NOLAN BROTHERS, INCORPORATED v. United States

• Decision Date: 24 January 1969
• Docket Number: No. 371-67.,371-67.
• Citation: 405 F.2d 1250
• Parties: NOLAN BROTHERS, INCORPORATED v. The UNITED STATES.
• Court: U.S. Claims Court

405 F.2d 1250 (1969)

NOLAN BROTHERS, INCORPORATED v. The UNITED STATES.

No. 371-67.

United States Court of Claims.

January 24, 1969.

Harold F. Blasky, Washington, D. C., for plaintiff; Jack D. Eades, Dallas, Tex., attorney of record. Carlsen, Greiner & Law, Charles E. Carlsen, Minneapolis, Minn., Clark, West, Keller, Clark & Ginsberg and W. B. West, III, Dallas, Tex., of counsel.

M. Morton Weinstein, Washington, D. C., with whom was Asst. Atty. Gen., Edwin L. Weisl, Jr., for defendant.

Before COWEN, Chief Judge, and LARAMORE, DURFEE, DAVIS, COLLINS, SKELTON, and NICHOLS, Judges.

ON DEFENDANT'S REQUEST FOR REVIEW OF THE TRIAL COMMISSIONER'S ORDER

DAVIS, Judge.

The claimant, Nolan Brothers, Incorporated, undertook in August 1962 to construct for the Corps of Engineers two rock jetties out into the Gulf of Mexico from Matagorda Peninsula in Texas. The contract price ultimately amounted to some nine million dollars. In March 1964, when about one-third of the work was done, the defendant exercised its contract right to terminate performance for the Government's convenience. The contractor did not contest this action but submitted, under the convenience-termination article, its termination claims on the total-cost basis, and efforts were made to settle the demands by negotiation. These were unsuccessful and, as the termination clause contemplated, the contracting officer then issued a unilateral determination in which he allowed the plaintiff $5,386,183 out of the $8,153,902 sought. Nolan Brothers appealed to the Corps of Engineers Board of Contract Appeals which granted only $101,315 more.

This action followed. In the second count of the petition plaintiff avers that the Board erred in several ways in refusing to increase the termination award. There is no dispute as to the method of handling this count in court. It is agreed that that part of the case will be reviewed on the basis of the administrative record under the standards of the Wunderlich Act. The parties' arguments on that phase are not now before us; they will be presented initially to the trial commissioner for his recommendation.

It is the first count of the petition which concerns us at this time. There the plaintiff alleges that the Government breached the contract by furnishing an inadequate design and defective specifications for the jetties, and also by negligently failing to apprise the contractor of certain facts. The gist of the complaint is that the design and specifications envisaged a land-based operation, to which plaintiff was accustomed, but that, after completion by another contractor of a channel through Matagorda Peninsula near the location of plaintiff's jetties, strong currents developed which made it impossible to place the jetty material by land-based equipment. The petition also says that defendant misrepresented the rise and fall of the tide, which seriously interfered with construction.

These contentions had not been presented to the Engineers Board of Contract Appeals and that body did not consider or determine the factual issues of whether the Government gave plaintiff an inadequate design or defective specifications, or withheld material facts. The trial commissioner, ruling that this first cause of action "contains allegations respecting a breach of contract by the defendant", ordered a separate de novo trial on that claim. Defendant has requested review by the judges of that order. We set the matter for oral argument and asked the parties to brief, in addition to the points they desired to present, the legal issues of "(1) whether it is necessary, in view of the relief plaintiff has requested under the termination-for-convenience clause, for the court to consider or decide at all the issues of inadequate design, etc., raised by the first cause of action, and (2) if a trial on these issues is necessary, whether adequate relief could be granted administratively under the Changes, Changed Conditions, Suspension of Work, Damage to Work, and Termination-for-Convenience articles of the contract (separately or together)."

We think that the answer to the first query disposes of the problem and that no trial, either judicial or administrative, need be held on the assertions of inadequate design, defective specifications, breach of warranty, misrepresentation, and withholding of information. The reason, as we shall show, is that all the plaintiff is now entitled to is a proper award under the convenience-termination article — the claim covered by the second cause of action — and a separate claim of the kind set forth in the first cause of action no longer exists for plaintiff.

The crucial factor is the termination for the Government's convenience. That was an action the defendant had a full right to take under the contract which lodged in the contracting officer the fullest of discretion to end the work "in the best interests of the Government." See John Reiner & Co. v. United States, 325 F.2d 438, 442-443, 163 Ct.Cl. 381, 390 (1963), cert. denied, 377 U.S. 931, 84 S.Ct. 1332, 12 L.Ed.2d 295 (1964); Commercial Cable Co. v. United States, 170 Ct.Cl. 813, 821 (1965); Schlesinger v. United States, 390 F.2d 702, 707, 182 Ct.Cl. 571, 581 (1968). If, as plaintiff now seems to maintain, the spur to invocation of this right of termination was the defendant's realization that its plans and specifications were faulty, reliance on that motive would not be improper or an abuse of discretion.¹ The mere existence of a default by the Government would not bar convenience-termination (College Point Boat Corp. v. United States, 267 U.S. 12, 16, 45 S.Ct. 199, 69 L.Ed. 490 (1925)) and plaintiff had not treated the alleged breach as ending the entire agreement. Among the "host of variable and unspecified situations" calling for closing of the work under a still-existing contract (John Reiner & Co. v. United States, supra, 325 F.2d at 442, 163 Ct.Cl. at 390) it is entirely reasonable to include a post-contract recognition that the job is impossible or too difficult to perform or too costly for the Government if pushed through to its conclusion. That would be a characteristic case for a convenience-termination. The defendant could properly wish to cut unnecessary losses as early as possible and to consider what drastic changes might be needed in its plans.² Certainly the Government would not be compelled to see the contract work through to the bitter end, no matter what the cost or the trouble or the waste in resources. Rather, in that situation it would be as much in the Government's "best interests" to use the termination clause as we have held it to be to avoid a conflict with the Comptroller General (e. g. John Reiner & Co. v. United States, supra) or with Congress (Schlesinger v. United States, supra) or in order to employ a contractor with greater production facilities (Nesbitt v. United States, 345 F.2d 583, 170 Ct.Cl. 666 (1965), cert. denied, 383 U.S. 926, 86 S.Ct. 931, 15 L.Ed.2d 846 (1966)).

The contractor's protection on a convenience-termination is that he gets full reimbursement of his costs, together with a measure of profit. He becomes entitled to the "cost of the work performed and the cost of settling subcontract claims — plus 2% of the cost of materials and articles delivered to the site but not incorporated in the work and 8% of the balance of the cost (with the total profit not to exceed 6% of the whole cost of the work), unless the contractor would have sustained a loss on the entire contract in which event no profit is to be allowed." G. L. Christian and Associates v. United States, 312 F. 2d 418, 427, 160 Ct.Cl. 1, 17, rehearing denied, 320 F.2d 345, 160 Ct.Cl. 58, cert. denied, 375 U.S. 954, 84 S.Ct. 444, 11 L. Ed.2d 314 (1963). The only substantial difference between the sum calculated under that standard and the amount recoverable in a common law action for contract breach is the noninclusion in the former of anticipated but unearned profits. See G. L. Christian and Associates v. United States, supra, 312 F.2d at 423-424, 426-427, 160 Ct.Cl. at 11, 15-17; J. W. Bateson Co., Inc. v. United States, 162 Ct.Cl. 566, 569-570 (1963); Nesbitt v. United States, supra, 345 F.2d at 586, 170 Ct.Cl. at 671.³

Accordingly, the significant role of the first cause of action in plaintiff's petition is to lay claim to the unearned profits which plaintiff cannot recover under the termination clause. All else is subsumed within the second cause of action testing the administrative award under that article.

Since, however, the termination here was lawfully effected — as we have just held — it follows that plaintiff is not entitled to any unearned gain even though it might have recovered that component of damages if the convenience-termination were put aside. By agreeing to incorporation of the termination provision, the contractor necessarily gives up this aspect of the common law formula whenever the termination article becomes operative. The contractor acquiesces in the...