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B-182437, MAR 12, 1975

B-182437 Mar 12, 1975
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WITH EXCEPTION OF CONTRACT UNDER WHICH IT IS CLAIMING ADDITIONAL COSTS OF PERFORMANCE. THERE IS NO BASIS TO AUTHORIZE PAYMENT OF CLAIM SINCE THERE WAS NO PRIVITY OF CONTRACT WITH GOVERNMENT THROUGH NOVATION OR OTHERWISE. THE CONTRACT WAS AWARDED TO ARVIN BY THE NAVAL REGIONAL PROCUREMENT OFFICE. THE CONTRACT WAS A FIXED-PRICE SUPPLY TYPE CONTRACT. THE UNIT PRICES WERE THE SAME FOR EACH OSCILLATOR TYPE ($64.50 EACH) AND FOR EACH FIRST ARTICLE ($715 EACH) AND THE TOTAL CONTRACT PRICE WAS $11. THE OSCILLATORS WERE TO BE PRODUCED IN CONFORMITY WITH THE SAN DIEGO NAVAL ELECTRONICS LABORATORY CENTER'S SPECIFICATIONS. THE CONTRACT WAS MODIFIED FOUR TIMES. THE FIRST ARTICLE UNITS WERE RECEIVED.

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B-182437, MAR 12, 1975

WHERE THIRD PARTY COMPANY TOOK OVER ALL ASSETS AND CONTRACTS OF GOVERNMENT CONTRACTOR, WITH EXCEPTION OF CONTRACT UNDER WHICH IT IS CLAIMING ADDITIONAL COSTS OF PERFORMANCE, THERE IS NO BASIS TO AUTHORIZE PAYMENT OF CLAIM SINCE THERE WAS NO PRIVITY OF CONTRACT WITH GOVERNMENT THROUGH NOVATION OR OTHERWISE.

MONITOR PRODUCTS COMPANY, INC.:

THIS INVOLVES A CLAIM BY MONITOR PRODUCTS COMPANY, INC., FOR REIMBURSEMENT OF COSTS INCURRED IN THE FULFILLMENT OF UNITED STATES NAVY CONTRACT NO. N00123-73-C-1575, DATED FEBRUARY 15, 1973, WHICH HAD BEEN AWARDED TO ARVIN INDUSTRIES, INC. THE CONTRACT WAS AWARDED TO ARVIN BY THE NAVAL REGIONAL PROCUREMENT OFFICE, LOS ANGELES, CALIFORNIA, FOR THE FURNISHING OF CRYSTAL OSCILLATORS, FIRST ARTICLES, AND TEST DATA. THE CONTRACT WAS A FIXED-PRICE SUPPLY TYPE CONTRACT. THE UNIT PRICES WERE THE SAME FOR EACH OSCILLATOR TYPE ($64.50 EACH) AND FOR EACH FIRST ARTICLE ($715 EACH) AND THE TOTAL CONTRACT PRICE WAS $11,632. THE OSCILLATORS WERE TO BE PRODUCED IN CONFORMITY WITH THE SAN DIEGO NAVAL ELECTRONICS LABORATORY CENTER'S SPECIFICATIONS. BETWEEN MAY 10, 1973, AND AUGUST 13, 1973, THE CONTRACT WAS MODIFIED FOUR TIMES, WITH APPROPRIATE ADJUSTMENTS OF PRODUCTION UNIT PRICES AND THE TOTAL CONTRACT PRICE. THE FIRST ARTICLE UNITS WERE RECEIVED, TESTED AND APPROVED BY NAVAL ELECTRONICS LABORATORY CENTER ON AUGUST 2, 1973, BUT DUE TO APPARENT PROBLEMS IN PRODUCTION OF THESE UNITS, THE FIRST GROUP OF PRODUCTION UNITS WERE NOT RECEIVED UNTIL DECEMBER 1973.

MONITOR PRODUCTS ACQUIRED ARVIN INDUSTRIES IN DECEMBER 1973, AND ONE OF THE STIPULATIONS IN THE ACQUISITION WAS THAT MONITOR WOULD NOT BE RESPONSIBLE FOR COMPLETION OF THE CONTRACT UNDER CONSIDERATION HERE. JANUARY OF 1974 THE ADMINISTRATIVE CONTRACTING OFFICER COMMUNICATED WITH ARVIN WITH RESPECT TO THE SALE OF PART OF ITS ASSETS TO MONITOR AND REQUESTED ARVIN TO SUBMIT CERTAIN DOCUMENTATION "IF ARVIN REQUESTS THE GOVERNMENT TO RECOGNIZE MONITOR PRODUCTS COMPANY AS A SUCCESSOR IN INTEREST TO SUBJECT CONTRACT (IN WHICH EVENT) A NOVATION AGREEMENT MUST BE EXECUTED." BY LETTER DATED JANUARY 15, 1974, ARVIN INFORMED THE ADMINISTRATIVE CONTRACTING OFFICER THAT THE REQUIRED INFORMATION HAD BEEN REQUESTED FROM MONITOR.

BY LETTER DATED JANUARY 29, 1974, FROM MONITOR, RECEIVED IN THE NAVAL REGIONAL PROCUREMENT OFFICE ON FEBRUARY 8, 1974, THE NAVAL REGIONAL PROCUREMENT OFFICE WAS NOTIFIED THAT THE ARVIN FREQUENCY DEVICES DIVISION OF ARVIN INDUSTRIES, INC. HAD BEEN PURCHASED BY MONITOR, AND THAT MONITOR WISHED TO PARTICIPATE IN THE FURNISHING OF THE REGIONAL PROCURING OFFICE'S FUTURE REQUIREMENTS FOR FREQUENCY CONTROL DEVICES. NO MENTION WAS MADE IN THIS LETTER OF ANY INTENTION ON MONITOR'S PART WITH RESPECT TO THE SUBJECT CONTRACT. IN A LETTER DATED MARCH 7, 1974, ARVIN ADVISED THE ADMINISTRATIVE CONTRACTING OFFICER THAT MONITOR WOULD BE "ACTING IN PART WITH ARVIN PERSONNEL AS SUBCONTRACTORS TO PRODUCE THE ITEMS REQUIRED ON SUBJECT CONTRACT."

IT IS REPORTED THAT THE CONTRACT HAS BEEN FULLY PERFORMED AND THE ITEMS REQUIRED THEREUNDER HAVE BEEN DELIVERED AND ACCEPTED. FINAL PAYMENT OF THE CONTRACT PRICE, AS ADJUSTED BY THE 4 MODIFICATIONS, WAS MADE TO ARVIN ON AUGUST 23, 1974. IT IS FURTHER REPORTED THAT AT NO TIME PRIOR TO THE PRESENTATION OF THE CLAIM TO THE GENERAL ACCOUNTING OFFICE HAD MONITOR MADE A CLAIM UNDER THE CONTRACT TO THE NAVAL REGIONAL PROCUREMENT OFFICE AT LONG BEACH, CALIFORNIA.

BY LETTER DATED OCTOBER 8, 1974, WITH ENCLOSURE, ADDRESSED TO OUR OFFICE, MONITOR PRODUCTS REQUESTS REIMBURSEMENT FOR "COST OVERRUN INCURRED IN THE FULFILLMENT" OF THE CONTRACT AWARDED TO ARVIN INDUSTRIES. THE LETTER STATES THAT PRIOR TO COMPLETION OF THE CONTRACT, ARVIN SOLD AND TRANSFERRED ITS PRODUCTION FACILITIES AND CONTRACTS TO MONITOR, WITH THE EXCEPTION OF THE CONTRACT WHICH IS THE SUBJECT OF THIS CLAIM. MONITOR ALSO STATED THAT IT ADVISED THE NAVAL ELECTRONICS LABORATORY CENTER PROJECT ENGINEER THAT THE DELIVERY PRICE OF THE CONTRACT ITEM ($66 AS PER AMENDMENT NO. 2) WAS TOO LOW BUT MONITOR COULD FULFILL THE CONTRACT IF THE PRICE OF THE ITEM WAS INCREASED TO $185 EACH. IT IS THEN STATED THAT THE PROJECT ENGINEER REQUESTED THAT MONITOR CONTINUE PRODUCTION AND STATED THAT A NOVATION AGREEMENT WAS BEING IMPLEMENTED AND NEGOTIATIONS WOULD COVER JUSTIFIABLE COST OVERRUNS.

THE ENCLOSURE TO MONITOR'S LETTER IS A COPY OF A MEMORANDUM DATED MAY 13, 1974, FROM THE PROJECT ENGINEER TO HIS COMMANDING OFFICER REQUESTING THAT A NOVATION AGREEMENT BE ENTERED INTO BY THE NAVY CONTRACTING OFFICER, ARVIN INDUSTRIES AND MONITOR PRODUCTS IN ORDER TO COMPENSATE MONITOR PRODUCTS FOR EXCESS COSTS INCURRED IN FULFILLING THE CONTRACT. THE MEMORANDUM DETAILS THE DIFFICULTIES OF ARVIN INDUSTRIES UNDER THE CONTRACT CULMINATING IN THE SALE OF THE COMPANY, EXCLUDING THE PRESENT CONTRACT, TO MONITOR PRODUCTS. THE MEMORANDUM INCLUDES THE FOLLOWING:

"3. ON, 1 FEBRUARY 1974, NELC (NAVAL ELECTRONICS LABORATORY CENTER) SUBMITTED A STUB TO INCREASE THE QUANTITY REQUIREMENTS AN ADDITIONAL 40 UNITS FOR SPARES SUPPORT. MONITOR PRODUCTS IN RESPONSE VIA ARVIN INDUSTRIES IN COSTING OUT THE ADDITIONAL UNITS FOUND THAT THEIR COSTS WERE EXCEEDING THE CONTRACT COST OF $66 EACH. THEIR PRICE FOR THE 40 ADDITIONAL UNITS WOULD BE $185 EACH. RECOGNIZING THAT EACH UNIT THEY COMPLETED COST FAR IN EXCESS OF THE CONTRACT PRICE, MONITOR PRODUCTS' PRESIDENT JOHN BLAZIER INFORMED NELC, C.D. STRODE, THAT MONITOR HAD STOPPED PRODUCTION OF THE TCXO'S."

THE MEMORANDUM CONTINUES TO THE EFFECT THAT HAD THE CONTRACTOR (ARVIN) DEFAULTED, THE RECONTRACTING AND DELIVERY LEAD TIME OF A REPLACEMENT CONTRACT WOULD HAVE BEEN AT LEAST ONE YEAR AND WOULD HAVE HALTED THE PRODUCTION OF THE END ITEM IN WHICH THE OSCILLATORS WERE TO BE USED AND DELAYED THE ENTIRE PROGRAM ONE YEAR. EFFORTS WERE MADE TO GET MONITOR TO CONTINUE PRODUCTION THROUGH VARIOUS MEANS, INCLUDING A REVIEW OF THE REQUIREMENTS, A POSSIBLE RELAXATION OF SPECIFICATIONS, AND A NOVATION AGREEMENT. MONITOR PRODUCTS WAS CONTACTED AND ASKED WHAT ITS ADDITIONAL COSTS WOULD BE IF THE SPECIFICATIONS WERE RELAXED IN CERTAIN AREAS. THE QUOTED ADDITIONAL COST WAS $52 PER UNIT. IN ADDITION, THE PROJECT ENGINEER REPORTS CONTACTING HIS COMMANDING AND SUPPLY OFFICER REGARDING A NOVATION AGREEMENT. THE PRODUCTION ENGINEER REPORTS THAT HE REQUESTED THAT MONITOR COMMENCE PRODUCTION IMMEDIATELY SINCE HE UNDERSTOOD THAT A NOVATION AGREEMENT WOULD BE IMPLEMENTED THROUGH THE NAVAL REGIONAL PROCUREMENT OFFICE, LONG BEACH (NRPOLA). THE PROJECT ENGINEER CONCLUDES IN HIS MEMORANDUM THAT MONITOR MADE A MONUMENTAL EFFORT TO OVERCOME THE DIFFICULTIES AND AT A SAVINGS IN COST TO THE GOVERNMENT. HE POINTS OUT THAT THE ADDITIONAL COST EXPENDED BY MONITOR WAS $45 PER UNIT, MAKING THE COST (INCLUDING ARVIN'S $66 PRICE) $111, OR CONSIDERABLY LESS THAN THE PRICE WOULD HAVE BEEN IF ARVIN'S CONTRACT HAD BEEN DEFAULTED AND REPROCUREMENT HAD BEEN MADE AT THE THEN PREVALENT RATE OF $185 TO $360 PER UNIT.

WITH REGARD TO THE MEMORANDUM, IT IS REPORTED BY THE ACTING DEPUTY COMMANDER, PROCUREMENT MANAGEMENT, NAVAL SUPPLY SYSTEMS COMMAND, THAT THE ACTIONS OF THE PROJECT ENGINEER WERE IMPROPER AND UNAUTHORIZED, AND THAT THE NELC COMMANDING OFFICER HAS TAKEN STEPS TO PREVENT A RECURRENCE OF SUCH CONDUCT. FURTHERMORE, THE PROPOSED NOVATION AGREEMENT WAS NEVER IMPLEMENTED AND, THEREFORE, THERE WAS NO PRIVITY OF CONTRACT BETWEEN THE GOVERNMENT AND MONITOR PRODUCTS. IN THESE CIRCUMSTANCES, IT APPEARS THAT MONITOR COMPLETED THE CONTRACT FOR ARVIN AS ITS SUBCONTRACTOR AND MUST THEREFORE LOOK TO ARVIN FOR COMPENSATION FOR ITS WORK. IN SUMMARY, AS STATED BY THE NAVAL REGIONAL PROCUREMENT OFFICE, LONG BEACH:

"*** THE SUBJECT CONTRACT WAS A FIXED PRICE CONTRACT FOR THE DELIVERY OF A QUANTITY OF OSCILLATORS. DELIVERY WAS MADE UNDER THE CONTRACT AND PAYMENT IN FULL WAS RECEIVED BY THE CONTRACTOR AT THE CONTRACT PRICE (AS MODIFIED). THE GOVERNMENT AND THE CONTRACTOR BOTH RECEIVED WHAT THEY HAD CONTRACTED FOR."

ACCORDINGLY, THERE IS NO BASIS FOR OUR OFFICE TO AUTHORIZE PAYMENT OF THE CLAIM AND IT IS THEREFORE DENIED.

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