Contractors v. Renegotiation Bd.
| Decision Date | 09 February 1970 |
| Docket Number | Docket No. 1048-R. |
| Citation | 54 T.C. 177 |
| Parties | GREENLAND CONTRACTORS, A JOINT VENTURE, AGENT,1 PETITIONER v. RENEGOTIATION BOARD, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Numa L. Smith, Jr., Barron K. Grier, Clarence Kipps, Jr., and John W. Nolan, for the petitioner.
Irwin Goldbloom, for the respondent.
Held: 1. A contract between a joint venture represented by petitioner and the Army Corps of Engineers, awarded as a result of procedures which met all the requirements and standards of formal advertising as set out in sec. 3 of the Armed Forces Act of 1947, is exempt from renegotiation under sec. 106(a)(9) of the Renegotiation Act of 1951, despite certain circumstances such as a statement appearing in the introductory paragraph of the contract which recites that the contract was ‘negotiated’ and the fact that the procedures authorized by the Army Corps of Engineers permitted the district engineer to enter into ‘negotiations' before awarding the contract.
2. Under the facts of the case and under regulations promulgated by the Renegotiation Board, where, as a result of contract modifications made to a contract competitively bid, price increases aggregating 78 percent of the original contract price were to be paid by the Government to a joint venture represented by petitioner, such aggregate price increase is subject to renegotiation even though most of the modifications of the original contract were made pursuant to change orders as provided by the ‘changes' clause of that contract.
Respondent has determined by an order dated May 19, 1966, that petitioner, a consolidated group of four joint ventures, realized excessive profits in the amount of $7,500,000 ($7,443,907 after adjustment on account of income taxes other than Federal income taxes) from contracts and subcontracts allegedly subject to the Renegotiation Act of 1951 for the fiscal year ended December 31, 1961.
Before this case was called for trial, the parties jointly moved this Court for an order which was granted setting this proceeding for a trial limited to the following issues:
1. Whether receipts and accruals in the approximate amount of $18,872,000 received or accrued by petitioner for its fiscal year ended December 31, 1961, as contractor or subcontractor under Contract numbered DA-30-347-ENG-137 through modification number 22, are exempt from renegotiation under sections 106(a)(7) and 106(a)(9) of the Renegotiation Act of 1951, as amended, 50 U.S.C. App. 1216(a)(7); 1216(a)(9) and applicable regulations issued under the Act.
2. Whether receipts and accruals in the approximate amount of $9,937,000 received or accrued by petitioner as contractor or subcontractor for its fiscal year ended December 31, 1961, under change orders, supplemental agreements or other modifying instruments to Contract DA-30-347-ENG-290 are exempt from renegotiation under sections 106(a)(7) and 106(a)(9) of the Renegotiation Act of 1951, as amended, 50 U.S.C. App. 1216(a)(7); 1216(a)(9), and applicable regulations issued under the Act.
The petitioner reserves the right to assert the nonapplicability or invalidity of any regulations issued by respondent under the Renegotiation Act of 1951, as amended.
In a ‘Stipulation with Respect to Limited Issues' and in a later stipulation, the parties have agreed between themselves upon the alternative actions to be taken by this Court depending upon our resolution of the issues in controversy. 2
When this case was called for trial, the parties submitted this case on a complete stipulation of facts pursuant to Rule 30 of the Rules of Practice of this Court. All of the stipulations and the exhibits attached thereto are incorporated herein by this reference and are adopted as our findings of fact. For reasons which will be discussed below, we deny respondent's motion to strike from the record of this case the stipulations and exhibits relating to events preceding the ultimate award of Contract DA-30-347-ENG-137.
We set forth below a summary of the pertinent general facts. We shall set forth the facts pertinent to each of the limited issues raised by the parties in the respective portions of this opinion in which we discuss each of these issues.
The petitioner is a related group composed of the following four joint ventures: (a) Greenland Contractors, a joint venture, composed of Peter Kiewit Sons' Co., S. J. Groves & Sons Co., Al Johnson Construction Co., and Condon-Cunningham, Inc. (hereinafter referred to as Greenland Contractors); (b) Peter Kiewit Sons' Co. and Al Johnson Construction Co., a joint venture (hereinafter referred to as the 290 Contractor); (c) Peter Kiewit Sons' Co., doing business as Greenland Contractors, a joint venture, composed of Peter Kiewit Sons' Co. and Al Johnson Construction Co. (referred to by the parties as the 383 Contractor); and (d) Greenland Contractors, a joint venture, composed of Peter Kiewit Sons' Co., S. J. Groves & Sons Co., Al Johnson Construction Co., and Condon-Cunningham, Inc. (referred to by the parties as the 383A Contractor). Only the first two joint ventures (Greenland Contractors and the 290 Contractor) are involved in the limited issues before the Court in these proceedings.
Pursuant to section 105(a), and section 1464 of respondent's regulations, 32 C.F.R. sec. 1464, renegotiation of the above-named joint ventures for the fiscal year ended December 31, 1961, has been and is to be conducted on a consolidated basis. Pursuant to such regulations, Greenland Contractors was designated as the agent for the consolidated group.
Each joint venture comprising the petitioner kept its books and filed its tax returns on the completed-contract method, and the petitioner's method of accounting for renegotiation is also the completed-contract method.
The contracts involved in this proceeding are fixed-price contracts bearing the designations DA-30-347-ENG-137 (hereinafter referred to as Contract 137) and DA-30-347-ENG-290 (hereinafter referred to as Contract 290.) The Eastern Ocean District Engineer, Corps of Engineers, U.S. Army, awarded and administered both of these contracts.
Issue 1. Contract 137
Contract 137 was awarded to Greenland Contractors— Danish Arctic Contractors Joint Venture (hereinafter referred to as GC-DAC) on December 29, 1955, at the price of $18,176,836. Contract 137 required construction of runways, taxiways, parking facilities, and buildings and the renovation of existing buildings at Thule and Sondrestronfjord Air Base in Greenland for use by the Strategic Air Command. GC-DAC subcontracted the work under Contract 137 at the same unit prices as appeared in the prime contract. Part of such work ($14,834, 348) was subcontracted to and performed by Greenland Contractors and the balance ($3,342,488) was subcontracted to and performed by Danish Arctic Contractors.
The $18,872,000 figure set forth in paragraph 1 of the parties' joint motion for limiting issues as the amount received or accrued by the petitioner was received or accrued by Greenland Contractors as subcontractor under Contract 137. The $18,872,000 represents the aggregate of the original subcontract price ($14,834,348) and the price received for work under Modifications 1 through 22 of Contract 137 ($4,037,652).3
The issue before us concerning Contract 137 is whether or not GC-DAC's prime Contract 137, as originally awarded on December 29, 1955, is exempt from renegotiation under section 106(a)(9) of the Renegotiation Act of 1951, 50 U.S.C. App. sec. 1216(a)(9). That section provides as follows:
(a) Mandatory Exemptions.— The provisions of this title shall not apply to—
(9) any contract, awarded as a result of competitive bidding, for the construction of any building, structure, improvement, or facility, other than a contract for the construction of housing financed with a mortgage or mortgages insured under the provisions of title VIII of the National Housing Act, as now or hereafter amended.
The parties have stipulated that ‘contract 137 was for the construction or installation of the whole, or an integral part of a building, structure, improvement, or similar facility, and was not for the construction of housing financed with a mortgage or mortgages insured under the provisions of Title VIII of the National Housing Act, as then or thereafter amended.’
The stipulated evidence shows that prior to the award of Contract 137 the following events occurred:
In August 1955, by means of an intra-agency memorandum addressed to the ‘Chief of Engineers, Department of the Army,‘ the Eastern Ocean District Engineer, Corps of Engineers, U.S. Army, sought and obtained authority from the Chief of Engineers to solicit ‘fixed price proposals for air base construction * * * in Iceland’ from selected prequalified contractors. This request, formally designated as ‘Request for Authority to Negotiate and Award a Fixed Price Contract with Limited Bidders,‘ reads in pertinent part as follows:
3. The proposals are to be opened at the stated time in the presence of the contractors submitting the proposals if the lowest proposal received is in the judgment of the Contracting Officer, acceptable and considered to be in the best interests of the Government, a contract will be awarded. If the Contracting Officer is unable to accept the low proposal, Contracting Officer will enter into negotiations with the next lowest proposer and conduct negotiations in turn in an attempt to arrive at an agreeable price. * Contract to be awarded is to be a negotiated contract on Government Standard Form No. 23, Revised March 1953, with additional provisions to cover the special conditions pertaining to the work. * * *
4. Authority is requested for the Contracting Officer to award the contract to the lowest bidder. This authority is requested in the interest of saving time as it is essential that work be placed under contract on or about 15 November 1955 because of the complexity of transfer of...
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...actually did to obtain competition, nor the degree of his success in obtaining it. Plaintiff relies heavily on Greenland Contractors v. Renegotiation Board, 54 T.C. 177 (1970), in which the Tax Court determined that a firm fixed price contract was awarded pursuant to formal advertising, des......