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by Kessler, Gilmore & Kronman

B-21873, December 22, 1941, 21 Comp. Gen. 605


Bids - Conditional Acceptance Subject to Execution of Formal Contract - Status as Binding Contract


A "letter of intent" advising a bidder that its bid "is conditionally accepted subject to the execution of a formal contract by the Civil Aeronautics Administration" did not result in a binding agreement so as to obligate the Government, upon its failure to execute a formal contract, to reimburse the bidder for expenses incurred toward the manufacture of the involved articles, and the issuance to the bidder of a "Preference Rating Certificate" is not a representation that a binding contract existed where the certificate indicated to the contrary.


Comptroller General Warren to the Secretary of Commerce, December 22, 1941:


There was received your letter of November 13, 1941, as follows:


There are transmitted herewith for your consideration the following papers:


(1) Bid of the Collins Radio Company, Cedar Rapids, Iowa, on our Proposal 1109, for furnishing high frequency radio transmitters.


(2) Letter of August 14 from the Civil Aeronautics Administration to Collins Radio Company conditionally accepting the bid.


(3) A draft of the formal contract, with bond, unsigned by the Government.


(4) A copy of Preference Rating Certificate No. VG 89775.


(5) A telegram of September 19 from the Civil Aeronautics Administration to Collins Radio Company.


(6) A telegram and letter, each dated September 23, from the Collins Radio Company to Civil Aeronautics Administration.


Collins Radio Company was the only bidder on this proposal. As indicated by the enclosures, the bid was conditionally accepted subject to the signing of the contract. The Civil Aeronautics Administration also furnished to the bidder a Preference Rating Certificate to enable him to furnish the transmitters and secure the necessary materials for manufacturing purposes. The bidder has signed the contract and furnished bond, but the Government has not signed the contract and does not propose to do so because of a change in its requirements.


This office has no reason to doubt the ability and willingness of the Collins Radio Company to furnish the materials called for in Proposal 1109. Furthermore, at the time the bid was accepted the Civil Aeronautics Administration fully expected to enter into the contract, but used the usual form of acceptance which was intended to be conditional and intended not to obligate the Government until the contract was actually signed. After the contract had been signed by the Collins Radio Company and returned to this office, a condition arose under which the Government will have no need for the transmitters described in Proposal 1109, and in lieu thereof a different type of radio equipment will have to be purchased and installed. If we were to permit the contractor to proceed and furnish the transmitters, the Government would not only be purchasing equipment for which it now has no need but equipment which would cost considerably more than that which is now required.


Collins Radio Company contends that a contract was created by the acceptance of the bid; that this was further confirmed by the issuance of the Preference Rating Certificate; and that by this acceptance and certificate the bidder was authorized to proceed with the production of the transmitters and did incur considerable expense toward that end, prompt action being necessary in order to secure the manufacturing materials under the present emergency conditions.


Preference Rating Certificates, in order to be authentic must be identified with a contract or order, but at the time the certificate was issued there was no contract or order number with which it could be identified. Therefore, the proposal number was given in the certificate and the letter of August 14 conditionally accepting the bid was referred to as a "letter of intent."


Your decision is respectfully requested as to whether, by the form of acceptance given and the issuance of a Preference Rating Certificate, a contract was created obligating the Government.


If it is your opinion that the Government has entered into a contract, it is proposed to terminate the contract and if a reasonable settlement can be agreed upon to enter into a supplemental agreement for the amount to be paid for work already performed, et cetera, in full and final settlement of all rights incident to or arising out of the original and supplemental contracts.


The following facts are furnished in order that you may understand the necessity of abandoning the idea of purchasing the THQ transmitters, specified on Proposal 1109, in favor of units of a different design:


At the time consideration was given to making award on Proposal 1109, the Civil Aeronautics Administration had based its conception of the equipment requirements for Alaska for the forthcoming year on information supplied by its regional office at anchorage. That information was of necessity compiled in great haste by that office. By the time the contract forms had been signed by the bidder a representative from the regional office had arrived in Washington, whereupon the Civil Aeronautics Administration engineers had an opportunity to discuss with him the requirements in greater detail. As a result of these discussions it appeared that the interests of the Government would be best served by not making award on Proposal 1109, for the following reasons---


The THQ transmitter has a nominal output of 500 watts. The proposed expansion program for Alaska is predicated upon automatic reception and transmission. In order to most successfully accomplish this automatic feature it is highly desirable that the highest practicable power be used.


The THQ transmitters incorporate provision for a3 (voice) transmission. This feature is expensive and probably involves thirty percent of the cost of the unit. Since a3 transmissions will not be required of the equipment except in approximately seven instances, it appeared unwise to proceed with the purchase of modulators for all RF units. In the more powerful units which the Government now intends to buy this feature will be included in only seven units.


The THQ equipment provides transmission on any one of ten preselected frequencies. It is, however, impossible to transmit simultaneously on two or more of these frequencies. If we have to use the THQ transmitters in order to provide the necessary simultaneous operation of circuits emanating from any station it would be necessary to provide from two to five units of this type at the several stations in the expansion program. This would entail such a high equipment cost as to make it impossible for the Civil Aeronautics Administration to accomplish the proposed expansion program with the funds available.


By using the type of transmitter which we now propose to purchase, only one would be required for each station, as each transmitter would be equipped with one rectifier and as many RF units as there are frequencies used at the station where the transmitter would be located.


In other words, the use of units designed for the simultaneous operation of circuits will reduce the number of units required and greatly reduce the total cost of the equipment to be purchased, and at the same time provide equipment which will better serve the Government's needs.


It appears from the enclosures forwarded with your letter that pursuant to invitation No. 1109, dated July 1, 1941, the Collins Radio Company submitted a bid dated July 14, 1941, by which it agreed to furnish and deliver, f.o.b. common carrier, bidder's shipping point, a total of 60 high-frequency radio transmitters, in accordance with attached specifications as modified, at a unit price of $4,890 each, plus such additional crystals as the Government might order prior to July 1, 1942, at a price of $54 each. It was provided in standard proposal condition attached to and made part of the invitation, in pertinent part, as follows:


Performance Bond and Formal Contract.--- The successful bidder agrees that if his bid is accepted and the amount of the contract awarded to him exceeds $5,000.00, he will enter into a contract with the Government on Government Standard Form No. 32 and will furnish a performance bond on Standard Form No. 25 in an amount equal to 25 percent of the total contract price.


By letter of August 14, 1941, from the Civil Aeronautics Administration, the contractor was notified that award had been made to it under invitation No. 1109, which letter is as follows:


Your bid on proposal No. 1109 for furnishing sixty transmitters and twenty-four additional crystals is conditionally accepted subject to the execution of a formal contract by the Civil Aeronautics Administration. Your attention is invited to article 1 on page 2 of the contract form wherein it is stated that no additional transmitters may be purchased under this contract.

The contract and performance bond are enclosed herewith in quadruplicate. All copies should be executed by you and returned to this office within ten days.

In the execution of the contract and bond your attention is invited to the instructions on page 6 of forms nos. 32 and 25. Care should be taken that the date of the bond is not prior to the date of the contract.


On August 28, 1941, Preference-Rating Certificate No. Vg-89775, covering the radio transmitters to be furnished, and signed on behalf of the Civil Aeronautics Administration by c. M. Estep, contract and service officer, was issued to the contractor. Said certificate stipulated, in pertinent part, that:


1. Preference rating a-1-0 is hereby assigned to the item/s) described below covered by U.S. Government Contract No. (letter of intent Aug. 14, 1941.) Proposal 1109 * * *:


It appears further that the contractor executed and returned the formal contract and performance bond forms, which were transmitted to it with the letter of August 14, 1941, but, for the reasons stated in your letter of November 13, 1941, supra, it was decided by the Government that the radio transmitters were not required; and, accordingly, the formal contract was not executed by the Civil Aeronautics Administration. Moreover, by telegram dated September 19, 1941, the Civil Aeronautics Administration notified the contractor that due to a change in Government requirements, the transmitters covered by proposal No. 1109 would not be needed, and that the formal contract which had been submitted by the contractor would not be accepted by the Government. By telegram of September 23, 1941, and letter of the same date, the contractor protested the refusal of the Civil Aeronautics Administration to execute the formal contract, contending, in substance, that the letter of August 14, 1941, constituted an expression of intent on the part of the Government to purchase the radio transmitters, and, therefore, that a binding agreement was formed which the Government had no right to refuse to carry out. Also, the contractor urged that by the issuance of Preference-Rating Certificate No. Vg-89775, the Government represented that a valid contract for the purchase of the radio transmitters existed. Therefore, the contractor contended that in reliance on the letter of August 14, 1941, and the Preference-Rating Certificate of August 28, 1941, it had a right to proceed with the manufacture of the radio transmitters even though the formal contract had not been executed by the Civil Aeronautics Administration.


The rule appears to be established that, generally, the acceptance of a contractor's offer or proposal by an authorized contracting officer of the Government results in the formation of a valid and binding contract between the parties even though it may be contemplated at the time that the negotiations between the parties are to be incorporated subsequently into a formal written agreement. See Garfield v. United States, 93 U.S.. 242; United States v. New York and Porto Rico Steamship Company, 239 U.S. 88; United States v. Purcell Envelope Company, 249 U.S.. 313; American Smelting and Refining Company v. United States, 259 U.S. 75; Waters v. United States, 75 Ct.Cls. 126, and 18 Comp. Gen. 54. However, it is equally well settled that in such event the acceptance of the contractor's offer by the Government must be clear and unconditional; and it also must appear that both parties intended to make a binding agreement at the time of the acceptance of the contractor's bid. See Rocky Brook Mills Company v. United States, 70 Ct.Cls. 646; United States v. P. J. Carlin Construction Company, et al. ( c.c.a.2d), 224 fed. 859; Elkhorn-Hazard Coal Company, et al. V. Kentucky River Coal Corporation (C.C.A. 6th), 20 f.(2d) 67, 70.


In passing on the question as to whether parties to a contract, who reach an agreement by negotiating, are bound from the time an agreement as to terms is reached, or whether a binding agreement is not formed until the terms of the negotiations are reduced to a formal contract and signed by the parties, the court, in the case of Elkhorn-Hazard Coal Company, et al. V. Kentucky River Coal Corporation, supra, stated, at page 70, as follows:


* * * Whether a contract results from an exchange of definite communications, when a formal contract is intended later to be prepared and executed, is a question which has received much consideration. Whether one so results is mainly a question of intention. The law is well stated in Mississippi and Dominion Steamship Co. V. Swift, 86 me. 248, 29 a. 1063, 41 Am.St.Rep. 545, 553, as follows:

"if the party sought to be charged intended to close a contract prior to the formal signing of a written draft, or if he signified such an intention to the other party, he will be bound by the contract actually made, though the signing of the written draft be omitted. If, on the other hand, such party neither had nor signified such an intention to close the contract until it was fully expressed in a written instrument and attested by signatures, then he will not be bound until the signatures are affixed. The expression of the idea may be attempted in other words: if the written draft is viewed by the parties merely as a convenient memorial, or record of their previous contract, its absence does not affect the binding force of the contract; if, however, it is viewed as the consummation of the negotiation, there is no contract until the written draft is finally signed. * * *" (italics supplied.)


Considering the facts in the present case in the light of the above principles, it appears that while the contractor was notified by an officer of the Civil Aeronautics Administration, in the letter of August 14, 1941, supra, that award had been made to it under invitation No. 1109, it cannot be said that the letter, in itself, was a clear and unconditional acceptance of the contractor's bid so as to bind the Government in the matter from the date of the issuance of said letter. The contrary, the letter of August 14, 1941, expressly advised the contractor that your bid on proposal No. 1109 "* * * is conditionally accepted subject to the execution of a formal contract by the Civil Aeronautics Administration." in other words, the letter of August 14, 1941, expressly negatived any intent of the Government to be bound in the transaction by the issuance thereof and definitely put the contractor on notice that there would be no binding agreement between the parties until a formal contract had been executed by the Civil Aeronautics Administration. Hence, it appears that the letter of August 14, 1941, was not an unconditional acceptance of the contractor's bid nor can it be considered as evidencing an intention on the part of the Civil Aeronautics Administration to enter into a binding agreement at that time to purchase the radio transmitters from the contractor.


Furthermore, it cannot be said that by the issuance of Preference Rating Certificate No. Vg-89775 on August 28, 1941, the Government considered that a binding contract to purchase the radio transmitters had been made between the parties as a result of the issuance of the letter of August 14, 1941. No reference was made in said certificate to any existing contract between the parties and, in the space provided in the Preference Rating Certificate for the insertion of the applicable contract, it was expressly stipulated that the only agreement between the parties was proposal No. 1109 and the letter of August 14, 1941, which is specifically referred to as "letter of intent." therefore, the Preference Rating Certificate shows clearly that, while at the time of its issuance the Government had intended to enter into a contract for the radio transmitters, the Civil Aeronautics Administration considered that the contract had not been consummated.


Accordingly, I have to advise that neither the issuance of the letter of August 14, 1941, nor of the Preference Rating Certificate of August 28, 1941, resulted in the formation of a binding contract between the parties and, therefore, since no valid contract exists, there is no authority for entering into any agreement to reimburse the contractor for any work which may have been performed by it in connection with the matter. See Rocky Brook Mills Company v. United States, supra.


The papers are returned herewith.


Annotated Text Information

June 02, 2014

Collins Radio Co. Collins Radio Co.

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