B-134024, OCT. 24, 1957

B-134024: Oct 24, 1957

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TO THE SECRETARY OF THE ARMY: REFERENCE IS MADE TO LETTER OF OCTOBER 4. THE COST OF WHICH WAS OMITTED FROM THE PRICES QUOTED DURING NEGOTIATIONS OF THE PROPOSAL. SHOWS THAT EXTENSIVE NEGOTIATIONS WERE CONDUCTED BEFORE THE CONTRACT WAS PREPARED IN FINAL FORM. THE SUBJECT MATTER OF THE CONTRACT WAS A NEW ELECTRONICS PRODUCT RECENTLY DEVELOPED BY THE CONTRACTOR. WERE THE PRIMARY TOPICS OF THE DISCUSSIONS BETWEEN THE PARTIES TO THE CONTRACT. THE CONTRACTOR STATES THAT IT WAS LED TO BELIEVE THAT ONLY THE UNIT ITSELF DESCRIBED UNDER ITEM NO. 1 WAS TO BE CONSIDERED IN ITS PRICE COMPUTATION AND THAT SPARE PARTS WERE TO BE THE SUBJECT OF FUTURE NEGOTIATIONS. THE MISUNDERSTANDING ON THE PART OF BOTH PARTIES WAS NOT BROUGHT TO LIGHT UNTIL THE FORMAL CONTRACT WAS DRAFTED CALLING FOR THE FURNISHING OF RUNNING SPARES.

B-134024, OCT. 24, 1957

TO THE SECRETARY OF THE ARMY:

REFERENCE IS MADE TO LETTER OF OCTOBER 4, 1957, WITH ENCLOSURES, FROM THE DEPUTY ASSISTANT SECRETARY OF THE ARMY (LOGISTICS), REFERRING TO US FOR DETERMINATION THE REQUEST OF RAYTHEON MANUFACTURING COMPANY THAT CONTRACT NO. DA-039-SC-70458, BE MODIFIED TO PROVIDE PAYMENT FOR CERTAIN SPARE PARTS FURNISHED, OR TO BE FURNISHED, THE COST OF WHICH WAS OMITTED FROM THE PRICES QUOTED DURING NEGOTIATIONS OF THE PROPOSAL.

A RESUME OF THE FACTS IN THE FORM OF AN ADMINISTRATIVE REPORT PREPARED BY THE CHIEF, LEGAL DIVISION, SIGNAL CORPS, SUPPORTED BY COPIES OF PERTINENT DOCUMENTS AND LETTERS, SHOWS THAT EXTENSIVE NEGOTIATIONS WERE CONDUCTED BEFORE THE CONTRACT WAS PREPARED IN FINAL FORM. THE SUBJECT MATTER OF THE CONTRACT WAS A NEW ELECTRONICS PRODUCT RECENTLY DEVELOPED BY THE CONTRACTOR, AND IT APPEARS THAT ITS TECHNICAL ASPECTS, TOGETHER WITH CURRENT AND FUTURE IMPROVEMENTS, WERE THE PRIMARY TOPICS OF THE DISCUSSIONS BETWEEN THE PARTIES TO THE CONTRACT. THE ORIGINAL REQUEST FOR PROPOSALS ISSUED BY THE PROCUREMENT OFFICIALS INCLUDED THE FURNISHING OF CERTAIN SPARE EQUIPMENT IDENTIFIED AS "RUNNING SPARES.' HOWEVER, THE CONTRACTOR STATES THAT IT WAS LED TO BELIEVE THAT ONLY THE UNIT ITSELF DESCRIBED UNDER ITEM NO. 1 WAS TO BE CONSIDERED IN ITS PRICE COMPUTATION AND THAT SPARE PARTS WERE TO BE THE SUBJECT OF FUTURE NEGOTIATIONS. AS A RESULT THE PROPOSAL SUBMITTED BY THE CONTRACTOR LISTED ONLY THE UNIT TO BE PRODUCED IN ACCORDANCE WITH SIGNAL CORPS TECHNICAL REQUIREMENT SCL 5209, WHICH, AS ADMINISTRATIVELY REPORTED, DOES NOT INCLUDE RUNNING SPARES.

THE MISUNDERSTANDING ON THE PART OF BOTH PARTIES WAS NOT BROUGHT TO LIGHT UNTIL THE FORMAL CONTRACT WAS DRAFTED CALLING FOR THE FURNISHING OF RUNNING SPARES, AND TO BE INCLUDED IN THE UNIT PRICE FOR ITEM NO. 1 SET FORTH THEREIN. THE CONTRACTOR OBJECTED AND THEREAFTER AN AUDIT OF THE BIDDER'S COST RECORDS DISCLOSED THAT THE ORIGINAL PROPOSAL DID NOT PROVIDE FOR RUNNING SPARES AND THE COST OF SUCH PARTS WAS NOT INCLUDED IN THE PROPOSAL.

IT DOES NOT APPEAR FROM THE FOREGOING FACTS THAT SUCH A MUTUAL MISTAKE OCCURRED AS USUALLY FORMS THE BASIS FOR REFORMING A WRITTEN INSTRUMENT UPON A SHOWING OF THE TRUE INTENT OF THE PARTIES AND WHAT THE CONTRACT WOULD HAVE BEEN BUT FOR THE MISTAKE. IN SUCH CASES THE TERMS AND CONDITIONS PREVIOUSLY AGREED TO ARE NOT REFLECTED IN THE FORMAL CONTRACT, WHEREAS HERE THERE WAS NO MEETING OF THE MINDS AS TO THE RUNNING SPARES EITHER BEFORE OR AFTER THE DRAFTING OF THE INSTRUMENT WHICH WAS INTENDED TO BE THE FINAL CONTRACT. RESPONSIBILITY FOR THAT SITUATION APPEARS TO FALL EQUALLY UPON BOTH PARTIES BECAUSE OF THE ERRONEOUS ASSUMPTION ON THE PART OF THE CONTRACTOR THAT RUNNING PARTS WERE NOT TO BE FURNISHED WITH THE UNITS ALTHOUGH INCLUDED IN THE REQUEST FOR A PROPOSAL, AND THE MISCONCEPTION ON THE PART OF THE PROCUREMENT OFFICIAL THAT RUNNING SPARES WOULD BE FURNISHED ALTHOUGH THEY WERE EXCLUDED FROM THE OFFER SUBMITTED.

HOWEVER, SINCE NONE OF THE PRIOR CONTRACTUAL DOCUMENTS CAN PROPERLY BE CONSTRUED AS OBLIGATING THE CONTRACTOR TO FURNISH THE RUNNING SPARES FOR THE PRICES STATED, AND SINCE THE CONTRACTOR'S DELIVERY OF THE EXECUTED DEFINITIVE FORM WAS EXPRESSLY CONDITIONED BY THE BY THE TERMS SET FORTH IN ITS ACCOMPANYING LETTER OF AUGUST 13, 1956, WHICH TERMS WERE NOT ACCEPTED BY THE GOVERNMENT, WE MUST AGREE WITH THE CONTRACTOR'S POSITION STATED IN ITS LETTER OF SEPTEMBER 13, 1956, THAT THE DEFINITIVE CONTRACT HAD NOT BECOME BINDING BUT WAS STILL OPEN FOR NEGOTIATION OF THE TERMS UPON WHICH AGREEMENT HAD NOT BEEN REACHED.

SINCE IT HAS BEEN ESTABLISHED BY AN INDEPENDENT EXAMINATION OF THE CONTRACTOR'S COST RECORDS, CONDUCTED BY THE RESIDENT NAVY AUDITOR, THAT THE COSTS OF RUNNING SPARES WERE NOT INCLUDED IN THE COMPUTATION OF THE UNIT PRICE FIGURE SUBMITTED FOR THE EQUIPMENT, WE WOULD HAVE NO OBJECTION TO REVISION OF THE CONTRACT TERMS TO COVER THE RUNNING SPARES REQUIRED AT PRICES DETERMINED TO BE FAIR AND REASONABLE BY THE PARTIES.