B-112156, OCT 13, 1952

B-112156: Oct 13, 1952

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PRECIS-UNAVAILABLE THE SECRETARY OF THE ARMY: REFERENCE IS MADE TO YOUR LETTER OF SEPTEMBER 30. THAT IT WAS FURTHER AGREED THE GOVERNMENT WOULD BEAR APPROXIMATELY 70 PERCENT OF THE CONSTRUCTION COST BASED ON THE ESTIMATES TO BE PREPARED BY THE GOVERNMENT. THAT THE CITY ACCEPTED SUCH ESTIMATE WITHOUT QUESTION IN FULL RELIANCE AS TO ITS ACCURACY AND THAT THEREAFTER THE ABOVE-CITED CONTRACT WAS EXECUTED. PARAGRAPH V PROVIDES AS FOLLOWS: "THE COST OF CONSTRUCTION OF THIS FACILITY IS ESTIMATED TO BE $119. 072.00 TO BE MADE IN PARTIAL PAYMENTS IT FURTHER APPEARS THAT BIDS FOR THE CONSTRUCTION WORK WERE RECEIVED BY THE CITY ON AUGUST 7. THE CONTRACTING PARTIES CONDUCTED AN INVESTIGATION FROM WHICH IT BECAME APPARENT THAT THE GOVERNMENT'S ESTIMATE WAS IN ERROR DUE PRIMARILY TO THE FAILURE TO CONSIDER ABNORMAL WORKING CONDITIONS AS OUTLINED IN YOUR LETTER.

B-112156, OCT 13, 1952

PRECIS-UNAVAILABLE

THE SECRETARY OF THE ARMY:

REFERENCE IS MADE TO YOUR LETTER OF SEPTEMBER 30, 1952, WITH ENCLOSURES, REQUESTING A DECISION AS TO WHETHER CONTRACT NO. DA-01-076 ENG-1217, DATED JUNE 13, 1952, WITH THE CITY OF BILOXI, MISSISSIPPI, PROVIDING FOR CONSTRUCTION BY THE CITY OF A STORM DRAINAGE SYSTEM AND OUTLET AT KESSLER AIR FORCE BASE, MAY BE REFORMED ON THE GROUND OF A MUTUAL MISTAKE.

IT APPEARS FROM THE FACTS AS REPORTED IN YOUR LETTER THAT FOLLOWING THE NEGOTIATIONS IN THE EARLY PART OF 1952, REPRESENTATIVES OF THE CITY AND THE MOBILE DISTRICT ENGINEER'S OFFICE AGREED TO ENTER INTO A CONTRACT OBLIGATING THE CITY TO CONSTRUCT AND MAINTAIN A STORM SEWER OF ADEQUATE CAPACITY TO ACCOMMODATE THE REQUIREMENTS OF THE CITY AND THE AIR FORCE BASE; THAT IT WAS FURTHER AGREED THE GOVERNMENT WOULD BEAR APPROXIMATELY 70 PERCENT OF THE CONSTRUCTION COST BASED ON THE ESTIMATES TO BE PREPARED BY THE GOVERNMENT; THAT THE CITY WOULD ASSUME THE BALANCE OF THE COST; THAT THE GOVERNMENT REPRESENTATIVES ESTIMATED THE COST AS $119,390, INCLUDING FIVE PERCENT FOR CONTINGENCIES OF WHICH AMOUNT $84,072, OR 70.4 PERCENT, WOULD BE ASSUMED BY THE GOVERNMENT; THAT EACH PARTY CONSIDERED THE BIDS RECEIVED WOULD NOT EXCEED THE GOVERNMENT'S ESTIMATE; THAT THE CITY ACCEPTED SUCH ESTIMATE WITHOUT QUESTION IN FULL RELIANCE AS TO ITS ACCURACY AND THAT THEREAFTER THE ABOVE-CITED CONTRACT WAS EXECUTED.

PARAGRAPH VI OF THE CONTRACT PROVIDES FOR THE SOLICITATION OF BIDS BY THE CITY FOR THE CONSTRUCTION OF THE PROJECT SUBJECT TO APPROVAL BY THE GOVERNMENT'S CONTRACTING OFFICER. PARAGRAPH V PROVIDES AS FOLLOWS:

"THE COST OF CONSTRUCTION OF THIS FACILITY IS ESTIMATED TO BE $119,390.00 AND IN CONSIDERATION OF THE INVESTMENT AND EXPENDITURES TO BE MADE BY THE CITY AND THE GRANT BY THE CITY TO THE GOVERNMENT OF THE RIGHT TO CONNECT AND DISCHARGE INTO THE SAID STORM DRAINAGE SYSTEM, THE GOVERNMENT AGREES TO PAY TO THE CITY THE AMOUNT OF $84,072.00 TO BE MADE IN PARTIAL PAYMENTS

IT FURTHER APPEARS THAT BIDS FOR THE CONSTRUCTION WORK WERE RECEIVED BY THE CITY ON AUGUST 7, 1952, THE LOWEST BEING IN THE AMOUNT OF $168,579.72; THAT IN VIEW OF THE WIDE DISPARITY BETWEEN THE LOW BID AND THE GOVERNMENT'S ESTIMATE, THE CONTRACTING PARTIES CONDUCTED AN INVESTIGATION FROM WHICH IT BECAME APPARENT THAT THE GOVERNMENT'S ESTIMATE WAS IN ERROR DUE PRIMARILY TO THE FAILURE TO CONSIDER ABNORMAL WORKING CONDITIONS AS OUTLINED IN YOUR LETTER; AND THAT THEREAFTER THE CONTRACTING PARTIES SUCCEEDED IN HAVING THE LOW BIDDER REDUCE ITS BID TO $155,779.72, EXCLUSIVE OF CONTINGENCIES, WHICH REDUCTION WAS INDUCED BY THE CITY'S OFFER TO MITIGATE SOME OF THE HAZARDS ORIGINALLY INCLUDED AS CONTINGENCIES IN THE ORIGINAL BID.

IT APPEARS THAT IT IS NOW PROPOSED TO AMEND PARAGRAPH V OF THE ORIGINAL CONTRACT BY INCREASING THE ESTIMATED COST OF THE WORK TO $163,568.71 (BASED ON THE REVISED BID PRICE OF $155,779.72 PLUS $7,788, REPRESENTING FIVE PERCENT FOR CONTINGENCIES) WHICH INCREASE WOULD HAVE THE EFFECT OF INCREASING THE GOVERNMENT'S OBLIGATION TO $115,152.37, REPRESENTING 70.4 PERCENT OF THE REVISED BID PRICE BASED ON THE PERCENTAGE FORMULA ORIGINALLY AGREED ON BY THE CONTRACTING PARTIES AS THE GOVERNMENT'S PROPORTIONATE SHARE OF THE WORK. YOUR STATEMENT AS TO THE BASIS OF THE ORIGINAL AGREEMENT IS SUBSTANTIATED BY A "CERTIFICATE" EXECUTED ON SEPTEMBER 15, 1952, BY THE MAYOR OF THE CITY OF BILOXI, THE CONTRACTING OFFICER FOR THE CITY, AND BY A "FINDING OF FACT" BY THE CONTRACTING OFFICER, SUBMITTED WITH YOUR LETTER. THE RECORD THUS APPEARS TO ESTABLISH THAT THE CONTRACT, AS EXECUTED, DOES NOT EMBODY THE AGREEMENT OF THE PARTIES AS ACTUALLY MADE IN THAT IT FAILED TO PROVIDE THAT IN THE EVENT THE ACTUAL COST EXCEEDED THE ESTIMATED COST THE GOVERNMENT'S OBLIGATION WOULD BE INCREASED PROPORTIONATELY BASED ON THE RATIO OF 70.4 PERCENT OF SUCH ACTUAL COST. HOWEVER, IT IS NOT UNDERSTOOD HOW AN AMENDMENT AS PROPOSED IN YOUR LETTER, WHICH WOULD OBLIGATE THE GOVERNMENT TO BEAR 70.4 PERCENT OF THE NEW ESTIMATED TOTAL COST, OR $115,152.37, COULD BE SAID TO BE IN CONFORMITY WITH THE INTENTION OF THE PARTIES. THAT AMOUNT ADMITTEDLY INCLUDES $5,482.72 (70.4 PERCENT OF $7,788) TO COVER CONTINGENCIES WHICH MIGHT OR MIGHT NOT OCCUR AND CONCEIVABLY THE BALANCE, REPRESENTING 70.4 PERCENT OF THE PRICE TO BE STIPULATED IN THE PROPOSED CONTRACT FOR THE PROJECT, MIGHT LATER HAVE TO BE ADJUSTED EITHER UPWARD OR DOWNWARD DEPENDING UPON WHETHER IT MIGHT BECOME NECESSARY TO INCREASE OR DECREASE THE SCOPE OF THE WORK UNDER THE CONTRACT.

IT IS WELL SETTLED THAT WHERE A WRITTEN CONTRACT DOES NOT EMBODY THE AGREEMENT AS REACHED, THERE IS SUCH A MUTUAL MISTAKE AS WILL ENTITLE EITHER PARTY TO HAVE THE CONTRACT REFORMED IF IT CAN BE ESTABLISHED DEFINITELY WHAT THE AGREEMENT WOULD HAVE BEEN BUT FOR THE MISTAKE. SEE 20 COMP. GEN. 533 AND NUMEROUS COURT CASES THERE CITED. ACCORDINGLY, IF, AS APPEARS TO BE THE CASE, THE OFFICIALS WHO NEGOTIATED THE CONTRACT HERE IN QUESTION INTENDED TO REACH AN AGREEMENT WHEREBY THE GOVERNMENT WOULD BE OBLIGATED TO PARTICIPATE IN THE CONSTRUCTION OF THE PROJECT TO THE EXTENT OF 70.4 PERCENT OF THE PRICE ULTIMATELY FIXED AND PAID UNDER THE CONSTRUCTION CONTRACT, THIS OFFICE WOULD INTERPOSE NO OBJECTION TO AN APPROPRIATE AMENDMENT TO PARAGRAPH V THEREOF ON THAT BASIS.