B-145899, MAY 3, 1965

B-145899, MAY 3, 1965

TO THE HONORABLE J. GEORGE STEWART, ARCHITECT OF THE CAPITOL:

YOUR LETTER OF MARCH 26, 1965, WITH ENCLOSURES, REQUESTS OUR DECISION CONCERNING THE EFFECTIVE DATE OF THE GUARANTY PERIOD FOR THE HEATING, VENTILATING AND AIR CONDITIONING SYSTEMS (HVAC SYSTEMS) INSTALLED IN THE SUPERSTRUCTURE OF THE RAYBURN HOUSE OFFICE BUILDING.

THE BUILDING IS BEING CONSTRUCTED BY MCCLOSKEY AND COMPANY UNDER CONTRACT NO. ACHO-204, DATED MARCH 10, 1960, BASED ON SPECIFICATIONS TITLED "SPECIFICATIONS FOR THE SUPERSTRUCTURE FOR AN ADDITIONAL OFFICE BUILDING FOR THE UNITED STATES HOUSE OF REPRESENTATIVES, WASHINGTON, D.C., ADDITIONAL HOUSE OFFICE BUILDING PROJECT" DATED OCTOBER 30, 1959. THE WORK REQUIRED TO BE PERFORMED UNDER SECTIONS XXXVII AND XXXVIII OF THE SPECIFICATIONS, COVERING ALL HEATING, VENTILATING AIR CONDITIONING AND PLUMBING WORK WAS PERFORMED BY LLOYD E. MITCHELL, INCORPORATED, AS SUBCONTRACTOR. THE SUBCONTRACTOR HAS STATED THAT THE VALUE OF THE HEATING, VENTILATING AND AIR CONDITIONING SYSTEMS (HVAC SYSTEMS) INSTALLED EXCEEDS $5,000,000.

YOU STATE THAT ON OR ABOUT JANUARY 21, 1964, PRIOR TO THE COMPLETION OF ALL WORK UNDER THE CONTRACT, WHICH YOU INDICATE IS NOT EXPECTED TO BE FINALLY COMPLETED FOR SOME MONTHS, THE GOVERNMENT COMMENCED OCCUPANCY OF A PORTION OF THE BUILDING; THAT SUCH OCCUPANCY NECESSITATED PLACING APPROXIMATELY 15 PERCENT OF THE HVAC SYSTEMS INTO ACTUAL OPERATION ON A CONTINUING BASIS; THAT THIS 15 PERCENT OF THE HVAC EQUIPMENT NEEDED FOR THE PARTIAL OCCUPANCY WAS INSPECTED AND ACCEPTED; THAT THE CONTRACTOR WAS ORDERED FORTHWITH TO OPERATE SUCH EQUIPMENT FOR THE BENEFIT OF THE GOVERNMENT ON A COST-REIMBURSABLE BASIS; THAT THEREAFTER UPON PROGRESSIVE OCCUPANCY OF ADDITIONAL SPACE IN THE BUILDING, INSPECTION, ACCEPTANCE AND OPERATION OF ADDITIONAL HVAC EQUIPMENT PROCEEDED ON A LIKE BASIS UNTIL NOVEMBER 1964; AND THAT AS OF NOVEMBER 27, 1964, THE GOVERNMENT INSPECTED AND ACCEPTED ALL REMAINING HVAC EQUIPMENT AND TOOK OVER THE OPERATION OF ALL HVAC SYSTEMS OF THE BUILDING WITH ITS OWN FORCES. YOU STATE THAT IN THE MEANTIME, IN OR ABOUT DECEMBER 1963, PRIOR TO THE GOVERNMENT'S FIRST PARTIAL OCCUPANCY OF THE BUILDING AND THE PARTIAL OPERATION OF THE HVAC SYSTEMS, THE CONTRACTOR DEMANDED ACKNOWLEDGMENT BY YOUR OFFICE THAT THE 1- YEAR GUARANTY PERIOD OF THE HVAC EQUIPMENT TO BE OPERATED FOR THE GOVERNMENT SHOULD COMMENCE WITH SUCH OPERATION; THAT IN VIEW OF THE GENERAL GUARANTY PROVISION OF ARTICLE 2-34 OF THE CONTRACT THE CONTRACTOR'S REQUEST WAS REJECTED; THAT PRIOR TO NOVEMBER 27,1964, WHEN 100 PERCENT OF THE HVAC SYSTEMS WAS TAKEN OVER FOR OPERATION BY THE GOVERNMENT FORCES, THE CONTRACTOR REPEATED ITS DEMAND FOR AN ACKNOWLEDGEMENT THAT THE 1-YEAR GUARANTY ON THE REMAINING HVAC EQUIPMENT SHOULD COMMENCE AS OF THE BEGINNING OF THE GOVERNMENT'S OPERATION OF SUCH EQUIPMENT; THAT THE CONTRACTOR CLAIMED THAT SUCH WAS THE PRACTICE OF OTHER GOVERNMENT AGENCIES AND THAT, THEREFORE, IT WOULD BE ONLY FAIR AND REASONABLE TO FOLLOW THE USUAL PRACTICE.

YOU STATE THAT ON DECEMBER 2, 1964, FOLLOWING REFUSAL OF YOUR OFFICE TO ACKNOWLEDGE ANY DEVIATION FROM THE CONTRACTOR'S GUARANTY PROVISIONS, THE CONTRACTOR CONTENDED THAT THE GOVERNMENT'S POSSESSION AND USE OF THE HVAC EQUIPMENT PRIOR TO COMPLETION OF THE WHOLE BUILDING RESULTED (1) DISRUPTION AND DELAY OF WORK WITH INCREASED EXPENSES TO THE CONTRACTOR, AND (2) THE CONTRACTORS BEING REQUIRED TO OBTAIN ADDITIONAL INSURANCE PROTECTION TO COVER A PERIOD OF TIME EQUAL TO THAT INCIDENT TO THE USE OF THE CONTRACTOR'S EQUIPMENT PRIOR TO COMPLETION AND ACCEPTANCE OF ALL WORK UNDER THE CONTRACT. IN THIS REGARD, YOU STATE THAT THE CONTRACTOR SUBMITTED FOR INSPECTION A SAMPLE POLICY WRITTEN BY THE MARYLAND CASUALTY COMPANY IN FAVOR OF THE SUBCONTRACTOR PROVIDING FOR LIABILITY COVERAGE IN THE AMOUNT OF $1,000,000 FOR A 3-YEAR PERIOD; THAT THE CONTRACTOR STATED THAT THE PREMIUM FOR THIS POLICY WAS $45,000; THAT IN CONSIDERATION OF THE VALUE OF ITS HVAC EQUIPMENT IT WOULD NEED A MINIMUM OF $5,000,000 FOR SUCH LIABILITY COVERAGE FOR AN UNKNOWN PERIOD OF TIME; AND THAT UNLESS THE GOVERNMENT REDUCED THE GUARANTY PERIOD TO A 1-YEAR PERIOD COMMENCING NOVEMBER 27, 1964, THE TOTAL AMOUNT OF ALL SUCH EXTRA EXPENSES WOULD BE CLAIMED UNDER THE PROVISIONS OF ARTICLE 2-42 OF THE CONTRACT. IN THIS REGARD, THE SUBCONTRACTOR IN ITS LETTER OF DECEMBER 29, 1964, TO THE CONTRACTOR SUBMITTED A FORMAL OFFER IN WHICH IT OFFERED TO WAIVE ALL RIGHTS IT MIGHT HAVE TO AN EQUITABLE ADJUSTMENT UNDER ARTICLE 2-42 OF THE SPECIFICATIONS UPON AGREEMENT BY THE GOVERNMENT THAT THE GUARANTY PERIOD FOR ALL MECHANICAL EQUIPMENT INSTALLED BY IT ON THE PROJECT SHOULD BEGIN ON NOVEMBER 27, 1964, AND END ON NOVEMBER 26, 1965. IN THE CONTRACTOR'S LETTER OF DECEMBER 31, 1964, TO YOU, THE CONTRACTOR ADOPTED THE SUBCONTRACTOR'S PROPOSAL AS ITS OWN AND AS FURTHER CONSIDERATION FOR THE ACCEPTANCE OF SUCH PROPOSAL THE CONTRACTOR OFFERED TO WAIVE ANY AND ALL RIGHTS TO SURCHARGES, MARKUPS, AND OVERHEAD AND PROFIT ON THE COSTS WHICH HAVE BEEN AND WHICH MIGHT BE INCURRED BY THE SUBCONTRACTOR AS A RESULT OF PARTIAL OCCUPANCY BY THE GOVERNMENT, OTHER THAN THE RIGHT TO REIMBURSEMENT FOR THOSE COSTS WHICH ARE SPECIFICALLY EXCEPTED BY THE SUBCONTRACTOR AND BY THE CONTRACTOR.

IN CONCLUSION YOU STATE THAT YOUR ENGINEERS HAVE ADVISED THAT PRACTICAL EXPERIENCE HAS SHOWN THAT DEFECTS IN THE INSTALLATION OF MECHANICAL SYSTEMS WHICH WERE NOT DISCOVERED UPON INSPECTION ARE MOST LIKELY TO APPEAR WITHIN THE FIRST YEAR OF THEIR OPERATION AND THAT ANY EQUIPMENT REPLACEMENT COSTS OTHER THAN MAINTENANCE REPLACEMENTS RESULTING FROM WEAR AND TEAR SHOULD IN THEIR OPINION, BE EXPECTED TO REMAIN CONSIDERABLY BELOW THE COST OF ANY SUCH INSURANCE COVERAGE PREMIUMS AS ARE CLAIMED TO BE NECESSARY FOR THE CONTRACTOR'S ALLEGED ADDITIONAL EXPOSURE.

IN THE CIRCUMSTANCES, YOU REQUEST TO BE ADVISED WITH REGARD TO THE FOLLOWING QUESTIONS:

(1) IS THE GOVERNMENT OBLIGATED TO EQUITABLY ADJUST THE CONTRACT PRICE FOR EXPENSES THE CONTRACTOR MAY HAVE INCURRED OR MAY INCUR IN SECURING INSURANCE PROTECTION FOR A PERIOD OF TIME EQUAL TO THE TIME DURING WHICH THE GOVERNMENT OPERATED AND OPERATES THE HVAC EQUIPMENT PRIOR TO COMPLETION OF ALL WORK UNDER THE CONTRACT?

(2) IF THE ANSWER TO THE FIRST QUESTION SHOULD BE IN THE AFFIRMATIVE, CAN THE PROPOSAL OF THE CONTRACTOR, AS PRESENTED IN HIS LETTER OF DECEMBER 31, 1964, PROPERLY BE ENTERTAINED BY YOUR OFFICE?

PARTIAL OCCUPANCY OF ALL WORK IS PROVIDED FOR UNDER ARTICLE 2-42 OF THE CONTRACT WHICH PROVIDES IN PERTINENT PART AS FOLLOWS:

"2-42. POSSESSION PRIOR TO COMPLETION.--- (A) THE GOVERNMENT SHALL HAVE THE RIGHT TO TAKE POSSESSION OF, OR USE, ANY COMPLETED OR PARTIALLY COMPLETED PART OF THE WORK PRIOR TO COMPLETION OF ALL WORK UNDER THE CONTRACT.

"/C) SUCH POSSESSION OR USE SHALL NOT BE DEEMED AN ACCEPTANCE OF THE PART OF THE WORK POSSESSED OR USED BY THE GOVERNMENT. ATTENTION IS DIRECTED TO ARTICLE 1-07 (D) FOR PROVISIONS RELATING TO COMPLETION AND ACCEPTANCE OF ALL THE WORK REQUIRED HEREUNDER. IF SUCH POSSESSION OR USE BY THE GOVERNMENT DELAYS THE PROGRESS OF THE WORK, OR CAUSES ADDITIONAL EXPENSE TO THE CONTRACTOR, AN EQUITABLE ADJUSTMENT IN THE CONTRACT PRICE ON/OR TIME OF COMPLETION WILL BE MADE AND THE CONTRACT MODIFIED ACCORDINGLY.'

ARTICLE 2-34 PROVIDES:

"2-34. GENERAL GUARANTY.--- UNLESS OTHERWISE SPECIFIED, ALL WORK UNDER THESE SPECIFICATIONS SHALL BE GUARANTEED FOR ONE (1) YEAR FROM THE DATE OF THE AUTHORIZATION OF FINAL SETTLEMENT UNDER THIS CONTRACT. ALL GUARANTEES EMBRACED IN OR REQUIRED BY THE CONTRACT ARE SUBJECT TO THE TERMS OF THIS ARTICLE, UNLESS OTHERWISE EXPRESSLY AGREED TO IN WRITING BY THE PARTIES TO THE CONTRACT. * * *.'

WITH RESPECT TO YOUR FIRST QUESTION, UNDER THE TERMS OF ARTICLE 2 42 IF THE GOVERNMENT TAKES POSSESSION OF ANY OF THE WORK PRIOR TO COMPLETION OF ALL WORK THE CONTRACTOR IS ENTITLED TO AN EQUITABLE ADJUSTMENT IN THE CONTRACT PRICE. IF YOU SHOULD DETERMINE THAT SUCH POSSESSION CAUSED THE CONTRACTOR TO INCUR ADDITIONAL EXPENSES FOR SECURING THE INSURANCE, AN EQUITABLE ADJUSTMENT WOULD SEEM TO BE REQUIRED. ACCORDINGLY, THE FIRST QUESTION IS ANSWERED IN THE AFFIRMATIVE.

REGARDING YOUR SECOND QUESTION, UNDER THE REPORTED FACTS AND AGREEMENT IN THIS CASE IT APPEARS EVIDENT THAT THE GOVERNMENT WAS ANXIOUS TO SECURE A 1 -YEAR GUARANTEE FOR THE EQUIPMENT WHILE IN USE AND THAT SUCH OBJECTIVE WOULD BE ACHIEVED BY THE GOVERNMENT IF THE CONTRACTOR AGREES THAT THE GUARANTEE PERIOD IS TO EXTEND FROM NOVEMBER 27, 1964, THE DATE THE GOVERNMENT INSPECTED AND ACCEPTED ALL REMAINING HVAC EQUIPMENT AND TOOK OVER THE OPERATION OF ALL HVAC SYSTEMS OF THE BUILDING WITH ITS OWN FORCES, TO NOVEMBER 26, 1965. IT IS RECOGNIZED THAT THE USE OF THE LANGUAGE IN ARTICLE 2-34 PROVIDING THAT THE WORK WAS TO BE GUARANTEED FOR 1 YEAR "FROM THE DATE OF THE AUTHORIZATION OF FINAL SETTLEMENT UNDER THIS CONTRACT" MAY NOT HAVE EXPRESSED THE CORRECT INTENTION OF THE PARTIES THAT THE EQUIPMENT SHOULD BE GUARANTEED ONLY FOR 1 FULL YEAR OF ACTUAL OPERATION. THEREFORE, SINCE THE CONTRACTOR'S REQUEST TO HAVE THE GUARANTEE PERIOD OF 1 YEAR RUN FROM NOVEMBER 27, 1964, IN CONSIDERATION OF A WAIVER BY IT AND THE SUBCONTRACTOR TO ALL RIGHTS TO AN EQUITABLE ADJUSTMENT IN THE CONTRACT PRICE UNDER ARTICLE 2-42 AS OUTLINED IN THE SUBCONTRACTOR'S LETTER OF DECEMBER 29, 1964, AND A WAIVER BY THE CONTRACTOR OF ANY AND ALL RIGHTS TO SURCHARGES, MARKUPS, AND OVERHEAD AND PROFIT ON THE COSTS INCURRED OR WHICH MAY BE INCURRED BY THE SUBCONTRACTOR AS OUTLINED IN THE CONTRACTOR'S LETTER OF DECEMBER 31, 1964, WOULD NOT RELIEVE THE CONTRACTOR FROM ANY LIABILITY INTENDED TO BE IMPOSED BY THE TERMS OF THE CONTRACT, OUR OFFICE WOULD NOT BE REQUIRED TO OBJECT TO THE GRANTING OF THE CONTRACTOR'S REQUEST.