B-145459, MAY 15, 1961

B-145459: May 15, 1961

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TO THE SECRETARY OF THE INTERIOR: REFERENCE IS MADE TO A LETTER DATED MARCH 28. REPORTED THAT COMPLETE DELIVERY OF THE AUTOTRANSFORMER WAS MADE BY THE CONTRACTOR AT GRAND FORKS. THAT INSTALLATION OF THE EQUIPMENT WAS COMPLETED ON SEPTEMBER 27. THAT THE AUTOTRANSFORMER WAS FIRST ENERGIZED ON DECEMBER 10. THAT THE LOAD ON THE TRANSFORMER WAS NEGLIGIBLE UNTIL MARCH 26. WHEN THE EQUIPMENT WAS PLACED IN COMMERCIAL SERVICE. WHICH WAS COMPLETELY REINSTALLED AND ENERGIZED ON APRIL 26. IT WAS AGREED BY THE PARTIES THAT INTENSE PRESSURE OCCURRED IN THE SERIES SWITCH COMPARTMENT. WITH THE RESULT THAT THE COVER WAS BLOWN OFF. THE EXPLOSION WAS FOLLOWED BY FIRE WHICH. IT WAS REPORTED. IT IS THE GOVERNMENT'S POSITION THAT DEFECTS IN THE EQUIPMENT LED TO THE FAILURE.

B-145459, MAY 15, 1961

TO THE SECRETARY OF THE INTERIOR:

REFERENCE IS MADE TO A LETTER DATED MARCH 28, 1961, WITH ENCLOSURES, FROM ASSISTANT SECRETARY BEASLEY, REQUESTING OUR DECISION CONCERNING A PROPOSED SETTLEMENT OF THE GOVERNMENT'S CLAIM FOR REPAIR OF CERTAIN EQUIPMENT FURNISHED BY THE LEGNANO ELECTRIC CORPORATION AND THE CONTRACTOR'S COUNTERCLAIM FOR THE COST OF SUCH REPAIR.

THE RECORD SHOWS THAT UNDER DATE OF JUNE 22, 1956, THE LEGNANO ELECTRIC CORPORATION ENTERED INTO CONTRACT NO. 14-06-D-2070 WITH THE BUREAU OF RECLAMATION FOR FURNISHING THE GOVERNMENT ONE AUTOTRANSFORMER FOR THE GRAND FORKS SUBSTATION, TRANSMISSION DIVISION, NORTH DAKOTA, MISSOURI RIVER BASIN PROJECT, THE SAME TO BE IN ACCORDANCE WITH THE REQUIREMENTS OF THE CONTRACT, INCLUDING INVITATION NO. DS-4623 MADE A PART THEREOF.

IN A MEMORANDUM DATED MARCH 3, 1961, THE ASSISTANT COMMISSIONER AND CHIEF ENGINEER, BUREAU OF RECLAMATION, REPORTED THAT COMPLETE DELIVERY OF THE AUTOTRANSFORMER WAS MADE BY THE CONTRACTOR AT GRAND FORKS, NORTH DAKOTA, ON SEPTEMBER 11, 1957, AND THAT INSTALLATION OF THE EQUIPMENT WAS COMPLETED ON SEPTEMBER 27, 1957; THAT THE AUTOTRANSFORMER WAS FIRST ENERGIZED ON DECEMBER 10, 1957, FOR LIMITED SERVICE IN PROTECTION OF THE EQUIPMENT AGAINST EXTREMELY COLD WEATHER AND FOR STATION SERVICE, AND THAT THE LOAD ON THE TRANSFORMER WAS NEGLIGIBLE UNTIL MARCH 26, 1958, WHEN THE EQUIPMENT WAS PLACED IN COMMERCIAL SERVICE. THE AUTOTRANSFORMER FAILED IN SERVICE ON DECEMBER 3, 1958, WITH RESULTANT EXTENSIVE DAMAGE TO THE EQUIPMENT. THE CONTRACTOR ASSUMED RESPONSIBILITY FOR REPAIR OF THE TRANSFORMER, WHICH WAS COMPLETELY REINSTALLED AND ENERGIZED ON APRIL 26, 1959, AND PLACED UNDER LOAD ON APRIL 27, 1959. ON SEPTEMBER 17, 1959, THE AUTOTRANSFORMER AGAIN FAILED IN SERVICE, BEING EXTENSIVELY DAMAGED AS A RESULT OF THE FAILURE. BY LETTER DATED OCTOBER 15, 1959, THE CONTRACTING OFFICER ORDERED THE CONTRACTOR TO REPAIR THE TRANSFORMER, BUT BY LETTER OF OCTOBER 30, 1959, THE CONTRACTOR MADE DUE AND TIMELY PROTEST, AGREEING HOWEVER TO PROCEED WITH THE REPAIRS ON THE CONDITION THAT THE RESPONSIBILITY FOR THE COST WOULD BE DETERMINED LATER. IT WAS AGREED BY THE PARTIES THAT INTENSE PRESSURE OCCURRED IN THE SERIES SWITCH COMPARTMENT, WITH THE RESULT THAT THE COVER WAS BLOWN OFF, SEVERING 52 1/2 -INCH BOLTS SECURING THE COVER IN PLACE. THE EXPLOSION WAS FOLLOWED BY FIRE WHICH, IT WAS REPORTED, CONTRIBUTED TO AND ENLARGED THE EXTENT OF THE DAMAGE TO THE TRANSFORMER.

IT IS THE GOVERNMENT'S POSITION THAT DEFECTS IN THE EQUIPMENT LED TO THE FAILURE. THE ASSISTANT COMMISSIONER AND CHIEF ENGINEER STATED THAT TAKING INTO ACCOUNT THE VIOLENT NATURE OF THE FAILURE, THE GOVERNMENT MAINTAINED THAT IT COULD ONLY HAVE OCCURRED DUE TO A POWER ARC GENERATED IN THE SERIES SWITCH COMPARTMENT, AND THAT THIS COULD HAVE COME ABOUT, EITHER BY A CARBON PATH BEING ESTABLISHED BETWEEN TWO OF THE TAPS IN THE TAP CHANGER, OR BY A MECHANICAL FAILURE WITHIN THE TAP CHANGER COMPARTMENT WHICH RESULTED IN METAL CONTACTING TWO OF THE TAPS AND RESULTING IN A DIRECT LINE TO GROUND OR PHASE FAULT.

THE CONTRACTOR, ON THE OTHER HAND, ALLEGED THAT THE GOVERNMENT FAILED TO FOLLOW ITS INSTRUCTIONS REGARDING RESETTING OF THE TAP CHANGER. IT WAS STATED BY THE CONTRACTOR THAT THE POSITION OF THE GEARS AT THE TIME OF FAILURE WOULD INDICATE THAT THE TAP CHANGE HAD BEEN SUCCESSFULLY COMPLETED. THE CONTRACTOR ALLEGED FURTHER THAT THE GOVERNMENT FAILED TO CONNECT ALARM DEVICES WHICH WOULD HAVE WARNED AGAINST LOW OIL LEVEL AND WOULD THEREBY, ACCORDING TO THE CONTRACTOR'S THEORY, HAVE AVOIDED THE VIOLENT FAILURE WHICH ACTUALLY OCCURRED. RESPECTING SUCH ALLEGATION THE GOVERNMENT TOOK THE POSITION THAT NO ALARM CONTACTS WERE SHOWN ON THE DRAWINGS SUBMITTED BY THE CONTRACTOR AND THAT THE EQUIPMENT WAS INSTALLED UNDER THE SUPERVISION OF A LEGNANO ERECTING ENGINEER WHO SHOULD HAVE CALLED ATTENTION TO THE NECESSITY FOR CONNECTING THE ALARM CONTACTS. THE CONTRACTOR ALLEGED FURTHER THAT THERE IS NO PHYSICAL EVIDENCE SUPPORTING THE PROPOSITION THAT THERE WAS A FAILURE OR MALFUNCTION OF THE MECHANISM WITHIN THE SERIES SWITCH COMPARTMENT.

THE CONTRACTOR HYPOTHESIZED THAT THE FAILURE OCCURRED BECAUSE THE GOVERNMENT ALLOWED THE OIL LEVEL IN THE EQUIPMENT TO FALL, RESULTING IN AN ACCUMULATION OF AN OXYGEN-GASEOUS MIXTURE WHICH IGNITED AND EXPLODED WHEN A LINE-TO-GROUND FAULT WAS ESTABLISHED BETWEEN ONE OF THE TERMINALS AND THE CASE.

PAGE FOUR OF THE MEMORANDUM OF MARCH 3, 1961, CONTAINS THE FOLLOWING SIGNIFICANT LANGUAGE:

"IT IS EVIDENT FROM ABOVE ANALYSES THAT THERE IS NOW NO PHYSICAL EVIDENCE AS TO THE CAUSE OF THE FAILURE WHICH WOULD PERMIT A CONCLUSIVE DETERMINATION AS TO SUCH CAUSE. SUCH A DETERMINATION CAN ONLY BE REACHED BY ANALYSIS OF EXPERT OPINION AND INFERENCES DRAWN FROM THE NATURE OF THE FAILURE AND WHAT THE SEVERAL PARTIES OBSERVED WITH RESPECT TO THE CONDITION AND SIGNIFICANCE OF THE SEVERELY DAMAGED PARTS REMAINING AT THE BOTTOM OF THE SERIES SWITCH COMPARTMENT AFTER THE FAILURE AND AFTER THE FIRE.'

IT WAS STATED FURTHER THAT AFTER EXTENSIVE INVESTIGATION, THE PARTIES HAVE AGREED UPON A PROPOSED SETTLEMENT OF THE CONTROVERSY, BELIEVED BY THE ASSISTANT COMMISSIONER AND CHIEF ENGINEER TO BE IN THE INTERESTS OF BOTH PARTIES AND TO REPRESENT A FAIR AND EQUITABLE APPORTIONMENT OF THE COSTS OF REPAIR. WITH LETTER OF MARCH 28, 1961, THERE WAS ENCLOSED A STATEMENT BY THE CONTRACTOR SHOWING EXPENDITURES AMOUNTING TO MORE THAN$51,785.12 IN DIRECT COSTS, EXCLUSIVE OF OVERHEAD, IN REPAIRING THE AUTOTRANSFORMER RESULTING FROM THE FAILURE ON SEPTEMBER 17, 1959. THE ASSISTANT COMMISSIONER AND CHIEF ENGINEER STATED THAT HE HAD REVIEWED THESE COSTS AND WAS OF THE OPINION THAT, CONSIDERING THE EXTENT OF THE DAMAGES TO THE AUTOTRANSFORMER, THE AMOUNT CLAIMED BY THE CONTRACTOR TO HAVE BEEN EXPENDED IS REASONABLE UNDER THE CIRCUMSTANCES.

THERE WAS ALSO TRANSMITTED WITH THE LETTER OF MARCH 28, 1961, A PROPOSED AMENDATORY AGREEMENT TO CONTRACT NO. 14-06-D-2070 UNDER WHICH THE GOVERNMENT WOULD PAY TO THE CONTRACTOR THE SUM OF $12,500 IN FULL SETTLEMENT OF THE CLAIM FOR $51,785.12. RESPECTING THE PROPOSED SETTLEMENT IT WAS STATED IN THE MEMORANDUM OF MARCH 3, 1961, THAT---

"* * * IT IS TO BE UNDERSTOOD THAT THE CONTRACTOR REPRESENTS THAT THIS FIGURE WILL BE MATERIALLY GREATER IF RESORT MUST BE HAD TO APPEAL PROCEDURES AND LITIGATION. IN THAT EVENT THE CONTRACTOR HAS ADVISED THAT HE WILL INCLUDE, IN HIS CLAIM, OVERHEAD IN A VERY SUBSTANTIAL AMOUNT. THE CONTRACTOR HAS ALSO ADVISED THAT IT WILL INCLUDE IN ITS CLAIM CERTAIN ELEMENTS OF ALLEGED EXPENDITURES NOT PREVIOUSLY INCLUDED IN THE $51,785.12 AND WHICH THE CONTRACTOR CLAIMS CONSTITUTES DIRECT COST.'

IT WAS POINTED OUT BY THE ASSISTANT COMMISSIONER THAT THE GOVERNMENT INCURRED DIRECT COSTS IN THE ESTIMATED AMOUNT OF $5,600 IN CONNECTION WITH THE FAILURE OF THE EQUIPMENT ON SEPTEMBER 17, 1959, AND THAT WHEN ADDED TO THE CONTRACTOR'S EXPENDITURES AMOUNTING TO $51,785.12, THE TOTAL COSTS AMOUNT TO THE SUM OF $57,385.12. OF THAT AMOUNT THE GOVERNMENT WOULD BEAR A TOTAL COST OF $18,100--- $12,500 PLUS $5,600-- AND THE CONTRACTOR WOULD BEAR THE REMAINDER OF THE DIRECT COSTS IN THE AMOUNT OF $39,285.12. WAS THE RECOMMENDATION OF THE ASSISTANT COMMISSIONER AND CHIEF ENGINEER THAT THE PROPOSED AMENDMENT BE APPROVED BY OUR OFFICE, THE VIEW BEING EXPRESSED THAT THE PROPOSED SETTLEMENT IS ADVANTAGEOUS TO THE GOVERNMENT. YOUR DEPARTMENT CONCURRED IN THE POSITION TAKEN BY THE CONTRACTING OFFICER AND RECOMMENDED THAT OUR OFFICE APPROVE THE EXECUTION OF THE AMENDATORY AGREEMENT AS BEING ADVANTAGEOUS TO THE GOVERNMENT.

THE PRIMARY QUESTION FOR CONSIDERATION IN THIS CASE APPEARS TO BE WHETHER THERE IS SUFFICIENT LEGAL BASIS TO HOLD THE CONTRACTOR RESPONSIBLE FOR THE ENTIRE COST OF REPAIRS ARISING OUT OF THE FAILURE OF SEPTEMBER 17, 1959. THE CONTRACT CONTAINED CERTAIN WARRANTIES (PARAGRAPH B-13 OF THE INVITATION) BY THE CONTRACTOR AS TO DEFECTS DISCLOSED PRIOR TO ACCEPTANCE AND DEFECTS DISCLOSED AFTER ACCEPTANCE, AND WITH RESPECT TO THE LATTER THE INVITATION PROVIDED FOR CORRECTION BY THE CONTRACTOR OF ANY LATENT DEFECTS DISCLOSED WITHIN ONE YEAR AFTER THE EQUIPMENT WAS PLACED IN USE, WITH THE FURTHER PROVISO:

"* * * THAT THE TOTAL PERIOD DURING WHICH THE CONTRACTOR IS LIABLE FOR REPLACEMENTS DUE TO LATENT DEFECTS SHALL NOT EXCEED 18 MONTHS AFTER DATE OF COMPLETE DELIVERY OF THE MATERIALS OR EQUIPMENT.'

AS STATED ABOVE, IT IS REPORTED THAT COMPLETE DELIVERY OF THE AUTOTRANSFORMER WAS MADE BY THE CONTRACTOR ON SEPTEMBER 11, 1957--- MORE THAN TWO YEARS PRIOR TO THE FAILURE ON SEPTEMBER 17, 1959--- AND THAT IT HAD BEEN IN SERVICE FROM MARCH 26, 1958, TO DECEMBER 3, 1958, AND, AFTER REPAIRS, FROM APRIL 27 TO SEPTEMBER 17, 1959. THERE IS ALSO FOR CONSIDERATION THE FINDING OF THE CONTRACTING OFFICER THAT THERE IS NO PHYSICAL EVIDENCE AS TO THE CAUSE OF FAILURE WHICH WOULD PERMIT A CONCLUSIVE DETERMINATION UPON WHICH TO BASE A CLAIM.

THE BASIS FOR YOUR DEPARTMENT'S POSITION THAT THE WARRANTY WAS STILL IN FORCE IN SEPTEMBER 1959 IS NOT STATED, BUT IT IS PRESUMED THAT YOUR THEORY IS THAT THE SECOND BREAKDOWN WAS ATTRIBUTABLE TO A DEFECT IN THE TAP CHANGER, WHICH APPEARS TO HAVE BEEN THE PART INVOLVED IN THE FIRST FAILURE, AND THAT THE 1-YEAR WARRANTY WAS REVIVED OR EXTENDED BY THE REPAIRS TO THAT UNIT. ASIDE FROM THE FACT THAT SUCH A THEORY IS IN CONFLICT WITH THE EXPRESS LIMITATION OF THE "TOTAL PERIOD" OF THE CONTRACTOR'S LIABILITY TO 18 MONTHS FROM THE COMPLETED DELIVERY OF THE EQUIPMENT, WE ARE UNABLE TO FIND AUTHORITY IN SUPPORT OF THE PROPOSITION THAT A SELLER'S REPAIR OR REPLACEMENT OF A DEFECTIVE ARTICLE PURSUANT TO A WARRANTY AUTOMATICALLY RENEWS THE WARRANTY FOR A NEW PERIOD BEGINNING AT THE TIME OF THE REPAIR. SEE DOAK GAS ENGINE CO. V. FRASER (CALIF.), 143 PAC. 1024; J. L. OWENS CO. V. O-KEEFE, 141 MINN. 275, 170 N.W. 204.

ON THE ENTIRE RECORD, THERE SEEMS TO BE NO ADEQUATE BASIS TO PERMIT A DETERMINATION THAT THE CONTRACTOR WAS RESPONSIBLE FOR THE COST OF REPAIRS.

IN THESE CIRCUMSTANCES, WE AGREE WITH THE RECOMMENDATION OF THE CONTRACTING OFFICER AND YOUR DEPARTMENT THAT THE PROPOSED SETTLEMENT IS ADVANTAGEOUS TO THE GOVERNMENT. THE PROPOSED SETTLEMENT IS, ACCORDINGLY, APPROVED.