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F.2d 1038 UNITED STATES,
Appellant, ... Before MARKEY, Chief Judge, COWEN, Senior Circuit Judge, and BALDWIN, Circuit Judge. COWEN, Senior Circuit Judge. This is an appeal by the United States (Government or Navy) from a decision of the Armed Services Board of Contract Appeals [FN1] (Board or ASBCA) in which the Board held that it had jurisdiction under the Contract Disputes Act of 1978 (CDA) of the appellee's (Hamilton or contractor) claim for reformation; that Hamilton's contract was improperly terminated for default; that the excess reprocurement costs which the Government claimed should be disallowed, and that the Government's claim for the cost of military services furnished in the performance of the contract should be denied. The Board found that Hamilton made a mistake in its bid; that the Government's request for verification was inadequate, and that the acceptance of Hamilton's low bid resulted in a contract that was unconscionably priced. In addition to the other relief granted, the Board found that Hamilton was entitled to recover its losses which amounted to $206,101. I. Background. On February 28, 1979, the Navy awarded Hamilton a fixed price contract to provide mess attendant services for the enlisted men's dining facility at the Naval Air Station, near Memphis, Tennessee. The initial contract was for 6 months, with an option for an additional 12 months. The contract was to be performed in three phases. Phase I commenced April 1, 1979, and required Hamilton to clean the dining facility. Phase II, which commenced May 1, 1979, continued the responsibilities of Phase I, and also obligated the contractor to set up, operate and secure the serving line. Phase III, which commenced June 1, 1979, continued the duties involved in Phases I and II and in addition, required Hamilton to perform specified duties in the vegetable preparation room. The purpose of the phasing-in periods was to offset the fact that the successful bidder would be the first civilian contractor in the fourth largest mess facility in the Navy. As the result of
formal advertising, 31 bids were received as follows:
Total The Government's estimate for the services was $3,251,130, making Hamilton's bid only 31 percent of that estimate. The initial low bidder was allowed to withdraw its bid, because of a mistake in its G & A costs. The second low bidder became bankrupt and was determined to be nonresponsible. The third low bidder was disqualified, because of its refusal to extend its bid past the initial acceptance date because of an alleged mistake in its bid. In response to the Government's request, Hamilton verified its bid; the Government performed a pre-award bid survey, and then awarded the contract to Hamilton without holding a prebid conference. Hamilton began performance on April 1, 1979. On May 2, 1979, Hamilton filed a request with the contracting officer for an equitable adjustment. The claim was for excess hours of work allegedly expended by Hamilton's employees as a result of the failure of the Government to furnish equipment and supplies it was obligated to provide, and because of work which Hamilton says it was required to perform in violation of the terms of the contract. Except for two small claims, the contracting officer, on May 30, 1979, denied the request for an equitable adjustment. On June 1, 1979, Hamilton filed a second request for an equitable adjustment, which like the first claim was a request for compensation for the cost of additional hours of work which Hamilton claimed were not required by the terms of the contract and the specifications. By letter of June 19, 1979, to the contracting officer, the contractor's attorney stated that in view of the manhours of labor required to perform the contract, Hamilton was losing so much money that it would soon be bankrupt. The letter further stated that since the contracting officer had denied Hamilton's request to terminate the contract for the convenience of the Government, Hamilton had no alternative but to reduce the manhours performed at the facility to the contractor's estimate of manhours (namely 456 manhours per day) furnished to the Government before the bid was accepted. Beginning on June 28, 1979, Hamilton reduced its staffing to the 456 manhours per day estimated in its manning charts. Prior to that time, Hamilton had been providing about 1,100 manhours per day, which was close to the number of manhours the Government had estimated in preparing the bid package for letting the contract. On June 29, 1979, the contracting officer sent Hamilton a cure notice, stating that the Government was considering terminating of the contract for default. On July 9, 1979, the contracting officer issued a decision in which a majority of the items in Hamilton's second claim was denied, and the contract was terminated for default. Hamilton timely appealed the denial of its claims for equitable adjustment and the decision terminating the contract for default, and stated that it elected to proceed under the CDA. During the period between June 28, 1979 and July 10, 1979, more than 12,710 military manhours were expended by the Navy in order to raise to an acceptable level the sanitation and service provided by Hamilton's personnel. The total cost of this military service was $44,582.87. Hamilton was advised that this amount would be deducted from its invoices. Following the termination for default, a reprocurement contract was negotiated, and an award to another contractor was made on July 17, 1979. On July 23, 1979, the contracting officer assessed excess reprocurement costs of $109,124.03 against Hamilton. The Navy withheld payment on invoices totaling $60,262 to offset the reprocurement costs. On July 31, 1979, Hamilton appealed the decision assessing the excess reprocurement costs against it. Prior to the appeals to the Board, none of Hamilton's claims was certified to the contracting officer in accordance with 41 U.S.C. § 605(c)(1). On August 15, 1979, Hamilton filed its first complaint with the Board, stating that it elected to have the CDA apply to all of its claims. Hamilton alleged that it was entitled to recover $345,879 on claims for equitable adjustment which had been denied by the contracting officer. On October 30, 1979, Hamilton filed a supplemental complaint which incorporated by reference the allegations of the first complaint. In this complaint, its claims for equitable adjustment were certified in the form and manner provided by statute, 41 U.S.C. § 605(c)(1). On November 14, 1979, Hamilton filed a second supplemental complaint which incorporated the allegations of the first two complaints and added a new and third cause of action in which the contractor requested reformation of the contract due to a bid mistake and claimed damages in the amount of $345,879.30. The claims set forth in the second supplemental complaint were properly certified in accordance with the CDA. A consolidated hearing was held by the Board on Hamilton's appeals between July 8, 1980 and July 14, 1980. On July 9, 1981, the parties filed a stipulation with the Board in which they agreed that there had been a de facto decision of the contracting officer on Hamilton's reformation claim. On February 4, 1982, the Board issued a decision in favor of Hamilton on the four appeals. As previously stated, the Board held that under the circumstances, the acceptance of Hamilton's low bid resulted in an unconscionably priced contract; that the termination for default and the assessment for excess reprocurement costs should be set aside, and that the Government's claim for military personnel costs should be denied. The Board awarded Hamilton damages in the amount of $266,363, consisting of Hamilton's stipulated loss of $201,101, plus $60,262 which had been withheld by the Navy to offset the reprocurement costs. Thereafter, the Government filed its petition for review of the Board's decision in accordance with the provisions of the CDA, 41 U.S.C. § 607(g)(1)(B). ... III. The Reformation Issue. [FN4]
The Naval Air Station where the contract was performed is located in the small Navy town of Millington, about 15 miles from Memphis, Tennessee. The Government's bid package consisting of the basic specifications, the cost estimate, and the manning charts was prepared under the direction of the Naval supply officer at Millington by experienced Navy personnel who were actively engaged in the day-to-day operations of the facility. The manning charts, which showed the estimated manhours of labor that would be required for the performance of each of the three phases of the contract, were prepared for the use of the Government's procurement officer. By comparing the Navy's manning charts with those which the contractor was required to submit with the bid, the procurement officer can determine whether the bidder has an understanding of the scope of the contract and has submitted a reasonable bid. The contracting officer and Navy personnel who handled the procurement of this and other contracts were stationed at Charleston, South Carolina. A Navy officer referred to as the buyer was responsible for receiving and analyzing the bids, and recommending the acceptance of the lowest responsible bid. When he received Groves' bid, which was the lowest submitted, he requested verification of the bid because it was so much lower than the others that the possibility of an error was indicated. His letter also stated: When the buyer examined Hamilton's bid, he suspected a mistake in the bid because of the low amount compared with the Government's estimate. Therefore, he wrote Hamilton a letter on January 3, 1979, in which he stated: After receiving Hamilton's confirmation and its manning charts, the buyer prepared an analysis of Hamilton's bid as compared to the Government's estimate; this disclosed that Hamilton's manpower estimate was 30.31 percent of the Government's estimate. The comparison shown by the analysis was as follows:
Government Contractor Phase I Weekday 994.5 305 Weekend/Holiday 633. 180 Phase II Weekday 1,373. 428 Weekend/Holiday 893.5 272 Phase III Weekday 1,521. 456 Weekend/Holiday 987.5 300 ----------- ---------- Totals 6,402.5 1,941 The analysis further stated that Hamilton had confirmed its bid and that although its estimated manhours are "significantly lower than that projected by the Government, the offeror's proposed hours were considered adequate to perform the requirements based on prices bid and hours proposed by other bidders." Before accepting the bid, the Navy made a pre-award survey which indicated that Hamilton had a good performance record in other mess attendant contracts and had received several awards therefor. The survey team had a copy of Hamilton's manning charts, but was not given a copy of the buyer's analysis showing the disparity between Hamilton's estimate and that of the Government. The buyer's analysis and the pre-award survey were considered by a contract review board, which recommended the acceptance of Hamilton's bid. The procurement office in Charleston did not seek the advice of the supply officer in Memphis, under whose direction the Government's estimates had been prepared, as to the choice of a responsible source for performance of the contract work. The supply officer was skeptical that Hamilton could perform for the price it had bid, and the experienced Navy personnel at the Naval Air Station considered that the tasks required by the contract could not be performed to the standards envisioned by the Navy by a contractor who proposed to use a work force that was less than 50 percent of the manhours used by the Navy in performing the same services prior to the letting of this contract. On the basis of the record before it, the Board concluded that once Hamilton submitted its manning charts, which were grossly under the Government's estimate, the Navy was dutybound to request another verification which called attention to the suspected mistake and the reason for that suspicion. The basis for the suspicion, as the Board saw it, was not the bids of the other bidders but the vast disparity between the Government's estimate and Hamilton's bid. The Board also held that while the Government ordinarily is not required to disclose its estimate, here that estimate was based on the Government's own experience of which the bidders were ignorant. Consequently, the Board declared that the Navy's estimated manhours should have been disclosed at least to the proposed awardee as a basis for suspecting a mistake and that since verification was not requested on that ground, the verification was inadequate. After a careful study of the record and the pertinent authorities, we affirm the Board's holding that the Government's request for verification of the contractor's bid was inadequate. There are a number of facts which we find persuasive of this result. Hamilton was the first civilian contractor in a facility which had previously been operated by the military. The Board attached special significance to the Government's estimate of the manhours of labor required to perform the contract and we think this was proper. In view of the fact that the estimate was prepared by experienced Navy personnel who had first-hand knowledge of the manhours which would be needed to perform the various phases of the contract and the purpose for which it was to be used, the buyer should have surmised that there was an error in the bid because of the great disparity between Hamilton's estimate and the Government's manning charts. In the comparable situation involved in the bid submitted by Groves, the buyer suspected that there was an error in the bid because of the disparity between the bid and the Government's manning estimate, and Groves was asked to provide a verification of this estimate. The failure of the Navy to accord the same treatment to Hamilton is a crucial fact in this case. The landmark case on the adequacy of the Government's verification of bids in which mistakes are or should have been suspected is United States v. Metro Novelty Mfg. Co., 125 F.Supp. 713 (S.D.N.Y.1954). There the court held that the request for verification was inadequate because it failed to put the bidder on notice of the mistake which the contracting officer sur mised.The Metro case was cited in Chernick v. United States, 178 Ct.Cl. 498, 372 F.2d 492 (Ct.Cl.1967), but there appears to be a paucity of court decisions on the question. However, in applying the rule in Metro, the Comptroller General has issued several decisions in which he has held that where a disparity, such as that which is present in this case, is brought to the notice of the contracting officer, the bidder must be placed on notice of the nature and extent of the mistake which is suspected. See, e.g., 44 Comp.Gen. 383 (1965). In Unpub.Comp.Gen. B-177405, Nov. 29, 1972, the contracting officer noted that there was disparity in the amounts between the low bid, the second low bid, and the Coast Guard estimate. The contracting officer requested a verification, advised the bidder that the disparity in the bids existed, and sent a copy of the abstract of bids. He failed to indicate that there was a difference between the contractor's bid and the Government's estimate. In holding that the verification was inadequate in that case, the Comptroller General stated that in order for a request for verification to conform with the good faith dealings expected of the Government's contracting officials, the request should be as fully informative as possible concerning the pertinent factors indicating to the contracting officer that an error might have been made in the bid. [FN5] After reviewing several decisions of the Comptroller General, Hagberg summarized the rulings as follows: A contract will not be reformed because of a unilateral mistake in a bid unless the contractor establishes that the error resulted from a "clear cut clerical or arithmetical error, or a misreading of the specifications." Aydin Corp. v. United States, 669 F.2d 681 (Ct.Cl.1982); Ruggiero v. United States, 420 F.2d 709 (Ct.Cl.1970). In such cases, the degree of proof demanded for reformation is higher than where rescission is requested. The contractor must establish by clear and convincing evidence what his bid price would have been but for the error. Bromley Contracting Co. v. United States, 596 F.2d 448 (Ct.Cl.1979); Chernick v. United States, supra. Here the Board found that aside from the matter of the quantum of bid error, Hamilton did not present any work papers showing the nature of its mistake or what the bid would have been were it not for the mistake. This finding is supported by undisputed evidence. Nevertheless, the Board in its opinion stated: Persuasive evidence of the fact that Hamilton did not make the kind of error that entitles it to have the contract reformed is found in the written communications of Hamilton's attorney during the period beginning with the submission of the contractor's first claim for equitable adjustment and ending with the filing of the second supplemental complaint with the Board. The attorney prepared the two claims for equitable adjustment which were submitted to the contracting officer on May 2 and June 1, 1979. He requested the contracting officer to terminate the contract for the convenience of the Government rather than for default. He sent a letter containing Hamilton's response to the contracting officer's cure notice on June 28, 1979. On July 3, 1979, he wrote to the contracting officer and contended that the contractor had been performing services far in excess of those called for and required under the terms and specifications of the contract. He drafted the four notices of appeal and filed the three complaints with the Board. Thereafter, he represented the contractor in all proceedings before the Board. In our examination of these papers [FN6] which were sent or filed prior to November 14, 1979, we have failed to find a single contention that the contractor had made a mistake in its bid or that Hamilton was entitled to reformation on that ground. It was not until Hamilton's second supplemental complaint was filed with the Board on November 14, 1979, that Hamilton asserted that it had made a mistake in its bid and was entitled to reformation of the contract. The complaint did not describe the nature of the mistake but alleged that the error had been discovered on or about October 25, 1979. However, no evidence was offered to show exactly what was discovered at that time.
What emerges from the foregoing is the conclusion that this is a case of mutual fault to the extent that neither party is entitled to recover on the claims asserted against the other. Hubler Rentals, Inc. v. Roadway Express, Inc., 637 F.2d 257 (4th Cir.1981); Westinghouse Electric Corp. v. Garrett Corp., 601 F.2d 155 (4th Cir.1979). "The court must let the chips lie where they fall," Corbin, Contracts (1960 ed.) § 598, p. 589. Accordingly, we affirm the Board's denial of the Government's right to recover for the excess reprocurement costs and the costs of providing the services of military personnel to supplement the contractor's work force. However, we reverse the Board's award of damages in the amount of $206,101 to Hamilton and hold that the amount of its recovery is limited to the sum of $60,262, which the Navy withheld as an offset against the excess reprocurement costs. [FN8] |
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