Petition for Writ of Certiorari — Unisys Corp. v. United States

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R & ~4 1 #) Supreme Court, U.S.

. FiLED

SEP 7 1988

<n pienaamamaes | YOSEPH F. SPANIOL, JR.

IN THE

Supreme Court of the United States

OCTOBER TERM, 1988

UNISYS CORPORATION,

Petitioner,

UNITED STATES OF AMERICA,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

BERNARD FRIED CLARENCE T. KIPPS, JR.*

NORMAN A. STEIGER JOHN LLOYD RICE

UNISYS CORPORATION MILLER & CHEVALIER, Chartered

655 Fifteenth Street, N.W.

Washington, D.C. 20005

(202) 626-5840

* Counsel of Record

PR ENA SS RN IRR ORTBIT OREO TAMAR CS ROE ER

WILSON - EPES PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001

QUESTIONS PRESENTED

1. Whether the United States Court of Appeals for

the Federal Circuit (“Federal Circuit”) may properly

avoid enforcing the Order of Precedence clause, which is

a widely used disputes prevention clause, by saying that

patently inconsistent clauses can be harmonized, when

Government procurement is about $200 billion a year and

Government contract disputes already total billions of

dollars?

2. Whether the Federal Circuit, contrary to estab-

lished doctrine, may properly construe an ambiguous op-

tion provision in favor of rather than against the drafter

and loosely rather than strictly?

(i)

TABLE OF CONTENTS

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REASONS FOR GRANTING THE WRIT ....................

Il.

III.

IV.

The magnitude of Government procurement and

the importance of the disputes prevention and

resolution procedures require the Federal Cir-

cuit to enforce the disputes prevention clauses

and provide doctrinal stability —..........000000200000000....

The Federal Circuit may not properly avoid en-

forcing the Order of Precedence clause by saying

that patently inconsistent clauses can be har-

ONC rT

The Federal Circuit may not properly disregard

the Federal rule of construction against the con-

EE EET EES SORTS TORT

The Federal Circuit may not properly disregard

the strict construction of option principle ..........

I ii dicidinsiel nbenilenaesasensbatilhvcestitanncvsesnimesinsnee

APPENDIX

Appendix A CAFC Opinion.......................0.000....

Appendix B Claims Court Opinion ..........0..000000000...

Appendix C Board Opinion ..........00....00000000000.00...-..

Appendix D Claims Court Judgment ............002.......

Appendix E CAFC Order Denying Panel Rehear-

| EERE ATE TRE a ane nee

Appendix F CAFC Judgment ...........0.0...00000000000....

Appendix G CAFC Order Denying In Banc Hear-

Oe cusaoman

Appendix H Contracting Officer’s Memorandum..

(iii)

Page

15a

40a

77a

78a

79a

80a

8la

TABLE OF AUTHORITIES

Cases: Page

Consolidated Diesel Elec. Co. v. United States, 533

a Ee LGR, Gs Be werenicnintstnttisnsitbiiasatintnieincs 14

Cummings v. Bullock, 367 F.2d 182 (9th Cir.

| ON ene EAM SUM rr BR 3 TS SL 15

General Dynamics Corp., ASBCA No. 20882, 77-1 |

GS Senate NERS Me are Cw vt eh CO lees 15 )

Gorn Corp. v. United States, 424 F.2d 588 (Ct. Cl.

I ciateinscaiecrstticeate tiinitaiilliedctigsiicalisineepeiniiadaliniteaais tits 14 )

H & M Moving, Inc. v. United States, 499 F.2d 660 |

SEE A ID suiendinetiaicsipidemeghaclaiiibadinbibaibids 13

J.E.TS., Inc., ASBCA No. 26135, 82-2 BCA |

ON ee ee 15

Lear Siegler, Inc., ASBCA No. 12164, 69-1 BCA )

, RDB ene nie tee a chine 15

Peter Kiewit Sons’ Co. v. United States, 109 Ct. Cl. |

BP MINED sisiceicrcocernsiontaeisceinip ithiioncnsusiacaitanaaananiadbaniies 14

Space Age Eng’g, Inc., ASBCA No. 22901, 78-2

Re Se esirvtntbcctae eee 15

Sturm v. United States, 421 F.2d 723 (Ct. Cl.

I idecesiatenitiateacnisbb icing cbiiainaiig ici: tanldidbideaapaliibiia 13

Sun Shipbuilding & Dry Dock Co. v. United States,

Be ¢ £ + fh Seay 13

Trio-Tech, Inc., VACAB No. 598, 68-1 BCA {] 6828.. 17

United Pac. Ins. Co. v. United States, 497 F.2d

TR | RRR UE See Sedna nan: Mr x RO 14

United States v. Seckinger, 397 U.S. 203 (1970)... 4,13

United States v. Turner Constr. Co., 819 F.2d 282

CR er EN 14

Statutes :

I i 2

Regulations:

ASPR §§ 1-1502 to 1-1504 (1974) 20002. 15

PE EE TR IC CEI 17

DAR §§ 1-1501 to 1-1503 (1983) 00. 15

TABLE OF AUTHORITIES—Continued

Legislative Materials: Page

H.R. Rep. No. 1300, 96th Cong., 2d Sess. (1980) .... 7

Miscellaneous:

4 Williston on Contracts § 620 (3d ed. 1961) ........... 15

IN THE

Supreme Court of the United States

OCTOBER TERM, 1988

No.

SPERRY CORPORATION,

Petitioner,

Vv.

UNITED STATES OF AMERICA,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

Petitioner, Sperry Corporation,’ respectfully prays that

a writ of certiorari issue to review the judgment and

opinion of the United States Court of Appeals for the

Federal Circuit entered in this proceeding on April 21,

1988.

OPINIONS BELOW

The opinion of the United States Court of Appeals

for the Federal Circuit (App. at la-l4a)* is reported

at 845 F.2d 965. The opinion of the United States Claims

‘Sperry Corporation was merged into Burroughs Corporation

as of November 12, 1986. Burroughs Corporation changed its

name to Unisys as of November 13, 1986. Unisys has no parent

company, subsidiaries or affiliates.

2 “App.” refers to the Appendix to this Petition.

Court (App. at 15a-39a) is reported at 9 Cl. Cts. 488.

The opinion of the Armed Services Board of Contract

Appeals (App. at 40a-76a) is reported at 83-2 BCA

7 16,841.

JURISDICTION

The judgment of the Court of Appeals (App. at 77a)

was entered on April 21, 1988. A timely petition for

panel rehearing was denied on June 9, 1988. (App. at

78a). This petition for certiorari was filed within 90

days after that date. This Court’s jurisdiction is invoked

under 28 U.S.C. § 1254(1).

STATEMENT OF CASE

By failing to apply the plainly applicable Order of

Precedence clause, the Federal rule of construction

against the drafter and the settled rule of strictly con-

struing options, the Federal Circuit transformed a rela-

tively routine case into an enormously important Govern-

ment contract case justifying this Court’s review. The

result of the Federal Circuit’s decision is to create chaos

rather than doctrinal stability and increase disputes and

litigation, which already involve billions of dollars. This

decision undermines the very reason for the Federal Cir-

cuit’s existence.

The Government spends about $200 billion a year for

the purchase of a wide variety of products and services,

including sophisticated weapons systems, construction of

dams, roads, and buildings, and research and develop-

ment to advance the state-of-the-art. Contract clauses

and the Contract Disputes Act of 1978 provide carefully

developed and coordinated contractual, administrative

and judicial procedures to prevent and resolve Govern-

ment contract disputes.

Most Government contracts contain special provisions

tailored to fit the particular acquisition, general provi-

sions included in all Government contracts, and a multi-

tude of other documentary data such as statements of

es es SS

work, drawings and specifications. Because inconsisten-

cies inevitably exist among these provisions, the contracts

contain an Order of Precedence clause. The Government

developed the clause to serve the imrortant function of

specifying which provision in the contract the Govern-

ment wants to be given priority, thereby resolving the

inconsistency in accordance with the Government’s inten-

tion and preventing a dispute and litigation.

The contract at issue was awarded to Petitioner to

design, fabricate, test and deliver a LORAN navigation

system (Item 0001). Special provisions, including a spe-

cial acceptance provision tailored to meet the needs of

this procurement, were included in “Part II The Sched-

ule” and the Order of Precedence clause made the Sched-

ule provisions controlling over other parts of the contract

in the event of inconsistency. (App. at 45a).

The Schedule granted the Government option rights

but limited the time within which the rights could be ex-

ercised to “the period specified in the Schedule.” The

period specified in the Schedule is “no later than 120

days after final acceptance by the Government of

Item 0001,” which was the first system. (App. at

27a). The Schedule specifies that final acceptance of

Item 0001 occurs “upon successful completion of DT&E

Field Test at destination” (App. at 27a), which was

February 3, 1978. There are two other acceptance pro-

visions in the contract, each providing for a time for ac-

ceptance different from each other and different from

the acceptance clause in the Schedule. The dispute before

the Federal Circuit was whether the Government timely

exercised options to purchase additional navigation sys-

tems.

As the Claims Court pointed out, the various clauses

for acceptance in the contract are inconsistent and one

or more must fall. (App. at 32a). The acceptance event

specified in the Schedule, which the Order of Precedence

clause makes controlling, occurred on February 3, 1978.

(App. at 23a). The times of acceptance under the other

two acceptance clauses could be as late as March 20,

1979. The time of acceptance found by the Federal Cir-

cuit was March 20, 1978, which is not the same as the

time specified under any of the acceptance clauses or any

place in the contract. It is sophistry for the Federal Cir-

cuit to conclude that these different times (February 3,

1978, March 20, 1978 and March 20, 1979) could be

“harmonized” which was the Court’s reason for not en-

forcing the Order of Precedence clause. Such a decision

effectively nullifies the clause in the eyes of lawyers and

the Government agencies and contractors who read and

are guided by the Claims Court and Federal Circuit

decisions.

Failure to give effect to the Order of Precedence clause,

when plainly applicable, defeats the Government’s in-

tention in creating the clause and makes every incon-

sistency in a Government contract a potential dispute to

be resolved through litigation. Because the “boilerplate”

in Government contracts is so voluminous, these incon-

sistencies inevitably are found in large numbers. The

disputes resolution process will not be able to handle the

mountains of litigation that a de facto invalidation of the

Order of Procedence clause will cause.

The acceptance clause in the Schedule should have been

applied in accordance with its terms as required by the

Order of Precedence clause, or if ambiguous, the Federal

Circuit should have applied the well-established Federal

rule of construction against the drafter. That Federal

rule of contract construction is an extremely important

Government contract principle. The failure of the Fed-

eral Circuit tc apply that principle to the instant case is

contrary to this Court’s decision in United States v.

Seckinger, 397 U.S. 203, 210 (1970), and numerous Court

of Claims and Federal Circuit decisions. In addition, the

Court’s failure to apply the well-settled strict construc-

tion of options rule now casts doubt upon its future via-

bility in Government procurement.

Petitioner delivered the additional systems to the Gov-

ernment at the direction of the Contracting Officer and

filed its claim for an equitable adjustment in the con-

tract price on the basis that the option exercise was un-

timely.* The Contracting Officer and the Armed Services

Board of Contract Appeals (“Board’’) denied Petitioner’s

claim (with a dissenting opinion at the Board). The

Claims Court reversed the Board and entered judgment

for Petitioner in the amount of $6,121,590. The Court

of Appeals for the Federal Circuit sitting in a three judge

panel reversed the Claims Court, with a concurring

opinion stating that the basis for the majority decision

was wrong. The Court denied a timely motion for panel

rehearing and the suggestion for rehearing in banc.

The contract is a performance contract which required

Petitioner to design and build a highly sophisticated

LORAN navigational system. It was necessary for Peti-

tioner to advance the state of the art to meet the per-

formance requirements set by the Government. (App. at

41a). The Government needed additional systems, but

before ordering them, wanted to know that the first sys-

tem (Item 0001) met the performance requirements.

Successful completion of the DT&E Field Test provided

that crucial information. The Board found that “. . .

these tests demonstrated the ability of the LORAN chain

to function in accordance with the contract requirements

. .’ (App. at 54a). Therefore, successful completion

of the DT&E Field Test was an appropriate event to

8 Petitioner encountered substantial problems in advancing the

state of the art that caused a two-year delay in contract per-

formance. As a result, costs incurred for the basic chain and for

each fixed price option substantially exceeded the respective con-

tract prices. (Board Finding 49, App. at 58a). Petitioner’s claim

is for unrecovered costs for the delivered option chains. (Board

Finding 48, App. at 57a).

mark acceptance of Item 0001 and to start the 120-day

period for exercise of the option.

Before the dispute arose, the Contracting Officer’s in-

terpretation was the same as Petitioner’s; he informed

the Administrative Contracting Officer that final accept-

ance would take place “at the completion of DT&E (field)

Testing.” (App. at 8la, emphasis added).

It is undisputed that the DT&E Field Test was suc-

cessfully completed on February 3, 1978 and that the

Government did not exercise its option within 120 days

after that date. (App. at 54a). Therefore, the pur-

ported option exercise was untimely and the decision of

the Claims Court should have been affirmed.

Here, there were two other acceptance clauses in the

contract calling for different acceptance dates. The term

“upon” was used in inconsistent ways in the contract.

The normal time for acceptance was the date of

execution of a DD250 in the absence of an acceptance

provision specifying a different time. These circumstances

justified calling into play and enforcing the Order of

Precedence clause, and the construction against the

drafter and strict construction of options principles. The

Federal Circuit adopted a time for acceptance not speci-

fied in the Schedule or in any of the three acceptance

clauses or in any piace in the contract; resolved the am-

biguity in favor of, instead of against, the drafter of the

contract; and construed the options liberally.

In reality, the Federal Circuit rendered an ad hoc

decision that is patently incorrect and contradicts its

reason for existence—doctrinal stability. The Court

reached a result that throws contract administration of

inconsistent provisions into chaos and encourages litiga-

tion. The Federal Circuit is a great institution with a

rich heritage and an important role in our judicial sys-

tem. Ad hoe decisions like the instant one, however, fall

short of the quality required of the Federal Circuit which

has the exclusive appellate jurisdiction of Government

contract claims.

REASONS FOR GRANTING THE WRIT

I. The magnitude of Government procurement and the

importance of the disputes prevention and resolution

procedures require the Federal Circuit to enforce the

disputes prevention clauses and provide doctrinal

stability.

One of the primary reasons for the creation of the

United States Court of Appeals for the Federal Circuit

was to provide doctrinal stability in certain areas of law

such as patents and Government contract claims. Accord-

ingly, the Circuit was given exclusive appellate jurisdic-

tion in these special areas.

In creating the Circuit Congress stated:

Since the jurisdiction of the Court of Appeals for

the Federal Circuit consists of an unusual num-

ber of complex cases in which current law lacks

uniformity or is inconsistently applied, and since the

new court’s decisions are intended to have nation-

wide precedential effect, the legislation authorizes the

judges of the Federal Circuit to determine the size

of the panels in which the court will sit.... This

permits the Federal Circuit to sit in panels of more

than three judges, but as less than a full en banc

court, for cases in which authoritativeness of deci-

sion and doctrinal stability could be enhanced by use

of larger panels.

H.R. Rep. No. 1300, 96th Cong., 2d Sess. 18 (1980).

The Government spends about $200 billion annually for

procurement. Contract disputes run into billions of dol-

lars. It is, therefore, imperative that the Federal Circuit

render quality decisions that enforce the disputes preven-

tion clauses and provide reliable guidance to the Govern-

ment and its contractors in resolving disputes.

Doctrinal stability is essential for parties to Govern-

ment contracts to understand their rights and responsi-

bilities. It enables both parties to better evaluate the

probable outcome of litigation and therey settle or

not initiate claims. The Federal Circuit’s decision in

the instant case, however, tells the Government contract-

ing community that the probable outcome of a case in the

Circuit defies evaluation. The contract terms and three

well established and widely relied upon Government con-

tract principles were plainly applicable but not applied.

In their place the Court substituted ad hoc views that

are wrong and contradict the objectives of eliminating

disputes through use of contract clauses and providing

doctrinal stability.

Unless the Supreme Court insists upon the continued

application of the Order of Precedence clause and the

well-settled rules of construction, it will have permitted

the Federal Circuit to open the “floodgates” to endless

litagation arising from disagreements about inconsistent

contract provisions and ambiguous contract language.

II. The Federal Circuit may not properly avoid enforc-

ing the Order of Precedence clause by saying that pat-

ently inconsistent clauses can be harmonized.

The Schedule grants the Government option rights and

provides in Section 6:

The Contracting Officer may exercise these options

at any time within the period specified in the Sched-

ule by giving written notice to the Contractor.

(b) The time for exercise of the options is set forth

in Section E hereof.

Section E of the Schedule provides:

(T)he Government may exercise this option at any

time during contract performance, but not later than

120 days after final acceptance by the Government

of Item 0001.

(App. at 3a).

The Inspection and Acceptance clause in the Schedule

(Section I) provides for final acceptance of Item 0001

to occur as follows:

Final inspection and acceptance upon successful com-

pletion of DT&E Field Test at destination.

(App. at 18a).

Finally, the Schedule contained an Order of Precedence

Clause (Section J—Special Provisions, paragraph 5),

which stated:

In the event of an inconsistency in this contract,

unless otherwise provided herein, the inconsistency

shall be resolved by giving precedence in the follow-

ing descending order: 1) Schedule (excluding State-

ment of Work, the Specifications, and Contract Data

Requirements List); 2) General Provisions; 3) the

other provisions .. .; 4) Statement of Work... .

(App. at 20a).

The function of the phrase “upon successful comple-

tion of DT&E Field Test” in the context of Section I

is to specify within the Schedule the time for accept-

ance of Item 0001. This provides within the Schedule

the determinable starting time for the 120-day option

period. If the term “upon” does not mean “at the

time of,’ then the special acceptance clause has no

meaning whatsoever; there is no time specified within the

Schedule for acceptance of Item 0001; and there is no

period specified within the Schedule for exercise of the

option. The plain meaning of the term “upon” in this

context is ‘at the time of.” This was the understanding

of the Contracting Officer and of the Government in-

spector before the dispute arose. (App. at 8la). There-

fore, the period specified in the Schedule for exercise of

the option is not later than 120 days after successful

completion of the DT&E Field Test.

The majority’s view that the inconsistent acceptance

provisions and times (February 3, 1978, March 20, 1978

and March 20, 1979) can be harmonized is unquestion-

ably wrong. As pointed out by the Claims Court:

The acceptance terms of this contract are inconsist-

ent and one or more must fall.

(App. at 32a). The acceptance clause in the Schedule

provides for acceptance “upon successful completion of

DT&E Field Test at destination” and that was indisput-

ably February 3, 1978. (App. at 18a). The Statement

of Work {| 5.2.4 acceptance clause provides “Acceptance

will take place following successful completion of DT&E

and correction of design deficiencies.” (App. at 21a,

emphasis added.) Under the Correction of Deficiencies

clause Petitioner was required to correct all deficiencies

discovered within twelve months after acceptance, which

under the Federal Circuit’s holding was one year after

March 20, 1978. (App. at 30a). One clause that pro-

vides for acceptance to occur prior to and another clause

providing for acceptance to occur after correction of de-

sign deficiencies cannot be harmonized. Paragraph 6 of

Task I has the same inconsistency and provides for ac-

ceptance after acceptance. (App. at 21a). It is obvious

that these different acceptance times and clauses cannot

be “harmonized”. None of these times or clauses can be

harmonized with the March 20, 1978, date of signing the

DD 250 which the Federal Circuit found was the accept-

ance date. The acceptance times are different and there-

fore inconsistent. The Order of Precedence clause had to

be applied to choose the correct date of acceptance.

The majority opinion of the Federal Circuit inter-

preted “upon” to mean “shortly afterward” which de-

prived the special acceptance clause in the Schedule

of any meaning whatsoever when the Order of Prece-

dence clause made it controlling. That interpretation

says that the starting date for the 120-day option period

is “shortly after” the event specified as the starting date

in the contract. That interpretation also is contrary to the

a >"

terms of the Schedule because it provides no determin-

able starting date within the Schedule.

Judge Bissell’s concurring opinion points out that the

majority’s interpretation of “upon” to mean “shortly

afterward” is wrong:

The majority decision turns on the proposition that

“upon” means “shortly afterward,” and that we

must so interpret it throughout the contract. Exam-

ining the Title and Risk of Loss clause belies this

position. That clause states that title to supplies

“shall pass to the Government upon formal accept-

ance” (emphasis added). In this clause, it is obvious

that “upon” means “at the time of acceptance,” and

not “shortly afterward.”

(App. at 18a).

The term “upon” does not mean the same thing

throughout the contract and its meaning is determinable

only by examining its function and context. The only

function of the term “upon successful completion of

DT&E Field Test” in the context used in the special

acceptance clause in the Schedule is to designate in the

Schedule the time when acceptance of Item 0001 will

occur, which starts the 120-day option period as provided

in Section E of the Schedule.

The Federal Circuit majority decision recognized that

the purpose of Section I, the acceptance clause in the

Schedule, was to specify the time and place for accept-

ance, but inexplicably held that acceptance did not take

place at either the time or place specified in Section I.

The majority states that this clause:

. . . Specifies the time when and the place where the

government affirmatively finally will inspect and ac-

cept the LORAN 1 chain.

(App. at 5a).

Although not a model of draftsmanship, the “In-

spection at Origin” clause does two things: it specifies

the time at which (“upon successful completion of

DT&E field tests”) and the place where (“at des-

tination”) final inspection and acceptance shall take

place.

(App. at 7a).

These statements are correct. The time for acceptance

was “upon successful completion of DT&E Field Test at

destination” which was February 3, 1978. The place for

acceptance was at the Government sites at which the

equipment had been installed. Successful completion of

DT&E Field Test took place at Eglin AFB, Florida,

where the Monitor Synchronizer Group of the chain was

located. The Government representative witnessed and

affirmatively signed the inspection document marking the

successful completion of the final DT&E Field Test. He

did so at one of the places designated in the contract.

The majority substituted “shortly afterward” for

“upon” and mistakenly thought that the DD250 was

signed at destination. The DD250 was signed at Hans-

com AFB, Massachusetts, which was not the destination

of the chain. Thus, the majority’s holding that the Gov-

ernment accepted the LORAN chain upon signing the

DD250 is contrary to both the terms of the acceptance

clause and the majority’s own interpretation of the clause.

In the eyes of the Government contracting community,

the Federal Circuit’s decision cripples the Order of Prece-

dence clause and makes every contract inconsistency a

potential dispute to be resolved through litigation.

III. The Federal Circuit may not properly disregard the

Federal rule of construction against the contract

drafter.

There was a split decision at the Board. The Board’s

decision was reversed by the Claims Court and the con-

curring opinion states that the basis of the majority opin-

ion is wrong. There are three possible acceptance clauses

with each being inconsistent with the other and with

each specifying acceptance times different from the other.

The term “upon” is used in inconsistent ways in the con-

tract. The majority decision recognized that the contract

was “not a model of draftsmanship,” “upon” is susceptible

to different meanings, and that the acceptance clause in

the Statement of Work is inconsistent with Petitioner’s

reading of the acceptance clause in the Schedule. (App.

at 7a). The majority nevertheless disregarded the widely

used construction against the drafter principle relied

upon by the Claims Court. Instead, the majority pro-

ceeded to interpret “upon” as meaning “shortly after-

ward” which gives the final acceptance clause in the

Schedule absolutely no meaning when the contract ex-

pressly provides that it is controlling.

In United States v. Seckinger, 397 U.S. at 210, this

Court, citing Court of Claims precedents, established the

construction against the drafter principle as a federal

rule of contract interpretation. This Court stated:

in fashioning a federal rule we are, of course, guided

by the general principles such as that involved here.

Among these principles is the general maxim that a

contract should be construed most strongly against

the drafter, which in this case was the United States.

Where “a contract that has been written by the gov-

ernment . . . is ambiguous, the ambiguity will be re-

solved against the drafter of the document (the govern-

ment) ...” Sun Shipbuilding & Dry Dock Co. v. United

States, 393 F.2d 807, 816 (Ct. Cl. 1968) cited with ap-

proval in Seckinger. As Judge Davis pointed out in

Sturm v. United States, 421 F.2d 723, 727 (Ct. Cl. 1970):

“This oft-repeated and much-applied rule (contra profer-

entem) ... puts the risk of ambiguity, lack of clarity,

and absence of proper warning on the drafting party

which could have forestalled the controversy; it pushes

the drafters toward improving contractual forms; and it

saves contractors from hidden traps not of their own

making.” See also Gorn Corp. v. United States, 424 F.2d

588, 592 (Ct. Cl. 1970) ; Consolidated Diesel Elec. Co. v.

United States, 533 F.2d 556, 574 (Ct. Cl. 1976); H & M

Moving, Inc. v. United States, 499 F.2d 660, 671 (Ct. Cl.

1974) ; Peter Kiewit Sons’ Co. v. United States, 109 Ct.

Cl. 390, 418 (1947).

The Federal Circuit heretofore has applied the rule.

For example, in United States v. Turner Constr. Co.,

819 F.2d 283, 286 (Fed. Cir. 1987), the Court held “hav-

ing concluded that Turner’s interpretation of the con-

tract was reasonable, we apply the rule of contra pro-

ferentum, which requires that a contract be construed

against the party who drafted the document.”

A contractor’s reasonable interpretation of a contract

drafted by the government “. . . will prevail . . . even

though the Government’s interpretation may be a more

reasonable one since the Government drafted the con-

tract.” United Pac. Ins. Co. v. United States, 497 F.2d

1402, 1407 (Ct. Cl. 1974). Petitioner’s interpretation

was reasonable and was precisely the interpretation of

the Contracting Officer and the Government's principal

inspector before the dispute arose. The Contracting Of-

ficer’s March 12, 1976 letter to the Administrative Con-

tracting Officer stated:

Subject contract provides that final acceptance of the

entire Ground Chain shall take place at the comple-

tion of DT&E (field) Testing.

(App. at 8la, emphasis added). The failure of the Fed-

eral Circuit to apply the construction against the drafter

federal rule requires reversal.

IV. The Federal Circuit may not properly disregard the

strict construction of option principle.

As the Claims Court appropriately recognized:

Inasmuch as the purpose of determining the ac-

ceptance date of Chain 1 is to discover the beginning

date of the 120-day option period the court is bound

to construe the terms of the contract strictly. Indeed,

the general attitude of the courts and the ASBCA

is to strictly construe contractual option provisions

because the options subject contractors to potentially

major risks which should not be extended beyond the

limits the contractor had agreed to accept.

(App. at 31a).

It was well-settled that option contracts “are strictly

interpreted in favor of the party bound and against the

party that is not bound.” 4 Williston on Contracts § 620

at 753 (3d ed. 1961) ; see, e.g., Cummings v. Bullock, 367

F.2d 182, 186 (9th Cir. 1966), where the court, in a

lease option to purchase agreement, applied both the strict

construction of options and construction against the

drafter rules.

The Federal Procurement Regulations reflect the pol-

icy in favor of strictly limiting the period in which an

option may be exercised. See ASPR §§ 1-1502-1 to 1-1504

(1974); DAR §§ 1-1501 to 1-1503 (1983). As pointed

out by the Board in Lear Siegler, Inc., ASBCA No. 12164,

69-1 BCA { 7563 at 35,020:

ASPR 1, Part 15, “Options,” provides clear Depart-

mental policy guidance to the effect that an option

contract shall fix the period within which the option

may be exercised, and that the fixed period shall in

all cases be kept to a minimum, for the stated reason

that options require offerors to guarantee prices for

definite periods of time with no assurance that orders

will be placed.

In General Dynamics Corp., ASBCA No. 20882, 77-1

BCA { 12,504, the Board held that a purportedly timely

option exercise which varied the delivery schedule was

invalid and a subsequent purported option exercise which

corrected the schedule was invalid because it was one

day late. See also J.E.T.S., Inc., ASBCA No. 26135, 82-2

BCA § 15,986 at 79,274 (“Exercise of an option must be

strictly construed.”), and Space Age Eng’g, Inc., ASBCA

seen

No. 22901, 78-2 BCA { 13,543 (option terms strictly con-

strued and that the Government’s attempted option exer-

cise was a day late and invalid).

The federal law was well settled that options are to

be strictly, not expansively, construed. Although relied

upon by the Claims Court, the Federal Circuit majority

opinion does not even mention this principle. The con-

curring opinion attempts to distinguish this principle on

the ground that the trigger to the 120-day option period

is not a part of the option agreement.

The failure of the Federal Circuit to apply the strict

construction of options and construction against the

drafter rules and the Order of Precedence clause appears

to have been based on the notion that acceptance could

not “automatically” take place upon the happening of

an event. Such a notion is contrary to the terms of

the contract, the understanding of the Contracting Officer

and the Government's inspector before the dispute arose,

the regulations, as well as the cases. The concurring

opinion recognized that the parties could agree on the

happening of an event as the time of acceptance.

The contract terms plainly specify an event and do

not require a DD250 for acceptance. (All of the accept-

ances provisions in the contract provide for acceptance to

occur upon the happening of an event.) In performance

contracts, tests are the primary means of inspection. The

successful completion of the DT&E Field Test on Febru-

ary 3, 1978 represented the successful completion of 150

performance requirements tests and provided the critical

information needed for option exercise. The Board found

that: “The successful completion of these tests demon-

strated the ability of the LORAN chain to function in

accordance with the contract requirements.” (App. at

54a). It therefore made sense to start the 120-day op-

tion period at the time the Government’s inspector signed

the final test (inspection) marking the successful com-

pletion of all the performance requirements. Acceptance

ee Oe

of Item 0001 triggered the 120-day option period, but

did not excuse Petitioner from complying with any un-

performed terms of the contract.

Petitioner’s interpretation of the time of acceptance of

Item 0001 was made known to the Contracting Officer

prior and subsequent to February 3, 1978. Before the

dispute arose, the Contracting Officer and the Govern-

ment inspector understood that “upon” in the applicable

acceptance clause meant at successful completion of the

DT&E Field Test. (App. at 8la).*

The regulations relied upon by the majority expressly

recognize that the time of acceptance depends on the

contract provisions. ASPR § 14-306 (1974) provides:

Acceptance of Supplies or Services. . . . (b) De-

pending upon the provisions of the contract, accept-

ance may be effected prior to, at the time of, or

after delivery.

{Emphasis added).

Here, the provisions of the contract covering Item

0001 expressly called for acceptance earlier than delivery

and acceptance at a time different from the date of sign-

ing the DD250. There is no basis in the regulations to

disregard a contract provision specifying a time for ac-

ceptance different from the date of signing the DD250.

The cases establish that final Government acceptance

can take place upon the successful completion of inspec-

tions without the execution of a DD250. See Trio-Tech,

Inc., VACAB No. 598, 68-1 BCA { 6828 at 31,557 n.3

(acceptance was effected by final inspection and pay-

ment, even though there was no “evidence of a formal

written acceptance,” because the contract provided that

*The majority decision’s reference to the parties’ interpretation

during performance of the contract is to statements made after

the dispute arose and are in the context of complying with the

Government's demands in order to receive payment on Item 0001.

(App. at 37a.)

“Taleceptance will be the date the Veterans Administra-

tion receives satisfactory inspection or test report.’”’) and

cases cited by Claims Court.

Instead of providing doctrinal stability, the Federal

Cireuit’s decision in the instant case created turmoil in

areas that had been well-settled.

CONCLUSION

WHEREFORE, for the foregoing reasons, Petitioner

respectfully requests that this Court issue a writ of cer-

tiorari to the United States Court of Appeals for the

Federal Circuit.

Respectfully submitted,

BERNARD FRIED CLARENCE T. KIPppPs, JR.*

NORMAN A. STEIGER JOHN LLOYD RICE

UNISYS CORPORATION MILLER & CHEVALIER, Chartered

655 Fifteenth Street, N.W.

Washington, D.C. 20005

(202) 626-5840

* Counsel of Record

Retic

see

APPENDICES

CCC

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

87-1475

SPERRY CORPORATION,

Plaintiff-A ppellee,

THE UNITED STATES,

Defendant-Appellant.

Appealed from U.S. Ciaims Court

Judge Tidwell

Decided April 21, 1988

Clarence T. Kipps, Miller and Chevalier, of Washing-

ton, D.C., argued for plaintiff-appellee. With him on the

brief were John Lloyd Rice and John J. O’Connor, III.

Also on the brief were Bernard Fried and Norman A.

Steiger, Unisys Corporation, of counsel.

E. Kathleen Shahan, Commercial Litigation Branch,

Department of Justice, of Washington, D.C., argued for

defendant-appellant. With her on the brief were Richard

K. Willard, Assistant Attorney General and David M.

Cohen, Director. Also on the brief was Lt. Col. William

M. Henabray, Department of the Air Force, of counsel.

Before FRIEDMAN, NEWMAN, and BISSELL, Circuit

Judges.

FRIEDMAN, Circuit Judge.

The sole question in this case, here on the government’s

appeal from the United States Claims Court, is whether

the government’s exercise of an option to purchase addi-

tional items under a procurement contract was timely.

The contract required the government to exercise the

option within 120 days of the government’s acceptance

of the product that was the subject of the contract, and

the issue is the date of acceptance. The Claims Court,

reversing the decision of the Armed Services Board of

Contract Appeals, held that the government’s exercise of

the option was untimely. Sperry Corp. v. United States,

9 Cl. Ct. 488 (1986). We reverse, concluding that the

exercise was timely.

A. In January 1974, the government executed a con-

tract with the appellee, Sperry Corporation, that required

Sperry to design, fabricate, test and deliver one LORAN-

D ground chain (Item 0001). This item was an advanced

transportable, computer controlled, solid state long-range

navigation (LORAN) system. The equipment transmits

signals that can be received aboard aircraft, ships, or

manpacks. The receiver determines locations by inter-

preting the time differences between precisely controlled

pulses from the transmitters.

The contract called for a significant amount of testing

by Sperry, lasting throughout the contract period. The

tests were designed by Sperry and approved by the gov- ©

ernment, which participated in, or observed most, if not

all, of the tests. Participation in the tests by Air Force

personnel was intended to enable them to learn to operate

the system and to verify that the equipment met the

contractual requirements.

Development, Test and Evaluation (DT&E) is a process

by which each item, including the whole system assembled

from previously proven items, is tested to assure that

the items and the system meet the requirements of the

contract. The Physical Configuration Audit is designed

to compare the equipment tests with the prescribed tech-

nical data and to correct any deficiencies. The Formal

Qualification Review (Qualification Review) is intended

to gather data from the different tests and review them

as a whole. The Functional Configuration Audit exam-

ines the test results to determine whether the testing

was conducted properly.

The final delivery date under the contract (as modi-

fied) was May 15, 1978. DT&E field tests were com-

pleted February 3, 1978. The field portion of the Physi-

cal Configuration Audit was completed February 9, 1978.

The Functional Configuration Audit was completed Feb-

ruary 28, 1978, and the Formal Qualification Review

was completed by March 1, 1978. Between February 3

and March 18, 1978, Sperry refurbished the site on which

the tests were completed and the equipment. The govern-

ment made its final inspection from February 27 to

March 18, 1978, and on March 20, 1978, it executed a

DD Form 250 accepting the chain.

B. The contract “granted to the government the option

to purchase up to three additional LORAN-D Ground

Chains (Chains 2, 3, and 4) at prices specified in the

contract. The option had to be exercised ‘within 120 days

after final acceptance by the Government of Item 0001

[chain one] ....’” Sperry Rand Corp., 83-2 B.C.A.

(CCH) {16,841 at 83,787 (ASBCA Sept. 27, 1983).

Contending that it had finally accepted the LORAN-D

on March 20, 1978, when it executed the DD Form 250,

the government exercised the option for two additional

chains on July 6, 1978, within 120 days of the date of

that acceptance.

Sperry responded that the government finally had ac-

cepted the LORAN-D upon completion of the DT&E field

tests on February 3, 1978, so that the government had

failed to exercise the option within 120 days. Sperry

interpreted the government’s exercise of the option as a

constructive change in the contract entitling it to an

equitable adjustment in the contract price. Sperry sup-

plied chains 2 and 3 under protest. :

Sperry filed a claim with the contracting officer for an

equitable adjustment. The contracting officer denied the

claim. In a lengthy opinion the Armed Services Board

of Contract Appeals (Board) (with one of the five mem-

bers dissenting) denied the appeal.

Sperry sought review in the Claims Court pursuant to

the Wunderlich Act, 41 U.S.C. § 321 (1982). The Claims

Court reversed the decision of the Board and remanded

for a determination of damages. The Claims Court sub-

sequently entered final judgment against the United

States in the amount stipulated by the parties.

Because the numerous contractual provisions involved

are complicated and best understood in the context of the

facts of the case, we describe those provisions in connec-

tion with our discussion of the legal issues in part II.

a NEE A Stare ots Bett anh Wine bal

The linchpin of the Claims Court decision that the

government did not timely exercise its option and Sperry’s

defense of that ruling is the following provision con-

tained in a section of the contract called the Schedule:

0001 Inspection at origin. Final inspection and

acceptance upon successful completion of

DT&E Field Test at destination.

Sperry contends that under this provision “[f]inal

. acceptance” of the contract by the government oc-

curred automatically upen the successful completion of

eee

the DT&E field testing in February 3, and that this date

was the beginning of the government’s 120-day period for

exercising the option. Sperry then refers to Special Pro-

vision 5 of Section J of the contract, ORDER OF PREC-

EDENCE, which states:

In the even of an inconsistency in this contract,

unless otherwise provided herein, the inconsistency

shall be resolved by giving precedence in the follow-

ing descending order: 1) Schedule (excluding State-

ment of Work, the Specifications, and Contract Data

Requirements List); 2) General Provisions; 3) the

other provisions of the contract whether incorporated

by reference or otherwise; 4) Statement of Work;

5) Contract Data Requirements List; 6) the Speci-

fications . . .; 7) The Contractor’s Technical Pro-

posal as described in Section F.

According to Sperry, the “Order of Precedence” clause

makes the “Inspection at Origin” clause, as Sperry inter-

prets that clause, controlling in resolving any inconsist-

encies between the “Inspection at Origin” clause and the

other provisions of the contract upon which the Board

relied in its decisioii.

We conclude, however, that the “Inspection at Origin”

clause does not have the effect that Sperry ascribes to it.

Instead, it merely specifies the time when and the place

where the government affirmatively finally will inspect

and accept the LORAN 1 chain. Moreover, under our

view of that clause, there is no “inconsistency in this

contract” that requires resort to the “Order of Prece-

dence” clause. The Board correctly concluded that

it is possible to harmonize all contract provisions re-

lating to inspection, testing, delivery and acceptance

without creating conflicts between them or rendering

some of the provisions meaningless. In the absence

of conflict, the “Order of Precedence” clause need

not be called upon to establish the alleged primacy

of the schedule “Inspection and Acceptance” provi-

sion [Section I] over general provisions and speci-

fications as suggested by appellant [Sperry] and in

the dissenting opinion.

Sperry Rand Corp., 83-2 B.C.A. (CCH) {16,841 at

83,799 (ASBCA Sept. 27, 1983) (citations omitted).

Various clauses in the contract, read in combination,

show that the government finally accepted the LORAN 1

chain on March 20, 1978, when it signed the DD Form

250. This conclusion accords with the parties’ interpre-

tation of those provisions during the performance of the

contract. The result of our holding that the government

finally accepted the LORAN 1 chain on March 20, 1978,

is that the government’s exercise of the options was

timely because it took place within 120 days of that

acceptance.

A. The contract incorporated the Armed Services Pro-

curement Regulations (ASPR) (which have been suc-

ceeded by the current Federal Acquisition Regulations),

including ASPR 14-1001.6 and ASPR 14-306, which

stated:

14-1001.6

Acceptance means the act of an authorized repre-

sentative of the Government by which the Govern-

ment assumes for itself, or as agent of another, own-

ership of existing and identified supplies tendered

or approves specific services rendered, as partial or

complete performance of the contract on the part of

the contractor.

14-306

(b) Depending upon the provisions of the contract,

acceptance may be effected prior to, at the time of,

or after delivery. Acceptance shall ordinarily be

evidenced by execution of an acceptance certificate

on the applicable inspection and receiving report form

(DD Form 250, DD Form 115, or Standard Form

44) sis

Read in the light of this and other provisions of the

contract, the “Inspection at Origin” clause does not pro-

vide that completion of DT&E testing itself constituted

final acceptance by the government. Nor does that clause

indicate that the parties intended in this contract to de-

part from the usual procedure that government accept-

ance would “be evidenced by execution of an acceptance

certificate on the applicable inspection and receiving re-

port form [here DD Form 250].”

Although not a model of draftsmanship, the “Inspec-

tion at Origin” clause does two things: it specifies the

time at which (“upon successfvl completion of DT&E

field tests”) and the place where (“at destination”) final

inspection and acceptance shall take place. The clause,

like some contract clauses, contains no verb, but inherent

in the provision are the words “shall take place” follow-

ing “final inspection and acceptance.” The word “upon”

generally is susceptible to different interpretations but

in this context we think it means “shortly afterward.”

The identical language is used in section F of the con-

tract, which states in pertinent part:

Upon successful completion of the DT&E field test,

the contractor shall restore the sites to the con-

dition they were in prior to the test.

Since this provision requires Sperry to take affirmative

action to restore the test site to its former condition, the

word “upon” necessarily means “shortly afterward.” The

identical word in the identical language of the ‘“Inspec-

tion at Origin” clause should be given the same meaning

unless there were clear indication that the parties in-

tended it to have a different meaning. See Peerless Cas-

ualty Co. v. Mountain States Mutual Casualty Co., 283

F.2d 268, 276-77 (9th Cir. 1960). There is no indica-

tion that the parties so intended. Indeed, if the “Inspec-

tion at Origin” clause had been intended to have the

meaning that Sperry and the Claims Court would give it,

one would have thought it would have stated: “The suc-

cessful completion of DT&E Field Tests shall constitute

final inspection and acceptance.”

Other provisions of the contract indicate that final in-

spection by the government required some affirmative ac-

tion and did not occur automatically upon successful com-

pletion of the DT&E field test. Subparagraph (a) of the

General Provisions of the contract under the category

“INSPECTION” states: “All supplies (which term

throughout this clause includes without limitation . . .

end products) shall be subject to inspection and test by

the Government, to the extent practicable at all times

and places including the period of manufacture, and in

any event prior to acceptance.”

Subparagraph (a) in the General Provisions under

the category “TITLE AND RISK OF LOSS” states:

“Unless this contract specifically provides for earlier pas-

sage of title, title to supplies covered by this contract

shall pass to the Government upon formal acceptance,

regardless of when or where the Government takes physi-

cal possession.”

These two paragraphs require that there will be “in-

spection and test by the Government . . . prior to accept-

ance” and that there will be a “formal acceptance” by the

government.

Finally, in the “Statement of Work” category, para-

graph 5.2.4 provides:

Acceptance will take place following successful com-

pletion of DT&E and correction of design deficiencies.

This latter provision, which specifically deals with the

subject of “acceptance,” shows that the parties contem-

plated and intended that acceptance would take place

“following” successful DT&E testing. This provision

necessarily rested on the assumption that the govern-

ment would take affirmative action to accept. it is in-

consistent with Sperry’s view that acceptance took place

immediately and automatically upon successful comple-

tion of the DT&E field tests. As the Board stated:

These acceptance tests were the conduct constituting

“final inspection” within the meaning of Section I

of the contract schedule. As such, inspection was

completed only when the acceptance tests had been

performed. The SPD confirmed delivery and accept-

ance at the destination by his signature on the DD250

(Finding 39)....

However, it is important to note that acceptance

not only follows delivery, but also is not contem-

plated to occur until all required inspection) includ-

ing testing) has been completed. This is not only

mandated by the “Inspection” clause, but also by

Section I of the contract schedule that requires

“(flinal inspection and acceptance upon successful

completion of DT&E Field Test at destination.”

Id. at 83,797 (emphasis in original).

In sum, we agree with the Board that the government’s

“final acceptance” did not occur until the government

executed the DD Form 250 on March 20, 1978. As the

Board stated, “[t]his was the ‘conclusive and decisive

action by the Government upon which it determines

through its authorized agents that, on the basis of all the

facts within its knowledge, the contractor has satisfac-

torily performed his obligations under the contract.’” 83-

2 B.C.A. (CCH) 716,841 or 83,799 (citation omitted).

The Board determined that “the contract established a

well-defined procedure from inspection to acceptance and

10a

we can find no indication that the parties intended to

discard these contractual steps.” Jd. at 83,796-97.

B. Alternatively, Sperry argues, as the Claims Court

held, that the government’s acceptance took place on

March 1, 1978, which still would make the government’s

exercise of the option untimely. According to the Claims

Court and Sperry, all of the testing was completed by

that date and the government’s acceptance took place at

that time. The Claims Court held, and Sperry argues,

that refurbishment of the chain was not necessary to ac-

ceptance, and the government “received from plaintiff

exactly what the contract called for, i.e., refurbishment

of the chain after sucessful completion of the DT & E

Field Test.” Sperry Corp. v. United States, 9 Cl. 488,

498 (1986). As the Claims Court viewed the situation,

“Chain 1 was accepted on March 1, 1978 even though

plaintiff [Sperry] was obligated by the terms of the con-

tract to continue unfinished tasks.” /d. at 498 (footnote

omitted ).

We agree with the Board’s reasoning in rejecting that

contention:

There is nothing to indicate that the parties con-

templated acceptance of the entire system when

equipment was only partially refurbished or refur-

bishment had been completed at some of the sites.

... The fact that the parties recognized that re-

furbishment of the equipment at all sites would have

to be accomplished before acceptance is shown by the

requirement to have the equipment in “deliverable

condition” as a result of refurbishment. Delivery

of the system had to occur before acceptance, and

thus refurbishment also had to be completed at that

point.

Sperry Rand Corp., 83-2 B.C.A. 16,841 at 83,798.

Moreover, this contention is subject to the same fatal

infirmity as the argument that the government’s accept-

lla

ance occurred on February 3, 1978, namely, that under

the “Inspection at Origin” clause, the government’s ac-

ceptance occurred automaticaily when the DT&E field

tests successfully were completed and did not require any

further affirmative action by the government. The same

reasoning that led us to reject the contention that the gov-

ernment accepted on February 3, 1978, also requires re-

jection of the claim that in any event acceptance took

place on March 1, 1978.

C. Finally, our interpretation of the contract accords

with the views expressed by the parties during perform-

ance of the contract that acceptance would require some

affirmative action by the government and would take

place only when the government executed a DD Form

250. That fact is a relevant consideration in interpret-

ing the contract. General Warehouse Two, Inc. v. United

States, 389 F.2d 1016, 1020 (Ct. Cl. 1967) and cases

cited.

In Sperry’s Production Progress Report of November

1977, Sperry stated that “the balance of program tasks

including . . . system acceptance and delivery is scheduled

to be completed by 15 May 1978.” In the January 1978

Production Progress Report, Sperry stated that “{rJe-

liability demonstration tests have been completed. The

balance of program tasks including antenna teardown,

design reviews, refurbishment, system acceptance and

delivery is scheduled to be completed by 10 March 1978.”

In a meeting with the government on February 2, 1978,

Sperry’s program manager requested the government to

execute a DD Form 250 upon completion of the “on-site”

portion of the physical configuration audit, which was

scheduled to occur on February 15, 1978. The govern-

ment declined to do so.

An inter-office memorandum prepared by Sperry per-

sonnel on February 24, 1978, stated that acceptance had

not yet occurred. A letter from the contracting officer to

12a

Sperry on February 27, 1978, discussed acceptance as a

future event. An Engineering Development report issued

by Sperry for the period February 1-28, 1978, contained

a note stating: “The only remaining program tasks are

completion of refurbishment and acceptance of transmit-

ter sites and completion of CDRL data items.” The gov-

ernment Production Progress Report for February 1978

stated: “Loran Chain—aAll program tasks have been com-

pleted except for refurbishment and acceptance of trans-

mitter sites which is scheduled to be completed by mid-

March.” A Program Progress Report prepared by Sperry

March 18, 1978, stated substantially the same thing.

Finally, in a letter to the government dated April 20,

1978, Sperry stated that “the Loran C/D Ground Chain

was formally accepted by the Air Force on March 20,

1978”—-the date the DD Form 250 was signed. Although

conduct after the dispute arises is not necessarily indica-

tive of the intent of the parties, (Dynamics Corp. v.

United States, 389 F.2d 424 (Ct. Cl. 1968)), this par-

ticular statement is consistent with and confirms Sperry’s

earlier recognition that affirmative action by the govern-

ment would be necessary for acceptance.

CONCLUSION

The judgment of the United States Claims Court award-

ing Sperry damages against the United States is

REVERSED.

13a

UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

87-1475

SPERRY CORPORATION,

Plaintiff-A ppellee,

Vv.

THE UNITED STATES,

Defendant-A ppellant.

BISSELL, Circuit Judge, concurring in result.

The majority decision turns on the proposition that

“upon” means “shortly afterward,” and that we must so

interpret it throughout the contract. Examining the Title

and Risk of Loss clause belies this position. That clause

states that title to supplies “shall pass to the Government

upon formal acceptance” (emphasis added). In _ this

clause, it is obvious that “upon” means “at the time of

acceptance,” and not “shortly afterward.”

In my view, a better basis for decision begins with the

recognition that the government is widely known to ac-

cept contract performance through the execution of the

DD250. As the majority acknowledges, ASPR 14-306 (b)

states that “|a]eceptance shall ordinarily be evidenced

by execution” of a DD250. The Title and Risk of Loss

clause just noted reveals why such a bright line event

is particularly important: the government owns the goods

and bears the risk of loss for them once it has accepted

them. In light of the normal practice of government ac-

ceptance through execution of the DD250, and the policy

reasons underlying such a bright line event, I would hold

l4a

that acceptance occurs only through the execution of the

DD250, or similar document, unless the contract clearly

states otherwise. Although the parties may agree to ac-

ceptance by some other means, the subject contract is

too loosely worded to hold that Sperry and the govern-

ment did so here.

I must add that this conclusion does not reflect in-

sensitivity to Sperry’s right, as optionor, to protect it-

self against attempts by the government to enlarge a

fixed option period. This case, however, is not about

strictly construing the terms of an option agreement.

It is about the separate question of how to interpret what

this contract means by the term “final acceptance.”

ld5a

APPENDIX B

IN THE UNITED STATES CLAIMS COURT

(FILED: February 5, 1986)

No. 116-84C

SPERRY CORPORATION,

Plaintiff,

THE UNITED STATES,

Defendant.

Contract; Wunderlich Act Review; Option Period/Strict

Int >rpretation; Order of Precedence Clause; Disparate

Contract Terms; Acceptance of Item; DD250

Standard Form.

[Filed Feb. 5, 1986]

Clarence T. Kipps, Jr., Washington, D.C., for plaintiff.

John L. Rice, John J. O’Connor, III, and Norman A.

Steiger, of counsel.

Kathleen A. Fiynn, Washington, D.C., with whom was

Acting Assistant Attorney General Richard K. Willard,

for defendant. Major Gerald J. Brentnall, of counsel.

l6a

OPINION

TIDWELL, Judge:

This action is before the court on cross-motions for

summary judgment. At issue is a decision by the Armed

Services Board of Contract Appeals (ASBCA or the

Board) brought under the Wunderlich Act, 41 U.S.C.

§§ 321 and 522 (1982), which denied the contractor’s

claim, plaintiff here, for equitable adjustment for alleged

constructive changes in the government’s application of

certain test procedures and decisions having to do with

the purchase of two additional option items. This court

will cite facts as necessary to support its conclusions but

not all of the facts as found by the Board which are art-

fully set out in its decision, Sperry Rand Corp., 83-2

BCA { 16,841. On the basis of the administrative record,

the parties’ briefing and oral argument, the court con-

cludes that as a matter of law the Board’s decision is

erroneous.

FACTS

This case involves negotiated fixed-price incentive con-

tract No. F19628-74-C-0098 executed on January 25,

1974 by plaintiff Sperry and defendant the United States,

acting through the United States Air Force which re-

quired plaintiff to design, fabricate, test and deliver one

LORAN-D Ground Chain (Chain 1), an advanced state-

of-the-art aid to navigation systems.' The contract called

for a significant amount of testing by plaintiff, lasting

throughout the course of the contract, plus a significant

amount of paperwork analysis and review, with “hands-

on” effort by Air Force personnel to verify that the equip-

ment offered met the contractual requirements and to

1 Chain 1 is actually item 0001 of the contract. Sperry was obli-

gated to build, test and refurbish Chain 1. Chains 2, 3 and 4 were

respectively items 0002, 0003 and 0004 of the same contract.

17a

learn to operate the equipment.? The tests were designed

by plaintiff and approved by defendant who participated

in or observed most, if not all, of the tests.

The contract also contained option provisions permit-

ting defendant to purchase up to three additional ground

chains, at set prices if purchased within a time frame

set out in the contract. Defendant gave notice on July

14, 1978, that it wished to exercise its option for chains

2 and 3. Plaintiff responded by stating that by the terms

of the contract defendant had 120 days from the date of

acceptance of Chain 1 within which to exercise its option

and that in plaintiff’s opinion the 120-day option period

had passed.* Because of defendant’s need for the chains

plaintiff agreed to supply chains 2 and 3 under protest

and seek an equitable adjustment at a later date to cover

their increased costs and time of performance. Plaintiff

subsequently delivered chains 2 and 3 to defendant as

well as a claim for equitable adjustment. Defendant

does not agree with plaintiff that the 120-day option

period had expired prior to its ordering of Chains 2 and

3 because, according to defendant, Chain 1 was not ac-

cepted until March 20, 1978, within the 120-day option

period. The contracting officer denied plaintiff’s claim

on that basis and the ASBCA upheld the decision of the

contracting officer. Plaintiff thereupon filed an appeal

with this court pursuant to the Wunderlich Act, supra.

The Board found that the contract gave defendant the

authority to exercise the options at the pre-arranged

price, for Chains 2 and 3 at any time during perform-

2 Practically every item, configuration, etc., was covered within

the contract by tests. The tests were called for as Contract Sub-

Line Item No. AO006AA, Category I Test Plan/Procedures, Sub-

system Test. There were approximately 150 tests.

3 Plaintiff alleged that Chain 1 was accepted on February 3, 1978.

There are 161 days between February 3 and July 14, 1978. For

reasons that will soon become obvious, there were 135 days between

March 1 and July 14, 1978.

18a

ance of the contract but no later than 120 days after

final acceptance of Chain 1 and that Chain 1 was ac-

cepted on March 20, 1978. The option was exercised on

July 14, 1978, within the 120-day option period. From

this issue confusion abounds. The following contractual

terms and conditions bear upon the issue and are very

possibly the chief cause of the mischief:

From the Schedule

SECTION E—SUPPLIES/SERVICES & PRICES

1. The Contractor shall design, fabricate, test and

deliver the equipment, data, and services below in

accordance with the documents set forth in Section F:

0001 LORAN Ground Chain, Tactical, Transport-

able, 1 each (Basic with Technical Alternate

2 Configuration)

* * * *

SECTION I—INSPECTION AND ACCEPTANCE *

Items

0001 Inspeciion at origin. Final inspection and

acceptance upon successful completion of

DT&E Field Test at destination.

SECTION F—DESCRIPTION/SPECIFICATIONS

Through Section F of the Schedule the following lan-

guage was added to Task 1 of the SOW (Statement of

Work).

Location of DT&E. Field testing of the first chain

is to be accomplished in S.E.U.S. (Southeastern

United States) such that the location of the monitor

and primary service area would be the Eglin AFB,

FL area. The three transmitter sites would have to

be located in S.E. U.S. such that they provide 400

‘ As amended-by POGG0T; July 8, 1975.

NNN Tf

19a

mile base legs, with the open side of the TRIAD

facing the Gulf of Mexico. Test sites to be selected

for the DT&E testing in S.E. section of the U.S.

shall be on Government-owned property.

Refurbishment and Restoration After DT&E. Upon

successful completion of the DT&E field test (sic),

the contractor shall restore the sites to the condition

they were in prior to the test. Also, the contractor

shall refurbish and restore, including replacement if

necessary, all elements of the chain to a deliverable

condition including any material and fixtures and

other aspects which may have been damaged in dis-

assembling the chain.

Design Deficiencies. During or subsequent to DT&E

the contractor shall correct any design deficiencies.

From the General Provisions

TITLE AND RISK OF LOSS (1968 JUN)

(a) Unless this contract specifically provides for

earlier passage of title, title to supplies covered by

this contract shall pass to the Government upon

formal acceptance, regardless of when or where the

Government takes physical possession.

* ~ 2 *

MATERIAL INSPECTION AND RECEIVING RE-

PORT (1969 DEC)®

At the time of each delivery of supplies or services

under this contract, the Contractor shall prepare and

furnish to the Government a Material Inspection

and Receiving Report in the Manner and to the ex-

5 The Armed Services Procurement Regulation Appendix cited in

this clause requires plaintiff to proffer a document (Standard

Form DD250) of which more will be said, to defendant for ac-

ceptance or rejection of any item, or for the chain in its entirety.

20a

tent required by ASPR Appendix I, “Material In-

spection and Receiving Report.”

From the Special (or Other) Provisions

5. ORDER OF PRECEDENCE.

In the event of an inconsistency in this contract,

unless otherwise provided herein, the inconsistency

shall be resolved by giving precedence in the foilow-

ing descending order: 1) Schedule (excluding State-

ment of Work, the Specifications, and Contract Data

Requirements List) ; 2) General Provisions; 3) the

other provisions of the contract whether incorporated

by reference or otherwise; 4) Statement of Work;

5) Contract Data Requirements List; 6) the Speci-

fications . . .; 7) The Contractor’s Technical Pro-

posal as described in Section F.

From the Statement of Work

5.0 Delivery

5.1 Deliver dates and quantities for Development

Items shall be as specified in the schedule of the

contract of which this SOW is a part. Acceptance

by the Government of the LORAN D Ground Chain

Equipment shall be accomplished at the Configura-

tion Item level.

5.2 Configuration Items will not be accepted until

the following conditions are met.

5.2.1 The Contracting Officer has acknowledged

completion of Preliminary Design Review, Critical

Design Review, Functional Configuration Audits,

Physical Configuration Audit, Formal Qualification

Review.

5.2.2 One or more of each Configuration Item has

been qualified and tested in accordance with Govern-

ment approved test plan, procedures and meet the

specification requirements.

OW Sas Sh NL AI ob OE

2la

5.2.3 The Configuration Items have satisfactorily

passed acceptance test in accordance with Acceptance

Test Plans, Procedures, and Specifications which

have been previously approved by the Contracting

Officer.

5.2.4 Acceptance will take place following successful

completion of DT&E and correction of design de-

ficiencies.

7.0 Contractor Tasks

+ * > *

7.2 Development Test and Evaluation The con-

tractor shall perform development tests and evalua-

tions as specified in Task 1 of SOW and [the] devel-

opment specifications.

7.3.2.2 Configuration Management The contractor

shall accomplish this effort in accordance with Task

17 of this SOW.

TASK I

TEST

6. Acceptance Final acceptance of all contractor

provided equipment services, and materials shall be

accomplished upon both the successful completion of

System Tests and the clearing of all test and design

discrepancies from all test phases.

7. Configuration Audits Functional Configuration

Audits and Functional Qualification Reviews shall

be conducted in accordance with Task 17 of this

statement of work.

* * * *

TASK 17

CONFIGURATION MANAGEMENT

* * * *

22a

4. Configuration Audits:

a. Functional Configuration Audit. The contractor

and the procuring activity shall conduct a Functional

Configuration Audit on the first unit of each configu-

ration item. . . . The contractor is responsible for

the conduct of the audits. . . .

b. Physical Configuration Audit. The contractor

and the procuring activity shall conduct an incre-

mental Physical Configuration Audit on the first

production unit of each configuration item. .. .

Physical Configuration Audit on all Configuration

Items shall be completed not later than “end of

DT&E.” ... The contractor is responsible for the

conduct of the audit... .

c. Formal Qualification Review. The contractor

and the procuring activity shall conduct a Formal

Qualification Review on a unit of each configuration

item after successful completion of System Testing.

. . . The contractor is responsible for the conduct

of the audit. .. .

This concludes the court’s listing of pertinert contract

terms.

“DT&E,” mentioned above, stands for Development,

Test and Evaluation. It is a process by which each item,

including the whole system assembled from previously

proven items is tested to assure the items and the

meet the requirements of the contract. The DT&E plans

were prepared by plaintiff and approved by defendant.

Plaintiff was primarily responsible for the testing, but

defendant’s representatives were present throughout the

process. The Board found that the Physical Configura-

tion Audit (PCA), Functional Configuration Audit

(FCA) and Formal Qualification Review (FQR) were

* As amended by P00021, June 2, 1976.

23a

included within DT&E. PCA is designed to compare the

equipment tests with the technical data described in

Chain 1 and to correct any deficiencies." FQR is intended

to gather data from the different tests and review them

as a whole. FCA supports FQR by examining the same

test results, but is designed specifically to see whether

the testing was conducted properly. Amendment P00021

changed the Statement of Work by requiring PCA on

the first production unit of each component prior to

completion of DT&E. The Board found that “every com-

ponent” in Chain 1 was a configuration item.

The Board found that the DT&E Field Tests were

successfully completed on February 3, 1978 and from

that date until March 18, 1978 plaintiff performed re-

furbishment work on the equipment at the sites in

preparation for the government’s Initial Operating Test

and Evaluation (IOT&E).* The Board also found that

the field portion of the PCA was completed on February

9, 1978 but that PCA was not formally completed until

sometime in April, 1978. FCA was completed on Febru-

ary 28, 1978 and FQR on March 1, 1978. Defendant's

inspection was completed March 18, 1978 and on March

20, 1978 the parties executed a DD250 in accordance

7 After finding that PCA was a part of DT&E, the Board, and the

parties as well, proceeded to ignore its place in the acceptance

process. For example, the Board found that FCA and FQR were

completed prior to March 1, 1978, without noting the PCA comple-

tion date. The Board also found that plaintiff's witnesses, “advanced

the position that acceptance occurred simultaneously with the con-

clusion of the last DT&E test. The Government's witnesses con-

tended that the option could not begin to run until all tests and

all data procedures (FCA and FQR) had been completed.” (Tran-

script citations omitted.)

* It was intended by defendant under IOT&E to have it’s per-

sonnel operate Chain 1, with support from plaintiff's personnel. The

IOT&E started on March 21, 1978 and lasted for 61 days, until

May 21, 1978. It is interesting to note that there were 81 days

between March 1 and May 21, 1978, and 102 days between February

3 and May 21, 1978. Both within the 120-day option period.

24a

with the “Material Inspection and Receiving Report”

clause for Chain 1. The Board thereafter concluded that

the option period began to run on March 20, 1978, the

date of the DD250 and that since the option was ac-

cepted on July 14, 1978, 116 days later, the option was

valid and plaintiff was required to provide Chains 2

and 3 at the contract price.

In the opinion of the court the only issues in this

case of any merit are legal in nature and can be deter-

mined by an analysis and interpretation of several of

the specifications of the contract which might to be in

conflict with each other. The principle issue is: Did

defendant exercise its option rights for Chains 2 and 3

within the 120-day time period? *

DISCUSSION

The terms of the contract, and the Wunderlich Act *

do not prohibit the ASBCA from making conclusiens of

* The Board listed three issues described thusly:

1. What was the impact of the implementation of the new

billing schedule contained in the DD250 executed on 29 March

1977?

2. What impact did completion of the last DT&E filed test,

(sic) on 3 February 1978, have on commencement of the period

within which the Government could exercise its option to pur-

chase additional LORAN chains?

3. If the option period did not begin on 3 February 1978,

on what date did it commence and what event marked that

milestone?

% The Wunderlich Act, 41 U.S.C. §§ 321 and 322 (1982) provide:

§ 321. Limitation on pleading contract-provisions relating to

finality; standards of review

No provision of any contract entered into by the United

States, relating to the finality or conclusiveness of any decision

of the head of any department or agency or his duty authorized

representative or board in a dispute involving a question aris-

ing under such contract, shall be pleaded in any suit now filed or

25a

fact and law in order to render its decisions. In truth,

the Wunderlich Act gives the decision of a Board finality

unless the decision is fraudulent, capricious, arbitrary, so

grossly erroneous as to necessarily imply bad faith, or

is not supported by evidence. 41 U.S.C. § 321 (1965).

This court in reviewing the factual findings of the Board

must accept the findings as final and conciusive even

if the court would not have reached the same findings or

conclusions. United States v. Utah Construction & Min-

ing Co., 384 U.S. 394 (1966); Tagg Brothers & Moor-

head v. United States, 280 U.S. 420 (1930); Marley v.

United States, 191 Ct. Cl. 205, 423 F.2d 324 (1970);

Southwest Welding & Manufacturing Co. v. United

States, 188 Ct. Cl. 925, 413 F.2d 1167 (1969). This is

a very difficult standard to meet; however it would be

incorrect to conclude that the court is powerless to re-

dress a wrong or that an appeal to the court is a useless

act. The interpretations of law made by the Board and

applied to the facts are not accorded tiie finality by the

Wunderlich Act that the Board’s factual determinations

receive. BCM Corp. v. United States, 2 Cl. Ct. 602

(1983); Dynamics Corp. of America v. United States,

182 Ct. Cl. 62, 389 F.2d 424 (1968). In Donald M.

Drake Co. v. United States, 194 Ct. Cl. 549, 439 F.2d

169 (1971), the court stated that board decisions on

“questions of law are open to independent judicial con-

sideration.” Jd. at 552, 439 F.2d at 171. Because the

to be filed as limiting judicial review of any such decision to

cases where fraud by such official or his said representative or

board is alleged: Provided, however, That any such decision

shall be final and conclusive unless the same is fraudulent or

capricious or arbitrary or so grossly erroneous as necessarily

to imply bad faith, or is not supported by substantial evidence.

§ 322. Contract-provisions making decisions final on questions

of law

No Government contract shall contain a provision making

final on a question of law the decision of any administrative

official, representative, or board.

26a

interpretation of specifications is a legal matter finality

thereupon is reserved to the courts. The court may agree

with the legal interpretations made by a Board of Con-

tract Appeals because such interpretations are a neces-

sary adjunct to the Board’s ability to reach its decision.

C.J. Langenfelder & Sons, Inc. v. United States, 169 Ct.

Cl. 465, 341 F.2d 600 (1965). The Board’s legal inter-

pretations, including the interpretation given specifica-

tions, must be examined, but with respect and dignity,

given the overall degree of expertise of the ASBCA in

this area of the law. George Hyman Construction Co. v.

United States, 215 Ct. Cl. 70, 564 F.2d 939 (1977).

Oftentimes the expertise of a Board in such matters can

be helpful to the court. Icono v. United States, 6 Cl. Ct.

149 (1984), aff'd, 770 F.2d 179 (Fed. Cir. 1985). See

also, Hegeman-Harris & Co. v. United States, 194 Ct.

Cl. 574, 440 F.2d 1009 (1971). Copco Steel & Engineer-

ing Co. v. United States, 169 Ct. Cl. 601, 341 F.2d 590

(1965), which is factually similar to the case at bar,

held that the search for the acceptance date of items

under a government contract must of necessity begin

with a search for the date from which the clock began

to run on the option item(s); a question of law for

decision by the court. Dynamics Corp. of America v.

United States, 182 Ct. Cl. 62, 72, 389 F.2d 424, 429-30

(1968), stated that questions of when an option period

commenced and how options were to be exercised were

legal issues of contract interpretation—and not factual

issues. The court said:

The Board cannot convert these clearly legal issues

of contract interpretation into factual issues simply

by resolving them in terms of the intent of the

parties. ...

. . . If the Board could make binding decisions

on matters of contract interpretation merely by

speaking in terms of the intent of the parties, the

Wunderlich Act would be robbed of much of its

27a

purpose. Accordingly, this court is not bound by the

Board’s decision, but is free to decide this case in

accordance with its own view of the law.

Id. at 72, 389 F.2d at 429-30.

Both parties, the Board and the court all agree that

the contract clearly provided that the defendant could

exercise its option for Chains 2 and 3 at any time during

performance of the contract and for a period of time

not exceeding 120 days after final acceptance of Chain 1.

The difficulty with this seemingly simple issue is in estab-

lishing the date of final acceptance of Chain 1. Plaintiff

claims that the following term in the contract Schedule,

as amended, is of great probative value in making this

determination :

Inspection at origin. Final inspection and acceptance

upon successful completion of DT&E Field Test at

destination.

Plaintiff advocates that this means just what it says;

final acceptance occurs when the DT&E Field Test is

successfully completed. Defendant is just as adamant

that an interpretation of the entire contract shows that

final acceptance did not occur until the DD250 was signed

by defendant’s Program Director.

Plaintiff has asked the court to ascertain the intent

of the parties in order to properly interpret the contract.

This, the court will not do for the reasons set out in

Dynamics Corp. of America v. United States, 182 Ct.

Cl. 67, 72, 389 F.2d 424, 429-30 (1968). What the court

will do is review the decision of the ASBCA which will

include an analysis of the intent of the parties, as well

as other factors. The Board properly concluded that in

order to resolve the dispute the contract must be inter-

preted to give effect to all parts of the agreement if

possible and bring seemingly disparate provisions to read

as one. SCM Corp. v. United States, 230 Ct. Cl. 199,

675 F.2d 280 (1982); Merando, Inc. v. United States,

201 Ct. Cl. 28, 475 F.2d 603 (1973). The general rule

is that contracts are to be read as a whole so as not to

28a

leave one or more terms meaningless or useless. Astro-

Space Laboratories, Inc. v. United States, 200 Ct. Cl.

282, 470 F.2d 1008 (1972); Jamsar, Inc. v. United

States, 194 Ct. Cl. 819, 442 F.2d 930 (1971). “[TJhis

court must be guided by the well-accepted and basic

principle that a contract should be interpreted to give

effect to all parts of an agreement. An interpretation

which gives reasonable meaning to all provisions is pre-

ferred to one which renders a provision useless or mean-

ingless.” SCM Corp. v. United States, 230 Ct. Cl. 199,

203-04, 675 F.2d 280, 283 (1982). The court in Thanet

Corp. v. United States, 219 Ct. Cl. 75, 591 F.2d 629

(1979), perhaps said it best:

Provisions of a contract must be construed so as to

effectuate the spirit and purpose of the contract. The

agreement must be considered as a whole, and inter-

preted so as to harmonize and give meaning to all

its provisions.

Id. at 82, 591 F.2d at 633.

At times, however, the terms of a contract are so dis-

parate that they cannot be read together and interpre-

tive procedures must be used to find the proper interpre-

tation. One interpretive procedure which could be used in

the absence of any guidance from within the contract

itself is the rule of contra proferentem which seeks to re-

solve the ambiguity by construing offending terms in a

contract against the drafter of the language which is

usually, but not always, the government. Department of

Natural Resources & Conservation v. United States, 1

Cl Ct. 727, 737 (1983); WPC Enterprises v. United

States, 163 Ct. Cl. 1, 323 F.2d 874 (1963). When the

government drafts the contract and uses language that is

susceptible to more than one meaning and the intention

of both parties is not discernible, the meaning given it

by the contractor will prevail. The rule of contra pro-

ferentem, “puts the risk of ambiguity, lack of clarity,

and absence of proper warning on the drafting party

.... Sturm v. United States, 190 Ct. Cl. 691, 421 F.2d

29a

723 (1970); see also Peter Kiewit Sons’ Co v. United

States, 109 Ct. Cl. 390, 418 (1947).

Another interpretive procedure is when the parties by

mutual consent, prior to the execution of a contract,

agree upon a scheme for interpreting the contract should

it be discovered at a later date that one or more terms

must be rendered useless and meaningless because it or

they are so disparate they cannot be read together. One

popular format for this is a separate contract clause

stating which terms have precedence over other terms.

As plaintiff accurately points out, the parties in this

case agreed in the Order of Precedence clause contained

in the Special (or Other) Provisions of the contract that

certain terms of the contract would have precedence over

other items in the event of any inconsistency. Its pur-

pose is such that if there are inconsistencies within the

terms of the contract subordinate clause(s) must bow to

and be disregarded when there is an inconsistent higher

priority clause in the contract. As noted in John A. Volpe

Construction Co., 68-1 BCA { 6857, an Order of Prece-

dence clause “has been consistently recognized as a le-

gally valid and fully effective agreement by the parties

as to how their contract is to be interpreted.” Jd. The

Board, in the instant case, found it possible to “harmo-

nize all contract provisions relating to inspection, test-

ing, delivery and acceptance without creating conflicts

between them or rendering some of the provisions mean-

ingless.” The court is not as sanguine.

The contract Schedule stated that final inspection and

acceptance of Chain 1 would occur upon successful com-

pletion of the DT&E Field Test. Depending upon what

was included in the DT&E Field Test that test was com-

pleted either on February 3 or March 1, 1978. Sub-

ordinate terms, as per the Order of Precedence Clause

contained in inconsistent acceptance terms, such as terms

which forbade acceptance until (1) the contracting of-

ficer had acknowledged completion of the Preliminary

30a

Design Review, Critical Design Review, Functional Con-

figuration Audits, Physical Configuration Audit and the

Formal Qualification review; (2) each item had been

tested successfully; (3) DT&E had been successfully com-

pleted; and (4) design deficiencies corrected; and (5) a

properly filled out DD250 was executed.

The court need go no further to show inconsistent

terms of the contract that cannot be harmonized. Con-

sider: one term of the contract specifies acceptance upon

successful completion of the DT&E Field Tests. Another

forbids acceptance until all tests and audits are final,

DT&E is completed, all design deficiencies corrected, and

a DD250 executed. The court notes that the former term

referred to the DT&E Field Test and the latter to DT&E

without the modifier ‘Field Test” which, we assume, pre-

supposed some higher level or final test, as opposed to a

field or intermediate test even though there was no higher

level DT&E referenced in the contract. Common sense

tells us that a DT&E Field Test is not the same as an

unmodified DT&E, which would read “Final DT&E,” or

something akin to that. Even the Board was concerned

with what constituted “finalization of DT&E.” Either

Chain 1 was accepted at the time of completion of DT&E

Field Tests, or following formal completion of several

other items, including the completion of design deficien-

cies even though under a separate provision plaintiff was

required to correct design deficiencies as a part of its

warranty. The “Order of Precedence” clause was de-

signed expressly to address this kind of inconsistency. As

we have said, an interpretation which would give a

reasonable effect to all parts of the contract is clearly

preferred to one which leaves a part of the contract

useless, but this result is sometimes impossible to reach.

Government contracts are long and complex and the

draftsmanship oftentimes displays a deplorable lack of

care by the drafters, as appears here. When terms of a

contract are inconsistent, and each could be dispositive,

3la

an order of precedence must be established.'' Hence, the

“Order of Precedence” clause. See Restatement (Second)

& Contracts § 299(a) (Tent. Draft, 1973).

Inasmuch as the purpose of determining the acceptance

date of Chain 1 is to discover the beginning date of the

120-day option period the court is bound to construe the

terms of the contract strictly. Indeed, the general at-

titude of the courts and the ASBCA is to strictly con-

strue contractual option provisions because the options

subject contractors to potentially major risks which should

not be extended beyond the limits the contractor had

agreed to accept. In one instance, the ASBCA refused

to uphold the agency’s exercise of an option because the

exercise was one day late. Space-Age Engineering, Inc.,

78-2 BCA { 13,548.

In the instant case, the ASBCA determined that it was

not required to interpret the contract option provisions

but, rather, the term “final acceptance,” as used in the

Inspection and Acceptance clause and that, therefore,

“the strict interpretation rules, whatever they may mean

in this context, are not applicable.” The court disagrees.

The final acceptance language of the Inspection and Ac-

ceptance clause of the contract was an integral part of

the option provision inasmuch as the trigger date for the

120-day option period was the date Chain 1 was finally

accepted. Because this is a question of contract inter-

pretation the court is not bound by the Board’s inter-

pretation, but is free to decide this case in accordance

with its own view of the law. International Telephone

& Telegraph v. United States, 197 Ct. Cl. 11, 548 F.2d

11 “Tnconsistent” is defined as “[m]utually repugnant or contra-

dictory; contrary, the one to the other, so that both cannot stand,

but the acceptance or establishment of the one implies the abroga-

tion or abandonment of the other; as, in speaking of “inconsistent

defenses,’ or the repeal by statute of ‘ali laws inconsistent here-

with.’” Blacks Law Dictionary, 689 (rev. 5th ed. 1979).

32a

1283 (1972). Dynamics Corp. of America v. United

States, 182 Ct. Cl. 62, 389 F.2d 424 (1968).

The court finds that the various terms affecting and

defining acceptance of Chain 1 cannot be interpreted so

as to give them all effect. The terms cannot merely be

read as appearing to be conflicting and then tinkered

with, such as by reading them out of context, ignoring

their plain meaning, etc. The acceptance terms of this

contract are inconsistent and one or more must fall.

The court agrees with the Board’s conclusion that FCA,

FQR and PCA were part of DT&E. The Board found

that FCA and FQR were both completed prior to March

1, 1978. PCA was conditionally approved in early Feb-

ruary 1978. The reason it was not unconditionally ap-

proved was because there were some discrepancies be-

tween the drawings and the equipment, but not so great

as to cause rejection. The Board found that PCA was

formally completed sometime in April 1978, but notwith-

standing the lack of formal completion, defendant con-

ducted IOT&E based upon the PCA conditional approval.

The record below shows that conditional approval of PCA

was made on February 9, 1978 and that defendant went

forward with IOT&E prior to formal PCA acceptance

because the discrepancies were so minor that IOT&E

could be conducted safely while plaintiff continued to

check the drawings against the actual equipment. The

significance of this issue goes to the Board’s finding that

the contract was accepted on March 20, 1978, when a

DD250 was executed for Chain 1. The court agrees with

the Board that final acceptance occurred prior to formal

completion of PCA in April, 1978.

The Board ignored a stipulation reached by the parties

at the administrative level ostensibly because it was not

necessary to support the decision reached by the Board.

Under the court’s view the stipulation is important. The

stipulation read that if FCA and FQR were found by the

Board not to be part of DT&E tests then DT&E testing

33a

was completed on February 3, 1978, if they were found

to be part of DT&E tests then DT&E testing was com-

pleted on March 1, 1978. The significance of the Feb-

ruary 3, 1978 date is that on that day plaintiff completed

all of the tests identified as tests in the Statement of

Work, Task No. 1, Test. The Board found that FCA and

FQR were completed subsequent to February 3, 1978 but

on or prior to March 1, 1978. PCA was not referred to

again.” The court must hold that all tests, including

especially, DT&E Field Tests were completed by March

1, 1978. The stipulation of the parties was improperly

ignored by the Board and, at the least, should have been

addressed. In Gresham & Co. v. United States, 200 Ct.

Cl. 97, 470 F.2d 542 (1972), our predecessor court held

that a stipulation of the parties is dispositive of the issue

of whether government inspectors agreed with the con-

tractor’s interpretation of the specifications because a

“stipulation is a judicial admission binding on the par-

ties... .” Id. at 112, 470 F.2d at 551. It is binding

on the Board and it is binding on this court in the ab-

sence of any factors to the contrary such as coercion,

fraud, impossibility, ete.

The court is well aware that its conclusions, so far

fly in the face of the Board’s legal conclusion that Chain

1 could only be accepted by the proper execution of a

DD250 following some undesignated period of time for

defendant to contemplate the effects of the test results.

The court disagrees with both conclusions. It may well

be that execution of a DD250 is the generally recognized

method for acceptance of an item in government con-

tracting but this ignores the fact that the parties may,

as they did here, mutually agree to another form of ac-

ceptance, i.e., the event of completion of the DT&E Field

Tests. The court also sees no reason why the parties

12 It is readily apparent to the court that PCA is a component part

of FQR and since FQR was completed prior to March 1, 1978 the

conditionally accepted status of PCA must have been sufficient to

the parties, and the Board, and, it should be added, the court.

34a

could not agree to acceptance automatically predicated

upon the same or some other event. Legal precedent

establishes that there is no requirement that government

acceptance be accomplished only by the joint execution

of a formal DD250. Acceptance may be effected upon

the happening of a stated event. See Raymond-Kaiser-

Macco-Puget Sound, 66-1 BCA { 5,498, where acceptance

occurred upon the final inspection at a contractor’s plant

as provided in the contract because the final inspection

disclosed no defects and regardless of the fact that the

DD250’s executed by the government stated that the in-

spection did not constitute government acceptance. T'ro-

Tech Inc. 68-1 BCA { 6,828, held that where there was

no formal written acceptance by the government, the

Board nevertheless properly found that government ac-

ceptance was effected by inspection and payment where

a contract provision baldly stated, “[a]eceptance will be

the date the Veterans Administration receives satisfac-

tory inspection or test report” (sic). There is no merit

to the argument that to permit the parties to agree to

their own manner of acceptance is improper because it

would read out of the contract the “Material Inspection

and Receiving Report” clause. The right of the parties to

agree to ignore the clause is a valid right under the

other terms of the contract and procurement law. The

contract, as amended, made practically every item, sub-

assembly audit, configuration, and so forth, subject to a

separate test both individually and as assembled.’* That

being the case and following the Board’s views a DD250

would have to be executed for most of those bits of the

whole, which would have conceivably amounted to hun-

dreds if not thousands of proffers and acceptances under

the “Material Inspection and Receiving Report” with a

corresponding DD250 for each. There is no evidence that

such activity ever occurred.

13 “Assembled” in this sense does not mean just the entire Chain

1; it also includes subassemblies of many units less than the whole.

35a

Moreover, the Board distilled from the contract that

defendant did not intend for acceptance to be automatic

upon the occurrence of successful completion of the DT&E

Field Test, but that a completed DD250 at some uniden-

tified later point in time was necessary to denote formal

acceptance. We have dealt sufficiently with the latter is-

sue. The Board looked at the word “upon” in the phrase

“upon successful completion of DT&E Field Test,” '* and

found that the word could be defined several different

ways, such as, “at this moment” to “in the very near

future.” The Board did find that it could not support an

interpretation of “upon” as synonymous with the occur-

rence of a particular event and not bureaucratically re-

corded by the proper officer on a correctly completed

DD250. We disagree. Acceptance of Chain 1 occurred

on March 1, 1978 and whether a DD250 was issued that

day is irrelevant. The court finds that “upon” can mean

many things and must be interpreted in light of its

usage. In the context in which it is used in this case,

the court finds that “upon,” contrary to the Board’s con-

clusion, means “now,” concurrent with the successful ecn-

clusion of the DT&E Field Test. The court can easily

understand why defendant wanted a completed DD250

to record the March 1, 1978 acceptance because the vo-

luminous amount of information contained in it would

clearly be to defendant’s benefit. See ASPR § 30.8 Ap-

pendix I (1968).% The Board also concluded that the

contract mandated that inspection must precede accept-

ance, citing the title and order of language in the In-

spection and Acceptance clause of the General Provisions

and the operative language of the contract schedule term

14 From the Schedulue, Section I—INSPECTION & ACCEPT-

ANCE, “Inspection at origin. Final inspection and acceptance upon

successful completion of DT&E Field Test, at destination.” (Em-

phasis added.)

15 The court sees no reason why a properly completed DD250

could not be executed at a later date to memorialize the earlier

acceptance and to acquire the information required in a DD250.

36a

controlling in this instance, that requires “[f]inal inspec-

tion and acceptance upon successful completion of DT&E

Field Test at destination.” This is not correct. At times,

in government contracts acceptance may precede final in-

spection, but more importantly, the argument is moot.

It has nothing to do with the ultimate decision; Chain 1

was accepted on March 1, 1978 even though plaintiff was

obligated by the terms of the contract to continue un-

finished tasks."*

One task which continued was refurbishment of land

and Chain 1. “Section F—Description/Specifications” of

the contract Schedule required plaintiff to restore and

refurbish the land and Chain 1, “[u]pon successful com-

pletion of the DT&E field test [sic].” The clause con-

tinued, that plaintiff was to “refurbish and restore, in-

cluding replacement (sic) if necessary all elements of the

chain to a deliverable condition including (anything) .. .

which may have been damaged in disassembling the

chain 1... .” Again, the Board has made the same er-

ror. It concluded that defendant’s position was correct;

that Chain 1 could not be accepted before refurbishment

was completed and that refurbishment was a part of

DT&E. The court again understands why defendant

would probably have liked Chain 1 completely refur-

bished before acceptance, but that is not what it con-

tracted for. Defendant received from plaintiff exactly

what the contract called for, i.e., refurbishment of the

chain after successful completion of the DT&E Field

16 Plaintiff also alleges that the argument of whether inspection

had to precede acceptance was raised by defendant as a “straw

man” because inspection took place at its plant prior to delivery, and

as required by the contract. The court will not consider this argu-

ment because it need not do so to resolve the appeal. The Board's

address to this issue would lead you back to section 5.2 of the

Statement of Work which forbids acceptance before inspection.

The reader will remember that the court found section 5.2 of the

Statement of Work to be subservient to and, in this instance,

nullified by the Schedule.

37a

Test. Defendant has been in the business of writing con-

tracts for over 200 years and is capable of drafting con-

tract language to describe accurately what it wants. To

state otherwise is disingenuous. It is also not lost on

the court that defendant did reserve to itself 120 days

after acceptance of Chain 1 to evaluate the Chain, train

military personnel to operate it (IOT&E), complete more

testing and documentation, permit refurbishment, replace

damaged parts (though this item was covered under the

warranty provisions of the contract) and myriad other

items of unfinished work. It is not that defendant did

not have other options for accomplishing these goals.

For example, defendant could have keyed acceptance to a

later event than DT&E, or it could have allowed itself

more time for the completion of any possible unfinished

work by the contractor or itself, and as a corollary

thereto, more time within which to make the decision

of whether to exercise the option.

The final finding of the Board was that plaintiff main-

tained site security at the site(s) until March 18 or

20, 1978 thereby manifesting that acceptance by defend-

ant had not occurred prior thereto. When plaintiff gave

notice that it planned to withdraw its guard force on or

about February 3 and March 1, 1978 because Chain 1

had been accepted, defendant refused to accept the re-

sponsibility for security, and so told plaintiff. The court

believes as a result, plaintiff was forced by economic

considerations to continue providing site security as it

was required to do under the contract. Plaintiff had not

been totally paid for its work on the contract and expen-

sive equipment of its own and defendant’s was on the

site(s). Plaintiff's actions were completely reasonable

in these circumstances. Defendant, operating under the

false premise that it had not accepted Chain 1 until

March 20, 1978, naturally refused responsibility for site

security because, had it done so, that action would have

presaged defendant’s control over the real and personal

property and have been inconsistent with defendant’s

38a

litigation position, that during the first few weeks of

March 1978 it had not accepted Chain 1.

We have answered two of the three issues posed by

the Board. Issue two asked, “[w]hat impact did com-

pletion of the last DT&E field test [sic], on 3 February

1978, have on commencement of the period within which

the Government could exercise its option to purchase

LORAN chains?” The answer is none, because the

DT&E Field Test was not completed until March 1, 1978.

The 120-day option period on Chains 2 and 3 began run-

ning concurrently with the March 1, 1978 automatic

acceptance by defendant of Chain 1. Issue three was,

“li]f the option period did not begin on 3 February

1978, on what date did it commence and what event

marked that milestone?” The option period began on

March 1, 1978 as determined by the parties in the per-

tinent stipulation of facts and the Inspection and Ac-

ceptance Clause of the contract, as amended, which

established the acceptance date of Chain 1 and the begin-

ning of the option period as the day DT&E was success-

fully completed at destination.

The Board also asked “[w]hat was the impact of the

implementation of the new billing schedule contained in

the DD250 executed on 29 March 1977?” We agree with

the Board on this issue. Briefly, plaintiff apparently

encountered money-flow problems and requested, on

March 29, 1977, that defendant revise the billing sched-

ule. This was done through the submission of a DD250

(which exemplifies the confusion surrounding the use of

DD250’s). Defendant then issued amendment P00023

which divided line item 0001 (Chain 1) into three epa-

rate parts. This particular DD250 was addressed to line

item 1.1 “Design, Develop, Fabricate and in Plant Test

one each [LORAN CHAIN].” Plaintiff argued to de-

fendant and the Board that the signature of defendant’s

Systems Program Director on that particular DD250

started the 120-day option period. The Board and this

39a

court disagree with plaintiff. The execution of the Sys-

tem Program Director only operated to acknowledge the

new billing schedule set out in the DD250. Plaintiff’s

argument carries no weight.

CONCLUSION

This case has been complex, complicated all the fur-

ther, by a poorly drafted contract and an extremely

well-crafted Board opinion that this court was required

to disagree with, as a matter of law, on several issues

including the primarily dispositive one; the date of ac-

ceptance of Chain 1 by defendant which started the run-

ning of the option period for Chains 2 and 3. That date

was March 1, 1978 meaning, therefore, that the option

was executed 135 days after acceptance of Chain 1.

Accordingly, for the reasons given in this decision, plain-

tiff’s Motion for Summary Judgment is granted; defend-

ant’s Cross-Motion for Summary Judgment is denied;

the decision of the Armed Services Board of Contract

Appeals is reversed and plaintiff is entitled to recover.

The case is remanded to the ASBCA for further proceed-

ings in accordance with RUSCC 60.1 and the holdings of

this court and, as relevant to the determination of quan-

tum. The proceedings in this court shall be stayed for

a period of six months, or such other time as the court

may allow upon motion of either party as the needs cf

this case may require. Counsel for plaintiff shall provide

the court with a status report beginning 90 days from

the issuance of this decision and every 30 days thereafter.

IT IS SO ORDERED.

/s/ Moody R. Tidwell

Moopy R. TIDWELL

Judge

40a

Skit nee een

APPENDIX C

ARMED SERVICES BOARD OF CONTRACT APPEALS

ASBCA No. 23448

Appeal of —

SPERRY RAND CORPORATION, SPERRY DIVISION

Under Contract No. F19628-74-C-0092

Appearances for the Appellant:

John Lloyd Rice, Esq.

John J. O’Conner, Esq.

Miller & Chevalier, Chartered

Washington, D.C.

Appearances for the Government:

Colonel William P. Rudland, USAF

Chief Trial Attorney

Major Gerald J. Brentnall, USAF

Patrick D. Quinn, Esq.

Trial Attorneys

OPINION BY

ADMINISTRATIVE JUDGE RIISMANDEL

This timely appeal presents a question as to whether

the Government’s exercise of an option provision in the

contract was timely. At issue is the act marking com-

mencement of the option period. A hearing was held and

both parties have submitted briefs. Only entitlement is

presented for the Board’s consideration. This appeal is

not subject to the Contract Disputes Act of 1978, 41

U.S.C. §§ 601 et seq.

4ia

The record in this appeal consists of the Rule 4 sub-

mittals, supplemental Rule 4 documents presented by

appellant, stipulations of fact and the transcript of the

hearing.

FINDINGS OF FACT

The Contract

1. Contract F19628-74-C-0098 was entered into be-

tween Sperry Rand Corporation, Sperry Division (here-

inafter appellant) and the Government with an effective

date of 25 January 1974. The contract was a fixed price

incentive fee (firm target) contract, requiring the de-

sign, fabrication, testing and delivery of a LORAN-D

Ground Chain as contract line item 0001 at a target

price of $13,430,000. Delivery of the basic chain was

to occur two years after contract award date. (R4, tab

25, part II, section H)

2. LORAN-D is a precision navigation system used to

provide navigational information and precision fixes

within a tactical service area. This system represents an

advanced generation of transportable, computer-controlled,

solid waste long range navigation (LORAN) systems.

The equipment transmits signals which can be received

aboard aircraft or ships. The receiver determines loca-

tion by interpreting the time differences between pre-

cisely controlled pulses from transmitters. The LORAN-

D ground chain system consists of a transmitting chain

(composed of from 3 to 5 high power pulse transmitters)

and a ground monitor (to receive, process and score criti-

cal information related to transmissions of the system).

The development of this equipment represented an ad-

vancement in the state of the art. Appellant experienced

delays in connection with this program and was given ex-

tensions of time. (App. supp. R4, tab A-38 at 2; stip. 2;

tr. 1/34-35, 73)

3. The contract granted to the Government the option

to purchase up to three additional LORAN-D Ground

42a

Chains (Chains 2, 3 and 4) at prices specified in the

contract (app. supp. R4, tab A-22; stip. 1). The option

had to be exercised “within 120 days after final accept-

ance by the Government of Item 0001 or by 76APR15

whichever is later” (contract schedule at 2).

4. In addition to the “Changes (1958 JAN)” and

“Disputes (1958 JAN)” clauses, the contract contained

the following provisions which pertain to this appeal:

INSPECTION (1958 MAY)

(a) All supplies (which term throughout this

clause includes without limitation raw materials,

components, intermediate assemblies, and end prod-

ucts) shall be subject to inspection and test by the

Government, to the extent practicable at all times

and places including the period of manufacture, and

in any event prior to acceptance.

* * * *

TITLE AND RISK OF LOSS (1968 JUN)

(a) Unless this contract specifically provides for

earlier passage of title, title to supplies covered by

this contract shall pass to the Government upon for-

mal acceptance, regardless of when or where the

Government takes physical possession.

(b) (1) Unless this contract specifically provides

otherwise, risk of loss of or damage to supplies cov-

ered by this contract shall remain with the Contrac-

tor until, and shall pass to the Government upon:

(i) delivery of the supplies to a carrier, if

transportation is f.o.b. origin;

(ii) acceptance by the Government or delivery

of possession of the supplies to the Government

at the destination specified in this contract,

whichever is later, if transportation is f.o.b.

destination.

43a

(2) Notwithstanding (1) above, the risk of loss

or damage to supplies which so fail to conform to the

contract as to give a right of rejection shall remain

with the Contractor until cure or acceptance, at

which time (1) above shall apply.

shall not be liable for loss of or damage to supplies

caused by the negligence of officers, agents, or em-

ployees of the Government acting within the scope

of their employment.

* * * *

MATERIAL INSPECTION AND

RECEIVING REPORT (1969 DEC)

At the time of each delivery of supplies or services

under this contract, the Contractor shall prepare and

furnish to the Government a Material Inspection and

Receiving Report in the manner and to the extent re-

quired by ASPR Appendix I, “Material Inspection

and Receiving Report.”

+ * * *

PART II—THE SCHEDULE

SECTION E—SUPPLIES/SERVICES & PRICES

i. The Contractor shall design, fabricate, test and

deliver the equipment, data, and services below in

accordance with the documents set forth in Section

0001 LORAN Ground Chain, Tactical, Transporta-

ble, 1 each (Basic with Technical Alternate 2

Configuration )

* * * *

44a

SECTION F—DESCRIPTION/SPECIFICATIONS

Item Basic Chain Description

0001 SOW para 7.1 & Spee Nos. SS-DCL-450A-S1;

SS-DCL-450A-Ti; SS-DCL-450A-M1 (Refer-

ence WBS Attach, Transmitting Set (level 2,

Task 30) and Monitor Set (level 2, Task 30)

and to include Dev. Test and Eval and Sys

Proj Mgt SOW para 1, 7.1, 7.3 and tasks 1,

2, and 4-28.)

Amendment #2 dated 75 JUL 08, Task 31,

Transmitter Antenna Fence” attached hereto

and hereby made a part hereof.

IAW Annex “A” to SOW & Spec No. SS-

DCL-450A-T1, Para 3.2.1..2 and Section 4.

* * * *

The following is added to Task 1 of the

SOW:

Location of DT&E. Field testing of the

first chain is to be accomplished in S.E. U.S.

such that the location of the monitor and

primary service area would be the Eglin,

AFB, FL area. The three transmitter sites

would have to be located in 8.E. U.S. such

that they provide 400 mile base legs, with

open side of the TRIAD facing the Gulf of

Mexico. Test sites to be selected for the

DT&E testing in S.E. section of the U.S.

shall be on Government-owned property.

Refurbishment and Restoration After

DT&E. Upon successful completion of the

DT&E field test, the contractor shall restore

the sites to the condition they were in prior

to the test. Also, the contractor shall refur-

bish and restore, including replacement if

SSS ae eee

Be re eh yea sgn he a inet Lichen roi aaiial scene Eile a)

45a

necessary, all elements of the chain to a de-

liverable condition including any material

and fixtures and other aspects which may

have been damaged in disassembling the

chain.

* * % x

Design Deficiencies. During or subsequent

to DT&E the contractor shall correct any

design deficiencies.

SECTION H—DELIVERIES OR PERFORMANCE

1. Delivery is required in accordance with the fol-

lowing schedule:

ITEM QTY F.0.B. POINT ON OR BEFORE

0001 1 ea. DT&E POINT 2 years after

(destination) contract award

date

* * * *

SECTION I—INSPECTION AND ACCEPTANCE

Items

0001 Inspection at origin. Final inspection and

acceptance upon successful completion of

DT&E Field Test (at Eglin ABF, FL)

* * * *

SECTION J—SPECIAL PROVISIONS

* * * *

5. ORDER OF PRECEDENCE.

In the event of an inconsistency in this contract,

unless otherwise provided herein, the inconsistency

Shall be resolved by giving precedence in the follow-

ing descending order: 1) Schedule (excluding State-

46a

ment of Work, the Specifications, and Contract Data

Requirements List); 2) General Provisions; 3) the

other provisions of the contract whether incorporated

by reference or otherwise; 4) Statement of Work;

5) Contract Data Requirements List; 6) the Specifi-

eations (a. SS-DCL-450A-S1; b. SS-DCL-450A-T1;

ce. SS-DCL-450A-M1) ; 7) The Contractor’s Technical

Proposal as described in Section F.

* * & *

STATEMENT OF WORK

5.0 Delivery

5.1 Delivery dates and quantities for Development

Items shall be as specified in the schedule of the con-

tract of which this SOW is a part. Acceptance by

the Government of the LORAN D Ground Chain

Equipment shall be accomplished at the Configura-

tion Item level.

5.2 Configuration Items will not be accepted until

the following conditions are met.

5.2.1 The Contracting Officer has acknowledged

completion of Preliminary Design Review, Critical

Design Review, Functional Configuration Audits,

Physical Configuration Audit, Formal Qualification

Review.

5.2.2 One or more of each Configuration Item has

been qualified and tested in accordance with Govern-

ment approved test plan, procedures and meet the

specification requirements.

5.2.3 The Configuration Items have satisfactorily

passed acceptance test in accordance with Acceptance

Test Plans, Procedures, and Specifications which

have been previously approved by the Contracting

Officer.

47a

5.2.4 Acceptance will take place following success-

ful completion of DT&E and correction of design

deficiencies.

7.2 Development Test and Evaluation The con-

tractor shall perform development tests and evalua-

tions as specified in Task 1 of SOW and Specifica-

tions SS-DCL-450A-S-1, SS-DCL-450A-T-1, SS-DCL-

450A-M-1 and development specifications.

TASK 1

TEST

6. Acceptance Final acceptance of all contractor

provided equipments, services, and materials shal! be

accomplished upon both the successful completion of

System Tests and the clearing of all test and design

discrepancies from all test phases.

* * * *

5. “DT&E” is an acronym for Development, Test and

Evaluation. This is a process through which a mecha-

nism is subjected to a series of tests in order to establish

that the equipment meets the performance levels set forth

in the specifications. (Tr. 1/40, 75, 3/110) DT&E test-

ing, which is common to contracts with technical require-

ments, is developed from a test plan prepared by the con-

tractor and approved by the Government (tr. 1/42-43,

75, 81, 2/15). In this contract, the DT&E test plan was

quite extensive, requiring over 150 tests for all phases of

the system’s performance (tr. 1/47, 74). By the terms

of the contract, appellant was required to perform DT&E

testing (R4, tab 25 at 5; tr. 1/39).

6. In addition, the systems had to pass a Physical Con-

figuration Audit (PCA), Functional Configuration Audit

(FCA) and Formal Qualification Review (FQR) (tr.

2/52, 3/124).

48a

7. The purpose of PCA is to compare the actual equip-

ment test results with the technical data describing the

equipment in order to identify any discrepancies needing

correction (tr. 2/106, 3/103, 121).

8. The purpose of FQR is to accumulate all data from

the different tests and to review them as a package. By

reviewing these test results and the result of the FCA, it

can be determined whether the equipment conforms to

the specifications and is suitable for the intended use.

(Tr. 1/54, 2/12, 105)

9. The purpose of FCA, an underpinning to FQR, is

to examine results of tests and compare them with spe-

cification requirements to ascertain if the tests were con-

ducted properly in accordance with accepted test proce-

dures and that the test results demonstrated that the par-

ticular component conformed to the tests (tr. 2/12, 64,

104-05).

10. Data underlying the testing phase was covered

under separate Line Item 0006 and is not involved in the

consideration of when acceptance of Line Item 0001

occurred (R4, tab 25 at 2).

Contract Performance

11. During the course of contract performance, the

parties entered into numerous modifications (R4, tabs 26-

51). None of these modifications changed the contract

option prices (tr. 1/118).

12. A negotiation memorandum prepared by appellant

on 4 June 1975 contained the following information vis-

a-vis “Option Dates”:

Proposed 120 days after delivery of Chain 1 hard-

ware as period within which they can purchase op-

tions for Chains 2, 3 and 4 at target prices currently

stipulated by contract. Accepted.

(App. supp. R4, tab A-1)

49a

13. During negotiations between the parties on 23

June 1975, the Government’s contract negotiator advised

appellant that any supplemental agreement would include

language to the effect that the Government could order

the option quantities at any time, but no later than 120

days after delivery of Item 0001 (R4, tab 71).

14. Modification P00007 to the contract, negotiated

pursuant to 10 U.S.C. § 2304(a) (10), was executed on

28 July 1975. This modification extended the time for

delivery of the basic claim by eight months and provided,

inter alia, that with regard to both Chain 1 and Chain 2,

the “Government may exercise this option at any time

during contract performance, but not later than 120 days

after final acceptance by the Government of Item 0001.”

(Emphasis supplied) Item 0001 of Section I, “Inspection

and Acceptance” was modified to read as follows:

0001 Inspection at origin. Final inspection and

acceptance upon successful completion of DT&E

Field Test at destination.

(R4, tab 32)

15. A, “Program Schedule” (AFSC Form 103) was

incorporated into Modification P00007, reflecting that the

completion of DT&E, Functional Qualification Review

and “AF accept chain” all would occur on 25 September

1976 (R4, tab 32 at 8, tabs 68, 70; tr. 1/93-94, 123-124).

16. Contract management reviews were conducted by

appellant during the term of the contract. Representa-

tives of appellant and the Government were present at

these meetings. In a contractor management review con-

ducted in July 1975, “Critical Field Test Milestones”

were depicted as follows:

FIELD TEST MILESTONES

COMPLETE FIELD DT&E 9/25/76

COMPLETE FQR 9/25/76

AF ACCEPT CHAIN 9/25/76

DELIVER DT&E REPORTS 10/25/76

50a

(Exh. A-8 at A-8). The same timetable was set forth

in contractor management reports prepared in October

and December 1975 (exh. A-9 at A-8, A-10 at A-8; tr.

1/107).

17. Modification P00021 was executed on 2 June 1976,

with the express purpose of providing “confidence testing

at the Wildwood, N. J. High Power Test Site.” (R4,

tab 46) A program schedule was attached to this bi-

lateral Modification and provided:

Completion

Date

FIELD TEST MILESTONES

COMPLETE FIELD DT&E 26 Oct 76

FUNCTIONAL QUALIFICATION

REVIEW 26 Oct 76

AF ACCEPT CHAIN 1 Nov 76

DELIVER DT&E REPORTS 26 Nov 76

(R4, tab 46). At the request of appellant, this timetable

provided one week for refurbishment after the comple-

tion of testing and before acceptance, for it was antici-

pated that the equipment on the site would have “taken

a beating.” This week also was available in order to

correct any problems discovered during testing. Tr.

2/185, 3/7-8, 28-29; R4, tab 81)

18. Modification P00021 also amended the statement

of work as follows:

Task 17—Configuration Management

1, Delete paragraph 4.b and substitute the follow-

ing: Physical Configuration Audit. The contractor

and the procuring activity shall conduct an incre-

mental Physical Configuration Audit on the first

production: unit of each configuration item, in ac-

cordance with MIL-STD-483 (USAF), and appendix

XII thereto. Physical Configuration Audit on all

Configuration Items shall be completed not later

than “end of DT&E.” The contractor is responsible

for the conduct of the audit, MIL-R-83313 (USAF)

5la

will be used as a guide. (Note DIDs DI-A-3029/

S-105 and DI-E-3118/C-131-1).

(R4, tab 46, att. 1 at 2)

Thus, PCA had to be performed on the first production

unit of each Configuration Item prior to the completion

of DT&E. Every component in each LORAN chain was

a configuration item. (Tr. 3/98)

19. In 1975 and 1976, appellant requested that the

Government grant it financial relief by means of con-

verting progress payments to revenue through use of a

provisional billing system or an economic price adjust-

ment clause (R4, tabs 1, 4, 5, 6, 7, 8, 10, 11).

20. After lengthy negotiations, Modification P00023

to the contract was executed on 29 March 1977. This bi-

lateral modification extended the contract delivery sched-

ule to 30 June 1977 and provided for a revised billing

schedule. (R4, tab 48) By means of the revised billing

schedule, appellant was able te convert progress payments

into earnings for its accounting purposes (tr. 1/128-30,

2/60). Upon appellant’s suggestion, Line Item 0001 was

divided into three subparts solely for billing purposes,

in order to accomplish this new billing and payment

method. Modification P00023 did not alter the terms of

Section E or Section H of the contract schedule. (Tr.

2/178, 183, 3/10-12; stip. 8.

21. The billing schedule added by Modification P00023

subitemized Line Item 0001 as follows:

SECTION J—Add the following clauses:

27. BILLING SCHEDULE:

The parties hereby agree to the Contract Billing

Schedule as set forth below which sub-itemizes CLIN

0001 as follows:

Billing Price

1.1 Design, Develop, Fabricate

and In Plant Test one each

LORAN GROUND CHAIN $12,500,000

52a

1.2 Field System Test to include

Environmental, Maintainability,

Segment, and System Testing (less

High Power Test) plus residual

tasks from 1.1 and Data (less

A052 and A093) 692,956

1.3 Data A052 and 093 450,000

Notwithstanding the provisions of the ‘Payment’ and ‘Incentive

Price Revision (Firm)’ clauses of this contract, the above

billing price break out shall not entitle the contractor to

voucher for or receive payments in excess of the amounts it

would be entitled to receive under the ‘Progress Payments’

clause if CLIN 0001 had not been sub-itemized.

(R4, tab 48 at 10)

22. On 29 March 1977, a “Material Inspection and

Receiving Report” DD Form 250, (hereinafter “DD250”)

was signed on behalf of the Government accepting con-

‘tract line item 1.1, except for certain residual tasks set

forth in accompanying documents (app. supp. R4, tab

A-6). The System Program Director (SPD) for the Air

Force signed the DD250, but did not check the box indi-

cating that his signature amounted to acceptance of the

chain in the block provided in the document. As of 29

March 1977, appellant successfully had completed design

development and in-plant tests of the basic LORAN chain

and had accomplished transportability, environmental,

functional and acceptance tests successfully, except for

the residual items designated in the DD250. The Reli-

ability Demonstration which was a part of the Field Sys-

tem Test had not been performed. (Stip. 10) There is

no evidence that the Government accepted anything other

than work already performed pursuant to the revised

billing schedule of Modification P00023 when the 29

March 1977 DD250 was signed (tr. 1/139, 2/66, 179,

3/15). Indeed, Block 16 of the document described the

item accepted in the terms of Item 1.1 as the “billing

schedule” only (app. supp. R4, tab A-6).

23. Reliability testing of the LORAN system was per-

formed in the field (tr. 2/110). Because the operability

See ae ee

a Pe AS

53a

of the system in terms of the specification requirements

could be determined only through field testing, four sites

were used. Eglin AFB served as the monitor site and

the three triangulation legs of the system were located

in Raiford, Florida, Kisatchie, Louisiana, and Anniston,

Alabama. (Tr. 2/109-10, 3/44)

24. In a Production Progress Report for November

1977, appellant stated, inter alia, that “the balance of

program tasks including all test effort, design review,

refurbishment, system acceptance and delivery is sched-

uled to be completed by 15 May 1978” (R4, tab 185).

This prediction was repeated in the Production Progress

Report for December 1977 (R4, tab 186).

25. The Production Progress Report for January 1978

estimated a completion date of 10 March 1978, and

stated:

Reliability demonstration tests have been completed.

The balance of program tasks including antenna

teardown, design reviews, refurbishment, system ac-

ceptance and delivery is scheduled to be completed

by March 1978.

(R4, tab 187)

26. On 23 January 1978, an inter-office memorandum

prepared by appellant revealed that a number of com-

ponents were missing from the LORAN assembly at

Eglin AFB. Correction of these deficiencies was required

on or before 30 January 1978. (R4, tab 92)

27. In a meeting between the parties on 25 January

1978, Mr. Jack Regan, a Sperry representative, indicated

a desire to get a DD250 signed for Item 1.2, since this

action would “start the clock” in so far as the option

period was concerned. At that meeting, appellant also

indicated that it considered the DD250 executed on 29

March 1977 to represent final acceptance of Item 1.1.

(R4, tab 94)

54a

28. On 26 January 1978, appellant forwarded a

DD250 for Item 1.2 to the Government, requesting that

it be executed upon completion of PCA at the Anniston

site (R4, tab 107).

29. In a meeting held on 2 February 1978, Mr. Ralph

D’Avino, appellant’s program manager, requested that

the Government execute a DD250 upon completion of the

“on-site” portion of PCA, which was scheduled to occur

on 15 February 1978 (R4, tab 99). The Government

did not accede to Mr. D’Avino’s wishes.

30. Testing had occurred in the field throughout 1977,

and on 3 February 1978, the last scheduled test, antenna

teardown demonstration was _ performed successfully

(tr. 1/74-75, 79, 98, 2/47, 51; app. supp. R4, tab A-32).

The successful completion of these tests demonstrated the

ability of the LORAN chain to function in accordance

with the contract requirements (tr. 1/50 77).

31. Minor problems existed with respect to the equip-

ment upon the conclusion of the last test of DT&E. These

problems were confined to missing components and worn

insulation, and were remedied during appellant’s refur-

bishing efforts. (Tr. 2/7, 119-20; R4, tab 18 at attach-

ment 1)

32. Beginning on 3 February 1978 and continuing

until 18 March 1978, appellant performed refurbishment

work on the equipment at the sites, in order to make it

ready for the Government’s testing in the Initial Oper-

ating Test and Evaluation (IOT&E) program once the

equipment was accepted (tr. 2/25, 114, 3/56, 62).

33. The field portion of the PCA, whereby the hard-

ware was examined in light of the drawings, was com-

pleted on 9 February 1978 (tr. 3/87). The PCA per-

formed at Anniston, Alabama required two weeks and

found discrepancies (tr. 2/130). However, the PCA was

not formally completed until April 1978 (tr. 3/87).

34. An inter-offee memorandum prepared by Sperry

personnel on 24 February 1978 stated that acceptance

55a

had not yet occurred (R4, tab 110). A letter from the

contracting office to appellant on 27 February 1978 dis-

cussed acceptance as a future event (R4, tab 111).

35. FCA was completed on 28 February 1978 and

FQR was completed on 1 March 1978 (tr. 1/60, 87,

2/37, 3/30-31).

36. An “Engineering Development” report issued by

appellant for the period 1-28 February 1978 contained

the note that:

The only remaining program tasks are completion

of refurbishment and acceptance of transmitter sites

and completion of CDPL data items.

(R4, tab 189 at 2). This corresponds to a Government

“Production Progress Report” (DD Form 375C) for the

period of February 1278, which related that:

Loran Chain—All program tasks have been com-

pleted except for refurbishment and acceptance of

transmitter sites which is scheduled to be completed

by mid March.

(R4, tab 190)

37. A Program Progress Report prepared by appel-

lant dated 13 March 1978 contained the same information

(R4, tab 188, 190).

38. From 27 February 1978 until 18 March 1978, the

Government’s Quality Assurance Representative (QAR)

had been conductihg acceptance tests at the four sites, in

accordance with paragraph 5.2.3 of the Statement of

Work, to assure that the system operated functionally

(tr. 2/45-53; R4, tab 197). The last acceptance test was

accomplished on 18 March 1978 but the inspector’s certi-

fication letter was dated 17 March (R4, tab 197; tr.

3/53). This completed the inspection process on the en-

tire LORAN chain (tr. 3/61).

39. Appellant performed refurbishment and _ restora-

tion work at each site prior to inspection. These efforts

concluded on 18 March 1978. (Stip. 13)

56a

40. On 20 March 1978, the Government QAR and the

System Program Director (SPD) signed the DD250 pre-

pared and submitted by appellant in accordance with the

“Material Inspection and Receiving Report” clause for

Line Item 0001, “LORAN Ground Chain, Tactical, Trans-

portable (Basic with Mechanical Alternative 2 Configura-

tion)” (stip. 13; R4, tab 21; tr. 3/53). This document

reflected that the chain was “shipped” on 17 March 1978

(R4, tab 197). The SPD checked the “acceptance” box

in block 21B of the DD250. The Government’s signature

on the DD250 represented that all tests had been evalu-

ated and the DT&E had been completed successfully (tr.

2/18).

41. Execution of the DD250 is the recognized method

for acceptance in Government contracts (tr. 2/17, 61,

155).

42. On 21 March 1973, after the signing of the DD250,

the Government embarked on an Initial Operating Test

and Evaluation program (IOTE), the purpose of which

was to permit Government personnel to assure that they

could operate the systems as successfully as appellant’s

employees (tr. 2/19, 123, 133). The contractor’s par-

ticipation in this program was limited to furnishing a

number of engineers as support personnel for a period

of three months. Their services were “to begin after

acceptance” of the system by the Government. (Item

0010 in Section F of the contract schedule, at R4, tab

25 and in Modification P00002 at R4, tab 27) IOTE

is a crucial factor in the decision to exercise an option,

and an option can be exercised only upon the successful

eompletion of IOTE. A piece of equipment must be in

a restored condition to order to be subjected to IOTE.

As a result, the LORAN chain in this case had to be

refurbished prior to the performance of IOTE. (Tr.

2/20, 144, 158) IOTE cannot be performed until DT&E

is complete (tr. 2/132-33).

TEM Minas Anan Bw vated idee MOR Rant Saas A Ws

CAE ic: we ery.

57a

43. Performance of IOTE consumed 60 days. Upon its

successful completion, the Government reviewed the test

data and concluded that Government personnel could

operate the equipment and that it met the specified per-

fomance levels set forth in the contract. (Tr. 2/19-20)

44. In correspondence to the Government dated 20

April 1978, appellant acknowledged that the system had

been formally accepted on 20 March 1978 (R4, tab 199).

45. There is no evidence of any comment by appellant

on 3 June 1978 (the 120th day following 3 February

1978) when the Government had not exercised its option

for chains 2 and 3.

46. Through unilateral Modification P00026 dated 6

July 1978 and received by appellant on 14 July 1978,

the Government advised appellant that, inter alia:

Options for CLIN 0002 (Chain 2), CLIN 0003

(Chain 3), and related Data CLIN 0012 are hereby

exercised and a contract modification to that effect

was mailed to Sperry Gyroscope Division on 7 Jul 78.

(R4, tab 51; stip. 14)

47. 14 July 1978 marked the 161st day following 3

February 1978 and the 116th day subsequent to 20 March

1978.

48. Appellant advised the Government in a letter dated

14 July 1978 that:

Sperry acknowledges receipt on July 14, 1978 of

your TWX and Contract Modification P00026 dated

July 6, 1978 purporting to exercise options for

CLINS 0002 and 0003 of Contract F19628-74-C-

0098. You are hereby advised that for the reasons

set forth below Sperry believes these options to be

invalid and no longer exerciseable by the Depart-

ment of the Air Force, and that the attempted exer-

cise of these options at this date constitutes a con-

58a

structive change to Contract F19628-74-C-0098 for

which Sperry is entitled to an equitable adjustment

in contract price and contract schedule.

In recognition of the Air Force’s acknowledged

need for the equipment and services covered by the

option, Sperry will proceed with CLINS 0002 and

0003 as a change to the contract, and will prepare

and submit a claim for an equitable adjustment in

the contract price and delivery schedule. Our claim

will be filed within thirty (30) days and will be in

an amount estimated to be between $4,000,000 and

$5,000,000 at the target cost line. Sperry estimates

that the time within which the Air Force must re-

spond to this notice to minimize costs, delay or dis-

ruption of performance is seven (7) days.

(R4, tab 22)

49. Essentially, appellant’s problems stemmed from the

inflationary period of the mid-1970’s which adversely

affected its projected costs for LORAN chains to be built

after Chain 0001 (R4, tabs 86, 101).

50. Appellant made deliveries under protest and sub-

mitted a claim for equitable adjustment to the contract

price in a letter dated 10 August 1978 (stip. 14).

51. Appellant’s claim was denied in the contracting

officer’s final decision dated 31 October 1978 (R4, tab

24). Appellant took a timely appeal from the final de-

cision.

Events Determining Acceptance

Completion of DT&E

52. At the hearing, appellant’s witnesses advanced the

position that acceptance simultaneously with the con-

clusion of the last DT&E test (tr. 1/106, 109, 2/42).

The Government’s witnesses contended that the option

could not be triggéred until all tests and all data pro-

cedures (FCA and FQR) had been completed (tr. 2/47).

———

59a

58. DT&E under this contract was a comprehensive

process whereby the new design was fabricated, imple-

mented and tested, with the test results being analyzed

to verify performance (tr. 3/124). DT&E testing was

divided into two categories: category I, “Test Plan/

Procedures, Subsystem Test” was to demonstrate that

individual subsystems performed within the qualifica-

tion requirements, while category II, “Test Plan/Proce-

dures, System Test,” would demonstrate how the system

interacted to form a chain. Essentially, category I fo-

cused on individual component function, while category

, II concentrated on the operation of the chain as a whole.

(Tr. 1/44-45; app. supp. R4, tab A-33) The DT&E field

| tests were category II tests.

54. The third leg of the DT&E triad, “evaluation,” oc-

curred throughout the DT&E program, but final results

could be evaluated only after the testing process had

ended (tr. 2/54, 104-06, 3/96).

55. Because of its unique evaluation position, FQR

should be performed as late as possible in the DT&E

process to ensure that as much data as possible is avail-

able for analysis. FQR fully falls within the ambit of

“Evaluation” for purposes of DT&E. As such, we find

that FQR is a component of DT&E and that DT&E is

not complete until FQR has been performed. (Tr. 2/12,

63, 106)

56. While PCA does not evaluate the actual perform-

ance of a component, it functions as a part of DT&E,

since it facilitates the discovery and correction of dis-

crepancies (tr. 2/107, 3/86). Because of the interrela-

tionship between DT&E and PCA/FQR, we find that

DT&E was not complete until those two tests had been

completed (tr. 3/135; R4, tab 25, Statement of Work

at 57). FCA is a quality control function and an un-

derpinning to FQR (tr. 2/12, 52, 64).

| ee as ?

60a

Refurbishment

57. By the language of Modification P00021, time was

set aside after the completion of field testing so that the

equipment could be refurbished. While the parties had

anticipated that refurbishment after field tests would

be necessary, Modification P00021 marked the first time

that a specific time period was allowed for refurbish-

ment. (Tr. 3/20; R4, tab 25 at 5) Refurbishment was

required as part of DT&E, to restore the equipment to a

safe, operable condition (tr. 2/64, 113). The parties

originally thought that refurbishment would be a minor

task (tr. 3/25).

58. Controversy existed over whether refurbishment

was to commence upon the conclusion of DT&E testing

as part of the scheduled work. Appellant’s witnesses con-

tended that it did not, while the Government’s witnesses

asserted that refurbishment was the last work to be

performed on Chain 1 before acceptance. (Tr. 1/108,

2/45, 54, 3/106).

59. By the time DT&E field tests were complete, the

equipment had been on site for over 114 years and needed

active refurbishment (tr. 1/51, 74, 77, 2/88).

60. The Government’s witnesses contended that IOTE

could not begin until the chain had been accepted, and the

Government could accept only a refurbished chain (tr.

2/17-18, 70, 133, 151, 174, 3/79, 84-86; finding 32).

Thus, until refurbishing was complete, the Government

contended that it had not been tendered a product which

could be accepted for purposes of the option.

Security

61. Under Modification P00023, appellant was re-

quired to provide site security until the chain was de-

livered to the Government (R4, tab 48). The parties

defined “delivery” and “acceptance” to be synonymous

(tr. 1/116, 2/15, 65, 154, 186, 3/15).

6la

62. Initially, appellant indicated that it would cease

providing site security at the end of January 1978 (tr.

2/155). However, in response to a letter dated Jan-

uary 1978 from the Government stating that appellant

was required to provide security through delivery, ap-

pellant continued providing site security beyond 31 Jan-

uary 1978 (R4, tab 93).

63. In a meeting held on 2 February 1978, appellant

suggested transferring the security obligation to the

Government on 3 February 1978 (tr. 2/53). Appellant

then revised its schedule to terminate site security on 15

February 1978 and agreed to provide site security serv-

ice until 1 March 1978, in response to a telegram dated

14 February 1978 stating that “Sperry is required to

provide site security services until acceptance of [Line

Item] 001” (R4, tab 102; tr. 2/34). In fact, appellant

provided guards at the site until 20 March 1978, the

date the Government executed the DD250 (tr. 2/31, 115,

131, 156). While appellant claims that it continued to

provide security at the sites solely because of the value

of its equipment located there, we have no evidence of

any claim by appellant for the costs of these services.

(Tr. 2/98, 8/119) The most revealing indication of who

exercised control over the equipment after 3 February

1978 came from Mr. Ralph D’Avino, appeliant’s Program

Manager, who stated that appellant performed site se-

curity after 3 February 1978 because “we had approxi-

mately $15 million worth of equipment sitting |there].

(emphasis supplied). (Tr. 3/1119)

DECISION

This appeal raises three questions which can be framed

as follows:

1. What was the impact of the implementation of

the new billing schedule contained in the DD250 ex-

ecuted on 29 March 1977?

a ee

62a

2. What impact did completion of the last DT&E

field test, on 3 February 1978, have on commence-

ment of the period within which the Government

could exercise its option to purchase additional

LORAN chains?

3. If the option period did not begin on 3 February

1978, on what date did it commence and what event

marked that milestone?

The DD250 of 29 March 1977

Appellant urges upon us that execution of the DD250

for the revised billing schedule on 29 March 1977 con-

stituted an acceptance under the contract and started

the Government’s 120 day option period for Chains 2

and 3. (Br. at 31) We disagree.

Adoption of the revised billing schedule through Modi-

fications P00023 was undertaken to afford financial re-

lief to appellant. It divided Line Item 0001 into three

separate sub-categories, and the DD250 operated only

with respect to Line Item 1.1, “Design, Develop, Fabri-

cate and In Plant Test one each |LORAN Chain].”

While the SPD (System Program Director) signed the

DD250, he did not indicate that he was accepting the

LORAN chain; he acknowledged only the revised billing

schedule in the document.

In its brief, appellant relies upon two of this Board’s

eases, Lear Siegler, Inc., ASBCA No. 12164, 69-1 BCA

{ 7563, and Keco Industries, Inc., ASBC No. 16645, 73-2

BCA § 10,056.

Appellant cites Lear Siegler, supra, for the proposition

that the “conditional” acceptance of the billing schedule

operated to trigger the option period. (Br. at 34) The

facts in Lear Siegler are distinguishable from the facts

in the case at hand. In that case, the Government’s op-

tion arose because of the conditional approval of a first

item, subject to correction of deficiencies. Here, the sig-

63a

nature of the SPD on the DD250 did not indicate accept-

ance of the LORAN chain; it only signified the implemen-

tation of a revised billing schedule.

Appellant also relies on Keco Industries, Inc., supra,

to support its contention that the Government’s option

period commenced on 29 March 1977. Appellant’s re-

liance on our holding in that case is misplaced. The

Board held there that Government-caused deiays in the

delivery time for a product did not operate to extend the

pertinent option period. (At 47,175) Here, the delays

were not attributable to any Government action, but

merely were the result of problems attendant to the de-

velopment of a technologically novel apparatus. (Finding

Appellant’s contentions in its brief are not consistent

with its conduct during performance. For example, in a

meeting conducted on 25 January 1978, appellant ad-

mitted that the DD250 referred only to Item 1.1 (the

billing schedule), and not the entire Line Item 0001.

(Finding 26) It is well recognized that the conduct of the

parties before the dispute arose is of great weight in

interpreting the contract. General Warehouse Tow, Inc.

v. United States, 181 Ct. Cl. 180, 389 F.2d 1016 (1967) ;

Chromalloy American Corporation, ASBCA Nos. 22119,

22120, 80-2 BCA {] 14,566.

Therfore, we conclude that the DD250 executed on 29

March 1977 served only to enable payment in accord-

ance with the new billing scheduled, did not constitute

acceptance of the LORAN systems and did not “start

the clock” on the Government’s option period.

Completion of DT&E Field Tests and Acceptance

The parties agree that the term “final acceptance” in

the option provision in Section E of the contract schedule

had the same meaning as in Section I, Inspection and

Acceptance, which provided for “|F Jina! inspection and

64a

acceptance upon successful completion of DT&E Field

Test.” This does not mean, however, that this term could

be given different meanings for the purpose of exercis-

ing the option and for the operation of other provisions

of the contract.

Since we are not interpreting the option provisions, but

the term “final acceptance” as it appears in the “Inspec-

tion and Acceptance” provision, the strict interpretation

rules, whatever they may mean in this context, are not

applicable, despite the approach taken by the dissenting

opinion.

Appellant contends that this language is unambiguous;

acceptance for the purpose of exercising the option oc-

curred simultaneously with or at the time of completion

of the last DT&E field test on 3 February 1978 and be-

fore a DD250 was executed. (Br. at 27-28) In the al-

ternative, appellant contends that DT&E was completed

no later than 1 March 1978 when both FCA and FQR

had been completed. (Br. at 22-23) In either case, the

Government’s option period would have expired on 6

July 1978, thus rendering the option exercise on 14 July

1978 untimely. (Br. at 23)

In opposition, the Government takes the position that

the acceptance of the LORAN chain that started the 120-

day option period did not occur until the DD250 was

signed on 20 March 1978 and, consequently, exercise of

the option for two additional systems on 14 July 1978

was timely.

In resolving contract disputes arising from the differ-

ent readings the parties have attributed to contract lan-

guage, the Board’s function is to discern the parties’ in-

tent as this is expressed in the contract. Dynamics Cor-

poration of America v. United States, 182 Ct. Cl. 62, 72,

389 F.2d 424, 429 (1968); SCM Corporation v. United

States, Ct. Cl. ——, 675 F.2d 280, 283 (1982). We

accomplish this by ascertaining the meaning to be given

—————

65a

to the words and manifestations in the contract in a proc-

ess commonly referred to as interpretation. Restatement

(Second) of Contracts § 226 (1973 Tent. Draft); 4 Wil-

liston on Contracts, §§ 600, 602 (3d ed. 1961); 3 Corbin

on Contracts § 534 (1960).

The rules that govern the interpretation have been

stated as follows:

In attempting to give effect to the contracting par-

ties’ intent, the court is guided by the principles that

“(tjhe parties’ intent must be gathered from the in-

strument as a whole.” Kenneth Reed Constr. Corp.

v. United States, 201 Ct. Cl. 282, 288, 475 F.2d 583,

586 (1973), preferably giving a reasonable meaning

to all parts of the instrument rather than leaving a

portion of it useless, Martin Lane Company, Inc. v.

United States, 193 Ct. Cl. 203, 215, 432 F.2d 1013,

1019 (1970), from the perspective of a “reasonably

intelligent person acquainted with the contemporary

circumstances.” Firestone Tire & Rubber Co. v.

United States, 195 Ct. Cl. 21, 30, 444 F.2d 547, 551

(1971), and ascribing to the contract language “its

ordinary and commonly accepted meaning”, Hol-Gar

Manufacturing Corp. v. United States, 169 Ct. Cl.

384, 390, 351 F.2d 972, 976 (1965), without twisted

or strained out of context analysis, Aero Mayflower

Transit Co. v. United States, 162 Ct .Cl. 233 (1963),

or regarded to the subjective unexpressed intent of

one of the parties. Dana Corp. v. United States, 200

Ct. Cl. 200, 214, 470 F.2d 1032, 1041 (1972); John

C. Kohler Co. v. United States, 204 Ct. Cl. 777, 787,

498 F.2d 1360, 1365 (1974).

ITT Arctic Services, Inc. v. United States, 207 Ct. Cl.

743, 751, 524 F.2d 680 (1975).

For these rules to be considered, the language need not

be ambiguous or the provisions conflicting, as appellant

and the dissenting opinion insist, in our opinion errone-

66a

ously. Even in the absence of ambiguity, contract lan-

guage must be given a meaning which can be derived

from a reading of the document by a reasonable person

familiar with the surrounding circumstanees. W.G. Cor-

nell Co. v. United States, 179 Ct. Ch. 651, 670, 376 F.2d

299, 311 (1967). An authoritative commentator has

stated:

All contract language is potentially ambiguous and

all contract language is potentially capable of being

made unambiguous. Instead of starting with the

question, “Is the contract ambiguous?”, the proper

approach to cuntract interpretation is to go directly

to the question, “What does the contract mean with

respect to this fact situation?”

Shedd, Jr., “Resolving Ambiguities in Interpretation of

Government Contracts,” 36 Geo. Wash. L. Rev. 1, 21

(1967); see also 3 Corbin on Contracts, supra, at § 535.

The problem with appellant’s position is that it focuses

on one isolated provision of the contract to the exclusion

of all other pertinent provisions. See Restatement (Sec-

ond) of Contracts § 228, comment d (1973 Tent. Draft).

This narrow reading of the contract is exaggerated fur-

ther by appellant’s defining “upon” in the context to

mean “at the time DT&E Field Test at destination is

successfully completed” (reply br. at 1-2) (emphasis

supplied), thus choosing one of the several possible mean-

ings for this word. “Upon” is defined variously by

Webster’s Third New International Dictionary (1971) at

2517-18 as “immediately following upon,” “very soon af-

ter,” “on the occasion of” and “at the time of.” See also

Black’s Law Dictionary, 981 (rev. 5th ed. 1979).

We disagree with appellant’s propositions that the par-

ties intended acceptance of the LORAN chain to occur

upon occurrence of an event (i.e., the successful comple-

tion of the DT&E field tests) and that a completed DD250

was not required to denote acceptance.

i es ee, ee as en

67a

The record does not support these propositions. A fair

reading of the contractual provisions does not permit

such a conclusion. On the contrary, the contract estab-

lished a well-defined procedure from inspection to ac-

eeptance and we can find no indication that the parties

intended to discard these contractual steps.

Although the parties regarded “delivery” and “ac-

ceptance” to be synonymous terms in the performance of

this contract, the two terms represent two distinct ac-

tions within the entire contractual framework.

Section H of the contract schedule required delivery

of the LORAN chain at the DT&E field site (destina-

tion). This was understood to mean that the equipment

was to be tendered to Government personnel at the var-

ious field sites. Thus, as specified in the contract, delivery

was used with reference to the time and place when and

where transfer of possession was to occur. It was sig-

nified by the completion and submisison of a DD250 pur-

suant to the “Material Inspection and Receiving Report”

clause, which provides, in pertinent part:

At the time of each delivery of supplies or services

under this contract, the Contractor shall prepare and

furnish to the Government a Material Inspection and

Receiving Report...

(emphasis supplied)

This act of delivery occurred at each site when the

Government’s Quality Assurance Representative (QAR)

conducted his final inspection in the form of acceptance

tests at each of the four sites. These acceptance tests

were the conduct constituting “final inspection” within

the meaning of Section I of the contract schedule. As

such, inspection was completed only when the acceptance

tests had been performed. The SPD confirmed delivery

and acceptance at the destination by his signature on the

DD250. (Finding 39) This procedure is consistent with

the requirements of the Armed Services Procurement

68a

Regulations (ASPR) when acceptance is to occur at des-

tination. See ASPR App. I-301 (31 JAN. 1977).

Acceptance is defined as follows in ASPR § 14-001.6:

Acceptance means the act of an authorized repre-

sentative of the Government by which the Govern-

ment assumes for itself, or as agent of another,

ownership of existing and identified supplies tendered

or approves specific services rendered, as partial or

complete performance of the contract on the part

of the contractor.

The “Inspection” clause further provides that accept-

ance “shall be made as promptly as practicable after

delivery except as otherwise provided in this contract”’

and that acceptance shall be conclusive (with exceptions

not pertinent here).

However, it is important to note that acceptance not

only follows delivery, but also is not contemplated to

occur until all required inspection (including testing)

has been completed. This is not only mandated by the

“Tnspection” clause, but also by Section I of the contract

schedule that requires “[f]inal inspection and acceptance

upon successful completion of DT&E Field Test at desti-

nation.”

(emphasis supplied)

Appellant seems to ignore this point when it argues

that acceptance of the LORAN chain occurred upon com-

pletion of the DT&E field tests. If this were the case,

final inspection would be eliminated or reduced to a

formality. Appellant has not shown how a final inspec-

tion could have been or was accomplished prior to the

alleged acceptance of the system on 3 February 1978.

Moreover, our comparison of the standard “Inspection”

and “Material Inspection and Receiving Report” clauses

with pertinent provisions of the contract schedule does

not show any conflict or inconsistency between them. It

also should be considered that such standard clauses

69a

“cannot lightly be read out of it [the contract], or de-

prived of most [their] normal substance.” Thompson

Ramo Woodridge Inc. v. United States, 175 Ct. Cl. 527,

536, 361 F.2d 222, 229 (1966).

The specifics of the testing and inspection to be com-

pleted before acceptance of the LORAN system could

occur were set forth in the Statement of Work and the

description of various tasks. These provisions provided

that after successful completion of the field tests, and

before acceptance of the system, the contractor was re-

quired to correct all design deficiencies and the contract-

ing officer must have acknowledged completion of pre-

liminary design review, critical audits, physical con-

figuration audit and formal qualification review. These

tasks constituted the third leg of the DT&E triad, “eval-

uation.” While evaluation occurred throughout the

DT&E process, final results of the program could be

evaluated only after the testing phase had ended. The

language of paragraph 5.2 of the Statement of Work

mandated that acceptance could occur only upon the

completion of PCA, FCA and FQR. Since these pro-

cedures had not been completed by 3 February 1978, the

LORAN chain could not be accepted by the Government

on that date. Inasmuch as final inspection had to be

completed before acceptance, we find no inconsistency

between the contract schedule and the Statement of Work

as appellant suggests.

Refurbishing of the Equipment After Testing

The PCA, FCA and FQR had been completed by 1

March 1978, and the only task appellant performed after

that date was refurbishing of the equipment. This lasted

until 18 March 1978. During the same period, the Gov-

ernment’s QAR conducted his final inspection of the

four sites by performing acceptance tests on the refur-

bished equipment.

There is no disagreement between the parties that

when the DT&E field tests were completed, the LORAN

70a

chain was in a deteriorated condition, owing to the fact

that it had been exposed to the elements for over a year

and needed active refurbishment.

Appellant argues, in the alternative, that the LORAN

chain should have been accepted on 1 March 1978 since

all contract requirements for DT&E had been satisfied.

In appellant’s opinion, refurbishing was not part of

DT&E and was not required to be completed prior to

acceptance.

The Government claims that the system could not have

been accepted before refurbishment was completed, and

this is what actually happened. We agree with the Gov-

ernment on this point.

The only contractual provision the parties have iden-

tified as requiring refurbishment of the equipment is

found in Section F of the contract schedule as an addi-

tion to Task 1 of the Statement of Work. This requires

the contractor to “refurbish and restore, including re-

placement if necessary, all elements of the chain to a

deliverable condition . . .” after DT&E tests were com-

pleted. (emphasis supplied) During performance, the

parties had recognized this requirement by scheduling

a period of time after completion of the field portion

of DT&E for refurbishment.

There is nothing to indicate that the parties contem-

plated acceptance of the entire system when the equip-

ment was only partially refurbished or refurbishment

had been completed at some of the sites. Quite to the

contrary, appellant’s own engineering development re-

port for the period 1-28 February 1978 revealed that

“the only remaining program tasks are completion of

refurbishment. . . .” (emphasis supplied) (Finding 35)

The fact that the parties recognized that refurbishment

of the equipment at all sites would have to be accom-

plished before acceptance is shown by the requirement to

have the equipment in “deliverable condition” as a result

la Pele Abb « a erin OMEN abated IS yas

Tla

of refurbishment. Delivery of the system had to occur

before acceptance, and this refurbishment also had to

be completed at that point.

This conclusion likewise is consistent with the imme-

diate availability of the system after acceptance for the

Government’s performance of Initial Operating Test and

Evaluation (IOTE). For these tests to be conducted, the

equipment had to be in fully operable condition and it

could not be in such a condition without having been

refurbished. IOTE could start, and in fact did commence,

immediately after acceptance of the system. Thus, re-

furbishment had to be completed by that time. Any

refurbishment action or activity by the contractor after

acceptance also would have been inconsistent with the

possession and custody of the equipment transferring to

the Government upon acceptance.

Providing Security at the Sites

Under the terms of the contract, appellant was re-

quired to provide site security until delivery. (Finding

60) Despite the disagreement which arose whenever

appellant suggested that it would cease providing secu-

rity, appellant provided security at the sites until 20

March 1978. (Findings 60-62)

In John C. Kohler Co. v. United States, 204 Ct. Cl.

777, 498 F.2d 1360 (1974), the Court held that when the

Government takes control over an item and operates it,

although some preconditions to acceptance have not oc-

curred, the Government will be deemed to have accepted

the item constructively (at 1367). While Kohler ad-

dresses the problem in terms of risk of loss, we believe

it is instructive in this appeal.

Prior to 20 March 1978, the Government exerted no

dominion and control over the LORAN chain equipment

at any of the sites; it did not provide for their security.

Indeed, had the Government provided security for the

72a

equipment prior to 20 March 1978, it would have assumed

a degree of control and financial responsibility incon-

sistent with its claim that it had not yet accepted the

equipment. Thus, appellant’s provision of security at the

LORAN sites constituted an exercise of dominio

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