B-136749, AUG. 7, 1958

B-136749, AUG. 7, 1958

TO MR. F. BARRINEAU, DISBURSING OFFICER, CORPS OF ENGINEERS:

BY SECOND INDORSEMENT OF JUNE 27, 1958, FILE ENOCR 167 (26 MAY 58) DA 01- 076-ENG-1088, THE OFFICE OF THE CHIEF OF ENGINEERS, DEPARTMENT OF THE ARMY, WASHINGTON, D.C., FORWARDED TO OUR OFFICE YOUR LETTER DATED MAY 26, 1958, WITH ENCLOSURES, FILE SALVF/FB, WHEREIN YOU REQUESTED A DECISION AS TO THE PROPRIETY OF MAKING PAYMENT ON A VOUCHER FOR $1,050.63, STATED IN FAVOR OF THE NEWPORT NEWS SHIPBUILDING AND DRYDOCK COMPANY, NEWPORT NEWS, VIRGINIA, AND COVERING AN ALLEGED BALANCE DUE UNDER CONTRACT NO. DA-01-076 -ENG-1088, DATED NOVEMBER 2, 1951.

THE CONTRACT PROVIDES BASICALLY FOR DELIVERY, F.O.B. RAILROAD CARS AT BUFORD, GEORGIA, OF TWO 55,000-HORSEPOWER HYDRAULIC TURBINES WHICH WERE TO BE USED ON THE BUFORD DAM AND POWERHOUSE PROJECT, LOCATED ON THE CHATTAHOOCHEE RIVER ABOUT 4.5 MILES NORTHWEST OF BUFORD, GEORGIA. THE FINAL "PAYMENT ESTIMATE--- CONTRACT PERFORMANCE," ATTACHED TO THE VOUCHER FOR $1,050.63, SHOWS TOTAL EARNINGS OF $1,365,219.81, WHICH INCLUDES LUMP SUM PRICES OF $1,200,117.23, LESS $630.07 AS AN ADJUSTMENT FOR CHANGES IN FREIGHT RATES AS REQUIRED IN PARAGRAPH SC-13 OF THE CONTRACT SPECIFICATIONS (PART III-SPECIAL CONDITIONS), PLUS THE FOLLOWING ITEMS:

CHART

SERVICES OF ERECTING ENGINEER (458 DAYS) $ 18,778.00

TRAVEL EXPENSE 224.16

ADJUSTMENT FOR LABOR AND MATERIALS

(SERVICES OF ERECTING ENGINEER)

PAR. SC-12, CONT. SPEC. 4,492.99

ADJUSTMENT FOR OTHER LABOR AND

MATERIALS, PAR. SC-12, CONT. SPEC. 142,237.50

THE FINAL "PAYMENT ESTIMATE--- CONTRACT PERFORMANCE" FURTHER SHOWS PREVIOUS PAYMENTS UNDER THE CONTRACT AS HAVING AMOUNTED TO $1,364,169.18, AND THE SUM OF $1,050.63 TO BE DUE THE CONTRACTOR. ITEMIZED BILLINGS FOR THE LATTER AMOUNT RELATE TO PRICE ESCALATION FOR SERVICES RENDERED BY THE ERECTING ENGINEER AT THE GOVERNMENT'S REQUEST DURING THE MONTHS OF JUNE TO OCTOBER, 1957. SIMILAR PRICE ADJUSTMENTS WERE PAID TO THE CONTRACTOR PURSUANT TO PARAGRAPH SC-12 OF THE CONTRACT SPECIFICATIONS BEFORE RECEIPT BY THE MOBILE DISTRICT OF OUR DECISION DATED APRIL 4, 1958, B-135531, TO YOUR PREDECESSOR, MR. R. R. SPEARS, WHICH CONCERNED THE MATTER OF COMPUTING A PRICE ADJUSTMENT IN FAVOR OF THE WESTINGHOUSE ELECTRIC CORPORATION UNDER CONTRACT NO. DA-01 076-ENG-3029. IN THAT DECISION, WITH RESPECT TO A MINOR ITEM OF CLAIM IN THE AMOUNT OF $76.04, IT WAS STATED: "LIKEWISE, AS SUGGESTED IN YOUR SUBMISSION, THE PRICE ADJUSTMENT PROVISIONS OF THE CONTRACT MAY NOT BE CONSTRUED TO APPLY TO THE OPTIONAL ITEM FOR THE ERECTION ENGINEER'S SERVICES.'

YOU REFER TO THE SIMILARITY OF THE PRICE ADJUSTMENT PROVISIONS OF CONTRACTS NOS. DA-01-076-ENG-3029 AND DA-01-076-ENG-1088. HOWEVER, YOU POINT OUT THAT, WHEREAS THE WESTINGHOUSE ELECTRIC CORPORATION WAS NOT PAID ANY AMOUNT AS A PRICE ADJUSTMENT ON THE OPTIONAL ITEM FOR THE FURNISHING OF THE SERVICES OF AN ERECTION ENGINEER, THE NEWPORT NEWS SHIPBUILDING AND DRYDOCK COMPANY HAS BEEN ALLOWED AND PAID A SUBSTANTIAL PORTION OF THE TOTAL AMOUNT WHICH IT CLAIMED AS A PRICE ADJUSTMENT ON SUCH ITEM OF SERVICE, AS TO WHICH ITS CONTRACT PROVIDED FOR PAYMENT BY THE GOVERNMENT AT THE RATE OF $41 PER MAN DAY. IT IS INDICATED THAT SIMILAR PRICE ADJUSTMENTS HAVE BEEN MADE UNDER ANOTHER CONTRACT WITH THE NEWPORT NEWS SHIPBUILDING AND DRYDOCK COMPANY, WHICH CONTAINS IDENTICAL PRICE ESCALATION PROVISIONS.

YOU STATE THAT THE LEGAL ADVISERS OF THE CONTRACTING OFFICER CONSIDER THAT, BECAUSE THE CONTRACT PROVIDES FOR ESCALATION ON THE PROPORTION OF THE CONTRACT PRICE REPRESENTED BY LABOR, AND BECAUSE THE CONTRACT PRICE IS A LUMP SUM, THE RETROACTIVE APPLICATION OF OUR DECISION WOULD UNQUESTIONABLY RESULT IN CLAIMS AND POSSIBLY LEGAL PROCEEDINGS BY THE CONTRACTOR, INVOLVING CONSIDERABLE ADMINISTRATIVE EXPENSE WHICH MIGHT BE OBVIATED BY A CLEAR CUT DECISION DIRECTLY APPLICABLE TO THOSE CIRCUMSTANCES.

AS SUGGESTED IN YOUR LETTER, WHAT WAS SAID IN OUR DECISION TO MR. SPEARS RELATING TO THE OPTIONAL ITEM FOR ERECTION ENGINEER SERVICES CONCERNED A FACTOR OF NEGLIGIBLE FINANCIAL MAGNITUDE IN THE PARTICULAR CASE. IN ANY EVENT, IT IS NOTED THAT THE INSTANT CONTRACT DOES NOT SPECIFICALLY REQUIRE THE EXCLUSION OF EARNINGS FOR SERVICES RENDERED BY AN ERECTION ENGINEER FROM THE COMPUTATION OF THE PRICE ADJUSTMENT FOR INCREASED OR DECREASED LABOR AND MATERIAL COSTS UNDER THE PROVISIONS OF PARAGRAPH SC-12 OF THE CONTRACT SPECIFICATIONS. EVIDENTLY THE COST OF FURNISHING ERECTION ENGINEER SERVICES WOULD INCREASE OR DECREASE IN SUBSTANTIALLY THE SAME PROPORTION AS THE COST OF OTHER ENGINEERING SERVICES NECESSARY FOR SATISFACTORY PERFORMANCE OF THE CONTRACT.

IT SEEMS, THEREFORE, REASONABLE TO CONCLUDE THAT THE PARTIES TO THE CONTRACT MAY HAVE CONTEMPLATED AT THE TIME THE CONTRACT WAS ENTERED INTO THAT, SO FAR AS PRICE ESCALATION WAS CONCERNED, THERE SHOULD BE NO DISTINCTION BETWEEN THE VARIOUS TYPES OF LABOR AND SERVICES WHICH WOULD BE PERFORMED IN FULFILLMENT OF ALL OF THE CONTRACTOR'S OBLIGATIONS UNDER THE CONTRACT, INCLUDING THE OBLIGATION TO FURNISH ERECTION ENGINEER SERVICES WHEN REQUESTED BY THE GOVERNMENT.

ACCORDINGLY, YOU ARE ADVISED THAT WE ARE NOT REQUIRED TO OBJECT TO THE PRACTICAL CONSTRUCTION WHICH THE PARTIES HAVE GIVEN TO THE PRICE ESCALATION PROVISIONS OF THE TWO NEWPORT NEWS SHIPBUILDING AND DRYDOCK COMPANY'S CONTRACTS RESPECTING SERVICES PERFORMED BY THE COMPANY'S ERECTION ENGINEERS, AND THAT PAYMENT OF THE VOUCHER FOR $1,050.63 IS AUTHORIZED, IF OTHERWISE CORRECT.

THE VOUCHER AND THE COPY OF CONTRACT FORWARDED WITH YOUR LETTER ARE RETURNED HEREWITH.