
    ACME PROCESS EQUIPMENT CO., TO ITS OWN USE, AND FOR THE USE AND BENEFIT OF KINGSTON TOOL COMPANY, NICHOLSON PRODUCTS COMPANY, K & G SALES COMPANY, ALL METALS INDUSTRIES, INC. AND THE PITTSBURGH NATIONAL BANK, SUCCESSOR TO THE PEOPLE’S FIRST NATIONAL BANK & TRUST CO., ASSIGNEE OF ALL METALS INDUSTRIES, INC. v. THE UNITED STATES
    [No. 538-59.
    Decided June 11, 1965]
    
      
      Jack Bephcm for the plaintiff. Solomon Dimond of counsel.
    
      David, Orlikoff, with whom was Assistant Attorney General John W, Douglas, for the defendant. Hyman Lazeroff and James F. Merow of counsel.
    Before Laramore, Durfee, and Davis, Judges, and JONES and Whitaker, Senior Judges 
      
    
    
      
       At the time this case was argued, May 6, 1964, Jones, Senior Judge, was Chief Judge of the court. This decision has been deferred pending disposition of the companion case, No. 349-57, post, p. 324, since the parties stipulated that the record in the latter was to he considered in the determination of the present case.
    
   Davis, Judge,

delivered the opinion of the court:

In January 1953, plaintiff entered into two separate contracts with the Army, one for the production of elevating and traversing assemblies and the other for the manufacture of 75 mm. rifles. The present claims grow out of the termination of the former contract for the Government’s convenience. There are in effect two independent demands, one urged by the Acme Process Equipment Company as prune contractor for itself and all of its subcontractors save one, and the other on behalf of All Metals Industries, Inc., the principal subcontractor.

The contract out of which the claims arise was executed on January 7, 1953, by the Bock Island Arsenal of the Army Ordnance Corps and administered by the Philadelphia Ordnance District. The Government terminated the agreement for its own convenience on March 17, 1954, before any deliveries had been made. The affected parties duly filed termination claims on a total cost basis and for the next three years negotiated fruitlessly to reach a settlement. Finally, on Jmie 19 and 20,1957, the contracting officer made findings as to amounts due Acme and All Metals, and thereafter an appeal was taken to the Armed Services Board of Contract Appeals. The claimants engaged in subsequent negotiations with the contracting officer to achieve a settlement notwithstanding the pendency of the appeal, but these resulted only in the filing of new claims in increased amounts, the issuance of revised findings superseding the original ones, and the submission of modified appeals to the Board. In the meantime partial payments were made on the claims. The Board decided that a net balance of $21,518.73 was due on the Acme claim after crediting a part payment of $20,000, and that All Metals was entitled to an additional $32,879.01, after crediting partial payments of $50,040.28. On motions for reconsideration, the Board reduced the net amount due on the All Metals claim to $18,096.38.

EAII/URE TO PAT THE BOARD’S AWARD

Following the Board’s final determination, the defendant declined to disburse the amounts awarded to the claimants unless they filed general releases without reservations or exceptions. Plaintiff asserts that this refusal breached Article 21(g) of the contract, which states that “if an appeal has been taken” from the decision of the contracting officer, the Government is to pay “the amount finally determined on such appeal.” The contractor argues that “appeal” comprehends only subsequent actions within the executive department, and not those ultimately taken to this court. The contention is that, after a favorable final decision by the chief of an executive department (or a board, as his duly authorized representative), the defendant is obliged forthwith to pay the contractor the amount awarded, and failure to do so breaks the contract.

Although in other circumstances there may be some merit in this position, it is unavailing here. Acme’s point is that the defendant and the court are bound by all those administrative determinations of fact which the contractor does not challenge. On the basis of this purported finality, it is argued that, since we may not reduce the figure awarded by the Board, the contractor has necessarily incurred damages in that amount. The premise is untenable, as this court has recently held: “Whatever may have been the rule or the practice before the Wunderlich Act, 68 Stat. 81,41 U.S.C. §§ 321-22, that statute compels us to reject plaintiff’s suggestion. It is in effect asking that we read into all government contracts (with Disputes clauses) the provision that a [factual] claim otherwise properly before the court may not be decided on the merits if there was a prior administrative determination favorable to the contractor, i.e., a clause that administrative determinations for the contractor are automatically conclusive [absent fraud]. The standard Disputes clause does not and cannot now contain such a limitation, because the Wun-derlich Act specifically prohibits the inclusion in a government contract of any clause making the decisions of an administrative official on questions of law or fact completely final and free from judicial review. 68 Stat. 81, 41 TJ.S.C. §§ 321-22. The Act, phrased in universal terms, makes no qualification or exception for administrative orders sustaining the contractor. The opinions which may indicate a contrary position were all handed down before the passage of the Wunderlich legislation. In cases decided subsequent to its enactment, this court has not hesitated to reexamine administrative determinations upholding the contractor, and to upset them if the standards for review set forth in the statute call upon us to conclude that the decision below should not stand.” C. J. Langenfelder & Son, Inc. v. United States, 169 Ct. Cl. 465, 471-78, 341 F. 2d 600, 607 (1965) (citations and footnotes omitted) ,

Acme wishes to use this court as a means of automatically enforcing an administrative decision in its favor. The Wunderlich Act forbids that result. Bather, when a contractor 'believes the Government is wrongfully withholding his funds, the courts afford a remedy only if he shows his entitlement under the standards of review set forth in the Act. Aside from true settlements or compromises, the parties cannot by-pass the statute by endowing administrative decisions (favoring one side or the other) with absolute finality in advance. In this case, the defendant has come to concede that the Board was correct in awarding $21,518.73 to Acme, but the Army did not breach the contract simply by refusing at first to accept the Board’s decision. The breach was the failure to pay plaintiff what was rightfully owing to it on the items considered by the Board, not the refusal to acquiesce blindly in the Board’s award. Plaintiff may not recover on this basis.

THE ACME CLAIM:

In addition to the Board’s net allowance to Acme of $21,-518.73, which the defendant no longer contests, the plaintiff claims to be entitled to $5,200 for post-termination legal and accounting expenses disallowed by the Board, and $5,907.56 deducted because of a violation of the covenant against contingent fees.

Post-Termination Expenses. — Article 21 of the general provisions of the contract governs the procedures obtaining when the Government terminates a contract for its own convenience. Among the expenses incurred by the contractor which the United States agrees to reimburse are “the reasonable costs of settlement, including accomiting, legal, clerical, and other expenses reasonably necessary for the preparation of settlement claims * * The same contract article incorporates by reference Armed Services Procurement Regulation 8-102(c) (9), which specifically disallows expenses incurred in any formal appeal, either within an executive agency or in court.

Acme’s termination claim included $3,500 for the legal services of Solomon Dimond, who first entered the case in connection, with the preparation and filing of the appeal to the Board. Prom September 1957 to April 1958, the period for which the fee is claimed, Mr. Dimond’s work consisted primarily of negotiations with the contracting officer to settle the pending claim. Because the prospect of settlement was in the offing, the Board granted the defendant, on October 21, 1957, a seventy-day extension of time (until December 30) within which to file its answer. The Government’s request that the appeal be classified as “awaiting administrative disposition” was also granted. When efforts to compromise the matters in dispute broke down in early December, Mr. Dimond continued negotiating with the contracting officer until April for the purpose of obtaining revised findings from which to appeal. The Board disallowed the claim for his services during the entire period because “they were rendered in connection with the appeal, even though they include unsuccessful negotiations to settle it. They were not rendered in connection with the original preparation and presentation of the termination settlement proposal.” Our Trial Commissioner, in his opinion, reversed the Board’s determination, allowing reimbursement for the full amount claimed.

We are concerned essentially with the meaning of the pertinent provisions of contract article 21 and the incorporated regulation, which permit reimbursement for “reasonable costs of settlement.” On this question of law, the prior administrative determinations are, of course, not binding. 41 U.S.C. § 322. In support of the restrictive view adopted by the Board, the defendant relies heavily on ASPE 8-402 (b) (27), allowing compensation for “reasonable * * * legal * * * expenses necessary in connection with the termination and settlement of the contract * * * but only to the extent reasonably necessary for the preparation and presentation of settlement proposals and cost evidence in connection therewith”, as well as on ASPE 8-402(c) (9), supra, disallowing “legal * * * services and related expenses incurred by a prime contractor * * * * in any formal appeal or submission * * The Government reads these limitations in conjunction with contract clauses 21(d) and (e); under those provisions, the amount owing to the contractor after a termination for convenience is to be determined either by a negotiated agreement or, if the parties cannot agree, by a unilateral decision by the contracting officer, which is subject to appeal. Once the contracting officer takes such unilateral action, it is urged, a “termination settlement” has occurred, and any subsequent settlement efforts must be in connection with the appeal. This, the Government says, precludes reimbursement.

Defendant’s explication of the texts of the regulations is unconvincing. A more natural reading indicates no such partition of the legal expenses connected with settlement negotiations between those incurred prior to a unilateral determination and those after. Rather, the dividing line has been drawn between (1) all settlement costs and (2) “legal * * * services and related expenses incurred by a prime contractor or a subcontractor in any formal appeal.” The contract and regulations do not say that all legal services rendered subsequent to the filing of an appeal are to be disallowed, if so facto, for purely chronological reasons. Instead, an attorney’s services are allowable costs to the extent they consist of settlement negotiations with the contracting officer, in contrast to activities directly bearing on the appeal proceedings (such as preparation and filing of pleadings and briefs). The nature and form of the legal activities involved are more objective standards for determining i‘f they may be reimbursed than their relationship in time to the filing of an appeal to the Board. We hold that the legal expenses incurred by plaintiff in its efforts to obtain a settlement, whether before or after the appeal to the Board, are compensable costs under the contract and incorporated regulations.

Defendant next asserts that, even if settlement expenses subsequent to a formal appeal may be reimbursed, the court should allow only a fraction of the amount requested by Acme and permitted by the Trial Commissioner: the award should be limited to the fees incurred for Mr. Dimond’s services from October 21 to December 2,1957, rather than from September 1957-April 1958. On October 21, defendant first requested the Board to extend the time for filing the Government’s answer because of settlement negotiations then in process. In a letter dated December 2nd, Mr. Dimond advised the Philadelphia Ordnance District that its compromise offer was unacceptable and that appeal proceedings before the Board would be continued. But according to affidavits of Ordnance District representatives, which were submitted in evidence before the Board, Mr. Dimond’s efforts to settle the dispute began considerably before October 21 and may well have extended beyond December 2. Mr. Dimond’s subsequent services (for which compensation is claimed) did deal in large part with obtaining detailed findings from which Acme could appeal; but it is very unlikely that there were no settlement negotiations regarding individual items during this period. In such circumstances, the Government’s bare allegation that the dates it has selected are determinative has little force; and we have been given no other method of apportionment. Defendant has thus failed to overcome the presumption of correctness attaching to the Commissioner’s finding. Rule 66; e.g., Dodge Street Bldg. Corp. v. United States, 169 Ct. Cl. 496, 501, 341 F. 2d 641 (1965); Davis v. United States, 164 Ct. Cl. 612, 616-17 (1964). Plaintiff is entitled to recover post-termination legal fees of $3,500.

Acme also requests $5,000 for the services of its certified public accountants in preparing the termination claim. They agreed to perform this work on a fee basis of $150 per day, as contrasted to $200 per day which the firm customarily charged Acme for regular monthly services. Plaintiff actually paid its accountants a flat fee of $5,000 for preparation of the termination claim, amounting to $113.64 per day for the 44-day period which the Board found had been used. The contracting officer allowed reimbursement of only $2,550, computed at the rate of $75 per day for 34 days. The Board increased the compensable amount to $3,300, calculated at $75 per day for 44 days. The rate found by the contracting officer was confirmed by the Board on the basis of testimony at the appeal hearing by a Government auditor experienced in termination claims that this was a reasonable charge for accounting services. The only rebuttal witness called by Acme was a member of its accounting firm, who testified that the amount actually charged was fair and reasonable. In this court, plaintiff makes an additional argument in the form of an unsupported allegation that the accounting services for which it seeks reimbursement covered an interval considerably longer than the 44-day period on which the Board based its determination. What we have is a factual decision by the Board ‘based on its acceptance of the testimony of one apparently qualified expert witness over another. On this record, we cannot agree with the Trial Commissioner’s conclusion that the Board’s determination was arbitrary, capricious, and not supported by substantial evidence. See Carlo Bianchi & Co. v. United States, 167 Ct. Cl. 364, 370 (1964), cert. denied, 382 U.S. 841 (1965). Plaintiff’s recovery for post-termination accounting expenses is limited to $3,300, the amount awarded by the Board.

Covenant Against Contingent Fees. — The final item in dispute on the Acme claim is the Government’s deduction of $5,907.56 for violation of tbe contract’s covenant against contingent fees. In tbe latter part of 1952 Acme became interested in entering the government contract field in order to provide a cushion against tbe sales fluctuations of its commercial business. Harry K. Tucker, Jr., was introduced to officials of the plaintiff as a person experienced in government procurement procedures. It was suggested that Acme establish a separate division to handle government contracts in the metals field, with Tucker contributing his sales ability, and his associate, James S. Norris, serving as general manager of the new operation. To this end Tucker entered into a one-year contract with Acme on October 13, 1952, whereby he and/or his new “organization” agreed to serve as a “bona fide sales agent” on a part-time basis and be paid initially a weekly minimum salary of $150. However, stai'ting 45 days after the initial delivery date of contracts procured by him for Acme, Tucker’s compensation was to be increased to five per cent of his weekly gross sales up to $10,000 (i.e., sales under contracts procured through him), plus three per cent 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 excess of his commissions over his minimum weekly guarantee. The net effect of the arrangement was that the guaranteed weekly salary was a non-recoverable advance against commissions; but the agreement did permit Acme to cancel the contract if commissions did not cover the minimum salary guarantee. The contract stated that Tucker had no special connections of any kind with government departments, and that he would continue to “represent other persons and firms having the same and dissimilar lines of business.”

The nature and scope of Tucker’s actual services are delineated in finding 17, and the findings of fact in Acme’s companion suit against the Government (see notes 1 and 3, supra) present additional aspects of his performance, including graphic instances of perfidy to his employer. His affirmative services primarily involved the procurement and administration of plaintiff’s two government contracts. Beginning in February 1953, he spent the major part of his time on Acme matters. On March 18, 1953, Tucker and Norris entered into a new agreement with Acme, under which they were engaged on a full-time basis starting March 2, 1953, at a weekly salary of $300 each. Instead of commissions, the revised contract also provided that Tucker and Norris would share in the profits from Acme’s factory in Lansdale, Pennsylvania, which had been leased two months before to handle government contracts. Tucker’s salary was reduced to $250 on October 11, 1953, and his services were terminated on November 11,1953. Throughout his employment by Acme, Tucker was compensated on the basis of his weekly guarantee, whether or not it was considered as an advance against commissions or as a salary, and deductions were duly made from each such payment for social security and withholding taxes.

In its termination claim, Acme requested $5,907.56, the amount it had paid Tucker for his services. The contracting officer disallowed that portion of the claim as a contingent fee precluded by the contract, and this decision was affirmed by the Board.

Under the Armed Services Procurement Act of 1947, 62 Stat. 21, 23, 10 U.S.C. § 2306(b), defense contracts such as this are required to contain a warranty “that the contractor has employed or retained no person or selling agency to solicit or obtain the contract under an understanding or agreement for a commission, percentage, brokerage, or contingent fee, except a bona fide employee or established commercial or selling agency maintained by him to obtain business.” The statute also provides that “if a contractor breaks such a warranty the United States may annul the contract without liability or may deduct the commission * * * from the contract price or consideration.” As one of its standard clauses, the present contract (as well as its companion in No. 349-57) included both the prescribed covenant and the statutory remedies given the Government in the event of breach.

The policy underlying the statutory prohibition of contingent fees is deeply rooted. In Tool Co. v. Norris, 69 U.S. (2 Wall.) 45, 54, 56 (1864), the Supreme Court refused to enforce an “agreement for compensation to procure a contract from the Government,” stating unequivocally that such agreements “are void as against public policy, without reference to the question, whether improper means are contemplated or used in their execution. The law looks to the general tendency of such agreements; and it closes the door to temptation, by refusing them recognition in any of the courts of the country.” Though the uncompromising rule stated in the Norris case has been tempered in the intervening years (e.g., Oscanyan v. Arms Co., 108 U.S. 261, 278-75 (1880)), its basic rationale was accepted and elaborated by Mr. Justice Holmes, speaking for a unanimous court: “The court will not inquire what was done. If that should be improper it probably would be hidden and would not appear. In its inception the offer [involving the sale of land to the Government], however intended, necessarily invited and tended to induce improper solicitations, and it intensified the inducement by the contingency of the reward.” Hazelton v. Sheckells, 202 U.S. 71, 79 (1906) (citation omitted.) The Court has very recently approved Hazelton. United States v. Mississippi Valley Generating Co., 364 U.S. 520, 550 n. 14 (1961).

In the light of this continuing policy, we must decide whether the statutory exception for a “bona fide employee or established commercial or selling agency maintained by [the contractor] to obtain business” permits recovery in this case. An important reason for the exception was that a small businessman may be compelled to hire a knowledgeable sales agency on a part-time basis if he is to survive in the complex business of government contracting. At the same time, the specter of the “influence peddler” has continued to shadow the realm of federal procurement. See, generally, The 5-Percenter Investigation, S. Rep. No. 1232, 81st Cong., 2d Sess. (1950). As a result, most courts construing the covenant, including this court, have accepted the underlying premise of the Supreme Court — that the mere absence of proof of improper influence is insufficient to establish a bona fide relationship. See, e.g., Eglin Manor, Inc. v. United States, 150 Ct. Cl. 143, 152-53, 279 F. 2d 268, 273-74 (1960) ; Le John Mfg. Co. v. Webb, 222 F. 2d 48, 51 (C.A.D.C., 1955). Such proof is seldom forthcoming unless one of the guilty parties confesses. Going considerably further, some courts have intimated that employment by the contractor of a part-time agency to obtain government contracts, with remuneration based solely on commissions, is enough to violate the covenant. See Mitchell v. Flintkote Co., 185 F. 2d 1008, 1009 (C.A. 2, 1951); United States v. Paddock, 178 F. 2d 394, 395-96 (C.A. 5, 1949), rehearing denied, 180 F. 2d 121, cert. denied, 340 U.S. 813 (1950). Most tribunals, however, have eschewed any sort of per se rule. To ascertain whether a contingent fee arrangement might tend to “induce improper solicitations,” these courts have chosen to scrutinize the totality of circumstances surrounding the challenged relationship. Of particular concern has been the nature of the agency relationship, i.e. whether the arrangement has continuity, whether the agency itself is an established firm or if a new firm other than fly-by-night, and whether the agents involved have adequate knowledge of the principal’s product line. Likewise significant is the character of the service rendered; an agency hired to obtain specific government contracts is less likely to be held bona fide than one employed to drum up government and commercial business generally; whether the agency is hired on a full- or part-time basis is also a factor. Finally, these courts and boards have examined the reasonableness of the fee and have noted whether payment is wholly or partially contingent on success in obtaining government contracts. Though incapable of precise measurement, all these facets have been considered and weighed in determining if a challenged agency arrangement is bona fide within the meaning of the statute.

We assume, without deciding, that the stricter standard is inapplicable to this case and that the Acme-Tucker arrangement should be evaluated under the broader criteria just described. Judged by those principles, plaintiff has failed to sustain its burden of showing (see Le John Mfg. Co. v. Webb, supra, 222 F. 2d at 51) that the relationship was bona fide in that sense. The Tucker-Norris “organization” was newly created, and without outward signs of permanence or long-range goals. Far from comprising an established concern, Tucker and his associate, Norris, seem to have first combined forces in dealing with this plaintiff. Previously, the extensive contingent fee activities of Tucker and his father had precipitated an investigation by the General Accounting Office. See finding 17 (b). In addition, the group’s agency for Acme clearly lacked stability. When plaintiff originally hired Tucker on a part-time basis, it did not bother to ascertain who his other clients were, much less to ask them about the type and quality of services he rendered, as would be customary if a long-term arrangement were contemplated. Although Tucker’s contract with Acme was for a one-year period, it could be canceled, on mere notice, for failure to secure sufficient business. There is no evidence that Tucker had even a rudimentary understanding of Acme’s line of business, which was principally the manufacture of processing tanks, boilers, containers, and similar items for the distillery, brewery and sugar industries. The only contracts obtained by the plaintiff through Tucker were for the manufacture of equipment not even remotely related to Acme’s traditional product line. Even if one accepts the explanation that Acme wished to enter new product lines, it does not excuse the absence of evidence that Tucker knew anything about Acme’s potential ability to carry out the contracts it entered with the Government. There is, in fact, considerable evidence suggesting the contrary. For instance, in its contract for the manufacture of 2,322 recoil-less rifles, Acme’s original bid target price was $337 per rifle. Its actual unit cost for the manufacture of the first 446 rifles delivered under the contract turned out to be $1,179. Acme Process Equipment Co. v. United States, Ct. Cl., No. 349-57, decided this day, findings 7, 52(a), post, pp. 375-76, 448. Under the present contract, deliveries were to be completed by October, 1953; when the United States terminated the contract for its convenience in March 1954, no deliveries had yet been made. Findings 2, 3. We infer that, with respect to Acme, Tucker was considerably less than an established sales agent with a good understanding of his client’s products and potential.

The nature of the services rendered by the Tucker “organization” does little to dispel our doubts. For the first four months of his employment, Tucker was a part-time sales agent whose other clients were unknown to Acme. Although there is some evidence that he elicited inquiries from nongovernmental business sources, the only contracts Tucker actually obtained for Acme were with the defendant. While the agency agreement described various services to be rendered by Tucker in addition to his primary responsibility of obtaining government contracts, failure to perform any of these supplementary duties was explicitly eliminated as a basis for cancellation. Those duties which were unrelated to sales may have originally been no more than window-dressing in the contract. Once Acme began to perform, Tucker did appear to render substantial services in the administration of the government contracts. But it is difficult to determine what proportion of that time was spent in defrauding Acme by the arrangement of subcontracts under which Tucker was secretly to receive illegal kickbacks. See Acme Process Equipment Co. v. United States, Ct. Cl., No. 349-57, decided this day, findings 22-25, post, pp. 392-95. Nor did plaintiff offer any proof that Tucker’s contingent compensation was reasonable in relation to his useful services.

To establish that Tucker was a bona fide sales agent (and later a bona fide employee), plaintiff has shown only that, at the outset, he apparently attempted to drum up some commercial business; and that he assisted in the administration of the government contracts which Acme obtained. Plaintiff then rests on the Government’s failure to prove that improper influence was exerted in procuring the contracts. Against this we must balance the instability of the Acme-Tucker relationship and of the Tucker “organization” itself; the failure to prove that Tucker knew anything about Acme’s traditional product line or its capacity to perform government contracts in the unrelated areas it sought to enter; the failure to prove that Tucker’s compensation was reasonable; and the questionable character of the non-selling services Tucker rendered. We bear in mind that “the exception [for bona fide agents] creates a privileged class who may receive contingent fees for securing government contracts, while others may not. * * * [Such] grants of special privileges [should] be jealously restricted * * Bradley v. American Radiator & Standard Sanitary Corp., 159 F. 2d 39, 40-41 (C.A. 2, 1947); Le John Mfg. Co. v. Webb, supra, 222 F. 2d at 50. Assessing all the elements which must be considered in making such a determination, we conclude that the Tucker-Norris “organization” has not been shown to be a bona fide established commercial or selling agency maintained by Acme for the purpose of securing business, and therefore that Acme violated the covenant against contingent fees when it entered into the contract.

Plaintiff argues that, even if it did violate the covenant, the Government acquiesced in the relationship with Tucker and is therefore equitably estopped from asserting a violation. In its bid for the present contract, filed November 4, 1952, Acme filled in the appropriate blank spaces on the first page, representing “that [the contractor] has employed or retained a company or person (other than a full-time employee) (working solely for the bidder) to solicit or secure this contract, and agrees to furnish information relating thereto as requested by the Contracting Officer.” On December 12, 1952, Acme furnished the defendant with a Form 119, entitled “Contractor’s Statement of Contingent or Other Fees”, to which was attached a copy of its employment contract with Tucker. On May 18,1958, Acme (per Norris) advised the defendant in writing that Tucker had become a full-time sales manager for the company’s Lansdale operation as of January 1953, that his original contract calling for compensation of part-time services on a commission basis was canceled, and that Tucker had never collected any commissions on contract work obtained for Acme. Although Norris stated that Tucker’s new basis of employment dated back to January rather than March (the true date), at least the defendant had notice as of May 18, 1953, that Tucker’s original contract had been superseded by a new one. Nesting on these representations, plaintiff asserts that defendant was fully apprised of the Tucker-Acme agency relationship — and that its failure to protest until after the termination of the contract in March 1954 prevents the Government from doing so now.

Assuming that the Government had complete knowledge of the contingent fee arrangement in 1953, its failure to object until after the termination of the contract would not prevent it from defending against reimbursement of payments made in violation of the covenant. This problem is very different from the effect of delay on the Government’s right to elect the drastic remedy of annulling the contract entirely (without cost) because of the breach of the covenant. We deal with that subject in No. 349-57. Here we are concerned only with the impact of delay on the defendant’s right to deduct the improper commissions from the contract price or consideration — the lesser remedy given for breach of the covenant by the Armed Services Procurement Act and the contract article. The well-established doctrine has it that “the Government by appropriate action can recover funds which its agents have wrongfully, erroneously, or illegally paid. * * * Ordinarily, recovery of Government funds, paid by mistake to one having no just right to keep the funds, is not barred by the passage of time.” United States v. Wurts, 303 U.S. 414, 415-16 (1938) (footnotes omitted). See, also Grand Trunk Western Ry. v. United States, 252 U.S. 112, 121 (1920). The same princi-pie bias been applied in an action to regain funds paid in violation of the covenant against contingent fees. See United States v. Paddock, supra, 178 F. 2d 394, 396-99 (C.A. 5, 1949), rehearing denied, 180 F. 2d 121, cert. denied, 340 U.S. 813 (1950). In an analogous area, when employers have failed to make payments required by certain minimum wage laws, the right of the United States to recover the amount of the underpayments or liquidated damages is time-barred only by express Congressional action in the form of a two-year statute of limitations. 61 Stat. 87, 29 U.S.C. § 255; e.g., Unexcelled Chemical Corp. v. United States, 345 U.S. 59 (1953) (Walsh-Healey Act). In a still more closely related field, there is no time-bar in actions by the Government to retrieve illegal kickbacks. See United States v. Davio, 136 F. Supp. 423, 426 (E.D. Mich., 1955).

The long succession of cases refusing to apply the statute of limitations against the United States rests on the principle “which forbids that the public interests should be prejudiced by the negligence of the officers or agents to whose care they are confided.” United States v. Nashville, Chattanooga & St. Louis Ry., 118 U.S. 120, 125 (1886). For the same reason, the equitable principles of laches and estoppel have generally been rejected as defenses to actions by the United States for the recovery of property or funds to which it is legally entitled. See Guaranty Trust Co. v. United States, 304 U.S. 126, 132-33 (1938); United States v. Insley, 130 U.S. 263, 265-66 (1889); American Surety Co. v. United States, 112 F. 2d 903, 906 (C.A. 10, 1940). The mere fact that, in form, the present case involves money withheld by the United States, rather than disbursed funds which it is seeking to recover, in no way modifies the pertinence of the rule. The principle is that, except where Congress has otherwise provided, the passage of time does not diminish the Government’s right to monies which it is illegal to pay out.

Accordingly, unless the United States validly waives a right to withhold or recover such funds to which it is entitled, its right is barred neither by lapse of time nor by the other party’s change of position. Waiver of the right to such sums should not be easily implied where the contractual provision, like this one, is based on a statutory requirement embodying a strong national policy. In the present case the defendant’s mere acceptance of a form to which Tucker’s employment contract was attached, and of another similar communication, can hardly be construed as a clear waiver of its normal right to refuse to countenance illegal payments. The Government did not tell Acme that the latter’s relationship with Tucker was legal or approved. All the Government did was silently to receive certain information and fail to make inquiry or to take action for some time. Passivity of this type does not amount to the necessary affirmative waiver where the right is not the drastic one to cancel the contract as a whole but the conventional immunity from illegal payments. Plaintiff has directed our attention to 44 C.F.R.. § 150.11(c), but that regulation simply states the avenues of relief available to the defendant in the event of a misrepresentation or a violation of the covenant. It does not require action by the Government immediately after a contingent fee agreement is submitted, nor does it require a binding advance determination as to the legality of the arrangement. As has been noted, an examination of all the surrounding circumstances may be necessary to ascertain if the arrangement is legal. Submission of the agency contract offers no magic key, opening all doors at once. A deeper inquiry may well be needed, and the actual manner of carrying out the agency arrangement can be important. For these reasons, we conclude that the defendant is not estopped from refusing to reimburse Acme for the amounts it paid Tucker in violation of the covenant against contingent fees. Plaintiff is not entitled to recover such amounts.

On Acme’s claim for itself, the Board was in error only in disallowing the $3,500 post-termination legal expense paid to Mr. Dimond. Added to the $21,518.73 found by the Board to be due, Acme is entitled to $25,018.73 on its termination claim.

THE Ain METALS CLAIM AND THE DEPENDANT’S COUNTERCLAIM

By virtue of amendments to the petition, plaintiff is now claiming $49,720.02 on behalf of All Metals, in addition to the amount allowed by the Board in its final decision. The excess includes claims based on settlement expenses and profits. All Metals has also requested the court to disallow a deduction taken by the Board for loss on the completed portion of the subcontract.

A complete defense asserted by the Government makes consideration of these individual claims unnecessary. Tucker was a hidden double agent, acting for both Acme and All Metals and obtaining a commission from the latter for procuring the subcontract with Acme. When Acme entered into its agreement with All Metals, it was wholly unaware that Tucker was secretly serving as All Metals’ agent. On the other hand, at the time Tucker was soliciting business on its behalf from Acme, All Metals knew that he was also an Acme employee. See finding 20(a). The resulting agreement thus falls within the common law principle that, “If a party enters into a contract through an agent who is also secretly acting for the other party, the contract is not only unenforceable specifically against the principal, but, unless ratified, is subject to a defense in any court on the ground of at least constructive fraud if the other party knew of the double employment * * 5 Williston, Contracts § 1532 (rev. ed. 1937) (citations omitted). When the Government terminated its contract with plaintiff in March 1954, plaintiff’s responsible officials did not know, though they may have had some suspicion, of Tucker’s secret agency arrangement with All Metals. Finding 20(b). Since full knowledge of all material facts is a prerequisite to ratification (e.g., Emco Mills, Inc. v. Isbrandtsen Co., 210 F. 2d 319, 324 (C.A. 8, 1954); Holland Furnace Co. v. Allen, 118 F. 2d 969, 972 (C.A. 6, 1941)), Acme could not have ratified the subcontract with All Metals until after the termination of its prime contract with the Government. Nor did Acme try to ratify the subcontract before termination.

As a result, we are faced with an anomaly. Subsequent to the ending of its prime contract, Acme has attempted to ratify in its entirety the previously voidable agreement with All Metals. In the event of a termination for convenience, however, the subcontract specifically restricted Acme’s liability to All Metals to any amounts awarded the subcontractor by the defendant. The effect, then, of Acme’s purported post-termination ratification is that, long after the conclusion of All Metals’ performance under the subcontract, Acme has become willing to affirm that voidable agreement at the expense of the Government — and without incurring any costs or ultimate liability itself. Ratification has no -other consequence than to saddle the defendant, not Acme, with the costs of All Metals’ voidable subcontract; Acme gains nothing from the ratification and All Metals gains everything. We refuse to sanction such a ratification, post litem motam, for the benefit of All Metals alone; it violates the doctrine 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.l (3d ed. 1959). See, also, Eestatement, Agency 2d, § 101 (c) (1958). After termination of the prime contract, the Government necessarily became the only party that could be held responsible to All Metals. If Acme had taken the reasonable step of avoiding the subcontract after discovering the facts as to Tucker’s fraudulent double agency in 1956, the defendant would have been free from liability. After the ending of the prime contract, when Acme could no longer possibly derive any benefit from ratification of the subcontract, the Government surely “acquired interests with which it would be unjust to interfere.” Acme may not destroy such interests by creating a claim on behalf of All Metals against the defendant through an after-the-fact ratification for the sole advantage of the wrongdoer.

All Metals raises several points in response. It first contends that the Government is estopped because it waited until 1961 to assert this defense, although contract performance took place in 1953 and 1954. For this delay to operate as an estoppel, All Metals would at least have to show detrimental reliance resulting from the defendant’s inaction. But the defense could not have been raised until after the convenience termination, because the Government was not fully aware of Tucker’s double agency and the related kickbacks until April 1954 (see Acme Process Equipment Co. v. United States, Ct. Cl. No. 349-57, decided this day, finding 49, post, 444-46), and Acme apparently did not discover the fraudulent activities until still later (see fn. 20, supra). Since both the prime contract and the All Metals’ subcontract were canceled in March 1954, the subcontractor could not possibly have continued performance in reliance upon any delay by the Government in raising this defense. The delay-after-termination did not harm All Metals. The estoppel argument must therefore be rejected because the subcontractor incurred no injury as a result of the Government’s tardiness in asserting that the subcontract was voidable.

Plaintiff next points out that the prime contract was a fixed-price agreement. Had the contract been completed, it is argued, the Government would not have been victimized. It was only when the defendant terminated the contract with Acme for its own convenience that it became obliged to reimburse All Metals. That being the case, plaintiff contends, any additional expense which the Government must bear is of its own making. The argument has two defects. The first is that Acme, not the defendant, would be responsible for casting the All Metals termination costs on the Government. Subsequent to the termination, Acme attempted to ratify its entire subcontract with All Metals in a transparent effort to make the Government alone bear costs for which it would otherwise have had no obligation. Without Acme’s purported ratification, neither Acme nor the Government would have been liable. Second, plaintiff is in effect suggesting that the Government, by validly exercising its right to terminate the contract for convenience, has incurred self-inflicted damages ; the defendant cannot be penalized for invoking a right specifically conferred by the contract.

Finally, it is suggested that, even if Acme could have avoided its agreement with All Metals after termination of the prime contract, rescission of the subcontract would not have completely freed Acme from liability. If Acme attempted to rescind the transaction, it would have had to compensate All Metals for the reasonable value of any consideration Acme had actually received. See Restatement, Restitution § 65 (e). Assuming that the Government would, by the same token, be liable to All Metals for the value of its deliveries to Acme, we find that the subcontractor has already been paid considerably more than that amount. When its contract was canceled in March 1954, All Metals had delivered only a small percentage of the components called for in the agreement. In April 1958, however, the defendant made a partial payment of $50,040.28 for the use of All Metals. The total subcontract price was $107,496, and the amount of that reimbursement far exceeded any quantum meruit recovery to which All Metals might have been entitled. Since All Metals has been paid more than the actual value of its services, it is entitled to no further recovery, and its claim must be dismissed.

On the other hand, the defendant has asserted a counterclaim seeking return of the partial payment of $50,040.28 it made for the benefit of All Metals in 1958. At the time this amount was credited to All Metals, both Acme and the Government were fully aware of Tucker’s double agency arrangement (see fn. 20, supra). In accepting the partial payment designated for All Metals, Acme, with the concurrence of the defendant, affirmed its liability under the subcontract to that extent. The payment to All Metals was not tainted by any illegality, since there is no barrier to affirmance of a voidable contract and there was no statutory or contractual bar to paying All Metals. E.g., Brown v. Alkire, 295 F. 2d 411, 415 (C.A. 10, 1961); Courtney v. Custer County Bank, 198 F. 2d 828, 830-31 (C.A. 9, 1952). We think that the partial reimbursement in 1958 constituted pro tanto ratification by both Acme and the defendant, with full knowledge, of the previously voidable subcontract. To permit the defendant to turn its back on that completed transaction at this late date would impose an altogether unjust burden on Acme to recover the payment in dispute from All Metals.

The counterclaim differs in significant respects from the affirmative claims which Acme is making on behalf of the subcontractor. In the latter Acme is unilaterally attempting by its own post-termination act of ratification to throw upon the defendant a financial burden which neither Acme nor the defendant would otherwise have — and Acme is doing this solely in order to help the wrongdoing All Metals. In the counterclaim the defendant is now seeking to withdraw from a partial ratification in which it joined with full knowledge of the facts; and in rejecting that partial ratification through this counterclaim the defendant is seeking to collect the money from Acme, which did not retain the distribution but passed it on to All Metals (as was intended). Acme would thus be left to recover as best it can from All Metals. It is as unfair for the Government now to disaffirm a partial ratification (in which it joined) after Acme has changed its position as it is for Acme to seek a further unilateral ratification of the subcontract, post-termination, to the sole disadvantage of the Government.

Our decision that the defendant partially ratified the subcontract when it made payment in 1958 for All Metals’ benefit results at most in only a technical breach of the rule that a transaction must be ratified in its entirety. The underlying reason for the rule against piecemeal ratification is that “the purported principal must take the transaction in its entirety, with the burdens as well as the benefits.” Restatement, Agency 2d, § 96, Comment “a”. By its ratification of the subcontract to the extent of the Government’s payment, Acme did not seek to evade its responsibilities; the only responsibility which Acme had at that point was to pass on any payments made by the defendant for the benefit of All Metals. The present situation is analogous to those falling within the rule that, “If the purported principal attempts to ratify in part, as where he offers to pay less than the contract price for goods purchased in his name, he may be bound upon a contract if this offer is accepted by the other party. This is not because of ratification, however, but because he has become a party to a new contract.” Restatement, Agency 2d, § 96, Comment “d”. Accordingly, the Government is not entitled to recover from Acme the $50,040.28 it deliberately paid for the benefit of All Metals at a time when all parties had full knowledge of the material facts. Its counterclaim is denied.

The claim asserted by Acme on behalf of All Metals and the related counterclaim raised by the defendant are dismissed. Acme is entitled to recover $25,018.73 on its own claim, and judgment is entered to that effect.

FINDINGS OE FACT

The court, having considered the evidence, the report of Trial Commissioner C. Murray Bernhardt, and the briefs and arguments 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.

2. Description of Contract 8680. Contract No. DA-11--070-ORD-8580 (hereafter referred to as Contract 8580) was awarded to plaintiff on January 7, 1953 by the Rock Island Arsenal of the Department of the Army and required plaintiff to manufacture and supply 7,000 elevating and traversing assemblies at a contract price of $190,252. Deliveries were prescribed as to the various separate items and were to be complete by October 7,1953.

3. Termination of contract. On March 15,1954, by which time no deliveries had been made under the contract, the defendant by telegram terminated the contract for convenience of the Government, in accordance with clause 21 of the contract, and the termination was confirmed by defendant’s letter of March 17, 1954 to the plaintiff which explained termination procedures in detail.

4. Filing of termination claims. Plaintiff and its principal subcontractor, All Metals Industries, Inc. (hereafter referred to as All Metals), filed their termination for convenience claims on a total cost basis, and they were audited by the Army Audit Agency.

5. Principles for consideration of costs. Clause 21(f) of the contract provides that “Any determination of costs [to be reimbursed the contractor in the event of termination of the contract for convenience of the government] shall be governed by the Statement of Principles for Consideration of Costs set forth in Part 4 of Section VIII of the Armed Services Procurement Regulations, as in effect on the date of this contract.”

Part 4 of Section VIII of the Armed Services Procurement Regulation (hereafter abbreviated to ASPR), entitled “General Principles Applicable to the Settlement of Terminated Fixed-Price Contracts”, is divided in turn into several subdivisions, only one of which (ASPR 8-402) is entitled “Statement of Principles for Consideration of Costs”, which is as stated incorporated by specific reference in the contract by Clause 21 (f) thereof. Because the defendant contends that other provisions in Part 4 of Section VTII are also applicable to the contract, the following quotations are made from the said Part 4:

8-400 scope op part. This part establishes the guiding principles and policies in connection with arriving at fair compensation for the settlement of terminated fixed-price contracts.
8-401 GENERAL STANDARDS POR USE OP COST PRINCIPLES.
(1) The primary objective in negotiating a settlement is to agree on an amount to compensate the Contractor fairly and fully for the work done and the preparations made for the terminated portion of the contract, with such allowance for profit thereon as is reasonable under the circumstances.
(2) Fair compensation for termination is inherently a matter of judgment and therefore cannot be measured exactly. In a given case, various methods may be equally appropriate for arriving at fair compensation; and differing amounts, resulting from reasonable variations of method and of sound judgment, may all be regarded as constituting fair compensation. The ability to apply standards of business judgment as distinct from strict accounting principles is at the heart of a negotiated settlement.
(3) Cost and accownting data may provide guides for ascertaining fair compensation but are not rigid measures of it. Other types of data, criteria, or standards may f ur-uish equally reliable guides to fair compensation. Settlement by agreement should be facilitated to the maximum extent feasible. The amount of record keeping, reporting, and accounting, in connection with settlement of termination claims, will be reduced to the minimum compatible with the reasonable protection of the public interest.
8-402 STATEMENT OE PRINCIPLES EOR CONSIDERATION oe costs. In considering cost data as a basis for negotiation, the Statement of Principles set forth in this Part shall be used as a guide. The cost principles reflect certain policy determmations regarding the types of costs which should ordinarily be taken into account in determining fair compensation in the settlement of a fixed-price contract terminated for the convenience of the Government. Costs contemplated by this Statement of Principles are intended to include the direct costs incurred which are reasonably necessary for the performance of the contract and which are properly allocable to the terminated portion thereof, and the indirect costs incurred which are properly allocable to such terminated portion. In applying this Statement of Principles to any particular case, the following factors will govern: (i) reasonableness, (ii) generally accepted accounting principles and practices, (iii) any limitations or special provisions as to types or amounts of cost items as set forth in the contract or in the written records of the contract negotiations, and (iv) allocability. Failure to mention any item of cost herein is not intended to imply either that it may or may not be considered.
* % # * *
1). Specific Examples of Costs Which May Be Included. Subj ect to the general principles set forth above, and irrespective of whether the particular costs are treated by the Contractor as direct or indirect, the costs which are described below should be included to the extent that they are allocable to or should be apportioned to the contract or the part thereof under consideration.
•t* $ sfc
(4) Compensation of Officials. This includes all amounts paid, accrued or set aside by way of salaries, fees, royalties, license fees, bonuses and pensions, retired and deferred compensation benefits, to or for officers, executive heads, department heads, and similar officials of corporations and unincorporated associations, or those holding similar positions in partnerships or individual proprietorships. The amount allowed must be (i) reasonable, when considered in the overall standpoint, in the light of the services rendered, and (ii) allocable to the terminated portion of the contract.
* H: He * #
(13) Initial Costs
(a) Initial costs (frequently referred to as “starting load costs”) are costs of a non-recurring nature which arise in the early stages of production and which have not been absorbed on the completed portion of the contract due to the fact that fewer articles were produced by the Contractor, because of termination, than were called for in the contract. Initial costs may include labor costs and a proper portion of the related overhead which are particularly high in the early stages of production due to such causes, among others, as (i) excessive defective work resulting from inexperienced labor, (ii) idle time and subnormal production occasioned by testing and changing methods of processing, (iii) the cost of training employees, and (iv) unfamiliarity or lack of experience with the product, materials, manufacturing processes or techniques. They may also include high material costs incurred in the early stages of production due to abnormal scrap losses. Such costs are includible because of their special nature and not merely because they are high.
(b) It is not necessary that the initial or starting load costs be segregated and amortized on the books of the Contractor. Such segregation may be made from cost reports and schedules which reflect the high unit costs incurred during the eai’ly stages of the contract.
(c) When the settlement proposal is on the inventory basis, a reasonable amount representing the excess production costs incurred during the initial period may be segregrated and allocated between the completed and terminated portions of the contract. Such allocation of initial costs should normally be made on the basis of units delivered and to be delivered. However, if the contract includes products of a diverse nature, some other equitable basis may be used, such as machine or labor hours.
# ifi ‡ ‡ *
(15) Legal, accounting, and consulting services and related expenses, except where incurred in connection with organization or re-organization, prosecution of patent infringement litigation, defense of antitrust suits, or the prosecution of claims against the United States. (But see subpars. 5(27) and c(9).)
‡ ‡ $
(27) Settlement expenses: Eeasonable accounting, legal, clerical, and other expenses necessary in connection with the termination and settlement of the contract and subcontracts and purchase orders thereunder, including expenses incurred for the purpose of obtaining payment from the Government but only to the extent reasonably necessary for the preparation and presentation of settlement proposals and cost evidence in connection therewith. Settlement expenses include reasonable storage, transportation, and other costs incurred for the protection of property acquired or produced for the contract or in connection with the disposition of such property.
*****
c. Specific Examples of Costs Which May Not Be Included. The following items should not be considered either as direct or indirect costs:
*****
(2) Commissions and bonuses (under whatever name) in connection with obtaining or negotiating for a Government contract to the extent that payment of such commissions and bonuses by the Contractor violate the clause of the contract entitled covenant against CONTINGENT eees. (See par. 7-103.20.)
*****
(9) Legal, accounting and consulting services and related expenses incurred by a prime contractor or a subcontractor in any formal appeal or submission, either within a contracting or other Government agency, or in any arbitration, mediation, or suit in court, where such proceeding is instituted by such Contractor for the purpose of obtaining payment in excess of the settlement amount determined to be due by the Government or an intervening higher tier Contractor. Nothing herein shall be deemed to preclude recovery by a Contractor of the reasonable costs and expenses incurred by it in settling termination claims of subcontractors related to the terminated portion of the contract, including in appropriate cases the cost of defending itself against the assertion of such claims.
*****
d. Limitation on Certain Costs. In no event shall the aggregate of the amounts allowed in respect of initial costs and preparatory expenses; loss of useful value on special machinery and equipment; experimental, research and development expense; _ special leases; engineering and development and special tooling, exceed the amount which would have been available from the contract price to cover these items if the contract had been completed, after considering all other costs which would have been required to complete it.
8-403 adjustmeNt FOR loss. If it appears that the Contractor would have suffered a loss on the entire contract had it been completed, an adjustment should be made reducing the amount of the settlement to reflect the indicated rate of loss. No part of the loss on the completed portion should be considered as an item of cost. In the case of a partial termination, no part of the anticipated loss on the continued portion of the work should be considered as an item of cost. This paragraph shall not preclude the allocation to the terminated portion of the initial and preparatory cost in accordance with 8-4025 (13) and (23).
8-404 ALLOWANCE FOR PROFIT ON FIXED-PRICE CONTRACTS — general. The Contractor should be allowed a profit only on preparations made and work done for the terminated portion of the contract, and there should be excluded any allowance of profit on post-termination and settlement expenses, such as protection, preservation and disposition of termination inventory, settlement of the prime contract and any subcontracts thereunder, and like costs. There shall also be excluded any allowance for profit on interest on borrowings allowed as a cost. Subject to these limitations, any reasonable method may be used to arrive at a fair profit. The most satisfactory criterion of a fair profit is ordinarily what the parties agreed upon, as evidenced by the amount of profit—
(a) which both parties agreed upon or contemplated at the time the contract was negotiated; or
(b) which the Contractor would have earned had the contract been completed; or
(c) which the Contractor agreed to accept in the event the contract was terminated.
Ordinarily, ascertaining the profit the Contractor would have earned, if the contract had been completed, would be complicated, time consuming, and in practice would frequently be inaccurate. Generally, the best substitute for this criterion will be the amount of profit which the parties agreed upon or contemplated at the outset. In arriving at a reasonable profit, whether determined separately or as a part of the whole amount of the settlement, the following paragraphs should be considered.

6. First phase of claim, processing. On July 29,1954, the Philadelphia Ordnance District (hereafter referred to as POD), which administered the contract, agreed to the submission by plaintiff of its claim on the basis of total cost and requested that the claim be filed by August 15, 1954. On August 18, 1954, POD canceled another contract then being performed by plaintiff for “alleged statutory violations”. This was Contract No. DA-36-034-QKD-1213 (E) (hereafter referred to as Contract 1213), which had been awarded to plaintiff by POD on January 27,1953, and is the subject of a companion action by plaintiff in this court (No. 349-57). The cancellation of Contract 1213 for the reasons assigned caused All Metals to be placed on the debarred bidders list and, contemporaneously, a suspension in the processing of plaintiff’s termination claim on Contract 8580. Subsequently, several proposals and counter-proposals for settlement of the claim were discussed and negotiated between the parties without reaching agreement.

7. Contract Clause %1 (d) and (e). Article 21 of the general provisions of the contract provides as follows in pertinent part:

(d) Subject to the provisions of paragraph (c), the Contractor and the Contracting Officer may agree upon the whole or any part of the amount or amounts to be paid to the Contractor by reason of the total or partial termination of work pursuant to this clause, which amount or amounts may include a reasonable allowance for profit on work done. The contract shall be amended accordingly, and the Contractor shall be paid the agreed amount. Nothing in paragraph (e) of this clause, prescribing the amount to be paid to the Contractor in the event of failure of the Contractor and the Contracting Officer to agree upon the whole amount to be paid to the Contractor by reason of the termination of work pursuant to this clause, shall be deemed to limit, restrict, or otherwise determine or affect the amount or amounts which may be agreed upon to be paid to the Contractor pursuant to this paragraph (d).
(e) In the event of the failure of the Contractor and the Contracting Officer to agree as provided in paragraph (d) upon the whole amount to be paid to the Contractor by reason of the termination of work pursuant to this clause, the Contracting Officer shall determine, on the basis of information available to him, the amount, if any, due to the Contractor by reason of the termination and shall pay to the Contractor the amounts determined as follows:
(1) For completed supplies accepted by the Government (or sold or acquired as provided in paragraph (b) (T) above) and not theretofore paid for, a sum equivalent to the aggregate price for such supplies computed in accordance with the price or prices specified in the contract, appropriately adjusted for any saving of freight or other charges;
(2) The total of—
(i) The costs incurred in the performance of the work terminated, including initial costs and preparatory expense allocable thereto, but exclusive of any costs attributable to supplies paid or to be paid for under paragraph (e) (1) hereof;
(ii) The cost of settling and paying claims arising out of the termination of work under subcontracts or orders, as provided in paragraph (b) (5) above, which are properly chargeable to the terminated portion of the contract (exclusive of amounts paid or payable on account of supplies or materials delivered or services furnished by subcontractors or vendors prior to the effective date of the Notice of Termination, which amounts shall be included in the costs payable under (i) above.
(iii) A sum equal to 2% of that part of the amount determined under (i) which represents the cost of articles and materials not processed by the Contractor, plus a sum equal to 8% of the remainder of such amount, but the aggregate of such sums shall not exceed 6% of the whole of the amount determined under subdivision (i) above, which amount for the purpose of this subdivision (iii) shall exclude any charges for interest on borrowings.
(3) The reasonable costs of settlement, including accounting, legal, clerical, and other expenses reasonably necessary for the preparation of settlement claims and supporting data with respect to the terminated portion of the contract and for the termination and settlement of subcontracts thereunder, together with reasonable storage, transportation, and other costs incurred in connection with the protection or disposition of property allocable to this contract. The total sum to be paid to the Contractor under (1) and (2) of this paragraph (e) shall not exceed the total contract price as reduced by the amount of payments otherwise made and as further reduced by the contract price of work not terminated. Except for normal spoilage, and except to the extent that the Government shall have otherwise expressly assumed the risk of loss, there shall be excluded from the amounts payable to the Contractor as provided in paragraph (e) (1) and paragraph (e) (2) (i), the fair value, as determined by the Contracting Officer, in connection with property which is destroyed, lost, stolen, or damaged so as to become undeliverable to the Government, or to a buyer pursuant to paragraph (b) (7).

8. Contracting officers June 1957 claim determinations. In separate determinations on June 19 and 20,1957, the contracting officer found, pursuant to his authority under clause 21(e) of the contract quoted in the preceding finding, that under their termination claims the plaintiff and All Metals were due the sums of $35,441.16 and $43,181, respectively.

9. Disputes clause. Section 12 of the General Provisions of the contract contained a “disputes” clause which read in pertinent part as follows:

Except as otherwise provided in this contract, 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, who shall reduce his decision to writing and mail or otherwise furnish a copy thereof to the Contractor. Within 30 days from the date of receipt of such copy, the Contractor may appeal by mailing or otherwise furnishing to the Contracting Officer a written appeal addressed to the Secretary, and the decision of the Secretary or his duly authorized representative for the hearing of such appeals shall, unless determined by a court of competent jurisdiction to have been fraudulent, arbitrary, capricious, or so grossly erroneous as necessarily to imply bad faith, be final and conclusive; provided that, if no such appeal is taken, the decision of the Contracting Officer shall be final and conclusive. In connection with any appeal proceeding under this clause, the Contractor shall be afforded an opportunity to be heard and to offer evidence in support of its appeal. * * *.

10. Appeals to A8B0A, interim settlement negotiations, partial payments. On June 29, 1955, a partial payment of $20,000 had been made to plaintiff on its termination claim. On July 16, 1957, the plaintiff appealed the determinations of the contracting officer (finding 8, supra) to the Armed Services Board of Contract Appeals (hereafter referred to as the Board. With the consent of the parties, the Board suspended processing of the appeal on October 21,1957, pending the outcome of Acme’s efforts to negotiate a settlement with the contracting officer. After negotiations had broken down, the plaintiff and All Metals increased their claims, and the contracting officer, on April 3 and 4, 1958, filed revised findings yielding the same monetary results as his original determinations, ©s April 40^ 405Sj AH Metals was given fey t-fee defendant a partial payment ef $59^949-2% wfeiefe was achieved fey a credit ef that amount against its M-lean indebtedness te Hie Government? On April 10,1958, Acme was credited with partial payment of $50,040.28, for the benefit of All Metals; this payment was credited against Acme’s V-loan indebtedness to the Government. On April 25,1958, the plaintiff appealed the contracting officer’s latest determination to the Board on its own behalf and on behalf of its subcontractors.

11. Board decisions. On March 16, 1959, the Board decided that plaintiff was entitled to an additional $21,518.73 ($41,518.73 less $20,000 already paid) on its claim and the claims of all its subcontractors except All Metals, and that All Metals on its claim was entitled to an additional $32,879.01 ($82,919.29 less $50,040.28 already paid). Both parties moved for reconsideration of this decision, and on August 17, 1959, the Board issued a new decision reducing by $14,782.63 the amounts it had previously found to be due All Metals. It was thus found by the Board ultimately that plaintiff and its subcontractors were due $39,615.11 ($18,096.38 on All Metals claim and $21,518.73 on the claim of plaintiff and all of its other subcontractors). The following schedule presents in simple form the successive rulings of the Board:

Due All Metals Due Acme and all other subs Totals

First Board decision.. Less payments... $82,919.29 50,040.28 $41,518.73 20,000.00 $124,438.02 70,040.28

Net due_ Second Board decision.. Less payments_ 32,879.01 68,136.66 50,040.28 21.518.73 41.518.73 20,000.00 54,397.74 109,655.39 70,040.28

Net due-18, 096.38 21,518.73 39,615.11

i Excluding All Metals.

THE ACME ISSUES

12. As 'pleaded. Findings 12 through 17 will be confined to the claims made by Acme in this proceeding in its own behalf and on behalf of subcontractors other than All Metals. The pleadings define the issues as to this phase of the action tobe—

(a) The finality against the defendant of those parts of the Board decision favorable to Acme, and

(b) Whether the decision of the Board was contrary to law, arbitrary, capricious or not supported by substantial evidence with respect to disallowance of (1) Acme’s post-termination settlement costs for legal and accounting fees, and (2) fees paid to Tucker in alleged violation of the covenant against contingent fees.

13. Finality on defendant of Board allowances to Acme. As stated in finding 11, supra, the Board ultimately found that Acme and all of its subcontractors, including All Metals, were entitled to a net additional recovery of $39,615.11. Clause 21(g) of the contract, relating to appeal from the contracting officer’s determination of allowable termination charges, provides as follows:

The Contractor shall have the right of appeal, under the clause of this contract entitled “Disputes”, from any determination made by the Contracting Officer under paragraphs (c) or (e) above, except that if the Contractor has failed to submit its claim within the time provided in paragraph (c) above and has failed to request extension of such time, he shall have no such right of appeal. In any case where the Contracting Officer has made a determination of the amount due under paragraph (c) or (e) above, the Government shall pay to the Contractor the following(i) if there is no right of appeal hereunder or if no timely appeal has been taken, the amount so determined by the Contracting Officer, or (ii} if an appeal has been taken, the amount finally determined on such appeal.

The defendant has refused to pay the plaintiff the sum found due by the Board unless the plaintiff executes a general release without reservations or exceptions. ASPR 8-519.3 and 8-522.1 provide in pertinent part that “where any rights or claims of the Government or of the Contractor are to be reserved or excepted from the settlement, the settlement agreement should specify the nature, and in appropriate cases, the extent of such reserved or excepted rights or claims.”, and provide further, for the payment of settlements in whole or in part. The plaintiff contends that, in refusing to pay plaintiff the amounts found to be due it by the Board, the defendant breached the contract in suit. The defendant contended administratively that the language “the amount finally determined on such appeal” used in the foregoing quotation from section 21 (g) of the contract to mean permissibly an appeal to the Court of Claims, and that “The question is whether making payment without obtaining a full release would be in the best interest of the United States.”

14. Post-termination settlement expense clause and regulations. Contract Clause 21(e) (3), set forth in finding 7, supra, authorizes the payment of settlement expenses. Paragraphs (b) (27) and (c) (9) of ASPR 8-402, set forth in finding 5, supra, define allowable and non-allowable settlement expenses relating to accounting and legal fees.

15. Post-termination accounting expense. Acme paid $5,000 to its regular firm of certified public accountants for accounting work performed in connection with the preparation of its termination claim. This firm had been paid at the rate of $200 per day for its regular monthly accounting services rendered the plaintiff, and agreed to undertake the preparation of plaintiff’s termination claim at a fee of $150 per day. Prior to completion of its services in tliis connection title accounting firm agreed to accept a flat fee of $5,000 for the job. The plaintiff included tlie $5,000 thus paid in its termination claim. The contracting officer allowed this item in the reduced amount of $2,550, computed at the rate of $75 per day for 34 days. At the hearing on appeal before the Board a Government auditor experienced in termination claims testified that $75 per day was a reasonable charge for accounting services. The Board found that $3,300 was a reasonable charge for the services in question, computed at the rate of $75 per day for 44 days, instead of the 34 days found by the contracting officer. The fee of $5,000 actually paid by plaintiff to its accounting firm is equivalent to $113.64 per day over a 44-day period. The Board’s finding is adequately supported by substantial evidence, and is not arbitrary or capricious.

16. Post-termination legal expense.

(a) Morris O. Solomon, Esq. For approximately 12 years prior to 1954 Morris C. Solomon, Esq., had been employed by plaintiff as legal counsel on an annual retainer fee basis, which included all services excepting litigation. Subsequent to the termination of Contract 8580 on March 17, 1954, Mr. Solomon assisted plaintiff in the preparation of its contract termination claim, dealt with subcontractors who were pressing plaintiff for payment, and endeavored to expedite the processing of the termination claims of plaintiff and its subcontractors. The plaintiff claims here that it is indebted to Mr. Solomon in the amount of $2,400 for 120 hours at the rate of $20 per hour for legal services in connection with the termination claim, and that it is entitled to reimbursement for this as a settlement cost. There is no dispute as to the reasonableness of the fee. The defense is that Mr. Solomon’s services in connection with preparation and presentation of the termination claim consisted only of advice for which he was compensated in his annual retainer fee, and that his remaining services related to the appeal and litigation of the claim. Mr. Solomon has not been paid the fee in question. It was not included in the termination claim originally submitted to the contracting officer, and was included for tlie first time in the appeal proceeding before the Board, which denied its allowance for the reasons given above. Up to the time of the hearing before the Board, Mr. Solomon had not billed the plaintiff for the described services. It is reasonable to conclude that as between Mr. Solomon and the plaintiff, the latter’s obligation to Mr. Solomon is informally contingent upon the obligation of the defendant to the plaintiff as determined in the instant proceeding, and that in the absence of an ultimate award covering this item of legal expense there will be neither a demand nor payment between Mr. Solomon and Acme.

(b) Solomon Dimond, Esq. Plaintiff’s termination claim includes an item of $8,500 for legal services performed by Solomon Dimond, Esq., in the administrative presentation and negotiation of its termination claim before the contracting officer, exclusive of his services rendered in connection with its appeal to the Board from the findings of the contracting officer. Until his untimely death, Mr. Dimond represented plaintiff in the instant proceeding before this court, and is conceded to be highly experienced and knowledgeable in the law and procedures relating to claims under Government contracts. There is no issue as to the reasonableness of his services. The defendant contends, however, that since Mr. Dimond’s services in connection with the plaintiff’s termination claim started with his preparation and filing of a Notice of Appeal to the Board from the findings of the contracting officer on July 16, 1957, they thereafter related to the appeal, thus not being allowable as a termination cost because of ASPE. 8-402(c) (9), quoted in finding 5, supra.

Plaintiff’s Notice of Appeal from the findings of the contracting officer was filed July 16, 1957. However, Mr. Dimond negotiated thereafter with the contracting officer and his assistants at the Philadelphia Ordnance District in an effort to settle the claim for a sum in excess of that found previously by the contracting officer. In the meantime the proceeding at the Board was suspended “Awaiting administrative disposition”, at the request of the Chief Army Trial Attorney. These negotiations broke down on December 2, 1957. Naturally, had they been successful the plaintiff would have withdrawn its appeal to the Board and it would have been marked settled. The filing of the Army’s answer to the plaintiff’s appeal then pending in the Board was delayed until February 21, 1958, pursuant to successive extensions of time granted by the Board at the requests of the Chief Army Trial Attorney, which requests were based both on the pendency of settlement negotiations and delay in receiving a comprehensive field report necessary in order to frame an answer.

Upon the collapse of settlement negotiations Mr. Dimond announced the plaintiff’s intention to prosecute its appeal, and requested the Philadelphia Ordnance District to file more detailed findings so as to narrow the issues for consideration on appeal. At a prehearing conference on March 26,1958, before a trial examiner of the Board, it was agreed that the contracting officer would make new findings of fact superseding and withdrawing the original ones, and that plaintiff’s new appeal from the new findings would be consolidated with the appeal from the original findings. On April 3 and 4,1958, the contracting officer filed new findings which rescinded the original findings. Mr. Dimond prepared and filed the plaintiff’s appeals from the new findings to the Board. The contracting officer’s revised findings of fact ignored Mr. Dimond’s claim for legal fees, which had been first submitted at the prehearing conference of March 26, 1958, and the Board considered the contracting officer’s failure to act as a denial of the claim

The Board rejected the allowance of the plaintiff’s claim for Mr. Dimond’s services on the ground that—

They were rendered in connection with the appeal, even though they include -unsuccessful negotiations to settle it. They were not rendered in connection with the original preparation and presentation of the termination settlement proposal.

The services of Mr. Dimond for which claim is made are restricted to his negotiations with the contracting officer and other personnel of the POD in settlement discussions and in procedings leading to the issuance of revised findings, as distinct from activities more directly connected with the Board appeal proceeding. The voluminous administrative file discloses that Mr. Dimond’s activities during this period which were directly associated with the appeal proceeding consisted primarily of preparing and filing the plaintiff’s notice of appeal, the plaintiff’s complaint, attending the conference of March 26, 1958 with the Board’s trial examiner referred to above, and filing of a new appeal on April 29, 1958, addressed to the revised findings of the contracting officer. The denial of the claim by the Board was necessarily based on the legal conclusion that any legal services performed in connection with the plaintiff’s termination claim after the filing of an appeal with the Board related to the appeal proceeding and not to the preparation and presentation of the termination claim before the contracting officer, regardless of the nature of the activities and of the fact that in terms of time consumed they involved almost exclusively matters within the jurisdiction of the contracting officer.

17. Tucker contingent fee.

(a) General nature of dispute. This item involves a credit of $5,907.56 taken by the contracting officer and approved on appeal by the Board as being a contingent fee paid to one Harry K. Tucker, Jr. (hereinafter referred to as Tucker), in violation of the subject contract’s covenant against contingent fees, which provided as follows:

The Contractor warrants that no person or selling agency has been employed or retained to solicit or secure this contract upon an agreement or -understanding for a commission, percentage, brokerage, or contingent fee, excepting bona fide employees or bona fide established commercial or selling agencies maintained by the Contractor 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 consideration the full amount of such commission, percentage, brokerage, or contingent fee.

In addition, ASPE 8-402 listed among the examples of costs which were not allowable in termination claims “Commissions or bonuses (under whatever name) in connection with obtaining or negotiating for a Government contract to the extent that the payment of such commissions or bonuses by the Contractor would violate the clause of the contract entitled COVENANT AGAINST CONTINGENT PEES.”

(b) Hiring of Norris and Tueher. One James S. Norris met Tucker in September 1952 and they decided to form a company which would render “sales and engineering” assistance to clients of Tucker, who with his father had had extensive experience in procuring Government supply contracts for producers on a contingent fee basis and had in this connection caused the General Accounting Office to investigate their activities for possible violations. In late September or early October 1952 Norris met for the first time Sidney Cohen, Secretary-Treasurer of the plaintiff company, to ascertain 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 commercial and Government production contracts. For some months past plaintiff had been interested in entering the field of Government procurement in order to level out the high and low periods of its normal commercial production. In consequence, Tucker visited Cohen several times and there were negotiations for his services and those of Norris. At the suggestion of Norris and Tucker it was decided that Acme might set up a separate division to handle Government contracts in the metal field, with Norris to manage the operation, and Tucker to contribute his “know-how” in procuring and administering Government contracts and in expediting subcontract operations. Prior to these events Tucker was not known to Acme’s officers; however, Acme failed to ascertain who Tucker’s other clients were, or to ask them about the quality of his services. It was agreed informally that Norris and Tucker were to be hired by plaintiff to manage the proposed new division; and that Tucker was to be paid 3 percent commission — to be divided equally with Norris — on all business he procured, with a minimum salary guarantee against which his commissions would be applied. To this end Tucker entered into a one-year contract with Acme on October 13, 1952, whereby he and/or his “organization” agreed to serve as a “bona fide sales agent” on a part-time basis and be paid initially a weekly minimum salary of $150 which, starting 45 days after the initial delivery date in contracts procured 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 kinds with any Government 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 obtaining contract financing, and in locating materials; but the contract specified that failure to perform any of these duties would not constitute sufficient grounds for cancellation. The contract specifically provided that Tucker represented and would continue to “represent other persons and firms having the same and dissimilar lines of business.” Plaintiff’s principal purpose in hiring Tucker was to help it get into the Government contract field.

(c) Tucker's services. After the hiring of Tucker plaintiff experienced a pronounced increase in inquiries, bid proposals and bid invitations from both commercial and Government sources. Tucker’s services the first few months included solicitation of bid invitations, investigations to determine prior bid prices, securing quotations from subcontractors, locating applicable specifications, and liaison work with the POD. Much of Tucker’s services for Acme involved the procurement of invitations and the submission of plaintiff’s bids on Contracts 1213 and 8580, which were awarded to plaintiff in January 1953. Thereafter the demands on Tucker’s time increased, and 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, expediting of parts and supplies, and liaison with. POD.

(d) Contract re-presentations as to contingent fees.

(1) In its bid filed November 4,1952, which was awarded on January 7, 1953 as Contract 8580, the plaintiff stated as follows:

That he has employed or retained a company or person (other than a full-time employee) (working solely for the bidder) to solicit or secure this contract, and agrees to furnish information relating thereto as requested by the Contracting Officer.

(2) On or about December 12,1952, plaintiff furnished the defendant with a Form 119 “Contractor’s Statement of Contingent or Other Fees” to which was attached a copy of its October 13, 1952 employment contract with Tucker. The submitted contract did not, however, disclose the fee-splitting arrangement made by Tucker and Norris (finding 17 (b), supra).

(e) Lansdale plant. Pursuant to the recommendation of Norris and Tucker that a separate plant should be set up to perform Acme’s Government contracts, plaintiff leased available space in a former hosiery mill, at Lansdale, Pennsylvania, as of January 23,1953, placed Norris in charge of production operations there as general manager, and appointed Tucker as general manager in charge of sales, Government contracts, expediting and coordinating of subcontractors.

(f) Modification of Tucker's contract. Commencing the week ending March 7, 1953, Acme increased its weekly payment to Tucker to $300 pursuant to an agreement of March 18, 1953, effective March 2, superseding all prior agreements, in which Acme hired Tucker and Norris on a full-time salary basis of $300 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 Lans-dale 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, and his services were terminated effective the week ending November 11, 1953. Throughout his employment by Acme, Tucker was compensated on the basis of his weekly guarantee, whether or not it was considered as an advance against commissions or a salary, and deductions were duly made from each such payment for Social Security and withholding taxes.

(g) Notice to defendant of Tucker's full-time status. By letter of May 18, 1953, the plaintiff (per Norris) advised POD that Tucker had become a full-time sales manager for plaintiff as of January 1953, that his original employment contract providing for part-time services and commission basis was canceled, and that “He is not now, or has in the past collected any commissions on any prime contract or sub-contract or commercial work that he has obtained for us in the past or in the future.” As noted in finding 17(f) sufra, however, Tucker was not employed on a full-time basis until March 1953.

(h) ASPR re covenant against contingent fees. On February 12, 1953, the following ASPR became effective:

§ 1.505-2 Exceptions to the prohibition of the covenant. Excepted from the prohibition of the covenant are “bona fide employees” and “bona fide established commercial or selling agencies maintained by the contractor for the our nose of securing business.”
§ 1.505-3 Bona fide employee. The term “bona fide employee”, for the purpose of the exception to the prohibition of the covenant, means an individual (including a corporate officer) employed by a concern in good faith to devote his full time to such concern and no other concern and over whom the concern has the right to exercise supervision and control as to. time, place, and manner of performance of work. It is recognized that a concern, especially a small-business concern, may employ an individual who represents other concerns. The factors set forth in § 1.505-4, except paragraph (d) of § 1.505-1, shall be applied to determine whether such an individual comes within the exception to the prohibition of the covenant.
(a) A person may be a bona fide employee whether his compensation is on a fixed salary basis, or . when customary in the trade, on a percentage, commission or other contingent basis or a combination of the foregoing.
(b) The hiring must contemplate some continuity and it may not be related only to the obtaining of one or more specific Government contracts.
(c) An employee is not “bona fide” who seeks to obtain any Government contract or contracts for his employer through the use of improper influence or who holds himself out as being able to obtain any. Government contract or contracts through improper influence.
§ 1.505-4 Bona fide established commercial or selling agency maintained by the Oontractor for the purpose of secwring business. In determining wnether an agency is a “bona fide established commercial or selling agency maintained by the Contractor for the purpose of securing business,” the factors set forth in paragraphs (a) through (e) of this section shall be considered. They are necessarily incapable of exact measurement or precise definition and it is neither possible nor desirable to prescribe the relative weight to be given any single factor as against any other factor or as against all other factors. The conclusions to be reached in a given case will necessarily depend upon a careful evaluation of the agreement and other attendant facts and circumstances.
(a) The fees charged should not be inequitable and exorbitant in relation to the services actually rendered. That is, the compensation should be commensurate with the nature and extent of the services and should not be excessive as compared with the fees customarily allowed in the trade concerned for similar services related to commercial (non-Government) business. In evaluating reasonableness of the fee, there should be considered services of the agent other than actual solicitation, as for example, tecbnical, consultant or managerial services, and assistance in the procurement of essential personnel, facilities, equipment, materials or subcontractors for performance of the contract.
(b) The selling agency should have adequate knowledge of the producto and the business of the concern represented, as well as other qualifications necessary to sell the products or services on their merits.
(c) There should ordinarily be a continuity of relationship between the Contractor and the agency. The fact that the agency has represented the Contractor over a considerable period of time is a factor for favorable consideration. It is not intended, however, to disqualify newly established Contractor-agent relationships where a continuing relationship is contemplated by the parties.
(d) It Should appear that the agency is an established concern. The agency may be either one which has been in business for a considerable period of time or a new agency which is a presently going concern 'and which is likely to continue in business as a commercial or selling agency in the future. The business of the agency should be conducted in the agency name and characterized by the customary indicia of the conduct of a regular business.
(e) The fact that a selling agency confines its selling activities to the field of Government contracts does not, in and of itself, disqualify it under the covenant. The fact, however, that the selling agency is employed to secure business generally, that is, to represent the concern in connection with sales to the Government as well as regular commercial sales to non-Govemment activities is a factor entitled to favorable consideration in evaluating the case as one coming within the authorized exception. Arrangements confined, however, to obtaining Government contracts, particularly those involving a selling agency organized immediately prior to or during periods of expanded procurement resulting from conditions of national emergency must be closely scrutinized. However, any agency or agent is not “bona fide” which seeks to obtain any Government contract or contracts for its principals through the use of improper influence or which holds itself out as being able to obtain any Government contract or contracts through improper influence.
§ 1.505-5 Fees for information. Contingent fees paid for “information” leading to obtaining a Government contract or contracts are included in the prohibition and, accordingly, are in breach of the covenant unless the agent qualifies under the exception as a bona fide employee or a bona fide established commercial or selling agency maintained by the Contractor for the purpose of securing business.
§ 1.506 Representation and agreement required from prospective contractor's. Except as provided in § 1.507-2, each Department shall inquire of and secure a written representation from prospective Contractors as to whether they have employed or retained any company or person (other than a full-time employee working solely for the prospective Contractor) to solicit or secure the contract, and shall secure a written agreement to furnish information relating thereto as required by the Contracting Officer. Where an invitation for bids is issued, this inquiry shall be made (and written representation and agreement secured) by requiring the bidder (or Contractor) to check the appropriate box in the following statement to be included in the invitation or bid form:
The bidder (contractor) represents: (a) That he ( ) has, ( ) has not, employed or retained any company or person (other than a full-time bona fide employee working solely for the bidder (contractor)) to solicit or secure this contract and (b) that he ( ) has, ( ) has not, paid or agreed to pay to any company or person (other than a full-time bona fide employee working solely for the bidder (contractor)) any fee, commission, percentage or brokerage fee, contingent upon or resulting from the award of this contract; and agrees to furnish information relating thereto as requested by the contracting officer.
Note: For interpretation of the representation, including the term “bona fide employee,” see General Services Administration Regulations, 44 CFR 150.7 and 150.5(d).
Note: The representation and agreement appearing on the face of General Services Administration Standard Form 33 — Invitation, Bid, and Award — Nov. 1949 ed., Standard Form 30 — Invitation and Bid — Nov. 1949 ed., pending revision of such forms, shall be deleted ana the above representation and agreement substituted therefor.
§ 1.506-1 Interpretation of the representation. For the purpose of the representation and agreement required from the prospective Contractor, as described in § 1.506, the definition of “bona fide employee” is as specified in § 1.505-3.
(a) The fact that the prospective Contractor retains a person who does not devote his full time solely to the prospective Contractor does not necessarily mean that the relationship involved is in violation of the covenant against contingent fees or that there is any stigma attached to the Contractor-agent relationship. It does mean, however, that the prospective Contractor must fill out the representation in the affirmative and, as required, furnish information with respect to such employment, or retainer.
(b) If the representation would otherwise be answered in the affirmative the fact that the person employed or retained by the bidder or Contractor is an attorney, or a public relations consultant, or has any other special or professional title, does not permit answering in the negative.

(i) Administrative proceedings.

(1) As stated in paragraph (a) of this finding 17, the contracting officer deducted $5,907.56 from plaintiff’s termination claim as being a contingent fee paid to Tucker in violation of the contract, and the plaintiff appealed to the Board. During the pendency of the appeal, the Department of the Army sought advice from the Comptroller General and the latter decided as follows by letter dated March 16, .1956:

[Acme’s] employment of [Tucker, Jr.] was not previously investigated by our Office. It now appears that there was no misrepresentation concerning such employment and that [Tucker, Jr.] might have qualified as a full-time employee since he worked at the Lansdale Plant of Acme Sales and Government contracts. Thus, it is questionable whether there was any breach of the contingent-fee covenants in the contracts of that company.

(2) However, on May 29, 1957, the Comptroller General, in consideration of further information supplied by the Department of the Army, issued another decision modifying his former decision and holding that plaintiff had violated the covenant against contingent fees in the Tucker matter, apparently on the grounds that at the time of plaintiff’s bid on Contract 8580, Tucker was not a full-time employee of Acme.

(3) In its answer to the plaintiff’s appeal to the Board the defendant alleged that the Board was without jurisdiction to review the Comptroller General’s decision. In its decision of March 16, 1959, the Board stated in pertinent part as follows:

After the termination of this contract, various questions arose as to the payment of contingent fees and kickbacks to Mr. Harry K. Tucker, Jr., and others associated with him, under various contracts between the Government and appellant and other companies. In his Opinion Nos. B-123582, B-123683 and B-124192, dated 16 March 1956, the Comptroller General considered these matters at the request of the Department of the Army, and found that, on the evidence presented, there was no misrepresentation as to the relationship of appellant and Mr. Tucker, and that a breach of the contingent fee covenant was therefore questionable. On 27 February 1957 the Department submitted further evidence, including the contract and the dates above recited. The Comptroller General thereafter issued a supplementary opinion, dated 29 May 1957, in which he held on the basis of the additional evidence that appellant “should be held liable for breach of the contingent fee covenants of contracts Nos. DA-11-070-ORD-8580, 8592 and 8681.”
Appellant has referred to statements in the Army letter of 27 February 1957, and in Government brieis and other instruments concerned with other contracts and persons, but indicating a possible opinion as to the relationship between appellant and Mr. Tucker. It has demanded the production of a wide range of Government records and papers in order to explain the employment agreement. We have refused the demand on the ground that such collateral evidence cannot be used to modify the terms of the agreement, which is admitted to have been in effect during the time when this contract was in the process of invitation, bid and award. That is the period when any services rendered by Mr. Tucker in the case would have been rendered, and reflected in the final award. Appellant has alleged in its brief that this is suppression of evidence by the Government and has cited these allegations in a letter to the Comptroller General requesting him to reverse his previous ruling. The latter has declined to take any action during the pendency of the case before us, noting that if we should find the facts to be different from those previously reported to him, his decision would not necessarily be binding. We have previously ruled, and now confirm that ruling, that the evidence sought by appellant is irrelevant to the issues involved in this case.
The relationship between appellant and Mr. Tucker is stated by the contract in force between them at the time when this contract was made. Under the circumstances existing at the time, we can only assume that Mr. Tucker’s right to commissions was reflected in the contract price. The fact that performance had not proceeded far enough by the time of termination to entitle him to payment does not affect that fact, and does not require the Government to pay the amount to which he would have been entitled except for General Provision 20. We will follow the decision of the Comptroller General since we find that the facts in the case are the same as those upon which that decision was made. Appellant has offered no evidence to rebut them.

(j) Conclusion. Whether or not the decision of the Board as to the contingent fee problem, which is the subject of this finding 17, was contrary to law, arbitrary, capricious or not supported by substantial evidence, is a matter of law which depends on the application of the facts reported herewith to the covenant against contingent fees and regulations thereunder.

THE ALL METALS ISSUES

18. As pleaded. Findings 18 through 29 will be confined to the claims made by Acme in this proceeding in behalf of All Metals, and the defendant’s counterclaim thereto. For perspective, the issues posed by the parties in the pleadings as to the All Metal’s claims are as follows:

(a) It is contended by the plaintiff that:

(1) The Board decision disallowing All Metals’ post-termination settlement expenses involving interest on borrowed money, management costs, and legal and accounting fees was arbitrary.

(2) The Board decision deducting from amounts otherwise due All Metals a sum representing an “adjustment for loss” was arbitrary in fact and erroneous in law.

(3) The Board decision refusing to allow a profit factor on All Metals’ termination claim was arbitrary.

(4) The failure of the Board to make findings on All Metals’ termination claim for certain “knobs” was arbitrary and constituted a breach of contract.

(b) It is contended by the defendant that:

(1) Tbe terms of plaintiff’s subcontract with All Metals relieved plaintiff of any liability to All Metals resulting from cancellation of the subcontract under the termination of Contract 8580.

(2) The double agency of Tucker made the subcontract between plaintiff and All Metals voidable.

(3) The Board decision was not supported by substantial evidence and was contrary to the evidence or the law to the extent that it allowed part of the All Metals’ termination claim.

19. Liability of Acme to All Metals under subcontract.

(a) Acme’s purchase order of February 11, 1953, to All Metals contained conditions reading in pertinent part as follows:

3. iNvoices: * * * Each invoice (including copies) must be certified as follows: “I certify that * * * This order and the work done or articles furnished hereunder shall be subject in all respects to the prime contract and to any statute, law, rule, regulation or administrative action relating to the foregoing.” The liability of the buyer for payment of any articles delivered by the seller shall be contingent upon the buyer being reimbursed thereof by the government under the prime contract, provided, however, that in any event, where the buyer is not reimbursed by the government by reason of any matter, cause or thing not within the seller’s control, the buyer shall remain liable to the seller for the articles delivered.
* * * * ifc
12. cancellation: (a) Buyer reserves the right to cancel this order or any part thereof (without any liability to Seller except for the purchase price of articles previously delivered to and accepted by Buyer and the Government) if delivery is not made within the time specified or within a reasonable time in case no time is specified, or if the quantity or quality of the articles ordered is not as specified herein, except in those cases in which such delay or default is due to causes beyond Seller’s control and without Seller’s fault or negligence, including, but not restricted to acts of God or of the public enemy, acts of the Government, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes unusually severe weather, and delays of a subcontractor due to such causes, (b) Buyer also reserves the right at any time whenever the prime contract is cancelled to cancel this order, or any part thereof, by written notice to Seller, even though Seller is not in default hereunder, and this order is subject to all the terms and conditions of the usual standard form of provisions of clauses providing for the termination of supply contracts for the convenience of the Government, and to all the terms and conditions of anyprime contract to which this order relates. Thereupon Seller shall, unless the notice otherwise specifies, discontinue all work and the placing of orders hereunder and shall cancel all existing orders and subcontracts. Upon such cancellation settlement of any amounts due the Seller shall be in accordance with such equitable settlement of any approved and allowed by the Government as being reimbursable to the Buyer under the prime contract. Buyer shall be under no liability for the payment of such settlement until it receives from the Government approval and allowance of Seller’s claim in respect of such settlement. Either before or after cancellation all rights of the Buyer herein may be assigned to the Government and thereupon all liability of the Buyer and Seller shall terminate except as to articles previously delivered to and received and accepted by the Buyer and the Government, and then only to the extent the Buyer has been reimbursed by the Government for the purchase price thereof, provided, however, that in any event, where the Buyer is not reimbursed by the Government by reason of any matter, cause or thing not within the Seller’s control, the Buyer shall remain liable to the Seller for the articles delivered.
20. CONFORMANCE TO LAWS, REGULATIONS, PROVISIONS and orders : Seller agrees to comply with all applicable Federal, State or Municipal laws and all administrative orders or regulations now existing or hereafter enacted or promulgated. Notwithstanding the complete generality of the foregoing, and without limitation thereon, Seller agrees that this order shall be subject to all the terms and conditions of the General Provisions applicable to Supply Contracts as embodied in Standard Form 32, as prescribed by the General Services Administration of the U.S. Government, Nov. 1949 Edition, or any provisions amendatory or supplementary thereto.

(b) The Board ruled in part as follows:

Provision 3 of this purchase order is: “We reserve the right to cancel entirely or to reduce the quantity of material covered by this order.” The Termination for Convenience of the Government provision of the prime contract is not included. 'Nevertheless, we are of the opinion that the parties have indicated by the manner in which they have conducted the settlement negotiations that it was their intention that the subcontractor should be fairly compensated for the work which it has done. While the contract provisions and related Government regulations are not a part of the purchase order, we shall, in the absence of any other terms, use them as a guide, insofar as they are pertinent, to determine the amount of compensation which should be paid to the subcontractor.

(c) Deliveries under the purchase order were to be completed by October 7, 1953. By the time Contract 8580 was terminated on March 15, 1954, All Metals had delivered a small percentage of the components called for in the purchase order. No evidence was offered as to whether or not All Metals’ delay in delivery was excusable, there being no issue thereof in the pleadings.

20. Tucker twin, agency, (a) Tucker procured the purchase order for All Metals from Acme while acting surreptitiously as agent or employee for each. It is reasonable to conclude that, at least as of January 27, 1953, All Metals knew that Tucker was Acme’s agent, although the officials of Acme other than the conspirators were unaware that Tucker was serving simultaneously as agent for All Metals in procuring the purchase order. The only Acme personnel who were aware of Tucker’s twin agency were Norris, J ack Epstein, Tucker himself, and one Philip Chagnon, the latter being a member of the intra-Acme conspirators who were double-dealing their employer in the manner described in detail in the narration of facts in the companion case of Acme Process Equipment Company v. United States, No. 349-57, findings 18-25.

(b) At the time of the termination of the prime contract in March 1954, Acme’s responsible officials (i.e., those not receiving illegal kickbacks) remained unaware of Tucker’s double agency. In all probability, Acme did not obtain full knowledge of these improper arrangements until shortly before the trial of Tucker, Norris, and Jack Epstein in 1-956 for violation of the Anti-Kickback Act.

21. Post-termination legal expenses.

(a) All Metals included $7,500 in its termination claim for the legal services of attorneys Morris and Wolf to December 5, 1955. The contracting officer allowed $1,500 of this as “fair and reasonable” and disallowed the balance. The finding of the contracting officer was based on the recommendation in affidavit form of an experienced attorney employee of the Pittsburgh Ordnance District who had interviewed Mr. Morris but had been unable to interview Mr. Wolf. He recommended against allowing $2,500 which was Mr. Wolf’s share of the bill because he could not determine the nature of his services. He recommended allowing $1,500 of the $5,000 balance of the total claimed which represented Mr. Morris’ share of the bill. The reduction of Mr. Morris’ bill from $5,000 to $1,500 reflected the government attorney’s opinion that, since Mr. Morris was unable to provide a breakdown or proof of the 300 to 350 hours he had claimed at $20 per hour, 65 hours was a “fair amount of time” for his legal services. In June 1958, after the appeal had been filed to the Board and after the subsequent revised findings of the contracting officer had been filed on April 3 and 4, 1958, All Metals submitted to the Board an additional claim of $1,850 for 92% hours of legal services rendered it by Mr. Morris for the period from January 1956 to April 3, 1958, thus making a total legal expense claim of $9,350 against which the contracting officer had found $1,500 as allowable. The evidence before the Board consisted solely of affidavits. The attorneys who rendered the services did not appear in person and testify. The Board sustained the finding of the contracting officer in the amount of $1,500 as to the original legal expense claim of $7,500, disallowing Mr. Wolf’s bill of $2,500 because “it is reasonable to infer” from the inadequate evidence before it that Mr. Wolf “was engaged in other matters than the preparation and presentation of the termination claim”, and disallowing all but $1,500 of Mr. Morris’ bill of $5,000 because “Mr. Morris has accepted the $1,500 as his fee for this period without complaint, so that we need give no further consideration to its adequacy.” This statement of the Board is not in accord with the facts of Mr. Morris’ acceptance of the $1,500, but it is reasonable to conclude that the Board confirmed the contracting officer’s reduction of the original $7,500 legal expense claim to $1,500 on the basis of its view of the inadequacy of the evidence advanced by the claimant.

(b) As to the additional claim for $1,850 for the services of Mr. Morris, although the contracting officer had not ruled upon it the board rejected that part of it representing services rendered prior to the filing of the appeal because the affidavit of Mr. Morris supporting it—

* * * indicates that they were in some substantial part concerned with matters other than the termination claim. There is no evidence as to their nature or extent other than this belated ex parte affidavit. We cannot assume without further proof that they were related in any way to the preparation and presentation of the termination claim.

With respect to that part of the $1,850 bill of Mr. Morris for services performed after the filing of the appeal, the Board disallowed this sum because it concluded that the services during that period were necessarily “concerned with the prosecution of the appeal and litigation.” However, even though the Board did not assign dissatisfaction with the quality of proof as its reason for disallowing the post-appeal expense for Mr. Morris’ services, there is no reason to believe that it should have been any more satisfied with the quality of the proof of such expenses than it was with the comparable proof for the pre-appeal expenses.

22. Post-termination accounting expenses, (a) As part of its claim for settlement expenses AH Metals included the sum of $4,500 for accounting expenses. Subsequently, it submitted a supplemental claim of $275 for accounting services performed between March 9, 1956 and October 27, 1957.’ The contracting officer did not rule on the $275 supplemental claim, and disallowed items of $1,000 and $1,250 in the basic $4,500 claim. He disallowed the $1,000 item on the basis that it represented “the conduct of a balance sheet audit which is not allocable to the termination claim.” He disallowed the $1,250 item because it represented “the cost of preparing a settlement Proposal which contained an unacceptable audit performance and was withdrawn by the Contractor.”

(b) The Board found that the $1,250 item should have been allowed. As to the $1,000 item, the Board stated as follows:

The first disallowance of $1,000 is for the conduct of a balance sheet audit found by the Government to be not applicable to the termination claim. Appellant does not contend that it is, but criticizes the amount as an estimate. It never furnished to the Government any information as to the cost of this audit, and has not furnished any for this record. It does not allege that the Government’s estimate is improper. Under the circumstances we must accept the Government’s figure as a proper disallowance.

The plaintiff introduced no additional evidence in the instant trial in support of the $1,000 item, but argues in its findings that “it is obvious that All Metals’ accountant could not prepare its termination claim without conducting a balance sheet audit.” However, the necessary relationship between the balance sheet audit and the preparation of All Metals’ termination claim is not obvious.

(c) As to the $275 item for accounting services rendered between March 9,1956 and October 27,1957, which the contracting officer had not passed upon, the Board held as follows:

As in the case of legal fees, this amount must be denied because these accounting services were not rendered in connection with the preparation of the claim.

The services in question consisted of a total of 22% hours charged All Metals by its accountants, involving conferences with counsel and officials of All Metals, and with POD personnel representing the contracting officer. Six of the 22% hours were in March 1956 and the balance in October 1957. In bis initial findings of June 20, 1957, the contracting officer found that All Metals’ termination claim had been reviewed and audited, termination inventory was verified and screened, allocability and allowability were considered, and numerous negotiation conferences were conducted. It thus appears manifest that at least six of the 22% hours for accounting services were directly related to the preparation and processing of All Metals’ termination claim before the contracting officer. All Metals’ notice of appeal to the Board was filed July 16, 1957, and its complaint was filed August 22, 1957. From the filing of the complaint until the eventual filing of the Government’s answer to the complaint in the Board appeal proceeding on February 21, 1958, the claimant’s accountants and others were conferring with the representatives of the contracting officer at POD in 'an effort to negotiate a settlement, and during this period the Board placed the appeal in Category (1) “Awaiting administrative disposition.” Under the circumstances, it is reasonable to conclude that the 16% hours of services rendered by All Metals’ accountants in October 1956 were directly connected with preparing and presenting various phases of its termination claim with the contracting officer, while the Board appeal was temporarily suspended.

23. Post-termination management expenses.

(a) Plaintiff submitted as part of its termination claim a $6,000 item for management salaries to Messrs. Oppenheimer and Hopkins, vice president and president of All Metals, respectively, incurred as a settlement expense by All Metals. In support of this item Mr. Oppenheimer had filed with the contracting officer a letter of January 10, 1956, to which was attached a schedule listing in nine categories a total of 969 hours for himself and 363 hours for Hopkins, which he estimated from miscellaneous sources they had spent from March 23,1954 to January 10,1956, in preparing and presenting the All Metals’ termination claim. At $5 per hour the claim totaled $6,660 for the 1,332 hours. The contracting officer allowed 443 hours at a rate of $2.31 per hour for a total of $1,023 as being a fair and reasonable allowance for “conferences, preparation of claims, preparation of work sheets, analysis, etc.” The record does not reveal the basis on which the contracting officer arrived at a determination of 443 hours, nor to what extent, if any, it was segregated as between Oppenheimer and Hopkins.

(b) Mr. Oppenheimer (but not Mr. Hopkins) testified before the Board on this item briefly and in general terms without adding anything of significance to the existing record. As vice president of All Metals, Oppenheimer’s monthly salary had been $1,500 or $50 per day. There was apparently no effort made by the Army to audit or otherwise verify the schedule of hours which had been submitted previously by Oppenheimer. The Board allowed $2,750 for this item, computed at the rate of $50 per day for 55 days (roughly 440 hours which corresponds to the 443 hours found by the contracting officer), and stated as follows:

Appellant offered testimony in general terms that many hundreds of hours had been spent by the company management on this work in cooperation with legal and accounting representatives. The contracting officer found that only 443 of these were properly compensable. We have no breakdown or justification from either party, but the time allowed seems quite reasonable in view of the extensive portion of the work which was done by legal and accounting representatives. It amounts to approximately 55 days, which brings this allowance, at $50 a day, to a total of $2,750.

Hopkins was not produced to testify in the trial before the court, and Oppenheimer’s testimony provided no further evidence than was before the Board.

24. Post-termination interest on borrowed money.

(a) All Metals claims interest on moneys borrowed from the Pittsburgh National Bank and various individuals for the performance of its purchase orders from Acme under prime Contract 8580. The interest claimed commences' with termination of the contract on March 15, 1954, and, at the time of the filing of the appeal with the Board, amounted to a claimed $16,689. Interest on borrowed money accruing prior to contract termination was included in All Metals’ termination claim under the category of general and administrative expense and is not now in issue. The contracting officer had rejected All Metals’ claim of $5,000 for post-termination interest because “It represents interest charges accruing after termination and not considered an acceptable item of cost.” The Board denied this item on appeal, stating in pertinent part as follows:

This claim, however, does not represent interest accruing during the period of performance of the contract on money borrowed specifically for the purpose of performing it. This money was borrowed, so far as the record discloses, in anticipation of this and other contracts generally, * * *.

(b) In addition to loans from the Pittsburgh National Bank in the net October 17, 1960 principal balance of $156,100, to secure which All Metals had executed assignments to the bank of certain accounts receivable and of moneys due imder its two subcontracts from Acme (including its subcontract under Contract 8580 in suit and another subcontract under Contract 1213), All Metals borrowed $136,000 more from four individuals. These total borrowings were predominantly for the purpose of performing the two Acme subcontracts, but at the same time All Metals had other contracts for which the borrowed funds were to be utilized.

(c) As of October 17,1960, All Metals owed the Pittsburgh National Bank $156,100 in principal, plus accrued interest of $47,415.38. From July 31,1954 until March 31,1961, the total accrued and unpaid interest on all of the moneys borrowed by All Metals from the bank and individuals as stated above was $107,000. All Metals’ auditor testified that this sum is allocable between All Metals’ two subcontracts under Contracts 8580 and 1213 in respective proportions of 21.56 percent ($21,710.92) and 78.44 percent ($78,909.08) based on the amounts of the separate claims filed by All Metals in each contract.

(d) Following termination of the contract All Metals went out of business and was unable to pay its loan obligations.

25. All Metals’ claim, for -profit.

(a) At the time of termination of Acme’s prime contract and All Metals’ purchase order for components under the prime contract, All Metals was substantially in arrears in its delivery schedule, but there is no issue raised in the pleadings as to whether the delay was excusable and, accordingly, no evidence offered on such issue.

(b) All Metals’ original termination, claim, which was filed on the total cost basis as stated, claimed no profit but instead stated a loss of $14,782.63 to date of termination. All Metals amended its claim on November 1, 1957 to claim a profit of $10,530 (10 percent of the costs claimed in its original claim). On November 29, 1957, the contracting officer’s assistant offered to recommend a basis of settlement to the contracting officer which included a profit allowance computed at 6 percent. All Metals rejected the offer. In his revised findings of April 4, 1958, the contracting officer made no allowance for profit. In its decision of March 16, 1959, the Board held as to profit the following:

On the other hand, paragraph (e) (2) (iii) of the Termination article provides for an allowance in lieu of profit amounting in this case to 6% of the costs of performance. We do not believe that it would be realistic for us to find that the parties intended at the time they entered into this subcontract that a substantial loss should be turned into a profit by termination of the prime contract. At the same time we do not believe that they had in mind the departmental regulation governing the prime contract which would deny the subcontractor recovery of its costs because of the prospective loss. We believe that the subcontractor’s cost of performance and settlement must be computed as part of the costs of the prime contract, subject only to the adjustments applicable to the prime contract, and that the parties intended only that the subcontractor should recover his properly computed costs.

(c) In its opinion on motions for reconsideration filed by both parties the Board refused to apply paragraph (e) (2) (iii) of Clause 21 of the contract governing termination procedures for two reasons. The first reason was because the termination clause “was not expressly made a part of the All Metals subcontract, and we find no evidence of mutual agreement between Acme and All Metals that all the provisions of the Termination clause of the prime contract would apply to the termination of the subcontract.” The second reason was that—

* * * the All Metals termination claim was not determined under the formula prescribed by paragraph (e) of the Termination clause. Instead, it was submitted by All Metals and the prime contractor on a total cost basis and determined by tbe contracting officer and this Board on a total cost basis. Settlement on a total cost basis is inconsistent with a formula determination under paragraph (e), and the record before this Board does not provide the necessary factual and cost data for a paragraph (e) formula determination or the determination of a profit allowance under paragraph (e) (2) (iii).

Paragraph (c) of the Termination clause referred to in the foregoing quotation states in part that, “after receipt of a Notice of Termination, the Contractor shall submit to the Contracting Officer its termination claim, in the form and with the certification prescribed by the Contracting Officer.”

(d) Whether and to what extent the provisions of the prime contract are applicable to the subcontract, and whether the Board was arbitrary in refusing to allow a profit on the All Metals’ claim depend on the interpretation of the contract and subcontract provisions set forth elsewhere in these findings. If a profit is due All Metals it should be computed at the rate of 6 percent of its allowable performance costs incurred to the termination date.

26. All Metals’ initial costs.

(a) ASPE 8-402b(13) and 8-402d (quoted in finding 5, supra), which are incorporated in Contract 8580 by reference in Clause 21 (f) thereof, defined initial costs and the limitation thereof. In effect, in order for a contractor to receive payment under a termination settlement for the initial costs he incurred, it has to be shown that had the contract gone to completion, his compensation under the contract would have been sufficient to allow him to pay his initial costs from contract proceeds after paying his other allowable costs of production. All Metals incurred initial costs but they were not segregatesd on its books as such and its termination claim, while it necessarily included a certain element of initial costs, did not identify them as such. The contracting officer found initial costs of $49,861 and allowed only $12,980 of them by applying the ASPE 8-402d limitation. Before the Board, Government counsel urged that initial costs be found so that the limitation in ASPE 8-402d could be applied in order to diminish All Metals’ claim as the contracting officer had done. In its first decision of March 16, 1959, the Board refused to find initial costs and apply the limitation for the following reasons:

These expenses were incurred, but were not identified upon appellant’s books as initial costs. Government auditors have so identified them upon audit of those books. They then recomputed the anticipated expenses which would have been incurred had the subcontract been completed. This increased the computed expense of completion of the contract to such an extent that they were greater than the purchase order price by more than the amount of the identified initial items, which were disallowed under ASPE, 8-402d.
That regulation is inapplicable in this case. The concept of “initial costs” is applicable to the settlement of termination claims only as a device for allocating to the terminated portion of the contract some of the costs incurred during performance of the completed portion of the contract, thereby causing the termination portion to bear its fair share of initial costs, while the contractor is still paid the contract unit prices on the completed portion of the contract. In this case the entire subcontract was terminated; the subcontract termination is being settled on a total cost basis; and the subcontractor is not being paid the contract unit price on any completed and delivered units; hence, there is no occasion to compute “initial costs” and allocate them between the completed portion and terminated portion of the subcontract.

In its decision of August 17,1959, on motions for reconsideration the Board again refused to find initial costs, holding as follows in pertinent part:

* * * it is quite clear from the record that All Metals’ system of accounting did not lend itself to a segregation of initial costs, were such segregation necessary, and there was insufficient production experience to permit a valid segregation of initial from other costs. The record simply does not support the figure which the Government contends should be deducted.
In summary, the application of ASPE 8-102d to the termination claim of All Metals is improper: first, because ASPE 8-402d is a limitation on certain costs allowed, including initial costs, and in this case no initial costs were found by this Board; and second, even if we agreed that the limitation was properly for application, the record does not support the Government’s computation of initial costs.

(b) The defendant prepared and presented the following schedule in an effort to demonstrate by reconstruction that it would have cost All Metals $127,724.49 to completely perform the subcontract, exclusive of initial costs:

None of the above figures contain the costs of tools, labor or material involving the item of knobs, nor $3,996.31 of materials for which All Metals was reimbursed by Acme. According to the foregoing schedule, of the $85,871.98 in allowable costs found by the Board to have been expended by All Metals up to the time of termination, $54,572.19 represented initial costs, segregated into categories. It is the defendant’s theory that, since the subcontract price was $107,-496.54 and the cost to complete the subcontract, exclusive of initial costs, would have been $127,724.49, the ASPft 8-402d initial cost limitation would prevent recovery of any moneys identifiable as initial costs.

27. Adjustment for loss.

(a) Armed Service Procurement Begulation 8-403 provided as follows:

Adjustment for Loss. If it appears that the Contractor would have suffered a loss on the entire contract had it been completed, an adjustment should be made reducing the amount of the settlement to reflect the indicated rate of loss. No part of the loss on the completed portion should be considered as an item of cost. In the case of a partial termination, no part of the anticipated loss on the continued portion of the work should be considered as an item of cost. This paragraph shall not preclude the allocation to the terminated portion of the initial and preparatory cost in accordance with 8-402b (13) and (23).

(b) All Metals’ original termination claim reported that it had lost $14,782.63 by the time the subcontract was terminated, and estimated that it would have lost a total of $38,476.75 if it bad completed the subcontract. In its first decision the Board refused to reduce All Metals’ claim by deducting its losses, and stated as follows:

* * * The Government sought at the hearing to further reduce the amount of this settlement by adjustment for the anticipated loss on the contract under ASPE 8-403. The original settlement proposal submitted for this subcontractor’s claim included a provision for such loss in the amount of $14,782.63. ■ That proposal is based upon the itemized status of completion ana cost of performance with respect to each of the 19 components contracted for, showing them to vary from less than 1% to 100% completed at the time of termination of the prime contract. The Government has estimated, in its Exhibit H, that the entire order was 80% complete, and that the loss, if it had been completed would have been $32,386, of which $22,670 was attributable to the uncompleted portion.
On the other hand, paragraph (e) (2) (iii) of the Termination article provides for an allowance in lieu of profit amounting in this case to 6% of the costs of performance. We do not believe that it would be realistic for us to find that the parties intended at the time they entered into this subcontract that a substantial loss should be turned into a profit by termination of the prime contract. At the same time we do not believe that they had in mind the departmental regulation governing the prime contract which would deny the subcontractor recovery of its costs because of the prospective loss. We believe that the subcontractor’s costs of performance and settlement must be computed as part of the costs of the prime contract, subject only to the adjustments applicable to the prime contract, and that the parties intended only that the subcontractor should recover his properly computed costs.

In its opinion on the parties’ motions for reconsideration the Board reduced the amount it had originally allowed All Metals by $14,782.63 as an adjustment for loss, stating as follows:

* * * we erred in failing to give effect to the parties’ understanding of the All Metals subcontract, as evidenced by their conduct, that in the event the contract were a losing contract an adjustment for loss would be made in tbe settlement of tbe termination claim. Soon' after tbe termination of tbe subcontract All Metals bad its books audited by a firm of certified public accountants. This firm submitted an audit report showing that the contract was a loss contract and that of tbe estimated total loss for tbe completed contract $14,782.63 was properly allocable to tbe completed portion thereof. _ All Metals accepted this loss figure as correct and submitted its termination claim on that basis. Acme’s own termination settlement proposal reflected the All Metals subcontract settlement in an amount which reflected the adjustment for loss of $14,782.63. We think these facts establish the mutual understanding of the parties to the subcontract with respect to adjustment for loss, and an admission that an adjustment for loss in at least that amount was to be made in settling the termination claim. In our prior consideration, we overlooked their true significance.
When, after the filing of the appeal, appellant changed its position with respect to adjustment for loss on the All Metals claim, it based its change of position on the ground that the Termination clause of the prime contract was applicable to the termination settlement of the subcontract. For the reasons we have already stated, we do not consider the Termination clause of the prime contract to be controlling with respect to the settlement of the termination claim of the subcontractor.

28. All Metals’ claim for improper charges to its claim.

(a) All Metals claims $6,360.29, arising out of three of its All Metals’ invoices which Acme had refused to honor, one of them being for $2,806.07 for labor and tooling in connection with an item referred to as “knobs”, the second being for $3,529.22 for finished materials later rejected by Acme and returned to All Metals for reworking, and the third being a deduction of $25 from another invoice for reasons not apparent in the record.

(b) The Board also charged All Metals with $1,971.22 of material which it had purchased for the manufacture of knobs and had been reimbursed by Acme. When it was found that All Metals could not manufacture the knobs, that part of the subcontract was canceled and relet to Tower Industries, and All Metals shipped to Tower Industries the materials which it had purchased previously for the knobs. About two-thirds of the material was not usable by Tower Industries. All Metals included the entire cost of the materials in its claim and the Board disallowed it.

CONCLUSION OE LAW

Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes as a matter of law that plaintiff Acme Process Equipment Company is entitled to recover on the claim it makes for itself and its subcontractors other than All Metals Industries, Inc., and it is therefore adjudged and ordered that said plaintiff recover of and from the United States the sum of twenty-five thousand and eighteen dollars and seventy-three cents ($25,-018.73). The court also concludes that insofar as the petition makes claim on behalf of All Metals Industries, Inc. and the Pittsburgh National Bank as assignee of All Metals Industries, Inc., the plaintiff is not entitled to recover and the petition is dismissed. The court further concludes that the defendant is not entitled to recover on its counterclaim and said counterclaim is dismissed.

ON PLAINTTFe’s MOTION TO AMEND the COURT’S EINDINGS OE EACT AND THE DEFENDANT’S CORRECTED CROSS-MOTION EOR RECONSIDERATION AND TO AMEND JUDGMENT

J ack RepTicm, attorney of record, for plaintiff. Daman-sky <& Dickey of counsel.

David Orlikof, with whom was Assistant Attorney General John W. Douglas, for defendant. Hyman Lazeroff of counsel.

Per Curiam :

The parties have pointed out that we were mistaken in finding (finding 10) that the defendant’s payment to Acme for the benefit of All Metals, on April 10, 1958, “was achieved by a credit of that amount against its [All Metals’] V-loan indebtedness to the Government.” In fact, this payment by the Government of over $50,000 was credited to Acme’s V-loan debt, not All Metals’. The plaintiff (Acme) asks us to correct our findings to reflect that fact. The fifth sentence of our finding 10 is accordingly corrected to read: “On April 10,1958, Acme was credited with partial payment of $50,040.28, for the benefit of All Metals; this payment was credited against Acme’s Y-loan indebtedness to the Government.” The defendant now asserts, for the first time, that this payment was not for the benefit of All Metals at all, but its previous position in this litigation has been wholly to the contrary and the payment appears in fact to have been made for the use of All Metals.

Since Acme did not, so far as this record reveals, pay over the $50,040.28 to All Metals, the defendant requests us to reconsider our denial of its counterclaim against Acme for that sum and to grant the counterclaim. In our original opinion we rejected the counterclaim on the ground that both Acme and the Government were aware of Tucker’s double agency arrangement when the payment for the benefit of All Metals was made in April 1958 (slip op., pp. 24-25, 347 F. 2d 538, 556-57). Under the misapprehension that All Metals had actually received the money, we also referred to the unfairness of burdening Acme with recovering from All Metals at this late date. The motion to reconsider stresses that portion of the opinion.

On the facts as we now understand them, All Metals has not received the money, but we cannot say whether or not it still has a good claim against Acme. If a tribunal concerned with that claim should hold, as we have (slip op., p. 24, 347 F. 2d at 556), that Acme’s subcontract with All Metals was partially confirmed by the payment in April 1958, and if limitations has not run, All Metals may well have a good cause of action. If that is so, Acme would find itself liable to both. All Metals and to the Government (if we were to grant the counterclaim). That would certainly be an unjust burden to impose on Acme.

In any event, the operative factor is the affirmance of liability to All Metals, by both Acme and the defendant, when the payment was made in April 1958. As we said in our opinion: “We think that the partial reimbursement in 1958 constituted pro tanto ratification by both Acme and the defendant, with full knowledge, of the previously voidable subcontract.” The Government directly participated in that ratification and now has no cause to contend that it should be relieved. At the time it joined in this confirmation, the defendant left the monetary relationships of Acme and All Metals to be settled between those two. That remains the situation.

The defendant’s motion for reconsideration and to amend 'judgment is denied but the plaintiff’s motion to amend the findings is granted to the extent indicated above. 
      
       The court acknowledges the significant contribution of Commissioner C. Murray Bernhardt, from whose opinions (in this case and its companion, see note 1, supra> and note 3, infra) we have borrowed considerably. We do, however, come to a number of conclusions at variance with his, and do not consider some issues which he discussed.
     
      
       The other contract was subsequently canceled by the defendant, and it forms the subject matter of the companion case, No. 349-57, post, p. 324, also decided this day.
     
      
       Plaintiff has made no additional or alternative reguest for damages in the form of interest on the Board’s award for the interim period between its decision and that of this court. Such an interest payment would clearly be precluded by 28 U.S.C. § 2516(a) : “Interest on a claim against the united States shall be allowed in a judgment of the Court of Claims only under a contract or Act of Congress expressly providing for payment thereof.” This contract did not so provide.
     
      
       The bracketed additions reflect the present plaintiff’s Qualifications of the broad position advocated by the contractor in Langenfelder, but the reasoning of that ease remains applicable.
     
      
       Acme originally petitioned the court for additional post-termination legal and accounting expenses of $7,600. The plaintiff has not, however, renewed a claim of $2,400 for legal services rendered by Morris C. Solomon, after its disallowance by the Trial Commissioner in his opinion. We accept the Commissioner’s determination on this point. He said : “In its original termination claim Acme did not include an item of post-termination settlement expense in the amount of $2,400 for legal services rendered by Morris C. Solomon, Esq., in the preparation of the claim and in dealing with subcontractors who had presented their claims to Acme. This claim was urged for the first time in the appeal filed with the Board. The Board denied the claim on the grounds that Mr. Solomon had been employed by the plaintiff for a number of years as legal counsel on an annual retainer basis, and that the services which he rendered in connection with the preparation and presentation of the termination claim consisted only of advice for which he was compensated in his annual retainer fee. Part of the disallowance was also based on the fact that certain of the included services related to the appeal and litigation of the claim. Up to the time of the hearing before the Board Mr. Solomon had not billed the plaintiff for the claimed services. It is reasonable to conclude that, as between Mr. Solomon and the plaintiff, the latter’s obligation to Mr. Solomon is informally contingent upon the obligation of the defendant to Acme as determined in this court, and that in the absence of an ultimate award there will be neither a demand or payment between Mr. Solomon and Acme. Under these circumstances the Board's decision was undoubtedly correct. Acme has incurred only a contingent obligation to pay Mr. Solomon for his services, and there is nothing clearly erroneous in the Board’s determination that the retainer fee was designed to cover such services as Mr. Solomon performed.”
     
      
       ASPR 8-402(c)(9) disallows: “Legal, accounting and consulting services and related expenses incurred by a prime contractor or a subcontractor in any formal appeal or submission, either within a contracting or other Government agency, or in any arbitration, mediation or suit in court, where such proceeding is instituted by such Contractor for the purpose of obtaining payment in excess of the settlement amount determined to be due by the Government or any intervening higher tier Contractor.”
     
      
       Settlement expenses after an appeal has been taken are expended not to facilitate the appeal, but to prevent it. As we have pointed out, the proper dividing line is between negotiation and litigation, rather than the particular point in time when a formal appeal is filed. The cases cited by defendant all appear to involve the disallowance of actual litigation expenses; the technical fact that an appeal had been formally initiated was not emphasized. See Marshall v. United States, 143 Ct. Cl. 51, 55, 164 F. Supp. 221, 223 (1958) ; Ramsey v. United States, 121 Ct. Cl. 426, 434, 101 F. Supp. 353, 357 (1951), cert. denied, 343 U.S. 977 (1952) ; Reed & Prince Mfg. Co., ASBCA No. 3172, 59-1 B.C.A. par. 2172.
      The Government also points to certain similarities between Mr. Dimond’s legal services and those of Morris C. Solomon, the cost of which was disallowed by the Commissioner (see fn. 6, supra). The essential difference, however, is that Mr. Solomon’s services were compensated by an annual retainer fee, which Acme was obliged to pay in any event, while Mr. Dimond was hired by plaintiff specifically for this case. The amounts owing to Mr. Dimond would not otherwise have been incurred.
      The defendant also argues that, if legal expenses are awarded in this ease, the Government will feel compelled to restrict settlement negotiations after an appeal to the Board, in order to avoid liability for such expenses. By the same reasoning, however, the contracting officer would be reluctant to negotiate a settlement, because legal costs incurred in that context are clearly reimbursable under the contract. Vet efforts at compromise on this level are a common occurrence.
     
      
       This case was tried, and the Commissioner’s report filed, before the decision of the Supreme Court in United States v. Carlo Bianchi 3 Co., 373 U.S. 709 (1963). Neither party has preserved an objection to the receipt of de novo evidence, and we therefore need not concern ourself with that problem. Stein Bros. Mfg. Co. v. United States, 162 Ct. Cl. 802, 337 F. 2d 861 (1963), and succeeding decisions in the same line.
     
      
       Executive Order 9001, 6 Fed. Reg. 6787, issued in 1941, required the inclusion of such covenants in all defense contracts. But variations of the present covenant against contingent fees have been included as standard clauses in various government contracts since world War I. See Barron and Munves, The Government Versus the Five-Percenters: Analysis of Regulations Governing Contingent Pees in Government Contracts, 25 Geo. Wash. L. Rev. 127 (1957). The covenant has been interpreted most frequently in actions by agents to recover commissions for procurement of government contracts ; one of the defenses asserted is that a contingent agreement is unenforceable because it violates public policy. E.g. Browne v. R & R Eng’r Co., 264 F. 2d 219 (C.A. 3. 1959) ; Mitchell v. Flintkote Co., 185 F. 2d 1008 (C.A. 2, 1951).
     
      
       Although not directly applicable (since they became effective after the present contract was executed), ASPR §§ 1.505, 1.506, 32 C.F.R. 1.505, 1.506, offer helpful guidelines for evaluating the character of a contingent fee arrangement; these regulations adopt, in effect, the position that all the circumstances are to be considered.
     
      
       The Issue of whether or not the relationship was bonafide, as that term is used in the covenant, presents ultimately a question of law on which the Board’s conclusion is not binding. The Board appears to have decided the issue as one of law (see finding 17(1) (3)).
     
      
       We do not intend to imply that subsequent improper secret dealings by an agent will invalidate an arrangement that was bona fide in its inception. It is appropriate, however, to consider such activities in connection with a claim that the agent performed legitimate services unrelated to sales.
     
      
       A contrary rule could easily be circumvented. By simply disbursing tbe contested funds, tbe Government could then bring an action for tbeir recovery.
     
      
       An agent who attempts to waive the Government’s rights must have the authority to do so, and there are certain rights of the United States which its officials may not validly waive. Cf. United States v. Mississippi Valley Generating Co., 364 U.S. 520, 561 (1961) and the discussion of that case in Acme Process Equipment Co. v. United States, Ct. Cl., No. 349-57, decided this day, post, p. 324.
     
      
       The cases cited by plaintiff in support of its estoppel point are inapposite. Companhia Atlantica v. United States, 148 Ct. Cl. 71, 180 F. Supp. 342, cert. denied, 364 U.S. 862 (1960), involved cancellation of the entire contract for a purported violation of the covenant against contingent fees, rather than refusal to reimburse only the amounts of illegal fees. In any event, the court found that the covenant had not been violated. The significance of the Atlántica case is discussed in greater detail in the companion case, No. 349-57, also decided this day. Harvey Radio Laboratories, Inc. v. United States, 126 Ct. Cl. 383, 391-92, 115 P. Supp. 444, 449 (1953), cert. denied, 346 U.S. 937 (1954), dealt with the doctrine of equitable estoppel as it applied to the contractor rather than the Government.
     
      
       The defendant also asserts that certain alleged misrepresentations made by Acme concerning its contingent fee arrangements render the entire contract unenforceable. The same argument is discussed at length in the companion case, No. 349-57, post, p. 324, and rejected. For the reasons given there, we likewise reject the Government’s identical contention in this action.
     
      
       The defendant does not assert that the Anti-Kickback Act, 74 Stat. 740, 41 U.S.C. § 51, is applicable to the present transaction. Enactment of the anti-kickback legislation, however, in no way altered pre-existing common law remedies. See United States v. Davio, 136 F. Supp. 423, 427-28 (E.D. Mich., 1955).
     
      
       Not counting, of course, Tucker and his fellow conspirators in the plan to defraud Acme.
     
      
       Sidney Cohen, the secretary of the corporation and the only Acme official to testify at the trial, stated: “It is very difficult to pinpoint the exact time, but I think the time that I gathered the knowledge that Tucker was performing for All Metals, I believe, was at the court hearing in Judge Clary’s court in Philadelphia.” Tr. 11. (This is a reference to the 1956 trial of Tucker, Norris, and Jack Epstein for violations of the Anti-Kickback Act in connection with Aeme’s other major government contract.) See Acme Process Equipment Co. v. United States, Ct. Ci. No. 349-57, decided this day, finding 31, post, pp. 397-98. See, also, Tr. 1610-11 of the companion ease.
     
      
       Provision 12 of the subcontract stipulated that, in the event of a termination by the defendant of the prime contract, Acme “shall be under no liability [to All Metals] * * * until it receives from the Government approval and aUowance of [All Metals’] claim * * See finding 19(a).
     
      
       A party seeking to avoid an agreement for fraud must first offer to restore any consideration received from the other party, or its reasonable value. In the present case, however, All Metals’ deliveries under the subcontract were minimal, and its compensation considerably exceeded their reasonable value. See text accompanying fn. 24, infra.
      
     
      
       The time lapse was not as great as plaintiff implies. The Government’s first opportunity to raise such a legal defense, formally, was on appeal to the Board. As a result of protracted settlement efforts, the defendant did not file its answer in the Board proceedings until 1958. The period of actual delay in asserting the defense was thus from 1958 to 1961.
     
      
       The purpose of this requirement is “to prevent enrichment by the rescinding party at the expense of the other.” Restatement, Restitution § 65, Comment “e”.
     
      
       Plaintiff emphasizes that All Metals assigned the proceeds of the subcontract to the Pittsburgh National Bank at the outset of performance, and, at that time, Acme waived its right of set-off “except for claims arising under the contract”. However, we are dealing with such a claim in this Instance.
      Since we deny relief to All Metals on the ground previously discussed, it is unnecessary to consider the Government’s defense based on the “Severin’’ doctrine. See Severin v. United States, 99 Ct. Cl. 435 (1943), cert. denied, 322 U.S. 733 (1944).
     
      
       Although the presence of an exculpatory clause in a subcontract may sometimes bar the prime from suing the Government on behalf of the subcontractor (See J. L. Simmons Co. v. United States, 158 Ct. Cl. 393, 304 F. 2d 886 (1962)), it does not prevent the united States from entering into a negotiated settlement with the subcontractor after a convenience termination. See, generally, Armed Services Procurement Regulations § § 8-207, 8-208; Paul, United States Government Contracts and Subcontracts 516 (1964).
     
      
      See Opinion dated October 15, 1965, post, 822, on plaintiff’s motion to amend the court’s findings of fact and tlie defendant’s corrected cross-motion for reconsideration and to amend the judgment.
     
      
       The contract does not specifically incorporate these provisions.
     
      
       What proportion of Tucker's time was occupied In making reprehensible secret deals with Acme’s subcontractors for kickbacks and double agency contingency fees, as described in the case of Acme Processing Co. v. Unites States, No. 349-57, decided this day, cannot be determined.
     
      
      
         Contract 8580 contains a provision requiring a Form 119 be filed by the contractor, if the contracting officer so requests, whenever he has represented in his bid that “he has employed or retained a company or person (other than a full-time employee) to solicit or secure” the contract.
     
      
       The provisos at the end of each of the quoted provisions were added by means of a letter agreement between the parties modifying the printed conditions contained in the original purchase order.
     
      
       This provision appears on the face sheet of Acme’s purchase order to All Metals.
     
      
       The attorney’s computation was based on an hourly rate of $20 with the total rounded out.
     
      
       Defendant requested the trial commissioner to find that on April 10, 1958, $50,040.28 was paid to All Metals on its claim. The trial commissioner so found ("On April 10, 1958, AU Metals was given a partial payment of $50,040.28”) and defendant did not except. On the contrary, the defendant dismissed plaintiff’s exception to that finding as unwarranted. Indeed, defendant’s entire counterclaim was squarely based on the fact that this payment to Acme was for the benefit of All Metals.
     
      
       We have not been referred, on the motion for reconsideration, to any information concerning currently relevant litigation, claims, or arrangements of Acme and All Metals inter se.
      
     