Acme Process Equipment Co. v. United States

Davis, Judge,

delivered the opinion of the court: 1

Plaintiff’s first experience as a defense contractor was to bid on and win two negotiated Ordnance Corps contracts, both of which soured into litigation. 2 In January 1953, Army Ordnance awarded a contract for the manufacture of 75 mm. recoilless rifles. This project was largely subcontracted, leaving for Acme only the final finishing and assembly of components, and the earlier job of fashioning the rifle barrels from rough forgings with machines furnished *332 by the Government under a separate facilities contract. From the start, Acme was beset by serious production delays due to a combination of causes, among them its own inexperience, defaults by subcontractors, and defects in some of the government-furnished machines. Generous time extensions forgave many delinquent deliveries, but liquidated damages were assessed on others. After uncovering alleged violations of statutes relating to kickbacks, contingent fees, and conflicts of interest, Ordnance suspended work under the contract in July 1954 and canceled it two months later in August 1954. The purported infractions involved a clique of unprincipled employees of Acme, aligned with a stock-holding minor executive of the corporation. In this suit for breach of contract Acme denies any violations and alleges that the charges of malfeasance were a smokescreen to enable the Government to cancel without cost a contract for the production of obsolete weapons no longer needed. In that manner, it is said, defendant hoped to avoid the heavy cost of a termination for its own convenience. Cancellation left Acme financially crippled, since it was unreimbursed for much of its large investment in contract performance. Plaintiff spent years in fruitless but nearly successful efforts to obtain settlement.

The Government’s major defense still is that Acme is entitled to no recovery because it violated certain statutes and covenants (concerning contingent fees, kickbacks, false claims, and conflicts of interest). Should each of these absolute defenses be rejected, the plaintiff has requested us to grant recovery based on the theory of restitution, rather than the traditional remedy of damages usually awarded by this court. In addition to its objection to this form of relief, the Government asserts a partial defense based on plaintiff’s lack of standing to sue on behalf of its subcontractors. The defendant also argues that, since plaintiff itself was responsible for delays, it is not entitled to recover delay-damages, and the contracting officer’s assessment of liquidated damages was proper. Finally, Acme urges its right to interest on amounts due, on the ground that the Govern- *333 meat’s actions constituted a taking within the Fifth Amendment. We consider each of these aspects of the case. 3

I. CANCELLATION

A. COVENANT AGAINST CONTINGENT TEES

The defendant contends that it validly canceled the contract in the summer of 1954 because (1) Acme misrepresented and concealed its employment of a part-time agent to secure government contracts; and (2) such an arrangement violated the covenant against contingent fees.

For many years prior to the events with which we are concerned, Acme enjoyed some prestige as a manufacturer of processing tanks, boilers, containers, and related equipment for the distillery, brewery, and sugar industries — a predominantly civilian market. In 1952 it sought to enter the field of government procurement to provide a cushion against the fluctuations of its commercial sales, particularly in periods of war-born material shortages. Lacking expertise in this prospective market, plaintiff engaged, in the early fall of 1952, the services of Harry K. Tucker, Jr., and James S. Norris, who represented accurately that they were experienced in government procurement procedures, but concealed their dishonorable intentions to victimize their employer. At first, the team was paid under an informal arrangement providing for commissions on sales and a minimum salary guarantee. On October 13,1952, Tucker entered into an express one-year contract with Acme, whereby he and/or his “organization” agreed to serve as a “bona fide sales agent” on a part-time basis. 4 Under the agreement, Tucker was to be paid a weekly minimum salary of $150, which would be increased to five percent of his weekly gross sales up to $10,000 (i.e., sales by Acme under contracts obtained through him), plus three percent of such weekly gross *334 sales in excess of $10,000. Minimum salaries paid prior to any sales by Tucker were to be deducted, later, from the excess of his commissions over his minimum weekly guarantee. The result was that the guaranteed weekly salary was a nonrecoverable advance against commissions; Acme could, however, cancel the contract if commissions failed to cover the minimum salary guarantee. Norris and Tucker also entered into an agreement with each other that Norris would receive fifty percent of any fees paid Tucker by his other clients for enabling them to obtain subcontracts from Acme. Plaintiff was unaware of this latter arrangement.

Tucker shortly produced a deluge of inquiries, bid proposals, and invitations from both commercial and government sources. Among these were the invitations to bid on the contract at bar (Contract 1213), as well as the agreement (Contract 8580) which is the subject matter of the other suit, No. 538-59.

On October 23, 1952, Acme submitted its original bid for Contract 1213 to the Philadelphia Ordnance District. The bid form contained a provision requiring the contractor to represent whether it had or had not (boxes were supplied after each of the alternatives for inserting a mark to denote the correct fact) “employed or retained a company or person (other than a full time employee) to solicit or secure this contract.” In its October 23rd.bid, James S. Norris, as “General Manager of the Defense Work Department,” certified that plaintiff had not retained such a person. Under a revised proposal, dated December 10,1952, and also signed by Norris, plaintiff made a directly contrary representation. On December 18,1952, however, Acme once again reversed its position. Joshua Epstein, president of Acme, executed a government form entitled “Contractor’s Statement of Contingent or Other Fees”, in which he, either accidentally or deliberately, filled in one of the two alternative boxes to indicate that Acme had not retained a part-time employee to secure the contract. This representation was incorrect, since plaintiff had, in early October, hired Tucker on a part-time basis to solicit government contracts.

We assume, for this part of the case, that these misrepresentations, or the substance of the Acme-Tucker contingent *335 fee arrangement, or both, breached tbe contract. But the crucial point is that the defendant, after obtaining knowledge of the facts, waited until over a year later before canceling the agreement. Could an election to cancel be delayed for such a time? We hold not. In our view, an election to annul the contract had to he made with reasonable promptness after the Government gained knowledge of the facts; by putting off its decision for an inordinately long period, the defendant lost the right it earlier had to terminate the contract without incurring any cost. 5

As early as May 1953, the Philadelphia Ordnance District had sufficient information to determine whether Acme had previously made any misrepresentations relating to contingent fees or had violated the covenant. In June 1953, defendant nevertheless issued a supplemental agreement, which increased the number of rifles to be manufactured under the contract from 2,322 to 2,751 (an 18% increment). Despite the production difficulties it encountered, plaintiff continued manufacturing the rifles until Ordnance directed it to suspend all work under the contract on July 22, 1954. Cancellation for unspecified “statutory violations” followed on August 18', 1954.

This phase of the case — as distinguished from the Government’s responsibility to reimburse Acme for payments to Tucker in violation of the covenant against contingent fees— is governed by the rule that, “[Wjhere a contract is breached in the course of its performance, the injured party has a choice presented to Mm of continuing the contract or of refusing to go on. If he chooses to continue performance he has doubtless lost his right to stop performance * * 5

Williston, Contracts § 683 (3d ed. 1961) (footnotes omitted); e.g., Lummus Co. v. Commonwealth Oil Refining Co., 280 F. 2d 915, 929-30 (C.A. 1), cert. denied, 364 U.S. 911 (1960); Lichter v. Goss, 232 F. 2d 715, 720 (C.A. 7, 1956). After discovering the contingent-fee violations, defendant could not wait for over a year to decide whether it wished to annul the contract as a whole, on that basis. The sanction of contract *336 cancellation is too drastic to permit a long delay. Beyond the time reasonably necessary to determine if there has been a misrepresentation or a violation of the covenant, 6 the defendant cannot allow an .unwary contractor to continue per-íormancé and thus incur large expenses, all of which the Government will refuse to reimburse if and when it decides to caneel the contract on the ground of the violation. As this court said in Companhia Atlantica v. United States, 148 Ct. Cl. 71 , 78, 180 F. Supp. 342 , 347, cert. denied, 364 U.S. 862 (1960), “it would be a great wrong to permit the Government to awaken such a ‘sleeper’ to justify its cancellation * *

In that case, the plaintiff had fully apprised the defendant of the contingent fee arrangement at the outset of negotiations, which lasted over a year. The Government then canceled its contract for the purchase of tungsten from the plaintiff less than two months after the agreement had been signed, and later sought to defend its action on the grounds that the covenant against contingent fees had been violated. Although the court found that there was no violation, it also based ..its decision on the alternative ground that the defendant had waited too long before annulling the contract. Here, too, we refuse “to awaken such a ‘sleeper’.”

The severity of contract cancellation makes the present case, in this aspect, wholly unlike one in which the Government simply attempts to recover or withhold funds paid in violation of the covenant against contingent fees. That type of action is governed by the principle that, where government officials have erroneously or illegally paid out money, mere delay in seeking its recovery will not preclude a suit by the United States. See Acme Process Equipment Co. v. United States, Ct. Cl. No. 538-59, ante, pp. 272-75, decided this day. But when the Government cancels an entire contract because of a breach of the covenant, it can refuse to reimburse the contractor, not only for wrongful or illegal expenditures, but *337 also for amounts to which tbe contractor would otherwise be legally entitled. To avert extreme hardship, we think that the Government is obliged to take such a course within a reasonable time after it has discovered the breach. 7

The defendant does not seem to question that an unconscionable delay in raising a misrepresentation or a violation of the covenant against contingent fees as a ground for annulment will preclude the Government from thereafter urging that defense. It contends instead that there was no unreasonable delay, because the Government did not discover all the material facts until shortly before the actual cancellation. The evidence fails to bear out this argument.

In connection with its other major government contract (“8580”), Acme correctly represented, on November 4,1952, in the bid which it submitted to Eock Island Arsenal that it had employed a part-time agent to obtain the contract. On or about December 12,1952, Eock Island received from plaintiff a formal “Contractor’s Statement of Contingent or Other Fees,” to which was attached a copy of Acme’s employment contract with Tucker dated October 13,1952. Contract 8580 was awarded to plaintiff by Eock Island on January 8, 1953, but was administered by the Philadelphia Ordnance District, the same agency which handled present Contract 1213 from *338 its inception. Thus, even prior to the award of Contract 1213 to Acme on January 27,1953, the contracting Ordnance District bad access to the Tucker employment agreement, which was physically incorporated in the Contract 8580 file, although the District had no particular reason to refer to that part of the file. 8

On May 18, 1953, the Ordnance District was again told of the agreement between Acme and Tucker. Plaintiff informed representatives of the Ordnance District that Tucker had been a full-time employee since January 1953, that his original part-time contract on a commission basis had been ended, and that he had received no commissions under the prior agreement. The letter also referred to the contingent-fee statement previously filed with the Pock Island Arsenal and asked that it be withdrawn. 9 See finding 8(f). The defendant was thus told that (1) at the time that the plaintiff made its bid 'and negotiated for Contract 1213, it had in its employ a part-time agent whom it had hired to solicit government contracts; and (2) that agent was Harry K. Tucker, Jr., who, along with his father, had been under surveillance by the Government for suspected statutory violations in connection with prior contingent fee arrangements. Finding 3. Furthermore, by referring back to the bid and the related forms which Acme submitted to Ordnance in connection with Contract 1213 (and to which Acme specifically referred), the Philadelphia Ordnance District could easily have discovered the prior misrepresentations. Yet the defendant waited for fourteen months before canceling the contract. During this period the plaintiff continued to perform and to incur expense.

The Government seeks also to justify the delay on the ground that it was not told all the relevant facts until shortly before it canceled. It emphasizes an alleged informal agreement between Tucker and plaintiff’s president, entered into when he first began working for Acme in the fall of 1952. *339 Under that agreement, Tucker was to receive a three percent commission, which he agreed to share equally with Norris. But the only evidence in the record of this arrangement is a written statement made by a General Accounting Office investigator in June 1955, on the basis of an interview with Joshua Epstein, Acme’s president. Even if we accept at full value this second-hand statement made three years after the events, there is no way of knowing whether the alleged informal agreement was superseded by Tucker’s written contract. If that was the case — which it might well have been — this commission-splitting agreement lasted no more than two weeks. In this state of the proof we cannot give any significance to this alleged side-agreement. Other than the information referred to in footnote 9, supra, this is the only “fact” which the Government can point to as remaining undisclosed after May 1953. We do not hesitate, therefore, to conclude that the defendant had sufficiently full knowledge of the contingent-fee arrangement as of May 1953, and could not delay until July 1954 to elect on that ground to exercise the drastic remedy of complete cancellation. 10

B. ANTI-KICKBACK ACT

The Tucker organization victimized Acme chiefly through the receipt of illegal kickbacks. Unknown to plaintiff, various small manufacturers in the metals field had service contracts with Tucker similar to the one he had with Acme. Under those agreements, Tucker received a minimum weekly guarantee, as well as commissions for obtaining contracts. When plaintiff, through Tucker and Norris, let subcontracts to secret clients of the two conspirators, each subcontract necessarily contained an amount to cover the fee paid to Tucker and shared by Norris. Since the pair not only prepared Acme’s government contract bids, but also negotiated all its related subcontracts, they were in a splendid position to mulct their employer.

*340 The subcontract let to All Metal Industries, Inc. is the most flagrant example of the Tucker-Norris extortion scheme. More is involved than the secret commissions which the two received from All Metals for enabling it to secure subcontracts from the plaintiff. In addition, Tucker, Norris, and Jack Epstein, who was a plant superintendent and minor stockholder of Acme, 11 forced All Metals to agree to pay $23,500 to them through Gunn Engineering Company, a dummy corporation. It was understood that All Metals would pass this cost on to Acme by including it in the subcontract price. All Metals actually paid $12,000 to Gunn under the agreement. When the conspirators later became fearful of exposure, they attempted to expunge all evidence of the transaction from the subcontractor’s books. Through an oversight, however, they left in the cost-structure of All Metals’ ultimate subcontract price to Acme the $12,000 already paid to Gunn Engineering Company (although this sum was more than offset by Tucker’s waiver of certain commissions which All Metals owed; him). Even after All Metals decreased its ultimate price to less than that contemplated prior to the extortion scheme, the reduced price still reflected some portion of the combined fees which All Metals had paid or agreed to pay to Tucker and Gunn. Bookkeeping technicalties tend to obscure this fact, but, in the final analysis, had Contract 1213 been of a cost-reimbursable nature, the Government would ultimately have borne part of the cost of the kickbacks. See findings 20 and 21.

The arrangements between Tucker and other firms for which he obtained subcontracts from Acme were less complex, but hardly less reprehensible. For instance, Manala-pan hired Tucker in November 1952 and agreed to pay him $100 weekly as a nonrecoverable advance against commissions. As a result, Manalapan obtained a series of small purchase orders from Acme under Contract 1213 from February *341 through July 1953. The subcontract prices hid the $1,350 in commissions and/or salaries which Manalapan paid Tucker and which Tucker shared with Norris. . The conspirators entered into comparable agreements with several other subcontractors. See findings 18-25. These subcontractors knew or should have known that Tucker was Acme’s agent, but the responsible officials of Acme were not aware of the double agency. 12

In these circumstances, the defendant claims that Acme violated the Anti-Kickback Act, 60 Stat. 31 , as amended, 41 U.S.C. § 51 , and that that violation authorized the Government to cancel the contract. The Anti-Kickback Act, first enacted in 1946, was significantly amended in 1960. 74 Stat. 740 . Both versions retroactively prohibit the payment of any compensation or gratuity by a subcontractor to an agent, employer, or official of a higher tier subcontractor or a prime contractor with the United States. By the terms of the statute, such compensation is conclusively presumed to be included in the price ultimately paid by the Government, and the United States may bring a civil action against the prime contractor, subcontractor, or the agent to recover that amount. Along with this civil remedy, the statute provides criminal penalties against persons knowingly making or receiving prohibited payments. Under the 1946 Act, coverage is limited to government contracts on a “cost-plus-a-fixed-fee. or other cost reimbursable basis.” 13

*342 Tucker, Norris, and Jack Epstein were indicted for violation of the Anti-Kickback Act and brought to trial in the United States District Court for the Eastern District of Pennsylvania. After presentation of the Government’s case, in April 1956, a defense motion for acquittal was granted on the ground that the statute did not apply to this type of contract. The district judge felt that a negotiated fixed-price contract, with a price redetermination provision permitting a retrospective or prospective increase within a narrow range, was not a cost-reimbursable contract within the meaning of the Act. The court made scathing comments as to the conduct of the accused, observed that Acme had been victimized, and recommended legislation to amend the statute to apply to this situation. Because of the uncertainty with regard to the coverage of the 1946 Act, the Comptroller General thereafter recommended to Congress that it be revised. In the Act of September 2,1960, an amendment was adopted which retroactively broadened the coverage of the statute to include all negotiated contracts (defined to mean all contracts made without formal advertising). No other essential change was made. 74 Stat. 740 , 41 U.S.C. § 51 .

The Government first claims that it was entitled to cancel Contract 1213 for violation of the original Anti-Kickback *343 Act. It asserts that when. Congress, in 1946, provided a civil remedy entitling the Government to recover the amount of the kickback, it did not intend to alter the pre-existing common law remedy of contract cancellation. The major stumbling block is the absence, so far as we know, of any decision or comment in support of the proposition that there was such a remedy at common law. In fact, the House Report on the 1946 Act states, “There is no existing statutory or other authority of law under which it may be said that the United States clearly has a right to recover the amounts of any such fees or gratuities.” H.R. Kept. No. 212,79th Cong., 1st Sess. 2 (1945). A fortiori, it is highly doubtful that there was any pre-existing right of the Government to cancel the entire contract of a prime contractor whose agents received improper kickbacks of which he was unaware.

In its effort to invoke a forfeiture, the most drastic civil penalty known to common law, the Government has cited only sparse collateral support. There are statements in United States v. Davio, 136 F. Supp. 423, 428 (E.D. Mich., 1955), that the Anti-Kickback Act codified the prior common law remedy. But that suit was for the recovery of amounts paid as kickbacks. Nowhere does the court hint that the Government had a pre-existing right of contract cancellation in the present circumstances. 14 Whether it was codifying an existing right or creating a new one, Congress, when it enacted the 1946 legislation, gave the Government only one civil remedy against contractors whose agents had received secret kickbacks. Had the legislature wished to provide the additional remedy of contract annulment, it could have done so. Cf. Armed Services Procurement Act of 1947, § 4, 62 Stat. 21 , 23, 10 U.S.C. § 2306 (b). In the absence of any statutory indication that the Government has a right to cancel the contract in this situation, it is not for the court to engraft a new *344 and drastic remedy onto the Anti-Kickback Act. Cf. Unexcelled Chemical Corp. v. United States, 137 Ct. Cl. 681 , 684 149 F. Supp. 383, 385 (1957).

Furthermore, we have grave doubts about the applicability of the 1946 Act to the present contract. If it is not applicable, the Government’s position must be rejected for the additional reason that in 1953 and 1954 there was no recognized federal public policy invalidating Contract 1213. Cf. Muschany v. United States, 324 U.S. 49, 66-67 (1945) . 15 If the 1960 anti-kickback legislation was the first provision covering Contract 1213, the improper actions which took place in 1953 hardly contravened “long government practice or statutory enactments.” 16 When Acme’s agents received kickbacks about which plaintiff had no knowledge, it can scarcely be said that plaintiff (as distinguished from the agents) violated “obvious ethical or moral standards”, and that its contract with the defendant could therefore be canceled on that ground.

The unreported district court decision granting the motion for acquittal of Tucker, Norris, and Jack Epstein is, of course, a direct holding that the 1946 anti-kickback legislation did not cover the present contract. 17 One of the primary reasons behind the enactment of the 1960 amendment was to remove serious doubt that fixed-price contracts with redetermination clauses were included in the act’s coverage. See S. Eep. No. 1585,86th Cong., 2d Sess. 2-6 (1960). While the Tenth Circuit has held that the 1946 Act covers certain contracts having price-redetermination provisions, *345 it emphasized that the contract with which it was dealing had “no limitation * * * upon the range of redetermination or revision of prices, upward or downward.” United States v. Barnard, 255 F. 2d 583, 588 (C.A. 10), cert. denied, 358 U.S. 919 (1958). Acme’s contract, however, had a limited range of upward revision. See finding 15. The applicability of the 1946 Act to Contract 1213 is thus highly questionable.

For these reasons, the present case is not like United States v. Mississippi Valley Generating Co., 364 U.S. 520 (1961). There, the dual agent violated a federal conflict-of-interest statute, 62 Stat. 703 , 18 U.S.C. § 434 , in the negotiation of a contract entered into with the United States. Unlike our case, the statutory provision which the agent violated was undoubtedly on the books at the time of the misconduct. Also, the statute itself provided no more than a criminal sanction. Had the Supreme Court refused to imply a civil remedy, “the public [would] be forced to bear the burden of complying with the very sort of contract which the statute sought to prevent.” 364 U.S. at 563 . Here, the civil remedy established by the statute enables the Government to recover any amounts it has paid out as a result of kickbacks; the public does not bear any part of the expenses illegally incurred. And most significantly, the violation in Mississippi Valley Generating Co. affected the validity of the entire transaction. In the negotiations preceding the contract, the Government was represented by a consultant who was, at the same time, associated with an investment banking company which stood to profit if the plaintiff was awarded the contract. The contract was the result of these tainted negotiations. In addition, the plaintiff itself was not altogether innocent, since it was well aware of the possible conflict of interest. 364 U.S. at 565 n.19. The kickbacks with which we are concerned, however, were in no way related to the negotiation and execution of Contract 1213, and do not affect its validity. They were separate transactions made without the knowledge of the plaintiff, which certainly had nothing to gain by these secret dealings. The principles of Mississippi Valley Generating Co. do not *346 require or suggest that the contract at ¡bar could or should be canceled because of the secret receipt by Tucker-Norris of kickbacks from subcontractors. 18

C. CONFUCT-OE-INTEREST STATUTES

Defendant urges that Acme’s employment of Harold J. Lee and Charles G. Hochstuhl contravened certain provisions of the federal conflict-of-interest statutes, thereby making the contract voidable by the Government.

In the early stages of contract performance Acme was experiencing production problems with machines and tooling supplied by the Government under a companion facilities contract. At plaintiff’s request Watervliet Arsenal ordered Harold J. Lee, a machinist lead foreman at the Arsenal, to report to Acme’s Lansdale plant to assist plaintiff in its technical problems. Under his official orders Lee worked at Acme’s plant from his arrival on April 20 until April 24, 1953, at government expense. The Arsenal refused Acme’s request that it loan Lee’s services for an additional week at government expense. Instead, Lee was given official permission to remain at the plant, advising plaintiff in an absent-without-pay status from April 27 to May 1, 1953. During this latter period he worked 96 hours, for which Acme paid him $5 per hour plus hotel expenses (compared to his government salary rate of $2.60 per hour). The amounts paid by Acme to Lee were charged against Contract 1213. Plaintiff was pleased with Lee’s services and commended him to Watervliet Arsenal. Upon his return Lee filed with the Arsenal a trip report, which described the production problems he had observed and the advice he had given Acme personnel for their solution. In large part the report reflects the inexperience of Acme’s persomiel 'and their lack of necessary equipment. There is no evidence of any improper *347 conduct on tbe part of plaintiff or of Lee — aside from the propriety of his being hired at all. The defendant concedes that Lee’s employment by plaintiff did not affect his impartiality, a fact which is evident from the contents of his report and the effect of his testimony as a witness 'at the trial of this case.

A federal statute precluded any “employee of the United States or any department or agency thereof” from receiving “any compensation for any services rendered * * * in relation to any * * * contract * * * in which the United States is a party.” 62 Stat. 697 . 19 During the week he received a salary from Acme, Lee was not on the Government’s payroll at all. We are not concerned with the undercover activities of an employee who pretends to be working for the Government while secretly performing services for a contractor. During that week, Lee received a reasonable salary from plaintiff 'and performed valuable services about which the defendant was fully informed. It may well have been poor judgment for Acme to hire, or the defendant to permit the hiring of, Lee’s services under this arrangement (rather than detailing Lee for an extra week to Acme’s plant on the Government’s payroll).. The fact remains that both parties acquiesced in the arrangement so that, for one week, Lee was not working for the Government at all; in effect, he became an Acme employee. As such, the compensation which he received did not fall under the statute and the harsh sanction of forfeiture need not be considered.

After Contract 1213 was awarded to Acme, Charles G. Hochstuhl of Philadelphia Ordnance District was assigned to administer it, along with other contracts. As part of his duties in connection with 1213, Hochstuhl recommended! changes in the delivery schedule, and journeyed to Ohio in March T953 in the company of Acme officials to show them *348 existing gun-manufacturing facilities. 20 He was removed from bis position witb the Government effective August 4, 1953, “* * * for making material false statements and exaggerations on [his] application standard Form 57,” relating to prior private employment. During his notice period, Hoch-stuhl looked for other work and was employed by Acme in August 1953, immediately following his release. The defendant advised Acme at the time that, for two years thereafter, Hochstuhl could not engage in negotiations with his former employer concerning Acme’s contracts.

During the first few weeks of his employment by Acme, Hochstuhl helped Norris as a subcontract expediter. After Norris was discharged- in September 1953 and replaced by Jack Epstein as superintendent of the Lansdale plant, Hoch-stuhl was designated Epstein’s assistant. As such he was given a variety of assignments, all of them involving one form or 'another of paper work. He established a control system for subcontracts, prepared letters to Ordnance for signature by others, correlated plant inspections, and assisted in the preparation of requests for change orders. He had no personal contacts with government representatives in connection with plaintiff’s contracts.

3h the fall of 1953 Hochstuhl came across a number of vouchers and other cost records in the files, which related to repairs made by Acme to government-owned machines supplied under Facilities Contract 1214 (related to Contract 1213). On his own volition and in the interest of keeping adequate cost records, Hochstuhl undertook to segregate and allocate the cost records to individual machines; thereafter, as additional repairs were made to the machines, he kept a running record of them. There is no suggestion that this record was originally made for the purpose of a claim against the Government; in the fall of 1953 there was no prospect of the contract cancellation which took place in July-August 1954. In September 1954, at the direction of *349 his superiors, Hochstuhl prepared an up-to-date record of Acme’s expenditures in repairing the various government-owned machines. It was based on the data he had compiled a year earlier and had kept current in the meantime. The cost record was attached to a letter from Acme (signed by Sidney Cohen, its secretary-treasurer) to Ordnance on September 7, 1954, in which plaintiff refused to return the machines to the Government unless it gave assurance that Acme would be reimbursed .for its cost of repairs. See finding 53.

The defendant charges that Hochstuhl’s participation in the preparation of Acme’s claim for reimbursement violated a penal conflict-of-interest statute, which provided that, “within two years after the time when [federal] employment or service has ceased,” a former government employee may not “prosecute * * * any claims against the United States involving any subject matter directly connected with which such person was so employed.” 62 Stat. 698 . Casting aside any doubts that Hochstuhl’s work for the defendant was “directly connected” with a claim made by Acme, we reach the question whether his services for Acme amounted to “prosecution” of such a claim. Hochstuhl simply compiled data on which his superiors based a claim which they presented to the Government. The basic information was first assembled by him purely as a matter of record-keeping, i.e., before there was any specific thought of a claim. Moreover, Hochstuhl’s participation in the total claim process was merely clerical in nature. Other personnel in plaintiff’s employ could just as readily have performed the relatively simple duties involved in compilation of costs relating to repair of machines, and his prior government service gave Hochstuhl no special knowledge or inside contacts which contributed to the undertaking in any way that we can see. There is a complete absence of evidence that Hochstuhl participated in the presentation of the claim to the Government after he had completed his assignment. On these facts, we hold that Hochstuhl’s activities did not violate any conflict-of-interest statute or afford the defendant a valid basis for annulment of the contract.

*350 D. FALSE CLAIMS ACT

The last reason which the defendant gives for vitiating the contract is the presentation of certain allegedly false claims for payment, both before and after cancellation. As a result of these submissions, the Government argues, Acme’s claim was subject to forfeiture under 62 Stat. 978 , 28 TJ.S.C. § 2514, 21 and the corporation may be fined under the False Claims Act, 12 Stat. 696,31 U.S.C. '§ 231. 22

In offering cost figures to the Government on April 29, 1954, in support of its request under the price-redetermination clause for allowance of the maximum ceiling price, plaintiff included certain costs which, while actually expended, are said by defendant not to have been properly chargeable to this contract. These were: subcontractors’ costs which included without specification commissions which they had paid to the Tucker group; $12,000 which All Metals had included in its subcontract price to Acme as a result of the extortion scheme carried out by Tucker, Norris and Jack Epstein; payments of salaries and/or commissions by plaintiff to Tucker; $1,045.52 charged by Norris against the contract for personal services rendered by plaintiff’s employees on Norris’ farm (the facts of which were first discovered by the Government in December 1953); $470 plus hotel expenses paid by plaintiff to Harold J. Lee, whose services have previously been described; and minor hotel, meal and entertainment charges for government employees. The defendant’s Board of Awards approved the requested increase in the price *351 on the basis of revised data, but final action was not taken because the contract had been canceled in the meantime.

Another set of allegedly false claims came during the pend-ency of this suit when the parties held settlement negotiations. In conjunction with these efforts, plaintiff submitted the fiscal aspects of its claim to the Government in August 1958 on a standard contract-termination form, certifying in part that “they have been prepared with knowledge that they will, or may, be used directly or indirectly as the basis of settlement of a claim or claims against the United States * * In its proposal, plaintiff reclassified several of the previously-mentioned cost items as General and Administrative expenses rather than direct charges, thus allocating only a portion of them to the performance of Contract 1213. This settlement claim was subsequently rej ected.

With some modifications the same cost items were again submitted by plaintiff in June 1961 in response to the issuance of an order by the court under former Rule 28(b). This last submission, which dealt separately with the plaintiff’s claims and those of its subcontractors, was accompanied by a letter in which plaintiff said that it had not audited the subcontractors’ claims but believed them to be accurate; the covering letter also invited the Government to confer with plaintiff as to any items in the claim which were not properly includable. This Rule 28 damage schedule eliminated certain costs which had been obj ected to in the termination settlement proposal (payments to Lee, expenses in connection with Norris’ farm, certain travel expenses of Tucker, and a. few entertainment expenses). Other controverted expenditures were, however, retained in the category of General and Administrative expenses, so that they were proportionately allocated to the contract in suit (i.e., Tucker’s salaries and/or commissions paid by plaintiff and the subcontractors).

The defendant has asked not only that the plaintiff’s entire claim be forfeited for practicing “fraud against the United States in the proof * * * thereof” ( 62 Stat. 978 , 28 U.S.C. § 2514 , supra); it has also filed a counterclaim under the False Claims Act, 12 Stat. 696 , 31 U.S.C. § 231 , *352 supra,, seeking an affirmative judgment of $6,000 for plaintiff’s misrepresentations in the price redetermination proceedings, in the termination settlement proposal, and in the schedule submitted pursuant to former Eule 28(b). But “fraud, resulting in forfeiture, can be found only on the basis of clear and convincing evidence.” Chelsea Factors, Inc. v. United States, 149 Ct. Cl. 202, 212 , 181 F. Supp. 685, 691 (1960). In the Government’s effort to supply such “clear and convincing evidence,” there is at least one large gap. Plaintiff’s costs, exclusive of those challenged as improper, overwhelmingly exceeded the contract ceiling price for which the application in April 1954 was designed to obtain approval. In a letter sent to the Philadelphia Ordnance District in connection with the application, Acme’s accountants noted that certain “recommendations of the Army Audit Agent as to record keeping were not followed because the difference between the ceiling price and the actual costs incurred was so great that any further expenditures on this job should not be undertaken unless * * * absolutely necessary.” At the same time, the accounting firm pointed out that the Army would have to disallow $600,000 of Acme’s costs in order to fall below the ceiling price of $1,191,077. Defendant’s Exhibit 70. The inclusion of the controverted items was thus unnecessary to justify receipt of the ceiling price. Plaintiff had nothing to gain by insertion of these disputed amounts in its claim. That circumstance strongly tends to negate the affirmative intent to defraud which defendant must establish. 23

Moreover, at the time of the submission of the 1958 and 1961 claims, and probably as early as the initial claim in April 1954, the defendant was aware of the facts concerning each of the allegedly false items. Also, the plaintiff had actually expended the sums involved and, at least in several instances, the propriety of charging them as contract *353 costs, either directly or indirectly by allocation through an overhead account, was debatable or a matter of judgment. While the inclusion of these items may have displayed poor judgment, we are not convinced, in the circumstances, that the plaintiff was endeavoring to deceive. 24

Citing United States v. Fox Lake State Bank, 225 F. Supp. 723, 724-25 (N.D. Ill., 1963), defendant argues that it is required, as a precondition of forfeiture, to show only that Acme knowingly submitted false claims. But Fox Lake involved the False Claims Act, 12 Stat. 696 , 31 U.S.C. § 231 , which does not encompass forfeiture as a sanction. To justify cancellation of the contract, the Government must prove its case under 62 Stat. 978 , 28 U.S.C. § 2514 , which provides for forfeiture of claims made by “any person who corruptly practices or attempts to practice any fraud against the United States.” The statute also requires that the Court of Claims “specifically find such fraud or attempt.” An actual intent to defraud is a prerequisite to annulment of the contract under these provisions. See e.g., Pewee Coal Co. v. United States, 142 Ct. Cl. 796, 806 , 161 F. Supp. 952, 958 (1958), cert. denied, 359 U.S. 912 (1959); Kamen Soap Products Co. v. United States, 129 Ct. Cl. 619, 641 , 124 F. Supp. 608, 620 (1954).

For the same reasons, a related defense asserted by the Government must likewise fail. The defendant contends that, independently of 'any statutory provision, it was entitled, on the basis of Carrier Corp. v. United States, 164 Ct. Cl. 666 , 328 F. 2d 328 (1964), to cancel the contract for the fraudulent and illegal acts of the contractor. But in Oarrier the court stated unequivocally, “There is no doubt that a fraud was committed.” 164 Ct. Cl. at 678 , 328 F. 2d at 334 . In the present case, we have, as we have said, very grave doubts that Acme, through submission of the disputed claims, ever intended to defraud the Government. *354 Defendant has failed to bear its burden of proving the defense of fraud. 25

We come now to defendant’s counterclaim for $6,000 under the False Claims Act, 12 Stat. 696 , 31 TJ.S.C. § 231, which imposes a $2,000 fine for “any claim upon or against the Government” submitted by one “knowing such claim to be false, fictitious or fraudulent.” If Acme included cost items in its 1954 price-redetermination statement even though it knew them to be false, it is subject to a $2,000 fine. See, e.g., United States v. Fox Lake State Bank, 225 F. Supp. 723, 724-25 (N.D. Ill., 1963) ; but see United States v. Park Mo tors, Inc., 107 F. Supp. 168, 174-77 (E.D. Tenn., 1952). 26 Although Acme could not be certain that expenses such as the salaries paid to Tucker were not reimbursable, it could have had no similar doubts regarding the personal services rendered by Acme employees on Norris’ farm. This matter was brought directly to the attention of Acme officials by the Federal Bureau of Investigation, but plaintiff failed to remove Norris’ personal expenditures from the charges claimed on Contract 1213. Finding 26. This $1,045 charge was subsequently included as a cost component in Acme’s April 1954 request for the contract ceiling price. In that manner, plaintiff knowingly submitted a false claim and is subject to a fine of $2,000.

The Government maintains that inclusion of the same items in the claims submitted by Acme in 1958 and 1961 justifies the imposition of two more civil penalties of $2,000 each. But Norris’ farming expenditures were not included in the 1961 statement, and it is difficult to imagine that plaintiff even recalled this item when it submitted the 1958’ termi *355 nation-cost proposal. Moreover, we are not dealing with different expenditures; the subsequent claims contained the same costs which the Government had previously challenged. The present case is unlike those in which numerous vouchers are submitted to the Government, and each contains a separate and distinct false claim for which the fine may be validly imposed. E.g., United States v. Ueber, 299 F. 2d 310, 313 (C.A. 6, 1962); United States v. National Wholesalers, 236 F. 2d 944, 950 (C.A. 9, 1956), cert. denied, 353 U.S. 930 (1957). We are faced, rather, with one false claim, which was denied by the Government and thereafter reasserted by the plaintiff. The court holds that the defendant cannot recover more than once for the very same false claim; it is therefore entitled only to $2,000 by way of counter-claim.

In sum, we conclude that none of the legal defenses which the Government has asserted justifies its cancellation of the contract in the summer of 1954 for the alleged fault of the contractor. When the Government is displeased with the contractor’s administration of an agreement, it may always sever contractual relations under the standard termination-for-convenience clause inserted in its contracts. John Reiner & Co. v. United States, 163 Ct. Cl. 381 , 325 F. 2d 438 (1963), cert. denied, 377 U.S. 931 (1964). But if the United States seeks instead to annul a contract for fault, thereby leaving the contractor wholly uncompensated, it must have proper justification for such harsh consequences. Klein v. United States, 152 Ct. Cl. 8 , 285 F. 2d 778 (1961); Nesbitt v. United States, 170 Ct. Cl. 666 , 345 F. 2d 583 (1965), fn. 2.

n. plaintiff’s damages

A.. GENERAL STANDARD

Having rejected each of the absolute defenses urged by the Government, we must determine the appropriate measure of damages incurred as a result of the improper cancellation. The position advanced by the defendant, and accepted by the Trial Commissioner, is that plaintiff is entitled only to the traditional remedy of damages given by this court for breach of an express contract. The purpose of that remedy is to place the party against which the breach has been com *356 mitted in the position it would have held if the contract had been fully performed. Acme had suffered large losses in the performance of Contract 1213 at the time it was wrongly canceled by the defendant. According to projections, however, Acme would have been able to reduce its losses considerably had it been permitted to complete the contract. The Trial Commissioner therefore determined that plaintiff was entitled to recover any post-cancellation costs incurred as a result of the Government’s erroneous action, plus the amount by which it would have been able to decrease its losses through completion of the contract. In this way, the Commissioner reasoned, Acme would be given the same benefits it would have received had it been permitted to carry out the agreement.

. Plaintiff’s main argument is that it is entitled to restitution as an alternative remedy. Under that standard of relief, a party whose contract has been repudiated or otherwise breached may, if he meets certain conditions, recover the reasonable value of his services, measured as of the time of performance. The purpose is to restore the injured party to the pre-contract status quo, not to put him in his post-contract position. Restitution has long been recognized by the commentators as one of three possible remedies for the substantial breach of an express contract, the others being damages and specific performance. See Restatement, Contracts §§ 347-57; 5 Corbin, Contracts §§ 1102-21 (1951) ; 5 Williston, Contracts §§ 1454-85 (rev. ed. 1937). The Restatement contains a full discussion of restitution in its chapter entitled “Judicial Remedies for Breach of Contract.” Corbin states explicitly, “In the present chapter we are dealing with restitution as a remedy for breach of contract; a judgment for such restitution is as truly a remedy for a ‘breach’ as is a judgment for damages.” 5 Corbin, Contracts § 1104 (1951). The applicability of restitution as an alternative remedy for breach is also well-established in both the federal and the state courts. E.g., Michael Del Balso, Inc. v. Carozza, 136 F. 2d 280 (C.A.D.C., 1943) ; United States ex rel. Susi Contracting Co. v. Zara Contracting Co., 146 F. 2d 606, 610 (C.A. 2, 1944); Southern Painting Co. v. United States ex rel. Silver, 222 F. 2d 431, 433-34 (C.A. 10, 1955); *357 Valente v. Weinberg, 80 Conn. 134 , 67 Atl. 369 (1907); Pelletier v. Masse, 49 R.I. 408 , 143 Atl. 609 (1928) . 27

Although, the Court of Claims has permitted quantum meruit recovery for contracts implied in fact (see, e.g., New York Mail & Newspaper Transp. Co. v. United States, 139 Ct. Cl. 751 , 759, 154 F. Supp. 271, 276 , cert. denied, 355 U.S. 904 (1957)), no past contractor has successfully sought restitutionary relief for breach of an express contract. But unless this form of recovery is precluded by our general jurisdictional statute, 28 U.S.C. § 1491 , we must be guided by the principal that, “When the United States, with constitutional authority, makes contracts, it has rights and incurs responsibilities similar to those of individuals who are parties to such instruments.” Perry v. United States, 294 U.S. 330, 352 (1935). See, also, New York Mail & Transp. Co. v. United States, supra, 139 Ct. Cl. at 759 , 154 F. Supp. at 276 ; Refining Associates, Inc. v. United States, 124 Ct. Cl. 115, 120 , 109 F. Supp. 259, 261 (1953). Since contracts with the United States are to be governed by the same principles as “those between man and man” (Gilbert v. United States, 1 Ct. Cl. 28, 37 (1863), aff'd, 75 U.S. (8 Wall.) 358 (1869), and see Padbloc Co. v. United States, 161 Ct. Cl. 369, 377 (1963)), we are obliged to award restitution to a petitioner meeting the prescribed qualifications, unless there is some jurisdictional impediment.

The Tucker Act empowers this court “to render judgment upon any claim against the United States founded * * * upon any express or implied contract with the United States * * *.” 28 U.S.C. § 1491 . Although this precludes recovery on the basis of a contract merely implied in law (see Sutton v. United States, 256 U.S. 575, 581 (1921)), the plaintiff seeks restitution for breach of an express contract, which clearly comes within the ambit of the Act. The cases cited by the Trial Commissioner simply denied “quantum meruit” (i.e. restitutionary) recovery for the alleged breach of an express contract where the court determined that no breach *358 bad in fact taken place. See Lacchi Constr. Co. v. United States, 102 Ct. Cl. 324, 355-56 (1944); Frazier-Davis Constr. Co. v. United States, 100 Ct. Cl. 120, 161-62 (1943) ; Steel Products Eng'r Co. v. United States, 78 Ct. Cl. 410, 418 (1933). 28

The Government says that, even if restitution is an available remedy, Acme has not met the conditions necessary for recovery on that basis. The accepted rule is that,

If the performance that the contract required of the plaintiff has been wholly prevented, and if the result of his labor and expenditure still belongs to him, he has no remedy by way of restitution. If the performance required was the production and delivery of a finished article, and the defendant wrongfully prevents completion and delivery of the article, the plaintiff cannot get judgment for the reasonable value of his work and labor in preparation to perform, except so far as it may be included in a claim for damages. Such work and labor is not itself requested or received by the defendant.

Kestatement, Contracts § 348, Comment “c”. Defendant contends that Contract 1213 was for the purchase of (completed) 75 mm. recoilless rifles from plaintiff, and therefore contemplated “the production and delivery of finished article^],” for the breach of which plaintiff is entitled only to damages. This misconceives the nature of the contract which states, expressly, that Acme is to “furnish and deliver” specified items (emphasis added). The entire pre-contract negotiations were based on the assumption that it was Acme which would manufacture the requested rifles. The defendant at first had reservations about plaintiff’s ability to perform the contract, but, after investigating Acme’s plant and personnel, the Government concluded that Acme and its subcontractors would be capable of carrying out the agreement. Defendant’s Exhibit 12. One of the contemplated benefits of awarding the contract to Acme was that “placing this procurement [in] subject contractor’s plant will not only broaden the manufacturing base but create a salutary *359 effect, pricewise, on all other procurements of this type.” Ibid. Thus, the Government contracted not only for a finished product, but also for the manufacture of that product by Acme. When an agreement of this nature is breached, restitution is available.

The next argument is that plaintiff’s recovery must be limited to the reasonable value of the goods it actually delivered prior to cancellation. It is clear, however, that restitution is permitted as an alternative remedy for breach of contract in an effort to restore the innocent party to its pre-contract status quo, and not to prevent the unjust enrichment of the breaching party. “Judgment will be given for the value of service * * * rendered, even though the product created thereby has been lost or destroyed by the defendant, and even though there never was any product created by the service that added to the wealth of the defendant.' 1 ' 1 Restatement, Contracts § 348, Comment “a” (emphasis added). It is when the plaintiff is the party in default that his recovery may be limited by the amount of the benefit to the defendant. See 8clmasnich v. Blandin, 6' 5 F. 2d 354,357 (C.A. 2,1933). But “if the promisee has performed so far as he has gone, and the promisor breaks his promise, the promisee may abandon thfe contract and sue for restitution, in which he can recover the reasonable value of his services, measured by what he could have got for them in the market, and not by their benefit to the promisor.” Ibid. See, also, Restatement, Contracts § 347, Comment “c”. Acme’s recovery is not limited to the value of the goods received by the Government under the contract; rather, it can be based on the reasonable value of the entire performance.

Acme’s position is that the reasonable value of its services is most accurately reflected by the actual costs it incurred in the performance of Contract 1213. As the best means of restoring the status quo ante, cost of performance is often used as the basis for determining the amount of quantum meruit recovery, in the absence of “any challenging evidence.” United States ex rel. Susi Contracting Co. v. Zara Contracting Co., 146 F. 2d 606, 611 (C.A. 2, 1944); see, also, United States ex rel. Arc & Gas Welder Associates, Inc. v. Blount, 182 F. Supp. 648, 665 (D. Md.), aff'd, 285 F. 2d 863 *360 (C.A. 4, 1960), cert. denied, 366 U.S. 919 (1961); United States ex rel. Wander v. Brotherton, 106 F. Supp. 353, 354-55 (S.D.N.Y., 1952). But if the defendant is able to show that the costs incurred by the contractor were excessive (as a result, for example, of inefficiency or extravagance), the amount of recovery is commensurately reduced. Cf. Barrett Co. v. United States, 273 U.S. 227, 235 (1927); United States v. Behan, 110 U.S. 838 , 345-46 (1884). 29

The record before us is inadequate to determine whether Acme’s costs were, in fact, excessive. Plaintiff’s expenses appear to be inordinately high even if one takes into account its lack of experience in this manufacturing line and the prospective advantage to the Government of broadening the base of procurement. The contract ceiling price, for instance, was $384.95 per unit, but plaintiff’s actual cost in manufacturing the first 446 rifles was $1,179.29, and its cost of production during the last six months of the contract was $690.21. See findings 7, 52(a), (c). Although it is conceivable that these expenditures accurately reflect the value of Acme’s services, the present record does not provide enough information for a sufficiently accurate answer. In particular, it would seem important to compare Acme’s costs with those of other manufacturers of the same rifles during that period, taking into consideration that Acme should be permitted greater reimbursement than established manufacturers because of its inexperience and the anticipated benefits of its entry as a competitor. Since this issue was not squarely presented at the original trial, the defendant had *361 no real opportunity to prove that plaintiff’s costs were inflated ; it should be permitted to do so now. We are therefore remanding the case to the Trial Commissioner under Rule 47 (c) for a separate determination of liability.

To the extent that Acme’s actual costs are used in making this determination, the Commissioner should consider that the amounts which plaintiff paid its subcontractors latently included reimbursements for kickbacks paid to various members of the Tucker organization. See findings 18-25. Although the defendant has not attempted to prove that any of the subcontract prices were inordinately high, the kickbacks involved were hardly ordinary business expenses incurred in manufacturing 75 mm. rifles. If Acme’s total costs are to measure the value of its services, they must be reduced by any kickbacks actually paid to the Tucker organization by plaintiff’s subcontractors. Nor should Acme be reimbursed for the amounts it paid to Tucker; for the reasons given in the companion case, we conclude that his employment violated the covenant against contingent fees. See Acme Process Equipment Co. v. United States, No. 538-59, ante, p. 251, decided this day. 30 Tucker’s salaries cannot be considered reasonable expenses which enhanced the value of Acme’s services to the Government. Neither the contingent fee payments nor the kickbacks may be included in the computation of Acme’s restitutionary recovery. 31

B. GOVERNMENT-FURNISHED MACHINERY

Plaintiff urges that a determination of the reasonable value of its contract performance must take into account costs incurred as a result of defective government-furnished *362 machinery. By supplying deficient equipment, it is alleged, the defendant forced Acme to render additional services, which had market value and are compensable under the theory of restitutive recovery. The purportedly defective machinery was, however, furnished under a separate facilities contract, not the main contract. That agreement explicitly disclaimed liability “for damages or loss of profit by reason of any delay in delivery or failure to deliver any or all of the items set forth * * *, or for delivery of such items not in satisfactory operating condition or not of a suitable typeP (Emphasis added.) The contract also stipulated, “In the event [government-furnished] items are not in fit operating condition, the Contractor shall repair, restore, or rehabilitate such equipment so as to make it serviceable or fit for use (cost connected with such repairs, restoration, or rehabilitation shall not be reimbursed to the Contractor).” If the provisions concerning government property had been included in the main contract, such a disclaimer or limitation of liability for breach of warranty would possibly have to be disregarded under plaintiff’s theory, which fixes the measure of recovery by the value of the services performed, rather than by the terms of the breached contract providing or restricting compensation. But the facilities contract was separate and was not materially breached; its clauses limiting liability remain in effect. 32 We must therefore determine whether the plaintiff is correct that the disclaimer clause is less-than-absolute and does not bar recovery for increased costs resulting from defective government machinery.

Plaintiff would have us read this disavowal of liability as applicable only to ordinary repairs made following delivery of the equipment. Because the disclaimer refers to Acme’s obligation to repair the machinery in case of “delivery of such items not in operating condition,” Acme infers that the cost of extraordinary repairs incurred in the course of performance was to be borne by the defendant. Aside from the practical difficulty of separating “normal” and “extraordinary” expenses, there is a more basic objection. The *363 terms of the disclaimer are broad, and refer to Acme’s duty to repair items “not in operating condition,” without imposing any limitation as to the time when the equipment becomes inoperable or the amount of work required to fix it. There is no reason to qualify or limit the general sweep of the contract words.

On the other hand, along with the disclaimer, the facilities agreement also specified that, if the equipment supplied by the Government required repair as a result of defects present at the time of delivery, the “Contracting Officer, upon written request of the Contractor, may equitably adjust the price, the time of performance, and' other terms and conditions of the affected supply contract (s). * * * Any failure by the parties hereto to agree upon such equitable adjustment shall be determined in accordance with the article of the related supply contract (s) entitled ‘Disputes’.” See finding 35. We do not interpret these provisions as inconsistent with the explicit disavowal of liability. Instead, they specify the only form in which relief can be obtained for injuries resulting from substandard machinery furnished by the defendant; unless the contractor makes timely written request for an equitable adjustment, he must, according to the disclaimer, bear all costs of resulting delays and repairs. See, generally, Goodwin, Government-Furnished Property, Government Contracts Monograph No. 6, p. 17 (1963); Paul, United States Government Contracts and Subcontracts 267 et seq. (1964) , 33

During the course of contract performance, Acme made at least two written requests for reimbursement of costs incurred as a result of defects in equipment supplied by the defendant. See finding 39(b)(2), (6). About one week after cancellation, on August 26, 1954, the plaintiff filed a claim with the Philadelphia Ordnance District, asking to be repaid for all parts which it purchased to make the de *364 fendant’s machinery workable. Finding 44(a). This August 1954 request is challenged by the defendant as untimely. . Considering all the circumstances, we cannot agree. The machinery was supplied to plaintiff throughout 1953; although some performed reasonably well, other pieces required constant tinkering and broke down repeatedly, disrupting the smooth flow of production. See findings 39 (b), 43(c). At least as late as May 1954, flaws in the government machinery were still being encountered (see finding 39(b) (11)), and, if past experience is the guide, such difficulties were probably prevalent until the suspension of contract performance a little over a month later. Had plaintiff been required to ask for an equitable adjustment each time a minor defect was discovered, the result would have been a continuous flow of such requests to the contracting officer. The time and effort expended by both parties in effecting numerous equitable adjustments would have been excessive. Instead, Acme apprised the defendant of the various difficulties at approximately the time they were encountered, but, with several minor exceptions, it in effect waited until after the abrupt termination of the contract to make a single request for compensation. This was undoubtedly the most efficient manner of obtaining relief. Plaintiff’s cumulative demand for reimbursement in August 1954, as well as the two requests made prior to annulment of the contract, were timely.

Plaintiff’s letters sought reimbursement for repair costs, without specifically invoking the equitable adjustment provision of the facilities contract or the Disputes article of the supply contract. ' But the letters were easily understandable, and the failure to delineate the precise clauses permitting recovery should not stand as a bar. Cf. Specialty Assembling & Packing Co. v. United States, 156 Ct. Cl. 252, 254-55 , 298 F. 2d 794, 796 (1962). To the extent that the trial commissioner finds that these timely claims for reimbursement reflect actual costs incurred by the contractor because of defective government equipment — rather than its own inexperience or inefficiency — the plaintiff is entitled to an equitable adjustment as provided in the facilities contract. ■ This equitable adjustment should be added to the *365 determination of the value of the rest of plaintiff’s performance. 34

in. MQTJIDATED DAMAGES

Throughout the contract plaintiff was behind in its deliveries. The original schedule was substantially revised in supplemental agreements executed in August 1953 and January 1954. Despite these time extensions, plaintiff was still late in deliveries at the time of the suspension of its contract in July 1954, and was assessed liquidated damages pursuant to the contract clause. On that basis, $53,715.19 was withheld from payments otherwise due. Claiming that the liquidated damages provision was erroneously invoked, Acme asserts that it is entitled to reimbursement of the entire amount.

There is a question whether plaintiff is barred from making this claim because it did not request a decision of the contracting officer on the cause of its tardy deliveries. In Contract 1213, the clause dealing with liquidated damages contains a paragraph excusing the contractor from paying liquidated damages when the delay arises out of causes beyond his control and without his fault or negligence. It says that in such cases, subject to the Disputes clause, “the Contracting Officer shall ascertain the facts and extent of the delay and shall extend the time for performance when in his judgment the findings of fact justify an extension.” The Disputes clause says simply that “any dispute concerning a question of fact arising under this contract which is not disposed of by agreement shall be decided by the Contracting Officer * * 35 It cannot be said that these provisions, taken together, required the contractor to make a specific request to the contracting officer for a determination of the reasons for the delays. So long as the con- *366 traeting officer was put on notice that the plaintiff wanted to avoid the levy of liquidated damages, the minimum demands of the contract would be met.

This is precisely the effect of a letter sent on May 20,1954, by plaintiff to the Comptroller General via Philadelphia Ordnance District. The contracting officer refused to forward the letter as requested, because he felt that the appeal was addressed to equitable rather than legal considerations and would not be cognizable by the Comptroller General. After being told of the contracting officer’s action, Acme wrote another letter to him on June 21, 1954, explicitly reaffirming the prior request and “asking relief from our Liquidated Damages Clause at the District level” (emphasis added). This notification was quite different from the “mere ambiguous requests for adjustments or possible negotiations” which were deemed insufficient in Specialty Assembling & Packing Co. v. United States, supra, 156 Ct. Cl. at 255 , 298 F. 2d at 796 . Acme’s letters put the defendant on notice both as to the relief requested and the contract clause on which the request was based; furthermore, in its June 21st letter, plaintiff invited a ruling by the contracting officer. It is clear that plaintiff was in effect asking for an equitable adjustment; the need for a degree of precision, as suggested in Specialty Assembling, was met. When the defendant suspended all production on July 22, 1954, and completely canceled the contract a month later, the contracting officer had taken no action on Acme’s demand for remission of liquidated damages; the annulment of the agreement destroyed the administrative appeal mechanism created by the contract. Since Acme properly sought to invoke its administrative remedies as long as they were available, the Government’s defense of failure to exhaust must be rej ected.

Having surmounted this procedural defense, plaintiff is entitled to recover on its claim for remission of liquidated damages, because the delays on which the assessment was based were caused by the Government as well as by Acme. On the one hand, the plaintiff’s difficulties in operating the government machinery were partially attributable to the inexperience and incompetence of its own personnel. On the other, defects in some of the equipment furnished by the de *367 fendant resulted in repeated failures and breakdowns. While some of the machines performed reasonably well if properly operated, the smooth flow of production was rendered impossible when other machines essential to a sequence of operations were in disrepair. See finding 43. “[W]here delays are caused by both parties to the contract the court will not attempt to apportion them, but will simply hold that the provisions of the contract with reference to liquidated damages will be annulled.” Schmoll v. United States, 91 Ct. Cl. 1, 28 (1940). See, also, United States v. United Eng'r & Contracting Co., 234 U.S. 236, 242 (1914); Vogt Bros. Mfg. Co. v. United States, 160 Ct. Cl. 687, 709 (1963); Commerce Int'l Co. v. United States, 167 Ct. Cl. 529 , 543, 338 F. 2d 81, 90 (1964). That result is fair. It does not deprive the Government of an opportunity to prove and recover its actual damages caused by the contractor’s delay; 36 instead, the defendant merely loses its right to insist on an artificial measure of damages agreed on by the parties for the situation in which the contractor alone is responsible for the delay. 37

IV. SUBCONTRACTORS’ RIGHT TO RELIEF

Along with its own claim, Acme has brought suit on behalf of a number of firms to which it sublet portions of the prime contract. The three major subcontract claims are those of All Metals Industries, Manalapan Machine Works, and Foley Machine Company. Each of these subcontractors obtained orders from Acme through the payment of kickbacks to Harry K. Tucker, Jr. 38 See findings 18-23. At the time the kickbacks were given, All Metals knew of Tucker’s double agency, and the other two subcontractors *368 either knew or should have known of it. On the other hand, Acme was unaware of Tucker’s duplicity.

When a contract is obtained by a person secretly acting as a dual agent, and one party knew or should have known of the double employment, only the innocent party has the option of either affirming- or avoiding the agreement. 39 Af-firmance is not effective as ratification until after the innocent party obtains full knowledge of the material facts concerning the fraudulent procurement. See Restatement, Agency 2d, §§ 91, 313. In the present case, it was not until well after cancellation of its prune contract that Acme, the innocent party, learned of the kickback arrangements. See Acme Process Equipment Co. v. United States, Ct. Cl., No. 538-59, ante, p. 276, decided this day, fn. 20. Prior to that time, it did not have the requisite knowledge to effect ratification.

When its prime contract was canceled by the Government, Acme responded by immediately requesting all its subcontractors to halt performance. From that time forward, the plaintiff had nothing to gain by ratification of its voidable subcontracts. Yet long after conclusion of performance, Acme has nonetheless chosen to “ratify” these agreements. The reason is not difficult to discern: Only if Acme is liable to the subcontractors, may Acme recover from the defendant in their behalf. See J. L. Simmons Co. v. United States, 158 Ct. Cl. 393 , 304 F. 2d 886 (1962). Acme was apparently willing to affirm the agreements on the theory that the Government would probably bear any resulting liability. 40 As is pointed out in the discussion of All Metals’ claim in the companion case, No. 538-59, this form of after-the-fact ratification camiot be accepted since it violates the rule that *369 “affirmance is * * * inoperative as ratification * * * as against persons who in the meantime have acquired interests with which it would be unjust to interfere.” 2 Williston, Contracts § 278A n.l (3d ed. 1959) . 41 See, also, Restatement, Agency 2d, § 101 (c). Had Acme acted reasonably, avoiding these subcontracts after it found out about the improper double agency, the Government would not be liable. This freedom from liability is an “interest with which it would be unjust to interfere.” Acme’s attempt to destroy that interest by post-cancellation ratification of the moribund subcontracts is unavailing.

It is still necessary to determine whether the Government would be liable to All Metals, Manalapan, and Foley, if Acme had in fact avoided these subcontracts, as we have held it was bound to do. Before a contract may be rescinded because of its fraudulent procurement by one of the parties, to prevent unjust enrichment, the defrauded party is generally required to return the goods it received under the contract, or their reasonable value. See Restatement, Restitution §§ 65, 66. Since these three subcontractors would have been entitled to the reasonable value of the goods they actually delivered, the defendant should in turn be liable to that extent. 42 Cf. Crocker v. United States, 240 U.S. 74, 81-82 (1916). In the future proceeding before the Commissioner, if plaintiff is able to prove that the value of the items delivered by any of the three subcontractors exceeded the total amount it was paid, then recovery on behalf of that subcontractor will be permitted — unless the “Severin’’ doctrine is a bar (see footnote 41, supra).

With respect to the claims of the remaining subcontractors, there has thus far been inadequate proof of damages. Al *370 though the defendant audited the accounting records of each one, such verification is no substitute for actual evidence of injury. See River Constr. Corp. v. United States, 159 Ct. Cl. 254, 271 (1962). When this question arose during the trial, plaintiff’s counsel acknowledged that further proof was required, explaining that, although the other subcontractors had been invited to submit more detailed claims, they had failed to so so. Tr. 1396-97. These claims being unproved, they cannot be accepted at the present time. Plaintiff, however, may present further proof, if it can, in the proceedings under Rule 47 (c).

V. INTEREST

The last matter is the plaintiff’s demand for interest from January 1, 1955, on those parts of its overall claim for damages represented by • (1) the improper assessment of liquidated damages by the defendant, (2) the withholding of amounts due under the price redetermination provision of the contract, and (3) the failure to pay the equitable adjustment requested in August 1954 for repairs of government-furnished machinery. These amounts, the plaintiff says, were retained by the defendant without any color of right and thus come within the circle of the Fifth Amendment’s guarantee that property shall not be taken for public use without payment of just compensation. This type of demand is not novel in suits on government contracts; nor is its steadfast repudiation by the courts. See, e.g., United States v. N.Y. Rayon Importing Co., 329 U.S. 654, 658-59 (1947); United States v. North American Transp. & Trading Co., 253 U.S. 330, 335-36 (1920); Komatsu Mfg. Co. v. United States, 132 Ct. Cl. 314 , 131 F. Supp. 949 (1955) ; Ramsey v. United States, 121 Ct. Cl. 426, 430-33 , 101 F. Supp. 353, 355-57 (1951), cert. denied, 343 U.S. 977 (1952).

Plaintiff concedes that, under the case law, unless the Government acted in 'bad faith when it withheld the funds in dispute, there could be no violation of the Fifth Amendment, and recovery of interest on the basis of the contract would be prohibited by 28 U.S.C. § 2516 (a), permitting this court to allow interest on a claim “only under a contract or Act of Congress expressly providing for payment thereof.” *371 To show bad faith, the plaintiff stresses a determination by the Department of Justice in December 1954 that it would bring no civil or criminal action against Acme. But, plainly, this was not tantamount to a finding of bad faith on the part of the Army; a difference of opinion is not proof of malice. The plaintiff also alleges that, at the time of cancellation, the Government did not have proof that plaintiff was guilty of fraudulent acts which would justify annulment; that the Government knew that its proposed action might force plaintiff into bankruptcy; and that the real cause of the cancellation was the defendant’s decision to discontinue production of 75 mm. recoilless rifles because they were obsolete. At the trial of this case, an Ordnance attorney who advised that Contract 1213 be rescinded testified that, at the time, he deemed this action appropriate because he thought plaintiff had violated the covenant against contingent fees, as well as the anti-kickback and false claims statutes. Tr. 1024-25. Assessing the credibility of this witness and the others who testified as to the matter, the Trial Commissioner concluded that the defendant canceled the contract for two equally potent reasons: the termination of military requirements for the 75 mm. rifles and the contractual irregularities thought to be present. Finding 50 (a). The circumstantial evidence submitted by plaintiff to overcome the presumption of correctness attaching to the Commissioner’s finding is wholly inadequate for that purpose. Cf. Commerce Int’l Co. v. United States, 167 Ct. Cl. 529 , 537, 338 F. 2d 81, 86 (1964); Davis v. United States, 164 Ct. Cl. 612, 616-17 (1964). We must therefore turn aside Acme’s argument that the Government acted in bad faith.

Our conclusion is sustained by an examination of the specific claims which, according to plaintiff, were rejected in bad faith. The Government withheld liquidated damages, thinking that the contract gave it the right to take such action. The court’s determination that liquidated damages were not properly assessable in no way negates the existence of a bona fide dispute involving difficult legal issues. Similarly, s,o far as can be ascertained, the defendant had almost concluded at the time of the contract annulment that the plaintiff would be entitled to the ceiling price under the redetermination clause. *372 But it withheld this amount, along with other entitlements, because of an honest belief that plaintiff’s conduct merited forfeiture. Although the defendant erred in believing that it could annul Acme’s contract for violation of such provisions as the covenant against contingent fees, it cannot be charged with bad faith. Finally, the Government’s failure to allow an equitable adjustment for expenses incurred in repairing machinery furnished under the facilities contract is attributable to its view that the disclaimer provision was absolute. In none of these instances was the defendant’s action without some color of right. Even though a court may determine eleven years later that the Government’s premises were faulty, that does not alter the bona fide character of its original actions under the contract or convert the erroneous cancellation of the contract into a taking. 43

VI. SUMMARY

The case is remanded to the Trial Commissioner for a determination, under Buie 47(c), of the defendant’s liability to Acme, based on (a) the reasonable value of its performance under Contract 1213; and (b) an equitable adjustment for the amounts expended under the facilities contract for repair of defective government machinery, for which timely requests were filed. The total thus arrived at should be reduced by defendant’s undisputed counterclaim for $15,898 (see finding 60), and by $2,000, based on plaintiff’s violation of the False Claims Act. Plaintiff has permission, in proceedings under Buie 47(c), to present further proof on the claims on behalf of all subcontractors other than All Metals, Foley, and Manalapan; in the absence of sufficient proof, those *373 claims will be dismissed. The claims on behalf of All Metals, Foley, and ManaJapan are remanded to the Commissioner for a determination under Hule 47 (c) of the extent of liability for delivered items, if there is any such liability.

FINDINGS OP FACT

The court, having considered the evidence, the report of Trial Commissioner C. Murray Bernhardt, and the briefs and argument of counsel, makes findings of fact as follows:

1. Plaintiff's corporate identity and control. Acme Process Equipment Company (formerly Acme Coppersmithing and Machine Company) is a Pennsylvania corporation located at Oreland, Pennsylvania. At relevant times all of its voting stock was owned jointly by its president and vice president, Joshua Epstein and Samuel Fisher, respectively, who also had controlling interest in the National Molasses Company, a separate corporation. They and their children and relations (including sons Irving and Jack Epstein) owned all of the non-voting stock of plaintiff company and served as its officers.

2. Acme’s line of business. Until the latter part of 1952 Acme’s business consisted principally in the manufacture of processing tanks, boilers, containers, etc., for the distillery, brewery and sugar industries. In 1952 it became interested in obtaining Government contracts in order to offset unevenness in its commercial business, but had no one on the company payroll with background and experience in the field of Government procurement.

PROCUREMENT OF CONTRACT 1213 — CONTINGENT FEE PROBLEM

3. Entry of Norris and Tucker, Jr. Unknown to plaintiff, the Government had put under surveillance the activities of a group known as Harry K. Tucker Associates, comprising Harry K. Tucker, Sr., and his son, Harry K. Tucker, Jr., in connection with suspected statutory violations in their contingent fee arrangements for services rendered contractors in procuring Government supply contracts. (Hereafter, use of the name “Tucker” shall denote Tucker, Jr., unless the contrary is indicated.) James S. Norris, who had been general manager of an eventually defunct machine shop, met *374 Tucker in September 1952 and they decided to pool their talents in a company which would render “sales and engineering” assistance to clients of Tucker. In late September or early October 1952 Norris met for the first time with Sidney Cohen, Secretary-Treasurer of the plaintiff company, to ascertain plaintiff’s interest in bidding on the manufacture of some apparatus. In this meeting Cohen was asked if he would be interested in engaging a salesman to secure commercial and Government production contracts. In consequence Tucker visited Cohen several times and there were negotiations for his services and those of Norris. It was decided at the instigation of Norris and Tucker that Acme would set up a separate division to handle Government contracts in the metals field, that Norris would manage the operation, and Tucker would contribute his “know-how” in procuring and administering Government contracts and in expediting subcontract operations. Plaintiff’s officers had not known Tucker prior to these events; however, plaintiff failed to ascertain who Tucker’s other clients were or to ask them about the quality of his services.

4. Informal hiring of Norris and Tucker. At this stage the plaintiff informally agreed to hire Tucker and Norris. Tucker was to be paid 3 percent commission — to be divided equally between Tucker and Norris — on all business he procured, with a minimum salary guarantee against which his commissions would be applied. Tucker and Norris were to manage the plaintiff’s proposed new division. Norris began work at the Acme plant in Oreland, initially ,on an unpaid test basis, and his first duties were to estimate the bids, etc., in response to invitations which Tucker would procure for the plaintiff.

5. Tucker's employment contract. Plaintiff entered into a one-year employment contract with Tucker, dated October 13, 1952, whereby he and/or his “organization” agreed to serve as a “bona fide sales agent” on a parttime basis and be paid initially a weekly minimum salary of $150 which, starting 45 days after the initial delivery date in contracts procured by him for Acme, would be increased to equal the sum of (1) 5 percent of weekly gross sales up to $10,000 generated by him and (2) 3 percent of weekly gross sales in excess of *375 $10,000. Minimum salaries paid prior to any sales being made were to be deducted later from the excesses of bis commissions over bis minimum weekly guarantee. Tbe net effect of tbe arrangement was that the guaranteed weekly salary was an advance against commissions, and Acme could cancel tbe contract if commissions did not cover tbe minimum salary guarantee. The contract defined Tucker’s services to include solicitation of invitations from both commercial firms and tbe Government. Tucker represented in tbe contract that be had no special connections of any kind with any Government departments. He agreed to assist in preparing price breakdowns and in planning of shop production methods, as well as in tbe collection of invoices if requested, in obtaining contract financing, and in locating materials, although tbe contract stated explicitly that it could not be canceled for failure to perform any of these duties not involving solicitation. Tbe contract specifically provided that Tucker represented and would continue to represent other persons and firms having dissimilar lines of business. Norris and Tucker also entered into an agreement with each other that Tucker would pay Norris 50 percent of any money to be paid Tucker by his clients for procuring work for them from Acme.

6. Tucker's early services. After the hiring of Tucker plaintiff experienced a pronounced increase in inquiries, bid proposals and bid invitations from both commercial and Government sources, thus increasing Cohen’s confidence in his judgment in hiring Tucker. Tucker’s services the first few months included investigations to determine prior bid prices, solicitation of bid invitations, securing quotations from subcontractors, locating applicable specifications, and liaison work with the Philadelphia Ordnance District (hereafter POD).

7. Plaintiff's bid. On October 17,1952, Tucker submitted to plaintiff information concerning the subject contract to be awarded by the Army Ordnance Corps for 2,322 75 mm. recoilless rifles, M-20. Tucker assisted in the preparation of plaintiff’s bid estimate. Acting on Tucker’s advice that a bid of $350 per rifle would probably insure an award as low bidder, Acme submitted its bid (signed by Norris) to POD on October 23,1952, at a unit target price of $337.31 per rifle *376 (later corrected to $337.23), subject to upward or downward price revision, with, a ceiling price of $365.41 (later corrected to $384.95). Deliveries were proposed starting in March 1953 and finishing January 1954. Two other bidders in that district submitted bids at unit prices of $484.05 and $930.16, respectively. Two other bidders from outside the district, submitted bids at unit prices of $423 and $684, respectively, one of them (Firestone) being an experienced manufacturer of the 75 mm. rifle which was then producing them at a contract unit price of $452.60. Plaintiff was thus considered to be the low bidder, although its bid on accessories under the invitation was not as low as one of the other bidders.

8. Representations as to contingent fees.

(a) In its original bid dated October 23, 1952, for Contract 1213 Acme, imder the certification of James S. Norris as General Manager of the Defense Work Department, answered in the negative that part of the form requiring the contractor to represent whether it has or has not (boxes were supplied against each of the alternatives for inserting a mark to denote the correct fact) “employed or retained a company or person (other than a full time employee) to solicit or secure this contract, and agrees to furnish information relating thereto as requested by the Contracting Officer.” Under a revised proposal of December 10,1952, also signed by Norris, it was instead represented that Acme “has * * * employed or retained a company or person (other than a full-time employee) , to solicit or secure this contract and agrees to furnish information relating thereto as requested by the Contracting Officer.” However, under date of December 18,1952, Joshua Epstein, president of Acme, executed a Government form entitled “Contractor’s Statement of Contingent or Other Fees”, in which he reverted to the company’s position on October 23 by filling in one of the two alternative boxes to indicate that Acme “has not employed or retained a company or person (other than a full-time employee) to solicit or secure this proposed Contract No.-and agrees to furnish information relating thereto as requested by the Contracting Officer.”

(b) Within a roughly contemporaneous period (November 4, 1952 to January 5, 1953), plaintiff submitted bids on three other Army Ordnance contract invitations to the Eock *377 Island Arsenal, and in these bids it disclosed the fact that it had retained someone other than a full-time employee working solely for the plaintiff. On or about December 12,1952, plaintiff furnished the Rock Island Arsenal with a form 119 (Contractor’s Statement of Contingent or Other Fees), to which was attached a copy of its October 13, 1952 employment contract with Tucker; the submitted contract did not, however, disclose the fee-splitting arrangement made by Tucker and Norris. Rock Island Arsenal was thus on notice of the Tucker employment on a part-time basis. There is no evidence that POD had any more than imputed knowledge of it, since it administered the contract to which the form 119 related (see next paragraph). The disclosure provided the Office of the Chief of Ordnance in Washington with its first indication that Acme had an employment relation with Tucker whose 5 percent activities had excited official interest for some time past.

(c) One of the plaintiff’s three bids referred to in the preceding paragraph ripened into the award to Acme on January 7, 1953, of Contract No. DA-11-070-ORD-8580 (hereafter referred to as Contract 8580), which was executed by the Rock Island Arsenal but was administered by POD. Contract 8580 is the subject of another pending action by the plaintiff in this court in Court of Claims No. 538-59. It bears the plaintiff’s statement that it “has employed or retained a company or person (other than a full-time employee) (working solely for the bidder) to solicit or secure this contract, and agrees to furnish information relating thereto as requested by the Contracting Officer.”

(d) Prior to award of the contract in suit to plaintiff, Army Ordnance headquarters had information relative to the contingent fee activities of the Tucker father and son team, but to what extent this information was in the possession of POD personnel who were negotiating with plaintiff is not known. Certain POD personnel apparently had some information concerning Tucker, Sr., because they advised plaintiff of its possible mistake in employing the son of a man suspected of so-called “five-percenter” activities, but plaintiff had no other factual basis for imputing the father’s delinquencies to the son and so ignored the advice. At *378 the request of one of the POD negotiators the plaintiff submitted a certification, dated December 18, 1952, that it “has not employed or retained a company or person (other than a full-time employee) to solicit or secure this proposed contract * *

(e) Under date of May 8,1953, in response to defendant’s request for a proposal for an additional quantity under the contract in suit, the plaintiff signed a warranty that it “has not” retained anyone, etc.

(f) On May 18,1953, Acme advised POD by letter as follows:

In answer to the question that has arisen about the status of our Mr. Harry K. Tucker, Jr. please be advised that as of January 1953 Mr. Tucker has gone on a full time basis with this company, acting in the capacity of Sales Manager.

The original part-time salary employment contract with Mr. Tucker was cancelled, and any commissions or percentages due him under this original agreement were also cancelled. He is not now, or has in the past collected any commissions on any prime contract or sub-contract, or commercial work that he has obtained for us in the past or in the future.

We will appreciate your notifying Eock Island Arsenal and withdrawing a Form W119 which was filled out by Acme showing that Mr. Tucker was being paid a commission on the three contracts we now have with Eock Island Arsenal.

Although this letter states that Tucker was employed on a full-time basis in January 1953, the contract providing for his full-time employment was executed on March 18, 1953, effective as of March 2, 1953 (see finding 9(b)).

(g)There is no evidence that Tucker used any corrupt or improper influence in obtaining Contract 1213 for the plaintiff.

9. Modification of Tucleer's contract.

(a) With the award of the contract in suit to Acme on January 27, 1953, the demands on Tucker’s time increased. From some time in February 1953 Tucker devoted the major part of his time to administration of Contracts 1213 and 8580 for plaintiff, including the procurement ,of subcontracts, ex *379 pediting of parts and supplies, and liaison with POD. In the meantime he also solicited new business for Acme and assisted in the preparation of bids on this new business. What proportion of his time ostensibly devoted to the interests of Acme was actually ¡occupied in his reprehensible secret deals with subcontractors as described in findings 22 through 24, infra, is not known.

(b) Commencing the week ending March 7, 1953, Acme increased its weekly payment to Tucker to $300. By an agreement of March 18, 1953, effective March 2, superseding all prior agreements, Acme hired Tucker and Norris on a full-time salary basis at $300 each per week. Each was to receive in addition 25 percent of the annual net profits of the Lansdale operation and, after Acme had recouped its Lansdale investment “all assets created by the Lansdale plant * * * will be owned by the partnership, or Acme and Norris-Tucker.” The purpose of this agreement was to provide incentive to Tucker and Norris to build up this new department of Acme’s business. Tucker’s salary was reduced to $250 per week on October 11, 1953. Throughout his employment by Acme, Tucker was compensated on the basis of his weekly guarantee, whether or not it was denominated as an advance against commissions, and deductions were duly made from each such payment for social security and withholding taxes.

10. Negotiations. Acme’s bid of October 23,1952 (finding 7, supra) did not contemplate that the Government would furnish any financing or Government-owned production machines. On December 3, 1952, POD requested plaintiff to file a revised bid containing complete cost breakdowns and a list of proposed subcontractors, which was done December 12. The revised bid proposed a two-month overall postponement of the delivery schedule. Meetings between POD personnel and Acme representatives (most frequently Norris and Tucker) were held from December 11, 1952 onward to discuss various aspects of the contract, including price, which POD felt to be quite low in comparison with other bids, but reasonable and attainable nevertheless in the light of the delivery schedule, subcontracting plans, and other factors *380 then, known to POD. Moreover, POD was influenced in favor of Acme because it would then be the only small business concern in the country manufacturing the recoilless rifle, and could possibly develop into an additional source of supply for the 20 mm. gun. POD was concerned, however, over plaintiff’s ability to produce an item foreign to its experience and at an admittedly low price, and offered Acme an opportunity to withdraw its bid, which plaintiff refused.

11. Request for Government machinery. Acme had planned to subcontract the rifling phase of the proposed contract. When the rifling subcontractor withdrew its quotation Acme advised defendant, on January 13, 1953, that if it could obtain the necessary rifling and honing equipment either from Army Ordnance sources or elsewhere it would undertake to perform the rifling phase of the contract itself. At this time Acme also advised the defendant that it would manufacture the vent-assembly component in its own shop rather than subcontract it as planned, and gave information as to certain subcontracts which had been let, including one for the chamber assembly which had been tentatively subcontracted to All Metals Industries, Inc. Acme was then making arrangements to obtain the equipment and machinery necessary to perform those parts of the contract which it did not plan to subcontract. On January 20, 1953, Acme requested the use of two government-owned rifling machines, two lathes and two honing machines, which it estimated would cost $15,000 and take about ten weeks to repair and •install. Acme assured POD that no V-loan would be necessary for contract financing because it had other access to funds, and requested a small increase in the ceiling price. On January 23,1953, the Board of Awards at POD, contrary to the recommendation of POD negotiators, rejected Acme’s bid because the delivery schedule calling for initial deliveries in May 1953 was too optimistic.

12. Availability of Government machinery. Following the rejection of Acme’s bid by the Board of Awards a series of meetings were held at POD attended by representatives of POD, Acme and All Metals. POD announced the availability to Acme of government-owned machinery requested by Acme capable of producing in excess of Acme’s delivery *381 schedule if properly set up and tooled. It was recommended by the Philadelphia Begional Office representative of POD that the contract be awarded to Acme.

CONTRACT AWARD AND MODIFICATIONS

13. Description. Under date of January 27, 1953, negotiated Contract No. DA — 36-03NOBD-1213 (B) (hereafter referred to sometimes as Contract 1213) was awarded to plaintiff by POD, requiring plaintiff to manufacture and deliver 2,322 75 mm. recoilless rifles, M-20, at a unit target price of $337.23 (total $783,048.06), plus 24 sets of accessories, tools and equipment at a target price of $3,787 per set (total $90,888), all subject to limited price revision upward upon delivery of 30 percent of the rifles. The original contract provided for deliveries as follows:

_ Item 1: Item S: Month Required: Rifles Sets

May_ 74 1

June_ 233 2

July-234 2

August — 233 2

September 233 2

October_ 234 2

November 233 2

December 233 2

January _ 234 3

February 233 3

March — 148 3

Total 2,322 24

Subsequent modifications to the contract up to May 7, 1954 resulted in various adjustments of quantities and prices, the total quantity finally required being 2,751 recoilless rifles, plus tools, accessories and parts at a total contract target price of $1,043,918.72. The modifications included changes in certain delivery schedules, provision for use of specific government equipment and machinery, agreements adjusting prices on items not meeting specification requirements, and the addition of spare parts to the procurement. Where these modifications are relevant to the consideration of particular developments in contract performance they will be referred to specifically at the appropriate parts of these findings.

*382 14. Deliveries, scheduled v. actuad. The delivery schedules required by the contract as revised by supplements thereto, and the actual deliveries by the plaintiff, are shown in the following schedule:

15. Contract provisions. The contract contained the standard clauses for Changes, Assignment of Claims, Default, Covenant Against Contingent Fees, Termination for Convenience of the Government, and Disputes. In addition it contained the following provisions:

4. facilities : In the performance of this contract the Contractor shall have the right to use the facilities listed in the FACILITIES CONTRACT between the parties numbered DA-36-034-ORD-1214F, subject to *383 the terms thereof; and the unit prices of this supply contract are based on such use.

*****

10. liquidated damages: % of 1% of the contract price of undelivered units for each day’s delay after the date or dates specified for deliveries hereunder.

The following paragraphs shall be added to General Provision No. 11, DEFAULT, of Standard Form 32, and Paragraph (f) contained therein is hereby deleted:

(f) If the Contractor fails to deliver the supplies or perform the services within the time specified in this contract, or any extension thereof, the actual damage to the Government for the delay will be impossible to determine, and therefore in lieu thereof the Contractor shall pay to the Government as fixed, agreed, and liquidated damages for each calendar day of delay the amount set forth elsewhere in this contract; provided that the Government may terminate this contract in whole or in part as provided in paragraph (a) of this clause, and in that event the Contractor shall be liable, in addition to the excess costs provided in paragraph (c) above, for liquidated damages accruing until such time as the Government may reasonably provide for the procurement of similar supplies or services. The Contractor shall not be charged with liquidated damages when the delay arises out of causes beyond the control and without the fault or negligence of the Contractor, as defined in paragraph (b) above, and in such event, subject to the clause of this contract entitled “Disputes,” the Contracting Officer shall ascertain the facts and extent of the delay and shall extend the time for performance when in his judgment the findings of fact justify an extension.

(g) The rights and remedies of the Government provided in this clause shall not be exclusive and are m addition to any other rights and remedies provided by law or under this contract.

* * # H: ❖

12. oveRtime : No overtime work in excess of the six (6) day, eight (8) hour week shall be performed in this contract by employees of the Contractor without prior approval of the Contracting Officer except for such overtime as is necessitated by disaster, emergency or to complete heat cycles.

13. special tooliNg: The unit price for Item 1 includes therein $14.00 as the estimated cost of special tooling.

*384 20. COVENANT against contingent eees: The Contractor warrants that n,o person or selling agency has been employed or retained to solicit or secure this contract upon an agreement or understanding for a commission, percentage, brokerage, or contingent fee, excepting bona fide employees or b,ona fide established commercial or selling agencies maintained by the Contractor for the purpose of securing business. For breach or violation of this warranty the Government shall have the right to annul this contract without liability or in its discretion to deduct from the contract price or consideration the full amount of such commission, percentage, brokerage, or contingent fee.

JÍ¡ íj¡

GENERAL PROVISIONS

(Supply Contract)

# Hi * #

31. gratuities (O.P.I. [Interim] 64-51)

(a) The Government may, by written notice to the Contractor, terminate the right of the Contractor to proceed under this contract if it is found, after notice and hearing, by the Secretary or his duly authorized representative, that gratuities (in the form of entertainment, gifts, or otherwise) were offered or given by the Contractor, or any agent or representative of the Contractor, to any officer or employee of the Government with a view toward securing a contract or securing favorable treatment with respect to the awarding or amending, or the making of any determinations with respect to the performing, of such contract; provided, that the existence of the facts upon which the Secretary or his duly authorized representative makes such findings shall be in issue and may be reviewed in any competent court.

(b) In the event this contract is terminated as provided in paragraph (a) hereof, the Government shall be entitled (i) to pursue the same remedies against the Contractor as it could pursue in the event of a breach of the contract by the Contractor, and (ii) as a penalty in addition to any other damages of which it may be entitled by law, to exemplary damages in an amount (as determined by the Secretary or Ms duly authorized representative) which shall be not less than 3 nor more than 10 times the costs incurred by the Contractor in providing any such gratuities to any such officer or employee.

*385 (c) The rights and remedies of the Government provided in this clause shall not be exclusive and are in addition to any other rights and remedies provided by law or under this contract.

•J» »!• »í» H* ¥

85. GoveRNMeNt-euRNIshed propekty (ASPE 13-502)

(a) The Government shall deliver to the Contractor, for use in connection with and under the terms of this contract, the property which the schedule or the specifications state the Government will furnish (hereinafter referred to as “Government-Furnished property”). The delivery or performance dates for the supplies or services to be furnished by the Contractor under this contract are based upon the expectation that Government-Furnished property of a type suitable for use will be delivered to the Contractor at the times stated in the schedule or if not so stated in sufficient time to enable the Contractor to meet such delivery or performance dates. In the event that Government-Furnished property is not delivered to the Contractor by such time or times, the Contracting Officer shall, if requested by the Contractor, make a determination of the delay occasioned the Contractor thereby, and shall_ grant to the contractor a reasonable extension of time in respect of such delivery of performance dates. The Government shall not be liable to the Contractor for damages or loss of profit by reason of any delay in delivery of or failure to deliver any or all of the Government-Furnished property, except that in case of such delay or failure, upon the written request of the Contractor, an equitable adjustment shall be made in the delivery or performance dates, or prices, or both, and in any other contractual provision affected thereby, in accordance with the procedures provided for in the clause of this contract entitled “Changes”.

*****

36. Special tooliNG (ASPE 13-504)

*****

37. Price Redetermination (Form IX-B).

(a) The prices stated herein may be increased or decreased in accordance with this clause. In no event shall the revised price exceed 115% of the Unit Price, as amended, of item 1 plus 110% of the Unit Price, as amended, of item 2

(b) Times for negotiation.

*386 (1) Upon completion of delivery of 30% percent of item 1 to be furnished under this contract or upon expenditure of - percent of the total contract target amount, whichever shall occur last, the parties shall negotiate to revise the prices of all items theretofore and thereafter to be delivered. Within 30 days after the completion of delivery or expenditure of funds referred to above, the Contractor shall furnish to the Contracting Officer the statements and data referred to in paragraph (c) of this clause. * * *.

THE LANSDALE PLANT

16. Locating Lansdale facility. Norris and Tucker had recommended to plaintiff that its home plant at Oreland would be unsuitable for performance of Contract 1213, and advised that a separate plant should be established to handle Government contracts. Sidney Cohen of plaintiff company located a factory at Lansdale, Pennsylvania, which had been used as a hosiery mill, one-quarter of which was still occupied for that purpose. Plaintiff made arrangements to lease the available portion of the Lansdale plant for operation as its proposed Defense Works Division. Norris was placed in charge of operations as general manager of production, and as such was authorized to submit bids, sign Government contracts, award subcontracts, and hire and fire personnel. Tucker was put in charge of sales, Government contracts, and expediting and coordinating subcontractors. On January 8,1953, Norris wrote to POD furnishing a layout of the Lansdale facility, describing its personnel and equipment, and stating in part as follows:

As further explained to Mr. Karam and Mr. Osch-wald, Acme has already invested many thousands of dollars in setting up an additional organization, specifically _ familiar with engineering, manufacturing and expediting of National Defense items, including the investment of many thousands of dollars in the new building at Lansdale, Pennsylvania, along with the necessary equipment, placing itself in a position to immediately perform on this contract, when awarded. Of note is that Acme is an established manufacturing concern, which is extending its facilities and capacity to include defense type manufacturing, and we feel the broadening of our facility not only is valuable to us, but also to our National needs.

*387 17. Lease of Lansdale plant. On January 23,1953, Acme leased that portion of the Lansdale plant which was not occupied by the existing tenant and was given the right, inter alia, “* * * to install steel plates on the floor for the purpose of properly supporting any of its machinery * *

SUBCONTRACT TO ALL METALS

18. Services contract with Tucher. All Metals Industries, Inc., was established in July 1951 at Latrobe, Pennsylvania, as a small machine shop. Its stock was owned equally by John Hopkins, its president, Edward G. Oppenheimer, its vice president, and by Leonard Morris. In the spring of 1952 All Metals learned collaterally that Tucker was for hire to solicit commercial and Government contracts. He was interviewed and his references checked. On October 1, 1952, All Metals entered into a written contract with Tucker for his services and agreed to pay him 5 percent of weekly gross sales up to $10,000 to customers procured by him, plus 3 percent above $10,000, with a minimum guaranteed weekly salary of $100 to be charged against commissions. The contract defined Tucker’s services to include the solicitation of invitations to 'bid on commercial and Government contracts, preparation of price estimates on such invitations, rendering of advice as to production methods, collection of bills when requested, assistance in obtaining financing for performance of contracts which he might secure, and in locating materials. It provided for cancellation in the event of violation of contingent-fee provisions. All Metals eventually paid a total of $2,200 to Tucker under this contract.

19. Procurement of Acme subcontract. There is no record of Tucker’s concrete accomplishments for All Metals in the form of business obtained through him until he informed All Metals of the possibility of securing purchase orders from Acme under Contracts 1213 and 8580. All Metals participated in some of the negotiation conferences between Acme and POD, which led to the award of Contract 1213 to Acme on January 27,1953. On the evening of that day Norris and Tucker met with Oppenheimer and Hopkins of All Metals and Norris gave All Metals verbal assurance of giving it a subcontract to manufacture chamber and vent assemblies, *388 which were components in the guns which Acme was to manufacture under Contract 1213. The fact is disputed, but it is reasonable to conclude that at least as of January 27, 1953, Oppenheimer of All Metals knew that Tucker was Acme’s agent, although the officials of Acme other than the conspirators were unaware that Tucker was serving simultaneously as agent for All Metals in procuring the subcontract. The only Acme personnel who were aware of Tucker’s double agency were Norris, Jack Epstein (see finding 1, supra), Philip Chagnon, and, of course, Tucker himself. By Acme purchase order No. 35986, dated February 2,1953, All Metals was issued a subcontract for the production of 2,322 chambers and vent assemblies at unit prices of $71.29 (target) and $81.64 (ceiling) for the chambers, and $51.66 (target) and $58.93 (ceiling) for the vent assemblies. The subcontract contained the following clauses:

CONTINGENT fees : Seller warrants that he has not employed any person to solicit or secure this contract upon any agreement for a commission, percentage, brokerage, or contingent fee. Breach of this warranty shall give Buyer the right to annul this contract, or, in its discretion, to deduct from the contract price or prices the amount of such commission, percentage, brokerage, or contingent fees. This warranty shall not apply to commissions payable by Seller upon contracts or sales secured or made through bona fide established commercial or selling agencies maintained by Seller for the purpose of securing business.

cancellation : (b) Buyer also reserves the right at any time whenever the prime contract is cancelled to cancel this order, or any part thereof, by written notice to Seller, even though Seller is not in default hereunder, and this order is subject to all the terms and conditions of the usual standard form of provisions of clauses providing for the termination of supply contracts for the convenience of the Government, and to all the terms and conditions of any prime contract to which this order relates. Thereupon Seller shall, unless the notice otherwise specifies, discontinue all work and the placing of orders hereunder and shall cancel all existing orders and subcontracts. Upon such cancellation settlement of any amounts due the Seller shall be in accordance with such equitable settlement of any approved and allowed by the Government as being reimbursable to the Buyer *389 tinder the prime contract. Buyer shall be under no liability for the payment of such settlement until it receives from the Government approval and allowance of Seller’s claim in respect of such settlement.

The subcontract price included latently the sales commission due Tucker from All Metals.

20. The “shakedown”. On or about February 17, 1953, Hopkins and Oppenheimer of All Metals were advised by Tucker and Jack Epstein (then superintendent of Acme’s Oreland plant and son of its president, Joshua Epstein), that All Metals’ purchase order 35986 from Acme would be canceled unless All Metals paid Jack Epstein $25,000 in cash. Jack Epstein falsely represented himself to be a vice president of Acme and Oppenheimer assumed erroneously that he had the power to cancel the subcontract and that Joshua Epstein was implicated, neither of which assumptions was true. Oppenheimer assumed that it was an “income tax dodge” of some kind. On the protest of Hopkins and Oppenheimer that All Metals was not financially able to meet this demand, Tucker and Jack Epstein suggested that, as an alternative, All Metals should let a contract for $23,500 to Gunn Engineering Company for “engineering services”, while Acme’s subcontract to All Metals would be increased commensurately. This alternative proposition had been cleared by Tucker and Jack Epstein with Norris beforehand. Gunn Engineering Company was a dummy corporation which had been organized on or about February 16, 1953, and was owned by Tucker, Norris and Jack Epstein, without the specific knowledge of Acme’s officers until around the time of the cancellation of Acme’s Contract 1213 in August 1954. All Metals accepted the alternative proposal under economic duress, and on February 18, 1953, All Metals issued a purchase order to Gunn Engineering Company for “Consulting Engineering Services and Tool Design as Per Verbal Agreement” for a price not to exceed $23,500 payable in installments. On the same day Acme issued purchase order 36108 to All Metals for chambers and vent assemblies which superseded the earlier purchase order of February 2 and increased the vent assembly prices by $10 per unit to cover *390 the amount extorted from All Metals as related above. Through May 5, 1953, a total of $12,000 was paid by All Metals to Gunn Engineering Company by check. Needless to say, Gunn Engineering Company rendered no services whatsoever to All Metals.

21. Effort to expimge consequences of Owrm purchase order.

(a) Following the May 5, 1953 installment paid by All Metals to Gunn, Tucker instructed All Metals to discontinue further payments, which All Metals did. In June 1953 Tucker told Oppenheimer that Norris was under official investigation and that he wanted to clear up the situation and cancel certain transactions that had been entered into. Principally Tucker wanted to erase the effect of the “shakedown” transaction narrated in finding 20, supra, and to create an appearance that he had not been All Metals’ paid agent dui*-ing the shakedown period.

(b) To accomplish this, on or about June 25,1953, Tucker gave All Metals a letter predated February 10, 1953 terminating his services contract with All Metals as of that date. Having previously in March 1953, for obscure reasons, assigned this services contract to one Philip Chagnon, who immediately reassigned it to Gunn, on June 25 by means of a “Pelease and Acknowledgement” backdated to March 20, 1953, Tucker canceled and voided these assignments. Oppenheimer then canceled by letter All Metals’ purchase order of February 18,1953 to Gunn. In furtherance of the fiction, Oppenheimer drafted a letter which he wanted Acme to send to All Metals, and sent this to Tucker’s residence with a covering letter. Under date of June 30, 1953, this letter on Acme’s letterhead (composed as stated by Oppenheimer) was sent by Norris to All Metals. It purported to reduce retroactively by $11.50 per unit the price in Acme’s second purchase order (No. 36108) to All Metals, which, as has been described, had increased the first purchase order by $10 as part of the “shakedown”. Since by this time All Metals had already delivered and billed Acme for one shipment (four units) under the second purchase order at the inflated price, the letter of June 30,1953 from Acme provided that a credit memorandum would be issued to Acme for $202.71, $41.04 *391 of which, represented the inflationary element in the invoice for the first shipment. Also, on June 30, 1953, a supplement was issued by Norris to Acme purchase order 36108 reducing the unit price of vent assemblies by $11.50, and halving the quantity of vent assemblies. On August 15, 1953, Acme paid the June 3 All Metals’ invoice after deducting the credit, and thereafter all invoices submitted by All Metals to Acme for completed shipments were paid at the corrected prices. All Metals corrected its books of account to reflect these price readjustments. As of June 30, 1953, its books carried as an uncharged expense the $12,000 which it had paid to Gunn up to May 5, and it was not charged in the books to the Acme subcontract for chambers and vent assemblies. All Metals’ accountant testified that the $12,000 was not included as a contract cost by All Metals directly or indirectly in either its original cost submission for termination purposes to the Army or in the damage schedule filed in the instant proceeding for audit under former Eule 28.

(c) The defendant concedes that by its revision of the second purchase order from Acme, All Metals reduced its price to less than the price in the first purchase order, but contends that the method of computation employed by Oppenheimer and Tucker in arriving at the amount of the reduction left in the ultimate cost figures the $12,000 which All Metals had paid to Gunn, so that its final price to Acme and its claim to the Government necessarily included a kick-back element in violation of the statute. Thus, the method of computation was as follows:

The sum as yet unpaid by All Metals to Gunn under the bogus purchase order was $11,220 (i.e., $23,220 less $12,000 already paid). This $11,220 was added to $15,487.74 (the 5 percent commission due Tucker for procuring the purchase order from Acme), and the resultant total of $26,707.74 was deducted from the price in the second purchase order No. 36108, thus providing a basis for a new unit price by dividing the number of units into the reduced total.

(d) The facts from which the parties reach opposite contentions are correct as stated. If we refer to the successive purchase orders from Acme to All Metals as the first, second and revised in the order of their issuance, it appears that *392 the prices charged by All Metals in the first and second purchase orders included latently Tucker’s commission, but the revised purchase order did not. The amounts paid to Gunn by All Metals were buried in the cost structure of the second and revised purchase orders but not in the first one. Since there is no evidence that All Metals made any effort to recover the $12,000 extorted from it by Gunn, it is concluded that, in its final cost structure on which its ultimate revised price to Acme was based, All Metals included the $12,000 paid to Gunn in exchange for a waiver by Tucker of the $15,487.74, which was technically owed him 1 for commissions and which had been indirectly included in All Metals’ cost structure underlying its initial price to Acme.

TUCKER’S DUPLICITOUS AGENCY EOR OTHER SUBCONTRACTORS

22. Manalapan.

(a) On November 10,1952, Tucker entered into an agreement with Jaime Kohan, trading as Manalapan Machine & Welding Works, whereby for a minimum six-month period Tucker was to be employed on a non-exclusive basis as sales representative to secure contracts for Manalapan to perform at a minimum weekly salary of $100 which was to be applied against commissions earned on business brought in. Tucker took Kohan to see Norris at the Acme plant to look over some blueprints for a potential subcontract. After some negotiations and the rejection by Acme of an initial price which was too high, Manalapan was given a series of purchase orders by Acme relating to the latter’s Contract 1213 during the period from February 1953 to July 1953. Only a portion of Manalapan’s various quotations were accepted. Some of the parts it furnished to Acme were unsatisfactory and required reworking. Manalapan’s prices to Acme included latently amounts paid by Manalapan to Tucker under the employment agreement described above. Pursuant to the employment agreement Manalapan paid Tucker $428.50 from November 21, 1952 to December 29, 1952 (which was prior to Manalapan’s purchase orders from Acme) and *393 $1,350 from February 16, 1953 to May 15, 1953 (which, was during the performance by Manalapan of its purchase orders from Acme). Tucker shared these payments with Norris pursuant to their agreement. Not all of the work which. Manalapan received from plaintiff was the result of Tucker’s efforts, for after the discontinuance of Tucker’s agency for Manalapan it received requests from Acme for quotations.

(b) There is some confusion between Jaime Kohan, trading as Manalapan Machine & Welding Works, and a corporation by the name of Manalapan Machine Works, Inc., organized January 2, 1953. Jaime Kohan had no financial interest in this corporation but eventually served as its superintendent. His son was a principal in the corporation. The corporation received and performed some of Acme’s purchase orders until November 1953, when it discontinued due to lack of funds. Other purchase orders were received and performed in the name of the individual proprietorship. Thereafter, at Acme’s request and with the consent of the Manalapan Machine Works, Inc., Jaime Kohan, trading as Manalapan Machine & Welding Works, continued the work under the corporation’s purchase orders until they were canceled. Acme treated both of the Manalapan companies interchangeably as a single legal entity. The corporation did not file a claim with the defendant, but the individual proprietorship did. The payments to Tucker described above were made by the individual proprietorship.

(c) Jaime Kohan of Manalapan knew or should have known that Tucker was an employee or agent of Acme at the time of their relations described above. The officers of Acme (as distinct from Norris, Tucker, Jack Epstein and Chagnon) did not know until after cancellation of Contract 1213 that Tucker was a paid agent for Manalapan.

23. Foley Machine Company. Foley Machine Company had been doing business for several years with Tucker, Sr., the father of Tucker, Jr. Norris and Tucker, Jr., had formed the Neptune Manufacturing Company, Inc. Foley knew that Neptune was Tucker’s company. On January 24, 1953, Foley contracted on a contingent basis with Neptune for the latter’s services in securing subcontracts from Acme, *394 agreeing to pay it 5 percent of tlie gross amount of all orders or business which Neptune might get for Foley from Acme, with a weekly drawing account of $75 to be applied against commissions. Thereafter, Foley met with Tucker at the A cm pi plant to review the prints under the 1213 contract. At that time Foley knew or should have known that Tucker was an employee or agent of Acme. On February 10, 1953, Acme issued a purchase order to Foley under its Contract 1213. Foley sent two checks to Neptune for $75 each, dated February 12 and 19, 1953. By a document dated February 27,1953, and signed by Tucker, the contingent fee agreement of January 24 between Neptune and Foley was canceled. The two checks referred to above, which had not been deposited by Neptune, were returned to Foley. Defendant contends that Acme included the contingent fees paid to Neptune by Foley in its schedule of costs filed in this court pursuant to former Eule 28, that the contingent fee which Foley had agreed to pay Neptune constituted an improper and illegal cost and expense incurred or paid by plaintiff and/or Foley, and that it constituted an illegal kickback under 41 U.S.C. 51. Undoubtedly, the price charged by Foley to Acme in the purchase order included latently an amount sufficient to pay the contingent fee. The officers of Acme (as distinct from Norris, Tucker, Jack Epstein and Chagnon) did not know until after cancellation of Contract 1213 that Tucker and Norris were paid agents for Foley through the medium of Neptune.

24. Nicholson Products Company. In June 1952 Nicholson Products Company entered into an agreement with Tucker, Sr., hiring him at a minimum salary of $200 per week for his services in procuring customers. The agreement provided for an eventual increase in compensation to equal 5 percent of weekly gross sales up to $20,000 and 3 percent over that from all new business for which Tucker, Sr., was responsible. Through arrangements made by Tucker, Sr., Nicholson’s president visited Norris at Acme to obtain details of a subprocurement. Nicholson then obtained some subcontracts from Acme under Contract 1213 and paid commissions to Tucker, Sr., on such subcontracts. *395 There is no evidence that any responsible officers of Acme were aware of this matter.

25. Johnson and Kunz. After Norris was hired by Acme as general manager of the Lansdale plant he hired as his assistant at $150 per week one Philip Chagnon, who had been associated in previous business relations with Norris since 1944. Chagnon performed some expediting work but his duties for Acme were principally clerical in nature. He entered into a private agreement with the firm of Johnson and Kunz to be paid a commission on any business he obtained for the latter. At Chagnon’s recommendation Norris awarded a subcontract to Johnson and Kunz under Acme’s Contract 1213. Johnson and Kunz paid commissions of $900 to Chagnon by checks made out to a mythical Robert Skill-man, Chagnon’s pseudonym. The checks were endorsed and cashed by Chagnon. No other Acme employee was aware of Chagnon’s private commission arrangement. He used a pseudonym as a cover because he understood that the Federal Bureau of Investigation had commenced an investigation of certain aspects of Acme’s performance under Contract 1213.

DEPARTURE OP THE CONSPIRATORS

26. Norris. From May to July 1953 Norris used several Acme employees to perform work on his farm, charging the labor cost of $895.52 and travel expenses of $150 against Contract 1213 on Acme’s books. This matter was brought to the attention of Joshua Epstein, Sidney Cohen and Jack Epstein of Acme by an FBI agent who had investigated it. They disclaimed prior knowledge of it. Jack Epstein recommended that the labor costs should be charged against Norris’ account and thus credited to Contract 1213 to remove the charge, but this was not accomplished. On September 4,1953, Norris was discharged with the following letter from Joshua Epstein:

We are obliged to advise you that your services with this company are terminated immediately because of:

A. Your improper conduct and unauthorized expenditures, involving contracts with agencies of the United States Government, which resulted in your being investigated by the Federal Bureau of Investigation;

*396 B. Your voluntary abandonment of your duties, without excuse or permission;

C. Other reasons well known to you, not necessary to relate in detail.

We are making formal demand for reimbursement of all unauthorized withdrawals, or improper charges for salaries, moneys, value of materials or otherwise.

On September 11, 1953, Acme wrote to POD requesting the correction of the latter’s records showing Norris’ elimination as General Manager and his replacement by Jack Epstein as plant superintendent.

27. Tucher. Effective October 17,1953, Acme reduced its weekly payment to Tucker to $250, and effective the week ending November 11,1953, Tucker’s services with Acme were terminated for reasons which are not specified in the record.

28. Ohagnon. At the end of November 1953 Chagnon left Acme’s employ.

29. Epstein. On November 23, 1953, Jack Epstein executed a false affidavit that at no time had he received any commission, etc., from any Acme subcontractor or supplier in connection with Government contracts. On August 28, 1954, he resigned from Acme.

30. Knowledge of Joshua Epstein. POD had advised Joshua Epstein on several occasions prior to the removal of Norris and Tucker that Tucker, Sr., was known to be a five-percenter in Government contract circles and that it was risky to hire his son, Tucker, Jr. Joshua Epstein did not consider this advice to be worthy of reliance, and as late as June 1955 asserted that he had found Norris and Tucker to be willing and competent workers and that their hiring had 'been justified. From the circumstances related in findings 26 through 29, supra, relative to the removal of the conspirators from Acme’s payroll, particularly the inferences contained in the letter discharging Norris (finding 26, supra) and the contents of Jack Epstein’s affidavit (finding 29, supra), it is reasonable to conclude that during the late summer and fall of 1953 some information had come to Joshua Epstein’s attention leading him to suspect that the conspirators (including his son) had engaged in some improper activities. Eather than expose the culprits he induced their removal for suspected cause. Joshua Epstein was not called *397 as a witness in the trial of the instant case. Jack Epstein’s delayed resignation is understandable in view of the relationship which existed.

31. Prosecution of conspirators. Tucker, Norris and Jack Epstein were indicted for violation of the Anti-Kickback Law (41 U.S.C. 51, 52, 54). On April 13,1956, after presentation of the Government’s case, the defendant’s motion for acquittal was granted (see finding 54(j), infra). The court, inter alia, said:

* * * I may say that I have been shocked at the sordid picture that has been exhibited here in this case. I have never seen such an exhibition of disloyalty to an employer as has been exhibited in the actions of these three men.

* * * the picture of a scheme set up, not only to increase the cost to the employer, but also to increase the cost to the United States, for a few paltry dollars, shows complete larceny in the hearts of these three defendants. They thought they were doing something crooked, and that is clear from the actions they took in effectuating this scheme. The scheme was despicable and morally reprehensible, but unfortunately within the narrow letter of the law.

This statute, as I see it, does not cover the contract in this case. I am intellectually certain that this is not the type of contract that is covered by the Act of March 8, 1946, being Title 41, Section 51, of the Act. There is nothing that I have seen in any of the regulations or in the congressional history which would indicate to me that there was any intention on the part of Congress to cover this particular type of contract. It may well be that Congress thought that in this type of contract the employer would be the one that would protect the interests of the United States, but no employer can protect himself against treacherous employees who are determined to commit morally reprehensible acts and who, for the sake of a few paltry dollars, set up the type of vicious scheme that has been set up in this case, which resulted in increased cost both to the employer and to the United States.

Therefore, it seems to me that the proper remedy in this case is that if Congress so feels, it should expand the provisions of Title 41 to cover just this sort of machination on the part of trusted employees; and I am ordering that my remarks here be transcribed, filed of record, and that the United States Attorney be furnished two copies *398 so that if he wishes he may transmit a copy of my remarks to the Attorney General of the United States, to the end that Congress may if it so desires amend this Act to include as a crime the vicious and immoral type of conduct that has been exhibited in this case.

This case clearly showed that the employer was victimized, and I would say indirectly the United States was also, but the defendants were narrowly within the law. I don’t know what type of action the employer may take against these employees, but I do say that I have nothing but contempt for their actions. Unfortunately, they are without the purview of this particular statute.

ALLEGED IMPROPRIETIES INVOLVING GOVERNMENT EMPLOYEES

32. Hochstuhl.

(a) After Contract 1213 was awarded to Acme, Charles G. Hochstuhl of POD was assigned to administer it, along with a number of other contracts, under the immediate supervision of Harry Oschwald. In this capacity Hochstuhl journeyed to Ohio in March 1953 in the company of Acme officials to show them existing gun-manufacturing facilities. On his return to POD he submitted a voucher for his per diem and other trip expenses, and was paid the same. Adolph Gromada of Acme had paid $12.50 for Hochstuhl’s hotel room charges on the trip, and this expense was charged by Acme against the contract in suit. On another occasion Acme charged against the contract hotel and meal charges for visitors, apparently Government employees, from Water-vliet Arsenal. Hochstuhl’s duties at POD in connection with Contract 1213 included recommending changes in the delivery schedule, for review by Oschwald.

(b) Hochstuhl was removed from his position with POD effective August 4, 1953 “* * * for making material false statements and exaggerations on your application standard Form 57”, relating to some prior private employment. During his notice period he looked for other employment and was employed by Acme in August 1953 immediately after the termination of his employment at POD. POD advised Acme at the time, in Hochstuhl’s words, that he “would be limited for a period of two years after being separated from the Government, which would restrict [him] in not negoti *399 ating any prices or any legal matters, any technical involvements of the contract, as a contractor’s representative to any individml Government employee.” If POD’s advice to Acme was in writing it is not in the record.

During the first few weeks of his employment by Acme he helped Norris as an expediter of subcontracted components. After Norris was discharged in September 1953 and replaced by Jack Epstein as superintendent of the Lansdale plant, Hochstuhl was appointed as Epstein’s assistant. As such he was given a variety of assignments, all of them relating in one form or another to paperwork. He helped to establish a control system for subcontracted work, correlated many details relating to Acme’s several Government contracts, maintained quality control records, prepared letters to Ordnance from Acme for signature by others, correlated plant inspections by inspectors for Acme and the Government, handled various matters with reference to the records concerning Government-furnished machines and tools, and helped with preparation of requests for change orders. He did not make personal contacts with Government representatives in connection with Acme’s Government contracts.

In the fall of 1953 he came across a number of vouchers and other cost records in Acme’s files which related to repairs made by Acme to Government-owned machines supplied under the Facilities Contract 1214. On his own volition and in the interest of keeping adequate cost records should need arise for them, he undertook to segregate and allocate the cost records to individual machines, and thereafter as additional repairs were made to the machines he kept a running record of them as to each machine. There is no suggestion that this record in its inception was made for the purpose of a claim by Acme, since as of the fall of 1953 there was no prospect of the contract cancellation in July 1954. Under date of January 1954 he prepared a chart which depicted certain facts pertaining to Government-furnished machines, such as when they were ordered and received, the periods they were out of operation or not functioning properly and the reasons, and the nature and cost of repairs.

In September 1954 at the direction of his superiors, Hochstuhl prepared an up-to-date record of Acme’s expendi *400 tures in repairing the various Government-owned machines. This record was based on the records he had compiled a year earlier and had kept current in the meantime. The cost record was attached to the letter from Acme (signed by Mr. Cohen, its secretary-treasurer) to POD on September 7, 1954, in which plaintiff refused to return the machines to the Government unless POD gave assurance that Acme would be reimbursed for its cost of repairs. These facts are set forth in finding 53, infra. Other than as described there is no evidence from which it could possibly be inferred that Hoch-stuhl prosecuted a claim against the Government as Acme’s agent.

33. Lee. Acme was experiencing difficulty in getting into production with the machines and tooling furnished by the Government. At Acme’s request Watervliet Arsenal ordered Harold J. Lee, a machinist lead foreman at the Arsenal, to report to plaintiff’s Lansdale plant for the purpose of assisting plaintiff in its technical problems. Under his official orders Lee worked at plaintiff’s plant from his arrival on April 20 until April 24,1953, at Government expense. Plaintiff requested the Arsenal to loan Lee’s services for an additional week at Government expense, but this was refused. Instead, Lee was given official permission to remain at the plant, advising plaintiff in an absent-without-pay status from April 27 to May 1,1953. During this latter period he worked 96 hours and was paid by the plaintiff $470 plus his hotel expenses, at the rate of $5 per hour compared to his Government salary rate of $2.60 per hour. The amount paid by Acme to Lee were charged against Contract 1213. Plaintiff was pleased with Lee’s services and commended him to Watervliet Arsenal. Upon his return Lee filed with the Arsenal a trip report. There is no evidence of any improper conduct on the part of plaintiff with reference to Lee. Lee’s observations of the plaintiff’s operations and the nature of his services are described in finding 39(b) (1), infra.

CAXTSES OE PLAINTIEP’S productioN delays

34. Prefatory statement. The plaintiff contends that the defective condition of certain items of machinery furnished by the defendant under a so-called Facilities Contract, some *401 of which machines were also used by its subcontractor, All Metals, was responsible for its inability to adhere to the original and subsequent delivery schedules under Contract 1213. Acme also asserts that the defective machinery caused not only the incurrence of unreimbursed costs of machinery repairs in excess of those anticipated, but also the delays which led to the assessment of liquidated damages for delinquency in deliveries. Plaintiff seeks to recover these costs and to have remitted the liquidated damages which have been withheld. The defendant contends that the machinery it furnished plaintiff was not defective but was usable, that plaintiff’s difficulties in its use were attributable to improper installation and operating incompetence, that plaintiff’s actual cost of repairs and installation was well within its original estimate, that $44,358.58 of the amount spent by plaintiff for special tooling was included in its bid price (as amended by Supplemental Agreement No. 6) and the balance was plaintiff’s responsibility under the terms of the Facilities Contract, and that the part of plaintiff’s delays not attributable to its own deficiencies was attributable to the failure of All Metals to adhere to subcontract delivery schedules.

35. Facilities Contract. Clause 4 of Contract 1213 provided that plaintiff would have the right to use certain Government-owned machinery enumerated in the so-called Facilities Contract (No. DA-36-034^ORD-1214F) entered into between the parties simultaneously with Contract 1213, although not fully executed until February 27,1953. The Facilities Contract contained the following selected provisions:

Titee II

GOVERNMENT FURNISHED FACILITIES

ARTICLE H-A. DELIVERY.

1. The Government shall furnish to the Contractor the facilities described in Schedule “B”, attached hereto and expressly made a part hereof, for use in the performance of certain supply contracts, identified in Article IV-A. The Government shall deliver, or has already delivered, such Schedule “B” facilities at the time or times stated in such Schedule or if not so stated in sufficient time to enable the Contractor to perform the affected supply contract (s). If any such facilities are *402 not delivered to the Contractor by such time or times, or are delivered in such condition as to require repair or rejection pursuant to the provisions of Paragraphs 2 and 3 of this Article, the appropriate Contracting Officer, upon written request of the Contractor, may equitably adjust the price, the time of performance, and other terms and conditions of the affected supply contract (s). In no event shall the Government be liable to the Contractor for damages or loss of profit by reason of any delay in delivery or failure to deliver any or all of the items set forth in Schedule “B”, or for delivery of such items not in satisfactory operating condition or not of a suitable type. Any failure by the parties hereto to agree upon such equitable adjustment shall be determined in accordance with the article of the related supply contract (s) entitled “Disputes”.

2. In the event Schedule “B” items are not in fit operating condition, the Contractor shall repair, restore, or rehabilitate such equipment so as to make it serviceable or fit for use (cost connected with such repairs, restoration, or rehabilitation shall not be reimbursed to the Contractor).

3. The Contractor reserves the right to reject any Schedule “B” facilities which are not of a suitable tj^pe or not in fit operating condition, or are not reasonably capable of being restored, repaired, or rehabilitated so as to make them serviceable.

ARTICLE II — B. INSTALLATION.

The facilities under this Title shall be installed by the Contractor in its plant or plants or, if approved in writing by the Contracting Officer, for temporary use in the plants of first tier subcontractors. All such facilities installed in plants of first tier subcontractors will be operated and maintained in the same manner as the facilities located in the Contractor’s own plant or plants and the conditions of this contract shall apply to such facilities. It is the responsibility of the Contractor to see that all provisions contained in the contract for the protection of the Government’s interests in said facilities will be incorporated in the agreement under which such facilities are so placed.

ARTICLE H-C. TITLE.

Title to all property furnished by the Government shall remain in the Government. Title to the property furnished by the Government shall not be affected by the incorporation or attachment thereof to any property not owned by the Government, nor shall such Govern- *403 meat property, or any part thereof, be or become a fixture or lose its identity as personalty by reason of affixation to any realty.

Title III

COST OE THE WORK AND PAYMENT THEREEOR

ARTICLE HI-A. REIMBURSEMENT EOR CONTRACTOR’S EXPENDITURES.

1. For the performance of this contract, the Government shall pay to the Contractor the costs and expenditures determined to be allowable in accordance with Section XV, Armed Services Procurement Regulation, as in effect on the date of this contract (such section being hereby incorporated and made a part of this contract by reference) for the following:

a. Cost of facilities procured from sources other than his own manufacture:

(1) The net invoice price ther of.

(2) The cost of transportation to the Contractor’s plant or other place of installation of said facilities, provided, however, that no reimbursement shall be owing to the Contractor hereunder when the invoice price described in subparagraph (1) has included the cost of transportation.

(3) Allocable overhead and general and administrative expenses.

(4) Any Federal, State or Local taxes arising from the acquisition for or delivery of such facilities to the Government.

b. Facilities manufactured by the Contractor: (other than those items included in subparagraph (c) below) :

The costs incurred by the Contractor in manufacturing facilities hereunder as determined in accordance with Section XV of the Armed Services Procurement Regulation.

c. Standard or commercial items manufactured by the Contractor in accordance with provisions of Article I-A-5.

2. Costs and expenditures for the following will not be reimbursable hereunder:

a. Installation of facilities furnished by the Government (Schedule “B” facilities).

b. Installation of facilities acquired or manufactured hereunder (Schedule “A” facilities).

c. Plant rearrangement, rehabilitation and incidental construction necessary for the installation of facilities.

*404 SCHEDULE “b”

2 — #4 Rifling Machines 2 — Boring Lathes 2 — Honing Machines 2 — Boring Bars 14'6" each

1 — Boring Bar 18'8" to be modified for the rifling machine

1 — Honing Bar & head complete

2 — Rough Reamers complete 2 — Finish Reamers complete 1 — Set of Babbitts

1 — Set Broach Rifle Cutters 1 — Rifling Plead

Plus Manufacturing Aids available from Watervliet Arsenal.

All items of Schedule “B” shall be furnished f.o.b. Watervliet Arsenal, and Contractor shall bear the cost of freight, installation and repairs without reimbursement by the Government.

By letter dated January 27, 1953, Acme (per Norris and Chagnon) advised POD that the contractor would bear the expense of transporting, installing and repairing the two rifling machines, two boring lathes, and two honing machines listed in Schedule “B” of the Facilities Contract.

36. Description of machines furnished. The defendant furnished the plaintiff with a total of 19 machine tools, six of them under the 'basic Facilities Contract, and the balance under supplements 1, 2 and 3 thereto, issued in May 1953, and in January and April 1954. The following schedule describes each of the machines by name, gives its Government tag number for identification purposes, provides where known the date of manufacture of each machine and its cost when new, the date received by the plaintiff, and the condition of each machine. 2 [See schedule on page 93.]

Items numbered 1 through 11 in the foregoing schedule were authorized by Contract 1214 and Supplement 1 thereto, and as to them the plaintiff was contractually obligated to bear the cost of freight, installation and repairs without reimbursement from defendant. The remaining items 12 through 16 in the schedule were authorized by Supplements 2 and 3

*405

*406 to Contract 1214, and as to them the plaintiff was contractually obligated to bear the cost of freight to its plant without reimbursement from defendant. As consideration for use of defendant’s machines listed in the above schedule (except Items 1 through 6 for which there was no charge), the plaintiff agreed to a reduction of its Contract 1213 price by $18,602.55.

37. How to make a gun barrel. The plaintiff subcontracted the manufacture of the principal components of the rifle, except for the barrel which it manufactured in its plant at Lansdale. The plaintiff’s manufacturing process for the production of rifle barrels consisted in general of the following sequence of operations:

(a) A seamless tube or forging furnished to plaintiff by the defendant was brought to a rough finish of the prescribed inside diameter of the barrel on a horizontal boring lathe, sometimes referred to as a reamer. The tube was placed on the lathe and secured firmly. A cutting tool of appropriate size was placed tightly on the head of a boring bar. The machine then pushed the boring bar with the cutting tool at its head through the gun tube and as it rotated the cutting tool removed the metal evenly from the inside diameter of the tube until the desired dimensions were obtained.

(b) The tube would then be cut on a lathe to form the outside dimensions, including the taper of the barrel.

(c) The tube or barrel would then be placed on a honing machine for honing the interior of the barrel to the dimensions and smooth finish required, the honing being performed by a series of honing stones being passed through the tube on the end of a ram.

(d) Following this the rifling grooves were cut in the interior of the barrel by means of a rifling machine or broach. The barrel was placed on the machine and secured firmly. The appropriate size cutter blade was placed on the head of a rifling bar and fastened securely in place. To obtain the desired rifling the machine then pushed the rifling bar with the cutter at its head through the barrel in a spiral motion imparted by means of a key riding in a curved groove around the rifling bar. The machine then withdrew the bar from the barrel and the next larger size cutter was placed on the *407 bar and the operation was repeated. The process continued with a larger size cutter blade being used on the head of the bar on each successive pass until the rifling or grooves inside the barrel were sufficiently deep and accurate to meet specifications.

(e) Finally, the breach end of the barrel was threaded on a thread miller and the barrel was paced off to the required length.

38. Installation of machinery.

(a) The schedule in finding 36, supra, shows that most of the machines furnished plaintiff by the defendant arrived at the Lansdale plant at various dates from February 13 to June 9, 1953. They were large and heavy, ranging in length ■up to 35 feet and in weight up to 40,000 pounds. For proper operation such machines must be absolutely level and be solidly fixed to foundations to prevent misalignment, vibration and movement. The building housing the Lansdale plant had formerly been a hosiery mill. It had a concrete floor, the thickness of which was disputed by the witnesses, whose estimates varied from three to five and one-half niches. An older section of the floor in the back of the plant where the large boring lathes were installed was repaired by plaintiff, but the remainder of the floor area was more recently constructed of reinforced concrete. The previous occupant had installed and operated knitting machines on the concrete floor. Knitting machines are not as heavy as the machines loaned by defendant to plaintiff to make gun barrels.

(b) There is a wide discrepancy in the testimony of the witnesses as to the adequacy of the plaintiff’s installation of the machines in question, some of the testimony being diametrically contradictory. In general the plaintiff’s witnesses testified that the legs of the two boring lathes were solidly based in specially excavated and poured concrete foundations four feet square and four feet deep, that the other machines were bolted to steel plates laid on top of the newer part of the concrete floor and were anchored to the floor by one inch round bars driven three feet deep into the floor and grouted in, and that, although one of the rifling machines vibrated at first, that was quickly corrected and thereafter none of the installed machines broke through the concrete *408 of moved when in operation. On the other hand, several witnesses produced by defendant had been employed by plaintiff at the Lansdale plant for various periods in 1953 and 1954 and conveyed a radically different impression. They testified collectively that improper bedding of the machines caused them to vibrate in operation and to go out of alignment so that the high tolerances required in the end product could not be consistently achieved; that the honing machine delivered in October 1953 was the only machine which was properly installed at the outset and none of the other machines delivered earlier was properly installed; that they caused the concrete to crack because of vibration; that Gromada (plaintiff’s plant engineer, deceased at time of trial) refused to heed advice to reset the machines because of cost; and that one of the machines had to be shored up with wedges to make it level.

(c) In weighing conflicting evidence on this point due consideration must be given to the fact that none of the official reports of plant operations made by defendant’s personnel (so far as is contained in an otherwise voluminous record) make reference to inadequate installation as contributing to plaintiff’s problems in operation of Government-furnished machines. Moreover, if it were to have been a serious factor at the time it is reasonable to believe that the plaintiff would naturally have taken immediate steps to correct the error early in the period of performance rather than permit it to go uncorrected and to plague all subsequent operations, for neither the cost nor the time in reinstallation would have been such as to warrant placing the entire contract in jeopardy by not correcting defects in installation. It is therefore concluded as a matter of fact that improper installation of machinery played a relatively unimportant role in plaintiff’s production problems.

39. Condition of government-furnished. machines.

(a) Historical records. Watervliet Arsenal, which supplied the machines to the defendant under the Facilities Contract, maintained a so-called “historical record” on each item of Government-owned machinery in its possession. The historical record described each particular machine in detail, *409 listed its accessories, recited its successive uses, and reported its condition by means of a code as shown in the schedule included in finding 36. The historical record was not an entirely reliable reflection of the condition of the equipment, for not only did it have some gaps in the sequence of uses, but also the condition reported by code was based on visual inspection in most cases instead of on operating experience, whereas certain types of defects would become apparent only in the course of operation. The historical record also did not relate the experience which previous users had with the machine. Watervliet Arsenal did not test the machines to determine their operability prior to delivering them to plaintiff. When the Government supplies a contractor with a Government-owned machine tool under a Facilities Contract, it certifies only that the machine is capable of performing a certain function as indicated in the historical record, and does not certify that the machine is equipped with all the special tooling and accessories needed to manufacture a variety of weapons. The terms “special tooling” and “accessories” are different, but the difference is difficult to define and the terms are often used interchangeably with reference to particular devices used as adjuncts to the basic machine.

(b) O ontemporcmeom writings relative to condition. Throughout the period of contract performance the plaintiff frequently complained to the defendant that the Government-furnished machines were defective, and on numerous occasions the defendant sent inspectors and other technical personnel to investigate the complaints and to render assistance to plaintiff. Some of the complaints and reports of inspectors throw contemporaneous light on the condition of the machines and are quoted herein in pertinent part or are paraphrased.

(1) Under date of May 4, 1953, Harold J. Lee, machine shop foreman at Watervliet Arsenal, prepared the following report of his visit to the Lansdale plant from April 20 through May 1, 1953:

facts:

On arrival I found that the contractor lacked a considerable amount of necessary small tooling. I pointed out what was lacking to the Shop Superintendent and they proceeded to either make or procure what was *410 needed. For example, they had no keys with which to key their broach head to the bar or key the adapters. They had no bore sizer, and had no plugs for turning.

They were using a follow rest in lieu of a guide rest for starting reamers and it was proving unsatisfactory so I suggested this be changed. They replaced the follow rest with the proper bushing guide support and made new bushings. I also found a great deal of variation in the sizes their reamers were made to. This condition was corrected along with suggestions I made in regard to the method of holding the carbide tips. I found after all the conditions were corrected that the first reamer had insufficient stock removal so I suggested elimination of the first reamer. This proved quite satisfactory. The bores came straight and the reamers held size plus the fact that it cut the boring time in half, and eliminated the maintenance on one reamer. When I left they were boring at the rate of approximately nine tubes per nine hour shift; one shift per day.

On the hone they were having trouble with sufficient stock removal. This was corrected by reversing the stones every five passes. Ordnance inspection was not satisfied with the finish being produced, and I had them change the coolant from Houghton honing oil to 60% Union base and 40% kerosene. I also recommended three hundred and twenty (320) grit stones manufactured by either Norton or Bay State. They also have difficulty inasmuch as the honing head is designed for hydraulic expansion and the machine did not have the hydraulic attachment. However, this equipment arrived at the plant the day I left. They also have no satisfactory method of measuring sizes in the machine. They have a short gauge that checks the bore size for about 12 inches on each end, but they need something faster and that will give a more complete check.

[Nora: Mr. Lee testified that the lack of a hydraulic attachment did not affect the function of the machine but did lessen its efficiency.]

The second day after my arrival I suggested that they have their rifling bar checked for twist. Mr. Gromada assured me that it had been checked; however I questioned this, so they finally agreed to check it again. I instructed them in the proper procedure and I found that the twist was one turn in 25 cal. instead of the prescribed one turn in 22.

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