B-125692, OCT. 20, 1955

B-125692: Oct 20, 1955

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TO THE HONORABLE SECRETARY OF THE ARMY: REFERENCE IS MADE TO YOUR LETTER OF OCTOBER 5. THERE WAS ISSUED ON JUNE 29. THE CONSIDERATION ORIGINALLY STIPULATED FOR THESE SERVICES WAS $47. 800 WHICH AMOUNT SUBSEQUENTLY WAS INCREASED BY CHANGE ORDER NO. 1. DELIVERY OF THE ORIGINAL MACHINE WAS TO HAVE BEEN EFFECTED WITHIN FOUR TO FIVE MONTHS AFTER RECEIPT OF THE PURCHASE ORDER NO. 14675. IT IS UNDERSTOOD THAT THE ORDER FOR THIS MACHINE WAS PLACED WITH THE SUBCONTRACTOR BY DAY AND ZIMMERMAN. WAS ESSENTIAL TO MEET THE ARSENAL'S DEMANDS FOR THIS PARTICULAR TYPE OF AMMUNITION. IT WAS FOUND IMPRACTICABLE TO INSTALL TWO SUCH MACHINES. WHEREUPON NEGOTIATIONS WERE COMMENCED ON OR ABOUT SEPTEMBER 11.

B-125692, OCT. 20, 1955

TO THE HONORABLE SECRETARY OF THE ARMY:

REFERENCE IS MADE TO YOUR LETTER OF OCTOBER 5, 1955, WITH ENCLOSURES, WHEREIN YOU REQUEST AN ADVANCE DECISION AS TO THE PROPRIETY OF APPROVING CHANGE ORDER NO. 4, TO PURCHASE ORDER NO. 14675, PROPOSING REIMBURSEMENT TO THE SUBCONTRACTING FIRM OF METAL MATIC, INC., MINNEAPOLIS, MINNESOTA, IN THE ADDITIONAL AMOUNT OF $89,607.70, TO COVER THE COST OF ENGINEERING AND OTHER SERVICES PERFORMED IN CONNECTION WITH MANUFACTURE, DELIVERY AND INSTALLATION OF A METAL-MATIC FLUID INJUNCTION SEALING MACHINE FOR THE PROCESSING OF T 37 RIFLE GRENADES AT THE LONE STAR ORDNANCE PLANT, TEXARKANA, TEXAS.

IT APPEARS THAT AS THE RESULT OF INFORMAL NEGOTIATIONS CONDUCTED BETWEEN THE COMMANDING OFFICER, LONE STAR ORDNANCE PLANT, AND METAL MATIC, INC., HEREINAFTER REFERRED TO EITHER AS THE SUB-CONTRACTOR OR THE MANUFACTURER, THERE WAS ISSUED ON JUNE 29, 1953, BY THE ORDNANCE PLANT, ACTING THROUGH ITS CONTRACTOR-OPERATOR UNDER COST-PLUS-A-FIXED FEE CONTRACT NO. DA-11-193 -ORD-114, A PURCHASE ORDER NO. 14675, AUTHORIZING THE SUBCONTRACTOR TO MANUFACTURE AND INSTALL AT THE ARSENAL A CONVEYOR TYPE INJECTION SEALING MACHINE CAPABLE OF SEALING 1,200 T-37 RIFLE GRENADES PER HOUR. THE CONSIDERATION ORIGINALLY STIPULATED FOR THESE SERVICES WAS $47,800 WHICH AMOUNT SUBSEQUENTLY WAS INCREASED BY CHANGE ORDER NO. 1, DATED APRIL 30, 1954, TO $67,309.50, TO COVER CERTAIN AUTHORIZED CHANGES IN THE SPECIFICATIONS FOR THE MACHINE. DELIVERY OF THE ORIGINAL MACHINE WAS TO HAVE BEEN EFFECTED WITHIN FOUR TO FIVE MONTHS AFTER RECEIPT OF THE PURCHASE ORDER NO. 14675. FURTHER, IT IS UNDERSTOOD THAT THE ORDER FOR THIS MACHINE WAS PLACED WITH THE SUBCONTRACTOR BY DAY AND ZIMMERMAN, INC., THE CONTRACTOR-OPERATOR OF THE LONE STAR ORDNANCE PLANT, WITH THE SPECIFIC APPROVAL OF THE GOVERNMENT CONTRACTING OFFICER.

BY SEPTEMBER 1953 IT HAD BECOME APPARENT THAT A PRODUCTION RATE OF 2,400 UNITS PER HOUR, RATHER THAN 1,200 UNITS, AS ORIGINALLY SPECIFIED, WAS ESSENTIAL TO MEET THE ARSENAL'S DEMANDS FOR THIS PARTICULAR TYPE OF AMMUNITION, BUT OWING TO LIMITATIONS IN THE SPACE THEN AVAILABLE AT THE PLANT, IT WAS FOUND IMPRACTICABLE TO INSTALL TWO SUCH MACHINES, WHEREUPON NEGOTIATIONS WERE COMMENCED ON OR ABOUT SEPTEMBER 11, 1953, BETWEEN REPRESENTATIVES OF THE ARSENAL AND REPRESENTATIVES OF METAL MATIC, INC., WHICH CULMINATED IN A DEFINITE UNDERSTANDING REACHED ON OR ABOUT SEPTEMBER 16, 1953, THAT THE SUBCONTRACTOR WOULD DISCONTINUE WORK ON THE MACHINE, AS ORIGINALLY DESIGNED, AND PROCEED AT ONCE ON THE REDESIGN OF A MULTIPLE NOZZLE CONTINUOUS MOVEMENT INJECTOR CAPABLE OF PRODUCING THE REQUISITE 2,400 UNITS PER HOUR, AND FITTING WITHIN THE LIMITED SPACE AVAILABLE AT THE PLANT. IT WAS FURTHER UNDERSTOOD THAT LAYOUTS FOR THE NEW MACHINE WOULD BE MADE UP AND SUBMITTED TO THE GOVERNMENT FOR APPROVAL AS SOON AS PRACTICABLE. HOWEVER, BECAUSE OF THE UNCERTAINTY OF PRODUCING A MACHINE CAPABLE OF PRODUCING DOUBLE THE OUTPUT OF THE ORIGINAL MACHINE, IT WAS INFORMALLY UNDERSTOOD AND AGREED BETWEEN THE PARTIES THAT THE MANUFACTURER WOULD SUPPLY THE GOVERNMENT WITH A QUOTATION ON THE REDESIGNED MACHINE WHEN PRACTICABLE. ACCORDING TO THE FACTS ADMINISTRATIVELY REPORTED IN THIS MATTER, IT IS UNDERSTOOD THE FIRM OF METAL-MATIC, INC., ACTUALLY DEVELOPED THE SOLDER INJECTION PROCESS UTILIZED IN THE MANUFACTURE OF THIS TYPE OF AMMUNITION AND WAS THE ONLY KNOWN SOURCE OF MANUFACTURE OF THE REQUIRED MACHINE.

AS THE RESULT OF A TELEPHONE CONVERSATION HAD ON OR ABOUT JANUARY 14, 1954, BETWEEN THE MANUFACTURER'S PRESIDENT, MR. J. J. BLISS, AND THE ASSISTANT CHIEF ENGINEER OF THE LONE STAR ORDNANCE PLANT, CONFIRMED BY LETTER OF THAT DATE, IT WAS UNDERSTOOD THAT THE ORIGINAL PURCHASE ORDER NO. 14675 WOULD BECOME INEFFECTIVE AS TO SPECIFICATIONS AND PRICE, AND THAT, SINCE THE ENGINEERING DESIGN PROBLEMS COULD NOT THEN BE ACCURATELY EVALUATED, NO FORMAL CHANGE ORDER WOULD BE ISSUED AT THAT TIME. IN THE MEANTIME, HOWEVER, IT APPEARS THAT THE SUBCONTRACTOR PROCEEDED WITH THE MANUFACTURE OF THE REDESIGNED MACHINE WITH ALL POSSIBLE DISPATCH, LEAVING THE DETAILS OF THE CONTEMPLATED MODIFICATION OF THE TERMS OF THE PURCHASE ORDER TO BE WORKED OUT AT A MORE PROPITIOUS TIME. IN STILL ANOTHER TELEPHONE CONVERSATION HAD ON MAY 10, 1954, BETWEEN MR. BLISS OF METAL- MATIC, INC., AND REPRESENTATIVES OF THE LONE STAR ORDNANCE PLANT, IT WAS AFFIRMATIVELY REPRESENTED BY THE FORMER THAT THE REDESIGNED MACHINE WAS CAPABLE OF A PRODUCTION RATE OF 2,400 UNITS PER HOUR, WHICH COMMITMENT WAS FORMALLY CONFIRMED IN THE SUBCONTRACTOR'S SUPPLEMENTAL LETTER OF MAY 27, 1954, TO THE GOVERNMENTAL PURCHASING AUTHORITY. UPON THE BASIS OF THIS CONFIRMATION, THE LONE STAR PURCHASING DEPARTMENT ISSUED CHANGE ORDER NO. 2, DATED MAY 14, 1954, TO PURCHASE ORDER NO. 14675, FORMALLY AUTHORIZING AN INCREASE IN THE PRODUCTION RATE OF THE MACHINE TO 2,400 UNITS PER HOUR, BUT INADVERTENTLY SPECIFIED THEREIN "NO CHANGE IN AMOUNT.' IN THIS CONNECTION, IT HAS BEEN ADMINISTRATIVELY REPORTED THAT THIS LATTER CLAUSE IS CUSTOMARILY INSERTED IN CHANGE ORDERS "WHEN THE PRECISE AMOUNT OF THE CHANGE IN PRICE HAS NOT BEEN ASCERTAINED," AND THAT "THE INCLUSION OF THE SAID NOTATION WAS NOT INTENDED TO INDICATE THAT NO INCREASE IN PRICE TO METAL-MATIC, INC., WAS CONTEMPLATED.' IN FACT, THE GOVERNMENT CONTRACTING OFFICIALS HAVE CONCEDED A KNOWLEDGE AND UNDERSTANDING UPON THEIR PART THAT THE AUTHORIZED CHANGES WOULD "COST CONSIDERABLY MORE.'

WORK ON THE REDESIGNED MACHINE WAS COMPLETED BY THE SUBCONTRACTOR AND SATISFACTORILY INSTALLED AT THE LONE STAR ORDNANCE PLANT DURING THE LATTER PART OF AUGUST 1954, AND IN A LETTER DATED SEPTEMBER 3, 1954, DIRECTED TO THE DIRECTOR OF PURCHASES, LONE STAR ORDNANCE DIVISION, THE PRESIDENT OF METAL-MATIC, INC., AFTER RECITING THE HISTORY OF THE EVENTS WHICH LED UP TO THE MANUFACTURE OF THE REDESIGNED MACHINE, REQUESTED REIMBURSEMENT OF COSTS IN THE ADDITIONAL AMOUNT OF $85,922.29, OVER THE AMOUNT PREVIOUSLY AUTHORIZED TO BE PAID FOR THE MACHINES. UPON RECEIPT OF THIS CLAIM, THE CONTRACTOR-OPERATOR OF THE LONE STAR ORDNANCE PLANT, ACTING UPON THE SPECIFIC REQUEST OF THE CONTRACTING OFFICER'S REPRESENTATIVE, DISPATCHED A COMPETENT AUDITOR FROM ITS HOME OFFICE TO THE SUBCONTRACTOR'S PLANT AT MINNEAPOLIS FOR THE PURPOSE OF CONDUCTING A COMPLETE AUDIT OF THE COST AND OTHER PERTINENT RECORDS OF METAL-MATIC, INC., THE RESULTS OF WHICH DISCLOSED THAT THE TOTAL COST TO THE SUBCONTRACTOR OF THE DEVELOPMENT AND OTHER WORK PERFORMED ON THE BASIC AND THE REDESIGNED MACHINES, AFTER GIVING RECOGNITION ONLY TO ITS "ACTUAL COSTS AS A BASIS OF SETTLEMENT," AND WITHOUT THE ALLOWANCE OF ANY PROFIT WHATSOEVER, AMOUNTED TO $173,167.20. AFTER DEDUCTING THEREFROM THE TOTAL AMOUNT OF $83,559.50 THERETOFORE AUTHORIZED TO BE PAID FOR THE COMPLETE INSTALLATION OF THE MACHINE IN ACCORDANCE WITH THE REVISED SPECIFICATIONS, THERE REMAINED AN EXCESS OF COSTS TO THE SUBCONTRACTOR OF $89,607.70 OVER THE AMOUNTS PREVIOUSLY AUTHORIZED TO BE PAID IN THE PURCHASE ORDER AND THE AMENDMENTS COVERING THE ENTIRE WORK OF THE INSTALLATION.

THE PURPOSE OF THE PROPOSED CHANGE ORDER NO. 4 TO PURCHASE ORDER NO. 14675 IS TO REMEDY THE MANIFEST ADMINISTRATIVE ERROR OF HAVING INSERTED INTO THE TERMS OF CHANGE ORDER NO. 2 THE OVISO,"NO CHANGE IN AMOUNT," AND SIMULTANEOUSLY, TO AUTHORIZE REIMBURSEMENT TO THE SUBCONTRACTOR FOR ITS ACTUAL OUT-OF-POCKET EXPENSE INCURRED IN DESIGNING, MANUFACTURING AND INSTALLING IN THE ORDNANCE PLANT A MACHINE WHICH WOULD DOUBLE THE CAPACITY OF THE ONE ORIGINALLY ORDERED. NOT ONLY HAS THE CONTRACTING OFFICER ACKNOWLEDGED THAT THE GOVERNMENT HAD RECEIVED "FULL VALUE" FOR THE MONIES INVESTED BY IT IN THE EQUIPMENT, BUT HE HAS AFFIRMATIVELY RECOMMENDED THAT PAYMENT BE MADE TO METAL-MATIC, INC., "FOR THE ADDITIONAL MONEYS EXPENDED IN EXCESS OF THE AMOUNT OF THE PURCHASE ORDER.' THE CHIEF OF ORDNANCE, DEPARTMENT OF THE ARMY, UNQUALIFIEDLY HAS CONCURRED IN THE CONTRACTING OFFICER'S RECOMMENDATION. FURTHERMORE, IT HAS BEEN REPORTED BY THE COMMANDING OFFICER AT THE LONE STAR ORDNANCE PLANT THAT THE PERFORMANCE OF THE REDESIGNED MACHINE DURING THE TEN-MONTH PERIOD FOLLOWING ITS INSTALLATION IS ENTIRELY SATISFACTORY; THAT IT "MEETS ALL THE PRESENT ORDNANCE CORPS PRODUCTION ORDER REQUIREMENTS AND WILL HANDLE IN EXCESS OF THE 2400 GRENADES PER HOUR," AS SPECIFIED, AND THAT ADEQUATE FUNDS ARE AVAILABLE AT THAT COMMAND TO MAKE THE ADDITIONAL REIMBURSEMENT OF COSTS PROPOSED IN CHANGE ORDER NO. 4, IF APPROVED. IN ADDITION TO THE FOREGOING, IT HAS BEEN REPORTED BY THE COMMANDING GENERAL, ORDNANCE AMMUNITION COMMAND, U.S. ARMY, JOLLIET, ILLINOIS--- THE ORIGINAL CONTRACTING OFFICER--- THAT THE ADDITIONAL AMOUNT OF $89,607.70 PROPOSED TO BE PAID THE SUBCONTRACTOR IN CHANGE ORDER NO. 4 IS "REASONABLE AND HAS BEEN VERIFIED BY AUDIT," IN VIEW OF WHICH IT WAS RECOMMENDED THAT THE TERMS OF THE CHANGE ORDER BE APPROVED.

A MUTUAL MISTAKE AFFORDS LEGAL JUSTIFICATION FOR THE REFORMATION OF A CONTRACT. SEE HARRISON ENGINEERING AND CONSTRUCTION CORP. V. UNITED STATES, 107 C.CLS. 205, 208; 26 COMP. GEN. 899; 20 ID. 533. FROM THE FACTS AS ADMINISTRATIVELY REPORTED IN THIS MATTER, IT REASONABLY MAY BE CONCLUDED THAT THE "NO CHANGE IN AMOUNT" CLAUSE INCORPORATED INTO CHANGE ORDER NO. 2 DID NOT REFLECT THE TRUE INTENTION OF THE PARTIES AT THE TIME THE INSTRUMENT WAS DRAWN AND EXECUTED, AND THAT SUCH STIPULATION WAS DESIGNED BY THE PROCUREMENT AGENCY MERELY TO DENOTE THAT THE PARTIES AT THAT TIME HAD NOT ARRIVED AT ANY FINAL AGREEMENT OR UNDERSTANDING AS TO WHAT THE AUTHORIZED CHANGES IN THE DESIGN OF THE MACHINE ULTIMATELY WOULD AMOUNT TO, AND EVENTUALLY COST THE UNITED STATES. IN ANY EVENT, THERE APPEARS TO BE NO MISUNDERSTANDING OR DOUBT AS TO THE GOVERNMENT'S INTENTION TO MAKE PAYMENT FOR ALL REASONABLE COSTS NECESSARILY INCURRED IN THE DESIGN AND MANUFACTURE OF THE REQUIRED MACHINE. THE ACTUAL COSTS INCURRED BY THE SUBCONTRACTOR IN THE MANUFACTURE OF THIS MACHINE REPORTEDLY HAVE BEEN INVESTIGATED BY QUALIFIED PERSONNEL OF YOUR DEPARTMENT, AND WERE FOUND TO BE AS CLAIMED.

IN THE CIRCUMSTANCES, YOU ARE ADVISED THAT WE ARE NOT DISPOSED TO OBJECT TO THE APPROVAL BY YOU OF CHANGE ORDER NO. 4, AS DRAWN.

THE PAPERS WHICH ACCOMPANIED YOUR COMMUNICATION OF OCTOBER 5 ARE RETURNED HEREWITH.