Unisys Corp. v. U.S.

• Decision Date: 07 November 1989
• Citation: 888 F.2d 841
• Parties: 35 Cont.Cas.Fed. (CCH) 75,753 UNISYS CORPORATION, Appellant, v. UNITED STATES, Appellee. 89-1314.
• Court: U.S. Court of Appeals — Federal Circuit

Page 841

888 F.2d 841

35 Cont.Cas.Fed. (CCH) 75,753

UNISYS CORPORATION, Appellant, v. UNITED STATES, Appellee.

89-1314.

United States Court of Appeals,

Federal Circuit.

Nov. 7, 1989.

Suggestion for Rehearing In Banc Declined Jan. 25, 1990.

Clarence T. Kipps, Jr., Miller & Chevalier, Chartered, of Washington, D.C., argued for appellant. With him on the brief were John Lloyd Rice and Scott E. Pickens. Also on the brief was Richard J. Marchek, Unisys Corp., of counsel.

Frank B. Flink, Jr., Commercial Litigation Branch, Dept. of Justice, of Washington, D.C., argued for appellee. With him on the brief were Stuart E. Schiffer, Acting Asst. Atty. Gen., David M. Cohen, Director and Thomas W. Petersen, Asst. Director. Also on the brief was Martha A. Klein, Sr. Trial Atty., Office of Gen. Counsel, U.S. Navy, of counsel.

Before MARKEY, Chief Judge, FRIEDMAN, Senior Circuit Judge, ^* and NIES, Circuit Judge.

FRIEDMAN, Senior Circuit Judge.

The issue in this case is the amount of a downward contract price adjustment to which the government is entitled because of concededly defective price information that the appellant Unisys Corporation submitted

to the government during contract negotiations. The Armed Services Board of Contract Appeals (Board) held that the government is entitled to $746,737. Sperry Corp. Computer Sys., Defense Sys. Div., ASBCA No. 29525, 88-3 B.C.A. p 20,975, at 105,976. Unisys contends that the amount should be $153,079. We affirm the Board.

I

A. The Truth in Negotiations Act (Act) requires that "[a] prime contractor or any subcontractor shall be required to submit cost or pricing data under [certain enumerated circumstances], and shall be required to certify that, to the best of his knowledge and belief, the cost or pricing data he submitted was accurate, complete and current...." 10 U.S.C. Sec. 2306(f)(1) (1982). The Act also provides that "[a]ny prime contract ... under which such certificate is required shall contain a provision that the price to the Government, including profit or fee, shall be adjusted to exclude any significant sums ... [by which] such price was increased because the contractor ... furnished cost or pricing data which, as of a date agreed upon between the parties ... was inaccurate, incomplete, or noncurrent...." 10 U.S.C. Sec. 2306(f)(2) (1982).

The relevant Defense Acquisition Regulation (Regulation) in effect at the time of the contract here at issue provided:

If such certified cost or pricing data are subsequently found to have been inaccurate, incomplete or noncurrent as of the effective date of the certificate, the Government is entitled to an adjustment of the negotiated price, including profit or fee, to exclude any significant sum by which the price was increased because of the defective data.

Regulation Sec. 3-807.10(a) (1978) reprinted in 32 C.F.R., Parts 1-39, Vol. I, at 486 (1981). This "adjustment" is known as a downward price adjustment.

The Regulation also described the appropriate method of calculating the amount by "which the price was increased because of the defective data":

(a) ... In arriving at a price adjustment under a clause, the contracting officer should, after review of the contract negotiation, consider the following:

(1) The time when cost or pricing data was reasonably available to the contractor....

(2) In the absence of evidence to the contrary, the natural and probable consequences of defective data is an increase in the contract price in the amount of the defect plus related burden and profit or fee; therefore, unless there is a clear indication that the defective data were not used, or were not relied upon, the contract price should be reduced in that amount. In establishing that the defective data caused an increase in the contract price, the contracting officer is not expected to reconstruct the negotiation by speculating as to what would have been the mental attitudes of the negotiating parties if the correct data had been submitted at the time of agreement on price.

(3) In determining the amount of an adjustment, the contracting officer shall consider any understated cost or pricing data submitted in support of price negotiations for the same pricing action ... up to the amount of the Government's claim for overstated cost or pricing data arising out of the same pricing action. Such offsets, however, need not be in the same cost groupings (e.g., material, labor or overhead).

Regulation Sec. 3-807.10(a) (1978) (emphasis in original) reprinted in 32 C.F.R., Parts 1-39, Vol. I, at 486-87 (1981).

To implement the Act, the government requires that every contract subject to the Act shall include a uniform clause entitled "Price Reduction for Defective Cost or Pricing Data," which tracks the language of the Act and the Regulation. Regulation Sec. 7-104.29 (1976) reprinted in 32 C.F.R. Parts 1-39, Vol. II, at 133-34 (1981).

Although these provisions have been changed since the contract was executed, the parties apparently agree that the provisions in effect when the contract was executed B. The dispute in this case involves the thirteenth in a series of contracts by which the Navy purchased similar computers and related test data from Sperry Corporation, now Unisys Corporation. Since Unisys was the developer and sole supplier of these special computers, the contracts were negotiated and not the result of competitive bidding.

control. We therefore look to those provisions in deciding this case.

The contract was the product of extensive negotiation. Unisys submitted its first pricing proposal in July 1980, followed by an updated price proposal in August. In November of that year, Unisys submitted a summary pricing proposal updating the August proposal to account for "changes in Manufacturing Labor factors, Labor Standards and Material Standards from the most recent baseline activity" as well as to correct errors and account for labor escalation changes.

In April and October of each year, Unisys compiled a semi-annual report of the cost and pricing data for the preceding six months. The original July 1980 proposal was based on data compiled up through April 1980. The November 1980 proposal by Unisys incorporated the October 1980 figures. Similarly, the memorandum attached to the government's Pre-Negotiation Clearance also incorporated the October 1980 data.

In January 1981, the government completed a Pre-Negotiation Clearance. A memorandum attached to this document contained the government's own estimate of the proper cost for the various items in the contract and was the basis upon which the government authorized its representative finally to agree upon the terms of the contract. When the government approved the Pre-Negotiation Clearance, the parties had agreed on all aspects of the contract except total price.

On February 10, 1981, the parties agreed on the total price. As the Board found, this "[a]greement was reached on the basis of total bottom line price, not on each element of cost." 88-3 B.C.A. at 105,978. Together with its letter of February 11 confirming the agreement regarding price, Unisys furnished the required Certificate of Current Cost or Pricing Data stating that the cost or pricing data supplied were "accurate, complete and current." The government negotiator then prepared a Post-Negotiation Clearance "to record the results of the negotiations ... [and] to request approval of those negotiations, and to request authority to enter into a contract." Id.

Throughout the negotiations, with minor exceptions the most recent cost or pricing data Unisys disclosed was that for the tenth lot of computers. Although data for Lot 11 became available before the final agreement on price was reached, Unisys did not provide the government with most of this information, even though the government negotiator had indicated his interest in the data. In a post-award audit, the government concluded that by failing to disclose Lot 11 cost or pricing information, Unisys had submitted defective cost or pricing data, and that Unisys' failure to disclose "resulted in an overstatement of the contract of $835,196." 88-3 B.C.A. at 105,979.

The Board agreed that Unisys had submitted defective cost or pricing information, but reduced the government's downward price adjustment to $746,737. In a lengthy opinion, the Board discussed in detail each of the four categories for which the data were defective.

It pointed out that the parties agreed, as they still do, on the amount to which the government was entitled for one of the categories. With respect to the other three categories, the Board ruled that the proper basis for determining the amount of the downward price adjustment was the difference between the price and cost data in the memorandum attached to the Pre-Negotiation Clearance prepared by the government and based on the data disclosed by Unisys up to the October 1980 pricing report, and the lower cost that would have been shown if Unisys had disclosed to the government, prior to the February 10, 1981 agreement on bottom line price, the information it had on the costs of producing Lot 11. The Lot The Board held the figures the government used in its Pre-Negotiation Clearance, "to be the most accurate expression of the" pricing or cost data that Unisys had disclosed. The Board found that if the government negotiator had known of the nondisclosed data regarding Lot 11, he would have used that...