B-157767, OCT. 21, 1965

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

REFERENCE IS MADE TO THE LETTER OF SEPTEMBER 29, 1965, AND ENCLOSURES, FROM E. J. BLOCH, ACTING GENERAL MANAGER, TRANSMITTING A REQUEST FOR RELIEF BY THE NUCLEAR MATERIALS AND EQUIPMENT CORPORATION (NUMEC) FROM MISTAKE MADE IN PRICING OF THE RATE OF LOSS CHARGED AGAINST THE CORPORATION FOR NUCLEAR MATERIALS LOSSES UNDER MODIFICATION NO. 1 TO CONTRACT NO. AT/04-3/-449.

THE CONTRACT CALLED FOR THE CONVERSION OF ENRICHED UF6 TO UO2 POWDER AND WAS ENTERED INTO ON MAY 14, 1962, BETWEEN THE ATOMIC EMERGY COMMISSION (AEC) AND NUMEC. THE CONTRACT, WHICH HAS NOW BEEN FULLY PERFORMED, INITIALLY PROVIDED FOR THE CONVERSION OF 26.5 PERCENT ENRICHED UF6 TO 2,232 KILOGRAMS OF UO2 POWDER TO BE DELIVERED TO ANOTHER AEC CONTRACTOR FOR FURTHER USE ON ANOTHER AEC PROJECT. THE NECESSARY UF6 WAS TO BE FURNISHED NUMEC BY AEC FOR THIS PURPOSE AND THE CONTRACT CONTAINED A STANDARD PROVISION (ARTICLE 32, GENERAL PROVISIONS) WHICH CHARGED THE CONTRACTOR FOR LOST OR CONSUMED (PRODUCTION LOSSES) NUCLEAR MATERIALS. THE BASE CHARGE FOR SUCH LOSS OR CONSUMED NUCLEAR MATERIALS WAS SET AT THE RATE OF $3,435.50 PER KILOGRAM OF CONTAINED URANIUM AS UF6 IN THE ORIGINAL CONTRACT ARTICLE. THIS BASE CHARGE WAS THE SAME AS THE RATE THEN PUBLISHED BY AEC IN THE FEDERAL REGISTER, 26 F.R. 4766, DATED MAY 25, EFFECTIVE JULY 1, 1961.

IN OCTOBER 1962, AFTER WORK HAD COMMENCED UNDER THE CONTRACT, NUMEC WAS TO SUBMIT ITS PROPOSAL FOR FABRICATION OF UO2 PELLETS FROM THE POWDER PRODUCED UNDER THE ORIGINAL CONTRACT. THE PRODUCTION LOSSES FOR THE ADDITIONAL WORK WERE COMPUTED IN NUMEC'S PROPOSAL ON THE BASIS OF $3,033.90 PER KILOGRAM OF CONTAINED URANIUM AS UF6, WHICH WAS THE THEN CURRENT AEC PUBLISHED PRICE IN THE FEDERAL REGISTER. THE PRICE PROPOSAL FOR THE ADDITIONAL WORK INDICATED THAT NUMEC EXPECTED TO HAVE A NUCLEAR MATERIAL LOSS OF 15.61 KILOGRAMS IN PERFORMING THE ADDED PELLETIZING.

IT IS REPORTED THAT, THROUGH INADVERTENCE OF MUTUAL MISTAKE, ALL PARTIES CONCERNED ACCEPTED THE THEN CURRENTLY PUBLISHED FEDERAL REGISTER PRICE OF $3,033.90, RATHER THAN THE CONTRACT-ESTABLISHED RATE OF $3,435.50, AS THE ONE UPON WHICH TO CALCULATE THE ESTIMATED NUCLEAR MATERIAL LOSS (AND CONTRACTOR'S COST OF PERFORMANCE) UNDER THE PROPOSED FURTHER CONTRACT WORK.

THE CONTRACTOR'S PROPOSAL AS SUBMITTED WAS ACCEPTED BY TWX OF NOVEMBER 9, 1962, AND THEREAFTER MODIFICATION NO. 1 WAS ENTERED INTO FEBRUARY 12, 1963. THE MODIFICATION WAS SILENT AS TO ANY CHANGE IN THE STATED CONTRACT LOSS RATE FOR NUCLEAR MATERIALS. THE DISCREPANCY APPEARED WHEN NUMEC WAS BILLED FOR THE TOTAL NUCLEAR MATERIAL LOSSES UNDER THE CONTRACT AT THE STATED AND HIGHER CONTRACT LOSS RATE OF $3,435.50 RATHER THAN AT THE NUMEC PROPOSED RATE OF $3,033.90 PER KILOGRAM. NUMEC REQUESTED REFORMATION, OR CORRECTION, OF THE CONTRACT ON THE BASIS OF MUTUAL MISTAKE FOR THE ENTIRE AMOUNT OF CONTRACT MATERIAL LOSS, BUT NO ACTION ON THIS REQUEST WAS POSSIBLE UNTIL THE CONTRACTOR'S NUCLEAR MATERIAL BALANCES COULD BE DETERMINED. WHEN THIS WAS ACCOMPLISHED, NUMEC WAS FINALLY BILLED FOR $4,502.61, WHICH WITH THE AMOUNT OF $54,785.15 WITHHELD UNDER THE CONTRACT, EQUALED THE TOTAL PRICE OF THE NUCLEAR MATERIAL LOSSES FOR WHICH NUMEC WAS RESPONSIBLE COMPUTED AT THE CONTRACT RATE.

IT IS STATED IN THE SAN FRANCISCO MANAGER'S MEMORANDUM OF AUGUST 26, 1965, THAT HAD THE MISTAKE BEEN DISCOVERED AND CONSIDERED BY BOTH PARTIES AT THE TIME OF THE NEGOTIATIONS IN OCTOBER 1962 THAT EITHER ONE OF TWO POSSIBLE ACTIONS WOULD HAVE BEEN TAKEN, EITHER (1) THE CONTRACTOR'S FIXED PRICE WOULD HAVE BEEN INCREASED BY THE COST TO IT OF THE ADDITIONAL PROCESSING LOSSES OF NUCLEAR MATERIAL AT THE HIGHER APPLICABLE CONTRACT RATE, OR (2) THE CONTRACT WOULD HAVE PROVIDED THAT THE ADDITIONAL NUCLEAR MATERIALS LOST (NOT TO EXCEED A MAXIMUM OF 15.61 KILOGRAMS) WOULD HAVE BEEN CHARGED FOR AT THE LOWER AEC ESTABLISHED PRICE. IN EITHER EVENT THE RESULT WOULD HAVE BEEN TO GIVE THE CONTRACTOR THE IDENTICAL DOLLAR RELIEF BY WAY OF A HIGHER CONTRACT PRICE OR LESSER AEC CHARGES FOR LOST MATERIALS. IT IS FURTHER STATED THAT IF NUMEC WAS GRANTED REFORMATION OR CORRECTION, IT WOULD, DEPENDENT UPON THE BASIS OF CALCULATION, BE ENTITLED TO A POSSIBLE MAXIMUM ADDITIONAL SUM OF $6,000; WHEREAS IF IT WAS HELD TO THE ORIGINAL CONTRACT LOSS RATES, IT WOULD OWE THE GOVERNMENT $4,502.61. NUMEC HAS AGREED TO SETTLING THE MATTER FOR AN AMOUNT BASED ON RETENTION BY THE GOVERNMENT OF THE $54,785.15 NOW HELD AND THE CANCELLATION OF THE BILLING TO IT OF $4,502.61, IN EXCHANGE FOR THE WITHDRAWAL BY NUMEC OF ITS CLAIM FOR REFORMATION BY EXECUTION OF AN UNCONDITIONAL CONTRACT RELEASE. APPROVAL IS RECOMMENDED BY THE AEC OF THIS METHOD OF DISPOSING OF THE MATTER.

IT IS SIGNIFICANT THAT IN DRAWING THE LANGUAGE USED IN THE MODIFICATION THE PARTIES DID NOT INCORPORATE ALL THE DETAILS OF THEIR ACTUAL BARGAIN. THE FACT IS CLEARLY SHOWN THAT NUMEC'S WRITTEN PROPOSAL EXPRESSLY INCLUDED STATEMENTS THAT IT WOULD PAY FOR LOSSES AT A RATE OF $3,033.90 PER KILOGRAM OF URANIUM. THE SUBMITTED RECORD SHOWS THAT THE PROPOSAL, WITH ITS COST BREAKDOWN, WAS GONE OVER WITH GREAT CARE BY THE AEC PROCUREMENT OFFICIALS IN CHARGE OF THE OPERATION WITH SPECIAL ATTENTION BEING GIVEN TO THE LOSS FIGURE. THE AEC, ACTING THROUGH ITS AUTHORIZED AGENT, ACCEPTED NUMEC'S OFFER BY TWX DATED NOVEMBER 9, 1962. WHILE THE RECORD SUBMITTED BY THE MANAGER OF THE SAN FRANCISCO OPERATIONS OFFICE STATES IN ONE PART THE VIEW THAT A MUTUAL BONA FIDE MISTAKE OF A MATERIAL FACT WAS MADE AT THE TIME OF THE NEGOTIATION OF CONTRACT MODIFICATION NO. 1, IN THAT BOTH NUMEC AND AEC USED THE TEN CURRENT PUBLISHED PRICE FOR NUCLEAR MATERIAL LOSS RATHER THAN THE STATED AND HIGHER EXISTING CONTRACT RATE, THIS VIEW ADOPTS AS A CONCLUSION THAT NUMEC'S USE OF THE LOWER FIGURE WAS IN ERROR AND THIS WAS NOT INTENDED AND WAS INADVERTENTLY OVERLOOKED BY AEC IN ITS CONSIDERATION OF THE PROPOSAL. THE BETTER AND MORE EQUITABLE VIEW OF THE CIRCUMSTANCES IS THAT BORNE OUT BY THE RECORD SHOWING THAT NUMEC'S PROPOSED LOSS PRICING RATE WAS INTENDED AND WAS CONSIDERED AND ACCEPTED BY AEC AND THAT BOTH PARTIES OVERLOOKED REFERRING TO IT IN THE MODIFICATION WHICH ESTABLISHED THE CONTRACT TERMS FOR THE ADDITIONAL WORK. WE THINK THAT ACCEPTANCE OF NUMEC'S PROPOSAL CONSTITUTED THE ACTUAL AGREEMENT OF THE PARTIES REGARDING THE ADDITIONAL WORK AND THAT THE MODIFICATION AS WRITTEN DID NOT FULLY REFLECT THE AGREEMENT, BEING DEVOID OF REFERENCE TO A MATERIAL FACT, THAT OF A CHANGE IN THE RATE OF PRODUCTION LOSS PRICING. THIS, FROM THE CIRCUMSTANCES, IT SEEMS APPARENT THAT THE MODIFICATION WHICH WAS SIGNED BY THE PARTIES DID NOT EMBODY THE AGREEMENT IN A MATERIAL RESPECT.

THROUGH MUTUAL ERROR OF THE PARTIES, THE MODIFICATION DOES NOT EXPRESS THE TRUE INTENTION AND UNDERSTANDING OF THE PARTIES. IT IS WELL SETTLED THAT EITHER PARTY MAY HAVE THE CONTRACT REFORMED TO CONFORM TO THE AGREEMENT MADE. SEE 12 AM.JUR., CONTRACTS, SECTION 126, 17 C.J.S., CONTRACTS, SECTION 144. SEE, ALSO, 30 COMP. GEN. 220, AND CASES CITED. SINCE THE CONTRACT HAS BEEN FULLY PERFORMED REFORMATION WOULD NO LONGER BE APPLICABLE. B-155776, JANUARY 15, 1965. COMPARE B-147677, AUGUST 8, 1962.

ACCORDINGLY, ADJUSTMENT IS AUTHORIZED ON THE BASIS SUBMITTED, AS SET FORTH ABOVE, IT HAVING BEEN ADMINISTRATIVELY DETERMINED THAT RETENTION BY THE GOVERNMENT OF THE $54,785.15 NOW HELD AND THE CANCELLATION OF THE BILLING OF THE AMOUNT OF $4,502.61 TO NUMEC WOULD BE IN THE BEST INTEREST OF THE GOVERNMENT. 15 COMP. GEN. 238, 240.

THE FILE SUBMITTED WITH THE SAN FRANCISCO MANAGER'S MEMORANDUM OF AUGUST 26, 1965, IS RETURNED HEREWITH.