B-155776, JAN. 15, 1965

B-155776, JAN. 15, 1965

TO THE HONORABLE GLENN T. SEABORG, CHAIRMAN, UNITED STATES ATOMIC ENERGY COMMISSION:

REFERENCE IS MADE TO THE LETTER OF DECEMBER 15, 1964, AND ENCLOSURES, FROM JOHN V. VINCIGUERRA, DIRECTOR, DIVISION OF CONTRACTS, CONCERNING THE REQUEST OF MINNESOTA MINING AND MANUFACTURING COMPANY (HEREINAFTER REFERRED TO AS 3M) FOR PAYMENT OF AN ADDITIONAL $11,582.60 UNDER CONTRACT NO. AT/40-1/-2986 AS THE RESULT OF AN ALLEGED ERROR IN CONNECTION WITH MODIFICATION NO. 1 TO SAID CONTRACT.

THIS CONTRACT, CALLING FOR SOME TWELVE ITEMS OF VARIOUS QUANTITIES OF GRAPHITE SPHERES AND FUEL PARTICLES FOR A CONTRACT PRICE OF $25,901, WAS CONSUMMATED JUNE 14, 1962, AND HAS BEEN COMPLETELY PERFORMED AS SUBSEQUENTLY MODIFIED. AT ABOUT THE SAME TIME THE CONTRACT WITH 3M WAS EXECUTED SIMILAR CONTRACTS WERE MADE WITH SPEER CARBON COMPANY AND NATIONAL CARBON COMPANY, AND WERE ALSO SUBSEQUENTLY MODIFIED. MODIFICATION NO. 1 TO THE 3M CONTRACT PROVIDED FOR VARIOUS QUANTITIES OF THE SPHERES TO BE OF A LARGER SIZE AND OF A DIFFERENT URANIUM ENRICHMENT, AND FOR SOME ITEMS TO BE REDUCED IN NUMBER AND OTHERS DELETED ENTIRELY. THESE CHANGES WERE THE SUBJECT OF A LETTER OF FEBRUARY 25, 1963, FROM THE PROCUREMENT OFFICER TO 3M WHICH REPLIED THERETO IN A LETTER DATED MARCH 26, 1963, AS FOLLOWS:

"THE CHANGES AS STATED IN YOUR LETTER WOULD NOT ALTER THE PRICES. HOWEVER, IT MUST BE POINTED OUT THAT THE CHANGES WOULD ENTAIL THE DOWNGRADING OF UP TO 25 GRAMS OF 93.18 PERCENT ENRICHED U TO APPROXIMATELY 18.75 PERCENT ENRICHMENT BY THE ADDITION OF NATURAL U AS COATED PYC-THC2- UC2 PARTICLES. IN NOT CHANGING THE UNIT PRICES WE HAVE ASSUMED THAT 3M WOULD NOT BE CHARGED FOR THIS DOWNGRADING. BEFORE THESE REVISIONS CAN BE EFFECTIVE WE MUST HAVE A STATEMENT IN WRITING FROM YOU TO THE EFFECT THAT THE COST OF DOWNGRADING THE ENRICHED MATERIAL WILL NOT BE BORNE BY 3M COMPANY.'

A COPY OF THIS LETTER WAS SENT TO THE COMMISSION'S OPERATING CONTRACTOR, UNION CARBIDE CORPORATION, FOR REVIEW AND COMMENT ON THE REASONABLENESS OF THE OFFER. CARBIDE'S MEMORANDUM DATED APRIL 2, 1963, CONTAINS THE FOLLOWING PARAGRAPH:

"2. REGARDING COSTS. THE SELLER WILL BE REQUIRED TO MAKE NEWDIES FOR THE NEW SIZED SPHERE AND ESTABLISH FABRICATION TECHNIQUES; AND SINCE THE AMOUNT OF ENRICHED U-235 MATERIAL TO BE PROCESSED REMAINS ESSENTIALLY CONSTANT ALTHOUGH THE QUANTITY OF SPHERES ARE REDUCED, IT IS OUR OPINION THAT THE SELLER WILL PROBABLY INCUR ADDITIONAL COSTS TO PERFORM UNDER THE REVISED REQUIREMENT. THEREFORE, WE RECOMMEND THAT HIS OFFER TO INCORPORATE THE CHANGES AT NO ADDITIONAL COST BE ACCEPTED.'

TO FURTHER CLARIFY THE PROPOSAL OF 3M REGARDING THE CONTRACT PRICE, A TELEPHONE CALL WAS MADE TO THE COMPANY ON APRIL 8, 1964, AND THE FOLLOWING RECORD WAS MADE AND PLACED IN THE CONTRACT FILE OF SUCH CALL:

"IN THEIR LETTER OF MARCH 26, 3M STATES THAT THE CHANGES WILL NOT ALTER THE PRICES.

"IT WAS NOT CLEAR TO ME EXACTLY WHAT WAS MEANT SO TELEPHONED 3M AND TALKED TO R. J. KUNZ, KUNZ ADVISED ME THAT THIS APPLIES TO THE INDIVIDUAL ITEMS AND UNIT PRICES. THE TOTAL AMOUNT WILL BE REDUCED. WHERE ITEMS ARE DELETED HE SAID THESE WILL JUST BE STRUCK OFF AND FORGOTTEN.

"WITH RESPECT TO DELIVERY, HE SAID MAY 1 WILL BE SATISFACTORY.'

IT IS ALSO REPORTED THAT ABOUT THE SAME TIME THESE CHANGES WERE BEING NEGOTIATED WITH 3M, SIMILAR CHANGES WERE NEGOTIATED WITH THE OTHER TWO CONTRACTORS, SPEER CARBON COMPANY AND NATIONAL CARBON COMPANY, BOTH OF WHICH AGREED TO SUCH CHANGES WITHOUT ANY CHANGE IN THE ORIGINAL TOTAL CONTRACT PRICE. ON APRIL 24, 1963, MODIFICATION NO. 1 WAS EXECUTED, THEREBY REDUCING THE TOTAL AMOUNT OF THE CONTRACT FROM $25,901 TO $14,318.40 FOR A DIFFERENCE OF $11,582.60.

BY LETTER DATED FEBRUARY 7, 1964, TO THE CONTRACTING ACTIVITY, 3M PRESENTED ITS REQUEST FOR AN UPWARD ADJUSTMENT OF THE CONTRACT PRICE. IS THEREIN STATED THAT THE CHANGES WHICH ARE THE SUBJECT OF MODIFICATION NO. 1 WERE DISCUSSED IN A MEETING BETWEEN MEMBERS OF ITS TECHNICAL STAFF AND FRED CARLSEN OF UNION CARBIDE. AS A RESULT OF SUCH MEETING, IT IS STATED, 3M'S VERBAL CONCURRENCE ON THE PROPOSED CHANGES WAS WITH THE UNDERSTANDING THAT THERE WOULD BE "NO CHANGE IN TOTAL PRICE OF THE CONTRACT," BUT THAT CARLSEN APPARENTLY UNDERSTOOD THE AGREEMENT TO BE THAT THERE WOULD BE NO CHANGE IN UNIT PRICE PER SPHERE. FURTHER, BECAUSE OF THE MISUNDERSTANDING OF ONE OF ITS TECHNICAL PEOPLE, MODIFICATION PER CARLSEN'S UNDERSTANDING WAS FORMALLY AGREED TO. IN COMMENTING UPON 3M'S ASSUMPTION OF CARLSEN'S UNDERSTANDING OF THE INFORMAL AGREEMENT, UNION CARBIDE HAS STATED IN ITS LETTER OF JUNE 11, 1964,"MR. CARLSEN ... UNDERSTOOD FROM THESE PRELIMINARY DISCUSSIONS THAT SINCE THE LABOR, MATERIAL, ETC., WOULD REMAIN ESSENTIALLY CONSTANT, THE CHANGE IN THE QUANTITY OF SPHERES WOULD NOT RESULT IN A CHANGE IN THE AMOUNT OF THE CONTRACT. OUR FILES SHOW THAT, IF AN ERROR WAS MADE AS STATED IN MR. KUNZ'S LETTER OF FEBRUARY 7, 1964, IT COULD HAVE RESULTED ONLY FROM A LACK OF COMMUNICATION WITHIN 3M AND FROM MR. KUNZ'S LETTER DATED MARCH 26, 1963....'

IN A MEMORANDUM OF MARCH 18, 1964, FROM THE DIRECTOR OF THE REACTOR DIVISION TO THE DIRECTOR OF THE CONTRACT DIVISION, WE FIND FURTHER REFERENCE TO THE MEETING WHICH PRECEDED FORMAL EXECUTION OF MODIFICATION NO. 1. IT IS THEREIN STATED THAT THE TECHNICAL PERSONNEL OF THE AGENCY ALSO UNDERSTOOD THAT THE PROPOSED CHANGES WERE TO BE ACCOMPLISHED WITHIN THE ORIGINAL CONTRACT PRICE OF $25,901, AND THAT SUCH PERSONNEL FELT THAT "ADJUSTMENT ON A UNIT PRICE BASIS WAS GROSSLY UNJUST AND NOT IN ACCORD WITH THE PREVIOUS INFORMAL AGREEMENTS.' IN THIS LETTER, THE DIRECTOR ALSO EXPLAINS THE APPRAISAL MADE BY HIS OFFICE OF THE COSTS OF THE WORK PERFORMED BY 3M UNDER THE CONTRACT AND CONCLUDES FROM SUCH APPRAISAL THAT IT IS "VERY DOUBTFUL THAT EVEN THE FULL CONTRACT PRICE COVERED EXPENSES INCURRED....'

IT SEEMS APPARENT FROM THE CIRCUMSTANCES RELATED ABOVE, THAT THE MODIFICATION WHICH WAS ULTIMATELY SIGNED BY THE PARTIES DID NOT EMBODY THE AGREEMENT, INSOFAR AS PRICE WAS CONCERNED, OF THOSE RESPONSIBLE FOR THE ACTUAL NEGOTIATION OF SAME. SOMEWHERE ALONG THE LINE THERE APPEARS TO HAVE BEEN A FAILURE OF COMMUNICATION BETWEEN THE TECHNICAL AND CONTRACT PERSONNEL OF BOTH 3M AND THE GOVERNMENT. ALTHOUGH SOME EFFORT WAS MADE BY THE CONTRACT PERSONNEL OF BOTH PARTIES TO CLARIFY THE MODIFICATION INSOFAR AS PRICE WAS CONCERNED, IT DOES NOT APPEAR THAT EITHER WENT TO THE SOURCE CAPABLE OF MAKING SUCH CLARIFICATION, THE TECHNICAL PEOPLE WHO DID THE NEGOTIATION, UNTIL AFTER PERFORMANCE HAD BEEN COMPLETED AND 3M REQUESTED RELIEF.

GENERALLY, FOR A MODIFICATION TO BE VALID AND BINDING, IT MUST POSSESS ALL THE REQUISITES ESSENTIAL FOR A VALID AND BINDING CONTRACT. SEE 9 AM.JUR., BUILDING AND CONSTRUCTION CONTRACTS, SEC. 72; 17 C.J.S., CONTRACTS, SEC. 374; 41 COMP. GEN. 514, 520. IN DETERMINING THE VALIDITY AND ENFORCEABILITY OF A CONTRACT, IT IS THE MUTUAL INTENT OF THE PARTIES WHICH PRIMARILY GOVERNS, AND FOR THIS REASON SUBSTANTIAL AGREEMENT IN ALL MATERIAL RESPECTS MUST BE SHOWN. WHERE SUCH MUTUALITY IS LACKING THERE IS NOT A BINDING CONTRACT. THE GENERAL RULE IS THAT A CONTRACT MADE THROUGH MUTUAL MISTAKE AS TO MATERIAL FACTS MAY EITHER BE RESCINDED OR REFORMED. SEE 12 AM.JUR., CONTRACTS, SEC. 126 AND 17 C.J.S., CONTRACTS, SEC. 144. REFORMATION IS THE PROPER REMEDY WHERE THE CONTRACT, AS REDUCED TO WRITING, DOES NOT REFLECT THE ACTUAL AGREEMENT OF THE PARTIES, IF IT CAN BE ESTABLISHED WHAT THE AGREEMENT ACTUALLY WAS. SEE 30 COMP. GEN. 220, AND CASED CITED. SINCE IT NOW APPEARS TO BE CLEARLY ESTABLISHED THAT IT WAS THE INTENTION OF THE PARTIES THAT SUCH CHANGES AS WERE MADE IN THE ORIGINAL CONTRACT BY THE MODIFICATION WERE NOT TO AFFECT THE TOTAL CONTRACT PRICE, REFORMATION WOULD BE IN ORDER, BUT FOR THE FACT THAT THE CONTRACT HAS NOW BEEN FULLY PERFORMED, AND AN ADDITIONAL PAYMENT OF $11,582.60 IS THEREFORE AUTHORIZED TO BE MADE TO 3M, AS IF IT HAD BEEN SO REFORMED.

A COPY OF THIS DECISION SHOULD BE ATTACHED TO THE VOUCHER COVERING THE ADDITIONAL PAYMENT.