Petition — J. W. Bateson, Inc. v. United States

=

Office-Supreme Court, U.S.

FILED

80-2113 JUN 5 1981

ALEXANDER L. STEVAS,

CLERY

IN THE SUPREME COURT OF THE UNITED STATES

October Term, 1981

No. A-881

J. W. BATESON, INC., Petitioner

v.

UNITED STATES OF AMERICA

PETITION FOR WRIT OF CERTIORARZ

TO THE SUPREME COURT CF THE

UNITED STATES FROM THE

UNITED STATES COURT OF CLAIMS

J. CARLISLE OVERSTREET

Attorney for Petitioner

P. O. Box 1836

Augusta, Georgia 30903

QUESTIONS PRESENTED

Whether the disputes provisions

of a government contract that forces a

party to the contract through admini-

strative review that does not allow

resolution of all disputes evolving

under the contract is in violation of

the due process provisions of the Con-

stitution; and (2) whether under said

dispute provisions and review the

standard and burden of proof cannot be

met because of intentional and harmful

acts done to the Petitioner and its

records by the Government is a violation

of due process provisions of the Con-

stitution.

Opinions Below . . .« « 6 « © « © « e

Jurisdiction . ..6 «se « «see 2

Question Presented ........ 3

Statute Involved ......++e«s. 4

Statement of Case ....-+-+-e- 6

Reasons for Granting Writ ... .12

Conclusion Me ea ths ea ee ree Maree f

Appendix A

Order of the United States Court

of Claims of December 12, 1980 . .21

Opinion of Trial Judge, United

States Court of Claims, Trial

Division, of May 21, 1980 ... .24

Order Denying Rehearing of the

United States Court of Claims

of Fepruary: 6, 1961 «2.6 6.0.02 62

Order Extending Time to File Petition

for Writ of Certiorari of the Supreme

Court of the United States until

June 6, 1981, of April 30, 1981. .63

i

TABLE OF CASES

Page

Baltimore & O. R. Co. v. United

States, 298 US 349 * ° 7 7 ° . 12

Bowman Transportation, Inc. v.

Arkansas~-Best Freight System,

Inc., U , re en,

420 us 956 . . . * * . . . 7 . 14

First Unitarian Church v. County

of Los Angeles, Be ee

Green v. Georgia, 60 Lawyers

%

Addition 38 99 Supreme

Court: 2150: 1979 Cases .« «6. 16

Jenkins v. McKeithen, 395 US 411. 12

NLRB v. Indiana and M. Electrical

Company, BE ee a ie he ies AT

Speiser v. Randal, 357 US 513, 15

reh den, 358 US 860 .....

United States v. Storer Broad-

Casting Company, 351 US 192 . 17

wad fas

STATUTES

Amendment V, United States

Camegti tution «i. 3

-iii-

MISCELLANEOUS

Page

Disputes Clause of Contract. . 18

-iv-

IN THE SUPREME COURT OF THE UNITED STATES

October Term, 1981

No. A-881

J. W. BATESON, INC., Petitioner

Vv.

UNITED STATES OF AMERICA

PETITION FOR WRIT OF CERTIORARI TO

THE SUPREME COURT OF THE UNITED STATES

To the Honorable, the Chief Justice and

Associate Justices of the Supreme Court

of the United States:

J. W. BATESON, INC., the

petitioner herein, prays that a writ of

certiorari issue to review the judgment

of the United States Court of Claims of

December 12, 1980, of which rehearing was

denied on February 6, 1981, adopting the

Trial Division's Opinion of May 21, 1980.

OPINIONS BELOW

The Order of the United States

Court of Claims of December 12, 1980, is

printed in Appendix A hereto, infra, page

2\. The Trial Division's Opinion in the

United States Court of Claims which was

adopted as the Order of this Court is

printed in Appendix hereto, infra, page Zj.

The Order Denying Rehearing is printed in

Appendix A hereto, infra, page 62.

JURISDICTION

The judgment of the United

States Court of Claims, (Appendix A, infra,

page ,.?/_) was entered on December 12,

1980. The timely petition for rehearing

was denied on February 6, 1981 (Appendix

A, infra, page $62). The jurisdiction of

the Supreme Court is invoked under Title

28 of the USCA§1255,

QUESTIONS PRESENTED

Whether the disputes provisions

of a government contract that forces a

party to the contract through admini-

strative review that does not allow

resolution of all disputes evolving

under the contract is in violation of

the due process provisions of the Con-

stitution; and (2) whether under said

dispute provisions and review the

standard and burden of proof cannot be

met because of intentional and harmful

acts done to the Petitioner and its

records by the Government is a violation

of due process provisions of the Con-

stitution.

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

This case involves the fourth

section of the Fifth Amendment to the

Constitution of the United States,

which provides as follows:

No person shall be held to

answer for a capital, or otherwise infa-

mous crime, unless on a presentment or

indictment of a Grand Jury, except in

cases arising in the land or naval

forces, or in the Militia, when in

actual service in time of War or public

danger; nor shall any person be subject

for the same offense to be twice put in

jeopardy of life or limb; nor shai be

compelled in any criminal case to be a

witness against himself, nor be deprived

of life, liberty, or property, without

due process of law; nor shall private

property be taken for public use, with-

out just compensation.

STATEMENT OF CASE

Wrongful and intentional acts

are the basis of this action brought by

J. W. Bateson on behalf of the real party

at interest,*Fidelity Sound, Inc. The

decision of the Armed Services Board of

Contract Appeals 19823 and 22337 were

reviewed by the United States Court of

Claims under the judicial review stan-

dards set forth in the Wunderlich Act

41 USC §321, §322, seeking judicial

review of a breach of contract. The

contract (DACA-21-71-C-0061 for the

construction of the United States Army

Hospital at Fort Gordon, Georgia) was

awarded to Petitioner on April 9, 1971,

and included the requirements for an

*Pidelity Sound, Inc. is a wholly owned

subsidiary of RVA Corporation, a pub-

lically held corporation, with its

principal place of business at 1212 City

National Bank Building, Miami, Florida

33130. 6

audio-nurse call systems which required

facilities for patient communications.

Truland, Fischbach and Moore were

awarded the electrical contract under

Petitioner and Fidelity Sound, the real

party at interest, was a subcontractor

of Truland, Fischbach and Moore. The

contract was awarded on July 12, 1971.

Resulting appeals to the Armed Services

Board of Contract Appeals resulted in

equitable adjustment of $234,536.26 to

Petitioner and a review was made to the

United States Court of Claims by the

Petitioner. Review was limited to

Wunderlich Act provisions even though

Petitioner south review on the basis os

(1) a breach £f contract due to in-

tentional and wrongful acts of an

employee of the Corps of Engineers; and

(2) the standards of proof applied to the

Petitioner in this appeal before the

Board. 7

THE ACTS

Claims relating to the actions

of the United States Corps of Engineers’

employee, Mr. Utermark, was raised in

testimony before the Armed Services

Board of Contract Appeals. The actions

are such that they are indicative of in-

tent to change the specifications to pre-

vent the Petitioner from complying with

them. Mr. Utermark, on several occasions,

attempted to have the specifications

changed so only one special system would

comply. On at least five different

occasions he disapproved the submittals

in total when in fact they have been

found by the Board to meet the speci-

fications required. On at least one

occasion Mr. Utermark wrongfully

attempted to influence the writer of the

specifications. The Petitioner was

required to perform different duties

8

from those in the contract, more partic-

ularly, submitting various submittals for

over a year and finally having to in-

stall a system which the Board found a

"small wonder" that the Petitioner was

able to comply. Mr. Utermark's actions

reflect his intentions. Granted, if the

actions had been totally harmless the

proper relief would have been an equit-

able adjustment, but under these facts

his intentional actions were taken to

prevent the Petitioner from complying

with the contract specifications. The

Armed Services Board of Contract

Appeals has refused to review such

claims for relief.

BURDEN OF PROOF

The Armed Services Board of

Contract Appeals prevented testimony as

to the wrongdoings and intentional acts

9

of the employee of the Corps, Mr. Uter-

mark. Elimination of said testimony

was that the Board had no power to render

any decision that might have related to

those acts. The Corps itself prevented

access to Mr. Utermark by having him

placed in a station in the Middle East

during this litigation.

Also, the process of requiring

numerous submittals; waiting unusual

lengths of time for a @ccision by the

local Contracting Officer; extensive

hearings, both as to entitlement and

as to quantum, totally destroyed the

company as it proceeded through the

administrative process. The damage was

enormous to the real party at interest,

Fidelity Sound, and such a large

financial injury cannot be sustained by

a company of this size. The actual

total destruction was the anticipated

10

result of the delay.

Now, through the application

of burden of proof, the Corps of Engi-

neers and the Armed Services Board of

Contract Appeals demands Petitioner to

prove its case with evidence which has

obviously been destroyed and makes its

demand through the applicable rules of

the Armed Services Board of Contract

Appeals as used in the disputes clause

of the ccutract. The administrative

procedures before the Armed Services

Board of Contract Appeals are of a

quasi-judicial character and the

Petitioner's rights must be protected

by a fair and open hearing. The pro-

ceedings must satisfy pertinent demands

of due process.

The evidence submitted as to

the damages meeting the burden of proof

set forth in the decisions. Records

11

were made available to the Court and the

Court found them too burdensome to

receive. Administrative convenience is

not in and to itself adequate support

for infringement of a constitutional

right. Due process which was not

allowed in this instance requires that

the Board allow Petitioner the oppor-

tunity not only to present the evidence

but also the opportunity to argue said

evidence, which was not done.

REASONS FOR GRANTING WRIT

The right under the due process

clause of the United States Constitution

to a full hearing includes the right of

the party to introduce evidence Balti-

more & O. R. Co. v. United States, 298

US 349. The right to present evidence is

essential to the fair hearing required

by the due process clause. Jenkins v.

12

McKeithen, 395 US 411. The rights under

the due process clause includes the

right to have the judicial findings

based upon the evidence submitted.

Baltimore & O. R. Co. v. United States,

298 US 349. Due process implies the

right to contradict by proof every

material fact which bears on the question

of the right involved. The exclusion

of competent and relevent evidence on

the grounds that the hearing officer is

familiar with the facts surrounding the

relevant evidence is not due process.

At the second hearing as to entitle-

ment before the Armed Services Board of

Contract Appeals, the Board refused to

hear testimony and evidence as to wrong-

ful and intentional acts of the employee

of the Corps of Engineers and in its

opinion in the decision of the Court of

Claims, the Court of Claims totally

13

circumvented the arguments of the

Petitioner that said wrongful and in-

tentional. acts resulted in breach of

contract. The right to present proof

and argument is applicable in admini-

strative proceedings. DeLaRama v.

DeLaRama, 241 US 154. The due process

clause forbids an agency to use evidence

in a way to foreclose an opportunity of

presentation by Petitioner. Bowman

Transportation, Inc. v. Arkansas~Best

Freight System, Inc., 419 US 281, reh

den, 420 US 956.

Also, the rules of evidence as

applied by the Board exceed the bounds

in this case and in most cases of a

reasonable level of scrunity that can be

applied to said presumptions and has,

thus, excluded Petitioner from a fair

hearing. The damages and costs found by

' the first hearing before the Armed

14

Services Board of Contract Appeals to

exist prevented the Petitioner, more

particularly, the Fidelity Sound, Inc.,

the real party at interest, from

sustaining itself through the long

administrative appeal process. The

harmful actions of the Corps of Engineers

resultingly deprived the Petitioner under

the established rules as applied by the

Armed Services Board of Contract Appeals,

under the pretense of regulating evidence

from exhibiting or establishing its

rights. It is within the power of

government to establish the burden of

proof in civil cases provided it is

reasonable. In cases of unreasonable-

ness the courts have not hesitated to

s*+rike down rules or statutes unfairly

shifting the burden of proof. First

Unitarian Church v. County of Los Angeles,

357 US 545; Speiser v. Randal, 357 US 513,

15

reh den, 358 US 860. Also, in this

particular case total destrucion of

Fidelity Sound prevented other reason-

able and practical means of establishing

pertinent facts upon which a decision

could have been reached. Mechanical

applications of the rules of evidence

are not appropriate when used to defeat

the ends of justice, especially when in-

dividuals seek to introduce testimony

which is pertinent but the hearing

officer excludes such testimony and

especially when the testimony is highly

relevant to the critical issues of the

hearing. Green v. Georgia, 60 Lawyers

Addition, 2nd 738,99 Supreme Court 2150

(1979 case). A party's right to protect

itself when involved in quasi-judicial

proceedings includes the right to make

argument; to make proof or introduce

evidence; to meet the claims of opponent,

16

and to deny, explain, controvert or rebut

the claims of the opposing party. United

States v. Storer Broadcasting Company,

351 US 192. Findings cannot be said to

have been fairly reached unless material

evidence which might impeach the

position of the opposing party as well

as evidence that would support the

Claimant, have been heard and waived.

NLRB v. Indiana and M. Electrical

Company, 318 US 9.

CONCLUSION

For the foregoing reasons this

Petition for Writ of Certiorari should

be granted.

ISLE OVERSTREET

Attorney for Petitioner

17

APPENDIX

MISCELLANEOUS

6. DISPUTES (1964 JUN)

(a) Except as otherwise pro-

vided in this contract, any dispute con-

cerning a question of fact arising under

this contract which is not disposed of

by agreement shall be decided by the

Contracting Officer, who shall reduce

his decision to writing and mail or other-

wise furnish a copy thereof to the Con-

tractor. The decision of the Contracting

Officer shall be final and conclusive

unless, within 30 days from the date of

receipt of such copy, the Contractor

mails or otherwise furnishes to the

Contracting Officer a written appeal

addressed to the head of the agency in-

volved. The decision of the head of the

agency or his duly authorized repre-

sentative for the determination of such

appeals shall be final and conclusive.

18

This provision shall not be plead in any

suit involving a question of fact arising

under this contract as limiting judicial

review of any such decision to cases

where fraud by such official or his re-

presentative or board is alleged: Pro-

vides, 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. In

connection with any appeal proceeding

under this clause, the Contractor shall

be afforded an opportunity to be heard

and to offer evidence in support of his

appeal. Pending final decision of a

dispute hivwinaee) the Contractor shall

proceed diligently with the performance

of the contract and in accordance with

the Contracting Officer's decision.

19

(b) This "Disputes" clause

does not preclude consideration of

questions of law in connection with

decisions provided for in paragraph (a)

above. Nothing in this contract, how-

ever, shall be construed as making final

the decision of any administrative

official, representative, or board on a

question of law.

20

IN THE UNITED STATES COURT OF CLAIMS

No. 86-79C

J. W. BATESON, INC. )

v.

THE UNITED STATES

Construction contract; Wunderlich Act

review; constructive change; equitable

adjustment; breach of contract; cardinal

change.

J. Carlisle Overstreet, attorney for

record, for plaintiff.

Robert L. Brombaugh, with whom was

Assistant Attorney General Alice Daniel,

for defendant. Pollie Harris McElroy,

of counsel.

Before FRIEDMAN, Chief Judge, DAVIS and

KUNZIG, Judges.

ORDER

21

This case comes before the court on

plaintiff's request, filed June 25, 1980,

for review by the court of the recommend-

ed decision of Trial Judge James F. Merow,

filed May 21, 1980, pursuant to Rules

54 and 166 on the parties’ cross-motions

for summary judgment, and on plaintiff's

motion for de novo trial, having been

submitted on the briefs and oral argu-

ment of counsel. Upon consideration

thereof, since the court agrees with the

trial judge's recommended decision,

copies of which have been furnished to

the parties, it hereby affirms and

adopts the recommended decision as the

basis for its judgment in this case.

IT IS THEREFORE CONCLUDES AND

ORDERED that the ASBCA decision awarding

Plaintiff and equitable adjustment of

$234,536.26 is entitled to finality

under the judicial review standards of

22

41 U.S.C §§ 321, 322. Accordingly, de-

fendant's motion for summary judgment is

granted, plaintiff's motions for summary

judgment and de novo trial are denied

and plaintiff's petition is dismissed.

BY THE COURT

s/Daniel M. Friedman

Daniel M. Friedman

Chief Judge

DEC 12 1980

23

IN THE UNITED STATES COURT OF

CLAIMS TRIAL DIVISION

NO. 86-79C

(Filed May 21, 1980)

J. W. BATESON, INC. )

v.

THE UNITED STATES

Construction contract; Wunderlich

Act review; constructive change;

equitable adjustment; breach of

contract; cardinal change.

ON CROSS-MOTIONS FOR SUMMARY JUDGMENT

J. Carlisle Overstreet, attorney of

record, for plaintiff.

Pollie Harris McElroy, with whom was

Assistant Attorney General Alice Daniel,

for defendant.

OPINION*

*The opinion and recommended con-

clusion of law are submitted in accordance

with Rules 54 and 166.

24

MEROW, Trial Judge: This matter is

before the court on motions for summary

judgment addressed to the finality of the

Armed Services Board of Contract Appeals

(ASBCA) decision, issued October 27, 1978,

in Appeal No. 22337, under Contract DACA

21-71-C-0061, for the construction of a

United States Army Hospital at Fort

Gordon, Georgia. In addition, plaintiff

seeks a trial de novo in this court.

The Fort Gordon hospital contract

(DACA 21-71-C-0061) was awarded to J. W.

Bateson on April 9, 1971. Included in

the specifications was a requirement for

an audio-visual nurse call system which

required "***facilities for patient

communication, program entertainment,

and TV control." Various subcontractors,

submitted bids to J. W. Bateson for the

nurse call system. After being awarded

the hospital Conrtne as Bateson entered

into a subcontract with Truland, Fisch-

back and Moore (TFM) for the electrical

work on the project and, in turn, on

July 12, 1971 TFM subcontracted the

nurse call system to Fidelity Sound,

Inc. (Fidelity) for $273,000. ASBCA

Appeal No. 22337 and the instand liti-

gation concern the amount that was

awarded on claims submitted by Bateson

to the Government on behalf of the sub-

subcontractor, Fidelity.

As issued, the nurse call specifi-

cations for the Fort Gordon hospital pro-

ject contemplated the use of a standard

product but had been developed by

marrying the specifications of systems

offered by two manufacturers, Executone

and Motorola, in a way so that neither

of these systems could completely meet

the requirements.

26

Fidelity prepared its bid to TFM on

the basis of a nurse call system manu-

factured by Altec-Lansing. To comply

with a requirement that the items to be

installed in the project be approved by

the contracting officer, Fidelity, on

November 15, 1971, submitted a proposal

to install a nurse call system manu-

factured by Picker-Briggs. This was

disapproved on December 7, 1971 and,

after further revision by Fidelity, was

again disapproved on March 15, 1972.

Fidelity then, on May 8, 1972, proposed

the use of the Altec-Lansing system on

which it had based its bid to TFM and

this was cisapproved on May 24, 1972.

Fidelity, on May 25, 1972, contacted the

distributor for the Executone nurse call

system (Righton Distributing Company) and

obtained a quotation of $225,115, in-

cluding $19,921 for supervision of the

27

installation, testing, and a 12-month

guarantee, but did not then submit this

system to the contracting officer.

Rather, on June 27, 1972, a proposal to

use a system manufactured by Dukane was

submitted. This proposal was disapproved

on July 7, 1972. In August 1972 dis-

cussions were held by representatives of

the Government's contracting officer,

TFM, Fidelity and the distributor of

Executone equipment concerning possible

modifications of the nurse call system

as specified and an informal submission

of Executone equipment was provided to

TFM at the request of Fidelity. A for-

mal proposal to utilize the Executone

system was then transmitted to the Govern-

ment by Fidelity and was received and

approved on September 1, 1972. The

specifications for the nurse call system

were modified by the contracting officer

28

on September 6, 1972 (modification No.

51) to somewhat expand the system and en-

large its capacity and capabilities. The

modification noted that "The system sub-

mitted and conditionally approves is

manufactured by Executone." By modi-

fication No. 51, the hospital contract

price was increased by $225,000, subject

to final adjustment.

On December 4, 1973, Fidelity sub-

mitted a claim to TFM to forward to the

contracting officer on the Fort Gordon

hospital contract. Fidelity's claim

stated, in part, as follows:

Fidelity Sound, Inc. (here-

inafter referred to as Claimant)

presents this claim for additional

cost and expenses on the Fort

Gordon Hospital DACA-21-71-C-

0061 (hereinafter referred to as

Project) due to the inter-

pretation and ambiguity of the

specifications resulted in the

proprietary demand for an Executone

system when the specifications

were actually open specifications.

* * * * * * * * *

29

COST DIFFERENTIAL $128,000.00

(1) Warranty Work 12,000.00

{2) Supervision 3,000.00

(3) Salary and Travel

Expenses 31,000.00

(4) Fifteen (15) Months'.

interest on $25,000

at 11.5 % interest

From the day that the

approving authority has forced the

Executone System on Fidelity

Sound, Inc., Fidelity Sound, Inc.

has suffered a net expense of

$177,693.00. Therefore, in

addition to this sum, we are re-

questing the following:

Net Expense $177,693.00

Ten (10%) Percent

Overhead 17,769.00

“$194,862.00

Profit 19,486.00

a .

Cost of Interest on

$194,867.00 [sic] to date

at 11.5% interest

“$236,757.00 : th

* * * * * * *

30

By letter dated September 16, 1974

to the United States Corps of Engineers,

Fidelity amended its claim to $570,030.2/

*

1/ The amended claim consisted of

the following items: $141,440 (total

material cost); $88,853 (total labor

cost); $34,543 (supervision and en-

gineering - 15 percent of labor and

materials); $34,543 (sales expense and

miscellaneous - 15 percent of labor and

materials); $55,270 (general and admini-

strative - 24 percent of labor and

materials); $129,534 (claim expense -

interest of $46,639, executive salary

and travel of $31,000, legal expenses

of $35,000 and general and admini-

strative expense of $16,895 or 15 per-

cent of the total for interest,

executive salary and travel and legal

expense); $48,418 (profit at 10 per-

cent of the total job cost of $484,183);

$37,429 (unilaterial change order).

31

The claim was denied by the contracting

officer and an appeal No. 19823, was

taken to the ASBCA pursuant to the dis-

putes clause in the contract. The pro-

ceedings in Appeal No. 19823 were

limited to the issue of entitlement.

On July 26, 1976 the ASBCA issued

its decision ruling, in relevant part,

as follows:

The Government, of course,

has long-recognized right to in-

sist on the product conforming

to the bid specifications under

contract. But the requirement

for a standard product created

the subtle suggestion of the

commercial availability of a

complying system. It was that

fact coupled with the Govern-

ment's application of its view

of the standard of quality it

thought had been called out

that forced the appellant to

greater expense than it reason-

ably anticipated. Thus, in

applying its criteria of

acceptability the Government

constructively chdnged the

specifications for which the

appellant is entitled to an

equitable adjustment.

32

Following this ASBCA determination

on entitlement, a revised claim of

$2,963,325.83 was submitted by letter

dated February l, 1977.2/ At the request

2 The letter set forth the claim

as follows:

Material - Exhibit A $128,094.48

Labor - Exhibit B 58,973.66

Total Excess Material

& Labor $187,068.14

Associated Charges on Direct

Excess Costs

Supervision - 15% of

Material & Labor $ 28,060.22

Eng. & Estimating -

15% of M& L 28,060.22

Job Coordination -

5% of M&L 9,353.41

$ 65,473.85

(Note: All percentage charged

as previously approved

on change orders.)

33

2/ Cont'd

General & Administrative -

15% of M& L $ 28,060.22

(See Exhibit C)

Extraordinary Costs (See

Exhibit D) $ 98,847.00

Interest Expense (as of 11/30/76)

(See Exhibit E) Per Diem

Interest Cost - $211.17

$236,942.12

TOTAL EXCESS COSTS $616,391.32

Porfit - 10% 61,639.13

Sub-Total $678,030.45

Extraordinary Damages

11/1/73 - 10/31/76

(See Exhibit E) $1,544,714.00

TOTAL COST TO COMPANY $2,222,744.40

Claim Legal Fees 740,581.43

TOTAL CLAIM $2,963,325.83

34

of the Corps of Engineers, the Defense

Contract Audit Agency (DCAA) audited

Fidelity's records and submitted a report

on March 9, 1977, which was made avail-

able to Fidelity. Protracted negoti-

ations did not produce an agreement as

to the amount of the adjustment and on

July 14, 1977 the contracting officer

issued a decision that $228,867 was the

appropriate amount. Again, an appeal

(No. 22337) was taken to the ASBCA.

In the proceedings before the

ASBCA, the appellant presented the

testimony of:

Marvin Pearlman, a Certified Public

Accountant who served as the comptroller

for Fidelity; Frederick J. Fink, an

officer of Fidelity; Charles Byrom, an

officer of Fidelity; and Ronald L. Fine,

an officer of, and major shareholder in

Fidelity.

35

The Government's witnesses before

the ASBCA were:

Gilbert Gechman, a DCAA auditor;

Robert E. Utermark, the representative

of the contracting officer for electrical

matters; Robert A. Rowe, resident

engineer for the Corps of Engineers on

the Fort Gordon hospital project;

Charles A. Baldwin, an electrical

inspector for the Corps of Engineers on

the Fort Gordon hospital project,

Forest H. Cain, vice president, Righton

Distribution Co.; Charles Brown, DCAA

regional supervisory auditor; and

Matthew D. Thomas, assistant district

counsel, Corps of Engineers.

By an opinion issued October 27,

1978, the ASBCA determined that the

appellant was entitled to an equitable

adjustment of $234,536.26 on the nurse

call claim as follows:

36

Material

Claimed 128,094.48

Denied 9,488.48

Sustained 118,606.00

Labor

Claimed 58,973.66

Denied 58,548.66

Sustained 425.00

Total Excess Labor &

Materials

Claimed 187,068.14

Denied 68,037.14

Sustained 119,031.00

Overhead

Claimed 93,514.07

Denied 39,569.22

Sustained 53,944.85

Extraordinary Costs

Claimed 98,847.00

Denied 98,847.00

Sustained 0

Interest Expense (through 10/31)

Claimed 354,727.00

Denied 354,727.00

Sustained 0

Total Excess Costs

Claimed 734,156.21

Denied 561,180.36

Sustained 172,975.85

37

Profit at 10%

Claimed 73,415.62

Denied 56,118.03

Sustained 17,297.59

Subtotal

Claimed 807,571.83

Denied 617,298.03

Sustained 190,273.44

Extraordinary damages

Claimed 1,544,714.00

Denied 1,544,714.00

Sustained 0

Total Cost to Company

Claimed 2,325,285.83

Denied 2,162,012.39

Sustained 190,273.44

Legal Fees

Claimed 740,581.43

Denied 740,581.43

Sustained tics

TOTAL CLAIM

Claimed 3,092,867.26

Denied 2,902,593.82

Sustained 190,273.44

Sales Tas TFM 3,558.18

, .

1/TFM Profit & Over-

head at 10% 19,383.16

’ .

1/3.W.Bateson Profit

& Overhead at 15.5% 21,321.48

334,536.26

38

Previously paid by Government on

Modification P 149 (Parts I & ITI)

228,867.00

/

AMOUNT DUE J. W. BATESON

AND SUBCONTRACTORS 5,669.26

3/ As to the $5,669.26, the sum

which remainded to be paid in addition

to the $228,867 which had been

previously paid by the Government

on the basis of the contracting

officer's decision, the ASBCA con-

cluded that Fidelity's share was

$904.05, TFM's share was $4,004.40

and J. W. Bateson's shares was $760.81.

TFM's share included $3,558.18 in

sales tax expense.

39

On March 8, 1979, plaintiff filed

its petition in this matter, setting

forth a claim against the United States

for $3,600,404.51 as of April 21, 1979,

plus $211.17 per day thereafter until

payment. Plaintiff's petition sought

review of the ASBCA's determinations:

(1) concerning the number of labor hours

for the installation of the equipment;

(2) denying recovery for delay asserted

to be caused by the denial of six sub-

mittals by Fidelity; (3) denying the

interest cost claimed; and (4) denying

the extraordinary cost damages claimed.

Plaintiff's petition also alleges

that:

The amount due to the

Plaintiff was caused by the in-

tentional, arbitrary, and

capricious breach of the contract

in question, causing delays to

plaintiff, through Fidelity,

and resulting in adverse effects

on Fidelity's ability to finance

this contract and other contracts

40

both with defendant and

commercial entities.

Defendant's answer, filed June 6,

1979, set forth the Government's

position that the ASBCA decisions in

Appeals Nos.19823 and 22337 are final

under the judicial review standards as

set forth in the Wunderlich Act, 41

U.S.C. §§ 321, 322.

Plaintiff's motion for summary

judgment, filed August 7, 1979, seeks

judicial review of several of the

determinations made by the ASBCA in

Appeal No. 22337.4/ In its opposition

4/ Plaintiff addresses argument in the

motion only to the ASBCA's determi-

nations:

(1) that the applicable burden rate

was 45.32 percent;

(2) that the use of electricians,

at a higher rate of pay, was not required

in the installation of the nurse call

system;

(3) that 100 hours of excess labor

time was required;

(4) that no amount for additional

time and travel for Fidelity executives

was established.

41

to defendant's cross-motion for summary

judgment filed January 2, 1980, plain-

tiff adds argument in support of the

remaining items of tis claims denied

by the ASBCA and/or seeks a de novo

trial by asserting that the additional

damages claimed are premised upon a

breach of contract asserted to have been

committed by the Government in rejecting

Fidelity's submittals of nurse call

systems prior to the approval of the

Executone equipment on September l,

1972. Plaintiff argues that the

rejections of the submittals made by

Fidelity, other than that for the

Executone system, were made in bad

faith by the contracting officer's re-

presentative for electrical matters, and

that the requirement to install the

Executone system constituted a cardinal

change, one outside of the scope of the

contract. 42

Defendant opposes plaintiff's

assertion of a breach of contract claim

in an opposition brief as not sub-

mitted in accordance with the Rules but

also argues that no valid assertion as

to the existence of a cardinal change

has been made.

It is concluded that plaintiff has

not established any basis upon which it

could be rules that a cardinal change

claims has been asserted in this matter

calling for de novo proceedings in this

court. 2/ The ASBCA has ruled that

5/ Plaintiff's failure to raise the

issue of cardinal change before the ASBCA

could preclude its inital assertion in

plaintiff's opposition brief, filed

January 2, 1980. Conrac Corp. v.

United States, 214 Ct.¢Cl. sor 558 F.2d

957 (1577). However, in view of the

conclusion that a situation within the

cardinal change doctrine has not been

set forth either before the ASBCA or in

the papers filed herein, there exists

no need to rule on this point.

43

plaintiff is entitled to an equitable

adjustment under the contract involved

covering any increased costs reasonably

incurred as a result of the criteria of

acceptability applied by the Government

with respect to the nurse call system

submittals. A "cardinal change" occurs

when the Government effects an altera-

tion in the work so drastic that it

effectively requires the contractor to

perform duties materially different from

those originally bargained for.

Edward R. Marden Corp. v. United States,

194 Ct. Cl. 799, 442 F.2d 364 (1971).

The contract, as bid, specified a nurse

call system and plaintiff, through

Fidelity, installed a nurse call system,

albeit not using the brand of equipment

it originally intended to supply. This

circumstance does not fit the description

of a cardinal change. See Aragona

44

Constr. Co. v. United States, 165 Ct. Cl.

382, 390-91 (1964). If a contractor is

incorrectly required to install some

brand name equipment when other equip-

ment equal thereto would have met the

specifications, this court has recognized

that appropriate relief is provided by

an equitable adjustment under the

changes clause utilized in Government

contracts. Jack Stone Co. v. United

States, 170 Ct. Cl. 281, 344 F.2d 370

(1965).

Plaintiff's assertion of "bad

faith" in connection with the rejection

of equipment other than Executone's

nurse call system in no way demonstrates

"bad faith" directed at Fidelity. If

the asserted bad faith. existed, perhaps

other manufacturers of nurse call

equipment would have grounds to complain,

but Fidelity was not such a manufacturer.

45 .

Plaintiff has alleged no specific

instance of malicious intent or "animus"

directed against Fidelity on the part of

the Government. ;

In this circumstance, general "bad

faith" allegations concerning an asserted

preference for one brand of equipment

do not create a triable issue of fact

such as to convert this matter into a

de novo action for breach of contract.

Kalver Corp. v. United States, 211 Ct.

Cl. 192, 543 F.2d 1298 (1976), cert.

denied, 434 U.S. 830 (1977).

Accordingly, the issue which must

be resolved is limited to whether the

decision of the ASBCA in Appeal No.

22337 is final under the judisical

review standards of the Wunderlich Act,

41 U.S.C. §§ 321, 322.

The changes clause in the contract

for the Fort Gordon Hospital project

provides: 46

* * * * * *

(d) If any change under this

clause causes an increase or

decrease in the contractor's

cost of, or the time required

for, the performance of any

part of the work under this

contract, whether or not changed

by any order, an equitable adjust-

ment shall be made and the

contract modified in writing

accordingly: * * * And provided

further, that in the case of

efective specifications for

which the Government is

responsible, the equitable

adjustment shall include any

increased cost reasonably in-

curred by the contractor in

attempting to comply with such

defective specifications.

The determination of the amount of an

equitable adjustment by a contract

appeals board is generally one of fact,

subject to limited review by this court.

United States v. Callahan Walker Constr.

Co., 317 U.S. 56, 61 (1942); Koppers Co.

v. United States, 186 Ct. Cl. 142, 405

F.2d 554 (1968). The purpose of the

changes provision is to compensate a

47

contractor for the unanticipated and

extra out-of-pocket expenses it incurred

in performing the contract as a result

of a change. Coley Properties Corp. v.

United States, 219 Ct. Cl. , 593 F.2d

380 (1979); Bruce Constr. Corp. v.

United States, 163 Ct. Cl. 97, 100,

324 F.2d 516, 518 (1963). The equitable

adjustment may not properly be used as

an excuse to remedy a loss suffered by a

contractor who has simply underestimated

an item in his bid. S. N. Nielsen Co. v.

United States, 141 Ct. Cl. 793, 796-97

(1958). However, an equitable adjust-

ment must include reimbursement for

those increased costs of performance

which were the direct and necessary

result of the change. Paul Hardeman,

Inc. v. United States, 186 Ct. Cl. 743,

406 F.2d 1357 (1969). When a dispute

arises as to the amount of an equitable

48

adjustment, the party seeking the con-

tract price adjustment has the burden,

before the contract appeals board, of

establishing the existence of the

relevant costs by a preponderance of the

evidence. Teledyne McCormick-Selph v.

United States, 218 Ct. Cl. __, 588 F.2d

808 (1978).

Viewed in accordance with the

principles stated, it is concluded that

the ASBCA's decision in Appeal No. 22337

is final and plaintiff has not establish-

ed any valid basis upon which the deter-

mination could be overturned.

Plaintiff first takes exception

to the finding by the ASBCA that a

burden rate (overhead) of 45.32 percent

should be applied in determining

Fidelity's performance cost. Plaintiff

assets that a determination of 50 percent

should have been made. The record before

49

the ASBCA demonstrates that the 45.32

percent rate is supported by substantial

evidence consisting of the audit con-

ducted by the DCAA and the testimony of

the auditor. No basis has been shown

to overturn the Board's findings.

Plaintiff takes exception to the

decision by the ASBCA that electricians

were not required to install the

Executone equipment such that a portion

of the labor cost Fidelity actually in-

curred in the performance of this work

was not reasonable. The evidence before

the ASBCA established that Fidelity

used a labor rate of $4.25 per hour in

its original bid to TFM when it con-

templated installing the Altec-Lansing

nurse call system. Fidelity had con-

templated installing the system using

technicians who were members of the

50

Communications Workers of Amercia. In

the actual performance of the contract

work, Fidelity arranged for TFM to

provide the labor used to install the

nurse call system, which labor costs

was then billed to Pidelity at the $9.65

hourly rate established for electricians

who were members of the union utilized

by TFM. The beat Senay before the ASBCA

was in conflict as to whether the use

of union electricians at the rate of

$9.65 was caused by increased complexity

of the Executone equipment as compared

to that manufactured by Altec-Lansing,

or whether it was simply necessary to

use electricians from TFM's union

source on this contract such that

Fidelity's original bid estimated was

in error. The Board concluded that

Fidelity did not establish that the use

of union electricians was caused by the

51

actions of the Government in the

approval of the Executone equipment so

that the increase in hourly labor cost

over Fidelity's bid estimate was no

recoverable as a part of the equitable

adjustment. A review of the record

evidence demonstrates that the Board's

finding has adequate record support.

Normally, actual increased costs in-

curred would control. Ford Constr. Co.

v. United States, 202 Ct. Cl. 1133

(1973). However, in the circumstances

where an original bid estimate was in

error, increased cost which occurs as

a result may not be reimbursed by means

of an equitable adjustment. Pacific

Architects and Engineers, Inc. v. United

States, 203 Ct. Cl. 499, 491 F.2d 734

(1974). As plaintiff did not establish

before the ASBCA that the switch to

TFM's union electricians was caused by

52

any Government action, no grounds exist

to overturn the Board's decision denying

recovery of the increased labor cost.

Plaintiff also takes exception to

the findings by the ASBCA, in the nature

of a jury verdict, that 100 extra hours

were expended as a result of the change

at issue. The testimony as to the amount

of extra labor required as a result of

the change was in conflict. Plaintiff

presented only a "total cost" approach,

which the ASBCA rejected because the

amount of excess labor could be deter-

mined by other methods and the total

cost approach did not pinpoint the extra

labor hours attributable to the change

as contrasted with other causes, such

as the alterations made under Modi-

fication 51. The Board's rejection of

plaintiff's total cost method in these

circumstances was correct. Boyajian v.

53

United States, 191 Ct. Cl. 233, 423

F.2d 1231 (1970). Rather than denying

any recovery as to labor cost for

failure of proof, a result which would

have been possible, Joseph Pickard's

Sons Co. v. United States, 209 Ct. Cl.

643, 532 F.2d 739 (1976), the ASBCA

utilized a jury verdict approach to find

that 100 hours of extra labor were

attributable to the change at issue.

This determination is supported by the

testimony of an expert witness for the

Government, although his opinion was that

some 50 to 70 hours of extra labor were

incurred, ©/ and no basis has been shown

6/ Another witness for the Govern-

ment compiled unsubstantiated figures

cited during the trial of this matter

before the Board and then testifed to a

figure of 779 hours of extra labor. The

ASBCA discounted this evidence and this

result is within the province of the

facts on a dispute arising under the

contract.

54

on which the Board's finding on excess

labor hours could be overturned upon

judicial review.

Plaintiff next takes exception to

the ASBCA's findings that no amount of

additional cost was established for the

work time and travel expended by execu-

tives of Fidelity as allocated to the

change at issue. Plaintiff's testimony

was that a certain percentage of execu-

time officer time would normally be

expended on the contract but, because

of the problems on the instance contract,

a substantially greater percentage of

such time was involved. No records or

documentary evidence were introduced

before the Board to support the general

testimony as to the time and travel

expense allocations claimed. The ASBCA

rules that it had no credible evidence

on which to establish a dollar amount as

55

to any additional executive time and

travel attributable to the change at

issue. Upon judicial review, absent

contradictory uncontrovertible docu-

mentary evidence or physical fact, this

court normally defers to the judgment

of the Boards of Contract Appeals on the

credibility of witnesses who have testi-

fied before them. Sternberger v. United

States, 185 Ct. Cl. 528, 401 F.2d 1012

(1968). In the instant situation where

additional overhead of $53,944.85 has’

been awarded for the change (excluding

the overhead and profit amounts of

$19,383.16 for TFM and $21,321.48 for

J. W. Bateson), and additional sums to

be allocated to the change from amounts

expended for corporate officers' salaries

and travel should have been supported by

evidence the ASBCA could deem creditable.

56

No basis has been shown to overturn the

decision of the ASBCA rejecting this

aspect of plaintiff's claim. //

Before the ASBCA, plaintiff's claim

for interest costs, extraordinary damages

and attorneys fees were also denied. In

the motion for summary judgment filed

August 7, 1979, plaintiff does not take

specific exceptions to the ASBCA's deter-

minations in this respect. In the

opposition brief filed January 2, 1980,

plaintiff appears to argue that its

Claims for additional allocations of

7/ As to plaintiff's general

assertion that “delay” must have in-

creased its costs, such as executive

time and travel, no specific delay costs

were claimed before the ASBCA and, more

importantly, because the building had to

be built before the nurse call system

could be installed, no showing was made

before the ASBCA that the installation

work was in any way delayed by reason of

the several submittals of equipment which

were rejected prior to the approval of

the Executone system.

57

executive salaries and travel cost,

interest, extraordinary damages, and

attorneys fees are now asserted as a

part of its cardinal change or breach

of contract claim for which a de novo

trial is sought. Given the conclusion

reached, supra, that no valid breach of

contract claims has been asserted in

this matter, and plaintiff's failure to

contest the rejection of these claims by

the ASBCA, no further discussion as to

these items may be required. However,

in the event that the discussion in

plaintiff's opposition brief is also in-

tended to be addressed to the admini-

strative rejection of these claims, it

is concluded that this rejection must be

sustained.

With respect to the denial of

claimed interest costs, the ASBCA

correctly relied upon the applicable

58

regulation that interest on borrowings

was unallowable in the determination of

the equitable adjustment required. See

Coley Properties Corp. v. United States,

219 Ct. Cl. __, 593, F.2d 380 (1979).

Plaintiff's claim for extraordinary

damages of some $1,500,000 is basically

a “lost profits" claim premised upon

numerous bids Fidelity submitted for

other contracts during the period in-

volved. As such, this lost income claim

in no way consists of out-of-pocket

expenses directly related to the

performance of the nurse call system

contract which can appropriately be

reimbursed as a part of an equitable ad-

justment. Coley Properties Corp. v.

United States, supra. Moreover, beyond

the concept of an equitable adjustment,

damages for lost of future business

prospects are usually considered too

59

remote to be recovered in a breach of

contract suit. See William Green Constr.

Co. v. United States, 201 Ct. Cl. 616,

477 F.2d 930 (1973), cert. denied, 417

U. S. 909 (1974).

As to attorney fees, the record

before the ASBCA makes it clear that the

sums“sought were for prosecution of the

instance claim against the United States

and as such, they may not be recovered

as a part of an equitable adjustment.

Singer Co., Librascope Div. v. United

States, 215 Ct. Cl. 281, 325-28, 568

F.2d 695, 720-71 (1977); 28 U.S.C.

§2412 (1970).

CONCLUSION

As it is concluded that the ASBCA

decision awarding plaintiff an equit-

able adjustment of $234,536.26 is en-

titled to finality under,the judicial

review standards of 41 U.S.C. §§ 321,322,

60

it is recommended that defendant's

motion for summary judgment be granted,

plaintiff's motion for summary judgment

be denied, and plaintiff's petition be

dismissed.

61

IN THE UNITED STATES COURT OF CLAIMS

NO. 86-79C

J. W. BATESON, INC.

V.

THE UNITED STATES

Before FRIEDMAN, Chief Judge, DAVID and

KUNZIG, Judges.

ORDER

This case comes before the court on

plaintiff's motion, filed December 24,

1980, for rehearing pursuant to Rule 151

(b) with reference to the order entered

on December 12, 1980, dismissing the

petition. Upon consideration thereof,

together with the response in opposition

thereto, without oral argument.

IT IS ORDERED that plaintiff's said

motion for rehearing is denied.

FEB 6-1981 — BY THE COURT

S/Daniel M. Friedman

Chief Judge

62

SUPREME COURT OF THE UNITED STATES

NO. A-881

J. W. BATESON, INC.,

Petitioner

v.

UNITED STATES

ORDER EXTENDING TIME TO FILE PETITION FOR

WRIT OF CERTIORARI

UPON CONSIDERATION of the application of

counsel for petitioner. IT IS ORDERED

that the time for filing a petition for

writ of certiorari in the above-entitled

cause be, and the same is hereby,

extended to and including June 6, 1981.

/s/ Warren E. Burger

Chief Justice of the

United States

Dated this 30th day of

April, 1981.

63

CERTIFICATE OF SERVICE

This is to certify that I have,

prior to filing, served three copies

of the within and foregoing Petition

for Writ of Certiorari, on the Solicitor

General, Justice Department, Washington,

D. C. 20530, by depositing conformed

copies of same in the United States

Mail, with the proper postage affixed

thereto.

~h

This the day of June, 1981.

Attorney for Petitioner

64