B-130328, APR. 25, 1957

B-130328, APR. 25, 1957

TO G.M. CO. MANUFACTURING, INC.:

BY YOUR COUNSEL'S LETTER OF DECEMBER 14, 1956, AND FURTHER CORRESPONDENCE, RECONSIDERATION WAS REQUESTED OF YOUR CLAIM ARISING OUT OF THE INCREASED USE OF STEEL UNDER CONTRACT NO. DA-30-169-ORD-675, APRIL 25, 1952, BETWEEN YOUR COMPANY AND THE NEW YORK ORDNANCE DISTRICT. YOUR CLAIM FOR $19,696.21 WAS DENIED BY SETTLEMENT CERTIFICATE OF DECEMBER 12, 1956.

THE CONTRACT IS A FIXED-PRICE-NEGOTIATED CONTRACT FOR THE MANUFACTURE OF SHELL PARTS INVOLVING THE USE OF CONSIDERABLE QUANTITIES OF STEEL. PARAGRAPH 8 (B) DEALING WITH ESCALATION FOR CHANGES IN THE COST PER POUND OF STEEL PROVIDES, IN PERTINENT PART---

"THE CONTRACT PRICE IS BASED UPON THE USE OF 1,721,400 POUNDS OF 2 5/16 INCH STOCK FOR SHELL BODIES AND 552,660 POUNDS OF 2 3/16 INCH STOCK FOR ADAPTERS * * *.'

YOUR LETTER OF MARCH 27, 1957, INDICATES THAT THE PRIMARY BASIS FOR YOUR REQUEST FOR CONSIDERATION IS THAT THE ABOVE-QUOTED PROVISION CONSTITUTES A REPRESENTATION AND GUARANTEE BY THE GOVERNMENT THAT THE CONTRACTOR WOULD REQUIRE THE ABOVE MENTIONED QUANTITIES OF STEEL TO FULFILL ITS SAID CONTRACT, AND THAT THE PRICE WAS ESTABLISHED ACCORDINGLY.'

BY LETTER OF MARCH 5, 1957, YOUR CLAIM WAS REDUCED TO $12,707.92. SUPPLEMENTAL MEMORANDA ARE ATTACHED TO THAT LETTER WHICH PURPORT TO PROVE THAT THE MANUFACTURE OF THE NECESSARY PARTS UNDER THE CONTRACT WITH THE USE OF THE AMOUNTS OF STEEL INDICATED IN PARAGRAPH 8 (B) WAS IMPOSSIBLE AND THAT, IN FACT, THE CONTRACT REQUIRED THE USE OF ADDITIONAL AMOUNTS OF STEEL, FOR THE COST OF WHICH THE CLAIM IS MADE. THE MAJOR POINTS STATED IN YOUR LETTER OF MARCH 27 ARE AS FOLLOWS:

1. WHEN THE GOVERNMENT ENTERS INTO A PURELY COMMERCIAL CONTRACT, IT IS ON THE SAME FOOTING AS ANY OTHER CONTRACTING PARTY.

2. CONTRACTS DRAWN BY THE GOVERNMENT SHOULD BE CONSTRUED MORE STRICTLY AGAINST IT THAN AGAINST THE CONTRACTOR.

3. WHERE THE GOVERNMENT MAKES A POSITIVE STATEMENT OF MATERIAL FACT, IT IS RESPONSIBLE FOR ITS INACCURACIES.

IN THE LETTER, YOU FURTHER STATE THAT THE PROVISION OF PARAGRAPH 8 (B) QUOTED ABOVE IS A POSITIVE STATEMENT AS TO THE EXACT QUANTITY OF STEEL REQUIRED TO FULFILL THE CONTRACT.

A REPRESENTATION ON THE BASIS OF WHICH A CONTRACT MAY BE AVOIDED MUST BE DEFINITE AND SPECIFIC, MUST RELATE TO MATTERS OF FACT PAST OR PRESENT AND CANNOT CONSIST OF A MERE EXPRESSION OF OPINION, PROMISE OR PREDICTION. C.J.S. CONTRACTS, SECTION 154B. WHETHER A STATEMENT IN A CONTRACT INSERTED, AS THIS WAS, FOR THE PURPOSE OF ESTABLISHING A CEILING ON POSSIBLE ESCALATION BASED ON CHARGES IN THE PRICE OF STEEL, MAY BE CONSIDERED SUCH A REPRESENTATION APPEARS TO BE QUESTIONABLE. ON THE MATTER OF THE AUTHORITY OF THE ACCOUNTING OFFICERS OF THE GOVERNMENT TO AUTHORIZE THE PAYMENT OF CLAIMS WHERE DOUBT AS TO THE LEGAL LIABILITY OF THE GOVERNMENT EXISTS, SEE LONGWILL V. UNITED STATES, 17 C.CLS. 288; CHARLES V. UNITED STATES, 19 C.CLS. 316; 35 COMP. GEN. 191, 197; 35 COMP. GEN. 463, 467.

THE CONTRACT WAS ESSENTIALLY ONE FOR THE FURNISHING OF A DEFINITE QUANTITY OF FINISHED SHELL PARTS AT A FIXED PRICE OF $1,805 EACH. IN THE NEGOTIATIONS WHICH PRECEDED THE FINAL EXECUTION OF THE CONTRACT CONSIDERATION NO DOUBT WAS GIVEN TO THE PROBABLE COSTS OF MANUFACTURE, INCLUDING THE COST OF MATERIALS BASED ON THE ESTIMATED QUANTITY OF STEEL REQUIRED AND THE MARKET PRICE THEREFOR, AND WE DO NOT QUESTION THAT THE PRICE FINALLY AGREED UPON WAS ARRIVED AT LARGELY ON THE BASIS OF SUCH COST ESTIMATES, WITH THE ADDITION OF REASONABLE ALLOWANCE FOR OVERHEAD AND PROFIT. NEVERTHELESS, THE REPORT FURNISHED BY THE ADMINISTRATIVE OFFICE SHOWS THAT THE COST ESTIMATES WERE FURNISHED BY YOU, AND WERE MERELY CHECKED BY THE NEGOTIATORS FOR REASONABLENESS; AND IN ANY EVENT, ALL THESE PRELIMINARY NEGOTIATIONS WERE, UNDER THE SETTLED RULE OF LAW APPLICABLE TO THE FORMATION OF CONTRACTS, MERGED IN THE FINAL EXECUTED CONTRACT AND WOULD NOT BE ADMISSIBLE IN EVIDENCE TO VARY ITS CLEARLY EXPRESSED TERMS. EXCEPT FOR THE PROVISION FOR MODIFICATION OF THE CONTRACT PAYMENTS IN THE EVENT OF CHANGES IN OVERHEAD OR IN THE MARKET PRICE OF STEEL, ALL RISKS OF CHANGING COSTS, ERRONEOUS ESTIMATES, OR ANY OTHER CONTINGENCIES, WERE ASSUMED BY YOU, THE ONLY RISK IMPOSED UPON THE GOVERNMENT BEING THAT OF STEEL PRICE CHANGES. SOLELY FOR THE PURPOSE OF LIMITING THE GOVERNMENT'S LIABILITY IN THIS RESPECT, THE ESTIMATED QUANTITIES OF STEEL AND THE ESTIMATED UNIT COST OF STEEL, ON WHICH THE CONTRACT PRICE WAS NEGOTIATED, WERE RECITED IN PARAGRAPH 8B, WHICH PROVIDED THAT THE CONTRACT PRICE MIGHT BE INCREASED OR DECREASED IF THE COST OF STEEL USED WERE MORE OR LESS THAN THE ESTIMATED COST OF $0.085 PER POUND, BUT ONLY ON THE BASIS OF THE QUANTITY ACTUALLY USED OR THE QUANTITY STATED AS THE ESTIMATED BASIS, WHICHEVER WAS LESS. IN ADDITION, A FIXED DOLLAR CEILING WAS PLACED ON THE AMOUNT OF ANY INCREASE.

IN OUR VIEW OF THE MATTER, THOSE PROVISIONS NOT ONLY DO NOT SUPPORT YOUR CONTENTION THAT THE RECITAL OF THE ESTIMATED QUANTITY OF STEEL CONSTITUTED A REPRESENTATION BY THE GOVERNMENT, BUT RATHER EMPHASIZE THE INTENT OF THE CONTRACT THAT IN NO EVENT WOULD THERE BE ANY ADJUSTMENT OF PRICE BY REASON OF THE STEEL ACTUALLY USED BEING IN EXCESS OF THE ESTIMATED QUANTITY.

ASSUMING, HOWEVER, THAT THE RECITAL IN PARAGRAPH 8 (B) OF THE CONTRACT CONSTITUTES A REPRESENTATION, THERE WOULD BE NO LIABILITY ON THE PART OF THE GOVERNMENT IN THE ABSENCE OF A SHOWING THAT THE REPRESENTATION WAS FALSE. THE MEMORANDA ATTACHED TO YOUR LETTERS OF MARCH 5 PURPORT TO MAKE THAT SHOWING. HOWEVER, THE ADMINISTRATIVE REPORT ON THE MATTER RECEIVED FROM THE DEPARTMENT OF THE ARMY APPEARS TO SUPPORT THE CONCLUSION THAT THE CONTRACT COULD HAVE BEEN SUCCESSFULLY COMPLETED USING THE AMOUNTS OF STEEL INDICATED IN THE CONTRACT, AND IT IS THE VIEW OF THE ORDNANCE COMMAND THAT EXCESS AMOUNTS USED WERE DUE TO OVERRUNS AND TO INEFFICIENT USE OF STEEL BY THE PRIME AND SUBCONTRACTORS. WHETHER THE CONTRACT COULD HAVE BEEN COMPLETED USING NO MORE THAN THE AMOUNTS OF STEEL INDICATED IN PARAGRAPH 8 (B) IS A QUESTION OF FACT. IT HAS BEEN THE UNBROKEN RULE OF THE ACCOUNTING OFFICERS OF THE GOVERNMENT TO ACCEPT AS TRUE THE FACTS REPORTED ADMINISTRATIVELY IN THE ABSENCE OF EVIDENCE OTHERWISE AVAILABLE CLEARLY REQUIRING A CONTRARY CONCLUSION. 34 COMP. GEN. 522, 529; 31 COMP. GEN. 288, 289 AND ID. COMP. GEN. 325, 329; 16 COMP. GEN. 1105, 1106.

YOU ALSO STATE IN YOUR MEMORANDA ATTACHED TO YOUR LETTER OF MARCH 5, THAT THE STATEMENT IN PARAGRAPH 8 (B) OF THE CONTRACT AS TO THE AMOUNT OF STEEL REQUIRED CONSTITUTED A MUTUAL MISTAKE OF A MATERIAL FACT PROVIDING A BASIS FOR REFORMATION OF THE CONTRACT. IN THE LIGHT OF THE ADMINISTRATIVE POSITION TAKEN IN THE ENCLOSURE AND THE STATEMENT CONTAINED IN THE CERTIFICATE OF SETTLEMENT OF DECEMBER 12, 1956, THERE APPEARS TO BE NO SUPPORT FOR THE CONTENTION. THEREFORE, WE ..END :