Glantz Contracting Co. v. General Elec. Co.

• Decision Date: 06 February 1980
• Docket Number: No. 51617,51617
• Parties: 27 Cont.Cas.Fed. (CCH) P 80,174 GLANTZ CONTRACTING COMPANY and Security Insurance Company v. GENERAL ELECTRIC COMPANY.
• Court: Mississippi Supreme Court

Page 912

379 So.2d 912

27 Cont.Cas.Fed. (CCH) P 80,174

GLANTZ CONTRACTING COMPANY and Security Insurance Company v. GENERAL ELECTRIC COMPANY.

No. 51617.

Supreme Court of Mississippi.

Feb. 6, 1980.

White & Morse, D. Knox White, Gulfport, A. Morgan Brian, Jr., New Orleans, La., for appellants.

Eaton, Cottrell, Galloway & Lang, Charles R. Galloway, Gulfport, Lucien M. Gex, Jr., Waveland, for appellee.

Before PATTERSON, C. J., and BROOM and COFER, JJ.

BROOM, Justice, for the Court:

Overpayments made by prime contractor General Electric Company (GE), appellee, to sub-contractor Glantz Contracting Company (Glantz), appellant, during the progress of the sub-contract work on a large United States Government project (NASA) are in controversy here. Trial was in the Chancery Court of Hancock County wherein GE, complainant below, sued Glantz and its surety, Security Insurance Company. A $263,904.37 money decree plus six percent pre-judgment interest was awarded GE, and Glantz appeals. We affirm as to liability, but reverse in part as to pre-judgment interest.

Work done by sub-contractor Glantz was at the National Aeronautics and Space Administration (NASA) Mississippi Test Facility (MTF) in connection with the Apollo "moon landing mission." Speed in completion of the work was demanded by our government in order to "beat the Russians to the moon." The controversy evolved from the acceleration of the construction work aimed at immediate preparation for operations of the MTF near Bay St. Louis, Mississippi. Careful testing of Saturn rocket engines had to be accomplished at the MTF prior to their being attached to manned spacecraft at Cape Kennedy. NASA suggested to its MTF prime contractor GE that GE sub-contract certain chemical cleaning work of the cryogenic piping system with Glantz because NASA felt that only Glantz had the expertise and capability necessary to accomplish the work within the short time table allowed. NASA seemingly caused GE, without the time consuming public notice and bidding, to contract quickly with Glantz on a "cost plus fixed fee" (CPFF) basis. Intense negotiations between GE and Glantz were compacted within a short time frame, Memorial Day weekend of May, 1965. The contract between Glantz and GE followed an unsuccessful attempt by NASA to contract directly with Glantz when NASA could not agree with Glantz, Glantz was referred to GE for negotiations of the sub-contract. Glantz contends it was entitled to receive and retain payments made to Glantz by GE in the form of pro-rata home-office general administrative and overhead (GA&O) expenses regardless of whether such expenses were allocable to the NASA sub-contract work at MTF.

The instant suit was filed by GE against Glantz in order to recoup its over-payment mistakenly made to Glantz for which NASA would not reimburse GE, the net sum of $263,904.37. Glantz agrees it owes GE $52,895.20 and (along with Security) says the decree appealed from, to that extent, should be affirmed. Other facts will be stated as appropriate herein.

First issue is whether the chancellor correctly held that the General Electric-Glantz sub-contract required allocable costs to be determined as provided by NASA Procurement Regulations.

NASA would not contract directly with Glantz because Glantz insisted that NASA approve Glantz's "pool" concept of having NASA pay certain indirect overhead costs not related or allocable to the NASA project. NASA refused to approve the "pool" concept. As stated in its brief, Glantz insisted it simply would not undertake the job or enter into any contract unless it was paid an aggregate of (a) the fixed fee, (b) all site-related, i. e., "allocable," costs (direct and indirect), and (c) the pro-rata of all pertinent home-office GA&O pools, even if that included some of the very same types of indirect costs which are charged and reimbursed as "direct site" costs under item (b). Glantz takes the position that it and NASA orally agreed upon CPFF terms which would charge the full amount of all site-related ("allocable") costs, both direct and indirect, as "direct" and reimbursable, and also pay a pro-rata part of all home-office GA&O expenses, whether allocable or not. The non-allocable costs are the crux of the controversy. Glantz says that NASA Specifically "Understood and acquiesced in this," and on this basis Glantz argues it is entitled to payment for GA&O incurred at its home office in New York, and accounted for in its home office's GA&O.

GE argues that, based upon the black-letter language of the written contract between GE and Glantz, allocability to MTF project was not written out of their contract. Accordingly, GE contends that Glantz's GA&O costs not related to MTF are not chargeable to GE and therefore such charges mistakenly paid by GE to Glantz were properly included in the money decree in favor of GE.

GE's sub-contract with Glantz provides that only indirect costs "allocable" to the MTF work are to be paid Glantz by GE. Art. V of the sub-contract binds GE to pay the cost, as determined to be allowable pursuant to Part 15, Sub-parts 2 and 4 of the NASA Procurement Regulations. Article XIV, par. 1(d) provides that indirect costs to be paid shall include all items of indirect allowable cost found in Part 15 of the NASA Procurement Regulations. In the General Terms and Conditions, clause 27, par. (c) is the provision that allowability of costs and acceptability of cost allocation methods shall be determined in accordance with Part 15, Sub-parts 2 and 4 of the NASA Procurement Regulations. NASA Procurement Regulations, Part 15 (NASPR-15) provides in Sub-part 2, section 15.201-2 that factors to be considered in determining the allowability of individual items of cost include allocability. Section 15.201-4 reads:

15.201-4. Definition of Allocability. A cost is allocable if it is assignable or chargeable to a particular cost objective, such as a contract, product, product line, process, or class of customer or activity, in accordance with the relative benefits received or other equitable relationship. Subject to the foregoing, a cost is allocable to a Government contract if it:

(i) is incurred specifically for the contract;

(ii) benefits both the contract and other work, or both Government work and other work, and can be distributed to them in reasonable proportion to the benefits received; or

(iii) is necessary to the overall operation of the business, although a direct relationship to any particular cost objective cannot be shown.

NASPR-15 provides in section 15.202 that:

When items ordinarily chargeable as indirect costs are charged to Government work as direct costs, the cost of like items applicable to other work of the contractor must be eliminated from indirect cost allocated to Government work.

While the work was being done, GE paid Glantz as Glantz requisitioned GE including the MTF's pro-rata of all home-office GA&O pools, regardless of any MTF allocability. GE neither held back nor retained any sum from those payments. GE paid Glantz for everything Glantz billed as the work progressed without GE disapproving any of the non-MTF allocable GA&O costs included in bills submitted by Glantz. When Glantz completed its work as contracted, GE had paid Glantz all costs billed, and all of the fixed fee except a relatively small (about $24,000) retainage withheld by GE.

Subsequently, NASA audited the costs which GE had paid to Glantz under the CPFF sub-contract. Purpose of the audit was to determine what cost reimbursements NASA should make to GE under their CPFF prime contract. Pursuant to its audit, NASA disallowed the non-site-allocable GA&O costs which GE had been paying all along to Glantz as items "non allocable" under NASPR-15, Supra. In accomplishing the disallowance as to GE, NASA withheld from GE whatever amounts NASA otherwise owed GE on subsequent payments, thereby paying GE less until such disallowed costs under the prime contract were completely recouped by NASA from GE. As a result GE was unable to make the same kind of set-offs under its sub-contract with Glantz because GE already had paid Glantz all but $24,000 of the total sub-contract funds.

Vital to the issue is whether or not language included in the sub-contract between GE and Glantz negated the "allocability" sections of NASPR-15 relating to general administrative and overhead (GA&O) expenses. Glantz's contention is that the language which was inserted by Marvin L. Schechter, attorney for Glantz, in sub-part (d) of Section XIV of the sub-contract between GE and Glantz ¹ effectively limited the language of NASPR-15.

As a "hard money" or "lump sum" contractor, Glantz characteristically included a certain percentage of its estimated cost to cover its home office GA&O expenses not allocable to any particular job. In the sub-contract with GE, the original language without a doubt included the language of NASPR-15. The position of the witnesses for Glantz was that they expressed to GE (and NASA at the prior meetings) that they could not accept this sub-contract unless they were assured that this job would carry a proportionate share of the unallocable home office expense. Schechter stated that he inserted the language of Section XIV, sub-section (d) specifically to eliminate the allocability language of NASPR-15, but left the other references in the contract to NASPR-15 to relate to the "allowability per se" aspects. He further stated that he felt that his position was made clear to GE. GE paid all the costs billed to them by Glantz in full in the amount of approximately $2,765,480 plus all of the fixed fee of $111,940 except for $24,000 of the fixed fee which was withheld.

The significance and the ramifications of NASPR-15 are clearly established. Witnesses for Glantz, including its attorney, Schechter, testified that his sole purpose for inserting sub-section (d) of Section XIV was to limit the impact of NASPR-15 and especially those points...