B-41046, APRIL 18, 1944, 23 COMP. GEN. 800

B-41046: Apr 18, 1944

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CONTRACTS - COST-PLUS - EFFECT OF GUARANTEED MAXIMUM PRICE PROVISION WHERE A BUILDING CONTRACT IS FAIRLY ENTERED INTO BY AN EXPERIENCED BUILDER THE FACT THAT THE WORK PROVES TO BE MORE EXPENSIVE THAN WAS ESTIMATED DOES NOT ENTITLE THE CONTRACTOR TO ANY ALLOWANCE BEYOND THE CONTRACT PRICE. IF THE COST TO BE REIMBURSED THEREUNDER IS BASED ON AN ESTIMATE WITH A GUARANTEED MAXIMUM. 1944: I HAVE YOUR LETTER OF MARCH 20. UNDER THE TERMS OF THE CONTRACT IT WAS MUTUALLY AGREED THAT FOR AND IN CONSIDERATION OF THE COMPENSATION STIPULATED THEREIN THE CONTRACTOR WOULD FURNISH THE MATERIAL AND PERFORM THE WORK FOR CONSTRUCTING COMPLETE. WORK UPON WHICH PAYMENTS HAVE BEEN MADE OR THE RESTORATION OF ANY DAMAGED WORK.

B-41046, APRIL 18, 1944, 23 COMP. GEN. 800

CONTRACTS - COST-PLUS - EFFECT OF GUARANTEED MAXIMUM PRICE PROVISION WHERE A BUILDING CONTRACT IS FAIRLY ENTERED INTO BY AN EXPERIENCED BUILDER THE FACT THAT THE WORK PROVES TO BE MORE EXPENSIVE THAN WAS ESTIMATED DOES NOT ENTITLE THE CONTRACTOR TO ANY ALLOWANCE BEYOND THE CONTRACT PRICE, SO THAT, IN THE CASE OF A COST-PLUS CONTRACT, IF THE COST TO BE REIMBURSED THEREUNDER IS BASED ON AN ESTIMATE WITH A GUARANTEED MAXIMUM, THE AMOUNT OF COST RECOVERABLE BY THE CONTRACTOR CANNOT EXCEED SUCH MAXIMUM. WHERE A COST-PLUS-A-FIXED-FEE CONSTRUCTION CONTRACT PROVIDED THAT REIMBURSABLE ITEMS OF COST SHALL INCLUDE CERTAIN ITEMS OF TOOLS, TIMBER, ETC., NOT ENTERING INTO THE CONSTRUCTION OF THE COMPLETED STRUCTURE, THAT ALL MATERIAL AND WORK COVERED BY PARTIAL PAYMENTS SHALL BECOME THE PROPERTY OF THE GOVERNMENT, AND THAT THE COSTS SHALL NOT EXCEED A STIPULATED GUARANTEED MAXIMUM, THE FACT THAT THE CONTRACTORS COSTS ACTUALLY EXCEEDED THE GUARANTEED MAXIMUM DOES NOT OPERATE TO VEST IN THE CONTRACTOR THE RIGHT TO RECEIVE PAYMENT FOR THE SALVAGE VALUE OF SUCH SMALL TOOLS, TC., DISPOSED OF BY THE GOVERNMENT.

COMPTROLLER GENERAL WARREN TO THE PRESIDENT, BOARD OF COMMISSIONERS OF THE DISTRICT OF COLUMBIA, APRIL 18, 1944:

I HAVE YOUR LETTER OF MARCH 20, 1944, WHEREIN YOU REQUEST A DECISION AS TO THE VALIDITY OF THE CLAIM OF CHARLES H. TOMPKINS COMPANY, WASHINGTON, D.C., FOR THE AMOUNT OF $5,111.84, REPRESENTING THE SALVAGE VALUE OF CERTAIN MATERIALS TAKEN OVER AND DISPOSED OF BY THE DISTRICT OF COLUMBIA AND THE SAID COMPANY.

UNDER THE TERMS OF THE CONTRACT IT WAS MUTUALLY AGREED THAT FOR AND IN CONSIDERATION OF THE COMPENSATION STIPULATED THEREIN THE CONTRACTOR WOULD FURNISH THE MATERIAL AND PERFORM THE WORK FOR CONSTRUCTING COMPLETE, AND KEEPING IN REPAIR FOR A PERIOD OF ONE YEAR FROM THE DATE OF COMPLETION, A THREE-SPAN STEEL AND CONCRETE BRIDGE ACROSS THE TIDAL BASIN, NEAR FOURTEENTH STREET, S.W., WASHINGTON, D.C., IN STRICT ACCORDANCE WITH THE DRAWINGS, SPECIFICATIONS, AND CONDITIONS--- BOTH GENERAL AND SPECIAL--- FORMING A PART OF THE CONTRACT. ARTICLE 1, PARAGRAPH (B), AND ARTICLE 16, PARAGRAPH (C), OF THE CONTRACT PROVIDE, RESPECTIVELY, AS FOLLOWS:

(B) COMPENSATION--- THE CONTRACTOR SHALL RECEIVE FOR THE PERFORMANCE OF THE AFORESAID WORK THE ACTUAL "CONTRACTOR'S COST" PLUS A FIXED FEE OF TWENTY THOUSAND DOLLARS ($20,000). IT BEING UNDERSTOOD AND AGREED TO BY AND BETWEEN THE PARTIES HERETO THAT THE CONSTRUCTION COST TO BE PAID THE CONTRACTOR BY THE DISTRICT SHALL NOT EXCEED THE SUM OF TWO HUNDRED AND FORTY THOUSAND, FIVE HUNDRED AND EIGHTY-ONE DOLLARS ($240,581) (EXCLUSIVE OF CONTRACTOR'S FIXED FEE) REFERRED TO HEREINAFTER AS "OUTSIDE GUARANTEED COST," UNLESS THE CONTRACTOR'S COST EXCEEDS THE OUTSIDE GUARANTEED COST DUE TO INCREASE IN THE QUANTITIES SET OUT IN THE SCHEDULE, OR RESULTING FROM DECLARATION OF WAR BY OR AGAINST THE UNITED STATES GOVERNMENT. THE "CONTRACTOR'S COST" SHALL CONSIST OF THE ITEMS SET FORTH IN THE ATTACHED SPECIAL CONDITIONS.

(C) ALL MATERIAL AND WORK COVERED BY PARTIAL PAYMENTS MADE SHALL THEREUPON BECOME THE SOLE PROPERTY OF THE DISTRICT, BUT THIS PROVISION SHALL NOT BE CONSTRUED AS RELIEVING THE CONTRACTOR FROM THE SOLE RESPONSIBILITY FOR THE CARE AND PROTECTION OF MATERIALS, AND WORK UPON WHICH PAYMENTS HAVE BEEN MADE OR THE RESTORATION OF ANY DAMAGED WORK, OR AS A WAIVER OF THE RIGHT OF THE DISTRICT TO REQUIRE THE FULFILLMENT OF ALL THE TERMS OF THE CONTRACT. ALSO, IT WAS PROVIDED UNDER PARAGRAPH 2 (J) OF THE SPECIAL CONDITIONS THAT THE ITEMS FOR WHICH THE CONTRACTOR WOULD BE ENTITLED TO RECEIVE REIMBURSEMENT AS PRODUCTION COST WOULD INCLUDE:

(J) SMALL TOOLS, ROPE, CABLE, ETC.--- EXPENDITURES MADE IN PAYMENT FOR SMALL TOOLS, ROPE, CABLE, TIMBER, ETC., AND OTHER CONSTRUCTION EQUIPMENT NOT ENTERING INTO THE CONSTRUCTION OF THE COMPLETED STRUCTURE, AND NOT INCLUDED IN PLANT RENTAL. FOR SUCH TOOLS, ROPE, CABLE, ETC., THE CONTRACTOR SHALL BE PAID THE ACTUAL COST AS SHOWN BY RECEIPTED BILLS OR VOUCHERS. SUCH TOOLS, CABLE, EQUIPMENT, ETC., MAY, WITH THE APPROVAL OF THE DIRECTOR OF HIGHWAYS, BECOME THE PROPERTY OF THE CONTRACTOR UPON COMPLETION OF THE WORK, AND HE SHALL ALLOW THE DISTRICT THE CURRENT MARKET SALVAGE VALUE FOR SUCH USED TOOLS, CABLES, ETC. PRICES PAID FOR SUCH ITEMS REFERRED TO IN THIS SECTION, AND AMOUNTS ALLOWED FOR SALVAGE SHALL BE AS APPROVED BY THE DIRECTOR OF HIGHWAYS.

SUMMARIZING THE PERTINENT FACTS OF THE MATTER AS REPORTED IN YOUR LETTER IT APPEARS THAT DURING THE PROGRESS OF THE CONTRACT WORK IT BECAME NECESSARY TO SALVAGE CERTAIN NEW AND USED MATERIAL CONSISTING OF LUMBER, WELDING EQUIPMENT, TOOLS AND OTHER PROPERTY WHICH WAS NOT CONSUMED IN THE ACTUAL CONSTRUCTION OF THE BRIDGE. SOME OF THIS MATERIAL WAS REMOVED FROM THE PROJECT BY THE CONTRACTOR WHO IS STATED TO HAVE CREDITED THE AMOUNT OF $741.89, REPRESENTING THE SALVAGE VALUE OF THE SAME, TO THE JOB. PORTION OF THE REMAINDER, HAVING A SALVAGE VALUE OF $2,652.80, WAS STORED OR USED ON OTHER JOBS BY THE GOVERNMENT OF THE DISTRICT OF COLUMBIA AND THE BALANCE, HAVING A SALVAGE VALUE OF $2,459.04, WAS SOLD BY THE DISTRICT TO SUCCESSFUL COMPETITIVE BIDDERS. APPARENTLY, WHILE THE PARTIAL PAYMENTS WHICH HAVE BEEN MADE TO DATE PURSUANT TO THE CONTRACT TOTAL ONLY $236,522.90, THE CONTRACTOR'S COST THEREUNDER FOR THE WORK ORIGINALLY SPECIFIED EXCEEDED THE OUTSIDE GUARANTEED COST STIPULATED IN ARTICLE 1 (B) OF THE CONTRACT. CONSEQUENTLY, THE CONTRACTOR CONTENDS THAT IT IS ENTITLED TO RECEIVE CREDIT FOR THE AMOUNT OF $5,111.84 ON THE THEORY THAT THE DISTRICT HAS NOT PAID FOR THE MATERIAL TAKEN OVER BY IT, AND THAT THE COST OF THE MATERIAL REPRESENTS NO PART OF THE COST ACTUALLY ENTERING INTO THE COST OF THE BRIDGE OR COMING WITHIN THE OUTSIDE GUARANTEED COST.

YOU STATE THAT WHEN THE MATERIAL IN QUESTION WAS DISPOSED OF BY THE DISTRICT IT WAS ASSUMED THAT TITLE THERETO HAD VESTED IN THE DISTRICT AND THAT, THEREFORE, NO CHARGES WERE RAISED AGAINST THE VARIOUS BRANCHES OF THE DISTRICT GOVERNMENT FOR THE MATERIAL TURNED OVER TO THEM AND THE PROCEEDS DERIVED FROM THE MATERIAL WHICH WAS SOLD WERE COVERED INTO THE HIGHWAY FUND OF THE DISTRICT. HOWEVER, IT APPEARS THAT THE DISTRICT AUDITOR NOW ENTERTAINS SOME DOUBT AS TO THE PROPRIETY OF THE ACTION THUS TAKEN BY THE DISTRICT, SINCE, AS HEREINBEFORE STATED, IT SUBSEQUENTLY HAS DEVELOPED THAT THE LIMITATION CONTAINED IN ARTICLE 1 (B) OF THE CONTRACT HAS BEEN EXCEEDED, AND SINCE PARAGRAPH 5 (E) OF THE SPECIAL CONDITIONS PROVIDED THAT IN THE EVENT THE CONTRACTOR'S COST SHOULD EXCEED SUCH LIMITATION DUE TO NECESSARY INCREASE IN THE ESTIMATED QUANTITIES OF ANY OF THE ITEMS SET OUT IN THE SCHEDULE OF PRICES THE CONTRACTOR WOULD BE PAID THE NET DIFFERENCE BETWEEN THE TOTAL ADDITIONAL COST OF THE INCREASED QUANTITIES AND THE TOTAL DEDUCTION COST OF DECREASED QUANTITIES, IF ANY.

IN THE LATTER CONNECTION IT IS DEFINITELY INDICATED IN YOUR LETTER THAT SAID PARAGRAPH 5 (E) IS NOT INVOLVED HERE BUT THAT, RATHER, THE MATERIAL WHICH CONSTITUTES THE SUBJECT MATTER OF THE CLAIM WAS "CONSTRUCTION EQUIPMENT" WITHIN THE MEANING OF PARAGRAPH 2 (J) OF THE SPECIAL CONDITIONS. IF SO, OF COURSE, THE PROVISIONS OF PARAGRAPH 5 (E) CAN HAVE NO MATERIAL BEARING ON THE QUESTION AS TO THE VALIDITY OF THE CONTRACTOR'S CLAIM.

THE GENERAL RULE IS THAT WHERE A BUILDING CONTRACT IS FAIRLY ENTERED INTO BY AN EXPERIENCED BUILDER THE FACT THAT THE WORK PROVES TO BE MORE EXPENSIVE THAN WAS ESTIMATED DOES NOT ENTITLE THE CONTRACTOR TO ANY ALLOWANCE BEYOND THE CONTRACT PRICE. IN OTHER WORDS, IF THE COST TO BE REIMBURSED UNDER A COST-PLUS CONTRACT IS BASED ON AN ESTIMATE WITH A GUARANTEED MAXIMUM THE AMOUNT OF COST RECOVERABLE BY THE CONTRACTOR CANNOT EXCEED SUCH MAXIMUM. SEE GILLESPIE LAND AND IRRIGATION CO. V. HAMILTON, 29 P.2D 158, AND CROWE V. BOYLE, 193 P. III. OBVIOUSLY, THEN, UNLESS THE INSTANT CONTRACTOR'S OUTSIDE GUARANTEED COST OF $240,581 WAS FIXED IN CONSIDERATION OF A SUBSEQUENT CREDIT FOR THE SALVAGE VALUE OF THE ITEMS OF MATERIAL HERE IN QUESTION THE CONTRACTOR CANNOT BE SAID TO BE ENTITLED TO RECEIVE PAYMENT THEREFOR. HOWEVER, UNDER A FAIR AND REASONABLE CONSTRUCTION OF THE CONTRACT, CONSIDERED AS A WHOLE, SUCH DOES NOT APPEAR TO BE THE CASE.

AS SHOWN BY THE ABOVE-QUOTED PROVISIONS OF ARTICLE 16 (C) THE PARTIES AGREED, IN PRACTICAL EFFECT, THAT ALL MATERIAL AND WORK FOR WHICH REIMBURSEMENT WOULD BE MADE TO THE CONTRACTOR WOULD BECOME THE SOLE PROPERTY OF THE DISTRICT. HENCE, THE REAL QUESTION FOR CONSIDERATION IN DETERMINING THE RESPECTIVE RIGHTS OF THE PARTIES TO THE SALVAGE VALUE OF THE ITEMS OF MATERIAL COVERED BY THE CLAIM IS WHETHER PAYMENT IN ACCORDANCE WITH THE TERMS OF ARTICLE 1 (B) PROPERLY SHOULD BE REGARDED AS INCLUDING REIMBURSEMENT FOR THE COST OF THE SAID ITEMS; NOT WHETHER THE ITEMS ACTUALLY ENTERED INTO THE CONSTRUCTION OF THE BRIDGE. WHILE ARTICLE 1 (B) LIMITED THE MAXIMUM AMOUNT WHICH THE CONTRACTOR WOULD BE ENTITLED TO RECEIVE AS REIMBURSEMENT FOR ITS CONSTRUCTION COSTS TO THE SUM OF $240,581 IT AT THE SAME TIME PROVIDED THAT SUCH COSTS WOULD CONSIST OF THE ITEMS OF EXPENDITURE SET FORTH IN THE ATTACHED SPECIAL CONDITIONS. MOREOVER, THE SPECIAL CONDITIONS, UNDER PARAGRAPH 2 (J) THEREOF, SPECIFICALLY INCLUDE AMONG THE VARIOUS REIMBURSABLE ITEMS ENUMERATED THEREIN EXPENDITURES MADE FOR SMALL TOOLS, MATERIALS AND CONSTRUCTION EQUIPMENT NOT ENTERING INTO THE CONSTRUCTION OF THE COMPLETED STRUCTURE. THE UNDERSTANDING OF THE PARTIES THUS CLEARLY APPEARS TO HAVE BEEN THAT, IRRESPECTIVE OF THE EXTENT OF THE CONTRACTOR'S ACTUAL CONSTRUCTION COSTS, REIMBURSEMENT THEREFOR UP TO THE GUARANTEED MAXIMUM AMOUNT OF $240,581 WOULD INCLUDE COMPLETE COMPENSATION FOR THE ITEMS INVOLVED AND WOULD OPERATE TO VEST THE DISTRICT OF COLUMBIA WITH TITLE TO THOSE ITEMS AS WELL AS THE NUMEROUS OTHER REIMBURSABLE ITEMS LISTED IN THE SPECIAL CONDITIONS.

ACCORDINGLY, I HAVE TO ADVISE THAT, ON THE PRESENT RECORD, NEITHER THE FACT THAT THE CONSTRUCTION COSTS INCURRED BY THE CONTRACTOR ACTUALLY DID EXCEED THE GUARANTEED MAXIMUM, NOR THE FACT THAT THE MATERIALS COVERED BY THE CONTRACTORS' CLAIM DID NOT BECOME A PART OF THE COMPLETED STRUCTURE, CAN BE ACCEPTED AS AFFORDING ANY VALID OR LEGAL BASIS FOR ALLOWANCE OF THE CLAIM.