CHAPTER III THE PERFORMANCE AND ADMINISTRATION OF GOVERNMENT CONTRACTS Section 1. STANDARD CONTRACT CLAUSES GOVERNING PERFORMANCE Pursuant to statutory authority, 40 U.S.C. § 486 (c) (1958), the Administrator, General Services Administration, has promulgated standard forms for use in Government supply contracts, Standard Form 32 (Oct. 1957), and construction contracts, Standard Form 23A (Mar. 1953, as amended). These and other standard forms are to be "used without deviation by all Executive agencies for or in connection with every formal contract. . . ." 41 U.S.C. App. § 54.1 (1958). Each department has, by regulation, required the use of additional clauses and has provided optional clauses for use where appropriate. Deviations from these clauses are permitted only when special approval is obtained under prescribed departmental procedures. Whether a contractor is performing a supply, construction or research and development contract he has promised to perform according to specified standards and within a definite time period. Yet the content of the governing contract clauses in each case may vary. For example, a contractor who fails to perform a fixed-price supply contract on time bears more risk under the applicable default clause than does a contractor who is unable to complete the timely development of a new defense item under a cost-plus-fixed-fee type research and development contract. The content of these clauses and their differences will be examined in the light of relevant judicial and administrative decisions throughout the remainder of this book. RHEEM MANUFACTURING COMPANY ASBCA No. 3851 (1957) 57-2 BCA ¶ 1374 The appellant claims a fixed fee of ten cents per cartridge case reworked and accepted while the Government position is that the contract is a fixed price contract containing a "Price Redetermination" article providing for a redetermination of the price including profit. The above contract was entered into on 22 June 1955 for the reworking of 105 MM cartridge cases. Article A1 "SCOPE OF THIS CONTRACT" provides in pertinent part as follows: "1. The Contractor shall rework and deliver to the Government the follow "Payment will be made in the amount of $1.19 for each unit ballistically acceptable. "Payment for cases processed in accordance with the provisions of the contract but not accepted by the Government will be made at $1.09 each." Under date of 1 December 1955 the contract was amended reducing the unit price to $1.02, the payment for processed but "not accepted units" to 92 cents each, and increasing the maximum quantity from 252,000 units to 294,000. The total target price remained the same. Performance of the contract was completed. The appellant reworked and had accepted 242,901 units and reworked and scrapped 47,837 units. In the original negotiations and apparently upon [sic] to the signing of the contract the negotiators for the appellant insisted upon a fixed fee of ten cents per cartridge case for all cartridge cases reworked and accepted by the Government. No fee was expected on unaccepted items. Under the terms of the contract it purchased the unaccepted items as scrap at nine cents per pound. At least as late as 10 June 1955 (the contract being dated 22 June) the contractor apparently was insisting upon its ten cents per cartridge case fixed fee. The Government negotiators had been, during the period of negotiation, equally adamant that the Government would not enter into a contract providing for a fixed fee. Although there is some conflict of testimony as to the understanding of each of the parties with reference to the position of the other, it is apparent to the Board that there was no meeting of minds during the negotiations as to the inclusion or exclusion of a fixed fee. In any event the negotiations of the parties merged into the written contract and it is to that document we must turn to find the agreement entered into on 22 June. Parol testimony cannot be used to modify or vary clear and unequivocal provisions of the contract. The appellant relies upon the provisions of Article A1 above quoted in maintaining that the contract provides for a fixed fee. The explanation of the Government negotiators for the provisions for payment of $1.19 for accepted units and $1.09 for unaccepted units is that this provision made it possible to pay the appellant for unaccepted items during the performance of the contract. But for such provision the contractor would not have been paid for unaccepted units. It is to be noted that Article A1 sets out a "unit price" of $1.19. Although there is a ten cent unit differential between unaccepted and accepted units, the contract does not state in this article nor in any other article of the contract that this differential is a fixed fee. So far as this contract is concerned it must be one of two types provided for by the Armed Services Procurement Regulation and the Army Procurement Procedure. It must be either a cost reimbursable contract with a fixed fee or an incentive fee or a fixed price contract with or without a price redetermination article or a price escalation article. Each of these types of contracts is required under the regulation to have certain clauses included therein. While this requirement may or may not be binding upon the appellant, the inclusion or the exclusion of these articles determines, at least in the absence of compelling language in the contract, the type of contract it is and further is indicative of the intention of the contracting officer at the time of the drafting of the contract. An examination of the instant contract indicates that the General Provisions are on Standard Form 32 prescribed by the General Services Administration, November 1949 edition, for a fixed price contract. The contract contains also Form IV of the price redetermination articles. This latter provision is among those provisions which may be used under the regulation in negotiated fixed price contracts. There is no provision for using this article in cost reimbursable contracts. In addition, the instant contract contains the "Changes" article which is provided for inclusion in fixed price contracts. The "Changes" article required in cost reimbursable type contracts is somewhat different. The instant contract does not contain the "Limitation of Cost" article nor the "Allowable Cost, Fixed Fee and Payment" article required in cost reimbursable type contracts. The "Price Redetermination" article included in the contract clearly provides for redetermining the price of the contract which is defined as including "direct costs, indirect costs and profit." It is clear to the Board therefore that the contract as entered into by the parties is a fixed price contract with provision for a price redetermination at the completion of the contract and that therefore, in spite of what the contractor might have thought or intended relative to his fee for the performance of the contract, the agreement as entered into provides not for a fixed fee but rather for a fee or profit to be redetermined under the "Price Redetermination" article. The contracting officer at the completion of the contract and upon the failure of the parties to agree as to the fee or profit made his findings of fact and determination on 28 August 1956. The parties reached an agreement during the negotiations that the cost of the performance of the work by the contractor was $99,132.63 which does not include profit. The contractor requested a profit of $24,290.10 or ten cents for each accepted unit. The contracting officer found that: "*** the Contractor has performed the contract with such efficiency, economy and ingenuity that warrants only an approximate 10% rate of profit on the total costs. This computes to a profit figure of $9,913.26." The appellant in its appeal and during the course of the hearing contended that if it were not entitled to a fixed fee it was entitled to a profit of more than 10% due to its efficiency and the fact that its actual costs of operation ($99,132.63) were one-third of the target price provided for in the contract ($299,880.00). The cartridge cases reworked by the appellant had been in storage from one to two years and their condition was unknown by the parties at the time of the negotiations. Because the amount of work required for the performance of the contract was uncertain it cannot be said that the performance by the appellant at one-third the target price was due solely to its "efficiency, economy and ingenuity." For all that appears in the record it may have been due to the fact that the parties assumed three times more work would be required than was actually necessary. The contracting officer found, however, that the appellant was efficient and economical and used ingenuity in its operations. The Board accepts that finding and determines that under all the circumstances of the case the appellant is adequately rewarded for its efficiency, economy and ingenuity by a profit computed at 10% as found by the contracting officer. For the reasons stated, the appeal is denied. Section 2. STANDARDS GOVERNING CONTRACT ADMINISTRATION CLIMATIC RAINWEAR COMPANY, INC. v. UNITED STATES 115 Ct. Cl. 520 (1950) HOWELL, Judge, delivered the opinion of the court: Plaintiff sues to recover a balance of $53,964.35 under its contract for raincoats and ponchos with defendant acting through the Philadelphia Quartermaster Depot of the War Department. This contract numbered W-36-030-qm-14952 (hereinafter referred to as Contract 14952) was entered into on April 16, 1945. Defendant has admitted that the aforesaid sum became due plaintiff but has denied liability on two grounds: *** second, by way of set-off against the amount in question of an equivalent sum representing excess costs and liquidated damages claimed by defendant under a prior contract between it and plaintiff for the manufacture of Army raincoats. This contract had been entered into on August 14, 1942, numbered W-669-qm-20481 (hereinafter referred to as Contract 20481). Plaintiff had originally entered the raincoat business as a result of the efforts of the B. F. Goodrich Rubber Company to find a subcontractor in the New York area willing to contract for the production of synthetic rubber raincoats made from a resin coated fabric known as Koroseal. *** With the approval of the Philadelphia Quartermaster Depot, Goodrich concluded negotiations with plaintiff and on or about July 3, 1942, entered into a subcontract with it for 300,906 "double-needle seam-strapped" coats. This subcontract carried a preference rating of "A-1-i” and provided for the delivery of 1,600 coats by July 11, 1942, with increasingly larger weekly deliveries thereafter, and final delivery by September 26, 1942. On July 13, plaintiff, after it had received the subcontract, submitted a bid for 300,000 coats under an invitation of the Philadelphia Quartermaster Depot, issued under Specification 71C. The bid designated the same "double-needle seam-strapped" construction and called for deliveries to begin October 16, 1942. The bid was accompanied by a sample coat made by the specified method and a letter advising 622161-62 -12 173 |