B-128375, DECEMBER 5, 1961, 41 COMP. GEN. 379

B-128375, DECEMBER 5, 1961, 41 COMP. GEN. 379

CONTRACTS - TERMINATION - CONVENIENCE OF GOVERNMENT - STANDBY COSTS--- CONTRACTS - TERMINATION - CONVENIENCE OF GOVERNMENT - SUPPLEMENTAL AGREEMENT STANDBY COSTS WHICH WERE ACTUALLY INCURRED IN THE PERFORMANCE OF A CONTRACT PRIOR TO ITS TERMINATION FOR CONVENIENCE OF THE GOVERNMENT AND WHICH ARE DETERMINED AS NECESSARY TO FAIRLY COMPENSATE THE CONTRACTOR FOR WORK DONE AND PREPARATIONS MADE FOR THE TERMINATED PORTION OF THE CONTRACT UNDER PARAGRAPH 8-301 OF THE ARMED SERVICES PROCUREMENT REGULATION MAY BE INCLUDED IN THE TERMINATION SETTLEMENT; HOWEVER, THE QUESTION OF WHETHER STANDBY COSTS ARE FOR INCLUSION AND TO WHAT EXTENT ARE MATTERS FOR DETERMINATION IN THE FIRST INSTANCE BY THE CONTRACTING OFFICER. A CONTRACTING OFFICER'S RECOMMENDATION THAT THE FULL AMOUNT REPRESENTING STANDBY COSTS CLAIMED BY A CONTRACTOR INCIDENT TO THE TERMINATION OF A CONTRACT FOR CONVENIENCE OF THE GOVERNMENT BE PAID WHEN THE SETTLEMENT AGREEMENT DID NOT INDICATE THAT THE CONTRACTING OFFICER REGARDED THE AMOUNT EXCEPTED FROM THE FINAL SETTLEMENT AGREEMENT AS PROPERLY FOR PAYMENT UNDER THE AGREEMENT IS INADEQUATE TO SUPPORT PAYMENT OF THE CLAIM IN VIEW OF THE PROVISIONS IN PARAGRAPH 8 209.2 OF THE ARMED SERVICES PROCUREMENT REGULATION TO THE EFFECT THAT THE SEPARATE SETTLEMENT OF EXCEPTED ITEMS ,SHALL BE SET FORTH IN SETTLEMENT AGREEMENTS" AND PARAGRAPH 8-211 REQUIRING REVIEW OF THE PROPOSED SETTLEMENT; THEREFORE, THE MATTER IS REMANDED TO THE CONTRACTING OFFICER FOR THE EXECUTION OF AN ADDITIONAL SETTLEMENT AGREEMENT OR A DETERMINATION PURSUANT TO ARMED SERVICES PROCUREMENT REGULATION.

TO THE SECRETARY OF THE ARMY, DECEMBER 5, 1961:

HEREWITH IS THE FILE RELATING TO THE TERMINATION OF FOUR CONTRACTS AWARDED BY THE PHILADELPHIA QUARTERMASTER DEPOT TO THE DOUGLAS CORPORATION, WHICH WAS TRANSMITTED TO US UNDER LETTER OF SEPTEMBER 21, 1961, REFERENCE QMGGC, FROM THE OFFICE OF THE QUARTERMASTER GENERAL. THE CONTRACTOR HAS SUBMITTED TO OUR OFFICE A CLAIM IN THE AMOUNT OF $232,450 REPRESENTING ONE OF THE ITEMS, AS AMENDED, WHICH WAS EXCEPTED FROM THE FINAL SETTLEMENT AGREEMENT AFTER THE CONTRACT HAD BEEN TERMINATED FOR CONVENIENCE.

THE REPORT FURNISHED BY THE OFFICE OF THE QUARTERMASTER GENERAL INDICATES THAT THE FOUR CONTRACTS WERE TERMINATED FOR THE CONVENIENCE OF THE GOVERNMENT ON MARCH 25, 1957. AFTER AN AUDIT BY THE ARMY AUDIT AGENCY AND PURSUANT TO NEGOTIATIONS BETWEEN THE CONTRACTING OFFICER AND THE CONTRACTOR'S REPRESENTATIVE, A FINAL SUPPLEMENTAL AGREEMENT OF SETTLEMENT WAS ENTERED INTO ON JULY 11, 1960, UNDER PARAGRAPHS 40 AND 41 OF THE ADDITIONAL GENERAL PROVISIONS TO THE CONTRACTS AND SECTION VIII OF THE ARMED SERVICES PROCUREMENT REGULATION.

THE SETTLEMENT AGREEMENT PROVIDED FOR PAYMENT TO THE CONTRACTOR ON BEHALF OF DESIGNATED SUBCONTRACTORS OF $465,424.28, LESS PREVIOUS PAYMENTS AND AMOUNTS REALIZED ON DISPOSAL OF EQUIPMENT AND SUPPLIES, FOR A NET OF $284,484.20. IN ADDITION, THE SETTLEMENT AGREEMENT RESERVED ALL RIGHTS AND LIABILITIES OF THE PARTIES WITH RESPECT TO TWO ITEMS, INCLUDING A CLAIM IN THE AMOUNT OF $279,950 BY THE CONTRACTOR ON BEHALF OF THE U.S. DISPLAY CORPORATION "REPRESENTING EXPENSE OF OPERATION DURING STANDBY PERIOD FROM 1 SEPTEMBER 1955 TO 31 MARCH 1957.' THE AGREEMENT INDICATED THAT THIS ITEM WAS DENIED BECAUSE IT WAS "CONSIDERED BY THE CONTRACTING OFFICER AS NOT WITHIN THE PURVIEW OF THE TERMINATION FOR CONVENIENCE ARTICLE OF THE CONTRACT.' THE QUESTIONED ITEM INCLUDED $47,500 AS MANAGEMENT FEES. THE CONTRACTING OFFICER IN HIS REPORT NOW STATES AS HIS OPINION THAT THE CLAIMED ITEM WITH THE EXCEPTION OF THE MANAGEMENT FEES IS REASONABLE AND SHOULD BE PAID. THE CLAIM SUBMITTED TO OUR OFFICE DOES NOT INCLUDE MANAGEMENT FEES.

SUBPARAGRAPH 40D PROVIDES THAT THE CONTRACTOR AND THE CONTRACTING OFFICER MAY AGREE UPON AMOUNTS TO BE PAID TO THE CONTRACTOR BECAUSE OF TERMINATION FOR CONVENIENCE. THE PARAGRAPH FURTHER PROVIDES THAT IF THE PARTIES FAIL TO AGREE THE CONTRACTING OFFICER MAY UNILATERALLY DETERMINE AN APPROPRIATE AMOUNT FOR PAYMENT IN CONSIDERATION OF THE TERMINATION, SUBJECT TO THE RIGHT OF THE CONTRACTOR TO ENTER AN APPEAL PURSUANT TO THE " DISPUTES" CLAUSE OF THE CONTRACT.

ASPR 8-301 PROVIDES, WITH RESPECT TO THE TERMINATION FOR CONVENIENCE OF CONTRACTS OF THE TYPE HERE CONSIDERED, AS FOLLOWS:

8-301 GENERAL.

(A) A SETTLEMENT SHOULD COMPENSATE THE CONTRACTOR FAIRLY FOR THE WORK DONE AND THE PREPARATIONS MADE FOR THE TERMINATED PORTIONS OF THE CONTRACT, INCLUDING AN ALLOWANCE FOR PROFIT THEREON WHICH IS REASONABLE UNDER THE CIRCUMSTANCES. FAIR COMPENSATION IS A MATTER OF JUDGMENT AND CANNOT BE MEASURED EXACTLY. IN A GIVEN CASE, VARIOUS METHODS MAY BE EQUALLY APPROPRIATE FOR ARRIVING AT FAIR COMPENSATION. THE APPLICATION OF STANDARDS OF BUSINESS JUDGMENT, AS DISTINGUISHED FROM STRICT ACCOUNTING PRINCIPLES, IS THE HEART OF A SETTLEMENT.

(B) THE PRIMARY OBJECTIVE IS TO NEGOTIATE A SETTLEMENT BY AGREEMENT. THE PARTIES MAY AGREE UPON A TOTAL AMOUNT TO BE PAID THE CONTRACTOR WITHOUT AGREEING ON OR SEGREGATING THE PARTICULAR ELEMENTS OF COSTS OR PROFIT COMPRISING THIS AMOUNT.

(C) COST AND ACCOUNTING DATA MAY PROVIDE GUIDES BUT ARE NOT RIGID MEASURES, FOR ASCERTAINING FAIR COMPENSATION. IN APPROPRIATE CASES, COSTS MAY BE ESTIMATED, DIFFERENCES COMPROMISED, AND DOUBTFUL QUESTIONS SETTLED BY AGREEMENT. OTHER TYPES OF DATA, CRITERIA, OR STANDARDS MAY FURNISH EQUALLY RELIABLE GUIDES TO FAIR COMPENSATION. THE AMOUNT OF RECORD KEEPING, REPORTING AND ACCOUNTING, IN CONNECTION WITH THE SETTLEMENT OF TERMINATION CLAIMS SHALL BE KEPT TO THE MINIMUM COMPATIBLE WITH THE REASONABLE PROTECTION OF THE PUBLIC INTEREST.

UNDER ASPR 8-301 AND THE CONTRACT TERMS THE CONTRACTING OFFICER HAS BROAD AUTHORITY WITH RESPECT TO A TERMINATION FOR CONVENIENCE TO DECIDE ON A PROPER AMOUNT TO COMPENSATE THE CONTRACTOR FAIRLY FOR WORK DONE OR PREPARATIONS MADE. WITH RESPECT TO THE CLAIM OF $232,450 IN QUESTION FOR "STANDBY COSTS," WE FIND NOTHING IN THE CONTRACT OR IN THE APPLICABLE PROVISIONS OF ASPR TO INDICATE THAT SUCH CONSIDERATIONS ARE TO BE INCLUDED IN OR EXCLUDED FROM THE SETTLEMENT AGREEMENT.

WE CONCLUDE, HOWEVER, THAT THERE IS NO REASON WHY STANDBY COSTS ACTUALLY INCURRED AND ATTRIBUTABLE TO PERFORMANCE PRIOR TO TERMINATION FOR CONVENIENCE MAY NOT BE INCLUDED IN A SETTLEMENT FOR CONVENIENCE WHENEVER THEIR INCLUSION IS PROPER WITHIN THE PURVIEW OF ASPR 8-301--- THAT IS, IF THEY ARE NECESSARY TO FAIRLY COMPENSATE THE CONTRACTOR FOR WORK DONE AND PREPARATIONS MADE FOR THE TERMINATED PORTION OF THE CONTRACT. WHETHER AND TO WHAT EXTENT THEY ARE PROPERLY FOR INCLUSION IN THE SETTLEMENT OF THIS CASE ARE MATTERS FOR DETERMINATION IN THE FIRST INSTANCE BY THE CONTRACTING OFFICER.

THE LANGUAGE OF THE SETTLEMENT AGREEMENT DOES NOT DEFINITELY INDICATE THAT THE CONTRACTING OFFICER REGARDED THE AMOUNT EXCEPTED AS PROPERLY FOR PAYMENT WITHIN THE SCOPE OF THE SETTLEMENT AGREEMENT, ASSUMING THAT THERE IS NO LEGAL BAR TO THE CONSIDERATION OF " STANDBY COSTS" PER SE. WHILE AS NOTED ABOVE THE CONTRACTING OFFICER HAS RECOMMENDED THAT THE FULL AMOUNT OF THE CLAIM BE PAID, THERE IS FOR CONSIDERATION THE PROVISION OF ASPR 8- 209.2 TO THE EFFECT THAT THE SEPARATE SETTLEMENT OF EXCEPTED ITEMS "SHALL BE SET FORTH IN SETTLEMENT AGREEMENTS," AS WELL AS THE REQUIREMENT OF ASPR 8-211 FOR REVIEW OF THE PROPOSED SETTLEMENT. IT IS THEREFORE OUR VIEW THAT THE RECOMMENDATION OF THE CONTRACTING OFFICER IN HIS REPORT IS INADEQUATE TO SUPPORT PAYMENT OF THE CLAIM BY OUR OFFICE AND THAT PAYMENT MAY PROPERLY BE MADE ONLY UPON THE EXECUTION OF AN ADDITIONAL SETTLEMENT AGREEMENT OR DETERMINATION PURSUANT TO THE PERTINENT PROVISIONS OF THE ASPR.

IN ACCORDANCE WITH THE FOREGOING, IT IS RECOMMENDED THAT THE MATTER BE RETURNED TO THE CONTRACTING OFFICER FOR THE ISSUANCE OF SUCH SETTLEMENT AGREEMENT OR DETERMINATION AS IN HIS VIEW WOULD BE PROPER WITHIN THE PRINCIPLES SET OUT ABOVE.