# Petition for Writ of Certiorari — Bethlehem Steel Corp. v. United States > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385608_1216%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 1975 - **Citation:** 423 U.S. 840 ## Text — Court, U. 8. Lorain ¥ LED SUPREME COURT, VU. & JUN 26 1975 In THE Supreme Court of the United States October Term, 1974 No. 744-1640 BETHLEHEM STEEL CORPORATION, Petitioner, v. UNITED STATES OF AMERICA, Respondent. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF CLAIMS ALBERT R,. CONNELLY, One Chase Manhattan Plaza, New York, N. Y. 10005 Attorney for Petitioner Of Counsel: GEORGE VRADENBURG III, One Chase Manhattan Plaza, New York, N. Y. 10005 June 26, 1975 TABLE OF CONTENTS NN I Sich eaves vakse ne tuaes PONE 049s 0R See eS Chee eae k kkcks Constitutional Provision, Statute and Regulations NE SaiWaeychuiaxedsb ous peek EL ene We IR 5g Ok heck ces CE boas Regulations Applicable to Determining “Fair ane Gentomanes Promt” 3 vk cc cic keas ads RP SE 05s brands inated conver vad Reasons for Granting the Writ ................. ROGGE | CuI Ceo is oe hes bc vs 1. The Government Must Conform to its Own Regulations and, During the Pendency of Litigation, May Not Apply, Ad Hoe and Retroactively, More Onerous Administra- tive Rules In Order to Improve Its Liti- RE Fi Ss a kx ivi kas een is 2. The Department of Defense May Not Fi- nally Determine Issues in Litigation Before the ASBCA Upon Ex Parte Application of a Military Department and Without Af- fording the Contractor an Opportunity to BD FUE CNP PU layer ne Nee et eae ieee Lies 13 13 14 19 23 PRP LL ALR I ae ES a AR EE CD ii TABLE OF AUTHORITIES PAGE CASES: Appeal of Newport News Shipbuilding and Dry Dock Co., 71-1 BCA § 8705 (ASBCA 1971) .. 6, Berends v. Butz, 357 F.Supp. 143 (D. Minn. 1973) Gonzales v. United States, 348 U.S. 407 (1955) . Greene v. United States, 376 U.S. 149 (1964) . Ad 15, Gutknecht v. United States, 396 U.S. 295 (1970) cot Lynch v. United States, 292 U. S. 571 (1934) .... Morgan v. United States, 304 U.S. 1 (1938) ..... Newport News Shipbuilding & Dry Dock Co, v. United States, 374 F.2d 516 (Ct. Cl. 1967) ..... 5, S x E Contractors, Inc. vy. United States, 406 U.S. 1 DE ete nds ig rents ts tk iS Seka 16, Service v. Dulles, 354 U.S. 363 (1957) 2... 2.000685 Union Pac Ry. v. Laramie Stock Yards Co., 231 ess ira y oa baw ean ane United States ex rel. Accardi v. Shaughnessy, 347 OM RE ee ee win 14, 15, 16, United States v. Anthony Grace & Sons. Inc., 384 Rap EE Hse 5 6 Gi EN aN cewek needs anes 16, United States v. Heffner, 420 F.2d 809 (4th Cir. ee PE ERED Se ee De nr Pe a Vitarelli v. Seaton, 359 U.S. 535 (1959) ......... IVillner v. Committee on Character and Fitness, 373 eee ald ie a enn KYA VO NRA A ACOs STATUTES: ay eg 6 ee er 41 U.S.C. § 321-322 (The Wunderlich Act) ..... 18 ID oy iw PRs IM OTS AT iii OTHER: Armed Services Board of Contract Appeals, Part 1—Charter, ASPR A Part 1 (4CCH Govern- ment Contracts Reporter § 35,551) .......... Armed Services Procurement Regulations, 32 Ra iO A GANG UAS ENR Aa Seb 6 bs Kagececes DoD Instruction 5126.3, December 20, 1961 (1 CCH Government Contracts Reporter § 825) ... PAGE 10 2-3, 6 10, 21 Ee : —— Re BILEED THR In THE Supreme Court of Che United States October Term 1974 No. 74- BETHLEHEM STEEL CORPORATION, Petitioner, Uv. UNITED STATES OF AMERICA, Respondent. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF CLAIMS Petitioner, Bethlehem Steel Corporation (“Bethle- hem’’), respectfully prays that a Writ of Certiorari issue to review the judgment of the United States Court of Claims entered in this action on February 19, 1975. The action involves a Wunderlich Act appeal from decisions of the Armed Services Board of Contract Appeals. Opinions Below The opinion of the Court of Claims, dated February 19, 1975 (“Bethlehem IT’), is reported at 511 F.2d 529 (1975) and is reproduced at App. 133*. The decisions and opin- * References to “App.” are to pages of the concurrently-filed separate Appendix. The Table of Contents to the Appendix lists the page of the Appendix at which each separate opinion or order set forth therein begins. PSOE MS ROE EISELE SOG ON OVLEN PARTIR EE EIT POOR COPY WORE IE Ae ENON TE ELSON EH Sa I a sca EM ACY FP pm NOR f Maps ions of the Armed Services Board of Contract Appeals (“ASBCA”’) affirmed by the judgment of the Court of Claims are reported at 71-1 BCA { 8640 and 73-1 BCA { 9898 and are at App. 21 and App. 42, respectively. An earlier opinion of the Court of Claims in this case, dated March 20, 1970, (“Bethlehem I’) and reported at 423 F.2d 300 (1970), is at App. 1 and an unreported Order of the Court of Claims, dated July 1, 1971, is at App. 41. Jurisdiction The judgment of the Court of Claims was entered on February 19, 1975 (App. 133). Bethlehem’s timely motion for rehearing and reconsideration was denied on March 28, 1975 (App. 161). This Court has jurisdiction to issue the prayed-for Writ under 28 U.S.C. § 1255(1). Question Presented Whether the Department of Defense, acting through an administrative committee not authorized by contract or regulation to hear or determine contract disputes, upon the ex par ~ application of a military department then in dis- putes clause litigation with a private contractor, hes the power to require the Armed Services Board of Contract Appeals to apply, ad hoc and retroactively, rules-of-decision in that litigation favorable to the military department. Constitutional Provision, Statute and Regulations Involved The decision below determined an appeal of decisions of the ASBCA to the United States Court of Claims pur- suant to the Wunderlich Act, 41 U.S.C. §§ 321-322. The decision below raises issues under the Fifth Amendment and concerns the application of certain provisions of the Armed Services Procurement Regulations, 32 C.F.R. t THR OUGH SAP NMIAS 06 ND Ce Thonn a el 3 §§ 3-808. The text of the Fifth Amendment, the Wunder- lich Act and the relevant portions of the Armed Services Procurement Regulations are set forth at the end of this petition. Statement of the Case This case presents important questions concerning the fair and impartial administration of contract disputes procedures as to two contracts (NObs-3556 and NObs- 3648) between Bethlehem and the Navy for the construc- tion of five destroyers. The Contracts The contracts are two of seven contracts awarded by the Navy between December 15, 1952, and January 27, 1956, to four shipbuilding contractors* for the construc- tion of a total of eighteen DD931-type destroyers. ( App. 51) The facts concerning the award of the contracts and Bethlehem’s performance are not in issue and are set forth in detail in the opinion of the ASBCA at App. 42. Each of those contracts contained a provision which required the contractor to exclude from its proposed price any provision for anticipated inflation in labor and material costs which could be expected to occur during the life of the contract. In consideration for the reduced contract price resulting from such exclusion, the Government contracted to reimburse the contractor, according to an agreed formula, for such increases in labor and material costs. Such contract price “escalation” was to be an auto- matic adjustment, subject only to Article 6(e) of the con- tracts, which provided: “(e) The Contracting Officer may deny, in whole or in part, any upward adjustment in the contract price required under this Article if the Contracting Officer finds that such adjustment is not required, in * Bath Iron Works, Bethlehem Steel Corporation, Ingalls Ship- building and Puget Sound Bridge and Dredging Co. ESeD DpDrvrnaere - mee PASAT AEE ENR SH TE af RE sete Ri OE WAR PREG RRR OR UNF eM 4 whole or in part, to enable the Contractor to earn a fair and reasonable profit under this contract.” The construction and delivery of the destroyers pur- * suant to these contracts was completed by 1959. Bethle- hem completed its deliveries to the Navy pursuant to its contracts in a timely manner, delivering the last destroyer in February 1958. There is no dispute that the destroyers delivered by Bethlehem were of “very good quality.” (App. 103) As anticipated by the parties, Bethlehem and other contractors in the DD931 program suffered significant inflationary increases in costs of labor and material. As a consequence, they submitted claims for escalation in con- tract prices. In January 1960 Bethlehem submitted to the Contracting Officer a claim for escalation in the contract price to cover its inflationary increases in labor and material costs. The amount of Bethlehem’s claim, determined pur- suant to the escalation formula in the contract, was $3,347,500 on NObs-3556 and $2,404,900 on NObs-3648. With the full escalation sought by Bethlehem, contract profit margins would have been 9.3 percent (NObs-3556) and 9.6 percent (NObs-3648). In August 1964, four years later, the Contracting Officer refused any reimbursement whatsoever of Bethlehem’s cost increases on the grounds that no escalation in contract price was required “to enable the Contractor to earn a fair and reasonable profit” within the meaning of Article 6(e) of the contracts. As matters then stood, Bethlehem would have obtained a profit on the two contracts of 3 percent (NObs-3556) and 2.3 percent (NObs-3648). In at least three out of the other five contracts, other shipbuilding contractors constructing DD93l-class destroyers received escalation sufficient to recover profits of 15.2 percent, 15.32 percent and 10.1 percent. (App. 63) pnrircogkcr eee ELAS DE 0 HON Re RE NYE I EN RT | ee THR OUGH — . a 5 Regulations Applicable to Determining “Fair and Reason- able Profit” At the time the contract was awarded, there were no published guidelines in the Armed Services Procurement Regulations (“ASPR”) as to how procurement officials were to determine what constituted a “fair and reasonable profit”’.* In July, 1957, published guidelines for determining the fairness and reasonableness of profit levels were adopted by the Department of Defense. Those guidelines consisted of a number of factors which procurement officials were directed to “consider” in evaluating the proper level of profit in a Government contract. 22 F.R. 5930 (July 26, 1957). However, there was no direction or guide to Con- tracting Officers as to how they were to arrive at an appropriate dollar or percent-of-cost profit once they had “considered” those factors. Accordingly, the 1957 guide- lines (amended in 1960) have generally been referred to as the “unweighted” guidelines.** * However, as the Court of Claims stated in Bethlehem I (App. 9): “.... Since Government officials are presumed to act properly, it is reasonable to suppose that the Pentagon would not have prom- ulgated clauses such as Article 6(e) unless contracting officers could employ established techniques and guidelines, even if un- published, and therefore would not act arbitrarily.” ** Those were the guidelines in effect at the time of the ASBCA decision which was subsequently reviewed by the Court of Claims, in Newport News Shipbuilding and Dry Dock Co. v. United States, 374 F.2d 516 (Ct. Cl. 1967) (“Newport News’). Newport News in- volved a shipbuilding contract for the aircraft carrier USS Ranger which contained an escalation clause identical to that in Bethlehem’s contract. The ASBCA in its initial decision in Newport News in 1962 had failed to apply the unweighted guidelines. The Court of Claims held, 374 F.2d at 530, the “failure to apply [profit] guidelines prescribed by authority in a regulation [to] be an error of law”. Al- though at the time of the Court of Claims decision in Newport News in 1966, the unweighted guidelines at issue had been superseded by the weighted guidelines, the Court noted that their discussion “of course relates to the guidelines as they were [when the ASBCA rendered its opinion]”. Jd. eee ae eee wo ee 6 By the time of the Contracting Officer’s decision in this case (August, 196+), the unweighted regulations had been superseded by more detailed, remedial guidelines. Adopted in August 1903 {for immediate usc, these regulations di- | rected procurement officials to weigh the factors previously applicable according to certain standards set forth in detail in the regulations. 28 F.R. 12546, amending 32 C.F.R. Part 3, § 3-808; see “Notes and Filing Instructions” quoted at App. 156. These “weighted” guidelines were designed “to reduce the impact of subjective factors in the mind of the administering official[s|”. (Bethlehem J App. 17: see also App. &9, 157) The Assistant Secretary of Defense recommended the adoption of the weighted guide- lines to the Secretary of Defense as a “quantifying of existing policy” intended to force contracting officers *‘‘to give discriminating and analytical attention” to the weight- ing of the previous unweighted factors.* Jd. Decisions Below ASBCA The ASBCA, in August 1906, ruled that Bethlehem was restricted to a five percent profit under each of its contracts as “fair and reasonable”, (App. 7) The ASBCA fixed on five percent on the theory that that was the profit to which the parties had agreed in the negotiation of the contracts. The ASBCA did not apply or advert to the weighted guide- lines, then in effect and published in 32 C.F.R. { 3-808, or to the superseded unweighted guidelines. *The memorandum reflecting that recommendation was quoted in the Appeal of Newport News Shipbuilding and Dry Dock Co., dated February 9, 1971, 71-1 BCA § 8705. The ASBCA stated in that appeal that the “weighted” guidelines were an implementation of \ historical Government profit objectives, stating: “The ultimate policy objectives of the Department of Defense with respect to profit, while not explicitly made public in the 1960 guidelines, were subsequently disclosed in 1963 in terms which leave no doubt that they had been present all along.” (71-1 BCA § 8705, at 40,455) peers : ape RRTP REA TE RET —7E BLEED TI 2 OUGH 7 Bethlehem I Bethlehem brought this action in the Court below as- serting as an error of law the ASBCA’s failure to apply the weighted guidelines in effect in 1966 at the time of the ASBCA’s decision. The Court, following the rationale of Newport News, agreed with Bethlehem: “. . Plaintiff [Bethlehem] desires to take its chances under the ‘weighted guidelines method’ and it has a legal right to do so.” Bethlehem I, App. 1, 17. The Court saw “no injustice or anomaly in applying profit limitation techniques, as the Pentagon may have amended and prescribed them from time to time, up to the date of the determination” (App. 17), and stated: “| The involved regulations, however, when made, appeared to be remedial, meant to safeguard defense contractors against determinations as to a reasonable profit level, arbitrary, perhaps biased, or founded on ‘seat-of-the-pants intuition’, which con- tracting officers might take without proper guidelines. There is no reason to postulate an intent to withhold such safeguards from parties to then existing con- tracts, nothing to that effect appearing either in the contracts or the regulation.” (App. 8-9) The Navy did not argue that the weighted guidelines should not be applied to contracts entered into prior to their effective date, nor did it argue that the unweighted guidelines should apply to Bethlehem’s contract. Rather, the Navy argued that this case was an “excep- tion” and fell “clean outside all published guidelines” be- cause Bethlehem had not been the low bidder on NObs-3556 and NObs-3648. (App. 10-11) The Court rejected that argument, noting: “Tf defendant’s postulated exemption exists, it must be a large one. The record shows that all of ot SRA TRIO PEP A OIE IRS 8 plaintiff’s above named competitors in the shipbuilding industry were awarded major contracts at one time or another between World War II and 1954, when they were not the low bidders, for reasons the same as those which animated the award of NObs-3556 to plaintiff. The situation recurs so commonly in our litigation with other industries heavily dependent on defense work, that we may take judicial notice of it: a rigid adherence to procurement from the lowest bidder only is viewed in the Pentagon as gradually freezing out the competition and leading into single-source procurement.” (App. 12) Upon examination of the weighted guidelines, the Court held that the “exception” sought by the Navy was nowhere mentioned. “ _.. To put it succinctly, the alleged exception has every earmark of having originated in the active mind of defense counsel herein, not in the perhaps more rigid thinking of the Pentagon.” (App. 12) The Navy also argued that the weighted guidelines were not applicable because (i )the parties in the negotiation of the contract had agreed that a 5 percent profit was “fair and reasonable” and (ii) the “weighted” guidelines method would produce a higher, unintended result and thus be “so unfair that an exception to the method must be implied”. (App. 13) The Court rejected that argument: “ _. The contracts, however, reflect that plaintiff [Bethlehem] agreed only upon a price ....” (App. 13) For the second time, the Court directed strong language at the lack of any factual or record basis for the Navy's argu- ments: “ |. The alleged agreement to a 5% level, in a contract that viewed prospectively could have resulted in anything from a loss to a windfall profit level, BLEED Tr 9 according to its terms, must be regarded as located in defendant’s counsel’s eyes alone.” (App. 14) Having adjudicated Bethlehem’s “legal right’’ to the application of the weighted guidelines, the Court went on to say: “Tf we have erred in thinking the ‘Weighted guide- lines method’ is feasible to apply to the instant con- tracts, the Pentagon even now could amend or supple- ment its regulation, and the Board would be bound, provided no impairment of vested rights was at- tempted. Any amendment purporting to reaffirm the position now claimed, that officials determining a rea- sonable level of profit under clauses such as Article 6(c) are not subject to any published guidelines what- ever in certain cases, at least would advisedly be made in light of the recent statement of the Supreme Court: “ * * 4 broad, roving authority, a type of adminis- trative absolutism [is] not congenial to our law-mak- : ing traditions.’ Gutknecht v. United States, 396 U.S. 295, 90 S.Ct. 506, 24 L.Ed.2d 532.” (App. 17-18) ASPR Committee Seizing upon the Court’s reference to the possibility that the Pentagon might further “amend or supplement” its regulation, attorneys for the Navy sought and obtained ex parte* a declaration by an administrative committee in wee pt ae ats * The ex parte proceedings were commenced by a memorandum ‘ originating in the Office of the General Counsel of the Navy. That memorandum stated that it had been prompted by the Court of Claims decision in Bethlehem I and that the instructions of the ASPR P Committee sought by the Navy would be presented to the ASBCA for use in contract disputes procedures with respect to Bethlehem’s contract. It is clear that Navy attorneys initiated the ex parte pro- ceedings and drafted the instructions (styled ‘“Minutes”) of the : ASPR Committee; the Court below so found. Bethlehem II, App. 140. Indeed, the memorandum referred to above bears the initials of Morris Amchan, the Navy attorney immediately responsible for the conduct of the contract disputes proceedings for the Navy before the , ASBCA. Bethlehem has stated in its papers in the Court below, with- out contravention by the Navy, that Mr. Amchan wrote the ex parte application and drafted the ASPR Committee “Minutes”. a .OUGH fl POOR COPY Rey AR AE BAP NG al TIT ERE NE TEL NN REBT ARR OE 10 the Pentagon called the Armed Services Procurement Regulation Committee (the “ASPR Committee”) that the weighted guidelines were not applicable to these contracts because such application would result in an increase in the profits of the contractor beyond that ‘considered by the parties in the negotiation of the contract to be fair and reasonable”. Navy attorneys did not advise the ASPR Committee that they had made precisely that argument to the Court of Claims in Bethlehem I and that the Court of Claims had rejected it as having been “located in defend- ant’s counsel’s eyes alone”. (App. 14) Although Navy attorneys submitted to the ASPR Committee selected ex- cerpts from the Court of Claims decision in Bethlehem: I, they did not provide the Committee with a complete copy of the decision. “Minutes” of the ASPR Committee meeting embodying its decision were drafted by Navy attorneys, were presented to the Committee and were adopted substantially ver- batim.* Those “Minutes” stated that the “weighted” *The ASPR Committee is made up of two persons appointed by the Assistant Secretary of Defense (Installations and Logistics) and two persons (one a procurement policy representative and one a legal representative) appointed by each of the military departments and by the Defense Supply Agency. The Committee’s primary function is to act in an advisory capacity to the above-named Assistant Secre- tary on matters pertaining to the Armed Services Procurement Regu- lations. DoD Instruction 5126.3, December 20, 1961 (1 CCH Gov- ernment Contracts Reporter § 825). The ASPR Committee has been delegated no authority to partici- pate in contract disputes appeal procedures, either under DoD Regu- lations or pursuant to the disputes clause. The Secretary of Defense and the Secretaries of each of the military departments have designated the ASBCA as the only “authorized representative” to hear appeals in contract disputes proceedings ({ 1, Armed Services Board of Contract Appeals, Part 1—Charter (4 CCH Government Contracts Reporter, ASPR A Part 1, § 35, 551)) and the contract disputes clause only authorizes disputed questions to be determined by such “authorized representative”. DoD Instruction 5126.3, supra., establishing the ASPR Committee, does not prescribe any rules of procedure and does not by its terms provide for notice to be given to affected parties of its proceedings, for affected parties to be given an opportunity to be heard or for proceedings not to be conducted ex parte. a - = RAYA TONED BE EE SHOE LE PLEO SEITE ths BLEED TH EN een ee eee ee ee ee 11 q Z guidelines” effected a substantive change in the standards existing at the time the contracts were entered into and were intended for the development of a profit objective for negotiation of future contracts”. (As the dissent below : pointed out, “. . . there is no evidence in the record to sup- port the ASPR committee’s statement that only prospective ; application was intended” (App. 155); there is nothing in E the majority opinion to the contrary.) ‘ The “Minutes” of the ASPR Committee directed a : “deviation”, i.e., a non-standard procurement procedure, H with respect to this contract clause, and instructed the ASBCA that the superseded unweighted guidelines should be applied in determining what level of profits was “fair and reasonable” under Article 6(e) of Bethlehem’s contract. Bethlehem was not given notice of the pendency of these collateral proceedings or opportunity to be heard. ASBCA The ASBCA believed itself to be “bound” by the ASPR Committee action (App. 38) and, as a result, did not pass on such questions (raised by Bethlehem) as the authority of ASPR under its charter to decide this issue absent approval of higher Department of Defense officials ( App. 33) or the absence of any factual basis for the assertions of the Navy attorneys and thus for the committee’s action (App. 33).* Applying the unweighted guidelines, the ASBCA deter- mined that Bethlehem was entitled to full escalation on NObs-3648 (resulting in a 9.6 percent profit) but restricted Bethlehem’s escalation on NObs-3556 to a 6.3 percent profit level. (App. 130-131). Believing itself aggrieved on NObs-3556 by the failure of the ASBCA to apply the * Bethlehem immediately appealed the ASBCA decision to the Court of Claims asking that Court to clarify and reaffirm its earlier opinion adjudicating Bethlehem’s “legal right” to the application of the weighted guidelines. The Court of Claims declined to review the deci- sion at that time. (App. 41) REE ERRAND RR? A Oa HMEA PEPER ABER ¢ OUGH 12 appropriate weighted guidelines, Bethlehem sought further review as to that contract in the Court of Claims. Bethlehem II In Bethlehem II (App. 133), the Court of Claims in a sharply-divided opinion,* approved the retroactive appli- cation of the ASPR Committee “Minutes” in Bethlehem’s contract disputes proceedings. As with the ASBCA, the majority below did not go behind the Navy’s assertions to review the basis for the ASPR Committee instructions. The Court held two factors as “favoring retroactive application” of the ASPR Committee ‘‘decision”’: first, the “long lapse of time” between the original contract award and final disposition; second, the remedial effect of apply- ing “a guideline regulation, any regulation” as opposed to interpreting the contract without reference to any guide- lines. (App. 137-8) The Court condemned as “not . . . entirely cricket”, as “deplor|able]”, and as ‘“‘outrageous” the ex parte conduct of Navy attorneys but refused to provide Bethlehem with a remedy in order not “to prolong this already inordinately prolonged litigation, to the advantage of no one knows whom’’.** (App. 142-3) The dissent below pointed out that consistent with Beth- lehem I the only question open to the Court was whether application of the weighted guidelines was “feasible”, in the sense of either “possible” or “reasonable” or “suitable”. *The Court of Claims was divided four-to-three, Judge Nichols writing the majority opinion for Judges Davis, Skelton and Kashiwa, with Judge Bennett writing a strong dissent, in which Judges Durfee and Kunzig concurred. **It is clear to whose “advantage” the abrupt and arbitrary halt in this litigation has accrued—the Navy. Condoned in the interests of expediency are ex parte methods, agreed by all seven judges below to have been “outrageous”, which are an anathema to notions of funda- mental fair play and procedural due process. In its desire to stop this lawsuit, the majority has permitted the Navy attorneys and the ASPR Committee to engage in precisely that “administrative absolutism” verbally condemned, but effectively condoned, by the Court. BLEED Pparcce enemas: ASAD a A PELE BG 1 NS + Fe AES RI TA aR? OC Cintas Ae i 13 (App. 153) The dissent noted, first, that there “can be no dispute” that it was possible to apply the weighted guide- lines (App. 153)—the Navy had done so and had clearly not liked the results. Second, the application of the weighted guidelines would not be “unreasonable” when “used appropriately” to take account of the fact that Beth- lehem was not the lowest bidder. (App. 153-4). Finally, the dissent dealt with each of the Navy’s arguments that application of the weighted guidelines was “unsuitable”, dismissing each as lacking support in the record and as having been previously rejected in Bethlehem I. (App. 154-7) Reasons for Granting the Writ The judgment sought to be reviewed holds that the De- partment of Defense, acting through the Armed Services Procurement Regulation Committee, upon ex parte appli- cation of a military department then in disputes clause litigation and without notice to the private contractor in- volved, has the power to require the ASBCA to apply, ad hoc and retroactively, rules-of-decision in that litigation favorable to the military department. In so holding, the judgment (i) is inconsistent with decisions of this Court which impose contractual and constitutional requirements of procedural regularity and basic fair play on the Govern- ment in its dealings with private parties and (ii) poses important questions and raises substantial problems in the impartial administration of disputes clause appeals before the ASBCA. Argument The power of the ASPR Committee, under the deci- sion below, is “a broad, roving authority, a type of adminis- trative absolutism not congenial to our law-making tradi- tions”. Gutknecht v. United States, 396 U.S. 295, 306 (1970). The power was invoked by the Navy here, not to LTR EMR CRT AS LL RR OD RRS a : ; GAT 2A RR HOE GRACES UNDE RR RORIIRL ASE Re SS HR OUGH 14. facilitate ongoing procurement of goods or services, but to depress the recovery of moneys earned by Bethlehem under a contract which had been fully performed twelve years earlier. Similar to the power of the Selective Service under its delinquency regulations, at issue in Gutknecht, such power has no statutory standard or even guidelines. The power of the ASPR Committee is exercised entirely at its own discretion — stimulated no doubt by the ex parte approaches of the military departments with pending contract disputes. The decision below resolves the question presented here in a manner which is fundamentally inconsistent with deci- sions of this Court which are designed to protect private contractors in litigation with the Government from the retroactive application of unilateral, litigation-oriented changes in Government regulations. 1. The Government Must Conform to its Own Regulations and, During the Pendency of Litigation, May Not Apply, Ad Hoc and Retroactively, More Onerous Administrative Rules Designed To Improve Its Litigating Posture. This Court has held in a number of decisions through the years that due process requires that the Government conform to its established regulations and procedures and not deviate therefrom on an ad hoc basis when it believes its interests so dictate. Greene v. United States, 376 U.S. 149 (1964); Vitarelli v. Seaton, 359 U.S. 535 (1959); Service v. Dulles, 354 U.S. 363 (1957); United States ex rel. Accardi v. Shaughnessy, 347 U.S. 260 (1954) ; see also United States v. Heffner, 420 F.2d 809, 811-13 (4th Cir. 1970) ; Berends v. Butz, 357 F.Supp. 143, 151 (D. Minn. 1973). The Department of Defense has failed in this case to conform to its own regulations in two different ways. In the first place, the Department of Defense, acting through the ASPR Committee, has deviated on an ad hoc basis in a pending contract disputes litigation from its published PALE RY SLI EIVIL LF EE IO LILI OT TED RIE: ASAE TN LIE SE ELST ROE Bi EE] Pe POS RS Fe a I OS NT RRA NE AA ORIOL ATLL I OS EGR 15 weighted guidelines method of evaluating the fairness and reasonableness of profit levels in negotiated contracts. In the second place, the Department of Defense, by acting through the ASPR Committee in determining the issue of what guidelines are applicable in making determinations under Article 6(e) of Bethlehem’s contract, has failed to conform to its own regulations designating the ASBCA as the “authorized representative” in hearing and deter- mining appeals in contract disputes cases “as fully and as finally” as might the Secretaries of Defense and of the military departments. The Greene case is instructive on the first point. In that case Greene’s employment was terminated in 1953 based on the administrative revocation of his security clearance by the Department of the Navy. Following this Court's deter- mination that Greene’s security clearance revocation had been improper, Greene sought to recover compensation for the Government’s unauthorized action based on a regulation adopted in 1955. In 1960, while Greene’s claim was pending, the Department of Defense ‘‘amended” its 1955 regulation so as to subject Greene’s recovery to administrative discre- tion and to other impediments not present in the 1955 regu- lation. This Court held that Greene could not be forced to proceed under the amended, 1960 regulation, citing Union Pac. Ry. v. Laramie Stock Yards Co., 231 U.S. 190, 199 (1913), to the effect that: “ . ‘a retrospective operation will not be given to a statute which interferes with antecedent rights . . . unless such be the “unequivocal and inflexible import of the terms, and the manifest intention of the legis- lature”’ ”, The Accardi case is instructive on the second point. There the Attorney General had included Accardi on a confidential list of “unsavory characters” whom he wished to deport, prior to the decision of a Board of Immigration Appeals rey Stig Oa Re LTE SR LITLE LCL SLOPE LIAL EEE © COLELLO NAIA LY IELEREDI IEE ARP aS apap pt ia THROUGH 16 on Accardi’s application for suspension of deportation pro- ceedings. Applicable regulations then in effect delegated to the Board of Immigration Appeals such discretionary authority “as is appropriate and necessary for the disposi- tion of the case”, 8 C.F.R., 1949, § 90.3(c), cited at United States ex rel. Accardi v. Shaughnessy, supra., 347 U.S. at 266. Accardi sought to block his deportation and offered to prove that the Board of Immigration Appeals’ later denial of Accardi’s application was the result of the Attorney General’s instructions, but the District Court refused to accept Accardi’s offer of proof. This Court reversed, hold- ing that had the decision of the Board of Immigration Appeals resulted from the Attorney General’s instruction, it would have been in error: “In short, as long as the regulations remain opera- tive, the Attorney General denies himself the right to side-step the Board or dictate its decision in any man- ” ner”. United States ex rel. Accardi v. Shaughnessy, supra., 347 U.S. at 267. This Court then noted: “It is important to emphasize that we are not here reviewing and reversing the manner in which dis- cretion was exercised. If such were the case we would be discussing the evidence in the record supporting or undermining the alien’s claim to discretionary relief. Rather we object to the Board's alleged failure to exercise its own discretion, contrary to existing valid regulations.” /d., at 268 (Emphasis in original.) See also, S & E Contractors, Inc. v. United States, 406 U.S. 1 (1972); United States v. Anthony Grace & Sons, Inc., 384 U.S. 424 (1966). The decision below is inconsistent with both Greene and Accardi, Under the decisions of the Court of Claims in Newport News and Bethlehem I, Bethlehem was entitled to pmirrern Ct ae SAREE SANE LITT UR Sd FO ORR AN IRR NRO CN UAE tae Tinea Rac Ritkbe edie ate Recent "HR OUGH 17 the application by the ASBCA of published DoD profit guidelines in effect at the time of ASBCA’s decision in 1966, i.e., the weighted guidelines, Immediately after Bethlehem I, and prompted by that decision, the Depart- ment of Defense, through the ASPR Committee issued an administrative instruction, considered binding by the ASBCA, that the subjective and superseded unweighted guidelines which had been discarded nine years earlier by the Department of Defense would be applied in this case in lieu of the more objective and remedial weighted guide- lines, That administrative decision, issued by the ASPR Committee, was a “deviation” from published regulations of the Department of Defense, favorable to the military department—the Navy—in this litigation. And that admin- istrative decision, on an issue in a disputes appeal pending before the ASBCA, was rendered by a committee not au- thorized by Department of Defense regulations to determine disputed questions in contract disputes appeals. The change in the rules-of-decision was not effected by statute or by a general change in the overall administrative scheme. Here, the change in the rules-of-decision was a “deviation” from standard procurement practices prompted by, and intended to effect the outcome of, pending litigation. The “deviation” itself was not a more precise explication of ambiguous terminology ; the “deviation” was not the exten- sion of the regulatory scheme to areas of application not anticipated when the regulation was adopted. The “devia- tion” was the ad hoc repeal of an entire body of remedial guidelines in favor of subjective superseded guidelines. Unlike Accardi there is no question that the administra- tive “deviation” was made to effect the outcome of this liti- gation. The Navy stated that it had been prompted to start the ex parte proceedings by the Court of Claims decision in Bethlehem I; the Navy claimed that the Court of Claims had invited the ASPR Committee to determine the applica- bility of the weighted guidelines to Bethlehem’s contracts ; ee A ¥ tl er a ee Be eeete 18 the Navy asserted that a higher profit would result from application of the weighted rather than unweighted guide- lines; the Navy asked that the ASPR Committee instruc- tions apply to the contract clause whose applicability was at issue only in this litigation with Bethlehem; and the Navy stated explicitly that it intended to present the ASPR Com- mittee instructions to the ASBCA panel hearing Bethle- hem’s appeal. It is clear that the Navy sought to do what it did be- cause it believed that it had a better chance at depressing Bethlehem’s recovery under the discretionary and unpre- dictable unweighted guidelines than it did under the objec- tive and predictable weighted guidelines. Although applica- tion of the unweighted guidelines consistent with historical DoD profit policies should have produced the same result as application of the weighted guidelines, see supra, at 6n*, as indeed it did in Newport News, 71-1 BCA § 8705 and with respect to Contract NObs-3648 below, App. 129-30, the greater subjectivity in the application of the unweighted guidelines gave the Navy the leverage of greater adminis- trative discretion than if the weighted guidelines were applied. The Navy was successful in its strategy to the extent of $1,595,009 as to the contract still at issue in this case. Bethlehem submits that the Government cannot be permitted to manipulate published guidelines in such a manner as to achieve an improved litigating posture. And Bethlehem submits further that protection from such arbitrary manipulation by administrative officials is precisely the objective that the weighted guidelines were designed to achieve and precisely this Court’s objective in such cases as United States ex rel Accardi v. Shaughnessy, supra., and Greene vy. United States, supra. The Govern- ment simply cannot be permitted to manipulate “the law” in ways that serve its interest and quash the rights of con- tractors. . 4 o OP eet TO ak aromas = - — Peeeene ny aloe SRT TT MEE, VIROL D ASSET NN Oe AALS nk WR RE aad TG sie YAN NE MS IST CAE ANAS IPANEMA IIARS SRS BE RAN At ¥ 19 2. The Department of Defense May Not Finally Determine Issues in Litigation Before the ASBCA Upon Ex Parte Application of a Military Department and Without Afford- ing the Contractor an Opportunity to Be Heard. The “deviation” from standard procedure mandated by the ASPR Committee was obtained through an ex parte application of the attorneys for the Navy in this litigation. The decision of the ASPR Committee was taken by the ASBCA as “binding”, not advisory, As a consequence, the Navy has not yet been forced to prove its assertions con- cerning the merits of the guideline substitution in an ad- versary hearing in which Bethlehem has had notice and an opportunity to be heard and to present its evidence. With respect to the decision of the ASPR Committee, the Court of Claims held that such an ex parte approach Was not improper because the ASPR Committee was a “rule-making” body to whom ex parte procedures were “normal”, App. 144 In the context of this case, that holding is fundament- ally at odds with this Court’s repeated condemnations of ex parte procedures as inconsistent with “underlying con- cepts of procedural regularity and basic fair play”. Gon- sales Vv. United States, 348 U.S. 407, 412 (1955); see also Willner v. Committee on Character and Fitness, 373 U.S. 96 (1963) ; Morgan v. United States, 304 U.S. 1 (1938). The “deviation” sought and obtained by Navy attorneys in the ASPR Committee proceedings was not a “rule-mak- ing” in any sense of that word. The ASPR Committee de- cision did nov involve any particular expertise or legislative or political judgment. The ASPR Committee had to draw on no particular management or procurement background or sources in deciding that question. There was no complex “business” decision required. There was no “amendment” to existing regulations, in the sense of a clarifying, simply- ing or elaborating construct on existing regulations in- 0 SP MORANAATA AERA EAE ROAD EY NEN AN ——————— a PN + ERE EY EE —" ne le Lee AERIS ae ty —_ + Og Se 20 tended to be widely applied. The “deviation” from standard procedures was not the product of dissatisfaction with the existing regulations arising out of experience with the weighted guidelines. The proposal submitted to the ASPR Committee by the Navy requested a determination that the weighted guide- lines not be applied retroactively to Bethlehem’s contract because the effect of application “would be to increase the profit of the contractor beyond that considered by the parties in the negotiation of the contract, to be fair and reasonable.” That question is the kind of question regularly and routinely adjudicated by quasi-judicial bodies or by courts themselves. And the “deviation” that was adopted by the ASPR Com- mittee was no more than a decision of the question of whether the requested guidelines would be applied retro- actively in this case. Indeed, the ASPR Committee deter- mined one of the precise issues which was then pending before the ASBCA. Under these circumstances the ex parte action of the ASPR Committee would appear to be wholly improper and the ASPR Committee action a nullity. But if any effect be ascribed to that action, the ASBCA must be given the opportunity to redetermine the issue independently, 1.e., completely de novo. Here, the ASBCA felt itself “bound” by the ASPR Committee action and consequently did not itself inquire into the adequacy of the basis for the ASPR Committee action. Bethlehem was entitled to participate, to offer evidence and to be heard on the merits of its position before the de- cision to change the guidelines had been administratively determined. That right derives in the first instance from its contract with the Navy wherein it is agreed that: ————— “Tn connection with any appeal proceeding under this Article, the Contractor shall be afforded an op- —iOCSE Pet OS ree OES he wae gy Ce EY Meh wre BO 21 portunity to be heard and to offer evidence in support of its final appeal.” (Article 33. DISPUTES.) Bethlehem contracted for the right to be heard and to offer evidence in support of its appeals with respect to all disputed questions of fact and incidental questions of law i heard before the ASBCA, S & E Contractors, Inc. v. 1 United States, supra., 406 U.S. at 9 n. 6; Armed Services Board of Contract Appeals, Part 1—Charter 1 5 (4 CCH Government Contract Reporter § 35,551) (“When an appeal is taken pursuant to a disputes clause in a contract which limits appeals to disputes concerning questions of fact, the Board may nevertheless in its discretion hear, consider, and decide all questions of law necessary for the complete adjudication of the issue.””), and Bethlehem was entitled to have the benefit of the administrative procedures it had bargained for. United States v. Anthony Grace & Sons, Inc., supra., 384 U.S. at 429. The question of what is a “fair and reasonable profit” under Article 6(e) is a disputed fact, and the issue of what guidelines are applicable in determining that disputed fact ‘ is a question involving both fact and law, but in any event a matter coming within the jurisdiction of the ASBCA. This implies, at the very least, that Bethlehem was Tt PR PE OIL LIEN ME Capt Bote em re ee entitled “to be heard and to offer evidence” in an ASBCA i proceeding in which the Navy was required to prove de novo 5 its assertions that the “weighted” guidelines were not in- ; tended to be applied to existing contracts. Bethlehem was entitled to a hearing as well because of the strictures of the Due Process Clause of the Fifth Amendment. Bethlehem has, in effect, been deprived of an important contractual right without essential due process requirements of notice and opportunity to be heard. See Lynch v. United States, 292 U.S. 571, 579 (1934). : a a 22 (“Valid contracts are property, whether the obligor be a private individual, a municipality, a State or the United States. Rights against the United States arising out of a contract with it are protected by the Fifth Amendment.” ) Thus, where the Navy, in litigation with a private con- tractor, initiates and participates in ASPR Committee proceedings in order to obtain ad hoc instructions binding on the ASBCA on the particular legal and factual ques- tions then pending before the ASBCA, the contractor must be given notice of those proceedings and an opportsnity to respond to the Navy’s contentions and, if any effect be given to such ASPR Committee action in later ASBCA proceedings, the issues resolved by the ASPR Committee must be redetermined de novo by the ASBCA. The end result of the chain of procedural horrors dis- cussed above is that Bethlehem has had what the Court in Bethlehem I characterized as a “legal right” dissolved with- out any administrative or judicial body deciding the merits of its side of the story. The practice approved below is not a one-time injustice. The ASPR Committee is a continuing body whose military department members have an on-going interest in the out- come of contract disputes before the ASBCA. There is no reason to suppose the ASPR Committee and its military department members will voluntarily renounce the broad, roving authority granted by the Court below to the ASPR Committee to issue “deviations” from standard procure- ment procedures in pending contract disputes proceedings. In order to preserve the orderly and impartial ad- ministration of contract disputes under the quasi-judicial structure fostered by this Court, the decision below must be reversed. ES ia TRS a IE REE, POP RE DEG EE . a+ pre tgp etions + t= , aa —_—<—“— . . 4 23 Conclusion For the reasons stated above, petitioner Bethlehem Steel Corporation prays that a Writ of Certiorari issue to the United States Court of Claims to review its decision of February 19, 1975. Respectfully submitted, ALBERT R. CONNELLY, One Chase Manhattan Plaza, New York, N. Y. 10005 Attorney for Petitioner Of Counsel: GEORGE VRADENBURG III, One Chase Manhattan Plaza, New York, N. Y. 10005 £5 SEE TGR IER EE SAREB SE HAIL OEE SE ARE MA WE Pe la Constitutional Provision, Statute and Regulations Involved 1. The Fifth Amendment to the Constitution provides: “No person shall be held to answer for a capital, or otherwise infamous crime, unless on a present- ment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger ; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, with- out just compensation.” (U. S. Const. Amend. V) 2. The Act of May 11, 1954, 68 Stat. 81 (The Wunder- lich Act), 41 U.S.C. §§321-322, provides : “§321. Limitation on pleading contract-provisions relating to finality; standards of review “No provision of any contract entered into by the United States, relating to the finality or conclusive- ness of any decision of the head of any department or agency or his duly authorized representative or board in a dispute involving a question arising under such contract, shall be pleaded in any suit now filed or to be filed as limiting judicial review of any such deci- sion to cases where fraud by such official or his said representative or board is alleged: Provided, how- ever, That any such decision shall be final and conclusive unless the same is fradulent [sic] or capricious or arbitrary or so grossly erroneous as necessarily to imply bad faith, or is not supported by substantial evidence. a Read ie le he. Rei Pare YR: 2a “§322. Contract-provisions making decisions final on questions of law “No Government contract shall contain a provi- sion making final on a question of law the decision of any administrative official, representative, or board.” 3. Relevant provisions of the Armed Services Procure- ment Regulations, Title 32 (Cum. Supp. as of January 1, 1960) (the “unweighted” guidelines) provide: “$3.808-1 General. “A fair and reasonable provision for profit or fee cannot be made by simply applying a certain pre- determined percentage to the cost estimate or selling price of a product. Rather, the profit or fee should be first established as a dollar amount, after con- sidering the factors set forth in this section. There- fore, where a fee is involved and it is necessary to determine the percentage relationship between the fee and the estimated cost of the contract in order to comply with administrative and statutory limita- tions on fees for cost-reimbursement type contracts, the percentage shall be determined only after the dollar amount of the fee has been established for negotiation purposes. [Amdt. 49, 24 F.R. 10631, Dec. 24, 1959] “§3.808-2 Factors for Determining Fee or Profit. “The factors set forth in subparagraphs (a) through (i) below should be considered in determin- ing profit or fee in all contracts, whether for supplies or services; for construction work; or for experi- mental, developmental, or research work; and whether of the fixed-price type or of the cost-reim- bursement type unless otherwise specified in the par- ticular factor. All of the following factors, as set BLEED " {ROUGH 3a forth in paragraphs (a) through (i) of this section should be evaluated in the light of the basic policy set forth in §3.801-1 which provides that supplies and services shall be procured from responsible sources at fair and reasonable prices calculated to result in the lowest overall cost to the Government: (a) Effect of Competition. Where competi- tion is adequate and effective and proposals are on a firm fixed-price basis, the contracting officer normally need not consider in detail the amount of estimated profit included in a price. Where ef- fective competition is lacking, the estimate for profit for the proposed fixed fee should be ana- lyzed in the same manner as all other elements of price, applying the factors set forth in this section. (b) Degree of Risk. (1) The degree of risk assumed by the contractor should influence the amount of profit or fee a contractor is entitled to anticipate. For example, where a portion of the risk has been shifted to the Government through cost-reimbursement or price redetermination pro- visions, unusual contingency provisions, or other risk-reducing measures, the amount of profit or fee should be less than where the contractor as- sumes all risk. (2) Some cost-plus-a-fixed-fee contracts and task orders for research and development call for the delivery of prototypes of other “hardware.” Other such contracts or task orders require only that the contractor exert its “best efforts” to de- liver the required end item. Frequently this is because the contractor is not willing to assume rRrrar er ee CREPE EOE DRI NTS | MiB PLE LILI I IAA CCR BRE ALMA ELIORIE AED aS OR ELS LEN ie ASN Tale 4a the additional burden of incuring substantial cost overruns without additional fee in order to com- plete performance. When the contract calls for delivery of developed models in accordance with well-defined performance or design characteris- tics or a predetermined delivery schedule, or both, in contrast to an obligation only to exert its “best efforts” to develop and deliver such models, payment of the fee should be conditioned on per- formance in accordance with the contractor’s ob- ligation to deliver, and in such cases the contrac- tor may be entitled to a larger fee both because of the risk inherent in its commitment and be- cause of the successful completion of the work. (c) Nature of Work to Be Performed. A major consideration in the determination of the amount of profit or fee, particularly in connec- tion with experimental, developmental, or re- search work, is the difficulty or complexity of the work to be performed and any unusual demands of the contract, such as whether the project in- volves a new approach unrelated to existing equipment or only refinements on existing equip- ment, whether the caliber or class of engineer involved is that of an “‘idea-man,” or whether the contractor is to be required by the contract to assign to the work unusually skilled talent. (d) Extent of Government Assistance. The Department of Defense encourages its contrac- tors to perform their contracts with the mini- mum of financial, facilities, or other assistance from the Government. Where extraordinary fi- nancial, facilities, or other assistance must be furnished to a contractor by the Government, Tes i | PEPE LING OO OI LL LIE EY ot , SPP ESE POP ‘ al me PAT no ocr = L 5a such extraordinary assistance should have a modifying effect in determining what constitutes a fair and reasonable profit or fee. (See also §3.404-3(d).) (e) Extent of the Contractor’s Investment. The extent of a contractor’s total investment (i.e., both equity and borrowed capital) in the performance of the contract will be taken into consideration in determining the amount of the fee or profit. (f) Character of Contractor’s Business. Recognition must be given to the type of busi- ness normally carried on by the contractor, the complexity of manufacturing techniques, the rate of capital turnover, and the effect to each individ- ual procurement upon such business. For ex- ample, where a contractor is engaged in an indus- try where the turnover of working capital is low, generally the profit objective on individual con- tracts is higher than in those industries where the turnover is more rapid. (g) Contractor's Performance. In addition to the factors set forth in §3.101, the contrac- tor’s past and present performance should be evaluated in such areas as quality of product, quality control, scrap and spoilage, efficiency in cost control (including need for and reasonable- ness of cost incurred), meeting delivery sched- ules, timely compliance with contractual provi- sions, creative ability in product development giving consideration to commercial potential of product), engineering (including inventive, de- sign simplification, and development contribu- tions), management of subcontract programs, FRPP LIL LOPLI IEE PT : BRD A Ps 6a and any unusual services furnished by the con- tractor. Where a contractor has consistently achieved excellent results in the foregoing areas in comparison with other contractors in similar circumstances, such performance merits a pro- portionately greater opportunity for profit or fee. Conversely, a poor record in this regard should be reflected in determining what consti- tutes a fair and reasonable profit or fee. (h) Subcontracting. In negotiating the profit or fee, the nature and extent of any subcontract- ing should be considered, particularly as it bears on the contractor’s performance, administrative responsibility, financial investment, and degree of risk as outlined above. The degree and nature of subcontract programs vary on a broad spec- trum. While it is not possible to define precisely the exact profit or fee treatment to be accorded each situation, the general guidelines which fol- low will be taken into consideration. The evalua- tion of a contractor’s subcontracting program should not consist merely of applying arbitrary percentages of profit to subcontract prices in negotiating the prime contract price. A relatively large amount of subcontracting need not make for negotiation of a lesser profit or fee—the character and circumstances of the subcontract- ing and the effect on the prime contractor’s costs must be taken into account. Although purchased material and subcontracted work are usually properly included in the base upon which profit is computed, instances may arise in which a sig- nificant portion or portions of a contract are sub- contracted in such a way that only a minimum PRED SERRE SR SSN ACR TIROENNE A: LOW IRN LO SUMMON rVi i721 7a amount of responsibility or risk remains with the prime contractor. In such a case, the amount of fee or profit should be less than where the contractor assumes substantial risk. Of primary importance is the degree to which the subcon- tracting provides a better product and lower costs, with timely delivery, and in which the contractor assumes heavy managerial effort, re- sponsibility and risk. In this connection, consid- eration should be given to the contractor’s past and present effectiveness in offering to qualified small business concerns and to firms in labor surplus areas an opportunity to compete for sub- contracts (see for example §1.707-3) and to the contractor’s furnishing assistance to such con- cerns as they require or as the Government may specifically request. A contractor’s effectiveness in furnishing such opportunity or assistance to an unusual or exceptional degree, should be given favorable consideration in determining the amount of fee or profit. (i) Unrealistic Estimates. If records reveal that a contractor’s actual costs are consistently lower than his estimated costs (indicating a prac- tice of excessive estimates), and if the contractor refuses to’ provide what seems to be reasonable estimate of costs, a lower profit or fee should be considered.” [ Amdt. 49, 24 F.R. 10632, Dec. 24, 1959] ok * * 4° Relevant portions of the Armed Services Procure- ment Regulations, Title 32 (Cum. Supp. as of January 1, 1966) (the “weighted” guidelines) provide: “§3.808 Profit, including fees under cost-reim- bursement type contracts. a connate wrteece mere weresmeadl POR WL 02 ANID OT TARR ABLE SRI IES DYN SBIR PPM ae 8a (28 F.R. 12555, Nov. 23, 1963] “§3.808-1 Policy. “(a) General. It is the policy of the Department of Defense to utilize profit to stimulate efficient con- tract performance. Profit generally is the basic mo- tive of business enterprise. The Government and defense contractors should be concerned with har- nessing this motive to work for more effective and economical contract performance. Negotiation of very low profits, the use of historical averages, or the automatic application of a predetermined per- centage to the total estimated cost of a product, does not provide the motivation to accomplish such per- formance. Furthermore, low average profit rates on defense contracts overall are detrimental to the pub- lic interest. Effective national defense in a free enter- prise economy requires that the best industrial capabilities be attracted to defense contracts. These capabilities will be driven away from the defense market if defense contracts are characterized by low profit opportunities. Consequently, negotiations aimed merely at reducing prices by reducing profits, with no realization of the function of profit cannot be condoned. For each contract in which profit is negotiated as a separate element of the contract price, the aim of negotiation should be to employ the profit motive so as to impel effective contract per- formance by which overall costs are economically controlled. To this end, the profit objective must be fitted to the circumstances of the particular procure- ment, giving due weight to each of the performance, risk, and other factors set forth in §§3.808-3.808-6. This will result in a wider range of profits which in many cases, will be significantly higher than pre- vious norms. SOLE EL LO RL Pe, RL MI Man EMA OBE LTE OND HELIN GE I ETN BLEED 9a (b) Contracts priced on the basis of cost analy- sis. When cost analysis is performed pursuant to §3.807-2, profit considerations shall be in accordance with the objectives set forth below. As an induce- ment for broad reduction in defense costs, the Gov- ernment should establish a profit objective for con- tract negotiations which will: (1) Reward the contractor who undertakes more difficult work requiring higher skills; (2) Allow the contractor an opportunity to earn profits commensurate with the extent of the cost risk he is willing to assume—the greater the risk assumption, the greater the profit objective established ; (3) Reward those contractors who have an excellent record of past performance and con- versely penalize those contractors whose _per- formance has been poor ; and (4) Reward contractors who provide their own facilities and financing or who have estab- lished their competence through prior develop- ment work undertaken at their own risk. The weighted guidelines method set forth in §3.808- 2 for establishing profi’ objectives is designed to provide reasonably precise guidance in applying these principles. This method, properly applied, will tailor profits to the circumstances of each contract in such a way that long range cost reduction objectives will be fostered, and a wider spread of profits will be achieved. (c) Contracts priced without cost analysis. On many contracts and subcontracts, good pricing does i... BPE LR IE LE LOLEL LIER LA GLA TIER AED NE SR IEEEE AAD IS I ms THROUGH 10a not require an examination into costs and profits. Where adequate price competition exists and in other situations where cost analysis is not required (see §3.807), fixed-price type contracts will be awarded to the lowest responsible offerors without regard to the amount of their profits. Under these circum- stances, the profit which is anticipated, or in fact earned, should not be of concern to the Government. In such cases, if a low offeror earns a large profit, it should be considered the normal reward of effici- ency in a competitive system and efforts should not be made to reduce such profits. [30 F.R. 5981, Apr. 29, 1965 | “§3,808-2 Weighted guidelines method. “(a) General. (1) The weighted guidelines method provides contracting officers with (i) a tech- nique that will insure consideration of the relative value of the appropriate profit factors described in §3.808-4 in the establishment of a profit objective and the conduct of negotiations ; and (ii) a basis for documentation of this objective, including an ex- planation of any significant departure from this ob- jective in reaching a final agreement. The contracting officer’s analysis of these profit factors is based on information available to him prior to negotiations. Such information is furnished in proposals, audit data, performance reports, pre-award surveys and the like. No more data on or analysis of costs should be required in the establishment of a profit objective than is required to determine if costs are reasonable. The weighted guidelines method shall be used in all contracts where cost analysis is performed except as set forth in paragraph (b) of this section. i Re BMY ROMS ROLLE SNES TANNA RES PRIS PMI lla (2) The contractor’s proposal will include cost information for evaluation and a total profit figure. Contractors shall not be required to submit the de- tails of their profit objectives but they shall not be prohibited from doing so if they desire. Elaborate and voluminous presentations are neither required nor desired and may indicate a low index of cost effectiveness, which fact itself should be taken into consideration by the contracting officer in the ap- propriate section of the weighted guidelines. (3) The negotiation process does not contem- plate or require agreement on either estimated cost elements or profit elements, although the details of analysis and evaluation may be discussed in the fact- finding phase of the negotiation. If the difference between the contractor’s profit objective and the contracting officer’s profit objective is relatively small, no discussion of individual factors may be necessary. If the negotiating parties’ objectives are relatively far apart, a disclosure of weightings and rationale by both parties may be made concerning the total assigned to Input to Total Performance, Assumption of Cost Risk, Performance, Selected Factors and Special Profit Consideration. By thus developing a mutual understanding of the logic of the respective positions, an orderly progression to final agreement should result. Simultaneous, not se- quential, agreement will be reached on cost, any incentive profit-sharing formulas, or limitation on profits, and price. The profit objective is a part of an overall negotiation objective which, as a going-in objective, bears a distinct relationship to the target cost objective and any proposed sharing arrange- ment. Since the profit is merely one of several inter- : $5 IRE STILE GES ELIOT ot ee tata thee St wee om NASON ORE RDO AE IONE ATI LARS SLEDS LF NTO 8 are 12a related variables, the Government negotiator shall not complete the profit negotiation without simul- taneously agreeing on the other variables. Specific agreement on the exact weights or values of the in- dividual factors is not required and should not be attempted. (b) Exceptions. (1) Under the following cir- cumstances, other methods for establishing profit objectives may be used. Generally, it is expected that such methods will accomplish the two features of the weighted guidelines methods set forth in paragraph (a) (1) of this section. These circumstances are: (i) Architect-engineering contracts ; (ii) Personal or professional service con- tracts; (iii) Management contracts, ¢8-, for main- tenance or operation of Government facilities ; (iv) Contracts with non-profit organizations where fees are involved ; (v) Termination settlements ; (vi) Engineering services, labor-hour, time- and-material, and overhaul contracts providing for payment on a man-hour, man-day or man- month basis, and where the contribution by the contractor constitutes the furnishing of person- nel rather than the output of an integrated re- search, engineering, or manufacturing organiza- tion; and (vii) Cost-reimbursement construction con- tracts. GTC PIE SAAT I a ac P F SER was RECA SASL OLE! LT r “2 # BLEED THI * > % PRD 13a (2) Other exceptions may be made in the nego- tiation of contracts presenting unusual pricing situa- tions when specifically authorized by the head of a procuring activity. Such exceptions shall be justified in writing and authorized only in situations where the weighted guidelines method is determined to be unsuitable. (c) Limitation. In the event this or any other method would result in establishing a fee objective in violation of limitations established by statute or this subchapter, the maximum fee objective shall be the percentage allowed pursuant to such limitations. (See §3.405.) No local administrative ceilings on profit shall be permitted. [30 F.R. 5981, Apr. 29, 1965] “§3.808-3 Profit objective. “(a) A profit objective is that part of the esti- mated contract price objective or value which, in the judgment of the contracting officer, is appropriate for the procurement being considered, covering the profit or fee element of the price objective. This objective should realistically reflect the total overall task to be performed and the requirements placed on the contractor. Prior to the negotiation of a con- tract, change order, or contract modification, where cost analysis is undertaken, the negotiator shall de- velop a profit objective. The weighted guidelines method, if applicable, shall be used for developing this profit objective. If a change or modification is of a relatively small dollar amount and is basically the same type of work as required in the basic con- tract, the application of the weighted guidelines method will generally result in a profit objective mt isn rer ALTOS LEL CLINE LL ED LLL OE LIES EL LO Lemna yt ; SOP NI NIT LIANE IE CNM, ace: | 14a similar to the profit objective in the basic contract, and therefore this basic rate may be applied to the contract change or modification. However, in cases where the change or modification calls for substan- tially different work, then the basic contract profit and the contractor’s input to total performance may be radically changed and a detailed analysis is neces- sary. Also, if the dollar amount of the change or contract modification is very significant in compari- son to the contract dollar amount, a detailed analysis should be made. (b) Development of a profit objective should not begin until after a thorough (1) review of proposed contract work; (2) review of all available knowledge regarding the contractor, pursuant to Subpart I, Part 1 of this chapter, including performance, capa- bility reports, audit data, pre-award survey reports and financial statements, as appropriate; and (3) analysis of the contractor’s cost estimate and com- parison with the Government’s estimate or projec- tion of cost. [30 F.R. 5982, Apr. 29, 1965] “§3.808-4 Profit factors. “(a) The factors set forth below shall be con- sidered in all cases in which profit is to be specifically negotiated. The weight ranges listed after each fac- tor shall be used in all instances where the weighted guidelines method is used. pa t ITNT STUER TERESA HAT ae ma eee LE EOE BLEED TH So ERTL, A Re LTE AO NSE Tie a 15a Weight ranges Profit factors (percent) Centractor’s input to total performance— Direct materials: oe: 1 to4 Subcontracted items ............ lto 5 NT NN Si oa ov kc cc lto4 Engineering labor ................ 9 to 15 Engineering overhead ............. 6 to9 Manufacturing labor ............. 5 to9 Manufacturing overhead ........., 4to7 General and administrative expenses . 6 to 8 Contractor’s assumption of contract cost eg ED NRCS TON Oto7 Type of contract. Reasonableness of cost estimate. Difficulty of contract task. Record of contractor’s performance —2 to +2 Management. Cost Efficiency. Reliability of cost estimates. Cost reduction program accom- plishments. Value engineering accomplish- ments. Timely deliveries. Quality of product. Inventive and developmental con- tributions. Small business and labor surplus area participation, Ee eS —2to +2 Source of resources. Government or contractor source of financial and material resources. Special achievement. Other. Se aM - . — CELE EERE I LOTOP ESTELLA BV eH OUGH RARITY CDR CEME mi | APT ERA IER NO Te BI es BS CIEE A eh Ce hy BH 22 write PRE IE DE yo Ons ito ao * 16a (b) Under the weighted guidelines method, the contracting officer shall first measure the “Contrac- tor’s Input to Total Performance” by the assign- ment of a profit percentage within the designated weight ranges to each element of contract cost recog- nized by the contracting officer. Such costs are multi- plied by the specific percentages, which have been selected in accordance with §3.808-5(b), to arrive at specific dollar profits. (c) The suggested categories under the Contrac- tor’s Input to Total Performance are similar to those on the Cost and Price Analysis Form (DD Form 633). Often, individual proposals will be in a differ- ent format; but, since these categories are broad and basic, they provide sufficient guidance to evaluate all other items of cost. (d) Although certain classifications of accept- able cost, including travel, subsistence, facilities, test equipment, special tooling, federal manufacturers excise taxes, and royalty expenses, may have been historically excluded from the base upon which profit has been computed, they shall not be excluded when using the weighted guidelines method. (e) After the contracting officer has computed a total dollar profit for the Contractor’s Input to Total Performance, he shall divide this amount by the total recognized costs to determine the composite profit percentage for this factor. To this composite per- centage, he shall then add the specific percentages assigned for cost risk, performance, and the other selected factors, to arrive at a total profit percentage. He shall then multiply the total recognized contract costs by this total profit percentage to determine the profit objective. A cardinal principle of the weighted 44 LEAL STIL EELS at ; ae LETTER ELE EES ES Seatac iileeesibcie au _—= . = — o_, =e i RY Vag SNE os AAEM VAL ROARS NUTT SPN oe ~ 17a guidelines method is that the specific percentages assigned for cost risk, performance, and other fac- ; tors are applied to total recognized costs in establish- : ing the profit objective. [30 F.R. 5982, Apr. 29, 1965] “§$3.808-5 Assignment of values to specific factors. PAMELA EES, “(a) General. In making his judgment of the value of each factor, the contracting officer should be governed by the definition, description, and pur- pose of the factors together with considerations for evaluating them as set forth herein. (b) Contractor’s input to total performance. This factor is a measure of how much the contractor himself is expected to contribute to the overall effort necessary to meet the contract performance require- ments in an efficient manner. This factor, which is apart from the contractor’s responsibility for con- tract performance, takes into account what resources are necessary and what the contractor himself must do to accomplish a conversion of ideas and materials into the final product called for in the contract. This is a recognition that within a given performance out- put, or within a given sales dollar figure, necessary efforts on the part of individual contractors can vary widely in both value and quantity, and that the profit objective should reflect the extent and nature of the contractor’s contribution to total performance. The evaluation of this factor requires an analysis of the cost content of the proposed contract as follows: (1) Direct materials (purchased parts, sub- contracted items and other material). * ok x (2) Engineering labor and manufacturing labor. x x * Shine cemeecomeomnmiuemennen oo a Re er A a a a i eee | OLIQH 18a (3) Engineering overhead, manufacturing overhead, and general and administrative ex- penses. * * * (c) Contractor's assumption of contract cost risk. (1) This factor reflects the policy of the De- partment of Defense to shift the risk of contract costs to the fullest extent practicable to contractors and to compensate them for the assumption of this risk. Evaluation of this risk requires a determina- tion of (i) the degree of cost responsibility the con- tractor assumes, (ii) the reliability of the cost estimates in relation to the task assumed, and (iii) the chances of the contractor’s success or failure. This factor is specifically limited to the risk of con- tract costs. Thus, such risks on the part of the contractor as reputation, losing a commercial mar- ket, risk of losing potential profits in other fields, or any risk on the part of the purchasing activity, such as the risk of not acquiring an effective weapon, are not within the scope of this factor. (2) The first and basic determination of the degree of cost responsibility assumed by the con- tractor is related to the sharing of total risk of contract cost by the Government and the contractor through the selection of contract type. The extremes are a cost-plus-fixed-fee contract requiring only that the contractor use his best efforts to perform a task, and a firm fixed-price contract for a complex item. Such cost-plus-fixed-fee contract would reflect a minimum assumption of cost responsibility, whereas such firm fixed-price contract would reflect a com- plete assumption of cost responsibility. Therefore, in the first step of determining what value is to be sens ELAINE RIIRL LCL BING ZY scliaiietilenieliiaiiandameadauaalll is li tet Re iS a , : S aetenanaainbecaaratiemeate Siete bie. 19a given for the contractor’s assumption of contract cost risk, a zero rating shall be given to a proposed cost-plus-fixed-fee best efforts contract, and a 7-per- cent rating shall be given to a closely priced firm fixed-price contract for a new, complex item. (3) The second determination is that of the reliability of the cost estimates. Sound price negotia- tion requires well-defined contract objectives and reliable cost estimates. Prior production experience assists the contractor in preparing reliable cost esti- mates on new procurements for similar equipment and does not in any way reduce his cost responsibility in a firm fixed-price contract. An excessive cost estimate reduces the possibility that the cost of per- formance will exceed the contract price, thereby reducing the contractor’s assumption of contract cost risk. (4) The third determination is that of the dif- ficulty of the contractor’s task. T he contractor’s task can be difficult or easy, regardless of the type of contract. (5) Contractors are likely to assume greater cost risks only if contracting officers objectively analyze the risk incident to proposed contracts and are willing to compensate contractors for it. Gen- erally, a cost-plus-fixed-fee contract would not justify a reward for risk in excess of | percent, nor would a firm fixed-price contract justify a reward of less than 5 percent. Where proper contract type selection has been made the reward for risk by con- tract type would usually fall into the following per- centage ranges: EEE ARF LN LD ELLE IE ILS RS LOLI BELL ES INIT 20a Percentage Type of contract ranges Cost-plus-fixed-fee .........2..scs000. Otol Cost-plus-incentive-fee including cost NE NE se cha eke adie sas 1to2 Cost-plus-incentive-fee including cost, performance, and delivery incentives .. 1% to3 Fixed-price-incentive including cost COENEN ka ssacetss sasca nae sas 2 to 4 Fixed-price-incentive including cost, performance, and delivery incentives .. 3to5 Prospective price redetermination ...... 4to5 RE PNUD cs wat he etiet wad seeds 5to7 * x * (d) Record of contract performance. (1) The purpose of this factor is to motivate contractors to improve their performance by rewarding them for excellent past performance and penalizing them for poor performance. Effective use of this factor re- quires that (i) reports on the various aspects of past performance be obtained and evaluated; and (ii) this information be used in such a way as to motivate contractors to improve their performance. * * * (6) The following factors are to be considered in evaluating a contractor’s performance record: (i) Management. x * * (ii) Cost efficiency. * * * (iii) Reliability of cost estimates. * * * > SPRL 2la (iv) Cost reduction program accomplish- ments. * * * (v) Value engineering accomplishments. * x * (vi) Timely deliveries. 2k * * (vii) Quality of product. * * * (viii) Inventive and developmental contribu- tions. * * * (ix) Small Business and Labor Surplus Area Participation. 2k * * (e) Selected factors. The purpose of these fac- tors, which may enter into a particular procurement situation, is to discourage reliance upon Government resources, and to encourage contractors to outstand- ing performance. Therefore, in assigning a com- posite profit percentage within the range of —2 to +2 for these Selected Factors, the Source of Re- sources factor will always be rated from 0 to -2 percent and the Special Achievement factor will always be rated from 0 to +2 percent. The Other factor may be rated with either a plus or a minus. These factors will rarely be of equal weight in a specific procurement. They should be assigned a weight as a group, in accordance with the following criteria: (1) Source of resources (Government or pri- vate). Application of this factor calls for an ATV aN ED RAEME ST IS ABTA ELIOT LEE RONEN it GA PILAR i. PNP A ANE ic BAN SLE LARUE at ONL ARAB 22a analysis of the contractor’s dependence on Gov- ernment financial assistance or material assistance in the form of facilities. Contractor reliance upon Government resources shall be discouraged by pro- viding for less favorable profit consideration. Com- mercial facilities to be rented by the contractor will be evaluated as contractor furnished. Customary progress payments and guaranteed loans with normal guarantees (90 percent or less) shall not be weighted in this evaluation. However, other forms of financial assistance such as extraordinary prog- ress payments, guaranteed loans with abnormal guarantees, or advanced payments shall be con- sidered a minus factor. Similarly, the reliance on any other type of Government assistance, including facilities shall be evaluated as a minus from zero. The contractor who uses new Government resources for the performance of a contract will be penalized to a greater degree than the contractor who uses existing Government resources. (2) Special achievement, if any, required in the contract. This factor indicates the need for extra profit consideration when outstanding performance is required. Such achievement may be in the form of a special technical requirement, such as produc- tion of some remarkable first, or achievements involving non-technical objectives, such as an ex- traordinarily fast delivery schedule. (3) Other. Particular procurement situations may give rise to the desirability of using a profit factor other than those in subparagraphs (1) and (2) of this paragraph. Such factor shall be identi- CEST aa eis lt Le al oe os + . ae en are PR IRS FL CREO EE RID NS OT ES pest nidbortee 23a fied; and the reason for its use shall be documented in accordance with § 3.811. [30 F.R. 5982, Apr. 29, 1965, as amended at 30 F.R. 14086, Nov. 9, 1965] “§ 3.808—6 Special profit consideration. “Contractors who develop military items without Government assistance are entitled to special profit consideration on those items. This consideration shall be in addition to the profit objective arrived at through the weighted guidelines method. One to four percent of recognized cost is established as the normal range of value for this profit factor. The criteria for selection of the specific percentage shall be the importance of the development in furthering defense purposes, the demonstrable initiative in de- termining the need and application of the develop- ment, the extent of the contractor’s cost risk, and whether the development cost was recovered directly or indirectly from Government sources.” [30 F.R. 5985, Apr. 29, 1965 | Ea REEL A AN TCE OTE IE: LEI OPO: WCITIES AE OTE CT a 4 ve ‘ T4-10°% LiskARYT | MICHAE t UPREME COURT, U: & In THE Supreme Court of the United States OctToBEerR TERM, 1974 a JUN 26 1975 | No. 74- BETHLEHEM STEEL CORPORATION, Petitioner, v. UNITED STATES OF AMERICA, Respondent. APPENDIX TO PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF CLAIMS ALBERT R. CONNELLY, One Chase Manhattan Plaza, New York, N. Y. 10005 Attorney for Petitioner Of Counsel: GEORGE VRADENBURG III, One Chase Manhattan Plaza, New York, New York 10005 June 26, 1975 APPENDIX TABLE OF CONTENTS Bethlehem Steel Corporation v. United States, 423 F.2d. 300 (Ct. Cl. 1970) eeeeereser.e eeeee 1 Appeals of Bethlehem Corporation oration, ASBCA Nos. 10316 and 10317 (Reinstated), Decision on Government's Motion for an Order Establi- shing that the ASPR Non- Weighted Profit Guidelines Are Applicable to Determining Contract Price, dated January Ree SETA PeASh ORs E se eesneeene 21 Order of the United States of Court of Claims dated July 1, 1971, denying Bethlehem's Motion for an Order Terminating Stay and For Other Relief ........... 41 Appeals of Bethlehem Steel Corporation, ASBCA Nos. 10316 and 10317 (Reinstated), dated January 22, 1973 ..--..--. eeccee 42 Bethlehem Steel Corporation Vv. United States, 5ll F.2d. 529 cet. Ci. 1975) ceeceveerereeree eee eee 133 Order of the United States Court of Claims, dated March 28, 1975, denying Bethlehem Steel Corporation's Motion for Rehearing and Reconsideration 161 MCLEE LINE IS SIS POLY EMER IEE PON REI en | 2 ARR IRE BETHLEHEM STEEL CORPORATION Vv. UNITED STATES No. 44-68. United States Court of Claims March 20, 1970. Albert R. Connelly, New York City, for plaintiff, James Cc. Hansen, New York City, of counsel. James F. Merow, Washington, D.C., with whom was Asst. Atty. Gen. William D. Ruckelshaus, for defendant. Before COWEN, Chief Judge, and LARAMORE, DURFEE, DAVIS, COLLINS, SKELTON and NICHOLS, Judges. ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND DEFENDANT'S CROSS-MOTION FOR SUMMARY JUDGMENT PEL OSE TE INE IY OER LEH EIA NB LOO I SST Oe NICHOLS, Judge: This is an action to recover amounts Claimed to be due the Plaintiff under labor and material escalation clauses in Contracts Nobs-3556 and Nobs-3648, under which plaintiff built five destroyers for the United States Navy at the shipyard it then owned at Quincy, Massachusetts. The contracting officer denied all escala- the two contracts in the amounts of $1,064,151 ana $876,028, respectively, which it computed as an allowance of 5% profit on costs after restoring certain cost disallowances the contracting offi- cer had made, not here in issue. This being less than Plaintiff's Claims, it seeks review here under Wunderlich Act Standards, 41 U.S.c. §§ 321 and 322. The Parties have filed cross motions for sum- mary judgment. We deny both motions and Suspend further Proceedings in this court to enable the Parties to apply to the ASBCA for further findings of fact, pursuant to the opinion that follows. The contracts were awarded by negotiation and included standard provi- sions requiring the contractor to exclude from its cost estimates all contingency allowances for increases in labor and material costs from the levels then obtaining, but on the other hand, allowing price increases according to an agreed formula reflecting labor and material cost increases experienced in the con- tract period by Shipbuilders agreed upon as representative. There is no dispute that such cost increases did occur, nor as to the contract price increases that would result, except for Article 6(e), HAG a SR Rt Fe WD TITRE A ~~ which reads as follows: (e) The Contracting Officer may deny, in whole or in part, any upward adjustment in the contract price re- quired under this Article if the Con- tracting Officer finds that such ad- justment is not required, in whole or in part, to enable the Contractor to earn a fair and reasonable profit under this contract. This contract language came before us for interpretation three years ago in Newport News Shipbuilding & Dry Dock Co. v. United States, 179 Ct.Cl. 97, 374 F.2d 516 (1967). The nub of the controversy here is how to apply the rulings then made to the some- what different facts and regulation before us now. These facts are stipulated, so far as they go, the Board having taken no testimony. The refusal of any escalation clause increases by the contracting offi- cer, and the refusal of portions of the amounts otherwise accrued, by the ASBCA, resulted from their beliefs that the amounts they denied were not required to enable plaintiff to earn fair and reason- able profits under the contracts. Both decisions were, however, rendered before ours in Newport News. Plaintiff would remand for further Board proceedings in light of Newport News, but defendant says Newport News is not applicable and the Board decision is entitled to finality. The Navy decided to build three destroyers (DD 936-938) in a private yard. On or before January 25, 1954, it received proposals for major east coast concerns as follows, per ship: RRS TT REN SOL RUAN REIT PPD SERS RATE SEER ENON IID Ha ~4- Bath Iron Works Tete weeeeeeees $15,492,000 Newport News wrtceeeeeseeeeeee 16,800,000 Quincy (plaintiff) teeeeeseees 18,674,000 New York Ship Tete eeececeeeees 19,234,000 As usual in negotiated procurement, all Submitted cost estimates which showed that they anticipated Profits of 9.3% of cost, in the case of One, to 9.4% for another, and 10% in the cases Of Quincy and the fourth. Defendant, however, desired to award the vessels to Quincy because down the yard, which was one of the largest and best equipped in the world. Moreover, Plaintiff maintained at Quincy the design and engineering staff for all its several other shipbuilding and repair yards on both coasts. The anticipated closure, therefore, would have effected a material reduction in the Capacity of the shipbuild- out of potentially disastrous slumps in their business by awarding them shipbuild- ing contracts when they were not the lowest bidders. They were Painfully dependent on the Navy, for all other cus- out or obsoletion of the vast tonnages delivered in World War II. All four yards were, therefore, Operating at a minor fraction of Capacity. The three other than Quincy, did have enough orders to keep them busy at the then level of activ- ity for a year or two to come, so it was Only Quincy that was in immediate danger -5- k of shutdown. The Navy, accordingly, decided to negotiate with Quincy. BS To avoid making a bad situation worse, the Navy asked plaintiff to reduce its bid and it took $1,000,000 off the price of each ship, and the award was made at 3 $17,674,000 per unit, which was still con- e siderably over the bids of Bath Iron Works and Newport News. The revised cost esti- g mates remained unchanged, but showed that plaintiff was now estimating a profit of : $698,000 instead of $1,698,000. There was, however, no contract provision that plain- tiff's profit would be any particular figure. WET ATCT sa Booey One asks next why plaintiff esti- mated its costs so much above competitors who were, by its account, no more efficient, and had no better plant. The answer is that the three destroyers would have util- ized only 5% of Quincy's capacity. In estimating its costs, Quincy calculated it would have no other business and the contract for the destroyers would have had to carry the overhead of that vast establishment. Evidently the Navy had to contribute towards this overhead if it was to persuade plaintiff not to close the plant down. Bath, being smaller and busier, was far more favorably situated with respect to overhead. We conclude that in the events that materialized, that is, Quincy's receiving other orders, the allocable overhead would have been less, and therefore the costs. The circumstances of this award are given because, as will appear, they afford the basis for defendant's argument that Newport News is not applicable as a pre- cedent. The facts stated above were either FED THR OLIGH -6- found by the Board, or else appear as testified in the printed transcript of a hearing conducted by a subcommittee of the House Armed Services Committee in February and March, 1954, to inquire into the award of Nobs-3556 and the re- jection of the low bids. The parties here attached it to their stipulation as Exhibit 6, without restriction as to relevarce or use, so we use it as uncon- tradicted evidence. The other contract in this litiga- tion, Nobs-3648, was awarded Plaintiff later the same year and called for con- struction of two additional destroyers, DD 943 and 944, at a negotiated price of $16,250,000 per ship, including an esti- mated profit of $698,000. There was, therefore, a cost Saving estimated. It had the same limited escalation as Nobs- 3556. There were other awards not involved in this litigation while the five destroyers were under construction, notably a nuclear powered cruiser and three guided missile frigates. Plaintiff delivered the first destroyer on November 30, 1956, three more in 1957, and the last on February 26, 1958. There were, as usual, change orders and equitable adjustments therefor, not now in dispute. The costs, except for those extras and escalatable labor and material, were lower than estimated, plaintiff says due to cost Savings all along the line. here at this time, especially since the case may come before us again. To pose the legal problem it suffices to Say that labor and material escalation before any -7- Article 6(e) exclusion, totalled $3,347,500 and $2,404,900 under the two contracts, respectively. The profit before anv esca- lation, but reflecting the Board's decision as to allowable costs, would be $1,597,000 under Nobs-3556 and $775,000 under Nobs- 3648, making 3% and 2.3% of cost respec- tively. The profit with partial escalation allowed by the Board as stated above would be 5% of cost under both contracts. The profit with full escalation would be $4,990,000 under Nobs-3556 and $3,180,000 under Nobs-3648, being 9.3% and 9.6% of cost respectively. That the profit with full escalation is so much over the con- tract estimate is due, as said above, to savings in non-escalatable costs, but the Board did not perform any analysis to determine how these savings were accom- plished. The Board also considered profits as a percentage of price, but we need not go into that here. Our Newport News decision interprets the Article 6(e) language together with a Department of Defense regulation in effect when the administrative decision was made, 22 F.R. 5927, 32 C.F.R. §§ 3.808 and ff. The former we viewed as requiring an administrative determination as to what a fair and reasonable profit would be under the contract incorporating the clause in light of the performance history and financial results. Such a determination would be a finding of fact, final in this court if supported by substantial evidence and made in accordance with law. The latter, the regulation, we found to con- tain language telling how such a deter- mination was to be made, whether related to initial pricing or any sort of con- tract repricing. There was nothing to SELES OF EOE LIES RISA IOP SOI Sigs BO AED P SSMS Reyne te oR ta corms =" LI ol ive i © PR PDP IIS “Re ame ty eegneam ree -g8- Show that in making the findings there involved, the Board had employed or intended to employ the technique the regu- That case has Stood on the books for three years now without any sort of chal- lenge on defendant's Part, not even a motion for reconsideration. Since our Prise would not have lacked dignity. As things are, this is the first chance we have had to learn defendant's views. large extent, and appears in general will- ing for Newport News to be followed in cases that reproduce its facts. That Carries important implication. except in redeterminations, any technique of determining a level of reasonable profits for a defense contractor. The involved regu- lations, however, when made, appeared to be remedial, meant to Safeguard defense con- tractors against determinations as to a reasonable profit level, arbitrary, perhaps biased, or founded on "seal-of-the-pants intuition", which contracting officers might - ont ait i Sl a RY CE ee en, NT eye Ee . | Fee ; -9- make without proper guidelines. There is no reason to postulate an intent to with- hold such safeguards from parties to then existing contracts, nothing to that effect appearing either in the contracts or the regulation. Defendant refers, properly we think, to Thorpe v. Housing Authority, 393 U.S. 268, 89 S.Ct. 518, 21 L.Ed.2d 474 (1969), as being in agreement with our position. Since Government officials are presumed to act properly, it is reasonable to suppose that the Pentagon would not have promulgated clauses such as Article 6(e) unless contracting officers could employ established techniques and guide- lines, even if unpublished and therefore would not act arbitrarily. If any con- tractor supposed he had rights vested under a contract which were substantially sub- verted by a regulation later adopted as to how to determine reasonable levels of profits, he might come into court and show it. See Thorpe, supra, at p. 283, 89 S.Ct. 518. In the absence of such a show- ing we cannot assume it would occur. Defendant passes over in silence the fact noticed by the dissenting judges in Newport News, that plaintiff there had done nothing to alert the Board to the fact it was not following the Depart- ment of Defense's regulations. That is equally true of the instant case. It is indeed, generally, a salutary rule that a party cannot assign an error here that he has not given the administrative tribunal a chance to correct. But the points plaintiff did make below were of a nature that should have alerted the Board to test what it was doing against applica- ble regulations. We think an exception in such a case must be made in the interests vig mutual ignoring of a whole body of appli- cable agency regulations. Agency officials have considerable practical power to steer the choice of issues to ground of their Selection, in Proceedings before their agencies. If attention is totally diverted from applicable regulations the responsi- bility for this error is not equal. Agency officials have the means and the duty to be mistake wholly on the Party least respons- ible for causing it. We Say this not meaning to impugn the good faith of the Pentagon officials, who apparently quite sincerely believed that a clause such as Article 6(e) was scmehow something other than the kind of Pricing and repricing power the guidelines were meant to cover. The arguments made to us by both sides in Newport News reflected a state of great confusion on both sides as to what Article 6(e) was meant to do. The requirement for exhaustion of administrative remedies is not inflexible in some exceptional circum- stances. E.g., Mallow v. United States, 161 Ct.cl.~ 207, 212 (1963). between this case and Newport News. It is not that the regulations involved are new, though they are, as set forth below. Defendant says that this case falls clean : : aaa = SS j SARIN OIEN PDAS PE SARIS Sad oatieaianala . . penacaneeesene SSE UN RIER DO -ll- holding in Newport News and it does not, yet it likewise does not require defendant to argue, as indeed it could not, that the Board here paid any attention to guidelines or techniques for determining a reasonable profit level, as published by the Depart- \ ment of Defense or anyone else, and in : effect at the time the Board decided. No such publication is ever alluded to in the Board decision. It does indeed use guide- lines, but they are "do-it-yourself" guide- = lines constructed by the Board itself out of arguments and suggestions of counsel. As already pointed out, counsel on neither side suggested to the Board that it should follow the published guidelines, and that is the obvious reason why it did not do so. OA oe eee A Department of Defense regulation that was in effect at the time of the instant Board decision, and also that of the contracting officer, was published in 1963, 28 F.R. 12546, 12555, amending 32 C.F.R. Part 3, §§ §§ 3.808 and ff. It supersedes the one we construed in Newport News. It states and describes, with copious illustrations, the "Weighted guidelines method" of deter- mining reasonable levels of contractor profits. Defendant does not now deny that it would govern most decisions limiting or refusing otherwise justified labor and material escalation under Article 6(e), and there is nothing in it that suggests an intent to narrow the former scope. But, defendant says, this case is an exception. However, the regulation itself in § 3.808-2(b), enumerates the recognized exceptions to it, and the situation here involved is not on the list. Any other exception must be authorized by the head of the procuring agency, and no such authorization is asserted here. On the other hand, the statute defendant says CORY PELE OR IG EEE EN SEEN PL I TO EE BI -12< authorized this type of procurement to keep a contractor in business. The Armed Services Procurement Act of 1947 § 2(c) (16), now revised and codified as 10 U.S.C. § 2304(a) (16) (1964), does not speak in terms of any exemption from profit guide- lines ordinarily applicable. If defendant's postulated exemption exists, it must be a large one. The record shows that all of plaintiff's ubove named competitors in the shipbuilding industry were awarded major contracts at one time or another between World War II and 1954, when they were not the low bidders, for reasons the same as those which animated the award of Nobs-3556 to plaintiff. The situation recurs so commonly in our litigation with other industries heavily dependent on defense work, that we may take judicial notice of it; a rigid adherence to procurement from the lowest bidder only is viewed in the Pentagon as gradually freezing out the competition and leading into single-source procurement. The subcommittee recognized the validity of this view in its hearing on the instant award, as did the whole Congress, of course, in enacting 10 U.S.C. § 2304(a) (16). It would be strange if so large an excep- tion to the use of the "Weighted guidelines method" went unmentioned in the enumeration of exceptions in the regulation itself. The new regulation requires use of the guidelines if cost analysis is required. § 3.808-l1(b). Cost analysis is required with respect to negotiated fixed price con- tracts with escalation, all of which these are. § 3.807-3(a) (2). To put it succinctly, the alleged exception has every earmark of having originated in the active mind of defense counsel herein, not in the perhaps more rigid thinking of the Pentagon. -13- Defendant says that plaintiff agreed to accept a profit of around 5% in consid- eration of being awarded the contract, though not the low bidder, and therefore use of the "Weighted guidelines method" to produce a higher profit would be so unfair that an exception to the method must be implied. The contracts, however, reflect that plaintiff agreed only upon a price. The alleged agreement upon a profit came in the revised cost estimates, which showed estimated costs only $698,000 per unit below the agreed price. Both parties must have been aware that this estimated cost was a figure plucked from the atmos- phere. Mr. Strohmeier, plaintiff's vice president, testified at the Congressional hearing, without contradiction, that the entire excess of his company's cost esti- mates over Bath's was due to the higher allocation of overhead, and this difference, in turn, resulted from the hypothesis, that the Quincy yard would be operating at but 5% of capacity, having no other work than the three destroyers. Even so, on that hypothesis, the estimated allocation he thought was insufficient. If his com- pany built the three destroyers and had no other construction at the Quincy yard, he expected it to suffer a loss. On the other hand, if it received enough other business so it could operate at a "normal" level, its contract costs would fall to approximately Bath's estimates. In that event, which was surely always possible, and wholly apart from any savings due to efficient manufacture, there would have been a large windfall profit under Nobs- 3556, for whose recapture the contract made no provision if one disregards the statutory renegotiation article. Defend- ant does not and could not regard that | PLAS ILL PID rego ee ee PERIL IEG -14<- article as contributing in any way to its argument that plaintiff agreed to a profit level of exactly 5%. The alleged agreement to a 5% level, in a contract that viewed prospectively could have resulted in anything from a loss to a windfall profit level, according to its terms, must be regarded as located in defendant's coun- sel's eyes alone. As already noted, Plaintiff in pre- Paring its cost estimates was required to assume there would be no increases in labor and material costs, and in analyzing the possibilities of profit in the con- tract, we have up to this point done so likewise. In the more probable event there were such increases, the escalation Clause became operative and in general its effect would be, absent Article 6(e), to stabilize the profit or loss at a fixed dollar (not percentage) figure against any degree of labor and material cost infla- tion. There might be some small profit or loss resulting from the escalation Clause itself, as the Plaintiff's own experienced labor and material costs might be more or less than the general industry experience used to fix the escalation indices. There was nothing in the escala- tion clause before Article 6(e), agreeing to-a5% profit. In article 6(e) there was certainly a Possibility that the profit would be cut, but 5% is not mentioned. We have now examined every pertinent Part of the contract and nowhere find agreement to a 5% profit level, while we do find provisions that enable a profit much exceeding 5%, whether or not esca- lation was required, depending on con- ditions which were perfectly foreseeable tReet -15- and which plaintiff would certainly exert : itself to bring about, i.e., a normal util- ‘ ization of the yard. On the other hand, é the $698,000 profit estimate contemplated § a state of inadequate utilization which could hardly have been expected or allowed to be other than temporary. While we say plaintiff did not agree to 5%, we do consider that a high bidder given a contract award purely to keep him in business, might expect this fact to be considered as unfavorable to him under any rational system of profit limitation. Defendant's view that the "Weighted guide- lines method" would fa:.1 to give weight to this apparently is basic to its argument that the method is so unsuited to the instant procurement that the exception of it from the regulation must be implied. We do not read the regulation that way. The plaintiff's overhead allocated to Contract Nobs-3556, was by the evidence in the record entirely out of line with that which the lower bidders would have allocated. A Board applying the method would be required by § 3.808-5(b) (3) to analyze the overhead items of cost and determine "how much they contribute to contract performance." A range of 4-7% is assigned to "manufacturing overhead" and a range of 6-8% to general and ad- ministrative expenses. We think the Board would be within its charter in deny- ing a return on that part of the overhead which exceeded the allocation of other Shipbuilders. Moreover, under § 3.808-5 (e) (1) tae Board is to make an analysis "of the contractor's dependence on Gov- ernment financial assistance * * *," If the dependence is great, it is a minus factor in determining the allowable profit. -16- While the point may be débatable, we think that the addition of a bonus to a contract price to enable the contractor to maintain uneconomically large facilities in being is in reality a form of Government finan- cial assistance and should be treated as such, On the other hand, the guidelines attach favorable consideration in § 3.808- S(e) to "Contractor's assumption of con- tract cost risk." The guidelines here look with least favor on a cost plus fixed fee contract with full cost reimbursement, and most favorably, at the other end of ot the scale, ona "closely priced firm fixed. price contract" for a complex item, which "would reflect a complete assumption of cost responsibility." We have here a firm fixed price contract for a complex item, with only limited escalation, and according to Mr. Strohmeier, a real pos- sibility of loss prospectively considered, if other business was not obtained. It would appear Contract Nobs-3556 at least is, on this factor, closer to the favor- able than the unfavorable end of the scale. (Of course, we do not know from the record to what extent the loss would have been an actual cash drain and to what extent a paper write-off.) The guidelines appear to be the Pentagon's best thinking on the subject of the proper administration of profit limitation clauses, and this favorable consideration of close pricing and assumption of risk stands in stark contrast to the Board's unfavorable consideration of what is apparently the same thing: plaintiff's willingness to accept a price shaved close above the estimated cost. It would, of course, be improper -17- for us to make a determination ourselves under the "Weighted guidelines method" for the reasons explained in Newport News and for the further reason that the record is inadequate. To use the method one needs to be well informed. The Board will no doubt supplement the stipulation with further evidence. We do not know whether, by proper application of the method, plaintiff will fare better or worse than 5%. Plaintiff desires to take its chances under the "Weighted guidelines method" and it has a legal right to do so. As we have said, we see no injus- tice or anomaly in applying profit limit- ation techniques, as the Pentagon may have amended and prescribed them from time to time, up to the date of the deter- mination. We would presume that changes were intended to clarify and simplify, as well as to reduce the impact of subjec- tive factors in the mind of the adminis- tering official. To some extent amend- ments may reflect earlier departures in actual practice, toa large extent no doubt they are the product of experience. If anything has been slipped in which would impair vested rights unless limited to prospective application only, let it be pointed out. If we have erred in thinking the "Weighted guidelines method" is feasible to apply to the instant con- tracts, the Pentagon even now could amend or supplement its regulation, and the Board would be bound, provided no impairment of vested rights was attempted. Any amendment purporting to reaffirm the position now claimed, that officials determining a reasonable level of profit under clauses such as Article 6(e) are not subject to any published guidelines PTA DANG, te A -18- whatever in certain cases, at least would advisedly be made in light of the recent statement of the Supreme Court: "* * * a broad, roving authority, a type of admin- istrative absolutism [is] not congenial to our law-making traditions." Gutknecht v. United States, 396 U.S. 295, 90 C.Ct. 506, 24 L.Ed.2a ey CONCLUSION Plaintiff's motion for summary judg- ment and defendant's cross motion for sum- mary judgment are denied. Further proceed- ings are stayed pursuant to Rule 167 for a period of six months to enable the parties to obtain further fact findings in accord- ance with this opinion under the applicable guidelines in published regulations. Plain- tiff shall advise the commissioner of the Status of the case before the Armed Services Board of Contract Appeals at intervals of not less than 60 days beginning with the date of this order, as prescribed in Rule 167(e) and (f). DAVIS, Judge (concurring) : Newport News, which I consider now binding on me, settled the issue of whether the ASPR guidelines were required to be followed even though neither party invoked them before the Board. That being so, I agree with the court, for the reasons it gives, that those regulations apply in this case as well, and on that basis I join in the disposition requiring them to be applied here. SKELTON, Judge (dissenting) : I respectfully dissent. In my Opinion, a AES EI BOE, EEA SPOOL, PIPE lin -19- Newport News Shipbuilding & Dry Dock Co. v. United States, 179 Ct.Cl. 97, 374 F.24 516 (1967), does not control this case and it should not be sent back to the board (ASBCA) in order to allow it to use the guidelines of the Department of Defense regulation published in 1963 (28 Fed. Reg. 12546, 12555, amending 32 C.F.R. §§ 3.808 and ff. (part 3)), to determine the profit of the plaintiff in this case, for the following reasons: (1) This regulation was not in existence at the time the contracts involved here were executed and could not have been contemplated by the parties. Although the same situation existed in Newport News, the facts in the two cases are completely different. There the court held that the regulation must be applied to the original competitive prices as well as to escalated prices, but that cannot be done in the instant case because the bids here were not com- petitive. It is improper to apply the regulation retroactively under these cir- cumstances in our case. In fact, it is impossible to apply the decision in Newport News to the original prices here. (2) The contracts before us were negotiated between the parties and were not the result of competitive bids. In fact, they amounted to a subsidy by the government, and without them the plain- tiff would have had to have closed its doors and gone out of business. Plain- tiff was not the lowest bidder, as two other companies submitted lower bids. The government gave it the contracts after negotiation to reep it in opera- tion. As a result, the plaintiff has — Re: fe eBoy AR asitinsinitintint tats CT a MORAY RE RTE IRT — SO BSN eat Pea OR CT eet ETT a DON Sete A tN =-20- been subsidized to the extent of a five percent profit on the undertaking, but instead of being grateful for this gener- Osity, now sues for more, It is imprac- tical, if not impossible, to apply the regulation to the prices thus negotiated between the parties. (3) The parties Submitted guide- lines to the Board that they wished it to consider. The Board did consider them fully, as indicated in its opinion. The Plaintiff did not ask the Board to con- sider any additional guidelines and did not mention those set forth in the regu- lation which was in force at the time of the Board's decision. No request was made that the guidelines in the regula- tion be considered. It is too late, in my opinion, for the Plaintiff to make such a request, and it is error for us to allow it to do so. (4) The Board found as a fact that the parties agreed that plaintiff's profit would be five percent, and plain- tiff has not challenged this finding. I would grant defendant's cross- motion for summary judgment, deny plain- tiff's motion, and dismiss Plaintiff's petition. a i al a ae eet Ss NEOTEL LO ITO EBS a tie ak cadet cain ea alee o2la ARMED SERVICES BOARD OF CONTRACT APPEALS Appeals of -- ) ) ASBCA Nos. Bethlehem Steel Corporation ) 10316 and ) 10317 Under Contract Nos. NObs~-3556) ‘Reinstated) and NObs-3648) APPEARANCES FOR THE GOVERNMENT: Samuel Pinn, Jr., Esq. Counsel, Naval Ship Systems Command Morris Amchan, Esq. Associate Counsel APPEARANCES FOR THE APPELLANT: E. J. O'Brien, Esq. Bethlehem Steel Corporation Bethlehem, Pennsylvania DECISION ON GOVERNMENT'S MOTION FOR AN ORDER ESTABLISHING THAT THE ASPR NON-WEIGHTED PROFIT GUIDELINES ARE APPLICABLE TO DETERMINING CONTRACT PRICE STATEMENT OF FACTS These appeals are here on remand from the Court of Claims pursuant to the order of the Court in Bethlehem Steel Corporation v. United States, Ct. Cl. No. 44-68 (Decided March 20, 1970). The appeals were previously decided by this Board in an opinion dated 16 June 1966 reported in 66-1 BCA par. 5639. The facts giving rise to this dis- pute will not be repeated here since they are set forth in the earlier Board ESOL EPR LE SLO LOL GONE RIE TET HCN BEE TG MRO Rs ES ~22 decision and in the opinion of the Court of Claims. As the Board stated previously, "The crucial proviso about which the dis- pute arose is Article 6 of both contracts entitled Price Adjustments and commonly referred to as an escalation Clause, which in pertinent part reads: "(e) The Contracting Officer may deny, in whole or in part, any upward adjustment in the contract price required under this Article if the Contracting Officer finds that such adjustment is not required, in whole or in part, to enable the Contractor to earn a fair and rea- sonable profit under this con- tract" .,* The two contracts Called for a total of five destroyers. After they had been performed appellant made a claim for price escalation Pursuant to Article 6 which was denied by the contracting officer as not required to enable appel- lant to earn a fair and reasonable profit under either contract. In decid- ing the appeals Subsequently taken from the final decisions of the contracting officer, this Board sustained appel- lant's position in part, and allowed escalation to the extent that appellant would realize a 5% profit on costs. Appellant had claimed escalation suffi- cient to enable it to earn a profit of 9.3% on Contract NObs~-3556 and 9.6% on NObs~-3648., Appellant then filed suit in the Court of Claims endeavoring to recover a greater amount of escalation than had been allowed by the Board. The Court RPELE GOLLN OTL CARE ELAM EE ~23= reached a result similar to its decision in Newport News Shipbuilding and Dr Dock Company v. The United tates. £79 Ps 55 119677 i.e., that the Board had erred in not determining fair and reasonable profit in accordance with what the Court regarded as the applicable guidelines for establishing profit objectives set forth in the Armed Serv- ices Procurement Regulations (ASPR) at the time the Board rendered its decision. For the purpose of determining the Bethlehem appeals, the Court said that the Board should have applied the so- called "weighted guidelines" as set forth in ASPR Part 3-803, effective 15 August 1963. In its Newport News opinion the Court said that the Board, in deciding the Newport News appeals should have applied the so-called "non- weighted guidelines" set forth in ASPR 3-808 effective January 1960. The Board had decided the Newport News appeals in 1962. The "non-weighted guidelines" were superseded by the "weighted guidelines" in 1963. The "weighted guidelines" appear in the presently effective ASPR 3-808. In reaching its decision in the Bethlehem case, the Court discussed the type of analysis which it thought the Board might undertake in applying the "weighted guidelines" to determine fair and reasonable profit on the basis of relevant facts. However, the Court did not purport to determine the amount of profit to which appellant might be entitled through application of the weighted guidelines. In the language most relevant to resolving the inter- locutory question now before us, the a 2io Court said: "It would, of course, be improper for us to make a determina- tion ourselves under the 'Weighted guidelines method' for the reasons explained in Newport News and for further reason that the record is inadequate. To use the method one needs to be well informed. The Board will no doubt supplement the stipulation with further evidence. We do not know whether, by proper application of the method, plain- tiff will fare better or worse than 5%. Plaintiff desires to take its chances under the “Weighted guide- lines method' and it has a legal right to do so. "As we have said, we see no in- justice or anomaly in applying profit limitation techniques, as the Pentagon may have amended and pre- scribed them from time to time, up to the date of the determination. We would presume that changes were intended to clarify and simplify, as well as to reduce the impact of subjective factors in the mind of the administering official. To some extent amendments may reflect earlier departures in actual prac- tice, to a large extent no doubt they are the product of experience. If anything has been slipped in which would impair vested rights unless limited to prospective application only, let it be pointed out. If we have erred in thinking the ‘Weighted guidelines method' is feasible to apply to the instant BLE D THROUGH =2?5- contracts, the Pentagon even now could amend or supplement its regu- lation, and the Board would be bound, provided no impairment of vested rights was attempted. Any amendment purporting to reaffirm the position now claimed, that offi- cials determining a reasonable level of profit under clauses such as Article 6(e) are not subject to any published guidelines whatever in certain cases, at least, would advisedly be made in light of the recent statement of the Supreme Court: ‘'* * * a broad, roving authority, a type of administrative absolution [is] not congenial to our law-making traditions." Gutknecht v. U [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385608_1216%3A1. Public record. Not legal advice.