B-150222, JUL. 17, 1963

B-150222, JUL. 17, 1963

TO JOHN J. DRISCOLL ASSOCIATES:

REFERENCE IS MADE TO YOUR CLAIM IN THE AMOUNT OF $119,596.12 FOR RECOVERY OF ALLEGED INCREASED COSTS AND LOSS OF PROFIT ON ACCOUNT OF DELAYS STATED AS HAVING BEEN CAUSED PRIMARILY BY THE GOVERNMENT IN THE COMPLETION OF NAVY CONTRACT NO. NOY-83682, AWARDED TO YOUR FIRM ON JUNE 25, 1954.

THE CONTRACT PROVIDED FOR THE REMOVAL OF TWO EXISTING BOILERS AND CONSTRUCTION OF A STEAM GENERATING UNIT AND AUXILIARIES, COMPLETE AND READY FOR USE AT THE NAVAL GUN FACTORY, WASHINGTON, D.C., FOR A CONSIDERATION OF $641,874. ALL WORK UNDER THE CONTRACT WAS SCHEDULED FOR COMPLETION WITHIN 470 CALENDAR DAYS OR ON OR BEFORE OCTOBER 8, 1955. THE RESULT OF CHANGES "A" THROUGH "Q" THE CONTRACT PRICE WAS INCREASED TO $753,188 AND THE CONTRACT COMPLETION DATE WAS EXTENDED TO JANUARY 26, 1958. LIQUIDATED DAMAGES WERE CHARGEABLE AT THE RATE OF $300 PER CALENDAR DAY OF UNEXCUSABLE DELAY IN COMPLETING THE CONTRACT.

IT WAS ALLEGED ON YOUR BEHALF THAT COMPLETION OF THE CONTRACT WAS DELAYED FOR MORE THAN FOUR YEARS UNTIL JUNE 9, 1960, FOR REASONS BEYOND YOUR CONTROL; THAT AN ORDER WAS GIVEN TO DELAY CONSTRUCTION FROM THE CONTRACT DATE, JUNE 25, 1954, UNTIL THE SPRING OF 1955; AND THAT NUMEROUS CHANGE ORDERS WERE ISSUED PRIMARILY BECAUSE OF ERRORS AND OMISSIONS IN THE ORIGINAL CONTRACT SPECIFICATIONS. YOU CLAIMED $45,659.67FOR INCREASED DIRECT COSTS, $33,091.07 FOR INCREASED INDIRECT OVERHEAD COSTS, $845.38 FOR ADDITIONAL COST OF MAINTAINING PERFORMANCE AND PAYMENT BONDS AND $40,000 FOR LOSS OF PROFIT. BOTH THE BUREAU OF YARDS AND DOCKS, DEPARTMENT OF THE NAVY, AND THE ARMED SERVICES BOARD OF CONTRACT APPEALS DETERMINED THAT THE CLAIM FOR THE TOTAL SUM OF $119,596.12 COULD NOT BE SETTLED ADMINISTRATIVELY AND IT WAS EVENTUALLY PRESENTED TO OUR OFFICE. WE REQUESTED AND RECEIVED AN ADMINISTRATIVE REPORT ON THE CLAIM FROM THE DEPARTMENT OF THE NAVY AND YOUR COMMENTS ON THE REPORT WERE SUBSEQUENTLY SUBMITTED TO THIS OFFICE.

ACCORDING TO THE REPORT RECEIVED FROM THE DEPARTMENT OF THE NAVY, A PRECONSTRUCTION CONFERENCE WAS HELD ON JULY 7, 1954, 12 DAYS AFTER THE CONTRACT WAS AWARDED. YOU WERE THEN REQUESTED TO SUBMIT COST ESTIMATES ON A POSSIBLE CHANGE IN THE DESIGN OF THE BOILER TO BE INSTALLED UNDER THE CONTRACT. THE COST ESTIMATES WERE SUBMITTED ON AUGUST 5, 1954, AND THE GOVERNMENT DETERMINED ON AUGUST 10, 1954, THAT NO CHANGE IN THE DESIGN SHOULD BE MADE. YOU WERE ALSO ADVISED ON JULY 7, 1954, THAT PERMISSION TO REMOVE BOILERS NOS. 4 AND 6 WOULD NOT BE GRANTED UNTIL ANOTHER CONTRACTOR HAD REHABILITATED BOILERS NOS. 1 AND 2. BOILERS NOS. 4 AND 6 WERE MADE AVAILABLE FOR DEMOLITION IN JANUARY 1955. THE STEAM GENERATOR UNIT AND ITS AUXILIARIES WERE ESSENTIALLY COMPLETED AND READY FOR TESTING DURING THE MONTH OF JANUARY 1957. THE EQUIPMENT FAILED TO PASS ALL TESTS BUT THE GOVERNMENT EFFECTIVELY USED THE STEAM GENERATOR FROM FEBRUARY 1957, UNTIL ITS FINAL ACCEPTANCE IN JUNE 1960, WITH THE EXCEPTION OF SHORT PERIODS OF TIME DURING WHICH ADDITIONAL TESTS WERE PERFORMED. IN THE CIRCUMSTANCES, IT WAS ADMINISTRATIVELY DETERMINED THAT LIQUIDATED DAMAGES SHOULD NOT BE CHARGED FOR DELAY IN COMPLETION OF THE CONTRACT.

THE DEPARTMENT OF THE NAVY HAS TAKEN THE POSITION THAT THE CONTRACT SPECIFICATIONS WERE NOT IMPROPER AND THAT THERE WAS NOT AN EXCESSIVE NUMBER OF CHANGE ORDERS; ALSO, THAT YOU HAVE NOT OFFERED ANY PROOF TO SHOW THAT THE CHANGES IN SPECIFICATIONS CAUSED PERFORMANCE DELAYS AND EXPENSES NOT FULLY COMPENSATED FOR IN THE SEVERAL BILATERAL AGREEMENTS WHICH INCREASED THE ORIGINAL CONTRACT PRICE BY THE TOTAL SUM OF $111,314. REFERENCE WAS MADE IN THE DEPARTMENTAL REPORT TO SCHEDULE "C" OF YOUR CLAIM AS REPRESENTING NO MORE THAN A PURPORTED SHOWING OF TOTAL EXPENDITURES FROM WHICH THERE WAS SUBCONTRACTED YOUR BID PRICE, WITH THE DIFFERENCE PLUS PROFIT BEING CLAIMED AS DAMAGES. THE DEPARTMENT CONSIDERED THE CLAIM FOR $119,596.12 TO BE EXCESSIVE AND INDICATED THE POSSIBILITY THAT THE GOVERNMENT COULD BE HELD LIABLE IN DAMAGES ONLY TO THE EXTENT THAT INCREASED COSTS WERE INCURRED AS THE DIRECT RESULT OF THE GOVERNMENT'S FAILURE TO TURN OVER BOILERS NOS. 4 AND 6 FOR DEMOLITION UNTIL JANUARY 1955, APPROXIMATELY SIX MONTHS AFTER THE DATE OF THE PRECONSTRUCTION CONFERENCE.

YOU CONTEND THAT IT WAS NOT UNTIL AUGUST 27, 1954, THAT YOU WERE ADVISED OF THE NAVY'S DECISION TO USE THE ORIGINAL BOILER DESIGN AND THAT, WITH RESPECT TO BOILERS NOS. 4 AND 6, YOU WERE ADVISED IN JULY 1954 ONLY THAT THE BOILERS COULD NOT BE TURNED OVER FOR REMOVAL UNTIL THE END OF THE HEATING SEASON IN THE SPRING OF 1955. THE ALLEGED DELAY IN ADVISING YOU OF THE DECISION CONCERNING THE BOILER DESIGN DOES NOT APPEAR TO HAVE BEEN OF ANY PARTICULAR CONSEQUENCE, CONSIDERING THAT SUCH DELAY WAS CONCURRENT WITH THE DELAY IN TURNING OVER BOILERS NOS. 4 AND 6 FOR DEMOLITION. NEITHER DOES IT APPEAR THAT THE APPARENT MISUNDERSTANDING REGARDING THE ANTICIPATED TIME FOR REMOVAL OF THE TWO BOILERS CAUSED ANY INCONVENIENCE TO YOUR COMPANY. ON THAT POINT, THE BOILERS REPORTEDLY WERE MADE AVAILABLE FOR DEMOLITION IN JANUARY 1955 AND BY CHANGE "C" OF THE CONTRACT IT WAS MUTUALLY AGREED THAT YOU WERE DELAYED 180 CALENDAR DAYS AS THE RESULT OF THE GOVERNMENT'S FAILURE "TO PROVIDE THE CONTRACTOR WITH THE WORK SITE IN ACCORDANCE WITH CONTRACT SPECIFICATIONS.' 1957 ONLY BECAUSE COAL FURNISHED BY THE DEPARTMENT OF THE NAVY WAS OF AN INFERIOR QUALITY AND THE NAVY WAS REQUIRED TO PURCHASE SUITABLE COAL OTHER THAN FROM ITS NORMAL SUPPLIER. THE RECORD BEFORE US DOES NOT ENTIRELY SUPPORT THAT CONTENTION. WE NOTE, HOWEVER, THAT YOU PERFORMED CERTAIN WORK BEFORE TESTS OF THE EQUIPMENT WERE MADE IN OCTOBER 1957 AND THAT, THROUGH OVERSIGHT, THE NAVY DID NOT PROVIDE HIGH VOLATILE COAL FOR THE PERFORMANCE OF ONE OR MORE TESTS AS REQUIRED UNDER THE CONTRACT SPECIFICATIONS WITH THE USE OF THAT QUALITY OF COAL. SUBSEQUENTLY, TESTING WITH COAL OF A MEDIUM VOLATILE QUALITY, 30 PERCENT, WAS PERFORMED IN MARCH 1958, AND THE RECORD FAILS TO INDICATE THAT THE DELAY IN MAKING THOSE TESTS CAUSED ANY DELAY IN CONTRACT PERFORMANCE.

YOU ALSO CONTEND THAT IN 99 PERCENT OF THE CASES INVOLVING CHANGE ORDERS YOUR PROPOSALS WERE CORRECT BUT WERE NOT APPROVED WITHIN REASONABLE PERIODS OF TIME, AS AN EXAMPLE, YOU CITE CHANGE B" DATED AUGUST 3, 1955, AND INDICATE THAT FIVE OF THE ITEMS OF THAT CONTRACT MODIFICATION WERE THE SUBJECT OF PROPOSALS DATED JANUARY 17, 1955, MARCH 12, 1955, APRIL 11, 1955, MAY 9, 1955, AND JUNE 3, 1955. YOU ALLEGE THAT SUCH PROPOSALS WERE NOT ACCEPTED UNTIL THE FOLLOWING RESPECTIVE DATES: JULY 15, 1955, MAY 6, 1955, JUNE 10, 1955, JULY 19, 1955, AND JUNE 13, 1955. APPARENTLY THE TIME TAKEN FOR APPROVAL OF YOUR PROPOSALS, RANGING FROM 12 DAYS TO SIX MONTHS IN THE PARTICULAR INSTANCES, DID NOT CAUSE A SUSPENSION IN THE CONTRACT WORK IN VIEW OF THE FACT THAT YOU COULD NOT HAVE PROCEEDED WITH THE BASIC CONTRACT WORK OF INSTALLING A BOILER AND AUXILIARIES THERETO UNTIL AFTER BOILERS NOS. 4 AND 6 WERE REMOVED. YOU INDICATED IN A LETTER AUGUST 12, 1954, THAT IT WOULD TAKE APPROXIMATELY FOUR OR FIVE MONTHS UNDER A NORMAL CONSTRUCTION SCHEDULE TO REMOVE THE EXISTING BOILERS AND TO EXCAVATE AND PREPARE THE NEW FOUNDATION FOR THE EQUIPMENT WHICH WAS TO BE INSTALLED UNDER THE CONTRACT.

THE REPORT OF THE DEPARTMENT OF THE NAVY SETS FORTH THAT A DETERMINATION OF THE VALIDITY OF YOUR COMPLAINTS REGARDING THE CHANGE ORDERS WOULD REQUIRE A DETAILED ANALYSIS OF EACH AND EVERY CHANGE ORDER INCORPORATED IN THE CONTRACT, AN EVALUATION OF THE IMPACT OF EACH INDIVIDUAL CHANGE TO THE CONTRACT AS A WHOLE, AND OF THE IMPACT OF THE CHANGE ORDERS IN THE AGGREGATE ON THE CONTRACT AS A WHOLE. IN THAT CONNECTION, IT APPEARS THAT IT WOULD BE PRACTICALLY IMPOSSIBLE TO DETERMINE WHAT WOULD HAVE BEEN A REASONABLE TIME FOR APPROVING EACH CHANGE IN THE CONTRACT SPECIFICATIONS. THE BURDEN OF PROOF IN THE MATTER WOULD BE ON YOUR COMPANY. ARCHIE AND ALLAN SPIERS, INC., V. UNITED STATES, CT.CL. 1961, 296 F.2D 757,765. FURTHERMORE, IT HAS BEEN HELD THAT DELAY RESULTING FROM PERMITTED CONTRACT CHANGES DOES NOT CONSTITUTE A BREACH OF CONTRACT BY THE GOVERNMENT. SEE UNITED STATES V. RICE, 317 U.S. 61; AND UNITED STATES V. FOLEY, 329 U.S. 64.

CONCERNING THE INITIAL CONSTRUCTION DELAY, IT IS YOUR CONTENTION THAT SCHEDULE "C" OF YOUR CLAIM CLEARLY DEMONSTRATES THAT YOU INCURRED INCREASED SUBCONTRACT COSTS OF $45,659.67 AS THE RESULT OF YOUR HAVING TO RENEGOTIATE WITH SUBCONTRACTORS AFTER LEARNING THAT THERE WOULD BE A DELAY OF SIX MONTHS IN TURNING OVER BOILERS NOS. 4 AND 6. IT IS ALLEGED THAT THE COSTS SHOWN IN THE SCHEDULE REFLECT THE ACTUAL COSTS OF SUBCONTRACTS BUT DOES NOT REFLECT CHANGE ORDERS FOR WHICH REIMBURSEMENT HAD BEEN ALLOWED. WITH RESPECT TO THE REPORTED LACK OF EVIDENCE TO SHOW THAT THE ORIGINAL SUBCONTRACT PRICES WERE FIRM, YOU INDICATE THAT MOST OF THE SUBCONTRACT BID PRICES LISTED IN SCHEDULE "C" WERE SUBMITTED VERBALLY AND THAT THIS IS AN ACCEPTED PRACTICE IN THE CONSTRUCTION TRADE WHEN A BUILDER IS PREPARING A BID ON A PARTICULAR PROJECT.

SCHEDULE "C" OF YOUR CLAIM LISTS THE VARIOUS ITEMS AND SUBITEMS OF THE ORIGINAL CONTRACT AND PURPORTS TO SHOW HOW YOUR BID OF $641,874 WAS COMPUTED. THE SUM OF $45,659.67 IS SHOWN AS INCREASED COSTS REPRESENTING DIFFERENCES BETWEEN ALLEGEDLY ACTUAL SUBCONTRACT COSTS AND "ORIGINAL BIDS OF SUBCONTRACTORS.' THE SCHEDULE FAILS TO SHOW ANY OF THE ADJUSTMENTS WHICH APPARENTLY WERE MADE WITH SUBCONTRACTORS BECAUSE OF AUTHORIZED CHANGES IN THE ORIGINAL CONTRACT SPECIFICATIONS, AS TO WHICH YOUR COSTS ARE OTHERWISE SHOWN IN THE SCHEDULE AS HAVING AMOUNTED TO THE SUM OF $92,975.87.

NO AMOUNT IS LISTED UNDER THE HEADING "ORIGINAL BIDS OF SUBCONTRACTORS" FOR DEMOLITION (ITEM 2). HOWEVER, AN INCREASED COST OF $3,700 IS LISTED ON THE BASIS OF TWO SUBCONTRACT AWARDS FOR THE DEMOLITION WORK. APPARENTLY, IT WAS ORIGINALLY CONTEMPLATED THAT THE DEMOLITION WORK COULD BE ACCOMPLISHED WITHOUT ADDITIONAL EXPENSE TO YOUR FIRM IN VIEW OF THE SALVAGE VALUE OF SOME OF THE BOILER EQUIPMENT. WE NOTE THAT BY CHANGE "A" OF YOUR CONTRACT THE CONTRACT PRICE WAS INCREASED BY $800 IN CONSIDERATION OF THE RETENTION BY THE GOVERNMENT OF TWO FORCED DRAFT FANS COMPLETE WITH SHAFT PEDESTALS AND COUPLINGS FROM BOILERS NOS. 4 AND 6.

FOR JOB CLEAN UP (ITEM 2A), THE NAME OF YOUR FIRM AS LISTED BOTH AS AN ORIGINAL SUBCONTRACT BIDDER AND THE ACTUAL SUBCONTRACTOR, AND THE AMOUNT OF $799.69 WAS STATED AS YOUR INCREASED COST FOR PERFORMANCE OF SUCH WORK. YOUR FIRM IS ALSO LISTED AS THE ORIGINAL SUBCONTRACT BIDDER ON ITEM 18 AND ON SUBITEMS OF ITEMS 19, 20 AND 21. HOWEVER, THE WORK IS SHOWN AS HAVING BEEN PERFORMED BY OTHERS AND YOU LISTED AMOUNTS TOTALING $542.60 AS THE INCREASED COSTS INVOLVED. FOR ITEMS 3, 4 AND 5 THE SCHEDULE INDICATES THAT ONE FIRM SUBMITTED A TOTAL BID OF $21,200, THAT IT PERFORMED WORK HAVING A VALUE OF ONLY $262.47, AND THAT ANOTHER FIRM COMPLETED THE JOB AT A COST OF $25,500. THE SCHEDULE LISTS $262.47 AND $4,300 AS INCREASED COSTS INCIDENT TO THE COMPLETION OF THE THREE ITEMS.

MOST OF THE REMAINING ITEMS AND SUBITEMS OF THE ORIGINAL CONTRACT WORK ARE SHOWN IN THE SCHEDULE AS HAVING BEEN PERFORMED BY OTHER THAN THE NAMED ORIGINAL SUBCONTRACT BIDDERS, AND THE SCHEDULE LISTS INCREASED COSTS TOTALING $19,961.40 AS APPLICABLE THERETO. NO ORIGINAL SUBCONTRACT BIDS ARE SHOWN ON ONE ITEM AND ONE SUBITEM AS TO WHICH INCREASED COSTS OF $20 AND $150 ARE LISTED. IN FIVE INSTANCES WHERE IT IS SHOWN THAT THE ORIGINAL SUBCONTRACT BIDDERS COMPLETED ALL OR MOST OF THE REQUIRED WORK, INCREASED COSTS TOTALING $2,681.78 ARE LISTED. IN ANOTHER CASE INVOLVING FIVE SUBITEMS OF ITEM 11 THE ORIGINAL BIDDER ON TWO SUBITEMS IS SHOWN AS HAVING COMPLETED ALL OF THE FIVE SUBITEMS OF WORK AT A COST OF $231,561.73, OR AT AN EXCESS COST OF $13,241.73 WHEN COMPARED WITH THE STATED ORIGINAL BIDS ON THE FIVE SUBITEMS. THERE IS NO SHOWING THAT THE SUBCONTRACTOR INCREASED ITS PRICES ON THE TWO SUBITEMS FOR WHICH IT PURPORTEDLY SUBMITTED BID PRICES IN THE AMOUNT OF $147,300 AND $5,020.

FROM THE FOREGOING ANALYSIS OF YOUR SCHEDULE "C" WE ARE OF THE OPINION THAT THE SCHEDULE DOES NOT, AS YOU SUGGEST, DEMONSTRATE THAT YOU INCURRED INCREASED COSTS OF $45,659.67 AS THE RESULT OF SUBCONTRACT DIFFICULTIES DIRECTLY CAUSED BY THE INITIAL SIX MONTHS' CONSTRUCTION DELAY FOR WHICH THE NAVY HAS NOT DENIED RESPONSIBILITY. A CONSIDERABLE AMOUNT OF ADDITIONAL EVIDENCE WOULD BE REQUIRED TO SUPPORT A CLAIM THAT ANY SUBSTANTIAL PORTION OF THE STATED INCREASED COSTS WAS DIRECTLY ATTRIBUTABLE TO THE FACT THAT BOILERS NOS. 4 AND 6 WERE NOT TURNED OVER FOR DEMOLITION UNTIL THE MONTH OF JANUARY 1955. THIS WOULD INVOLVE A COMPLETE INVESTIGATION PARTICULARLY CONCERNING THE REASONS WHY MOST OF THE INDICATED ORIGINAL SUBCONTRACT BIDDERS EITHER WERE NOT AFFORDED AN OPPORTUNITY TO PERFORM OR REFUSED TO PERFORM IN ACCORDANCE WITH THEIR ALLEGED VERBAL COMMITMENTS. SINCE THERE IS A REASONABLE DOUBT THAT THE GOVERNMENT MAY BE HELD LIABLE IN AMY AMOUNT UNDER THE FACTS AND CIRCUMSTANCES PRESENT IN THIS CASE AND THERE HAS NOT BEEN CLEARLY ESTABLISHED THE AMOUNT OF DAMAGES SUSTAINED AS THE RESULT OF THE INITIAL CONSTRUCTION DELAY OF APPROXIMATELY SIX MONTHS, IT DOES NOT APPEAR THAT FURTHER CONSIDERATION OF YOUR CLAIM BY OUR OFFICE WOULD BE APPROPRIATE.

ACCORDINGLY, YOUR CLAIM FOR $119,596.12 IS HEREBY DISALLOWED IN ITS ENTIRETY.