B-171144(1), FEB 2, 1972

B-171144(1): Feb 2, 1972

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CONTENDING THAT ADMIRAL EITHER SHOULD HAVE KNOWN OF THE MISTAKE OR SHOULD HAVE QUESTIONED THE AMBIGUOUS EXPRESSION OF THE TERM. THE LAW WILL PRESUME THAT A CAREFULLY PREPARED WRITTEN INSTRUMENT CORRECTLY EXPRESSES THEIR FINAL AGREEMENT. THERE IS NO BASIS TO ALLOW REFORMATION AND THE PRIOR CLAIM SETTLEMENT MUST BE AFFIRMED AS MODIFIED BY A CORRECTION IN THE COMPUTATION OF THE INDEBTEDNESS. WHEREIN THE ADMIRAL CORPORATION WAS ADVISED THAT WE COULD FIND NO BASIS FOR USING THE APPARENT INTENDED RATE OF LIQUIDATED DAMAGES UNDER CONTRACT NO. IT WAS FURTHER STATED THAT THIS CREDIT RESULTED IN A NET INDEBTEDNESS OF $252. DID NO MORE THAN STATE THAT AN ATTEMPT TO REVISE THE CONTRACT RATE FOR LIQUIDATED DAMAGES IN ACCORDANCE WITH THE RATE INTENDED BY THE CONTRACTING OFFICER WAS NOT WITHIN THE JURISDICTION OF THE BOARD OF CONTRACT APPEALS.

B-171144(1), FEB 2, 1972

CONTRACTS - REFORMATION CONCERNING A REQUEST BY THE NAVY FOR RECONSIDERATION OF A CLAIM SETTLEMENT ALLOWING CREDIT OF $477,496.19 TO THE ADMIRAL CORPORATION, AND RESULTING IN THAT FIRM'S TOTAL INDEBTEDNESS TO THE GOVERNMENT IN THE AMOUNT OF $272,611.59. THE NAVY SEEKS REFORMATION OF THE CONTRACT TO SUBSTITUTE THE RATE OF LIQUIDATION DAMAGES ACTUALLY INTENDED BY THE CONTRACTING OFFICER, CONTENDING THAT ADMIRAL EITHER SHOULD HAVE KNOWN OF THE MISTAKE OR SHOULD HAVE QUESTIONED THE AMBIGUOUS EXPRESSION OF THE TERM. REFORMATION OF A CONTRACT CAN ONLY BE PREDICATED ON THE MUTUAL MISTAKE OF THE PARTIES AND, ABSENT EVIDENCE TO THE CONTRARY, THE LAW WILL PRESUME THAT A CAREFULLY PREPARED WRITTEN INSTRUMENT CORRECTLY EXPRESSES THEIR FINAL AGREEMENT. SINCE ADMIRAL'S INTERPRETATION OF THE EXPRESSED RATE DOES NOT SEEM UNREASONABLE, THERE IS NO BASIS TO ALLOW REFORMATION AND THE PRIOR CLAIM SETTLEMENT MUST BE AFFIRMED AS MODIFIED BY A CORRECTION IN THE COMPUTATION OF THE INDEBTEDNESS.

TO MR. SECRETARY:

WE REFER TO LETTER 04(WGR:PK) N600(19)62134, DATED JUNE 18, 1971, WITH ENCLOSURES, AND LEGAL MEMORANDUM SUBMITTED UNDER COVER LETTER DATED JUNE 25, 1971, REQUESTING RECONSIDERATION OF OUR CLAIM SETTLEMENT DATED MAY 5, 1971, DW-Z-1439373(13)(14)(15)(16)-CND-3, WHEREIN THE ADMIRAL CORPORATION WAS ADVISED THAT WE COULD FIND NO BASIS FOR USING THE APPARENT INTENDED RATE OF LIQUIDATED DAMAGES UNDER CONTRACT NO. N600-(19) 62134, AND THEREFORE A CREDIT AGAINST THE AMOUNT DUE WOULD BE ALLOWED IN THE AMOUNT OF $477,496.19. IT WAS FURTHER STATED THAT THIS CREDIT RESULTED IN A NET INDEBTEDNESS OF $252,611.59 DRAWING INTEREST AT THE RATE OF SIX PERCENT PER ANNUM FROM MARCH 31, 1971. THE INDEBTEDNESS REPRESENTED LIQUIDATED DAMAGES AND UNRECOUPED PROGRESS PAYMENTS UNDER CONTRACTS NOS. AF033(657)14754, DA-28-043AMC00470(E), N600(19)62134 AND NOBSR-89011.

IN THE LETTER OF JUNE 18, 1971, THE NAVY PURCHASING OFFICE STATES THAT THE ARMED SERVICES BOARD OF CONTRACT APPEALS' DECISION NO. 12159, DATED JANUARY 30, 1969, DID NO MORE THAN STATE THAT AN ATTEMPT TO REVISE THE CONTRACT RATE FOR LIQUIDATED DAMAGES IN ACCORDANCE WITH THE RATE INTENDED BY THE CONTRACTING OFFICER WAS NOT WITHIN THE JURISDICTION OF THE BOARD OF CONTRACT APPEALS. WE CONCUR IN THIS READING OF THE BOARD'S DECISION. THEREFORE REMAINS TO BE DECIDED WHETHER OR NOT REFORMATION OF THE CONTRACT MAY BE ALLOWED ON THE MERITS.

YOU CONTEND THAT ADMIRAL EITHER KNEW OR SHOULD HAVE KNOWN OF THE OBVIOUS MISTAKE IN SETTING FORTH THE RATE OF LIQUIDATED DAMAGES IN THE CONTRACT BECAUSE OF THE MANNER IN WHICH THE RATE WAS SET FORTH IN THE INVITATION FOR BIDS, I.E., "1/2 OF 1% OF ONE PERCENT OF THE CONTRACT PRICE." IN THIS REGARD, IT IS SIGNIFICANT TO NOTE THAT SUBSEQUENT TO THE ORIGINAL ISSUANCE OF THE INVITATION, NAVY RECONSIDERED AND REVISED THE SUBJECT LIQUIDATED DAMAGES CLAUSE; HOWEVER, NO CHANGE WAS MADE IN THE ONE-HALF OF ONE PERCENT OF ONE PERCENT RATE. MOREOVER, ADDITIONAL AMENDMENTS NO. 2, NO. 3 AND NO. 4 WERE PREPARED, RESPECTIVELY, ON APRIL 1, 1964, APRIL 8, 1964, AND APRIL 9, 1964, WHICH EXTENDED THE BID OPENING DATE TO APRIL 20, 1964, AFFORDING ADDITIONAL TIME FOR REEXAMINATION OF THE CLAUSE IN QUESTION. IN LIGHT OF THESE CHANGES MADE BY NAVY AND THE FURTHER OPPORTUNITIES PRESENTED FOR CHANGING THE LIQUIDATED DAMAGES RATE, WE DO NOT FEEL THAT IT WAS UNREASONABLE FOR ADMIRAL TO BELIEVE THAT NAVY INTENDED EXACTLY WHAT IT INCORPORATED IN THE CONTRACT.

YOU CONTEND THAT IN VIEW OF THE MATHEMATICAL EXPRESSION OF THE LIQUIDATED DAMAGES RATE, THE TYPE OF EQUIPMENT AND THE NEED FOR IT, AND THE TOTAL AMOUNT OF THE CONTRACT, THAT ADMIRAL IN PREPARING ITS BID EITHER KNEW OR SHOULD HAVE KNOWN THAT THE INTENDED RATE OF LIQUIDATED DAMAGES WAS 100 PERCENT GREATER THAN THE RATE SPECIFIED IN THE CONTRACT AND, AT MINIMUM, SHOULD HAVE QUESTIONED THE GOVERNMENT WITH RESPECT TO THE RATES.

THERE IS A PRESUMPTION OF LAW THAT A WRITTEN INSTRUMENT WAS CAREFULLY PREPARED AND EXECUTED, THAT THE PARTIES KNEW AND UNDERSTOOD ITS CONTENTS, AND THAT IT SETS FORTH FULLY AND CORRECTLY THEIR FINAL AGREEMENT. 45 AM. JUR., REFORMATION OF INSTRUMENTS, SEC. 112; 76 C.J.S., REFORMATION OF INSTRUMENTS, SEC. 82; 26 COMP. GEN. 899, 901 (1947). THUS, THE BURDEN IS ON THE PARTY SEEKING REFORMATION TO PRODUCE EVIDENCE SUFFICIENT TO OVERCOME SUCH PRESUMPTIONS. B-163724, MARCH 15, 1968. THE EVIDENCE PRESENTED MUST SHOW CONCLUSIVELY THAT A MISTAKE WAS MADE, WHAT IT CONSISTS OF AND HOW IT OCCURRED SO AS TO LEAVE NO ROOM FOR DOUBT THAT THERE WAS IN FACT A BONA FIDE MISTAKE. 31 COMP. GEN. 183 (1951), 9 ID. 339 (1930). MERE PREPONDERANCE OF THE EVIDENCE IS NOT SUFFICIENT. RELIEF BY WAY OF REFORMATION WILL NOT BE GRANTED UNLESS THE PROOF OF MUTUAL MISTAKE BE OF THE CLEAREST AND MOST SATISFACTORY CHARACTER - PROOF THAT IS CONVINCING BEYOND REASONABLE CONTROVERSY. 26 COMP. GEN. 899, 901 (1947) AND CASES CITED THEREIN. WE DO NOT BELIEVE THAT THE STRONG PRESUMPTIONS OPERATING IN THESE CIRCUMSTANCES HAVE BEEN SUFFICIENTLY REBUTTED. THE PARTIES DISAGREE ON THE PROPER TERMS OF THE CONTRACT; THE INSTRUMENT CONFORMS TO WHAT ONE OF THE PARTIES THOUGHT THE AGREEMENT TO BE BUT DIFFERS FROM WHAT WAS INTENDED BY THE OTHER. IN THIS SITUATION THERE CAN BE NO REFORMATION.

REFORMATION OF AN INSTRUMENT MUST BE PREDICATED UPON THE MUTUAL MISTAKE OF THE PARTIES, AS WHERE THE CONTRACT, AS FINALLY DRAWN, DOES NOT REFLECT THE ACTUAL AGREEMENT OF THE PARTIES AND IT IS ESTABLISHED CLEARLY WHAT THE CONTRACT ACTUALLY WAS OR WOULD HAVE BEEN BUT FOR THE MISTAKE. 30 COMP. GEN. 220; 26 ID. 899; 37 ID. 688; 20 ID. 533. THE PURPOSE OF REFORMATION IS NOT TO MAKE A NEW AGREEMENT BETWEEN THE PARTIES, BUT, RATHER TO ESTABLISH THE ALREADY EXISTING ONE. FURTHERMORE, REFORMATION IS NOT AUTHORIZED EVEN IF IT IS CLEARLY ESTABLISHED THAT THE PARTIES WOULD HAVE COMP. GEN. 660, CITING WILLISTON ON CONTRACTS (REV. ED.) SECTION 1548, 76 C.J.S. REFORMATION OF INSTRUMENTS, SEC 26; E. CLEMENS HORST COMPANY V FEDERAL MUTUAL LIABILITY INSURANCE COMPANY, 33 F. SUPP. 598; RUSSELL ET AL V SHELL PETROLEUM CORPORATION, 66 F. 2D 864, 867.

YOU HAVE ALSO CITED OUR OPINION IN 41 COMP. GEN. 34 (1961). THAT CASE INVOLVED A FIXED-PRICE CONTRACT WHICH WAS NEGOTIATED ON THE UNDERSTANDING THAT ROYALTY PAYMENTS REQUIRED UNDER CERTAIN EXISTING LICENSE AGREEMENTS CONSTITUTED AN ELEMENT OF COST TO THE CONTRACTOR. SHORTLY BEFORE THE EXECUTION OF THE CONTRACT, BUT WITHOUT THE KNOWLEDGE OF EITHER PARTY, A FEDERAL COURT RELIEVED THE CONTRACTOR OF LIABILITY FOR THE ROYALTY PAYMENTS. THIS WAS REGARDED AS A CONTRACT NEGOTIATED AND EXECUTED ON THE BASIS OF A MISTAKE ON THE PART OF BOTH PARTIES THAT A LIABILITY EXISTED TO PAY ROYALTIES. THEREFORE, REFORMATION WAS HELD TO BE PROPER TO PERMIT THE GOVERNMENT TO RETAIN THE AMOUNT OVERSTATED FOR ROYALTY FEES. WHILE THE CASE IS SOMEWHAT UNUSUAL IN THAT IT DEALS WITH AN UNDERLYING FACT RATHER THAN A CONTRACT PROVISION, THE BASIS FOR REFORMATION WAS A MUTUAL MISTAKE BY THE PARTIES. WE ARE UNABLE TO FIND A MUTUAL MISTAKE, OR THE GROUNDS FOR CONSTRUCTIVELY INFERRING ONE, FROM THE FACTS UNDER PRESENT CONSIDERATION.

SUBSEQUENT TO OUR LETTER DATED MAY 5, 1971, TO THE ADMIRAL CORPORATION, WE NOTED AN ERROR IN ADDITION IN THE COMPUTATIONS MADE TO DERIVE THE NET INDEBTEDNESS OF ADMIRAL. THE CORRECT NET INDEBTEDNESS, INCLUDING INTEREST CHARGES COMPUTED TO MARCH 31, 1971, AMOUNTED TO $272,611.59.

ACCORDINGLY, OUR CLAIM SETTLEMENT OF MAY 5, 1971, AS MODIFIED BY THE PRECEDING PARAGRAPH, IS AFFIRMED.