
    358 F. 2d 986
    HERMAN ADAMS, DOING BUSINESS AS ADAMS MANUFACTURING COMPANY v. THE UNITED STATES
    [Cong. No. 5-59.
    Decided April 15, 1966
    
      
      Dale L. Bumpers, attorney of record, for plaintiff.
    
      Charles A. Simmons and Sheldon J. Wolfe, with wbom was Assistant Attorney General John W. Douglas, for defendant.
    Before Cowen, Chief Judge, Laramoee, Dureee, Davis and Collins, Judges.
    
   Per Curiam :

This is a suit for direct or primary loss in the amount of $172,081.92 caused by delays which occurred in the performance of a contract to produce a large number of wood tent pins for defendant. A claim for so-called “indirect loss” or secondary loss in the amount of $43,061.91 is not deemed to be supported by substantial evidence (and is no longer pressed by plaintiff). Extensive delay is attributed by plaintiff to the arbitrary and unreasonable action of an employee of defendant, Inspector Joseph C. Burkhart, in rejecting as many as 50 per cent of the tent pins produced by plaintiff under his inspection. There is also involved the withholding of information by defendant or failure of Inspector Burkhart to furnish plaintiff with the inspection plan which was used and the Acceptable Quality Level (AQL) required by defendant in performance of the contract. When Inspector Burkhart was replaced by another inspector (Kallen) the percentage of discarded or rejected pins was decreased from over 50 per cent under Inspector Burkhart to about 20 per cent or lower under Inspector Hal-len. Although plaintiff did not exhaust his administrative remedies or file a formal complaint concerning the inspection of pins by Inspector Burkhart, he did make complaint and discuss his problems with Burkhart and Burkhart’s supervisor.

By H. Bes. 296, 86th Congress, 1st Sess., the House of Representatives has asked the court, pursuant to 28 U.S.C. §§ 1492 and 2509, for a report as to whether plaintiff is legally or equitably entitled to any damages in connection with a contract which he had with the defendant to manufacture tent pins.

In response to a request for proposals issued by the Chicago, Illinois, Quartermaster Corps on November 14, 1953, plaintiff submitted a proposal to furnish quantities of 16-inch and 24-inch tent pins for a consideration of $103,177.26, f.o.b. certain destination points. Plaintiff initially computed his net direct material costs at $24,320.46, later increased to $50,140.

Upon opening the bids, defendant’s contracting officer noted that plaintiff’s material cost allocation was substantially lower than the second lowest bidder. A few weeks later a representative of the Chicago Quartermaster advised plaintiff’s plant manager that his bid figures were too low and asked him to recheck them. Subsequently, when a representative of the Quartermaster visited the plant to conduct a pre-award survey, he reminded plaintiff that in his bid he neglected to allow for the cost of manufacturing and shipping crates, and for a rejection factor.

After the pre-award survey was conducted, plaintiff was invited to Chicago to attend a conference to discuss the proposal of November 16, 1953. Prior to the meeting, plaintiff submitted to defendant an informal proposal which amended the initial proposal by allowing a 20 percent rejection factor. This increased the bid price on f.o.b.-plant to $103,117.26.

Subsequently, in a conference held on December 18, 1953, defendant’s spokesman advised plaintiff’s representative that their second informal proposal was too high, and as a consequence, the informal proposal was revised downward to a figure of $90,000 f.o.b.-plant. The difference between the second proposal and the one arrived at during the meeting was determined by reducing the rejection factor from 20 per cent to 10 per cent, and making other minor adjustments.

Various other matters pertaining to the contract were discussed. Plaintiff’s representative advised defendant that he anticipated buying mill run lumber and screening from it the No. 1 and No. 2 red oak for use in producing the pins. Plaintiff’s representative attempted to ascertain what inspection procedure would be used. He was told that he would subsequently receive an inspection guide. The guide which was eventually furnished plaintiff covered inspections with respect to quartermaster contracts in general, 'but did not specifically refer to the procedure to be used in inspecting tent pins.

On the day following the conference, plaintiff submitted a formal bid in the amount of $123,391.51 f.o.b. certain destinations. In the revised formal bid plaintiff increased his materials cost from $24,320.46 to $50,140 while reducing his labor costs from $35,165.63 to $25,200. After making other minor adjustments and adding a 10 per cent profit factor plaintiff’s f.o.b.-plant price amounted to $90,191.11. Plaintiff also increased his delivery costs from $30,215.86 to $52,600.34.

On December 10, 1953, Contract QM-23755 was awarded to plaintiff. Por a consideration of $123,391.51 plaintiff agreed to manufacture and deliver 606,525 type I 16-inch wood tent pins and 763,000 type II 24-inch wood tent pins. The contract also contained the usual provisions entitled “Changes”, “Inspections” and “Disputes.” Pins were to be produced in accordance with Military Specifications Mil-P-2383A. In addition to delineating the contract specifications, MÍ1-P-2383A provided that sampling and inspection would be conducted in accordance with Standard MIL-STD-105A. In determining whether pins were to be accepted by the defendant, MIL-STD-105A provided for inspection of a certain number of samples based upon the lot size submitted. If the sample contained more than the minimum number of major and minor defective pins, the entire lot was to be rejected. The maximum number of defects which were to be allowed was determined bj the Acceptable Quality Level (hereafter called AQL), established by defendant and thus would vary with changes in the AQL. The AQL for contract No. 051-23155 was specified by the defendant, but defendant never revealed to plaintiff the particular AQL established for this contract. Plaintiff insists that the failure of defendant to furnish plaintiff with the AQL it was using constituted a breach of contract. Plaintiff accordingly claims that he is entitled to relief because defendant omitted a specification of the contract. Plaintiff’s contractual obligation was to produce pins according to certain specifications. All details specifying the kind of pins that were to be manufactured were set out in MÍ1-P-2383A referred to in the contract. AQL is used to determine whether a sufficient number of defects (as defined in MÜ-P-2383A) are found in the sample group of pins to warrant rejection of the entire lot. Since plaintiff was not advised of the AQL applicable, plaintiff could not anticipate in advance the number of defective pins he could produce without having an entire lot rejected. Inspector Burkhart never told plaintiff the number of major and minor defects which would be allowed in a sample size lot. Although plaintiff was prejudiced by lack of certain information known to defendant, he still had the basic duty under the contract to produce pins free from those defects prohibited by the specifications (Mil-P-2383A).

Plaintiff set up an assembly line whereby raw lumber which had been stored in a yard was put through a rip saw which cut it into rough strips. From there it went through the molder which planed it to the proper width and thickness. Once the pins were cut in the proper lengths they were processed through the rope-notching and pointing machines. At the end of the processing line the pins were dipped into a wood preservative.

On February 1,1954, defendant’s inspection supervisor and plaintiff executed an inspection plan which provided for only two inspection points (prior to the ultimate end-item stage). Once pins were molded they were to be tested for moisture and specific gravity. A stationary lot inspection for dimensional and visual defects was to be conducted before the pins were treated with a wood preservative.

Defendant’s Inspector Burkhart arrived at plaintiff’s plant on February 15, 1954. Upon his arrival he arbitrarily disregarded the prior inspection plan and established four inspection points all on a stationary lot basis. When production began in March, 1954, that change inconvenienced plaintiff to a great extent in that under stationary lot inspection the entire lot must be removed from the assembly line until testing of those samples chosen from the lot has been completed. Thus, production was delayed until the inspection was completed and the lot returned to the assembly line. The delay involved cannot properly be charged to plaintiff. In addition, on several occasions Inspector Burkhart aggravated the situation and increased the period of delay by refusing to inspect pins as they piled up at the second inspection station.

Approximately one month after production had commenced, the Quartermaster Inspection Service notified Inspector Burkhart that the sampling plan procedure should be changed to moving lot inspection. This change accelerated plaintiff’s production. At about the same time Inspector Burkhart eliminated two of the additional inspection stations he had established. Testing for moisture content and density was now conducted on raw lumber. Dimensional and visual inspection was conducted only on finished pins after they had been dipped in the preservative.

In making his inspections Inspector Burkhart was most zealous. On a number of occasions he spoke to plaintiff’s employees working on the assembly line and told them what defects they should look for in rejecting pins. He denied talking to anyone except Herman Adams, Ed Adams, plaintiff’s brother and general superintendent, and Milus Buffing-ton, plaintiff’s tent pin production foreman, but the record supports a conclusion to the contrary. Although most of the pins which were rejected were discarded by plaintiff’s employees under Inspector Burkhart’s instruction, the record is devoid of specific proof as to the defects which the inspector told the employees would warrant rejection of pins. No conclusive evidence has been introduced which establishes the number of discarded pins which conformed to contract specifications.

The evidence adduced by plaintiff includes an attempt to show that approximately 200,000 white pins (finished pins except for the preservative), rejected by Burkhart, were offered to and accepted by the defendant in a subsequent contract. The record indicates that some of these pins were given away, others disposed of as firewood or sold to Sears, Boebuck & Co. The record shows that defendant accepted some 76,000 pins which had been dipped in a preservative. It is not possible from the record to definitely ascertain when those pins were produced. A large number of unpreserved tent pins, exact number not established by the proof, were sold to the LaCost Construction Company.

In his visual examination, Inspector Burkhart considered pins to be defective even though some of the particular defects they contained were not specifically prohibited by the contract specifications. Mainly this was due to his reliance on the Defects Classification Procedure (Part B Supp.) as the standard to be applied. Part B Supplement, in effect, altered the basic specifications of the contract by classifying certain defects as minor even though they were not prohibited by the contract. Defendant did not give plaintiff a copy of that document, nor was plaintiff informed of its contents. Such failure is deemed to have been arbitrary and unwarranted. In a similar situation when defendant unilaterally altered the contract specifications, contractors have been allowed to recover the increase in cost that ensued. P. J. Carlin Construction Co. v. United States, 92 Ct. Cl. 280, 301-302 (1941).

Inspector Burkhart sometimes deviated from Part B Supplement by scoring various defects as minor, even though they were not so listed in his instructions.

Although no pin lots were rejected by Inspector Burkhart for failing the visual examination, the record supports a finding that defendant’s inspection procedure definitely increased plaintiff’s costs under such procedure by requiring a higher quality than was called for by the contract specification standard.

Plaintiff failed to register a protest with the contracting officer concerning the arbitrary inspection to which he was subjected, but he did complain to the inspector and the inspector’s supervisor. He did not file a complaint with the contracting officer pursuant to the “Dispute” clause or seek an equitable adjustment pursuant to the “Changes” clause.

Although in a strict legal sense, plaintiff does not have a claim enforceable in this court since he failed to exhaust his administrative remedies, this circumstance is not sufficient to defeat a claim for damages in a Congressional reference case. In such a case, plaintiff need only prove that he has an “equitable claim.” This term “is not used in a strict technical sense meaning a claim * * * [cognizable] by courts of equity, but [is used in], the broader moral sense based upon general equitable considerations.” Rumley v. United States, 169 Ct. Cl. 100, 105 (1965), quoting Burkhardt v. United States, 113 Ct. Cl. 658, 667, 84 F. Supp. 553 (1949). Applying “equitable” in this broad sense, the gravamen of plaintiff’s claim is that the defendant’s inspection demanded a higher quality product than was called for by the contract. It would appear to be “inequitable” to defeat this claim simply because plaintiff failed to exhaust his administrative remedies. That step is usually required because factual determinations made at the agency level are dispositive of claims when supported by substantial evidence. It does not have any bearing on the substantive nature of a claim.

Since it was Inspector Burkhart’s continuous policy to demand a higher quality pin than called for in the contract, it is reasonable to assume that plaintiff was consequently required to use a better quality of wood and a larger quantity than was contemplated when the contract was negotiated. Evidence on this issue is rather meager; however, as discussed earlier, the proof is deemed to establish that a very-high percentage of pins, in excess of 50 per cent, were discarded while being processed on the assembly line by Inspector Burkhart.

There is proof that the arbitrariness of Burkhart in deviating from contract specifications while making his visual inspection caused plaintiff a substantial increase in cost. Although there is proof in the record to show how much lumber was required for the three contracts which plaintiff had with defendant (No. QM-23755; No. QM-23925; No. QM-24050), the amount allocated to each contract is not revealed by the record. Herman Adams testified from memory at the trial that he anticipated that plaintiff would use 589,000 feet of lumber in performing the contract in suit, but 1,489,000 feet were used in that contract (No. QM-23755). He also testified that over 50 per cent of the material used in the manufacture of tent pins was rejected or discarded during the tenure of Inspector Burkhart.

Plaintiff did not keep any cost accounting records. His books and records reflect that his costs on the three contracts referred to in the preceding paragraph exceeded his income by $128,856.12. He claims no loss on Contracts No. QM-23925 and No. QM-24050.

The record is deemed adequate to support a finding that Inspector Burkhart was unreasonable in attitude and arbitrary in decisions made with respect to acceptability of a large number of tent pins made by plaintiff. Plaintiff’s production problems, time-wise, were increased on occasion by the absence of Burkhart or his failure to promptly inspect pins which were ready for inspection. Although Burkhart came to plaintiff’s plant with a plan for inspection of tent pins referred to as “Standard Inspection Procedures” and plaintiff repeatedly asked if he could see the inspection procedure which was being used, Burkhart repeatedly refused to grant such request. Plaintiff had received an instruction plan from the Quartermaster Corps which stated that the inspector would work closely with the contractor and keep him advised of the method of inspection being used.

Burkhart’s inspection was so rigid that instead of a 10 per cent rejection factor it ran as high as 50 per cent or more. On the day that Burkhart left plaintiff’s plant another inspector arrived and a subsequent check of his work was made by his supervisors and a report furnished plaintiff to the effect that the new inspector was doing a good job. Plaintiff agreed that the replacement inspector was competent and that there was no reason to complain concerning his inspection procedure or the result thereof. Following the arrival of the new inspector, the rejection factor dropped as low as 10 per cent.

The record also supports the conclusion that a substantial portion of the loss sustained by plaintiff is directly traceable to delay in production brought about by the extremely rigid, unreasonable and arbitrary conduct of Burkhart in connection with his responsibility as inspector during a period of approximately 8 months under the contract involved.

Based upon a careful review of the record, the audit accomplished by the F.B.I. agent, the testimony of Herman Adams with regard to the amount claimed, and the testimony of F.B.I. Agent Oliver, the court finds that the detailed audit made on behalf of defendant, which explains concisely and with good accounting reasons the bases for adjustments made in plaintiff’s figures, adequately reflects the financial problem involved. Plaintiff has not challenged the results of defendant’s audit.

A considerable amount of plaintiff’s losses can be attributed to lack of business acumen as reflected by (1) failure to maintain adequate records; (2) a serious error in estimating the cost of the lumber for performance of the contract involved (the actual cost was almost double what plaintiff expected to pay for the lumber used); (3) failure to segregate the lumber used in the contract from the total amount purchased; and (4) an error in making an improvident bid, extremely low.

Although the record made by plaintiff in attempting to prove the claim filed leaves much to be desired, the rule is that “uncertainty as to the amount of the damage does not preclude recovery where the fact of damage is clearly established.” See Addison Miller, Inc., et al v. United States, 108 Ct. Cl. 513, 557 (1947), 70 F. Supp. 893, cert. denied, 332 U.S. 836 (and other cases cited in that case). It is deemed to be established by the proof that one-third of the verified loss of $128,856.12 is traceable to the arbitrary, erroneous and unwarranted rejection of tent pins by Inspector Burk-hart during the period of approximately 3 months when he was assigned to the contract, plus a failure or refusal during the tenure of Burkhart to make available to plaintiff information concerning the inspection procedures to which he was entitled, and the AQL set up for the contract. The attitude and lack of cooperation on the part of Inspector Burkhart were inexcusable. The inspection procedure was ultimately made available to plaintiff by successor inspectors.

Defendant has interposed a counterclaim for costs incurred by having to relet a contract for wood boxes concerning which plaintiff defaulted.

On May 28,1954, plaintiff entered into Contract Cml-107, with the Army Chemical Corps to furnish 167,680 wood boxes. Pursuant to the default provisions of the contract the Contracting Officer terminated that contract as of October 1, 1954, because plaintiff had not delivered the balance of 62,269 boxes due under the contract. Plaintiff was prevented from completing the contract when, on September 30, 1954, the First National Bank of Fort Smith, Arkansas, forclosed a mortgage on his plant and facilities.

Contract Cml-107 was assigned to the bank by plaintiff on June 14, 1954, and there is no evidence that the bank ever reassigned it to plaintiff. By reason of plaintiff’s default, defendant withheld payment of $972 due under two invoices to the assignee bank because plaintiff might be liable for excess recoupment costs. The counterclaim for $1,697.87 represents the costs defendant incurred in reletting the contract less the amount withheld which was due the assignee bank.

Defendant cannot prevail on this claim as it is collaterally estopped from denying that the foreclosure of tbe mortgage was caused by the action of Inspector Burkhart in making requirements beyond those called for in the contract. “* * * a right, question or fact distinctly put in issue and directly determined by a court of competent jurisdiction, as a ground of recovery, cannot be disputed in a subsequent suit between the same parties or their privies; and even if the second suit is for a different cause of action,” Edgar v. United States, 145 Ct. Cl. 9, 12 (1959), 171 F. Supp. 243, quoting Southern Pacific Railroad Co. v. United States, 168 U.S. 1, 48-52 (1897).

In an earlier Adams case, (United States v. Adams, 160 F. Supp. 143 (W.D. Ark.) (1958)), defendant here brought an action against the Adams Manufacturing Co. (plaintiff here) to recover excess costs incurred in having another contractor complete the tent pin contract QM-23925 (not the contract involved in this action) on which plaintiff defaulted. One defense stressed by Adams was that his failure to complete performance of the contract was due to causes beyond his control and without his fault or negligence. The court sustained the defense, and found that the inability of Adams to complete the contract was caused by a foreclosure of a mortgage which the First National Bank had on his property. Herman Adams was unable to pay the debt on the mortgage and prevent its foreclosure because he sustained a loss on contract QM-23755 (the subject of the present suit). The court held that the loss was caused by two factors: (1) the over-zealous and changed inspection procedures used by Inspector Burkhart; and (2) the mistake of Adams in thinking he could obtain the necessary lumber for producing the tent pins at a cost of $45 to $50 per thousand feet, whereas, in fact the lumber he actually used cost him an average of $83 per thousand feet. The court concluded that the primary cause of plaintiff’s financial difficulty and the resulting foreclosure of the mortgage on his property was the action of the inspector in making unnecessary requirements above and beyond those called for in the contract. United States v. Adams, supra, at 152.

It is clear, therefore, that since plaintiff was not able to complete contract Cml-107 because the First National Bank foreclosed the mortgage on his plant, and since it has already been judically determined that this foreclosure was caused by the overly rigid inspection procedure of defendant’s inspector on the contract in suit, QM 23755, it must be concluded that the default was due to causes beyond plaintiff’s control and without his fault within the meaning of the contract. Defendant, therefore, cannot prevail on the first counterclaim and it should be dismissed.

Defendant has interposed a second and a third counterclaim alleging that plaintiff failed to pay excise tax with respect to his employees for the year 1954, as required by section 3301 Internal Eevenue Code of 1954 (§ 1600 Internal Eevenue Code of 1939). The excise tax, commonly referred to as FUTA (Federal Unemployment Tax Act), in essence, provides for unemployment insurance. Plaintiff filed the necessary Form 940 (FUTA tax return) for the year 1954 reporting therein a liability of $1,337.83, but failed to make any payment. In accordance with the unpaid return the amount, as reported, was assessed on Feb. 23, 1955. Subsequently, on March 29, 1957, an additional assessment was made 'by a representative of the Secretary of the Treasury for the year 1954 for additional FUTA taxes in the sum of $5,590.21. Pursuant to section 6502 Internal Eevenue Code of 1954 (§ 874(b) Internal Eevenue Code of 1939), the six-year statute of limitations on collections of tax liabilities, as relating to the assessment of February 23, 1955, was duly extended to February 23,1967, with plaintiff executing a tax collection waiver.

During the course of the trial the defendant introduced certain documents to establish the tax liabilities of the plaintiff. The law clearly establishes that the assessment is proved by the introduction into evidence of properly certified copies of the Certificate of Assessment and Payment (Form 899), the Assessment Certificate (Form 23) and the Statement of Tax Due (Form 17). United States v. Ettelson, 159 F. 2d 193 (C.A. 7, 1947); Paschal v. Blieden, 127 F. 2d 398 (C.A. 8, 1942). Proof of the assessment establishes a prima facie case and shifts the burden of going forward to the taxpayer. United States v. Rindskopf, 105 U.S. 418 (1881).

The burden, therefore, is switched to the plaintiff to overcome the presumption of liability arising from the Commissioner of Internal Eevenue’s assessment against him. United States v. Strebler, 313 F. 2d 402 (C.A. 8, 1963). Since plaintiff has not refuted the presumption, it appears that defendant is entitled to judgment on the second and third counterclaims for FUTA taxes in 1954 in the total amount of $6,928.04, plus interest thereon as provided by law.

Our determination that defendant is entitled to recover on its second and third counterclaims requires us to follow the course taken in Maco Warehouse Co. v. United States, 144 Ct. Cl. 538, 169 F. Supp. 494 (1959). That was a congressional reference in which the plaintiff was held “equitably” entitled to an award but the Government was held correct on a counterclaim. The court ruled that if the case came within our general jurisdiction (28 U.S.C. § 1491) the defendant could properly demand, under 28 U.S.C. §§ 1503 and 2508, that judgment be entered on its counterclaim. Finding the case within the terms of 28 U.S.C. § 1491, the court held against the plaintiff on any “legal” claim — though informing Congress that the claimant did have a certain “equitable” claim — and then entered judgment on the counterclaim.

Similarly, we must hold that the present plaintiff’s case is within our general jurisdiction under 28 U.S.C. § 1491. The suit is either for breach of contract or under the contract— matters within our adjudicatory competence — and the statute of limitations did not expire before the suit was begun. The only reason plaintiff cannot obtain a judgment on the merits of a “legal” claim is that he failed to pursue and exhaust his administrative remedies. Under 28 U.S.C. § 1492 (relating to Congressional references) we must dismiss his petition on the merits, although we do determine at the same time that he is “equitably” entitled to recover. And since the case is within our general jurisdiction, we shall, as in Maco Warehouse, supra, enter judgment for the defendant on its counterclaims Nos. 2 and 3 and against it on its counterclaim No. 1.

Plaintiff’s petition must be dismissed but we find that he is equitably entitled to recover with respect to contract QM-23755 in the amount of $42,952.04, less the amount of the defendant’s counterclaim. The defendant’s first counterclaim is dismissed, and judgment is entered for defendant on the other two counterclaims in the sum of $6,928.04, plus interest as provided by law.

This opinion and the findings of fact, togther with the conclusions therein, will be certified by the Clerk to the House of Representatives pursuant to House Resolution 296, 86th Congress, 1st Session.

FINDINGS OF FACT

The court, having considered the evidence, the report of Trial Commissioner Paul H. McMurray, and the briefs and arguments of counsel, makes findings of fact as follows:

1. This case arises as a result of House Resolution 296,86th Congress, 1st Session, adopted on June 30, 1959, which provides as follows:

Resolution
Resolved-, That the bill (H.R. 1717) entitled “A bill for the relief of Herman Adams, Charleston, Arkansas, doing business as the Adams Manufacturing Company”, together with all accompanying papers, is hereby referred to the United States Court of Claims pursuant to sections 1492 and 2509 of title 28, United States Code; and said court shall proceed expeditiously with the same in accordance with the provisions of said sections, and. report to the House of Representatives at the earliest practicable date, giving findings of fact and conclusions thereon as shall be sufficient to inform the Congress of the nature and character of the demand as a claim legal or equitable against the United States, and the amount, if any, legally or equitably owing 'by the United States to the claimant.

2. H.R. 1717, referred to in the foregoing Resolution, provides as follows:

A Bill
For the relief of Herman Adams, Charleston, Arkansas, doing business as the Adams Manufacturing Company.
Be it enacted, by the Senate and, House of Representatives of the United States of America in Congress assembled, That (a) the Secretary of the Treasury is authorized and directed to pay, out of any money in the Treasury not otherwise appropriated, to Herman Adams, Charleston, Arkansas, doing business as the Adams Manufacturing Company, the sum of $210,-682:59. The payment of such sum shall be in full settlement of all claims of Herman Adams, doing business as the Adams Manufacturing Company, against the United States—
(1) on account of damages alleged to have been sustained by him in connection with the performance of Army Quartermaster Department contract numbered DA-11-009-QM-23755, dated November 30, 1953; and
(2) for refund of $978.64, which was heretofore withheld from him by the Comptroller General in connection with the alleged performance default of Herman Adams, doing business as the Adams Manufacturing Company, in connection with Army Chemical Corps contract numbered DA-41-040-402-Cml-107, purchase order numbered DL4-402-196, dated May 28,1954.
(b) No part of the amount appropriated in subsection (a) of this section in excess of 10 per centum thereof shall be paid or delivered to or received by any agent or attorney on account of services rendered in connection with the claims settled by the payment of such sum, and the same shall be unlawful, any contract to the contrary notwithstanding. Any person violating the provisions of this subsection shall be deemed guilty of a misdemeanor and upon conviction thereof shall be fined in any sum not exceeding $1,000.
Seo. 2. (a) Herman Adams, Charleston, Arkansas, is hereby relieved of all liability to pay to the United States—
(1) all additions, additional amounts, and assessable penalties with respect to all amounts required to be paid by him under any provision of the Internal Revenue Code of 1939, or the Internal Revenue Code of 1954, for the years 1954,1955,1956, and 1957, and the interest on all such amounts required to be paid by him, additions, additional amounts, and assessable penalties for all periods ending on or before the date of the payment made by tbe Secretary of the Treasury under authority of the first section of this Act; and if any assessment shall have been made with respect to such additions, additional amounts, and assessable penalties (including interest thereon, and interest on such amounts required to be paid by him), on or before such date of payment by the Secretary of the Treasury, such assessment shall be abated, and any amount collected in pursuance of such assessment shall be credited or refunded in the same manner as in the case of overpayments (as provided in section 6402 of the Internal Eevenue Code of 1954).
(2) the amount of $4,810.83 (including any interest which may have accrued thereon), which is claimed to be due the United States on account of the alleged performance default of Herman Adams, doing business as the Adams Manufacturing Company, in connection with the Quartermaster Department contract numbered DA-11-009-QM-23925, dated April 21, 1954; and
(3) the sum of $1,779.88 (including any interest which may have accrued thereon), which is claimed to be due the United States on account of the alleged performance default of Herman Adams, doing business as the Adams Manufacturing Company, in connection with the Army Chemical Corps contract numbered DA-41-040-402-Cml-107, purchase order numbered DL4-402-196, dated May 28,1954.
(b) In the audit and settlement of the accounts of any certifying or disbursing officer of the United States, full credit shall be given for any amounts for which liability is relieved by subsection (a) of this section.

3. Herman Adams, d/b/a Adams Manufacturing Company, plaintiff, was engaged in various wood manufacturing operations from 1942 to 1945 and from 1951 until October of 1954. During these periods plaintiff produced a large number of wooden products, mostly for the defendant, which included the use of both hard and soft wood. Between 1951 and 1954 plaintiff performed approximately 40 contracts for defendant.

4. On October 22, 1953, the Chicago, Illinois, Quartermaster Depot, United States Army, issued a request for proposals inviting offers for the manufacture and delivery f.o.b. various destinations of 606,525 Type 116-inch wood tent pins and 763,000 Type II 24-inch wood tent pins in accordance with Military Specification MÍ1-P-2383A, dated October 2, 1952. On November 16,1953, plaintiff submitted a proposal to furnish the 16-inch pins at $.04167 each and the 24-inch pins at $.0625 each on a f.o.b. plant basis for the total amount of $72,961.40, and on a f.o.b. destination basis, to furnish the 16-inch pins at $.05951 each and the 24-inch pins at $.08792 each for a total amount of $103,177.26. Plaintiff’s cost breakdown computed net direct material costs at $24,320.46.

5. Upon opening the bids, the contracting officer of the Chicago Quartermaster Procurement Office found that plaintiff’s material cost allocation was substantially lower than the second lowest bidder. In late November, 1953, Mr. Harrington, a representative of the Chicago Quartermaster, telephoned A. E. Schaffer, plaintiff’s assistant plant manager, and advised him that plaintiff’s bid figures were too low and asked that they be rechecked. Subsequently, a representative of the Quartermaster Purchasing Division visited the plant to conduct a pre-award survey and advised plaintiff that no allowance had been made in his bid for a rejection factor and the cost of manufacturing shipping crates.

6. Sometime in late November or early December, 1953, defendant’s purchasing agent telephoned plaintiff and invited him to Chicago to attend a conference in order to discuss the proposal of November 16,1953.

7. A. E. Schaffer, plaintiff’s assistant plant manager, wrote the Chicago Quartermaster a letter dated December 1,1953, requesting authorization to amend plaintiff’s proposal to allow (1) for a 20 per cent rejection factor, (2) for the cost of manufacturing shipping crates, and (3) submission of an informal amended proposal instead of filing the regular Quartermaster form. This proposal added $.01784 to the price of Type I pins and $.02542 to the price of Type II pins, thereby increasing f.o.b. plant price to $103,117.26. The amount was $133,177.26 when computed on basis of f.o.b. certain destination points.

8. On December 18,1953, plaintiff’s assistant manager, the contracting officer, two purchasing agents, the technical ad-visor to the Chief of the Procuring Activity and the Branch Chief in charge of an equipment branch of the procurement office of defendant, attended a conference. At the time of the conference, defendant had in its possession plaintiff’s informal second proposal. Defendant’s spokesman advised Mr. Schaffer that the second proposal was too high. Mr. Schaffer revised the informal proposal downward to a figure of approximately $90,000 f.o.b. plant. The difference between the second proposal and the one arrived at during the meeting was determined by reducing the rejection factor from 20 per cent to 10 per cent. In addition, a $2,000 item for equipment which could only be used on tills one contract was excluded, as was a 10 per cent figure for contingencies.

9. Defendant was told during the conference of December 18, 1953, that plaintiff anticipated buying mill run lumber and screening No. 1 and No. 2 red oak from it for use in producing the pins. The designation No. 1 and No. 2 red oak connotes a certain specific grade of lumber. The record does not establish that pins of a certain quality containing certain visual characteristics, density and moisture content could be consistently produced from those grades of lumber.

10. During the conference referred to in Findings 8 and 9, Mr. Schaffer attempted to ascertain what inspection procedures would be used. He was told by defendant’s spokesman that plaintiff would subsequently receive an inspection guide. The guide which was later furnished plaintiff covered inspections on Quartermaster contracts in general, but did not specifically refer to the procedure of inspecting tent pins.

11. At the conclusion of the meeting, referred to in Findings 8 and 9, plaintiff’s representative was told to submit a bid in writing. On the following day plaintiff expressed appreciation to defendant’s representatives for their advice and submitted a bid of $123,391.51 f.o.b. various destinations. Plaintiff’s cost breakdown indicated he increased his net direct materials costs from the $24,320.46 computed in the November 16, 1953, bid to $50,140 while decreasing his labor costs from $35,165.63 to $25,200. He increased his burden costs from $3,535.31 to $4,500, and his general and administrative expenses from $1,989.85 to $2,700. After eliminating a contingencies cost contained in his initial offer in the amount of $1,317.29 and again utilizing a 10 per cent profit factor, plaintiff’s f.o.b. plant price amounted to $90,791.17. He increased delivery costs contained in his initial proposal from $30,215.86 to $32,600.34.

12. On December 30,1953, Contract No. DA-11-009-QM-23755 was awarded to plaintiff for a consideration of $123,-391.51.Deliveries of tent pins were to begin February 1, 1954 and were to be completed by May 31, 1954. The contract provided that the pins should be produced in accordance with Military Specification MÍ1-P-2383A, dated October 2, 1952. The contract schedule contained the usual general provisions entitled “Changes”, “Inspections”, “Disputes”. In addition, it provided:

RespoNSibilitt of contraoting oittcer : The contracting officer, or his duly appointed successor, is responsible for the administration of this contract. The contracting officer alone, or his duly appointed successor, is authorized, to the extent indicated in this contract, to take action which results in changes in the terms of the contract, including deviations from specification details and delivery schedules.

13. The basic specification, MÍ1-P-2383A, referenced in the contract, contained a detailed dimensional drawing, and provided in pertinent part:

3.2 Materials.
3.2.1 Wood. — Wood used in the fabrication of the tent pins shall be dried to a moisture content of 12 to 18 percent * * *. The slope of grain * * * shall be not more than 1 inch in 5 inches * * *. Wood shall be free from decay, shakes, checks, splits, loose knots, or other defects which may affect strength, wear or serviceability of the pins.
3.2.1.1 Permissible defects. — The following defects shall be permitted:
(a) Sound tight knots. — Knots in the type I and II pins not exceeding one-quarter of an inch in the 1%6 inch faces or three-eighths of an inch in the 1 y2 inch faces and which do not occur within 6 inches from the top of the type I pins or within 11 inches of the top of the type II pins * * *.
(b) Stain. — Light stain which does not obscure the grain of the wood.
(c) Wane. — Wane not exceeding one-eighth, oí an inch the width of the surface on which it appears.
(d) Bark or gum pocket. — Bark or gum pocket not exceeding 14 inch in width and 2 inches in length and which does not occur within 6 inches of the top or 8 inches of the bottom end of the type I pins or within 11 inches of the top or 3 inches of the bottom end of type II pins * * *.
(e) Holes. — Holes not exceeding one-sixteenth of an inch in diameter and spaced not closer than 2 inches of each other.
3.2.1.2 Species. — Any of the following species of wood may be used:
H* »!•
Oak, red
$ $ $ $ ‡
3.3.1 Surfacing. — The pins shall be smoothly surfaced on all sides and shall be free from skips, chipped or tom grain, or machine gouges. The corners of the type I and type II pins shall be ground or “cased” and the head and point shall be smoothly and accurately machined to shape shown on drawing * * *.

The basic specifications also set forth requirements for the testing of the wood for moisture content and density, and for the treatment of the pins with a preservative. Further, under a paragraph captioned “Sampling, Inspection, and Test Procedures”, said specification provided that sampling would be conducted in accordance with Standard MIL-STD-105A (Sept. 11, 1950). A table for inspection by attributes included in the scope of MIL-STD-105A, was also to be used.

14. Military Standard 105A established sampling plans and procedures for the type of inspection to be utilized in determining whether items produced would be accepted by the defendant.

After a contractor has decided on the lot size he will submit for inspection, reference is made to Table III of MIL-STD-105A to determine the number of samples to be inspected from the lot. In addition, the Military Standard provided that the Acceptable Quality Level (hereafter referred to as AQL) is a nominal value expressed in terms of per cent of defective pins or defects per hundred units, whichever is applicable, specified for a given group of defects of a product. It is further provided that the particular AQL values to be used for a given product shall be specified by defendant. Defendant never informed plaintiff of the AQL which was established for this contract although plaintiff attempted to obtain it from Inspector Burkhart on several occasions. Burkhart advised plaintiff that his orders precluded furnishing that information to plaintiff.

Once the AQL has been established, it is possible to determine the maximum number of defects permitted in a sample. Should the samples which are tested contain more than the maximum number of permissible defects, the entire lot from which the samples were drawn would be rejected. (Since the AQL determines the maximum number of permissible defects, this figure would vary with different Acceptable Quality Levels.) The AQL assigned determines whether there is a sufficient number of major defects (as defined in MÍ1-P-2383A) in the sample group of pins to warrant rejection of the entire lot. This procedure is based upon the law of probability and obviates the tedious necessity of testing all of the pins in a lot. The AQL is not a specification according to which pins must be manufactured. Neither does it alter any of the specifications contained in the contract.

15. Military Standard 105A defines a major defect as “a defect, other than critical, that could result in failure, or materially reduce the usability of the unit of product for its intended purpose.” (Par. 2.1.2.) A minor defect is defined as “one that does not materially reduce the usability of the unit of product for its intended purpose, or is a departure from established standards having no significant bearing on the effective use or operation of the unit.” (Par. 2.1.3.)

16. On January 9, 1954, plaintiff advised defendant that securing lumber in sufficient quantities at the average price he had anticipated was posing quite a problem.

17(a). Plaintiff set up an assembly line whereby raw lumber that had been stored in a yard was processed by use of a rip saw which cut it into rough strips. From that stage the rough lumber was further processed through the molder which planed it to the proper width and thickness. After the pins were cut to the proper length, they were processed through the rope-notching and pointing machines. At the end of the process the pins were dipped into a wood preservative.

17(b). On February 1, 1954, after discussion with plaintiff, Leland S. Foster, defendant’s inspection supervisor at plaintiff’s plant, executed an inspection plan. This plan provided for a stationary end item inspection in which samples from lots of approximately 8,000 to 22,000 pins would be stacked and before being treated with the wood preservative, would be tested for visual and dimensional defects. In addition, an intermediate inspection was to be made on lots of between 8,000 and 22,000 pins. Tests for moisture and specific gravity were also to be conducted at this stage. It is not clear from the plan whether this intermediate inspection was to be conducted as a stationary or moving lot inspection.

18. On February 6,1954, plaintiff submitted four pre-pro-duction samples to the Quartermaster Corps.

Theodore Flint, defendant’s first inspector at the plant, reported on February 12,1954, that it was likely that plaintiff would be delinquent on his February deliveries because plaintiff had experienced difficulties in getting delivery of chuck heads for shaping the pointed ends of the tent pins.

19. Inspector Burkhart, who replaced Inspector Flint, arrived at plaintiff’s plant on February 15,1954. Upon arrival he gave plaintiff the Quartermaster Corps’ report on the four pre-production samples which itemized the dimensional deviations found in the sample pins and which stated that surface checks appearing thereon were not permissible.

The testimony of Inspector Burkhart, as reflected by the transcript, was inconsistent on more than one occasion. For example, he stated under oath that he did not bring any instructions or documents with him when he came to plaintiff’s plant on February 15,1954. He further stated that he did not receive any papers on any subsequent date.

Later, in answer to additional questions concerning such papers or documents, he repeated the same answers. Still later in bis testimony be repudiated bis earlier testimony by stating that be received from bis predecessor, Inspector Flint, tbe contract file, Part B of tbe Sampling Plan Procedure, a Part B Supplement ■which was tbe Defects Classification Procedure, an enlarged drawing and change orders issued from tbe Chicago Inspection Office.

20. Change #1 of the Sampling Procedure, dated January 22, 1954, provided that when lots composed of lumber sufficient to form from 8,001 to 22,000 pins were presented for intermediate inspection, a sample of 15 would be drawn and tbe lot would 'be accepted if there was only one defect, but would be rejected if there were two defects. Tbe Sampling Plan also provided for end item inspection by tbe drawing of a sample of 300 tent pins from a lot ranging from 8,001 to 22,000 pins. Tbe lot upon visual inspection would be accepted if there were no more than 14 major defects, but would be rejected if there were 15 major defects. Tbe lot would be accepted if there was a total of 44 major and minor defects, but would be rejected if there was a total of 45 major and minor defects. Finally, tbe Sampling Plan provided for dimensional inspection by drawing a sample of 25 pins from a lot ranging from 8,001 to 22,000 tent pins The lot would be accepted if there was only one dimensional defect, but would be rejected if there were two such defects. At no time during the performance of the contract did plaintiff have any knowledge of the contents of the Sampling Procedure or the Change Orders.

The Defects Classification Procedure document delineated the procedure for making intermediate inspections and listed the minimum density which was acceptable as specified in MÍ1-P-2383A. For example, the document provided that a defect would be scored if upon intermediate examination the inspector found a sample unit, prior to notching or rounding of the comers, to have a density of less than 36 pounds per cubic foot at 20 per cent moisture content, which would be a deviation from the basic specification.

The Defects Classification Procedure (Part B Supp.) classified defects as being either major or minor for purposes of visual examination of pins after the preservative had been applied. This document listed as major defects, to be scored as such by the inspector: decay, loose knots, splits, shakes, splinters, brashness and missing rope notches, while paragraph 3.2.1 of the basic specification only prohibited the first four “or other defects which may affect strength, wear or serviceability of the pins.” Part B Supp. also classified defects as minor and to be scored as such if they exceeded the permissible limit as specified in paragraph 3.2.1.1 of the basic specification. Concerning dimensional examination, the document provided that a defect would be scored if the inspector found a sample varied from the dimensional tolerances specified on the dimensional drawing attached to the basic specification. In addition, the document listed tolerances where none were provided for in the dimensional drawing.

Upon his arrival, Burkhart conferred with Plerman Adams, plaintiff, Ed Adams, plaintiff’s brother and general plant superintendent, and Milus Bullington, plaintiff’s tent pin production foreman, describing the kind of pins he would have to reject. Initially, Burkhart dealt with the plant superintendent, but within a short time was instructed by the superintendent to work with the production foreman for purposes of inspection.

21. Production began in March, 1954. Although there is some conflict in the testimony, the preponderance of the evi-dene© is to the effect that Inspector Burkhart established four inspection points on a stationary lot basis as follows: (1) A moisture test was conducted on raw lumber in the yard; (2) after the pins were molded to the proper width and thickness and cut to the proper length, they were considered blank pins and were treated for density and proper length; (3) the third inspection station was set up after the pins were processed through the rope-notching, corner-rounding and pointing machines, but before the wood preservative was applied; (4) a final inspection was instituted after the finished pins were dipped in the preservative.

22. Approximately 1 month after production commenced, the Quartermaster Inspection Service notified its inspector that the Sampling Plan Procedure should be changed to moving lot inspection. The initiation of the moving lot line inspection accelerated production. Although there is some testimony to the contrary, the greater weight of the evidence indicates that at about this same time defendant’s inspector eliminated inspection of blank pins and of finished pins prior to their being dipped in the preservative.

23. The Sampling Plan Procedure (Plan B) was amended by Change Orders 1, 2, 3, 4 and 5. Change Order 1 supplied sampling plans omitted from the orginal document. Change Order 2 deleted a plant test, but there is no evidence to show how this affected plaintiff’s operations. Change Order 3 instituted a moving lot inspection which accelerated production (see Finding 22). The moisture content for density and specific gravity testing was modified by Change Order 4 to provide for a tolerance of from 8 per cent to 20 per cent, instead of 12 per cent to 18 per cent previously prescribed. This gave plaintiff additional leeway. There is no substantial evidence to establish that these changes adversely affected plaintiff’s production of tent pins under Contract No. DA-11-009-QM-23755, hereafter referred to as QM-23755.

Change Order 5, dated April 2, 1954, amended paragraph 2.1.2 of the Defects Classification (Part B Supp.) by deleting a “check” as a minor defect and in its stead making an end check a major defect. It classified as minor all other checks, except surface checks under 3 inches long.

24(a). On numerous occasions during the performance of the contract, Inspector Burkhart spoke to plaintiff’s employees who worked on the assembly line and instructed them as to what defects they should look for in rejecting pins. Based on these instructions, plaintiff’s employees discarded a high percentage of the pins as defective. Most of the pins discarded were in the process of being cut to the proper length by the cut-off saw. At this stage of the process the pins had already been shaped to the proper width and thickness.

Although most of the rejected pins were discarded at this point by plaintiff’s employees under instruction from Inspector Burkhart, there is no conclusive evidence in the record to establish how many of these rejected pins conformed to contract specifications.

(b) In addition, approximately 200,000 white pins (finished pins which had not been dipped in the wood preservative) were rejected on Inspector Burkhart’s orders. Bejects at this point were selected mainly by plaintiff’s employees pursuant to the inspector’s instructions.) There is no competent evidence to show that these pins were produced according to the contract specifications.

25. Burkhart served as the inspector until May 10, 1954, when he was succeeded by a third inspector (Kallen). Between March 5 and May 7, 1954, Burkhart conducted intermediate examinations upon 27 lots which had been cut to random lengths. None of the lots was rejected for failing to meet the density or specific gravity tests. Four of these lots were rejected because samplings disclosed that these lots were over or under the 12 per cent to 18 per cent moisture content permissible under the specifications. The one lot which exceeded the maximum moisture content was rejected on March 18,1954, and after being dried out by plaintiff was resubmitted to and accepted by the inspector on the following day. The three lots which had less than the required moisture content were rejected on March 30, April 7 and April 8, 1954. On April 5, April 14 and April 19th, respectively, after additional moisture was added, these lots were resubmitted and accepted. Plaintiff’s superintendent agreed with the inspector’s moisture content readings on the four lots which had been rejected.

26. (a) Between March 8 and May 10, 1954, Mr. Burk-hart conducted visual and dimensional examinations upon 18 lots of finished tent pins at the final inspection station. On April 16, 1954, one lot of 21,750 end item tent pins was rejected on dimensional examination because rope slots of four of the 25 tent pin samples withdrawn pursuant to the Sampling Plan Procedure were found to be defective for exceeding or being below the tolerances permitted by the dimensional drawing. As noted in Finding 20, pursuant to the Defects Classification Procedure, a lot would be accepted if one dimensional defect was found, but would be rejected if two or more dimensional defects were found. This lot was rescreened and resubmitted by plaintiff and was accepted by defendant’s inspector on April 19,1954. None of the 18 lots of finished tent pins was rejected for defects found upon visual examination.

26(b). The record clearly establishes that Inspector Burkhart classified pins as defective although some of the particular defects they contained were not specifically prohibited by the contract specifications. This result follows from the fact that in making these visual inspections Inspector Burkhart relied primarily on Part B Supplement as the standard to be applied. Almost all the defects he noted as being either major or minor were the same as those set out in the Part B Supplement.

Inspector Burkhart also deviated somewhat from Part B Supplement. Although his instructions did not list “cross grain” among the major defects, he treated it as such a defect. Furthermore, he scored “'bark pockets” and “gum pockets” as minor defects although Part B Supplement classifies as minor defects only those bark or gum pockets that exceed 14 inch in width and 2 inches in length, or occur within 6 inches of the top or 3 inches of the bottom end of type I pins or within 11 inches of the top or 3 inches of the bottom of type II pins.

27. Due to the tolerance allowed by the specifications in the width and thickness of the pin, when a wider pin followed the pointing of a narrow pin, the chucking (pointing) machine had to be reset in order to produce a pin point within the tolerance allowed by the specifications. This caused plaintiff great inconvenience and he attempted, without avail, to get Inspector Burkhart to increase the tolerance allowed in the point dimension. The record does not establish that plaintiff requested the contracting officer to issue a change order to permit this deviation. Thousands of pins were rejected by Burkhart and by employees of plaintiff, pursuant to Burkhart’s instructions, because of the length of the point.

28. The working relationship between plaintiff and defendant’s Inspector Burkhart was far from harmonious. Testimony by Bullington about Burkhart’s behavior, on occasion, described it as a “temper tantrum.” There is also some testimony to the effect that on a number of occasions Burkhart refused to perform a stationary lot inspection on blank pins, in order to continue inspection of raw lumber for moisture content and specific gravity. As a consequence, other operations in the production line were stopped. On several occasions plaintiff’s assembly line was necessarily shut down because Burkhart was not available to inspect a lot at the second stationary inspection point. This inspection point, originally set up by Inspector Burkhart, was abolished about 1 month after production had commenced (see Finding 22).

29. Plaintiff did not formally complain or register a protest with the contracting officer regarding the alleged activities or conduct of defendant’s inspector, Burkhart, nor did plaintiff seek clarification from the contracting officer or from the Inspection Service regarding the Acceptable Quality Level. He did not file a complaint with the Contracting Officer pursuant to the Disputes article or seek an equitable adjustment pursuant to the Changes article. He did make complaints to Burkhart, however, and to Burkhart’s supervisor, Leland S. Foster.

30. (a) Plaintiff had no complaint about the conduct or the inspection procedures of Inspector Kallen who succeeded Burkhart on May 10,1954, and inspected tent pin production under the instant contract until its completion. Plaintiff’s proof indicates that rejections dropped from 50 per cent or more under Inspector Burkhart to between 10 per cent and 20 per cent under the third inspector (Kallen). Plaintiff did not complain about the usage of the Sampling Plan and Defects Classification Procedure Documents by M. Burk-hart’s successor.

(b) Inspector Kallen, Burkhart’s successor, did not reject any lots for failing to meet moisture content, density, dimensional or visual requirements.

(c) A comparative analysis made by defendant between Inspector Burkhart’s end item inspection records and those of his successor indicates that in inspecting similarly sized lots, the successor inspector found a few more defects upon visual and dimensional inspection than had Mr. Burkhart, but the successor inspector never rejected a lot of pins.

(d) As made apparent from his inspection record, Inspector Kallen basically scored the same defects upon visual examination as did his predecessor. However, there do exist significant differences. Only Inspector Burkhart scored “cross grain” as a major defect (Finding 26(b)) contrasted with this, in addition to the defects listed as major by his predecessor, Inspector Kallen added the following: sharp edges, loose knots, decay, brashy, wane, rot and sliver. The last two are not among those major defects listed in Part B Supp. “Wane” is listed as a major defect in Part B Supp. only if it exceeds % inch.

31. It appears from plaintiff’s records that the total footage of lumber used on three contracts (No. DA-11-009-QM-23755, No. DA-11-009-QM-23925, No. DA-11-009-QM-24 050) was 1,589,156 feet of No. 1 and No. 2 red oak. The amount has not been allocated to the individual contracts. It is, accordingly, impossible to determine from the record just how many feet of lumber were used in the performance of Contract No. QM-23755. Herman Adams, plaintiff, testified from memory at the trial that he anticipated that plaintiff would use 589,000 feet in performance of the contract in suit, but that, in fact, 1,489,000 feet were used in that contract. He also testified that over 50 per cent of the material used for manufacturing tent pins was rejected or discarded during the tenure of Inspector Burkhart.

32. Plaintiff did not keep any cost accounting records. However, his books and records reflect that his losses on the tent pin contract involved in this suit amounted to $128,856.12, and this figure was verified by defendant’s audit.

33. The inspection procedure followed by defendant under the contract in suit (QM-23755) definitely increased plaintiff’s costs. Inspector Burkhart utilized a plan for inspection of tent pins sometimes referred to as “Standard Inspection Procedure.” Plaintiff repeatedly asked if he could see the inspection procedure, but Burkhart repeatedly refused to grant such request. Plaintiff was furnished information by the Quartermaster Corps to the effect that the inspector would work closely with the contractor and keep him informed of the method of inspection being used.

34. Plaintiff has insisted that (1) failure to advise him of the method of inspection utilized, (2) failure to apprise plaintiff of the Acceptable Quality Level used, when the contract stated it would be made available to him, and (3) improper inspection and rejection, constituted a breach of contract.

35. Col. Willecke, Contracting Officer in this case, has had many years of experience in that field and has handled hundreds of contracts for defendant. He referred to various pertinent documents during Ms testimony at the trial including MÍ1-P-2383A; MIL-STD-105 and 105A; AQL values established by defendant, Supp. B Plan for inspection and emphasized that all of these were part of the contract. He further testified if all the documents referred to were not made available to plaintiff then defendant did not comply with the contract. He also testified that normally MIL-STD-105A would have no meaning or value to the contractor if the AQL is not named because the contractor does not know what type of inspection is going to be performed under the contract, whether it is normal, tightened or loosened.

36. The principal issues involved in this action have been litigated and judicially determined by the United States District Court for the Western District of Arkansas in an opinion handed down March 7, 1958, in United States v. Adams, 160 F. Supp. 143 (W.D. Ark., 1958). In the Adams case the United States brought an action against the Adams Manufacturing Co. (plaintiff here) to recover the excess costs it incurred in having another contractor complete tent pin Contract QM-23925 on which Adams had defaulted. One of the defenses raised by defendant in that law suit was that his failure to complete performance of the contract was due to causes beyond his control and without his fault or negligence. The court sustained the position of the defendant. It found that defendant’s inability to complete the contract was caused by foreclosure of a mortgage which the First National Bank had on defendant’s property. Defendant was unable to pay the debt owed on the mortgage and prevent the foreclosure because he sustained a loss in the performance of Contract QM-23Y55 (subject of the present suit). The court held that such loss was caused by two factors, first “the over-zealous and changed inspection procedure used by” [p. 152] Inspector Burkhart and, second, the mistake of Adams in thinking he could obtain the necessary lumber for producing the tent pins at a cost of $45 to $50 per thousand feet, whereas, in fact, the lumber which he used cost liim an average of $83 per thousand feet. The court also found that the failure of defendant (plaintiff herein) to complete performance of contract QM-23755 “was due to causes beyond his control and without any fault or negligence on his part,” [p. 153). The court further found that “it was not such a mistake as would amount to fault or negligence on the part of the defendant within the meaning of the contract.” [p. 152].

37. On May 28, 1954, plaintiff entered into Contract No. DA-41-040-402-Cml-107 with the Chemical Corps of the Department of the Army, whereunder plaintiff was to furnish 167,680 wood boxes, f .o.b. Pine Bluff Arsenal, Arkansas, for a consideration of $87,193.60. General Provision 11, entitled Default provided, in pertinent part:

(a) The Government may, subject to the provisions of paragraph (b) below, by written Notice of Default to the Contractor terminate the whole or any part of this contract in any one of the following circumstances:
(i) if the Contractor fails to make delivery of the supplies or to perform the services within the time specified herein or any extension thereof; or
(ii) if the Contractor fails to perform any of the other provisions of this contract, or so fails to make progress as to endanger performance of this contract in accordance with its terms, and in either of these two circumstances does not cure such failure within a period of 10 days (or such longer period as the Contracting Officer may authorize in writing) after receipt of notice from the Contracting Officer specifying such failure.
H: H* H* H* H«
(c) In the event the Government terminates this contract in whole or in part as provided in paragraph (a) of this clause, the Government may procure, upon such terms and in such manner as the Contracting Officer may deem appropriate, supplies or services similar to those so terminated, and the Contractor shall be liable to the Government for any excess costs for such similar supplies or services, Provided, That the Contractor shall continue the performance of this contract to the extent not terminated under the provisions of this clause.
Hi ‡ ❖ H* H*

38. On August 10, 1954, being delinquent in production, plaintiff wrote a letter to the Chemical Corps which read in pertinent part:

During the past several months we have been working on a Quartermaster Contract for Tent Pins, which contract we secured at a very unfavorable price. This resulted in no little loss on our operations, which in turn affected our bank relations.
$ $ * * $

Pursuant to the aforesaid Default Provision of Contract No. Cml-107, on October 20, 1954, the Contracting Officer notified plaintiff that his right to proceed with the contract was terminated in that as of October 1,1954, plaintiff had not delivered the balance of 62,269 boxes due under that contract. Plaintiff was prevented from completing the contract because the First National Bank of Fort Smith, Arkansas, had foreclosed on plaintiff’s mortgage on September 30, 1954. The Contracting Officer concluded that plaintiff’s failure to complete delivery was not deemed to be for reasons beyond his control and without his fault or negligence. Said officer notified plaintiff “that supplies similar to those shown in said contract will be procured in the open market against your account and that you will be held liable for any excess costs incurred by the Government in connection with the procurement of such supplies and services.”

39. Contract, Cml-107, was assigned by plaintiff to the First National Bank, Fort Smith, Arkansas, on June 16,1954, whereunder payments due or to become due were to be paid to the bank. There is no evidence that the bank has released the assignment to plaintiff. By reason of plaintiff’s default on October 27, 1954, the Chemical Corps’ financial officer withheld payment of $972 due under two invoices to the assignee bank because plaintiff might be liable for excess reprocurement costs.

40. Competitive bids were invited, and after the public opening of bids the lowest responsible bidder, the Elrod Lumber Company of Bisson, Arkansas, was awarded the relet Contract Cml-118 on December 3, 1954, whereby the contractor agreed to furnish the balance of 62,269 wooden boxes for a consideration, less discount, of $35,138.50. On the same date, the Contracting Officer made a demand upon plaintiff for payment of the excess repurchase costs of $2,758.52. Plaintiff appealed to the Armed Services Board of Contract Appeals. On May 31, 1955, the Board denied the appeal.

41. Had plaintiff completed delivery of the 62,269 wooden boxes under Contract Cml-107 at a consideration of $0.52 each, defendant would have paid plaintiff $32,379.88. The ultimate consideration paid by defendant to the relet contractor, the Elrod Lumber Company, was $35,055.39. The difference, less the $978.64 withheld from payments due to the assignee bank amounts to $1,696.87 in excess relet costs which plaintiff has not paid to defendant. This is defendant’s first counterclaim.

42. The second counterclaim was brought by the United States against the plaintiff, Herman Adams, d/b/a Adams Manufacturing Company, to reduce to judgment FUTA assessments made on February 23, 1955, for the taxable year 1954 in the amount of $1,337.83 plus interest thereon. Notice and demand were duly made on February 27,1955.

43. The statutory period of limitations for the collection of the liabilities assessed on February 23, 1955, was extended by agreement 'between the plaintiff and the District Director of Internal Revenue to February 23,1967.

44. A representative of the Commissioner of Internal Revenue filed a Notice of Federal Tax Lien under Internal Revenue Laws against Herman Adams in Franklin County, Arkansas, on April 4,1955.

45. The assessment of $1,337.83 described in Finding 42, together with statutory interest thereon, has not been paid.

46. A third counterclaim was brought by the defendant against the plaintiff to reduce to judgment additional FUTA assessments made on March 29, 1957, for the taxable year 1954 in the amount of $5,590.21 plus interest thereon.

47. A representative of the Commissioner of Internal [Revenue filed a Notice of Federal Tas Lien under Internal Revenue Laws against Herman Adams in Franklin County, Arkansas, on August 14,1958.

48. Tire assessment of $5,590.21 described in Finding 46 together with statutory interest thereon, has not been paid.

49. On the basis of the record presented defendant is not entitled to recover under Counterclaim No. 1. It is found that defendant is entitled to recover under Counterclaim No. 2 the amount of $1,337.83, plus interest as provided by law. It is further found that defendant is entitled to recover under Counterclaim No. 3 the amount of $5,590.21, plus interest as provided by law.

50. It is found that plaintiff is equitably entitled to recover under contract QM-23755 the amount of $42,952.04, less $6,928.04 plus interest as provided by law.

CONCLUSION OF 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 the plaintiff is not entitled to recover, and his petition is therefore dismissed. The court’s views on the plaintiff’s “equitable” claim are set forth in the opinion. It is also concluded that the defendant is not entitled to recover on its first counterclaim against plaintiff and that counterclaim is dismissed, but that defendant is entitled to recover on its second and third counterclaims and it is therefore adjudged and ordered that the defendant recover of and from the plaintiff the sum of six thousand nine hundred and twenty-eight dollars and four cents ($6,928.04), plus interest as provided by law, on its second and third counterclaims. 
      
      This opinion incorporates, with some changes and added discussion, the opinion prepared, at the direction of the court under Rule 67(a), by Trial Commissioner Paul H. McMurray.
     
      
       Since the case -was referred to this court hy the House of Representatives (on June 30, 1959) and the pleadings filed precede the Supreme Court’s decision in Glidden Co. v. Zdanok, 370 U.S. 530 (1962), the court deems it proper to pass on the merits of the case including its “equitable” aspects (see, e.g., Rocky River Co. v. United States, 169 Ct. Cl. 203 (1965); Jefferson Constr. Co. v. United States, 168 Ct. Cl. 648 (1964)).
     
      
       Plaintiff floes not complain about the inspection procedures followed by Inspector Burkhart's successor, Inspector Kallen, although the latter scored a few more visual and dimensional defects than were recorded by Burkhart, and sometimes considered defects to be minor even though they were not so listed in Supp. B. His percentage of rejections was negligible compared to the record made by Burkhart.
     
      
       In this connection, the court grants plaintiff's motion to admit into evidence three letters from Leland Foster, Burkhart’s superior, to the Chicago Inspection Service. These letters are admissible as official reports. The motion to admit was not untimely or unduly delayed.
     
      
       At the oral argument, defendant’s counsel stated that the Government would stipulate not to collect the amount of the counterclaims until Congress had had the opportunity to consider and pass upon this court’s opinion and findings.
     
      
      
         Plaintiff claims a direct or primary loss in the amount of $172,081.92 caused by delays -which occurred in the performance of the contract to produce a large amount of wood tent pins. He also mates claim for an “indirect loss” in the amount of $43,061.91 which is not deemed to be supported by the record.
     
      
      
         A cheek is a small craek in the wood.
     
      
       Intermediate inspection was tie testing of rough wood (rough dimensional squares) for moisture content, and the testing of wood for density and specific gravity after the wood has been cut and molded to required length and thickness (blanks),
     
      
       Visual inspection was the inspection of tent pins to determine whether the pins had checks, splits, decay, loose knots, etc.
     
      
       Dimensional inspection was the inspection of tent pins to determine whether the dimensional requirements had been met.
     
      
      The Part B Supp., introduced in evidence listed end checks as major defects, and surface checks as minor cheeks only if they exceeded 3 inches. However, since the Quartermaster’s office first instructed Inspector Burkhart on April 2, 1954, as to this classification, it is clear that this Part B Supplement is not an exact copy of the document he received when he first reported to plaintiff’s plant in the middle of February, 1954. The version he initially received obviously classified checks only as minor defects. .This is borne out by Inspector Burkhart’s records which show that prior to the second week in April, 1954, a check was classified as a minor defect. After that date, he considered end checks as major defects and only surface checks that exceeded 3 inches were scored as minor defects.
     
      
       In stationary lot inspection the entire lot is removed, from the assembly line until testing has been completed on those samples chosen from the lot.
     
      
      The change states “Par. 2.1.2 (Delete) : Minus Defect ‘Check’ * * *” apparently “minus” Is a typographical error and should be read as “minor.”
     
      
       The evidence adduced by plaintiff consists of an attempt to show that 2 years later these same rejected white pins were offered to the defendant in connection with a subsequent contract and were accepted. Most of the approximately 400,000 pins inspected by the defendant in the subsequent contract were white pins that appeared to have been recently machined, i.e., there is no conclusive proof that they were produced 2 years before. As to the remaining approximately 76,000 pins which were inspected and accepted by defendant, it was impossible for an inspector to determine when they were machined as they were submitted by plaintiff after they had been dipped in the preservative. (These pins may have come from the previously rejected lot. If they did, that fact, alone, would not warrant a conclusion that all the pins rejected by Burkhart met the contractual specifications.
     
      
       Inspector Kallen apparently considered “splinter” and “sliver” as being two distinct types of defects. Similarly, be considered “rot” and “decay” as being two different kinds of defect.
     
      
       There is no controversy as to the other two contracts which were awarded plaintiff in April, 1954. In October, 1954, these contracts were terminated by the Contracting Officer for default, which resulted when plaintiff’s mortgage was foreclosed.
     
      
       Adama Manufacturing Company was defendant in that litigation.
     
      
       Tie amount ultimately withheld from the bank was $978.64.
     
      
       At the hearing before the Board plaintiff’s counsel argued that plaintiff should not be held liable for excess repurchase costs since he was not at fault in being unable to complete Contract Cml — 107. Plaintiff’s counsel stated that plaintiff was unable to perform because the bank had foreclosed upon the mortgage, and that the bank had so acted because plaintiff had previously entered into an improvident tent pin contract. ÍFhe tent pin contract, he explained, was improvidently made in that, having had no experience in manufacturing tent pins, plaintiff had bid at about one-half the manufacturing cost and half the amount of other bids.
     
      
       Defendant’s verification of plaintiff’s audit figures shows that plaintiff’s total losses amount to $128,856.12. The amount indicated in Finding 50 is based upon a determination that the record warrants a finding that one-third of plaintiff's loss of $128,856.12 can reasonably be attributed to the arbitrary, erroneous and unwarranted rejection or discard of tent pins under inspection procedures followed by Inspector Burkhart during a period of approximately 3 months when he was assigned to the contract in suit.
     