B-140392, DEC. 21, 1959

B-140392: Dec 21, 1959

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SMITH: FURTHER REFERENCE IS MADE TO YOUR LETTER OF JULY 29. YOUR COMPANY WAS ENGAGED IN INSTALLING APPROXIMATELY 15 MILES OF ROADS. WORK WAS SUSPENDED BECAUSE THE COMPLETE JOB AS DESIGNED AND APPROVED WAS IN ERROR IN MANY PARTICULARS. VERBAL "NOT TO EXCEED" FIGURES WERE SET FOR MAJOR CHANGES BUT THERE WERE INNUMERABLE SMALLER CHANGES ORDERED WITHOUT MENTION OF THE COST TO CORRECT THE ORIGINAL DESIGN ERRORS. INDICATING THAT THERE WERE SEVERAL OUTSTANDING CLAIMS UNDER CONTRACT NO. WE WERE ADVISED THAT IT WAS ANTICIPATED THAT THE PRIME CONTRACTOR'S OUTSTANDING CLAIMS WOULD BE SETTLED THROUGH NEGOTIATION OR THAT THEY WOULD BE THE SUBJECTS OF DISPUTES AND HANDLED THROUGH A FINAL DECISION OF THE CONTRACTING OFFICER WHICH.

B-140392, DEC. 21, 1959

TO MR. A. T. SMITH:

FURTHER REFERENCE IS MADE TO YOUR LETTER OF JULY 29, 1959, WITH ENCLOSURES, RELATIVE TO WORK WHICH YOUR COMPANY PERFORMED AS A SUBCONTRACTOR OF MR. N. P. VAN VALKENBURGH OF EL MONTE, CALIFORNIA, THE PRIME CONTRACTOR UNDER DEPARTMENT OF THE NAVY CONTRACT NO. NBY 19441, DATED SEPTEMBER 23, 1958, COVERING CERTAIN CONSTRUCTION AT THE NAVAL MISSILE FACILITY, POINT ARGUELLO, CALIFORNIA.

ACCORDING TO THE INFORMATION SET FORTH IN THE ENCLOSURES OF YOUR LETTER DATED JULY 29, 1959, YOUR COMPANY WAS ENGAGED IN INSTALLING APPROXIMATELY 15 MILES OF ROADS, THE CONSTRUCTION OF A SEWER LAGOON AND THE CONSTRUCTION OF SPECIFIED DRAINAGE CULVERTS AND DITCHES. WITHIN A WEEK AFTER COMMENCEMENT OF OPERATIONS, WORK WAS SUSPENDED BECAUSE THE COMPLETE JOB AS DESIGNED AND APPROVED WAS IN ERROR IN MANY PARTICULARS. NAVY PERSONNEL FROM POINT MUGU, CALIFORNIA, CAME INTO THE FIELD AND AUTHORIZED A COMPLETE REDESIGN OF THE DRAINAGE PIPES UNDER THE ROADS, A REDESIGN OF THE SEWER LAGOON AND A REDESIGN OF APPROXIMATELY ONE-THIRD OF THE MAIN ROADS. VERBAL "NOT TO EXCEED" FIGURES WERE SET FOR MAJOR CHANGES BUT THERE WERE INNUMERABLE SMALLER CHANGES ORDERED WITHOUT MENTION OF THE COST TO CORRECT THE ORIGINAL DESIGN ERRORS. DELAYS OCCURRED IN COMPLETION OF THE SUBCONTRACT AND IN MAKING SETTLEMENTS BETWEEN THE NAVY AND THE PRIME CONTRACTOR. YOUR COMPANY RECEIVED NO PAYMENTS FOR WORK PERFORMED UNDER THE SUBCONTRACT, ALTHOUGH IT HAD BEEN EXPECTED WHEN YOU AGREED TO PERFORM THE SUBCONTRACT WORK THAT THE JOB WOULD BE COMPLETED WITHIN 120 DAYS. REPRESENTATIVE OF YOUR COMPANY ATTENDED CERTAIN CHANGE BOARD MEETINGS AND SUGGESTED THAT IF THE BOARD WOULD NOT ACCEPT THE FIGURES SUBMITTED IN SUPPORT OF THE PRIME CONTRACTOR'S CLAIMS RELATED TO YOUR SUBCONTRACT WORK, THE PRIME CONTRACTOR SHOULD BE PERMITTED TO ACCEPT THE NAVY SETTLEMENT OFFER CONDITIONED UPON A RESERVATION OF RIGHT "TO TAKE THE DISPUTED AMOUNT TO A HIGHER BOARD.' SUBSEQUENTLY, IN ORDER TO OBTAIN A PARTIAL SETTLEMENT OF YOUR CLAIMS, YOU AGREED TO ACCEPT AN AMOUNT WHICH WOULD RESULT IN A $28,000 LESS ON THE WORK INVOLVED.

WE RECEIVED A REPORT IN THE MATTER FROM THE BUREAU OF YARDS AND DOCKS, DEPARTMENT OF THE NAVY, INDICATING THAT THERE WERE SEVERAL OUTSTANDING CLAIMS UNDER CONTRACT NO. NBY-19441 BUT THAT ON JULY 15, 1959, THE OFFICER IN CHARGE OF CONSTRUCTION AND MR. VAN VALKENBURGH ARRIVED AT AN EQUITABLE SETTLEMENT FOR THE ITEMS MENTIONED IN THE COMPLAINT MADE BY YOUR COMPANY. WE WERE ADVISED THAT IT WAS ANTICIPATED THAT THE PRIME CONTRACTOR'S OUTSTANDING CLAIMS WOULD BE SETTLED THROUGH NEGOTIATION OR THAT THEY WOULD BE THE SUBJECTS OF DISPUTES AND HANDLED THROUGH A FINAL DECISION OF THE CONTRACTING OFFICER WHICH, IF UNFAVORABLE TO THE PRIME CONTRACTOR, MAY BE APPEALED TO THE ARMED SERVICES BOARD OF CONTRACT APPEALS. THERE WAS ENCLOSED WITH THE BUREAU REPORT A COPY OF A LETTER DATED AUGUST 3, 1959, FROM THE ASSISTANT SECRETARY OF THE NAVY (MATERIAL), TO MR. LESTER P. JOHNS, JR., MANAGER OF YOUR COMPANY, WHICH STATED THAT IT WOULD BE NECESSARY FOR YOU TO LOOK TO THE PRIME CONTRACTOR OR HIS SURETY FOR PAYMENT AND THAT THERE IS A PAYMENT BOND IN THE PENAL SUM OF $961,200 WITH THE TRAVELERS' INDEMNITY COMPANY AS SURETY UNDER THE CONTRACT. THE LETTER REFERRED TO THE FACT THAT A REPRESENTATIVE OF YOUR COMPANY WAS PRESENT AT THE CHANGE BOARD NEGOTIATIONS AND ADVISED MR. JOHNS THAT AT THOSE NEGOTIATIONS, AS IN ALL NEGOTIATIONS, THERE ARE MANY DIFFERENCES EXPRESSED.

FOLLOWING THE RECEIPT OF THE BUREAU REPORT, ADDITIONAL INFORMATION WAS DEVELOPED BY REPRESENTATIVES OF OUR OFFICE THROUGH A REVIEW OF AVAILABLE ADMINISTRATIVE RECORDS AND INTERVIEWS WITH YOU, MR. VAN VALKENBURGH, AND RESPONSIBLE NAVAL PERSONNEL OF THE ELEVENTH NAVAL DISTRICT PUBLIC WORKS OFFICE, SAN DIEGO, CALIFORNIA, AND THE NAVAL FACILITIES AT POINT ARGUELLO AND POINT MUGU, CALIFORNIA.

THE INVESTIGATION DISCLOSED THAT THE CONSTRUCTION WORK AT POINT ARGUELLO WAS A "CRASH" PROGRAM AND THERE ARE INDICATIONS TO THE EFFECT THAT THE BLUEPRINTS USED WERE FAULTY AND THE DEFICIENCIES THEREIN WERE THE BASIC FACTORS INVOLVED IN MANY OF THE EXTRA WORK CLAIMS SUBMITTED BY THE PRIME CONTRACTOR. HOWEVER, THERE WAS FOUND NO EVIDENCE TO SUBSTANTIATE YOUR ALLEGATION THAT THE NAVY ADOPTED A "COVER UP" POLICY IN REGARD TO THE ERRORS DISCOVERED IN THE BLUEPRINTS. WHEN QUESTIONED ON THAT POINT, YOU INFORMED OUR REPRESENTATIVES THAT YOU WERE REFERRING TO THE REJECTION OF YOUR CLAIMS FOR DELAYS CAUSED BY DESIGN CHANGES AND CERTAIN PRACTICES SUCH AS THE SETTING OF A TOP PRICE ON EACH CHANGE AND REFUSING TO ACCEPT THE TIME AND MATERIAL COST FIGURES PRESENTED IN SUPPORT OF YOUR CLAIMS. WAS ASCERTAINED THAT THE NAVY PERSONNEL WERE OF THE OPINION THAT THE CLAIMS SUBMITTED BY THE PRIME CONTRACTOR WERE EXCESSIVE AND INDEFINITE AND THAT THEY COULD NOT READILY BE IDENTIFIED WITH THE WORK PERFORMED. CONNECTION WITH THE SETTLEMENT WHICH, IT IS ALLEGED, WOULD RESULT IN A $28,000 LOSS TO YOUR COMPANY, IT WAS INDICATED THAT THE MEMBERS OF THE CHANGE BOARD UNANIMOUSLY AGREED THAT THE PROPOSED CONTRACT PRICE ADJUSTMENT WAS FAIR AND REASONABLE; AND THAT, IN A LETTER DATED JULY 16, 1959, YOU STATED THAT THE RESULTANT CHANGE ORDERS WERE AGREEABLE AND ACCEPTABLE TO YOUR COMPANY.

A GENERAL REVIEW OF THE OUTSTANDING CLAIMS UNDER THE CONTRACT WAS UNDERTAKEN BY OUR REPRESENTATIVES AND IT WAS BELIEVED THAT SUCH CLAIMS COULD BE SETTLED ONLY BY SERIOUS EFFORTS ON THE PART OF THE PRIME CONTRACTOR AND THE NAVY REPRESENTATIVES. APPARENTLY, NEITHER PARTY IS ENTIRELY RESPONSIBLE FOR THE DELAYS IN SETTLEMENT OF THE EXTRA WORK CLAIMS PRESENTED. WITH RESPECT TO THE REPORTED SETTLEMENT AGREEMENT OF JULY 15, 1959, WE ARE OF THE OPINION THAT THE CHANGE BOARD, CONVENED TO REVIEW THE CHANGE ORDERS FOR THE POINT ARGUELLO CONSTRUCTION, WOULD NOT HAVE BEEN WARRANTED IN APPROVING SETTLEMENT ON THE BASIS AS RECOMMENDED BY YOUR REPRESENTATIVE AT THE BOARD MEETINGS; ONLY IN THE EVENT THAT THE PARTIES WERE UNABLE TO AGREE UPON A COMPLETE AND UNCONDITIONAL SETTLEMENT OF THE EXTRA WORK CLAIMS UNDER CONSIDERATION WOULD THE APPEAL PROVISIONS OF THE CONTRACT HAVE BECOME EFFECTIVE.

IN THE CIRCUMSTANCES, NO FURTHER ACTION ON THE COMPLAINT OF YOUR COMPANY APPEARS TO BE REQUIRED BY OUR OFFICE AND THE MATTER IS CONSIDERED CLOSED.