B-145081, APR. 27, 1961

B-145081: Apr 27, 1961

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SHEA AND KENNEY: WE HAVE YOUR LETTER OF FEBRUARY 14. ARE SUBSTANTIALLY THE SAME. EACH PROVIDED THAT THE CONTRACTOR WAS OBLIGATED TO CARRY ON THE WORK ONLY TO THE EXTENT OF AVAILABLE FUNDS. THE CONTRACTOR WAS REQUIRED TO NOTIFY THE CONTRACTING OFFICER WHENEVER THE ESTIMATED COST OF PERFORMANCE DID NOT REASONABLY APPROXIMATE THE ESTIMATED ALLOWABLE COST SET FORTH IN THE CONTRACT. THE AMENDMENTS ARE NOT MATERIALLY DIFFERENT. BOTH AMENDMENTS WERE ASSENTED TO IN WRITING BY THE CONTRACTOR. CONTENDS THAT THE AMENDMENTS ESTABLISHED COST CEILINGS ONLY WITH RESPECT TO THE ORIGINAL SPECIFICATIONS AND THAT HE IS ENTITLED TO EQUITABLE ADJUSTMENTS ABOVE THE STATED MAXIMUM FOR ANY CHANGES IN THE ORIGINAL SPECIFICATIONS WHICH RESULTED IN INCREASED COSTS.

B-145081, APR. 27, 1961

TO SULLIVAN, SHEA AND KENNEY:

WE HAVE YOUR LETTER OF FEBRUARY 14, 1961, WITH ENCLOSURES, REQUESTING OUR DETERMINATION AS TO THE RIGHT OF THE BE LOCK INSTRUMENT CORPORATION TO PAYMENT OF AMOUNTS IN EXCESS OF STATED PRICE LIMITATIONS UNDER CONTRACTS WITH THE DEPARTMENT OF THE NAVY.

BE LOCK AND THE NAVY ENTERED INTO CONTRACTS NONR-1396/OO) AND NONR 1415/OO) ON APRIL 12, 1954, FOR WORK TO BE PERFORMED ON A COST-PLUS-A FIXED-FEE BASIS. THE PROVISIONS OF BOTH CONTRACTS, SO FAR AS CONCERNS THE MATTER IN QUESTION, ARE SUBSTANTIALLY THE SAME. EACH CONTRACT ESTABLISHED AN ESTIMATED COST AND A FIXED FEE; EACH PROVIDED FOR BILLING ON A MONTHLY BASIS BY THE CONTRACTOR AND PAYMENT AS PROMPTLY AS POSSIBLE THEREAFTER; AND EACH PROVIDED THAT THE CONTRACTOR WAS OBLIGATED TO CARRY ON THE WORK ONLY TO THE EXTENT OF AVAILABLE FUNDS. THE CONTRACTS ALSO INCLUDED THE USUAL "CHANGES" AND "DISPUTES" ARTICLES. IN BOTH CASES, THE CONTRACTOR WAS REQUIRED TO NOTIFY THE CONTRACTING OFFICER WHENEVER THE ESTIMATED COST OF PERFORMANCE DID NOT REASONABLY APPROXIMATE THE ESTIMATED ALLOWABLE COST SET FORTH IN THE CONTRACT.

DURING THE COURSE OF THE CONTRACT PERFORMANCE, THE CONTRACTING OFFICER ISSUED CHANGES IN THE SPECIFICATIONS WHICH, AT LEAST IN SOME CASES, INCREASED THE COST OF PERFORMANCE. IT SOON BECAME APPARENT THAT THE WORK COULD NOT BE COMPLETED WITHIN THE ESTIMATED ALLOWABLE COST. THE CONTRACTING OFFICER THEN PREPARED AN AMENDMENT TO EACH CONTRACT. THE AMENDMENTS ARE NOT MATERIALLY DIFFERENT. BOTH AMENDMENTS WERE ASSENTED TO IN WRITING BY THE CONTRACTOR. THE AMENDMENT TO NONR-1396/OO) INCREASED THE ESTIMATED ALLOWABLE COST FROM $930,052 TO $995,958, MADE SUCH INCREASED AMOUNT THE MAXIMUM COST ALLOCABLE TO THE GOVERNMENT FOR THE WORK INCLUDED IN THE SPECIFICATIONS, AND REQUIRED THE CONTRACTOR TO COMPLETE THE WORK EVEN THOUGH THE COST TO THE CONTRACTOR SHOULD EXCEED SUCH AMOUNT.

AS WE UNDERSTAND IT, THE WORK UNDER THE CONTRACTS HAS NOW BEEN SATISFACTORILY COMPLETED AND THE CONTRACTOR HAS BEEN PAID THE AMOUNTS PROVIDED BY THE CONTRACTS AS AMENDED. THE CONTRACTOR, HOWEVER, CONTENDS THAT THE AMENDMENTS ESTABLISHED COST CEILINGS ONLY WITH RESPECT TO THE ORIGINAL SPECIFICATIONS AND THAT HE IS ENTITLED TO EQUITABLE ADJUSTMENTS ABOVE THE STATED MAXIMUM FOR ANY CHANGES IN THE ORIGINAL SPECIFICATIONS WHICH RESULTED IN INCREASED COSTS. THE GOVERNMENT, ON THE OTHER HAND, HAS TAKEN THE POSITION THAT THE CONTRACT AMENDMENTS INCLUDED ALL CHANGES IN SPECIFICATIONS EFFECTED PRIOR TO THE DATE OF THE AMENDMENT SO THAT THE CONTRACTOR IS ENTITLED TO EQUITABLE ADJUSTMENTS ONLY FOR CHANGES IN SPECIFICATIONS ORDERED AFTER THE AMENDMENTS WERE ENTERED INTO. THIS CONTROVERSY, AMONG OTHERS, WAS SUBMITTED TO THE ARMED SERVICES BOARD OF CONTRACT APPEALS AND THE BOARD IN ASBCA NO. 4190, OCTOBER 5, 1960, SUSTAINED THE GOVERNMENT'S POSITION. A MOTION FOR RECONSIDERATION WAS DENIED ON NOVEMBER 22, 1960. YOU NOW CONTEND THAT THE ASBCA POSITION IS NOT SUPPORTED BY SUBSTANTIAL EVIDENCE AND IS ERRONEOUS AS A MATTER OF LAW.

THE ISSUE FOR RESOLUTION IN THIS CASE IS WHETHER THE CONTRACT AMENDMENTS REQUIRED THE CONTRACTOR TO PERFORM THE WORK ORIGINALLY CONTEMPLATED FOR A PRICE NOT TO EXCEED THE CEILING OR WHETHER THE WORK TO BE PERFORMED WITHIN THE CEILING PRICE WAS THAT CONTEMPLATED, UNDER THE ORIGINAL SPECIFICATIONS AS MODIFIED BY CHANGES MADE PRIOR TO THE TIME THE AMENDMENTS WERE ENTERED INTO. THE AMENDMENTS ARE SILENT ON THIS QUESTION.

THE PROBLEM IS ONE OF INTERPRETATION. SEE 6 WILLISTON ON CONTRACTS, REVISED EDITION, SECTION 1826; RESTATEMENT OF CONTRACTS, SECTION 408. THE RESTATEMENT OF CONTRACTS PROVIDES AT SECTION 230 THAT THE STANDARD OF INTERPRETATION OF AN INTEGRATED CONTRACT SUCH AS HERE UNDER CONSIDERATION IS---

"* * * THE MEANING THAT WOULD BE ATTACHED TO THE INTEGRATION BY A REASONABLY INTELLIGENT PERSON ACQUAINTED WITH ALL OPERATIVE USAGES AND KNOWING ALL THE CIRCUMSTANCES PRIOR TO AND CONTEMPORANEOUS WITH THE MAKING OF THE INTEGRATION, OTHER THAN ORAL STATEMENTS BY THE PARTIES OF WHAT THEY INTENDED IT TO MEAN.'

AS PREVIOUSLY NOTED, THE CONTRACTS PROVIDED IN ARTICLE 4 OF THE GENERAL PROVISIONS--- NAVEXOS 3302 (6-54/--- THAT A COST VOUCHER SHOULD BE PRESENTED BY THE CONTRACTOR EACH MONTH, UNLESS AUTHORIZED AT MORE FREQUENT INTERVALS, AND THAT THE GOVERNMENT SHOULD MAKE PAYMENT THEREON AS PROMPTLY AS PRACTICAL. WE UNDERSTAND THAT ALL ALLOWABLE COSTS INCURRED, WHETHER UNDER THE ORIGINAL SPECIFICATIONS OR THE CHANGES ORDERED, WERE INCLUDED IN THE COST VOUCHERS AND PAYMENT WAS MADE THEREON IN ACCORDANCE WITH THE TERMS OF THE CONTRACT WITHOUT DISTINCTION. MANY OF THE ITEMS CALLED FOR BY THE CHANGES HAD PRESUMABLY BEEN BILLED AND PAID FOR PRIOR TO THE EFFECTIVE DATE OF THE AMENDMENTS. NO PROBLEM AROSE AS TO ANY INCREASE IN COST CAUSED BY THE CHANGES BECAUSE OF THE COST-PLUS-A-FIXED-FEE NATURE OF THE CONTRACT. WE DO NOT THINK IT REASONABLE UNDER THE CIRCUMSTANCES TO INTERPRET THE AMENDMENTS TO REQUIRE THE PARTIES TO GO BACK AND SEGREGATE COST RECORDS ON THE BASIS OF WHETHER THEY WERE INCURRED UNDER THE SPECIFICATIONS AS ORIGINALLY SET OUT OR AS AMENDED. WE DEEM IT MORE REASONABLE TO CONSIDER THAT, AS A CHANGE WAS DIRECTED, THE SPECIFICATIONS, IN EFFECT, WERE AMENDED TO REFLECT SUCH CHANGE AND THAT ANY AMENDMENT HAVING A MATERIAL BEARING ON THE TERMS OF PAYMENT MUST HAVE BEEN ENTERED INTO IN CONTEMPLATION OF THE SPECIFICATIONS AS THEY STOOD AT THAT TIME. IN THIS CONNECTION IT IS NOTED THAT ALTHOUGH THE AMENDMENTS INCREASED THE ESTIMATED COST BY APPROXIMATELY $300,000, OR 10 PERCENT OF THE AGGREGATE OF THE TWO CONTRACTS, THE CONTRACTOR ACCEPTED THE SPECIFIC PROVISION THAT THE SAME AMOUNTS OF FEES SHOULD COVER COMPLETE PERFORMANCE OF THE WORK. HAD ANY RESERVATION OF RIGHTS TO SEEK ADDITIONAL COMPENSATION OR ADDITIONAL REIMBURSEMENT IF THE CONTRACTOR'S AGGREGATE COSTS SHOULD EXCEED THE MAXIMUM, FOR WHATEVER REASON, BEEN INTENDED, WE BELIEVE IT WOULD HAVE BEEN NORMAL AND REASONABLE FOR THE CONTRACTOR TO HAVE INSISTED UPON SOME MENTION OF SUCH RESERVATION. ON THE RECORD BEFORE US, WE FIND NO REASON TO DISAGREE WITH THE CONCLUSION OF THE ASBCA AS A MATTER OF LAW.

IN VIEW OF OUR CONCLUSION IT IS NOT NECESSARY TO CONSIDER WHETHER THE BOARD'S DECISION WAS, AS ALLEGED, NOT SUPPORTED BY SUBSTANTIAL EVIDENCE. HOWEVER, WE NOTE THE POSITION OF THE COURT IN LOWELL O. WEST LUMBER SALES V. UNITED STATES, 270 F.2D 12, 19, THAT A PARTY DISAGREEING WITH A FINDING OF FACT BY THE ASBCA HAS THE BURDEN OF MAKING A SUBSTANTIAL SHOWING THAT THE BOARD'S DETERMINATION WAS NOT SUPPORTED BY SUBSTANTIAL EVIDENCE OR WAS SUBJECT TO ONE OF THE OTHER EXCEPTIONS TO GRANTING IT FINALITY UNDER THE WUNDERLICH ACT, 41 U.S.C. 321-322, AND IT IS OUR OPINION THAT THE EVIDENCE PRESENTED BY YOU DOES NOT MEET THE TEST ESTABLISHED BY THE COURT.