Wagner Whirler & Derrick Corp. v. United States

• Decision Date: 08 June 1954
• Docket Number: No. 47735.,47735.
• Parties: WAGNER WHIRLER & DERRICK CORP. v. UNITED STATES.
• Court: U.S. Claims Court

121 F. Supp. 664

128 Ct. Cl. 382

WAGNER WHIRLER & DERRICK CORP. v. UNITED STATES.

No. 47735.

United States Court of Claims.

June 8, 1954.

Horace S. Whitman, Washington, D. C., for plaintiff. Herbert Klosk, New York City, was on the briefs.

Laurence H. Axman, New York City, with whom was Warren E. Burger, Asst. Atty. Gen., for defendant.

Before JONES, Chief Judge, and LITTLETON, WHITAKER and MADDEN Judges.

WHITAKER, Judge.

This action arises out of a contract dated December 15, 1941, between plaintiff and defendant whereby plaintiff agreed to manufacture and erect two 20-ton jib cranes at the Philadelphia Navy Yard for a consideration of $265,000, which was later increased by two change orders to $278,192.13.

The controversy presented concerns the following four things:

(1) The extra cost to which plaintiff alleges it was put for completing parts of the cranes at the Philadelphia Navy Yard instead of at the plant of its subcontractor in New York, as the result of defendant's order to it to ship these parts of the cranes before they had been completed (2) Additions to or reductions in cost of performing the contract as a result of changes made;

(3) The cost of completing the contract by the defendant after it had terminated plaintiff's right to proceed;

(4) The cost to defendant of correcting allegedly defective work, which defendant asserts as a counterclaim.

All of the questions presented, except the cost of correcting defective work, have been decided by the Chief of the Bureau of Yards and Docks, who was the contracting officer, and his decision has been affirmed by the head of the department. Defendant says that under article 15 of the standard Government contract, as construed by the Supreme Court in United States v. Wunderlich, 342 U.S. 98, 72 S.Ct. 154, 96 L.Ed. 113, his decision is final and not subject to review, because of our finding that there is no proof of conscious wrongdoing on the part of the contracting officer or of the head of the department or of an intention on their part to cheat or defraud plaintiff; and this, notwithstanding our finding that the contracting officer's decision in many respects was arbitrary, capricious, grossly in error, and not supported by substantial evidence.

Since the case was tried and submitted, Congress passed Public Law 356, 83d Congress, 2d Session, approved May 11, 1954, 68 Stat. 81, 41 U.S.C.A. §§ 321, 322, which reads as follows:

"Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That no provision of any contract entered into by the United States, relating to the finality or conclusiveness of any decision of the head of any department or agency or his duly authorized representative or board in a dispute involving a question arising under such contract, shall be pleaded in any suit now filed or to be filed as limiting judicial review of any such decision to cases where fraud by such official or his said representative or board is alleged: Provided, however, That any such decision shall be final and conclusive unless the same is fraudulent or capricious or arbitrary or so grossly erroneous as necessarily to imply bad faith, or is not supported by substantial evidence.

"Sec. 2. No Government contract shall contain a provision making final on a question of law the decision of any administrative official, representative, or board."

The rule to be applied, therefore, is not that laid down by the Wunderlich decision, but that set out in the Act quoted, since it applies to "any suit now filed or to be filed." That rule makes the decision of the head of the department final and conclusive, unless it is fraudulent or arbitrary or capricious or so grossly erroneous as to imply bad faith, or is not supported by substantial evidence.

Prior to the Wunderlich decision the rule laid down by the Supreme Court in quite a number of cases was that the decisions of the head of the department were not final where they were arbitrary, or capricious, or so grossly erroneous as to imply bad faith, or a failure to exercise an honest judgment. Burchell v. Marsh, 17 How. 344, 349, 15 L.Ed. 96; Kihlberg v. United States, 97 U.S. 398, 24 L.Ed. 1106; United States v. Gleason, 175 U.S. 588, 20 S.Ct. 228, 44 L.Ed. 284; Ripley v. United States, 223 U.S. 695, 32 S.Ct. 352, 56 L.Ed. 614; Penner Installation Corp. v. United States, 89 F.Supp. 545, 116 Ct.Cl. 550, affirmed per curiam by an equally divided court, 340 U.S. 898, 71 S.Ct. 278, 95 L.Ed. 651. See also Merrill-Ruckgaber v. United States, 241 U.S. 387, 36 S.Ct. 662, 60 L.Ed. 1058; Plumley v. United States, 226 U.S. 545, 33 S.Ct. 139, 57 L.Ed. 342, and others. And in several cases this court has held that where a ruling was not supported by substantial evidence, it must be treated as having been arbitrary, capricious, or so grossly erroneous as to imply bad faith, and, therefore, lacking in finality. In Needles for Use and Benefit of Needles v. United States, 101 Ct.Cl. 535, the court said, at page 607:

"* * * if the Court is satisfied that no reasonable man could have determined the dispute upon all the relevant facts and data as the administrative officer did, then the court is justified in inferring, as a fact, that the decision was not made impartially or in good faith. If this should not be the process contemplated by the rule that a decision may be set aside if `so grossly erroneous as to imply bad faith,' it is difficult to see how the rule could ever be consistently and properly applied within the realm of the probable intention of parties to a contract."

See also Penner Installation Corp. v. United States, 89 F.Supp. 545, 116 Ct. Cl. 550, at page 564; Mitchell Canneries, Inc., v. United States, 77 F.Supp. 498, 111 Ct.Cl. 228, 247; Loftis v. United States, 76 F.Supp. 816, 110 Ct.Cl. 551, 630; Bein v. United States, 101 Ct.Cl. 144 (concurring opinion).

Public Law 356, therefore, reinstated the rule applied in this court prior to the Wunderlich decision.

The case at bar was tried before the Wunderlich decision and under the rule applied in this court prior to the Wunderlich decision, but it was argued after that decision.

1. Cost of completing parts of the cranes at the Philadelphia Navy Yard. — The contract was awarded plaintiff on the day before the attack on Pearl Harbor, and was actually entered into on December 15, 1941. Defendant was, therefore, in urgent need of the cranes at the earliest possible date. For a number of reasons plaintiff had been unable to complete the contract on time, and, hence, in an effort to expedite the work, defendant ordered the trucks for the cranes and the hoist machinery and rotating mechanism, being manufactured at the plant of one of plaintiff's subcontractors in New York City, to be shipped to the Philadelphia Navy Yard before completion, where the major portion of the cranes were being constructed. Plaintiff says that it cost it considerable additional sums to complete the construction of these portions of the cranes at the Philadelphia Navy Yard, instead of at the plant of the subcontractor in New York City.

Plaintiff's claim therefor has been decided adversely to it by the contracting officer and the head of the department. But plaintiff says the contracting officer's decision is not final because it was a breach of contract for the defendant to have ordered this shift in the situs for doing the work.

It is difficult for us to see how this constituted a breach of contract, but we do not need to decide this question, because it is impossible to determine from the proof the portion of the work which should have been done in the field and the portion which should have been done in the shop; nor is it possible to determine the excess cost of completing at the Philadelphia Navy Yard those portions which should have been completed at the plant of plaintiff's subcontractor. There is, therefore, no reasonable basis to be found in the proof for the fixing of damages, even if this were a breach of contract. Addison Miller, Inc., v. United States, 70 F.Supp. 893, 108 Ct.Cl. 513, 557, certiorari denied 332 U.S. 836, 68 S.Ct. 217, 92 L.Ed. 408.

Plaintiff's claim for these items is disallowed.

2. Adjustments in the contract price made by the contracting officer as a result of changes in the contract. — Article 27 of the General Provisions of the specifications related to "Adjustments in price and time owing to changes." It provided for the appointment of a Board to determine the adjustments to be made on account of changes, two members of which should be representatives of the Government, and one member a representative of the plaintiff. The findings of this Board were subject to approval of the contracting officer, whose decision was made final, subject to appeal to the head of the department.

The majority of this Board recommended a reduction in the amount to be paid plaintiff as the result of savings effected by changes, and for the cost of completing the contract after its termination, in the total amount of $43,994.00. Plaintiff's representative submitted a minority report recommending an increase in the contract price of $67,271.82, instead of the reduction recommended by the majority. The contracting officer decided the contract price should be reduced by $34,120.00, subject to a credit of the sum of $4,993.20 for overtime plaintiff was required to pay its laborers at the demand of the Government, and on its promise to reimburse plaintiff therefor. The result of his determination was that the contract price should be reduced by the amount of $29,126.80. This was affirmed on appeal.

The contract price, as amended by change orders, amounted to $278,192.13. If this amount is to be reduced by the amount found by the contracting officer, $29,126.80, there would have been due plaintiff a balance of $249,065.33. Plaintiff has been paid $248,378.31, leaving a balance due, according to the contracting officer's...