B-149283, DEC. 26, 1962

B-149283: Dec 26, 1962

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WHICH ARE FABRICATED BY FILLING TWO LAYERS OF GOVERNMENT-FURNISHED PARACHUTE CLOTH WITH A CERTAIN SPECIFIED BATTING MATERIAL. SINCE MAY 14 WAS THE DEADLINE DATE FOR RECEIPT OF PROPOSALS. FOUR DAYS LATER YOU WERE AWARDED THE CONTRACT. THE FIGURE OF $3.72 WAS ERRONEOUS. YOU COMPLAIN THAT THE GOVERNMENT IMPLICITLY ENCOURAGED YOU TO COMPUTE YOUR OFFER ON THE BASIS THAT THE COST OF MATERIALS WOULD BE $3.72 WHEN IN FACT SUCH COST IS APPROXIMATELY $6.80 YOU REQUEST REFORMATION ON THE GROUNDS THAT THE CONTRACT WAS FORMED AS A RESULT OF MUTUAL MISTAKE. YOU SAY YOU UNDERSTAND THAT THE GOVERNMENT MATERIAL STAFF OF THE DEFENSE SUPPLY AGENCY KNEW PRIOR TO AWARD THAT THE FIGURE $3.72 WAS ERRONEOUS. ARGUE THAT KNOWLEDGE BY ONE PARTY OF THE OTHER'S MISTAKE IS EQUIVALENT TO MUTUAL MISTAKE.

B-149283, DEC. 26, 1962

TO LITE INDUSTRIES, INC.:

IN YOUR LETTER OF NOVEMBER 21, 1962, AND PREVIOUS CORRESPONDENCE, YOU REQUEST REFORMATION OF CONTRACT DSA-1-703-C-62, WHICH INVOLVED THE PROCUREMENT OF 14,322 "PONCHO LINERS.'

YOU FIRST LEARNED OF THE REQUIREMENTS FOR THESE LINERS, WHICH ARE FABRICATED BY FILLING TWO LAYERS OF GOVERNMENT-FURNISHED PARACHUTE CLOTH WITH A CERTAIN SPECIFIED BATTING MATERIAL, ON MAY 14, 1962, WHEN YOU VISITED THE PROCURING ACTIVITY IN REGARD TO ANOTHER MATTER. YOU TELEGRAPHED YOUR OFFER TO MANUFACTURE THE LINERS ON THIS SAME DAY, SINCE MAY 14 WAS THE DEADLINE DATE FOR RECEIPT OF PROPOSALS. YOU SUBMITTED A PRICE OF $12.82 EACH, LESS ONE-TENTH OF 1 PERCENT DISCOUNT, WHILE THE TWO OTHER BIDDERS WHO RESPONDED TO THE REQUEST FOR PROPOSALS OFFERED PRICES OF $14.56 AND $19 EACH, LESS 1 PERCENT AND ONE-TENTH OF 1 PERCENT, RESPECTIVELY. FOUR DAYS LATER YOU WERE AWARDED THE CONTRACT.

UNDER THE TERMS OF THE CONTRACT, YOU AGREED TO USE NYLON PARACHUTE CLOTH IN MAKING THE LINERS, AND THE GOVERNMENT AGREED TO FURNISH THE CLOTH IN SUCH QUANTITIES AS YOU DEEMED NECESSARY. BOTH PARTIES TO THE CONTRACT FURTHER AGREED THAT IN ORDER TO COVER THE COSTS OF THE CLOTH, VALUED AND FURNISHED TO YOU AT 68 CENTS PER YARD, THE GOVERNMENT WOULD TENTATIVELY DEDUCT FROM YOUR ACCOUNT THE SUM OF $3.72 FOR EACH LINER DELIVERED, AND THAT THE ADJUSTMENT OF THE GOVERNMENT MATERIAL ACCOUNT BASED UPON THESE TWO STATED PRICES WOULD BE MADE DURING THE FINAL ADMINISTRATION OF THE CONTRACT.

THE FIGURE OF $3.72 WAS ERRONEOUS. THE MANUFACTURING DIVISION OF THE PROCURING ACTIVITY HAD CONSIDERED ONLY THE NUMBER OF YARDS IN ONE LAYER INSTEAD OF THE TWO LAYERS OF PARACHUTE CLOTH REQUIRED TO PRODUCE EACH UNIT. NEITHER BEFORE YOU SUBMITTED YOUR OFFER, NOR DURING THE FOUR DAYS BEFORE AWARD, DID YOU MAKE ANY ATTEMPT TO DETERMINE FOR YOURSELF THE QUANTITY OF GOVERNMENT-FURNISHED MATERIAL REQUIRED TO PERFORM THE CONTRACT. YOU SAY YOU DID NOT MAKE THIS CALCULATION AND DID NOT DISCOVER THAT EACH LINER WOULD REQUIRE APPROXIMATELY 10 YARDS OF CLOTH UNTIL THREE DAYS AFTER AWARD, WHEN YOU RECEIVED THE "PATTERNS.' YOU COMPLAIN THAT THE GOVERNMENT IMPLICITLY ENCOURAGED YOU TO COMPUTE YOUR OFFER ON THE BASIS THAT THE COST OF MATERIALS WOULD BE $3.72 WHEN IN FACT SUCH COST IS APPROXIMATELY $6.80 YOU REQUEST REFORMATION ON THE GROUNDS THAT THE CONTRACT WAS FORMED AS A RESULT OF MUTUAL MISTAKE.

YOU SAY YOU UNDERSTAND THAT THE GOVERNMENT MATERIAL STAFF OF THE DEFENSE SUPPLY AGENCY KNEW PRIOR TO AWARD THAT THE FIGURE $3.72 WAS ERRONEOUS, AND ARGUE THAT KNOWLEDGE BY ONE PARTY OF THE OTHER'S MISTAKE IS EQUIVALENT TO MUTUAL MISTAKE. YOU ARE MISINFORMED. PRIOR TO AWARD, THE MANUFACTURING DIVISION ESTIMATED THAT THE COST OF FABRICATING THE LINERS, INCLUDING THE MATERIAL, WAS $12.91 EACH. IT WAS NOT UNTIL AFTER AWARD, AND AFTER YOU ALLEGED ERROR, THAT THE ESTIMATE WAS REVISED TO INCLUDE THE COST OF BOTH LAYERS OF THE REQUIRED PARACHUTE CLOTH. THIS REVISION RESULTED IN AN ESTIMATE OF $15.54, INCLUDING MATERIAL BUT NOT PROFIT.

YOU ARGUE THAT THIS CONTRACT MAY BE REFORMED FOR MUTUAL MISTAKE REGARDLESS OF WHEN THE ERROR WAS DISCOVERED, BECAUSE THE REQUEST FOR PROPOSALS "CONTAINED DCTSC FORM 1 MAY 1962, 526-2, STATING IN * * * (PARAGRAPHS) G.H.I. AND J.1., THE AMOUNT OF $3.72 REPRESENTED TO BE THE UNIT VALUE OF GOVERNMENT MATERIAL," AND YOU RELIED UPON THAT ERRONEOUS FIGURE IN ARRIVING AT YOUR OFFER OF $12.82. YOU CITE AS AUTHORITY VIRGINIA ENGINEERING CO., INC. V. UNITED STATES, 101 CT.CL. 516, 530 (1944).

PARAGRAPH "G" OF THE PROVISIONS OF THE CONTRACT RELATING TO MATERIAL TO BE FURNISHED BY THE GOVERNMENT STATES THAT $3.72 "WILL BE DEDUCTED FROM THE CONTRACT PRICE AND APPLIED TO COVER THE VALUE OF THE GOVERNMENT MATERIAL.' THAT PARAGRAPH ALSO PROVIDES:

"* * * IF THE TOTAL VALUE OF GOVERNMENT MATERIAL FURNISHED THE CONTRACTOR EXCEEDS THE AMOUNTS DEDUCTED FROM THE CONTRACT PRICE PURSUANT TO THIS ARTICLE TO COVER THE VALUE OF THE GOVERNMENT MATERIAL, THE CONTRACTOR SHALL REIMBURSE THE GOVERNMENT FOR THE VALUE OF SUCH MATERIAL FOR WHICH DEDUCTIONS WERE NOT TAKEN. * * *"

PARAGRAPHS "H" AND "J1," RELATING TO REJECTS, AND PARAGRAPH "I," RELATING TO THE OBLIGATION OF GOVERNMENT FUNDS, WHICH ALL REFER TO THE FIGURE $3.72, ALSO CONTAIN LANGUAGE PERMITTING ADJUSTMENTS IN THE EVENT THE ACTUAL VALUE OF THE MATERIAL IN EACH UNIT WAS IN FACT GREATER OR LESSER THAN $3.72. NOWHERE IN THE CONTRACT IS IT PROVIDED, AS YOU ALLEGE, THAT $3.72 REPRESENTS THE VALUE OF GOVERNMENT-FURNISHED MATERIAL REQUIRED FOR EACH LINER. WHILE THE GOVERNMENT BELIEVED THE FIGURE TO BE A FAIR APPROXIMATION OF SUCH VALUE, IT DID NOT REPRESENT SUCH BELIEF AS A FACT TO PROSPECTIVE BIDDERS. INDEED, IT PROVIDED IN EACH CLAUSE CONTAINING THE FIGURE THAT AN ADJUSTMENT WOULD BE MADE IN CASE $3.72 FAILED TO FULLY COVER THE VALUE OF THE MATERIAL, INDICATING THAT THE GOVERNMENT DID NOT WISH TO RELY ON ITS OWN PRIVATE ESTIMATE.

AT MOST, THE FIGURE $3.72 MIGHT BE CONSIDERED AN IMPLICITLY ROUGH ESTIMATE OF AN UNDETERMINED AMOUNT OF CLOTH WHICH WOULD BE USED TO PRODUCE EACH UNIT OF A SPECIFIED NUMBER OF LINERS. THEREFORE, WE MUST REGARD VIRGINIA ENGINEERING CO., INC. V. UNITED STATES, SUPRA, AS TOTALLY INAPPLICABLE TO THE INSTANT DECISION. THE COURT THERE HELD THAT A POSITIVE MISSTATEMENT OF A MATERIAL FACT CONTAINED IN A CONTRACT DRAWING, UPON WHICH BIDDERS WERE INVITED TO RELY, WAS NOT NULLIFIED BY A GENERAL WARNING THAT BIDDERS SHOULD MAKE THEIR OWN ESTIMATES OF "DIFFICULTIES ATTENDING THE EXECUTION OF THE PROPOSED CONTRACT.' THE CONTRACT IN THE INSTANT CASE CONTAINS NO MISSTATEMENT. IT MERELY SAYS THAT A DEDUCTION OF $3.72 WOULD BE APPLIED TO COVER THE VALUE OF THE GOVERNMENT MATERIAL. WE MAY IMPLY FROM THIS THAT $3.72 ESTIMATES THE VALUE OF THE MATERIAL NEEDED FOR EACH UNIT, WE MUST ALSO IMPLY FROM THE FOLLOWING LANGUAGE, SET FORTH IN BOLD TYPE IN PARAGRAPH "A2" OF THE SUBJECT PROVISIONS, THAT BIDDERS ARE URGED TO DISREGARD THIS PARTICULAR ESTIMATE FOR PURPOSES OF COMPUTING THE AMOUNT OF CLOTH REQUIRED FOR THE UNIT: "IT IS SOLELY THE RESPONSIBILITY OF THE BIDDER TO DETERMINE THE QUANTITY OF GOVERNMENT MATERIAL WHICH HE WILL REQUIRE IN THE PERFORMANCE OF THE CONTRACT.'

IN VIRGINIA ENGINEERING, SUPRA, A POSITIVE STATEMENT AS TO THE LEVEL OF GROUND WATER APPARENTLY CONTRADICTED AN IMPLIED REQUIREMENT THAT BIDDERS DETERMINE THE GROUND WATER LEVEL FOR THEMSELVES. NO SUCH CONTRADICTION IS INVOLVED IN THIS CASE. TO THE EXTENT THAT ANY CONFLICT MAY BE INFERRED, IT IS BETWEEN AN IMPLIED SUGGESTION AS TO THE ESTIMATED AMOUNT OF MATERIAL PER UNIT AND POSITIVE REQUIREMENT THAT BIDDERS DETERMINE SUCH AMOUNT FOR THEMSELVES.

FURTHERMORE, EVEN IF THE POSITIVE REQUIREMENT OF CLAUSE "A2" COULD BE DISREGARDED, AND THE FIGURE $3.72 USED AS AN ESTIMATE, IT IS QUESTIONABLE WHETHER YOU WERE JUSTIFIED IN RELYING ON THIS FIGURE IN COMPUTING YOUR OFFER. IN OUR DECISION 37 COMP. GEN. 400, INVOLVING THE PROCUREMENT OF MAPS FOR A CERTAIN SPECIFIED AREA CONTAINING AN ESTIMATED NUMBER OF ACRES, WE HELD THAT THE ESTIMATE WAS MERELY AN OPINION AND DID NOT CONSTITUTE A WARRANTY. THE RATIONALE OF THE DECISION WAS THAT THE CONTRACT WAS FOR MAPS OF A CERTAIN AREA, NOT OF THE NUMBER OF ACRES CONTAINED THEREIN. THE INSTANT CASE, YOU CONTRACTED WITH THE GOVERNMENT TO FURNISH LINERS AT $12.82 EACH, NOT TO PAY $3.72 PER UNIT FOR THE CLOTH CONTAINED THEREIN.

WHILE THE GOVERNMENT WAS MISTAKEN IN USING THE FIGURE $3.72, IT DID NOT MISSTATE ANY OF THE TERMS OF THE CONTRACT. IT MAY BE ARGUED THAT A MUTUAL MISTAKE EXISTED AS TO A COLLATERAL MATTER CONNECTED WITH THE TRANSACTION, NAMELY, THE COMMON BELIEF ON THE PART OF BOTH PARTIES THAT EACH LINER WOULD REQUIRE ONLY ABOUT FIVE YARDS OF GOVERNMENT-FURNISHED MATERIAL. HOWEVER, THE FACT THAT AN AGREEMENT IS ENTERED INTO ON THE BASIS OF A MISTAKE MUTUAL TO THE PARTIES IS NOT SUFFICIENT, STANDING ALONE, TO REQUIRE OR PERMIT REFORMATION OF THE CONTRACT THUS MADE. REFORMATION IS PERMITTED ONLY IF THE CONTRACT FAILS TO EXPRESS THE TRUE INTENTION OF THE PARTIES, BUT CANNOT BE USED AS AN EXCUSE TO MAKE FOR THE PARTIES A CONTRACT WHICH THEY THEMSELVES NEVER ACTUALLY AGREED TO, EVEN THOUGH THEY MIGHT HAVE MADE SUCH A CONTRACT BUT FOR THEIR MUTUAL MISUNDERSTANDING OF EXISTING FACTS OR CIRCUMSTANCES. WHILLISTON ON CONTRACTS, REV.ED., SECTION 1549; CORBIN ON CONTRACTS, SECTION 614. THEREFORE, WE MUST CONCLUDE THAT IF YOU BASED YOUR BID ON WHAT WAS AT MOST AN ESTIMATE OF THE REQUIRED QUANTITY OF CLOTH, AS SHOWN IN THE REQUEST FOR PROPOSALS, YOU MUST BE HELD TO HAVE ASSUMED SOLE RESPONSIBILITY FOR ANY RISKS OF VARIANCE FROM THE QUANTITY ACTUALLY REQUIRED TO MAKE THE LINERS. SEE 38 COMP. GEN. 119.

IN REGARD TO YOUR HAVING HAD LITTLE TIME TO PREPARE YOUR OWN ESTIMATE, SEE THE FOLLOWING LANGUAGE IN OUR DECISION 33 COMP. GEN. 616, 618, IN WHICH WE HELD THAT A BIDDER HAD NO LEGAL JUSTIFICATION FOR RELYING UPON AN ERRONEOUS GOVERNMENT ESTIMATE OF THE ACREAGE REQUIRED TO BE CLEARED OF TREES:

"WHILE THERE IS SOME SUGGESTION THAT THE CONTRACTOR'S RELIANCE UPON GOVERNMENT SPECIFICATIONS WAS REQUIRED BY THE LIMITED TIME AVAILABLE FOR PREPARATION OF THE BID, THERE IS NOTHING TO ESTABLISH THAT AS A FACT. BUT EVEN IF THE TIME ALLOWED WAS INADEQUATE, IT WOULD NOT EXCUSE THE BIDDER FROM THE CONSEQUENCES OF HIS FAILURE TO MAKE HIS OWN CALCULATIONS AS TO THE AMOUNT OF ACREAGE TO BE CLEARED. IF HE FOUND HIMSELF LIMITED AS TO TIME IN THE PREPARATION OF HIS BID, HE EITHER COULD HAVE REFUSED TO SUBMIT A BID OR REQUESTED AN EXTENSION. HE APPARENTLY ELECTED TO DO NEITHER BUT, INSTEAD, CHOSE TO RELY UPON THE ACCURACY OF THE GOVERNMENT SPECIFICATIONS AND HIS OWN CURSORY EXAMINATION OF THE PREMISES. SEE CLARKE BROTHERS CONSTRUCTION COMPANY V. UNITED STATES, 103 C.CLS. 57.'

THERE REMAINS TO BE CONSIDERED WHETHER THE CONTRACT MAY BE REFORMED NOTWITHSTANDING YOUR UNILATERAL MISTAKE. AT THE DATE OF AWARD THE GOVERNMENT ESTIMATE OF THE COST OF THE FABRICATING OF EACH UNIT WAS $12.91. SINCE YOUR OFFER OF $12.82 WAS NOT SIGNIFICANTLY LOWER THAN EITHER THE EXISTING ESTIMATE OR THE NEXT LOW OFFER, THE CONTRACTING OFFICER HAD NO REASON TO SUSPECT ANY ERROR. NEVERTHELESS, WE HAVE HELD THAT WHERE THE RECORD SHOWS THAT THE CONTRACTING OFFICER WOULD HAVE QUESTIONED THE PRICES QUOTED BY THE LOW BIDDER, IF A CORRECT GOVERNMENT ESTIMATE OF THE COST OF THE WORK HAD BEEN PREPARED PRIOR TO AWARD, THE CONTRACT MAY BE AMENDED TO REFLECT THE UNIT PRICES SHOWN IN THE BIDDER'S REVISED BID. B-147580, DATED NOVEMBER 21, 1961. SEE, ALSO, B-147702, DATED MARCH 13, 1962. SINCE THE ADMINISTRATIVE AGENCY REPORTS THAT YOUR PROPOSAL IS EXCESSIVELY LOWER THAN THE CORRECTED GOVERNMENT ESTIMATE, WE BELIEVE THE RATIONALE OF THE CITED DECISIONS PERMITS REFORMATION IN THE INSTANT CASE. HOWEVER, THE RELIEF IN THE INSTANT CASE MUST BE LIMITED TO THE NEXT LOWEST CORRECT OFFER. SEE 37 COMP. GEN. 685, 686, CITING WHAT IS NOW 10 U.S.C. 2305 (C). IT HAS BEEN CONFIRMED THAT THE NEXT LOW BIDDER DID NOT COMPUTE HIS QUOTATION ON THE BASIS THAT $3.72 REPRESENTED THE VALUE OF THE GOVERNMENT FURNISHED MATERIAL FOR EACH LINER, BUT INSTEAD CONSIDERED A MORE REALISTIC COST OF $8 PER UNIT, INDICATING THAT THIS OFFER WAS APPARENTLY CORRECT.

THE ADMINISTRATIVE AGENCY REPORTS THAT SINCE THE BREAKDOWN OF YOUR QUOTED PRICE MAY INCLUDE EXCESSIVE CONTINGENCIES, IT WISHES TO AUDIT YOUR PRODUCTION COSTS IN ORDER TO DETERMINE IF SUCH COSTS PLUS A REASONABLE PROFIT IN FACT EQUAL OR EXCEED THE NEXT LOW BID. WE HAVE NO OBJECTION TO SUCH AN AUDIT AND, THEREFORE, ARE DIRECTING THE DEFENSE SUPPLY AGENCY TO GRANT RELIEF NOT TO EXCEED THE LESSER OF EITHER THE NEXT LOW OFFER, LESS THE DISCOUNT, OR THE TOTAL OF YOUR PRODUCTION COSTS, INCLUDING THE ACTUAL VALUE OF THE GOVERNMENT-FURNISHED MATERIAL CONTAINED IN EACH OF THE UNITS, PLUS A REASONABLE PROFIT.