Sun Shipbuilding and Dry Dock Company v. United States

• Citation: 393 F.2d 807,183 Ct. Cl. 358
• Decision Date: 19 April 1968
• Docket Number: No. 169-65.,169-65.
• Parties: SUN SHIPBUILDING AND DRY DOCK COMPANY, American Export Isbrandtsen Lines, Inc., Third-Party Intervenor v. The UNITED STATES.
• Court: Court of Federal Claims

183 Ct. Cl. 358, 393 F.2d 807 (1968)

SUN SHIPBUILDING AND DRY DOCK COMPANY, American Export Isbrandtsen Lines, Inc., Third-Party Intervenor v. The UNITED STATES.

No. 169-65.

United States Court of Claims.

April 19, 1968.

Richard W. Kurrus, Washington, D. C., attorney of record, for plaintiff. Kurrus & Jacobi, of counsel.

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

Franklin G. Hunt, New York City, attorney of record, for intervenor-third-party defendant, Lord, Day & Lord, New York City, of counsel.

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

SKELTON, Judge.

The plaintiff, Sun Shipbuilding and Dry Dock Company (hereinafter called Sun), a shipbuilding contractor, filed this suit against the United States pursuant to 28 U.S.C. § 1491, for damages in the sum of $217,200 for an alleged breach of contract to pay ship construction subsidy on three ships it had constructed for American Export Isbrandtsen Lines, Inc. (hereinafter called Export), the owner of the vessels. The United States, defendant, made Export a third-party defendant and asked for judgment over against it for any amount that Sun might recover against defendant. Thereafter, Export intervened, denying liability and asking the court to enter judgment in favor of Sun against the defendant.

All three parties filed motions for summary judgment and oral argument was heard by the court. After argument of the parties, the court denied all motions, without prejudice, and remanded the case to the commissioner for further evidence and proceedings and ordered the filing of additional briefs. Thereafter, the parties filed a stipulation of facts, waived further argument and the filing of additional briefs, and renewed their motions for summary judgment. The commissioner returned the case to the court and it is now before us on the motions for summary judgment. The case involves the following basic facts.

Plaintiff Sun is, and at all times hereinafter mentioned was, a corporation organized and existing under the laws of the State of Pennsylvania. Its main office and plant is in Chester, Pennsylvania.

Defendant United States of America has in all matters hereinafter mentioned acted through its agencies, the Federal Maritime Board and the Maritime Administration, both created by Reorganization Plan No. 21 of 1950, 64 Stat. 1273, note following 46 U.S.C. § 1111. Pursuant to Reorganization Plan No. 7 of 1961, 75 Stat. 840, note following 46 U.S.C. § 1111, the Federal Maritime Board was abolished and certain of its functions, including those with respect to the award and performance of subsidy contracts, were transferred to the Secretary of Commerce. (Those Federal Maritime Agencies acting on behalf of the defendant United States are hereinafter sometimes referred to as Marad).

Export is, and at all times hereinafter mentioned was, a corporation organized and existing under the laws of the State of New York. Export entered into the contracts hereinafter mentioned under the name American Export Lines, Inc. which was its name at such time, but which was subsequently changed to American Export Isbrandtsen Lines, Inc. The company has an office and principal place of business at 26 Broadway, New York, New York.

On November 30, 1959, Export, pursuant to Title V of the Merchant Marine Act, 1936, 49 Stat. 1995, as amended, 46 U.S.C. §§ 1151-1161 (hereinafter the Act), as amended, filed an application with Marad for construction-differential subsidy for the construction of four C3-S-46b class cargo vessels.

The plans for the vessels in the original application provided for built-in refrigerated cargo space in the amount of 31,540 cubic feet for each vessel. However, Export requested that the refrigerated cargo space be eliminated from the plans and this request was approved by Marad on September 22, 1960. The vessel plans, as revised, were published in accordance with the Act for competitive bids, and invitations for bids, including copies of the vessel plans and specifications, were sent to various shipyards, including Sun. Export, however, informed Marad that as a precaution it had allotted space for future installation of refrigerated cargo machinery in case the volume of such cargo were to justify a permanent refrigerated cargo installation.

On November 3, 1960, the then Chairman of the Federal Maritime Board sent the following letter to the Committee of American Steamship Lines, of which Export was then a member, for the purpose of establishing Federal Maritime Board policy guidance to the owners, including Export:

There appears to be a growing tendency upon the part of some operators to request substantial changes in design for new ships after construction contracts are awarded.

Cargo ships currently being constructed under the replacement program represent considerable effort on the part of the design agent and the operator\'s staff. They are generally fitted out with more elaborate equipment than their European counterparts with the view of reducing labor or cargo handling costs. This is proper when economically justified.

During the recent weeks, the Board, in connection with the cargo ship replacement program, has acted on several Changes Under the Contract involving considerable sums of money in which the Government subsidy participation is requested. In reviewing these several changes, the Board considered that the Owners\' and the Government\'s interests are best served if modifications be reduced to an absolute minimum. As a normal procedure it is expected that the design will be finalized before requesting bids. Modifications made after award do not have the full advantage of competitive bidding.

On the basis that the ship owner is mutually interested in reducing shipbuilding costs and in order to establish Federal Maritime Board policy guidance to the Owner, the Board has agreed in the following:

1. In shipbuilding contracts involving the payment of Government subsidy, there will be an overall limitation of 2% of the single vessel contract price in connection with the authorization of changes under contract and approved cost settlements.

2. In exceptional cases and upon consideration of pertinent facts, the Board may during the construction of each vessel raise the limit of authority and approve cost settlements to the level it deems to be warranted by the special circumstances.

3. Where major changes are involved, even within the 2% limitation, and when such changes are warranted, the Board may approve the changes but limit the subsidy participation to the cost based on the change having been included in the original bid at time of award.

The Maritime Administration staff has been advised of these limitations. The cooperation of the Committee of American Steamship Lines in our effort to reduce changes under the contract is requested.

Export knew of the existence of this letter prior to the signing of the contracts for the construction of the ships in this case. However, the letter was neither sent to nor received by Sun and was not known to Sun.

Pursuant to the competitive bidding procedures of the Act, Sections 502 and 505, 49 Stat. 1996, 1998, as amended, 46 U.S.C. §§ 1152, 1155, Sun was found by Marad to have submitted the lowest responsible bid for the four vessels.

Pursuant to Title V of the Act the defendant United States, represented by the Federal Maritime Board, Sun and Export entered into a "Contract for the Construction of Single Crew Cargo Vessels MA Design C3-S-46b for American Export Lines, Inc.," Contract No. FMB-128 (hereinafter the Ship Construction Contract) dated January 30, 1961, for the construction of four vessels which included MA Hulls Nos. 125, 126, and 127. Further, pursuant to Title V of the Act, the defendant United States, represented by the Federal Maritime Board, and Export entered into a "Construction-Differential Subsidy Contract Between United States of America and American Export Lines, Inc.," Contract No. FMB-129 (hereinafter the Subsidy Contract) dated January 30, 1961.

Article IV of the Special Provisions of the Ship Construction Contract provides as follows:

ARTICLE IV. Payment of Contract Price. (a) Progress payments on account of the Contract Price set out in Article I hereof, as adjusted, shall be made to the Contractor by the Owner and the Board as the contract work progresses at monthly or at such other intervals as the parties agree and as follows:

(i) The Board shall pay the Contractor Sun forty-eight per cent (48.0%) and the Owner Export shall pay the Contractor fifty-two per cent (52.0%) of each progress payment on account of the Contract Price * * * as such Contract Price * * * is increased or decreased on account of changes in the contract work, approved by the Board as eligible for construction-differential subsidy.

* * * * * *

(iii) The Owner shall pay the Contractor one hundred per cent (100%) of that portion of each progress payment covering increases in the Contract Price set out in Article I (a) hereof on account of changes of the Owner approved by the Board as changes not eligible for construction-differential subsidy.

Article 1 of the Subsidy Contract provides as follows:

ARTICLE 1. Grant of Construction-Differential Subsidy.

(a) The Board grants, in compliance with the provisions of Sections 501(a) and 502 of the Act, a construction-differential subsidy to aid in the construction of the Vessels by the Owner in the total sum of the following:

* * * * * *

(ii) A sum which shall be equal to 48.0% of the net increase in the contract price under Contract No. FMB-128 for changes in the contract work pursuant to Article 4 of the General Provisions (exclusive of * * * changes approved by the Board as ineligible for construction-differential subsidy) approved by the Board as eligible for construction-differential subsidy; * * * provided further, however, that in the event of a net

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