ASBCA No. 5932, 30 August 1960, 60-2 BCA 2797. And we would expect that contractors in their dealings with their subcontractors would likewise from time to time use both systems.

We believe that it was reasonable and appropriate in the instant case for the appellant, upon receipt of the changes, to use the forward pricing system in making its price adjustment with its subcontractor. This decision, we believe, rested within the sound discretion of the appellant. Nor are we persuaded that appellant, to protect itself, should have made the price increase redeterminable.

Since appellant did use the forward pricing system in this case and since it was reasonable and appropriate to do so we believe that the question to be decided in this case is whether or not the adjustment appellant made with its subcontractor was reasonable when viewed from the standpoint of 10 to 15 September 1958 (the period when the change was ordered and the adjustment made) rather than from the standpoint of December 1958 and thereafter (the period when the subcontractor's costs had become historical). We speak of the adjustment which appellant made with its subcontractor because we are principally concerned with the increase in appellant's costs and not in the increase in someone else's costs.

In Modern Foods, Inc., ASBCA No. 2090, 26 March 1957, 57-1 BCA 1229, the Board said:

"This Board has held that a proper equitable adjustment is the difference between what it would have reasonably cost to perform the work as originally required and what it reasonably cost to perform the work as changed. S. N. Nielsen Company, ASBCA No. 1990 (1954). In computing the cost of the work required by a change order, the costs that will be reasonably experienced by the contractor should be used and not necessarily those of the most efficient producer. Dibs Production & Engineering Company, ASBCA No. 1438 (1954)."

We have selected the above case for quotation because of the reference in the second sentence to the costs reasonably to be experienced by the contractor as opposed to the costs that were, or might have been, experienced by someone else. The rule stated in the first sentence can be found in many prior decisions. See, for example, Air-A-Plane Corporation, ASBCA No. 3842, 29 February 1960, 60-1 BCA ¶ 2547; and Bruce Construction Corp., ASBCA No. 5932, 30 August 1960, 60-2 BCA 2797.

In the instant case it should be borne in mind that the only item in dispute is subcontract cost. The parties are in agreement upon other costs and upon profit. It should also be borne in mind that in this case the increased price which appellant has already paid to its subcontractor is increased cost to the appellant. Thus in arriving at the equitable adjustment between the Government and the appellant we are primarily concerned with appellant's increased cost and not with the subcontractor's increased cost. The contractor's cost but for the

change would have been the original subcontract prices, the contractor's cost was the adjusted subcontract prices, and the difference was due to the changes since they occasioned the adjustment in the subcontract prices. The problem in the case is as to whether that difference was or was not reasonable. And, as we have said, the problem must be viewed from the standpoint of 10 to 15 September 1958 and not from the standpoint of December 1958 and thereafter.

Upon the basis of the record in this case we conclude that the difference was reasonable.

We note in this connection that when in July of 1958 appellant was asked to give an estimate of acceleration costs it gave an estimate of about $42,000. This apparently did not shock the Government at that time. The record discloses no protest that $42,000 seemed unreasonably high, no indication that Government estimates were considerably lower, no request for a justification of the estimate, and no request that it be refigured. And we note that when on 29 August 1958 the Government ordered acceleration of the Industrial Metal Fabricating Company it did so with a proviso that costs would not exceed $42,500. It would appear that in July and August of 1958 the Government did not consider $42,000 exorbitant. And we note that when on 10 September 1958 the Government ordered the acceleration of appellant's contract it did not express any belief that the prior $42,000 estimate was unrealistic or should be materially lowered. When on 10 September 1958 appellant was ordered to accelerate it seems reasonable that appellant would go to its existing subcontractor to arrange for acceleration. Alternate sources of supply might have been found but we believe that the ordered acceleration would most reasonably be expected to be achieved by accelerating the existing subcontractor rather than by trying to put a new subcontractor into production. In going to the subcontractor to arrange for acceleration it seems reasonable that appellant would ask for a price on the acceleration so that the subcontract could be adjusted as to delivery and price. Appellant did ask for and did receive a price. This brings us to what we think is the crucial question in this case. Was the price received such that reasonably prudent contractors would have demanded breakdowns and justifications of the increase or would have rejected it as unreasonably high and have undertaken to secure a better price or a redeterminable price? On the record before us we think not. We think that reasonably prudent contractors would have considered it a fair price for the acceleration and other changes. We note in this connection that the Government itself did not question this increase, an increase accomplished on 15 September 1958, until sometime after 5 March 1959 (the date of the Army Audit Agency's audit report) at the earliest and actually would not appear to have questioned it, insofar as the Boston District was

concerned, until sometime in April 1959 when a retroactive agreement based upon the historical costs of another prime contractor was reached by the New York District. In fact, as late as 14 April 1959 contracting personnel of the Boston District affirmatively considered it reasonable for they included it in the $41,651.63 proposal made to the appellant.

While the Industrial Metal Fabricating Company did agree, on 28 April 1959, to an adjustment of $16,500 and while we accept for the purposes of this opinion the Government position that said $16,500 covered the increased costs of that company, it does not follow that appellant's subcontract costs were increased by only $16,500 for obviously they were not. They were increased by $30,905.28. Nor does it follow that appellant's subcontract costs should have been increased by only $16,500 and that the balance of the increase was due to some dereliction upon the part of appellant who should therefore bear that cost instead of the Government. We find the record to show to the contrary.

Having found that changes ordered by the Government increased appellant's subcontract costs by $30,905.28 and that the increase was reasonable, we do not consider an adjustment that includes but $16,500 of the $30,905.28 equitable. We believe that equity requires that the entire $30,905.28 be included.

The appeal is sustained.

B) Supplemental Agreements

CIRCLE CLOTHING COMPANY, INC.

ASBCA No. 4491 (1958)

58-1 BCA 1663

This is a timely appeal from the "Findings of Fact and Decision" of a successor contracting officer administering the above-numbered contract, rendered under date of 7 June 1957, that a downward equitable adjustment in contract price made in 1952 under the "Changes" article of the contract in the amount of $20,894.11 was inadequate, and that appellant is liable to the Government for an additional $42,997.13. On the basis of prior decisions of this Board, appellant has filed a "Motion for Order Sustaining Appeal." The Government opposes the motion. Both parties have submitted the matter on the record, waiving oral argument and filing of briefs.

The contract, entered into as of 19 March 1951, required appellant to manufacture, from Government-furnished material, and deliver

to the Government 300,000 blue wool overcoats, f.o.b. origin, domestic pack, at a unit price of $11.40, total contract price $3,420,000, in accordance with specifications prescribing in detail the tailoring methods to be employed in manufacturing the items. The contract was later modified to provide for an export pack of 60,000 items at an increase in unit price of $.1499, the new unit price being $11.5499.

On 11 April 1951, after completing a number of items, appellant wrote the contracting officer as follows:

"We hereby respectfully request permission to make the following changes in the above contracts which will facilitate the expedition of same. These changes, if permission is granted, will not result in any additional cost to the government.

The contracting officer's reply, dated 19 April 1951, is in the following language:

"Reference is had to your letter of 11 April 1951 relative to subject contract.

"Operation 46 (d)—Permission is granted to baste by machine the outer collar edges, except collar ends and points which shall be basted and felled by hand, as required in the specifications.

"Operation 67-Permission is granted to baste turn-up of sleeve lining by machine in lieu of hand.

"Operation 70 (c) and (f)—Permission is granted to perform these operations by machine in lieu of hand.

"Operation 74 (b)-Permission is granted to fell sleeve lining at turn-up by machine, in lieu of hand using blind stitch type 301.

"Authorization for the foregoing is granted provided there will be no additional cost to the Government, that any saving will revert to the Government and for the express purpose of expediting deliveries."

Appellant manufactured the remaining overcoats in accordance with the specifications as changed. On 20 June 1952 the contracting officer addressed the following letter to appellant:

"Reference is made to Contract QM 12855 OI 15387 for the manufacture of Overcoat, Wool, Blue-85, 28 oz. relative to price adjustments to be made due to changes permitting use of machine operations in lieu of hand operations.

"The findings of this office indicate a composite reduction of $.077873 each for 267,950 units.

"Based on the foregoing, a modification reducing the unit price by this amount will be processed upon receipt of your letter in agreement with the above.

"Unless a reply is received in this office within 10 calendar days from the date of this letter, requesting an appointment in the event of objection to the figure set forth, it will be considered that you have consented to the reduction in price as stated."

Appellant made no reply. On 26 August 1952 the contracting officer sent a follow-up letter referring to the letter quoted above, advising appellant in pertinent part:

622161-6216

237

“*** Since a reply has not been forthcoming, this letter is to be considered as final notice and in the event an acknowledgment is not received within one week from the date of this communication, a modification will be processed without further notification."

The retained copy of this letter bears the following handwritten

notation:

"Contractor agreed to this reduction verbally when he was in the office

to see

9/9/52"

On 24 September 1952 the contracting officer issued Modification "4" to the contract, which, after referring to Article 2, "Changes," of the contract, provided in pertinent part:

"1. Contract is hereby amended to permit deviations from Specification MIL-0-3311. Machine operations are substituted for hand operations in Operations Nos. 46D, 67, 70C, 70F, and 74B.

"2. As an equitable adjustment the unit price is hereby decreased for 267,950 by $.077873 each as shown below thereby decreasing total contract price by $20,866.07 from $3,428,994.00 to $3,408,127.93."

A successor contracting officer determined that this equitable adjustment was inadequate, and on 7 June 1957 issued the "Findings of Fact and Decision" from which this appeal has been duly filed.

Appellant contends that the quoted correspondence, conference, and modification evidence an agreement which is as binding on the Government as on appellant, and that the Government cannot subsequently claim an additional amount on the same deviations. There is no evidence of fraud, collusion, or mutual mistake.

DECISION

As we stated in the appeal of Sherr Brothers Manufacturing Company, ASBCA No. 3847 (1958), quoted in the appeal of Style Craft Manufacturing Company, Inc., ASBCA No. 4460 (1958):

"In the absence of any showing of fraud, collusion or mutual mistake, the agreement reflected in the letters of 3 and 11 September 1952, and in the quoted modification to the contract, is as binding on the Government as on appellant. Appeals of Beaconwear Clothing Co., ASBCA No. 3979, 57-1 BCA 1345 (1957); Quality Clothing Company, Inc., ASBCA Nos. 4033-4035, 57-2 BCA ¶ 1396 (1957); and Liberty Coat Company, ASBCA Nos. 4119, 4138, 4139 (1957); and cases cited.

"There is no evidence of fraud, collusion, or mutual mistake. The most that the Government has shown is a possible unilateral mistake on the part of its price analysts in developing the figures relied on by the contracting officer as a basis for the equitable adjustment agreed upon. This is not enough to vitiate the contract made."

The governing facts outlined above are identical with those appearing in the cited cases.