8 Syllabus Contracts; fraud against the United States; partial payment to contractor for property not acquired.-The action of a prime contractor with the Government in securing partial payment of part of the amount of a subcontractor's bill prior to the time the prime contractor had actually paid the subcontractor and before it had physically acquired possession of the articles for which it had received partial payment from the Government, is not an act of fraud against the Government under a contract which recognizes that partial payment might be made to the prime contractor before it acquired possession of the property being produced by the subcontractor. United States → 120 Contracts; administrative remedies; appeal to head of department— when necessary.—A contractor need not appeal to the head of the contracting department following a termination of its contract for the convenience of the Government until the contracting officer has made a determination of the amount the Government proposed to pay the contractor. Contracts; termination; for convenience of Government after excusable default.-A clause in a contract which provides that if, after notice of termination for default, it appears that the contractor's failure to perform the contract was due to causes beyond the control of the contractor and without fault or negligence on the part of the contractor, the notice of termination for default may be deemed a notice of termination for the convenience of the Government provided for in another article of the contract, may not be invoked in a situation where it develops that there was no failure to perform on the part of the contractor. If the Government does invoke this contract provision to terminate for convenience where after notice of termination for default it appears that there had been no failure to perform, the termination for convenience is a breach of the contract since the right to terminate in the clause discussed above is not unconditional and the conditions for its invocation did not exist. Commonwealth Engineering Co. v. United States, 148 Ct. Cl. 330, cert. denied 364 U.S. 820, distinguished. United States 72(7), 73(24) Contracts; disputes; question of fact; substantial evidence.—A finding by the Armed Services Board of Contract Appeals that certain cable samples submitted by the contractor in 1952 complied with the contract specifications, which finding was not disputed by the Government at that time, is supported by substantial evidence despite the fact that in a trial in this court some five years later a Government technician testified that the tests given in the earlier proceeding before the Board did Opinion of the Court 152 Ct. Cl. reveal some imperfections, although the main objective of low temperature tolerance was achieved. Since it is impossible to determine whether the imperfections pointed out for the first time years after the tests were made would, if known by the Board, have been considered material, the court will not conclude that the Board's finding that the materials met specifications was not supported by substantial evidence. United States 74 (11) Contracts; False Claims Act; fraud-what constitutes.-Evidence of fraud to satisfy the forfeiture and penalty provisions of the False Claims Act, 31 U.S.C. § 231, must be clear and convincing. Where a subcontractor's bill padding was an unexplained maneuver which resulted in no loss to the Government except the loss of the use of the excess payment which was shortly thereafter recouped by the Government, and where other irregularities in obtaining partial payments for subcontractors were not concealed from the Government who lost nothing thereby, no fraud has been shown and the Government is only entitled to recover interest on the overpayment for the period during which it did not have the use of the money. James H. Heller for the plaintiff. Abraham J. Harris and Sher, Oppenheimer & Harris on the briefs. John F. Wolf, with whom was Assistant Attorney General George Cochran Doub, for the defendant. MADDEN, Judge, delivered the opinion of the court: This is a suit for damages for the alleged wrongful termination by the Government of a contract between the Government and the plaintiff's assignor, Beam Radionics Corporation, hereinafter called Beam. The plaintiff is the assignee for the benefit of creditors of Beam. The Government's original answer denied liability, alleged that the plaintiff had failed to exhaust his administrative remedies, and counterclaimed for alleged overpayments to Beam. By amendment to its answer, filed by leave of court, the Government pleaded fraud on the part of Beam, and added two counterclaims for statutory penalties for fraud, one counterclaim relating to the contract in suit and the other relating to another contract which Beam had with the Government. On June 27, 1951, Beam entered into a negotiated contract with the Army Corps of Engineers for the furnishing of 1,000 electric lighting sets at prescribed prices per set 8 Opinion of the Court and with prescribed dates for beginning and completing deliveries. The total contract price was $1,675,000. This contract was known as contract 955. Before entering into contract 955 the Government had made an investigation of Beam's ability to perform. Beam had before that time undertaken and completed a dozen or more other military supply contracts. Beam made subcontracts for the acquisition of the parts for the electric lighting sets. It planned to itself assemble, test, package and ship the completed sets. The rubberinsulated cable which was to be a part of each set had to meet rigid contract specifications for use at very low temperatures. The Government was to test the cable at its engineering and development laboratory at Fort Belvoir, Virginia. At the time contract 955 was made, no cable meeting the contract requirements had been produced, and the Government was aware of that fact. The United States Rubber Company had been conducting research in the development of rubber-insulated cables, including cables of the type needed for contract 955. The Government's officials had informed Beam that United States Rubber's cable came closest to meeting the contract specifications. Before contract 955 was made, Beam had made another contract, No. 7939, with the Army Corps of Engineers for the furnishing of floodlighting sets which required a somewhat similar cable. For both contracts, Beam had subcontracted the production of the cable assemblies to Brad Harrison Co., and that company had subcontracted the production of the cable itself to United States Rubber. United States Rubber submitted samples of cables to the Corps of Engineers' testing laboratory at Fort Belvoir in August and October 1951. These samples were rejected by the laboratory. Although delivery of the lighting sets was to have commenced on November 20, 1951, and although by that date not even a sample of cable meeting the contract specifications had been produced, the Government on December 4, 1951, and thereafter until the latter part of February 1952 continued to issue change orders, to make plans for inspection of finished parts, and in other ways to show that it still expected and desired performance of the contract. 649-081-63-3 Opinion of the Court 152 Ct. Cl. A new cable sample was prepared for testing in early February 1952. Just before it was submitted, Beam officials had a conference with Mr. Krauss, a representative of the Government's contracting officer. The purpose of the conference was the discussion of Beam's other contract, No. 7939, but Krauss also said he was considering terminating contract 955, or deleting the cable from the contract. Beam's representative said Beam would be happy to be relieved of the troublesome cable problem. A cable sample had been submitted on February 9. It passed the test for contract 7939 but not the more rigorous test for contract 955. On February 26, a new sample was submitted. Krauss was aware of this submission. The tests were made, but Krauss made no effort to learn how the tests were progressing. The official laboratory report was not issued until the middle of May. On April 1, 1952, the contracting officer notified Beam of the termination of contract 955 pursuant to General Provision 11, Default. The reason for this action is your failure to make delivery of the sets as you were obligated to do under the terms of your contract. The letter also said that it constituted findings of fact from which the contractor could appeal. Beam appealed on April 10, saying it was ready to proceed with the manufacture as soon as the cable submitted for testing had been approved. On May 21 the contracting officer sent Beam another "Findings of Fact" which said, among other things: Contractor has failed to supply satisfactory cable within time when delivery schedule could possibly be met. No definite subcontracts were entered into for cable. These findings further said that Beam's available space was inadequate for the timely assembling of the lighting sets, and that Beam's financing was not sufficient for the performance of the contract. On June 4, 1952, Beam appealed the contracting officer's decision. The Armed Services Board of Contract Appeals held a hearing in May 1953 and on October 1 decided that the Government had no right to terminate contract 955 for default. The Board held that the Government had, by its 8 Opinion of the Court conduct, waived compliance with the delivery dates prescribed in the contract; that the Government did not prove that Beam did not have sufficient space for the timely assembly of the lighting sets; and that Beam's financial position was not different at the time of cancellation than it had been when it was investigated before the award of the contract. The Board found that the cable sample submitted on February 26 complied with the specifications of the contract. In the course of its discussion the Board said: Under the circumstances of this case, we are of the opinion that the proper remedy was that of termination for the convenience of the Government, if termination was desired. On November 27, 1953, the contracting officer wrote Beam, referring to the decision of the Armed Services Board of Contract Appeals, and saying: In view of said decision the Government deems the above notice of default to have been issued pursuant to Clause 21 of the contract entitled, "Termination for the Convenience of the Government", for the complete termination thereof, which became effective as of 3 April 1952, the date of the receipt of such notice by the contractor. The contracting officer thereby sought, a year and a half after the event, to convert the April 1, 1952, termination for default into an April 1, 1952, termination "in the best interests of the Government," commonly called "termination for the convenience of the Government." If that was effectively done, it would mean that the Government's action was not wrongful, because the contract expressly granted the Government the right to so terminate under certain conditions. And it would mean that the Government's contractual liability to Beam would be limited to the items of compensation named in that provision of the contract (see finding 2, contract article 21 (e) and (f)), and the liability would, in this and in most cases, be small. The plaintiff, in response to the contracting officer, asserted, and in this suit asserts, that the Government did not terminate the contract for convenience, but breached it and is liable for the damages resulting from the breach. |