B-129811, MAY 16, 1957

B-129811, MAY 16, 1957

TO YORK CORPORATION:

REFERENCE IS MADE TO YOUR LETTER OF FEBRUARY 20, 1957, REQUESTING PAYMENT OF $10,346.04 AS AN ADJUSTMENT ALLEGED TO BE DUE IN CONNECTION WITH THE PERFORMANCE OF DEPARTMENT OF THE ARMY FACILITIES CONTRACT NO. DA-36-034- ORD-654 DATED NOVEMBER 9, 1951. YOU WERE AWARDED A SUPPLY CONTRACT (NO. DA-36-034-ORD-653) ON THE SAME DATE.

ORIGINALLY, THE SUM OF $71,267.24 WAS CLAIMED UNDER THE FACILITIES CONTRACT. THAT CLAIM WAS DISALLOWED BY SETTLEMENT DATED OCTOBER 11, 1956, IN WHICH YOU WERE ADVISED TO THE EFFECT THAT WHATEVER CLAIM YOU MIGHT HAVE FOR PLANT REARRANGEMENT AND REHABILITATION UNDER THE FACILITIES CONTRACT APPEARED TO HAVE BEEN FULLY ADJUSTED THROUGH THE ALLOWANCE OF OVERHEAD COSTS IN THE NEGOTIATION OF SUPPLEMENT AGREEMENT NO. 4 TO THE SUPPLY CONTRACT.

IT IS SET FORTH IN THE LETTER OF FEBRUARY 20, 1957, THAT UPON FURTHER INVESTIGATION YOU NOW FIND THAT YOU WERE PARTIALLY REIMBURSED FOR THESE COSTS WHEN RECEIVING PAYMENT OF THE UNIT PRICES UNDER SUPPLEMENTAL AGREEMENT NO. 4 TO THE SUPPLY CONTRACT. HOWEVER, IT IS ALLEGED THAT THE ESTIMATE FOR THE REARRANGEMENT AND REHABILITATION WORK WAS $61,132 AND, ON THE BASIS OF HAVING MADE DELIVERY OF 1,156 OF THE 1,160 UNITS PROVIDED FOR IN THE SUPPLEMENTAL AGREEMENT, IT IS CONTENDED THAT YOU WERE REIMBURSED ONLY $60,921.20 OF THE AMOUNT OF $71,267.24, REPRESENTING THE ACTUAL COST OF PERFORMING THE REARRANGEMENT AND REHABILITATION WORK. YOU, THEREFORE, CLAIM THAT THERE IS A BALANCE OF $10,346.04 DUE YOUR COMPANY.

IN RESPONSE TO OUR REQUEST FOR A REPORT ON THIS REDUCED CLAIM THE DEPARTMENT OF THE ARMY HAS FURNISHED A STATEMENT FROM THE CONTRACTING OFFICER WHICH IS, IN PERTINENT PART, AS FOLLOWS:

"3. THE CONTRACTOR IN LETTER DATED 20 FEBRUARY 1957 AND AGAIN IN LETTER DATED 12 APRIL 1957 REITERATES THE STATEMENT THAT THE SUM OF $61,134 HAD BEEN INCLUDED AS PART OF THE $408,320 OF ,MANUFACTURING OVERHEAD" BOTH FOR THEIR BASIC CONTRACT AND FOR SUPPLEMENTAL AGREEMENT NO. 4. IN ANALYZING THE EFFECT OF THE INCLUSION OF THE $61,134 IN THE ORIGINAL TARGET PRICE IT WILL BE SEEN THAT SAID FIGURE DEFINITELY INFLATED THE FINAL CONTRACT PRICE AND THE ACTUAL AMOUNT PAID TO THE CONTRACTOR IN THE SUM OF $71,706.59. REVIEW OF THE COMPOSITION OF THE TARGET PRICE WILL REVEAL THAT THE USE OF THE $61,134 IN THE BASE FIGURE RESULTED IN AN ADDITIONAL 10 PERCENT PROFIT, OR A SUM OF $6,113.40, MAKING A TOTAL OF $67,247.40. WHEN THE CONTRACT PRICE WAS ESTABLISHED IN SUPPLEMENTAL AGREEMENT NO. 9 FOLLOWING PRICE REDETERMINATION, AN AMOUNT OF 7 PERCENT OF TARGET WAS ADDED THEREON TO BRING THE NEW CONTRACT PRICE UP TO THE CEILING AMOUNT OF THE CONTRACT. THE EFFECT OF SAID LATTER ACTION AS IT RELATES TO THE ORIGINAL SUM INCLUDED BY THE CONTRACTOR FOR PLANT REARRANGEMENT AND REHABILITATION WAS TO ADD THE SUM OF $4,707.31 TO THE ORIGINAL SUM OF $67,247.40. IN OTHER WORDS, A TOTAL AMOUNT OF $71,954.71 - BASED ON THE CONTRACTOR'S FIGURES ALONE - WAS ACTUALLY INCLUDED IN THE CONTRACT PRICE ESTABLISHED IN SUPPLEMENTAL AGREEMENT NO. 9 SOLELY BECAUSE THE CONTRACTOR HAD ORIGINALLY INCLUDED THE SUM OF $61,134 IN THEIR ORIGINAL PRICE.

"4. WHILE IT IS ADMITTED THAT ARMY AUDIT AGENCY MAY HAVE DISALLOWED IN THEIR REPORT ANY COSTS APPLICABLE TO PLANT REARRANGEMENT AND REHABILITATION FOR PURPOSES OF PRICE REDETERMINATION THAT NEVERTHELESS DID NOT ADVERSELY AFFECT THE CONTRACTOR SINCE THEIR OTHER COSTS WITHOUT CONSIDERING THAT POINT ARE ALREADY $282,243 HIGHER THAN CEILING. RETURNING TO THE CONCLUSION MADE IN PARA. 5 OF 3RD INDORSEMENT FROM THIS OFFICE DATED 2 AUGUST 1956, HAD NOT THE CONTRACTOR INCLUDED THE ADMITTED SUM OF $61,134 ORIGINALLY, THE CONTRACT PRICE PAID UNDER CONTRACT DA-36- 034-ORD-653 WOULD HAVE BEEN $71,954.71 LESS THAN IT ACTUALLY WAS.

"5. IN CONTRACTOR'S LETTER OF 12 APRIL 1957, IT IS CONTENDED THAT THEY HAD ONLY SUPPLIED 1156 UNITS WHICH WHEN MULTIPLIED BY A PRORATED AMOUNT OF THE $61,132 SUM LEAVES REIMBURSEMENT TO THE CONTRACTOR IN THE SUM OF $60,921.20 FOR PLANT REARRANGEMENT AND REHABILITATION. CONTRACTOR VERY DEFINITELY HAS NOT TAKEN INTO CONSIDERATION THE 10 PERCENT PROFIT FIGURE WHICH WAS ADDED TO THE ORIGINAL $61,134 NOR THE 7 PERCENT ADDITIONAL SUM ADDED BY SUPPLEMENTAL AGREEMENT NO. 9. THE COMPUTATION MADE BY THIS OFFICE SHOWS THAT DIVIDING 1160 UNITS INTO $71,954.71 RESULTS IN A UNIT PRICE OF $62.03 WHICH WHEN MULTIPLIED BY THE ACTUAL NUMBER OF UNITS CONTRACTOR SAID WAS DELIVERED OR 1156, RESULTS IN AN AMOUNT OF $71,706.68 AS THE REIMBURSEMENT FOR PLANT REARRANGEMENT AND REHABILITATION. THIS AMOUNT IS $439.44 GREATER THAN HIS COSTS.

"6. THIS OFFICE DOES NOT BELIEVE THAT THERE IS ANY LEGAL BASIS FOR SECURING THE REFUND OF SAID $439.44 SINCE THIS AMOUNT WAS INCLUDED IN A NEGOTIATED PRICE NOT AS A SEPARATE ITEM BUT ONLY AS ONE OF MANY CONSIDERATIONS.'

IN THE CIRCUMSTANCES, THERE APPEARS TO BE NO PROPER BASIS FOR THE ALLOWANCE OF ANY PART OF YOUR REDUCED CLAIM FOR THE AMOUNT OF $10,346.04. ACCORDINGLY, THE SETTLEMENT DATED OCTOBER 11, 1956, WHICH DISALLOWED YOUR ORIGINAL CLAIM FOR $71,267.24, IS SUSTAINED IN ITS ENTIRETY.