B-125509, DECEMBER 7, 1955, 35 COMP. GEN. 341

B-125509: Dec 7, 1955

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

CONTRACTS - INTENTION OF PARTIES - PAYMENTS - FIXED FEE THE EXECUTION OF A COST-REIMBURSEMENT RESEARCH AND DEVELOPMENT CONTRACT WHICH DID NOT PROVIDE FOR A FIXED FEE OR PROFIT BUT WHICH WAS BASED ON THE EXACT AMOUNT PROPOSED BY THE CONTRACTOR. DID NOT RESULT IN A BINDING CONTRACT AS THERE WAS NO MEETING OF THE MINDS OF THE PARTIES. 1955: REFERENCE IS MADE TO YOUR LETTER OF SEPTEMBER 14. IS ALSO ACKNOWLEDGED. IN WHICH IT SHOWED A DETAILED BREAKDOWN OF THE ESTIMATED COST OF THE RESEARCH WORK TO BE PERFORMED OVER A PERIOD OF ONE YEAR WAS $18. SUBSEQUENTLY A CONTRACT WAS PREPARED IN DRAFT FORM BY THE CONTRACTING OFFICER AND FORWARDED TO THE BATTELLE MEMORIAL INSTITUTE WHO MADE CERTAIN CHANGES IN THE CONTRACT PROVISIONS AND RETURNED IT TO THE CONTRACTING OFFICER.

B-125509, DECEMBER 7, 1955, 35 COMP. GEN. 341

CONTRACTS - INTENTION OF PARTIES - PAYMENTS - FIXED FEE THE EXECUTION OF A COST-REIMBURSEMENT RESEARCH AND DEVELOPMENT CONTRACT WHICH DID NOT PROVIDE FOR A FIXED FEE OR PROFIT BUT WHICH WAS BASED ON THE EXACT AMOUNT PROPOSED BY THE CONTRACTOR, WHICH AMOUNT INCLUDED A SUM AS A FIXED FEE, DID NOT RESULT IN A BINDING CONTRACT AS THERE WAS NO MEETING OF THE MINDS OF THE PARTIES; HOWEVER, IN VIEW OF THE COMPLETION OF THE REQUIRED RESEARCH WORK BY THE CONTRACTOR, PAYMENT OF THE FIXED FEE MAY BE MADE.

TO THE SECRETARY OF THE ARMY, DECEMBER 7, 1955:

REFERENCE IS MADE TO YOUR LETTER OF SEPTEMBER 14, 1955, WITH ENCLOSURES, REQUESTING A DECISION AS TO THE PROPRIETY OF PAYMENT OF A FIXED FEE IN THE AMOUNT OF $1,132 TO THE BATTELLE MEMORIAL INSTITUTE, COLUMBUS, OHIO, FOR SERVICES PERFORMED UNDER CONTRACT NO. DA 15-014-AII 3589 DATED JUNE 30, 1954. RECEIPT OF YOUR LETTER OF NOVEMBER 10, 1955, WITH ENCLOSURES, IS ALSO ACKNOWLEDGED.

IT APPEARS THAT ON FEBRUARY 2, 1954, IN RESPONSE TO THE REQUEST OF THE ARMY MEDICAL RESEARCH LABORATORY, FORT KNOX, KENTUCKY, THE BATTELLE MEMORIAL INSTITUTE SUBMITTED A TENTATIVE PROJECT PROPOSAL FOR THE USE OF ITS SERVICES IN THE DEVELOPMENT OF A PURSUIT METER AND ACCELEROMETER SET/UP FOR USE IN PSYCHO-PHYSIOLOGICAL RESEARCH AT THAT LABORATORY. ITS PROPOSAL, IN WHICH IT SHOWED A DETAILED BREAKDOWN OF THE ESTIMATED COST OF THE RESEARCH WORK TO BE PERFORMED OVER A PERIOD OF ONE YEAR WAS $18,868 PLUS A FIXED FEE OF $1,132, OR A TOTAL OF $20,000. SUBSEQUENTLY A CONTRACT WAS PREPARED IN DRAFT FORM BY THE CONTRACTING OFFICER AND FORWARDED TO THE BATTELLE MEMORIAL INSTITUTE WHO MADE CERTAIN CHANGES IN THE CONTRACT PROVISIONS AND RETURNED IT TO THE CONTRACTING OFFICER. THEREAFTER, OTHER REVISIONS OF THE DRAFT OF THE CONTRACT WERE MADE BY THE CONTRACTING OFFICER AND A REPRESENTATIVE OF THE BATTELLE MEMORIAL INSTITUTE ON THE BASIS OF LONG DISTANCE TELEPHONE CALLS AND BY COVERING LETTER DATED JUNE 21, 1954, THE CONTRACTING OFFICER FORWARDED A COPY OF THE PROPOSED CONTRACT TO THE INSTITUTE FOR EXECUTION. ON JUNE 30, 1954, THE INSTITUTE EXECUTED THE CONTRACT, WHICH HAD BEEN WRITTEN BY THE CONTRACTING OFFICER IN THE AMOUNT OF $20,000--- THE AMOUNT SHOWN IN THE INSTITUTE'S PROPOSAL AS THE TOTAL OF ESTIMATED COSTS AND THE CONTRACTOR'S FEE.

IN AN UNDATED REPORT THE SUCCESSOR CONTRACTING OFFICER STATES THAT DURING THE MONTH OF JANUARY 1955, THE BATTELLE MEMORIAL INSTITUTE ADVISED HIM THAT THE GOVERNMENT RESIDENT AUDITOR HAD POINTED OUT TO IT THAT A SPECIFIC PROVISION MUST BE INSERTED IN THE CONTRACT IN ORDER THAT THE INSTITUTE MIGHT SUBMIT A VOUCHER FOR THE EARNED PORTION OF THE FIXED FEE, AND THAT THE INSTITUTE REQUESTED THAT HE INSERT A PROVISION IN THE CONTRACT FOR PAYMENT OF A FIXED FEE. HE ADVISED THE INSTITUTE THAT ITS REQUEST FOR A MODIFICATION COULD NOT BE COMPLIED WITH FOR THE REASON THAT HE HAD BEEN INFORMED BY THE CONTRACTING OFFICER WHO HAD EXECUTED THE CONTRACT THAT IT WAS NOT HIS INTENTION THAT THE CONTRACT CONTAIN A PROVISION FOR PAYMENT OF A FIXED FEE. IT IS FURTHER REPORTED THAT AN EXAMINATION OF THE CONTRACT FILE HAS FAILED TO DISCLOSE ANY CORRESPONDENCE BETWEEN THE CONTRACTING OFFICER AND THE INSTITUTE POINTING OUT THAT THE SUBJECT CONTRACT WAS A COST REIMBURSEMENT TYPE CONTRACT AND WOULD CONTAIN NO PROVISION FOR A FIXED FEE.

PARAGRAPH 1 OF ARTICLE II ( REIMBURSEMENT) OF THE CONTRACT PROVIDES AS FOLLOWS:

REIMBURSEMENT FOR ACTUAL COSTS. THE GOVERNMENT SHALL REIMBURSE THE CONTRACTOR, UPON THE SUBMISSION OF PUBLIC VOUCHERS SUPPLIED BY THE GOVERNMENT AND APPROVED BY THE CONTRACTING OFFICER, FOR THE "ACTUAL COST," AS PROVIDED FOR THE ARTICLE II OF THIS CONTRACT FOR PERFORMANCE OF ITS UNDERTAKINGS HEREUNDER IN AN AMOUNTS NOT EXCEEDING TWENTY THOUSAND DOLLARS ($20,000).

THE CONTRACTOR MAY SUBMIT SUCH VOUCHERS AT MONTHLY INTERVALS FOR "ACTUAL COST" INCURRED AND NOT PREVIOUSLY REIMBURSED. THE CONTRACTING OFFICER MAY WITHHOLD ALL OR ANY PART OF THE FINAL REIMBURSEMENT PAYMENT UNTIL RECEIPT OF THE FINAL REPORT, THE PROPERTY ACCOUNTING, AND THE PATENT DISCLOSURE AND DESIGNATION REQUIRED HEREUNDER.

THE SUBJECT CONTRACT DOES NOT CONTAIN ANY PROVISION FOR PAYMENT OF A FIXED FEE; HOWEVER, IN PARAGRAPH 4 OF ARTICLE VI ( TERMINATION) IT IS STATED THAT THE CONTRACTOR AND THE CONTRACTING OFFICER MAY AGREE ON THE AMOUNT TO BE PAID ON TERMINATION OF THE CONTRACT AND THAT THE AMOUNT MAY INCLUDE A REASONABLE ALLOWANCE FOR PROFIT.

THERE HAS BEEN FURNISHED WITH THE FILE A STATEMENT OF THE CONTRACTING OFFICER RELATIVE TO THE MATTER, AS FOLLOWS:

AS PURCHASING AND CONTRACTING OFFICER, G-4 SECTION, THE ARMORED CENTER, I NEGOTIATED CONTRACT DA 15-014 AII-3589 WITH BATTELLE MEMORIAL INSTITUTE. THE PRELIMINARY PROPOSAL SUBMITTED BY BATTELLE WAS USED AS A STARTING POINT FOR NEGOTIATIONS AND WAS NEVER CONSIDERED, BY MYSELF OR THE INSTITUTE, TO BE A FIRM QUOTATION. ACTUAL NEGOTIATION OF THE CONTRACT WAS ACCOMPLISHED BY TELEPHONE AND BY REVISIONS BY BOTH PARTIES OF A DRAFT OF THE PROPOSED CONTRACT. AS EXAMINATION WILL REVEAL, THE CONTRACT WAS WRITTEN IN ACCORDANCE WITH THOSE PROCUREMENT REGULATIONS AS THEN IN EFFECT GOVERNING THE PREPARATION OF RESEARCH AND DEVELOPMENT CONTRACTS WITH NON- PROFIT INSTITUTIONS. AS I WAS AWARE AT THE TIME OF THE NEGOTIATIONS, A FIXED FEE OR PROFIT WAS NOT AN ALLOWABLE CHARGE IN CONTRACTS OF THIS NATURE, AND NO PROVISION FOR A FEE WAS INTENDED.

IN A LETTER DATED AUGUST 8, 1955, THE BATTELLE MEMORIAL INSTITUTE STATES AS FOLLOWS:

THE NEGOTIATIONS FOR THE CONTRACT FORMALLY BEGAN WHEN WE SUBMITTED OUR PROPOSAL ON FEBRUARY 2, 1954. IN THE DETAILED BREAKDOWN OF ESTIMATED COSTS, ATTACHED TO OUR PROPOSAL, A FIXED FEE OF $1,132 IS CLEARLY INDICATED AS PART OF THE TOTAL CONTRACT PRICE OF $20,000.

IN THE SUBSEQUENT COURSE OF THE NEGOTIATIONS, AT NO TIME DID THE GOVERNMENT INFORM US THAT THE FIXED FEE WOULD NOT BE INCLUDED IN THE FINAL CONTRACT, NOR DID WE INDICATE AT ANY TIME THAT WE WOULD WAIVE OUR REQUIREMENT FOR THE FEE.

SUCH A SUGGESTION WAS MADE BY CAPTAIN WILKINS IN AN ORAL CONVERSATION WITH MR. TAYLOR AT A VERY PRELIMINARY STAGE IN THE NEGOTIATION. IT WAS PROMPTLY REJECTED ON OUR BEHALF AND, SINCE IT WAS NOT RAISED AGAIN, WE CONSIDERED THE MATTER CLOSED.

IN HIS COVERING LETTER DATED JUNE 21, 1954, ACCOMPANYING THE CONTRACT, THE CONTRACTING OFFICER GAVE NO INDICATION THAT HE HAD MADE A DELIBERATE MAJOR MODIFICATION OF THE EXPRESS REQUIREMENTS OF OUR PROPOSAL, NAMELY THE REIMBURSEMENT OF THE FIXED FEE. IN FACT, THE FIRST SENTENCE OF THIS LETTER BELIES THIS INTENT, FOR IT IS STATED " PURSUANT TO * * * BATTELLE MEMORIAL INSTITUTE'S TENTATIVE PROJECT PROPOSAL * * * DATED FEBRUARY 2, 1954, THIS OFFICE HAS DRAFTED A PROPOSED CONTRACT, COPY OF WHICH IS ENCLOSED.' THE WORD USED BY YOUR OFFICE IN BEGINNING THIS SENTENCE IS ,PURSUANT" WHICH IS DEFINED AS MEANING "AGREEABLY OR CONFORMABLY.' THIS IMMEDIATELY LED US TO BELIEVE THAT NO MAJOR MODIFICATIONS FROM OUR PROPOSAL WERE TO BE EXPECTED IN THE CONTRACT, AND CONSEQUENTLY, WE WERE SUSPICIOUS OF NONE. WE WERE FURTHER MISLED BY THE FACT THAT THE CONTRACT PRICE WAS UNCHANGED FROM OUR PROPOSAL--- EVEN TODAY IT STILL INCLUDES THE AMOUNT REQUESTED ONLY FOR PAYMENT OF OUR FIXED FEE AND ONLY LACKS A PROVISION AS TO THE METHOD FOR PAYING IT. THE CLAUSES THAT WE FELT MUST BE SCRUTINIZED MOST CAREFULLY WERE THOSE CONCERNING DETAILS NOT PREVIOUSLY DISCUSSED. UNFORTUNATELY, THE SINGLE OMISSION WAS NOT NOTICED IN THE FISCAL-YEAR-END RUSH OF MANY OTHER GOVERNMENT CONTRACTS (ALL ON OUR REGULAR COST-PLUS-FIXED-FEE BASIS) WHICH WE WERE PROCESSING AT THAT TIME.

IN MAJOR HAYDEN'S LETTER OF FEBRUARY 8, HE EXPRESSED AN OPINION THAT ARTICLE VII ( GOVERNMENT PROPERTY) OF THE SUBJECT CONTRACT SHOULD HAVE INDICATED TO US THAT NO FEE WAS INTENDED TO BE PAID. THIS WOULD BE A VERY NEBULOUS FORM OF NOTIFICATION. HOWEVER, WE FEEL THAT THIS ENTIRE IDEA WAS A MISCONCEPTION ON HIS PART, SINCE THIS IDENTICAL PROPERTY CLAUSE HAS BEEN INCLUDED IN MANY OF OUR OTHER GOVERNMENT ACTS IN WHICH A FIXED FEE WAS PROVIDED. CONTRACT NO. DA-20-089-ORD-36702 IS ONE EXAMPLE OF SUCH AN AGREEMENT. AS A MATTER OF FACT, THE VARIOUS STANDARD PROVISIONS OF THIS CONTRACT ARE TYPICAL OF THOSE NORMALLY INCLUDED IN OUR COST-PLUS-FIXED-FEE TYPE CONTRACTS WITH THE DEPARTMENT OF THE ARMY. AN EXAMINATION OF PARAGRAPH 5A OF ARTICLE VI RELATING TO TERMINATION WILL DEMONSTRATE TO YOU THAT WE MAY BE PAID A FIXED FEE FOR THIS RESEARCH, SHOULD THE CONTRACT TO BE TERMINATED AT ANY TIME PRIOR TO JUNE 30, 1955. IT SURELY COULD NOT HAVE BEEN THE CONTRACTING OFFICER'S INTENTION THAT WE SHALL BE PAID OUR FIXED FEE ONLY IF THE CONTRACT IS TERMINATED AHEAD OF SCHEDULE. ONCE AGAIN, WE WOULD LIKE TO POINT OUT THE CONTRACTING OFFICER'S CONTINUING EMPHASIS ON SPEED OF ACTION; CONSEQUENTLY, IN OUR EFFORTS TO COOPERATE WE DID NOT WISH TO TAKE EXCEPTION TO A PROPERTY CLAUSE THAT WE HAVE ALREADY ACCEPTED IN SOME OF OUR OTHER COST-PLUS-FIXED-FEE CONTRACTS.

IN VIEW OF THE FACTS WE HAVE PRESENTED, WE REQUEST THAT THE CONTRACT BE MODIFIED SPECIFICALLY TO PROVIDE FOR PAYMENT OF OUR FIXED FEE, THE DOLLAR AMOUNT OF WHICH IS ALREADY INCORPORATED IN THE CONTRACT. THIS CHANGE WILL MERELY ASSURE US OF AN EQUITABLE COMPENSATION FOR OUR SERVICES ON THE BASIS WHICH WE PROPOSED IN GOOD FAITH TO ACCEPT. AN EXAMINATION OF CONTRACT NO. DA 20-089-ORD-36702 DATED JUNE 30, 1953, SHOWS THAT IT PROVIDES FOR PAYMENT OF A FIXED FEE AND ALSO CONTAINS " GOVERNMENT PROPERTY CLAUSES FOR COST-1REIMBURSEMENT CONTRACTS ( NON PROFIT RESEARCH AND DEVELOPMENT CONTRACTS)," SUCH CLAUSE BEING PRACTICALLY IDENTICAL WITH THE PROVISIONS CONTAINED IN ARTICLE VII ( GOVERNMENT PROPERTY) OF THE SUBJECT CONTRACT.

ALTHOUGH THE CONTRACTING OFFICER CONTENDS THAT IT WAS HIS INTENTION NOT TO ALLOW THE BATTELLE MEMORIAL INSTITUTE A FIXED FEE, WHICH IN THIS INSTANCE APPEARS TO REPRESENT THE ITEM OF PROFIT, SUCH INTENTION IS NOT CONSISTENT WITH THE FACT THAT THE CONTRACT DOES CONTAIN A PROVISION TO THE EFFECT THAT THE AMOUNT TO BE PAID TO THE CONTRACTOR UPON TERMINATION OF THE CONTRACT MAY INCLUDE A REASONABLE ALLOWANCE FOR PROFIT. THE INSTITUTE CONTENDS THAT IT WAS ITS INTENTION THAT THE CONTRACT CONTAIN A PROVISION FOR PAYMENT OF A FIXED FEE AS SET OUT IN THE ORIGINAL PROPOSAL; THAT SUCH INTENTION IS SUPPORTED BY THE FACT THAT IT REFUSED TO WAIVE SUCH FEE WHEN REQUESTED TO DO SO BY THE CONTRACTING OFFICER; THAT IT WAS MISLED BY THE FACT THAT THE CONTRACT WAS WRITTEN IN THE EXACT AMOUNT AS SHOWN IN ITS PROPOSAL, WHICH AMOUNT INCLUDED A FIXED FEE OF $1,132; AND THAT IT WAS UNDER PRESSURE FROM THE GOVERNMENT TO EXECUTE THE CONTRACT BEFORE THE END OF THE FISCAL YEAR AND RESULTING LAPSE OF APPROPRIATIONS.

THE RECORDS SUBMITTED BY YOUR DEPARTMENT IN NO WAY CONTRADICT THESE CONTENTIONS OF THE CONTRACTOR. IT IS NOTED ALSO THAT THE DETERMINATION AND FINDINGS OF THE ACTING SURGEON GENERAL DATED MAY 20, 1954, WHICH AUTHORIZED THE NEGOTIATION OF THE CONTRACT, CONTAINED THE STATEMENT THAT , THE ESTIMATED COST OF THE PROPOSED PROCUREMENT IS $20,000.'

IN THE ABSENCE OF ANY OTHER EXPLANATION FOR THE USE OF THE $20,000 FIGURE, IT MUST BE CONCLUDED THAT IT WAS BASED UPON THE INSTITUTE'S PROPOSAL, WHICH CLEARLY INCLUDED IN THAT AMOUNT THE SUM OF $1,132 AS A FIXED FEE. DESPITE THE CONTRACTING OFFICER'S STATEMENT THAT HE INTENDED THE CONTRACT TO PROVIDE FOR NO FIXED FEE, WE BELIEVE THAT IN THE CIRCUMSTANCES HIS USE OF $20,000 AS THE CONTRACT AMOUNT, WITHOUT SPECIFIC EXCLUSION OF FEE OR PROFIT, WHETHER OR NOT IT WAS INTENDED TO MISLEAD THE CONTRACTOR, TENDED TO HAVE THAT EFFECT. WE CONCLUDE THAT IN EXECUTING THE CONTRACT THE INSTITUTE JUSTIFIABLY BELIEVED THAT THE SUM "ACTUAL COST" AS USED IN PARAGRAPH 1 OF ARTICLE II, WITHOUT ANY SPECIFIC EXCLUSION OF FEE OR PROFIT FROM THE FOLLOWING ENUMERATION OF ITEMS OF ACTUAL COST, EXCEPT SUCH AS MIGHT HAVE BEEN FOUND IN THE "COST PRINCIPLES" STATED IN PART 3 OF SECTION 15 OF THE ASPR WHICH WAS INCORPORATED ONLY BY REFERENCE, INCLUDED ITS PROPOSED FEE. IT FOLLOWS THAT THERE WAS NO MEETING OF THE MINDS OF THE PARTIES, AND THEREFORE NO BINDING CONTRACT.

THE RECORD INDICATES THAT THE BATTELLE MEMORIAL INSTITUTE HAS PERFORMED ALL OF THE REQUIRED RESEARCH WORK BUT THAT FINAL PAYMENT FOR SUCH WORK HAS NOT BEEN MADE. ACCORDINGLY, OUR OFFICE WILL INTERPOSE NO OBJECTION TO THE PAYMENT OF A FIXED FEE IN THE AMOUNT OF $1,132 TO THE BATTELLE MEMORIAL INSTITUTE, CONSIDERING THE FINDINGS OF THE ACTING SURGEON GENERAL AS A DETERMINATION THAT THAT AMOUNT WAS REASONABLE.

A REFERENCE TO THIS DECISION SHOULD BE MADE ON THE VOUCHER COVERING PAYMENT OF THE FIXED FEE.