Petition for Writ of Certiorari — Dobkin v. District of Columbia

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CITATIONS

Cases:

Carnegie Steel Co. v. United eer 240 U.S. 156-__---

Day v. United States, 245 US. 15. ......--..----.--

Dillon v. United States, 140 Ct. re ES ae sie a a

Globe Refining Co. v. Landa Cotton Oil Co., 190 US.

Hearne v. Marine Insurance Co., 20 Wall. 488 Pains

Hedges v. Dizon County, 150 U.S. 182__------------

Diet ©, EB ee Bini no oo oh Krvedisxas

Manufacturers’ Finance Co. v. MeKey, 294 U.S, 442--

Maryland Casualty Co. v. United States, 169 3°. 2d 102-

Moffett, Hodgkins and Clarke Co. v. Rochester, 178 U.S.

ae als and dig alana ema morn ee Sm

Rock-Ola Mfg. Corp. v. Filben Mfg. Co., 168 F. 2d 919-

Russell v. Shell Petroleum Corp., 66 F. 2d 864-_-------

Statutes and regulations:

Re er Eg os es i eae nae e waenee

32 C.F.R. (1954 ed., sub-part D) 3.400--3.411_._.----

Miscellaneous:

3 Corbin, Contracts (1960):

a a ea

Hearings before the Committee on Appropriations of

the House of Representatives, 88th Cong., Ist Sess -

Restatement of Contracts, § 504, comments (b) and (c)-

5 Williston on Contracts (Rev. ed. 1938), §§ 1548, 1549-

763-324—65——-1 wy

Yn the Supreme Court of the Bnited States

OcToBER TERM, 1964

No. ——

Unrrep States OF AMERICA, PETITIONER

v.

Nationa Preeto Inpustrigs, INc.

PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF CLAIMS

The Solicitor General, on behalf of the United

States, petitions for a writ of eertiorari to review the

judgment of the United States Court of Claims en-

tered in this case on October 16, 1964.

OPINION BELOW

The fmdings of fact by the Court of Claims (App.

35) ‘ are as yet unreported. The opinion of the Court

of Claims (App. 15) is reported at 338 F. 2d 99.

JURISDICTION

The judgment of the Court of Claims was entered

on October 16, 1964 (App. 15). By order dated Jan-

uary 14, 1965, the Chief Justice extended the time for

1“App.” references are to the Appendix to this Petition,

which sets forth the opinion of the Court of Claims and its

findings of fact and conclusions.

(1)

2

filing a petition for a writ of certiorari to and inelud-

ing February 13, 1965. The jurisdiction of this Court

is invoked under 28 U.S.C. 1255(1).

QUESTION PRESENTED

Whether a eovernment contract setting a fixed price

for a supply of goods can be reformed so as to raise

that price at the suit of a contractor alleging a mutual

mistake as to the extent of the difficulties and expense

of performance.

STATEMENT

1. Toward the end of the Korean War, respondent,

an experienced artillery shell manufacturer, entered

into discussions with the Army looking toward a con-

tract for the production of 105 mm. shells by a new

method called the hot-cup, eold-draw (HC-CD) proc

ess. The HC-CD process, which had been demon-

strated successfully on a pilot-plant seale but had not

been used on a full-production-line basis at that time

(App. 42-43), constituted a significant innovation

resulting in a substantial saving in the steel require-

ments of a shell factory (App. 43). As a result of

the discussions, the Army and respondent entered into

tentative letter agreements providing that respondent

would designate the production equipment it deemed

necessary for the utilization of the HC-CD process

at its Eau Claire plant, that the government would

pay the cost of the equipment agreed upon,” and that

2 After the completion of the contract, the equipment was to

be stored for the government, remaining available for future

contracts. The government would say respondent to keep the

equipment “moth-balled.”

3

the shells would be paid for at a fixed price (App.

43-44).

After its engineers had visited the pilot plant and

studied the new process at length, respondent sub-

mitted a proposed fixed price per shell and a com-

plete schedule of the equipment which it felt would

be needed to establish a production line using the

HuU-CD process (App. 44, 47-50). Respondent de-

signed a significant portion of the equipment sched-

uled, making several substantial modifications of the

equipment in use in the pilot plant (App. 44).

Among the types of equipment orginally scheduled by

respondent were plunge grinders, devices used for the

removal of surface imperfections from the steel shells.

The Army contracting officer objected that the HC-

CD process should result in no such imperfections

and that therefore the grinders were unnecessary.”

Respondent acquiesced in this position and submitted

a new equipment schedule, omitting the plunge

grinders. Along with this new schedule, 1:espondent

submitted a new fixed-price proposal (App. 16-17, 21,

46-50).

Two contracts were then signed. One provided for

the setting up of a HC-CD process production line at

respondent’s Eau Claire plant, on a cost-reimbursable

basis, with the facilities and equipment proposed by

respondent (App. 51-57). The second was a fixed-

price procurement contract for shells. <As_ later

’ The contracting officer stated that, if experience showed that

the grinders were necessary, he would authorize their purchase.

No request for grinders was ever made.

4

amended, it obligated respondent to produce 1,100,-

000 shells either at Eau Claire by the new process or

at another plant geared to use the conventional

process (App. 57-59, 62-64).

Because of delays not at issue here, roughly 300,-

000 of the 1,100,000 shells had been produced at the

conventional plant by the time the Eau Claire plant

began preliminary operations. Ata conference, both

parties agreed that conventional production would be

phased out, leaving 180,000 of the 1,100,000 shells to

be produced at Eau Claire, so that the HC-CD

process could be tested (App. 64-65). :

The HO-CD process, as it had operated in the pilot

plant and as designed for Eau Ciaire, did not require

lathes, and neither party had forescen any necessity

for their use (App. 25-26, 42-43, 65-71). The

initial period of production at Eau Claire proceeded

without lathes, but, when the scale of production was

increased, respoiudent found that it was unable to

maintain the necessary eoneentricity of the shells.

After extended attempts to solve the problem within

the lin ‘tations of the process as designed, the parties

agreed to install lathes at government expense as a

step in the production line (App. 72-75). Once lathes

were installed, the difficulties of production at Eau

Claire were minimized, and the respondent completed

the contract, receiving from the govcrnment the

agreed-upon price per shell. The court found, how-

ever, that as a result of the mistaken assumption of

both parties that no turning equipment (?.e., lathes or

grinders) would be needed, respondent incurred a

&

substantial loss on its operations at Eau Claire (App.

25).

2. Respondent initiated the present case agains* the

United States in the Court of Claims, contending:

(1) that, in refusing to furnish plunge grinders, the

United States had warranted that the HC-CD process

would not require turning equipment (iathes or

plunge grinders) and was thus responsible for the

additional expense resulting from delays in establish-

ing that this equipment was necessary ; and (2) in

the alternative, that its additional expense was a

result of a mutual mistake as to the necessity of this

equipment and should therefore be borne by the

United States.

The court below rejected the first contention. Pro-

ceeding, erguendo, on the assumption that the gov-

ernment’s refusal to furnish plunge grinders was

equivalent to a refusal to furnish lathes, the court

held that the government, which was no better in-

formed than the respondent about the HC-CD process,

was free to refuse to furnish turning equipment and

the respondent was free to refuse to proceed with-

out it. ‘‘In the event of an impasse the whole project

would be terminated and plaintiff would receive its

costs to date. Plaintiff did not take this road. In-

stead, it acquiesced in the Ordnance position and

presented a schedule omitting plunge grinders and

proposing a new fixed-price’ (App. 21). In skort,

with neither party knowing more than the other about

the need for turning equipment, respondent acquiesced

in the government’s bargaining demand that it assume

%

é

the risk of proceeditig, at least intially and for some

period of time, without the equipment ( App. 30-31, 33).

“‘In these circumstances we canrot find any war-

ranty * * * by the Government * * *” (App. 22).

The court below found, however, that there was a

mutual mistake as to “two essential facts—the need

fer turning equipment; the time and work required to

establish that need * * *” (App. 27). The re-

spondent suffered no harm from the first mistake,

but the court concluded that it was injured by the

second. The court feund that “The erucial error was

as to the work necessary to show the need for turning

equipment. On that point, there was no considera-

tion and no discussion; hoth sides seemed to believe

that such a need would be speedily shown or dis-

proved. There is insufficient ground in the parties’

negotiations, or in the transaction as a whole, for

saying that the plaintiff, alone, assumed the risk that

the period of proof would be long and arduous, cost-

ing the large sums it did’’ ( App. 29) although

“some allowance for this expense was already in-

cluded in the Sixed-price’’ (App. 31).

In this situation, the court held, reformation of

the contract was appropriate to require the United

States to pay half the unexpected losses incurred in

establishing that the HC-CD process required lathes

(App. 34). The court noted that respondent’s aecept-

ance of a fixed-price contract, instead of a cost-plus or

research-and-development contract, might suggest that

all uncovered risks were allocated to the respondent, but

it concluded that “that solution would be too facile

7

* * *” (App. 29). Since it found that this particular

risk was not allocated by agreement between the parties

and since the government would, the court assumed,

have been willing to pay more if it had known in ad-

vanee of the unexpected costs, the court held that it

eould reform the contract so that i+ would reflect the

agreement (21 equal division of losses) which the court _

believed the parties would have made if they bad con-

sidered this particular risk.

Judge Whitake: dissented on the ground that the

court Was construing a fixed-price contract to be a

research-and-development contract, which the plaintiff

could have insisted upon but did not. He stated that

in no real sense was there a mutual mistake of fact,

and that respondent had assumed the risk of doing

the work for the sum specified (App. 34-35).

REASONS FOR GRANTING THE WRIT

The decision of the Court of Claims converts the

government’s promise to pay a fixed fee for specified

goods or services into a promise to pay that price

plus one half of any of the contractor’s losses

shown to have heen ‘tunanticipated” and substantial.

Presumably, the principle would be reciprocal; if so,

the decision also converts the eontractor’s promise to

furnish performance for the stipulated price into a

promise to furnish the goods or services for the agreed

price minus half of any savings in the eost of per-

formance that can be characterized after the event

as unanticipated and substantial. No rule could seem

8

more clearly calculated to substitute litigation for

predictability. The decision, we emphasize, is not a

sport, with no precedential value. Billions of dol-

lars are committed annually in government procure-

ment under fixed price centracts. Many of them are

indistinguishable from the contract in suit. The

Court of Claims frankly acknowledged that it was

announcing a novel but nevertheless fundament»!

principle. Such a basic change in the law applicable

to billions of dollars of government procurement

ought not to be made without any appellate review.

1. Each year the government enters into thousands

of fixed-price contracts involving enormous expendi-

tures of government funds. The Department of De-

fense alone spent $9,750,000,000 under this form of

contract in 1962 and $11,750,000,000 in 1964. The

Atomic Energy Commission and other agencies also

use fixed-price contracts involving vast sums. Al-

though accurate figures are not available as to the

number of contracts which relate either to novel

products (such as new weapons) or to novel processes

for making familar products (as in this case), there

is no doubt that a substantial part of the heaviest ex-

penditures are directed to research and development.

By the same token, a highly significant percentage of

the government’s fixed-price contracts involve a meas-

ure of experimentation by the contractor.

The reasons for the use of fixed-price contracts are

obvious. By agreeing in advance on the total price, gov-

9

ernment agencies can plan for their budgetary needs

with a certainty impossible under cost-plus arrange-

ments. Fixed-price contracts also give an incentive to

efficiency not present in cost-plus agreements ; accord-

ingly, in the aggregate, they tend to reduce costs. For:

these reasons, federal statutes and the Armed Forces

Procurement Regulations express a decided preference

for the fixed-price contract over other types of contract

in which the risk of unexpected costs is not allocated by

the agreement. See LO 17.S.C. 2306(c) and 32 C.F.R.

(1954 ed., sub-part ))) 3.400-3.411. This policy has

been urged upon the Executive branch by Congress

and has been adopted by the responsibie Cabinet offi-

cials. See testimony of the Secretary of Defense, De-

partment of Defense Appropriations for 1964, Hear-

ings before the Committee on Appropriations of the

House of Representatives, 88th Cong., Ist Sess., pp. 201,

461.

2. The effect of the decision below is to make it doubt-

fui that the fixed price is indeed fixed. Thus the court

below has stated (App. 32-33):

* * * To do justice here we need go no further

than formulate and apply a rule for cases of mu-

tual mistake in which the contract, properly

construed, allocates the specific risk to neither

party—and the side from whom relief is sought

received a benefit from the entire work of the

type it contemplated obtaining from the con-

tract, and would have been willing, if it had

10

known the true facts from the beginning, to bear

a substantial part of the additional expenses.

Cf. Vi: ginia Engr. Co. v. United States, 101 Ct.

C1. 516, 532-33 (1944).

For such a case it is equitable to reform the

contract so that each side bears a share of the un-

expected costs, instead of permitting the whole

loss to remain with the party on whom it chanced

to light.

The meaning of the formulation is made clear by

the facts of this ease. Relief is to be granted even

where the existence of difficulties is appreciated if there

was failure to realize their extent. That a risk is not

explicitly stated in the contract need not mean that it

was wholly unconsidered; here, the court found that

some risk of delay and increased cost in proving or dis-

proving the workability of the HC-—CD process was as-

sumed by respondent (App. 30-31) but that the full

extent of the risk was unappreciated by either party.

The speculative assumption that the government would

have been willing to bear a substantial part of the addi-

tional expense does not mean that the government re-

ceived unanticipated benefits, but only that the benefits

for which it bargained were furnished at an unexpected

eost by the contractor.

3. One flaw in the Court of Claims’ analysis is that it

defeats the very function of a fixed price contract: to

allocate the risk of the unexpected upon the contractor.

Both parties may confidently assume, even though the

work is experimental, that the job will go smoothly

and that no untowerd difficulties will arise; but that

does not mean that they have overlooked the chance

11

that the unexpected will occur or that there is any mis-

take as to where the burden will fall if trouble does oc-

eur. Both parties to a fixed price agreement know that

it involves risk-taking and that the risks encompass the

unexpected. In exchange for assuming the hazard that,

the expenses will prove unexpectedly high and the con-

tract result in a loss, the contractor gains the chance

that he ean sharply reduce expenses and obtain an ab-

normal profit because of a “mutual mistake”’ as to as-

sumed, but non-existent, difficulties of performance.

In exchange for foregoing the possibility that it could

have obtained performance far more cheaply on a cost-

plus basis, the government receives an assurance that it

will know in advance exactly what it must pay and

that the contractor will bear any unexpected costs, /.e.,

any eosts which, because of a “mutual mistake,”

neither party anticipated.

For these reasons all courts have heretofore held

with rare exception, that unanticipated costs are not

even a ground for rescission of a contract. 3 Corbin,

Contracts (1960), § 598.

The second flaw in the Court of Claims’ analysis is

that it imposes upon the parties a wholly new agree-

ment to which they never assented. This is a a

mere case of recission.

Respondent never asked to be released from the con-

tract and the effect of the decision below is not to

rescind the contract. Instead the court undertook

to impose a new contract by speculating as to what

the parties would have agreed to in the first pla 2

had they seen more accurately into the future. We

a ———————————— r LE OM IS ME RIS OER:

12

know of no other court which has made unanticipated

difficulties of performance the basis for reformi-

ing a convcact so as tc require one party to pay

the other more than the fixed fee agreed upon for

the goods or services.‘ “If two parties are caused

to enter into a contract by reason of their common

ignorance or common mistake as to some fact, but for

which they would not have agreed, this may be ground

for rescission, but it is not ground for reformation.

Proof of such a mistake as this does not show that

the parties have ever expressed assent, orally or other-

wise, to any contract other than the one which is

written. That writing truly expresses the only terms

on which they aave ever agreed. It may be subject

to rescission for mistake; but there is no other agree-

ment in accordance with which it can be ‘reformed’.’’

3 Corbin, Contracts (1960), § 614. A rule of con-

tract law followed, with rare if any exceptions, for

many decades and uniformly endorsed by the courts

and commentators forms an unusually solid founda-

tion for government reliance in developing procure-

me?.t practices. The rule denying reformation for

this kind of “mutual mistake”’ is such a rule. See

Restatement of Contracts, § 504, comments (b) and (e) ;

5 Williston on Contracts (Rev. ed. 1938), §§ 1548, 1549 ;

Hunt v. Rousmaniere 1 Pet. 1, 14-15; Hedges v. Dizon

‘The nearest approach to such a precedent is found in two

prior decisions of the same court, suggesting the rule of law

made explicit in this case. Harrison Engineering and Con-

struction Corp. v. United States, 107 Ct. Cl. 205; Dillon v.

United States, 140 Ct. Cl. 508.

13

County, 150 U.S. 182, 189; and Manufacturers’ Finance

Co. v. McKey, 294 U.S. 442, 449.°

4. Each of the conditions for reformation specified

in the decision below will be present—or, at the least,

arguably present—under many of the experimental —

contracts entered into by the government and private

contractors on a fixed-fee basis. Nor can the un-

settling consequences be readily forestalled by amend-

ing the language of procurement contracts. To

begin with, tens of thousands of fixed-price contracts

are now outstanding. Moreover, there is a question,

under the decision below, whether the rights and

duties of the parties to future fixed-price contracts

would be affected by an additional clause reiterating

the contracior’s obligation to perform for the fixed

price regardless of unanticipated difficulties. The gov-

ernment believes it is entitled to continue to operate

under the rule long recognized by the Court: ‘‘[W Jhen

the scope of the undertaking is fixed, that is merely

another way of saying that the centractor takes the

risk of the obstacles to that extent. Carnegie Steel

Ce.--v. United States, 240 U.S. 156, 164. Globe Re-

fining Co. v. Landa Cotton Oil Co., 190 U.S. 540, 548,

544.” Day v. United States, 245 U.S. 159, 161. We

think that the reversal of that basie rule of contract

law by. the court below is as wrong in principle as it

5 See, also e.g.. Maryland Casualty Co. v. United States, 169 F.

2d 102, 111 (C.A. 8); Russell v. Shell Petroleum Corp., 66 F.

2d 864, 867 (C.A. 10); Rock-Ola Mfg. Corp. v. Filben Mfg.

Co., 168 F. 2d 919, 923 (C.A. 8); llearne v. “larine Insurance

Co., 20 Wall. 488, 490-491: Moffett, Hodgkin: vind Clarke Co.

v. Rochester, 178 U.S. 375, 384-385.

14

will be upsetting in practice. At the very least the

innovation merits full consideration by the Court.

CONCLUSION

For the foregoing reasons, it is respectfully sub-

mitted that this petition for a writ of certiorari should

be granted.

ARCHIBALD Cox,

Solicitor General.

JoHN W. DovuGLas,

Assistant Attorney General.

SHERMAN L. COHN,

Rosert C. McD1aRMD,

Attorneys.

FEBRUARY 1965.

APPENDIX

No. 370-58

(Decided October 16, 1964)

NATIONAL PRESTO INDUSTRIES, INC. v. THE

UNITED STATES

Robert E. Sher for plaintiff. Jsadore G. Alk, Abraham J.

Harris, James H. Heller and Maslon, Kaplan, Edelman,

Joseph &: Borman of counsel.

David Orlikoff, with whom was Assistant Attorney Gen-

eral John W. Douglas, for defendant.

Before Jones, Senior Judge; Wurraker, Senior Judge;

Laramore, Durrer, and Davis, Judges.

OPINION

Davis, Judge, delivered the opinion of the court :

Toward the close of the Korean hostilities, in the late fa'l

of 1952, the Ordnance Department of ture Army sought pro-

posals for the commercial production of 105-millimeter ar-

tillery shells. Along with other firms, plaintiff, a fabricator

of pressure cookers which had turned to the manufacture of

cartridge cases and shells during and after World War II,

submitted a plan for the production of the shells (at its plant

at Eau Claire, Wisconsin) by the conventiona! hot forge

method—involving considerable heat twice applied, and two

turning steps at which large amounts of excess steel are

removed from the shell. While the proposals were under

consideration, Ordnance mulled over a change in the pro-

curement from the conventivnal method to the new hot cup-

coid draw process. The central advantage of this mode is

(15)

763-31.4—65—-2

so nnn A RE ITEP ELLIE LLL ARLE E RL ENE

16

that the steel is heated only once and there is much less ex-

cess metal to be removed. The plaintiff already had an Ord-

nance contract for making 105-millimeter shells by the older

method at its factory at Menomonie, Wisconsin, and its ini-

tial response to the Army’s suggestion of a further contract

was based on that system. However, plaintiff then consid-

ered conforming its proposal for Eau Claire manufacture to

the newer process. In June 1953 the parties entered into two

letter contracts, one for establishing lines to produce shells

at Eau Claire and the other for the production there of one

million 105-mm. shells. It was shortly agreed that the Eau

Claire plant was to use the hot cup-cold draw method. After

production of the shells immediately needed, the plant was

to be retained in stand-by condition for the Army’s use.

Under these letter contracts, which were preliminary to

formal agreements, the plaintiff was to propose the equip-

ment (and facilities) it believed to be needed for production.

The defendant was to pay for the items upon which agree-

ment was reached; in that sense the equipment was to be

government-furnished property. Some months were con-

sumed in piaintiff’s preparation of its proposed equipment-

schedule, and of a suggested fixed-price for iaaking the shells

by the new method. There were some tentative discussions.

On November 10, 1953, the parties met to consider the finai

schedule to be incorporated in the *ormal facilities contract

which would supersede the letter contract on facilities. Of

concern to us was the discussion of the need for plunge grind-

ers—devices mainly used to remove surtace inperfections in

steel. Plaintiff felt that the six new shell lines at Eau Claire

should include 24 plunge grinders, four to each line. Ord-

nance thought them unnecessary ; its principal representative

informed plaintiff that he would not approve a facilities

schedule which included plunge grinders; he also said that,

if the grinders proved necessary in the course of perform-

ance, he would sanction their acquisition. The plaintiff

2 Plaintiff insists that Colonel Haskell, the chief Ordnance representative,

went further and declared that the Army would be responsible for the con-

sequences of omitting the plunge grinders. One of plaintiff's witnesses testified

to that effect and preduced an internal memorandum for plaintiff's own files in

which he had put down, on the day after the conference, that understanding

of the Colonel’s position. A witness for the defendant, who had been present

at the meeting, flatly denied that any such statement had been made. Colonel

Haskell was in Burope and unavailable for the trial. The Trial Commissioner,

17

thereupon submitted .ts new price and a schedule omitting

the grinders; that equipment was not included in the formal

contracis which were executed in early December 1953. Pro-

duction of the shells was to commence, after installation of

the facilities yet to be acquired, in July 1954.

Plaintiff then began the detailed process leadinz to the ac-

quisition and installation of the necessary equipment. In

March 1954, befove completion of the contractor’s engineer-

ing studies and its placement of orders, the defendant told

plaintiff that it was drastically curtailing its procurement of

105-mm. shells and that both plaintiff’s Eau Claire and Me-

nomonie contracts were terminated for all production sched-

uled for delivery after April 30, 1954. Following negotie-

tions for a decrease rather than elimination cf production,

the defendant rescinded its notice of termination of the Eau

Claire contract and, on June 30, 1954, the parties entered into

a supplemental agreement. (to that contract) providiny that

plaintiff should produce a new total of 1,100,000 105-mm.

shells (in place of the former totals of the shells to be made at

Menomonie and at Eau Claire), at a fixed price of $5.2499

per shell, to be manufactured at either plant as plaintiff

wished. Production at Menomonie would follow the con-

ventional hot forge method while the new hot cup-cold

draw system would be used at Eau Claire.

Because the Menomonie plant was already operational,

plaintiff began to supply the new total of 1,100,000 shells

from that factory. By the end of August 1955, over 800,000

shells had been shipped from there. Since preliminary oper-

ations at Eau Claire did not begin until the summer of 1955,

it appeared that the full quota of shells would be produced

at Menomonie by the conventional process before the now

method could be fairly sampled at Eau Claire. The Gov-

ernment was anxious to test the hot cup-cold draw system.

Early in September 1955, the parties agreed that the con-

who heard the witnesses, made no finding, one way or the other, on this

point; he admitted some reluctance to make a finding on the basis of the

sharply disprted oral testimc=y «nd in the absence of any written record,

accepted by both parties, of the conference. We have reviewed the evidence

on the issue and do not feel justified in concluding from the cold record

that plaintiff has borne its burden of showing that such a promise was made

by Colonel Haskell. The oraj testimony is in square conflict, and in the

absence of a finding of credibility by the Commissioner we ‘ave no reason to

prefer one version over another. The plaintiff's internal memorandum cannot

be controlling.

18

ventional operations should be reducer: so that some 180,000

shells would be left to be manufactared (by March 1956)

under the new process.

Plaintiff suffered difficulties of various kinds in making the

hot cup-cold draw system fully functional at Eau Claire.

Only one of these problems is now alleged to be the defend-

ant’s responsibility-—the need for turning equipment to shave

excess metal. The first batch of shells, produced relatively

slowly and using only one of the six lines at Eau Claire, did

not require any such turning. But as production increased

there, in the fall of 1955, it became doubtful that good shells

could be made without a turning step; the shells were not

concentric when they came out of the hot forge and some

shaving (but still Jess than in the conventional method) was

necessary. A final decision on this point was put off until

April 1956 when it was decided by the parties to purchase a

number of new lathes for this purpose (plunge grinders were

never considered). Meanwhile, plaintiff, with the consent

of Ordnance, transferred some older lathes from the Menom-

onie plant to perform this turning function. The remainder

of the contract shells were produced at Eau Claire, using

these Menomonie lathes. Production of the 180,000 shells

to be made by the hot cup-cold draw process was not com-

pleted until September 1956. The defendant paid for the

additional equipment and also remitted the full contract

price. Nevertheless, plaintiff lost ccnsiderably over $700,000

on its production at Eau Claire. It attributes some $743,-

000.00 of this loss to the ack ef turning equipment, timely

furnished and adequate ; plaintiff’s claim is that it expended

large sums (on labor, overhead, and materials) in trying for

a long time to produce the shells without turning, and there-

after in using the Menomonie lathes. These expenses plain-

tiff charges directly to defendant’s refusal to include plunge

grinders in the original schedule of equipment and facilities.

I

The case has been wholly tried in this court ? and we must

decide whether the Government should assume 41! (or part)

* Plaintiff? did not seek relief from the contracting officer or the Board of

Contract Appeals, and there is no administrative record on the factual issues

in the case. At the trial before our Commissioner, both perties introduced

— Pores Oe SO Se GSS

Se a ar Rea

19

of the loss plaintiff incurred or whether that loss must stay

with the contractor which has thus far shouldered it. The

first subdivisio.. of the claim is that the defendant broke its

contractual obligation by refusing to authorize the acquisi-

tion and use of turning equipment at the outset of the con-

tract. The theory is that, since the Government was to

furnish the facilities for the production lines at Eau Clsire,

it was required to supply adequate devices to makw the 105-

mm. shells by the new hot cup-cold draw method. By omit-

ting the plunge grinders (requested by the plaintiff) from

the equipment to be furnished, the defendant (it is urged)

brcached an express and an implied warranty of adequacy,

and also wrongly imposed its own mistaken judgment on the

plaintiff. It is of no consequence, on this view, that the con-

tractor initially proposed plunge grinders and later recom-

.wended and used lathes. The grinders were sought, it is

said, because plaintiff foresaw from the beginning that it

would still be necessary, even under the new process, to

remove steel from the shells through use of soxae sort of

turning equipment; the lathes which were actually utilized

performed exactly that function.

On this phase of the case, we can assume. without deciding,

that the defendant would be liable under the contract if the

parties had left the specification of the governinent-paid-for

equipment to be determined after the contract was made, and

the defendant had then refused te authorize a tool or device

evidence : neither objected to the use of de nora evidence. sought a stay 80 that

disputed issues of fact could be determined administratively, or raised the peint

that administrative proceedincs should hae been bad. After the Commis-

sioner’s report had been submitted and the plaintiff had filed its brief and

exceptions, defendant moved for the first time to suspend the proceedings so

ths the plaintiff could present any disputed questions of fact to the contract-

ing officer and to the Armed Services Board of Contract Appeals. Plaintiff?

opposed ca the cround, among otuers, that this is an action for unliquidated

damages for vreach of contract, to which United States v. Carlo Bianchi €

Co., 373 U.S. 709 (1963), is wholly inapplicable. The moti. was denied by a

single judge. Considering the point as raised anew in the course of the

presentation of the case on the merits, we deny it, again. on the ground that

defendant waived any right it may have had to an administrative determina-

tion of the facts by failing to make the point until too late a stage in the

proceedings. Commerce Intl Co., Inc. v. United States, Ct. Cl., No. 287-55.

decided this day: Wingate Constr. Co. v. United States, Ct Cl.. No. 394-60,

decided Jan. 24, 1964, slip op., p. 7; WPC Enterprises Inc. v. Umted Stetes,

Ct. Cl, No. 256-59, decided Oct. 11, 1963, slip op.. Pp. 6-7, 323 PF. 2d 874-878:

Stein Bros. Mfg. Co. v. United States, Ct. Cl.. No. 389-59, decided July 12,

1963, slip op., pp. 2-4.

20

which was needed to manufacture the shells in due time. We

can also assume, likewise without deciding, that the request

for plunge grinders equaled one for lathes.

The hurdle we cannot overcome is that in this case the dis-

cussion and decisiou on turning equipment (i.¢., Piunye

grinders) ali took place before the parties were legal!y bound.

When the plaintiff proposed, nd the defendant rejected, the

niclusion of grinders in the schedule of equipment to be finan-

ced by the Government for the production of the shells, the

parties were acting under two temporary letter contracts—

one for the supply of the shells and one for the facilities and

equipment. These were preliminary contracts contemplat-

ing agreement upon, and execution of, two formal] contracts

(supply and facilities) before substantial] production was to

be started. But the letter contracts also envisaged that the

parties might not be able to concur in the terms of the formal

agreements ; both letters provided that if agreement could not

be reached on the formal contracts within 120 days from the

date of the letter contracts (June 4, 1953), or a further date

which was mutually agreeable, the letter contracts would

terminate and the plaintiff would be paid for its expendi-

tures-to-date-of-termination under the termination clauses

incorporated in those documents. It is also quite clear from

the letter contract on facilities thec ibe parties had not yet

come together on any specific items; the only agreements in

that area were the general ones that “facilities shall be

capable of producing 2 quantity of 360,000 shell on a one (1)

shift, eight (8) hour, five (5) day week basis,” * und that the

standard-form Ordnance contract for facilities would be used.

Obviously, the plaintiff was to prepare and proffer a list of

items which would, if agreeable to the defendant, be incorpo-

rated in the formal contract. The plaintiff, not the Govern-

ment, was to be the source and initiator of the suggestions.

Its actions under the lettcr contracts show thet it thoroughly

understood this procedure.

* Plaintiff secs this general clause as a guarantee by the Government that,

whatever the facilities subsequently incorporated in the final contract, the

contractor would be able to perform effectively. We read the clause as a gen-

eral indication to plzintiff to propose facilities designed to achieve that gval,

and in no sense as a warranty by the defendant as to the adequacy of the

facilities (as yet undecided) for which it would ultimately pay.

21

When Ordnance and the plaintiff discussed, in the fall of

1953, the inclusion of plunge grinders, the letter contracts

were still extant (they had been extended to December 4th)

and formal contracts had not yet been consuramated. One

of the prime reasons for the meetings was to decide, if possi-

ble, what equipment and facilities should be covered by the

formal facilities contract. On this record there is no reason

to doubt that the parties discussed the matter of plunge

grinders in utmost good faith. The hot cup-cold draw pro-

cess was new and the defendant’s expertise was certainly no

greater than the plaintiff’s (and probably less) ; there were

no decisive indications that the questioned equipment should

or should not be included; at most tne choice lay in the area

of legitimate doubt. Both parties had the full legal right

to stand on their positions and thus to end the negotiations.

The contractor was free to insist on plunge grinders (or other

turning equipment) and the defendant was equally free to

maintain that they should not be listed. In the event of an

impasse the whole project would be terminated and plaintiff

would receive its costs to date.

Plaintiff did not take this road. Instead, it acquiesced in

the Ordnance position and presented a schedule omitting

plunge grinders and proposing a new fixed-price. This

written presentation did not refer to the grinders (or com-

parable machines) or intimate any concern over their absence.

The plaintiff simply withdrew from its former position.

Similarly, the formal contract did not list or refer to this (or

like) equipment and did not even embody Ordnance’s oral

promise that it would authorize the purchase of the grinders

if their use was shown to be necessary during performance.‘

The formal facilities contract said, quite precisely, that the

Government desired to provide the property listed in the

schedules to the contractor “for use in the production of 105

MM, Mi Shell by a combination hot forge and cold draw

process at the rate of 360,000 per month on a one-shift, eight-

hour five-day week basis.” Only the specified items were to

be provided ; there was no undertaking at all as to any other

pieces of equipment.

In contrast, the formal supply contract included a caveat, which the

parties had earlier discussed, as to the price of steel.

tpt RISE SOE LABELLING ELA, Gags

In these circumstances we cannot find any warranty or

representation by the Government, express or implied, as to

p unge grinders or turning equipment.’ Before the contract

was made, the plaintiff understood that the defendant, for

better or worse, would not then countenance the acquisition of

these items. Nevertheless the plaintiff went ahead to com-

plete and execute the bargain. The situation was not ma-

terially different from pre-contract negotiations in which the

participants haggle over equipment to be financed or fur-

nished by the Government for a now procurement. In the

absence of overriding special knowledge on the part of the

defendant (cf. Helene Curtis Industries, Inc.v. United States,

Ct. Cl., No. 251-56, decided Feb. 6, 1963, 312 F. 2d 774) or

some explicit clause later inserted in the contract, the de-

fendant’s refusal to agree to the plaintiffs introductory

request is not a warranty or a representation that the contract

can be effectively performed on the Government’s terms, any

more than the defendant’: insistence in negotiation on a

certain price is ¢ warranty or representation that the con-

tractor will be able to make a profit at that price. Negotia-

tion still involves bargaining, and the would-be contractor’s

concession to a Government position is not transmuted into

reliance-on-a-representation every time the contractor

guessed wrongly in making the concession.* On the plain-

tiff’s argument, the full risk will always rest on the defend-

ant—even though the parties do not censciously agree to put

6 We have already indicated. supra, fn. 1, thai che evidence does not support

the contention that there was a specific vral warranty.

6 Where the Government orders an item tc be manufactured, or a structure

built. according to certain specifications, it will usually be held, nothing else

appearing, tha’ the defendant implicitly represented that, if the specifications

were complied with, satisfactory performance would result. See, e.g., R. M.

Hollingshead Corp. v. United States, 124 Ct. Cl. 681, 111 F. Supp. 285 (1953).

This rule rests on the presumed expertise of the Government where it sees fit

to prescribe detailed specifications. But this court has also pointed out that

“if the manufacturer knows, or. perhaps, from his experience should know,

that the desired article cannot be made from the specified materials, he has

no right to make a useless thing and charge the customer for it.’ Ibid at 683,

111 F. Supp. at 286. Even for Government specifications, the rule may be

different where the defendant has no special knowledge of the process of manu-

facture and the subject is brought into the open befcre the contract is made.

Cf. Beacon Constr. Oo. v. United States, Ct. Cl., No. 44-58, decided March 6,

1963, 314 F. 2d 501, and WPO Enterprises, Inc. v. United States, Ct. Cl., No.

256-59, Cocided Oct. 11, 1963, slip op., pp. 4-5, 323 F. 2d 874, 876-77. In

any event, the government-specification rule has no application where, as here,

the contractor is the source of the proposal, and the defendant's role is merely

to approve or disapprove.

23

it there and the Government’s knowledge is no greater than

the contractor’s. If the disputed equipment turns out to be

unneeded but the contracting officer has acceded to the con-

tractor’s demand, the Government will expend its funds for

no purpose and normally without any recourse against. the

contractor; if, however, the Government refuses and the item

then proves unnecessary, no harm comes to the contractor.

On the other hand, where the equipment is actually required,

plaintiff would make the Government always bear the re-

sulting cests, either under the contract if it concedes the con-

tractor’s request or in court if it refuses. Unless the parties

have affirmatively done so, such a one-sided post-contract

assignment of risks disclosed before final agreement is fore-

closed by the theory of the fixed-price contract.’ The entire

burden cannot thus be cast on the Government.

The result is no different if we reject plaintiff's version

and assume that the discussion of plunge grinders had

nothing.to do with the need for the lathe-like turning equip-

ment which was ultimately revealed. In that event the

parties would have entered into the formal agreements with-

out bringing into the open the question of turning equip-

ment. But, for the reasons given above, the defendant would

still not have warranted or guaranteed the adequacy of the

items of equipment on which agreement was reached. There

were no express warranties. The Government did not pre-

pare the list, have the greater knowledge, or make the studies.

The process was novel. Accordingly, the Government's rep-

resentatives were in no position to, and did not, assure

plaintiff that the list plaintiff proposed would be sufficient.

There may have been a mutual mistake, but there was no

undertaking, explicit or implied, by defendant to assume all

the risks that the agreed-upon items would effectively pro-

duce the shells.

The principles and decisions on which plaintiff relies are

inapposite. In Ekco Products Co. v. United States, Ct. Cl.,

No. 464-57, decided Jan. 11, 1963, 212 F. 2d 768, the court

TIt is noteworthy that plaintiff did not make its final price proposal until

after the discussion as to plunge grinders. It may very well be that, in

calculating that price, plaintiff to~k some account of the defendant's refusal

to authorize plunge grinders. Moreover, when plaintiff agreed, in June 1954

(on reinstatement of the supply contract), to a fixed price of $5.2499 it knew

that turning equipment had not been authorized.

Specie , . ‘id <cothon pions et ent Cth BER CERN nea ess pe eng gS AR ee ieee

24

held that, since the formal contract specified that head turn-

ers were to be furnished by the Government, adw.cc<e

machines were impliedly warranted under the usuai rules

of bailment. There were no pre-contract negotiations nega-

tiving such an implied warranty; in addition, the court ex-

pressly held that because of the protective coating on the

machines the contractor’s inspection, made before th. con-

tract was executed, enabled its representatives to determine

very little, if anything, about the turners (slip op., pp. 6-7).

Ekco deals with property furnished by the Government to

a contractor; *he decision does not treat with a claim of

implied warranty where the disputed equipment was omitted

from the final contract and the parties’ negotiations fail to

suggest any promise by the defendant to guarantee perform-

ance. Dayton-Wright Co. v. United States. 64 Ct. Cl. 544

(1928), is likewise far afield. The suit was not for damages

over and above the vontract price but solely for the contract

price , recovery was allowed because the defendant, after the

contract was made on the basis of the contractor’s own design

and specifications, so changed the conception embodied in the

contract that it was impossible for the plaintiff to meet the

performance requirements. The present case differs sharply,

among other things, in that the “imposition of defendant's

mistaken judgment”—of which plaintiff now complains but

in which it originally acquiesced—occurred prior to the

making of the contract, not after.

I

Having rejected plaintiff’s claim of a breach of ~~~ tract,

we come, now, to the more difficult phase of the _.se—can

there be any sort of recovery here, premised on a mutual

mistake? Except where the parties have failed to conform

the written instrument to their actual understanding (¢.g.,

Sutcliffe Storage & Warehouse Co. v. United States, 125 Ct.

Cl. 297, 112 F. Supp. 590 (1953); Jones & Sears, Inc. v.

United States, 158 Ct. Cl. 162, 172-73 (1962)), the courts

generally, as well as this court, have been wary in granting

relief fom innocent mutual mistakes imbedded in, or under-

25

lying, consummated contracts.* With this tacit warning, we

must tread carefully since there was no mistake in the written

formulation of the understanding here; the formal contract

embodied the actual agreement as the parties thought it to

be. But we feel impelled, nevertheless, to consider the prob-

lem of mistake because, in our view, there was a definits

mutual mistake as to a very material fact—an innocent mis-

take which apparently led the contractor, witout fault, to

a large loss.’ It is proper to decide whether, in these cir-

cumstances, any relief is open to plaintiff under the law we

administer or whether the loss must simply rest where it

dropped.

The mutual mistake was this: It was important to the Gov-

ernment to create stand-by facilities using the hot cup-cold

draw method of making shells. Both parties hoped to make

the shells under this process without any turning equipment,

so as to diminish the wastage of steel to the greatest extent

possibis. Plaintiff's trials over 8 considerable period dem-

onstrated, however, that this new method could not efficiently

bs used for mass production without one turning step at

which some excess steel was removed from the shell. The

main objective of the new method was to save much of the

scrap steel resulting from the conventional hot forge proc-

ess. That end was still reached, but not as completely as

initially expected. Much steel was saved, but less than

hoped. Some turning was still necessary. This critical

fact the Government certainly did not know at the time of

the negotiations and the execution of the contracts with

plaintiff.° The defendant was unaware, also, that it would

take much time and effort to discover the truth.

The plaintiff had premonitions that some sort of turning

mé ht be required, but it, too, did not tnow of the necessity

of a shaving step; more particularly, plaintiff had no idea

®See 3 Corbin, Contracts (1960 ed.), $597 et. seq.: Note. “The Applica-

tion of Common-Law Contract Principles in the Court of Claims: 1950 to

Presert.” 4@ Va. L. Rev. 772. 789-95 (1963) : Doke, Mistakes in Government

Contracts—Error Detection Duty of Contracting Officer, 15 Sw. LJ. 1 (1964),

esp. at pp. 40-43.

°We qualify the statement by “apparentiy” since it has not yet been

decided zow much of the claimed loss was attributable to the mistake.

30 4 smaller oneline plant, which did not use a turning step, had previously

made shelis for the Government by the new process.

AA RONEN AY SR RE SE 2 ree sortecap eaters Se RN ENA ON SE Tin MR RIE EIS

26

that it would be hard to determine this need. We are con-

vinced from the record that, when plaintiff signed the formal

contracts, it did not enter the arrangement with the feeling

<) at it would fail, or encounter grave difficulty, because of

the lack of turning equipment. It expected to succeed.

Even assuming that the request for plunge grinders was

equivalent to a request for a mechanism performing as the

lathes later did—an assumption defendant challenges *—

plaintiff’s conduct shows that for quite a while it thought

and hoped that, though it would be good to have turning

equipment, the process could function effectively without

such Gevices. Plaintiff accepted defendent’s refusal to in-

clude plunge grinders, though the negotiations could have

been ended right there. Plaintiff then proceeded well along

on that basis, without referring again to turning equipment.

In October 1955, after the first run of shells at Eau Claire,

plaintiff's director of engineering gave a public address men-

tioning the absence of a turning step and suggesting the

success of plaintiff’s use of the hot cup-cold draw process.

The difficulties came later when production was increased.

Even then, it was not until prolonged efforts to operate prop-

erly at Eau Claire without a turning step, together with

some experimentation with a lathe imported from Meno-

monie, that plaintiff (as well as defendant) finally deter-

mined that additional equipment was needed for steel re-

moval! after the hot forging phase of the new process. In

arguing that the defendant shouid be held liable for a breach

because it was warned of the need for turning equipment,

plaintiff has over-stressed its own knowledge during the pre-

contract stage. The truth, as we see it, is that neither side

had the knowledge plaintiff now attributes to itself; plaintiff

wanted the plunge grinders for insurance but both parties

were under the misapprehension that, given proper engi-

neering, the new process could be utilized without any turn-

ing step. Before us, defendant still argues that lathes only

became necessary because of plaintiff's faulty design of the

dies, but we conclude, from the history of the contract as

well as defendant’s own ultimate support of the lathes, that

“On defendant’s view that plunge grinders were irrelevant to the turning

problems later encountered in performance, there is a stronger case for finding

that plaintiff (as well as defendant) was mistaken.

27

the parties were right when they ultimately decided that the

process would not work properly for mass production with-

out turning equipment. In short, the parties reasonably

labored, for most of the contract period, under a mutual mis-

take as to a most material set of facts. And that mistake was

not understood until the plaintiff had tried, with de-

fendant’s approval, for quite a while—and apparently with

the expenditure of considerable money—to make the shells

without turning equipment.

Thus, the parties’ arrangement was infused throughout, on

both sides, with mutual ignorance of two essential facts—the

need for turning equipment; the time and work required to

establish that need—but the products of that mutual igno-

rance now weigh wholly upon the contractor. The defendant

has paid the contract price and received its shells. The plain-

tiff has received the contract price but is left with a large loss

which (we assume for present purposes) is due to the com-

mon error. This is not a case in which one party merely

seeks to be excused (usually through rescission) from failing

to perform because of a mutual mistake. This is a case

where a party which has received the stated consideration

asks for greater compensation, over and above the contract

price, because of the mistake.

The courts have thus far chosen, in passing upon claims of

the latter type, to hug closely the notched coastlines of the

particular litigations, * rather than to chart straight paths

across the troubled sea. As we have noted, it is difficult to

find general principles or a developed body of law. This

caution, which we accept, follows the wisdom of the common

law; premature generalization can bear strange fruit.

Nevertheless, there are some existing guidelines which we can

usefully follow.

In denying a claim for increased compensation tied to a

mutual mistake, we recently pointed out that “a mutual mis-

take as to a fact or factor, even a material one, will not

support relief if the contract puts the risk of such a mistake

18 Other lines using the new process employ turning equipment. The smaller

plant which had not used such machines (see fn. 10, eupra) did not engage in

speedy mass production.

Cf. 8 Corbin, Contracts (1960 ed.), § 598: Virginia Engineering Co. v.

United tates, 101 Ct. Cl. 516. 582-83 (1944) ; Peter Kiewit Sons’ Co. v. United

States, 109 Ct. Cl. 517, 522-23, 74 F. Supp. 165, 168 (1947).

on the party asking reformation * * * * or normally if

the other party, though made aware of the correct facts,

would agreed at the outset to the change now

sought * * *.” Flippin Materials Co. v. United States, Ct.

Cl., No. 8-57, decided Jan. 11, 1968, slip op., p. 11, 312 F. 2d

408,415. The contractor in Flippin fell before both of those

obstacles. Here, we are impelled to find that plaintiff is able

to surmount both, perhaps not in Olympic fashion but well

Did plaintiff assume the whole risk? In the first part of

this opinion we considered whether the Government, under

the contract, should bear the entire <isk of the error as to

turning equipment. We decided that it should not. The

main problem in this second facet of the case is whether the

contract placed that whole risk on the plaintiff. The answer

is not easy, but we conclude that neither the written contract

nor the course of dealings requires that plaintiff alone bear the

full consequences of the parties’ mutual error as to the need

for turning equipment. The contract contained no disclaim-

ers of Government liabi!:' or warranties by the plaintiff.

As we see it, this was a new and joint enterprise in which

carry out the experiment. But this was not a performance

contract; plaintiff was not an expert, promising to perform

and taking the whole risk and anziety of the project off the

Government’s shoulders.“ Plaintiff was, rather, the more

Ht

ii

ul

ur

|

|

|

i

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:

cel MEE LO LEAL LSS

29

active of a pair of gropers attempting to develop a new and

largely untried process which was still far from mature.

Possibly, in Professor Corbin’s phrase, plaintiff may have

bet that turning equipment would not be needed, but we do

not think it bet as to the time and effort which would be

necessary to determine that fact. The crucial error was as

to the work necessary to show the need for turning equip-

ment. On that point, there was no consideration and no dis-

cussion; both sides seemed to believe that such a need would

be speedily shown or disproved. There is insufficient ground

in the parties’ negotiations, or in the transaction as a whole,

for saying that the plaintiff, alone, assumed the risk that the

period of proof would be long and arduous, costing the large

sums it did.

Plaintiff’s acceptance of a fixed-price contract, instead of

some form of cost-plus arrangement or research-and-develop-

ment contract, could suggest the allocation to it of all un-

covered risks. But in this case that solution would be too

facile for a risk connected so directly with the equipment to

be used. Since the Government was to pay for the ma-

chines,” in the area of equipment the agreement was at least

as close to a cost contract as to a fixed-price one. Moreover,

even if the fixed-price covered the costs of a short period of

testing to decide whether turning equipment was needed, it

is hard to hold that it also covered a long period entailing

very large expenses.’* It should not be said, in all the cir-

cumstatices, that the agreed fixed-price included the full risk

that the contract could not be effectively performed without

turning equipment. Our best judgment is that the specific

risk as to the cost of proving that fact was not distributed,

explicitly or implicitly, by the arrangement the parties made.

The defendant did not assume that hazard, but neither did

the plaintiff.

The second prerequisite to recovery for mutual mistake

mentioned in Flippin is that the other party, if made aware

% Including (as it turned out) the cost of the turning equ'pment itself.

% Plaintiff received some $980,000 for the 180,000 shells produced at Fau

Claire by the new method, and lost some $750,000 in that phase of its produc-

tion. Although we do not yet know the precise part of this loss attributable

to the problem of turning equipment (see infra), it seems probable that the

cost of testing the need for, and then using, turning equipment was very large

in comparison to the plaintiff's revenue from its erie of the shells to the

Government.

30

of the true facts, “would have agreed at the outset to the

change now sought.” This factor should be examined s0 as

to avoid imposing, through reformation, an arrangement

wholly alien to the parties’ desires and basic plan. If the

actual facts were known, to what would the Government have

consented here? *? Plainly it would have agreed to pay for

turning equipment 18__but that does not help us now since

the defendant has already paid for the lathes. The sticking

point is the responsibility for the costs of determining that

turning equipment was essential. To deal justly with the

error in this case, we have to presuppose that, during the

negotiations, the parties recognized that it might well take

much time and expense to decide whether or not turning

equipment had to be used. In that event the defendant

might have agre’ d to bear all of this cost, to bear none of it,

or to share it with the contractor. Perhaps defendant’s

officials would have refused to incur any of this expense,

but we think not since the Government was anxious to estab-

lish a production line for the new process which would omit

turning equipment. The proving-out of this point would

be for the Government’s benefit; defendant would therefore

be willing to participate in discovering whether the ideal

goal could be attained and in making sure that the original

aim of a production line without turning equipment was

beyond reach. Plainly, the fixed-price proffered by plain-

tiff after the elimination of the plunge grinders did not

contain a contingency allowance adequate for lengthy

period of trial and error; if that happened, the contractor

would suffer a grave set-back. The defendant would not,

we think, have insisted cn taking the whole of such a toll2*

Perhaps, on the other nand, defendant would have consented

to carry, #3 an extra, all of the cost of a protracted testing

period—but again we think not. The Government would

—_——

This presupposes that the plaintiff did not assume the risk of the mistake.

18 The defendant's chief representative did agree, orally, during the pre-

contract negotiations to pay for plunge grinders if they proved necessary.

1® In this case we need not be concerned with other bidders or would-be con-

tractors to which the defendant might have turned. There is no reason to

believe that, after Ordnance decided to change this procurement to the new

method, there were any other firms under consideration. By the time of the

31

have thought, as we do, that some allowance for this expense

was already included in the fixed-price. The defendant

would also have wanted to be certain that the testing period

was as short, economical, and efficient as possible, and that

at the close of the tests plaintiff used the turning devices

promptly and effectively. A promise of full reimbursement

for all expenses actually incurred would dampen the stimulus

to keep the testing efficient and the costs low. In sum, we

think that Ordnance would have ben willing to bear part,

but not all, o actual testing (and consequent) expenses.

Flippin A not say that, if the two prerequisites we

have just ‘discussed are fulfilled, then relief for a mutual

mistake follows as of course. These are necessary conditions

but the; may not be sufficient. The argument be ad-

vanced that relief for a mutual mistake, through .dditional

compensation to the contractor, should be left to legislation

or administrative discretion.2® We think, however, that the

federal courts can and should proceed under the Tucker Act,

now as in the past, to develop and establish just and practical

principles of contract law for the Federal Government.

Judicial reformation for mutual-mistake-of-fact is not new

(see fns. 8 and 13, supra, and cf. Harrison Engr. & Constr.

Corp. v. United States, 107 -Ct. Cl. 205, 208, 68 F. Supp. 350,

351-852 (1946) ) ; and though the particular result here may

be unprecedented that is, of course, the way of the common

law. Then it may be said that to grant compensatory relief

where neither side assumed the specific risk departs too far

from the parties’ actual understanding ; it may be better to let

the chips lie where they fall. Cf. 3 Corbin, Contracts (1960

ed.), § 598, p. 589; 5 Williston, Contracts (rev. ed., 1937),

§ 1548. pp. 4389, 4341. Bui it is unsatisfactory to tell a party

S For most of the time since the early days of World War II, the main defense

agencies have been authorized, under Congressional enactments and Executive

Orders, to grant discretionary relief to many contractors suffering losses on

account of mistakes. Title II, Section 201, of the First War Powers Act, 55

Stat. 838 (1941) ; Executive Order No. 9001, 6 F.R. 6787 (1941) ; Act of Jan.

12, 1951, 64 Stat. 1257 ; Public Law 85-804, 72 Stat. 972, 50 U.S.C. §§ 1431-35

(1958). See Rowley, “The First War Powers Act Cases,” in Shepherd, Cases

and Materials on the Law of Contracts (2d ed. 1946), pp. 1233-1261 ; Fain and

Watt, War Procurement—A New Pattern in Contracts, 44 Col. L. Rev. 127,

194-206 (1944) ; Kramer, Eztraordinary Relief for War Contractors, 93 U. of

Pa. L. Rev. 357 (1943); Correction of Mistakes in Contracts Under Public

Law 85-804, Government Contracts Monograph No. 1 (The George Washington

Univ.) (1961).

763-324—65—— 3

fe FREY, ay

32

who did not, either in terms or by fair implication, assume

certain heavy risk that he alone must bear it simply because of

the happenstance that it fell to his lot. Particularly is this so

where, as here, the unexpect~4 occurrence led to a period of

extra work which was not ~seiess to the other party." It is

at least equally logical and decidedly more just to divide

the cost between the two parties, neither of whom <an be

properly charged with the whole. We are rightly admon-

ished, in the region of mutual mistake, to seek just solutions.

See 3 Corbin, supra, § 597, p. 583, esp. fn. 6, § 605, pp. 640-42,

esp. fns. 94-95. By the same token we need not be stopped

short by the fear of opening Pandora’s box. To do justice

here we need go no further than formulate and apply a rule

for cases of mutual mistake in which the contract, properly

construed, allocates the specific risk to neither party **—and

the side from whom relief is sought received a benefit from

the extra work of the type it contemplated obtaining frum

the contract, and would have been willing, if it had

known the true fects from the beginning, to bear a substan-

tial part of the additional expenses. Cf. Virginia Engr. Co.

v. United States, 101 Ct. Cl. 516, 532-33 (1944).

For such a case it is equitable to reform the contract so that

™ Through this prelonged period of trial and error the Government learned

that it could not effectively mass-produce shells by the hot cup-cold draw

method without turning equipment. This was a fact the defendant wanted to

discover under this contract, not an extraneous benefit.

We do not believe that plaintiff has forfeited all right to relief because it did

not ‘top during the testing period—once it knew that its costs were

mounting—and seek a price adjustment. At each step of the testing it may

have believed that the final solution was near, and muruiccture of the shells

would then proceed without interruption. C/. Ekco Products Co. v. United

States, Ct. Cl., No. 464-67, decided January 11, 1963. slip op., p. 8. In any

event, if the defendant had refused an increase (as is likely at that stage)

the plaintiff would then have been :=t to the unduly harsh choice of (1)

stopping performance. aa‘ risking al) the consequences of a notice of default-

termination, or (2) continving mrformance after the defendant's explicit

refusal to pay arything extra under a contract which (as it stood) did not

require such payment. The Government, on the other hand, did not suffer

materially (under our disposition of the case) by the plaintiff's failure to ask

for an increase during performance. The Government has obtained proc.’

that turning equipment was necessary, but it is not called upon to pay all the

costs of that proof. If the contract had been terminated during the testing pe-

riod, defendant e(ther would have had to hire someone else to discover whether

turning was essential or given up finding an answer to that question. As Part

II of our opinion implies, the defendant would not have been able to obtain re-

imbursement from the plaintiff if the contract had been terminated for Cefault.

= In turn, as indicated above, we base our holding that the contract here

did not assign the risk to plaintiff on the particular facts of this case, espe-

clally the = vel and experimental character of the project and the seriousness

of the unexpected costs In relation to the contract price.

«BA Ys STS eee

33

each side bears a share of the unexpected costs, instead of

permitting the whole loss to remain with the party on whom

it chanced to light. In contract suits courts have generally

seemed loath to divide damages, but in this class of case

we see no objection other than tradition. Reformation, as

the child of equity, can mold its relief to attain any fair

result within the broadest perimeter of the charter the parties

have established for themselves.** Where that arrangement

has allocated the risk to neither side, a judicia! division is

fair and equitable. The division can follow from the special

circumstances if there are any; in their absence an equal

split would fit the basic postulate that the contract has

assigned the risk to neither party.

In the present instance it might theoretically be possible

to calculate (i) the cost of the most economical and efficient

process of testing whether turning equipment was necessary

fer mass production and then of using the lathes once -hey

wice found essential *, and (ii) the contingency allowance

(for such testing and use of turning equipment) included

in the fixed price—and then to charge the defendant with

the first less the second. But these refined figures seem to

us overly disicult to discover cnd prove. There are no ready-

made gauge: of efficient testing in suck an untried field; and

at this time the plaintiff’s allowance for this possibility

might be quite unfathomable. Moreover, we are not sure

that the defendant showld be saddled with all the :dditioral

costs, even as pared to the bone. We consider it more prac-

tical, but nevertheless fair, to halve the loss and hold de-

fendant responsible for an equal portion.

The Trial Commissioner has found the loss plaintiff suf-

fered in making the shells at Eau Claire, but he has not deter-

mined whether and to what extent that loss is attributable

to (a) the costs of testing to see whether turning equip-

ment was required and (b) the extra costs of manufact uring

=Corbin refers to “the excent of judicial power and the flexibility of

equitable remedies” in the law of mistake. 3 Co. Jin, ewpra, § 597, p. 583, fo. 6.

* Although defendant appreved plaintiff's lengthy course of trial and

error in determining whether turning equipment was essential, it is not fair

to infer from the Government’s approval that plaintiff must have used the

most economical and efficient method of testing, and then of using the !athes.

We can properly assume that defendant’s representatives thought that

plaintiff would bear the full cost of testing and manufacturing: from their

viewpoint it would not matter whether th plaintiff's work was somewhat

wasteful or unduly prolonged.

34

with the lathes. Also, the Commissioner has referred to

other difficulties in production but has not indicated whether

(and to what extent) these other problems contributed to

the loss he h’ ound. From the materials available to us

we cannot reudily make these determinations. We therefore

remand the case to the Commissioner to find what part of

the total loss should be attributed to the mistake over the

turning equipment. The plaintiff should recover one-half

of the portion of the total loss so delimited.

Plaintiff is entitled to recover in accordance with this

opinion, and judgment is entered to that effect. The amount

of recovery will be determined under Rule 47 (c) (2).

WunrakkEr, Senior Judy<, dissenting:

It cannot be denied that the result reached by the court

in this case would be a fair and just one, if the contract

between the parties permitted it.

The parties could have contracted between themselves that

if the cost of doing this work turned out to be expensive

beyond reasonable expectations, the parties should be equally

charged with the excess. But this is not what they did. The

plaintiff agreed to do the work for a fixed sum. There was

no provision in the contract for the payment of any addi

tional sum if the cost of doing the work turned out to be

much greater than had been expected. Indeed, neither party

knew how much work would have to be done to ascertain

whether the cold-cup process would work without the use

of a grinding machine, and yet the contractor agreed to do

the necessary work for a fixed sum.

Furthermore, as the work progressed and costs mounted,

the plaintiff never told defendant that its costs were far in

excess of whe it had anticipated, and never requested the

Government to pay any part of ihe excess. No contractor

can charge the Government with any part of unanticipated

costs, except those coming within the “Changes” articles,

where the contract provides that the plaintiff should do the

work for a specified sum. To require the Government to pay

an amount in addition to tne stipulated sum, because the

contractor incurred greater expense than he had anticipated,

would leave the Government in a whc!!y untenable position.

never knowing what a job was going to cost it, although ihe

plaintiff had contracted to do it for a specific sum.

35

Many times when the Government asks a contractor to do

an exploratory job, the cost of which is uncertain and which

neither party can foresee, the parties enter into what are

sometimes called research and development contracts,

under which each party agrees to share in the cost of doing the

work. That is what the parties probably suould have done

in this case, but they did not. The plaintiff undertook to

do the work for a fixed sum, and, in my judgmeni, that is all

it is entitled to recover. That is all the Government agreed

to pay, and that is all the Government should pay. As a

matter of generosity, the Government might well have agreed

to pay the additional expense, but no court can require a

person to be generous; it can only require him to be just.

Even a mutual mistake as to an antecedent or existing fact

does not justify veformation of a contract (Maryland Cas.

Co. v. United States, 169 F. 2d 102 and cases there cited),

but, even if it did, I cannot see that there was any mutual

mistake of fact in this case. The defendant did not know

what it would cost plaintiff to do the work nor, I suppose,

did plaintiff, although plaintiff thought it knew when it

agreed to do the work for a fixed sum. Plaintiff was mis-

taken, but the mistake was only piaintiff’s and not that of

the defendant. There was no mutual mistake of fact. When

plaintiff agreed on a fixed price, it assumed the risk of doing

the work for this sum; defendar.t did not agree to share

the risk. Even if contracts could be reformed for a mistake

about a fact supposed to exist or to have existed at the time

the contract. was agreed upon, they certainly cannot be re-

formed because the parties could not accurately foretell the

future.

I sympathize with the plaintiff, but it made a contract and

it is entitled to recover only according to that contract. I

regret to dissent, but I must.

FINDINGS OF FACT

The court, having considered the evidence, the report of

Trial Commissioner William E. Day, and the briefs and

argument of counsel, makes findings of fact as follows:

1. Plaintiff is a corporation, organized and existing

under the !aws of the State of Wisconsin, with its principal

36

office and place of business at Eau Claire, Wisconsin, where

it had two manufacturing plants during all times material

herein. It also had a factory at Menomonie, Wisconsin.

Plaintiff was formerly known as National Pressure Cooker

Company, but changed its corporate name to National Presto

Industries, Inc., in late 1953 or early 1954.

©. Plaintiff has for many years been engaged in the manu-

facture of pressure cookers and small appliances. During

World War II, it shifted to the production of war materials

and has continued to perform a substantial amount of con-

tract work for the armed services, including an important

contract for the manufacture of 90-millimeter steel cartridge

cases. At the time the contracts in suit were negotiated,

plaintiff was an experienced manufacturer of shells.

3. During the iatter stages of the Korean war, the De

partment of the Army, acting through its Or2--sace Corps,

wished to expand existing capacity, then available to it

through various commercial firms, for the production of 105-

millimeter artillery shells. Toward this end, the Chicago

Ordnance District was requested to canvass the commercial

facilities within the District to ascertain the names of those

companies which were capable of and interested in produc-

ing such shells in large quantities.

4. The plaintiff was, along with other firms, requested to

submit a proposal.

5. A written preliminary proposal was submitted to the

Chicago Ordnance District by the plaintiff on December 11,

1952.

6. Thereafter, the Ordnance Ammunition Center at Joliet,

Illinois, gave more specific information to the Chicago Ord-

nance District as to the defendant’s shell requirements, which

was transmitted to the plaintiff in the following terms:

EsraBLISHMENT OF AppITIONAL CAPACITY Suet, HE,

Mi, MPTS 105 MM

1. In order to accomplish this procurement, it is nec-

essary that information as to the availability of facili-

ties and the approximate costs of establi ing these

facilities be made available to this office. It is, there-

fore, requested that your District survey all facilities

within your area, which you feel are capable and inter-

ested in producing this Shell.

37

f

2. This requirement should be based on the establish-

ment of seven (7) lines, each capable of producing

60,000 shell per month on a one-shift, eight (8) hour

day, five (5) day week shift basis, or a total] output of

ac 0 taf = a The a _ to be com-

etely integra ie.) forging and machining capac

hy wil balance. mh acilities should also be senilebie

for 100% standby for a period of at least 5 years.

3. It is the desire of the Government to have as many

of these lines in one plant as possible, with thé ideal

facility housing their entire seven (7) lines.

4. For the purpose of negotiation you are advised

that there will be made available sufficient requirement

to sustain these lines for at least six (6) months of

production with probable continuity available there-

after. The target date for initiation or production is

presently established February 1954.

5. It is therefore requ that your District take

immediate action to obtain and submit to this Center not

later than 29 December 1952, the foliowiag information :

a. The name and address of tne facilities capable

and interested in producing this shell.

b. In each case the best estimate of a unit price.

c. The best estimate of a schedule (A) equipment

cost,

d. The best estimate of the schedule (C) plant re-

habilitation cost.

7. The plaintiff, on December 22, 1952, sent a letter to the

Chief, Chicago Ordnance District, which reads as follows:

In accordance with your request of December 15th,

1952, we are submitting herewith our proposal for the

establishment, operation and maintenance of a new fa-

cility for the production of M1 105MM HE Shells in our

Presto plant at Eau Claire, Wisconsin.

We understand that the Department wants

this new facility capable of producing 420,000 of the

subject shells per month on a one-shift, eight-hour day,

five-days-per-week basis. We further understand that

the lines are to be completely integrated (i.e., forging

and machining capacity to haloes} and that the facili-

ties must be available for 100% sta: |-by for a period of

at least five years.

The herewith-submitted preliminary proposal is based

on the above requirements.

In view of our diversified experience in setting up am-

munition component production lines and in operating

these lines on a mass production and economical basis,

we feel particularly qualified :

38

1. To establish in our Presto plant the subject

105 MM line;

2. To operate this line on an economical basis; and

3. To maintain the line in a stand-by condition at

such time as the Ordnance ent’s require-

ments dictate that it be pl in stand-by.

For purposes of clarity, our preliminary proposal for

the establishment, operation, and maintenance of the

subject line is broken down as follows:

EsraBLISHMENT AND INSTALLATION OF LIne

We will agree to purchase the necessary machines and

facilities for Government account, and to install these

machines and facilities on a cost reimbursable basis with

no fixed fee. On the basis of our preliminary Schedule

“A” 25 a copy of which is enclosed herewith, it appears

that the entire line can be established for a cost of ap-

proximately $14 17,691.40. As you know, we have —

completed installing 2 M1 105MM Shell line in our plant

at Menomonie, Wisconsin, and hence are completely

conversant with all details and ramifications of estab-

lishing such a line, as well as completely familiar with

the best equipment to be included therein.

Our Presto plant is so close to ideal for establish-

ment of the subject line, that a minimum in the way of

plant rehabilitation will be required for establishment

of the line. We are enclosing herewith our preliminary

Schedule “C”,2* from which you will note that we antici-

pate spending only fe, kona $45,000.00 to make

the necessary plant rehabilitation and plant rearrange-

ment.

OPERATION

We contemplate having the line ready for production

by February, 1954. per your instructions. Once the

line has been conitdicecl we will operate it in accord-

ance with your jrements as outlined in the second

pa h of this letter, and for such period of time as

the ce Department deems necessary. We are

agreeable to handling the production phase on a nego-

tiated price-per-unit basi Gn the basis of our pres-

ent estimates, and on the assum tion that we wi

instructed to produce 420,000 shells per month on a one-

shift basis, it appears that we can produce these shells

at $5.15 per shell, with the understanding, of course,

% Schedule “A,” referred to in plaintiff's letter, was not placed in evidence.

* Schedule “C,” referred to in plaintiff’s letter, was not placed in evidence.

39

that there will be the usual 10% upward, and unlim-

ited downward, revision applicable.

MarnTENANCE OF PLant anpD STanpD- By

At such time as the Ordnance Department require-

ments dictate that the subject line be placed in a stand-

by condition, we will be Ler to maintain it in such

condition for a minimum period of five years. How-

ever, should the Ordnance Department so desire, we

will be happy to maintain it in a stand-by condition for

an indefinite period over and above the original five

years. Our present estimates indicate that the most of

maintaining the subject line in stand-by for the Ord-

nance Department will total about $200,000.00 per vear.

Based on the understanding that the stand-by wi!l en-

dure for a minimum period of five years, we are agree-

able to handling such stand-by on a cost-reimbursable

basis. In other words, we will be happy to work with

the Ordnance Department on the portion of the con-

tract with no profit or fixed fee to our organization.

Tiare are a number of reasons why our Presto pla‘t

is ideally suited to meet the requirements of the Ord-

nance Department.

SectRITy

Our Presto plant is ideally situated from 4 security

int of view since it is located approximately 100 miles

the nearest large industrial area and about five

miies from the small city of Eau Claire, Wisconsin.

AVAILABLE Fioor Space AND AREA FOR ExpaNsion

Our Presto plant, which was used during World War

TI as a loading plant, has approximately 400,000 square

feet of floor space, the bulk of which is housed in a

series of buildings all under one roof and available for

this project (see photograph attached).*’ There is al-

most unlimited room for plant expansion since we are

located on a tract of land containing 300 acres, the

great bulk of which could be used for the construction

of additiona! buildings, if necessary.

AVATLABLE MANPOWER

The City of Eau Claire is the hub of a large farming

area and lias at least a dozen small towns within a

twenty-mile radius. This farming area and these inter-

™ The photograph, referred to in plaintift’s letter. was not placed in evidence.

40)

mittent small towns have a large labor reserve consist-

ing of many trained em loyees who worked for us dur-

ing the of World War II. Our payroll presently

numbers eqpreninatey 2,000 and we could increase

that number several if necessary, from the avail-

able manpower reserve.

TraNsPpornTATION FACILITIES

Notwithstanding the fact that our Presto is lo-

cated in a relatively isolated Bagge om

nape facilities are excellent. This plant uncarouees

end of our plant, and several major trucking li

all of which have access to our excellent loading and un-

loading docks. The plant is adjacent to an excellent

highway - gpm te att: my et

ca

Airport. and personnel air transporta-

tion is available from this airport. ve

Sum™MaRy

In view of our diversified experience in the establish-

ment and ration of ammunition —a mass

production lines, and in view of the i location of

our Presto plant from the standpoint of security, trans-

portation facilities, available floor and manpower,

as well as opportunities for cmiionain expansion in

Goes eguce See gunqees, S Solus oat be

ticul qualified to undertake the subject project for

the ince Department.

On the basis of the information and data submitted

herewith, we sincerely trust that you will be in a posi-

tion to award us a contract for the project at hand.

Toward this end, we stand willing and able to commence

the necessary negotiations with your office at such time

as deem and desirable.

ith many thanks for your serious consideration of

the i , and kindest personal

regards, I am

8. On January 28, 1953, s further request for a proposes!

was sent to the plaintiff by the Chicago Ordnance District

(sometimes hereinafter referred to as “COD”), for the estab-

lishment of a 105-mm. shell line having a capacity of 360,000

shells per month on a one-shift, 8-hour day, 5-day week basis.

This was replied to by the plaintiff on February 5th, by «

letter similar to that quoted in finding 7, except that the rate

41

of production was based on the capability of producing

360,000 shells per month. The reply included a detailed list-

ing of each specific item of equipment which the plaintiff

intended to purchase and its cost, including delivery and in-

stallation.

9. Early in March 1958, a »re-award survey wes made of

the plaintiff company and another firm by officials of COD.

The results of this survey were communicated to the Com-

manding General of the Ordnance Ammunition Center,

Joliet, Illinois, by the District Chief, COD, on March 13,

1953, with the recommendation of that officer that placement

of the contract be made with the plaintiff. The report of

survey contained a statement that verbal information from

the office of the Chief of Ordnance (Washington) to COD

had bsen given that the method of shell manufacture was

to be changed from the conventional hot forge method to a

new method known as the hot cup-cold draw process. It is

noted that the proposals which had theretofore been sub-

mitted by the plaintiff contemplated manufacture by the con-

ventional process.

10. The plaintiff had earlier been awarded « contract ‘or

the establishment of a 105-mm. shell line at its Menomonie

plant as well as a separate contract for shells. This was a

single line of equipment to produce 40,000 shells per month,

8 hours per day, 5 days per week. Along with the contract

for the establishment of the shell line on a cost reimbursable

basis, a contract for the production of shells at Menomonie

at a fixed price was also awarded to the plaintiff. These are

referred to hereafter as Contract Nos. 917 and 918, respec-

11. The “conventional” method for manufacturing 105-

mm. shells, which had been in use for a great many years,

was substantially as follows: Starting with either round steel

bare or round cornered square stee) bars, billets are cut to

the desired length (which varies with different plants) and to

weights ranging from 38 te 44 pounds. The billets are then

heated to a temperature of about 2,000 degrees, then moved

into a forging press where they are punched and pierced, and

then they are drawn while hot to the required length of the

shell by means of hydraulic preeses. The shel! is then sub-

process

removed from the exterior of the shell by lathes. The pur-

pose of this rough turning operation is to make the shell con-

ceatric and to provide uniform wall thickness and round-

ness. The shell is then reheated to a emperature of from

1,300 to 1,600 degrees, then cooled, and excess material is

again removed ; certain finishing operations are performed

and finally the shell is marked, painted, and prepared for

shipment. The weight of the finished product is between

25 and 26 pounds before banding.

This method of making shells was in universal use un-

til the end of World War II. It has the obvicus advan-

tage of being a tried and tested method of producing the

shells successfully. It has certain disadvantages, however,

some of which are readily apparent. One of the mein dis-

advantages is in the tremendous waste of steel. Because of

the turning operations which follow after the hot forging is

completed, approximately one-third of the original weight

of the billet goes to scrap. In time of war, the requirements

for artillery shell steel represent the highest total tonnage

requirements that are imposed upon the steel industry. In

the very large amount of floor space required for the opera-

tion of a shell line—approximately five times as much as

is needed for a line operating under the hot cup-cold draw

process. This, in turn, has an effect upon plant costs, main-

tenance costs, housekeeping, and the like.

12. The new method, which became known as the hot

cup-cold draw process, had the immense advantage of saving

steel. It accomplished this primarily by vliminating the ne-

cessity for reheating the billet after the initial punch and

i Thereafter, the billet was worke< in its cold state.

Early in 1952 « single line facility had been established at

the Tokheim plant at Fort Wayne, Indiana, and by March

1953 Tokheim had produced a number of shells by the new

process. At the Tokheim plant, a round billet, sawed to

length, was heated in a salt-bath type equipment, then hot

43

forged in three press forming operations. After the initial

hot forging, the billets were cooled and drawn to shape while

cold, without an; rough turning. Th- «hells were then nosed

and machined and finished as in the other process.

The conventional process required the Jeaving of about

three-eighths of an inch of steel on the shell, which then

had to be machined off by lathes in two operations—a rough

turn and a finish turn. This resulted in a great deal of

scrap. The main advantage of the hot cup-cold draw process

was the saving of steel by eliminating the rough turning

process.

At the Tokheim plant, the weight of the finished sheli was

just a little less than the weight of the starting billet, thus

achieving the major objective of saving material and elimi-

nating a substantial amount of scrap.

13. On June 4, 1953, the plaintiff and the defendant en-

tered into two letter contracts, one for establishing the shell

line and the other for the production of one million 105-mm.

shells. Although there had been previous discussions be-

tween the parties as to the production of shells by both the

conventional process and the hot cup-cold draw process, it

was the understanding of the parties that the plaintiff would

initially be given authority to procure items of equipment

only where such items of equipment were the same for both

processes. Both letter contracts contained a provision which

reads as follow:.:

You shall not make any expenditures, or commitments,

issue any orders, subcontracts or incur any custs in

furtherance of the performance of this Letter Contract

pce the prior written approval of the Contracting

cer.

Both letter contracts also provided :

In the event of a termination of performance of the

work or any pa :t thereof under this letter by notice given

ursuant to the Termination clause incorporated herein

y reference, or in the event that the formal contract is

not executed within the time specified in Exhibit “A”,

‘or any extension of such time as may be authorized in

writing by the Contracting Officer, you shall be paid in

accordance with the provisions of such Termination

clause, except that no profit will be allowed if the Con-

tracting Officer finds that you have delayed the execution

44

of the formal contract for an unreasonable period ; pro-

vided, however, that in no event shall the liability of

the Government to you hereunder exceed the amount

i in Exhibit “A” or such other amount as may

be authorized in writing by the Contracting Officer.

In each instance Exhibit “A”, which was made part of

the letter contracts, contained a clause providing :

In case a formal contract is not executed within 120

days from the date of execution of this Letter Contract

(or any subsequent dave at any time mutually agreed

upon), because of the inability of the Parties to agree

upon a formal contract, this Letter Contract will termi-

nate on the stated date or such subsequent date, as the

case may be.

14. Discussions had been going on since about March 1953

between representatives of the plaintiff and the defendant as

to the possibility of using the hot cup-cold draw process in-

stead of the conventional process at the plaintiff's Eau Claire

shell lines. On June 29, 1953, COD was authorized by

higher authority to take action to establish the shell line in

the plaintiff’s plant using the hot cup-cold draw process.

15. Plaintiff’s engineers had been made familiar, by visits

to and discussions with officials (both Army and contractor)

at the Tokheim plant, with the results Tokheim had achieved

and the methods it used in producing 1°5-mm. shells by the

hot cup-cold draw method. The multi-line facility was to

be established in plaintiff’s plant at Eau Claire and it was

important to the Government as wel! as to the plaintiif that

it be as efficient as possible. Ordnance did not expect plain-

tiff to duplicate the equipment or exact process in use at the

Tokheim plant, and the plan proposed by plaintiff (and ac-

cepted by the defendant) made several significant changes

from the Tokheim equipment and process. The hot cup-

cold draw process was new and untried for mass production.

16. On July 7, 1953, the plaintiff was requested in writing

to submit an up-to-date list of facilities and their costs for

establishing the shell lines on the basis of the hot cup-cold

draw method of manufacture.

17. The plaintiff, on July 28, 1953, sent the following letter

to COD:

45

This is to acknowledge your letter, referenced abov

in which you authorize us to proceed on a hot cup, col

draw manufacturing method to produce the subject Shell

under Contract O 1316. is letter also requested

that we submit a revised proposal on unit price as well

as a new Schedule A covering the hot cup, cold draw

method of manufacturing.

We wish to advise you at this time that we will have

the new proposal on prices and the Schedule A to you

by no later than ¢%.e 15th of August. We would have

been able to furuish this information sooner, however,

since you have now asked us to include <«yuipment which

will also produd¢e the 110MM Shell we that it will

take us dightly longer than anticipated to get the

Schedule A to you. "We wish to advise you, however,

that we shall do everything possible to better the above

date of August 15.

Shoald you have any questions relative to this matter

please do not hesitate to call on us.

18. The plaintiff, on August 19, 1953, sent the following

letter to COD:

Please refer to our letter referenced above in which

we advised that we contemplated having a Schedule “A”

and a new proposal on the price of the 105MM, M1 Sheil

available by August 15, 1953.

As indicated at a meeting held between members of

the Chicago Ordnance District and National Presto In-

dustries on August 13, we now find that we will not be

able to supply you with the Schedule “A” and the new

proposal on the price ef the 105MM, M1 Shell until the

week of September 14. This delay is occasioned by the

fact that we have been unable to secure complete quota-

tions from equipment vendors and organizations supply-

a with services as was originally contemplated.

ing the meeting referenced above, it was mutually

decided that the Schedule “A” submitted should be com-

pete and accurate. 1n order for us to attain the desired

accuracy, we will need an additionui extension on the

subject letter contracts.

our early attention to this matter will be greatly

pe ray TZowever, should you have any questions

ative to this matter, please do not hesitate to call on

us

19. Although there is testimony “pro” and “con” by the

parties as to discussions held between responsible repre-

sentatives of the parties regarding certain conversations

48

which took place prior ts November 10, 1953, as to whether

or not the p!aintiff would require some type of stock removal

equipment in the shell lines after the hot forging in order to

make the shell concentric, there is no written record of any

such discussion. In any event, the important discussion on

this matter took place on that day.

20. On Nevember 10, 1953, « meeting was held between

represe’'_atives of she plaintiff and the contre sting officer at

Chicago Ordnance District. The plaintiff's project man-

ager, Soper, told Colonel Haskell, commanding officer, Chi-

cago Ordnance District and contracting officer, that he was

of the opinion that there shor" be included in the shell lines

24 plunge grinders (4 to each line) at a cost of about $321,-

600. Plaintiff's representatives came to the meeting with

two Scheduls “As,” one including the plunge grinders and

another deleting them. After considerable discussion,

Haskell told plaintiff’s officers that he would not approve a

Schedule “A” which included plunge grinders but would

agree to authorize the grinders if their use were shown to be

necessary during the course of performance.

S. A. Halpern, plaintiff's assistant to the president,”

memorialized the aspects of the conference which were then

considered important to the plaintis? in a memorandum to

the files, which he dictated and initialed on November 11,

1953, and which reads as follows:

The purpose of this memorandum is to confirm the

results of a meeting held in Chicag> Ordnance District

on Tuesday, November 10th, in connection with our

Schedule “A” on the above captioned co: ‘tract. The

Chicago Ordnance District was represented by Colonel

Robert K. Haskell; Mr. J. H. Pratt, his assistant; and

Mr. A. H. Sundfor, Project ineer. National Presto

Industries, Inc., was represented by Mr. L. E. Philli

President; S. A. Halpern, his assistant; C. O. Dahl,

Vice President in Charge of Manufacturing; and Vern

Soper, hy a Manager.

t the above meeting we presented to the Chic: go

Ordnance District our Schedule “A” dated November 6,

1953, which included an item in the sum of $321,600.00

for 24 Plunge Grinders which we felt necessary for

successful operation of the subject line. These Plunge

Mr. Halpern is an attorney by profession.

47

Grinders, Item 14A in our November Sth Schedule “A”,

were to be used on Operation 145 in che subject roduc-

tion. After considerable discussion Colonei Haskell, of

the Chicago Ordnance District, advised us that they

would not permit us to include this item and

that it be deleted from our Schedule “A”. Colonel

Haskell understood that there might be some element of

— in so doing and assured us that the Chicago

ance District wou'd assume the ibility -tor

omitting the chee Grinders and would see that we

would be furnished these Plunge Grinders at some later

date if experience dictated the necessity for them. In

the meantime, Colonel Haskell agreed to include in our

Definitive Contract a provision authorizing us a steel

escalation in the event the particular type of steel we

had chosen for the job was not adequate, by virtue of

the fact that we are eliminating the operation normally

performed by Plunge Grinders.

The rest of Schedule “A” was discussed and, while

there was some question raised as to the quantity of saws

we were requesting, Chicago Ordnance District advised

that they would go along wii: our quantity until suci:

time as we actually started to purchase this subject

item.

The pu of this memorandum is merely to make a

record of eshove mentioned meeting.

Plaintiff has not borne its burden of proving that Colonel

Haskell said, at the meeting of November 10th, that Ord-

nance would assume the responsibility for the omission of

plunge grinders or the consequences of that omission.

At the meeting of November 10th, both parties took their

positions in good faith.

21. On November 14, 1953, the plaintiff, by Mr. Halpern,

assistant to the president, submitted a detailed written pro-

posal to COD for the establishment: of facilities for the pro-

duction of 105-mm. shells on the basis of a combination hot

forge and cold draw process. Attached to this proposal was

a Schedule “A” listing in detai: the description of each op-

eration and of equipment required to accomplish it together

with the cost of machines as well as the cost of their installa-

tion, freight and tooling costs. This proposal except for the ~

Schedule “A” reads as follows:

7163-324— 65-4

oo AMR: PNA NORE LE TED IOUS SLED LE CBRE LER RLLE LEE RELL VN ELLE LDC a citi

48

Subject: Letter Contracts DA-11-022-ORD-1316 and

DA-11-022-ORD-1317, Covering Establish-

ment of Facilities for Produciion of Mi and

M60 105MM Shells.

Gentlemen :

Reference is made to our proposal of February 5, 1953,

under which we proposed to establish a facility cxpable

of producing 360,000 Mi 105MM Shells per month on

the basis of utilizing one-third of the overall capacity

of the facility. This , which contemplated the

use of the convention (al ot forge method of manufac-

ture, culminated in your issuance to us on June 4, 1953

of ers Contracts DA-11-022-ORD-1316 and DA-

11-022-ORD-1317.

Based on subsequent discussions with your installation

as well as with the Ordnance Ammunition Center and

the Office of the Chief of Ordnance, it was determined

that we should make plans for ucing the subject

105MM Shell on the basis of a ination hot forge and

cold draw process. Accordingly, we are enclosing, in

triplicate, our new Schedule “A” covering the uc-

tion under the new process and we are herewith submit-

ing our unit price, based on that process.

appears on the enclosed Schedule “A”, our facili-

ties costs for establishing the subject 105MM Shell line

are estimated at a total of $12,820,865.00. it should be

noted here that equipment contained in the subject

Schedule “A” is capable of producing the 110MM Shell

with the understanding, however, that for us to produce

110MM Shells on this facility, we will require tooling

and some equipment over and above that contained in

this schedule. At your request, we have also included

certain facilities necessary to enable one-third of the fa-

cility to manufacture M60 105MM chemical shells except

for the production of adapters which we contemplate

Pp ing from outside sources. This latter addition,

in the estimated sum of $373,976.00, accounts for the en-

tire estimated facilities total of $13,194,841.00, as indi-

cated in the enclosed Schedule “A”.

In our February 5th proposal, based on the manufac-

ture of approximately 2,000,000 of the subject shells on

the conventional hot forge method, we made the follow-

ing proposal :

A. Price per unit. $4.963

B. Production costs. 125,000.90

The Letter Contract (DA-11-022-ORD-1316) issued

pursuant to our February 5th pre 90sa! called for only

1,000,000 units at a total cost of »5,085,000.00 broken

down as follows:

ARNT SSE EP LM oa

49

A. Price per 1,000,000 units (at price of $4.963

per unit) $4,963,000.00

B. Preproduction costs. 125,000.00

5, 088, 000. 00

On the assumption that there will be a enough

requirement of shells for us to commence and continue

production on the entire facilities for a period of one

year, and using the new hot forge and cold draw process,

we will produce the subject item at a rate of 1,080,000

per month on a three eight-hour shift per day, five days

per week operation on the following basis:

A. Price per 1,000,000 units {at average price

of $4.30 per uait) $4,300,000.00

B. Preproduction costs. 125,000.00

4,425,000.00

Using the new hot forge and cold draw process, on a

one-third capacity basis, we will produce the subject item

at a rate of 360,000 per month on a three eight-hour shift

day, five days per week operation on the fo}lowing

S:

A. Price per 1,000,000 units (at average price

of $4.60 per unit) $4,600,000.00

B. Preproduction costs. 125,000.00

4, 725, 000. 00

We now understand that we are to produce the sub-

ject item on the basis of operating only the first one-

third of the plant at a production iate of 120,000 shells

r month based on a one eight-hour shift per day, five

ay per week operation. On this latter basis we are

—— an average price of $4.925 per shell, based on a

eclining price per unit as follows:

Units PRICE TOTALS

First 250,000 $5.25 $1, 312, 500. 00

Second 250,000. 500 1,250, 000. 00

Third 250,000 --- 4.80 1,200,000. 00

Fourth 250,000 4.65 1,162, 500. 00

4, $25, 000. 00

Preproduction Costs_ 125, 000. 00

Total 5, 050, 000. 00

Our r pengeg-= calling for an average price of $4.60

r shell on a 360,000 per month delivery schedule and

925 per shel on a 120,000 per month delivery schedule

are both based on (1) our using commercial shell qual-

ity steel at a cost delivered to our plant in Eau Claire,

A, OES OEP ONE IT Oe SaaS ee

Wisconsin of $.05617 per pound, and (2) on the assump-

tion that we will have 3% or less in way of scrap

due to or resulting from defective raw material. The

ifications of steel which we are presently plan-

ning to use are as follows:

C-1018 Shell lity killed Steel—Fine Grain—

_inch roun cornered square—t4 inch corner

us.

To the extent that we run over 3% scrap due to or result-

ing from defective raw material and hence need a high-

er quality steel than that set forth above at r

price than that quoted above, we understand that

will be an upward revision in our definitive contract to

cover the increased cost of higher quality

One further point should be noted here. You have

time for the acquisition of raw materials and components

any purchasing increment, the Contractor will require

four months lead time for the acquisition of ray” mate-

rials and components.

On the basis of the above furnished information and

the enclosed Schedule “A”, we understand that you will

genes Ss ene Oe Neuen a

or execution by both the Ordnance Department and

ourselves. Since our present letter orders expire on De-

cember 4, 1953, it is imperative that every effort be made

to expedite preparation and execution of the subject

definitive contracts. Toward that end, we pledge you

our complete cooperation.

If you have any questions on any of the matter in con-

nection with the subject. project, p coatact the writer

rich y thanks fo ticipated fine

man r your ant‘ci ra-

tion and ki personal sagadh, I ain —

22, It is to be observed that nc reference was made in the

proposal quoted in the preceding finding to the matter of

plunge grinders or other stock removal equipment, such as

lathes, at the point in the shell line prior to the cold draw

operation. Mr. Halpern explained in his testimony that the

reason no reference was made to plunge grinders was due

51

to Haskeli’s firm refusal at the November 10th discussion to

approve their inclusion.

23. On November 19, 1953, the District Chief, COD, ad-

vised the Commanding General, Ordnance Ammunition

Center, Joliet, Illinois, that the list of facilities (contained

in plaintiff's Schedule “A” submitted with the November

14th proposal) had been reviewed by the Engineering

Branch, COD, and the facilities were suitable and adequate

to produce 105-mm. cold-drawn shells at the rate of 360,000

shells per month on a one-shift, 8-hour day, 5-day week basis.

The list of facilities was recommended from 2a technical

standpoint by the Chicago Ordnance District.

‘A. Prior to November 14, 1953, the plaintiff’s engineering

representatives had engaged in extensive discussions ex-

tending over a period of many months, though not contin-

uously, with representatives of machinery manufacturers as

to what equipment would be required to produce 105-mm.

shells by the hot forge-cold draw process. The Schedule “A”

which was submitted on that date was the result of engineer-

ing work done by both the plaintiff and the machinery man-

ufacturers. No representative of the latter was called as

® witness in this case.

25. On September 24, 1953, the defendant issued, sepa-

rately as to each contract, a Supplemental Agreement No. 1,

granting an extension of time as to both the Facilities Con-

tract, No. 1317, and the Supply Contract, No. 1316, from

October 1, 1953, to December 4, 1953. Each was accepted by

the plaintiff on September 30, 1953. é;

26. The definitive and formal contracts were executed as

of December 4, 1953. Supplemental Agreement No. 2, Con-

tract DA-11-022-ORD-1317, is the facilities contract and

will hereinafter be referred to as Facilities Contract 1317.

Supplemental Agreement No. 2, Contract DA-11-022-ORD-

1316, is the supply contract and wil! hereinafter be referred

to as Supply or Production Contract 1316. The contracts by

their terms are ciearly interrelated. One supplies the facil-

ities with which the shells are to be manufactured under the

other.

27. The pertinent parts of Facilities Contract 1317 are as

follows:

ScHEDULE

Wuereas, the Government and Contractor entered

into Supply Contract No. DA-11-022—-ORD-1316 pur-

suant to whi terms Contractor agreed to furnish and

deliver to the Government a quantity of Shell, HE,

105MM, Mi for 105MM Howitzer by the use of a hot

forge and cold draw process; and

wEREAS, in the negotiations of the aforesaid Supply

Contract, the Parties hereto recognize that Contractor

will require Government facilities for the manufacture

of said end item of supply; and

Wuenreass, the Government and Contractor did under

date of 4 June 1953 enter into Letter Contract known

and — as Letter Contract No. DA-11-022-

ORD-1317 providing for Contractor to acquire and in-

stall the facilities listed on Schedules “A” and “B” an-

nexed hereto and made a part hereof; and

Wueneas, it is desired at this time to formalize the

— Letter Contract by this more definitive instrument ;

an

Wuzrzas, the Government desires to provide the

property listed in Schedules “A” and “B” to the Con-

tractor for use in the production of 105MM, M1 Shell

a eye hot. a. cold oe ner

rate 0 per month on a one- i t-hour

alg es

to

sources, and with the addition of all necessary special

tooling) on one-third of the facility at a rate of 120,000

AcquistTion on MANUFACTURE OF Factii7ies

Article 1-A. Procurement of Facilities

1. The Contractor shall, in the shortest possible time,

coquire for resale to the Government or manufacture for

sale to the Government, the machinery, equipment, or

other industrial facilities hersinafter referred to as “fa-

cilities” listed in ule “A” attached hereto and

ay hereof. Such facilities shall be

installed by Contrac‘or in its plant at Eau Claire, Wis-

actin

lt tet tin — EO eeEeEeEeEeEeEeEeEeEeEeEeEeEeEeEeEeEeEeEeEeEeEeEyEeeEEeEeEeyEeEyEyEEeEeEeEeEeEeEeEGc_uv_

53

Officer, in its other plants, or for temporary use in the

plants of first tier subcontractors.

2. The Contractor may, with the written approval of

the Coniracting Officer, substitute facilities similar to

those in Schedule “A”, or may add additional facilities

thereto from time to time as required during the course

of the work, in which event Schedule “A” will be modi-

fied according yy. Fin. J of all approved revis*:ns or

changes of sai ule “A” shall k_ furnished the

a Officer so that, at all times, his copy of

Schedule “A” -vill be current and include all approved

modifications. A final revised Schedule “A” contain-

ing all modifications shall be incorporated in the con-

tract by supplemental agreement hereto, upon completion

of the work under Title I.

3. Title to all property purchased by the Contractor,

for resale to the Government, for the cost of which the

Contractor is entitled to be reimbursed as a direct item

of cost under this contract, shall ass to and vest in the

Government upon delivery of such property by the

vendor. Title to all property manufactured by the Con-

tractor, for sale to the Government, for the cost of which

the Contractor is entitled to be reimbursed as a direct

item of cost under this contract, or for which the Con-

tractor is entitled to payment in ce with Para-

1c of Article ITT—A hereof, shall pass to and vest

in the Government upon delivery of such property by

the Contractor. * * *

® * * * *

6. Notwithstandi the provisions contained in

Article VI-J entitled “Subcontracts”, any purchase

erder in excess of $25,000.00 shall be subject to prior

approval of the Contracting Officer. * * *

Article I-B. Diwersion of Schedule “A” Facilities.

The Contracting Officer may direct the diversion of

any item of ule “A” soap ee the Government

or to any person t t tracting Officer

when such items shal! have bean uired or its manu-

facture shall have been com .* * * Upon di-

version, such item will be elim ‘nated from Schedule “A”,

and an equitable adjustment shall be made in the de-

livery or performance dates, or price, or both, and in any

other contractual condition of the related supply con-

tracts.

Article I-C. Elimination from Schedule “A”.

1. The Contracting Officer may determine at any time

prior to installation of any item of Schedule “A” facili-

:

i

;

|

]

It is estimated that the total cost of the Coatractor’s

under Title I of this contract will be ap-

841.00) exclusive of the cost of -fur

nished . It is expressly understood, however,

tees the correctness of these estimates. The

Terms Ano ConDITIONS Governine THE Use or FActnitres

Article IV-A. Use of Facilities.

Subject to the terms and conditions hereinafter set

Governmen

55

Schedule “A” or Schedule “P” facilities in the form of

depreciation or amortization has been or will be included

in the rice of the end items under the contracts for

which “A” or Schedule “B” facilities have been

authorized for use. * * *

2 * * ~ <

Article IV-D. Withdrawal of Schedule “A” and “B”

5 tk Ay

Items of Schedule “A” and “B” facilities shall remain

in the possession of the Contractor or its first tier sub-

coatractors as provided for in Article IV-A of Title

IV cr such period of time as is ired for the per-

shall be made in the deiivery or performance dates, or

price, or both, and in any other contractual condition of

the related supply contracts affected he:wby. * * *

*

« + * *

Article 1V-F. Termination of Right To Use.

1. The right of the Contractor to use the facilities

under this contract may be terminated by the Govern-

ment in accordance with this article, in whole or in part,

whenever the Contracting Officer shall determine such

termination is in the best interest of the Govern: ‘ent.

Any such termination shall be effected by delivsvy to

the Contractor of a written notice of termination

ifying the extent to which such right to use the

facilites

Dispostrion oF F AcILiIrTies

Article V-A. Dismantling and Removal.

1. Whenever it is determined that all or any part of

Schedule “A” or “B” facilities are no longer required in

the performance of the Contractor’s prime or subcon-

tracts for which the facilities have been authorized foc

ase or upon termination in accordance with Article

IV-F of Title IV, the Contractor that such facil-

ve will abe retained in accordance with Article

Article V-B. Retention and Disposition.

In the event a determination is made as provided in

such facilities may be elsewhere by the Contractor

if the Contractor requires use of the plant for

production. * * *

* * * * *

Article V-F. Standby

* * * *

(b)(1) It is hereby negotiated and agreed by the

Prsties bates that, at Bos time as a detetininetion is

made as provided in Article V-A, that all facilities are

no longer required in the ormance of Contvactor’s

contracts, for which ule “A” and “B” facilities

have been authorized for use, Contractor agrees to place

said facilities in standby in accordance with applicable

Government ifications at a price to be negotiated

and, subject to the availablity of funds, to maintain all

said facilities “in place standby” in accordance with the

terms of OCTI 450-53, Section XII, except that only

sufficient power shall be available to permit activating

mechanical parts of equipment one piece at a time at a

rate of once _ month for each piece of equipment, for

the sum of One Huncred Eighty-one Thousand Three

Hundred Sixty Dollars ($181,360.00) per annum for a

period of Ten (10) years.

_ (2) The Parties hereto further agree that, at such

time as the installation of all the facilities unde. this

contract are substantially completed, the Contractor

shall maintain the two-thirds of the facilities, not needed

in the performance of Supply Contract No. DAI 1-022-

ORD-1316 as presently in effect, “in place standby”

w

A

57

under terms and conditions to be negotiated by the

Parties hereto; provided, however, that such negotiated

cost of espera” shall not exceed two-thirds of the total

facilities standby of One Hundred Eighty-one

Thousand Three Hun Sixty Dollars ($181,360.00).

In the event that any other portion of facilities is placed

in standby, then the negotiated cost of such standby

shall not exceed the proportionate amount of One Hun-

dred Eighty-one Thousand Three Hundred Sixty Dol-

lars ($181,360.00) as the percentage of thé dollar

amout of facilities being placed in standby bears to the

total dollar valus of the Facilities under this contract.

* « * * ®

Trrte VI

GENERAL PROVISIONS

* * * * *

Article VI-W. Modification of Letter Contract.

This ——— agreement shall supersede . the

aforesaid Letter Contract. In the event that this sup-

plemental agreement contains provisions which may

construed to be inconsistent in any particular with the

provisions of the aforesaid Letter Contract, then the

provisions of this supplement shall be deemed to state

the complete a ent and intent of the Parties here-

to, and any rights, duties and/or obligations created by

the provisions of the aforesaid Letter Contract shall be

merged within the terms of this supplemental agree-

ment.

28. The Schedule “A” referred to and attached to Facili-

ties Contract 1317 did not include plunge grinders or any

turning equipment and was identical with the schedule sub-

mitted with plaintiff’s proposal of November 14, 1953.

29. The pertinent, parts of Supply Contract 1316 are as

follows:

ScHEDULE

Wueneas, the Parties hereto entered into Letter Con-

tract No. DA-11-022-ORD-1316 dated 4 June 1953,

the expiration date of which has heen extended to 4

Decomber 1953 by Suppleraental Agreement No. 1, for

the ——* of Shel , 105MM, M!; and

Whereas, the Parties now des're to supplement said

Letter Contract by this definitive contract ; and

Now, THkREFORE, the Parties hereto do mutually agree

as follows:

ee tee eee ee or SL RR PRLOPD EERIE CRORE QT Ree PT an sl

58

Articie 1. Scope of this Contract. (a) The Con-

tractor shal! furnish and deliver:

ITEM DescrirP..oN Quan- | Ur | Un AMOUNT

TITY PRick

ia | Shell, HE, 105MM, M1 for | 250,000| each | $5.375 | $1,343, 750.00

b onal HE, 105MM, M1 for 000 |} escs =| 5.125| 1,281, 250.00

1 105MM ’ - ml 250, esta

1c | Shell, HE, 105MM. M1 for| 250,000) each | 4825/ 1,231,250.00

105MM Howitzer.

ld | Shell, HE, 105MM, M1 for| 280,000} each | 4775/ 1, 193,750.00

105MM Howitzer.

for the total stated consideration of Five Million Fifty

Thousand Dollars ($5,050,000.00).

The above contract — is predicated on the use of

C-1018 Shell Quality Killed Steel, Fine Grain—314”

Round Cernered Squa ’’ Cornered Radius at a

rice of $.05617 per pound f.o.b. Contractor’s plant at

u Claire, Wisconsin. The Parties hereto agree that

in the event that such steel results in a — incidence in

excess of 3% due to the — of the , thus requir-

ing the use of steel of a different type or with diffe. -nt

specifications, or in the event the “tovernmen. directs

use of other t or specifications of steel, an equitable

adjustment ] be made in the contract price hereunder

in the same msnner as a ne under the tinge pl

rovision of the said contract, which eee will be

imited solely to the difference between the price of such

other types or specifications of steel and that upon which

the aforementioned price is based.

) Specifications. Contractor agrees to manufacture

and deliver Items — 1b, 1c and 1d above, by the use

of combination hot and cold draw processes, in

accordance with ifications contained in Basis of

Procurement BP. poy 2) dated 9 December

1952, Amendment 3, 14 April 1953, brought up to

“ yh nd Del Inspecti

c) Inspection, Acceptance a elivery. ion

aa acceptance of supplies to be furnished hereunder

shall be made at Contractor’s plant, with delivery f.o.b.

Contractor’s plant, Eau Claire, Wisconsin, or nearest

railroad siding as — the Transportation Of-

ficer of the Chics zo istrict, as follows:

MONTH AND Ys.3 QUANTITY

July, 1054 —— . Pilot lot

August, 1954 . 5,000

September, 1954. ————

October, 1954. - 50,000

November, 1954. 80, 000

December, 1964 thru May, 1955 (per month) ..... 120, 000

BORE, Fie enscsanncseedes consucceseceaseussnees 125, 000

59

(a) Pilot Lot. The Contractor is required to furnish

the Pilot Lot Laboratory at Jefferson Proving Grounds,

a Pilot Lot isting of Five (5) unpaintei and un-

banded and Twenty-five (25) banded and unpainted

Shells; Ten (10) complete Shells, for approval prior to

initiating quantity production hereunder. This Pilot

Lot must be manufactured with So same equip-

ment, processes and procedures as will used in regular

roduction, and all parts and materials must be obtained

rom the sources of supply that will be use! for regular

production. The required Pilot Lot is not to be con-

strued as an additional quantity but is taken into consid-

eration in the total amount of the contract. The Pilot

Lot will be inspected by the Ordnance inspector prior

to submission to the Pilot Lot Laboratory. In event

additional lines are used by Contractor in the manufac-

ture of above ey: a complete Pilot Lot from each

of such lines will be furnished.

* * * * =

4. Production increments ard lead time periods may

be varied, as circumstances require, by mutual agree-

ment of the Parties, ar.d embodied in a supplemental

ent to this contrr.ct.

(2) Use of Govern ent-furnisied Property. In the

rformance of the services required hereunder, Con-

tractor is hereby authorized the use of facilities and

tooling acquired under Contract No. DA~1 1-022-ORD-

1317.

* * * * *

(i) Modification of Letter Contract. This supple-

mental agreement shall supersede the aforesaid Letter

Contract. In the event that this my geomrane agree-

ment contains provisions which may be construed to be

inconsistent in any particular with the provisions of the

aforesaid. Letter Contract, then the provisions of this

supplement shall be deemed to state the complete agree-

ment and intent of the Parties hereto, and any rights,

duties and/or obligations created by the provisions of

the aforesaid Letter Contract shall be merged within

the terms of this supplemental agreement.

* * * “ *

30. Upon the execution of the two contracts, plaintiff set

up a ~~ocedure for screening the equipment that was to be

acquire. pursuant to the facilities contract. Before orders

could be placed for the equipment, it was necessary to com-

plete an engineering study of each operation and determine

6U

what equipment was best suited to do the job. The engineer-

ing studies revealed that in most instances the required equip-

ment ‘did not exist, and special designs had to be prepared

for the equipment. Quotations were then obtained from

equipment vendors. After the bids were evaluated by plain-

tiff’s engineering and personnel staffs, a recommendation was

prepared by Soper, the project manager; and this recom-

mendation together with the bids received, was reviewed

by an “executive board” set up within the plaintiff organi-

zation.

The facilities contract required that all purchase orders

in excess of $25,000 were subject to the prior approval of

the contracting officer. After plaintiff’s executive board

»eached a decision, its recommendation, along with a justi-

fication for its selection, was sent to the Chicago Ordnance

District. Upon receipt of approval from the contracting

officer, the equipment was ordered from the vendor. Since

practically all of the equipment was of large size, all of it

had to be approved by the contracting officer.

During the time that the equipment was being selected,

plaintiff's plant was being placed in readiness for its installe-

tion. Railroad sidings were installed; a stee! yard was

constructed ; alterations were made in the walls and floors;

and a power station was installed. In addition, considerable

experimental work was conducted at the Menomonie piant.

31. On March 17, 1954, the Chicago Ordnance District

wrote plaintiff that the requirements for 105-mm. shells

would be drastically curtailed nationally, effective May 1,

1954, and that all producers of such shells would be ter-

minated as of April 30, 1954. The letter stated that this

would result in the termination of all unproduced quanti-

ties then under contract with producers uot selected to con-

tinue the program. Plaintiff was invited to submit a firm

proposal for the continuity of production after May 1,

1954, based on the lowest rate of production, but ir. no event

exceeding 60,000 shells per month.

At this time plaintiff was producing shells by the conven-

tional process at its Menomonie plant under Supply Con-

tract 918,*° and was in the process of completing its engi-

* This was a separate preduction contract by conventional process.

61

neering studies and placing orders for equipment for the

Eau Claire plant.

By telegram dated March 19, 1954, plaintiff was directed

to terminate all shell production scheduled for delivery sub-

sequent to May 1, 1954, under Supply Contract 1316. This

was confirmed by letter dated April 6, 1954. A similar

notice of termination was receive with respect to production

at Menomonie under Suppiy Contract 918.

32. Following further negotiations with the Chicago Ord-

nance District, plantiff submitted a revised proposal on April

28,1954. In this propose plaintiff offered to produce 1,100,-

000 105-mm. shells at a fixed price of $5.2499 per shell, de-

livery to be at the rate of 40,000 snelis per month for 6

months, commencing May 1, 1954, and at the rate of 60,000

shells per month thereafter. The letter stated that plaintiff

understood that Supply Contract 918 (the Menomunie Sup-

ply Contract) would be terminated effective April 30, 1954,

and that Supply Contract 1316 ,the Eau Claire Supply

Contract) would be reinstated and amended so as to increase

the quantity of shells from 1,000,000 to 1,100,000 and the

average price per shell from $5.05 to $5.2499. The letter

further set forth the agreement of the parties that plaintiff

would be permitted to manufacture the shells with the equip-

ment provided under Facilities Contract 917 (the Menom-

onie Facilities Contract) or Facilities Contract 1317 (the

Eau Claire Facilities Contract) and to make delivery ot the

shells from either the Menomonie plant or the Eau Claire

plant.

This proposal was made in the light of the then state of

the installation at Eau Claire. Plaintiff understood that the

Ordnance Department was very much interested in proving

out, the shell lines at Eau Claire and agreed to start produc-

ing there as soon as possible.

33. On April 30, 1954, the Notice of Termination of March

18, 1954, was rescinded by the Chicago Ordnance District.

The rescission agreement recited in relevant part as follows:

Subject: Rescission of Notice of Termination, Contract

No. DA-11-022-ORD--1316

. nal * i *

Pursuant to instructions received from higher head-

quarters and in accordance with negotiations between

62

your company and the Government, it is hereby avreed,

upon your acceptance hereof, that the above contract is

a valid and subsisting document and shal] continue in

full force and effect in accordance with its terms except

as hereinafter modified.

Pursuant to the negotiations with your company and/

or to the revised “Changes” article of subject contract,

you are hereby authorized to proceed with the manufac-

ture of the formerly terminated and now reinstated

quantity of one million 105MM Shell, HE Mi MPTS on

a fixed price basis not to exceed $5.2499 per unit and to

deliver such supplies at the rate of forty thousand per

month beginning 1 May 1954 through 31 December 1954

and sixty thousand per month beginning 1 January 1955

through 31 January 1956. The said price of $5.2499

shall be a fixed price not subject to any price redetermina-

tion for escalation articles which may appear in said con-

tract. Deliveries may be made either f.0.b. your plants,

[Menomonie], Wisconsin or Eau Claire, Wisconsin, at

your option. You are authorized to use Government-

owned facilities at either or both of the said plants in

the manufacture of the items of supply at the delivery

rates specified above.

34. A formal supplemental agreement (Supplemental

Agreement No. 3 to Supply Contract 1316) was entered into

as of June 30, 1954. It recited in pertinent part as follows:

Wuenreas, the eer hereto entered into Contract No.

DA-11-022-ORD-1316 providing for the furnishing of

Shell H-E 105MM, M-1 for 105MM Howitzer; and

Wuenreas, prior to the execution of the foresaid con-

tract the parties hereto had entered into contract [DA]-

11-022-ORD-918 for the furnishing of the identical

item of supply; and

Wuenrsas, under date of 7 April 1954, Contract No.

DA-11-022-ORD-918 was terminated pursuant to

“Terminacion For Convenience of the Government”

clause of the said contract and under date of 6 April

1954 contract number DA~11-022-ORD-1316 was

termi:.ated in accordance with the terms of “Termina-

tions For Con,¢1ience of the Government” clause of

said contract, both terminations effective as of 1 May

1954; and ;

Wuereas, as a result of subsequent negotiations the

parties hereto did to re-instate a combined quan-

tity of 1,100,000 shell H-E 105MM at a fixed price of

$5.2499; and

Wuenreas, for the administrative convenience of the

government it was determined that contract DA-11-022-

63

ORD-918 remain terminated ard that the complete re-

instated quantity be procured under contract DA-11-

022-ORD-1316; and

Wuereas, to facilitate contract administration as

aforesaid, it has been agreed that Notice of Termination

of Contract DA-11-022-ORD-1316 be rescinded and

be — null and void and of no effect whatsoever ;

an

Whereas, the parties hereto that the unit price

of $5.2499 shall be on a fixed price basis not subject to

any price redetermination or escalation articles which

may appear in the said contract, except for the clause

presently contained in paragraph (a) of Article 1 of said

contract pertaining to type of steel upon which price is

predicated ; and

* ae * * *

Now, THEREFORE, the parties hereto do mutually agree

as follows:

1. That paragraph (a) of Article 1 of said contract,

as amended, be deleted in its entirety and the following

inserted in lieu thereof:

Article 1. Scope of this Contract. (a) The Contrac-

tor hereby agrees to furnish and deliver to the Govern-

ment the following supplies:

Item Description Quantity Unit Total

Price Price

mw

Shell H-E, 105MM, M-1 for 105MM

S WRQWOMNGE, BEE 2 Ons icsicnnsacese~ 1, 100,000 | $5.2499 | $5, 774, 890.00

for the total stated consideration »f Five Million, Seven

Hundred Seventy-Four Thousand Eight Hundred

Ninety Dollars ($5,774,890). * * *

_ 2. That a (b) “Specifications” be deleted

in its entirety and the following inserted in lieu thereof:

(b) Specifications. Contractor agrees to manufac-

ture and deliver Item 1 above under the conventional

method of manufacture at the Menomonie Plant and by

the use of combination hot forge and cold draw processes

at the Eau Claire Plant in accordance with specifica-

tions contained in Basis of Procurement BP-S—94 (Rev.

5) 25 March 1954 brought up to date 25 May 1954.

3. That pa ph (c) of said Article 1 be deleted in

its entirety and the following inserted in lieu thereof:

(c) Inspection Acceptance and Delivery. Inspection

and acceptance of supplies to be furnished hereunder

shall be made at contractor’s plants Menomonie, Wis-

consin, or Eau Claire, Wisconsin, at the Contractor’s

760-22: -65-——5

64

option, with delivery f.o.b. contractor’s plant at

Menomonie, Wisconsin and/or contractor’s plant at Eau

Claire, Wisconsin or nearest railroad siding as specified

by the Transportation Officer, Chicago Ordnance Dis-

trict as follows:

Month ond year Quantity

May 1954 through December 1954.__..- 40,000 ‘per month

January 1955 through January 1956__---- 60,000 per month

4. That the following sentence be added at the be-

inning of paragraph (d) of Arvicle 1 of said contract

{oilot ot):

The pilot lot requirements as specified hereunder

shall apply to manufacture at the Eau Claire, Wis-

consin Plant, only.

5. That paragraph (g) of Article 1 of the said con-

tract be deleted and the following inserted in lieu

thereof :

(gz) In the performance of the services required here-

under, Contractor is hereby authorized the use of facili-

ties and tooling acquired under Contracts DA-11-022-

ORD-917 and DA-11-022-ORD-1317. Toolins, if

any, amortized in the unit prices of contract DA-11-

022-ORD-918 shall be treated and held in accordance

with the terms and conditions of the Special Tooling

clause of said contract DA-11-022-ORD-918, except

that action thereon pursuant to the provisions of said

clause shall be deferred until termination or completion

of this contract DA-11-022-ORD-1316 as amended

herein.

* * * * *

35. As of the cime the agreements of April 30, 1954, and

June 30, 1954, were executed, it was the understanding of

the parties that the shells to be shipped irom Menomonie

would be made with the facilities acquired under the

Menomonie Facilities Contract (917) and that the shells to

be shipped from Eau Claire would be made with the facili-

ties acquired under Facilities Contract 1317. As of those

dates, no equipment had as yet been installed at Eau Claire

and, of course, no shel's had as yet been made there.

36. Although the original formal contract called for pro-

duction to begin in July 1954, plaintiff was not able to

assemble sufficient equipment to begin preliminary opera-

tions until the summer of 1955. In the meantime, shells

were beirg produced under Supplemental Agreement No. 3

65

to Supply Contract 1316 by the conventional process at

Menomonie. By August 31, 1955, 801,264 shells had been

shipped from Menomonie. At this rate, it appeared that

the entire 1,100,000 shells called for by the contract would be

delivered before the hot cup-cold draw line at Eau Claire

would even be tested. The concern of the Chicago Ordnance

District at this prospect resulted in a conference between

officials of the plaintiff and the District on September 1,

1955, at which it was agreed that the rate of production

at. Menomonie would be reduced from 50,000 to 40,000 shells

per month, starting September 1, and a directive to that

effect was sent to plaintiff on September 2. It was also

understood that production at Menomonie should be phased

out by November 30, leaving about 180,000 shells to be

produced at Eau Claire.

On September 9, 1955, plaintiff acknowledged receipt of

the September 2 directive and stated, in part, as follows:

As a result of this directive, you are hereby advised

that production operations at our Menomonie, Wisconsin

facility will cease as of 30 November 1955. Based on the

cessation of work at Menomonie on the date hereinbe-

fore indicated we wish to further advise that the deliv-

ery schedule for the balance of the contract will be re-

vised and adhere to by this organization as follows:

DELIVERY FroM DELIVERY FROM

MONTH Eau CLAIRE MZNOMONIB

TIE Bioiinita ee edie yas 1, 000 40, 000

oS ae eee 5, 000 40, 000

I I haiigdicintceccacigmieantsisdninss 10, 000 40, 000

December 1955. een

January 1966. ot re

February 1956. ‘ Te

March 1956 ee. deen

37. By October 10, 1955, the plaintiff had produced zi .ov+

3,006 shells, some of which constituted the pilot lot for sst-

ing by the defendant. On that day, Mr. L. G. Soper, who

had advanced within the plaintiff’s organization to the po-

sition of vice president and director of engineering, reai a

paper before the American Ordnance Association discussing

the process of making shells at the plaintiff’s Eau Claire

plant under the contracts in suit. Because that paper repre-

sents a clear exposition of the details of the process and dis-

cussed contemporaneously some of the problems then fac-

ing the plaintiff, it is quoted, in full, as follows:

66

HO-CO Process or SHELL MANUFACTURE

{Hor Cur-Cotp Draw Process]

N.P.I. at the present time is éstablishing facilities at

Eau Claire, Wisconsin for the production of approxi-

mately 1,000,000 shell per month on a three shift, five

day production basis. This procuction, and equipment

for production, as well as the building, has been planned

so as to have six straight lines for the production of this

uantity of shell. These lines, including the ry

acilities for the steel bars, are approximately 1,

feet long and are all housed under one roof, being so

planned that the steel enters at one end of the build-

ing and the finished shell are completed at the opposite

end of the building. With this brief description of the

lant, I will proceed with something which apparent-

y will be of greater interest to you: that is, the de-

— or process by which the shell are manufac-

tured.

The steel contemplate? for use in the manufacture of

the shell is C-1018, and is purchased in 314” round

cornered square bars. Other specifications are similar

to those now specified for the manufacture of conven-

tional Hot Forged shell. However, for experimental

urposes, we ars currently using C-1025 , with the

ighest residual content obtainable in commercial qual-

The p is begun by b h 1

e process is begun ringing the material into

the building with quand amend distributing it to

a series of high speed band saws. This distribution

takes place after the parts have passed over a conveyor

provided with gas heating for the elimination of snow

and ice from the material during cold weather months.

After delivery to these saws, the bars are placed in an

automatic cycle and cut to a length of approximately

8’’. These automatic saws run with high speed steel

blades having a — cycle of less than one minute per

cut and are run entirely automatically, with the excep-

tion of the initial feeding of the bar into the saw and the

— of the last part. The sawed parts are then

picked up by a conveyor and carried to a combination

washer-dryer, in which the parts are washed clean of

the cutting fluids used in sawing. In addition, this

machine, by its washing and drying action, removes the

frost from the inside of the bars. Upon completion of

this operation, the parts are automatically dumped into

a continuous barrel type abrasive cleaning machine

which removes all scale and rust and deburrs. Thus, at

67

this point we have a slug of steel 314’’ square, 8’’ lo

and weighing approximately 1 pound above the finish

weight of the shell. These slugs are then fed into an

induction heating device on two different cycle frequen-

cies, the first of which is a 60 cycle induction coil, where

the slugs are brought up to a temperature of approxi-

mately 1300°. They then continue on to a 960 cycle

coil which brings the parts up to approximately 2100

to 2150 degress temperature. This is a pusher type

machine in which the parts are pushed through the in-

duction coils, the heat is checked at the discharge end,

and parts not ang brought up to heat are auto-

matically discharged. The hot slugs are then automat.-

cally fed into a 3-station 1700 Bliss transfer press. This

ress is mechanical in action, with the center or the cab-

ring station containing a hydraulic overloaaing device.

The first — accomplished in this press is the siz-

ing of the billet. In this operation, the billet is simply

pushed down into the die, forming the boat tail and

squaring the billet out to fill the pot properly. It is

then transferred to the second or center position in which

a cabbaging punch engages into the shell for a distance

of approximately 3”’, filling the part out to a uniform

cabbaged part. Finally, it is transferred within the

same press to the third station, where the part is pierced

to a length of approximately 11’’. All three stages of

the aforementioned press contain guided dies. By that

we mean the piercing punches of the dies are guided

directly through bush?< gs into the bottom section of the

dies, the purpose, of course, to aid in maintaining con-

centricity. Cencniniaiae requirements at this station

are held to a .030 total indicator reading. Parts, as they

emerge from this forging press, are quite clean and free

of scale, the time cycle having been approximately 8

minutes from the time they started thru the induction

heating device until they cleared thru the last stage of

the forging operation. It has been determined that this

lack of scale is infinitely important where a concentric

forged part must be maintained. After this forging is

complete, the parts which are now at a temperature of

approximately 1850° are placed into a retard cooling

furnace, wherein they are cooled from the 1850° tem-

perature to a temperature of approximately 100°. This

gradual cooling cycle is extended over a time period of

approximately 1 hour, 50 min., after which the parts are

removed and placed in a continuous skew roll abrasive

cleaning machine, in which shot is thrust against the

exterior and the interior of the part, removing all scale,

discoloration and, in general, cleaning and stress peen-

ing ths part for the following operation. Parts are

cheek-ud tt this point for surface Tenequiacitien, either

internal or external and, of course, they are also

checked dimensionally and for concentricity.

The next operation is that in which the parts are sent

thru a series of tanks in which they are washed, pickled,

hosphate coated, soap coated and dryed in preparation

or cold ras This latter operation is accomplished

on a horizontal hydraulic press ard produces a part

which has been extended from the ~——e to a casing

approximately 1514’” long. The part is drawn to the

finished cavity size and to the finished body diameter.

The next operation, trimming, is performed on a Bar-

dons and Oliver machine, similir to a machine used in

the cutting of pipe stock for nipples, and is merely an

operation where tools cut off the excessive iength and

amfer the inside and outside of the open end of the

shell. The shell is now a trimmed —- the physi-

cals developed in the sidewall, with the of the shell,

however, still in an undeveloped state. Therefore, the

part is taken into a coining operation, = on a

1500 ton horizontal mechanical press, having a three

station dial. Parts are loaded into the press in the first

station of the dial. In the second station, or work sta-

tion, the parts are coined and the open ends upset, and

in the third station they are unloaded. Through usin

this medium, we are, of course, able to secure a very hig

productive rate, inasmuch as a finished part is produced

with each stroke of the press, while the automatic load-

ing and unloading cycle permits the press to be run

automatically and continuously. The work performed

in this operation is intended to expand both bourrelet

diameters to the given size, to coin out the base and

to bring the physical properties in the base area up to

uirements. In addition to this, the open end of the

sheli is upset. This upsetting gathers a greater amount

of stock for threading at the open end of the shel!, which

is required to give us enough thread depth. Previous

attempts to obtain this added material were carried out

by bottle-necking the cold draw punch and, thus, when

the part was stripped from the punch, the material re-

mained in the bottle-neck section and was simply ex-

—_ to the outside. It was stripped over the larger

iameter at the base of the punch, which proved un-

satisfactory from two standpoints: one, that it was

extremely difficult on the tooling and two, that it created

ion in the material diameter, thus, crea“ ° a

crecking condition at the open end of the shell.

69

Following the coining, the parts are lubricated for

nosing and are entered into a nosing press. The nosing

press, again, is a horizontal press, mechanical, 500 ton

capacity, three station dial, the first station being the

loading station, the second station being the work, or

the nosing station, and the third station being the un-

loading station. Again, with this type of machine, we

are, of course, able to maintain a hig uction rate.

This is a simple operation, similar to that used in the

conventional process, with the exception that we are

nosing the part directly to size. In the bottom section

of the die, are collets, which, upon the application of

pressure by the die, are brought into action to restrict

the body diameter from flowing out or bulging out be-

yond the tolerance limitations. ee the

shell are put through a stress relief furnace. ri-

mental parts have been pu! thru these furnaces from

temperatures ranging from 700 to 1000°, and we are

currently using a temperature slightly over 900° F. The

parts are placed onto a continuous conveyor belt in a

vertical position with the nose down. In the first stages

of the machine, the parts are washed and the compounds

that have been placed there for the nosing and the

coining as are removed. Secondly, a gas heated

chamber brings the parts up to temperature, and the

stresses which have been placed into the part, through

cold working, are celioved, After going through this

chamber, the parts are cooled in cooling chambers and

then, upon discharge they are placed in a horizontal

broach in which the bourrelet diameters are broached

tosize. Work has been done in this stage using drawing

rings, but we are currently changing to cot ae aye rings.

It was found that, due to the spring back in this ma-

terial, it is difficult to contro] the exact size of the bour-

relet thru this drawing operation, and it is contemplated

that broaching will be a more successful and Jess trouble-

som3 type of operation.

After the broaching operation, one of the few other

machining operations is accomplished. This is per-

formed on a single spindle automatic lathe, the opera-

tion of which is such that the parts are automatically

fed into and ejected from the lathes. The parts are held

in a chuck on the boat tail and by a steady rest over the

ogive. Tools operating from both the front and the

rear slides then turn the band a ons a reamer

comes in from what would normally be the tail rest posi-

tion, reams the ogive hold to diameter, and faces and

chamfers the open end of the shell. A specially de-

signed machine then chamfers the boat tail and mills

70

in the staking notches on the its end. The boat

teih att Ghasn dail snaak be cheuaieeel an Gebasenl, ia

asmuch as the knock out in the coining die causes a

a material around the edge of the boat tail.

After this operation, knurls are made in the band groove

by means of a marking machine. rage

conventional tapping operation where the ogive is

tapp~d to the given dimension is omar ed

in a double spindle tapping machine. At this point the

parts are ne ae by the use of manual and

pneumatic gages. Upon acce ce of —_ they are

then placed in a machine which subjects them to a series

of tanks, wherein they are again washed, chemically

cleaned and dryed, and are forwarded to welding ma-

chines. The welding machines ars horizontal machines

in which, in the first stage, the base plate is pre-tacked

into position, thus eliminating any possibility of mislo-

cating the base plate. The parts then are seam welded

and annealed in the second stage. Following this oper-

ation, the parts are forwarded to the banding machines,

which actually are horizontal hydraulic presses. The

shell go into the press, bands are fed from a magazine

above and are pressed on in a manner quite simi’1r to

that used with | ano presses, the only difference be-

ing the fact that the presses have an ejection cylirder

working from the opposite end, and the parts are auto-

matically ejected from the die and from the machine.

The copper band is next turned on a band turning

machine, which, being a conventional operation, needs

no further description. The bands are then checked for

tightness, and the parts are again inspected, after which

they go through the marking machine and then, in

turn, thru the cleaning and phosphatizing machines,

and finally into the paint machine for painting. The

equipment used in this operation is similar to that used

for conventional methods. One greater difficulty has

been encountered here though. Due to the very smooth

shell, there has been some difficulty getting a thickness

or coatirg of paint heavy enough to withscand salt spray

requireraents. After the painting, of course, the parts

are placed on pallets, as in the conventional process,

and, thus, the processing of this Hot Forged, Cold

Drawn Shell is concluded.

It might be worthy to note that, in this process, ¥™

have in no place turned material from the shell, with the

exception of the band groove and the boring and facing

of the ogive. With no removal of stock, naturally we

are permitted to start with a greatly reduced amount

of material. However, we had to develop a process on

71

which the forging was extremely accurate nd in which

the ey produced would have a bef surface

finish. To d y inspected,

ate, with 3000 forgings care

we can say we haven’t had problems of poor surface

conditions and should similar resylts continue, we would

not use any metkvd for removal of stock from the O.D.

of the forgings.

Further, it should be noted that there are no heat

treating operations, and the part is brought up to heat

but twice—for the forging operation | stress relief.

The forging is worked to the fullest d ible in

this forging operation and then worked the balance of

the way thru cold working, to bring the desired physi-

cals into the shell. A great deal of experimentation and

engineering has been necessary, of course, to perfect this

type of forging operation. It must be noted that this

forging is a very important factor in this type of opera-

tion and too much care cannot be emphasized on this

phase of the operation. An improperly forged part can-

not be salvaged in this process, as the initial stock from

which we start the operation does not allow material to

be turned and still end up with the proper weight of the

finished shell.

Yes, die design all the wy down the line is the im-

rtant factor. It must be coordinated in all phases to

ring out a finished shell within tolerances, and further,

it must be carefully coordinated with a metallurgist, in

order to bring out the proper physical characteristics

which are required in the shell. We feel that this proc-

ess has great possibilities. It has possibilities, we think,

of making shell with a steel of the same quality used in

the conventional Hot Forge Process and, of course, using

a great deal smaller quantity of that steel. Finally, it

eliminates many costly operations, such as heat treating,

rough turning, finish turning, all of which, undoubtedly,

count for a great deal of expense in the conventional

manufacturing methods.

38. In producing the 3,000 shells referred to in the pre-

ceding finding, only the first of the six production lines was

utilized and the tempo of production was markedly less chan

under the conditions of full mass production.

39. The 1,700-ton Bliss 3-stage presses which were utilized

in effecting the hot forging were delayed in delivery from the

manufacturer to the plaintiff's Eau Claire plant. Six were

delivered, the first two in February 1955. One of these was

installed in Line No. 1 in Apri! 1955, and the other five were

72

installed in September 1955. Thereafter, it was necessary

for the Bliss erection crews to make certain corrections to the

presses. The entire job was, according to the plaintiff's vice

president, delayed y two and one-half months for which he,

on behalf of the plaintiff, claimed $110,000 from the Bliss

firm. The disposition of that claim is not shown in the

record.

40. The facilities contract called for reimbursement to

the plaintiff of the costs of installation of the machinery it

purchased for inclusion in the line. The plaintiff was paid

for these costs. Asan indication of delays encountered, how-

ever, there is quoted below a paragraph of a letter from the

plaintiff to COD, dated August 3, 1955:

It would be pointed vut at this time that, notwith-

standing the fact that estimated costs of installation

have been increased by $301,652.48, the test share of

this increase can be attributed to the fact that this or-

ganization has been instructed by the Ordnance Depart-

ment to purchase numerous items of equipment over

which we bad no control. Repeated delays in deliveries

have been experienced on these numerous items with the

net result that this organization has expended over $500,

000.00 which was net originally contemplated as a result

of having to hire additional erection crews for accelerated

delivery, committed by the machine tool vendors and,

due to delivery failures agait.st the committed schedule

it was necessary to cut br. x erection crews and again

rehire. You are no doubt izant that such measures

are extremely costly especially in that it has meant an

expenditure on the part of this organization of several

hundred thousand dollars.

41. Ny December 15, 1955, the plaintiff had produced a

total ef about 13,000 105-mm. shells at its Eau Claire plant.

When plaintiff stepped up its production rate after com-

pletion of the pilot lots, it began to experience serious diffi-

culty with the concentricity of the shells. With de-

fendant’s acquiescence and approval plaintiff attempted, over

a period of tims, to overcome this problem without using

turning equipment.

42. Even after the line at Eau Claire had finally been

installed, plaintiff experienced many difficulties with the

equipment. It was found that the induction heating process

was defective, necessitating changing the raiis in the unit

73

to a special alloy. The ejector mechanism of the forging

press failed to work properly. There was also a problem

with the tensile properties of the shell. Ordnance required

an elongation or stretching factor of 15 percent. Tests

showed subnormal yield strengths and elongation of less

than 15 percent. This was due to the failure to ixstall a

proper quenching apparatus which, by rapidly eooling the

hot billet, gives it the desired tensile strength. It was not

until February 1956 that a cold water quenching conveyor

was installed which solved the problem of elongation. The

coining and nosing presses were “down” as late as May 1956.

Defects in the die designs, which affected the concentricity of

the shells, required constant changes. There were delays in

the handling and conveyor systems.

43. As late as early November 1955, it had not yet been

determined that turning equipment would be required in the

shell line at Eau Claire. Plaiatiff’s exhibit No. 79, which

is in evidence, is a trip report of Mr. A. H. Sundfor, chief

of the Facilities Branch, COD, reporting on a conference

he attended at plaintiff's plant with plaintiff's officials, in-

cluding Mr. Soper and Mr. Halpern, reads in part as follows:

3. Relative to the necessity for turning or grinding the

hot-forgee forgi rior to cold working, representatives

of CHOD and Nat'onal Presto recommend that this de-

cision be deferred for at least 60 days in view of the ex-

perience that will be gained in that period from future

production. National Presto’s work on pilot lots indi-

cates that excellent possibilities exist that this turning

operation will not be necessary, but it is of course too

early to make a statement at this time. In a subsequent

meeting in CHOD on 4 November 1955, Mr. Grazioso

of OAC, stated that he did not concur with chis recom-

mendation and would recommend that Government sur-

plus turning equipment be installed and tooled at Presto

immediately for at least one line. In this 4 November

meetir;s Mr. Harold Babcock of Frankford Arsenal fur-

ther * cussed surface quality and pointed out that his

recent experimental work at ACF wherein finished un-

turned hot cup-cold draw shells were Macro-etched,

.uowed surface defects. CHOD will attempt to have

ten finished Presto shells shipped to Frankford Arsenal

to be studied for surface prone

44. By April 26, 1956, it was definitely determined by

plaintiff and by Qrdnance that additional equipment was

74

needad for stock removal after the hot forging, in order to

insure concentricity of the shells. Ordnance agreed that

such equipment was “absolutely escantial” to the accomplish-

ment of efficient and economical production of the shells

under the hot cup-cold draw process. The plaintiff began

to obtain quotations as to cost and delivery possibilities of

such equipment. at that time.

45. From November 1955 to April 1956, plaintiff con-

tinued, with defendant’s acquiescence and approval, a process

of trial-and-error to determine whether effective producticn

could be obtained without turning equipment. The de-

termination concerning the need for turning equipment was

the result of the plaintiffs decision, with the consent of

Ordnance, to bring over one lathe from the Monom-

onie line (after operations had ceased there) in February

1956. This was located in the tool room at Eau Claire as

an experiment. This, in turn, required that longer billets be

used which, in turn, required the redesigniug and manufac-

ture of new dies for the hot forge press. Succes

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