CHAPTER NINE

CONTRACT CLAUSES

Section 1. Government Furnished Property

KECO INDUSTRIES, INC.

ASBCA No. 11468 (1966)

OPINION BY MR. SOBERNHEIM

Appellant sought to obtain an increase in the contract price in the amount of $55,004.70 as an equitable adjustment under the changes clause of its contract on the ground that it had provided sound suppression devices to reduce the noise level of air conditioners furnished by it to the Government. The contracting officer denied the claim on the ground that what appellant had done was within its contractual obligation. The parties agreed that the Board should only determine the issue of liability and further stipulated at the hearing of the appeal that, if appellant prevailed in its entire claim, it was entitled to at least $49,453.45. The balance of $5,551.25, involving overhead items, was contested by the Government auditors. Accordingly, if appellant prevails the matter will be returned to the parties for resolution of the auditors' objections to these items and determination of the correct amount due appellant.

DECISION

The facts and the expert opinion testimony, spread on the record primarily by appellant or based on information furnished by appellant to respondent, lead inevitably to the conclusion that the reason why appellant's first article air conditioner exceeded the specified noise levels, when measured at 25 feet distance from the unit, is found in the engine-created noise.

Other possible sources of excessive noise were tested by the parties long before the hearing and found by them not to be the cause of the high noise level. No causes other than engine noise are seriously advanced here. The suggestion that the air conditioners to be furnished under this contract were noisier than the units furnished under appellant's first contract by virtue of design changes in the later units is clearly refuted by the record. No such changes are shown to have been made.

The same record leads to the further conclusion that, if the engines here furnished by respondent to appellant as GFP were noisier than those furnished under the earlier contract, this was due to the fact that they were used and overhauled engines, and not, as under the earlier contract, new ones. This is brought out convincingly by the noise level testing of the sample unit: although this unit was accepted as meeting the noise level of the first contract, and as a matter of extrapolation from the noise level test data under that contract would have met the noise levels specified here, it was found not to meet the noise level of the instant contract after substantial use by the Government. We can only conclude from the data that extended use increases the noise of air conditioners when in operation. The testimony of the expert witnesses supports this conclusion, which conforms moreover to common experience with used and overhauled or rebuilt machinery. In all respects its quality is less than that of the new article.

This conclusion is supported here by the actual data on the deficiencies found in the 112 engines furnished to appellant. They conflict with the idealized view of the MOAMA operation taken by respondent here and together with other data on defects in overhauled engines preclude any finding that the overhauled engines furnished appellant here were of the same quality as the new engines furnished appellant under the first contract.*

Having found in appellant's favor on the factual issues as to the cause of its failure to meet the specified noise levels in its first article without the addition of sound suppression devices at a substantial additional cost, we reach the issue whether appellant is entitled to an equitable adjustment in the contract price on the basis of these findings.

Appellant has argued that we should hold in its favor on the ground that the contract, interpreted in the light of relevant contract history, required respondent to furnish new engines. There is, however, nothing in the contract terms to so obligate the Government and there appears to have been no precontract inquiry or discussion which could lead to the conclusion that this was the intent of the parties. The accidental fact that the Government furnished new engines under the first contract is not enough to establish an obligation to do so under this contract. The 'New Materials" clause, on which appellant rests part of its argument, applies only to CFP. It does not obligate the Government to furnish new engines.

On the other hand, the GFP clause of the contract, expressly made applicable to the Government-furnished engines, required respondent to furnish engines suitable for use. A long line of court and Board decisions, involving a wide variety of GFP, has held that this obligation includes not only the duty to furnish the specified articles and to pay for necessary repairs, such as here the replacement of missing thermo switches, broken elbows and the like, but to furnish articles "suitable for use," i.e. the

*No dispute arose under the third contract. Appellant inquired and was told that overhauled engines would be furnished and provided in its bid for the cost of sound suppression devices.

use of which permits performance of the contract without "unnecessary roadblocks" to performance in the form of extra work and cost. Gillsam Manufacturing Co., ASBCA No. 4461, 58-2 BCA par. 1924 (involving Government-furnished cloth). See also Topkis Brothers Company v. U.S., 155 Ct. Cls. 648 (1961), aff'd on motion for recon. 155 Ct. Cls. 680 (1962) (cloth); Chicago Garment Co., Inc., ASBCA No. 4657, 601 BCA 1 2581 (cloth); Stylecraft Clothes, Inc., ASBCA No. 7932, 1963 BCA 3879 (cloth); Cornelia Garment

Company, ASBCA No. 1673 (1954) (cloth); Globe Crayon Corp., ASBCA No. 1496 (1954) (chemical); Franklin Research Corp., ASBCA No. 6797, 61-2 BCA 1 3127 (cable reels); International Aircraft Services, Inc., ASBCA No. 8389, 65-1 BCA 4793 (repair kits); National Roofing and Painting Corp., ASBCA NO. 10425, 66-1 BCA ¶ 5409 (paint).

In all these cases the Court of Claims, or far more frequently this Board, has permitted equitable adjustments in the contract price. Thus in Stylecraft, Gillsam, Cornelia, and Chicago Garment, supra, the Government-furnished cloth, for instance, could not be sewn at normal speed without damaging the cloth and the sewing equipment. Accordingly, price adjustments were made to cover the extra cost of sewing more slowly in order to do the work.

Our decision in Franklin Research, supra, is particularly in point. Appellant there agreed to manufacture cable assemblies which required the attaching of 250' lengths of cable to connectors and then to wind the cables on Government-furnished reels. These reels were of a new design and had certain hooks placed inside the traverse of the periphery which made it necessary to wind the cable by hand rather than mechanically. Since the invitation for bids did not disclose anything about this or that something other than a mechanical winding job was required; the reels were found not suitable for the intended use and appellant allowed to recover its additional costs.

Similarly, here the invitation for bid indicated that appellant was not required to do more than furnish additional air conditioners to a specification, drawings, and bill of material which it had previously successfully furnished. While the noise level permitted for the new units was lower, the previously furnished equipment had in fact already met this requirement. Hence, appellant should be allowed to recover the extra cost of the added sound suppression devices.

There is apart from the determination of the exact amount due one limitation on appellant's recovery. As indicated earlier, it had claimed the cost of an additional 40 hours of direct labor with attendant charges as to 31 "completed units" which required rework (App. Ex. A-10A, A-11). The contract, though permitting fabrication of component parts of the end item at all times, "expressly prohibited" appellant from assembling any of said component parts into an end item or delivering any of the components fabricated until such time as written approval of the First Article(s) test report was received (Part II (b), Sched. p. 12). The record contains little detail as to exactly what happened. However, the claim for additional work on completed units indicates that appellant violated its obligation under Part II (b) of the contract and to the extent that the costs claimed here flow from this violation of its contract their recovery is barred. On the basis of the claim letter (App. Ex. A-10A) the amount to be disallowed would be $3,921.50. Since overhead charges