National Electronic Laboratories, Inc. v. United States

• Decision Date: 20 January 1960
• Docket Number: No. 279-57.,279-57.
• Citation: 180 F. Supp. 337
• Parties: NATIONAL ELECTRONIC LABORATORIES, INC. v. UNITED STATES.
• Court: U.S. Claims Court

180 F. Supp. 337

NATIONAL ELECTRONIC LABORATORIES, INC. v. UNITED STATES.

No. 279-57.

United States Court of Claims.

January 20, 1960.

Robert Sheriffs Moss, Washington, D. C., for plaintiff.

Clare E. Walker, New York City, with whom was Acting Asst. Atty. Gen. George S. Leonard, for defendant.

LITTLETON, Judge (Retired).

In November 1951, the plaintiff and the Signal Corps of the Army entered into a contract, hereinafter referred to as No. 7052, which required plaintiff to supply seven shutter assemblies with specified appurtenances, for $31,677.61. A few days later the number of units was increased from seven to forty-one, and the contract price was fixed at $180,320.69. The shutter assemblies were delivered to, and accepted and paid for by the Signal Corps.

The contract was a negotiated contract, and it contained a provision for a revision of the contract price by agreement if agreement could be arrived at. If the parties could not agree on a revised price, their disagreement was to be treated as a disagreement as to a question of fact, which should be disposed of in accordance with Article 12, the Disputes article, of the contract. That meant that the contracting officer would unilaterally determine a revised price, and that his determination might be appealed by the plaintiff to the Secretary of the Army, or his representative, which would be the Armed Services Board of Contract Appeals.

On November 16, 1955, the contracting officer, over plaintiff's objections, unilaterally revised the contract price downward from $181,320.69 to $136,367.27. The plaintiff appealed and the Board of Contract Appeals further revised the price downward to $114,077.07.

The plaintiff, also in November 1951, entered into another shutter assembly contract with the Signal Corps, for a price of $102,428.20. This contract will be referred to as No. 31136. It was, in its terms and the circumstances of its negotiation, like contract No. 7052. It was completed, the contract price was paid, price revision discussions resulted in disagreement, the contracting officer unilaterally revised the price downward from $102,033.32 to $71,042.84, the plaintiff appealed to the Board of Contract Appeals, and the Board further revised the price downward to $64,869.13.

The plaintiff has not repaid to the Government the amounts by which the contract prices were reduced by the revisions. The Government has, however, collected $2,271.60 from plaintiff by offsets against amounts otherwise due plaintiff.

In its petition plaintiff asserts the invalidity of the price revision provisions of its contracts, on the ground that they violated certain provisions of statutes and applicable regulations, and that the plaintiff was misled into signing the contracts containing the price revision provisions by misrepresentations of the Government's contracting officer. It also alleges that the Board of Contract Appeals arbitrarily, capriciously and erroneously revised the contract prices downward in the amounts recited above. By way of relief it asks that the contracts be reformed to eliminate their price revision provisions, and that it be given a judgment for the $2,271.60 which the Government has collected from it by making offsets against amounts otherwise due to it.

In its motion for a summary judgment the plaintiff presents only the question of the legal invalidity of the price revision provisions of its contracts. It says that those provisions were (1) illegal because they converted the contracts into "cost-plus-a-percentage-of-cost" type contracts which were prohibited by statute, and (2) unenforceable because, under the statutes and regulations, the contracting officer was without authority to insert them in the contracts, such authority, if it existed at all, being lodged in higher echelons of the Army.

The Government asserts the legality of the price revision provisions and authority of the contracting officer to insert them in the contracts.

The Armed Services Procurement Act of 1947, 62 Stat. 21, 41 U.S. C. § 153(b)¹ says

"The cost-plus-a-percentage-of-cost system of contracting shall not be used, and in the case of a cost-plus-a-fixed-fee contract the fee shall not exceed 10 per centum of the estimated cost of the contract, exclusive of the fee * * *."

If, in the face of this statute, a concededly cost-plus-a-percentage-of-cost contract were made and performed, a troublesome question would arise as to what to do about it. To forfeit only the percentage of cost and allow recovery of the cost would not adequately serve the purpose of the statute, since the vice at which the statute is aimed is the increased cost which the contractor might allow to accrue in order to obtain the percentage of the increased cost. It would seem that, if total forfeiture were regarded as too harsh a penalty, compensation for performance should be on a quantum meruit basis, in disregard of the contract.

In the instant case, as we have seen, the plaintiff asserts and the Government denies, that the contracts with their price revision provisions were, in effect, cost-plus-a-percentage-of-cost contracts. The plaintiff would have the court purge them of their asserted illegality by striking out the price revision provisions and letting the rest of the contracts stand, with their lump sum prices unimpaired. It becomes obvious that contracts not intended to be cost-plus-a-percentage-of-cost contracts, and which set a fixed price for performance, but which, because of other provisions in them, have some of the qualities of the forbidden type of contract, would present difficult questions as to equitable compensation for their performance.

We now consider, in some detail, the price revision provisions of the plaintiff's contracts, to determine whether they were in violation of section 153(b). Hereafter we will speak of contract No. 7052, with which contract No. 31136 was identical, for instant purposes. The contract provided that within 60 days after its completion, the contractor should file a statement showing his costs of performance, and the contracting officer should have access to the contractor's books, records and accounts, in order to verify the statement. The parties would then attempt to negotiate a "reasonable revised price" which "will constitute fair and just compensation to the contractor for the performance of this contract." The contract said:

"In determining the extent of any estimated allowance for profit to be taken into account in fixing such revised price, consideration will be given to the extent to which the Contractor has performed the contract with efficiency, economy and ingenuity. In no event shall the revised price exceed * * *."

The price set as the upper limit of revision was, in fact, the price at which the plaintiff had first offered to perform the contract, which offer had been rejected by the contracting officer, after which the figure of $181,320.69 had been agreed upon. No lower limit of revision was set, as might be surmised from the severe cuts which the contracting officer and the Board of Contract Appeals, in their turns, made in the plaintiff's contract figures.

Wherein did this price revision provision make the plaintiff's contract legally identical with the cost-plus-a-percentage-of-cost contracts forbidden by section 153(b)? The plaintiff says that it would induce a contractor to let his costs run high, because if he kept his costs low, the amount of profit which he would be allowed in the revision would be proportionately low. We think that what the plaintiff says is true, and that when the Board of Contract Appeals cut the contract price down from $181,320.69 to $114,077.07 it would not have included as much profit in that smaller figure as the contracting officer had included in his original estimated figure of $181,320.69.

The Government points to the provision, which we have quoted above, saying that the efficiency, economy and ingenuity with which the contractor had performed the contract would be taken into consideration in determining how much profit the contractor should be allowed. It says that this provision would safeguard...