B-143448, JUL. 28, 1960

B-143448, JUL. 28, 1960

TO NATIONAL DRYING MACHINERY CO., INC.:

REFERENCE IS MADE TO A LETTER DATED JUNE 24, 1960, FROM YOUR ATTORNEYS, WOLF, BLOCK, SCHORR AND SOLIS-COHEN, REQUESTING REVIEW OF SETTLEMENT DATED MAY 12, 1960, WHICH DISALLOWED YOUR CLAIM FOR $22,484.07 UNDER CONTRACT NO. DA19-129-QM-571, DATED FEBRUARY 8, 1956. OF THE TOTAL AMOUNT CLAIMED, $14,028.07 REPRESENTS COSTS ALLEGED TO HAVE BEEN INCURRED IN EXCESS OF THE CONTRACT LIMITATION AND $8,456 REPRESENTS ADDITIONAL FIXED FEE.

THE CONTRACT REQUIRED YOU TO DEVELOP, FABRICATE AND DELIVER TO THE GOVERNMENT TWO PROTOTYPES OF A PARTABLE PARACHUTE DRYER ON A COST REIMBURSABLE BASIS NOT TO EXCEED $81,585 (INCREASED TO $153,143), EXCLUSIVE OF YOUR FIXED FEE OF $7,500. WORK WAS TO BE COMMENCED ON FEBRUARY 8, 1956, AND CONTINUED UNTIL AUGUST 7, 1956. MODIFICATIONS OF THE CONTRACT EXTENDED THE CONTRACT COMPLETION DATE TO APRIL 15, 1957. ARTICLE 2 (A) OF THE CONTRACT THERE WAS SET OUT THE ESTIMATED COST OF $81,585 AND IT WAS PROVIDED THEREIN THAT THE GOVERNMENT SHOULD NOT BE OBLIGATED TO REIMBURSE YOU FOR, AND YOU SHOULD NOT INCUR, EXPENDITURES IN THE PERFORMANCE OF THE WORK CONTEMPLATED BY THIS CONTRACT IN EXCESS OF THE ESTIMATED COST UNLESS AND UNTIL SUCH ESTIMATED COST SHOULD HAVE BEEN INCREASED BY AMENDMENT OF THE CONTRACT. ALSO, ARTICLE 2 (A) OF THE CONTRACT PROVIDED THAT IF AT ANY TIME YOU HAD REASON TO BELIEVE THAT THE AMOUNT TO BE EXPENDED IN THE NEXT SUCCEEDING 60 DAYS, WHEN ADDED TO ALL EXPENDITURES, WOULD EXCEED THE SUM ALLOTTED FOR THIS CONTRACT, YOU WOULD PROMPTLY NOTIFY THE CONTRACTING OFFICER IN WRITING TO THIS EFFECT, GIVING A NEW ESTIMATE OF YOUR TOTAL EXPENDITURES UNDER THE CONTRACT. ARTICLE 2 (B) PROVIDED AS FOLLOWS:

"B. AS CONSIDERATION FOR ITS UNDERTAKINGS UNDER THIS CONTRACT, THE CONTRACTOR SHALL RECEIVE THE FOLLOWING:

"/1) REIMBURSEMENT FOR COSTS AND OVERHEAD AS PROVIDED IN ARTICLE 3.

"/2) A FIXED FEE IN THE AMOUNT OF $7,500.00, WHICH FEE, TOGETHER WITH THE REIMBURSEMENT AND PAYMENT PROVIDED FOR IN SECTION B (1) OF THIS ARTICLE 2, SHALL CONSTITUTE COMPLETE COMPENSATION FOR THE CONTRACTOR'S SERVICES IN CONNECTION WITH THE WORK COVERED BY THIS CONTRACT, INCLUDING PROFIT.'

MODIFICATIONS 3, 4 AND 5, WHICH ADDED ANTICIPATORY COST ARTICLES 46, 47 AND 48, RESPECTIVELY, EXTENDED THE CONTRACT COMPLETION DATE TO APRIL 15, 1957. EACH OF THE ANTICIPATORY COST ARTICLES PROVIDED IN EFFECT THAT IT WAS UNDERSTOOD AND AGREED THAT COSTS (INCLUDING OVERHEAD) INCURRED BY YOU IN CONNECTION WITH THE INVOLVED WORK FOR THE PERIOD BEGINNING AUGUST 7, 1956, TO THE DATE SHOWN IN THE RESPECTIVE MODIFICATION WOULD BE REIMBURSED PROVIDED THAT SUCH COSTS WERE REIMBURSABLE COSTS AS SET FORTH IN ARTICLE 3 OF THE CONTRACT. EACH MODIFICATION CONTAINED A PROVISION THAT "EXCEPT AS HEREBY AMENDED" ALL THE TERMS AND CONDITIONS OF THE CONTRACT SHOULD REMAIN UNMODIFIED AND IN FULL FORCE AND EFFECT.

IT IS REPORTED THAT IN THE NEGOTIATIONS LEADING UP TO THE SIGNING OF THIS CONTRACT, A DISCUSSION WAS HAD AS TO YOUR PERFORMANCE UNDER A PRIOR CONTRACT WHICH INVOLVED A FAILURE ON YOUR PART TO FOLLOW DIRECTIONS CONTAINED IN THE CONTRACT REGARDING ACCOUNTING METHODS AND SUBMISSION OF VOUCHERS. YOUR REPRESENTATIVES AGREED THAT COMPLETE AND SUBSTANTIAL RECORDS WOULD BE KEPT TO SUPPORT CHARGES UNDER THE CONTRACT AND IT WAS CONTEMPLATED THAT THE "ARMY AUDIT" WOULD ASSIST YOU IN SETTING UP PROPER RECORDS.

THE RECORD SHOWS THAT AS EARLY AS JULY 27, 1956, THE CONTRACTING OFFICE REQUESTED YOU TO REPORT THE TOTAL EXPENDITURES MADE TO THAT DATE, AS WELL AS TO FURNISH INFORMATION AS TO WHEN YOU EXPECTED TO BILL FOR THESE EXPENDITURES. ON AUGUST 7, 1956, YOU INFORMED THE CONTRACTING OFFICE THAT MORE MONEY WOULD BE NEEDED TO COMPLETE THE CONTRACT. YOU WERE THEN INFORMED THAT NO COSTS IN EXCESS OF THE CONTRACT AMOUNT SHOULD BE INCURRED WITHOUT WRITTEN AUTHORITY BY WAY OF MODIFICATION. AGAIN ON AUGUST 20, 1956, THE CONTRACTING OFFICE WROTE A LETTER TO YOU INQUIRING WHY NO VOUCHERS HAD BEEN PRESENTED. YOU WERE INFORMED THROUGHOUT THE ENTIRE PERIOD OF THE CONTRACT THAT ANY DEVIATION FROM THE WRITTEN TERMS OF THE AGREEMENT WOULD HAVE TO BE ACCOMPLISHED BY WAY OF WRITTEN MODIFICATION.

YOUR FINAL VOUCHER SUBMITTED ON SEPTEMBER 16, 1957, WAS IN THE AMOUNT OF $43,906.76. THERE WAS DEDUCTED FROM THIS TOTAL THE AMOUNT OF $6,264.39 CLAIMED FOR OVERHEAD WHICH WAS DISAPPROVED, AS WELL AS THE AMOUNT OF $14,028.07 BECAUSE THE TOTAL TO BE PAID UNDER THE CONTRACT WOULD HAVE BEEN IN EXCESS OF $160,643, THE CONTRACT LIMITATION AS ESTABLISHED BY MODIFICATION 5. A RELEASE EXECUTED BY YOU ON JULY 30, 1958, EXCEPTED THE CLAIM FOR $14,028.07 BUT THE RELEASE DID NOT EXCEPT ANY CLAIM FOR THE ADDITIONAL FEE OF $8,456 NOW CLAIMED.

THE PURPOSE OF THE COST ESCAPE ARTICLE (ARTICLE 2) IS TO AFFORD THE CONTRACTING AGENCY AN OPPORTUNITY TO DETERMINE WHETHER A PARTICULAR PROJECT WARRANTS ADDITIONAL FUNDS. SUCH DETERMINATION IS A CONDITION PRECEDENT TO THE PAYMENT OF ADDITIONAL MONEY TO A CONTRACTOR. AS STATED IN THE SETTLEMENT OF MAY 12, 1960, CONDITIONS PRECEDENT IN GOVERNMENT CONTRACTS ARE STRICTLY ENFORCED. SEE UNITED STATES V. JOSEPH A. HOLPUCH CO., 328 U.S. 234; UNITED STATES V. BLAIR, 321 U.S. 730; PLUMLEY V. UNITED STATES, 226 U.S. 545; HAWKINS V. UNITED STATES, 96 U.S. 689; AND UNITED STATES V. CUNNINGHAM, 125 F.2D 28. THE SUCCESSOR CONTRACTING OFFICER HAS STATED--- AND WE AGREE--- THAT YOU HAVE NOT ADVANCED ANY VALID BASIS FOR FAILING TO COMPLY WITH THE PROVISIONS OF ARTICLE 2 INSOFAR AS THE EXPECTED AMOUNT OF THE EXPENDITURES IS CONCERNED. INSOFAR AS THE AMOUNT OF $8,456 CLAIMED AS AN INCREASE IN THE FIXED FEE IS CONCERNED, THE EXECUTION OF THE RELEASE BY YOU OPERATES AS A BAR BY THE GOVERNMENT OF ANY FURTHER CLAIM FOR AN ADDITIONAL FIXED FEE.

WITH REGARD TO YOUR INTERPRETATION OF THE ANTICIPATORY COST CLAUSES IN MODIFICATIONS 3, 4 AND 5, NAMELY, THAT ANY COSTS DURING THE CONTRACT PERIOD WERE TO BE REIMBURSED REGARDLESS OF THE CONTRACT LIMITATION IN ARTICLE 2, WE CANNOT AGREE THAT THE LANGUAGE IN THESE CLAUSES WARRANTS ANY SUCH INTERPRETATION BECAUSE IT IS SPECIFICALLY PROVIDED IN EACH CLAUSE THAT ALL OTHER TERMS AND CONDITIONS OF THE CONTRACT REMAIN UNMODIFIED AND IN FULL FORCE AND EFFECT.