# International Harvester Co. v. United States

> United States Court of Claims · March 12, 1965 · 169 Ct. Cl. 821

URL: https://www.frixlaw.com/law-library/cases/8593258

## Case

- **Full name:** INTERNATIONAL HARVESTER COMPANY, A CORPORATION v. United States
- **Court:** United States Court of Claims
- **Decided:** March 12, 1965
- **Citations:** 169 Ct. Cl. 821
- **Precedential status:** Published
- **Opinion:** Opinion of the court by Durpee
- **Judges:** Burpee, Collins, Cowen, Davis, Durpee, Laramoke
- **Cited by:** 7 later opinions in the Frix Law Library

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## Opinion text

Durpee, Judge,
delivered the opinion of the court:
This is an action to recover $1,180,375.20 deducted by defendant from a total of $17,307,183.07 which plaintiff was entitled to receive under a contract 1 for the manufacture of *823 military vehicles for defendant. Defendant has asserted affirmative defenses and counterclaims against plaintiff which arose out of earlier vehicle procurement contracts, and thereby contends that plaintiff has been paid in full by offset.
In support of this offset, defendant first contends that plaintiff was paid $249,919.41 by defendant, under one of the earlier contracts primarily in dispute, for Federal excise taxes, but that plaintiff retained these monies despite the fact that plaintiff had been relieved from paying said taxes by the Bureau ,of Internal Bevenue. We will refer to this hereafter as the Excise Tax Issue.
Defendant, by counterclaim, also claims entitlement to $490,533.08 which it contends it would have recovered in price redetermination proceedings under Contract 1216 had not such proceedings been thwarted by misrepresentations by plaintiff. This will be referred to as the Price Bedetermination Issue.
Defendant further contends in support ,of its offsets that during the performance of the same earlier contract, 2 plaintiff received a refund of $1,529,737.90 from its subcontractor, the Bockwell Spring and Axle Company for the use of defendant, but that plaintiff did not pay this' to defendant. Two counterclaims in the respective sums of $35.09 and $24,806.21 are also involved in this issue which will hereinafter be referred to as the Bockwell Issue, and which will be dealt with now.
THE ROCKWELL ISSUE
During the period 1950 through 1957 plaintiff produced many thousands of motorized heavy-duty military vehicles and parts pursuant to a series of contracts between it as prime contractor, and defendant. The earlier contracts are not directly involved in this case except by way of background. Essentially, they provided for retroactive or prospective price redetermination, upward or downward, within specified limitations hereinafter referred to.
Contract 297 was executed on June 30,1951, between plain *824 tiff and defendant, and contained an additional provision for price redetermination of plaintiff’s subcontracts with, suppliers of truck components, including axles. This contract contained a “pass through” provision that if the price of any subcontract was redetermined during a period when the prime contract price was fixed, the prime contract price would be correspondingly increased or decreased, notwithstanding the provision of the price redetermination article. Under this latter provision, the prime contract price remained fixed for a 90-day period following price revision.
During the entire period covered by this litigation, the sole source of axles for the trucks involved was Rockwell Spring and Axle Company and its predecessor corporation, Timken Axle Company. Under Contracts 11447 and 11448 dated May 18,1951, defendant furnished facilities for manufacturing military truck axles at Timken’s new Newark, Ohio, plant. Timken, in turn, agreed to maintain a specified axle capacity and to price redetermination to be negotiated by defendant at prices Timken charged prime contractors for axles.
On June 26, 1952, plaintiff and defendant executed Contract 983 which contained price increase or decrease rede-termination clauses, retroactive or prospective, and a repricing of subcontracts article, including the “pass through” provision, as in Contract 297.
On March 31, 1953, Contract 1216 for 854 trucks was executed by plaintiff and defendant. It contained a price redetermination article, under which contract prices could be redetermined downward only, but both prospectively and retroactively. Unlike Contracts 8292, 3 297 and 983, Contract 1216 contained no repricing of subcontracts article and no provision with respect to passing through price refunds received by plaintiff from suppliers to defendant during the period when the prime contract price was fixed.
On July 3, 1953, defendant sent plaintiff an invitation to bid on 3,750 trucks, stating that only one producer of these trucks would remain in production after December 31, 1953, *825 and that in determining which producer would be retained, “price would be the most important consideration.”
Plaintiff , submitted its bid proposal, which was accepted by the execution of Supplement 3 to Contract 1216 on September 11, 1953. Supplement 3 eliminated the retroactive, downward price redetermination in the original Contract 1216 and provided only prospective downward price rede-termination. Like original Contract 1216, it contained no provision for repricing of subcontracts or “pass through” to defendant of any refunds received by plaintiff from subcontractors.
The crux of the Eockwell Issue results from the omission in Contract 1216, as amended, of these hitherto included contract provisions. Plaintiff contends that this omission establishes that defendant thereby waived any claim for refunds received by plaintiff fr,om subcontractors arising from repricing of their subcontracts. Defendant contends that this provision for repricing of subcontracts was not included in Supplement 3 to Contract 1216 because in the earlier Contracts 297,983 and 8292, plaintiff had advised the Chicago Ordnance District in July of 1952, that various subcontractors, including Timken, had objected to the inclusion of this clause in their subcontracts or purchase orders. Timken objected to such price redetermination provision being included in purchase orders because it was already subject to price redetermination under its own Contract 11448 with defendant’s Detroit Ordnance District. As to these earlier contracts, the Chicago Ordnance District then, in order to facilitate production, authorized plaintiff to place its orders for axle sets with Timken unconditionally on the basis that such orders would be repriced by the Detroit Ordnance District under its Contract 11448 with Timken.
During the negotiations leading to Supplement 3 to Contract 1216, plaintiff was again informed by defendant that Timken was subject to price redetermination under its Contract 11448 with the Detroit Ordnance District, which would continue to administer the contract and any price redeter-mination proceedings thereunder.
Prior to the merger of Timken with Standard Steel Spring Co. to form Eockwell Spring and Axle Company on Oc *826 tober 1, 1953, no formal price redetermination proceedings liad been held under Timken’s Contract 11448 with defendant. However, Timken in order to divest itself of excess profits, had first issued credit memoranda to the prime contractors, and later made advance payments to the Renegotiation Board. These latter payments went into general receipts of the United States Treasury, and were not available to Ordnance for further procurement purposes. Standard however, under a similar contract, had followed instructions of the Detroit Ordnance District by making voluntary refunds, in anticipation of price redetermination proceedings, to its prime contractors, who in turn remitted said refunds to Army Ordnance, thereby “keeping the funds in the procurement stream” in the words of the Government.
On September 30, 1953, Rockwell 4 advised plaintiff that, in anticipation of formal price redetermination pursuant to its Contract 11448 with defendant, it was going to voluntarily make a refund of $1,845,338.09 applicable to Contracts 8292, 2¡97 and 983. Rockwell explained that it had been directed by defendant to make such refunds to its prime contractors because Ordnance’s receipt of the refund through the prime contractors would “keep the funds in the procurement stream” for further Ordnance procurement. Rockwell also advised plaintiff that this practice would be followed in all future refunds stemming from its Contract 11448 with defendant. This arrangement of passing refunds from Rockwell under its Contract 11448 through plaintiff to defendant was also insisted upon in a communication between the Detroit Ordnance District and plaintiff’s counsel. It was further insisted by defendant that in all instances it would be the prime contractor’s obligation to give the Government the benefit of the refund. Thereafter, plaintiff deposited Rockwell’s check and issued a check to defendant for the same amount, $1,845,338.09.
On November 6,1953, Rockwell in anticipation of formal redetermination by Detroit Ordnance under Contract 11448, made a refund of $371,207.09 to plaintiff applicable to Con *827 tracts 297, 983, 8292 and also to 8841, a fixed price spare parts contract which had no price redetermination or repricing of subcontracts provision. The amount of the Rockwell refund on this last contract was $35.09. Plaintiff paid $371,172.00 of the refund to defendant, and retained $35.09. This is the $35.09 item in defendant’s second counterclaim. 5
On February 17, 1954, Rockwell sent a refund of $217,--676.69 to plaintiff in anticipation of formal price redetermi-nation under its Contract 11448 with the Detroit Ordnance District. Of the total amount, $167,870.48 was applicable to Contracts 297 and 983, and plaintiff thereafter paid this amount to defendant. The remaining amount of $49,806.21 could be broken down as follows: $31,587.40 applicable to Contract 1216, and $18,218.81 applicable to eleven fixed price spare parts contracts (inclusive of Contract 8841). Plaintiff retained this amount of $49,806.21. Thereafter, upon demand for payment by defendant, plaintiff paid $25,000 to the Chicago Ordnance District. (In its third counterclaim, defendant claims the difference between the $49,806.21 and $25,000, i.e., $24,806.21).
Prior to February 15, 1955 Rockwell advised plaintiff of an intended refund of $1,529,737.90 applicable to Contract 1216 for the fiscal year 1954. Plaintiff advised Rockwell that it intended to retain this refund and not pass it on to defendant, as previously done under the prior contracts. At plaintiff’s insistence, the credit memorandum accompanying the payment of $1,529,737.90 was revised to describe the refund as a revision of Rockwell’s price to plaintiff instead of a “voluntary price adjustment,” and to list all the axle sets with original and lower revised prices, with the difference totaling the amount of the refund. The original notation “voluntary price adjustment for the fiscal year ended December 31, 1954 * * on the credit memorandum was revised to state, “To revise set price on Contract Number DA-11-22-ORD-1216. Shipped during the year ended *828 December 31, 1954.” Plaintiff retained the full amount of the Rockwell refund of $1,529,737.90.
On March 9, 1955, as a result of prior repricing negotiations under Contract 11448, Rockwell and the Detroit Ordnance District entered into Supplemental Agreement No. 2. Listed upon a schedule attached thereto entitled “Refunds Made to Customers,” was the refund made to plaintiff in the amount of $1,845,338.09 as allocated and applicable to purchases by plaintiff under prime Contracts 8292, 297 and 983.
By letter dated March 25, 1955, to the Detroit Ordnance District, Rockwell submitted a statement of sales, costs of sales and profits for the year ended December 31, 1954, covering axle sets and spare parts subject to price redetermi-nation imder Contract 11448. The letter in part read as follows:
Price adjustments were made with the International Harvester Company for the fiscal year ended December 31,1954, totaling $1,529,737.90, which price adjustments have been given effect in the statements enclosed. These were the only price adjustments during the year.
As a result of prior negotiations, on October 21,1955, Rockwell and Detroit Ordnance District entered into Supplemental Agreement No. 3 to Contract 11448. Listed upon a schedule thereto entitled “Refunds to Customers” was the refund made to plaintiff in the amount of $371,207.09 as allocated and applicable to purchases by plaintiff under prime Contracts 8292, 297, 983 and 8841. The agreement further stated that this amount of $371,207.09 was part of the total amount which represented the result of the agreed revision of prices pursuant to Contract 11448.
As a result of prior negotiations, on December 13, 1955, Rockwell and the Detroit Ordnance District entered into Supplemental Agreement No. 4 to Contract 11448. Listed upon schedules similar to those in previous supplements was the refund made to plaintiff in the amount of $217,676.69 as allocated and applicable to purchases by plaintiff under prime Contracts 297, 983, 1216 and the eleven additional spare parts contracts. The agreement further stated that this amount of $217,676.69 was part of the total amount *829 which represented the results of the agreed revision of prices pursuant to Contract 11448.
Having been furnished by Detroit Ordnance District with copies of the aforementioned Supplemental Agreements Nos. 2, 3 and 4, Chicago Ordnance District could not reconcile the amounts listed therein as having been refunded to plaintiff with the amounts that had been refunded by plaintiff to it. Upon request, Detroit Ordnance forwarded a tabulation to the Chicago District showing the refunds made by Rockwell to its prime contractors through December 31,1953, and also notified the Chicago District that Rockwell “has advised this office that it has made a refund direct to International Harvester Company of $1,529,137.90 ‘on Contract 1216’ for the calendar year * * Thereupon, in a letter dated April 12, 1956, the Chicago Ordnance District requested plaintiff to “pass this refund” of $1,529,737.90 “on to this District, as you have in the past.” By letter of April 20,1956, plaintiff refused to pass on said refund to defendant because “* * * the subcontract price revision affects deliveries and costs during periods as to which the prime contract is firm and not subject to price revision.”
As a result of prior negotiations, on June 1,1956, Rockwell and the Detroit Ordnance District entered into Supplemental Agreement No. 5 to Contract 11448. The agreement recited, among other things, that for the fiscal year ended December 31, 1954, Rockwell had “refunded to one of the Government prime contractors, namely, International Harvester Company, under Contract DA-11-022-ORD-1216, the sum of $1,529,737.90 * * Listed upon attached schedules captioned “Refunds to Customers” was tire refund made to plaintiff on Contract 1216 in the sum of $1,529,737.90. The agreement further stated that this amount of $1,529,737.90 was part of the total amount which represented the results of the agreed revision of prices pursuant to Contract 11448 between Rockwell and defendant.
Further requests for payment were made upon plaintiff. Finally, by letter dated January 23, 1957, plaintiff was notified it was indebted to defendant for the sum of $1,529,-737.90 under Contract 1216', “representing the amount paid over to you by Rockwell Spring & Axle Company for and *830 inuring to tlie benefit of the Government, relating to axles supplied by it for performance of the contract, in accordance with repricing agreement existing between the Government and ‘Eockwell’.” Upon plaintiff’s refusal to pay, said amount ,of $1,529,737.90 was deducted from amounts otherwise due to plaintiff on Contract 2200 entered into with defendant.
Upon analysis of the foregoing facts we have decided that all cash refunds made to plaintiff by Eockwell were made for the benefit of defendant pursuant to Eockwell’s obligations under its price redetermination contract with defendant. The funds were expressly delivered in trust to plaintiff for the use of defendant. When the funds were wrongfully diverted and retained by plaintiff, defendant was entitled to a setoff ,of $1,529,737.90 which we now affirm, and is presently entitled to judgment on its two counterclaims in the amounts of $35.09 and $24,806.21.
The express practice of operating the price adjustments and voluntary refunds in the aforementioned maimer was begun on September 30, 1953, when plaintiff was informed by Eockwell that in anticipation of formal price redeter-mination pursuant to Eockwell’s Contract 11448 with defendant, Eockwell was going to refund $1,845,338.09 applicable to Contracts 8292, 297 and 983 to plaintiff. Plaintiff was thereafter advised that such refunds were being made directly to prime contractors (rather than defendant) in order to keep the funds in the procurement stream, and thereby available to Army Ordnance for further procurement purposes. Plaintiff was also advised that Eockwell intended to make all refunds stemming from its Contract 11448 with Detroit Ordnance District in the same manner. Thereafter, plaintiff was informed by Detroit Ordnance District that said District insisted that the refund would have to be made through the prime contractor to the Government, and that in all instances, it would be the prime contractor’s obligation to give the Government the benefit of the refund. Plaintiff, therefore, fully cognizant of the conditions, circumstances and terms of the refund, accepted this initial refund of $1,845,338.09 and passed said sum on to defendant.
Under these factual circumstances, it is clear that Eockwell *831 had created an express trust pursuant to which plaintiff was obligated to pass through intact all Rockwell refunds stemming from Rockwell’s obligations under Contract 11448 to ' defendant in order to keep these monies in the procurement stream. An express trust is created where the settlor properly manifests an intention to create a trust. Scott, Trusts, § 23 (1939 ed.) However, neither a particular or technical form of words, written or oral, nor a particular form of conduct is necessary in order to manifest the intention to create the trust. There is sufficient manifestation if there is reasonable certainty as to the property, the objects and the beneficiaries. Colton v. Colton, 127 U.S. 300, 310 (1888) ; Chicago, Milwaukee & St. Paul Railway Co. et al. v. Des Moines Union Railway Co. et al., 254 U.S. 196 , 208 (1920); Mahafey v. Helvering, 140 F. 2d 879, 882 ( 8th Cir. 1944); Edgerton v. Johnson, 178 F. 2d 106, 110-111 (7th Cir. 1949) ; Scott, Trusts, §24 (1939 ed.) Accordingly, when plaintiff agreed to the above-mentioned terms of the refund, and then accepted the payment, and turned the payment over to defendant, a trust had been established. Rockwell was the settlor who had created a trust vesting title in plaintiff, as trustee. The equitable title to all such refunds belonged to defendant as cestui que trust.
Having accepted the trust, plaintiff was required to effectuate its objectives, and, because of the fiduciary relationship, was bound to abstain from doing anything inconsistent with the duty or trust imposed upon it by such relationship. As was stated by Chief Judge Cardozo in Meinhard v. Salmon, 249 N.Y. 458, 464 (1928):
* * * Many forms of conduct permissible in a workday world for those acting at arm’s length, are forbidden to those bound by fiduciary ties. A trustee is held' to something stricter than the morals of the market • • place. Not honesty alone, but the punctilio of an honor ■. the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending ' ahd inveterate * * *. Only thus has the level of conduct for fiduciaries been kept á level higher than that .■ : trodden by the crowd.' It'will not consciously be lowered .-:by any judgment of this court. ■-
*832 Plaintiff alleges that it is entitled to the Rockwell refunds in issue because the contracts to which they were applicable either had no repricing of subcontracts article (i.e., Supplement 3 to Contract 1216), or had no price re-determination provisions and no repricing of subcontracts article (i.e., the eleven fixed price spare parts contracts).
These arguments are untenable. As reported in Finding 34, a repricing of subcontracts or purchase orders article was not included in Supplement 3 to Contract 1216 between plaintiff and defendant because, for one reason, Rockwell had in the past objected to, the inclusion of such a clause in plaintiff’s purchase orders. Plaintiff knew the objection was made because Rockwell was subject to price redetermination pursuant to Contract 11448 with Detroit Ordnance. When the refunds on Contract 1216 were turned over to plaintiff, plaintiff was well aware that they were made because of the price redetermination clause of Rockwell’s Contract 11448, and that Rockwell expected plaintiff to turn them over to the Government. Plaintiff wras aware of the same factual situation with regard to the refund applicable to the fixed price spare parts contracts. For plaintiff to divert this money, knowing full well why it was being paid to it (as trustee) and for what purpose (for the benefit of defendant), was a clear violation of the terms of the trust. Plaintiff violated the terms of the trust by diverting and retaining the sums of $35.09, $24,806.21 and $1,529,737.90.
Plaintiff’s further contention that Rockwell did not intend the refund of $1,529,737.90 under Contract 1216 to be turned over to the Government as part of Rockwell’s contractual obligations with the Government, but instead, intended it to constitute a routine axle price adjustment under plaintiff’s and Rockwell’s own subcontract arrangements, is also without foundation. The proof shows without doubt that Rockwell considered this payment to be exactly like the others, and to be made for the same purpose. It is true that after Rockwell made this particular payment in the same manner it had adopted in making the other similar payments to plaintiff, Rockwell and plaintiff (at plaintiff’s urging) held a special meeting and revised the papers to make it appear as if the payment represented a routine axle price *833 adjustment on tbe subcontract, instead of a payment pursuant to Rockwell’s contractual arrangements with defendant. Rockwell knew full well why plaintiff wanted the usual procedure to be changed and the papers revised and, despite its clear obligation of trust with defendant, chose to cooperate with plaintiff. Its explanation at the trial was that it knew plaintiff was planning to retain the funds, but it nevertheless felt what happened to the money was essentially a matter between plaintiff and defendant, and not its concern. This form of connivance and violation of trust by the prime contractor and the subcontractor cannot be allowed to becloud the true nature of the payment or to deprive the Government of funds rightfully belonging to it. That Rockwell itself never had any real doubt as to such true nature is evidenced by the fact that in its direct dealings with the Government, it subsequently reported the payment to the Government as having been made to plaintiff pursuant to its own contractual obligations to the Government, and in accordance with the Government’s previous directions under the agreed arrangements, and in the same way as its previous payments. Thus, despite the different forms it ultimately employed at plaintiff’s request, it clearly regarded this payment to plaintiff the same as the others it had made to plaintiff, i.e., for turning over to the Government.
Defendant, as equitable owner of all the aforementioned payments made to plaintiff by Rockwell for defendant’s benefit was justified in offsetting the amount wrongfully retained by plaintiff in the sum of $1,529,731.90. Further, defendant is entitled to prevail in its two counterclaims for further sums wrongfully retained by plaintiff in the respective sums of $35.09 and $24,806.21.
THE FEDERAL EXCISE TAX ISSUE
Pursuant to the excise tax provisions of the Internal Revenue Code then in effect, plaintiff, in submitting bid proposals on military vehicles, computed an excise tax on the body and chassis of 8 percent of the bid price on each model exclusive of the cost of tires and minor accessory items. The body and chassis excise tax was included in the bid proposals and the resulting contract prices. The net result of operating in *834 this manner meant that plaintiff would initially pay the excise tax and then be reimbursed the amount of the tax by defendant through the contract price.
When plaintiff submitted its bid proposal to defendant on July 24, 1953, for the aforementioned 3,750 vehicles to be included in Contract 1216 it included in its cost breakdown an amount representing 8 percent Federal excise tax on the body and chassis of each model. Three days later on July 27, plaintiff advised defendant by letter that, based upon a ruling by the Bureau of Internal Revenue that the body and chassis of 2y2 ton M-108 military vehicles were not subject to Federal excise taxes, the proposal of July 24 should be amended by deleting the chassis and body excise tax on the 475 M-62 vehicles included in that proposal. Plaintiff thereafter requested a specific ruling from the Bureau of Internal Revenue on the M-62 vehicles. The Bureau’s reply to plaintiff by telegram of August 17 stated that the M-62’s were ruled to be “off-the-highway” vehicles and not subject to excise tax under section 3403(a), as amended, of the Internal Revenue Code of 1939, 26 TJ.S.C. § 3403(a) (1952 ed.)
Plaintiff submitted a revised proposal on the 3,750 vehicles on August 26, 1953. Attached to the proposal were cost breakdowns for each, model of vehicle, which breakdowns included an 8 percent excise tax on all vehicles including the M-62. This tax was included by plaintiff despite the July 27th letter to defendant, and despite the ruling of the Bureau of Internal Revenue by telegram of August 17. On September 11, 1953, Supplement No. 3 to Contract 1216, covering the production of the 3,750 vehicles, was executed at the prices bid by plaintiff, including the Federal excise taxes.
On December 22, 1953, plaintiff wrote to the Bureau of Internal Revenue, and requested an “off-the-highway” classification (body and chassis excise tax exemption rating) on various model numbers, including all those in Contract 1216. PÍaintiff received a reply on January 29, .1954. In that reply,. plaintiff was informed that the various vehicles were not subject to the body and chassis tax. As a result of .the ruling, by the Bureau of Internal Revenue, no excise tax was paid by plaintiff on the chassis or body. of any vehicle *835 under Contract 1216. At no time after receipt of either of the rulings did plaintiff inform defendant that the vehicles -being manufactured under Contract 1216 were not subject to the body and chassis excise tax. 6
• The dispute between the parties concerns the body and chassis excise taxes in the sum of $249,919.47. Defendant contends that since plaintiff was relieved from paying the excise taxes by virtue of the aforementioned rulings of the Bureau, and since the sum ,of the taxes was included in the contract price, plaintiff was, by the terms of the contract, obliged to refund said sum to defendant. 7 Plaintiff does not dispute the fact that any amount of tax included in the contract price must be refunded to defendant. In fact, plaintiff has refunded over $2% million to defendant for taxes plaintiff was relieved -from paying under Contract *836 1216, said taxes being included in the contract price. However, plaintiff contends that the sum of money in issue here ($249,919.47) was not in fact included in the contract price as excise taxes, but was part of the cost of the materials.
Plaintiff uses the changes article 8 of the contract as a basis for its contention. By letter of March 25, 1954, the Chicago Ordnance District requested plaintiff to furnish cost estimates involving proposed contract changes. One of the changes consisted of deleting 323 Model M-51 trucks from the contract, and replacing them with 323 additional Model M-54 trucks. As was previously stated, plaintiff’s basic contract unit price included the 8 percent excise tax. The new unit price that plaintiff submitted to defendant for the additional M-54’s consisted of the old M-54 contract price, plus additions for winches and other items not called for in the original M-54 specifications.
Plaintiff had in effect merely added to the old price the price for additional components. However, in submitting a cost breakdown to defendant, plaintiff reallocated the 8 percent excise tax to the materials component. Plaintiff had determined to retain the amount of the former 8 percent *837 body and chassis excise tax in the price by shifting it into the materials component in an attempt to mitigate the effect of the very close prices it had contracted for on the vehicles covered by Contract 1216.
On April 15, 1954, plaintiff was requested to make cost estimates for other proposed changes. One of these changes consisted of adding 6 Model XM-246 tractor-wrecker trucks, but without fire extinguishers, to the contract. Plaintiff took the old price and made changes for the fire extinguishers in figuring the new price. Plaintiff also, as before, in submitting a cost breakdown, reallocated the amount of the 8 percent excise tax to the materials component.
On January 5, 1955, defendant requested another cost breakdown for further proposed changes. This change consisted of substituting fifteen M-55 vehicles for fifteen M-54’s. Plaintiff again reallocated the amount of the excise tax included in the old price into the materials component of the new price.
All of the above changes were incorporated into the contract at the revised prices quoted by plaintiff. 9 By letter of January 23, 1957, the contracting officer on Contract 1216 demanded payment of the amount of the body and chassis tax which defendant claimed plaintiff owed. The letter stated that plaintiff was indebted to defendant on this matter since the tax was “included in the contract price, paid to you for Federal excise tax, which you were relieved from paying and did not pay to the Director of Internal Revenue.” Plaintiff made payment on all items except the aforementioned changes. Defendant thereafter withheld the amount of $250,637.30 from payments due under another contract. Defendant has conceded that the withholding was excessive to the extent of $717.83, so that the amount presently in issue between the parties on account of the three above-mentioned excise tax items is $249,919.47.
Plaintiff states that when it made the cost breakdown of the trucks involved here the chassis and body excise tax was *838 deleted from the bid price and reallocated to the cost of direct material. Plaintiff believes that in light of this, it is immaterial that defendant can trace the original tax amounts into the new contract prices; that the key issue is how the total price was finally allocated under the change orders. Plaintiff further contends that the Change Form Questionnaire in which the cost breakdown was made, was obviously intended to be used as a request for equitable adjustment under the changes article. Therefore, the contracting officer, when he accepted the bid as shown on this form, accepted its terms with any resulting changes in price, and may not thereafter repudiate the acceptance.
Defendant, on the other hand, insists that the reallocation of the body and chassis excise tax to the materials component on the Change Form Questionnaire did not remove the tax from the prices. Defendant admits that the Change Form Questionnaire was used to make a claim for an equitable adjustment. However, defendant contends that a contractor has no right to adjust the price for an increase in costs not directly attributable to the structural changes ordered.
After close consideration of these questions, we have decided that defendant’s contentions are the more realistic ones, and are in accord with existing law. Plaintiff readily admits a reallocation of the tax amount to the materials component. Such a reallocation was made because plaintiff was losing money on the contract due to its extremely low contract bid. As will be explained in examination of the Price Nedetermination Issue, plaintiff had deliberately bid on the contract at a price on which it was almost certain to incur a loss. When the aforementioned changes were made, plaintiff attempted to minimize this loss by the reallocation of the tax funds to the materials component. While we can understand plaintiff’s predicament, we cannot condone its consequent actions. The very purpose of the inclusion of the changes clause in the contract was to reimburse a party for an increase or decrease in costs or to adjust the delivery schedule as a direct result of such change. The changes clause itself states this fact:
*839 If such changes cause an increase or decrease in the amount of work under this contract or in the time required for its performance an equitable adjustment shall be made * * *. [Emphasis supplied.]
The changes involved here consisted of substitutions of certain models of vehicles for others, with perhaps minor variances. All plaintiff needed to do in filling in the Change Form Questionnaire was to substitute the previous costs for the added models in place of the deleted models and then make adjustments for the minor variances. In breaking down the total cost there was no basis, as a result of the change, for increasing the materials component cost, except to minimize a prior planned loss. Since this increase in the materials component cost was not caused by the changes ordered, but was merely a funneling of the tax funds in order to avoid repayment of these funds to defendant, we hold that the changed contract price included the excise chassis and body taxes, and that defendant was entitled to withhold these sums from amounts due on other contracts with plaintiff.
Plaintiff has raised the point that defendant, by its action in accepting the changes as plaintiff set them out, was estopped from offsetting the sum in controversy at a later date. It is well established law, however, that when payments like these are erroneously made, it is not only lawful but the duty of the Government to recover the payments. Cf. Fansteel Metallurgical Corporation v. United States, 145 Ct. Cl. 496 , 172 F. Supp. 268 (1959) and cases cited therein. As we previously mentioned, defendant has conceded that the offset involved here was excessive to the extent of $717.83. Plaintiff is therefore entitled to judgment on this amount..
THE PRICE REDETERMINATION ISSUE
As we mentioned in discussing the Rockwell Issue, defendant sent plaintiff an invitation to bid on 3,750 more trucks on July 3,1953. Defendant informed plaintiff that only one producer of these trucks would remain in production after December 31, 1953, and that in determining which producer *840 would be retained, “price would be the most important consideration.”
Plaintiff was exceedingly anxious to become defendant’s sole supplier of the trucks. To this end, it determined to make every effort to obtain the proposed new contract, even to the extent of sustaining a loss on this particular procurement. To enable it to submit as low a bid as possible, plaintiff determined to make every effort to obtain from its suppliers their lowest prices. Shortly thereafter, and after assembling the necessary data, including its subcontractor’s quotations, plaintiff commenced the preparation of its bid.
In preparing its cost statement for bid purposes on these military vehicles, plaintiff customarily calculated the cost of each truck model on a basis of its carrying its full share of plaintiff’s indirect and overhead costs in addition to the estimated materials costs, upon which it had received quotations, and the direct labor costs, the rates of which were known. These indirect and overhead costs had, through experience over the years, been calculated ,on various percentage bases. Such costs of a vehicle, so calculated, would be considered as bearing the vehicle’s full share of plaintiff’s total costs of manufacturing it, and would be termed as the “fully adjusted costs.” Such fully adjusted costs, plus plaintiff’s customary profit markup of, eight percent, was the normal basis on which plaintiff calculated its prices for these military vehicles.
The usual procedure as described above was followed in initially preparing the cost data for plaintiff’s bid on the proposed 8,750 vehicle contract. The proposed prices were calculated on a fully adjusted cost basis, and were composed of direct materials and labor plus a proportionate share of all overhead and indirect costs, such as direct overhead, material adjustments, the general and administrative expenses, plus eight percent profit.
Upon review of this cost data, plaintiff concluded that a bid based upon its fully adjusted costs plus eight percent profit would, in all probability, not be successful. Thereupon, plaintiff’s officials made a second calculation pf the proposed prices per vehicle on a so-called “specific cost” or “out-of-pocket” basis, a basis plaintiff sometimes used in *841 developing bids in special competitive situations. On this basis certain ,of the indirect and overhead costs which plaintiff customarily included in developing its fully adjusted costs were either eliminated or reduced. By this method, the proposed unit bid price of an M-51 vehicle, for example, was reduced from a fully adjusted cost of $12,552.82 to $11,349.67 on a specific or out-of-pocket cost basis.
On July 24, 1953, plaintiff submitted its bid proposal on the 3,750 vehicles. Accompanying the proposal was a schedule showing the unit price of each type of vehicle, and an estimated unit cost breakdown as to each type. This schedule which showed the bid price ,of each type of vehicle sets forth prices which were exactly equal to the prices developed on the above described specific cost or out-of-pocket cost basis. However, in breaking down the components of such price ,on a material, labor, overhead and profit basis, plaintiff showed amounts for such components in the data submitted with its bid which differed substantially from those previously and privately computed theretofor on the specific or out-of-pocket basis. Instead of building up t,o a price by the normal method of first calculating materials and labor costs, and then adding thereto overhead and profit rates on certain percentage bases (in this case, on less than the usual bases), plaintiff started with the price so previously built upon the specific cost basis, and then first carved out of this price the higher profit and overhead rates it normally used on a fully adjusted cost basis. This left a smaller and inaccurate balance for labor and materials. Then, by retaining the accurate amount for the labor component, the materials component was made to bear the brunt of the overstatements on the profit and overhead items, resulting in an amount for the materials component which was far less than the total quotations for materials from its suppliers as shown on its worksheets. For example, on one of the seven vehicle models, the M-52, the total unit price privately calculated by plaintiff on the specific cost basis was $10,147.60. Of this amount, $8,427.55 had been first privately computed as the estimated cost of “direct material,” on the basis of the total amount actually quoted by plaintiff’s materials suppliers. In the bid data submitted to defendant, however, this 1 *842 “material” item was set forth at $8,082.72, a fictitious amount not supported by any normal accounting methods.
The conclusion is reasonable that in submitting its bid on an expected loss basis in order to become defendant’s sole supplier of' these vehicles on future procurement, plaintiff thus reconstructed the prices in its bid data because it felt that setting the components forth in the above described manner would be favorable to it in the event of further price redetermination proceedings. For example, the failure to make its purported eight percent profit would necessarily be given serious consideration.
Shortly after the submission of its proposal on the 8,750 vehicles, plaintiff was advised that it was the low bidder. The parties then agreed that instead of entering into an entirely new contract, as originally contemplated, the 3,750 vehicles would be covered by a supplemental agreement to the already outstanding Contract 1216. On September 11, 1953, plaintiff and Army Ordnance, acting by the Chicago Ordnance District, provided for the production of the 3,750 vehicles by an agreement which was designated as Supplemental Agreement No. 3 to Contract 1216.
In early September 1954 the Chicago Ordnance District, prior to making a decision whether to demand formal price redetermination under Contract 1216, decided to review plaintiff’s costs on the contract in order to determine whether cost trends were upward or downward. 10
The price analyst assigned by defendant to review the contract costs preliminary to a decision on price redetermination requested plaintiff to furnish the quotations which it had received from its suppliers for the major components of the vehicles, and upon which the bid and contract price of Contract 1216 were based, as well as plaintiff’s actual current costs for such components. He also requested plaintiff’s current overhead rates for comparison with the rates plaintiff utilized in its bid proposal. In addition, he asked for such *843 figures as plaintiff could furnish which would indicate the total current cost of the individual vehicles.
Plaintiff informed the price analyst that the materials costs shown in the bid proposal were not based on quotations from suppliers, but instead, were based on a competitive bid basis, and no breakdown of that system was available. Plaintiff further informed the analyst that its cost system did not reflect individual vehicle costs and therefore that the total current cost of any of the models could not be determined. Plaintiff did submit to the price analyst, however, its burden rates and suppliers’ invoices.
The analyst was not informed that plaintiff had in actuality obtained the actual materials quotations from suppliers as above mentioned. Nor was the analyst aware of the fact that plaintiff had computed its bid on a specific cost basis which included the full amount of such quotations but which eliminated or reduced overhead rates, adjustments and the profit percentage of eight percent. The price analyst was also not informed, and thus was unaware, that plaintiff had actually compiled figures showing the correct current total costs as of August 18, 1954, of the various models covered by Contract 1216. These figures showed plaintiff’s current costs of producing each such model under Contract 1216, both on a fully adjusted and specific cost or out-of-pocket basis.
The price analyst, having no knowledge that the bid or contract prices of Contract 1216 were calculated by plaintiff on the specific or out-of-pocket cost basis, observed that the current costs of Contract 1216 were higher than the contract or bid prices, and that plaintiff was therefore incurring a loss. The analyst reached this- conclusion in the following manner:
1) Examining the suppliers’ invoices in order to extract the major component costs;
2) Applying the burden or overhead rates given him by plaintiff to the component costs in order to determine the individual vehicle costs;
3) Comparing the individual vehicle costs arrived at in this manner with the individual vehicle costs on the contract or bid prices.
*844 The analyst noted that although the trend of materials costs in performing Contract 1216, as compared to the materials costs of other contracts plaintiff was performing, was downward, the over-all current costs, considering the overhead plaintiff was experiencing, were higher than such costs as set forth in plaintiff’s bid (which presumably reflected accurately plaintiff’s overhead costs at the time of the submission thereof and the execution of Supplement 3). The analyst concluded that the trend of plaintiff’s total cost was up, and that a price redetermination proceeding would not result in the establishment of lower contract prices. He therefore recommended that price redetermination proceedings not be instituted at that time.
Defendant contends in its first counterclaim 11 that had plaintiff accurately set forth the components making up the unit prices in its bid proposals on Contract 1216 so as to accurately reflect the amounts calculated on the specific cost basis (i.e., with reduced overhead and profit figures, and with accurate materials figures, instead of setting them forth as it did with the larger overhead and profit and understated materials costs), or had plaintiff made such specific cost bid data available to defendant’s price analyst, there would have been a forward and downward price redetermination, resulting in a contract price reduction in the amount of $490,533.08, the amount now claimed by defendant in the first counterclaim.
Defendant, in effect, is contending that plaintiff by its above actions has breached the contract, and that the measure of damages should be the amount of the price reduction ($490,533.08) which would have resulted from a price rede-termination. The question of breach and measure of damages, therefore, is contingent upon acceptance of the fact that had defendant been aware of all of the aspects of plaintiff’s cost system, defendant would have demanded price rede-termination negotiations which, in turn, would have resulted in a price reduction of $490,533.08.
*845 This is a difficult question because here we have the unusual situation of being asked to reprice a contractor, who has already suffered a slight loss on a normal fully adjusted cost basis into a much greater loss. Normally, prices are redetermined so as to remove excess profits and to leave contractors with their normal profits, plus any additional profits they may prove they are entitled to as a result of special efforts or contributions, or unusual manufacturing economies, or the assumption of extraordinary risks, etc. The general theory is that a manufacturer should not make abnormal profits from the nation’s war or defense effort. However, there are no abnormal or excessive profits involved in this case.
Under plaintiff’s fully adjusted cost system, the system which accurately reflected the normal projection of costs and profits of Contract 1216, plaintiff would have suffered a loss as a result of its low bid. We have already determined that defendant is entitled to retain the sum of $1,529,737.90 on the 1955 Eockwell refund issue, and the sum of $249,919.47 on the excise tax issue. If defendant were also to prevail on its first counterclaim for $490,533.08 on the price re-determination issue, plaintiff’s loss (on a fully adjusted cost basis) on Contract 1216 as supplemented would be $589,-406.47. If plaintiff prevails, and defendant’s first counterclaim is dismissed, plaintiff will still sustain a loss (on a fully adjusted cost basis) of $98,873.39 on this contract, after deducting the Eockwell refund and excise tax issues. Eegardless of the fact that under a price redetermination on the specific or out-of-pocket cost basis which plaintiff used for its own purpose in actually computing the bid, plaintiff would show a profit, and regardless of the misrepresentations in the bid data as submitted, the out-of-pocket cost basis could not be used as an accurate or realistic method of price redetermination. For example, defendant accepted a profit component of eight percent in awarding the bid to plaintiff.
The price redetermination issue poses a further problem for the court. Under paragraph (b) of paragraph 7 of Supplement 3 to Contract 1216, prices were to be redetermined or' revised by way of a negotiation between the parties. If *846 we determine that there has been a breach of contract and that the measure of damages is the resulting price revision saving, it might be said that the court itself has conducted a redetermination proceeding. However, the record provides a solution for this difficulty.
Although defendant’s price analyst testified that had he known of the true basis upon which plaintiff bid, he would have recommended price redetermination proceedings, we agree with the findings of the Trial Commissioner that it is not now possible to determine whether, had plaintiff set forth the bid showing the bid data in the form defendant considers proper, or had the analyst been given the data he asked for, or should have been furnished, a formal demand for price redetermination would have been made. Similarly, the Trial Commissioner has found, and we agree, that had such price redetermination proceedings been initiated, it is not now possible to determine what would have been the future events (such as the 1955 Rockwell refund herein involved) the parties would have anticipated and considered in formulating prospective or “forward” cost estimates, whether the price redetermination supplement to the contract would have reserved any matters for future consideration, and what, if any, specific amount would have, been determined as an appropriate price adjustment.
The Commissioner likewise found, and we concur, that in addition to considering prospective costs, arriving at predetermined prices including an appropriate profit amount involved a consideration of certain intangible factors, such as the risks assumed by the contractor, its efficiency, and its technical contribution to the defense effort.
Furthermore, the Commissioner has found, and we agree, that regardless of technical legality or power to so redetermine prices under the facts herein involved, and considering only the question of defendant’s practice or policy, the record shows no instance in which prices were reduced in situations where profits on a fully adjusted basis were very low or non-existent, or where, to reduce them, would throw the contractor into a loss position on such cost basis.
The issue as to whether defendant would have requested a price redetermination under these circumstances arises *847 from defendant’s first counterclaim in the amount of $490,-533.08, and the burden of proof on this issue is upon defendant. The crus of the matter is that defendant is required to prove that it would have requested or required negotiations for price redetermination had the actual basis upon which the bid was first computed been known. This requirement is not met by the testimony of defendant’s price analyst that had he known the actual facts, he would have recommended price redetermination proceedings. Defendant’s failure to meet this burden of proof leaves us to mere speculation as to whether or how much defendant was damaged by plaintiff’s withholding information from defendant, and by its misrepresentations in the cost data submitted with its bid. Both at the time of the execution of Contract 1216 and of Supplement 3, defendant’s procurement officers were well aware ,of plaintiff’s current materials costs and all other costs; on examining plaintiff’s bid data, they must have been also aware that the unit materials cost breakdowns were clearly underestimated. Plaintiff’s actions in this regard were clearly not above board, but this unsatisfactory conduct does not provide sufficient evidentiary basis to find for defendant on its counterclaim. Defendant’s first counterclaim is accordingly dismissed due to defendant’s failure to prove that it would have requested price redetermination proceedings, even if the bid and contract cost data, and other information had been submitted in the form that defendant contends was correct and proper, and that such proceedings would have led to the end result sought by the counterclaim.
Judgment should be entered as follows:
1. On the Bockwell payment claim of $1,529,737.90, the petition is dismissed.
2. On the excise tax claim, plaintiff is entitled to judgment in the amount of $717.83. The petition as to the balance of the claim in the amount of $249,919.47 is dismissed.
3. The first counterclaim of $490,533.08 is dismissed.
4. On the second counterclaim, defendant is entitled to judgment in the amount of $35.09.
5. On the third counterclaim, defendant is entitled to judgment in the amount of $24,806.21.
*848 6. The fourth counterclaim is dismissed.
Accordingly, judgment is entered for defendant in the total amount of $24,123.47.
FINDINGS OF FACT
The court, having considered the evidence, the report of Trial Commissioner Saul Richard Gamer, and the briefs and argument of counsel, makes findings of fact as follows:
1. Plaintiff is a corporation organized and existing under the laws of New Jersey, with its principal office and place of business in Chicago, Illinois. Plaintiff has been for many years a manufacturer on a large scale of various types of farm machinery, tractors, motor trucks and other equipment, including vehicles for commercial and military use.
2. For many years plaintiff has manufactured, assembled and produced many thousands of motorized heavy duty vehicles and parts therefor pursuant to contracts between it as prime contractor and defendant, acting through the Ordnance Corps of the Department of the Army (“Army Ordnance”). Among said vehicles were various models of a 5-ton, 6x6 (meaning six wheels, all power driven) heavy duty motor powered military vehicles.
THE ROCKWELL ISSUE
3. Under date of June 19, 1950, plaintiff and defendant, acting through Army Ordnance (negotiated by the Detroit Ordnance District), entered into a negotiated fixed price contract, designated as Contract No. DA-20-018-OBD-9197 (“Contract 9197”) for the production by plaintiff of 932 5-ton 6x6 trucks of various models, plus miscellaneous parts, materials and documents, for the total amount of $11,-131,222.20. The contract contained (Article 27) a “Price Adjustment” article which provided that, “because of the nature of the work called for by this contract and the great uncertainty as to the cost of performance hereunder,” the contract price could, after the completion or termination of the contract, be increased or decreased in accordance with the provisions set forth in the article. One of the provisions was that “In no event shall the revised price exceed the sum of *849 $12,021,719.98.” There was, however, no limitation on a price decrease. 1
4. Contract 9197, the first of a series of contracts entered into by plaintiff for the manufacture of such trucks (and sometimes referred to as the “pilot” contract), was part of a large scale procurement program by Army Ordnance of 5-ton 6x6 military vehicles (as well as 214-ton vehicles) which began in 1950 as a result of the Korean war which broke out in June 1950. Contracts for the production of such vehicles were also let by defendant to other manufacturers. An important component of these vehicles was “axle sets,” which included front and rear axles, brakes, a transfer case from which the power to the gears in the front axle was transmitted, and hook-up parts, consisting of shafts running from the transfer case to the front axles and the two rear axles. As part of this huge military vehicle program, the Timken-Detroit Axle Company, a corporation organized under the laws of Ohio, with its principal place of business in Detroit, Michigan (hereinafter referred to as “Timken”), an experienced axle producer, in 1950 first undertook, as a subcontractor to the various Government prime contractors, the production of the specialized axle sets required for the vehicles. It early established itself as the sole producer of these parts and soon became flooded with orders therefor which were far beyond its capacity to fulfill. Included in such orders were the axle sets required for Contract 9197, upon which Timken, on July 26, 1950, quoted a price of $2,850.42 for each standard axle set, i.e., the type of axle set supplied by Timken for use in the majority of the 5-ton 6x6 military vehicles. This price remained for the duration of production under this contract.
5. (a) Under date of December 4, 1950, plaintiff entered into a “letter contract,” designated as Contract No. DA-089-OBD-8292FS (“Contract 8292”), with defendant, acting through Army Ordnance (negotiated by the Ordnance Tank Automotive Center, Detroit, Michigan), for the pro *850 duction by plaintiff of a large number of 5-ton 6x6 vehicles, spare parts and related supplies (designated as Items 1-19), Under this letter contract, the parties agreed to negotiate looking to the execution of a definitive contract, pending the execution of which plaintiff was authorized to spend not in excess of $47,000,000. It was also provided that the definitive contract “will include the Price Revisión Article set forth in Joint Procurement Regulations 4-805.5 (Form II B) (with a maximum upward price limitation of 15% of the basic contract amount).” By Supplement No. 1 thereto, dated December 21, 1950, the expenditure authorization was increased to $55,000,000.
(b) Plaintiff again placed with Timken the orders for the axle sets required under this contract. Prior to the execution of the contract plaintiff, on October 12, 1950, had received a quotation from Timken of $3,975 per standard axle set. On October 27,1950, in reference to this price quotation, plaintiff sent a letter to Timken stating as follows:
This will confirm our telephone conversation today * * * in which you indicated a set price of $3,975.00 * * *.
You advised that the $3,975.00 per set could be considered as the guaranteed maximum price for these units and that the price might be lower if costs for tooling, material and labor so warranted.
6. (a) Its facilities being insufficient to satisfy the demands placed upon it by the 2%- and 5-ton 6x6 military vehicle program undertaken by Army Ordnance, Timken turned to defendant for assistance. It sought to have defendant finance the building of a new Timken plant where the required increased production of the axles could take place, but this proposal did not materialize. It was finally agreed that if Timken itself financed the acquisition of the land and the buildings for a new plant at Newark, Ohio, defendant would furnish it, by a “facilities contract,” with the great bulk of the required machinery. However, since Timken had no prime contracts with defendant, the problem was to find a basis for entering into such a facilities contract. Consequently, it was ultimately agreed that Timken would, in addition to the facilities contract, also enter into another *851 contract with defendant under which Timken would agree to maintain a certain capacity of production to fulfill the axle needs of the military vehicle program.
(b) Under date of May 18, 1951, Timken entered into a Facilities Contract, bearing Contract No. DA-20-018-OKD-11447 (“Contract 11447”) with defendant, acting by the Army Ordnance Corps (and negotiated by the Detroit Ordnance District). The contract provided that, since “there is in existence or in negotiation at this time certain supply contracts between certain Prime Contractors with the Government and the Contractor [Timken],” Timken would acquire for the Government, at an estimated cost of approximately $12,600,000, certain machinery or facilities to be installed in its plant at Newark, Ohio, the title to such facilities to be in defendant, and that defendant would also deliver certain facilities to Timken. The contract further provided that defendant granted Timken the right to use the facilities, “without the payment of rental therefor” (Art. III-A), for the production of “axles and related parts for military vehicles being furnished” under 10 listed prime contracts between defendant and Neo Motors, Studebaker Corporation, plaintiff, Diamond T Motor Car Company, and Fruehauf Trailer, “and such other contracts as the Contracting Officer may from time to time hereafter approve in writing.” Plaintiff’s listed contracts were 9197 and 8292, hereinabove referred to. Timken also agreed that no part of the cost of the facilities covered by the contract would be included, in the form of depreciation or amortization, in the price of any items produced on the facilities. It was further provided that “whenever it is determined that all or any part of” the facilities “are no longer required in the performance of the Contractor’s prime or subcontracts for which the facilities have been authorized for use,” Timken would keep the facilities in a standby condition and subject to defendant’s removal orders.
(c) On the same day, and executed contemporaneously with the Facilities Contract, Timken and defendant, acting through Army Ordnance (and also negotiated by the Detroit Ordnance District), entered into a “Negotiated Service Contract,” bearing Contract No. DA-20-018-OBD-11448 (“Contract 11448”). Under this contract, it was agreed that, since *852 defendant desired Timken to “establish- and maintain a productive capacity for the production of Axle Sets for military use capable of producing such sets at” a certain rate, and defendant desired to assist Timken in maintaining such capacity, defendant and Timken contemporaneously entered into the Facilities Contract, Timken agreed to establish a productive capacity “at the rate of (i) not less than 4,500 such Sets for 2%-ton 6 x 6 M 84 Trucks, and (ii) not less than 1,200 such Sets for 5-ton 6 x 6 M 41 Trucks, per month, on an around-the-clock basis for a 6-day week,” and to maintain such capacity during the term of the Facilities Contract.
The contract further contained, in Article IY, provisions whereby Timken’s subcontract prices could be increased or decreased. The article provided in pertinent part as follows:
ARTICLE IV
Contractor and the Government agree as follows:
(a) The prices in effect as of any given time pursuant to the provisions of any subcontract between Contractor and any Prime Contractor which is a party to any Prime Contract mentioned or described in * * * the Facilities Contract (each such subcontract under any such Prime Contract being herein called a “Eelated Subcontract”) may, subject to the provisions of Paragraphs (i) and (j) of this Article IY, be increased or decreased in accordance with the provisions of this Article IY in the same manner and to the same extent as if each such Eelated Subcontract were between the Government and Contractor.
(b) Times for Negotiation — (1) Upon the completion of 40 percent of the Axle Sets to be furnished under any Eelated Subcontract, the parties to this Contract shall negotiate to revise the prices of all items theretofore and thereafter to be delivered under such Eelated Subcontract. Within 5 days after the completion of delivery of said 40 percent under such Eelated Subcontract, Contractor shall furnish the Contracting Officer the statements and data referred to in Paragraph (c) of this Article. At any time and from time to time after the completion of delivery of said 40 percent under any Eelated Subcontract subject to the limitations specified in this Article, either the Government or the Contractor may deliver to the other, a written demand that the parties to this Contract negotiate to adjust the prices *853 under such Related Subcontract. No demand shall be made prior to 90 days after the completion of delivery of said 40 percent and thereafter neither party to this Contract shall make such a demand having an effective date within 90 days of the effective date of any prior demand. Each demand shall specify a date (identical with or subsequent to the date of the delivery of the demand) as of which the revised prices shall be effective as to deliveries made thereon and thereafter pursuant to such Related Subcontract. This date is hereinafter referred to as “the effective date of the price revision.” For purposes of the first negotiation contemplated by this Article, the date of execution of this Contract shall be deemed to be the effective date of the price revision. Any demand under this Article, if made by Contractor, shall state briefly the ground or grounds therefor and shall be accompanied by the statements and data referred to in Paragraph (c) of this Article. If such demand is made by the Government, such statements and data will be furnished by the Contractor within 30 days of the delivery of the demand.
«!***:[:
(c) Submission of Data — At the time or each of the-times specified or provided for in Paragraph (b) of' this Article, Contractor shall submit (i) a new estimate and breakdown of the unit cost of the Axle Sets which are the subject matter of any Related Subcontract in respect of which a demand is made pursuant to Paragraph (b) of this Article and the proposed prices of items remaining under such Related Subcontract after the effective date of the price revision, itemized so far as practicable, in the manner prescribed by War Department Standard Form No. 105; (ii) an explanation of the difference between the original (or last preceding) estimate and the new estimate; (iii) such relevant shop and engineering data, cost records, overhead absorption reports and accounting statements as may be of assistance in determining the accuracy and reliability of the new estimate; (iv) a statement of experienced costs of production under such Related Subcontract to the extent that they are available at the time or times of the negotiation of the revision of prices thereunder ; and (v) any other relevant data usually furnished in the case of negotiation of prices under a new Contract. The Government may make such examination of the Contractor’s accounts, records and books as the Contracting Officer may require and may make such audit thereof as the Contracting Officer may deem necessary.
*854 .(d) Negotiation — (1) Upon the filing of tbe statements and data required by paragraph (c) of this Article, the Contractor and the Contracting Officer will negotiate promptly in good faith to agree upon prices for .items to be delivered pursuant to the Related Subcontract in respect of which negotiations are being conducted, on and after the effective date of the price revision. Negotiations for price revisions under this Article shall be conducted on the same basis, employing the same types of data (including, without limitations, comparative prices, comparative costs, and trends thereof) as in the negotiation of prices under a new Department of the Army contract.
(2) After each negotiation the agreement reached will be evidenced by an agreement between Contractor and the Government stating the revised prices to be effective with respect to deliveries on and after the effective date of the price revision (or such other later date as the parties may fix in such agreement) pursuant to any Related Subcontract covered by such Agreement and Contractor will adjust the prices under any such Related Subcontract in accordance with such Agreement.
‡ ‡ ‡ $ *
(i) Notwithstanding any of the provisions of this Article IV to the contrary, Contractor shall not demand pursuant to the provisions of this Article IV a revision of the price then in effect under any Related Subcontract (1) which would result in a revised price which is more than 10% in excess of the price initially fixed in such Related Subcontract, or (2) where such related subcontract specifically forbids any upward adjustment in the prices specified in such Related Subcontract.
(j) Nothing in this Article IV contained is intended to be construed or shall be construed to prevent Contractor from adjusting or revising upward the prices specified in any Related Subcontract at the time, or times, in the manner and to the extent provided in such Related Subcontract and without resort to, or compliance with, the provisions of this Article and notwithstanding anything in this Article IV to the contrary, Contractor shall have and retain the unrestricted right to adjust and revise upward the prices specified in any Related Subcontract at the time, or times, in the maimer and to the extent provided in such Related Subcontract, provided, however, that such revision or adjustment so made by Contractor shall be subject to the rights of the Government under this Article IV to demand a downward re *855 vision of sncb revised or adjusted price, provided always that the Government’s right to demand a downward revision of such revised and adjusted price may be made without regard to the 90 day limitations set forth in paragraph (b) (1) above.
‡ ‡ $
(d) Due to the multitude of orders received by Timken involving varying quantities and delivery schedules, it proved impracticable for Timken and the Detroit Ordnance District to comply with the requirements of subparagraph (b) of Article IY of Contract 11448 by repricing individual subcontracts at 40 percent of completion. Accordingly, some time after entering into Contract 11448, Timken and the District informally agreed that prices would instead be redetermined by repricing retroactively all sales made by Timken to Government prime contractors on the basis of Timken’s gross receipts from its subcontracts during Timken’s fiscal year. As will hereinafter appear, this modification in the contract terms to reprice on an overall fiscal year rather than an individual subcontract basis received formal recognition in supplements to Contract 11448 subsequently executed.
7. By a Supplemental Agreement No. 3, dated June 1, 1951 (negotiated by the Chicago Ordnance District), to Contract 8292 (finding 5), plaintiff and defendant entered into the definitive contract contemplated by the letter contract. Said supplemental agreement increased the number of the 5-ton 6x6 trucks of various models to be produced and delivered by plaintiff to 7,687 for a total contract price (including miscellaneous parts, materials, and documents) of $153,008,965.68, subject however to adjustment upward or downward in accordance with the Price Bedetermination Article (Article 6), such revised price not to exceed $191,261,207.10 (said increase being equal to 25 percent of the contract price) . 2
*856 The Price Redetermination Article 6 (being the aforementioned Form II B) provided in part as follows:
(b) Times for negotiation.
(1) At the end of the Contractor’s interim accounting period in which delivery of 80% of the vehicles to be delivered under Item 1 to 11 inclusive of paragraph (a) of Article 1 “Scope of the Contract,” is completed, the parties shall negotiate to revise the prices of all items to be furnished under paragraph (a) of Article 1, “Scope of the Contract”, theretofore and thereafter to be delivered. . Within thirty (30) days after the end of such, interim accounting period, the Contractor shall furnish to the Contracting Officer the statements and data referred to in paragraph (c) of this Article. At any time and from time to time after the end of such interim accounting period, subject to the limitations specified in this Article, either the Government or the Contractor may deliver to the other written demand that the parties negotiate to adjust the prices under this contract. No demand shall have an effective date prior to 90 days after the end of such interim accounting period and thereafter neither party shall make a demand having an effective date within 90 days of the effective date of any prior demand. Each demand shall specify a date (identical with or subsequent to the date of delivery of the demand) as of which the revised prices shall be effective as to the deliveries made thereon and thereafter. This date is hereinafter referred to as “the effective date of the price redetermination”. For the purposes of the first negotiation contemplated by this paragraph, the date of execution of this contract shall be deemed to be the effective date of the price redetermination. Any demand under this Article, if made by the Contractor, shall state briefly the ground or grounds therefor and within thirty (30). days after the delivery of the demand the Contractor will furnish to the Contracting Officer the statements and data referred to in paragraph (c) of this Article. If the demand is made by the Government, such statements and data will be furnished by the Contractor within thirty (30) days of the delivery of the demand.
(c) Submission of data. — At the time or each of the times specified or provided for in paragraph (5) of this clause the Contractor shall submit (i) a new estimate and breakdown of the unit cost and the proposed prices of the items remaining under this contract after the effective date of the price redetermination, itemized so *857 far as is practicable in the manner prescribed by WD Form 105; (ii) an explanation of the differences between the original (or last preceding) estimate and the new estimate; (Hi) such relevant shop and engineering data, cost records, overhead absorption reports and accounting statements as may be of assistance in determining the accuracy and reliability of the new estimate; (w) a statement of experienced costs of production hereunder to the extent that they are available at the time or times of the negotiation of the revision of prices hereunder; and (v) any other relevant data usually furnished in the case of negotiation of prices under a new contract. The Government may make such examination of the Contractor’s accounts, records and books as the Contracting Officer may require and may make such audit thereof as the Contracting Officer may deem necessary.
(d) Negotiations
(l) Upon the filing of the statements and data required by paragraph (c) of this clause, the Contractor and the Contracting Officer will negotiate promptly in good faith to agree upon prices for items to be delivered on and after the effective date of the price redetermination. Negotiations for price redetennination under this clause shall be conducted on the same basis, employing the same types of data (including, toithout limitations, comparative prices, comparative costs, and trends thereof) as in the negotiation of prices under a new contract.
(B) After each negotiation the agreement reached will be evidenced by. a supplemental agreement stating the redetermined prices to be effective with respect to deliveries on and after the effective date of the price redeter-mination (or such other later date as the parties may fix in such supplemental agreement).
* * * * *
8. (a) On June 30, 1951, plaintiff and defendant, acting through Army Ordnance (negotiated by the Chicago Ordnance District), entered into a contract, designated as Contract No. DA-11-022-OBD-297 (“Contract 297”) for the production by plaintiff of 6,260 5-ton 6x6 trucks of various models, plus spare parts, for the total amount of $113,868,-707.50, subject, however, to adjustment upward or downward in accordance with the “Price Kedetermination” Article (Article 6), the redetermined price not to exceed 25 percent *858 of the contract price. 3 The Price Eedetermination Article 6 contained provisions similar to those contained in Supplemental Agreement No. 3 to Contract 8292 dated June 1,1951 (finding 7). The contract also contained an Article 10, headed “Kepricing of Subcontracts or Purchase Orders” which provided as follows:
article 10. Eepricing of Subcontracts or Purchase Orders.
Except as hereinafter provided, subcontracts or purchase orders covering the following components or services:
Item,
No. Description
1. Frames
2. Spare Parts Packing
3. Universal joints & propeller shafts
4. Bodies
5. Cabs
Item
No. Description
6. Engines
7. Hoists and Winches
8. Transmissions
9. Axles
10. Wrecker Cranes
will contain price revision provisions substantially the same as those set forth in Article 6 hereof pursuant to which the subcontract or purchase order prices may be increased or decreased from time to time, prospectively or retroactively. The upward limitation to be provided in the price revision article to be included in a subcontract or purchase order shall be subject to the approval of the Contracting Officer. It is understood that the price revision of subcontracts or purchase orders for items 1. to 10. above will be performed directly by the Government. Subcontracts and purchase orders for the above items will specifically state that the Government will perform the price revision. The Contractor shall forward two copies of each such subcontract or purchase order, or amendment thereof, to the Contracting Officer after execution.
In the event an intended subcontractor for any such components or services refuses, after negotiation in good faith by the Contractor, to accept a subcontract or purchase order containing such provisions, the Contractor shall promptly report such fact to the Contracting Officer for instructions. If the Contracting Officer does not notify the Contractor within 30 days (or such longer *859 or shorter time mutually agreed upon) of the acceptance of such price revision provisions by the intended subcontractor, or suggest a mutually satisfactory alternate solution, the requirements of this article shall be deemed to be waived with respect to that particular subcontract or purchase order.
It is recognized that price revision of the prime contract may occur prior to the price revision of a subcontract or purchase order and it is also recognized that price revision of subcontracts and purchase orders will take place during periods when the unit prices in the prime contract are fixed. Should the price of any subcontract or purchase order be redetermined during any period when the prime contract price is fixed, the prime contract price will be correspondingly increased or decreased notwithstanding the provisions of Article 6 of the contract.
Either the Government or the Contractor may demand an accounting with respect to such increases and decreases at any time provided that such accountings shall not occur of tener than once each ninety (90) days. Within ten (10) days after demand has been made either by the Contractor or the Government for an accounting with respect to such price increases or decreases, the Contractor will furnish to the Government a list ox such increases or decreases which have occurred between the effective date of the last accounting and the date of the demand. The Government may make such examination of the Contractor’s accounts, records and books as the Contracting Officer may require, and may make such audit thereof as the Contracting Officer may deem necessary for the purpose of any such accounting. The Contractor will make a similar provision for the right of audit by the Contractor and/or the Government in the subcontracts covering the components listed above.
(b) Timken’s previously quoted price of $3,975 per standard axle set applied to the initial production under this contract.
9. (a) By letter dated August 24, 1951, Timken advised plaintiff that Timken had “entered into an agreement with the Detroit Ordnance District regarding the axle sets” being furnished on plaintiff’s purchase order applicable to Contract 8292, “subject to price redetermination by negotiation between the Detroit Ordnance District and the Timken-Detroit Axle Company”; that it would “probably be some *860 time before such negotiation” would be completed “but in the meantime we have reviewed our costs and are revising the prices” on Contract 8292 “for the period May 18, 1951 through August 18, 195.1, from $8,975.00 to $3,570.00 per set”; that a credit memorandum adjusting the previous billings covering shipments on the contracts for such period would issue; and that billings for the 90-day period commencing August 19, 1951, would be made at the price of $3,570 per set, “subject to adjustment, retroactively dependent on our cost experience for that period but not to exceed the price originally quoted of $3,975.00 plus 15% escalator upward.” On August 31,1951, Timken forwarded to plaintiff 13 credit memoranda totaling $317,391.97 representing retroactive price adjustments on plaintiff’s purchase orders under Contract 8292 for the period May 18 through August 18, 1951. Each of these credit memoranda set forth plaintiff’s purchase order number, Timken’s part number, Tim-ken’s invoice number, the amount for which Timken originally billed plaintiff for each specified part, the amount of the retroactive price adjustment allocable to each specified part, and the new adjusted price of each specified part.
(b) Plaintiff’s books and records were adjusted to reflect lower costs by the amount of the credit memoranda. 4 No cash refund was made to plaintiff in connection with these price adjustments and credit memoranda.
(c) In a letter dated September 17, 1951, plaintiff acknowledged that billings for shipments for the 90-day period commencing August 19, 1951, would be subject to adjustment retroactively, dependent on Timken’s cost experience for that period and upon any price redetermination between Timken and the Detroit Ordnance District.
10. On November 30,1951, plaintiff and defendant, acting through the Chicago Ordnance District, by Supplemental Agreement No. 6, amended Contract 8292 so as, among other things, to incorporate into the contract (as Article 13), the “Repricing of Subcontracts or Purchase Orders” article. Since only one of plaintiff’s subcontractors, the McCarthy Root Company of Detroit, Michigan, which was plaintiff’s *861 subcontractor for preparing, packaging and packing the spare parts to be delivered under Contract 8292, agreed that subcontracts or purchase orders should contain repricing provisions, the new article was made applicable only to such named subcontractor. In all other pertinent respects, the article was similar to Article 10 of Contract 297 (finding 8(a)).
11. (a) By letter dated December 7, 1951, Timken, referring to its letter of August 24,1951 (finding 9 (a)), “relative to our entering into an agreement with the Detroit Ordnance District regarding the axle sets which we are furnishing on your purchase order applicable to” Contract 8292 “being subject to price redetermination by negotiation between the Detroit Ordnance District and” Timken, advised “that for the period from August 19,1951 through November 18,1951, no retroactive adjustment to the billing at the price of $3,570.00 net per set will be made.” The letter further stated that the price for the period from November 19,1951 through February 18, 1952, would remain at $3,570 per set, but that such price “will be subject to adjustment retroactively dependent on our cost experience for that period but not to exceed the price originally quoted of $3975 net per set plus 10% escalation upward.”
(b) By letter of January 9,1952, Timken advised plaintiff that, despite its letter of December 7,1951, on Contract 8292, “it is now apparent that we will, as a result of increases in our costs, have to make a substantial retroactive billing adjustment for the period from November 19, 1951 thru February 18,1952” and that it would handle the matter by billing “all 5 Ton 6x6 material shipped on and after January 1, 1952 at a price of $3975. net per set * * *.” Timken stated' that on such basis “it is our belief that there will be little, if any, retroactive billing necessary for the period from November 19, 1951 thru February 18, 1952; however, we must still reserve the right to adjust the billing for this period retroactively dependent upon our cost experience for that period, but not to exceed the price originally quoted of $3975.00 net. per set plus 10% escalation upward.”
However, on February 12, 1952, Timken advised there would be no retroactive price adjustment for the Novem *862 ber 19,1951-February 18,1952 period and that for the period February 19-May 18,1952, the price would remain at $8,975, but again subject to retroactive adjustment depending on cost experience and not to exceed $3,975 plus 10 percent.
12. On or about March. 14, 1952, plaintiff submitted purchase orders to Timken for axle sets to be used in performing Contract No. 297. Attached to these orders, all of which were dated March 14,1952, was a price redetermination provision applicable to Timken’s price to plaintiff in compliance with Article 10 of Contract 297 (finding 8(a)). However, by letter to plaintiff dated March 25,1952, Timken took exception to the price redetermination provision in the purchase orders since “we operate under Facilities Contract No. DA-20-018-OKD-11447 and a Companion Contract, DA-20-018ORD-11448, which contain price redetermination clauses covering axles run over the facilities. We, therefore, are governed by agreement with the Detroit Ordnance District.”
■ 13. By letter of April 2, 1952, Timken advised plaintiff that effective April 1, 1952, the standard axle set price (applicable to Contracts 8292 and 297) would be reduced to $3,675 and that it was Timken’s “hope” that such price would apply through June 30, 1952. The letter stated, however, that such current quotation “does not in any way affect the maximum price chargeable of $3975.00 net per set plus 10% escalation as previously quoted.”
14. By letter of June 9, 1952, to the Chicago Ordnance District, plaintiff forwarded a copy of Timken’s letter of March 25, 1952 (finding 12), and requested “that price re-determination for this vendor” on Contract 297 “be waived.”
15. Under date of June 26, 1952, plaintiff and defendant, acting through Army Ordnance (negotiated by the Chicago Ordnance District), entered into a negotiated contract designated as Contract No. DA-11-022-ORD-983 (“Contract 983”), for the production by plaintiff of 1,087 5-ton 6x6 trucks of various models, plus spare parts, for the total amount of $20,576,712.55. The contract contained a Price .Redetermination Article (Article 6) which was similar to the provisions contained in Contracts 8292 and 297 although *863 here subject to a 20 percent upward limitation. 5 The contract also contained a “Repricing of Subcontracts or Purchase Orders” Article (Article 9) which was identical to the provisions of Article 10 of Contract 297 (finding 8(a)). Two days later, by Supplemental Agreement No. 1, dated June 28,1952, which took the form of a Letter Contract, the contract was increased by $22,150,122.10 to cover the cost of 800 additional vehicles, thus making the total number of vehicles 1,887, and the total consideration $42,726,834.65. 6
16. By letter of July 3,1952, to plaintiff, the Chicago Ordnance District advised that, with respect to plaintiff’s notifications “that various subcontractors have taken exception to price redetermination” (including plaintiff’s letter of June 6, 1952, concerning Timken’s exceptions to plaintiff’s purchase orders on Contract 297), the District was negotiating “to secure acceptance of a repricing article” by the objecting subcontractors. On July 22,1952, the District advised plaintiff that it was still negotiating with a number of subcontractor “who have declined to accept the Repricing Article” in an effort to have them accept repricing under plaintiff’s Contracts 8292, 983 and 297. However, by letter of July 24, 1952, plaintiff advised the District that it would be impossible for plaintiff to meet its production schedule on Contract 297 unless plaintiff received immediate acceptance by the objecting subcontractors of plaintiff’s purchase orders with a price redetermination provision, or a waiver of the provision as provided 'by Article 10 of the contract. Finally, by letter of July 30,1952 concerning Contract 297, the District advised plaintiff that five named subcontractors had accepted price revision; that with respect to seven objecting subcontractors, including Timken, plaintiff was, “because of the urgency of the program and to enable you to maintain pro- *864 duc'tion and deliveries of the supplies as required * * * authorized to release your purchase orders unconditionally”; and that purchase orders issued to Timken “will be subject to redetermination by Detroit Ordnance District under the facilities Contract, No. * * * 11447, and Companion Contract, No. * * * 11448 which contain price determination clauses covering axles run over the facilities.” Plaintiff thereupon, on August 1, 1952, notified Timken to disregard the price redetermination provisions in the purchase orders it had originally issued under Contract 297.
17. (a) By letter of July 24,1952, Timken advised plaintiff that the then current $3,675 price per axle set would continue for the period commencing July 1, 1952, and that again it was Timken’s “hope” that this price would apply through September 30, 1952. The “maximum price chargeable” ($3,975 plus 10%) was, however, still reserved.
(b) By letter of October '6, 1952, Timken advised plaintiff that, with respect to their “agreement on the price of $3975.00 net per set plus 10% escalation upward being a maximum price for a standard set of units for the 5-ton 6 x 6,” the reduced $3,675 price would apply through September 30, 1952, and that it was “hopeful” it would be able to continue such lower price through December 31,1952.
18. (a) By letter dated December 19, 1952, plaintiff advised the Chicago Ordnance District that in its attempts to place purchase orders for material for Contract 983, it was “experiencing difficulty in securing acceptances from those suppliers who had previously refused to accept Price Bede-termination under” Contract 297. Plaintiff requested that, with respect to seven named subcontractors, including Tim-ken, the contracting officer waive the price redetermination requirements of Contract 983 in order “to enable our Purchasing Department to secure acceptances and establish production schedules.” The same reasons that had resulted in the District’s granting the similar waiver on Contract 297, i.e., the urgency of the program and, as to Timken, the existence of Timken’s Contracts 11447 and 11448 with defendant (finding 16) led the District to grant plaintiff’s request on Contract 983, and by letter dated December 23, 1952, the con- *865 traeting officer authorized plaintiff to release its purchase orders under Contract 983 to Timken and the other six subcontractors “without price redetermination.”
(b) Plaintiff commenced its purchases from Timken on this contract at a standard axle set price of $3,675 per set. On December 23,1952, Timken advised plaintiff that it was not “at this writing in a position to make any long term commitments as to prices”, but that it would maintain the current $3,675 price through January 30,1953. By letter of January 26, 1953 to plaintiff, Timken stated its intention to continue billing at this price through February 28, 1953. This price was subsequently adjusted to $3,677.34, and applied through March 31,1953.
19. (a) On December 29,1952, the Chicago Ordnance District requested plaintiff to submit a proposal for the supply of 854 5-ton 6x6 military vehicles and spare parts. By letter of January 12, 1953, plaintiff submitted such a proposal in the amount of $22,152,273.78, and also stated:
This proposal is submitted as a firm price without request for upward price revision. In view of the experience which both the Government and our Company have had in the production of these vehicles, we do not feel that the inclusion of Price Bedetermination Article will be of any benefit either to the Government or ourselves, especially in view of the expense and delay that we have experienced in the past. However, if it is deemed necessary by Ordnance to include Price Be-determination Article in the definitive contract, including sub-contractors, we assume that this requirement will be waived on those suppliers who have refused to accept Price Bedetermination on previous contracts.
Submitted also were Estimated Unit Cost Breakdown sheets, showing the various components (i.e., labor, materials, overhead, etc.) of the quoted prices of the models involved in the proposed contract, and the amount plaintiff assigned to each component making up the quoted price. Plaintiff also stated in the letter:
Production and deliveries will be in accordance with schedules to be established by Ordnance in conjmiction with the Heavy Duty Tactical Truck Integration Committee. At the present time, it is estimated these deliveries will be made in the first quarter of 1954.
*866 The Committee referred to was one composed of representatives of the Government, the various prime contractors producing military vehicles for Army Ordnance, and the major suppliers. Such huge demands were being made on subcontractors and suppliers by the prime contractors in connection with the program that it was found necessary to allocate the supplies on various percentage bases as between the prime contractors in order to maintain orderly production schedules. The Committee met periodically to arrange for such allocations.
(b) Following the submission of plaintiff’s proposal, plaintiff’s and defendant’s representatives conferred about a proposed contract to cover this procurement, during which conferences the question of price redetermination provisions to be included in the contract was discussed. As a result, plaintiff agreed to accept a so-called “Modified Type II-B Repricing Article” which would provide for downward revision only but resisted a similar provision that would be applicable to its subcontractors. Finally, in a letter dated February 17, 1953, to the District, plaintiff stated:
In accepting such a proposal, we cannot agree to extend price redetermination to our suppliers or sub-contractors, many of whom have already notified us they will not accept price revision downward only. The inclusion of price redeterminatioii article in our purchase orders handicaps our purchasing department in negotiating any reductions with suppliers. Of the 10 principal suppliers under Contract No. DA-11-022-ORD-297, 7 have refused to accept price redetermination, and we have been notified by our parts packaging supplier and Austin-Western Company, supplier of the Wrecker Crane, that they will not accept price redetermination downward only. Our previous supplier of Cargo Bodies, Gar Wood Industries, have also refused to accept price redetermination. The inclusion of price redetermination of suppliers in the definitive contract would only create confusion and delay in securing material, without any benefit to the Government.
Consequently, and for the same reasons that led it to waive the subcontractors’ repricing provisions under the previous contracts, the District concluded that a “Repricing of Sub *867 contracts or Purchase Orders” article would not be included in the contract covering this procurement.
20. Prior to January 29, 1953, plaintiff had, pursuant to the Price Redetermination Article of Contract 8292 (finding 7), submitted a statement of the costs incurred in the performance of the contract to the production point specified in the Article (30%) and also prior to said date, defendant conducted an audit of said costs. Thereafter, plaintiff and defendant negotiated a settlement which resulted in a net increase in the total contract price then in effect. By Supplemental Agreement No. 13 dated January 29,1953, to said Contract 8292, the parties consummated said settlement by increasing the then total contract price of $168,235,218.69 by $3,169,760.01, making the new contract price $171,404,978.70.
21. Under date of March 31,1953, plaintiff and defendant, acting through Army Ordnance (negotiated, as stated, by the Chicago Ordnance District), entered into a negotiated contract designated as Contract No. DA-11-022-ORD-1216 (“Contract 1216”) for the production by plaintiff of 854 5-ton 6x6 trucks of various models, plus certain services (the spare parts previously included in plaintiff’s proposal being eliminated), for the total amount of $19,909,823.69. The contract contained the usual Form II-B Price Redetermination Article (Article 6), but contained the following further provision:
(b) Price Redetermination.
(1) The prices for vehicles stated above may be decreased in accordance with Article 6 entitled “Price Redetermination”. Anything to the contrary contained in said Article 6 as modified by this paragraph (b) notwithstanding, the prices stated above shall not be increased as a result of such price redetermination negotiations.
(2) Subparagraph (1) of paragraph (b) of said Article 6 shall be deleted in its entirety and the following-substituted therefor:
(1) The Government and the Contractor agree to negotiate to revise the contract prices of all vehicles to be furnished under this contract in accordance with the Contractor’s most recent experience under Contracts numbered DA-11-022-ORD-297 and DA-11-022-ORD-983 which also call for the manufacture and delivery to *868 the Government of the same and similar models of Truck, 5 Ton, 6x6. Thirty (30) days prior to the commencement of delivery of vehicles hereunder or at such prior time as the Contracting Officer may fix, the Contractor will furnish the statements and data referred to in paragraph (c) of this Article. All cost data submitted under the provisions of this Article shall fairly reflect the normal operations of the Contractor’s cost system.
In accordance with the arrangements previously made, and for the reasons indicated, a Repricing of Subcontracts or Purchase Orders article was not included in the contract.
22. On April 3, 1953, Timken advised plaintiff that the current price of $3,677.34 per standard axle set would be held firm through June 30, 1953.
23. (a) Sometime after the execution of Contract 1216, defendant arrived at a policy determination to have only one producer of the 5-ton 6x6 truck. At that time, there were three such producers, being plaintiff, the Diamond T Company, and the Mack Truck Company. It was determined that the unfilled portions of defendant’s outstanding contracts with these three suppliers, including Contract 1216 with plaintiff, would be terminated and that all such trucks remaining to be produced would then be consolidated in a new contract with the successful sole supplier. It was further decided that a meeting would be held which would be attended by representatives of the three contractors at which this important new policy would be explained and discussed.
As a result, representatives of the three companies were invited by Brigadier General Carroll H. Deitrick, Commander of the Ordnance Tank-Automotive Center (OTAC) at Detroit, Michigan, to attend a meeting with him in Detroit on July 3,1953.
(b) On July 3, 1953, representatives of the three companies met separately with General Deitrick in Detroit. At this time, defendant’s new policy was explained to plaintiff’s representatives. At the same time, they were handed a letter dated July 3, 1953, addressed to plaintiff and inviting its proposal for producing 3,750 vehicles. The contents of the letter were also discussed and explained. The letter read in pertinent part as follows:
*869 In keeping with expenditure objectives for fiscal year 1954, set by the Secretary of Defense, the Army is rescheduling certain of its production programs. The purpose of this re-scheduling is to hold down expenditures of the coming year and assist in the future balancing of the budget. This policy dictates that only one 5 Ton, 6x6 Tactical Truck producer remain in production after 31 December 1953. In keeping with this reduction of expenditures, it is necessary that the required end products be procured at a minimum cost.
In order to comply with the above objectives it is necessary that the Ordnance Corps remove from production by 31 December 1953 two of the three producers of the 5 Ton, 6x6 Tactical Truck. In making this determination all important factors will be considered. However, as you must realize price will be the most important consideration. In order that this determination be made on a fair competitive basis all three concerns will be requested to submit a price proposal for the delivery of 3150 — 5 Ton, 6x6 Tactical Trucks of various body types as outlined on attached listings. These vehicles are to be produced during the period 31 December 1953 through 31 March 1955 at a rate of 750 per quarter or approximately 250 per month.
í]í ifc % H*
After a thorough analysis of proposals submitted and due consideration of all other factors involved an award of 3750 vehicles will be made to the concern selected. Simultaneously a complete cancellation will be effected against the unsuccessful bidders for that quantity of vehicles now scheduled for delivery after 31 December 1953. All producers will be given the option of a free selection of subcontractors without regard to previous allocations of subcontracting capacity.
5¡» V
It is requested that you submit a proposal to the Chief, Chicago Ordnance District, by not later than 25 July 1953, for:
a. A quantity of 3750 — 5 Ton, 6x6 Trucks to be delivered at a rate of approximately 250 per month or 750 per quarter from 1 January 1954 through 31 March 1955, produced on a one-shift, forty-hour-week basis. Equipment which is now government furnished will continue to be so supplied.
b. With a view toward retaining the largest active base possible, consistent with economy considerations, a major and costly rearrangement of your facility is not *870 considered desirable. In the event your proposal envisions a plant rearrangement involving additional, facilities or tooling costs, it is requested that this be priced separately and submitted as a separate part of your proposal.
Except as to additional facilities, the above proposals will be submitted on a fixed-price basis with price re-determination. Upward redetermination will be considered ; however, the percentage of upward limitation requested will be added to the base price for the purpose of evaluation.
m * * * ❖
The attached form is for your guidance in submitting price information. Deviations from the form of this breakdown, to conform with your normal accounting procedures, will be acceptable. * * *
Attached to the letter was a “Request for Proposal” form listing the vehicles on which quotations were sought, and two price columns, one headed “Vehicle Unit Price Without Upward Price Revision” and the other “% Upward Price Revision (If Any).”
24. Plaintiff was exceedingly anxious to become defendant’s sole supplier of the 5-ton 6x6 military trucks. To this end it determined to make every effort to obtain the proposed new contract, even to the extent of sustaining a loss on this particular procurement.
25. (a) To enable it to submit as low a bid as possible, plaintiff determined to make every effort to obtain from its suppliers their lowest prices. With respect to Timken, on July 7,1953 a representative of plaintiff telephoned a representative of Timken and advised of defendant’s request for bids on the 3,750 vehicles as well as of the substance of General Deitrick’s letter of July 3, 1953, and requested that Timken submit to plaintiff as soon as possible its lowest prices on axle sets. On the same day, plaintiff wrote to Timken confirming the telephone conversation and its request for Timken’s “best price” on 3,750 axle sets for the 5-ton 6x6 military vehicles. With the letter there was transmitted a schedule showing the breakdown of the 3,750 vehicles by models.
(b) By letter of July 16,1953, Timken responded by quot *871 ing a price of $8,501 per set. It stated, however, that if it received concurrent production orders from other prime contractors on the 2%-ton axle at the rate of 666 per month, its price to plaintiff on the 5-ton axle would be lowered to $3,240 (since it could produce both simultaneously with much of the same equipment and tooling) and, if the concurrent orders were as high as 1,666 per month, the price would be further reduced to $2,975. To these prices, Timken reserved the right to add 5 percent to cover any material or labor increases which might occur. On these bases Timken agreed to maintain these prices through the first quarter of 1954.
26. (a) Shortly thereafter, and after assembling the necessary data, including its subcontractors’ quotations, plaintiff commenced the preparation of its bid.
(b) The 5-ton 6x6 military trucks were produced at plaintiff’s plant at Fort Wayne, Indiana, which is sometimes referred to as plaintiff’s Fort Wayne Works. In the preparation of its bids for these trucks, both purchasing departments in its general offices in Chicago and its Fort Wayne Works obtained quotations from suppliers and subcontractors, the Chicago office obtaining quotations on the major components, such as the axle sets, while the Fort Wayne Works secured quotations for the minor parts, such as batteries. All the quotations were then centered in the Fort Wayne Works which proceeded to assemble all the cost data and to prepare a statement of the proposed cost of the vehicle, the total cost being broken down into the component material, labor and overhead items.
In preparing its cost statement for bid purposes on these military vehicles, the Fort Wayne Works customarily calculated the cost of each truck model on a basis of its carrying its full share of plaintiff’s indirect and overhead costs in addition to the estimated materials costs, upon which it had received quotations, and the direct labor costs, the rates of which were known. These indirect and overhead costs had, through experience over the years, been calculated on various percentage bases. Such costs of a vehicle, so calculated, would be considered as bearing the vehicle’s full share of plaintiff’s total costs of manufacturing it, and would be termed as the “fully adjusted costs.” Such fully adjusted *872 costs, plus plaintiff’s customary profit markup of 8 percent, was the normal 'basis on which plaintiff calculated its prices for these military vehicles. Customarily, the cost data, on a fully adjusted cost basis, were prepared for each model by the Fort Wayne Works on so-called worksheets and transmitted to the home office in Chicago which would actually prepare and submit the bid.
(c) The usual procedure as described above was followed by the Fort Wayne Works in preparing the cost data for plaintiff’s bid on the proposed 3,750 vehicle contract. The proposed prices calculated were on a fully adjusted cost basis and were composed of direct materials and labor plus a proportionate share of all overhead and indirect costs, such as direct overhead, material adjustments, the general and administrative expense of the Fort Wayne Works (referred to as “Works general and administrative expense”), and general corporate administrative expense, plus 8 percent profit. (Except for the pilot Contract 9197, this was the basis upon which plaintiff’s prior contracts had been bid.) As so prepared, the worksheets were submitted to plaintiff’s executive offices in Chicago, with a copy of the worksheets (one for each model) retained at the Fort Wayne Works.
27. (a) Upon reviewing the worksheets and prices developed by the Fort Wayne Works, plaintiff concluded that a bid based upon its fully adjusted costs plus 8 percent profit would in all probability not be successful. On prior contracts, negotiated without competitive bidding under circumstances wherein approximately 45 percent of the nation’s total production of these vehicles was allocated to plaintiff, and under contract clauses wherein the prices bid could be adjusted either upward or downward, the development of a close or truly competitive price for bidding purposes was not considered a matter of great importance. In this case, however, where obtaining the contract depended on a price submitted in competition with its two competitors, plaintiff felt that an extremely low or close price would be essential if it was to achieve its purpose of becoming defendant’s sole supplier. As stated, to obtain this contract and so achieve this purpose, plaintiff was even prepared, if its costs were calculated in accordance with the usually applied overhead *873 and other indirect cost percentage rates, to sustain a loss. Consequently plaintiff’s officials in its Chicago administrative offices carefully reviewed the prices based upon the fully adjusted costs prepared by the Fort Wayne Works with the purpose of making such adjustments therein as would serve to lower the prices to a level which they felt would insure plaintiff’s obtaining the contract, even if a loss was incurred. Plaintiff’s officials hoped that they would be able to effect such manufacturing economies and reductions in suppliers’ prices as would enable it to keep the loss at a minimum or even to come out with a slight profit.
(b) Thereupon, plaintiff’s officials made a second calculation of the proposed prices per vehicle on a so-called “specific cost” or “out-of-pocket cost” basis, a basis plaintiff sometimes used in developing bids in special competitive situations. On this basis certain of the indirect and overhead costs which plaintiff customarily included in developing its fully adjusted costs were either eliminated or reduced. As an example, the following adjustments were made in the costs and resulting price quoted on one of the models, i.e., the Model M-51, without winch:
(1) An item of expense termed “material adjustment”,which was equal to 1 percent of the total material costs, was eliminated. On this model, this came to $94.63.
(2) The component cost item labeled “Works general and' administrative [G & A] expenses” which was normally calculated on a basis of 4.342 percent of materials and labor costs and charges, and came to $432.90 on this model (and an average of over $400 per vehicle on all models), was reduced to $28.65.
(3) The component cost item labeled “General Office General and Administrative [G & A] Expenses” was reduced from 3 percent of the total labor, materials, and “Works G & A” charges, to 2.6 percent thereof, plus an additional fiat deduction of $90 (said additional deduction being made by plaintiff’s president personally upon final review before submission).
(4) The profit item was reduced from 8 percent of the materials, labor and G & A items calculated on the “fully ad *874 justed” basis to 4 percent of said items calculated as above described on the “out-of-pocket” basis.
(5) Two items of expense, labeled “Special Tooling” and “Engineering,” both of which totaled $91.09, were reduced to $82 per vehicle.
The same adjustments were made on the other models bid upon, with further adjustments being made on the more expensive so-called- “wrecker” trucks. On such wrecker (Model M-62) no G & A expenses or profit in any amount were applied to the cost of the wrecker body to arrive at the final G & A and profit figures which were included in the unit price. Thus the cost figures against which the 2.6 percent — $90 G & A, and the 4 percent profit, computations were made did not include the cost of said bodies.
On the above-mentioned M-51, the adjustments described resulted in reducing the proposed bid price from $12,552.82 per vehicle on the fully adjusted cost basis, to $11,349,67 on the specific or out-of-pocket cost basis, a reduction of $1,203.15. Generally comparable reductions occurred on the other models.
28. (a) On July 24, 1953, plaintiff submitted its bid proposal on the 3,750 vehicles. The proposal was in the form of a letter of that date, accompanied by a schedule showing the price of each type of vehicle, and an estimated unit cost breakdown as to each type. In the letter, plaintiff stated that “This proposal is submitted as a fixed-price subject to price redetermination downward only” and that it was not requesting upward price redetermination because it understood “that any upward redetermination requested by any bidder would be added to the bid price of that bidder for purpose of evaluation * * *.” The letter further stated:
Because of the possible effect of the proposed rescheduling on both the 2y2 Ton 6x6 and 5 Ton 6x6 Tactical Truck programs, our axle supplier has submitted alternate quotations based on the alternate production schedules.
The accompanying “Request for Proposal” and unit cost breakdown are predicated on the award of 1666 2% Ton units per month, or a total of 25,000 to Reo Motors, Inc., Lansing, Michigan.
In the event that Reo Motors are awarded a production of only 666 vehicles per month, or a total quantity *875 of 10,000, the unit prices quoted on the attached proposals should be increased by $265.00, plus $21.20 excise tax. In the event that Keo Motors are awarded “NO” vehicles, unit prices on the attached proposals should be increased $526.00, plus $42.08 Federal Excise Tax.
This proposal has been prepared in keeping with the expenditure objectives outlined in the first paragraph of your letter of July 8. The policies of dictating a single manufacturer for the production of all vehicles in the 5 Ton classification, utilizing the option of a free selection of subcontractors without regard to previous allocations, and effecting economies accruing from 2 years of quantity production of this vehicle are incorporated in this proposal and are reflected in these low bid prices.
(b) The attached schedule showing the bid price of each type of vehicle set forth prices which were exactly equal to the prices developed on the above-described specific cost or out-of-pocket cost basis, as shown on plaintiff’s worksheets. These prices were as follows:
Proposal Item No. Vehicle Model Price Bid
1- M-40 (Truck, Chassis)_ $9, 773. 54
2- M-41 (Truck, Cargo)_ 10,701.60
3- M-51 (Truck, Dump)_ 11,349.67
4- M-52 (Truck, Tractor)_ 10,147. 60
5- M-54 (Truck, Cargo)_!_ 10,463. 30
6_ M-61 (Chassis, Truck)_ 9, 825. 89
7- M-62 (Truck, Wrecker)_ 19, 873.09
8_ M-139 (Truck, Chassis)_ 11,244. 88
All prices were quoted for the vehicles without winches (except the M-62) and with soft top cabs. Additional amounts ($516.66 for Model M-51 and $571.50 for the others, except the M-62) were included for winches, and for hard top cabs ($95.35).
(c) Also attached, in accordance with the requirement that a price breakdown be submitted with the bid, were eight “Estimated Unit Cost Break-Down” sheets, one for each of the models. These sheets repeated, as the “Proposed Contract Price” for each model, the identical amount bid as shown above. However, in breaking down the components of such price on a material, labor, overhead and profit basis, plaintiff showed different amounts for such components than had been computed theretof or on the specific or out-of-pocket basis. In effect, instead of building up to a price by the *876 normal method of first calculating materials and labor costs, and then adding thereto overhead and profit rates on certain percentage bases (in this case, on less than the usual bases), plaintiff started with the price so previously built up on the specific cost basis, and then carved out of it the higher profit and overhead rates it normally used, leaving a smaller and inaccurate balance for labor and materials. Then, by retaining the accurate amount for the labor component, the materials component was made to bear the brunt of the overstatements on the profit and overhead items, resulting in an amount for the materials component which was far less than the total quotations from its suppliers as shown on its worksheets.
The differences between the components as shown on plaintiff’s cost breakdown sheets submitted to defendant with its bid and as it actually arrived at its prices, as shown on its worksheets containing the components computed on a specific cost basis, were as follows:
(1) Based upon the ultimate price already computed on the specific cost basis, plaintiff arrived (after deducting the Federal excise taxes on the chassis and tires) at an 8 percent profit figure (price divided by 108 percent). In this manner, it was made to appear that plaintiff was bidding on a basis of 8 percent profit on the material, labor, and overhead components, instead of, as was actually the situation, only 4 percent on the adjusted material, labor and overhead items, as hereinabove set forth. Taking the Model M-52 as an example, plaintiff showed on its bid, in terms of dollars, an expected profit of $694.90 on such 8 percent basis, whereas, as shown on its worksheets, it actually estimated, on the 4 percent specific cost basis, a profit of only $360.82.
(2) The remaining total cost figure (i.e., after deducting excise taxes and 8 percent profit) was then divided by 102.6 percent to establish a 2.6 percent “Gr and A Expense” item (general office, or indirect, overhead) on the remaining items, consisting of material (and material handling and shipping) and labor (including “direct overhead”). Thus, on this component plaintiff did use the same 2.6 percent rate that it had used in developing its price on the specific cost basis. However, the $90 deduction (finding 27(b) (3)) was *877 not reflected (although, the dollar amount produced was lowered somewhat because it was applied to a lower remaining balance, the natural result of having removed 8 percent of the total price as “profit” rather than 4 percent, thus leaving a smaller balance against which the 2.6 percent could apply.) In terms of dollars, using the Model M-52 as an example, the amount shown for this overhead component on plaintiff’s bid was $220.12 whereas the actual amount plaintiff had allocated to the item on the specific cost basis was only $140.87.
(3) Having taken out of the ultimate price arrived at on the specific cost basis larger sums for profit and overhead than it had actually allocated thereto in the construction of the price, an unrealistically smaller amount remained for plaintiff to allocate to the remaining items, consisting principally of labor and materials. By far the largest component making up the total price of these trucks consisted of materials. For example, on the M-52, of the total price of $10,147.60 (calculated on the specific cost basis), $8,427.55 was computed as being the estimated cost of “direct material” (so calculated on both the fully adjusted and specific cost bases). Plaintiff therefore determined to show the remaining charges other than materials as it had computed them on the specific cost basis and then to show as “materials” whatever balance remained. Accordingly, the cost of $75.44 for the item “Material Handling and Shipping” (so calculated on both the fully adjusted and specific cost basis) was included in the proposal without adjustment, as were the costs for labor, “direct overhead,” and “Works G & A”, although these costs of $53.39 (so calculated on both the fully adjusted and specific cost bases), $275.98 (also so calculated on both bases) and $28.65 (drastically reduced on the specific cost basis, as shown in finding 27(b) (2)), respectively, totaling $358.02 were restated as $179.01 for “Productive Labor” and $179.01 for “Direct Overhead,” which was set forth as 100 percent of such Productive Labor figure.
(4) The balance resulting from these calculations was then set forth as the “Material” item. On the M-52, this resulting balance was $8,032.72. On the comparable “Direct Material” item which plaintiff had calculated on the specific cost *878 basis and which constituted the amount actually quoted to plaintiff by its suppliers, the figure was, as stated, $8,427.55. 7
(d) Plaintiff contends it submitted the cost breakdown sheets as it did, with different profit and overhead figures (and with a resulting different materials figure), than those it used in actually constructing its price on the specific cost basis, because of the reference to “normal accounting procedures” in the last paragraph of General Deitrick’s letter of July 3,1953 (finding 23 (b)). Plaintiff does not keep its books on a specific cost basis and it maintains that it was therefore proper (and required) that it submit its bid on a fully adjusted cost basis, which was in accordance with the normal accounting method by which it keeps its books.
The record does not support this contention. Even assuming plaintiff’s interpretatio

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/8593258. Public record. Not legal advice.