B-134708, APR. 15, 1958

B-134708: Apr 15, 1958

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TO THE SECRETARY OF THE INTERIOR: REFERENCE IS MADE TO LETTER OF DECEMBER 18. WAS ENTERED INTO WITH THE NATIONAL LEAD COMPANY FOR THE EXPLORATION OF LEAD AND COPPER DEPOSITS PURSUANT TO THE PROVISIONS OF 50 U.S.C. THE WORK CALLED FOR UNDER THE CONTRACT CHIEFLY WAS FOR EXPLORATION BY DRILLING. WHICH SUPERSEDED THE ORIGINAL CONTRACT AND IS FOR CONSIDERATION HERE. ARTICLE 6 PROVIDES THAT: "THE ALLOWABLE COSTS OF THE WORK TO WHICH THE GOVERNMENT SHALL CONTRIBUTE ARE LIMITED TO THOSE * * * THAT ARE ESTIMATED IN EXHIBIT "A" BY CATEGORIES AS SPECIFIED IN THIS ARTICLE. * * * ANY EXCESS OVER THE ESTIMATE WHICH IS INDICATED AS THE MAXIMUM OF ANY * * * ITEM * * * SHALL NOT BE ALLOWABLE. THE ESTIMATED TOTAL AMOUNT OF THIS CATEGORY AND THE ESTIMATED COST OF EACH UNIT OF WORK FOR PERFORMANCE UNDER AN INDEPENDENT CONTRACT ARE MAXIMUMS.'.

B-134708, APR. 15, 1958

TO THE SECRETARY OF THE INTERIOR:

REFERENCE IS MADE TO LETTER OF DECEMBER 18, 1957, FROM YOUR ADMINISTRATIVE ASSISTANT, REQUESTING OUR DECISION AS TO WHETHER WE WOULD BE REQUIRED TO OBJECT TO A PROPOSED AMENDMENT TO EXPLORATION CONTRACT NO. IDM-E48, AS AMENDED, TO PROVIDE FOR THE AVERAGING OF COSTS OF ALL DRILLING AT NOT TO EXCEED $2.35 PER FOOT.

THE CONTRACT, DATED FEBRUARY 21, 1956, WAS ENTERED INTO WITH THE NATIONAL LEAD COMPANY FOR THE EXPLORATION OF LEAD AND COPPER DEPOSITS PURSUANT TO THE PROVISIONS OF 50 U.S.C. APP. 2093. THE WORK CALLED FOR UNDER THE CONTRACT CHIEFLY WAS FOR EXPLORATION BY DRILLING. THE ORIGINAL CONTRACT PROVIDED IN ARTICLE 10 AND IN AMENDMENT NO. 1 THERETO THAT THE GOVERNMENT WOULD CONTRIBUTE TO THE APPROVED ACTUAL COSTS OF DRILLING INCURRED BY THE CONTRACTOR UNDER SUBCONTRACTS APPROVED BY THE GOVERNMENT; WHEREAS, THE AMENDED CONTRACT, WHICH SUPERSEDED THE ORIGINAL CONTRACT AND IS FOR CONSIDERATION HERE, PROVIDED IN ARTICLE 6, CATEGORY (1) AND IN EXHIBIT "A" TO THE CONTRACT THAT THE GOVERNMENT WOULD CONTRIBUTE TO THE CONTRACTOR'S ACTUAL COSTS OF 132,000 FEET OF HOLES DRILLED UNDER INDEPENDENT CONTRACTS AT THE ESTIMATED UNIT COST OF $2.35 A FOOT.

ARTICLE 6 PROVIDES THAT:

"THE ALLOWABLE COSTS OF THE WORK TO WHICH THE GOVERNMENT SHALL CONTRIBUTE ARE LIMITED TO THOSE * * * THAT ARE ESTIMATED IN EXHIBIT "A" BY CATEGORIES AS SPECIFIED IN THIS ARTICLE. * * * ANY EXCESS OVER THE ESTIMATE WHICH IS INDICATED AS THE MAXIMUM OF ANY * * * ITEM * * * SHALL NOT BE ALLOWABLE.

"CATEGORY (1/--- INDEPENDENT CONTRACTS.--- WORK TO BE PERFORMED UNDER INDEPENDENT CONTRACTS (SEE ARTICLE 4 (B) ). THE ESTIMATED TOTAL AMOUNT OF THIS CATEGORY AND THE ESTIMATED COST OF EACH UNIT OF WORK FOR PERFORMANCE UNDER AN INDEPENDENT CONTRACT ARE MAXIMUMS.'

STAGES II AND III OF THE WORK INCLUDED IN EXHIBIT "A" PROVIDE:

"CATEGORY (1) INDEPENDENT CONTRACTS

66,000 FEET OF DIAMOND DRILLING (SIZE EX AND AX) AND CHURN DRILLING AT $2.35 PER FT.'

THE RECORD INDICATES THAT THE CONTRACTOR SUBMITTED VOUCHERS FOR WORK PERFORMED ON THE BASIS OF AN AVERAGE PER FOOT COST OF $2.35 FOR ALL DRILLING ACCOMPLISHED, ALTHOUGH THE ACTUAL COSTS PAID WERE IN SOME INSTANCES LESS AND IN OTHERS MORE THAN THE ESTIMATE OF $2.35 PER FOOT FOR EACH UNIT FOOT DRILLED. THE CONTRACTING OFFICE INTERPRETED ARTICLE 6 AND EXHIBIT "A" TO LIMIT THE ALLOWABLE COST TO THE ACTUAL AMOUNT PAID FOR SUCH FOOT OF DRILLING, NOT IN EXCESS OF $2.35 AND, AS A CONSEQUENCE, DISALLOWED SUBSTANTIAL AMOUNTS OF THE COSTS CLAIMED. THE CONTRACTOR PROTESTED THE DISALLOWANCE AND REQUESTED THAT THE AMENDED CONTRACT BE AMENDED TO MAKE THE $2.35 MAXIMUM UNIT COST PER FOOT APPLY AS AN AVERAGE TO BE COMPUTED ON THE BASIS OF ALL DRILLING. THE CONTRACTORS REQUEST IS BASED UPON THE ALLEGATION THAT IT WAS THE MUTUAL INTENT OF THE PARTIES AT THE TIME THE CONTRACT WAS EXECUTED TO REGARD THE UNIT COST UNDER CATEGORY (1) IN EXHIBIT "A" AS A MAXIMUM AVERAGE COST PER FOOT OF DRILLING PERFORMED AND ACCEPTED, RATHER THAN AS A MAXIMUM COST FOR EACH FOOT OF DRILLING. ALSO, THE CONTRACTOR HAS CONTENDED THAT ITS APPLICATION FOR EXTENTION OF EXPLORATION WORK COVERED BY THE AMENDED CONTRACT WAS BASED ON ESTIMATED AVERAGE COSTS OF ITS INDEPENDENT DRILLING CONTRACTS AS WAS THE CASE UNDER THE ORIGINAL CONTRACT.

WHILE THE CONTRACT IS NOT ALTOGETHER CLEAR AS TO WHETHER THE ALLOWABLE DRILLING COSTS WERE INTENDED TO BE COMPUTED ON AN AVERAGE PER FOOT COST OR ON A MAXIMUM UNIT COST PER FOOT, THE CONTRACT AS A WHOLE REASONABLY APPEARS TO CONTEMPLATE THE PARTICIPATION BY THE GOVERNMENT IN ALL THE NECESSARY, REASONABLE, DIRECT COSTS OF DRILLING, NOT TO EXCEED THE TOTAL ESTIMATED COST OF DRILLING AS SPECIFIED IN EXHIBIT "A.' THE EVIDENCE OF RECORD IS REASONABLY CLEAR THAT IT WAS THE UNDERSTANDING OF THE CONTRACTOR, AND ALSO THE INTERPRETATION OF THE OPERATING PERSONNEL OF DMEA, THAT THE UNIT DRILLING COSTS STIPULATED IN THE AMENDED CONTRACT WERE THE MAXIMUM AVERAGE COSTS PER FOOT, COMPUTED ON THE BASIS OF ALL DRILLING WORK. SEE 32A CFR CHAPTER XII, DMEA 9; CF. SECTION 302 (A) OF EXECUTIVE ORDER NO. 10282. IT IS NOT ENTIRELY CLEAR, HOWEVER, THAT THIS INTERPRETATION WAS ACTUALLY INTENDED BY THE ADMINISTRATOR, DMEA, WHEN HE EXECUTED THE CONTRACT, AND IT IS THEREFORE DOUBTFUL WHETHER THE PROPOSED MODIFICATION MAY PROPERLY BE ALLOWED AS A REFORMATION TO MAKE THE CONTRACT CONFORM TO THE ACTUAL INTENTION OF THE PARTIES.

NEVERTHELESS, CONSIDERING THE PRINCIPLE THAT DOUBTFUL OR AMBIGUOUS PROVISIONS OF A CONTRACT ARE TO BE CONSTRUED AGAINST THE PARTY WHO DRAFTED THEM--- IN THIS CASE THE GOVERNMENT--- WE BELIEVE THAT THE CONTRACTOR'S INTERPRETATION MAY PROPERLY BE ADOPTED.

IN VIEW THEREOF, AND OF THE NATURE OF THE MINERALS EXPLORATION PROGRAM AND THE BROAD AUTHORITY VESTED IN YOU BY THE DEFENSE PRODUCTION ACT OF 1950, AS AMENDED, 50 U.S.C. APP. 2061, ET SEQ., AND OF THE IMPRACTICABILITY OF ADMINISTERING SUCH CONTRACTS UNDER THE CONTRARY INTERPRETATION OF THE AMBIGUOUS PROVISIONS OF CATEGORY (1) OF EXHIBIT "A," YOU ARE ADVISED THAT OVER OFFICE WILL INTERPOSE NO OBJECTION TO THE EXECUTION OF THE PROPOSED AMENDMENT AS A CLARIFICATION OF AMENDED CONTRACT NO. IDM-E48.