B-153851, APR. 17, 1964

B-153851: Apr 17, 1964

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TO THE SECRETARY OF THE ARMY: REFERENCE IS MADE TO A LETTER DATED MARCH 31. THE FACTS CONCERNING THE OPPOSED CLAIMS ARE DISCUSSED IN REPORTS BY THE CONTRACTING OFFICER DATED NOVEMBER 30. EXCEPT AS THE CONTRACTOR'S FAILURE TO OBSERVE DELIVERY SCHEDULES WAS EXCUSABLE FOR DELAYS CAUSED BY THE GOVERNMENT. DELIVERIES WERE LATE AND MAXIMUM LIQUIDATED DAMAGES OF $513. 775.38 WERE INCURRED. THE GOVERNMENT WAS RESPONSIBLE FOR SUBSTANTIAL DELAYS IN FURNISHING TEST EQUIPMENT IN ACCORDANCE WITH THE CONTRACT TERMS AND IN MAKING NECESSARY REPAIRS WHEN SUCH EQUIPMENT DID NOT FUNCTION PROPERLY. IT IS REPORTED. WILL EXTEND THE DELIVERY SCHEDULE TO ACCOMMODATE DELIVERIES ALREADY MADE OR PROPOSED BY THE CONTRACTOR.

B-153851, APR. 17, 1964

TO THE SECRETARY OF THE ARMY:

REFERENCE IS MADE TO A LETTER DATED MARCH 31, 1964, FROM THE GENERAL COUNSEL, HEADQUARTERS, UNITED STATES ARMY MATERIEL COMMAND, REQUESTING ADVICE AS TO THE PROPRIETY OF A PROPOSED SUPPLEMENTAL AGREEMENT TO RESOLVE CONFLICTING CLAIMS BETWEEN THE GOVERNMENT AND THE COMMUNICATIONS DIVISION OF ELGIN NATIONAL WATCH COMPANY, IN CONNECTION WITH A PROCUREMENT OF ELECTRONIC EQUIPMENT, UNDER CONTRACT DA-36-039 AMC-90334 (E).

THE FACTS CONCERNING THE OPPOSED CLAIMS ARE DISCUSSED IN REPORTS BY THE CONTRACTING OFFICER DATED NOVEMBER 30, 1963, AND MARCH 17, 1964. APPEARS THEREFROM THAT, EXCEPT AS THE CONTRACTOR'S FAILURE TO OBSERVE DELIVERY SCHEDULES WAS EXCUSABLE FOR DELAYS CAUSED BY THE GOVERNMENT, DELIVERIES WERE LATE AND MAXIMUM LIQUIDATED DAMAGES OF $513,775.38 WERE INCURRED. HOWEVER, THE GOVERNMENT WAS RESPONSIBLE FOR SUBSTANTIAL DELAYS IN FURNISHING TEST EQUIPMENT IN ACCORDANCE WITH THE CONTRACT TERMS AND IN MAKING NECESSARY REPAIRS WHEN SUCH EQUIPMENT DID NOT FUNCTION PROPERLY. AN APPROPRIATE ALLOWANCE OF TIME, IT IS REPORTED, WILL EXTEND THE DELIVERY SCHEDULE TO ACCOMMODATE DELIVERIES ALREADY MADE OR PROPOSED BY THE CONTRACTOR, EXCEPT AS TO 30 DAYS IN THE INSTANCE OF FINAL QUANTITY, AND WILL ESTABLISH THE CONTRACTOR'S ENTITLEMENT TO INCREASED COSTS GROWING OUT OF THE GOVERNMENT'S DELINQUENCIES.

A COMPLICATING FACTOR IS THE EXISTENCE OF A DISPUTE CONCERNING THE CONFORMITY OF PREPRODUCTION SAMPLES TO SPECIFICATIONS, APPROXIMATELY SIX MONTHS MORE TIME THAN ALLOWED HAVING BEEN TAKEN BY THE CONTRACTOR TO FURNISH ITEMS FOR EVALUATION AND APPROXIMATELY TEN MONTHS TO FURNISH ACCEPTABLE ITEMS. CONTROVERSY CENTERS AROUND THE SUBSTITUTION OF AN "OR EQUAL" FILTER OF THE CONTRACTOR'S OWN DESIGN AND MANUFACTURE FOR A STANDARD FILTER CONSTRUCTED IN ACCORDANCE WITH CONTRACT DRAWING DETAILS. THE ELGIN FILTERS APPARENTLY WERE APPROVED DURING A SOURCE INSPECTION WHEN THEY WERE FOUND TO MEET INTERCHANGEABILITY AND OTHER REQUIREMENTS NOTWITHSTANDING CERTAIN INTERNAL STRUCTURAL AND CONFIGURATION DIFFERENCES, BUT WERE REJECTED AT THE TIME PREPRODUCTION SAMPLES WERE TESTED. IT IS UNDERSTOOD THAT THE CONTRACTOR CONSTRUED REFUSAL TO APPROVE THE PREPRODUCTION SAMPLES UTILIZING ITS FILTERS AS A DIRECTION TO FURNISH ALTERNATE SOURCE FILTERS WITHOUT DEPARTING SUBSTANTIALLY FROM THE DRAWING DATA, AND THAT IT IS PREPARED, IF NECESSARY, TO INSIST UPON JUDICIAL INTERPRETATION OF THE CONTRACT REQUIREMENTS IN THIS RESPECT. THE GOVERNMENT THUS COULD BE EXPOSED TO A CLAIM FOR INCREASED COST IN THE AMOUNT OF $320,946, AS WELL AS COMMENSURATE TIME EXTENSIONS, ON THE THEORY THAT A CHANGE IN SPECIFICATIONS WAS DIRECTED.

THE SUPPLEMENTAL AGREEMENT, IDENTIFIED AS MODIFICATION NO. 9, PROVIDES THAT FILTERS CONSTRUCTED IN ACCORDANCE WITH ACCEPTED PREPRODUCTION SAMPLES WILL BE FURNISHED; THAT A REVISED DELIVERY SCHEDULE CALLING FOR DELIVERY OF END ITEMS SUBSTANTIALLY AS MADE OR AGREED TO WILL BE SUBSTITUTED FOR THE ORIGINAL SCHEDULE; THAT THE CONTRACTOR WILL RELEASE ALL CLAIMS FOR COST INCREASES, AND THAT A STANDARD VALUE ENGINEERING CLAUSE WILL BE INCORPORATED INTO THE CONTRACT TO AFFORD THE CONTRACTOR AN AVENUE TO SUBMIT ELGIN FILTERS FOR EVALUATION AGAINST USE IN FUTURE PROCUREMENTS. NEGOTIATED BY THE CONTRACTING OFFICER WITH THE AID OF REPRESENTATIVES OF THE ARMY ELECTRONICS COMMAND, FORT MONMOUTH, NEW JERSEY, IN AN EFFORT TO ACHIEVE AN EQUITABLE ADJUSTMENT OF ALL DIFFERENCES BETWEEN THE PARTIES, ITS APPROVAL HAS BEEN FOUND BY THE CONTRACTING OFFICER TO BE IN THE BEST INTERESTS OF THE GOVERNMENT, AND ITS ADOPTION IS RECOMMENDED BY THE ARMY ELECTRONICS COMMAND AND BY THE ARMY MATERIEL COMMAND.

OUR EXAMINATION OF THE RECORD INDICATES THAT THE EQUITABLE ADJUSTMENT ENVISIONED THROUGH THE TERMS OF MODIFICATION NO. 9 WOULD, IN EFFECT, EXCHANGE THE GOVERNMENT'S PROBABLE ENTITLEMENT TO LIQUIDATED DAMAGES DUE TO LATE DELIVERY OF A FINAL GROUP OF ITEMS ).002 PERCENT OF 55 ITEMS AT $3,640.86 EACH PER DAY FOR 30 DAYS OR ABOUT $12,000) FOR RELEASE BY THE CONTRACTOR OF THE GOVERNMENT'S CONTINGENT LIABILITY FOR ADDED COSTS IN A MUCH LARGER AMOUNT DUE TO DELAYS IN FURNISHING AND MAINTAINING TESTING EQUIPMENT AND TO REQUIREMENTS BEYOND THE SCOPE OF THE CONTRACT.

IN THE CIRCUMSTANCES, THERE WOULD SEEM TO BE NO DOUBT THAT THE CONSIDERATION MOVING TO THE GOVERNMENT WOULD BE A VALUABLE ONE, IN VIEW OF WHICH WE WOULD NOT BE REQUIRED TO DISAGREE WITH THE ADMINISTRATIVE CONCLUSION THAT SUCH MODIFICATION IS IN THE BEST INTERESTS OF THE GOVERNMENT, OR TO INTERPOSE LEGAL OBJECTION TO ITS EXECUTION.