B-145854, MAY 29, 1961

B-145854, MAY 29, 1961

TO ADMINISTRATOR, GENERAL SERVICES ADMINISTRATION:

REFERENCE IS MADE TO YOUR LETTER OF MAY 11, 1961, WITH ENCLOSURES, REQUESTING OUR ADVICE AND RECOMMENDATION WITH RESPECT TO A PROPOSED SETTLEMENT IN THE AMOUNT OF $29,719.40 FOR EXPENSES INCURRED BY THE CARRIER CORPORATION, SYRACUSE, NEW YORK, IN CONNECTION WITH REPAIRS TO REFRIGERATION EQUIPMENT INSTALLED IN THE GENERAL SERVICES ADMINISTRATION PLANT WHICH PROVIDES REFRIGERATION FOR AIR-CONDITIONING OF THE PENTAGON BUILDING.

THE REPAIR WORK WAS PERFORMED ON TWELVE 1100-TON CARRIER CENTRAL REFRIGERATION MACHINES DURING THE PERIOD OCTOBER 31, 1958, TO SEPTEMBER 24, 1959. AN INVOICE IN THE AMOUNT OF $69,275.09 FOR THE WORK INVOLVED WAS SUBMITTED BY THE CARRIER CORPORATION ON OCTOBER 23, 1959. THE INVOICE LISTS EXPENDITURES OF $77,804.79 AND THERE WAS DEDUCTED THE AMOUNT OF $8,529.72 TO COVER LABOR AND OTHER EXPENSES WHICH THE CORPORATION INTENDED TO ABSORB. THE CORPORATION'S CLAIM WAS REDUCED TO A MINOR EXTENT BY LETTER DATED JULY 11, 1960. ON OCTOBER 20, 1960, THE MANAGER, SERVICE AREA, GENERAL SERVICES ADMINISTRATION, REGION 3, ADVISED THE CORPORATION THAT A RETABULATION OF THE PROPOSED DISTRIBUTION OF EXPENSES BETWEEN THE CORPORATION AND THE GENERAL SERVICES ADMINISTRATION HAD BEEN MADE, AND INDICATED THAT A RECOMMENDATION WOULD BE MADE TO OUR OFFICE THAT SETTLEMENT BE IN ACCORDANCE WITH SUCH TABULATION. THE TABULATION SHOWS A DISTRIBUTION OF EXPENSES AGGREGATING $76,056.67 ON THE BASIS OF A CHARGE TO CARRIER OF $46,337.27 AND A CHARGE TO GSA OF $29,719.40. IN A LETTER DATED FEBRUARY 27, 1961, THE CARRIER CORPORATION REQUESTED ADVICE AS TO WHAT PROGRESS, IF ANY, WAS BEING MADE WITH RESPECT TO SETTLEMENT FOR THE AMOUNT OF $29,719.40.

IT IS EXPLAINED IN YOUR LETTER THAT WHEN THE PENTAGON BUILDING WAS BUILT A PLANT WAS CONSTRUCTED NEARBY FOR PROVIDING HEATING AND AIR CONDITIONING. TWELVE 1100-TON CARRIER CENTRIFUGAL REFRIGERATION MACHINES WERE INSTALLED IN 1942 AND A THIRTEENTH MACHINE (NOT INVOLVED IN THE INSTANT CLAIM) WAS INSTALLED IN 1951. TEN OF THE INITIAL MACHINES WERE OVERHAULED BY THE CARRIER CORPORATION UNDER FIVE NEGOTIATED CONTRACTS DURING THE YEARS 1955, 1956, 1957 AND 1958, AT TOTAL COST OF $270,468.17. DURING THE SUMMER OF 1958, THE SIX UNITS REPAIRED IN 1955 AND 1956 HAD TO BE TAKEN OUT OF SERVICE AND THE CORPORATION WAS ADVISED THAT EXTENSIVE REPAIRS TO THREE OF THE UNITS WOULD BE REQUIRED. EVENTUALLY THE CHILLERS FROM TWO OF THOSE UNITS WERE SHIPPED TO THE CARRIER PLANT AT SYRACUSE FOR COMPLETE OVERHAUL. THE FACTORY OVERHAUL AND EXTENSIVE FIELD WORK ON OTHER MACHINES IN THE GSA PLANT WERE UNDERTAKEN BY CARRIER SUBJECT TO LATER DETERMINATION OF EACH PARTY'S RESPONSIBILITY FOR THE COSTS INVOLVED.

IN THE MEANTIME BOTH CARRIER AND GSA INITIATED STUDIES INTO THE PROBABLE CAUSE OF THE TUBE FAILURES WHICH DEVELOPED AFTER THE TEN MACHINES HAD BEEN OVERHAULED BY THE CARRIER CORPORATION. BASICALLY THE CARRIER CORPORATION'S CONTENTION WAS THAT INITIAL FAILURE WAS CAUSED BY MOISTURE BEING PERMITTED TO LEAK INTO THE REFRIGERANT THROUGH JOINTS WHICH WERE NOT TIGHT AND THROUGH IMPROPER EVACUATION WHEN THE MACHINES WERE REASSEMBLED, AND THAT THIS MOISTURE COMBINED WITH THE REFRIGERANT TO CAUSE CREVICE CORROSION OF THE TUBES AT THE INTERMEDIATE SUPPORT SHEETS. GSA'S CONTENTION WAS THAT THE OPERATION AND MAINTENANCE OF THE EQUIPMENT WAS EXACTLY AS HAD BEEN PERFORMED FOR YEARS; THAT TUBE FAILURES WERE CAUSED BY MECHANICAL VIBRATION AT THE TUBE SUPPORTS WHERE THEY HAD NOT BEEN ROLLED OR NOT PROPERLY ROLLED; AND THAT IF CREVICE CORROSION WERE INVOLVED THE LACK OF EXPANDING INTO THE INTERMEDIATE SUPPORT SHEET COULD HAVE PROVIDED THE INITIAL CREVICE.

ADVICE WAS SOUGHT BY BOTH CARRIER AND GSA FROM TESTING LABORATORIES, INCLUDING THE NATIONAL BUREAU OF STANDARDS. HOWEVER, AFTER SEVERAL CONFERENCES BETWEEN CARRIER AND GSA REPRESENTATIVES IT BECAME APPARENT THAT THE DETERMINATION OF ULTIMATE RESPONSIBILITY WOULD BE IMPRACTICAL DUE TO THE VERY EXPENSIVE METHOD OF SOLUTION VERBALLY RECOMMENDED BY THE BUREAU OF STANDARDS. IN VIEW OF THIS FACTOR AS WELL AS THE POSSIBILITY THAT THE SUGGESTED METHOD OF SOLUTION MIGHT BE INCONCLUSIVE, YOU RECOMMEND THAT PAYMENT BE MADE ONA QUANTUM MERUIT BASIS IN THE AMOUNT OF $29,719.40, CONSIDERED TO BE PROPERLY CHARGEABLE AS EXPENSES INCURRED BY CARRIER FOR THE BENEFIT OF THE GOVERNMENT. THERE FOLLOWS IN YOUR LETTER AN ITEMIZATION OF THE EXPENDITURES CONSIDERED TO BE ALLOWABLE.

THE PROPOSED ALLOWANCES OF $29,719.40 INCLUDES THE AMOUNT OF $1,710 TO COVER FREIGHT CHARGES INCURRED IN SHIPPING THE CHILLERS FROM MACHINES NOS. 10 AND 12 TO SYRACUSE AND RETURN; THE SUM OF $3,816 FOR IMPROVEMENTS MADE TO THE COMPONENTS OF THOSE MACHINES WHICH WERE NOT ASSOCIATED WITH THE PREMATURE TUBE FAILURES; AND THE AMOUNT OF $11,523.57 TO COVER ONE-THIRD OF THE REMAINING NET CHARGES FOR REPAIR OF SUCH MACHINES, BASED ON A DETERMINATION THAT THE GOVERNMENT RECEIVED A BENEFICIAL USE OF THE MACHINES FOR FOUR YEARS OF THE NORMAL 12-YEAR LIFE EXPECTANCY FOR THE TUBES INSTALLED AT THE TIME OF THE INITIAL OVERHAUL. THE BENEFICIAL USE THEORY WAS ALSO APPLIED IN A PROPOSED ALLOWANCE OF $1,832.68 FOR FIELD MATERIALS USED IN REPAIRING OTHER MACHINES AT THE GSA PLANT. THE ADDITIONAL SUMS OF $10,285.50 AND $551.65 ARE PROPOSED FOR ALLOWANCE OF 50 PERCENT OF NET CHARGES FOR FIELD LABOR, TRAVEL AND OTHER EXPENSES, BASED ON THE FACT THAT IT WAS DEEMED ADVISABLE DURING THE FIELD WORK TO MAKE CERTAIN REPAIRS AND IMPROVEMENTS NOT INCLUDED IN THE CONTRACTS FOR OVERHAUL OF THE MACHINES, AND THAT THIS RESULTED IN UPGRADING THE EQUIPMENT.

UNDER EACH OF THE FIVE NEGOTIATED CONTRACTS ALL WORK WAS GUARANTEED FOR A PERIOD OF ONE YEAR. IT IS POSSIBLE THAT IT WOULD BE EXTREMELY DIFFICULT TO SHOW THAT THERE WAS AN IMPLIED WARRANTY THAT THE NEW TUBING INSTALLED AT THE TIME THE REFRIGERATION UNITS WERE COMPLETELY OVERHAULED WOULD LAST FOR APPROXIMATELY 12 YEARS. IN ANY EVENT, USAGE AND UPGRADING FACTORS WOULD SEEM TO BE NORMALLY FOR CONSIDERATION IN DETERMINING THE EXTENT OF THE GOVERNMENT'S LIABILITY TO THE CONTRACTOR EVEN IF IT WERE ASSUMED THAT THERE HAD BEEN A BREACH OF WARRANTY.

IN THE PARTICULAR CIRCUMSTANCES, AND CONSIDERING THAT THE PARTIES ARE IN AGREEMENT AS TO THE AMOUNT OF THE EQUITABLE ADJUSTMENT WHICH SHOULD BE MADE IN THE MATTER, WE WOULD HAVE NO OBJECTION TO PAYMENT OF THE RECOMMENDED AMOUNT OF $29,719.40 AS IN FULL AND FINAL SETTLEMENT FOR THE ADDITIONAL REPAIR WORK PERFORMED BY THE CARRIER CORPORATION.

AS REQUESTED, WE ARE RETURNING THE DOCUMENTS AND CORRESPONDENCE FORWARDED WITH YOUR LETTER.