# Brief for the United States — United States v. Acme Process Equipment Co.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Brief for the United States
- **Published:** January 1, 1967
- **Citation:** 385 U.S. 138

## Text

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Ae CA te ith: tims cenit s sp

Me ica 0 Re Ala ease

wt9 INDEX ©
Opinions . below... nee epepipeer enn nents
Jurisdiction - ae
Questions presented... vs _—
Statute involved alters nie men
Statement : | .
1. The facts: : .
a. The contract and its termingtion
b, The kickbacks.
2 Ings belOW 20 meee ain se
Summary ot PETRA 4 . idemeiimalines

I. Where responsible officials of a prime govern-

ment contractor accept bribes from the sub-;,.
contractors in violation of the Anti-Kickback

Act, the govetuimént is’ éntitled to cancel:

“here: pivtatan of ths ningryof ts
--precurement process requires - that ‘a:
contract taintéd by kickback violn-°
a Mago rrP gre

conflict of interest, be promptly termi

‘nated without Liability to the govern- ;

ment_

II. To allow ‘restitution in’ the ‘cireumsténcés of the
- present case—where damages would ‘fully coni- ‘
pensate the plaintiff for the loss he sustained ‘

as a result of the alleged breach—would offend
sound principles of contract law and inipor: |

_ tant! federal policies governing ee

RTA

17

Si nal ply Se SAL sity it Ate che

Arguments—Continued

A. Restitution is designed to provide a flex-
ible, essentially equitable, remedy in
situations where damages are not so
‘accurate a measure of the injury caused
by the breach as is the value of the
services rendered under the contract to

B. Measured by sound principles of restitu-
tionary relief, the contractor is not en-
titled to a deoovery in excess of the
damages he actually suffered as a re-
sult of the termination where, as here,
there is no question of the adequacy
of the damages remedy___-..__---_-- 36
C. Important federal policies would be im-
paired by allowing restitution in this

Rs iandten-cheemretastncsna-asnidinesipenchninenceuyhen 42
Conclusion_ ia ac MAR om a ae
CITATIONS

Cases:
Aberdeen. Railroad Company v. Blaikie Bros., 1 Mac-

Queen’s Appeal Cases, 461_....-..2.----_----_-- 24
Adams y. Healy, 227 Mich. 159, 198 N.W. 584____-- 33

vt Bailey v. Furleigh, 121 Wash. 207, 208 Pac. 1091__- 35
Bank of the United States v. Owens, 2 Pet..527.... 18
Boomer v. Muir; 24 P. 2d 570 (Cal. App.) --------- 35
Brown v. Bullock, 294 F. 2d 415......-------__-_- 18
Burck v. Ta@§or, 152 U.S. 634__.......-.-.------_- 18
City of Electric Lighting Co. v. London

Corp. [1903]>A,C. 484 (House of Lords) ----_---- 18
Cleveland, C.C. & St. L. Ry. Co. v-goore, 170 Ind.

OU a ie ee amnnnnne 35
Connolly v. Sullivan, 173 Mass. 1, 53-N.E. 148_.-_- a1
Crocker v. United States, 240 US. Diineneebescnn 18
Derby v. Johnson, 21 Vt. 172..----.---...---.----- 33

Fairport P. & E.R. Co. v. Meredith, 292 U.S. 589_. //1
Farnum v. Kennebec Water District, 170 Fed. 178_/
Finch v. Riverside & A. Ry. Co., 87 Cal. 597, 25 x

Dickson v. Emmerson, 154 Ore. 558, 61 P. 2d a.

Nya eadsensiitniarnsentionresavesnngpiaiesanse 18
Fitegerald v. Pan American Airways, Inc., 229 F.
|, | Us RR RGE AOR ES a eaa aaitee 20

enanedt Se om iin pei tee oe 6 -

I
Cases—Continued
Frost & Co. v. Mines Corp., 312 U.S. 38.....__..___ 17
Gleason v. Seaboard Ry., 278 U.S. 849.2. 28
Heitz v. Sayers, 32 Del. 207,121 At).295....... 35
J. 1. Case v. Borak, 377 U.S. 426... Lwecmiia’, 17
Johnston v. Star Bucket Pump Co., 274 Mo. 414, 202
BMA So Sie la ot he) wesc sual . 85
K v. Clifford, 165 Ill. 544, 46 N.E. 248. | 35
Kehoe v. Rutherford, 56 N.J.L. 23,27 Atl. OMB 35
Kitchell v. Crossley, 90 N.J.L. 574, 101 Atl. 179___.. 35
L. Albert & Son y. Armstrong Rubber Co., 178 F.
ee Ties ae nl pb be wiatibe bien dusbins, 40
Mammoth Oil Co. v. United States, 275 U.S. 18... 18
Massachusetts Bonding & Ins. Co. v. United States,
PS AM Ne cesses stu, bes 42
McConnell v. Commonwealth, Pictures Corp., 7 N.Y.
2d 465, 166 N.E. 9d 49¢. 18
Merritt v. United States; 267 U.S. 338... 39
Missouri Pac. RR. Co. vy. Ault, 256 U.S. ~ 2-52) 42, 43
Miller v. Ammon, 145 U.S. edie | a ET 18
Montgomery, Matter Of, 272 N.Y. 323, 6 N.E. 2d 4022.41; 35
Moses v. MacFerlan, 2 Burr. 1005 (Lord Mansfield)... 39
Muschany v. United States, 324 U.S. 49... iéas/ 99
Nashtv. Towne, 5 Wall. 689... a 32
New York Mail & Transp. Co. v. United States, 154
F. Supp. 271, certiorari denied, 355 U.S. 904______ 31
Northport v Northport Townsite Co., 27 Wash. 543,”
68 Pac. 204...-2 2-2. beens cpisias 18
Noyes v. Pugin, 2 Wash. 653, 27 Pac. 548_...____ 35
Oakley v. Duluth Superior Dredging Co., 223 Mich.
U5 Pe, Sa aR RR aS ioe iartenttegireom 35
Pan American Co. v. United States, 273 U.S. 456... 18
Paul v. United States, 371 U.S. 245_-.... - 44
Peist v. Richmond, 97 Vt. 97, 122 Atl. 490... 35
Pelletier v. Masse, 49 R.I. 408, 143 Atl. 609_..._..: 35
Philadelphia v. Tripple, 230 Pa. 480, 79 Atl. 703... 35
Reitmeister v. Reitmeister, 162 F. 2d 691_________.. “- 18
feynolds v. Levi, 192 Mich. 115, 80 N.W. 900 sini, 35
Rodemer v. Hazlehurst &: Co., 9 Gill. 288 (Md.)______ 33
Rustles v Christensen, 207 Wis. 326, 241 N.W. 635__ 35
Sanitary District y United States, 266 U.S. 405_______ 18
Southern Painting Company of Tenn. yv United =
States, 222 F. 9d 431... i: 88

re. 2 + —- ee ea . - -- — ~ ~ 32

where restitution would place the plaintiff in a better
position than he would have attained had the contract
been completed. ‘ !

A. RESTITUTION IS DESIGNED TO PROVIDE A FLEXIBLE, ESSENTIALLY
EQUITABLE, REMEDY IN SITUATIONS WHERE DAMAGES ARE NOT SO
ACCURATE A MEASURE OF THE INJURY CAUSED BY THE BREACH AS
IS THE VALUE OF THE SERVICES RENDERED UNDER THE CONTRACT
TO THE DEFENDANT

The traditional common law remedy for breach of
contract was damages. In some respects, however,
it was a rather rigid remedy that was inadequate to
do justice in all situations. Restitution, like specific
performance and other equitable remedies, arose in
response to the need for greater remedial flexibility.
See Nash v. Towne, 5 Wall. 689; Moses v. MacFerlan,
2 Burr. 1005 (Lord Mansfield); 5 Corbin, supra,
§ 1103. An example will illustrate the kind of prob-
lem that restitution (as a remedy for breach of con-
tract, see note 26, supra) was designed to meet. |

Suppose A employs B as his valet for one year,
under a contract which provides that B shall receive
$5,000 at the end of the year. After six months A
wrongfully discharges B, who promptly takes another
job as a valet at the same salary. If B sues A for
damages, he can presumably recover only $2,500—the
contract price less what he earned doing the same

“work for someone else for the balance of the contract

period. Suppose, however, that the fair value of the
service rendered B to A during the six months before
the wrongful discharge was $3,000. Should B be per-
mitted to sue, not for the contract price, but for
restitution of the value’ of the service . rendered—
$3,000% The answer is yes. B bargained for a year’s

33

employment—not six months. He was willing to
work for $5,000 for one year but may well not have
been willing to work for half that amount for six
months. To give him merely a prorated share of the
contract price—the practical result of awarding him
damages—is thus to give him less than he bargained
for. See II Restatement of Contracts, § 347, Illustra-
tion 2, p. 589.

Or suppose a building entihabiititie begins a siiadetl
but, before he can complete it, the owner wrongfully
terminates the contract. To award. the contractor
only a prorated share of the contract price would
ignore the possibility that, had he been allowed to
complete the project and so earn the entire contract
price, he might have made a greater profit by reducing
his costs in the later stages of his performance. See
Rodemer v. Hazlehurst & Co., 9 Gill. 288 (Md.);
Adams v. Healy, 227 Mich. 159, 198 N.W. 584; ae
v. Johnson, 21 Vt. 17. ;

In both types of situation (aikido we note ‘that
employment and building contracts appear to'be the
types most frequently involved in contract restitution
cases) the traditional remedy is not adapted to
measuring accurately the extent of the loss suffered
by the innocent party as the result of the. breach.
In both situations, moreover, the plaintiff has ren-
dered the defendant valuable s:rvices in performing
his obligation under the contract until prevented from
continuing by the latter’s wrongful action. It is fair
and just that the defendant be required to restore to
the plaintiff the value of the services rendered, rather

4

than that the plaintiff be remitted to a damages
remedy: that is likely to be inadequate to redress ‘the
injury caused by the breach: See Patterson, Builder’s
Measure of Recovery for Breach of paetiet, 31 Col.
L: Rev. 1286, 1302. r

We view restitution, then, as a meaiieeaty to the
conventional damages remedy, flexible and essentially
equitable in its nature and purposes, and appropri-
ately invoked where damages are inadequate to com-
pensate the aggrieved party for the loss of his bar-
gain.” See Fuller and‘Perdue,; The Reliance Interest
in Contract Damages, 46 Yale L.J. 52, 75-80; Palmer,
The Contract Price as a Limitation on Restitution for
Defendant’s Breach, 20 Ohio St. L. J, 264, 278-279.
Thus viewed, the availability of restitution cannot be
reduced to a hard-and-fast rule applicable in all cir-
cumstanees. We accordingly suggest no such rule.
We are content to show that the policy and rationale
of restitutionary relief, as we coneeive it, do not sup-
port permitting the plaintiff to recover his costs of
performance where damages are completely adequate
to compensate him for the loss resulting from termi-
nation of the contract and restoration of his costs
~# That inadequacy of the damages remedy is the true rationale
of restitutionary relief is indicated by the fact that, when the
innocent party has completed performance prior to the breach,
he cannot ask restitution, but is limited to damages based upon
the contract price. II Restatement of Contracts, § 350. For it is
only where performance has been interrupted due to the breach
that the problem of prorating the contract price—a solution likely
to be inadequate to measure the full extent of the innocent
party’s loss—arises.

FR Te en re Bete en Tene ete oe eee aay

35.

would give him a pure windfall. apart as we show,
is the case here.

A caveat is necessary. We do not elaim that the
concept of restitutionary relief advanced herein would
commend itself to every State court. Some might
allow restitution in the circumstances of this case,”
while others probably would not.” In adapting the
law of restitution to actions upon government con-
tracts under the Tueker Act, this Court is not, of
eourse, bound by the views of particular States. We
urge the Court to hold that the essence of restitution-
ary relief, soundly conceived, is recognition that the
normal remedy for breach of contract is to give the
innoncent party the value of the bargain he struck

38 See Philadelphia v. Tripple, 230 Pa. 480, 79 Atl. 703; John-
ston v. Star Bucket Pump Uo., 214 Mo. 414, 202 Sw. 1148;
Connolly. v... Sullivan, 173 Mass. 1, 53 NB. 143; Valente: ¥.
Weinberg, 80 Conn, 134, 67 Atl. 369; Boomer v. Muir, %% P. 2d
570 (Cal. App.); ‘Southern ‘Painting Company of Tenn. v.
United States, 202 F.2d 431 (CA. 10); Heitz v. Sayers, 32
Del. 207, 121 Atl. 225; Matter of Montgomery, 272 N.Y. 323, 6
N.E. 2d 40; Stark v. Magnuson, 212 Minn. 167, 2 N.W. 2d 814;
Pelletier v. "Mets, 49 R.I. 408, 143 Atl. 609; Poist v. ikmend,
97 Vt. 97, 100, 122 Atl. 420, 491 » Thompson v. Gaffey, 52 Neb.
317, 72 NW. 314; Rustles v: Ohvletoneon; 207 Wis. 326, 241
N.W. 635. .

See Oakley v. Duluth Superior Dredging Co., 223 Mich,
478, 194 N.W. 123; Reynolds v. Levi, 122 Mich. 115, 80 N.W.
999; Kehoe v. Rutherford, 56 N.J.L. 23, 27 Atl. 912; Kitchell v.
Croasley, 90 N.J.L. 574, 101 At. 179; Farnwm v. Kennebec
Water District, 170 Fed. 173 (C.A. 1) (applying law of
Maine) ; Heeler v. Clifford, 165 Til. 544, 46 N.E. 248; eland
C., €. & St. LE. Ry. Co. v. Moore, 170 Ind. 328, 341-348, 82 N.E.
52, 56-57; Wuchter v.. Fitegerald, 83 Ore. 672, 163. 819;
Bailey v, Furleigh, 121 Wash. 207, 208 Pac. 109¥; Noyes v.
Pugin, 2 Wash. 653, 27 Pac. 548; Wellston Coal Cojv. Franklin
Paper Co., 57 Ohio St. 182, 48 N.E. 888; Dickson y. Emmerson,
154 Ore. 558, 562, 61 P. 2d 439, 441.

36.

and, no more, and that a different measure of relief is
appropriate only where the traditional remedy is in-
adequate for this purpose.

B. MEASURED BY SOUND PRINCIPLES OF RESTITWTIONARY RELIEF, THE
CONTRACTOR IS NOT ENTITLED TO A RECOVERY IN EXCESS OF THE
DAMAGES HE ACTUALLY SUFFERED AS A RESULT OF THE TERMINA-

ee ocean OF THE ADEQUACY
OF THE DAMAGES REMEDY

We think the. cixowmatences of this case are such
that to allow restitutionary relief as decreed by the
Court of Claims would distort the policy and ration-
ale. of the restitution remedy under general contract
principles. The cardinal circumstances are as follows.

"1. In retrospect, it is indisputably clear that Acme
entered into an unprofitable contract. Even had it
been permitted to complete performance, it would
have made no profit, albeit it would have reduced its
losses. There is no ambiguity on this point. The
record indicates clearly what Acme lost on the rifles
it delivered to the government and what it would
have earned on the remaining rifles. Plainly, it could
not have recouped its earlier losses over the remain-
ing life of the contract. Assuming—as we do
throughout this part of our argument—that the gov-
ernment breached the contract in cancelling for statu-
tory violations, we agree that Acme is entitled to re-
cover the net sums it would have received on the
remaining rifles, t.¢., those it was unable to deliver
because of the government’s termination. But we see
no justification for awarding Acme the much larger
sum representing its costs of producing the rifles that
it did deliver under the contract—even assuming that

37.

those eosts were not excessive and that they may
fairly be equated with the value received by the gov-
ernment from Acme’s partial performance.

There can be no contention, in this case, that the
contractor’s remedy in damages would not adequately
measure the loss it suffered as a result of the breach.
We do not urge that damages here be measured simply
by prorating the contract price, ignoring the consid-
eration that declining costs over the life of the con-
tract would have enhanced its profitability. to the
contractor. Precisely such a computation of deéin-
ing costs was made; it formed the basis of the Com-
missioner’s award of damages,*which we believe pro-
vided the appropriate and complete relief for the in-
jury caused by the breach. Nor is this a case where it
ean be cogently argued that limiting the plaintiff to
the contract price gives him less than he bargained
for. The contract price was computed according to
the unit of production. It was simply the product of
multiplying the number of rifles by the price of each
individual rifle. To be sure, had fewer units been
specified in the contract, Acme might have made a
higher bid in recognition that its initial production
costs were likely to. be disproportionately high. But,
to repeat, the Commissioner took full account of this
factor in awarding Acme damages representing the
sums it would have recouped on subséquent deliveries.

Finally, this is not a case where it is unfair to subject
the plaintiff to the burden of proving his future costs
as a basis for damages recovery. The contract. con-
templated that the contractor would be able to furnish
reliable estimates of future costs in connection with
price determination (R. 254-255). Acme’s own ac-

fade mad vom Page 69 eres .

38

countants’ accordingly were able to furnish detailed
estimates ((R. td daha were largely accepted by
the Commissioner. |

Sinee the damages awarded by the Commissioner
would place Acme in the position it would ‘have at-
tained had no breaeh oecurred, there is no justifica-
tion for awarding Acme the greatly enhaneed sum
representing the costs it incurred in producing. the
rifles délivered under the contract. Such an award
would give Aeme & pure windfall. It would go much
further than ‘to repair the injury suffered by Acme
as a result of the cancellation ‘of the contract; it would
repair the mistake Acme made when it entered into
a losing’ contract. The short of itis that Acme in-
eurred ‘costs far in excess of’ the contract price not
because the government cancelléd the contract; but
beeausé of its own managerial mistakes and entrepre-
neurial fortunes. In these cireumstances, restitution
of costs cannot realistically be regarded as a remedy
for the breach; it is punishment meted out to the
breaching party. To punish for breach of contract
euts deeply against the grain of traditional contract
principles.” We submit it is not a proper office for
restitution or any other remedy for breach of contract.

It is no answer that, the government having
breached, the contract must be treated as rescinded
and adjustment made irrespective of its terms. The
eontract is the very basis of the restitution action;
without the breach of the contract, there would be no

sitiiiddiiiied nidiaihaie shtadinndt Siew tiie. mnlien to, 0

* contract cannot prescribe penalties for its breach. E..g., 5 Cor-

bin, supra, 8§ my ale )

A...

39

cause of action: .-Furthermore, if .restitution here. is
not viewed as a remedy upon the contract, but asia
remedy, sounding .in . quasi-contract or quantum
merutt, no recovery is, possible against the govern-
ment under the Tucker Act. _ 28;U.8,C.; 1491; United
States. v, Minnesota, Mutual Inv., Co.,.271. 08, 212,
717; Merritt. v.. United States, 2670.8... ens Sutton
v. United States, 256,U;S: 575, 581... pelt

Nor is it an,answer that. the, Pate nig hadi
received a benefit, from Acme, should be.required to
pay for it, agcording to. Acme’s costs, ,The,value to
the government was. not, the: cost | te, Acme, even, as-
suming that, cost,.was,a.fair.one; but the contract
price, . There is nothing to indicate that the govern-
ment would voluntarily have, paid Acme twe or. three
times the contract price for, these rifles, albeit it.de-
sired to.encourage entry of new competitors inte the
military-supply field, It might well have concluded
that such.an investment would be, unwarranted, and
that the money ‘could be spent to. greater advantage
on other weapons. Or_ it .might, have decided to
procure the rifles from other contractors—as it could
have done at prices only slightly higher than the
maximum contract) price in the Acme. eontract>?
There is, in sum, no basis for the view ‘that the
government. was unjustly en enriched because Acme spent

The ceiling price . of the "Wallick with Acme was $384.95
per rifle (F. 7, R. 126)’ The government liad received a bid
of $452.60 from {another contractor “who ‘was successfully pro-
ducing rifles, ey fe from other firms at $83, $484 and ie
respectively (F. 7, Re ners ph

etdnotlgus - ‘indice Jo sanbrieoh eff ters

t ve bsp

TN,

4)

more than it anticipated in the production of these

2. Even if, contrary to our suggestion, a punitive
measure of damages for breach of contract may in
some circumstances be warranted, surely it is not in
a ease like this, where the breach was neither wanton
nor deserving of censure. The Oourt of Claims
found that the government believed in good faith that
the statutory and contractual violations of Acme and
its employees warranted cancellation. If the govern-
ment erred in that conclusion, the error was an in-
nocent one. ' Certainly the’ government was the less
culpable party in the course of events that led to the
cancellation of the contract: The precipitating cause
of the cancellation was the unethical and illegal con-
duct of key Acme employees. In view of the basically
equitable nature of the restitution remedy, we think
it important to stress the actual balance of equities
in this case—and the highly technical sense in which
the government, because it cancelled the contract, may
be said to have acted wrongfully.

32Compare L. Albert & Son v. Armstrong Rubber Co., 178
F. 2d 182 (C.A. 2) (L. Hand, J.), which held that a seller
of machinery who had breached by delaying delivery could
deduct the buyer’s loss on the contract from its recovery for
expenses in preparing his factory for receiving the machines
(which were never delivered). Under this well settled rule,
if the plaintiff’s expenses confer no benefit on the defendant,
the plaintiff is not entitled to recovery in excess of his actual
damages. It seems anomalous that if, as here, the plaintiff’s
expenses confer some benefit, he is entitled to recover his entire
expenses though they are grossly disproportionate to the value.
of the benefit conferred. Hence, even if this Court concludes
that the doctrine of restitution is applicable here, we urge it to
reject the measure of restitutionary relief (costs) applied by
the Court of Claims.

41

In this connection, we point out that Acme entered
into this contract with full awareness of the risks in-
volved. Indeed, the government had offered it a
chance to withdraw its bid—which was so low as ‘to
raise doubts concerning Acme’s ability to perform
without loss—but Acme had declined, its eagerness to
become a military supplier impelling it to enter upon
a contract it knew to be risky. We also note that
the contract contained a price redetermination clause,
under which Acme might obtain payment above the
contract price if its costs proved to be higher than
anticipated; and most pointedly, that the contract
contained a provision authorizing the government to
terminate the contract “whenever the Contracting
Officer shall determine that such termination is in the
best interests of the Government.” ° (R. 247.)

‘Had ‘the government invoked this clause in’ can-
eelling ‘the contract—as it was entitled to do on any
ground—its maximum liability to Acme in termina-
tion costs would not have exceeded the amount ad-
judged by the Commissioner to be Acme’s damages
for breach of contract.. (Compare F. 48, R. 202, with
Commissioner’s finding 84, R. 76.) Acme had in
effect agreed that the government could at any time
cancel the contract for reasons sufficient unto itself
without being liable for any more than the actual
damages caused by the cancellation. The government,
to be sure, did not invoke this clause, believing that it
was entitled to cancel the contract because of statu-
tory violations without any liability. But, in view
of its initial assent to inclusion of the termination-
for-convenience provision, Aeme has no..equity in

Ror the Nstegetie bho: we é redpéctfelly subst
that’ the items below: should be reversed.

es a ., Tizurceo MAnsHAtt,

peal Solicitor General.
Hit 96 Youn W. Dovanas,
OF 5] 4 bebaan Attorney General.
Ricuarp.A, Posner,
Assistant to the Solicitor General.
Davw L. Rose)
ere V/ ZENER,
) oe

AvaustT 1966 .

U.S. GOVERNMENT PRINTING OFFICE: 1966

BLANK

PAGE

i,
lag tin min Lene = ee

42 a
qlaiming a, larger. jndgment than that clause sees
for a, ‘government cancellation without cause—merely

hecause the goyernment acai and in pond faith
believed that it had cause. eit Tt ay geht

Q: IMPORTANT. FEDERAL POLICES: WOULD BB EMPAIRED BY. ALLOWING
it Tentiioot IN (THIS car }

_ Byen, if, as a. matter. of sqund general poaraae
principles, restitution is allowable in a case like this,
we. think it. should, ibe. disallowed on, policy grounds
arising, From, the nature of government procurement
gontract&.. 6 ot hevots +t f jysite

1, As. noted in: the mndine. Seeiiion the, Court

‘of. Claims, would give, Acme an award that is, clearly

punitive, in that it.is, grossly disproportionate to, the
actual injury, sustained, by Acme as. a :result of. the
government’s reach.;;, (That, injury was. the much
smaller amount representing the sunis Acme would have
recaptured on the undelivered rifles.) , Such an award
of, punitive, damages. contravenes. the. basic. principles
of contract, remedies, but. it is particularly anomalous
where the defendant isthe government. - It jis..un-
sound: to- suppose that, by. subjecting the government
to suit;for breach of cgntract, Congress in the Tucker
Act ; intended 'to., open. the government | to, punitive
judgments, .In the. context .of suits against, the gov-
ernment, ‘the remedy accorded by the court below: is is
unprecedented (see R, 106).*.. : 65 Pouseiah
“Tad Gompare 98 U.S.C. '9647 (‘Tort Claims Act) ; Massachisetts
Bonding & Ins. Oo: v. United States, 852 U.S. 128. '\'\ See, also,
i Pac. R.R.. Co, y,. Ault, 256 U.S, 554, 563-565, holding

that. a statute subj jecting the government, as owner and opera-

tér of the’ nation’s railroads during World War 1, t6'“all laws
arid liabilities as common catriers,” did not suthorize recovery

¢

ee ere — —— oe

case tstanelin natin atte a»

oe

n° ‘Where, as in the present case, ‘restitution is | ap-
plied so as-to yield damages far in’ excess of those
possible’ under conventional remedies for breach of
contract, it becomes fictional ‘to speak of the action a8
one upon the contract. ‘The breach, to be sure, is the
trigger that allows ‘the restitution remedy to be in-
voked,’but the remedy itself is independent of (if not
contrary to) the terms of the contract. In such a
case, thé action realistically is oné' sounding in quasi-
contract or quantum meruit—an action for the value
of goods received without referencé to a legal’ cor
tract. The Tucker Act does not authorize such ac=*
tions (see p. 39, supra),

8, The rite of dhimapes applied ty thé Colirt’ uf
‘Claims ‘has the effect of giving’ the contractor an
option, in the event of the government's breach, of
placing his contract on a full cost reimbursable basis.
This new’ rule: violates’ established federal procure-
‘ment policies and regulations, which require govern-
ment supplies and services to be purchas ~ 80 far as
possible on a fixed-price basis.“ ''The federal policy
in favor’ of fixed-price contracts is also expressed in

ots ee init “The purpose for which the Government
permitted itself to be sued was compensation, not punishment.”
256 U.S. at 564,

% The, present regulation states: Sw heteivede rénsenahle heals
for firm pricing exists * * *, the finm fixed-price contract shall
be used, because its uge under these circumstances will provide
the contractor with a maximum profit incentive ‘to comtsé] ‘the
costs of performance.” 382. C.F.R. 3.402(b) (1965. ed.). The
regulations in effect in 1953, when: the contract here involved was
executed, required use of fixed price contracts for negotiated
procurements “unless conditions necessitate” otherwise. 32
C.F.R. 3.401 (1954 ed.). See, also, 32 C.F.R. 3.405 (1965: ed:));
32 C.F.R. 3.405, 3.405-1, 3.406, 3406-1 (1954 ed.). J

44

the standard default and termination-for-convenience
clauses, which were, included in the contract in this
case (R, 244-258). although not invoked by the govern-
ment. These clauses limit the ,contractor’s recovery
by reference to the contract price (see. pp, 41-42,
supra). * A rule of recovery that enables the con-
tractor .to disregard the contract, price in recovering
for his costs in excess of the contract rate stands in
square conflict with, this fixed-price policy preference.
_ .,, Af the same time, the measure of recovery prescribed

by the Court of Claine frustrates the federal procure-
ment policy of encouraging the award of contracts
on the basis of competitive bids, oX,, where. that is
not, feasible, of obtaining as many quotations for
negotiated contracts as possible.in order to secure
the most advantageous terms for the government.
See 10 U.S.C. 2304(g) ; 32 C.F.R, 3.801-1 (1965 ed.) ; ef.
32 C.F.R. 1,301 (1954 ed.). See, also, Paul v. United
States, 371 US. 245, 252-253, The result of the Court
of Claims’ Tuling i is to allow Acme compensation far
in. excess of both, its. own bid. and, of the higher com-
peting bids. Acme was. awarded. the .contract, after
competitive quotations were obtained, at a price of
$8337.23 per Tifle, subject to upward or, downward re-
~ % The standard default clause states that if the government’s
termination for default is improper because the contractor’s
default: was excusable, or if there was rio default, recovery sliall
be measured by the termination-for-convenience clause. 32
C.F'R. 7.103-11 (1954 edi) ; 32 C.F.R.:7.103-11, 8.707 (1966 ed.).
That clause specifies that the contractor is to receive the contract
price for items delivered, plus its costs for uncompleted por-
tions of the contract limited by reference to the contract price.

82 C.R.F. 7.103-21, 8:701(e) (1904 ed.) ; 82 C.F.R, 7.108-21, 8.701
‘(e) (1966).

X46
hon

vision, with a-ceiling price of $384.95 (F. 7, R. 126-
127). Other bids of $423, $484.05..and. $684 per. rifle

_ were rejected (F. 7, R.:126-127)... Under the Court, of

Claims’ ruling, however, the government is to be
charged Acme’s costs of $1,179.29 for each of the first
446 rifles it received and $690.21 for the remaining rifles
delivered prior to cancellation (F. 52, R. 206, 207-208),
except to the extent that it can show these costs to have
been excessive or illegal.

4, Government contracting officers have a broader
duty with respect to public contracts than do private
parties. A private party will repudiate his contract
only if the contract appears ‘disadvantageous. But a
government officer is charged with enforcing the fed-
eral statutes and regulations ‘designed to further im-
portant federal policies in procurement, and he may
thus be authorized to cancel a contract because the

. contractor has violated such a statute or regulation.

A breach of contract based upon an innocent but er-
roneous application of this principle cannot be likened
to the self-interested action of a breaching private
party. To impose punitive damages for a breach
of the former sort is to deter government contracting

officers from vigorous use of the cancellation power to
foster important federal policies such as equal oppor-
tunity, honesty and fair dealing.”

*6 See, ¢.g., 10 U.S.C. 2306(b) (contingent fees); 18 U.S.C.
201-218 (bribery, graft, conflicts of interest); 28 U.S.C. 2514
(fraudulent claims) ; 41 U.S.C. 35, et seg. (Walsh-Healey Act) ;
41 C.F.R. 1-12.800, et seg.; 32 C.F.R. 12.801, et seg. (non-discrim-
ination in employment) ; 18 U.S.C. 874 wage rebates) ; 41 U. S.C.
10a, e¢ seg. (Buy American Act).

&

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386412_0008%3A5. Public record. Not legal advice.