B-126917, MAR. 19, 1956

B-126917, MAR. 19, 1956

TO THE HONORABLE SECRETARY OF THE ARMY:

FORWARDED HEREWITH FOR YOUR ATTENTION IS LETTER DATED FEBRUARY 1, 1956, WITH ENCLOSURES, FROM HITACHI, LTD.

HITACHI, LTD., AT THE SUGGESTION OF THE CONTRACTING OFFICER, HEADQUARTERS, JAPAN PROCUREMENT AGENCY, APO 503, SUBMITTED TO THIS OFFICE A REQUEST FOR THE CORRECTION OF AN ALLEGED MISTAKE IN THE PRICE REDETERMINATION CLAUSE (ARTICLE 29, AS AMENDED BY SUPPLEMENTAL AGREEMENT NO. 1, DATED JULY 6, 1951) OF CONTRACT NO. DA-92-502-FEC 6317.

THE CONTRACT IS A MASTER CONTRACT FOR THE MANUFACTURE OF AUTOMOTIVE PARTS WITH INDIVIDUAL JOB ORDERS TO BE PLACED THEREUNDER. IT WAS ESTIMATED THAT THE JOB ORDERS TO BE PLACED UNDER THE CONTRACT WOULD TOTAL $5,000,000. PARAGRAPH 15 OF SUPPLEMENTAL AGREEMENT NO. 1, IN PART, ROVIDES:

"THAT ARTICLE 29, TITLED "PRICE REDETERMINATION" OF THE BASIC CONTRACT SHALL BE AND HEREBY IS DELETED IN ITS ENTIRETY AND THE FOLLOWING ARTICLE 29, TITLED "PRICE REDETERMINATION" SUBSTITUTED THEREFOR:

" "ARTICLE 29. PRICE REDETERMINATION. A. BECAUSE OF THE NATURE OF THE WORK CALLED FOR BY THIS CONTRACT AND THE GREAT UNCERTAINTY AS TO THE COST OF PERFORMANCE HEREUNDER, THE PARTIES AGREE THAT THE CONTRACT PRICE FIXED IN ARTICLE 2 HEREOF MAY BE INCREASED OR DECREASED IN ACCORDANCE WITH THE PROVISION OF THIS CLAUSE.

" " C. UPON THE FILING OF THE STATEMENT AND OTHER PERTINENT INFORMATION REQUIRED BY PARAGRAPH (B) OF THIS CLAUSE, THE CONTRACTOR AND THE CONTRACTING OFFICER WILL PROMPTLY NEGOTIATE IN GOOD FAITH TO AGREE UPON A REASONABLE REDETERMINED PRICE FOR THE ENTIRE CONTRACT WHICH, UPON THE BASIS OF SUCH STATEMENT AND OTHER PERTINENT INFORMATION, WILL CONSTITUTE FAIR AND JUST COMPENSATION TO THE CONTRACTOR FOR THE PERFORMANCE OF THIS CONTRACT. IN DETERMINING THE EXTENT OF ANY ESTIMATED ALLOWANCE FOR PROFIT TO BE TAKEN INTO ACCOUNT IN FIXING SUCH REDETERMINED PRICE, CONSIDERATION WILL BE GIVEN TO THE EXTENT TO WHICH THE CONTRACTOR HAS PERFORMED THE CONTRACT WITH EFFICIENCY, ECONOMY, AND INGENUITY. IN NO EVENT SHALL THE REDETERMINED PRICE EXCEED THE SUM OF $5,500.00. THE REDETERMINED PRICE SHALL BE EVIDENCED BY A SUPPLEMENTAL AGREEMENT TO THIS CONTRACT.

" "E. IN THE EVENT OF A PRICE INCREASE THE GOVERNMENT WILL PAY OR CREDIT TO THE CONTRACTOR THE AMOUNT BY WHICH THE REDETERMINED PRICE SHALL EXCEED THE CONTRACT PRICE AFORESAID. IN THE EVENT OF A DECREASE IN PRICE THE CONTRACTOR WILL REPAY OR CREDIT THE AMOUNT OF SUCH DECREASE TO THE GOVERNMENT IN SUCH MANNER AS THE CONTRACTING OFFICER MAY DIRECT.

" "F. FOR ANY OF THE PURPOSES OF THE CLAUSE OF THIS CONTRACT ENTITLED "TERMINATION FOR CONVENIENCE OF THE GOVERNMENT" (INCLUDING WITHOUT LIMITATION, COMPUTATION OF "THE TOTAL CONTRACT PRICE" AND "THE CONTRACT PRICE OF WORK NOT TERMINATED"), THE CONTRACT PRICE SHALL BE THE REDETERMINED CONTRACT PRICE AGREED UPON UNDER PARAGRAPH (C) OF THIS CLAUSE OR DETERMINED UNDER PARAGRAPH (D) OF THIS CLAUSE, AS THE CASE MAY BE.'"

HITACHI, LTD., CONTENDS THAT THE SUM OF "$5,500.00" SET FORTH IN PARAGRAPH C ABOVE REPRESENTING THE MAXIMUM AMOUNT OF THE "REDETERMINED PRICE" IS ERRONEOUS AND IS NOT IN ACCORDANCE WITH ITS INTENTION OR UNDERSTANDING. WHILE THERE IS NO STATEMENT OF RECORD BY THE CONTRACTING OFFICER WHO SIGNED SUPPLEMENTAL AGREEMENT NO. 1 AS TO HIS INTENTIONS, A SUCCESSOR CONTRACTING OFFICER APPARENTLY HAS HELD THAT THE WORDS "REDETERMINED PRICE" AS USED IN PARAGRAPH C OF ARTICLE 29, AS AMENDED, MEANS THE DIFFERENCE BETWEEN THE PRICES BEFORE AND AFTER REDETERMINATION; THAT THE CONTRACTOR HAS NOT ESTABLISHED THAT AN ERROR WAS MADE; AND THAT, THEREFORE, THE CONTRACTOR IS LIMITED TO A MAXIMUM INCREASE OF $5,500 DUE TO PRICE REDETERMINATION.

THE PRICE REDETERMINATION CLAUSE USED IN AMENDMENT NO. 1 IS FORM IV SET FORTH IN ARTICLE 7-152.3, ARMY PROCUREMENT PROCEDURE. SAID ARTICLE PROVIDES, IN PART:

"A. NATURE AND EFFECT. THE FORM IV PRICE REDETERMINATION CLAUSE PROVIDES FOR RETROACTIVE PRICING WITH A LIMITED UPWARD REVISION. THIS CLAUSE, PROVIDING FOR UPWARD OR DOWNWARD PRICE REVISION, IS AUTHORIZED FOR USE IN NEGOTIATED CONTRACTS FOR SUPPLIES OR SERVICES WHERE THE QUANTITY BEING PROCURED IS MODERATE AND THE PERIOD OF THE CONTRACT DOES NOT COVER AN EXTENDED PERIOD OF TIME. UNDER THE CLAUSE A CONTRACT PRICE IS AGREED UPON (TARGET PRICE) WHICH IT IS BELIEVED WILL TEND TO COMPEL THE CONTRACTOR TO DO AS EFFICIENT A JOB AS POSSIBLE IN THE CIRCUMSTANCES, AND AT THE SAME TIME A MAXIMUM PRICE IS FIXED AS A CEILING (NORMALLY NOT TO EXCEED 10 PERCENT OF THE TARGET PRICE) ON ANY UPWARD REDETERMINATION UNDER THE CLAUSE. THE REDETERMINATION OF PRICE TAKES PLACE AFTER COMPLETION OR TERMINATION OF THE CONTRACT AND IS WHOLLY RETROACTIVE.

"C. RULES FOR ADMINISTRATION.

"/3) THE NEGOTIATIONS UNDER THE CLAUSE MAY RESULT IN A REDETERMINATION PRICE WHICH IS THE SAME AS, OR HIGHER OR LOWER THAN, THE CONTRACT PRICE BUT NEVER IS A REDETERMINED PRICE IN EXCESS OF THE MAXIMUM PRICE.'

UNDER THE LANGUAGE OF THE CLAUSE ITSELF AND THE EXPLANATION OF ITS NATURE AND EFFECT AS SET FORTH IN ARMY PROCUREMENT PROCEDURE, THERE WOULD APPEAR TO BE NO DOUBT THAT THE WORDS ,REDETERMINED PRICE" AS USED IN THE CLAUSE MEANS THE PRICE AFTER REDETERMINATION, THAT IS, THE ORIGINAL PRICE PLUS OR MINUS THE RESULT OF THE REDETERMINATION. THEREFORE, IN A CASE WHERE, AS HERE, THE CONTRACT PROVIDES THAT THE CONTRACT PRICE MAY BE INCREASED, THE MAXIMUM REDETERMINATED PRICE PROVIDED IN ARTICLE 290 WOULD OF NECESSITY HAVE TO BE IN EXCESS OF THE CONTRACT PRICE.

IN THE CIRCUMSTANCES IT WOULD APPEAR THAT THE SUM OF "$5,500.00" SPECIFIED IN PARAGRAPH C OF ARTICLE 29 OF THE CONTRACT, AS AMENDED, WAS THE RESULT OF A TYPOGRAPHICAL ERROR OR A MUTUAL MISTAKE AND THAT SUCH SUM SHOULD HAVE BEEN $5,500,000. IF YOU AGREE, WE WILL INTERPOSE NO OBJECTION TO AN AMENDMENT TO THE CONTRACT TO SO PROVIDE.