Section 8. Value Engineering Changes DRAVO CORPORATION v. THE UNITED STATES Before Cowen, Chief Judge, Davis, Skelton Kunzig, and Bennett, Judges. Nichols, Kashiwa, ON PLAINTIFF' S MOTION AND DEFENDANT'S CROSS MOTION FOR SUMMARY Nichols, Judge, delivered the opinion of the court: This case is before the court in plaintiff's motion for summary judgment and defendant's cross motion for summary judgment. Plaintiff entered into a fixed price contract (No. DACW01-68C-0088) with the Department of the Army on April 17, 1968, for the construction of the Jones Bluff Lock and Dam on the Alabama River in Alabama. Article 50 of the general provisions of the contract entitled "Value Engineering Incentive" provided that the contractor and the Government would share in savings in the cost of performance of the contract which resulted form changes proposed by the contractor. On May 22, 1968, plaintiff submitted a proposal for a change in the design and construction of the cofferdam required by the contract along with a suggested adjustment in the contract price, not including any decrease in profit on the work originally included in the contract, which would now be deleted as the result of plaintiff's proposal. On September 25, 1968, the contracting officer informed plaintiff that its proposal was acceptable but that the decrease in the contract price must also include a decrease in plaintiff's anticipated profits. Plaintiff proceeded to do the work as changed, under protest. On May 9, 1969, the contracting officer rendered his final decision that a reduced profit must be reflected in the contract cost reduction. Plaintiff appealed this decision to the Corps of Engineers Board of Contract Appeals (The Board) on May 27, 1969. In a decision, Eng. BCA No. 3046, dated August 17, 1971, the Board upheld the decision of the contracting officer, stating that the decrease in costs under Article 50 was to be calculated as an equitable adjustment and thus elimination of some profits must be added to the eliminated cost to determine the adjusted price. The parties are in agreement as to the facts of the case and the figures used in arriving at the cost reducation. They disagree only as to whether Article 50 calls for the calculation of profit as part of the cost savings. Thus, the controversy in this case centers around the varying interpretations of Article 50 of the contract, and therefore the court is faced with a pure question of law. We hold that the plaintiff is right, and the Board in error. Plaintiff tells us that the language of Article 50 indicates that the amount of cost reduction must be calculated from the point of view of cost savings to the contractor. Therefore, profit should not be included in arriving at the amount saved. The court's attention is invited to the pertinent regulations involved, and to the administrative history of those regulations, all of which the plaintiff says supports its position. Defendant tells us, to the contrary, that the only reasonable meaning that can be given Article 50 is to read its provisions from the point of view of savings to the Government. Defendant argues that the pertinent regulations and their administrative history as they relate to fixed price contracts support its position. Finally, the defendant avers that the court should not depart from the usual method of calculating equitable adjustment under the circumstances of this case, and we are reminded that normally the calculation of equitable adjustment includes profit. The objective in interpreting a contract is to determine the intention of the parties. The language of the contract must be given the meaning that would be understood by a reasonably intelligent person acquainted with the comtemporary circumstances. Firestone Tire & Rubber Co. v. United States, 195 Ct. Cl. 444 F. 2d 547 (1971). All provisions of the contract should be read together and so as to make none inoperative, and specific provisions should be given precedence over general ones. Morrison-Knudsen Co. v. United States, 184 Ct. Cl. 661, 397 F. 2d 826 (1968). If the contract is unambiguous its language should be implemented. Keco Industries v. United States, 176 Ct. Cl. 983, 364 F. 2d 838 (1966), cert. denied, 386 U.S. 958 (1967). As an aid to interpretation of the contract the pertinent ASPR should be inspected and the policy behind the promulgation of these regulations should be looked into. Firestone, Tire & Rubber, supra. Such regulations are law, binding on the contract parties, where applicable. Newport News Shipbuilding & Dry Dock Co. v. United States, 179 Ct. Cl. 97, 374 F. 2d 516 (1967); Chris Berg, Inc. v. United States, 192 Ct. Cl. 176, 426 F. 2d 314 (1970). That portion of the contract which is at the center of controversy in this case is Article 50 of the General Provisions of the contract. That Article reads in pertinent part: 50. VALUE ENGINEERING INCENTIVE (JUNE 1967) Applicable to all contracts in excess of $100,000) (a) (1) This clause applies to those cost re fuction proposals in initiated and developed by the Contractor for changing the drawings, designs, specifications, or other requirements of this contract. This clause does not, however, apply to any such proposal unless it is identified by the Contractor, at the time of its submission to the Contracting Officer, as a proposal submitted pursuant to this clause. *** that: (2) The cost reduction proposals contemplated are those (i) would require, in order to be applied to this contract, a change to this contract; and (ii) would result in savings to the Government by providing a decrease in the cost of performance of this contract, without impairing any of the items' essential functions and characteristics such as service life, reliability, economy of operation, ease of maintenance, and necessary standardized features. (b) As a minimum, the following information shall be submitted by the Contractor with each proposal: (i) a description of the difference between the existing contract requirement and the proposed change, and the comparative advantages and disadvantages of each; (ii) an itemization of the requirements of the contract (iii) an estimate of the reduction in performance (iv) a prediction of any effects the proposed change would have on collateral costs to the Government such as Government-furnished property costs, costs of related items, and costs of maintenance and operation; * (c) (1) Cost reduction proposals shall be submitted to the Procuring Contracting Officer (PCO). * * * (2) The Contracting Officer may accept, in whole or in part, either before or within a reasonable time after performance has been completed under this contract, any cost reduction proposal submitted pursuant to this clause by giving the Contractor written notice thereof reciting acceptance under this clause. Where performance under this contract has not yet been completed, this written notice may be given by issuance of a change order to this contract. Unless and until a change order applies a value engineering change proposal to this contract, the Contractor shall remain obligated to perform in accordance with the terms of the existing contract. If a proposal is accepted after performance under this contract has been completed, the adjustment required shall be effected by contract modification in accordance with this clause. (3) If a cost reduction proposal submitted pursuant to this clause is accepted by the Government, the Contractor is entitled to share in instant contract savings, collateral savings, and future acquisition savings not as alternatives, but rather to the full extent provided for in this clause. (4) Contract modifications made as a result of this clause will state that they are made pursuant to it. The " (d) If a cost reduction proposal submitted pursuant to those clause is accepted and applied to this contract, an equitable adjustment in the contract price and in any other affected provisions of this contract shall be made in accordance with this clause and the "Termination for Convenience, "Changes, or other applicable clause of this contract. equitable adjustment shall be established by determining the effect of the proposal on the Contractor's cost of performance, taking into account the Contractor's cost of developing the proposal, insofar as such is properly a direct charge not otherwise reimbursed under this contract, and the Contractor's cost of implementing the change (including any amount attributable to subcontracts in accordance with paragraph (e) below). When the cost of performance of this contract is decreased as a result of change, the contract price shall be reduced by the following amount: the total estimated decrease in the Contractor's cost of performance less fifty percent (50%) of the difference between the amount of such total estimated decrease and any net increase in ascertainable collateral costs to the Government which must reasonably be incurred as a result of application of the cost reduction proposal to this contract. When the cost of performance of this contract is increased as a result of the change, the equitable adjustment increasing the contract price shall be in accordance with the "Changes" clause rather than under this clause, but the resulting contract modification shall state that it is made pursuant to this clause. (JUNE 1967) *** (Emphasis supplied.) * Paragraphs (c) (2)ich (3), and (d) indicate that the Article is to be a mechanism by which the adjustment in price is to be implemented. Paragraph (d) clearly states that "an equitable adjustment in the contract price and in any other affected provisions of this contract shall be made in accordance with this clause and the "Termination for Convenience', 'Changes', or other applicable clause of this contract." If the paragraph stated that the adjustment should be made exclusively in accordance with the "Termination for Convenience" or the "Changes" clause then the rules which would apply to an equitable adjustment under those clauses would doubtless apply. However, here we are told that the adjustment shall be made in accordance with this clause as well as with the others, indicating that this adjustment in price is to be distinguished and different from one under those clauses. How it is to be distinguished is spelled out later in the same paragraph where it is stated that the adjustment be calculated as half "the total estimated decrease in the Contractor's cost of performance". This specific instruction how to calculate the adjustment preempts the usual general rules for computing equitable adjustments. It runs counter to an adjustment under other clauses of the contract which are based on the decrease in the Government's cost in getting the job done and thus clearly include a decrease in the contractor's profit. Paragraph (d) ends by setting out the procedure to be followed when there is an increase in the cost of performance as the result of the Article 50 change. In such circumstances "the equitable adjustment increasing the contract price shall be in accordance with the 'Changes' clause rather than under this clause." Of course, a 50-50 cost sharing is not prescribed in case of a cost increase. However, the language used in stating this further reflects that the method used in computing a downward price adjustment is an animal peculiar unto itself. As stated above, when possible all language of the contract should be given an operative meaning and specific language should take precedence over general language. To apply only the "Changes" or "Termination for Convenience" procedures for adjustment would be to read out contract language of specific application to the question at issue, in favor of language of general application. Such an order of preference would be contrary to the rules of construction followed by this court. The defendant invites the court's attention to the fact that "contractor's cost" is a phrase which also appears in the standard Changes and Changed Conditions Clauses yet those clauses trigger the usual rules for calculating equitable adjustment. It is clear, however, from those clauses that a change in the contractor's cost is only a condition precedent to their operation and not, as here, the stated basis of calculating what the adjustment should be. The comparison on the basis of the appearance of the phrase "contractor's cost" is simply inapposite. The conclusion that the language of the Article in question spells out a method for adjustment which may differ from the usual equitable adjustment under the "Changes" or "Termination for Convenience" clauses of the contract and that this adjustment is to be based upon the contractor's cost of performance and there fore will not include profit, is supported by the relevant regulations. The *** regulations demonstrate an intent on the part of the authors that the contractors be encouraged to come forward with proposals which would lead to cost savings. The adjustment in the |