Veterans Administration facility, Fargo N. Dak., issued invitations for bids for furnishing five items of dairy products during the period beginning July 1, 1942, and ending July 31, 1942, September 30, 1942, December 31, 1942, or June 30, 1943, as might be determined by the Veterans Administration at the time of acceptance. The bid of the Morgan Creamery Co. for delivery during the 12-month period ending June 30, 1943, was accepted on June 25, 1942. No provision was made in the invitation, bid or acceptance for termination, by either party, of the contract thus formed, upon the giving of 30 days' notice in writing.

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It appears that the contractor made deliveries under the contract for the period from July 1, 1942, to September 30, 1942, and that on the latter date he notified all his customers, including the manager of the Veterans Administration facility at Fargo that he was closing his creamery plant as of September 30, 1942, because of a labor shortage in that community. However, for a period of 30 days there after, or during the month of October 1942, deliveries were made by the contractor through the Fairmont Creamery Co. Thereafter the facility obtained the required dairy products from other sources at a cost in excess of the prices at which the contractor had agreed to deliver them. The amount of excess costs incurred by the United States has been reported by the Veterans Administration as $920.64, although the presently available records of this office do not disclose whether this amount has been paid by the Morgan Creamery Co.

The matter of affording relief from liability for the excess costs incurred by the Government in the purchase of the dairy products required by the facility during the period November 1, 1942, to June 30, 1943, was submitted to this office by the Administrator of Veterans' Affairs and in a decision of April 2, 1943, B-33352 (22 Comp. Gen. 937), copy herewith, it was held that the reported facts afforded no legal basis for relieving the contractor of liability for the excess costs incurred by the Government. Subsequent thereto there was presented on behalf of the Morgan Creamery Co. additional evidence purporting to show that the contracting officer and Maxwell Morgan, former proprietor of said company, were mistaken as to the fact that the contract did not contain a cancelation clause giving to either party the right to cancel the same on 30 days' notice. The evidence furnished did not purport to show that the contract was entered into through error without including therein a cancelation clause but indicated merely that through error the contracting officer advised Mr. Morgan upon his request that the contract would be canceled without further obligation on the contractor's part. Of course, it is well settled that officers of the Government are not authorized to modify the terms of a contract by a substitute agreement if such modification is prejudicial to the interests of the United States and that no official of the Government is authorized to give away money, property, or any claim of the Government. Pacific Hardware and Steel Company v. United States (49 C. Cls. 327); Bausch & Lomb Optical Company v. United States (78 C. Cls. 584); American Sales Corporation v. United States (27 F. 2d 389, affirmed 32 F. 2d 141, certiorari denied, 280 U. S. 574). Thus, no liability may attach to the United States by reason of any unauthorized modification of a Government contract nor may any Government officer give away the right of the Government to demand performance of a contract and the right to damages, if any accrue in the event of default thereunder.

In conclusion it is desired to point out that the apparent purpose of inviting bids on an alternate basis as was done in this case, namely, for periods covering 30 days, 3 months, 6 months, and 12 months, was to afford prospective bidders an opportunity to protect themselves from the instability of the dairy-products market by bidding on a short-term delivery basis and when the contractor submitted a bid to deliver dairy products for the entire year—at a time when the United States had been engaged in war for over 6 months and when the labor problem arising from the needs of the military service and defense centers was presentit must be presumed that the risk incident to labor shortage was assumed by the contractor and may in nowise be classed as unforeseeable within the terms of the contract and for which the contractor was to be excused in the event of default.

Since the contractor was properly charged with the excess costs occasioned the United States by purchase elsewhere upon failure of the contractor to deliver under contract No. VA37r-935 this office does not recommend favorable action on the bill. Sincerely yours,

LINDSAY C. WARREN, Comptroller General of the United States.

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THE MORGAN CREAMERY Co.,

Fargo, N. Dak. To Whom It May Concern:

On or about September 25, 1942, I asked the veterans' facility supply office at Fargo, N. Dak., what would be necessary if I were to cancel my dairy contract.

They advised me I must give a written notice 30 days prior to stopping deliveries. It was explained to me that during these 30 days they could issue new contract invitations and a new bidder would be accepted.

On October 1, 1942, I sent a letter to all of my dairy customers, which included the veterans' facility at Fargo, N. Dak., stating that the manpower shortage caused by the present war made it necessary to close my milk plant.

I put forth every effort possible to maintain my milk business and deliveries, Salaries were raised, hours shortened, and bonuses offered. A one- or two-man shortage in a small plant where no extra men are employed causes enough concern during peacetimes, but when 66 percent of your help needs to be replaced during wartimes, it really gets beyond control.

We had not missed a day's service to the facility during the many years of delivering products to them, even when North Dakota blizzards made other dairies cancel services to all of their customers, and this should in itself speak for our sincerity and responsibility to our duty.

On October 27, 1912, the supply office at the veterans' facility informed me by phone that a formal letter should be sent to advise them that my milk plant was closed and to give my reasons for closing it. Such a letter was sent to them October 28. 19.12. (See copy attached.)

On November 8, 1942, I received a letter from the veterans' facility at Fargo, notifying me that my right to proceed under contract VA37r935 was terminated and which I interpreted as a final release from my contract.

The Fairmont Creamery Co. took over my contract for the 30-day period of notice and accepted it at the same prices. The Gate City Dairy would also have taken over the contract at the same prices. (See affidavits attached.)

I had been the successful bidder at the facility on dairy products for many years and, ii any changes were made in the contract, they were customarily called to my attention by a typewritten paragraph inserted under the contract heading "Articles and services.' (See attached sample.)

When the invoice for the October 1942 dairy products had not been paid by November 15, which was unusual, I phoned to ask them about the delay. No one could give a reason. After phoning several times to ask about this, I finally wrote to the Veterans Administration at Washington to make direct inquiry and received an answer stating that I would be informed about it later.

Not until I phoned the Administration in Washington the following April, did I learn there was any question about the release from my contract. I was advised that my inquiry and report were buried because of busy war conditions and nothing had been done about the payment of my voucher. This was about 10 weeks before the expiration date (June 30, 1943) of the contract for the 12 months.

In July 1943 the veterans' facility billed me for the extra costs of the milk for the balance of the contract.

Had we been notified within the 30-day period following the closing of our plant that the cancelation of our contract was to be questioned, we could have done one of two things:

1. Arranged for one of the other creameries to continue the contract until date of expiration, or

2. Continue the contract ourselves until it expired, by keeping enough equipment and processing enough milk to meet that one obligation.

Summarizing the reasons, I believe that it is fair and right that my outstanding bill for October 1942 for the amount of $395.37, be paid and the $525.27 excess for higher costs which the Government has charged against me, be canceled or paid to me, to be refunded to the facility.

1. I knew that in the past there had been a 30-day cancelation clause in the contract. Not finding it there at the time I was closing my business, I called the veterans' facility and asked for their advice. I was told that a 30-day notice was all that was required.

2. I gave the 30-day notice October 1, 1942, and had dairy products delivered to the facility by another dairy for 30 days as I had been told to do.

3. I received a phone call October 27, 1942, to transmit a formal letter to the facility advising them of my discontinuance of business. Such a letter was written and send October 28, 1942.

4. On November 8, 1942, I received a letter from the veterans' facility which, to my understanding, canceled any further responsibilities on my part and which stated that the Washington office was to be so advised.

5. My statement for the October deliveries was presented as usual and it was not paid, but I received no information, at any time, until the following April, that told me the Government wanted my contract to continue. This was 10 weeks before the expiration date of the contract.

6. The additional cost of continuing the contract until it expired would not have occurred if the Government had made a prompt decision.

7. The contract specifically states "that the contractor shall not be charged with any excess cost occasioned the Government by the purchase of materials or supplies in the open market or under other contracts when the delay of the contractor in making deliveries is due to unforeseeable causes beyond the control and without the fault or negligence of the contractor, including, but not restricted to acts of God or of the public enemy.'

Finally, affiant states that if I had not relied upon the veterans' facility's infor. mation at Fargo, all I had to do was to give 30 days' notice prior to stopping deliveries. I would then have made arrangements with other dairymen to deliver the dairy products for me the same as I did for the 30 days.

Furthermore, I relied upon the statements made by the veterans' facility's supply office at Fargo, and did give the 30 days' notice as requested before I stopped delivery.

I also state that had I been given notice, or suggestion made, that the old form of contract with the Government had been changed and that the privilege of 30 days' notice before stopping delivery had been taken out of the contract, I would have made arrangements with other dairymen to complete the contract.

I wish to state that I acted in good faith and I believe I had a right to rely upon statements made by the veterans' facility's supply office at Fargo, N. Dak. Respectfully submitted.

MAXWELL MORGAN
STATE OF NORTø DAKOTA,

County of Cass:
Subscribed and sworn to before me this 11th day of April 1944.
IsEAL!

DELIA MCCARTY,

Notary Public, Cass County, N. Dak. My commission expires April 20, 1949.

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Fargo, N. Dak.. June 5, 1948. To Whom It May Concern:

This is to certify that the Gate City Dairy of Fargo, N. Dak., would have taken
over on the same price basis the dairy-products contract of the Veterans Adminis-
tration at Fargo, N. Dak., when the Morgan Creamery Co. discontinued their
business.
Yours truly,

GATE CITY DAIRY.
ALLEN GREGORY.

To Whom It May Concern.

This is to certify that on or about November 1, 1942, the Fairmont Creamery Co., Moorhead, Minn., assumed deliveries of milk and cream to the veterans' hospital, Fargo, N. Dak., at the price, under their contract with the veterans' hospital, in effect for deliveries being made by the Morgan Creamery Co., Fargo, N. Dak., prior to that time.

Deliveries were continued on this basis until the expiration date of the contract on or about January 1, 1943

J. H. DEEMS. Subscribed and sworn to before me on this 29th day of October, 1943.

FLORENCE OANSTAD, Notary Public. My commission expires September 27, 1950.

O

JOE KOOR

FEBRUARY 13, 1945.—Committed to the Committee of the Whole House and

ordered to be printed

Mr. KEOGH, from the Committee on Claims, submitted the following

REPORT

[To accompany H. R. 958)

The Committee on Claims, to whom was referred the bill (H. R. 958) for the relief of Joe Koor, having considered the same, report favorably thereon with amendments and recommend that the bill as amended do pass.

The amendments are as follows:

Line 5, after the word "appropriated”, strike out "and in full settlement against the Government, the sum of $930.41”.

Line 7, strike out "to reimburse him for".

Line 6, after the name “Koor”, insert “, of Indianapolis, Indiana, the sum of $930.41, in full settlement of all claims against the United States for reimbursement of.

At the end of the bill add: : Provided, That no part of the amount appropriated in this Act in excess of 10 per centum thereof shall be paid or delivered to or received by any agent or attorney on account of services rendered in connection with this claim, and the same shall be unlawful, any contract to the contrary notwithstanding. Any person violating the provisions of this Act shall be deemed guilty of a misdemeanor and upon conviction thereof shall be fined in any sum not exceeding $1,000.

A similar bill was favorably reported by this committee in the Seventy-eighth Congress.

The facts will be found fully set forth in House Report No. 398, Seventy-eighth Congress, which is appended hereto and made a part of this report.

18. Rept. No. 398, 78th Cong., 1st sess. The purpose of the proposed legislation is to pay to Joe Koor, of Indianapolis, Ind., the sum of $930.41, in full settlement of all claims against the United States for reimbursement for the purchase price of shoes bought from the Government at salvage sale held November 28, 1938, at the West Virginia district, Civilian Conservation Corps, Charleston, W. Va., and for expenses incurred by him in connection with the transaction.

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