Page images
PDF
EPUB

as a matter of contractual right, if it continues work after the estimated ceiling is reached. Whether it will pay an overrun is discretionary with the agency. See discussion in the Marquardt Corporation, ASBCA No. 10154, 66-1 BCA par. 5576.

The appellant contends that this case presents an exception to the above-stated general rule, and falls within several of the areas in which we have previously allowed payment of cost overruns, Its principal argument is that the overhead and G&A rates negotiated by the sponsor agency are binding upon the contracting officer. ASPR 3.706 is, it says, a mandatory direction that the contract be modified to incorporate the negotiated rates. The appellant actually cited 3.705, but this specifies procedure where the contracting officer negotiates the rates. Further, it contends, this is merely a ministerial act which the contracting officer must perform and, where he fails to do so, the Board should order it done. Appellant then concludes that when the contract is amended to include the negotiated rates, the appellant would be entitled to payment of the overrun representing the difference between provisional and negotiated rates. In this it relies upon Baird-Atomic, Inc., ASBCA No. 10824, 66-1 BCA par. 5616. We can agree that the rates are binding. Raytheon Co., ASBCA Nos. 6984 and 6985, 1964 BCA par. 4284. The wording of the regulation is certainly directive. We do not agree that amendment of the contract to incorporate the negotiated rates would override the Limitation of Cost article. The Board has held in a number of appeals that the contractor may not recover cost overruns created, as here, by the negotiation of indirect cost rates higher than provisional rates. The Marquardt Corporation, supra; ITT-Kellogg Division, ASBCA No. 9108, 65-1 BCA par. 4635. The incorporation of the negotiated rates by contract modification would add nothing unless the funding was increased. Such rates would be on a par with all other allowable costs in the contract, reimbursable only up to the cost ceiling.

Baird-Atomic, Inc., supra, did not turn upon the mere fact that the negotiated rates were added by contract modification. Reimbursement was allowed because the Board found that the wording of the particular supplemental agreement indicated an intention to modify the Limitation of Cost article to permit such payment. The procuring agency has shown no such intention in this case.

Appellant next says that it is entitled to the overrun because its accounting system, approved by the Government, was known by the Government to be incapable of producing current overhead rate information, and was incapable of producing such information. It argues that where the cost limitations were exceeded because of the contractor's inability to ascertain during contract performance whether the provisional rates were sufficient to cover all allowable costs, overruns would be allowed. Citing Comp. Gen. Decs. B-137343, B-143892, and B-127863; ITT-Kellogg Division, supra.

All three of the Comptroller General decisions cited were unpublished advisory opinions to the contracting agencies, which had requested advice as to whether overruns caused by adjustment in overhead rates, might be properly funded. The Comptroller General replied that since in those cases the contractor could not ascertain that the final rates would result in an overrun, payment might be properly made. There is no doubt that here payment might be properly made, but that is not the issue involved. The question before us is whether the appellant is contractually entitled to such payment, and the aforementioned decisions do not dictate the affirmative. ITT-Kellogg Division merely distinguishes the cited Camptroller General decisions on the facts.

Appellant further contends that the Court of Claims, in Scherr & McDermott, Inc., 175 Ct. ci. 440 (1966), put the burden of proof that the contractor knew his overhead costs on the Government, and directed payment of the overruns where it failed to carry this burden. The contract involved in Scherr & McDermott, Inc. stated that the contractor would be reimbursed for actual overhead costs on the basis of audits performed by the contracting agency. The agency delayed audit until after contract performance. Under those circumstances the court placed the burden of knowledge on the Government. It then found that the failure to audit prevented the contractor from making timely request for an increase in the ceiling price.

Under this contract the initial burden is upon the appellant. Negotiations of final overhead rates were to be initiated by the appellant's proposal. The Limitation of Cost article imposes duties of notice, and a consequent duty to maintain such accounting and internal financial reporting system as will enable it to report when costs near or reach the maximum allocated funds. Beckman & Whitley, Inc., ASBCA No. 9904, 65-2 BCA par. 5246; PRD Electronics, Inc., ASBCA No. 7713, 1962 BCA par. 3282. The contractor is not relieved of this responsibility by Government approval of its accounting system for billings under cost-reimbursement type contracts.

We have found that the appellant's accounting and financial reporting system did not advise management of actual overhead rates as they were incurred, thus in the instant case appellant was not aware when the cost ceiling was reached. The information was available, however, from which sufficient data could have been developed to permit appellant to comply with the notice requirements of the Limitation of Cost article. With the development of its proposed overhead and G&A rates for FY 1962, appellant actually knew that the rates experienced exceeded the provisional rates, but continued to bill the latter. Since compliance with the Limitation of Cost article was not impossible the overrun is not required to be funded. General Electric Company, ASBCA No. 11990, 67-1 BCA par. 6377.

[ocr errors]

Appellant next contends that the uniformly-followed practice of the Government of funding overruns created by final rate negotiation requires, under all of the facts of this case, the following of the practice here. Citing Clevite Ordnance, Division of Clevite Corp., ASBCA No. 5859, 1962 BCA par. 3330; The Bendix Corporation, ASBCA No. 8761, 65-1 BCA par. 4773. Appellant did establish that its overruns under cost-reimbursement type contracts and subcontracts had been regularly funded and paid for a number of years. Some of these contracts were with the Air Force.

In Clevite the pattern of reimbursing overruns had been on the same contract and its predecessors in the same development program; the parties were aware of the overrun in costs as they were incurred; the same persons were involved for both parties; the authorized representative of the contracting officer had assured the contractor that the overrun which led to dispute would be funded, while urging that the contractor continue performance.

The contractor, in reliance thereon, did continue perofmance. Under these essential elements of estoppel the Board ordered the overruns paid. In the instant case the parties were not aware of the overrun during contract performance. The same persons were not involved in funding overruns on other contracts. And there was neither assurance from the Government that overruns would be paid, nor reliance by the appellant upon past funding of overruns to induce continued performance.

[ocr errors]

In The Bendix Corporation, supra, the history of funding past overruns was only one of the factors which led the Board to conclude that the Government had actually agreed to fund the overrum, and that the actual dispute was over the reimbursable amount thereof. In General Electric Company, supra, the facts were similar to those in the present appeal. There had been a history of funding past overruns, some of them involving the same persons who had denied the overrun under dispute. The Board held that the fact that other contracts had been funded had no effect upon the Limitation of Cost clause in the contract in question. To the extent that same language in Bendix and similar cases might indicate that the mere fact that overruns in past instances were paid dictates payment of all such overruns, they must be considered as effectively overruled by General Electric Company.

The appellant must bear the burden of an accounting and financial reporting system which did not permit it to comply with the requirements of the Limitation of Cost article, or to protect it from the consequences thereof. The appeal is denied.

GENERAL ELECTRIC COMPANY, A CORPORATION

V. THE UNITED STATES

442 F2d 420 (1971)

ON PLAINTIFF'S MOTION AND DEFENDANT'S CROSS-MOTION FOR

SUMMARY JUDGMENT

COLLINS, Judge, delivered the opinion of the court.

This case arose from a cost overrun under a contract between plaintiff and defendant's Department of the Army. The relevant facts were stipulated in proceedings before the Armed Services Board of Contract Appeals.

Plaintiff, General Electric, and defendant entered into the contract involved in this case on September 19, 1963. The contract, which involved research and development work relative to a chemical/biological warning system, was negotiated and was of the cost-plus-incentive-fee variety. A11 work under the contract was required to be completed by May 31, 1964. The final report was received by the Government project manager, in time, on June 8, 1964.

[ocr errors]

At the outset, the amount of the contract, including target fee, was $800,000. The contract was amended, however, at a later time to increase the total amount, including target fee, to $835,800. The incentive formula provided for a 15-cent increase in the target fee for every dollar by which allowable costs fell short of the target cost and for a 15-cent reduction in the target fee for every dollar by which allowable costs exceeded the target cost.

The contract provided that allowable costs would include, among other things:

2. Indirect costs: Allowances for indirect
costs, including independent research and develop-
ment, not otherwise reimbursable as a direct charge
hereunder, at such provisional billing rates as may
be acceptable to the Contracting Officer. It is
understood and agreed that such rates shall be pro-
visional rates for billing purposes only and shall
be subject to negotiations and revision to the final
negotiated indirect cost rates, based upon Govern-
ment audit of the Contractor's books and records on
a fiscal year basis ending 31 December of each year,
and in accordance with the terms of the General
Provision of this contract, entitled "Negotiated
Overhead Rates."

Also included in the contract was the standard Negotiated Overhead Rates clause which provided that allowable indirect costs under the contract would be arrived at by the use of negotiated overhead rates, and furthermore:

(d) The results of each negotiation shall be
set forth in a modification to this contract, which
shall specify (i) the agreed final rates, (ii) the
bases to which the rates apply, and (iii) the periods
for which the rates apply.

(e) Pending establishment of final overhead
rates for any period, the Contractor shall be reim-
bursed either at negotiated provisional rates as
provided in the Schedule or at billing rates accept-
able to the Contracting Officer, subject to appropri-
ate adjustment when the final rates for that period
are established. To prevent substantial over or
under payment, the provisional or billing rates may,
at the request of either party, be revised by mutual
agreement, either retroactively or prospectively.
Any such revision of negotiated provisional rates
provided in the Schedule shall be set forth in a
modification to this contract.

[ocr errors]

Pursuant to ASPR $ 3-706,7 the military departments maintained at the time of this contract an inter-service committee, commonly referred to as the Tri-Services Committee, which negotiated final overhead rates with contractors having cost-reimbursement type contracts with more than one military department. The ASPR section provided that, after a determination of final overhead rates by the Tri-Services Committee, "[e]ach Military Department shall thereupon amend or supplement the affected contracts in accordance with the rates and other data set forth in the negotiation report or summary.

For the calendar year 1963 the provisional billing rates applicable to the contract were as follows:

112

Engineering, Drafting & Labor--
Independent Research & Development-
General & Administrative-

133.0%

1.8% 11.7%

Final overhead rates for 1963 were negotiated in 1965 and were incorporated into the contract by the contracting officer on May 2, 1966. The final rates were as follows:

Engineering, Drafting & Labor--
Independent Research & Development-
General & Administrative--

139.7%

1.8% 12.4%

For the calendar year 1964 the provisional rates were:

Engineering-
Independent Research & Development
General & Administrative-

155.0%

1.8% 14.6%

llig 3.706 Coordination.

"When more than one Military Department contemplates the use of negotiated final overhead rates with the same contractor, the service having the preponderance of cost-reimbursement type work will generally sponsor and conduct the negotiation. Each Department having an interest will be notified of the pending negotiation and will be invited to participate in the negotiation. If a Department does not have a representative at the negotiation, the sponsoring Department will represent the absentee Department. The results of the negotiation will be binding upon all Departments. At the completion of the negotiation, the sponsoring Department will prepare and distribute to the other Departments a Negotiation Report or Summary as provided for in $ 3.705(e). Each Military Department shall

s thereupon amend or supplement the affected contracts in accordance with the rates and other data set forth in the negotiation report or summary." 32 C.F.R. § 3.706 (1970).

2 See note 1 supra.

« PreviousContinue »