A-88260, AUGUST 2, 1938, 18 COMP. GEN. 111

A-88260: Aug 2, 1938

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WILL NOT CERTIFY FOR PAYMENT CLAIMS OF DOUBTFUL VALIDITY IN FACT OR IN LAW. CONTRACTOR'S CLAIM FOR CONTRACT CANCELATION PRICE MAY NOT BE ALLOWED WHERE THE CANCELATION AGREEMENT IS OF DOUBTFUL VALIDITY BECAUSE ENTERED INTO BY ADMINISTRATIVE OFFICIALS DIFFERENT FROM THOSE OF THE ORIGINAL CONTRACT AND THOSE VESTED WITH AUTHORITY GENERALLY UNDER THE CONTRACT. PARTICULARLY WHERE THE CANCELATION AMOUNT IS BASED UPON ESTIMATE OR CONJECTURE AS TO THE EXTENT OF BENEFITS DERIVED BY THE PARTIES INVOLVED. IT IS FOUND THAT NO PART THEREOF MAY BE ALLOWED FOR THE REASONS HEREINAFTER STATED. CONTRACT NOS. 41811 WAS FOR FURNISHING CERTAIN FIRE-CONTROL EQUIPMENT TO THE NAVY DEPARTMENT FOR USE ON NAVAL VESSELS.

A-88260, AUGUST 2, 1938, 18 COMP. GEN. 111

CONTRACTS - CANCELLATION - CLAIMS UNDER AGREEMENTS OF DOUBTFUL VALIDITY GOVERNMENT ACCOUNTING OFFICERS, OUT OF PROTECTION TO THEMSELVES AND THE UNITED STATES, WILL NOT CERTIFY FOR PAYMENT CLAIMS OF DOUBTFUL VALIDITY IN FACT OR IN LAW. CONTRACTOR'S CLAIM FOR CONTRACT CANCELATION PRICE MAY NOT BE ALLOWED WHERE THE CANCELATION AGREEMENT IS OF DOUBTFUL VALIDITY BECAUSE ENTERED INTO BY ADMINISTRATIVE OFFICIALS DIFFERENT FROM THOSE OF THE ORIGINAL CONTRACT AND THOSE VESTED WITH AUTHORITY GENERALLY UNDER THE CONTRACT, PARTICULARLY WHERE THE CANCELATION AMOUNT IS BASED UPON ESTIMATE OR CONJECTURE AS TO THE EXTENT OF BENEFITS DERIVED BY THE PARTIES INVOLVED, ETC.

ACTING COMPTROLLER GENERAL ELLIOTT TO FORD INSTRUMENT CO., INC., AUGUST 2, 1938:

THERE HAS BEEN FULLY EXAMINED YOUR CLAIM IN THE AMOUNT OF $48,000 ASSERTED AS THE AGREED CANCELATION PRICE OF NAVY CONTRACT NOS. 41811 OF APRIL 30, 1935, AND IT IS FOUND THAT NO PART THEREOF MAY BE ALLOWED FOR THE REASONS HEREINAFTER STATED.

CONTRACT NOS. 41811 WAS FOR FURNISHING CERTAIN FIRE-CONTROL EQUIPMENT TO THE NAVY DEPARTMENT FOR USE ON NAVAL VESSELS. THE NAVY DEPARTMENT REPORTED DATA FROM WHICH FURTHER FACTS APPEAR AS FOLLOWS:

APPROXIMATELY A YEAR AFTER THE CONTRACT WAS PROMULGATED--- JUNE 13, 1936- -- YOU WERE ADVISED BY D. B. WAINWRIGHT, JR., "BY DIRECTION OF THE PAYMASTER GENERAL" TO DISCONTINUE WORK UNDER THE CONTRACT UNTIL DEFINITE DETERMINATION COULD BE MADE WHETHER FINAL APPROVAL SHOULD BE GIVEN TO FIRE -CONTROL EQUIPMENT OF THE TYPE CALLED FOR BY THE AGREEMENT; ALSO TO FURNISH A STATEMENT OF ALL EXPENDITURES MADE IN CONNECTION WITH THE CONTRACT. YOU REPLIED JULY 17, 1936, INFORMING THE BUREAU OF SUPPLIES AND ACCOUNTS THAT EXPENDITURES TO THAT DATE AMOUNTED TO $68,675.70. DECEMBER 4, 1936, THE NAVY DEPARTMENT, BY D. B. WAINWRIGHT, JR., INFORMED YOU THAT DECISION HAD BEEN REACHED TO NOT INSTALL THE TYPE OF FIRE-CONTROL EQUIPMENT CALLED FOR BY YOUR CONTRACT AND THAT IT WAS PROPOSED TO CANCEL SAID CONTRACT "UPON THE MOST ECONOMICAL BASIS; " AND TO FURNISH A MORE COMPLETE ITEMIZATION OF YOUR EXPENDITURES THAN APPEARED IN YOUR LETTER OF JULY 17, 1936. WHAT YOU THEREUPON FURNISHED JANUARY 8, 1937, THE NAVY DEPARTMENT, BY ARTHUR H. MAYO, IN LETTER OF APRIL 14, 1937, INDICATED THAT THE AMOUNT CLAIMED FOR CANCELATION OF THE CONTRACT SEEMED EXCESSIVE AND YOU WERE REQUESTED TO SUBMIT A REVISED AND MORE DETAILED STATEMENT WITH A BREAK DOWN OF THE VARIOUS EXPENSE ITEMS.

THEREAFTER, ACCORDING TO A LETTER ADDRESSED BY YOUR COMPANY TO THE BUREAU OF SUPPLIES AND ACCOUNTS ON MAY 13, 1937, R. E. CROOKE OF YOUR COMPANY DISCUSSED THE SUBJECT OF CANCELATION OF THE CONTRACT WITH COMMANDER W. A. KITTS OF THE BUREAU OF ORDNANCE ON MAY 11, 1937. THIS LETTER FROM YOUR FIRM THEN STATES:

* * * IN CONFIRMATION OF THE OFFER MADE AT THAT TIME * * * FORD INSTRUMENT COMPANY AGREES TO CANCELLATION OF THE SUBJECT CONTRACT ON THE REVISED BASIS OF $48,000 IN FULL SETTLEMENT FOR WORK DONE UNDER THE CONTRACT, THE PHYSICAL MATERIAL TO BE RETAINED BY THE COMPANY.

THE NAVY DEPARTMENT REPLY OF JUNE 9, 1937, IS SHOWN TO INCLUDE THE FOLLOWING STATEMENTS:

BY YOUR LETTER OF 13 MAY, 1937, YOU AGREED TO CANCEL THE CONTRACT UPON PAYMENT OF THE SUM OF $48,000.00 IN FULL SETTLEMENT FOR WORK DONE UNDER THE CONTRACT, THE PHYSICAL MATERIAL TO BE RETAINED BY YOUR COMPANY. * * * THIS FIGURE IS BELIEVED TO REPRESENT A FAIR AND EQUITABLE DISTRIBUTION OF THE COSTS TO YOUR COMPANY AND THE GOVERNMENT.

SUBJECT TO A PAYMENT OF YOU OF $48,000.00 UNDER THE CONTRACT, CONTRACT NOS-41811 IS HEREBY CANCELED WITHOUT FURTHER LIABILITY TO EITHER PARTY.

THIS LETTER WAS SIGNED "D. B. WAINWRIGHT, JR., BY DIRECTION OF THE PAYMASTER GENERAL," AND BEARS THE NOTATION "APPROVED, CHARLES CONARD, PAYMASTER GENERAL OF THE NAVY.'

IT THUS APPEARS THAT CONTRACT NOS-41811, IN CONNECTION WITH WHICH THE UNITED STATES IS SHOWN TO HAVE BEEN REPRESENTED BY R. C. SANDERS AS CONTRACTING OFFICER, WAS SOUGHT TO BE CANCELED BY AN AGREEMENT BETWEEN OFFICIALS OF YOUR FIRM AND D. B. WAINWRIGHT, JR., WITH APPROVAL OF THE PAYMASTER GENERAL. SO FAR AS APPEARS, THE OFFICIALS WHO REPRESENTED THE UNITED STATES UNDER THE ORIGINAL CONTRACT HAD NO PART IN THE CANCELATION PROCEEDINGS.

IT IS REALIZED THAT UNDER CERTAIN CIRCUMSTANCES A CONTRACT ENTERED INTO BETWEEN THE SECRETARY OF THE NAVY AND ANOTHER MAY BE SUBSEQUENTLY CANCELED BY AN AGREEMENT BETWEEN THE PARTIES TO SAID CONTRACT. UNITED STATES V. CORLISS STEAM-ENGINE CO., 91 U.S. 321; SAVAGE ARMS CORPORATION V. UNITED STATES, 266 U.S. 217, 220. BUT AS NOTED ABOVE, THE CANCELATION PROCEEDING HERE IS NOT SHOWN TO BE BETWEEN THE PARTIES TO THE CONTRACT, AND THERE IS CAUSE TO DOUBT WHETHER ONE NAVY DEPARTMENT OFFICIAL MAY ARRANGE FOR CANCELATION OF A CONTRACT MADE BY ANOTHER AND DIFFERENT OFFICIAL OF THAT DEPARTMENT. UNITED STATES V. SHAW, FED.CAS. 16,266. SEE ALSO BY ANALOGY WILLIAMS ENGINEERING AND CONSTRUCTION CO. V. UNITED STATES. 55 CT.CLS. 349, 382.

ARTICLE 2 OF THE ORIGINAL CONTRACT VESTED AUTHORITY IN THE CHIEF OF THE BUREAU OF SUPPLIES AND ACCOUNTS TO APPROVE CHANGES IN THE DRAWINGS AND SPECIFICATIONS AS PROPOSED BY THE CONTRACTING OFFICER, BUT THERE IS NOTHING TO INDICATE THAT HE WAS AUTHORIZED TO APPROVE DESTRUCTION OF THE CONTRACT, ESPECIALLY WHEN THE PROPOSAL TO DESTROY IS NOT SHOWN AS COMING FROM THE CONTRACTING OFFICER. THE FACT THAT THE CANCELATION AGREEMENT APPEARS TO HAVE THE SANCTION OF THE PAYMASTER GENERAL, WHO IS CHIEF OF THE BUREAU OF SUPPLIES AND ACCOUNTS, APPARENTLY DOES NOT REMOVE THE DIFFICULTY.

THE EVIDENCE OF RECORD IS NOT SUCH AS TO JUSTIFY A CONCLUSION THAT THE ARRANGEMENT BETWEEN OFFICIALS OF YOUR COMPANY AND OFFICIALS OF THE NAVY DEPARTMENT AMOUNTED TO A VALID AND ENFORCEABLE CANCELATION AGREEMENT. PAYMENT OF YOUR CLAIM, THEREFORE, MAY NOT BE RESTED UPON IT.

NOR DO THE FACTS OF RECORD APPEAR TO OTHERWISE JUSTIFY CERTIFICATION FOR PAYMENT OF THE AMOUNT CLAIMED BY YOU. THE NAVY DEPARTMENT WAS REQUESTED BY LETTER OF THIS OFFICE DATED AUGUST 23, 1937, TO FURNISH EVIDENCE ESTABLISHING BONA FIDE EXPENDITURES BY YOUR FIRM AND THE AMOUNT THEREOF IN THE PERFORMANCE OF THE ORIGINAL CONTRACT. THE NAVY DEPARTMENT'S REPORT OF OCTOBER 4, 1937, INDICATES THAT AFTER AN UNSATISFACTORY EFFORT HAD BEEN MADE TO SECURE THIS INFORMATION FROM YOUR COMPANY BY CORRESPONDENCE A CONFERENCE WAS HELD BETWEEN OFFICIALS OF THE NAVY DEPARTMENT AND YOUR FIRM. THE REPORT THEN STATES:

* * * THE RESULTS OF THIS CONFERENCE WERE REFLECTED IN THE FORD INSTRUMENT COMPANY'S REPORT ON THE CLAIM IN ITS LETTER OF 13 MAY 1937, ENCLOSURE (B). THE FORM IN WHICH THE EXPENDITURES UNDER THE CONTRACT WERE MAINTAINED AND THE SCOPE OF THE RELATED AND DIRECT COSTS WERE EXPLAINED. IT WAS RECOGNIZED BY ALL PARTIES PRESENT THAT IT WOULD BE DIFFICULT, IF NOT IMPOSSIBLE, UNDER THE COST ACCOUNTING SYSTEM EMPLOYED, TO ESTABLISH WITH EXACTNESS EACH AND EVERY ITEM MAKING UP THE AGGREGATE CONTRACT EXPENDITURE.

(D) THE DOCUMENTS SUBMITTED BY THE FORD INSTRUMENT COMPANY AND THE INFORMATION PRESENTED ORALLY WERE CONSIDERED SUFFICIENT TO ESTABLISH BEYOND REASONABLE DOUBT THAT THE AMOUNT FINALLY CLAIMED ACTUALLY HAD BEEN EXPENDED IN THE PERFORMANCE OF THE CONTRACT. THE DEVELOPMENT WORK UNDER THE CONTRACT PROVED TO THE NAVY DEPARTMENT CERTAIN FACTS AND PRINCIPLES WHICH WERE OF RECOGNIZED MILITARY VALUE. IT IS APPARENT, HOWEVER, THAT THE CONTRACTOR ALSO DERIVED SOME BENEFITS FROM THE EXPERIMENTAL AND DEVELOPMENT WORK. THERE WAS NO WAY OF CALCULATING MATHEMATICALLY THE BENEFITS TO THE RESPECTIVE PARTIES. * * *

THE NAVY DEPARTMENT WAS ALSO REQUESTED TO FURNISH INFORMATION AS TO THE FAIR VALUE OF ANY BENEFITS SAID TO HAVE BEEN DERIVED BY YOUR COMPANY ALONG EXPERIMENTAL AND DEVELOPMENT LINES AND THE BASIS OF SUCH VALUATION. THE DEPARTMENT REPLIED THAT "IT IS CONSIDERED THAT APPROXIMATELY $11,525.00 WOULD BE A FAIR ESTIMATE OF VALUE DERIVED ALONG EXPERIMENTAL AND DEVELOPMENT LINES.'

AGAIN, THE NAVY DEPARTMENT WAS ASKED TO FURNISH INFORMATION RESPECTING THE ACTUAL VALUE OF THE BENEFIT, IF ANY, WHICH WOULD ACCRUE TO THE NAVY DEPARTMENT. THE DEPARTMENT STATED IN REPLY THAT---

(A) IT IS IMPOSSIBLE TO OBTAIN THE BASIS OF SUCH VALUATION FROM CONCRETE FIGURES. NO PHYSICAL MATERIAL WILL BE RETAINED BY THE GOVERNMENT, BUT THE DESIGN STUDIES UNDERTAKEN BY THE FORD INSTRUMENT COMPANY, IN ADDITION TO THOSE FOR THE PHYSICAL MATERIAL TO BE RETAINED BY THE FORD INSTRUMENT COMPANY, WERE AND CONTINUE TO BE OF CONSIDERABLE VALUE FOR PRESENT AND FUTURE WORK BEING UNDERTAKEN BY THE NAVY DEPARTMENT ITSELF.

IN ADDITION TO THE ABOVE THE RECORD CONTAINS COPY OF LETTER ADDRESSED TO YOUR FIRM BY D. B. WAINWRIGHT ON MAY 10, 1937, IN WHICH IT IS REPORTED THAT THE WORK PERFORMED UNDER THE CANCELED CONTRACT WAS PROBABLY MORE BENEFICIAL TO THE FORD INSTRUMENT CO. THAN TO THE GOVERNMENT IN THAT THE FIRM WAS ENABLED TO SUBMIT A LOWER PRICE ON SUBSEQUENT SCHEDULES AND THEREFORE OBTAIN ADDITIONAL CONTRACTS WHICH MIGHT OTHERWISE HAVE BEEN AWARDED TO COMPETITORS.

IT THUS APPEARS THAT DEPENDABLE DATA IS NOT AVAILABLE RESPECTING THE VALUE OF THE SERVICES RENDERED, THE EXTENT OF BENEFITS DERIVED BY THE PARTIES PRIOR TO CANCELATION, AND THE AMOUNT OF LOSS, IF ANY, RESULTING TO YOUR COMPANY BECAUSE OF THE CANCELATION, ETC. ACCOUNTING OFFICERS OF THE GOVERNMENT ARE NOT REQUIRED UNDER CIRCUMSTANCES SUCH AS THOSE HERE PRESENT TO CERTIFY A CLAIM FOR PAYMENT WHICH IS BASED UPON ESTIMATE OR CONJECTURE. AS STATED BY THE COURT OF CLAIMS IN CHARLES V. UNITED STATES, 19 CT.CLS. 316, 319:

WHEN, IN THE COURSE OF THE EXAMINATION OF ACCOUNTS IN THE DEPARTMENTS, SUSPICIONS ARE AROUSED OR DOUBTS ARE ENTERTAINED AS TO THE VALIDITY OF THE DEMANDS OF CLAIMANTS, THE PARTIES MAY BE SENT TO THIS COURT TO PROVE THEIR CASES UNDER THE RULES AND FORMS OF LAW, UPON LEGAL AND COMPETENT EVIDENCE, OR THEIR DEMANDS MAY BE REJECTED ALTOGETHER, LEAVING THE CLAIMANTS TO PROSECUTE THEM HERE UPON THEIR OWN VOLUNTARY PETITIONS, IF THEY SO DESIRE. THAT IS THE MAIN PROTECTION WHICH THE ACCOUNTING OFFICERS CAN SECURE FOR THEMSELVES AND FOR THE GOVERNMENT IN THE CASE OF CLAIMS OF DOUBTFUL VALIDITY IN FACT OR IN LAW, * * *

SEE, ALSO, LONGWILL V. UNITED STATES, 17 CT.CLS. 288, 291.

UNDER ALL THE FACTS AND CIRCUMSTANCES OF YOUR CASE, THERE IS NO ALTERNATIVE BUT TO CERTIFY THAT NO BALANCE IS FOUND DUE YOU FROM THE UNITED STATES.