NRM Corp. v. Hercules, Inc., 84-5230

• Decision Date: 29 March 1985
• Docket Number: No. 84-5230,84-5230
• Parties: NRM CORPORATION, Appellant, v. HERCULES INCORPORATED.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 676

758 F.2d 676

244 U.S.App.D.C. 356

NRM CORPORATION, Appellant, v. HERCULES INCORPORATED.

No. 84-5230.

United States Court of Appeals District of Columbia Circuit.

Argued Feb. 11, 1985.

Decided March 29, 1985.

Appeal from the United States District Court for the District of Columbia (D.C.Civil Action No. 77-01851).

Philip M. Risik, Chevy Chase, Md., with whom Daniel M. Ross, Chevy Chase, Md., was on the brief, for appellant.

John Lloyd Rice, Washington, D.C., with whom Clarence T. Kipps, Jr., Washington, D.C., was on the brief, for appellee.

Before WRIGHT, SCALIA, and STARR, Circuit Judges.

Opinion for the court filed by Circuit Judge Wright.

J. SKELLY WRIGHT, Circuit Judge:

NRM Corporation appeals from a District Court order dismissing its contract action against Hercules Incorporated on a motion for summary judgment. The dispute arises out of a contract under which NRM was to fabricate a device used in the production of rocket propellant. During the course of performance Hercules required NRM to make five adjustments in the original design. For each change Hercules solicited and NRM prepared a fixed-cost proposal. After the modifications were largely complete, NRM requested further payment for costs it had incurred as a result of delays and disruptions caused by the changes. When Hercules denied its liability, NRM sought relief in District Court. ¹ The court, reasoning that NRM's agreement to make the five modifications at a fixed cost precluded all subsequent claims arising from those changes, granted Hercules' motion for summary judgment. Because we agree with NRM that the existence of genuine and material issues of fact make summary disposition improper, we now reverse.

I. BACKGROUND

Hercules operates a government-owned, contractor-operated munitions plant in Lawrence, Kansas. In 1972 Hercules began to expand its facilities in preparation for the production of rocket propellant for the Army. To reduce hazards to personnel, production was to be entirely by remote control, with material travelling by conveyor to and from different parts of the plant.

In order to produce the propellant in the manner specified by the Army, Hercules needed to procure specialized mills, known as dewatering mills. In 1973, after a series of exchanges that need not be detailed here, Hercules agreed to NRM's proposal to produce the mills for a total price of $982,536. Although the parties agreed to a fixed amount for the work, the contract ² contained a standard "changes clause," which gave Hercules the right unilaterally to order changes in the specifications. In the event any such changes were made, the clause gave NRM an entitlement to an "equitable adjustment" for the cost of those changes. ³

On five separate occasions Hercules indicated its intention to alter the original specifications. The first modification involved numerous small design changes, including changes in the position of several of the internal parts of each mill. In a letter dated October 25, 1973 Hercules requested that NRM submit "a firm, fixed price proposal" for the work. ⁴ Memorandum Opinion of the District Court (Mem. Op.), February 2, 1984, at 3, 6; Exhibit 2 attached to Hercules' Statement Of Material Facts As To Which There Is No Genuine Issue, filed June 8, 1979 (hereinafter cited as Appellee's Exhibits). On February 22 and again on June 7 NRM provided Hercules with a breakdown of the "total cost" of the changes. Id. In addition, the June communication included the following statement: "As we discussed during our last meeting, it is impractical to include any costs in the contract which has [sic ] an unknown quantity." Id. ; Mem. Op. at 7. A purchase order ⁵ sent to NRM by Hercules on June 26, 1974, the final correspondence concerning the first of the five modifications, stated that the "increase due to alteration" was $149,504 for a "Total Revised Commitment" of $1,132,040. ⁶ Two days later NRM responded, formally stating that it agreed to the "new total contract purchase price" indicated by Hercules' prior correspondence. Id.

The second, third, and fifth modifications followed the pattern established in the first agreement. Again, for each change Hercules requested and received a price proposal, which was later memorialized in a purchase order. Once again, the orders, which were drafted by Hercules, noted a price labeled "Total Revised Commitment." Appellee's Exhibits 3, 4, & 6; Mem. Op. at 3-4, 8.

Negotiations concerning the fourth modification were more complex. The process began, as before, with a letter, dated February 28, 1975, requesting that NRM submit a proposal setting out its requirements for adding a "failsafe system" to the mills. Mem. Op. at 4. NRM responded on April 18th ⁷ with a proposed design for the change and an accompanying statement of costs. Id. On April 29th Hercules gave its informal approval to proceed with the modification. The next day NRM forwarded a written statement that the "total price" was $23,240.00, the precise amount later indicated in the now familiar Hercules purchase order. That document put the revised total contract price at $1,166,160. Id. at 4.

On July 15, 1975 NRM advised Hercules that it had recently "processed for production" the purchase order concerning the failsafe system. The letter indicated that "it is not possible at this juncture to establish a precise delivery schedule or all cost factors attributable to these changes." Id. at 5; Exhibit 72 attached to NRM's Motion For Partial Summary Judgment By Plaintiff As To Certain Defenses Raised In Defendant's Answer, filed August 8, 1980 (hereinafter cited as NRM Opposition Exhibits). A week later NRM again wrote Hercules, advising it that NRM was in the process of reviewing all the changes that had occurred over the entire course of the contract and suggesting that the purpose of the review was to "list all changes that have not been incorporated in the change orders issued to date." In the same letter NRM stated its intention to submit a claim for an "equitable price adjustment." Mem. Op. at 5, quoting NRM Opposition Exhibit 73.

Immediately prior to completion of the project NRM requested that Hercules reimburse it for more than $900,000 in damages allegedly incurred as a result of the delays and disruptions caused by Hercules during the course of the performance of the contract. Hercules, although acknowledging that the "changes clause" created a general obligation to make equitable adjustments occasioned by mid-course modifications of the contract, refused to pay the full amount of the claim. It took the position that its acceptance of NRM's five fixed-price proposals precluded subsequent claims for delay and disruption damages. NRM, in contrast, contended that the parties understood that such damages were not incorporated into the price for the agreed-upon modifications and that, accordingly, its claim under the changes clause remained viable.

By the end of the summer of 1977 negotiations between the parties broke down and NRM filed suit in District Court. After months of discovery and numerous submissions of lengthy memoranda, the court granted Hercules' motion for summary judgment and dismissed the case with prejudice. ⁸ It held, presumably as a matter of law, that the five modifications had incorporated all costs that had been or might be caused by the changes. Although acknowledging that the June 1973 and July 1975 letters appeared to indicate NRM's intention to postpone final precise resolution of some of the costs occasioned by the changes, the court considered the letters insignificant because NRM had later agreed to a fixed, all-inclusive price.

II. DISCUSSION

Analysis of NRM's claim requires that we differentiate between three distinct categories of costs incurred in the course of performing the contract. The first category comprises the cost of the modifications themselves. For example, if Hercules requested that NRM deviate from the original specifications and add a failsafe system, NRM would incur the expense of procuring or producing the item. There is no dispute concerning the status of these costs: All agree that NRM's fixed price proposals fully cover them. ⁹ The second category concerns not the cost of the changes but the cost created by the changes on other "unchanged" parts of the project. See Chantilly Construction Corp., 81-1 BCA p 14,863 at 73396 (ASBCA No. 24138) (1980) (also discussing the effect of modifications on "unchanged work"). To continue the example, requesting that NRM install a failsafe system might have caused a five-week delay, during which time NRM would be required to pay its overhead and other fixed costs for the entire project. Similarly, the change might have disrupted other parts of the work with a concomitant increase in costs. The third category includes costs stemming from delays not caused by the changes at all. For example, NRM alleges that it suffered losses because on one occasion Hercules was forced to postpone payment of its obligations when its government funding was suspended. The dispute centers around delay costs in the last two categories. NRM maintains that these costs were not included in the fixed price proposals it submitted for each of the five modifications.

A. Costs Not Associated With the Changes

Rule 56(e) of the Federal Rules of Civil Procedure requires that the party opposing a motion for summary judgment "may not rest on the mere allegations or denials of his pleading," but must "set forth specific facts showing that there is a genuine issue for trial." Local Rule 1-9(i) of the United States District Court for the District of Columbia imposes an explicit requirement that parties opposing summary judgment file "a concise 'statement of genuine issues' setting forth all material facts as to which it is contended there exists a genuine issue necessary to be litigated." As we have stated on numerous occasions, a party may not seek to overturn the...