Department of Defense; 220 (3) sales at less than cost by a subcontractor to the next higher-tier contractor or its affiliate and sales or purchases or retentions at less than cost by a subcontractor affiliated with the next higher-tier contractor must receive the specific approval of the contracting officer; 221 (4) the Attorney General must determine whether a proposed disposition of personal property which cost the Government $3,000,000 or more, or of patents, processes, techniques, or inventions, irrespective of cost, would create or maintain a situation inconsistent with the antitrust laws; 222 and (5) bids shall not be solicited from, nor contracts entered into with, certain debarred and suspended contractors without prior written approval of the Chief of Naval Material.2 223 42. Proceeds of sale. The ASPR Section VIII termination clauses provide that the proceeds of sale or acquisition shall be applied in reduction of any payments to be made by the Government to the contractor under the contract or shall otherwise be paid in such other manner as the contracting officer may direct. Normally the proceeds of sales or acquisitions by contractors are credited to the Government as part of the settlement agreement.224 43. Other disposal actions. Surplus termination inventory, like other surplus property, may be donated to educational and public health institutions and to civil defense organizations under certain conditions.225 Where other possibilities of disposal have been exhausted, where no commercial value exists or when the estimated cost of continued care and handling or considerations of danger and hazard make other disposal action impracticable, the disposal office may direct that the inventory be abandoned or destroyed.226 Property may not be abandoned on the contractor's premises without his consent unless authorized by the contract.227 The disposition of termination inventory which is subject to a storage agreement with the contractor will be handled and accounted for in accordance with the terms of the storage agreement. 44. Subcontractor inventory. The prime responsibility for screening and disposal of subcontractor inventory rests with the immediately higher-tier contractor.228 Normally, disposal action will be accomplished by the subcontractor in possession of the property 220 ASPR 8-501.2(c). ASPR 8-501.2(d). “A firm shall be considered to be affiliated with another firm if they are under common control or if there is any common interest between them, by reason of stock ownership or otherwise, which is sufficient to create a reasonable doubt that the bargaining between them is completely at arm's length." Id. See also ASPR 8-507.1 (Oct 3, 1960). 222 Act of Aug. 19, 1958, 72 Stat. 631, 40 U.S.C. § 488 (1958). 223 NPD 1-603.50. See APP 1-502 and APP 1-603.50c (May 23, 1960). 24 See ASPR 8-507.5 (Oct 3, 1960). 225 See ASPR 8-508 (Oct 3, 1960). 226 ASPR 8-509 (Oct 3, 1960). in accordance with instructions furnished by the next higher contractor and the Government. Such disposals are subject to the approval of the cognizant disposal office in connection with the approval or ratification of the prime contractor's settlements with his subcontractors, unless the disposition is within the prime contractor's or a higher-tier subcontractor's authority to conclude subcontract settlements without further review. 229 Subcontractor inventory is screened in the same manner as the prime contractor's inventory except that it is ordinarily screened by the next higher contractor before it is submitted directly to the Navy for screening.23 F. Special-Type Contracts 45. Introduction. The foregoing discussion of current termination procedures has dealt mainly with fixed-price and cost-type contracts with commercial organizations for supplies or for experimental, research or developmental work. There are special considerations applicable to the termination of other types of contracts. These contracts are sometimes administered by representatives of offices distinct from those which administer supply and service contracts. For example, construction contracts are generally administered by the Bureau of Yards and Docks, with inspection of work being done by its officers in charge of construction instead of by Material Inspection Service offices. 46. Research and development contracts with educational and nonprofit institutions. These are contracts executed on a no-fee, noprofit basis. Frequently the contractors also provide portions of their facilities or personnel on a no-cost basis and receive payment from the Navy for only a part of the costs involved. Separate cost principles 231 are provided in ASPR Section VIII for these contracts. The termination clause for these contracts is much shorter than the clauses for supply and construction contracts.282 It does not provide for "formula" type determination settlement in the event the parties are unable to agree. Nor does it provide for loss of right of appeal from a determination of costs made by the contracting officer where the contractor fails to submit its claim in the required time. 47. Fixed-price construction contracts. These contracts require a different termination clause from the one used for fixed-price supply contracts. In construction contracts the price does not readily lend itself to a breakdown between completed, terminated and continued work. Therefore, the ASPR Section VIII clause for these contracts provides that the Government and the contractor may agree 229 ASPR 8-513.1 (a). See also ASPR 8-208.4 and par. 35, supra. 230 ASPR 8-513.1(b). See ASPR 8-213. 233 See ASPR 8-704 (Oct 3, 1960). on a price for the continued portion. 233 The construction contract also provides for payment of expenses incurred after termination (such as cross-sectioning of excavations to calculate the work performed prior to termination) incidental to the determination of the amount due the contractor. Suspension of work, when authorized by construction contracts, is not treated as a termination. 48. Facilities contracts. No ASPR Section VIII termination clause is prescribed for facilities contracts. Under facilities contracts the contractor acquires, constructs, installs, etc., industrial property or equipment for the Government, usually for use in connection with the performance of supply or service contracts. The same contract may also provide for the use of the facilities by the contractor. Generally, the cost principles of ASPR Section XV will be applied, but as a rule no profit or fee is allowed and only direct costs are reimbursed where the facilities are to be furnished to the contractor. Ordinarily overhead is allocated to the supply contracts for which the facilities are furnished. Where the supply contracts are terminated the contractor then has no vehicle for recovering of overhead. Also costs of maintenance, protection, preservation, and repair of facilities are usually recovered under supply contracts. Solution of these problems resulting from termination of the supply contract may require an amendment to the facilities contract. 49. Short-form termination clauses. For fixed-price supply contracts not in excess of $10,000 ASPR Section VIII authorizes a short-form termination clause, which incorporates ASPR Section VIII by reference.234 This same clause also may be used in contracts for services, such as rental of unreserved garage space, inductees' meals, laundry, and drycleaning services, when it is contemplated that termination of the contract for the Government's convenience will not result in a termination claim. The clause provides that payment will be made only for services rendered prior to the effective date of termination. 233 See ASPR 8-703 (1). 234 ASPR 8-705 (Oct 3, 1960). CHAPTER 18 JUDICIAL AND NONJUDICIAL REMEDIES OF THE GOVERNMENT AND THE CONTRACTOR I. Disputes Clauses 1. General. Recent legislation and consequent administrative revisions of the standard "Disputes" clauses have effected important changes in the subject of administrative disposition of disputes arising under Government contracts. Essential to an understanding of these developments and their significance is an analysis of the standard clauses formerly in use, and of their effects. Accordingly, before discussing these recent developments and the precise terms of the "Disputes" clause currently prescribed for use, the former clauses and the effects of decisions under them will be considered briefly. 2. Background. a. Types of clauses. Before its amendment on 15 September 1952, the standard "Disputes" clause prescribed by ASPR 7-103.12 for fixed-price supply contracts1 provided: Except as otherwise provided in this contract, any dispute concerning a question of fact arising under this contract which is not disposed of by agreement shall be decided by the Contracting Officer, who shall reduce his decision to writing and mail or otherwise furnish a copy thereof to the Contractor. Within 30 days from the date of receipt of such copy, the Contractor may appeal by mailing or otherwise furnishing to the Contracting Officer a written appeal addressed to the Secretary, and the decision of the Secretary or his duly authorized representative for the hearing of such appeals shall be final and conclusive: Provided, That if no such appeal is taken, the decision of the Contracting Officer shall be final and conclusive. In connection with any appeal proceeding under this clause, the Contractor shall be afforded an opportunity to be heard and to offer evidence in support of its appeal. Pending final decision of a dispute hereunder, the Contractor shall proceed diligently with the performance of the contract and in accordance with the Contracting Officer's decision. 1 Included in the 1949 edition of the standard form Government supply contract (SF 32 (Nov 1949), art. 12). Substantially similar clauses had been used in supply or other contracts for many years.2 (1) "All disputes" clauses. While in recent times the general disputes provisions used by the military departments have been almost exclusively of this type-i.e., limited to questions of fact-clauses have sometimes been used which provided for decision of any "disputes concerning questions arising under this contract," without restriction to questions of fact. The latter are referred to as "all disputes" clauses to distinguish them from the standard "fact disputes" clause. (2) Specific disputes clauses. In addition to the general disputes provision, Government contracts have often contained narrower provisions relating to the disposition of disputes in a specified area of contract performance, without distinction as to whether the dispute is one of fact or law-for example, the interpretation of drawings and specifications.* A number of the standard clauses now prescribed for use contain what are in effect "all disputes" provisions applicable to the subject matter specifically covered by such clauses. The standard "Price Escalation (Labor and Materials)" 5 clause (Jan 1958) used by the Department of the Army, after authorizing a price adjustment in the event of certain cost increases, provides that "Failure of the parties to agree to an adjustment under this clause shall be deemed to be a dispute concerning a question of fact within the meaning of the clause of this contract entitled 'Disputes'." The ASBCA has held that the effect of this language is to define any dispute concerning the authorized price adjustment as a “question of fact" for purposes of the "Disputes" clause, even though the question presented was actually one of law." The effect of this is to convert the standard "fact disputes" clause into an "all disputes" clause for purposes of disputes arising under the price escalation clause. Similar language referring to the "Disputes" clause is used in a variety of For example, both Art. 12 of the 1935 edition of the standard form supply contract (SF 32 (1935), 41 U.S.C. App. § 54.21 (1958)) and Art. 15 of the 1942 edition of the standard form for construction contracts (SF 23 (1942), 41 U.S.C. App. § 54.13 (1958)) contained a provision which, although less detailed, was to substantially the same effect. See, e.g., United States v. Beuttas, 324 U.S. 768, 770 (1945); United States v. Joseph A. Holpuch Co., 328 U.S. 234, 236 (1946); cf. Barlow v. United States, 35 Ct. Cl. 514, 546 (1900), modified, 184 U.S. 123 (1902). See, e.g., United States v. Moorman, 338 U.S. 457 (1950); Pfotzer v. United States, 111 Ct. Cl. 184, 77 F. Supp. 390 (1948), cert. den., 335 U.S. 885 (1948). ASPR 7-107. [Unless the contrary is indicated, all citations to ASPR in this chapter are to the 1 July 1960 edition. If a citation is followed by a date subsequent to 1 July 1960, the citation is to an ASPR revision of the indicated date.] ... John Wood Co., ASBCA No. 1900 (12 May 1954), digested in DA Pam 715-50-1 (1957), p. 283, par. 55: “. . . Failure of the parties to agree upon a price adjustment pursuant to the provisions of this Clause shall be deemed a dispute as to a question of fact within the meaning of the 'Disputes' clause." |