B-165817, MAY 2, 1969

B-165817, MAY 2, 1969

TO MR. SECRETARY:

REFERENCE IS MADE TO A LETTER DATED DECEMBER 10, 1968, REFERENCE AIR- OOC:KPC/FLP, FROM YOUR ASSISTANT COUNSEL, NAVAL AIR SYSTEMS COMMAND (NASC), REQUESTING OUR DECISION AS TO WHETHER THE NAVY MAY LEGALLY ENTER INTO A CONTRACT WITH PHILCO-FORD CORPORATION FOR THE PURPOSE OF COMPENSATING THE CORPORATION FOR THE COST OF MATERIAL PROCURED AND WORK PERFORMED WITHOUT CONTRACTUAL AUTHORITY IN PURSUING THE CONSTRUCTION OF A QUANTITY OF GUIDANCE AND CONTROL GROUPS, SIDEWINDER LC MISSILES, DURING THE PERIOD FROM JULY 1965 TO JANUARY 14, 1966.

THE REFERENCED LETTER STATES THAT THE RECORDS IN NASC HEADQUARTERS SHOW THAT ON MAY 24, 1965, PHILCO-FORD SUBMITTED AN UNSOLICITED PROPOSAL FOR ADDITIONAL QUANTITIES OF THE S/W IR GCG UNITS AS AN ADD ON TO ITS EXISTING CONTRACT, AND THAT COGNIZANT COMMAND PERSONNEL MET WITH REPRESENTATIVES OF PHILCO-FORD ON THAT DATE. THEREAFTER, NASC STARTED PROCUREMENT PROCEDURES WITH THE INTENTION TO PROCURE ADDITIONAL UNITS. THE REPORT INDICATES THAT FREQUENT DISCUSSIONS WERE CONDUCTED, BOTH IN PERSON AND BY TELEPHONE, BETWEEN THE CORPORATION AND NAVY PERSONNEL.

THE SUBMISSION MENTIONS TWO LETTERS DATED NOVEMBER 3 AND 24, 1968, FROM THE CORPORATION IN WHICH IT EXTENDED ITS PROPOSAL AND ALSO ADVISED THAT PRECONTRACT COSTS HAD BEEN INCURRED BASED ON VERBAL DIRECTION FROM THE BUREAU OF NAVAL WEAPONS PERSONNEL. HOWEVER, THE SUBMISSION ALSO POINTS OUT THAT THE CORPORATION WAS ADVISED SEVERAL TIMES BY A CONTRACTING OFFICER THAT IT SHOULD NOT ACT ON VERBAL ORDERS FROM ANYONE WITHIN THE GOVERNMENT. WHILE IT IS STATED THAT SEVERAL ATTEMPTS WERE MADE BY NASC TO INSTITUTE THE NORMAL PROCUREMENT PROCEDURES FOR ACQUIRING ADDITIONAL S/W IR GCG UNITS, FOR VARIOUS REASONS THE PROCESSING WAS NOT COMPLETED UNTIL THE ISSUANCE OF A CIRCULATION COPY OF A LETTER CONTRACT ON DECEMBER 22, 1965. THE CORPORATION WAS FINALLY OFFERED THIS CONTRACT ON JANUARY 11, 1966, BUT DECLINED TO ACCEPT IT BECAUSE IT CONTAINED REVISED SPECIFICATIONS WHICH WERE MORE STRINGENT THAN THOSE CONTAINED IN ITS THEN CURRENT CONTRACT.

NASC HAS TAKEN THE POSITION THAT THERE IS NO BASIS FOR GRANTING RELIEF UNDER PUBLIC LAW 85-804. HOWEVER, THE COMMAND EXPRESSES THE OPINION THAT THE CORPORATION ACQUIRED MATERIALS AND PERFORMED SERVICES WITH THE KNOWLEDGE AND ACQUIESCENCE OF GOVERNMENT PERSONNEL, AND THAT THE CONTRACT ULTIMATELY OFFERED WAS DECLINED ONLY BECAUSE THE GOVERNMENT HAD PLACED SUCH STRINGENT SPECIFICATIONS IN THE CONTRACT SO AS TO MAKE PERFORMANCE IMPROBABLE IF NOT IMPOSSIBLE. NASC'S SUBMISSION THEREFORE CONCLUDES AS FOLLOWS: "THE NAVAL AIR SYSTEMS COMMAND CONSIDERS THAT THE CONTRACTOR'S ACTIONS RESULTED IN A BENEFIT TO THE GOVERNMENT, AND THEREBY RECOGNIZES AN OBLIGATION TO PAY THE FAIR VALUE FOR THE WORK PERFORMED AND THE MATERIAL NOW ON HAND THAT WAS ACQUIRED BY THE CONTRACTOR, FROM JULY 1, 1965 TO JANUARY 14, 1966. ACCORDINGLY, YOUR APPROVAL TO ENTER INTO SUCH A CONTRACT WHEREBY THE CONTRACTOR CAN BE PAID A REASONABLE AMOUNT FOR SUCH SERVICES AND MATERIAL, IS REQUESTED.'

ABSENT ANY BASIS FOR RELIEF UNDER PUBLIC LAW 85-804, IT WOULD APPEAR THAT THE EXECUTION OF A CONTRACT OF THE TYPE DESCRIBED BY NASC MUST BE BASED UPON A CONCLUSION THAT THE GOVERNMENT IS LEGALLY OBLIGATED TO PHILCO-FORD IN THE CONTRACT AMOUNT. UNDER THE CIRCUMSTANCES HERE INVOLVED IT IS OUR OPINION THE GOVERNMENT'S LIABILITY COULD ONLY BE BASED UPON AN IMPLIED IN FACT CONTRACT OR UPON QUANTUM VALEBAT.

AN IMPLIED IN FACT CONTRACT WILL ARISE ONLY WHERE SOMETHING IS MISSING IN THE FORM OF PROOF, AND THIS ABSENCE WILL BE CURED BY THE PRODUCTION OF PROOF OF CONDUCT. SUCH A CONTRACT IS AN AGREEMENT FOUNDED ON A MEETING OF THE MINDS OF THE PARTIES EVIDENCED TACITLY BY THEIR CONDUCT, RATHER THAN EXPRESSLY BY THEIR WORDS. A CONTRACT IS IMPLIED IN FACT WHERE THE SURROUNDING FACTS AND CIRCUMSTANCES DISCLOSE THAT THE PARTIES INTENDED TO MAKE A CONTRACT, BUT FOR SOME REASON FAILED TO ARTICULATE THEIR PROMISE. 17 C.J.S. CONTRACTS, SECTION 4; AM. LAW INST. RESTATEMENT, CONTRACTS, VOLUME 1, SECTION 5; WILLISTON ON CONTRACTS, THIRD EDITION, SECTION 3. FURTHER, IT IS AN ACTUAL CONTRACT WHICH ARISES WHERE THE PARTIES AGREE UPON THE OBLIGATIONS TO BE INCURRED BUT THEIR INTENTION INSTEAD OF BEING EXPRESSED IN WORDS IS INFERRED FROM THEIR ACTIONS IN THE LIGHT OF THE SURROUNDING CIRCUMSTANCES. GOVERNMENT CONTRACTS, MCBRIDE AND WACHTEL, SECTION 17.10.

IN THE INSTANT CASE THE PARTIES MUST BE CONSIDERED TO BE PHILCO-FORD AND THE DEPARTMENT OF THE NAVY, AND THE FACT THAT EVEN AFTER A PROLONGED EXCHANGE OF VIEWS, BOTH VERBALLY AND IN WRITING, THE PARTIES WERE UNABLE TO REACH AN AGREEMENT ABOUT THE SPECIFICATIONS APPLICABLE TO THE PROCUREMENT ITEM EVIDENCES THAT THERE WAS NO MEETING OF THE MINDS. ADDITION, THE ACTION OF THE CONTRACTING OFFICER IN SERVING NOTICE ON PHILCO-FORD DURING SUCH PRELIMINARIES THAT PHILCO-FORD WAS NOT TO ACT ON VERBAL ORDERS FROM ANYONE IN THE GOVERNMENT CLEARLY SHOWS THAT PHILCO-FORD WAS AWARE THAT THE GOVERNMENT HAD NO INTENT TO BE BOUND EXCEPT PURSUANT TO A DULY EXECUTED WRITTEN CONTRACT. IN THE CIRCUMSTANCES, WE ARE UNABLE TO FIND THAT AN IMPLIED IN FACT CONTRACT AROSE. SEE B-162132, SEPTEMBER 29, 1967.

WITH RESPECT TO WHETHER PHILCO-FORD MIGHT BE ENTITLED TO PAYMENT ON THE BASIS OF QUANTUM VALEBAT, SUCH A REMEDY IS APPROPRIATE ONLY WHERE ONE PARTY TO A TRANSACTION HAS RECEIVED AND RETAINED TANGIBLE BENEFITS FROM THE OTHER PARTY. UNITED STATES V MISSISSIPPI VALLEY GENERATING CO., 364 U.S. 520 (FOOTNOTE NO. 22) AND 40 COMP. GEN. 447. WHILE NASC HAS STATED THAT IT CONSIDERS PHILCO-FORD'S ACTIONS RESULTED IN A BENEFIT TO THE GOVERNMENT, NO INFORMATION IS FURNISHED AS TO WHAT SUCH BENEFIT MIGHT BE. CONVERSELY, THE RECORD INDICATES THAT THE MANUFACTURE AND DELIVERY OF A SPECIFIC QUANTITY OF MISSILES WAS THE OBJECTIVE OF ANY CONTRACT WHICH THE GOVERNMENT WOULD HAVE AUTHORIZED, BUT NO PORTION OF THE DESIRED QUANTITY WAS EVER DELIVERED TO THE GOVERNMENT. IN VIEW THEREOF WE ARE UNABLE TO RECOGNIZE ANY RIGHT TO PAYMENT ON A QUANTUM VALEBAT BASIS.

IN A BRIEF FILED WITH OUR OFFICE BY COUNSEL FOR PHILCO-FORD IT IS URGED THAT, IF A FINDING OF AN IMPLIED IN FACT CONTRACT IS NOT MADE, OUR OFFICE COULD ADVISE YOUR DEPARTMENT THAT A CERTAIN ACTION TAKEN BY CAPTAIN E. B. BOUTWELL OF NASC MAY NOW BE RATIFIED AND THEREBY AFFORD PHILCO-FORD THE REQUESTED RELIEF. THE ALLEGED ACTION WAS A VERBAL INSTRUCTION BY CAPTAIN BOUTWELL TO AN OFFICIAL OF PHILCO-FORD ON OCTOBER 22, 1965, TO PROCURE MATERIAL FOR AND TO BEGIN CONSTRUCTION OF THE MISSILES. IN A MEMORANDUM DATED JULY 8, 1968, HOWEVER, CAPTAIN BOUTWELL HAS STATED,"I DO NOT RECALL TELLING THE CONTRACTOR TO PROCURE ANY LONG LEAD ITEMS.' ACCORDINGLY, AND IN VIEW OF THE SPECIFIC ADVICE GIVEN TO PHILCO-FORD BY THE CONTRACTING OFFICER NOT TO ACT ON VERBAL ORDERS FROM ANYONE WITHIN THE GOVERNMENT, WE MUST CONCLUDE THAT THERE WAS NO ACTION TAKEN BY CAPTAIN BOUTWELL WHICH COULD NOW BE RATIFIED. SEE 2 C.J.S. AGENCY, SECTION 37.

FOR THE REASONS STATED WE PERCEIVE NO LEGAL BASIS UPON WHICH PAYMENT MAY BE MADE TO PHILCO-FORD. PHILCO-FORD IS BEING FURNISHED A COPY OF THIS DECISION.