A-37522, FEBRUARY 26, 1932, 11 COMP. GEN. 322

A-37522: Feb 26, 1932

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BEDROCK WAS DISCOVERED TO BE AT SUBSTANTIALLY LOWER ELEVATIONS THAN SHOWN BY THE CONTRACT DRAWINGS. THE CONTRACTOR IS ENTITLED TO BE PAID ADDITIONAL COMPENSATION THEREFOR ONLY IN THE AMOUNT DECIDED UPON BY THE HEAD OF THE DEPARTMENT ON APPEAL AS AN EQUITABLE ADJUSTMENT OF THE CONTRACT PRICE PURSUANT TO ARTICLES 4. BEDROCK WAS NOT FOUND AT THE ELEVATIONS SHOWN BY THE CONTRACT DRAWINGS. THE WHOLE CLAIM IS BASED ON THE ASSERTED LIABILITY OF THE UNITED STATES BECAUSE BEDROCK IN THE RIVER AT THE SITE OF THE DAM WAS FOUND AT SUBSTANTIALLY LOWER ELEVATIONS THAN SHOWN BY THE CONTRACT DRAWINGS. BEDROCK WAS FOUND AS SHOWN BY THE DRAWINGS. AT THE DAM SITE IT WAS FOUND AT AN AVERAGE OF APPROXIMATELY 14 1/2 FEET LOWER THAN SHOWN BY THE DRAWINGS.

A-37522, FEBRUARY 26, 1932, 11 COMP. GEN. 322

CONTRACTS - CHANGED CONDITIONS - EXTRA COMPENSATION WHERE IN EXCAVATING FOR THE FOUNDATIONS OF A DAM, BEDROCK WAS DISCOVERED TO BE AT SUBSTANTIALLY LOWER ELEVATIONS THAN SHOWN BY THE CONTRACT DRAWINGS, CONSTITUTING A "MATERIALLY DIFFERING" SUBSURFACE CONDITION WITHIN THE CONTEMPLATION OF ARTICLE 4 OF THE STANDARDIZED GOVERNMENT CONSTRUCTION CONTRACT, THE CONTRACTOR IS ENTITLED TO BE PAID ADDITIONAL COMPENSATION THEREFOR ONLY IN THE AMOUNT DECIDED UPON BY THE HEAD OF THE DEPARTMENT ON APPEAL AS AN EQUITABLE ADJUSTMENT OF THE CONTRACT PRICE PURSUANT TO ARTICLES 4, 3, AND 15 OF THE CONTRACT, ARTICLE 15 OF THE CONTRACT MAKING SUCH DETERMINATION FINAL AND CONCLUSIVE UPON THE CONTRACTING PARTIES.

DECISION BY COMPTROLLER GENERAL MCCARL, FEBRUARY 26, 1932:

THERE HAS BEEN SUBMITTED TO THIS OFFICE THE CLAIM OF U.G.I. CONTRACTING CO. FOR $953,759.94, FOR ALLEGED EXTRA WORK, AND INCREASED EXPENSES, WITH PROFIT AND INTEREST TO APRIL 30, 1931, FOR THE CONSTRUCTION OF A LOCK, A DAM, AND A POWER HOUSE ON THE ALLEGHENY RIVER, AT A POINT SOME 53 MILES ABOVE THE MOUTH OF THE RIVER.

BY WAR DEPARTMENT CONTRACT W-1101-ENG-658 ENTERED INTO MAY 20, 1929, THE CLAIMANT AGREED TO CONSTRUCT THE POWER HOUSE FOR THE LUMP SUM OF $30,000 AND THE LOCK AND DAM AT STIPULATED UNIT PRICES FOR THE WORK ACTUALLY REQUIRED. THE PROJECT HAS BEEN COMPLETED, AND THE CONTRACTOR HAS BEEN PAID THE STIPULATED CONTRACT PRICES, TOTALING $1,664,845.06. IT CONTENDS, HOWEVER, THAT, IN THE CONSTRUCTION OF THE DAM, BEDROCK WAS NOT FOUND AT THE ELEVATIONS SHOWN BY THE CONTRACT DRAWINGS, BUT AT MATERIALLY LOWER ELEVATIONS; THAT THIS GREATLY INCREASED THE DIFFICULTY AND COST OF THE WORK ON THE DAM AND THAT, TO SOME EXTENT, IT INDIRECTLY INCREASED THE COST OF CONSTRUCTING THE LOCK AND THE POWER HOUSE. ON THIS BASIS THE CONTRACTOR CLAIMS THAT IN LIEU OF THE CONTRACT PRICES IT SHOULD BE PAID THE ALLEGED ACTUAL COST OF CONSTRUCTING THE LOCK, THE CONTRACT PRICE FOR THE POWER HOUSE, AND THE ALLEGED ACTUAL COST OF CONSTRUCTING THE DAM PLUS A PERCENTAGE PROFIT THEREON OF $259,767 AND INTEREST ON EXCESS EXPENDITURES TO DATE OF SETTLEMENT, OR A CLAIMED TOTAL OF APPROXIMATELY A MILLION DOLLARS IN ADDITION TO THE STIPULATED CONTRACT PRICES. THE WHOLE CLAIM IS BASED ON THE ASSERTED LIABILITY OF THE UNITED STATES BECAUSE BEDROCK IN THE RIVER AT THE SITE OF THE DAM WAS FOUND AT SUBSTANTIALLY LOWER ELEVATIONS THAN SHOWN BY THE CONTRACT DRAWINGS.

IT APPEARS THE CONTRACT DRAWINGS SHOWED THE FOUNDATIONS OF THE DAM AND OF THE LOCK CARRIED DOWN TO BEDROCK WITH THE ELEVATION OF THE BEDROCK DEPICTED ON THE DRAWINGS AS SHOWN BY BORINGS PREVIOUSLY MADE BY ANOTHER CONTRACTOR. UPON EXCAVATING FOR THE FOUNDATIONS OF THE LOCK, BEDROCK WAS FOUND AS SHOWN BY THE DRAWINGS, BUT AT THE DAM SITE IT WAS FOUND AT AN AVERAGE OF APPROXIMATELY 14 1/2 FEET LOWER THAN SHOWN BY THE DRAWINGS. APPEARS THE ERROR IN THE DRAWINGS WAS DUE TO THE WRONGFUL REPORTS OF EMPLOYEES OF THE BORING CONTRACTOR AND THAT THE WAR DEPARTMENT ENGINEER OFFICERS HAD NO KNOWLEDGE OF THE ACTUAL CONDITIONS WHEN THE CONTRACT WAS LET OR UNTIL THEY WERE UNCOVERED BY THE CONTRACTOR. WHILE THE DRAWINGS GAVE THE CONTRACTOR SUCH INFORMATION AS THE GOVERNMENT HAD AS TO THE CONDITIONS, THE CONTRACT DID NOT WARRANT OR GUARANTEE THE CORRECTNESS OF THE DRAWINGS. SECTION 1 OF THE "GENERAL SPECIFICATIONS" ATTACHED AND MADE A PART OF THE CONTRACT EXPRESSLY PROVIDED:

FROM SURVEYS AND BORINGS MADE AT THE SITE IT IS ASSUMED THAT CONDITIONS WILL BE FOUND APPROXIMATELY AS INDICATED IN THE DRAWINGS; BUT THE GOVERNMENT DOES NOT GUARANTEE THE NATURE OF THE MATERIAL TO BE ENCOUNTERED IN THE RIVER BED OR BANKS, THE CORRECTNESS OF THE DEPTH TO ROCK AS ASSUMED OR SHOWN ON THE DRAWINGS, THE DEPTH TO WHICH IT MAY BE NECESSARY TO EXCAVATE, OR THAT THE BOTTOM OR BANKS OF THE RIVER WILL NOT BE CHANGED BEFORE OR AFTER COMMENCEMENT OF WORK. * * *

IN VIEW OF THIS PROVISION OF THE CONTRACT AND AS THERE IS NO EVIDENCE, OR EVEN AN ASSERTION, THAT THE RESPONSIBLE GOVERNMENT OFFICERS HAD ANY KNOWLEDGE OR BASIS FOR KNOWLEDGE THAT THE ACTUAL CONDITIONS WERE OTHER THAN AS SHOWN BY THE DRAWINGS IT IS CLEAR THAT THERE WAS NO MISREPRESENTATION OR WARRANTY FOR WHICH THE UNITED STATES IS CONTRACTUALLY LIABLE. SEE MACARTHUR BROS. CO. V. UNITED STATES, 258 U.S. 6; LOVELL V. UNITED STATES, 61 CT.CLS. 756. THE CASES OF HOLLERBACH V. UNITED STATES, 233 U.S. 165; CHRISTIE V. UNITED STATES, 237 U.S. 234; UNITED STATES V. ATLANTIC DREDGING CO., 253 U.S. 1; AND OTHER SIMILAR CASES ARE TO BE DISTINGUISHED AS IN SUCH CASES THERE WERE EITHER UNQUALIFIED REPRESENTATIONS OR STATEMENTS OF BELIEF OR OPINION AS TO THE CORRECTNESS OF THE DRAWINGS AND SPECIFICATIONS AS TO WHICH THE RESPONSIBLE OFFICERS HAD KNOWLEDGE TO THE CONTRARY, FOR WHICH THE GOVERNMENT WAS, THEREFORE, HELD TO BE CONTRACTUALLY LIABLE. COMPARE THE LEVERING AND GARRIGUES COMPANY V. UNITED STATES, NO. D 418, DECIDED BY THE COURT OF CLAIMS JANUARY 18, 1932.

FURTHERMORE, IN THE PRESENT CASE THE CONTRACT ITSELF EXPRESSLY ANTICIPATED THAT SUBSURFACE CONDITIONS WOULD NOT BE AS SHOWN BY THE DRAWINGS AND PROVIDED AN AGREED METHOD FOR ADJUSTING THE CONTRACT PRICE IN THAT EVENT, ARTICLE 4 OF THE CONTRACT BEING AS FOLLOWS:

CHANGED CONDITIONS.--- SHOULD THE CONTRACTOR ENCOUNTER, OR THE GOVERNMENT DISCOVER, DURING THE PROGRESS OF THE WORK, SUBSURFACE AND (OR) LATENT CONDITIONS AT THE SITE MATERIALLY DIFFERING FROM THOSE SHOWN ON THE DRAWINGS OR INDICATED IN THE SPECIFICATIONS, THE ATTENTION OF THE CONTRACTING OFFICER SHALL BE CALLED IMMEDIATELY TO SUCH CONDITIONS BEFORE THEY ARE DISTURBED. THE CONTRACTING OFFICER SHALL THEREUPON PROMPTLY INVESTIGATE THE CONDITIONS, AND IF HE FINDS THAT THEY MATERIALLY DIFFER FROM THOSE SHOWN ON THE DRAWINGS OF THE HEAD OF THE DEPARTMENT OR HIS REPRESENTATIVE, MAKE SUCH CHANGES IN THE DRAWINGS AND (OR) SPECIFICATIONS AS HE MAY FIND NECESSARY, AND ANY INCREASE OR DECREASE OF COSTS AND (OR) DIFFERENCE IN TIME RESULTING FROM SUCH CHANGES SHALL BE ADJUSTED AS PROVIDED IN ARTICLE 3 OF THIS CONTRACT.

ARTICLE 3 STIPULATED THAT FOR CHANGES IN THE CONTRACT "AN EQUITABLE ADJUSTMENT SHALL BE MADE" AND PROVIDES THAT "IF THE PARTIES CAN NOT AGREE UPON THE ADJUSTMENT THE DISPUTE SHALL BE DETERMINED AS PROVIDED IN ARTICLE 15 HEREOF.' ARTICLE 15 PROVIDES FOR THE SETTLEMENT OF DISPUTES ARISING UNDER THE CONTRACT BY THE CONTRACTING OFFICER OR HIS DULY AUTHORIZED REPRESENTATIVE SUBJECT TO WRITTEN APPEAL BY THE CONTRACTOR WITHIN 31 DAYS TO THE HEAD OF THE DEPARTMENT CERNED,"WHOSE DECISION SHALL BE FINAL AND CONCLUSIVE UPON PARTIES THERETO," AND THAT IN THE MEANTIME THE CONTRACTOR SHALL DILIGENTLY PROCEED WITH THE WORK AS DIRECTED.

THAT THE CONTRACTOR RECOGNIZED THAT THE LOWER ELEVATION OF BEDROCK AT THE DAM SITE WAS A ,MATERIALLY DIFFERING" SUBSURFACE CONDITION WITHIN THE CONTEMPLATION OF ARTICLE 4 OF THE CONTRACT IS SHOWN BY ITS LETTER OF APRIL 24, 1930, TO THE CONTRACTING OFFICER, IN PART AS FOLLOWS:

RECENT SOUNDINGS AND TESTS MADE BY US AT ALLEGHENY RIVER DAM NUMBER 8 INDICATE QUITE CONCLUSIVELY THAT BEDROCK EXISTS AT A MUCH LOWER ELEVATION THAN IS SHOWN ON OUR CONTRACT DRAWINGS. THIS INCREASE IN DEPTH RESULTS IN PROPORTIONATELY VERY MUCH GREATER COSTS.

ARTICLE 4 OF OUR CONTRACT WITH YOU REQUIRES THE CONTRACTOR TO CALL TO YOUR ATTENTION SUBSURFACE CONDITIONS MATERIALLY DIFFERING FROM THOSE SHOWN ON THE DRAWINGS. WE BELIEVE THAT UNDER THE PROVISIONS OF THIS ARTICLE 4, WE ARE ENTITLED TO AN ADJUSTMENT OF OUR CONTRACT AND WE HEREWITH MAKE APPLICATION FOR SAME.

THE CONTRACTING OFFICER REPLIED UNDER DATE OF APRIL 26, 1930, THAT AN INVESTIGATION WAS BEING MADE OF THE SUBSURFACE CONDITIONS IN ACCORDANCE WITH ARTICLE 4 OF THE CONTRACT AND DIRECTED THE CONTRACTOR TO PROCEED WITH THE CONSTRUCTION OF THE DAM IN ACCORDANCE WITH THE PROVISIONS OF THE CONTRACT. SUBSEQUENTLY, UNDER DATE OF MAY 31, 1930, THE CONTRACTOR EXPRESSED ITS DISSATISFACTION WITH THE PRICE ADJUSTMENT WHICH HAD BEEN SUGGESTED BY THE CONTRACTING OFFICER AND INQUIRED WHETHER THE "HEAD OF THE DEPARTMENT CONCERNED" MENTIONED IN ARTICLE 15 (TO WHOM AN APPEAL LAY) REFERRED TO THE CHIEF OF ENGINEERS OR TO THE SECRETARY OF WAR.

UPON THE COMPLETION OF THE WORK THE CONTRACTING OFFICER PROPOSED AN ADJUSTMENT OF THE CONTRACT PRICE ON ACCOUNT OF THE INCREASED COST AND DIFFICULTY OF THE WORK ON THE DAM WHEREBY THE CONTRACTOR SHOULD BE PAID $566,313.49 IN ADDITION TO THE AMOUNT OF $1,664,845.06 ALREADY PAID AT THE CONTRACT UNIT PRICES FOR THE ENTIRE WORK ACTUALLY PERFORMED ON THE WHOLE PROJECT. THIS WAS NOT ACCEPTABLE TO THE CONTRACTOR; IT APPEALED TO THE SECRETARY OF WAR PURSUANT TO ARTICLE 15 OF THE CONTRACT, AND THE SECRETARY OF WAR HAS DECIDED ON THE BASIS OF AN INVESTIGATION AND RECOMMENDATIONS BY THE CHIEF OF ENGINEERS THAT THE CONTRACTOR SHOULD BE PAID $579,442.82 IN ADDITION TO THE STIPULATED CONTRACT PRICES, THUS INCREASING THE AMOUNT PROPOSED BY THE CONTRACTING OFFICER BY $13,129.33. THE STATED BASIS OF THIS ADJUSTMENT IS TO ALLOW THE CONTRACTOR THE CONTRACT PRICES ON ALL PARTS OF THE WORK WHICH THE GOVERNMENT ENGINEERS FOUND WERE NOT AFFECTED BY THE CHANGED CONDITIONS, THAT IS, THE LOCK, THE POWERHOUSE, AND THE ABUTMENT OF THE DAM, AND TO ALLOW THE ACTUAL COST, INCLUDING ALL DIRECT AND INDIRECT EXPENSES AS CLAIMED BY THE CONTRACTOR FOR THE CONSTRUCTION OF THE DAM.

THE CONTRACTOR COMPLAINS THAT THIS ADJUSTMENT IS NOT FAIR BECAUSE IT ALLOWS NOTHING FOR PROFIT ON THE DAM OR FOR INTEREST ON ITS INCREASED EXPENDITURES. AS TO THIS IT MAY BE STATED THAT THERE IS NOTHING MORE DEFINITELY ESTABLISHED THAN THAT THE GOVERNMENT IS NOT CHARGEABLE WITH INTEREST EXCEPT WHERE IT IS EXPRESSLY AUTHORIZED BY STATUTE OR EXPRESSLY STIPULATED FOR IN A CONTRACT AUTHORIZED BY LAW AND THAT WHILE THE RECORD BEFORE THIS OFFICE DOES NOT CONCLUSIVELY ESTABLISH THAT THE CONTRACTOR WOULD HAVE SUFFERED A LOSS ON THE CONSTRUCTION OF THE DAM IF THE CHANGED CONDITIONS HAD NOT BEEN ENCOUNTERED IT DOES NOT ESTABLISH THAT THE CONTRACTOR WOULD HAVE MADE A PROFIT ON THE DAM. THE CONTRACTING OFFICER HAS FOUND AS A FACT THAT THE LOWER BED ROCK AT THE DAM DID NOT AFFECT THE COSTS OF THE LOCK OR POWERHOUSE BUT BY THE CONTRACTOR'S OWN FIGURES AND UNDER THE SAME FAVORABLE WEATHER, WATER, AND PRICE CONDITIONS AS APPLIED TO THE DAM, IT SUFFERED A LOSS ON THE CONSTRUCTION ON THE LOCK AND ON THE CONSTRUCTION OF THE POWERHOUSE ON WHICH ITS CONTRACT PRICES APPROXIMATED THE PRIOR ESTIMATES OF COST MADE BY THE WAR DEPARTMENT, WHEREAS ITS ACCEPTED BID PRICES FOR THE CONSTRUCTION OF THE DAM UNDER THE ORIGINALLY ESTIMATED QUANTITIES AND CONDITIONS TOTALED ONLY $594,510.45 AS AGAINST THE GOVERNMENT ESTIMATE OF $827,212.05, OR SOME $233,000 BELOW THE GOVERNMENT ESTIMATED, AND THAT THE GOVERNMENT ESTIMATE WAS NOT EXCESSIVELY HIGH IS INDICATED BY THE OTHER COMPETING BIDS ON THE DAM OF $792,709.05, $796,745.80, AND $850,660.90. IF THE CONTRACTOR WERE IN A POSITION THAT IT WAS SUBJECT TO A SUBSTANTIAL LOSS ON THE CONTRACT IT CAN NOT BE SAID THAT IT IS FAIRLY ENTITLED TO HAVE ITS POSITION CHANGED TO ONE OF SUBSTANTIAL PROFIT BECAUSE IT ENCOUNTERED SUBSURFACE CONDITIONS FOR WHICH THE CONTRACT AUTHORIZED AN ADJUSTMENT OF PRICE. CONVERSELY, IT SHOULD NOT HAVE ITS POSITION CHANGED FROM ONE OF PROFIT TO ONE OF LOSS, AND WHERE NEITHER POSITION IS ESTABLISHED BUT THERE IS REASONABLE GROUNDS FOR INFERRING THAT THERE WOULD HAVE BEEN A LOSS IT WOULD NOT SEEM TO BE EMINENTLY UNFAIR TO PAY THE ACTUAL COSTS, LEAVING THE CONTRACTOR WITHOUT LOSS OR PROFIT ON THE CHANGED WORK, AS DECIDED BY THE SECRETARY OF WAR. SEE UNITED STATES V. BEHAN, 110 U.S. 338. SEE, ALSO, THE LEVERING AND GARRIGUES CASE HEREINBEFORE CITED.

BUT, HOWEVER THE ESSENTIAL FAIRNESS OF THE DECISION OF THE SECRETARY OF WAR MAY BE VIEWED, THE CONTRACT EXPRESSLY PROVIDES AND THE CONTRACTOR AGREED THAT SUCH DECISION SHOULD BE FINAL AND CONCLUSIVE AND IT IS WELL ESTABLISHED THAT SUCH CONTRACTUAL PROVISIONS ARE BINDING AND WILL BE RECOGNIZED AS CONCLUDING THE PARTIES THERETO AND THAT DECISIONS MADE PURSUANT TO SUCH AGREEMENTS WILL NOT BE SET ASIDE IN THE ABSENCE OF PROOF THAT THE ACTION WAS SO ARBITRARY OR GROSSLY UNFAIR OR MISTAKEN AS TO WARRANT A CONCLUSION OF BAD FAITH. SEE PENN BRIDGE CO. V. UNITED STATES, 59 CT.CLS. 892, 897, AND CASES THEREIN CITED. SUCH ELEMENTS ARE FAR FROM BEING ESTABLISHED IN THE PRESENT CASE, AND THEREFORE, IT MUST BE HELD THAT THERE IS NO AUTHORITY TO ALLOW THE CLAIM IN ANY AMOUNT IN EXCESS OF THAT FIXED BY THE SECRETARY OF WAR PURSUANT TO THE CONTRACT AS AN EQUITABLE ADJUSTMENT OF THE CONTRACT PRICE ON ACCOUNT OF THE "MATERIALLY DIFFERING" SUBSURFACE CONDITIONS ENCOUNTERED AT THE SITE OF THE DAM. NOR DOES THE RECORD ESTABLISH THAT THE AMOUNT SO DETERMINED IS SO UNFAIR TO THE CONTRACTOR AS TO WARRANT A REPORT BY THIS OFFICE TO THE CONGRESS IN THE MATTER PURSUANT TO THE ACT OF APRIL 10, 1928, 45 STAT. 413, RECOMMENDING THAT LEGISLATION BY ENACTED AND A SPECIAL APPROPRIATION MADE FOR THE PAYMENT OF EQUITABLE PRINCIPLES OF AN AMOUNT IN ADDITION TO THAT FIXED BY THE SECRETARY OF WAR, WHOSE DETERMINATION THE CONTRACTOR, BY THE EXPRESS TERMS OF ITS CONTRACT, AGREED SHOULD BE FINAL AND CONCLUSIVE.

ACCORDINGLY, THERE WILL BE CERTIFIED FOR PAYMENT TO THE CLAIMANT OF $579,442.82, SUBJECT TO VERIFICATION OF THE REPORT AS TO THE PAYMENTS, SAID TO AGGREGATE $1,664,845.06, HERETOFORE MADE TO THE CONTRACTOR FOR THE WORK PERFORMED UNDER THE CONTRACT. THE BALANCE OF THE CLAIM MUST BE AND IS DISALLOWED.