# Appendix — United States v. Acme Process Equipment Co.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1967
- **Citation:** 385 U.S. 138

## Text

PAGE -

APPENDIX

an the United States Court of Gains

No. 849-57
(Decided June 11, 1965)

ACME PROCESS rabrr Hur CO., TO ITS OWN

USE, AND FOR THE USE AND ‘BENEFIT OF

NICHOLSON PRODUCTS COMPANY, STEEL
HEDDLE MANUFACTURING CO. FOLEY MA-

‘CHINE COMPANY, PATTERN "MACHINE &
FOUNDRY CORPORATION, INTRICATE MANU-’

-FACTURING COMPANY, J KOHAN, D/B/A
MANALAPAN MACHINE & WELDING WORKS,
AND PITTSBURGH NATIONAL BANK, SUCCES.
SOR TO PEOPLE’S FIRST NATIONAL BANK &
TRUST COMPANY, ASSIGNEE OF ALL METALS
INDUSTRIES, INC. v. THE UNITEDSTATES

Jack — for the plaintiff, — Dimond and
George E. Palmer of counsel. !

James F. Merow, with whom was Assistant Attorney
ere Ws angles, Senin Safeadont.

Before Cowxx, Chief 2 LaRAMOR®, — Davis
and Cottins, Judges. A

ornnon
Dam, sudge, delivered the opinion of the court:

Plaintiff's first experience as a defense contractor was to

bid on and win two negotiated Ordnunce Corps contracts,
be opinions, asd findings of Commissioner G. Murray Bernhardt. In this

case. its companion, Acme Procese Equipment Co. v. United States, Ct. CL, .

No. „ decided this day, have been most helpful. The court has borrowed
| material from both opinions, although, in some respects, our results -are
different.

210-151—66——_1

*
rr?
*

Nl

ene. es

a

2
both of which soured into litigation In January 1983,

Army Ordnance awarded a contract for the manufacture of

75 mm. recoilless rifles. This project was largely subcon-
tracted, leaving for Acme only the final finishing and as-
sembly of components, and the earlier job of fashioning the:

by the Government under a separate facilities contract.

From the start, Acme ‘was beset by serious production de-
lays due to a combination of causes, among them its own in-
experience, defaults by subcontractors, and defects in some
of the government-furnished machines. Generous time ex-
tensions forgave many delinquent deliveries, but liquidated
damages were assessed on-others. After uncovering alleged
violations of statutes relating to kickbacks, contingent fees,
and conflicts of interest, Ordnance suspended work under
the contract in July 1954 and canceled it two months later in
August 1954. The purported infractions involved a clique
of unprincipled employees of Acme, aligned with a stock-
holding minor. executive of the corporation. In this suit
for breach of contract Acme denies any violations and al-
leges that the charges of malfeasance were a smokescreen to
enable the Government to cancel without cost a contract for
the production of obsolete weapons no longer needed. In
that manner, it is said, defendant hoped to avoid the heavy
cost of a termination for its own convenience. Cancellation
left Acme financially crippled, since it was unreimbursed
for much of its large investment in contract
ee een ee
to obtain settlement.

The Government major defense still ia that Acme is G-
titled to no recovery because it violated certain statutes and

‘covenants (concerning contingent fees, kickbacks, false.

claims, and conflicts of interest). Should each of these ab-
solute defenses be rejected, the plaintiff has requested us to
Shan the tradi based on wpe raid of restitution, rather
is court. Tn addition to ite objection to thia n af elisa,
pee rienced cin rar edi tama

‘eg lsck of standing to sue on behalf of its suboontractors. ‘The

1a" —

* No. 588-50, eupre, fa. 1, involves the other contract. — Pr

wy

3

defendant also argues that, since plaintiff itself -was respon-
sible for delays, it is not entitled to recover delay-damages,
and the contracting officer’s assessment of liquidated dam-
ages was proper. Finally, Acme urges its right to in-
terest on amounts due, on the ground that the Govern-
ment’s actions constituted a taking within the Fifth Amend-
ment. We consider each of these aspects of the case.*

*

I, CANCELLATION

A. COVENANT AGAINST CONTINGENT FEES,

The defendant contends that it validly canceled the con-
tract in the summer of 1954 because (1) Acme misrepre-
sented and concealed its employment of a part-time agent
to secure government contracts; and (2) such an arrange-
ment violated the covenant against contingent fees.
For many years prior to the events with which we are con-
cerned, Acme enjoyed some prestige as a manufacturer of

case, like No. 538-59, was tried and the Commissioner’s report filed
defore the decision of the Supreme Court in United States v. Carlo Bianchi 4
., 873 U.S. 700 (1963), Neither party has preserved an objection to the
receipt of de novo evidence, and we therefore need not concern ourself with that
peobiem, Stein Bros. Mfg. Co. y fa eae any see drapery —
July 12, 1968, 387 F. 24 861, and Gecisions in that line.

It fs impossible to ascertain whether the written contract superseded the
vrior informal agreement.

/
4 .
Tucker was to be paid a weekly minimum salary of $150,

which would be increased to five percent of his weekly gross

sales up to $10,000 (i. e., sales by Acme under contracts ob-
tained through him), plus three percent of such weekly gross
sales in excess of $10,000. Minimum salaries paid prior to
any sales by Tucker were to be deducted, later, from the ex-
cess of his commissions over his minimum weekly guarantee.
The result was that the guaranteed weekly salary was a non-
recoverable advance against commissions; Acme could, how-
ever, cancel the contract if commissions failed to cover the
minimum salary guarantee. Norris and Tucker also entered
into an agreement with each other that Norris would
receive fifty percent of any fees paid Tucker by his other
clients for enabling them to obtain subcontracts from Acme.
Piaintiff was unaware of this latter arrangement.
Tucker shortly produced a deluge of inquiries, bid pro-

posals, and invitations from both commercial and -
merit ‘sources. Among these were the invitattons to bid on
the contract at bar (Contract 1213), as well as the agreement
(Contract 8580) which is the subject matter of the other suit,
No. 538-59.

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

A

5

plaintiff had, in early October, hired Tucker on a part-time
basis to solicit government contracts.

We assume, for this part of the case, that these misrepre-
sentations, or the substance of the Acme-Tucker contingent
fee arrangement, or both, breached the contract. But the
crucial point is that the defendant, after obtaining knowledge
of ti facts, waited until over a year later before canceling
the agreement. Could an election to cancel be delayed for

such a time? We hold not. In our view, an election to
annul the contract had to be made with reasonable prompt-
ness after the Government gained knowledge of the facts;
by putting off its decision for an inordinately long period,
the defendant lost the right it earlier had to terminate the
contract without incurring any cost.

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

This phase of the case—as distinguished from the Gov-
ernment’s responsibility to reimburse Acme for payments to
Tucker in violation of the covenant against contingent fees—
is governed by the rule that, “[W]here a contract is breached
in the course of its performance, the injured party has a
choice presented to him of continuing the contract or of re-
fusing to go on. If he chooses to continue performance he
has doubtless lost his right to stop performance *.” 5
Williston, Contracts § 683 (3d ed. 1961) (footnotes omitted) ;
e. g. Lummus Co. v. Commonwealth Oil Refining Co., 280
F. 2d 915, 929-30 (C. A. 1), cert. denied, 364 U.S. 911 (1960);
Lichter v. Goss, 232 F. 2d 715, 720 (C. A. 7, 1956). After dis-

In both this case and its companion, we also reach the different question

whether the Government can validly refuse to reimburse the plaintiff for
payments made to Tucker.

6

covering the contingent-fee violations, defendant could not
wait for over a year to decide whether it wished to annul the
‘contract as a whole, on that basis. The sanction of contract
cancellation is too drastic to permit a long delay. Beyond the
time reasonably necessary to determine if there has been a
misrepresentation or a violation of the covenant,’ the de-
fendant cannot allow an unwary contractor to continue. per-
“formance and thus incur large expenses, all of which the Gov-
ernment will refuse to reimburse if and when it decides to
‘cancel the contract on the ground of the violation. As this
— said in Companhia Atlantica v. United States, 148 Ct.

Cl. 71, 78, 180 F. Supp. 342, 347, cert. denied, 364 U.S. 862
(1960), “it would be a great wrong to permit the Government
to awaken such a ‘sleeper’ to justify its cancellation * *.”
In that case, the plaintiff had fully apprised the defendant
of the contingent fee arrangement at the outset of negotia-
tions, which lasted over a year. The Government then can-
celed its contract for the purchase of tungsten from the plain-
tiff less than two months after the agreement had been signed,
and later sought to defend its action on the grounds that the
‘covenant against contingent fees had been violated. Al-
though the court found that there was no violation, it also
based its decision on the alternative ground that the defend-
‘ant had waited too long before annulling the contract. Here,
too, we refuse “to awaken such a ‘sleeper’.”

The severity of contract cancellation makes the present
case, in this aspect, wholly unlike one in which the Govern-
ment simply attempts to recover or withhold funds paid in
violation of the covenant against contingent fees. That type
of action is governed by the principle that, where government
officials have erroneously or illegally paid out money, mere
delay in seeking its recovery will not preclude a suit by the
United States. See Acme Process Equipment Co. v. United
States, Ct. Cl., No. 538-59, slip op. pp. 17-19, decided this day.
But when the Government cancels an entire.contract because

We take into account, in establishing what was a reasonable time for
determining whether the covenant against contingent fees was violated, the
fact that an evaluation of all the circumstances surrounding the arrangement
is often necessary. See Aome Process Equipment Oo. v. United States, Ct. Cl.
No. 588-59, slip op., pp. 12-16, 19, decided this day. Dot, an potated ont saire,

the fourteen months which the Government waited before canceling Con
1213 was an unreasonable delay even by lenient standards.

*

7 *

of a breach of the covenant, it can refuse to reimburse the con-
tractor, not only for wrongful or illegal expenditures, but
also for amounts to which the contractor would otherwise be
legally entitled. To avert extreme hardship, we think that
the Government is obliged to take such a course within a
reasonable time after it has discovered the breach."

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

In connection with its other major government contract
(“8580”), Acme gorrectly represented, on November 4, 1952,
in the bid which it submitted to Rock Island Arsenal that it
had employed a part-time agent to obtain the contract. On
or about December 12, 1952, Rock Island received from plain-
tiff a formal “Contractor’s Statement of Contingent or Other
Fees,” to which was attached a copy of Acme’s employment
contract with Tucker dated October 13, 1952. Contract 8580
was awarded to plaintiff by Rock Island on J. anuary 8, 1953,
but was administered by the Philadelphia Ordnance District,

Mississippi Valley Generating Oo., 364 U.8. 520 (1961), in which the Supreme
Court held that a government contract for the construction and operation of
power plant was unenforceable, on the ground that a federal confiict-of-
interest statute, 62 Stat. 708, 18 U. 8. C. § 434, had been violated in

the contract. That penal provision “speaks in broad, absolute terms,” estab-
lishing “a rigid rule of conduct” (364 U.8. at 550, 551), and its violation may

8

the same agency which handled present Contract 1213 from
its inception. Thus, even prior to the award of Contract
1213 to Acme on January 27, 1953, the contracting Ordnance
District had access to the Tucker employment agreement,
which was physically incorporated in the Contract 8580 file,
although the District had no particular reason to refer to
that part of the file.

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

The Government seeks also to justify the delay on the
ground that it was not told al the relevant facts until shortly
before it canceled. It emphasizes an alleged informal agree-
ment between Tucker and plaintiff’s president, entered into

* Plaintiff seeks to impute knowledge of the Tucker contract to the Ordnance
District as of January 1953, but we see no basis for such an imputation.

be May 18, 1953, notification included one incorrect statement. The letter
said that Tucker had been a full-time employee since January 1953, whereas
the contract under which he began working full-time was not effective until

March 1953. However, this errer did not conceal the existence of the
contingent-fee relationship.

9

when he first began working for Acme in the fall of 1952.
Under that agreement, Tucker was to receive a three per-
cent commission, which he agreed to share equally with Nor-
ris. But the only evidence in the record of this arrange-
ment is a written statement made by a General Accounting
Office investigator in June 1955, on the basis of an interview
with Joshua Epstein, Acme’s president. Even if we accept
at full value this second-hand statement made three years
after the events, there is no way of knowing whether the
alleged informal agreement was superseded by Tucker’s
written contract. If that was the case—which it might well
have been—this commission-splitting agreement lasted no
more than two weeks. In this state of the proof we cannot
give any significance to this allegéd side-agreement. Other
than the information referred to in footnote 9, swpra, this
is the only “fact” which the Government can point to as re-
maining undisclosed after May 1953. We do not hesitate,
therefore, to conclude that the defendant had sufficiently
full knowledge of the contingent-fee arrangement as of
May 1953, and could not delay until July 1954 to elect on
that ground to exercise the drastic remedy of complete
cancellation.
B. ANTI-KICKBACK ACT

The Tucker organization victimized Acme chiefly through
the receipt of illegal kickbacks. Unknown to plaintiff,
various small manufacturers in the metals field had service
contracts with Tucker similar to the one he had with Acme.
Under those agreements, Tucker received a minimum week-
ly guarantee, as well as commissions for obtaining contracts.
When plaintiff, through Tucker and Norris, let subcontracts
to secret clients of the two conspirators; each subcontract
necessarily contained an amount to cover the fee paid to
Tucker and shared by Norris. Since the pair not only pre-
pared Acme’s government contract bids, but also negotiated
all its related subcontracts, they were in 4 splendid position
to mulct their employer.

As pointed out in the opinion in the other Aome case, No. 588-59, the facts
known to defendant by the Spring of 1953 were sufficient to call for an election
at that time to use the severe remedy of total cancellation, but the Govern-
ment’s delay after these facts were known was not sufficient to constitute an
affirmative waiver of the defendant’s conventional right to refuse to reimburse
Acme for its illegal payments to Tucker. There is no inconsistency.

10

The subcontract let to All Metal Industries, Inc. is the
most flagrant example of the Tucker-Norris extortion
scheme. More is involved than the secret commissions which
the two received from All Metals for enabling it to secure
subcontracts from the plaintiff. In addition, Tucker, Nor-
ris, and Jack Epstein, who was a plant superintendent and
minor stockholder of Acme, 1 forced All Metals to agree to
pay $23,500 to them through Gunn Engineering Company,
a dummy corporation. It was understood that All Metals
would pass this cost on to Acme by including it in the sub-
contract price. All Metals actually paid $12,000 to Gunn
under the agreement. When the conspirators later became
fearful of exposure, they attempted to expunge all evidence
of the transaction from the subcontractor’s books. Through
an oversight, however, they left in the cost-structure of All
Metals’ ultimate subcontract price to Acme the $12,000 al-
ready paid to Gunn Engineering Company (although this
‘sum was more than offset by Tucker’s waiver of certain com-
missions Which All Metals owed him). Even after All
Metals decreased its ultimate price to less than that con-

» templated,prior to the extortion scheme, the reduced price
Still reflected some portion of the combined fees which All
- Metals had paid or agreed to pay to Tucker and Gunn.
Bookkeeping technicalties tend to obscure this fact, but, in
the final analysis, had Contract 1213 been of a cost-reim-
‘- bursable nature, the Government would ultimately have
borne part of the cost of the kickbacks. See findings 20
and 21. *

The arrangements between Tucker and other firms for
which he obtained subcontracts from Acme were less com-
plex, but hardly less reprehensible. For instance, Manala-
pan hired Tucker in November 1952 and agreed to pay him
$100 weekly as a nonrecoverable advance against commis-
sions. As a result, Manalapan obtained a series of small pur-

chase orders Acme under Cotitract 1213 from February
through July 1953. The subcontract prices hid the $1,350 in

u Zack Epstein was the son of Joshua Epstein, president of\Acme. There
is no evidence, however, that Joshua Epstein knew anything about the kick-

backs which Tucker and Norris were receiving from subcon or the
extortion scheme they, carried out with his son. Nor is there ive evi-
dence that any Acme employee or official other than the conspira aware

of these illicit activities.

\

*

11
commissions and/or salaries which Manalapan paid Tucker

and which Tucker shared with Norris. The conspirators -

entered into comparable agreements with several other sub-
contractors. See findings 18-25. These subcontractors
knew or should have known that Tucker was Acme’s agent,
but the responsible officials of Acme were not aware of the
double agency.

In these circumstances, the defendant claims that Acme
violated the Anti-Kickback Act, 60 Stat. 37, as amended, 41
U.S.C. 8 51, and that that violation authorized the Govern-
ment to cancel the contract. The Anti-Kickback Act, first
enacted in 1946, was significantly amended in 1960. 74
Stat. 740. Both versions retroactively prohibit the payment
of any compensation or gratuity by a subcontractor to an
agent, employer, or official of a higher tier subcontractor or
& prime contractor with the United States. By the terms of
the statute, such compensation is conclusively presumed to be
included in the price ultimately paid by the Government,
and the United States may bring a civil action against the
prime contractor, subcontractor, or the agent to recover that
amount. Along with this civil remedy, the statute provides
criminal penalties against persons knowingly making or re-
ceiving prohibited payments. Under the 1946 Act, coverage
is limited to government contracts on a “cost-plus-a-fixed-fee
or other cost reimbursable basis.” *

u Citing Carrier Corp. v. United States, Ct. Cl., No. 346-59, decided Feb. 14,
1964, 828 F. 2d 328, the Government claims that the wrongdoers were given
broad apparent authority by the plaintiff, and that Acme is therefore bound
by their acts. Even if the premise is true, the conclusion does not follow.
Imputation of an agent’s actions to his principal is precluded where the agent’s
action is taken for the purpose of defrauding the principal. 8 Fletcher,
Private Corporations § 826 (rev. ed. 1947) ; ¢.9., Maryland Casualty Co. v. Tulea
Industrial Loan & Investment Co., 88 F. 2d 14, 16-17 (C.A. 10, 1036). Since
the commissions which the Tucker organization received from subcontractors
increased their charges to Acme, plaintiff was being swindled by its own agents.

The statute, as originally enacted in 1946, provided: “[T]he payment of
any fee, commission, or compensation of any kind or the granting of any gift
or gratuity of any kind, either directly or indirectly, by or on behalf of a sub-
contractor, as hereinafter defined, (1) to any officer, partner, employee, or
agent of a prime contractor holding a contract entered into by any department,
agency, or establishment of the United States for the furnishing of supplies,
materials, equipment or services of any kind whatsoever, on a cost-plus-a-fixed-
fee or other cost reimbursable basis; or to any such prime contractor or (2) to
any officer, partner, employee, or agent of a higher tier subcontractor holding
a subcontract under the prime contract, or to any such subcontractor either
as an inducement for the award of a subcontract or order from the prime
contractor or any subcontractor, or as an acknowledgment of a subcontract

12

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

The Government first claims that it was entitled to cancel
Contract 1213 for violation of the original Anti-Kickback
Act. It asserts that when Congress, in 1946, provided a civil
remedy entitling the Government to recover the amount of

or order previously awarded, is hereby prohibited. The amount of any such fee,
commission, or compensation or the cost or expense of any such gratuity or
gift, whether heretofore or hereafter paid or incurred by the subcontractor,
shall not be charged, either directly or indirectly, as a part of the contract
price charged by the subcontractor to the prime contractor or higher tier
subcontractor. The amount of any such fee, cost, or expense shall be recover-
able on behalf of the United States from the subcontractor or the recipient
thereof by sét-off of moneys otherwise owing to the subcontractor either directly
by the United States, or by a prime contractor under any cost-plus-a-fixed-fee
or cost reimbursable contract, or by an action in an appropriate court of the
United States. Upon a showing that a subcontractor paid fees, commissions,
or compensation or granted gifts or gratuities to an officer, partner, employee,
or agent of a prime contractor or of another higher tier subcontractor, in
connection with the award of a subcontract or order thereunder, it shall be
conclusively presumed that the cost of such expense was included in the price
of the subcontract or order and ultimately borne by the United States. Upon
the direction of the contracting department or agency or of the General
Accounting Office, the prime contractor shall withhold from sums otherwise
due a subcontractor any amount reported to have been found to have been paid
by a subcontractor as a fee, commission, or compensation or as a gift or
| &ratuity to an officer, partner, employee, or agent of the prime contractor or
another higher tier subcontractor.”

13

the kickback, it did not intend to alter the pre- existing com-
mon law remedy of contract cancellation. The major stum-
bling block is the absence, so far as we know, of any decision
or comment in support of the proposition that there was such
a remedy at common law. In fact, the House Report on the 8
1946 Act states, There is no existing statutory or other au-
thority of law under which it may be said - that the United
States clearly has a right»to recover the amounts of any such
fees or gratuities.” H.R. Rept. No. 212, 79th Cong., Ist Seas.
2 (1945). 4 fortiori, it is highly doubtful that there was
any pre-existing right of the Government to cancel the entire
contract of a prime contractor whose agents received im- SE ae
proper kickbacks of which he was unaware.
In its effort to invoke a forfeiture, the most drastic civil
penalty known to common law, the Government has cited only
sparse collateral support. There are statements in United
States v. Davio, 136 F. Supp. 428, 428 (E. D. Mich., 1955),
that the Anti-Kickback Act codified the prior common law
remedy. But that suit was for the recovery of amounts paid
as kickbacks. Nowhere does the court hint that the Govern-
ment Had a pre-existing right of contract cancellation in the
present circumstances.“ Whether it was codifying an exist-
ing right or creating a new one, Congress, when it enacted the
1946 legislation, gave the Government only one civil remedy
against contractors whose agents had pived secret kick-
backs. Had the legislature wished to p the additional
remedy of contract annulment, it could have done so. Cf.
Armed Services Procurement Act of 1947, § 4, 62 Stat. 21,
23, 10 U.S.C. 8 2306 (b). In the absence of any statutory
„indication that the Government has a right to cancel the con-
tract in this situation, it is not for the court to engraft a new
and drastic remedy onto the Anti-Kickback Act. Cf. Un-
- encelled Chemical Corp. v. United States, 187 Ct. Cl. 681, 684
149 F. Supp. 383, 385 (1957).

2 It fe of course clear . kuows that another has éniployed
an.agent to conduct a transaction with him is subject to lability to the other-
for secretly employing the [agent] to act on his account in the transaction.
* © © The defrauded principal can rescind the transaction with the

, principal * * *.” Restatement, Agency 24 § 391, Comment g. That
ciple would have enabled Acme to cance] its agreements with the n-
tractors, but it could not give the defendant a right to cancel its con with.
Acme. See Aome Process Equipment Co. v. United States, Ct. Cl., No. *
decided this day, slip op., p. 20, et geg. 5

14

Furthermore, we have grave doubts about the applicability
of the 1946 Act to the present contract. If it is not appli-
cable, the Government’s position must be rejected for the
additional reason that in 1953 and 1954 there was no recog-
nized federal public policy invalidating Contract 1213. Cf.
Muschany v. United States, 324 U.S. 49, 66-67 (1945).% If
the 1960 anti-kickback legislation was the first provision
covering Contract 1213, the improper actions which took
place in 1953 hardly. contravened “long government practice

or statutory enactments.” ** When Acme’s agents received

kickbacks about which plaintiff had no knowledge, it can
scarcely be said that plaintiff (as distinguished from the
agénts) violated “obvious ethical or moral standards”, and
that its contract with the defendant could therefore be can-
celed on that

The unreported district court decision granting the mo-
tion for acquittal of Tucker, Norris, and Jack Epstein is,
of course, a direct holding that the 1946 anti-kickback legis-
lation did not cover the present contract. One of the pri-
mary reasons behind the enactment of the 1960 amendment
was to remove serious doubt that fixed-price contracts with
redetermination clauses were included in the act’s coverage.
See S. Rep. No. 1585, 86th Cong., 2d Sess. 2-6 (1960). While
the Tenth Circuit has held that the 1946 Act covers
certain contracts having price-redetermination provisions,
it emphasized that the contract with which it was dealing
had “no limitation * * * upon the range of redetermination
or revision of prices, upward or downward.” United States
v. Barnard, 255 F. 2d 583, 588 (C.A. 10), cert: denied, 358
nn is a matter of public importance that good faith contracts of the
United States should not be lightly invalidated. Only dominant public policy
would justify such action. In the absence of a ploin indication of that policy
through long governmental practice or statutory enactments, or of violations
of obvious ethical or moral etendards, this Court should not assume to declare
meer The courts must
be content to await legislative action.” (Emphasis added.)

Like its predecessor, the 1960 statute was given retroactive effect, and
might conceivably be a “statutory enactment” on the basis of which
contract could be canceled. This would result, however, in the use of legislation
enacted in 1960 to condemn conduct taking place in 1953-1954, and to justify
@ fcrfelture. We think the Court in the Muschony case was referring to
“statutory enactments” in ese.

1 The district court decision in the criminal case does not collaterally estop
the Government from aéserting the applicability of the 1954 Anti-Kickback Act

to the present contract. See United States v. PT ee ee
Boerds, 339 U.S. 485, 492-04 (1950). —

2

15

U.S. 919 (1958). Acme’s contract, however, had a limited
range of upward revision. See finding 15. The applica-
ility: of the 1946 Act to Contract 1213 is thus highly
For these reasons, the present case is not like United States
v. Mississippi Valley Generating Co., 364 U.S. 520 (1961).
‘There, the dual agent violated a federal conflict-of-interest
statute, 62 Stat. 703, 18 U.S.C. § 434, in the negotiation of
a contract entered into with the United States. Unlike our
case, the statutory provision which the agent violated was
undoubtedly on the books at the time of the misconduct.
Also, the statute itself provided no more than a criminal
sanction. Had the Supreme Court refused to imply a civil
remedy, “the public [would] be forced to bear the burden
of complying with the very sort of contract which the statute
sought to prevent.” 364 U.S. at 563. Here, the civil
remedy established by the statute enables the Government
to recover any amounts it has paid out as a result of kick-
backs; the public does not bear any part of the expenses
illegally incurred. And most significantly, the violation in
Mississipi Valley Generating Co. affected the validity of
the entire transaction, In the negotiations preceding’ the
contract, the Government was represented by a consultant
who was, at the same time, associated with an investment
banking company which stood to profit if the plaintiff was
awarded the contract. . The contract was the result of these
tainted negotiations. In addition, the plaintiff itself was
not altogether innocent, since it was well aware of the pos-
sible conflict of interest. 364 U.S. at 565 n. 19. The kick-
backs with which we are concerned, however, were in no
way related to the negotiation and execution of Contract
1213, and do not affect its validity. They were separate
transactions, made without the knowledge of the plaintiff,
which certainly had nothing to gai by these secret dealings.
The principles of Mississippi Valley Generating Co. do not
require or suggest that the contract at bar could or should
‘be canceled because of the secret receipt by Tucker-Norris
of kickbacks from suboontractors. ova
__™ The defendant urges that a ruling against cancellation will render It im-

possible for the Government to annul an agreement with a prime contractor
after discovering that its agents have secret kickback arrangements with its

b 16

O. CONFLICT-OF-INTEREST STATUTES

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

In the early stages of contract performance Acme was ex-
periencing production problems with machines and tooling
supplied by the Government under a companion facilities
contract. At plaintiff's request Watervliet Arsenal ordered
Harold J. Lee, a machinist lead foreman at the Arsenal, to
report to Acme’s Lansdale plant to assist plaintiff in its tech-

nical problems. Under his official orders Lee worked at
Acme’s plant from his arrival on April 20 until April 24,

1953, at government expense. The Arsenal refused ‘Acme’s
request that it loan Lee’s services for an additional week at
government expense. Instead, Lee was given official per-
mission to remain at the plant, advising plaintiff in an absent-
without-pay status from April 27 to May 1, 1953. During
this latter period he worked 96 hours, for which Acme paid
him $5 per hour plus hotel expenses (compared to his gov-
ernment salary rate of 52. 0 per hour). The amounts paid
by Acme to Lee were charged against Contract 1213. Plain-
tiff was pleased with Lee’s services and commended him to
Watervliet Arsenal. Upon his return Lee filed with the
Arsenal a trip report, which described the production prob-
lems he had observed and the advice he had given Acme
personnel for their solution. In large part the report re-
flects the mexperience of Acme’s personnel and their lack of
necessary equipment. There is no evidence of any improper
conduct on the part of plaintiff or of Lee—aside from the
propriety of his being hired at all. The defendant concedes
that Lee’s employment by plaintiff did not affect his impar-
tiality, —— ——̃ of Nis tenort
dq ·- A nee
case.

3 ee
provide itself with that remedy, it may do so by inserting a “covenant against
kickbacks” (similar to the covenant against contingent fees) in all its contracts.
Z eee eee
e

17

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

After Contract 1213 was awarded to Acme, Charles G.
Hochstuhl of Philadelphia Ordnance District was assigned
to administer it, along with other contracts. As part of his
duties in connection with 1213, Hochstuhl recommended
changes in the delivery schedule, and journeyed to Ohio in
March 1953 in the company of Acme officials to show them
existing gun-manufacturing facilities. He was removed
from his position with the Government effective August 4,

*The conflict-of-interest provisions allegedly violated have since been super-
seded by Public Law 87-849 (76 Stat. 1119, 18 U.S. C. $§ 201 et seq.), enacted
October 23, 1962, an omnibus exposition and revision of all statutes in the
field of confiict-of-interest, bribery and graft relating to government employ-
ment. Since the acts complained of occurred prior to the omnibus measure
they must be tested against the law then extant, but useful tion on
the purpose of the superseded statutes is available from the legislative back-
ground and content of the latest compendium.

Don his return to Philadelphia Ordnance District from this trip, Hochstuhl

submitted a voucher and was paid for his per diem and other trip expenses.
An Acme employee had paid $1240 for Hochstuhl’s hotel room charges on

diseusséd tn connection with Lee. Even if it & violation, the $12.50
gratuity would not justify cancellation of a $1 000 contract.

210—151—66— 2 *

18

1953, “* * * for making material false statements and exag-
gerations on [his] application standard Form 57,” relating to
prior private employment. During his notice period, Hoch-
stuhl looked for other work and was employed by Acme in
August 1958, immediately following his release. The de-
fendant advised Acme at the time that, for two years there-
after, Hochstuhl could not engage in negotiations with his
former employer concerning Acme’s contracts.

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

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

19

machines to the Government unless it gave assurance that
Acme would be reimbursed for its cost of repairs. See find-
ing 53. 5

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

D. FALSE CLAIMS ACT

The last reason which the defendant gives for vitiating
the contract is the presentation of certain allegedly false
claims for payment, both before and after cancéllation. As
a result of these submissions, the Government argues, Acme’s
claim was subject to forfeiture under 62 Stat. 978, 28 U.S.C.

20

§ 2514, and the corporation may be fined under the False
Claims Act, 12 Stat. 696, 31 U.S.C. § 231.

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

Another set of allegedly false claims came during the pen-
dency of this suit when the parties held settlement negotia-
tions. In conjunction with these efforts, plaintiff submitted
the fiscal aspects of its claim to the Government in August
1958 on a standard contract-termination form, certifying in
part that “they have been prepared with knowledge that they
will, or may, be used directly or indirectly as the basis of
settlement of a claim or claims against the United

™ The statute provides: “Forfeiture oj fraudulent claims. A claim against
the United States shall be forfeited to the United States by any person who
corruptly practices or attempts to practice any fraud against the United States.
in the proof, statement, establishment, or allowance thereof.

In such cases the Court of Claims shall specifically find such fraud or attempt
and render judgment of forfeiture.”

. The relevant portions of thie statute read as follows: “Liability of persone
faloe claims. Any person employed in the service of the United

tes, who shall make or cause to be made * * * any claim upon or against
the Government of the United States, or any depertment or officer thereof,
knowing such claim to be false, fictitious, or fraudulent, * * * shall forfeit
and pay to the United States the sum of $2,000, and, in addition, double the

amount of damages which the United States may have sustained by reason of
the doing or committing such act, together with the coste ef t

21

States * *.” In its proposal, plaintiff reclassified several
of the previously-mentioned cost items as General and Ad-
ministrative expenses rather than direct charges, thus allocat-
ing only a portion of them to the performance of Contract
1213. This settlement claim was subsequently rejected.

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

The defendant has asked not only that the plaintiff’s en-
tire claim be forfeited for practicing “fraud against the
United States in the proof * * * thereof” (62 Stat. 978,
28 U.S.C. § 2514, supra); it has also filed a counterclaim
under the False Claims Act, 12 Stat. 696, 31 U.S.C. § 231,
supra, seeking an affirmative judgment of $6,000 for plain-
tiff’s misrepresentations in the price redetermination pro-
ceedings, in the termination settlement proposal, and in the
schedule submitted pursuant to former Rule 28 (b). But
“fraud, resulting in forfeiture, can be found only on the
basis of clear and convincing evidence.” Chelsea F
Ino. v. United States, 149 Ct. Cl. 202, 212, 181 F. Supp. 685,
691 (1960). Inthe Government’s effort to supply such “clear
and convincing evidence,” there is at least one large gap.
Plaintiff's costs, exclusive of those challenged as improper,
overwhelmingly exceeded the contract ceiling price for which

22

the application in April 1954 was designed to obtain ap-
proval. In a letter sent to the Philadelphia Ordnance Dis-
trict in connection with the application, Acme’s accountants
noted that certain “recommendations of the Army Audit
Agent as to record keeping were not followed because the
difference between the ceiling price and the actual costs in-
curred was so great that any further expenditures on this
job should not be undertaken unless * * * absolutely nec-
essary.” At the same time, the accounting firm pointed
out that the Army would have to disallow $600,000 of Acme’s
costs in order to fall below the ceiling price of $1,191,077.
Defendant’s Exhibit 70. The inclusion of the controverted
items was thus unnecessary to justify receipt of the ceiling
price. Plaintiff had nothing to gain by insertion of these
disputed amounts in.its claim. That circumstance strongly
tends to negate the affirmative intent to defraud which de-
fendant must establish.“

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

Citing United States v. Fow Lake State Bank, 225 F. Supp.
723, 724-25 (N. D. III., 1963), defendant argues that it is re-
quired, as & precondition of forfeiture, to show only that
Acme knowingly submitted false claims. But Fox Lake in-
volved the False Claims Act, 12 Stat. 696, 31 U.S.O. § 231,

» Defendant claims that the ceiling price is a reflection of all the items
submitted in the claim, and therefore, if allowed, it necessarily ineludes a
proportionate part of the allegedly improper costs. The argument might be
more convincing ff plaintiff's costs had not so greatly exceeded the ceiling price.
In the present context, the Government's contention ignores reality.

™ Defendant mistakenly relies on Wagner Iron Works v. United States, 146
Ct. CL 334, 174 F. Supp. 956 (1959).. That case was unlike this one in a
number of ways. Tt tavolved dagrant padding by inctusion of persons! expenses
im a cost-plus-a-fixed-fee contract. Furthermore, the scheme was carried out

by the corporation's sole stockholders, whose persona! intent to defrand the
United States was clearly established.

— ee Cn al — — F

23

which does not encompass forfeiture as a sanction. To jus-
tify cancellation of the contract, the Government must prove
ita case under 62 Stat. 978, 28 U.S.C. § 2514, which provides
for forfeiture of claims made by “any person who corruptly

Claims “specifically find such fraud or attempt.” An actual
intent to defraud is a prerequisite to annulment of the con-
tract under these provisions. See e. g. Pewee Coal Co. v.
United States, 142 Ct. Cl. 796, 806, 161 F. Supp. 952, 958
(1958), cert. denied, 359 U.S. 912 (1959) ; Kamen Soap Prod-
ucts Co. v. United States, 129 Ct. Cl. 619, 641, 124 F. Supp.
608, 620 (1954).

For the same reasons, a related defense asserted by the
Government must likewise fail. The defendant contends
that, independently of any statutory provision, it was en-
titled, on the basis of Carrier Corp. v. United States, Ct. Cl.,
No. 346-59, decided Feb. 14, 1964, 328 F. 2d 328, to cancel the
contract for the fraudulent and illegal acts of the contractor.
But in Carrier the court stated unequivocally, “There is no
doubt that a fraud was committed.” Slip op., p. 11, 328 F.
2d at 334. In the present case, we have, as we have said,
very grave doubts that Acme, through submission of the dis-
puted claims, ever intended to defraud the Government.
Defendant has failed to bear its burden of proving the de-
fense of fraud. .

We come now to defendant’s counterclaim for $6,000 under
the False Claims Act, 12 Stat. 696, 31 U.S.C. § 231, which
imposes a $2,000 fine for “any claim upon or against the Gov-
ernment” submitted by one “knowing such claim to be false,
fictitious or fraudulent.” If Acme included cost items in its
1954 price-redetermination statement even though it knew
them to be false, it is subject to a $2,000 fine. See, e. g.,
United States v. Vom Lake State Bank, 225 F. Supp. 723,
724-25 (N.D. III., 1963); but see United States v. Park Mo-

24

tors, Inc., 107 F. Supp. 168, 174-77 (E. D. Tenn., 1952).
Although Acme could not be certain that expenses such as
the salaries paid to Tucker were not reimbursable, it could
have had no similar doubts regarding the personal services
rendered by Acme employees on Norris’ farm. This matter
was brought directly to the attention of Acme officials by the
Federal Bureau of Investigation, but plaintiff failed to re-
move Norris’ personal expenditures from the charges claimed
on Contract 1213. Finding 26. This $1,045 charge was
subsequently included as a cost component in Acme’s April
1954 request for the contract ceiling price. In that manner,
plaintiff knowingly submitted a false claim and is subject to
a fine of $2,000

The Government maintains that inclusion of the same
items in the claims submitted by Acme in 1958 and 1961
justifies the imposition of two more civil penalties of $2,000
each. But Norris’ farming expenditures were not included
in the 1961 statement, and it is difficult to imagine that plain-
tiff even recalled this item when it submitted the 1958 termi-
nation-cost proposal. Moreover, we are not dealing with
different expenditures; the subsequent claims contained the
same costs which the Government had previously challenged.
The present case is unlike those in which numerous vouchers
are submitted to the Government, and each contains a sepa-
rate and distinct false claim for which the fine may be validly
imposed. Z. g., United States v. Veber, 299 F. 2d 310, 313
(C.A. 6, 1962) ; United States v. National Wholesalers, 236
F. 2d 944, 950 (C.A. 9, 1956), cert. denied, 353 U.S. 930
(1957). We are faced, rather, with one false claim, which
was denied by the Government and thereafter reasserted by
the plaintiff. The court holds that the defendant cannot
recover more than once for the very same false claim; it is
therefore entitled only to $2,000 by way of counter-tlaim.
In sum, we conclude that none of the legal defenses which
the Government has asserted justifies its cancellation of the
contract in the summer of 1954 for the alleged fault of the

*

The Park Motore case held that the clause of the False Claims Act with
which we are concerned requires a finding of specific intent to defraud. But
the language of the statute discloses no such element. Since “proceedings
{under the False Claims Act] are remedial and impose a civil (rather than a
criminal] sanction,” (United States es rel. Marous v. Hess, 317 U.S. 537, 549
(1943)), we see no justification for adding a requirement that specific intent
to defraud be proved.

25

contractor. When the Government is displeased with the
contractor’s administration of an agreement, it may always
sever contractual relations under the standard termination-
for- convenience clause inserted in its contracts. John Reiner
& Co. v. United States, Ct. Cl. No. 431-57, decided Dec. 13,
1963, 325 F. 2d 438, cert. denied, 377 U.S. 931 (1964), But
if the United States seeks instead to annul 4 contract for
fault, thereby leaving the contractor wholly uncompensated,
it must have proper justification for such harsh consequences.
Klein v. United States, 152 Ct. Cl. 8, 285 F. 2d 778 (1961) ;
Nesbitt v. United States, Ct. Cl., No. 321-61, decided May 14,
1965, fn. 2.
II, PLAINTIFF'S DAMAGES

A. GENERAL STANDARD

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

Plaintiff's main argument is that it is entitled to restitution
as an alternative remedy. Under that standard of relief, a
party whose contract has been repudiated or otherwise
breached may, if he meets certain conditions, recover the

— ——

*

reasonable value of his services, measured as of the time of
performance. The purpose is to restore the injured party
to the pre-contract status quo, not to put him in his post-
contract position. Restitution has long been recognized by
the commentators as one of three possible remedies for the
substantial breach of an express contract, the others being
damages and specific performance. See Restatement, Con-
tracts §§ 347-57; 5 Corbin, Contracts §§ 1102-21 (1951); 5
Williston, Contracts §§ 1454-85. (rev. ed. 1937). The Re-
statement contains a full discussion of restitution in its chap-
ter entitled “Judicial Remedies for Breach of Contract.”
Corbin states explicitly, “In the present chapter we are deal-
ing with restitution as a remedy for breach of contract; a
judgment for such restitution is as truly a remedy for a
‘breach’ as is a judgment for damages.” 5 Corbin, Contracts
81104 (1951). The applicability of restitution as an alter-
native remedy for breach is also well-established in both the
federal and the state courts. Z. g., Michael Del Balso, Ino. v.
Carossa, 136 F. 2d 280 (C. A. D.C., 1943); United States ew
rel. Susi Contracting Co. v. Zara Contracting Co., 146 F. 2d
606, 610 (C.A. 2, 1944); Southern Painting Co. v. United
States ex rel. Silver, 222 F. 2d 431, 433-34 (C. A. 10, 1955);
Valente v. Weinberg, 80 Conn. 134, 67 Atl. 369 (1907); Pelle-
tier v. Masse, 49 R. I. 408, 143 Atl. 609 (1928).

Although the Court of Claims has permitted quantum
meruit recovery for contracts implied in fact (see, e. g.,
New York Mail d Newspaper Transp. Co. v. United States,
139 Ct. Cl. 751, 759, 154 F. Supp. 271, 276, cert. denied,
355 U.S. 904 (1957)), no past contractor has successfully
sought restitutionary relief for breach of an express contract.
But unless this form of recovery is precluded by our general
jurisdictional statute, 28 U.S.C. § 1491, we must be guided
by the principal that, “When the United States, with con-
stitutional authority, makes contracts, it has rights and in-
curs responsibilities similar to those of individuals who are
parties to such instruments.” Perry v. United States, 204
U.S. 330, 352 (1935). See, also, New York Mail & Transp.

* United States ex rel. guet Contracting Co. v. Zara Contracting Oo., supra,
146 F. 24 at 610, a leading case in this area, involved unit prices in a construc-
tion contract, and the defendant contends that recovery on the basis of

restitution must be limited to cases of that nature. But neither Zara nor any
of the other cases or commentaries intimate the existence of such a restriction.

27

Co. v. United States, supra, 139 Ct. Cl. at 759, 154 F. Supp.
at 276; Refining Associates, Inc. v. United States, 124 Ct.
Cl. 115, 120, 109 F. Supp. 259, 261 (1953). Since contracts
with the United States are to be governed by the same prin-
ciples as “those between man and man” (Gilbert v. United
States, 1 Ct. Cl. 28, 37 (1863), aff'd, 75 U.S. (8 Wall.) 358
(1869), and see Padbloc Co. v. United States, 161 Ct. Cl. 369,
377 (1963) ), we are obliged to award restitution to a peti-
tioner meeting the prescribed qualifications, unless there is
some jurisdictional impediment.

The Tucker Act empowers this court “to render judgment
upon any claim against the United States founded * * *
upon any express or implied contract with the United States
.“ 28 U.S. C. 5 1491. Although this precludes recovery
on the basis of a contract merely implied in law (see Sutton
v. United States, 256 U.S. 575, 581 (1921)), the plaintiff
seeks restitution for breach of an empress contract, which
clearly comes within the ambit of the Act. The cases cited
by the Trial Commissioner simply denied “quantum meruit”
(i. e. restitutionary) recovery for the alleged breach of an
express contract where the court determined that no breach
had in fact taken place. See Laoohi Constr. Co. v. United
States, 102 Ct. Cl. 324, 355-56 (1944); Frazier-Davis
Constr. Co. v. United States, 100 Ct. Cl. 120, 161-62 (1943);
Steel Products Eng’r Co. v. United States, 78 Ct. Cl. 410,
418 (1933). ;

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

If the rmance that the contract required of the
plaintiff been wholly prevented, and if the result
of his labor and expenditure still belongs to him, he has
no remedy by way of restitution. If the performance
required was the production and delivery of a finished
article, and the defendant wrongfully prevents comple-

tion and delivery of the article, the plaintiff cannot
judgment for the reasonable value of his work and r

™ These cases contain broad statements to the that “quantum meruit
cannot be allowed where there is a valid con between the parties.”
Frazter-Davie Constr. Oo. v. United States, „ 100 Ct. Cl. at 162. In each
one, however, quantum meruit relief appears been considered, as an

alternative, only after the court found that the tract was not breached.

1

7

28

nen a eae: to perform, except so far as it may be
included in a claim for damages. Such work and labor
is not itself requested or received by the defendant.

‘Restatement, Contracts § 348, 8. 4 Defendant
contends that Contract 1213 was for the purchase of (com-
pleted) 75 mm. recoilless rifles from plaintiff, and therefore
_, contemplated “the production and delivery of finished ar-
ale * for the breach of which plaintiff is entitled only
damages. This misconceives the nature of the contract
which states, expressly, that Acme is to “furnish and deliver”
specified items (emphasis added). The entire pre-contract
negotiations were based on the assumption that it was Acme
which would manufacture the requested rifles. The de-
fendant at first had reservations about plaintiff's ability to
perform the contract, but, after investigating Acme’s plant
and personnel, the Government concluded that Acme and its
subcontractors would be capable of carrying out the agree-
ment. Defendant’s Exhibit 12. One of the contemplated
benefits of awarding the contract to Acme was that “placing
this procurement [in] subject contractor’s plant will not
only broaden the manufacturing base but create a salutary
effect, pricewise, on all other procurements of this type.”
Ibid. Thus, the Government contracted not only for a
finished product, but also for the manufacture of that prod-
uct by Acme. When an agreement of this nature is breached,
restitution is available.

The next argument is that plaintiff’s recovery must be.

limited to the reasonable value of the goods it actually de-
livered prior to cancellation. It is clear, however, that resti-
tution is permitted as an alternative remedy for breach of
contract in an effort to restore the innocent party to its pre-
contract status quo, and not to prevent the unjust enrichment
of the breaching party. “Judgment will be given for the
value of service * * rendered, even though the product
created thereby has been lost or destroyed by the defendant,
and even though there never was any product created by the
service that added to the wealth of the defendant.” Restate-
ment, Contracts § 348, Comment “a” (emphasis added). It
is when the plaintiff is the party in default that his recovery
may be limited by the amount of the benefit to the defendant.

— —

e

29

See Schawasnick v. Blandin, 65 F. 2d 354, 357 (C.A. 2, 1933).
But “if the promisee has performed so far as he has gone, and
the promisor breaks his promise, the promisee may abandon
the contract and sue for restitution, in which he can recover
the reasonable value of his services, measured by what he
could have got for them in the market, and not by their benefit
to the promisor.” Jbid.. See, also, Restatement, Contracts
§ 347, Comment c. Acme’s recovery is not limited to the
value of the goods received by the Government under the
contract ; rather, it can be based on the reasonable value of the
entire performance. ‘
Acme’s position is that the reasonable value of its services
is most accurately reflected by the actual costs it incurred in
the performance of Contract 1213. As the best means of
restoring the status quo ante, cost of performance is often
sused as the basis for determining the amount of guantum
meruit recovery, in the absence of “any challenging evi-
dence.” United States ex rel. Susi Contracting Co. v. Zara
Contracting Co., 146 F. 2d 606, 611 (C. A. 2, 1944) ; see, also,
United States ex rel. Arc & Gas Welder Associates, Inc. v.
Blount, 182 F. Supp. 648, 665 (D. Md.), aff'd, 285 F. 2d 863
(C.A. 4, 1960), cert. denied, 366 U.S. 919 (1961); United
States ex rel. Wander v. Brotherton, 106 F. Supp. 353, 354-55
(S.D.N.Y., 1952). But if the defendant is able to show that
the costs incurred by the contractor were excessive (asa result,
for example, of inefficiency or extravagance), the amount of
recovery is commensurately reduced. Cf. Barrett Co. v.
United States, 273 U.S. 227, 235 (1927); United States v.
Behan, 110 U.S. 338, 345-46 (1884). 1
„Being on United States v. Pena Foundry & Mfg. Co., 887 U. 8. 198 (1949)
and Chain Belt Co. v. United States, 127 Ct. CL 88, 59, 118 F. Supp. 701, 714-
15 (1953), the Government claims that Acme is not entitled to restitution on
the basis of its costs, because those costs were in no way caused by the
defendant's breach, The cited cases treat with the disallowance of lost Profits
as damages when they are too speculative. Since the theory behind restitution
is to restore the status quo ante, potential profits under the rescinded contract
are irrelevant. 11232
It is likewise immaterial that, under a convenience-termination, plaintiff's
recovery would be limited by its costs and the cefling price. ‘The cancellation
here was for the contractor’s fault, and in such a situation the rule of John
Reiner & Co. v. United States, supra, is inapplicable if there was In fact no
default. See Nein v. United States, eupra > Goldwasser v. United Btates, Ct.
CL, No. 477-61, decided Dec. 13, 1963, 325 F. 2d 722; Litchfield Mfg. Corp. v.
United States, Ct. CL, No. 458-56, decided Oct. 16, 1964, slip op., P. 4, fa. 9,

388 F. 24 94, 96 ; Dale Constr. Co. v. United States, Ct. Cl., No. 184-57, decided
Dec. 11, 1964, slip op., p. 26; Nesbitt v. United States, supra.

30

The record before us is inadequate to determine whether
Acme’s costs were, in fact, excessive. Plaintiff’s expenses ap-
pear to be inordinately High even if one takes into account
its lack of experience in this manufacturing line and the
prospective advantage to the Government of broadening the
base of procurement. The contract ceiling price, for in-
stance, was $384.95 per unit, but plaintiff's actual cost in
manufacturing the first 446 rifles was $1,179.29, and its cost
of production during the last six months of the contract was
$690.21. See findings 7, 52(a), (c). Although it is con-
ceivable that these expenditures accurately reflect the value
of Acme’s services, the present record does not provide
enough information for a sufficiently accurate answer. In
particular, it would seem important to compare Acme’s costs
with those of other manufacturers of the same rifles during
that period, taking into consideration that Acme should be
permitted greater reimbursement than established manufac-
turers because of its inexperience and the anticipated bene-

fits of its entry as a competitor. Since this issue was not
squarely presented at the original trial, the defendant had
no real opportunity to prove that plaintiff’s costs were in-
flated; it should be permitted to do so now. We are there-
fore remanding the case to the Trial Commissioner under
Rule 47(c) for a separate determination of liability.

To the extent that Acme’s actual costs are used in making
this determination, the Commissioner should consider that
the amounts which plaintiff paid its subcontractors latently
included reimbursements for kickbacks paid to various mem-
bers of the Tucker organization. See findings 18-25. Al-
though the defendant has not attempted to prove that any of
the subcontract prices were inordinately high, the kickbacks
involved were hardly ordinary business expenses incurred
in manufacturing 75 mm, rifles. If Acme’s total costs are
to measure the value of its services, they must be reduced by
any kickbacks actually paid to the Tucker organization by
plaintiff's subcontractors. Nor should Acme be reimbursed
for the amounts it paid to Tucker; for the reasons given in
the. companion case, we conclude that his employment vio-
lated the covenant against contingent fees. See Acme
Process Equipment Co. v. United States, Ct. Cl., No. 588-59;

31

decided this day. Tucker's salaries cannot be considered
reasonable expenses which enhanced the value of Acme’s
services to the Government. Neither the contingent fee pay-
ments nor the kickbacks may be included in the computation
of Acme’s restitutionary recovery.

B. GOVERNMENT-FURNISHED MACHINERY

Plaintiff urges that a determination of the reasonable
value of its contract performance must take into account
costs incurred as a result of defective government-furnished

machinery was, however, furnished under a separate facili-
ties contract, not the main contract. That agreement ex-

ing condition, the Contractor shall repair, restore, or rehabili-
tate such equipment so as to make it serviceable or fit for use
(cost connected with such repairs, restoration, or rehabili-
tation shall not be reimbursed to the Contfactor).” If the

of liability for breach of warranty would possibly have to be
disregarded under plaintiff's th „which fixes the measure
of. by the value of the services performed, rather
than by the terms of the breached contract providing or re-

breached. :

re legal fees incurred by plaintiff in defending suits brought by subcon-
tractors and in submitting its termination claim did not add to the value of
recovery and therefore may not be considered in calculating plaintifrs

32

stricting compensation. But the facilities contract was sep-
arate and was not materially breached; its clauses limiting
liability remain in effect." We must therefore determine
whether the plaintiff is correct that the disclaimer clause is
less-than-absolute and does not bar recovery for increased
costs resulting from defective government machinery.

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

On the other hand, along with the disclaimer, the facilities
agreement also specified that, if the equipment supplied by
the Government required repair as a result of defects pres-
ent at the time of delivery, the “Contracting Officer, upon
written request of the Contractor, may equitably adjust the
price, the time of performance, and other terms and condi-
tions of the affected supply contract (s): Any failure
by the parties hereto to agree upon such equitable adjust-
ment shall be determined in accordance with the article of
the related supply contract(s) entitled ‘Disputes’.” See
finding 35. We do not interpret these provisions as incon-
sistent with the explicit disavowal of liability. Instead,
they specify the only form in which relief can be obtained
for injuries resulting from substandard machinery furnished
by the defendant; unless the contractor makes timely writ-
ten request for an equitable adjustment, he must, according
to the disclaimer, bear all costs of resulting delays and re-

® Althongh the main contract also contained a government-furnished prop-

erty clause, it was superseded by the more extensive provisions of the separate
facilities agreement.

33

pairs. See, generally, Goodwin, Government-Furnished
Property, Government Contracts Monograph No. 6, p. 17
(1963); Paul, United States Government Contracts and
Subcontracts 267 et seq. (1964) .**

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

could reasonably be implied from the contractual provisions. See slip op-
pp. 8-8. 17-18, 312 F. 24 at 771.

210-151—66—_—3

34

doubtedly the most efficient manner of obtaining relief.
Plaintiff's cumulative demand for reimbursement in August
1954, as well as the two requests made prior to annulment of
the contract, were timely.

- Plaintiff's letters sought reimbursement for repair costs,
without specifically invoking the equitable adjustment pro-
vision of the facilities contract or the Disputes article of
the supply contract. But the letters were easily under-
standable, and the failure to delineate the precise clauses
permitting recovery should not stand asa bar. Cf. Specialty
Assembling & Packing Co. v. United States, 156 Ct. Cl.
252, 254-55, 298 F. 2d 794, 796 (1962). To the extent that
the trial commissioner finds that these timely claims for re-
imbursement reflect actual costs incurred by the contractor

to an equitable adjustment as provided in the facilities eon-
tract. This equitable adjustment should be added to the
determination of the value of the rest of plaintiff’s per-
formance.“

Ill. LIQUIDATED DAMAGES

Throughout the contract plaintiff was behind in its de-
liveries. The original] schedule was substantially revised in
supplemental] agreements executed in August 1953 and Jan-
uary 1954. Despite these time extensions, plaintiff was still
late in deliveries at the time of the suspension of its contract
in July 1954, and was assessed liquidated damages pursuant
to the contract clause. On that basis, $53,715.19 was with-

35

paying liquidated damages when the delay arises out of
causes beyond his control and without his fault or negli-
gence. It says that in such cases, subject to the Disputes
clause, “the Contracting Officer shall ascertain the facts and
extent of the delay and shall extend the time for performance
when in his judgment the findings of fact justify an exten-
sion.” The Disputes clause says simply that “any dispute
concerning a question of fact arising under this contract
which is not disposed of by agreement shall be decided by
the Contracting Officer . It cannot be said that
these provisions, taken together, required the contractor to
make a specific request to the contracting officer for a deter-
mination of the reasons for the delays. So long as the con-
tracting officer was put on notice that the plaintiff wanted to
avoid the levy of liquidated damages, the minimum demands
of the contract would be met. | | i
This is precisely the effect of a letter sent on May 20, 1954,
by plaintiff to the Comptroller General via Philadelphia
Ordnance District. The contracting officer refused to for-
ward the letter as requested, because he felt that the ap
was addressed to equitable rather than legal considerations
and would not be cognizable by the Comptroller General.
After being told of the contracting officer’s action, Acme
wrote another letter to him on June 21, 1954, explicitly re-
affirming the prior request and “asking relief from our Liqui-
dated Damages Clause at the District level” (emphasis
added). This notification was quite different from the
“mere ambiguous requests for adjustments or possible nego-
tiations” which were deemed insufficient in Specialty As-
sembling & Packing Co. v. United States, swpra, 156 Ct. Cl. at
255, 298 F. 2d at 796. Acme’s letters put the defendant on
notice both as to the relief requested and the contract cleuse
on which the request was based; furthermore, in its June 21st
letter, plaintiff invited a ruling by the contracting officer.
It is clear that plaintiff was in effect asking for an equitable
adjustment; the need for a degree of precision, as suggested

36

in Specialty Assembling, was met. When the defendant sus-
pended all production on July 22, 1954, and completely
canceled the contract a month later, the contracting officer had
‘taken no action on Acme’s demand for remission of liqui-
dated damages; the annulment of the agreement destroyed
the administrative appeal mechanism created by the contract.
Since Acme properly sought to invoke its administrative
remedies as long as they were available, the Government’s
defense of failure to exhaust must be rejected.

Having surmounted this procedural defense, plaintiff is
entitled to recover on its claim for remission of liquidated
damages, because the delays on which the assessment was
based were caused by the Government as well as by Acme.
On the one hand, the plaintiff’s difficulties in operating the
government machinery were partially attributable to the in-
experience and incompetence of its own personnel. On the
other, defects in some of the equipment furnished by the de-
fendant resulted in repeated failures and breakdowns.
While some of the machines performed reasonably well if
properly operated, the smooth flow of production was rend-
ered impossible when other machines essential to a sequence
of operations were in disrepair. See finding 43. “[WJhere
delays are “caused by both parties to the contract the court
will not attempt to apportion them, but will simply hold
that the provisions of the contract with reference to liqui-
dated damages will be annulled.” Schmoll v. United States,
91 Ct. Cl. 1, 28 (1940). See, also, United States v. United
Eng’r & Contracting Co., 234 U.S. 236, 242 (1914); Vogt
Bros. Mfg. Co. v. United States, 160 Ct. Cl. 687, 709 (1963) ;
Commerce Int'l Co. v. United States, Ct. Cl., No. 287-55,
decided Oct. 16, 1964, slip op., p. 12, 338 F. 2d 81, 90. That
result is fair. It does not deprive the Government of an
opportunity to prove and recover its actual damages caused
by the contractor’s delay; instead, the defendant merely
loses its right to insist on an artificial measure of damages

% Since the Army had decided to discontinue the use of 75 mm. rifles at the
time Acme’s contract was canceled, proof of actual damages would be virtually

37

agreed on by the parties for the situation in which the con-
tractor alone is responsible for the delay.

IV. SUBCONTRACTORS’ RIGHT TO RELIEF

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

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

When its prime contract was canceled by the Government,
Acme responded by immediately requesting all its subcontrac-

* Since the issue of liquidated damages has been resolved in Acme’s favor,
it is unnecessary to pass on the broad contention advanced by plaintiff that,
when the contractor is given restitutionary recovery, the contract is effectively
wiped out, and the Government automatically loses any rights it may have had
under the liquidated damages clause.

* Foley’s payments were actually made to Neptune Manufacturing Company,
a dummy corporation formed by Tucker and Norris to carry out their kickback
activities. When it paid the kickbacks, Foley knew of Tucker's relationship to
Neptune. Tr. 657-58.

The rule that a patty knowing of the double agency may not disavow the
contract is traditionally stated in terms of actual knowledge. In the present
case, both Foley and Manalapan denied having such knowledge. Tr. 668, 682.
Judging from the circumstances, however, these two subcontractors were hardly

innocent parties and, at the very least, can plainly be saddled with constructive
knowledge.

38

—

tors to halt performance. From that time forward, the
plaintiff had nothing to gain by ratification of its voidable
subcontracts. Yet long after conclusion of performance,
Acme has nonetheless chosen to “ratify” these agreements.
The reason is not difficult to discern: Only if Acme is liable
to the subcontractors, may Acme recover from the defendant
in their behalf. See J. L. Simmons Co. v. United States, 158
Ct. Cl. 393, 304 F. 2d 886 (1962). Acme was apparently
willing to affirm the agreements on the theory that the
Government would probably bear any resulting liability.“
As is pointed out in the discussion of All Metals’ claim in the
companion case, No, 538-59, this form of after-the-fact ratifi-
cation cannot be accepted since it violates the rule. that
“affirmance is * * * inoperative as ratification * as
against persons who in the meantime have acquired interests
with which it would be unjust to interfere.” 2 Williston,
Contracts § 278A n.1 (3d ed. 1959). 4 See, also, Restatement,
Agency 2d, § 101 (c). Had Acme acted reasonably, avoiding
these subcontracts after it found out about the improper
double agency, the Government would not be liable. This
freedom from liability is an “interest with which it would
be unjust to interfere.” Acme’s attempt to destroy that in-
terest by post-cancellation ratification of the moribund sub-
contracts is unavailing.
It is still necessary to determine whether the Government
would be liable to All Metals, Manalapan, and Foley, if
Acme had in fact avoided these subcontracts, as we have held
it was bound to do. Before a contract may be rescinded be-
cause of its fraudulent procurement by one of the parties, to
prevent unjust enrichment, the defrauded party is generally
required to return the goods it received under the contract,
or their. reasonable value. See Restatement, Restitution
88 65, 66. Since these three subcontractors would have
been entitled to the reasonable value of the goods they ac-

“The agreements with both All Metals and Manalapan specifically provided
that, if the defendant terminated the prime contract, Acme would be liable
to the subcontractor only to the extent the latter’s claims were allowed and
paid by the United States. See finding 64(b), (e). With regard to these two
claimants, if Acme’s purported ratification were allowed to stand, its effect
would be to make the defendant exclusively liable.

a Since this principle is determinative for the present, we need not at this
stage consider the Government's defense based on the Severin“ doctrine. See

Severin v. United States, 99 Ct. Cl. 486 (1948), cert. denied, 322 U.S. 788
(1944).

39

tually delivered, the defendant should in turn be liable to
that extent. Cf. Crocker v. United States, 240 US. 74, 81-
82:(1916). In the future proceeding before the Commis-
sioner, if plaintiff is able to prove that the value of the items
delivered by any of the three subcontractors exceeded the
total amount it was paid, then recovery on behalf of that sub-
contractor will be permitted—unless the “Severin” doctrine
is a bar (see footnote 41, supra).

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

v. INTEREST

The last matter is the plaintiff’s demand for interest from
January 1, 1955, on those parts of its overall claim for
damages represented by (1) the improper assessment of
liquidated damages by the defendant, (2) the withholding
of amounts due under the price redetermination provision
of the contract, and (3) the failure to pay the equitable
adjustment requested in August 1954 for repairs of govern-
ment-furnished machinery. These amounts, the plaintiff
says, were retained by the defendant without any color of
right and thus come within the circle of the Fifth Amend-
ment’s guarantee that property shall not be taken for pub-
lic use without payment of just compensation. This type

This measure of damages is of course far less than that which Acme itself
is receiving, since it is recovering the reasonable value of all its services,
whether they resulted in actual deliveries to the United States or not. To the
extent that the three subcontractors incurred expenses on unfinished or unde-
livered goods, they may not recover. This disparity is only fair, since Acme
is recovering on a contract breached by the United States, while each subcon-

tractor’s agreement must be treated as rescinded because it was fraudulently
procured from Acme.

40

of demand is not novel in suits on government contracts;
nor is its steadfast repudiation by the courts. See, ¢.g.,
United States v. N.Y. Rayon Importing Co., 329 U.S. 654,
658-59 (1947) ; United States v. North American Transp. &
Trading Oo., 253 U.S. 330, 335-86 (1920); Komatsu Mfg:
Oo. v. United States, 132 Ct. Cl. 314, 131 F. Supp. 949 (1955) ;
Ramsey v. United States, 121 Ct. Cl. 426, 430-33, 101 F.
Supp. 353, 355-57 (1951).

Plaintiff concedes that, under the case law, unless the Gov-
ernment acted in bad faith when it withheld the funds in
dispute, there could be no violation of the Fifth Amend-
ment, and recovery of interest on the basis of the contract
would be prohibited by 28 U.S.C. § 2516(a), permitting this

@court to allow interest on a claim “only under a contract or

Act of Congress expressly providing for payment thereof.”
To show bad faith, the plaintiff stresses a determination by
the Department of Justice in December 1954 that it would
bring no civil or criminal action against Acme. But, plainly,
this was not tantamount to a finding of bad faith on the
part of the Army; a difference of opinion is not proof of
malice. The plaintiff also alleges that, at the time of can-
cellation, the Government did not have proof that plaintiff
was guilty of fraudulent acts which would justify annul-
ment; that the Government knew that its proposed action
might force plaintiff into bankruptcy; and that the real
cause of the cancellation was the defendant’s decision to dis-
continue production of 75 mm. recoilless rifles because they
were obsolete. At the trial of this case, an Ordnance at-
torney who advised that Contract 1213 be rescinded testified
that, at the time, he deemed this action appropriate because
he thought plaintiff had violated the covenant against con-
tingent fees, as well as the anti-kickback and false claims
statutes. Tr. 1024-25. Assessing the credibility of this
witness and the others who testified as to the matter, the
Trial Commissioner concluded that the defendant canceled
the contract for two equally potent reasons: the termination
of military requirements for the 75 mm. rifles and the con-
tractual irregularities thought to be present. Finding 50(a).
The circumstantial evidence submitted by plaintiff to over-
come the presumption of correctness attaching to the Com-
*

41

missioner’s finding is wholly inadequate for that purpose.
Of. Commerce Int'l Co. v. United States, Ct. Cl., No. 287-55,
decided Oct. 16, 1964, slip op., pp. 6-7, 338 F. 2d 81, 86;
Davis v. United States, Ct. Cl., No. 179-59, decided Feb. 14,
1964, slip op., pp. 45. We must therefore turn aside
Acme's argument that the Government acted in bad faith.

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

We do not reach the issue of whether there would be a taking (for which
just compensation should be paid) if bad faith on the part of the defendant had
been shown. In addition, we point out that the statute of limitations bars
recovery by the plaintiff on this ground. Acme first alleged a Fifth. Amené-

eat taking in an amendment to its petition aed in September 1961. Since

amendment stated a new cause of action, it had to be filed within six years
after the claim accrued. See Dawnic Steamship Corp. v. United States, 90 Ct.
CL. 587, 580 (1940). But all events fixing the defendant's lability for the
alleged taking had occurred on or before January 1, 1955. Plaintiff's claim
having accrued by that date, it is barred by the six-year statute of limitations.
The fact that settlement negotiations continued thereafter is irrelevant. See,
€.9., Ouban Truck 4 Equipment Co. v. United States, Ct. Cl. No. 245-57,
decided June 12, 1964, slip op., pp. 5, 6-8, 333 F. 24 873, 877-79; ante

Institute of Tailoring, Inc. v. United States, 142 Ct. Cl. 165, 168, 161 F. Supp.
409, 411 (1958).

42

VI. SUMMARY ~

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

FINDINGS OF FACT

The court, having considered the evidence, the 8
Trial Commissioner C. Murray Bernhardt, and the briefs
and argument of counsel, makes findings of fact as follows:

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

2. Aome’s line of business. Until the latter part of 1968
Acme’s business consisted principally in the manufacture of
processing tanks, boilers, containers, etc., for the distillery,
brewery and sugar industries. In 1952 it became interested
in obtaining Government contracts in order to offset uneven-
ness in its commercial business, but had no one on the com-

43

pany payroll with background and experience in the field
of Government procurement. ,

PROCUREMENT OF CONTRACT 1213—CONTINGENT FEE PROBLEM

3. Entry of Norris and Tucker, Jr. Unknown to plaintiff,
the Government had put under surveillance the activities of
a group known as Harry K. Tucker Associates, comprising
Harry K. Tucker, Sr., and his son, Harry K. Tucker, Jr., in
connection with suspected statutory violations in their con-
tingent fee arrangements for services rendered contractors
in procuring Government supply contracts. (Hereafter,
use of the name “Tucker” shall denote Tucker, Jr., unless the
contrary is indicated.) James S. Norris, who had been gen-
era] manager of an eventually defunct machine shop, met
Tucker in September 1952 and they decided to pool their
talents in a company which would render “sales and engineer-
ing” assistance to clients of Tucker. In late September or
early October 1952 Norris met for the first time with Sidney
Cohen, Secretary-Treasurer of the plaintiff company, to as-
certain plaintiff’s interest in bidding on the manufacture of
some apparatus. In this meeting Cohen was asked if he
would be interested in engaging a salesman to secure com-
mercial and Government production contracts. In conse-
quence Tucker visited Cohen several times and there were
negotiations for his services and those of Norris. It was
decided at the instigation of Norris and Tucker that Acme
would set up a separate division to handle Government con-

tracts in the metals field, that Norris would manage the
operation, and Tucker would contribute his “know-how” in
procuring and administering Government contracts and in
expediting subcontract operations. Plaintiff’s officers had
not known Tucker prior to these events; however, plaintiff
failed to ascertain who Tucker’s other clients were or to ask
them about the quality of his services.

4. Informal hiring of Norris and Tucker. At this stage the
plaintiff informally agreed to hire Tucker and Norris.
Tucker was to be paid 3 percent. commission—to be divided
equally between Tucker and Norris—on all business he pro-
cured, with a minimum salary guarantee against which his
commissions would be applied. Tucker and Norris were to
manage the plaintiff’s proposed new division. Norris began

44

work at the Acme plant in Oreland, initially on an unpaid test
basis, and his first duties were to estimate the bids, ete., in
response to invitations which Tucker would procure for the
plaintiff.

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

6. Tucker's early services. After the hiring of Tucker
plaintiff experienced a pronounced increase in inquiries, bid
proposals and bid invitations from both commercial and
Government sources, thus increasing Cohen's confidence in
his judgment in hiring Tucker. Tucker’s services the first
few months included investigations to determine: prior bid

45

prices, solicitation of bid invitations, securing quotations
from subcontractors, locating applicable specifications, and
liaison work with the Philadelphia Ordnance District (here-
‘after POD).

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

8. Representations as to contingent fees.

(a) In its original bid dated October 23, 1952, for Con-
tract 1213 Acme, under the certification of James S. Norris
as General Manager of the Defense Work Department,
answered in the negative that part of the form requiring the
contractor to represent whether it has or has not (boxes were
supplied against each of the alternatives for inserting a mark
to denote the correct fact) “employed or retained a company
or person (other than a full time employee) to solicit or
secure this contract, and agrees to furnish information relat-
ing thereto as requested by the Contracting Officer.” Under a
revised proposal of December 10, 1952, also signed by Norris,
it was instead represented that Acme “has * * * employed
or retained a company or person (other than a full-time em-
ployee), to solicit or secure this contract and agrees to furnish
in formation relating thereto as requested by the Contracting

46

Officer.” However, under date of December 18, 1952, Joshua
Epstein, president of Acme, executed a Government form en-
titled “Contractor’s Statement of Contingent or Other Fees”,
in which he reverted to the company’s position on October 23
by filling in one of the two alternative boxes to indicate that
Acme “has not employed or retained a company or person
(other than a full-time employee) to solicit or secure this pro-
posed Contract No. —— and agrees to furnish information
relating thereto as requested by the Contracting Officer.“

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

(c) One of the plaintiff's three bids referred to in the
preceding paragraph ripened into the award to Acme on
January 7, 1953, of Contract No. DA-11-070-ORD-8580
(hereafter referred to as Contract 8580), which was executed
by the Rock Island Arsenal but was administered by POD.

8580 is the subject of another pending action by

the plaintiff in this court in Court of Claims No. 538-59.

It bears the plaintiff's statement that it has employed or

retained, a company or person (other, than a. full-time, em,

plovee) e solely for the bidder) to solicit or secure

this contract, and agrees to furnish information relating
thereto as requested by the Contracting Officer.” 5

1 —
e er Ahn

—

47

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

(e) Under date of May 8, 1953, in response to de
request for a proposal for an additional quantity under the
r signed s warrenty: that, is Shap
not” retained anyone, eto.

3 d 18, 8 POD by igen ki

a full time basis with this company, acting in the ca-
Pang ori part-time 471 pent 11

rt-time sa nt ‘contract
with Mr. Was rr

collected any, commissions, on any prime contract or
: e work that he hae obtained

57 2 commission on, the three. contracts we now ha ail

Although this letter states That eee 4
full-time basis in January 1953, the contract providing for
his full · time employment eee
effective as of March 2, 1953 (see finding’ 9(b)).:: 21

— Az

48

(g) There is no evidence that Tucker used any corrupt or
improper influence in obtaining Contract 1213 for the plain-
tiff,

9. Modification of Tucker's contract.

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

(b) Commencing the week ending March 7, 1953, Acme
increased its weekly payment to Tucker to $300. By an
agreement of March 18, 1953, effective March 2, superseding
all prior agreements, Acme hired Tucker and Norris on a
full-time salary basis at 8300 each per week. Each was to
receive in addition 25 percent of the annual net profits of
the Lansdale operation and, after Acme had recouped its
Lansdale investment “all assets created by the Lansdale
plant * * will be owned by the partnership, or Acme
and Norris Tucker.“ The purpose of this agreement was to
provide incentive to Tucker and Norris to build up this new
department of Acme’s business. Tucker's salary was reduced
to $250 per week on October 11, 1953. Throughout his em-
ployment by Acme, Tucker was compensated on the basis of

e guarantee, Whether or not it was denominated as
ce against commissions, and deductions were duly

sie from a such payment, for social peourity and with-
holding taxes.

10. Wegotiations. Acme’s bid of October 28, 1952 (finding
7, supra) did not contemplate that the Government would
farnish any financing or Government-owned production ma-
chines. On December 3, 1952, POD requested plaintiff to
file a revised bid containing complete cost breakdowns and
@ list of proposed ‘subcontractors; which was done December
12. The revised bid proposed a two-month overall post-

49

ponement of the delivery schedule. Meetings between POD
personnel and Acme representatives (most frequently Norris
and Tucker) were held from December 11, 1952 onward to
discuss various aspects of the contract, including. price, which
POD felt to be quite low in comparison with other bids, but
reasonable and attainable nevertheless in the light of the
delivery schedule, subcontracting plans, and other factors
then known to POD. Moreover, POD was influenced in
favor of Acme because it would then be the only small busi-
ness concern in the country manufacturing the recoilless
rifle, and could possibly develop into an additional source of
supply for the 20 mm. gun. . POD was:concerned, however,
over plaintiff's ability to produce an item foreign to its expe-
rience and at an admittedly low price, and offered. Acme an
opportunity to withdraw its bid, which plaintiff refused.
11. Request for Government machinery. Acme had
planned to subcontract the rifling phase of the proposed
contract. When the rifling subcontractor withdrew its quo-
tation Acme advised defendant, on January 13, 1953, that
if it could obtain the necessary rifling and honing equipment
either from Army Ordnance sources or elsewhere it would
undertake to perform the rifling phase of the contract it-
self. At this time Acme also advised the defendant that it
would manufacture the vent-assembly component in its own
shop rather than subcontract it as planned, and gave infor-
mation as to certain subcontracts. which had been let, includ-
ing one for the chamber assembly which had been tentatively
subcontracted to All Metals Industries, Inc. Acme was then
making arrangements to obtain the equipment and machinery
necessary to perform those parts of the contract which it did
not plan to subcontract. On January 20, 1953, Acme re-
quested the use of two government-owned rifling machines,
two lathes and two honing machines, which it estimated
would cost $15,000 and take about ten weeks to fepair and
install. Acme assured’ POD that no V-loan wöüld be nee-
essary for contract financing because it had other access td
funds, and requested a small increase in the eeiling price:
On January 23, 1953, the Board of Awards at POD; cotitrary
to the recommendation of POD negotiators, rejected Aemes
bid because the delivery schedule — for prc pp
in May 1953 was too optimistic. iibbe an bo:

210-151—66——4

50

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

CONTRACT AWARD AND MODIFICATIONS

13. Description. Under date of January 27, 1953, nego-
tiated Contract No. DA-86-034-ORD-1213(R) . (hereafter
referred to sometimes as Contract 1213) was awarded to
plaintiff by POD, requiring plaintiff to ‘manufacture and

*

deliver 2,322 75 mm. recoilless rifles, M-20, at a unit target

price of 5337.23 (total $783,048.06) , plus 24 sets of accessories,
tools and equipment at a target price of $3,787 per set (total
$90,888), all subject to limited price revision upward upon
delivery of 30 percent of the rifles. The origina] contract

provided for déliveries as follows:

* 1 th R. ir 1: Item 1: tigm 8:
May 74 1
June n. 233 8

i Barr 3

i 2 233 2

.,. October 234 2

» November 233 2
February 233 3

| ‘March 148 8
2 “2, 822 2

Subesquent eee to the contract up to May 7, 1984
resulted in various adjustments of quantities and prices, the
total quantity finally required being 2, 751 recoilless rifles,
a 9d. parts. ma: fois} cowtract tarpet
price, of 18.72. The modifications included changes
in ,certain, ; schedules, provision for use of specific
government, fk acm ft — agreements adjust-
ing prices on items not meeting specification, requirements,
and the addition of spare parts to the procurement. Where

a

51.

these modifications are relevant to the consideration of par-

Rie

ticular developments in contract performance they will be

referred to specifically at the appropriate parts of these

find;

14. Deliveries; scheduled v. actual. The delivery schedules

required by the contract as revised by supplements thereto,

and the actual deliveries by the plaintiff, are shown in the

following

*

that the 2,400

DELIVERY SCHEDULES AND ACTUAL DELIVERIES

7 *
5 i 8 beret
Ae n,
41 II * in
a $e) HAD HEEL ES Le
sly. 1. mt 10588 Hi
. | { Loe „
725 32 22281 27.
Pes ag isang 383883888883 82888288322
1 a nne 1
2 §- * NN — [7 1 5 5
— ae 5 —
EF AA RARE? I
0 2 =, —— 2 99 ii
AE a n
TTT CHT TA CT
MH eee
| apenas “agitate sain

ca

We

shall be delivered by 1964."

tro **
. “Pant
:

52

4. racrirries: In the performance of this contract the

_. Contractor shall have the right to use the facilities
listed in the FACILITIES TRACT between 5

parties numbered DA-36-034-ORD-1214F, subject

_ the terms thereof; and the unit prices of this supp 78 con-
tract are based on such use.

. * * a | *

10. LIQUIDATED DAMAGES: 14 of 1% of the contract
— of undelivered units for each day's delay after the

te or dates specified for — hereunder.

The — — hs shall be added to General
Provision No. II, D T, of Standard Form 32,
and Paragraph (5 pose i therein is hereby deleted :
(.) If the * Contractor fails to deliver the n or

perform the services within the time in this
contract, or any extension thereof, t ect damage to
the Government for the delay will b ible to oe
termine, and therefore in lieu thereof e Contractor
shall pay to the Government as fixed, ed, agreed, and liqui-
dated damages for each calendar day of delay the amount
set forth elsewhere in this contract; provided that the
Government — terminate 1 (a) of this —.— or —

rt as provi in paragrap 0 8 cla an
In chat event the Contractor shall 14 liable, in addition
to the excess costs provided in paragraph (c) abo —
liquidated damages accruing until such time as the
ernment may reasonably provide for the procurement of
similar supplies or services. The Contractor shall not

with liquidated damages when the delay
arises out of causes the C the control and without the
fault or negligence of the Contractor, as defined in
. graph (b) above, and in such event, subject to the
ef this contract entitled “Disputes,” the Contracting

Officer shall ascertain the facts and extent of the delay
and shall extend the time for performance when in his
judgment the findings of fact sage! an extension.

weeded The * and rem the Government
5 clause shall not be exclusive and are

r orher rights and remedies provided
by law or under contract.

* 0 1 1 *

: 12, overTIME: No overtime work in excess of the six
(ee) day, eight Ihe oo — shall be performed in this

eontract by em the Contractor without prior

ot the Contracting Ofer excep or such ovo
time as is necessitated by — —
plete heat cycles.

20. COVENANT AGAINST CONTINGENT FEES: The Con-
tractor warrants that no n or selling agency has
been employed or retained to solicit or secure this con-
tract upon an agreement or understanding for a com-
mission, percentage, brokerage, or contingent fee, ex-
cepting bona fide employees or bona fide established
commercial or selling agencies maintained by the Con-
tractor for the purpose of securing business. For breach
or violation of this warranty the Government shall have
the right to annul this contract without liability or in its
discretion to deduct from the contract price or consider-
ation the full amount of such commission, percentage,
brokerage, or contingent fee:

* * * * *

8 GENERAL PROVISIONS
(Supply Contract)

* * * * ’ *

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

(a) The Government may, by written notice to the
Contractor, terminate the right of the Contractor to
proceed under this contract if it is found, after notice
and hearing, by the Secretary or his duly authorized
representative, that ee (in the form of enter-
tainment, gifts, or otherwise) were offered or given by

the Contractor, or any agent or representative of the
Contractor, to any officer or employee of the Govern-
ment with a view toward securing a contract or secur-
ing favorable treatment with respect to the awarding or
amending, or the making of any determinations with
respect to the performing, of such contract; provided,
that the existence of the

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386412_0008%3A3. Public record. Not legal advice.