B-144425, MAY 18, 1962

B-144425, MAY 18, 1962

TO MR. WILLIAM STANLEY, JR:

REFERENCE IS MADE TO YOUR LETTER OF JANUARY 26, 1962, REQUESTING REVIEW OF SETTLEMENT DATED MAY 23, 1961, WHICH DISALLOWED A CLAIM OF SATTERLEE AND SMITH, ARCHITECTS, WASHINGTON, D.C., IN THE APPROXIMATE AMOUNT OF $30,892, COVERING AN ALLEGED BALANCE DUE UNDER DEPARTMENT OF STATE CONTRACT NO. SCC-22945, DATED NOVEMBER 30, 1954, WITH THE FORMER PARTNERSHIP FIRM OF KEYES, SMITH, SATTERLEE AND LETHERIDGE, FOR ARCHITECTURAL-ENGINEERING SERVICES REQUIRED IN CONNECTION WITH THE PROPOSED CONSTRUCTION OF AN EMBASSY OFFICE BUILDING AND RESIDENCE AT ASUNCION, PARAGUAY.

ARTICLE III, PARAGRAPH 2, OF THE ARCHITECTURAL-ENGINEERING CONTRACT PROVIDES THAT, UPON ACCEPTANCE AND APPROVAL OF "DEVELOPMENT D," THE ARCHITECTS WOULD BE ENTITLED TO AN AMOUNT EQUIVALENT TO 5 1/4 PERCENT OF EITHER THE CONTRACT PRICE OR THE BONA FIDE LOW BID OR COMBINATION OF BONA FIDE LOW BIDS FOR THE CONSTRUCTION PROJECT; AND THAT, IN THE EVENT OF NO BID OR NO CONSTRUCTION CONTRACTS, THE FEE WOULD BE BASED ON AN ESTIMATED COST OF $600,000.

THE CONTRACT SETS FORTH VARIOUS TYPES OF SERVICES WHICH THE ARCHITECTS WOULD BE REQUIRED TO PERFORM AS AN INCIDENT TO THE EARNING OF THE AGREED UPON PERCENTAGE FEE PAYMENT. IT PROVIDES ALSO FOR PAYMENT ON ACCOUNT OF ADDITIONAL WORK ON THE BASIS OF "ACTUAL TIME CARD COST PLUS 150 CENT.' AMONG THE DESIGNATED TYPES OF SERVICES IS ITEM (O), DESCRIBED AS "CHECKING OF SHOP DRAWINGS," AND WHICH CONTAINS A PARENTHETICAL NOTATION THAT "1/4 PERCENT HAS BEEN ADDED TO FEE FOR PREPARATION OF WORKING DRAWINGS AND SPECIFICATIONS FOR THE PURPOSE.'

A CONSTRUCTION CONTRACT WAS AWARDED ON APRIL 19, 1956, TO THE FIRM OF CRISTIANI AND NIELSEN CIA, BUENOS AIRES, ARGENTINA, FOR COMPLETION OF THE PROJECT IN ACCORDANCE WITH THE PLANS DEVELOPED BY THE ARCHITECTS. THE CONSTRUCTION CONTRACT WAS AWARDED ON A COST-PLUS-A FIXED-FEE BASIS WITH THE SUM OF $670,000 HAVING BEEN ESTABLISHED AS THE BASE AMOUNT OF THE CONTRACT. WHEN THE PROJECT, INCLUDING VARIOUS AUTHORIZED ADDITIONAL WORK ITEMS, WAS NEARLY COMPLETED ITS FINAL COST WAS ESTABLISHED AT $1,100,000. EXAMINATION OF THE SEVERAL CHANGE ORDERS ISSUED TO THE CONSTRUCTION CONTRACTOR DISCLOSES THAT THE BASE AMOUNT OF THE CONTRACT WAS INCREASED TO $1,071,851.14, OF WHICH THE SUM OF $95,184.14 COVERS ESTIMATED COSTS RELATED TO AUTHORIZED ADDITIONS TO THE AMOUNT OF THE WORK REQUIRED UNDER THE ORIGINAL CONTRACT, SUCH AS THE CONSTRUCTION OF MARINE QUARTERS AT AN ESTIMATED TOTAL COST OF $76,330. ALSO INCLUDED IN THE $1,071,851.14 FIGURE ARE SUMS TOTALING THE AMOUNT OF $306,667, ALLOWED FOR CONSTRUCTION COSTS ON THE APPARENT BASIS THAT ACTUAL COSTS OF PERFORMING THE ORIGINALLY SPECIFIED WORK EXCEEDED THE COST ESTIMATE OF $670,000, DESIGNATED AS THE BASE AMOUNT OF THE CONSTRUCTION CONTRACT.

THE CONTRACTING OFFICER DETERMINED THAT THE AMOUNT OF $35,175, OR 5 1/4 PERCENT OF $670,000, SHOULD BE ALLOWED AS THE BASIC FEE PAYABLE UNDER THE TERMS OF THE ARCHITECTURAL-ENGINEERING CONTRACT; AND CONCLUDED THAT THE ARCHITECTS WERE NOT ENTITLED TO ADDITIONAL COMPENSATION FOR THE CHECKING OF THE CONSTRUCTION CONTRACTOR'S SHOP DRAWINGS. THE ARCHITECTS WERE FOUND TO BE ENTITLED TO THE SUMS OF $10,297.26 AND $5,474.46 ON TWO ITEMS OF EXTRA WORK, PLUS THE SUM OF $1,688.04 CLAIMED AS REIMBURSABLE COSTS UNDER ARTICLE IV OF THE CONTRACT. THE SUM OF $49,117.76 REPORTEDLY HAS BEEN PAID TO THE ARCHITECTS OUT OF TOTAL DETERMINED EARNINGS OF $52,634.76, WITH THE BALANCE OF $3,517 REPRESENTING APPROXIMATELY 10 PERCENT OF THE BASIC DETERMINED FEE OF $35,175, RETAINED IN ACCORDANCE WITH THE PROVISIONS OF ARTICLE III, PARAGRAPH 3, OF CONTRACT NO. SCC-22945, PENDING THE RECEIPT OF "A RELEASE OF ALL CLAIMS AGAINST THE GOVERNMENT ARISING UNDER OR BY VIRTUE OF THIS CONTRACT.'

THE ARCHITECTS APPEALED FROM THE CONTRACTING OFFICER'S DECISION IN THE MATTER AND THE APPEAL WAS DENIED BY DEPARTMENTAL LETTER DATED AUGUST 12, 1960. THE ARCHITECTS HAD CONTENDED THAT THE FEE PAYABLE UNDER ARTICLE III, PARAGRAPH 2, OF THEIR CONTRACT SHOULD HAVE BEEN COMPUTED ON THE BASIS OF THE FINAL ESTIMATE OF CONSTRUCTION COSTS AND THAT THE ONE-FOURTH OF 1 PERCENT PORTION OF THE AGREED UPON PERCENTAGE FEE WAS NOT INTENDED TO COVER THE CHECKING OF A CONSTRUCTION CONTRACTOR'S SHOP DRAWINGS BUT ONLY THE INCLUSION IN THE FINAL LARGE SCALE DRAWINGS OF DETAILS REQUIRED FOR THE PREPARATION OF SHOP DRAWINGS. THEY CLAIMED THE AMOUNT OF $4,800 FOR THE CHECKING OF SHOP DRAWINGS AND INDICATED THAT THEIR BASIC FEE SHOULD BE CONSIDERED AS AMOUNTING TO 5 1/4 PERCENT OF $1,100,000 OR $57,750, INSTEAD OF $35,175.

IN REQUESTING REVIEW OF THE SETTLEMENT DATED MAY 23, 1961, YOU SUGGEST THAT THE DEPARTMENTAL REPORT ON THE CLAIM DOES NOT SHOW THE FULL EXTENT OF THE EXTRA WORK PERFORMED BY THE ARCHITECTS. HOWEVER, THE PAPERS SUBMITTED WITH THE REPORT INDICATED THAT THE ARCHITECTS HAD PERFORMED VARIOUS SERVICES OF A GENERAL NATURE AFTER THE CONSTRUCTION CONTRACT WAS AWARDED BUT MADE NO CLAIM THEREFOR.

WE ARE INCLINED TO AGREE WITH THE POSITION ORIGINALLY TAKEN BY MRS. CHLOETHIEL SMITH IN HER LETTER DATED NOVEMBER 27, 1956, TO THE CONTRACTING OFFICER, TO THE EFFECT THAT THE CONTRACT FOR ARCHITECTURAL ENGINEERING SERVICES CONTEMPLATED PAYMENT OF THE BASIC ARCHITECTURAL ENGINEERING FEE UPON AWARD OF ONE OR MORE CONSTRUCTION CONTRACTS BASED UPON THE ORIGINAL PLANS DEVELOPED BY THE ARCHITECTS, AND THAT PAYMENT OF THE FEE WOULD NOT BE "IN ANY WAY RELATED TO THE COMPLETION OF CONSTRUCTION.' ON SUCH BASIS, THE ARCHITECTS WOULD BE ENTITLED TO ADDITIONAL PAYMENT FOR THE CHECKING OF THE CONSTRUCTION CONTRACTOR'S SHOP DRAWINGS AND THERE WOULD REMAIN THE QUESTION AS TO THE PROPER AMOUNT WHICH SHOULD BE REGARDED AS THE PRICE OF THE CONSTRUCTION CONTRACT FOR THE PURPOSE OF COMPUTING THE BASIC ARCHITECTURAL ENGINEERING FEE.

IT APPEARS FROM THE LANGUAGE OF ARTICLE III, PARAGRAPH 2, OF THE ARCHITECTURAL-ENGINEERING CONTRACT, THAT THE PARTIES WERE ATTEMPTING TO PROVIDE UNDER CERTAIN CONDITIONS A MORE REALISTIC BASIS THAN THE UTILIZATION OF THEIR CONSTRUCTION COST ESTIMATE OF $600,000 FOR DETERMINING THE VALUE OF THE SERVICES RENDERED TO THE POINT OF COMPLETING THE PLANS FOR THE PROJECT, IN THE EVENT OF AN AWARD OF ONE OR MORE CONSTRUCTION CONTRACTS OR IF THE GOVERNMENT ELECTED TO ABANDON THE PROJECT AFTER RECEIVING ACCEPTABLE BIDS. WE DOUBT THAT THIS PURPOSE COULD HAVE BEEN IMMEDIATELY ACCOMPLISHED UPON THE AWARD OF A CONTRACT FOR THE ENTIRE JOB ON A COST-PLUS-A-FIXED-FEE BASIS, SINCE THE BASE AMOUNT OF ANY SUCH CONTRACT WOULD ALSO CONSTITUTE AN ESTIMATE OF COST INSTEAD OF A FIRM COMMITMENT TO PERFORM ALL WORK AT A STIPULATED PRICE SUBJECT TO ADJUSTMENT ONLY ON ACCOUNT OF AUTHORIZED CHANGES IN THE REQUIREMENTS OF THE CONTRACT.

WE WOULD NOT UNDERTAKE TO SPECULATE ON WHAT AN ACCEPTABLE LOW BID ON THE ENTIRE PROJECT WOULD HAVE AMOUNT TO, BUT IT IS APPARENT THAT THE MOST PRACTICAL MEANS OF DETERMINING THE AMOUNT OF THE BASIC ARCHITECTURAL- ENGINEERING FEE WOULD BE TO APPLY THE AGREED UPON PERCENTAGE RATE TO THE TOTAL OF THE ABOVE SUMS OF $67,000 AND $306,667, OR $976,667.

IN OUR OPINION, THERE EXISTS NO REASONABLE BASIS FOR UTILIZATION OF THE TOTAL PROJECT COST WHICH WOULD INCLUDE PAYMENTS FOR WORK WHICH WAS IN ADDITION TO THAT ORIGINALLY SPECIFIED UNDER THE TERMS OF THE CONSTRUCTION CONTRACT. THE BASIC ARCHITECTURAL-ENGINEERING FEE WOULD NOT HAVE BEEN SUBJECT TO ADJUSTMENT IF THE TOTAL AMOUNT OF THE WORK DESCRIBED IN THE ORIGINAL PLANS HAD BEEN DECREASED AND THE CONTRACT MUST ALSO BE CONSTRUED AS MEANING THAT THE BASIC FEE WOULD NOT BE SUBJECT TO ADJUSTMENT ON ACCOUNT OF AMENDMENTS TO THE CONSTRUCTION CONTRACT WHICH INCREASED THE AMOUNT OF WORK TO BE PERFORMED. IF THE ARCHITECTS WERE REQUIRED TO PERFORM SERVICES RELATED TO SUCH CHANGES, IT IS APPARENT THAT THEY WOULD HAVE BEEN ENTITLED TO PAYMENT ONLY ON A WORK-TIME BASIS, ALTHOUGH A DIFFERENT BASIS FOR PAYMENT TO THE ARCHITECTS MIGHT HAVE BEEN AGREED UPON IN CONTEMPLATION OF CONSTRUCTION CONSIDERED TO BE BEYOND THE GENERAL SCOPE OF THE ORIGINAL CONSTRUCTION CONTRACT. THAT WAS THE SITUATION WITH RESPECT TO AN ORIGINALLY CONTEMPLATED SEPARATE CONTRACT WITH THE ARCHITECTS FOR THE DEVELOPMENT OF PLANS FOR THE CONSTRUCTION OF MARINE QUARTERS AT THE PROJECT SITE.

ACCORDINGLY, WE WILL AUTHORIZE PAYMENT OF THE SUM OF $24,417.02 AS THE BALANCE DUE THE ARCHITECTS IF THEY WILL AGREE TO ACCEPT SUCH AMOUNT AS IN FULL AND FINAL SETTLEMENT OF ALL CLAIMS ARISING OUT OF CONTRACT NO. SCC- 22945. THE PROPOSED SETTLEMENT FIGURE IS COMPUTED AS FOLLOWS:

TABLE

BASE AMOUNT OF CONSTRUCTION CONTRACT $670,000.00

ADDITIONAL CONSTRUCTION COSTS 306,667.00

$976,667.00

5 1/4 PERCENT OF $976,667 $ 51,275.02

LESS: FEE PAYMENT 31,658.00

BALANCE OF DETERMINED FEE 19,617.02

ADD: CHECKING OF SHOP DRAWINGS 4,800.00

AMOUNT DUE ARCHITECTS $ 24,417.02

PLEASE ADVISE US AS TO THE INTENTION OF YOUR CLIENTS REGARDING THE ACCEPTABILITY OF THE AMOUNT OF $24,417.02 AS A FINAL SETTLEMENT OF THEIR CLAIMS.