B-165817, APR. 17, 1970

B-165817, APR. 17, 1970

CONTRACTS--OFFER AND ACCEPTANCE--PRECONTRACT COSTS RESTITUTION OF PRECONTRACT COSTS RESULTING FROM ALLEGED VERBAL DIRECTIONS OF NAVY PERSONNEL TO SUPPLY ADDITIONAL PROPOSED UNITS UNDER EXISTING CONTRACT IS DENIED ON QUANTUM VALEBAT BASIS, ABSENT EVIDENCE OF TANGIBLE, UNCOMPENSATED BENEFITS TO GOVERNMENT, AND ON IMPLIED IN FACT CONTRACT BASIS, BECAUSE CONTRACTOR HAD NOTICE FROM CURRENT CONTRACT AND OTHERWISE, THAT ONLY CONTRACTING OFFICER COULD CHANGE CONTRACT TERMS. MOREOVER, CONSIDERING LEGAL RESTRICTIONS UPON GOVERNMENT OFFICIALS' CONTRACTING AUTHORITY, GOVERNMENT'S SILENCE WAS INSUFFICIENT TO EVOKE EXCEPTION TO GENERAL RULE (SILENCE IS NOT ASSENT) IMPOSING DUTY ON GOVERNMENT TO SPEAK TO ESCAPE CONTRACT LIABILITY.

TO PHILCO-FORD CORPORATION:

THIS IS IN REPLY TO YOUR CORRESPONDENCE REQUESTING RECONSIDERATION OF OUR DECISION, B-165817, DATED MAY 2, 1969, TO THE SECRETARY OF THE NAVY, WHICH WAS ADVERSE TO YOUR CLAIM FOR COMPENSATION FOR EXPENSES INCURRED PURSUANT TO ALLEGED VERBAL DIRECTIONS OF NAVY PERSONNEL PENDING CONSIDERATION OF YOUR PROPOSAL FOR SUPPLYING ADDITIONAL UNITS UNDER A CONTRACT WHICH YOU WERE THEN PERFORMING.

IN SUMMARY, WE HELD THAT ON THE RECORD BEFORE US WE FOUND NO APPARENT LEGAL BASIS, EITHER UPON AN IMPLIED IN FACT CONTRACT OR UPON QUANTUM VALEBAT, FOR AUTHORIZING PAYMENT TO REIMBURSE YOUR CORPORATION FOR THE COST OF MATERIALS PROCURED AND WORK PERFORMED ON BEHALF OF THE GOVERNMENT IN PREPARING FOR THE MANUFACTURE OF THE PROPOSED ADDITIONAL UNITS.

WITH RESPECT TO THE QUESTION REGARDING THE EXISTENCE OF AN IMPLIED IN FACT CONTRACT, OUR DECISION HELD THAT THE DISAGREEMENT WHICH TOOK PLACE ON JANUARY 11, 1966, ABOUT THE APPLICABLE SPECIFICATIONS SHOWED THAT THERE WAS NO MEETING OF THE MINDS. MOREOVER, ALTHOUGH YOUR COMPANY HAD ADVISED THE GOVERNMENT IN TWO LETTERS THAT PRECONTRACT COSTS WERE BEING INCURRED BASED ON VERBAL DIRECTION FROM CAPTAIN BOUTWELL, BUREAU OF NAVAL WEAPONS, WHO THE RECORD SHOWS CANNOT RECALL HAVING GIVEN SUCH ADVICE, WE TOOK THE POSITION THAT THE REPORTED SUBSEQUENT ACTION OF THE CONTRACTING OFFICER IN SERVING NOTICE ON PHILCO-FORD DURING PRELIMINARY ORAL NEGOTIATIONS THAT THE COMPANY WAS NOT TO ACT ON VERBAL ORDERS FROM ANYONE IN THE GOVERNMENT, CLEARLY SHOWED THAT PHILCO-FORD WAS MADE AWARE THAT THE GOVERNMENT HAD NO INTENT TO BE BOUND EXCEPT PURSUANT TO A DULY EXECUTED WRITTEN CONTRACT.

IN YOUR REQUEST FOR RECONSIDERATION OF THIS PORTION OF OUR DECISION YOU ARGUE THAT EVEN THOUGH THERE MAY NOT HAVE BEEN AGREEMENT AT THE JANUARY 11 MEETING AS TO THE APPLICABLE SPECIFICATIONS, SUCH ACTION DOES NOT AFFECT THE GOVERNMENT'S ALLEGED COMMITMENT FOR LONG LEAD ITEMS AS AN ADD-ON TO YOUR PREVIOUS CONTRACT ON THE SAME SPECIFICATIONS. MOREOVER, YOU CONTEND THAT THE KEY TO THE EXISTENCE OF AN IMPLIED IN FACT CONTRACT IN THIS CASE IS THAT THE GOVERNMENT FAILED TO RESPOND IN WRITING TO PHILCO-FORD'S WRITTEN ADVICES THAT IT HAD RECEIVED VERBAL AUTHORITY TO PROCEED-- PRESUMABLY ON THE BASIS OF THE ORIGINAL SPECIFICATIONS. WHILE YOU DISPUTE THE EXISTENCE OF ANY ORAL WARNINGS TO PHILCO-FORD BY THE CONTRACTING OFFICER, YOU ALSO CONTEND THAT IN ANY EVENT, SUCH WARNINGS ARE INADEQUATE SINCE THE GOVERNMENT HAD A DUTY TO ADVISE PHILCO-FORD IN WRITING. IT IS ARGUED THAT THE ABSENCE OF A WRITTEN RESPONSE CONSTITUTES SUCH CONDUCT AS TO JUSTIFY PHILCO-FORD'S UNDERSTANDING THAT THE GOVERNMENT INTENDED TO MAKE A PROMISE. IN SUPPORT OF THIS POSITION YOU CITE AM. LAW INST. RESTATEMENT, CONTRACTS, VOLUME 1, SECTION 5, WHICH STATES IN PERTINENT PART THAT "A PROMISE IN A CONTRACT MUST BE STATED IN SUCH WORDS EITHER ORAL OR WRITTEN, OR MUST BE INFERRED WHOLLY OR PARTLY FROM SUCH CONDUCT, AS JUSTIFIES THE PROMISEE IN UNDERSTANDING THAT THE PROMISOR INTENDED TO MAKE A PROMISE."

IN OUR OPINION THE ABOVE QUOTED AUTHORITY DOES NOT SUPPORT YOUR BASIC PROPOSITION THAT THE GOVENMENT HAD A DUTY TO ADVISE YOU IN WRITING NOT TO PROCEED. NEITHER ARE WE AWARE OF PRECEDENT FOR NOR CAN WE AGREE WITH THE POSITION YOU HAVE TAKEN. TO THE CONTRARY, AS A GENERAL RULE AN OFFEREE NEED MAKE NO REPLY TO AN OFFER AND HIS SILENCE AND INACTION CANNOT BE CONSTRUED AS AN ASSENT TO THE OFFER. WHILE AN EXCEPTION TO THIS RULE IS RECOGNIZED WHERE SILENCE IS SO DECEPTIVE THAT IT BECOMES NECESSARY FOR A PARTY WHO TAKES BENEFICIAL SERVICES FROM ANOTHER TO SPEAK IN ORDER TO ESCAPE THE INFERENCE OF A PROMISE TO PAY FOR SUCH SERVICES (WILLISTON ON CONTRACTS, 3D EDITION, SECTIONS 91 AND 91A, AND AM. LAW INST. RESTATEMENT, CONTRACTS, VOLUME 1, SECTION 72), WE HAVE SERIOUS DOUBTS AS TO THE APPLICABILITY OF THIS EXCEPTION TO THE GOVERNMENT IN VIEW OF THE LEGAL RESTRICTIONS UPON THE CONTRACTING AUTHORITY OF THE GOVERNMENT'S OFFICIALS.

THE FACT IS THAT THE EXPENSES WERE INCURRED IN ANTICIPATION OF AN INCREASE IN THE QUANTITY OF SUPPLIES TO BE FURNISHED UNDER YOUR THEN CURRENT CONTRACT, WHICH COULD HAVE BEEN LEGALLY ACCOMPLISHED ONLY BY A MODIFICATION OF THAT CONTRACT; YOU HAD SUBMITTED A PROPOSAL STATING THE TERMS ON WHICH YOU WOULD BE WILLING TO SUPPLY THE ADDITIONAL ITEMS AND THAT PROPOSAL WAS UNDER CONSIDERATION BY THE GOVERNMENT, BUT WAS NEVER ACCEPTED. ULTIMATELY THE GOVERNMENT MADE A COUNTER-OFFER, WHICH YOU REJECTED, AND AT THAT POINT YOU DISCONTINUED THE PREPARATIONS WHICH YOU HAD BEEN MAKING FOR PERFORMANCE OF THE PROSPECTIVE ADDITIONAL WORK.

IN THESE CIRCUMSTANCES, AND SINCE YOU WERE CLEARLY ON NOTICE BY THE PROVISIONS OF YOUR CONTRACT THAT CHANGES THEREIN COULD ONLY BE MADE BY THE CONTRACTING OFFICER, IT IS OUR VIEW THAT ANY ACTION TAKEN BY YOU UPON THE REQUEST OR DIRECTION OF ANY GOVERNMENT AGENT OTHER THAN THE CONTRACTING OFFICER WAS AT YOUR OWN RISK, AND THAT THERE WAS NO OBLIGATION ON THE CONTRACTING OFFICER TO GIVE YOU ANY SPECIFIC NOTICE OR WARNING TO THAT EFFECT.

THE FILE SUBMITTED BY THE NAVY NEVERTHELESS SHOWS THAT YOU WERE ORALLY ADVISED AGAINST YOUR PRECIPITOUS ACTIONS. IT IS NOTED THAT YOU DISPUTE THE EXISTENCE OF SUCH ORAL ADMONITIONS, AND YOU HAVE REQUESTED US TO OBTAIN DEFINITIVE STATEMENTS BY NAVY PERSONNEL AS TO WHEN AND WHAT ACTION THEY TOOK IN THIS REGARD. WE HAVE BEEN INFORMALLY ADVISED BY THE NAVY, HOWEVER, THAT MR. SUTTON, AN AUTHORIZED NAVY CONTRACTING OFFICIAL WHO, ACCORDING TO THE RECORD BEFORE US, ORALLY ADMONISHED YOUR FIRM IS NOW RETIRED FROM FEDERAL SERVICE. MOREOVER, AS STATED IN OUR PRIOR DECISION, THE RECORD CONTAINS A STATEMENT BY CAPTAIN BOUTWELL, WHO YOU ALLEGE DIRECTED YOU TO INCUR PRECONTRACT COSTS, TO THE EFFECT THAT HE DOES NOT RECALL ANY SUCH DIRECTION. IN THESE CIRCUMSTANCES, WE FEEL JUSTIFIED IN PROCEEDING ON THE BASIS OF THE PRESENT RECORD AND ACCEPTING THE ADMINISTRATIVE STATEMENT OF THESE DISPUTED FACTS.

BASED ON THE FOREGOING, WE CANNOT FIND THAT A BINDING IMPLIED IN FACT CONTRACT EVER CAME INTO EXISTENCE.

YOUR CORRESPONDENCE ALSO REAFFIRMS YOUR POSITION THAT THE GOVERNMENT IS REQUIRED TO MAKE RESTITUTION TO PHILCO-FORD FOR ITS PRECONTRACT COSTS SINCE THE NAVY ORIGINALLY STATED IN ITS LETTER TO THIS OFFICE DATED DECEMBER 10, 1968, THAT THERE WAS A BENEFIT CONFERRED UPON THE GOVERNMENT. YOU SUGGEST TWO POSSIBLE COMPENSABLE BENEFITS TO THE GOVERNMENT WHICH ARE CONSIDERED BELOW, AND YOU REQUEST THAT WE OBTAIN FURTHER INFORMATION FROM THE NAVY AS TO THE NATURE OF THE BENEFIT ORIGINALLY SUGGESTED BY IT IN SUBMITTING THE MATTER FOR OUR CONSIDERATION.

WITH RESPECT TO THE BENEFIT ORIGINALLY SUGGESTED BUT NOT SPECIFIED BY THE NAVY, WE NOTE THAT OUR DECISION ADVISED THE SECRETARY THAT ONLY TANGIBLE BENEFITS, RECEIVED AND RETAINED, COULD BE THE BASIS FOR PAYMENT. WHILE IN ACCORDANCE WITH YOUR REQUEST WE REQUESTED A REPORT FROM THE NAVY--AND WE HAVE PROVIDED YOU WITH A COPY THEREOF--IT APPEARS THAT THE DEPARTMENT HAS NOTHING TO SUGGEST REGARDING "TANGIBLE BENEFITS" AND DISPUTES THE BENEFITS SUGGESTED IN YOUR CORRESPONDENCE.

THE BENEFITS TO THE GOVERNMENT WHICH YOU NOW CONTEND REQUIRE IT TO MAKE RESTITUTION TO PHILCO-FORD FOR PRECONTRACT COSTS ARE (1) THAT THE GOVERNMENT DERIVED INSURANCE AGAINST ANY GAP IN DELIVERY OF MISSILES BY YOUR ACTIONS, WHICH MADE AVAILABLE A PRODUCTION OVERLAP OF DELIVERIES UNDER YOUR EXISTING CONTRACT WITH THOSE OF THE NEW PRODUCER, AND (2) THAT A PORTION OF THE MATERIALS PROCURED BY PHILCO-FORD WAS SUBSEQUENTLY SOLD TO THE NAVAL AIR REWORK FACILITY (NARF), WHICH ENABLED NARF TO REPAIR AND RETURN MISSILES TO THE FLEET AND PREVENTED A SERIOUS DEPLETION OF USABLE MISSILES IN THE FLEET.

THE NAVY HAS TAKEN THE POSITION THAT YOUR CORRESPONDENCE DOES NOT SET FORTH ANY BENEFIT DERIVED BY THE GOVERNMENT FOR WHICH PHILCO-FORD HAS NOT BEEN COMPENSATED. SPECIFICALLY, THE NAVY STATES THAT AN OVERLAP IN PRODUCTION BETWEEN THE OLD AND NEW CONTRACTORS WAS PROVIDED WITHOUT NECESSITATING ANY ADDITIONAL PURCHASE FROM PHILCO-FORD, SINCE YOUR COMPANY SLIPPED ITS DELIVERY SCHEDULE UNDER ITS EXISTING CONTRACT. IN ADDITION, IT IS STATED THAT WHILE THE MATERIAL PURCHASED FROM PHILCO FORD--FOR WHICH YOU HAVE BEEN PAID--ASSISTED NARF IN ITS REWORK OF MISSILES DURING A PERIOD WHEN THERE WAS A SHORTAGE OF CERTAIN MATERIAL, NARF COULD HAVE MET ITS PRODUCTION SCHEDULE WITHOUT THE MATERIAL FROM PHILCO-FORD.

SINCE THE NAVY DOES NOT PERCEIVE ANY OBLIGATION TO MAKE RESTITUTION TO PHILCO-FORD ON THE BASIS OF EITHER BENEFIT SUGGESTED IN YOUR CORRESPONDENCE, WE MUST SUSTAIN OUR PRIOR DECISION IN THIS REGARD.