ITT Arctic Services, Inc. v. United States, 324-73.

• Decision Date: 22 October 1975
• Docket Number: No. 324-73.,324-73.
• Citation: 524 F.2d 680
• Parties: ITT ARCTIC SERVICES, INC. v. The UNITED STATES.
• Court: U.S. Claims Court

524 F.2d 680

ITT ARCTIC SERVICES, INC. v. The UNITED STATES.

No. 324-73.

United States Court of Claims.

October 22, 1975.

C. Stanley Dees, Washington, D. C., for plaintiff. Gilbert A. Cuneo, Washington, D. C., atty. of record. William H. Butterfield, Sellers, Conner & Cuneo and William Eisner, Paramus, N. J., of counsel.

Susan M. Linden, Court of Claims Section, Civil Div., Dept. of Justice, Washington, D. C., with whom was Acting Asst. Atty. Gen. Irving Jaffee, for defendant.

Before DURFEE, Senior Judge, and NICHOLS and KASHIWA, Judges.

ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND DEFENDANT'S CROSS-MOTION FOR SUMMARY JUDGMENT

DURFEE, Senior Judge.

The legal task before the court is one of interpreting the parties' contract. The question to be answered is whether certain clauses in the parties' contract entitled plaintiff to a price increase in its Firm Fixed-Price (FFP) contract for increased costs incurred in Canada on account of the Canadian Government's action in unpegging the fixed rate of exchange between the American and Canadian dollars and the latter currency's upward float in value during the life of the parties' contract.

The Armed Services Board of Contract Appeals (the Board) having denied plaintiff's claim¹ for a price increase in its FFP contract, the case comes before this court on plaintiff's motion and defendant's cross-motion for summary judgment. Plaintiff seeks reversal and defendant affirmance of the Board's decision under the review standards of the Wunderlich Act, 41 U.S.C. §§ 321, 322 (1970). The appeal presents solely a question of law without dispute to the operative facts.

ITT Arctic Services, Inc. (ITT-ASI),² an American corporation, had provided operation and maintenance (O & M) services under a series of successive management contracts with the United States Air Force on the Distant Early Warning Line (DEW Line) since its completion in 1955. The DEW Line is a network of radar and communication installations extending across large areas of the Arctic regions including Canada, Alaska and Greenland. The DEW Line's primary objective is the detection, classification and reporting of airborne objects. The present dispute involves only the Canadian portion of the DEW Line.

ITT-ASI received its first DEW Line O & M contract for fiscal year 1957. This contract was a Cost Plus Fixed Fee (CPFF) contract and renewed annually up to 1963. For fiscal years 1964 through 1966 plaintiff operated the DEW Line under a Cost Plus Incentive Fee (CPIF) contract. Between fiscal years 1967-1969, ITT-ASI performed O & M services on the Canadian segment of the DEW Line under a Fixed-Price Incentive Fee (FPIF) type contract. Following the issuance and evaluation of a competitive two-step multi-year Request for Proposals (RFP)³ issued by the Air Force through the Sacramento Air Materiel Area, McClellan Air Force Base, California, plaintiff was awarded a three-year DEW Line O & M management services contract, effective July 1, 1969 for fiscal years 1970, 1971 and 1972. That contract,⁴ the basis of the present dispute, was a Firm Fixed-Price (FFP) type contract with a monthly payment in U.S. dollars of $1,696,319 for a total contract price of $61,067,484. The contract's Statement of Work (SOW) provided that in addition to performing the technical operation, maintenance and support services necessary for the actual operation of the DEW Line, the contractor (ITT-ASI) would provide a wide variety of auxiliary services to its DEW Line employees including recreational and morale programs and religious, mail, medical and mortuary services.

Prior to the award of the first O & M DEW Line contract, the Governments of the United States and Canada entered into agreements governing the performance of O & M contractors on the Canadian segment of the DEW Line. These intergovernmental agreements provided that U.S. selected DEW Line contractors would give preference to Canadian labor, set and maintain wage rates and working conditions after consultation with and approval by the Canadian Department of Labour in accordance with the Canadian Fair Wages and Hours of Labour Act, and pay its Canadian labor in their domestic currency (Canadian dollars).

The United States Government assured compliance with these provisions of the U.S.-Canadian agreements by inserting in all DEW Line contracts a clause requiring contractor adherence with all U.S.-Canadian agreements. The Special Provision's Clause in plaintiff's present contract required:

PART V AGREEMENTS BETWEEN GOVERNMENTS

The Contractor shall comply with the applicable provisions of any agreements heretofore or hereafter entered into between the Government of the United States and the Governments of Canada, Denmark, Iceland or the United Kingdom, as well as the Air Force Regulations, manuals and other applicable directives in existence on the date of the execution of this contract. In the event that any provisions of said agreements are inconsistent with the terms and conditions of this contract, this contract shall be amended accordingly. Such amendments, however, shall be subject to the provisions of ASPR 1-109.4.

On May 31, 1970 the Canadian Government removed the fixed par value of its currency, and allowed the Canadian dollars to float in the international money market. For the preceding eight years the Canadian dollar had a fixed par value exchange rate of .925 to the U.S. dollar. After the termination of Canada's fixed exchange rate the Canadian dollar fluctuated upward in value against the U.S. dollar. While floating the Canadian dollar never dipped below the previously fixed exchange rate of .925 to the American dollar. The effect of the unpegging action was that plaintiff had to exchange more U.S. dollars, in which it was paid, in order to obtain sufficient Canadian currency in which to meet its required Canadian obligations.

It is undisputed that the subsequent rise in the value of the Canadian dollar occasioned by that Government's decision to float its currency increased plaintiff's cost in meeting its contract expenses. The parties agree that the negotiations and plaintiff's computation of its price proposal regarding this contract were based on the then fixed Canadian rate of exchange of .925 to the U.S. dollar, and that there were no discussions of a change in that rate.

On June 5 and July 24, 1970 plaintiff requested from the Contracting Officer an upward price adjustment in its FFP contract on account of the adverse impact the higher cost of Canadian dollars was having on its cost position. Plaintiff based its request on paragraph 3 of Part IV of the Special Provisions. That part of the Special Provisions provided:

PART IV AGREEMENTS BETWEEN GOVERNMENTS OF THE UNITED STATES AND CANADA:

1. The Contractor shall comply with all applicable Government agreements relating to Canadian participation in the operation and maintenance of the Canadian segment of the DEW Line. These agreements call for the exclusive use of Canadian sources in procuring petroleum, oils and lubricants, and transportation by air or water. However, it being understood that the POL requirements may be procured outside of Canada if costs quoted by Canadian Companies substantially exceed costs of POL which may be offered by other sources. In addition the Contractor shall accord preference to qualified Canadian Materials.

2. Wages Canadian Portion—The Wages applicable to that portion of the work to be performed in Canada must be approved by the Canadian Department of Labour. This includes the number of hours per work week as well as wage rates.

3. Wage Escalation—hereinafter Wage Escalation clause In the event that labor costs including fringe benefits, working conditions, or other elements of labor costs increase in Canada during the period of 69 Jul 01 through 72 Jun 30 which are in excess of those in effect as of 69 Jul 01, such increases, when required and approved by the Canadian Government will be the basis for modification of the contract price. Such increase shall not include any amount for general and administrative costs, overhead or profit nor shall an adjustment be allowed by reason of improper classification of employees.

The Contracting Officer denied plaintiff's request. On timely appeal to the Armed Services Board of Contract Appeals, the Board affirmed the Contracting Officer concluding that:

Our conclusion is that while appellant may have incurred additional costs attributable to currency fluctuation, such costs in our opinion could not be deemed "labor costs" or "other elements of labor costs" under the wage escalation clause of the contract.⁵

Plaintiff filed a petition in this court on August 28, 1973 for review of the Board's decision under both sections of the Wunderlich Act, 41 U.S.C. §§ 321, 322 (1970), alleging that the decision of the Armed Services Board of Contract Appeals was erroneous as a matter of law.⁶

Plaintiff claims that the Board erred in not interpreting the Wage Escalation clause, set forth above, as applicable to the present situation to grant plaintiff an upward price modification for the increased costs incurred on the instant contract on account of the rise in the exchange rate between the Canadian and American dollars. The Government takes the opposite view that the Board should be affirmed because it properly concluded that the Wage Escalation clause was not intended to protect plaintiff against losses due to currency fluctuations.

For the reasons below, the Government's position is sustained, and its cross-motion for summary judgment granted. Plaintiff's motion for summary judgment is denied, and its petition dismissed.

Contract interpretation questions of the meaning and applicability of a contract clause, such as the present one, require the court's determination as to what the parties shook hands on. "For it is always true that `in the case of contracts, the avowed purpose and primary function of the court is the...