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Opinion of the Court books were in such a confused condition that it was difficult to determine plaintiff's current status at any time, the withholding action was not arbitrary and capricious under the contract
or under Government Manual of reimbursement policies. United States On 73(22) Contracts; breach-prevention or hindrance of performance by other
party.—Where the Government unnecessarily delays its inspection of plaintiff's facilities and thus delays the plaintiff in the performance of its contract and causes plaintiff to incur extra expense (rent, etc., on idle facilities), the defendant has breached its obligation not to hinder or impede the plaintiff in the performance of its contract and is liable for damages repre
senting the increased costs incurred. United States On 73(22)
Jack E. Hildreth for plaintiff. William F. Peters and Spencer E. Van Dyke on the briefs.
John F. Wolf, with whom was Assistant Attorney General William H. Orrick, Jr., for defendant.
LARAMORE, Judge, delivered the opinion of the court:
This is an action for damages arising out of two contracts. Under a facilities contract, Ord-244, the Government agreed to furnish plaintiff certain facilities needed to perform a supply contract. The second contract, DA-04-495-ORD242, in the amount of $1,054,207.50, was for the rebuilding of 750 tank engines.
Plaintiff claims for recovery in four counts against the United States, the sum of $782,167.23 for alleged misrepresentation and breach of the two contracts above referred to. Under count one, claim is made for $101,739.16 of additional costs for extra work in the procurement of parts for the rebuilding of 750 GAA engines for M4A3 tanks, by reason of misrepresentation of the replacement parts required and procured on behalf of defendant.
Under count two, claim is made for $92,544.18 of increased costs by reason of the refusal and neglect of defendant's authorized agents to comply with the contract provisions, and their interference with plaintiff's efficient performance.
Under count three, claim is made for damages of $582,883.89 against the defendant for withholding of reimbursement payments due plaintiff under its contract that required, 154 Ct. Ci. Opinion of the Court in part, the procurement of engine parts on behalf of the defendant.
Under count four, claim is made for $5,000 of increased costs to plaintiff by reason of the failure of the defendant to inspect facilities within a reasonable time, which had been procured and installed on behalf of the defendant, under a facilities contract, for use in rebuilding the 750 GAA engines, thereby delaying the reimbursement to plaintiff for its costs in acquiring and installing said facilities.
The facts are voluminous and will be referred to here only to the extent necessary to each count of plaintiff's claim. Each count will be dealt with separately. The facts respecting each contract are fully found by the commissioner and adopted by the court.
Under count one of plaintiff's claim the charge is made that defendant misrepresented the amount of replacement parts required.
The facts show that the defendant, after considerable experience under a like contract with the firm of Bowen and McLaughlin, on October 31, 1951, sent Mr. Wesley M. Sandidge, Chief of the Tank Automotive Branch, and Mr. Thomas E. Carpenter, a contract negotiator with the Los Angeles Ordnance District (LAOD), to plaintiff's plant with the view of interesting plaintiff in rebuilding tank engines.
After certain negotiations plaintiff decided to bid on the rebuilding process. Prior to submitting its bid, the plaintiff requested a specimen engine that could be torn down and rebuilt for a practical test of the time and labor involved. The plaintiff was unable to obtain such an engine through LAOD, but did acquire one from another source for this purpose.
Following its study, plaintiff submitted a bid of $911.32 per engine. However, plaintiff's representatives were advised
1 In count four of plaintiff's petition, plaintiff claims the sum of $5,000. However, from referral of the matter for prehearing audit pursuant to Rule 28B3, it was determined that plaintiff's original claim was insufficient and `plaintiff's claim should properly be increased to $8,232.94, is based on carrying charges alone. It is conceded that the damages based on interest or carrying charges for merely failure to pay money are not recoverable herein, and that the measure of damages should have been determined on the basis of the extra expense plaintiff had to incur, including unnecessary payment of rent for four months after the contract had been completed and prior to inspection, and necessary expenses for plant protection officers and related costs.
Opinion of the Court that this sum was too high and plaintiff agreed to refigure it. Finally, a revised estimate was submitted which, after certain adjustment, was in the amount of $605.61 per engine. However, at no time did the plaintiff submit a bid estimate of $800 for parts in rebuilding the engine. Plaintiff was advised by Mr. Sandidge, Chief of the Tank Automotive Division, and Mr. Henry C. Genthe, a contract negotiator, that the cost would be about $800 for each engine, and the plaintiff relied on this estimate in figuring its fixed price bid for rebuilding. The award was then diverted from Bowen and McLaughlin to plaintiff, Snyder-Lynch Motors, Inc.
The facts further show that when the first contract was awarded to Bowen and McLaughlin for the same rebuilding early in 1951, there was very little information available for a determination of the cost or requirements of replacement parts. The estimate of $800 per engine proposed by the contract negotiator was merely for the purpose of an allotment of funds.
When the procurement order was received for the 750 engines, the defendant was in possession of information resulting from the experience of Bowen and McLaughlin that the cost of parts would substantially exceed the original estimate of $800. As a matter of fact, the cost of parts was approximately 145.5 percent over and above the estimated requirements. However, plaintiff was not advised of these facts and actually had no information regarding the required replacement parts, or the cost of the same at the time its contract was negotiated.
Based on these and other facts of record, the commissioner has found that:
It is reasonable to conclude that the contracting officer, the contract negotiator and LAOD knew that $800 per engine was inadequate for the cost of replacement of parts prior to negotiating the plaintiff's contract, but that the estimate of $800 per engine was used in plaintiff's contract for the firm commitment of funds in the fiscal period, as had been done in the Bowen & Mc
Laughlin contract in early 1951. We think the Government was remiss in not making the information regarding the Bowen and McLaughlin experience available to plaintiff. Based on this conclusion, the
154 Ct. Cl.
Opinion of the Court withholding of this information constituted a breach of the contract, and the plaintiff is entitled to recover the damages flowing therefrom. Ragonese, et al. v. United States, 128 Ct. Cl. 156; Bateson-Stolte, Inc. v. United States, 145 Ct. Cl. 387. Plaintiff's unrecovered indirect costs of procuring the tank engine parts was $87,587.06. Plaintiff is entitled to damages in that amount on count one of its claim for the breach of the contract.
In count two plaintiff contends that defendant's inspectors and agents interfered with plaintiff's usual and customary operations and imposed certain requirements in violation of the contract provisions and specifications for the rebuilding of tank engines under contract Ord-242.
Plaintiff's theory of this claim is that the defendant's inspector, Jones, was responsible for all excess costs to June 30, 1952. This is not sustained by the evidence. Conceding, however, that defendant did interfere with plaintiff's operations, the record discloses and the commissioner has found that there is no proof of any excess costs that may be attributed to any improper action or failure on the part of defendant's inspectors or officials. Under these circumstances, plaintiff cannot recover on this item of the claim for failure to prove damages, and count two will be dismissed.
Count three is for damages resulting from defendant's alleged withholding of reimbursement payments due plaintiff under the contract. Plaintiff contends that the action of the defendant in withholding, from payments for reimbursable items, amounts to cover checks issued for reimbursement for direct charges, which checks had not cleared the bank within 30 days from the date of the checks, amounts to arbitrary and capricious action. Plaintiff then says that because of such action it was unable to continue its financing arrangements and that by reason thereof plaintiff was forced to and did sell its automobile agency together with equipment and inventory and that it thereby suffered a loss.
In respect to the above contention, the facts show that in reviewing certain costs, in September of 1952, preliminary to the price redetermination audit, the Army Audit Agency (AAA) found that plaintiff's records were delinquent in many respects.
Opinion of the Court By letter of September 18, 1952, the AAA reported to LAOD that during recent examinations of costs pertaining to voucher audits, and in review of certain costs preliminary to the price redetermination audit, it was found that plaintiff's records were delinquent in many respects. It was pointed out that checks drawn in payment of invoices were posted before the liability for such invoices was recorded, which reflected an understatement of accounts payable. In a reconcilement of plaintiff's bank statement for July 1952, it was determined that outstanding checks of $382,031.90 would result in a bank overdraft of $194,713.07. This matter had been discussed with plaintiff's comptroller, who explained the procedure that many of the checks issued upon delivery of parts and verification of invoices were not actually outstanding, but were held by him for later release, amounting to approximately $179,389.70. But even considering the amounts for which payments were not yet due, the overdraft would be in excess of $15,000 upon payment of other checks issued.
The AAA recommended that the contracting officer instruct the contractor to bring its records into a current basis and maintain them in accordance with recognized practices, and that the contractor be instructed to provide weekly bank statements for use of the AAA auditor in verifying payments of checks issued.
The contracting officer was advised that the AAA would continue to make its audit determinations with the understanding that invoices supporting the reimbursement vouchers had been paid or were in the process of payment, but that in the event it was disclosed that vendors' invoices were not paid promptly, recoupment would be made of costs previously approved. The contracting officer was advised that under this procedure the AAA auditor would permit a reasonable lapse of time for the clearance of checks and payments by the bank.
The action of the defendant appears to be in conformity with Title II-G of the contract, which provides:
Cost Records and Audit:
The Contractor shall at all times maintain adequate and accurate books and records of all transactions entered into by it pursuant to this TITLE II and such records will be in such manner and form as will ade