B-140373, FEB. 2, 1966

B-140373, FEB. 2, 1966

TO LUMEN, INC.:

REFERENCE IS MADE TO YOUR LETTER OF APRIL 12, 1965, WITH ENCLOSURES, AND SUBSEQUENT CORRESPONDENCE, CONCERNING YOUR CLAIM FOR DAMAGES IN THE TOTAL AMOUNT OF $1,016,344.24, ALLEGED TO HAVE RESULTED FROM BREACHES BY THE GOVERNMENT OF FIXED-PRICE CONTRACT NO. AF33/600/ 39874. THIS AMOUNT CONSISTS OF $466,692.09 FOR UNLIQUIDATED DAMAGES, $60,866.64 REPRESENTING ANTICIPATED PROFIT, AND AN AMOUNT OF $488,785.51 CONSISTING OF VARYING AMOUNTS OF INTEREST ON DELAY COSTS, PROFIT, DELAY CLAIMS, AND VARIOUS COSTS INCURRED IN PROCESSING CLAIMS UNDER THE CONTRACT.

IT IS CONTENDED THAT THE CLAIMS FOR DAMAGES RESULTED FROM DELAYS AND EXCESS COSTS WHICH WERE BROUGHT ABOUT BY THE FAILURE OF THE GOVERNMENT TO FURNISH, AND IN FURNISHING INADEQUATE, GOVERNMENT FURNISHED PROPERTY AS PROVIDED BY THE CONTRACT; CHANGES IN CONTRACT PERFORMANCE DIRECTLY BY THE CONTRACTING OFFICER; CHANGES IN CONTRACT SPECIFICATIONS THROUGH IMPOSITION OF QUALITY CONTROL MEASURES BY THE GOVERNMENT NOT REQUIRED BY CONTRACT; DELAYS AND COSTS THROUGH IMPOSITION BY THE GOVERNMENT OF UNREQUIRED INSPECTION TESTS AND FOR INCREASED COSTS RELATED TO THE UNCHANGED PORTION OF THE WORDS OF THE CONTRACT BY REASON OF THE ABOVE CHANGES.

THESE CLAIMS GENERALLY WERE THE SUBJECT OF AN APPEAL FROM THE CONTRACTING OFFICER'S DECISION TO THE ARMED SERVICES BOARD OF CONTRACT APPEALS AND, BY DECISION DATED SEPTEMBER 4, 1964 (ASBCA NO. 8364), LUMEN WAS ALLOWED AN EQUITABLE ADJUSTMENT IN THE NET AMOUNT OF $259,735.01 ON ACCOUNT OF DELAYS CHARGEABLE TO THE GOVERNMENT. UPON RECONSIDERATION, THE BOARD AFFIRMED ITS DECISION ON NOVEMBER 10, 1964, BUT REDUCED THE AMOUNT OF THE AWARD TO A NET ALLOWANCE OF $87,615.01.

IN ITS OPINION ON THE MOTION FOR RECONSIDERATION, THE BOARD RULED IN PART THAT:

"AS TO THE ALLEGATION THAT THE BOARD'S DECISION IS FOUNDED ON INCORRECT INFORMATION AND MISUNDERSTANDINGS, WE STATE THAT A CLOSE EXAMINATION OF THE ALLEGED POINTS DISCLOSES THAT THE ALLEGED ERRORS AND MISUNDERSTANDINGS DO NOT IN FACT EXIST. EACH OF OUR CONCLUSIONS AND FINDINGS IS PREDICATED ON THE RECORD ITSELF.

"THE ASSERTION THAT WE DID NOT CONSIDER AND PASS UPON A PRINCIPAL ELEMENT OF CLAIM IS ALSO IN ERROR. OUR DECISION WAS WRITTEN IN LIGHT OF THE ENTIRE RECORD, INCLUDING ANY ALLEGATIONS, FACTS OR EVIDENCE PERTAINING TO THIS ELEMENT OF CLAIM. ALTHOUGH WE DID NOT SPELL OUT THIS PARTICULAR CLAIM WE DID CONSIDER IT AND ITS IMPACT ON THE OTHER APPROPRIATE CLAIMS. THIS CLAIM OR ELEMENT OF CLAIM WAS PARTICULARLY TAKEN INTO ACCOUNT UNDER THE CLAIMS DESIGNATED AS EXHIBITS III AND IV. INCIDENTALLY, APPELLANT HAD NOT HERETOFORE PARTICULARIZED THIS CLAIM ANYWHERE IN ITS PLEADINGS OR ALLEGATIONS.

"THE LAST POINT URGED BY APPELLANT'S MOTION IS THAT WE SHOULD TREAT AND CONSIDER APPELLANT'S CLAIM OR CLAIMS ON THE BASIS OF TOTAL COST. THE CASES CITED BY APPELLANT IN APPARENT SUPPORT OF THIS METHOD ARE CLEARLY DISTINGUISHABLE AND CONSEQUENTLY INAPPLICABLE.

"WE SHALL NOT BELABOR THIS POINT FOR THE REASON THAT WE HAVE OFTEN DECLARED OUR RELUCTANCE TO ADOPT THIS METHOD DUE TO ITS INHERENT DEFICIENCIES. SEE AIR-A-PLANE CORPORATION, ASBCA NO. 3842, 29 FEBRUARY 1960, 60-1 BCA PARA. 2547; HOLLY CORPORATION, ETC., ASBCA NO. 3626, 30 JUNE 1960, 60-2 BCA PARA. 2685; AND PLANETRONICS, INC., ASBCA NOS. 7202 AND 7535, 13 APRIL 1962, 1962 BCA PARA. 3356.

"AS ILLUSTRATIVE ONLY, HOWEVER, WE MIGHT POINT TO THE FOLLOWING DEFICIENCIES IN THE RECORD WHICH, IN ANY EVENT, WOULD PRECLUDE CONSIDERATION OF THE TOTAL COST METHOD.

"THE SLIM EVIDENCE FALLS FAR SHORT OF ESTABLISHING THAT THE ALLEGED TOTAL COSTS SUSTAINED BY APPELLANT WERE DUE SOLELY AND EXCLUSIVELY TO THE CHANGES INTRODUCED BY THE GOVERNMENT. THE PROOF IS UNSATISFACTORY THAT NONE OF THE ALLEGED EXCESS COSTS, ETC. WERE IN SOME FORM OR DEGREE THE RESPONSIBILITY OF THE APPELLANT. THE AMOUNT APPLICABLE TO ANY CONTRACTOR RESPONSIBILITY SHOULD BE DEDUCTED, OF COURSE. BY WAY OF ONE EXAMPLE, THE CONTRACTOR EXPERIENCED SOME DIFFICULTY IN OBTAINING THE CORRECT TARGET TEST FILM, FOR WHICH A 45-DAY EXTENSION IN PRODUCTION DELIVERY WAS GRANTED. WERE THESE DIFFICULTIES (COMPUTED IN TIME OR DOLLARS) DEDUCTED FROM THE TOTAL EXCESS COSTS BEING SOUGHT BY APPELLANT?

"THIS ALSO APPLIES TO THE DIFFICULTIES ENCOUNTERED WITH THE NOISE LEVEL AND THE DIFFICULTIES IN OBTAINING OR RECEIVING COMPONENTS AND TOOLS FROM SUPPLIERS. MOREOVER, THERE IS LACK OF SATISFACTORY PROOF THAT THE HIGH PERCENTAGE OF REJECTS FROM SUPPLIERS (IN SOME INSTANCES, 50 PERCENT) WERE DUE SOLELY TO THE SOURCE INSPECTION REQUESTED BY THE GOVERNMENT. AGAIN, APPELLANT HAD A PROBLEM IN OBTAINING ENVIRONMENTAL TESTING DATA FROM ITS SUBCONTRACTOR.

"IN SUM, APPELLANT HAS FAILED TO MAKE A PRIMA FACIE CASE OF THE REASONABLENESS OF THE AMOUNTS REQUESTED. PRIMARILY, THESE COSTS ARE NOT HISTORICAL NOR ACTUAL, BUT ARE ONLY BEST ESTIMATES. THE BASIC OR INITIAL ESTIMATED QUALITY CONTROL EFFORT OR COST OR DIRECT LABOR WERE NOT ADEQUATELY SHOWN. WE ARE NOT TOLD WHAT THESE VARIOUS COSTS WOULD HAVE BEEN BUT FOR THE CHANGES CHARGED TO THE GOVERNMENT.

"WE NOTE (FOR THE FIRST TIME) FROM THE MOTION AND THE GOVERNMENT'S MEMORANDUM IN OPPOSITION THAT A SUPPLEMENTAL AGREEMENT NO. 7 WAS EXECUTED, ON OR ABOUT 20 NOVEMBER 1962, WHEREBY THE CONTRACT PRICE WAS INCREASED BY $172,120.00. THAT AMOUNT TOGETHER WITH THE $52,380.00 ALLOWED AND PAID UNDER SUPPLEMENTAL AGREEMENT NO. 6 TOTALS THE $224,500.00 DETERMINED TO BE DUE BY THE CONTRACTING OFFICER IN HIS FINAL DECISION. SUPPLEMENTAL AGREEMENT NO. 7 FURTHER PROVIDES THAT THE "ACCEPTANCE BY THE CONTRACTOR OF PAYMENT OF THIS AMOUNT DOES NOT BAR OR OTHERWISE FORECLOSE THE CONTRACTOR FROM SEEKING THE RELIEF REQUESTED IN HIS CLAIM UNDER THE CONTRACT NOR DOES IT BAR THE GOVERNMENT FROM LATER DETERMINING THAT A LESSER AMOUNT IS DUE.' WE GATHER FROM THE MOTION AND MEMORANDUM, THEREFORE, THAT THE ENTIRE $224,500 HAS BEEN PAID TO APPELLANT. THOUGH WE REGRET THAT THIS FACT OF PAYMENT WAS NOT INCLUDED IN THE RECORD, (AT LEAST FOR INFORMATION PURPOSES), IT WAS NOT MATERIAL TO OUR CONCLUSIONS. OUR PRIOR DECISION RECOGNIZED THAT THIS AMOUNT HAD BEEN RECOGNIZED BY THE CONTRACTING OFFICER AND THAT IT WAS SUBJECT TO INCREASE OR DECREASE ON APPEAL.'

THE CONTRACT WAS AWARDED TO LUMEN FOLLOWING FORMAL ADVERTISING PROCEDURES ON JUNE 26, 1959. UNDER THE CONTRACT, LUMEN WAS TO MANUFACTURE AND FURNISH 16 MM. JAN MOVIE PROJECTORS, TYPE AQ-3, DESCRIBED AS "PROJECTION SET, MOTION PICTURE, SOUND 16 MM AND COMPONENT PARTS" AT THE UNIT PRICE OF $506 EACH. THE CONTRACTOR WAS ALSO TO FURNISH A QUANTITY OF ANOTHER TYPE PROJECTOR (TYPE AQ-2A) AT A SLIGHTLY HIGHER UNIT PRICE. TOGETHER WITH THESE BASIC PROJECTOR SETS, INSTRUCTION BOOKS, WORKING PLANS, TECHNICAL MANUALS, AMPLIFIERS AND MANUFACTURING DRAWINGS WERE TO BE FURNISHED FOR A TOTAL CONTRACT PRICE OF $896,880. THE TOTAL QUANTITY OF PROJECTOR SETS TO BE FURNISHED, AFTER THE EXERCISE BY THE GOVERNMENT OF ITS CONTRACT OPTION, WAS INCREASED THEREBY WITH UPWARD ADJUSTMENT OF THE CONTRACT PRICE TO $1,054,541.

THE FACTS INVOLVED IN THE CLAIM APPEAR TO BE UNDISPUTED AND THE DECISION OF THE ARMED SERVICES BOARD OF CONTRACT APPEALS (ASBCA) CONCERNING QUESTIONS OF FACT IS FINAL AND CONCLUSIVE UNDER 41 U.S.C. 321 UNLESS THE DECISION OF THE BOARD THEREON IS CAPRICIOUS OR ARBITRARY OR SO GROSSLY ERRONEOUS AS NECESSARILY TO IMPLY BAD FAITH, OR IS NOT SUPPORTED BY SUBSTANTIAL EVIDENCE. WE FIND NO BASIS TO CONCLUDE THAT THE BOARD'S DECISION, AS AFFIRMED, DID NOT MEET THE CRITERIA OF THE STATUTE. SEE, IN THIS CONNECTION, LINDSAY V. UNITED STATES, 181 F.2D 582 (1950). UNITED FOUNDATION CORPORATION V. UNITED STATES, 158 CT.CL. 41 (1962); MORRISON- KNUDSEN COMPANY V. UNITED STATES, 345 F.2D 535 (1965).

THE CLAIM IN THE AMOUNT OF $466,692.09 REPRESENTING UNLIQUIDATED DAMAGES IS IN EFFECT ONE FOR RETURN OF THE DIFFERENCE BETWEEN THE VERIFIED CONTRACT COSTS AND THE PAYMENTS MADE UNDER THE CONTRACT. EVIDENCE HAS BEEN OFFERED AS TO WHAT THESE COSTS AMOUNTED TO AND WHAT IS DESIRED AND REASONABLE FOR OVERHEAD, PROFIT, INTEREST, DELAYS, ETC. BUT YOU HAVE NOT SHOWN THAT THESE COSTS AROSE FROM THE GOVERNMENT'S ACTIONS. IT IS ELEMENTARY THAT RECOVERABLE DAMAGES CANNOT BE PROVED BY A NAKED CLAIM FOR RETURN OF COSTS EVEN WHERE THEY ARE VERIFIED. IN FACT, THE CLAIM IS AN ATTEMPT TO SECURE DAMAGES BASED ON THE TOTAL COST THEORY OF DAMAGE-DELAY RECOVERY. THE COURT OF CLAIMS GENERALLY HAS REJECTED SUCH A THEORY OF RECOVERY BECAUSE THE THEORY ASSUMES, AMONG OTHER THINGS, THAT THE CLAIMANT WAS NOT RESPONSIBLE FOR ANY INCREASES IN COSTS AND BECAUSE THE THEORY ASSUMES THAT THE CLAIMANT'S BID WAS ACCURATELY COMPUTED. SEE F. H. MCGRAW AND COMPANY V. UNITED STATES, 131 CT.CL. 501; RIVER CONSTRUCTION CORPORATION V. UNITED STATES, 159 CT.CL. 254. CF. GREAT LAKES DREDGE AND DOCK CO. V. UNITED STATES, 119 CT.CL. 504; MACDOUGALD CONSTRUCTION COMPANY V. UNITED STATES, 122 ID. 210; OLIVER-FINNIE COMPANY V. UNITED STATES, 150 ID. 189. THE COURT OF CLAIMS HAS, WHILE EXPRESSING DISLIKE FOR THE "TOTAL COST" THEORY OF RECOVERY, COMPUTED DAMAGES BY SUCH METHOD IN EXTREME CASES, THAT IS, WHERE THE FACT OF DAMAGES AND THE RESPONSIBILITY OF THE GOVERNMENT FOR SUCH DAMAGES WERE ESTABLISHED. THE ONLY QUESTION THEN FOR CONSIDERATION WOULD BE HOW TO COMPUTE REASONABLE DAMAGES FROM THE EVIDENCE AT HAND. THAT IS NOT THE CASE HERE SINCE NO CONVINCING EVIDENCE HAS BEEN FURNISHED EITHER TO THE BOARD OR OUR OFFICE AS TO THE ESTABLISHED ,FACTS" OF DAMAGES CHARGEABLE TO THE GOVERNMENT FOR THESE CLAIMED DAMAGES.

YOU CLAIM ADDITIONAL DELAY DAMAGES FOR AN ALLEGED 437 DAYS' DELAY IN THE AMOUNT OF $210,306.25 WHICH WAS NOT CONSIDERED BY THE ASBCA BECAUSE OF ITS LACK OF JURISDICTION TO SETTLE UNLIQUIDATED DAMAGE CLAIMS FOR BREACH OF CONTRACT. IN OUR OPINION, THE INFORMATION AND EVIDENCE SUBMITTED BY YOU, CONSIDERED WITH THE ENTIRE RECORD AVAILABLE IN THIS CASE, DO NOT ESTABLISH YOUR ALLEGATION EITHER AS TO THE LIABILITY OF THE GOVERNMENT FOR ALL OF THE INCREASED COSTS CLAIMED, OR AS TO THE AMOUNT TO WHICH YOU MAY BE ENTITLED, WITH SUFFICIENT CERTAINTY TO JUSTIFY ANY PAYMENT BY OUR OFFICE. SEE UNITED STATES V. BEHAN, 110 U.S. 338 (1884). IN ADDITION, AND WITHOUT REFERENCE TO ITS MERITS, IT SHOULD ALSO BE NOTED THAT THE CLAIM IS ESSENTIALLY ONE FOR UNLIQUIDATED DAMAGES ARISING OUT OF BREACH OF CONTRACT. IT IS THUS OF A CATEGORY WHICH THE ACCOUNTING OFFICERS OF THE GOVERNMENT HAVE, AS A GENERAL RULE, DECLINED TO SETTLE--- NOT BECAUSE OF LACK OF JURISDICTION BUT BECAUSE OF THE IMPRACTICABILITY OF REACHING AN ACCURATE DETERMINATION OF THE MERITS AND QUANTUM OF DAMAGES WITHOUT TAKING SWORN TESTIMONY, CROSS-EXAMINATION AND RELATED EVIDENCE, FOR WHICH OUR OFFICE LACKS THE FACILITIES. 4 COMP. GEN. 404; 19 COMP. DEC. 408. SUCH CASES IT HAS BEEN OUR GENERAL POLICY TO DISALLOW THE CLAIM AND LEAVE THE CLAIMANT TO SUCH REMEDY AS HE MAY OBTAIN IN THE COURTS. SEE 44 COMP. GEN. 353.

INCLUDED IN YOUR CLAIM IS THE AMOUNT OF $79,213.63 ALLEGED TO BE DUE AS INTEREST. INTEREST IS NOT PAYABLE ON CLAIMS AGAINST THE UNITED STATES UNLESS PROVIDED FOR BY CONTRACT OR DIRECTED BY STATUTE EXPRESSLY PROVIDING THEREFOR. SMYTH V. UNITED STATES, 302 U.S. 329 (1937); UNITED STATES V. THAYER-WEST POINT HOTEL CO., 329 U.S. 585 (1947); 37 COMP. GEN. 485; WILLIAM C. RAMSEY, ET AL. V. UNITED STATES, 121 CT.CL. 426 (1951).

YOUR CLAIM FOR ANTICIPATED PROFITS IN THE AMOUNT OF $60,866.64 AS AN ITEM OF DAMAGE IS SPECULATIVE AND IS WHOLLY DEPENDENT UPON THE ALLOWANCE OF YOUR CLAIM FOR UNLIQUIDATED DAMAGES. SINCE WE HAVE DECLINED TO SETTLE SUCH CLAIM, THE CLAIM FOR PROFIT IS DENIED FOR SUBSTANTIALLY THE SAME REASONS AS SET OUT ABOVE. IN THIS CONNECTION, THE COURT OF CLAIMS HAS HELD THAT IN A SUIT FOR BREACH OF CONTRACT, NO RECOVERY IS ALLOWED FOR PROFIT RELATING TO THE CLAIMED DAMAGES, APPARENTLY ON THEORY THAT RECOVERY, IF ANY, IS LIMITED TO RECOVERY OF OUT-OF-POCKET LOSSES. RAFAEL TORRES, JR. V. UNITED STATES, 126 CT.CL. 76. BOSTWICK-BATTERSON COMPANY V. UNITED STATES, 283 F.2D 956. IN COMMENTING FAVORABLY ON THESE CASES, THE COURT, IN LABURNUM CONSTRUCTION CORPORATION V. UNITED STATES, 325 F.2D 451, 459, STATED:

"PLAINTIFF SAYS THAT IT SHOULD BE ALLOWED AN OVERALL PROFIT OF 5 PERCENT OF SUCH COSTS. IN THIS CASE, WHERE THE WORK CALLED FOR BY THE CONTRACT HAS BEEN COMPLETED, PLAINTIFF MUST TAKE ITS PROFIT IN THE CONTRACT PRICE. BOSTWICK-BATTERSON CO. V. UNITED STATES, 238 F.2D 956, 151 CT.CL. 560 (1960); TORRES V. UNITED STATES, 112 F.SUPP. 363,126 CT.CL. 76 (1953); WYANT V. UNITED STATES, 46 CT.CL. 205 (1911). PLAINTIFF, THEREFORE, SHOULD RECOVER ONLY ITS COSTS RESULTING FROM THE COMPLETE OR PARTIAL IDLENESS OF ITS WORK FORCE DURING THE PERIODS OF DELAY, INCLUDING AN ALLOWANCE FOR ITS INDIRECT COSTS. THE BURDEN OF ALLOCATING COSTS TO THE PARTICULAR PERIODS INVOLVED IS UPON THE PLAINTIFF. IF THE SUM OF THESE COSTS, PLUS THE CONTRACT PRICE, INCLUDING THE EQUITABLE ADJUSTMENTS TO WHICH THE PARTIES HAVE AGREED, GIVES PLAINTIFF A PROFIT ON THE PROJECT AS A WHOLE, IT SHOULD RECEIVE THE BENEFIT OF ITS BARGAIN. ON THE OTHER HAND, THE CONTRACTOR CANNOT, BECAUSE OF SUCH DELAY, BE ASSURED OF A PROFIT ON THE WHOLE JOB BY ADDING A PROFIT TO ITS DAMAGES. IT HAS NOT BEEN DEPRIVED OF ANY ANTICIPATED PROFIT. IT IS ENTITLED TO RECOVER ONLY ITS LOSS INCURRED ON ACCOUNT OF THE DELAY. THIS IS A LONG ESTABLISHED RULE. THE ALLOWANCE OF SO-CALLED PROFIT ON THE COSTS INCURRED DURING THE DELAY WOULD VIOLATE THE STATUTORY PROHIBITION AGAINST COST-PLUS-PERCENTAGE OF-COST PROCUREMENT (10 U.S.C. SEC. 2306) AND WOULD BE MANIFESTLY UNFAIR TO DEFENDANT.' SEE, ALSO, GENERALLY, 23 COMP. GEN. 907; 31 COMP. GEN. 340; UNITED STATES V. PENN FOUNDRY AND MANUFACTURING CO., INC., 337 U.S. 198 (1949).

THE $5,000 CLAIMED FOR THE COST OF AUDIT IS NOT FOR CONSIDERATION SINCE IT CONSTITUTES AN EXPENSE IN CONNECTION WITH THE PRESENTATION OF YOUR CLAIM. 37 COMP. GEN. 485; ART CENTER SCHOOL V. UNITED STATES, 142 F.SUPP. 916; ARTHUR W. LANGEVIN V. UNITED STATES, 100 CT.CL. 15; OLIVER- FINNIE COMPANY V. UNITED STATES, 150 CT.CL. 189 (1960).

THE AMOUNT OF $67,473 CLAIMED AS ADDITIONAL BURDEN (OVERHEAD) DOLLARS ATTRIBUTABLE TO THE APPLICATION OF ARMED SERVICES PROCUREMENT REGULATION (ASPR) SECTION 15, PART 2, AS WELL AS THE AMOUNT OF $50,714.96 CLAIMED AS INCENTIVE COMPENSATION, IS DISALLOWED FOR THE REASON THAT THE CONTRACT--- A FIXED-PRICE ADVERTISED CONTRACT--- WAS NOT MADE SUBJECT TO THE CONTRACT COST PRINCIPLES AND PROCEDURES OF ASPR 15. ASPR 15-000 PROVIDES THAT THE SCOPE OF THE SECTION IS AS FOLLOWS:

"THIS SECTION CONTAINS GENERAL COST PRINCIPLES AND PROCEDURES FOR THE DETERMINATION AND ALLOWANCE OF COSTS IN CONNECTION WITH THE NEGOTIATION AND ADMINISTRATION OF COST-REIMBURSEMENT TYPE CONTRACTS AND CONTAINS GUIDELINES FOR USE, WHERE APPROPRIATE, IN THE EVALUATION OF COSTS IN CONNECTION WITH CERTAIN NEGOTIATED FIXED-PRICE TYPE CONTRACTS AND CONTRACTS TERMINATED FOR THE CONVENIENCE OF THE GOVERNMENT.'

WE HAVE CONSIDERED THE MANY AUTHORITIES CITED BY YOU IN SUPPORT OF YOUR CLAIM BUT, IN THE ABSENCE OF THE REQUIRED PROOF OF CAUSATION AND RESULT, THEY ARE CLEARLY DISTINGUISHABLE AND HAVE LITTLE OR NO PERSUASIVE EFFECT UPON OUR DECISION.

ACCORDINGLY, AND ON THE RECORD BEFORE US, WE HAVE NO ALTERNATIVE BUT TO DENY YOUR CLAIM.