OFFICIAL OPINION No. 2

OFFICIAL OPINION No. 2 Coal Contracts - Increased compensation to coal vendors. 1. The Department of Prop~rty and Supplies may not negotiate an increase in payments to be paid to coal vendors without receiving additional consideration. 2. The performance of a previously existing legal duty is not consideration. 3. Coal vendors who have contracts with the Commonwealth have a legal duty to deliver coal at the agreed upon contracted price. 4. Article III, §26 of the Pennsylvania Constitution enunciates a policy that dis- courages the payment of additional compensation once a contract has been made. This policy should be adhered to by the Executive branch of government. 8 OPINIONS OF THE ATTORNEY GENERAL 5. A renegotiation of the existing coal contracts .would frustrate the intent of Arti.cle III,§ 22 of the Pennsylvania Constitution, which provides for compet1t1ve bidding of such contracts. Honorable Frank C. Hilton Secretary Property and Supplies Harrisburg, Pennsylvania Dear Mr. Hilton: Harrisburg, Pa. January 14, 1974 We have received a request for an opinion from your department asking whether the Department of Property and Supplies can negotiate a price increase for vendors of coal who have contracted to supply coal for the Commonwealth. Since the price of coal has in- creased substantially in recent months the vendors will sustain losses on their contracts unless the contract prices are renegotiated. It is our opinion, and you are so advised, that a renegotiation of the contract so as to increase the vendor's compensation is not legal. A renegotiation of a contract implies the creation of a new con- tractual relationship which changes the rights and responsibilities of all parties involved. In this case, the only changed rights in the contract would involve an increase in compensation to the coal ven- dors. The vendor would get an increase in his price, while the Department of Property and Supplies would receive nothing in return, other than continued delivery of coal, which the vendors are legally bound to deliver in any event. It is a general principle of con- tract law that the performance of an act which one party is legally bound to render to another is not legal consideration. Sum. Pa. Jur. , Contracts §118. An increase in compensation to the coal vendors would result in an expenditure of public funds by the Department of Property and Supplies without the Deparment or the Com- monwealth receiving any consideration in exchange. The only circumstances where a renegotiation of a contract could be considered is where unforeseen circumstances make perfor- mance impossible or impractical. In a case such as that, however, a renegotiation of the contract could not result in an increase in com- pensation, but could only involve a mutual agreement to terminate the contractual relationship. An increase in expense, such as evidenced by the circumstances facing coal vendors today, is not such a change in circumstances suf- ficient to warrant a termination of the contractual relationship. In Commonwealth v. Bader, 271 Pa. 308 (1921), a vendor sought to be released from his contract because of increased costs due to the out- break of World War I. The vendor contended that resultant short- ages made his performance impractical, if not impossible. The Court ruled that the vendor must supply the goods at the agreed OPINIONS OF THE ATTORNEY GENERAL 9 upon price, and that an increase in costs was not a valid reason for termination of the contractual relationship. A case somewhat in point is Dockett v. Old Forge Borough, 240 Pa. 98 ( 1913). In that case, a borough entered into a contract with a con- tractor for construction of a sewer. Shortly after work began, the contractor's employees struck, and eventually obtained an increase in salary. Because of the resultant salary increase, the contractor notified the borough that he could not complete the work. The borough agreed to pay the contractor additional compensation because of these "unforeseen expenses". Suit was brought by a tax- payer to enjoin such payments. The Court ruled that the borough had no right to pay additional compensation, even under the threat of non-performance. The Court went on to say that the contractor had a previously existing legal obligation which the borough could enforce at law, and to expend public funds to insure performance of this previously existing legal obligation was illegal. See also Quar- ture v. Allegheny County, 141 Pa. Superior Ct. 356, 364(1940), where the Court stated: "When a party merely does what he has already obligated himself to do, he cannot demand additional compensation therefor .... " The question of what constitutes changed conditions that are suf- ficient to render a contract impossible or impracticable is dealt with in Section 2-615 of the Uniform Commercial Code, 12A P.S. §615. That section, however, does not sanction additional compensation when difficult or changed circumstances arise, but, rather, notes that such changed circumstances can be the basis for delay or non- performance on the part of a vendor. In addition, Comment4 to Sec- tion 2-615, provides: "Increased cost alone does not excuse performance unless the rise in cost is due to some unforeseen contingency which alters the essential nature of the performance.Neither is a rise or a collapse in the market in itself a justification, for that is exactly the type of business risk which business con- tracts made at fixed prices are intended to cover. But a severe shortage of raw materials or of supplies due to a con- tingency such as war, embargo, local crop failure, unfore- seen shutdown of major sources of supply or the like, which either causes a marked increase in cost or altogether prevents the seller from securing supplies necessary to his performance, is within the contemplation of this section." Such is not the case here. Additionally, Article III, §26 of the Pennsylvania Constitution provides, in part,: "No bill shall be passed giving any extra compensation to any ... contractor, after services shall have been rendered or contract made .... " 10 OPINIONS OF THE ATTORNEY GENERAL Any increase in compensation granted to the vendor would in- volve additional expenditures by the Department of Property and Supplies. Although Article III, § 26 of the Constitution does not ex- pressly bar the Executive branch from increasing compensation to a contractor after a contract has been made, the policy expressed therein is sound and, in view of the case law cited above, should be adhered to by the Executive branch of government. Finally, there are, of course, the constitutional and statutory re- quirements of competitive bidding. See Article III,§ 22 of the Penn- sylvania Constitut10n and 71P.S.§633. The clear intention of these provisions would be frustrated if vendors would be allowed to renegotiate contract prices in contracts awarded as a result of com- petitive bids. In conclusion, therefore, it is our opinion, and you are so advised, that the Department of Property and Supplies may not negotiate an increase in the price of coal to be supplied to the Commonwealth by vendors who have contracts with the State. Sincerely yours, Theodore A. Adler Deputy Attorney General Israel Packel Attorney General