# Harvey-Whipple, Inc. v. United States

> United States Court of Claims · March 12, 1965 · 342 F.2d 48

URL: https://www.frixlaw.com/law-library/cases/8593257

## Case

- **Full name:** HARVEY-WHIPPLE, INC. v. United States
- **Court:** United States Court of Claims
- **Decided:** March 12, 1965
- **Citations:** 342 F.2d 48; 169 Ct. Cl. 689
- **Precedential status:** Published
- **Opinion:** Opinion of the court by Collins
- **Judges:** Collins, Cowen, Davis, Dureee, Laramoee
- **Cited by:** 12 later opinions in the Frix Law Library

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- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/8593257

## Opinion text

ColliNs, Judge,
delivered the opinion of the court:
The subject of this congressional reference case is a claim for damages resulting from the alleged breach of a contract 1 entered into by plaintiff and the Chicago Quartermaster Depot, Department of the Army (hereinafter referred to as “QM”). The House of Representatives has ashed this court to inform the Congress of the nature of plaintiff’s claim against the United States and the amount, if any, legally or equitably due to plaintiff. 2
In March 1952, plaintiff, a Massachusetts corporation, engaged primarily in the manufacture of heating equipment, obtained an invitation for bid, issued by QM, for the manufacture of “combination intrenching tools.” This tool, a combination shovel, axe, hoe, and pick, was developed for the Army under a research and development contract by the Ames Company. It was considered as a critical war tool, to be used in the Korean conflict. The contract, pursuant to bids, was to be the first large-scale production of the redesigned version of a tool used in World War II. Plaintiff obtained a sample of the Ames tool, but bidders were warned that, because of changes, full reliance could not be placed upon the Ames design. In February 1952, plaintiff had entered into a contract with one Harry K. Tucker whereby he was to assist plaintiff in acquiring new business. It was through the efforts of Tucker that plaintiff received the invitation to bid.
Plaintiff submitted a bid which turned out to be the low one. Defendant was concerned about the adequacy of plaintiff’s bid and its capacity, particularly financial, to handle *692 the contract. After two preaward conferences in May 1952, the contract was awarded to plaintiff. Plaintiff was to manufacture 1,067,000' of these intrenching tools at the unit price of $1.80. The average of all 16 bids for this contract was $2.61 per item; the Ames Company, which had produced the first model (which was not wholly satisfactory), bid $2.27. The delivery schedule required an initial shipment of 50,000 units by October 31, 1952; deliveries were to be completed by July 31,1953.
Under plaintiff’s plan, the manufacture of the various components would be performed by subcontractors with plaintiff doing the assembling and packing. Accordingly, in June 1952, plaintiff awarded to Northern Handle Mills, Inc. (hereinafter referred to as “Northern”), a subcontract for production of the handles. Plaintiff ordered the metal components, i.e., blades, picks, hinges, and sockets, from Meriden Industries Company (hereinafter referred to as “Meriden”). Plaintiff supplied the subcontractors with the Government drawings and specifications, but did not send any detailed Instructions. Northern, in July 1952, expressed concern to plaintiff that the broad tolerances of the specifications might lead to difficulty with regard to the fitting of sockets and handles.
On August 4, 1952, the Reconstruction Finance Corporation (hereinafter referred to as “RFC”) authorized a loan of $500,000 to plaintiff. Previously, plaintiff had obtained another RFC loan. Both RFC loans were secured by a mortgage on plaintiff’s property, and, as additional security for the second loan, RFC took an assignment of the proceeds of the intrenching tool contract. Under the assignment, the Army would pay RFC for shipments received from plaintiff and, subject to certain conditions, RFC would release the funds to plaintiff.
As of October 31, 1952, no intrenching tools had been delivered, since a steel strike had made it impossible for Meri-den to obtain needed raw materials.
In November 1952, plaintiff submitted to the contracting officer preproduction samples of the tool. The samples were tested by the Quartermaster Research and Development *693 Laboratory at Jeffersonville, Indiana (hereinafter referred to as “B & D”). Numerous deficiencies (e.y., failure to pass strength tests) were discovered and the samples were not approved. On December 29, 1952, plaintiff delivered to the contracting officer a second set of samples and, at the same time, requested permission to be present at the B & D laboratory during the tests. (Subsequently, plaintiff’s request was denied.) In January 1953, plaintiff was advised that the second samples were also defective, but that it would not be necessary to submit further preproduction samples. Within a short time, manufacture of the components, other than the socket, began.
In February 1953, during the first stages of production, plaintiff discovered that the dimensions contained in the Government drawings were such that, at one point, there would be a %6-inch gap between the hinge and the blade. On February 25, 1953, plaintiff informed the contracting officer of this matter, but plaintiff received no immediate instructions.
The contracting officer, on February 27,1953, wrote plaintiff that the delivery schedule wag being extended by 154 days. This extension was based upon the excusable delay resulting from the steel strike. Still, plaintiff was unable to meet the delivery schedule; one cause of plaintiff’s inability was the fact that Meriden failed to ship equal or nearly equal numbers of the four components. Such unbalanced deliveries from Meriden were to be a recurring problem. Furthermore, a large percentage of the tools which plaintiff did complete failed to pass inspection.
In late April 1953, the QM Inspection Division determined that metal-to-metal contact of blade and hinge was required. Plaintiff sought to achieve such contact by applying pressure to the rivet which joined the two parts. On May 27, 1953, three officers of QM visited plaintiff’s plant. At that time, plaintiff discussed with them the following problems which plaintiff attributed to errors in the drawings: the metal-to-metal contact of hinge and blade; the position of the pick when closed; and interference of the pick with the blade during closing. Plaintiff agreed to submit the entire matter in *694 writing for transmission to R & D. Also, plaintiff’s officials asked permission to go to R & D.
On June 24, 1953, plaintiff submitted its letter regarding the various problems. On July 14,1953, pursuant to permission granted by QM, three representatives of plaintiff went to the R & I) laboratory for discussion of the errors in the drawings and specifications.
■Subsequently, plaintiff prepared a list of 24 suggested changes. Representatives of plaintiff and defendant discussed the proposals at a conference on August 21,1953. Ultimately, defendant agreed to incorporate in a formal change order 20 of plaintiff’s suggestions, including (1) correction of the drawings and (2) reduction in the stringency of certain tests. With regard to the remaining four proposals, the contracting officer informed plaintiff that inclusion in the change order was unnecessary, but that the Government would not object if plaintiff used the dimensions suggested by these proposals. On September 21, 1953, the parties entered into Supplemental Agreement No. 2 which effected the changes, increased the contract price by 11.341 cents per item, and extended the delivery schedule. Plaintiff, having sought a 36-cent per item increase, considered the amount of the price increase to be too low and, accordingly, initiated an appeal under the disputes clause. However, plaintiff did not pursue the appeal.
Meanwhile, on September 8, 1953, because of plaintiff’s inability to meet its indebtedness to Meriden, the latter company had halted the production of the metal parts. This resulted in the stoppage of production of the intrenching tools until February 1954, when Meriden resumed shipping the components.
As of January 31, 1954, plaintiff was seriously delinquent on its delivery schedule. To avoid being held in default and to obtain further revision of the delivery schedule, plaintiff offered to supply the remaining tools at a slightly reduced unit price. Defendant accepted plaintiff’s offer and a new supplemental agreement was executed on February 17,1954.
After the resumption of production, there was a considerable decrease in the rate of rejections. However, plaintiff’s financial difficulties continued. Plaintiff was still *695 unable to make deliveries as required by the contract. In June 1954, the contracting officer denied plaintiff’s request for further extension of the delivery schedule, pointing out that inability to secure adequate financing did not constitute an excusable cause for delay.
On August 13, 1954, because of plaintiff’s failure to make deliveries as required, the contracting officer reduced the number of tools to be manufactured. Plaintiff appealed this partial termination to the Secretary of the Army. ■
On January 15, 1955, when the existing delivery schedule expired, plaintiff was delinquent to the extent of 412,000 tools. On February 10, 1955, the contracting officer issued a notice of default which directed plaintiff to demonstrate its ability to make substantial deliveries. At plaintiff’s request, a conference was held on February 24, 1955, during which plaintiff made a proposal for continuation of the contract. Under the suggested plan, (1) plaintiff would withdraw its appeal from the partial termination; (2) plaintiff would forego any claims it had, or might have, based upon the prior performance of the contract; (3) the unit price would be reduced; and (4) a new delivery schedule would be effected. In March, the parties reached an agreement which embodied plaintiff’s proposal. Accordingly, on March 17, 1955, plaintiff executed a complete release which, inter alia, expressly discharged the Government from any liability to plaintiff based upon discrepancies in the contract or the specifications.
In April 1955, the maturity date of the second RFC loan was, for the fifth time, extended. Still, plaintiff experienced financial difficulty and was unable to pay its subcontractors. Consequently, after July 1955, no further deliveries were made under the contract. Formal termination of the contract for default was effected as of February 4,1957. 3 Plaintiff’s appeal to the Armed Services Board of Contract Appeals was dismissed, the Board holding that it had no equity jurisdiction to reform the release which plaintiff had given.
On March 8,1957, the Government obtained in the United States District Court for the District of Massachusetts a *696 judgment of foreclosure of the mortgages given by plaintiff, to secure the NFC loans. The sale of plaintiff’s property resulted in a substantial deficit. As of October 24,1958, the unpaid balance was $156,578.03.
The first question to be considered is whether plaintiff has a valid “legal or equitable claim” within the normal meaning of those terms. That is, does plaintiff have a claim which could be successfully pursued in a court of law or equity ?
Plaintiff contends that the acts and omissions of defendant with regard to the intrenching tool contract resulted in the destruction of plaintiff’s financial condition. According to plaintiff, the initial source of difficulty was the furnishing by the Government of faulty drawings and specifications. Plaintiff argues that the erroneous provisions of the contract, coupled with defendant’s failure to make timely corrections, caused the large number of rejections. Finally, plaintiff’s financial distress and inability to perform were consequences of the fact that, to the extent of the rejections, no payments were forthcoming.
As indicated in finding 128, m/m, it is reasonable to attribute to the defective drawings and specifications a large percentage of the rejected completed tools. This court is unable to accept the contentions of defendant that the drawings and specifications contained no errors and that the sole cause of such problems as the fit of the hinge and blade was improper engineering by plaintiff. Despite the errors and delays on the part of defendant, it does not necessarily follow that plaintiff has a valid legal claim. Consideration must be given to defendant’s assertion that the Government has been released from any liability stemming from defects in the contract provisions.
The express terms of the release demonstrate the validity of the Government’s contention. The release states (in part) :
Harvet-Whipple, INC., does hereby, * * * release and forever discharge the Uotted States * * * of and from all * * * causes of action, * * * damages, claims and demands whatsoever in law or equity or under administrative procedures which * * * the said Harvet-Whipple, lire., ever had, now has or may have for or by reason of any matter, * * * arising under and by virtue *697 of * * * [tbe intrenching tool contracts] * * * from tbe beginning of tbe world to the date of these presents, it being the intention * * * of the parties that this release * * * shall apply to but is not limited to (a) any difficulties, conflicts, ambiguities, inconsistencies, discrepancies, or impossibilities which may have been or may be contained in the * * * [contracts] and any specifications referenced therein, (b) any upward adjustment in price under the terms and conditions of Supplemental Agreement No. 2 * * * in excess of $0.11341 per unit and (c) the Notices of Partial Termination for Default, dated 13 August 1954, * * *.
Therefore, assuming the release to be valid, no legal liability of defendant can be predicated upon the defects in the drawings and specifications. Furthermore, the release extends to all other claims of plaintiff, relating to the performance of the intrenching tool contract, which arose prior to March 17, 1955, the date when the release was executed.
Approximately 4 months elapsed between the date of the release and July 29, 1955, the date of the final shipment by plaintiff. Plaintiff did not stress or argue that any of defendant’s actions during that period could be considered as breach of contract. Nor can liability be based upon defendant’s conduct during the interval from July 29, 1955, to February 4, 1957, when formal termination was completed. 4 The conclusion follows that any possible claims of plaintiff were included within the terms of the release. Plaintiff, however, seeks to avoid the effects of the release by asserting that defendant obtained the release by means of duress.
Examination of the circumstances which gave rise to execution of the release compels the conclusion that there was no coercion or duress on the part of the Government. Of prune significance is the fact that the proposal whereby plaintiff would forego its claims originated with plaintiff, not with the Government. On January 25, 1955, frior to *698 issuance of the notice of default, representatives of plaintiff went to QM for a conference. Plaintiff included in a proposal which was designed to achieve an extension of the delivery dates the waiving of all claims against the Government. Plaintiff’s plan (which involved the taking over of plaintiff by a certain group of businessmen) did not materialize. Still, this court is confronted with the fact that the idea of releasing the Government was initiated by plaintiff.
Also, at the February 24, 1955, meeting (held subsequent to the default notice), it was plaintiff who voluntarily proposed, inter alia, that plaintiff forego its claims and covenant not to sue. Plaintiff’s offer furnished the basis for the March 9, 1955, “Memorandum of Understanding” which in turn was incorporated in the supplemental agreement of March 17, 1955. One aspect of the latter agreement was the execution by plaintiff of the release. It is important to note that the purpose of plaintiff’s proposal was achieved, i.e., the contract was not terminated for default, and plaintiff secured an extension and revision of the delivery schedule.
When the contract was executed, plaintiff’s business had declined and its financial picture was weakened. This increased during the performance of the contract until, at the time of execution of the release, plaintiff was in serious financial difficulty. However, this is not a ground for holding the release invalid. Cf. Alloy Products Corp. v. United States, 157 Ct. Cl. 376, 381 , 302 F. 2d 528 (1962). 5 Another underlying circumstance was the fact that the contracting officer had served upon plaintiff a notice of default. In view of plaintiff’s serious delinquency at the time, issuance of the default' notice was proper and its existence did not affect the validity of the release.
To summarize, this court holds that the release (1) was not obtained through duress, (2) was valid and binding, and (3) bars any legal or equitable (in the juridical sense) claims *699 which, plaintiff might have. Cf. J. G. Watts Constr. Co. v. United States, 161 Ct. Cl. 801 (1963) (release); Cannon Constr. Co. v. United States, 162 Ct. Cl. 94 , 319 F. 2d 193 (1963) (accord and satisfaction).
A second issue in this congressional reference case is whether plaintiff has an “equitable” claim within the broad, moral concept as enunciated in Burkhardt v. United States, 113 Ct. Cl. 658, 667 , 84 F. Supp. 553 (1949). Despite our conclusion that the release bars any claims of the type cognizable in a court of law or equity, it does not automatically follow that the same result applies to “equitable” claims in the broad sense. Rocky River Co. v. United States, ante, p. 203. See also Drake American Corp. v. United States, 168 Ct. Cl. 318 (1964).
In determining the effect of a release upon “equitable” claims, this court has gone beyond the traditional grounds for avoiding such an instrument {i.e., duress, mutual mistake, etc.) and has looked into the circumstances which gave rise to the release. For example, in a recent congressional reference case, Rocky River Co. v. United States, supra, this court held that the plaintiffs had a valid “equitable” claim, even though any legal claims were barred by general releases. Our decision was based upon a finding that the releases did not contemplate disposition of the matter in question (damages resulting from the defendant’s failure to remove all unexploded shells from the plaintiffs’ lands). That is, when the releases were executed, the Government and the plaintiffs all had believed that the former would successfully clear the latter’s lands of unexploded shells. Thus, the case was distinguished from Hellander v. United States, 147 Ct. Cl. 550 , 178 F. Supp. 932 (1959), where, at the time of execution of a general release, both parties were fully aware of the claim which the plaintiff subsequently attempted to assert. In Hollander, also a congressional reference action, the existence of the release was one of the alternative grounds for a decision adverse to the plaintiff.
However, even the more flexible rule exemplified by Rocky River Co., supra, does not require, in the case at bar, that the release be set aside. As indicated in our discussion of plain *700 tiff’s “legal” claim, the release was not forced upon plaintiff by the Government. On the contrary, the granting of a release was part of a plan which plaintiff itself had originated. At the time when plaintiff executed the release and discharged the Government, plaintiff was fully aware of its situation and all matters upon which its present claim is based. Plaintiff’s goal in entering into the supplemental agreement, one part of which was execution of the release, was to avoid termination for default and to obtain from the Government a revision and an extension of the delivery schedule. Defendant did grant the changes requested by plaintiff, and, although plaintiff’s hope of completing performance of the contract was not realized, the fact remains that plaintiff received the “bargained-for” consideration. Under these circumstances, this court cannot escape the conclusion that the release bars plaintiff’s “equitable” claims, in the nonjuridical sense, as well as those cognizable in a court of law or equity. 6
Even in addition to the circumstances of the release, there are factors which support our conclusion that plaintiff has no “equitable” claim. As defendant points out, the RFC granted, at plaintiff’s request, five extensions of the second loan. The cumulative effect of these extensions was to change the maturity date from September 30, 1953, to December 31, 1955. Also, with regard to the intrenching tool contract, numerous extensions of the delivery schedule were granted. Thus, the record does not support plaintiff’s contention that the attitude of the Government toward plaintiff' was one of harassment and noncooperation. As already *701 indicated, two major sources of plaintiff’s difficulty were plaintiff’s own financial position (which had begun to decline prior to the. intrenching tool contract) and plaintiff’s reliance upon Meriden as the major subcontractor. Responsibility for these two factors cannot be’ placed upon the Government.
In view of our conclusion that plaintiff has no claim, legal or equitable, it is unnecessary to discuss the affirmative defense pertaining to violation by plaintiff of the covenant against contingent fees. 7 Another affirmative defense stems from the RFC loans and defendant asserts the unpaid balance of the loans as a counterclaim.
The record before the court shows that the defendant, knowing that plaintiff corporation was (and still is) nonfunc-tioning as a business enterprise or going concern and insolvent, elected to proceed against the personal guarantors of the notes to the RFC and has obtained a judgment in the United States District Court for the District of Massachusetts against them. 8 Since a deficiency judgment against Harvey-Whipple, Inc., would be uncollectible (unless relief were given by Congress), it being insolvent, and since this court recommends no relief for plaintiff, the court, although it has the power to do so, declines to enter judgment for de *702 fendant against the plaintiff corporation on the defendant’s counterclaim, which is dismissed without prejudice. Should the defendant wish to pursue the matter further, it may do so in the District Court in Massachusetts where, the foreclosure proceedings were instituted and where the action against the guarantors has been taken.
This opinion, concluding that plaintiff has no claim, legal or equitable, against the United States, and the findings of fact incorporated infra, will be certified by the Clerk to Congress pursuant to House Resolution 487, 85th Congress, 2d Session.
FINDINGS OF FACT
The court, having considered the evidence, the report of Trial Commissioner Saul Richard Gamer, and the briefs and arguments of counsel, makes findings of fact as follows :
1. Plaintiff is a corporation organized under the laws of Massachusetts. In 1952, when it entered into the contracts with defendant herein involved, and for many years prior thereto, it was primarily engaged, at Springfield, Massachusetts, in the business of manufacturing and distributing heating equipment and related articles. Plaintiff was incorporated in 1925, succeeding the original business which was commenced in 1923 by Walter O. Harvey and Ray G. Whipple.
' 2. In 1949, plaintiff had obtained a loan from the Reconstruction Finance Corporation (hereinafter referred to as RFC) in the amount of $325,000. The loan was repayable at the rate of $60,000 annually in monthly installments of $5,000 each beginning October 6, 1949, and on the 6th day of each month thereafter to February 6, 1955. These funds were used to finance certain Government contracts involving the manufacturing of products unrelated to plaintiff’s heating equipment business. The loan was secured by a first mortgage covering all of plaintiff’s fixed assets, including land, buildings, machinery, and equipment.
3. (a) The year 1951 was not a profitable one for plaintiff. Its total sales (both wholesale and retail) fell to approximately $1,915,000 from the previous year’s $2,800,000. It suffered a loss of approximately $27,000 as against a profit *703 (before taxes) of approximately $43,000 the previous year. In this regard, plaintiff was following an industry trend. The bulk of plaintiff’s sales (over $1,825,000) was to the civilian market. A small portion went to the Government. Nevertheless, as of December 31, 1951, plaintiff’s net worth was $579,623.49, and its working capital (current assets minus current liabilities) was approximately $250,000. However, its current asset ratio (ratio of current assets to current liabilities) was $1.53 to $1, i.e., it had $1.53 current assets for each $1 of current liabilities. This was somewhat low. The normal standard for a sound business is generally considered to be a current asset ratio of $2 for each dollar of current liability. Further, as of that date, its cash position was poor, constituting only approximately $18,500, and thus causing it to be in a relatively nonliquid position.
Plaintiff had embarked on a development program for new heating equipment. But, despite large expenditures, the new products were not yet ready to be marketed. Plaintiff felt that it then had the capacity and ability to produce other products simultaneously with its heating equipment items, and commenced to seek business of other types.
During the year the EFC authorized a reduction in the total annual payments on its loan to $30,000 (from $60,000) payable at the rate of $5,000 per month for the months of July through December of each year.
(b) Previous to 1951, plaintiff had, except for the year 1948, earned a profit every year since 1942. The following chart shows plaintiff’s gross sales and net income for the years 1942-1950:
*704 4. In February 1952 plaintiff first learned of one Harry K. Tucker of Asbury Park, New Jersey, who plaintiff believed could obtain additional business for it. On February 15, 1952, plaintiff entered into a contract with Tucker trader which plaintiff agreed to pay Tucker “a minimum salary of $100.00 per week during the life of this contract, starting immediately, for the services of you [Tucker] and/or your organization in making contact between our company and prospective buyers.” Such services included “the acquainting of buyers with our company and its facilities, soliciting and obtaining prints, specifications and bid forms from both commercial firms and various United States Government Departments * * Also included in the services Tucker was to perform were (a) “Obtaining (when and if possible) opportunities to quote, invitations to bid, blueprints, specifications, samples (if available), etc.”; (b) the furnishing of his “preliminary price breakdown with shop production method suggestions”; (c) assistance, upon plaintiff’s written request, “in the collection of invoices”; and (d) assistance, upon plaintiff’s request, in the location of “materials and other items in the production of business thru you.”
The contract further provided:
2. Your weekly salary shall increase as, when and if you get us business based on the following schedule:
Your weekly salary Percentage for comparison only Equivalent to_ 5% 3% Our weekly gross sales* Up to $20,000-Over $20,001...
3. Salary increases will start 30 days after the initial delivery date (as provided by all original or repeat orders or contracts accepted by us hereinunder) and will continue for the life thereof. However, in the event of fires, earthquakes, floods, strikes, lockouts, or acts of God, your salary (at our option) can be temporarily suspended for the period so affected, otherwise, your salary shall be due and payable weekly and shall be mailed to you, your heirs, or assigns, on Friday of each week. All *705 minimum salaries paid prior to your effecting sales for us will be deducted from any salary increases due you (over and above your minimum salary) until all minimum salaries have been liquidated. (All payments subject to payroll withholding tax, W-4 Form.)
4. Orders (or contracts) cancelled for reasons other than our failure to perform ('but not otherwise) shall automatically cancel any salary increase due you from such orders (or contracts) so involved.
It is understood and agreed by us that you have the right to sell, assign, transfer or set over unto anyone of your choice, all or any part of your right, title and interest herein, in which event you hereby have our acceptance thereof, upon your written notice to us.
It is further understood that you will request a Dun & Bradstreet Deport on us, and in the event you find this report disfavorable or of such a nature that the ordinary prudent businessman would not conduct ordinary business or trade with any individual or firm having such a report, in that event you shall have the right to terminate this agreement in its entirety upon one week’s written notice of termination.
# * # ❖ #
6. In the event your services do not develop business sufficient to maintain your minimum salary, we reserve the right to cancel this contract (as provided for in Paragraph #17 herein) in which event no claim for refunds shall be made by us against you nor you against us for further payments.
7. Unless specifically agreed to in writing by us, you are to receive no commissions, percentage, brokerage or contingent fee of any kind or nature at any time beyond the salary stipulated in Paragraphs 1, 2 and 3 hereof.
8. All business from you is subject to our acceptance or rejection and our decision will be final. In all cases we shall ship, bill and collect direct from the customer.
9. We understand and agree that your services for us in soliciting and obtaining prints, specifications and Bid Forms from various United States Government Departments will be strictly of a routine and standard procedure.
10. We also confirm your statement to us that you have no special connections of any kind with any Government Departments, Official or individual.
‡ ‡ ‡
13. We do not relinquish any right to sell to whomever we may desire as you have not been given any special *706 or exclusive territory by us. However, unless we immediately notify you to the contrary, any account you submit to us shall be regarded as your account and your compensation therefrom shall continue so long as these accounts continue with us, the validity of this agreement notwithstanding.
14. We agree that you represent other persons and firms having the same and dissimilar lines of business and that you will continue to do so.
‡ ‡ $ $
16. You are hereby authorized to act as our Bona Fide Sales Agent (on a part time weekly salary basis) without limitations as to your territory or source of business. You are not authorized to bind us unless expressly authorized to do so in writing. We will supply you with an Employees Identification Form.
17. This agreement shall continue for the initial term of 6 months from this date and so on from 6 months to 6 months unless thirty (30) days’ notice in writing is given one to the other of intent to cancel this agreement prior to the expiration of the initial or any subsequent term hereof.
‡ ‡ $
5. The first Invitation to Bid which came to plaintiff through Tucker was one for a so-called Aircraft Maintenance Platform issued by Headquarters, Air Materiel Command, Wright-Patterson Air Force Base, Dayton, Ohio. However, plaintiff’s bid of March 3, 1952, was rejected.
On some subsequent invitations which Tucker furnished, plaintiff decided not to submit a bid.
6. On March 4, 1952, an Internal Revenue Service form (W-4) entitled “Employee’s Withholding Exemption Certificate (Collection of Income Tax at Source on Wages),” was executed with respect to Tucker. This permitted plaintiff to make the necessary payroll deductions. Tucker transmitted this form to plaintiff by letter of March 4,1952, which also stated:
We want to again repeat that we make no claims of any so-called “inside connections” or “influential acquaintances”. Our position is the same as yours, since all individuals and corporations are on an equal footing as to their rights and privileges before all Government Bureaus and Departments. What we can and did offer you is experience and intelligently directed effort. As a *707 measure of protection to your company, it should be understood that you give us no other authority, nor are we under any further obligation other than obtaining business for you.
Please understand that you cannot expect immediate results. It will take me time to assimilate the type of work that is best suited for your facilities. Further, we have confidence in the knowledge that you will not make “snap” acceptances or acceptances which are not based on scrutinous and careful consideration.
7. On March 20, 1952, the Chicago Quartermaster Depot, Department of the Army (hereinafter sometimes referred to as QM) issued an Invitation for Bids for the famishing of 1,067,000 units of a “Combination Intrenching Tool.” This tool was a combination folding pick and shovel. The shovel blade was designed to be strong enough so that its edge could be used as an axe. Thus, the tool could perform as a shovel, a pick, a hoe, and an axe. It was carried by combat soldiers for use, among other things, in digging foxholes and trenches, positioning tent pins, cutting brush and roots, and for similar purposes. At this time, the Korean war was in progress and the item was regarded as a critical war tool.
This Invitation to Bid was also obtained by Tucker who, on March 27,1952, advised plaintiff thereof and then subsequently turned over to plaintiff the invitation itself.
8. Folding shovels had been used extensively by our combat soldiers during World War II, when over 18,500,000 were produced. However, it was then necessary for some combat men to carry shovels, others axes, and others picks, with some in combat squads not being provided with any tool. It was then decided to develop a combination .tool which would be available to each combat soldier. The Ames Company, which had been in the business of manufacturing shovels for many years, and which had provided approximately 9% million of the World War II type of folding shovel, produced the first model combination tool. After tests disclosed certain deficiencies in this model, the tool was redesigned and, in 1950, a research and development contract was let to the Ames Company to produce 10,000 units of this improved model. This contract was completed in 1951, with the tools *708 then being distributed to various operating elements of the Army for thorough service tests. These tests indicated the need for still further improvements. Thereupon, the Research and Development Division of the Army’s Quartermaster Depot (hereinafter sometimes referred to as R & D), in collaboration with Ames, made further changes in the design of the tool. These changes were intended to result in an improved model as well as one that would be simpler to manufacture under a large scale production contract.
The combination tool which was the subject of the March 20, 1952, Invitation for Bids was this redesigned tool, with the contract to result therefrom 'being the first large scale production thereof. Bidders were warned not to rely on the previous design of the tools produced under the Ames research and development contract because of the changes that subsequently had been made. However, samples of such Ames tool were made available to bidders as an indication of what a combination intrenching tool was generally like, and plaintiff did obtain such a sample.
9. On April 8,1952, plaintiff submitted a bid of $1.80 per unit, provided the bid was accepted within 80 calendar days from the date of the opening. The bids were opened on April 9, 1952. In all, sixteen companies submitted • bids. Plaintiff was the low bidder. The two next low bids were $1.86 and $2.0475 per unit. The Ames bid was $2.27. The average of all the bids was $2.61.
Some employees of R & D were disappointed that a company unknown to them and with no previous experience in the manufacture of this type of implement was the successful bidder. However, this was not a research and development contract, such as had been the Ames contract, and that Division, therefore, had no direct responsibility for the administration of this proposed production contract. Instead, the Procurement Division of QM was vested with such responsibility.
10. On April 16, 1952, a representative of QM inspected plaintiff’s plant and discussed the proposed production with plaintiff’s officials.
Plaintiff itself was not equipped to manufacture an implement such as the intrenching tool. It was plaintiff’s plan *709 to subcontract the manufacture of all the component parts. Plaintiff would then assemble, paint, pack and ship (50 percent domestic and 50 percent export) the completed tools. Plaintiff proposed to establish an automatic line for the assembly operation and the spray paint facilities.
11. On May 6, 1952, a QM contracting officer telephoned plaintiff’s president (Whipple) and requested an extension of time of 15 days in which further to consider plaintiff’s bid. Such extension was granted. The QM official also requested financial data concerning plaintiff and certain information concerning plaintiff’s proposed subcontractors, all of which plaintiff submitted.
12. On May 19, 1952, plaintiff, being in need of working capital, entered into a loan agreement with the Springfield National Bank of Springfield, Mass., under which the bank agreed to advance funds to plaintiff up to 80 percent of the value of assigned accounts receivable. This was the only collateral of a substantial nature which plaintiff could furnish because, as hereinabove set forth, all of its plant and property had already been mortgaged to the RFC.
13. The QM officials in charge of this procurement became concerned about whether plaintiff could successfully produce the tool at what they considered to be a rather low price. They decided to hold a “preaward” conference with plaintiff’s officials on May 20, 1952, the day prior to the expiration of plaintiff’s bid, to explore the matter. Plaintiff’s officials were requested to present a cost breakdown at the conference. Such a conference was held on that day at the QM offices with plaintiff’s president and plaintiff’s director of purchases and vice-president (Shaw). Defendant’s officials stated that plaintiff was the low bidder, but that defendant wished to make certain that plaintiff understood the specification requirements and that plaintiff had not made any errors in the computation of its bid, since defendant’s officials considered the bid to be quite low. Plaintiff’s estimated costs and its proposed method of operation were reviewed. Among other things, an official of defendant inquired whether it might not be better for plaintiff to manufacture some of the component parts itself, because each subcontractor would expect to make a profit on its own operation.
*710 Plaintiff’s officials inquired whether the tool and the specifications had been proved and fully tested, and defendant’s officials stated that plaintiff could assume that this was the situation.
As a result of the discussion, it was agreed that plaintiff’s bid would remain open until plaintiff could reconsider it and decide whether it wished to undertake the contract.
■ 14. The breakdown of its bid price which plaintiff presented to defendant at the preaward conference was as follows:
Cost Analysis of Intbenching Tool
Labor_ 0. 13
Material Direct Supplies:
Paint_ 0. 027
Packing supplies_ . 022
- . 049
Purchased Parts — Subcontractors:
Shovel, pick, etc_ .80
Handle_ . 22
Handle unit_ . 1063
Special rivets_ . 007
Hinge pins_ . 0158
Washer_ . 0186
Packing box_ . 073
- 1. 2407
Special perishable equipment_ . 02
Rearrangement of facilities_ . 01
Direct Factory overhead — 1.323% of direct labor_ . 172
- . 202
1. 6217
Administrative Expenses_ . 0486
Total Costs_ 1. 6703
Profit before'taxes, 7.8%_ . 1297
Ceiling Price_ 1. 8000
Plaintiff had calculated these estimates in conjunction with the Tucker organization.
15. Plaintiff’s officials thereupon reviewed the entire matter and concluded that, on the basis of all the information they had and furnished to them by defendant’s officials, their bid was ample to permit a successful completion of the con *711 tract'. They so informed the QM officials on May 26, 1952. Thereupon defendant decided to accept plaintiff’s bid for the manufacture of the 1,067,000 tools at $1.80 per unit. ■ At the time, plaintiff was in need of additional business and was anxious to obtain this award.
16. For administrative purposes relating to. appropriations, it was necessary to divide the procurement into three contracts. Such three contracts, dated as of May 26, 1952, providing for the manufacture and delivery of 1,067,000 intrenching tools for an aggregate price of $1,920,600, were entered into by plaintiff and defendant. The contracts were as follows:
(a) Contract No. DA 11-009-QM-18702 provided for the manufacture of 500,000 tools, at a total price of $900,000. The delivery schedule required an initial delivery of 50,000 units during the month of November 1952 and monthly deliveries of 60,000 units thereafter except in the final month, in which 30,000 were to be delivered, all deliveries to be completed by July 31,1953.
(b) Contract DA 11-009-QM-18703 provided for 50,000 tools at a total contract price of $90,000. The delivery schedule required the shipment of all 50,000 to be made not later than October 31,1952.
(c) Contract No. DA 11-009-QM-18704 provided for 517,000 tools at a total price of $930,600. The delivery schedule required an initial delivery of 50,000 units during the month of November 1952 and 65,000 per month thereafter, except in the final month, in which 12,000 were to be delivered, all deliveries to be completed by July 31, 1953.
Thus, if plaintiff began making deliveries commencing around October 1, 1952, on contract 18703, in order to complete the 50,000 units to be delivered by the end of that month on that contract, plaintiff would have approximately 4 months to prepare for the commencement of production.
Each contract contained the following provision:
20. Covenant Against Contingent Fees
The Contractor warrants that no person or selling agency has been employed or retained to solicit or secure this contract upon an agreement or understanding for a commission, percentage, brokerage, or contingent fee, *712 excepting bona fide employees or bona fide established commercial or selling agencies maintained by the Contractor for the purpose of securing business. For breach or violation of this warranty the Government shall have the right to annul this contract without liability or in its discretion to deduct from the contract price or consideration the full amount of such commission, percentage, brokerage, or contingent fee.
17. By letter of May 26,1952, the same date as that of the three contracts, plaintiff requested Tucker to reduce his compensation with respect to the intrenching tools from $0,054 each 3 percent, as set forth in Tucker’s contract) to $0.02 each. However, by letter of June 5, 1952, Tucker rejected the request and stated he would “expect compensation based on $.054 on each of the 1,067,000 units, a total of $57,618.” Tucker stated that current cost estimates, as a result of the “very sizable amount of time and expense” spent by the Tucker organization, were now lower than those originally estimated. The letter went on to state:
Previous estimates left $.184 each for profit and overhead. Present confirmed estimates leave $.36 each for profit and overhead, or a total in excess of $375,000.00.
If prices had run the way it looked when you were in Chicago, most certainly I would have been the first to volunteer a cut on my part, but they haven’t, and since much of the saving is a direct result of our further efforts in your behalf, I doubt very much if you would ask us to take any cut. I, frankly, think you are too fair for that sort of practice.
Tucker also advised that he had assigned 25 percent of his interest “in the above deal” to a third party.
18. On June 2, 1952, a steel strike occurred which prevented the obtaining of the steel required for the performance of the contracts.
19. Plaintiff’s major subcontractor was Meriden Industries Company (hereinafter sometimes referred to as Meri-den) of Hamden, Connecticut, a company which had previously manufactured for plaintiff a component part of plaintiff’s oil burners. Meriden first submitted a formal quotation to plaintiff in early June 1952. This quotation was for the manufacture of four important component parts of *713 the tool — the blade, the pick, the hinge (which connected the blade to the pick and the socket), and the socket (in which the wooden handle was to be inserted).
The contract specifications provided that inspection would be made by defendant to determine plaintiff’s compliance with the specifications. Such inspections were to be conducted pursuant to instructions issued by the QM Inspection Division to the inspectors who were to be stationed at plaintiff’s plant, and which instructions were incorporated in a document labeled “Standard Inspection Procedures,” sometimes referred to as the SIP. Plaintiff received a copy of this document on June 18,1952.
20. On June 18,1952, plaintiff placed an order with Northern Handle Mills, Inc. (sometimes hereinafter referred to as Northern) for 1,067,000 hickory handles. An order for 1,067,000 handle nuts was placed on June 20,1952.
21. By letter of June 20, 1952, to Tucker, plaintiff stated, in part:
* * * [V] arious figures which you have submitted cannot be substantiated and they are completely at variance with the facts as exist at this date. I am confident they will not be favorably altered in the future.
Time is running short. Subcontracts must be placed immediately, so the chances of substantiating the figures you have submitted are certainly remote, to say the least.
In brief, there has been very, very little change from the figures which we were working on in Chicago. Of particular concern to us is the stampings, and, very frankly, it is a serious problem.
We submitted prices in Chicago only after phoning you from that point and getting your approval to reduce your commission to .02 per tool from the original of .054. That you agreed to do and only after receiving your approval of this change did we affirm the price. The figures as now exist do not justify any change from what was agreed upon and, speaking frankly, until such time as we can see an improvement beyond that which is before us at the present writing, we cannot agree that the books can be considered closed on the subject.
22. On June 25,1952, plaintiff issued an order to Meriden to manufacture and deliver, in accordance with the drawings and specifications which were part of plaintiff’s contract, *714 583,500 units of picks, sockets, hinges, and blades at a total price of $0.70 for each set of the four components. The order called for delivery of 36,000 of each component by September 25, 1952, 27,500 by October 25, 1952, and, thereafter, approximately 60,000 monthly, with final delivery to be made June 25,1953.
In issuing its purchase orders to Meriden and Northern, plaintiff merely supplied them with the Government specifications and drawings which were attached to and made a part of defendant’s contracts. It did not supply any subcontractor, including Meriden, with any specific instructions or detailed shop drawings for any component part which plaintiff would ultimately assemble into a completed tool. The specifications permitted a yS2-inoh. tolerance in the manufacture of the component parts, which is recognized in manufacturing operations of this kind to be a liberal tolerance. Plaintiff gave no instructions to any subcontractor, including Meriden, with respect to the exact tolerances to be observed in the manufacture of any particular component. It assumed that, if the component parts were manufactured in accordance with the contract specifications and drawings, and within the tolerances permitted thereby, there would be no problem in the components properly fitting together and being assembled into a workable tool.
In turn, Meriden did not concern itself specifically with the problem of whether the component parts it would manufacture would fit together and could be assembled into a workable tool. It too assumed that, if each part were made in accordance with the Government specifications and drawings, there would be no problem in their ultimate assembly by plaintiff into a properly workable tool.
23* Northern and Meriden, plaintiff’s principal subcontractors, were relatively small concerns which attempted to obtain outside financing to fulfill their large subcontract obligations. However, both found that the banks they approached were unwilling to lend the necessary funds to finance their subcontracts with plaintiff due to plaintiff’s then poor credit standing.
24. On July 9, 1952, Meriden commenced placing its steel orders.
*715 25. By letter of July 19, 1952, plaintiff notified the contracting officer of an error in the specifications concerning the dimensions of the boxes in which the tools were to be packed. The number of tools required to be packed per box could not fit into the box having the specified dimensions.
26. By letter of July 22,1952, the problems inherent in the manufacturing of the component parts within the broad specification tolerances and nevertheless making them fit properly into a satisfactorily functioning tool were brought to plaintiff’s attention by Northern Handle Mills, its handle supplier. The letter raised the question of fitting the handles to the sockets and requested some sockets “from which the chuck maker can work in order to come up with chucks that will chuck the handles to fit your sockets.” The supplier added:
Of course, under our contract we could go ahead and supply the handles within the tolerances of the specification but should, for example, the sockets vary to the low tolerance and our handles vary to the high tolerance, or vice versa, you readily see where you could have fitting difficulty yet both the socket and the chucked portion of handle might be within the tolerances permitted by the specifications of the respective contracts.
We have handles in process and intend to be on schedule with shipment of socket fitting handles if you can get the sockets to us promptly. If you are unable to send them immediately it may become necessary that you accordingly extend (the initial shipping date or have us ship handles not fitted to your sockets in order that we ship in accordance with contract schedule which would transfer the handle socket fitting problem to Springfield.
Plaintiff did not send to Northern any sockets, as suggested. At that time it had none to send.
27. Under an agreement with the RFC dated August 4, 1952, the RFC authorized a second loan to plaintiff in the amount of $500,000, repayable in full by September 30,1953, repayments to be made at the rate of $12,500 in the months of January through April 1953; $25,000 in June 1953; $200,000 in each of the months of July and August 1953; and the balance at maturity. Plaintiff’s note to evidence this transaction was dated September 12, 1952. As of that date, plaintiff still owed RFC $207,260.65 on the first loan. The *716 second loan was secured by the same security as the first loan (plaintiff’s property), and, in addition, by an assignment of all moneys due or to become due from the Army under the three intrenching tool contracts, as well as a factor’s lien on all inventory relating to said contracts. Except for $56,000 which was permitted to be used for capital expenditures required to perform the contracts, the loan agreement restricted the use of the funds to expenditures necessary and essential to the operation of the Government contracts, and required plaintiff to maintain a separate bank account, called the cash collateral account, for deposits and withdrawals in connection with the contracts. All moneys received by RFC under the assignment of the contracts were releasable in the sole discretion of RFC for such operating expenses provided the amounts due to plaintiff on the contracts were equal to 125 percent of the unpaid balance of the loan. Before making any disbursement to plaintiff for operating expenses, RFC had the right to satisfy itself that there had been no adverse change in the financial condition, operations, or business prospects sufficient to warrant withholding further disbursements. In addition, plaintiff was required to submit monthly reports showing shipments of tools to QM and weekly inventory statements.
As a matter of mechanics, as plaintiff made shipments of tools to the Army, it billed the Army therefor'. The Army made prompt payment of plaintiff’s invoices, taking discounts. The Army’s payments were sent, under plaintiff’s assignment thereof, to the RFC and deposited in the cash collateral account. The RFC then retained certain amounts to reduce advances that had been made on the loan, and the balance of the Army’s payment then was disbursed to plaintiff. Thus, except for a limited amount of preliminary advances principally to enable plaintiff to equip its assembly line, RFC funds would only be released upon shipment's of completed tools to the Army. In the meantime, plaintiff’s suppliers and subcontractors would have to be paid for work done and supplies furnished on such tools from plaintiff’s general funds. Lacking sufficient amounts thereof, they would necessarily have to wait until plaintiff received the funds from the RFC.
*717 28. By letter of October 7, 1952, Tucker advised plaintiff that lie and bis partial assignee agreed to accept the reduced total amount of $0,037 per unit on the intrenching tool contracts, and that “the weekly payments of $100.00 will be deducted from such amounts.” Thus, based on the number of tools to be produced, total payments would amount to $39,479.
29. By October 31, 1952, no deliveries of tools had been made under contract 18703, which provided for the delivery of 50,000 by such date. Similarly, by November 30,1952, no deliveries of tools had been made under contracts 18702 and 18704, each of which provided for initial deliveries of 50,000 during such month.
No production of component parts had as yet commenced by Meriden. The steel strike had prevented it from obtaining the necessary steel.
80. On November 3, 1952, plaintiff issued a second purchase order to Meriden calling for an additional 533,500 sets of the four components, being the same number as was ordered by the first order of June 25,1952.
With said two orders, plaintiff had on order a sufficient number of the major components (1,067,000) to assemble the total requirements of its three contracts.
31. (a) The specifications provided (MIL-I-11519, Nov. 1,1951, par. 3.1) that six samples of the finished tool should be submitted to the contracting officer for approval “before production is commenced.” On November 6, 1952, plaintiff submitted six such samples.
(b) Prior thereto, Meriden had proposed that the socket be made in a manner different from that prescribed in the specifications, which provided that it was to be made of blank or flat sheet or strip steel and then rolled and welded with welding electrodes. However, Meriden concluded that it would be most difficult to manufacture the socket in this mamier and still meet the specification dimensional requirements which called for a tapered socket with a tapered wall thickness. Therefore, as an alternative, Meriden proposed that the socket be made out of tubing by a hot formed process. Since this was a deviation from the specifications, plaintiff sought permission from the contracting officer to use the hot formed tubing method. Pending a decision by *718 defendant, the samples submitted contained sockets made of tubing. However, these sockets were made of steel having a carbon content which was lower than that called for by the specifications. All of the other components made by Meri-den were made from production dies.
32. By letter of November 24,1952, the contracting officer wrote to plaintiff concerning the six pre-production samples it had submitted, and advised that three samples had been forwarded to the QM Research and Development Laboratory at Jeffersonville, Indiana, for blade and pick metal hardness tests and for strength tests. Pars. 3.5.1 and 3.5.2 of the specifications provided for 150-pound strength tests on the blade and pick, respectively, to be performed with such parts held in a fixed position, and 150-pound loads being applied at a certain point of the handle, all “without fracture or permanent deformation of any part,” and without permanent deflection (in excess of % inch) after release of the load. Par. 4.3.1 provided further that the tool should be tested as above described for the blade, but under a 375-pound load and that “the slowly applied load of 375 pounds shall not result in any complete failure of any component of the intrenching tool.” The specifications also provided certain hardness requirements, in accordance with tests to be made on a Rockwell testing machine, for the various metal component parts of the tool.
The contracting officer advised in this letter that the results of the hardness tests on the blades and picks exceeded the máximums permitted by the specifications; that the 150-pound strength tests on the blades- and picks resulted in greater permanent deflections than permitted by the specifications; and that the 375-pound strength test on the blade resulted in a fracture of the hinge at 202.5 pounds. Excessive looseness or rattle, as well as several dimensional deviations from the specifications, were also noted, as was the nonspecification carbon content of the socket steel tubing, together with improper wall thickness of the part. Other deficiencies in other parts were also pointed out. The officer also advised that he was attempting to obtain a decision from the R & D Laboratory on plaintiff’s request to use tubing for the socket and as to the carbon content of the tubing. A re *719 quest by plaintiff that the hardness requirements with respect to the hinge be reduced was denied, it being pointed out that on units produced in the past the Ames tools) the blades had withstood a strength test of 450 pounds without any hinge breakage.
As a result of the above-described deficiencies, the samples were not approved. Plaintiff was required to submit further samples that complied with the specifications, permission being given, however, to submit such samples with tubing sockets.
33. By letter of December 12, 1952, the contracting officer supplemented his letter of November 24,1952, concerning the pre-production samples and authorized the use of seamless steel tubing with a specified carbon content (.45 or “#1045 steel”) for the socket, provided the socket met the other requirements of the specifications. He also stated that the B & D Laboratory had further advised concerning additional dimensional deficiencies in the components of the six pre-production samples, which the letter set forth in detail.
34. On December 29,1952, plaintiff’s director of purchases (Shaw) and a representative of Meriden (Kulcher) went to the offices of the QM in Chicago and personally submitted to the contracting officer five additional pre-production samples, four being completely assembled and one being only partially assembled for defendant’s ready inspection.
At the same time, plaintiff’s representative submitted a letter, dated December 27, 1952, which was in the form of a transmittal letter covering the five samples. But for the nonspecification low carbon socket tubing, the letter stated that plaintiff believed the samples “to be within present specifications,” except that “there may be some minor points at issue as per [plaintiff’s] two letters to you of 22 December,” which points plaintiff stated it proposed to discuss with the contracting officer on its next visit to Chicago. As to the steel tubing, plaintiff explained in the letter that it had placed “for some time” orders for the required #1045 steel tubing, but shipments were not forthcoming. Plaintiff had sought defendant’s aid in procuring such steel. To avoid further delay, plaintiff suggested the possibility of defendant’s permitting the use of a lower carbon steel.
*720 As shown by this letter, plaintiff, as of that time, apparently had no complaints or criticisms of any substantial nature concerning the accuracy or adequacy of the specifications or drawings. Except insofar as the testimony discloses the conversations actually had on December 29, 1952, the record does not show what were the “minor points” plaintiff referred to in its two letters of December 22, 1952, as these letters are not in evidence.
A conference was then held on that day (December 29) at which plaintiff’s representatives discussed with the contracting officer the difficulties they were having in obtaining the #1045 carbon steel tubing, as set forth in the letter. Although the steel strike had terminated, it was still difficult to obtain steel, and defendant’s aid (on a priority basis) was sought. The contracting officer stated he would do what he could to expedite the steel deliveries. Plaintiff’s representatives also inquired about the possibility of using a different steel, as suggested in the letter, but obtained no permission to do so.
E & D also had a section in Chicago which was available to the contracting officer for advice concerning technical matters. In instances where the section could not give the contracting officer the required technical advice, such officer, who was in the Procurement Division of QM, would refer the matter to the responsible officials of such Division in Washington, who, in turn, would refer it to E & D, which was an independent division of QM.
At this December 29 conference, plaintiff’s representatives wished to discuss certain technical matters pertaining to the tools. Accordingly, the contracting officer had them discuss such matters with an official of the E & D section in the Chicago Depot. Plaintiff’s representatives discussed the size of the hole in the handle, the size of the packing box, and the excessive play in the tool. As to the latter, plaintiff’s representatives felt that as long as wide tolerances would be permitted, such play would necessarily result. However, these matters were not resolved at that time.
At this conference the contracting officer explained that, as was the situation with the previously submitted samples, three would be sent for testing to the E & D Laboratory at *721 Jeffersonville, Indiana. Plaintiff’s representatives inquired of tlie contracting officer whether it would be possible for them to be present at the laboratory during the tests. They felt it would be helpful if they could observe the tests to which the tools were subjected and there be able to clarify such matters relating thereto as might arise. The contracting officer stated that he would ascertain whether this was possible upon receipt from plaintiff of a written request which he could formally present to the B. & D officials.
35. By letter of December 31, 1952, plaintiff’s director of purchases sent the following letter to the contracting officer:
I would like to request permission for Mr. Kulcher of Meriden Industries and myself to witness the testing of the three samples of intrenching tools which have been sent to Jeffersonville from the second lot of pre-production samples.
This observation would be for our own information, and I believe will enable us to check on some interpretations of the testing equipment as well as to discuss various points in relationship thereto.
I would appreciate as much advance notice in this connection as you can give us, so that we can make the proper reservations in time.
As he had previously stated he would do, the contracting officer processed this request to the Eesearch and Development Division through the office of the Quartermaster General.
36. (a) For the year 1952, plaintiff suffered what was for it a huge loss of approximately $147,000. Its total sales fell to approximately $1,760,000. Its civilian market dropped to sales of approximately $1,600,000. Expenses on plaintiff’s development program for new heating equipment continued. Plaintiff’s working capital fell drastically to approximately $12,000, resulting primarily from a decrease in its inventories (approximately $160,000). Plaintiff’s net worth fell to approximately $430,000. Its current asset ratio dropped to $1.02. Due to the steel strike, no intrenching tools could be produced in 1952 and therefore no income could be obtained from the three tool contracts during 1952. However, plaintiff incurred expenses during the year of approximately $31,000 (salaries and wages, traveling expenses, *722 etc.) in connection with such contracts, and spent approximately $39,000 on machinery and equipment in connection therewith (riveting machines used in assembling the tools, a conveyor system, other assembly line equipment, painting equipment, etc.). These capital expenditures were made from NFC loan funds. The steel strike was costly to plaintiff.
As of December 31, 1952, the balance of the loan due to the Springfield National Bank was approximately $111,300 for which plaintiff had pledged accounts receivable in the amount of approximately $163,500. Also, as of such date, the balance due on the two RFC loans was approximately $242,000, of which approximately $187,000 was due with respect to the first loan and approximately $55,000 with respect to advances made on the second loan.
(b) Defendant was in no way responsible for the large loss plaintiff suffered in 1952. Production operations on the tool contracts had not even commenced during the year. The delay in such commencement was not attributable to defendant.
87. By letter of January 6, 1953, the contracting officer advised plaintiff that it would not be possible to give it permission to view the testing of the samples at the laboratory. The letter read as follows:
Reference is made to your letter dated 31 December 1952 relative to a request for permission to witness the testing of three (3) samples of Intrenching Tools which had been forwarded to Jeffersonville Quartermaster Depot.
Please be advised that this office has just been informed by representatives of the Office of the Quartermaster General that such authority cannot be given and that the results of the tests will be forwarded to your office as promptly as possible. As a consequence of the above, you will be informed as to any new developments relative to inspection of the samples of the Intrenching Tools received by this office.
Normally, on a contract administered by a Procurement Division contracting officer, all contractor contacts with defendant are made with such officer. It would be unusual to have the contractor in such a case maintain direct contacts with other Divisions of QM, including R & D. Thus, the *723 denial of plaintiff’s request was consistent with defendant’s general policy on this type of contract. Since the contracting officer sent plaintiff’s request to his superiors in the Procurement Division, who, in turn, forwarded it to the responsible personnel of R & D, the rejection of plaintiff’s request by the contracting officer was the result of rulings made by others.
38. (a) By letter of January 20, 1953, the contracting officer advised plaintiff that three of the five second-lot pre-production samples had been sent to the E. & D Laboratory, which reported that they had successfully passed the strength tests, but that the blade, socket, and hinge all failed to conform to the required hardness tests. Several other dimensional deficiencies were also noted, including the statement that:
The radius at the base of the vertical ear lugs of the hinge (both samples) is noted as having an excessive angle twist condition which might readily result in torsional stress which would not be known until strength tests were applied to an assembled unit.
As constructed, a hinge connected the socket to the blade, the narrow end of the socket being inserted into the vertical sides (lugs or ears) of the hinge, and the pick fitting onto, the outside of the vertical hinge sides. There were thus six thicknesses of steel to be joined (two on the socket, two on the hinge, and two on the pick) by a hinge pin which went through aligned holes in the three parts.
This letter noted that in one of the samples there was “a noticeable misalignment of holes in the lugs of the pick against the lugs of the hinge,” and that “assembly of the pick and socket component parts with the hinge was impossible due to this condition.” ( Since the specifications permitted a relatively large 1/82"incb tolerance, it would be possible to manufacture the parts with the holes within the tolerances but still not be aligned for assembly.) The letter “suggested that a check be made into this matter and this, condition corrected,” and closed with the following statements:
It is advised that as the purpose of the requirements for submission of “preproduction samples before production is commenced” is for the purpose of observing as *724 far as possible that the contractor thoroughly understands all requirements of the specifications and is endeavoring to comply therewith during production; and for the purpose of endeavoring to prevent production of end items not conforming fully to requirements which would result in rejection thereof and as — ■
a. You have submitted two lots of preproduction samples to date and have received our comments thereon and are aware of conditions to watch throughout production, therefore, it is not deemed necessary that you submit any further preproduction samples to this office. Therefore,—
b. One of the second lot of samples referred to above is being tagged for identification purposes of both yourselves and the QM inspector as being considered satisfactory for intent of requirements in general as to design, size and color of finish only. The discrepancy set forth in letter CQMD 20 January 1953 must ‘be eliminated in production. The material or finish not tested — contractors are obligated to know that all materials and finishes conform to requirements prior to the use thereof. The tagged sample, along with the other four samples are being returned to you Express Collect and the tagged sample should be retained throughout the life of the contract.
(b ) Shortly thereafter, production of ¡the component parts, except the socket, was commenced. Production of the sockets was delayed because Meriden was unable to obtain delivery of the required 1045 carbon steel until around February 16, 1953.
39. During the first stages of production in February 1953, plaintiff discovered that the contract drawings provided for a 3/16-inch depression in the hinge at a point where it was required to be mated, and thus to have metal-to-metal contact, with a ^4-inch (or %6-inch) depression (or “sump”) on the blade. This resulted in a %6-inch space between the two parts. This was an error in the drawings, since parts with such different dimensions could not, without forcing, mate. However, neither plaintiff nor Meriden discovered the error until production had commenced and after Meriden’s blanking and forming dies had already been made up on the basis of the dimensions as shown on the drawings.
*725 Plaintiff, upon discovery of the ambiguity, and being uncertain whether, under the circumstances, the drawings would be construed so as to require metal-to-metal contact, made sketches of its findings and delivered them to the contracting officer and to an inspection official on February 25, 1953. However, plaintiff received no immediate instructions from defendant with respect thereto. The record does not show what, if any, action the contracting officer took concerning this matter at that time. The question was apparently treated as falling within the jurisdiction of the Inspection Division with that Division being responsible for determining whether the drawings required the contractor to achieve metal-to-metal contact and whether it would therefore instruct its inspectors to insist thereon.
40. By letter of February 27, 1953, the contracting officer forwarded to plaintiff a new delivery schedule for the tools covered by the three contracts. The delivery date for the 50,000 tools under contract 18703 was extended from October 31, 1952, to April 3, 1953, an extension of 154 days. The delivery schedules under contracts 18702 and 18704 were similarly extended, with the first deliveries of 50,000 under each to be made by May 3,1953 (instead of by November 30, 1952, which again amounted to a 154-day extension), with deliveries to be made on each contract respectively in the amounts of 60,000 and 65,000 monthly, and with the final deliveries to be made on January 3,1954. The letter stated:
# if: # Hs
Due consideration having been given to all delays incurred up to this time in the delivery of Intrenching Tool, Combination, you are hereby formally notified that strict adherence to the inclosed delivery schedule is essential.
The 154-day delay was attributed to the steel strike and was considered excusable.
41. (a) The first deliveries of components from Meriden to plaintiff were in February 1953, during which month plaintiff received 4,026 blades and 4,045 hinges, but only 146 picks and 57 sockets. With this unbalanced inventory, plaintiff could not commence assembly operations. In the meantime, *726 kowever, defendant’s inspectors subjected the component parts to the required hardness tests.
(b) All inspections and testings by defendant’s inspectors stationed at plaintiff’s plant were conducted in the presence of representatives of the plaintiff. The results of all tests were incorporated in standard forms of reports signed by both the inspector and plaintiff’s representative.
(42. During the early part of March 1953, Meriden Industries encountered trouble in the preheating of the steel socket tubing which resulted in some delay in the production of sockets. Although Meriden had ordered a 200,000 BTU furnace, an 800,000 BTU furnace was erroneously delivered. When the error was detected, Meriden utilized two small furnaces instead. As of March 11, 1953, there was still no appreciable number of sockets delivered to plaintiff.
43. (a) On March 27, 1953, Meriden’s pick-making die broke down. This caused a temporary cessation of production on this part. In addition, it had been found necessary to make a new forging die for the socket. As of that date, the new die had not yet been tried or proved.
(b) Under the revised delivery schedule 50,000 completed and inspected tools were due for delivery on April 3, 1953 (finding 40). As of March 27,1953, it became obvious that plaintiff would be unable to meet this schedule. Plaintiff’s assembly line was put into operation for the first time in March. However, only about 1,500 tools had been assembled up to March 27,1953. The largest number of the four Meri-den component parts which had been delivered to plaintiff was 8,335 hinges. The number of picks and sockets delivered was much below the number of blades and hinges.
44. During the month of March 1953, Meriden delivered 17,079 blades, 9,210 hinges, 4,615 picks, and 5,130 sockets. Thus, as of that time, plaintiff had 21,105 blades and 13,255 hinges, but only 4,761 picks and 5,187 sockets. The unbalanced nature of this inventory enabled plaintiff to assemble only that number of tools equal to the lowest number of component parts.
45. (a) By April 3,1953, plaintiff had assembled approximately 3,900 tools which were ready for inspection. However, preliminary inspections made prior thereto showed that *727 the tools slightly exceeded the permissible weight limitations outlined in Par. 3.4 of the specifications, which provided:
3.4 Weight. — The finished Intrenching Tool, Combination, shall weigh 50 ounces (plus 2 ounces or minus 2% ounces).
Until a determination could be made as to whether this weight limitation could be waived, further inspections had been suspended. In addition, the first lot of 800 tools that had been presented for inspection had been rejected because of excessive play between the pick and the handle when the tool was in the closed position, as well as for certain dimensional defects. Thus, as of that date, no tools had as yet been accepted.
(b) To assist in making a determination on such weight waiver, and to investigate any other matters which were impeding production, the contracting officer (Captain Mc-Adams) and his chief (Lieutenant Colonel Wood, Chief of Purchasing, Clothing and Equipage Branch) visited plaintiff’s plant on or about April 3,1953. At this time plaintiff’s officials requested a waiver of the weight requirement. In addition, they requested authorization to chamfer (taper) the hinge pin to facilitate its insertion through the six steel thicknesses of the hinge, socket, and pick if the holes therein were misaligned. By a long distance telephone call to Washington on that day, the QM officials obtained permission for plaintiff to chamfer the hinge pin. On April 6, 1953, defendant authorized the waiver of the weight requirement on the tools in question.
46. As of April 10,1953, no tools had as yet been accepted, making plaintiff delinquent on the entire 50,000 that had been contracted for delivery on April 3,1953. Meriden’s new socket-forging die (finding 43 (a) ) had been tried out during the week, but, during such tryout, a part thereof broke, requiring repair. This socket-forging die had been the principal production bottleneck.
47. (a) On April 14, 1953, plaintiff presented the second lot of assembled tools for. inspection, consisting of 3,200 tools.
The lot was rejected because the socket hole was misaligned (“not centered”), thereby, in the words of the official *728 inspection record, “causing blades and picks to be cocked to one side of handle when in closed position.” This hole alignment problem had been called to plaintiff’s attention when plaintiff’s second set of pre-production samples was approved by defendant’s letter of January 20, 1953 (finding 38(a)). The tools had (evidently as a result of the misalignment problem) “bent sockets and warped ears on the picks.” In addition, one of the five samples failed the 375-pound strength test, and three failed the 150-pound deflection test (no permanent deformation of any part in excess of % inch).
(b) On the same day plaintiff requested and received permission for the conduct of a retest on Lot 2 by conducting a new series of tests on a set of five different samples from the lot. No reinspections could be made by the inspector without the express consent of the contracting officer (who would consult with the Inspection Division). After again failing the 150-pound strength test on the picks, the lot (now offered as Lot 3) was, however, accepted after plaintiff made certain pick modifications.
48. (a) By April 23, 1953, only 4,000 tools had been accepted by defendant for shipment. This consisted of the first lot of 800, which had subsequently been accepted, and the second-third lot of 3,200. A large number of sockets (over 2,100) had been rejected for Bockwell test failure.
(b) That day, April 23,1953, the September 30,1953, maturity date of the second NFC loan was, at plaintiff’s request, extended to April 1,1954.
49. In late April 1953, and after the two lots of 4,000 tools had been accepted, the QM Inspection Division determined, apparently as a result of the question raised by plaintiff in February (finding 39), that the contract drawings did require metal-to-metal contact between the hinge and the blade. Thereupon, the inspectors began insisting thereon, which they had not previously done.
Plaintiff at first attempted to solve the problem by doing re-forming work on the hinges in plaintiff’s own shop to increase the %6~inch dimension of the 'hinge to %6-inch. This was an additional operation which caused plaintiff increased expense in some unestablished amount.
*729 Plaintiff also proposed to insert a filler piece in the space, but this suggestion was not accepted.
Plaintiff finally decided that, under the circumstances, i.e., with Meriden’s production dies already dimensioned to the hinge and blade measurements specified in the drawings, metal-to-metal contact could be obtained only by forcing such contact through pressure on the rivet which joined the hinge and the blade at the depression points. However, this naturally created stresses and strains on both parts at the rivet point.
50. During the month of April 1953, Meriden delivered 6,348 blades, 9,135 hinges, 21,545 picks, and 21,507 sockets.
Thus, as of the end of April 1953, Meriden had delivered to plaintiff a total of 27,453 blades, 22,390 hinges, 26,306 picks, and 26,694 sockets, thereby providing plaintiff with a more balanced inventory.
The number of components that had been delivered was, however, far below plaintiff’s contract requirements.
51. On April 27, 1953, plaintiff submitted its fourth lot, consisting of 3,200 tools. This lot was rejected for failure to pass the 375-pound strength test. On April 28,. 1953, a fifth lot of 1,280 tools was rejected for the same reason, a handle breaking on one sample and a hinge on another. On April 29, 1953, Lot 6, comprising 1,300 tools, passed inspection. On May 5, 1953, Lot 7, consisting of 3,040 tools, was rejected for strength-test failure, hinges snapping on three samples and a handle on one. Thus, three of the last four lots presented, consisting of 7,520 tools, were rejected.
On May 7, 1953, defendant reduced the strength test requirement to 350 pounds plus or minus 5 percent. Thereafter, on May 11, after plaintiff re-screened Lots 4, 5, and 7, eliminating 40, 20, and 40 nonconforming tools, respectively, and presented them for re-testing, the remaining 3,160,1,260, and 3,000, respectively, passed inspection and were accepted. Lot 7 had, on May 7, 1953, failed to pass the second test, hinges breaking on two samples. Thus the May 11th test of this lot was the third.
The re-screening process was time-consuming, and caused plaintiff’s employees to divert their efforts from the assembly line. For instance, between May 7 and May 11, 1953, *730 while plaintiff’s employees were re-screening Lots 4, 5, and 7, practically all assembly line operations ceased.
52. By May 3, 1953, on which date plaintiff’s contracts Í8702 and 18704 required 100,000 tools to be delivered, no tools with respect thereto had been delivered. All prior acceptances and shipments had been allocated to contract 18703, and this remained the procedure until the 50,000 tools under such contract were delivered.
Despite plaintiff’s constantly urging Meriden to expedite the shipment of sufficient components, Meriden failed to forward the amounts necessary to enable plaintiff to meet its contract requirements to defendant. Sockets continued to be the main production ¡bottleneck. As of May 8, 1953, Meriden had delivered to plaintiff a total of only 21,368 sockets, far below plaintiff’s requirements. Meriden was producing these sockets by a hot rolling or forming method which did not prove satisfactory. Among other things, some sockets were found to be too short.
53. On May 15, 1953, the cushion under Meriden’s pick-blanking die broke. Its repair took over 1% months. This severely retarded the production of picks during this period.
54. (a) On May 27, 1953, three officers of QM at Chicago (Colonel Ely, the new chief of the Clothing and Equipage Branch; Herman Bush, chief inspector of the Inspection Division; and Mr. Przewlocki of the Inspection Section of the Chicago QM Depot) visited plaintiff’s plant to investigate the status of plaintiff’s contracts and the cause of the limited production thereon. Defendant’s officials remained at the plant three days. At the conference, plaintiff reiterated its problems revolving around the error in the drawings which prevented the metal-to-metal contact. In addition, plaintiff also claimed an error in a drawing which resulted in interference between the washer and the ears of the pick and which prevented the point of the pick from seating against the handle when in a closed position. Cutting out material from the pick to give clearance would result in weakening the pick, possibly resulting in breakage-during the strength test. On May 29, Kulcher of Meriden Industries joined the conference to seek explicit instructions about this point. A third problem discussed also related- *731 to an error in the drawings which resulted in the pick interfering (“biting”) with the blade during closing. The rising curve of the flange at the heel of the blade hit the point of the pick ear as it revolved into closing position. This “bite” prevented the flange of the blade and the heel of the pick from contacting each other, a contact which would give the tool additional strength.
These three problems were the major ones presented by plaintiff. Others of a minor character, upon which plaintiff desired clarification, were also presented. Plaintiff felt that the elimination of the three errors in the drawings would provide contacts which would strengthen the tool and eliminate so many of the strength test failures it was experiencing.
It was agreed that plaintiff would follow the regular practice of submitting the entire matter in writing to the contracting officer and detailing the problems about which they were concerned. The questions plaintiff was raising involved technical matters which would have to be considered by E&D. That Division had prepared the specifications and drawings and would ultimately be responsible for making the determinations concerning any corrections or amendments thereto. Plaintiff’s officials felt that if they could discuss these technical questions personally with the E&D officials at the Jef-fersonville Laboratory, the matters could be quickly resolved. Defendant’s officials replied that, although such procedure would be most unusual, they would attempt to arrange it, provided plaintiff would first follow the accepted procedure of reducing the problems to writing for presentation to the contracting officer so that he in turn could present the matter to E&D. In the meantime, plaintiff was instructed to continue manufacturing the tools in accordance with the specifications and drawings.
(b) During this three-day period, defendant’s officials also visited Meriden Industries’ plant and discussed Meriden’s operations with its officials. In addition, they visited plaintiff’s subcontractor who performed the heat treatment on the parts manufactured by Meriden.
(c) Defendant’s representatives came to certain conclusions and made various recommendations to plaintiff and Meriden. They felt it would be necessary either for Meriden *732 to obtain a second set of dies or for plaintiff to obtain a second source of supply for the component parts Meriden was manufacturing. They felt plaintiff should not be at the mercy of a short supply of any one component. They also correctly felt that plaintiff’s and Meriden’s own inspection and quality control procedures were deficient. During this period, Meriden did not have in its own shop any rigid or standardized system of inspection of the quality of the items it produced.
On the other hand, plaintiff’s and Meriden’s officials felt that a good part of plaintiff’s troubles lay in the defective drawings and specifications they had to work with, causing them to do research and design work to perfect the tool, which work, they contended, should not be performed by the large-scale production manufacturer.
(d) There was merit to the respective positions taken by both sides. However, without absolving defendant’s issuing contract drawings containing errors, it is not clear why plaintiff did not discover them and point them out in connection with the pre-production samples and prior to commencing with production. The very purpose of providing for such samples was to make certain that all matters would be ironed out prior to entering upon the production runs. Since these contracts were entered into on May 26,1952, and under the revised delivery schedule the first deliveries were not due until April 3,1953, plaintiff had “lead time” of over 10 months within which to make complete arrangements for satisfactory large-scale production. Yet plaintiff’s organization did not discover the deficiencies in the drawings about which it was complaining until February 1953, when it went into production and after Meriden’s production dies had been made.
On the other hand, it is similarly not clear why defendant, if it was going to insist on such metal-to-metal contact, did not discover the lack thereof at the time the pre-production samples were presented to it and why it finally approved such samples without such contact. The conditions attached to such approval did not specifically mention any such requirement (finding 38(a)). Similarly, it is not clear why defendant did not take prompt action to correct the error *733 when plaintiff called it to defendant’s attention on February-25,1953 (finding 39).
55. On June 12, 1953, three Change Orders No. 1 were executed on the three contracts, which orders changed the dimensions of the boxes in which the tools were to be packed so as to correct the error which plaintiff had called to defendant’s attention on July 19, 1952. By these change orders, the unit price of the tool was increased by approximately, four cents ($0.0428), making the new unit contract price $1.8428. There is no showing that plaintiff suffered any loss as a result of this error. The matter was resolved prior to its causing any shipment or other delays.
56. On June 23, 1953, an official of plaintiff telephoned QM in Chicago and inquired about the matters which were the subject of the May 27-29 discussions. It was again agreed that plaintiff would submit a detailed letter on the matter. The evidence does not make clear why plaintiff delayed so long in submitting the letter it had promised to write during the May 27-29 discussions.
57. On June 24, 1953, plaintiff submitted a letter to defendant “outlining in part, our findings resulting from research of the subject tool
The data presented below are intended to be a completely factual and objective statement of our findings and research. We have high admiration for those who prepared the drawings, specifications, and SIP and we regard the data we are presenting as a natural corollary of the process of going into production. We present them for evaluation without any contentiousness whatever. The items covered below are what we regard as that most important which have come to light in our research of the subject tool to date.
Plaintiff then detailed the three problems discussed with defendant’s officials at the conference at plaintiff’s plant during May 27-29, 1953. As to the hinge-blade metal-to-metal contact problem, plaintiff stated, in part:
The hinge provides for a depression as shown in cross-section which %6" dimension is_mated to the y^"' depression in the blade as shown in Fig. 2 Section C-C. This leaves i/16" clearance between the two mating parts. Your Chicago Inspection Division required a metal to metal seat at this point where the %6" clearance dimen *734 sion occurs; and. we have been forced to reform the hinge for an additional depth of %6" in order to make those two parts come together.
The original blanking and forming dies were made up from details shown on Figure 2 Intrenching Tool, Combination and the ref orming work has had to be an additional operation done in our own shop to increase the %6" dimension of the hinge to approximately 14".
The situation ivas discovered in the first stages of initial production. Sketches of our findings were made months ago, but these did not bear our corporate name plate. A set each was delivered to Mr. Przewlocki and Captain McAdams on 25 February, 1953, but regrettably no letter of transmittal or explanation, other than that given Mr. Przewlocki was formally recorded at that time.
Plaintiff suggested either that the forming dies be changed “so that the 14" depression in the blade is changed to %6", to conform with a similar dimension on the hinge” which would be “a major change and would require time to accomplish” or that plaintiff be authorized, at least until the new forming dies could be obtained, to use a filler piece approximately %6-inch thick.
As to the pick-blade “bite” problem, plaintiff stated, in part:
* * * This interference may be seen clearly by inspection of current production. * * * In testing these tools to ultimate destruction we have found a number of instances where failure starts at this “bite”.
* * * [W]e are getting interference at this point in practically all of our assemblies.
Plaintiff pointed out that, although the pertinent contract drawing “shows the desired assembly in which the flange of the blade and the heel of the pick rest against each other,” in fact, such “mating of the parts at this point is impossible because of the point of interference * * that “it will be recalled that at the conference [of May 27-29] considerable discussion took place over the necessity of contact at the heel and blade which is currently impossible until the error in assembly between pick and blade is corrected”; and that:
We realize that it may quite properly be pointed out that a great many tools have passed through our assembly line with a minimum amount of breakage, but we sug *735 gest that all the evidence joints to the fact that this assembly is a marginal during the 350 pound test. It seems to us that no error should remain uncorrected, which may possibly have a detrimental effect on end results.
As to the washer-pick ear interference problem, plaintiff stated that, in its opinion, the cutting out of pick material so as to create a relatively large “swedge” indentation for washer clearance, as provided by the contract drawings, would weaken the pick at a vital point and possibly cause breakage in the strength test; that “[i]nitial production of these was, as we feared on (the weak side in that a small proportion failed to meet the 160 pound pick test”; and that it was convinced that “breakage was simply a case of mechanical weakness caused by too much washer clearance.” Instead of cutting out a part of the pick to provide washer clearance, plaintiff proposed “a milling operation” which “gives only minimum clearance for the washer and at the same time is producing excellent results in seating of the pick against the handle.”
Plaintiff then stated:
We maintain that:
(1) The acknowledged error in the drawing creates a lack of contact pick to blade and is likely to prove a contributing factor in causing failure in that the pick does not properly support the assembly, if at all, until very considerable strains are set up in the hinge.
(2) This acknowledged error in the drawing should be corrected without delay.
(3) The reforming work on the hinge * *' * is extra work and expense and may conceivably have some contribution toward hinge failure which occurs close to this point. It should be eliminated at the earliest possible moment.
Further, plaintiff requested that a certain lot (Lot 14) which had been rejected because of hinge failures during the strength test, be re-tested “using the method of inserting a steel filler piece between the hinge and the blade * * *. -We believe we are fully entitled to make this request since the errors pointed out in the drawing make contact at this point impossible. * * * It does seem to us that we are entitled to the consideration with respect to the lots which now *736 stand rejected and that this consideration should stand in effect until the recommended changes caused by the errors in the drawings can be put into effect.” Plaintiff closed by saying that the items mentioned in the letter were “the more important which have come to light in our research so far. As will be remembered from the conference in May, other drawings were presented which, while of a minor nature will be forwarded to you within a few days.”
58. By letter of June 30, 1953, to plaintiff the contracting officer (Davis) advised that the proposals contained in plaintiff’s letter of June 24 had been forwarded to B, & D. The letter also expressed disappointment with plaintiff’s performance, noting that during June plaintiff had presented five lots totalling 14,000 tools for inspection, of which two lots, total-ling 4,400, had been rejected, and that the only June shipment was a carryover from May. The contracting officer insisted that plaintiff make immediate arrangements for additional sources of supply to obviate bottlenecks in production such as were caused by Meriden’s pick die failure.
59. At about this time (July 1, 1953) plaintiff realized it would not be able to fulfill its contract requirements with Meriden as its sole supplier of the four component parts. Meriden appeared either unable or unwilling, because of the financial problems involved, to fulfill plaintiff’s large-scale needs for component parts. Even prior to its receipt of the contracting officer’s letter of June 30, 1953, urging plaintiff to obtain additional sources of supply, plaintiff commenced seeking such a second source for the four parts. However, for reasons not explained by the record, but in all probability due, at least in large part, to plaintiff’s then unsatisfactory credit rating, negotiations with two such possible sources never materialized so that almost throughout the life of the tool contracts, plaintiff was dependent solely on Meriden for the parts it was manufacturing. (Towards the end of the contracts, plaintiff itself took over the manufacture of the blades.)
60. By letter of July 8, 1953, plaintiff responded to defendant’s letter of June 30, 1953 (finding 58), and stated that “the errors and omissions in design * * * are the crux of our difficulty and must be resolved if uninterrupted ship *737 ments of tools are to be made from now on”; that when plaintiff 'bid on the contracts it “did so with the fall expectation that the item had 'been tried and proven, i.e., completely engineered and ready for manufacturing”; that instead plaintiff “found it necessary to do an immense amount of engineering and research due to these errors and omissions in the drawings and/or specifications which you famished to us”; and that “the extra work entailed has been very costly to this company.” The letter concluded:
We note your comment that you would refer these matters to your Research and Development people, i.e., our request for these corrections. It will be recalled that several months ago we requested representatives of this company meet and discuss these errors with the people of Research and Development at Jeffersonville. This request was denied.
We are of the opinion that had this request been granted these design difficulties would now have been resolved.
May we earnestly repeat our request that such a meeting be arranged ?
61. On July 14, 1953, pursuant to permission granted by QM on July 10, 1953, plaintiff’s representatives (Harvey, chairman of the board of directors; Shaw; and Kulcher of Meriden) conferred with personnel of the R & D Laboratory at Jeffersonville, Indiana, concerning numerous items which plaintiff felt constituted errors in the specifications and drawings, including the three items specified in plaintiff’s letter of June 24,1953. It was agreed that plaintiff would submit in writing a complete list of the corrections and changes it desired.
62. By the middle of July 1953, when plaintiff was still in the early stages of production, it was in an unsatisfactory state of liquidity and finding it difficult to pay its subcontractors for work performed on the contract. On that date, July 15, 1953, its handle supplier wrote to plaintiff calling attention to its invoices remaining unpaid since May 27,1953, and stating:
This firm, as previously discussed, is desirous of effecting an arrangement where payments of our invoices * * * may be assured within the shortest possible period.
*738 It was expected at the time we took this order that it could foe assigned to a bank to obtain the necessary production funds but our bank found your firm unsatisfactory to it for the loan. Subsequently we have carried the account from our own resources with the thought that if necessary we would be able to assign our invoices against Harvey-Whipple, Inc., for handles ordered shipped but recently we have made efforts 'along this line and are sorry to advise that again we have not been able to find an individual or a bank that would loan us money on assignment of invoices against Harvey-Whipple, Inc.
63. On July 23,1953, a lot of 1,200 end items was rejected for failure to pass the 350-pound strength test. Authorization was received, however, for the plaintiff to screen the •entire lot to weed out the defective items and then to re-submit it for re-inspection. A production run of hinges had embodied some defectively formed ones with weak sections. This lot of tools contained the last of such run of hinges .and it was felt that a 100 percent screening of the tools would eliminate those containing the defective hinges and which may have contributed to the original failures. A failure of ¡a tool, however, might be due to more than one cause.
64.. (a) On July 25,1953, plaintiff sent a letter to the It & D Laboratory to which was attached a list of the items that had been discussed on July 14, 1953. The letter stated, in .part:
These items are the things that have caused us delay up to the moment and must be resolved before steady, consistent production can be maintained with a minimum of rejected tools.
We are attaching to, and thereby making a part thereof, of this letter a copy of our letter to Chicago Quartermaster Corps, dated June 24th, which further amplifies some of the points covered in the appended list of changes and/or error or omissions. We wish to take this opportunity to tell you how much we appreciated the opportunity of having our personnel talk with you and would like to reiterate that we feel it was long overdue and regret that we were not permitted to see you long before we, did.
(b) On the same date, plaintiff, by letter to QM at Chicago, sent it the identical list.
*739 (c) The list, headed “Necessary Corrections And/or Changes to MILf-1-11519 (QMG), dated 1 Nov. 51,” set forth 24 separate items. The first 16 covered proposed changes in the drawings; 6 pertained to changes in the specifications so as to permit less stringent requirements concerning the tests (Kockwell, deflection, and strength); 1 referred to the chamfering of the hinge pin; and 1 to the weight of the handle.
65. During this 1953 period, plaintiff also encountered considerable difficulty in fitting the handles to the sockets. This was the very difficulty that plaintiff’s handle supplier envisaged a year earlier (finding 26). Some of Meriden’s sockets came through on the high side of the tolerance, some on the low side, and some in between. Considerable time was spent by plaintiff’s employees working with gauges and separating sockets and handles in separate piles in order to achieve selective fittings. Plaintiff ultimately directed its supplier to manufacture and ship handles in four sizes, in order to permit plaintiff to fit the handles into the various sizes of sockets 'being delivered by Meriden.
Had plaintiff properly handled the problem in the first place in accordance with Northern Handle Mills’ suggestion, its inefficient and wasteful procedure of fitting the handles to the sockets would have been eliminated.
66. (a) On August 7,1953, plaintiff completed its final deliveries on the 50,000 tools required under contract 18703. These deliveries had been due April 3,1953.
On this contract, plaintiff had presented 45 lots for inspection and testing comprising 75,004 tools, of which 62,171 were accepted and 12,883 rejected. (The excess over 50,000 was applied to the other contracts.) Thus, rejections represented over 17 percent of the. number of tools inspected and tested.
(b) The great bulk of these final rejections (even after re-screenings and re-testings) was based upon failure of the 350-pound strength test. These failures took the form of fractures at the base of the lobes of the hinges (i.e., where the hinge was attached to the blade) and blade fractures at the center of the blades (also where the hinge was attached). It is not possible to isolate with certainty the factors causing *740 or contributing to every failure. Some of the hinge fractures were apparently due to defective steel. Two lots to-talling 2,310 tools were rejected for blade fractures which apparently were due to too hard or brittle steel. However, a contributing factor may well have been the error in the drawings making it difficult to achieve metal-to-metal contact between the hinge and the blade, as well as the washer clearance and blade-pick “bite” matters about which plaintiff had complained and which may have contributed to weakness in the tool. As noted, with the %6-inch space between the two parts, and the inspectors insisting on metal-to-metal contact, such contact was attempted to be obtained by forcing down the rivet attaching the hinge to the blade at the blade-depression point to such an extent as to close the gap. However, this necessarily created such stresses and strains between the parts that when the further stresses and strains resulting from the rigid strength test were added, it was possible that the hinge or the blade would crack at or near such rivet point.
However, numerous samples tested more than met the test requirements. Some tools withstood pressures in excess of 400 pounds. Nevertheless, the very large number of hinge and blade failures during this period compels the conclusion that a contributing factor was the attempted correction of the dimensional discrepancy in the drawings. The other-two factors may well have also contributed to tool weaknesses and test failures.
67. As of August 14, 1953, Meriden found itself with approximately $35,000 owed -by plaintiff on shipments already made. This put a severe financial strain on Meriden’s resources since, as above noted, it had not been able to obtain large-scale bank financing to assist it in performing its subcontracts with plaintiff due to plaintiff’s then poor credit rating. On that date, Meriden’s officials telephoned QM in Chicago and discussed plaintiff’s financial situation with them.
68. (a) On August 21, 1953, plaintiff’s and defendant’s representatives held a conference in Washington, D.C., to discuss the proposals submitted by plaintiff in its letter of July 25,1953. Of the 19 conferees present, 12 (including the contracting officer and representatives of the R&D Inspection *741 Divisions) represented defendant and seven represented the plaintiff (including two representatives of Meriden). Each of the plaintiff’s 24 proposals was discussed and it was ultimately agreed that 20 of them would be accepted by defendant and incorporated in a formal change order, including, as the first item, correcting the drawing showing a %-inch depression in the blade so as to make such depression %6-inch. Changes in dimensional drawings to eliminate the interference or “bite” between the blade and the pick, as well as to take care of the washer clearance matter, were also agreed to.
(b) One of the matters discussed at the meeting was the problem created by the sockets thus far manufactured by Meriden having shorter threads than called for by the •specifications. At that time, approximately 110,000 sockets had already been manufactured or were in process. It was agreed that plaintiff would present a proposal to defendant for defendant’s acceptance of tools containing such short threads, but defendant made plain it would not accept, beyond said quantity of 110,000, any tools in the future with such short threads. As to the 110,000, however, it was agreed that the inspectors on duty at plaintiff’s plant could proceed with the inspection of lots containing said 110,000.
(c) It was further agreed that, prior to the incorporation of the changes agreed upon in a formal change order, plaintiff would submit its proposal as to the costs involved, as well as a revised delivery schedule which the changes would necessitate.
,09o Plaintiff’s delinquency in meeting its contract delivery schedules had mounted each month. By September 3, 1953, defendant had accepted a total of only 20,000 tools, as against a combined contract 18702 and 18704 requirement of 600,000, leaving plaintiff with a delinquency of 580,000.
On September 4, 1953, plaintiff presented its Lot 20 for inspection and testing, consisting of 1,200 tools. This lot, as well as Lots 15, 16, 17, 18, and 19, which had been presented for inspection commencing August 25, 1953, were all tentatively rejected because the contours of the picks and the threads on the sockets deviated from the contract requirements. This was the same thread matter that had been discussed at the August 21st meeting. However, because these *742 specification deviations did not affect either the serviceability or the appearance of the tools, some plan was attempted to be worked out for defendant’s acceptance of the-7,200 tools involved at some reduction in price. Such arrangement was not consummated until December 21,1953, as Supplemental Agreement No. 3 to contract 18702, under which defendant accepted the tools at a six cent per unit reduction in price.
After September 4,1953, when the sixth successive lot had been rejected by defendant since August 25, 1953, plaintiff suspended the presentation of further lots for inspection and testing. These rejections based on nonspecification pick contours and socket threads were plaintiff’s responsibility and were not related to any specification or drawing errors or defects. Their rej ection at the time by defendant’s inspectors was appropriate. The agreement for their ultimate acceptance at a reduced price had not as yet been worked out. In the meantime, however, the heavy rejections prior to said six lots, plus such six lots, took their toll on plaintiff’s finances-For one thing, no Army or RFC income was forthcoming to plaintiff on such rejected tools, although plaintiff became involved in financial problems with its suppliers and subcontractors with respect to services performed and supplies furnished on such tools. Plaintiff all along had not been in a satisfactory position of financial liquidity, and with these heavy rejections its situation worsened and its debts mounted.. Greatly contributing to its financial distress was the concomitant large decrease it was suffering on its regular heating equipment business.
•70. On September 8,1953, after having made written payment requests for approximately a month, Meriden telephoned plaintiff concerning plaintiff’s indebtedness to Meri-den with respect to deliveries thus far made by Meriden, and generally discussed plaintiff’s financial plight. Plaintiff advised of the pending change order and the increased compensation it would afford, but could give no assurances as to when it would be able to pay Meriden. Consequently, Meriden stated it would cease production. By letter of the same date to plaintiff, Meriden confirmed the conversation, stating, in part:
*743 In onr conversation today, you stated for the first time that you would be unable to make any payment on account of past due invoices and to arrange for payment on future invoices until you received a release for such payments from the EFC. You state that you do not mow when this will occur, since the release of money is tied up with the price revision due to engineering changes; * * *.
In view of the circumstances, it was agreed we could no longer make deliveries and it was further decided to stop all production; if possible, to liquidate our inventory and also to take the necessary steps to protect our interests in this matter. We will resume production when we know from you when your past indebtedness-will be cleared up and when assurances are forthcoming that all future invoices will be paid for promptly.
i71. (a) On September 21, 1953, plaintiff and defendant entered into Supplemental Agreement No. 2 to contract 18702 (the 500,000 tool contract), which incorporated the changes agreed upon at the meeting of August 21st. Prior thereto,, the parties did not reach agreement on the extra amount which plaintiff should be paid. Accordingly, the agreement reflected defendant’s unilateral determination that the price of the tool should be increased $0.11341 per unit (applicable to the 463,500 as yet undelivered units, 36,500 having been accepted), thus increasing the contract price by $52,565.54. Such consideration was made applicable to only three of the changes (including the one involving the metal-to-metal contact controversy). The agreement preserved to plaintiff, however, the right to take appropriate proceedings to obtain a higher increase than that provided for. Plaintiff was claiming an increase in its costs of approximately $0.38 per unit. With respect to the other 16 changes (which included the lightening of the strength test to 335 pounds, the easing of the deflection test, and the broadening of the hardness test, all of which obviously involved no cost increase), no extra compensation was provided for, and no reservation of any right for plaintiff to take proceedings to obtain such extra compensation was preserved.
In addition, a new delivery schedule was “as a result of the delays caused by the changes set forth herein,” provided for the 463,500 tools remaining to be delivered, with the first *744 30,000 to be delivered by the end of November 1953, and the remaining to be delivered at the rate of 60,000 monthly thereafter, the final balance to be delivered by July 31,1954.
(b) On the same day, contract 18704 (the 517,000 tool contract) was similarly amended by a Supplemental Agreement No. 2. In this instance, however, no deliveries had been made by plaintiff against the contract, so that the increased unit price applied to the entire contract amount, the increase amounting to $58,632.97.
The new delivery schedule for this contract provided that the first 50,000 also be delivered during the month of November 1953, and the remaining to be delivered at the rate of 65,000 monthly, with the final balance similarly to be delivered by July 31,1954.
72, Up to the time Supplemental Agreement No. 2 was entered into on September 21, 1953, and counting the last six lots as having been accepted (as they ultimately were), plaintiff had presented 20 lots for inspection and testing on contract 18702, comprising 23,800 tools, of which 15,200 were accepted and 8,600 rejected. Thus final rejections (even after re-screenings and re-testings) represented over 36 percent of the number of tools inspected and tested. 1 These 20 lots were all presented and inspected between August 6, 1953, and September 4, 1953, the tools presented prior to August 6, 1953, having been allocated to contract 18703. (No tools were presented on contract 18704 until April 1954.)
The tools rejected were due to fractured hinges at the base of the lobes and fractured blades on the lot samples tested. As is set forth in finding 66(b) concerning the rejections on contract 18703, it is reasonable to conclude that at least a contributing factor in causing the fractures was the forcing of the center rivet connecting the hinge to the blade at their depression points. The pick-washer clearance and pick-blade interference problems may also have been contributing factors in strength test failures.
.73. By letter of September 30, 1953, to plaintiff, the contracting officer explained to plaintiff why four of the items *745 proposed by plaintiff in its letter of July 25, 1953, and discussed at the August 21,1953, conference, were not included in Supplemental Agreements No. 2. The letter stated that the four proposals in question (one of which was the dimension of the chamfer on the hinge pin) were not deemed necessary for such inclusion but that, if plaintiff used the dimensions specified in its proposals for such four items, no objection would be raised by defendant.
i74. Many of the complaints leading up to the Supplemental Agreements No. 2 grew out of the rather wide tolerances permitted by the specifications. The R&D Division was primarily interested in a good, workable, end item, and felt it would permit flexibility within broad tolerances in the method of manufacture. However, when components have to fit precisely into working parts, the allowance of too broad tolerances is in itself not good practice, in that individual components may be manufactured (possibly by separate subcontractors) within the permitted tolerances and therefore in compliance with the drawings and specifications and yet, when assembled, may not function as a satisfactory end item. Thus, the holes in each of the hinge, pick, and socket components could each be fixed within the range of the permitted tolerances, and yet, when put together for the insertion of the pin, it could foe that they would not be so aligned as to permit such insertion. Many of the items specified in the Supplemental Agreements No. 2 were designed to tighten up the dimensions.
Even as to the hinge-blade metal-to-metal contact problem, defendant contends that, if plaintiff took advantage of the %2-inch tolerance, adding a permitted dimension to the hinge and deducting a permitted dimension from the blade, metal-to-metal contact could have been achieved within the original drawings and specifications and without the necessity of any supplemental agreement (i.e., % or %2-inch blade depression, less %2-inch tolerance, equals %2 inches; %6 or %2-inch hinge depression, plus %2-inch tolerance, equals %2 inches). While this Would, of course, be possible, and while an extremely able and experienced shovel contractor might have been able to so diagnose and solve the problem by manufacturing to precise dimensions within permitted tolerances, *746 such procedure is not considered normal and the drafting of drawings and specifications with such possible manufacturing techniques in mind is not good practice. Such procedure would destroy the very purpose of a tolerance. The component parts should normally fit into a satisfactory end item whether they come out with a low or high tolerance. One of the principal purposes of a tolerance is to make some allowance for inevitable slight dimensional changes which result from the heat treating (and subsequent cooling) process.
The change of the %-inch blade dimension to %@-inch, which was the first change made in the supplemental agreements, and which was one of the three changes for which defendant gave plaintiff substantial increased compensation, as set forth above, must be deemed to have constituted an error in the original drawings.
The second of the three changes for which defendant granted extra compensation related to the location of the hole on the pick in relation to the pick ears. The location, as newly specified, was within the original tolerance, 'but was pinpointed more exactly. This enabled the pick, in the folded position, to lay flat against the handle or, when in the using position, to be 90° to the handle. The lack of a specific dimension or location of tins hole under the broad tolerances permitted a number of dimensions which would not, however, allow the completed tool to function as required. Only an exact measurement would permit this.
The. third item for which payment was made corrected a drawing which contained an

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/8593257. Public record. Not legal advice.