
    ELASTIC STOP NUT CORPORATION OF AMERICA v. THE UNITED STATES
    [No. 48986.
    Decided July 12, 1955]
    
      
      Mr. Ramilton Hicks for the plaintiff. Mr. Fredrio P. WFi-ler was on tbe briefs.
    
      Mr. Martin E. Bendelman, with whom was Mr. Assistant A ttorney General Warren E. Bv/rger, for the defendant. Mr. Paris T. Houston was on the brief.
   MaddeN, Judge,

delivered the opinion of the court:

In prior proceedings before this court, we decided that the plaintiff was entitled to recover the amount which it had expended, in the performance of a contract for the manufacture of shell fuzes for the Government, in excess of the amount which it had been paid. 126 C. Cls. 100. We referred the case to a commissioner of this court to take evidence and make a report as to what should be the amount of the judgment. The case is now before us on that question.

The plaintiff’s claim is based upon its contract No. 1932, for the manufacture of shell fuzes at its Union, New Jersey, plant. As appears in our former findings and opinion, the plaintiff had, at the same time, another contract, No. 828, to manufacture shell fuzes at its Lincoln, Nebraska, plant. During the course of performance, by agreement of the parties, much of the work which was to have been done at Union was transferred to Lincoln, and many parts manufactured at Union were shipped to Lincoln to be there incorporated into completed fuzes. This transfer created difficult problems of accounting, as to which contact should be charged with starting costs, overhead and many other items. The total amounts chargeable to the two contracts was reasonably ascertainable, but there was much room for difference of accounting opinion as to the allocation of these costs as between the two contracts.

At a certain stage of performance, the Union contract was terminated, while the Lincoln contract was still in the process of performance. The plaintiff presented a claim for its excess costs, allocating a large proportion of them to Lincoln. An accountant of the Army Air Forces Field Accounting Offices made an audit of tbe plaintiff’s records, hereinafter called the FAO audit. He greatly reduced the amount of the plaintiff’s claim, concluding that the plaintiff’s unrecov-ered costs at Union were $231,493.90. He determined that, of this amount, $166,911.33 was allocable to contract No. 1932, the Union contract, and $64,582.57 was allocable to contract No. 828, the Lincoln contract.

The plaintiff accepted the FAO audit. It was not concerned about the allocation of a smaller amount to the Lincoln contract than its own proposed accounting would have made. It expected that, in the settlement of the two contracts, it would be paid its unrecovered costs. Thereafter the plaintiff and the Government made a final settlement of the Lincoln contract, including in the settlement the $64,582.57 of the Union costs which the FAO audit had allocated to the Lincoln contract.

The contracting officer for the Union contract denied completely the plaintiff’s claim on that contract asserting that the plaintiff’s acceptance of a certain Supplemental Agreement No. 5 amounted to a waiver of any termination claim. In our former opinion in this case we concluded that the agreement did not have that effect and that the plaintiff might recover such excess costs as it could prove. The Government suggested that the FAO audit, which the plaintiff had accepted and which was the basis of its suit for $166,911.33, might be inaccurate or contain duplications, as between the two contracts, and that evidence should be taken on that question. In the further hearing before our commissioner, the Government presented a new audit made by the Federal Bureau of Investigation. This audit showed that the plaintiff’s unrecovered costs, after crediting the $64,582.57 allocated to the Lincoln contract in the FAO audit, and paid to the plaintiff in the settlement of that contract, were $191,498.67, instead of the $166,911.33 shown in the FAO audit.

In the FBI audit, however, the allocation of the costs between the two contracts is different. It would allocate $85,041.07 more to the Lincoln contract leaving only $106,457.60 available for recovery in this suit which is based on the Union contract.

Our commissioner has found that the allocations made in the FAO audit were more accurate than those in the FBI audit. The Government excepts to this finding, pointing to the fact that the plaintiff, in submitting its original claim, made large allocations to the Lincoln contract, as the FBI audit has done. But the Government’s FAO auditor did not accept the plaintiff’s proposed method of accounting and made larger allocations to the Union contract and the plaintiff acquiesced in that audit. The Government also says that the FBI audit was made more carefully, with more men spending more time on it.

If, at this stage of these proceedings, there were unanimity of opinion among expert accountants that the FBI audit was more scientifically accurate, it would not affect our conclusion in this case. The Government made its FAO audit. The plaintiff settled the Lincoln contract, accepting the $64,582.57 which the audit had allotted to that contract, as payment in full on that account. Now the Government proposes to allocate $85,041.07 more to that extinct account, where it would be beyond the reach of the plaintiff. It is too late to do that, merely for the purpose of preserving the niceties of scientific accounting. The plaintiff is still willing to accept the $166,911.33 found to be due it by the FAO audit, and we hold that it is entitled to that principal amount.

The plaintiff contends that it is entitled to interest at the rate of 21/4 percent per annum on the principal amount which we have found due it. Section 6 (f) of the Contract Settlement Act of 1944, 58 Stat. 649,, 654, 41U. S. C. 106 (f), provides for the payment of such interest on any termination claim, the interest to begin thirty days after the date fixed for termination. The Government urges that the plaintiff’s claim was not a termination claim, but a claim, under Article 33 of the contract, for an adjustment in the unit price of the completed fuses manufactured under the unterminated portion of the contract.

We think the plaintiff’s claim was a termination claim. As shown in our earlier findings and opinion, 126 C. Cls. 100, there was a formal termination; the plaintiff filed a claim; the Government asserted that the form which the plaintiff had signed in connection with the termination was a waiver of a right to file a termination claim; we held that it was not such a waiver and determined that the Government was liable on the claim. The plaintiff’s petition was based upon a termination claim. From Government writing and from the testimony of a Government expert it appears that the claim was a termination claim. The Government’s Appeals Board held that the only kind of claim available to the plaintiff was a termination claim. In our prior decision we said that the plaintiff was entitled to the benefits of the Article 12 (f) of the contract.

All of Article 12 relates to “Termination at the option of the Government”. Section (f), in particular, of Article 12, relates to the adjustment of the price of work not terminated in an otherwise terminated contract. We held that the Board of Contract Appeals could have made such an adjustment. If it had done so, with reference to the 54,250 fuses which had not been terminated, that would have reduced, by the amount of the adjustment, the amount of the plaintiff’s claim for starting costs, etc., on the terminated portion of its contract. But no such adjustment was made, hence all of the claim continued to be included in the termination claim.

The Government points to testimony of a witness for the plaintiff, and statements of plaintiff’s counsel, to show that they were claiming the benefits of Article 33 of the contract, which related to price revision without termination. The Government persistently and probably rightly insisted that Article 33 was not applicable, in the circumstances. We think the substance of the plaintiff’s claim was not changed by these casual departures from the proper theory of the case.

The Government urges that since Article 12, the termination agreement of the parties, made no mention of interest, interest may not be recovered. We think the interest provision of the statute is mandatory, at least to the extent that it is not negatived by mere silence.

The plaintiff may have a judgment for $166,911.33, with interest at 2%, percent from March 24,1945.

It is so ordered.

Laramore, Judge; Whitaker, Judge; LittletoN, Judge; and JoNes, OTdef Judge, concur.

FINDINGS OF FACT

The court, having considered the evidence, the report of Commissioner Wilson Cowen, and the briefs and argument of counsel, makes findings of fact as follows:

1. During the time that plaintiff was manufacturing shell fuzes at its Union, New Jersey, plant, under contract No. 1932, and at its Lincoln, Nebraska, plant, under contract No. 828, plaintiff’s performance for both contracts was administered by its home office at Union, New Jersey. Most of the engineering and development work for both contracts, including the designing of fixtures, jigs, and production lines, was also performed at the Union, New Jersey, plant.

2. Each of the fuzes manufactured by plaintiff under contracts Nos. 1932 and 828 required the assembly of 36 component parts. Three of these parts were required in pairs so that a completed unit required the assembly of 39 parts. The contract also called for additional parts as spares to be shipped with each lot of 100 fuzes. The total number of parts provided with the 54,250 fuzes completed and shipped under contract No. 1932 was 2,144,508. The component parts required for each completed fuze varied as to size and cost of manufacture.

Prior to the termination of contract No. 1932, plaintiff had manufactured at its Union plant 8,337,637 component parts, which were not assembled. These fuze parts were transferred to the Lincoln plant for use in the assembly of fuzes under contract No. 828. Billings for these parts were accepted for contract No. 828 at amounts equivalent to the manufacturing costs of such parts at the Lincoln plant in the total amount of $83,110.77.

3. After contract No. 1932 had been terminated as of February 28, 1945, defendant paid plaintiff $85,715 for the 54,250 fuzes that were completed and delivered under that contract. On August 2, 1945, plaintiff filed with the New York Ordnance District a claim under contract No. 1932 in the sum of $360,499.92. Three days later, on August 5, 1945, plaintiff submitted to defendant a document entitled “Supplementary Cost Data,” which reduced the net amount of its claim to $330,689.13. This claim constituted plaintiff’s statement of its unrecovered costs that were incurred at Union, New Jersey, for (a) fuzes manufactured and delivered under contract No. 1932, (b) fuze parts shipped to the Lincoln plant and billed under contract No. 828, and (c) certain parts manufactured for Remington Arms, another prime contractor, less credit received from payments made under contract No. 1932, credit for billings to Lincoln for parts shipped to the plant there, and a payment in full received from Remington Arms. At the time this claim was submitted, contract No. 828, performed at Lincoln, Nebraska, had been partially but not completely terminated. Since no final settlement had been made under that contract, plaintiff requested that its claim of $330,689.13 under contract No. 1932 be settled in connection with its claim under contract No. 828.

In its claim, plaintiff listed its principal factory costs for fuze production at $353,263.28. These costs, which included direct labor, material, parts, indirect labor, and other factory burden, had already been distributed on plaintiff’s books as costs of the component parts for fuzes, in accordance with its factory costing system. Such costs were allocated upon the component parts used, transferred, and delivered as follows:

$160,615.02 (45.466%)_ Contract No. 1932 for parts used on completed fuzes.
$191,034.50 (54.077%)— Contract No. 828, for parts transferred to Lincoln.
$1,613.76 (.457%)_To Remington Arms for parts delivered (guide pins only).

This distribution of costs was based on manufacturing experience and was in accordance with good accounting practice.

Plaintiff’s claim also included other factory costs in the sum of $128,599.12 less factory credits of $24,322.82. These additional factory costs had not been distributed on plaintiff’s books and for the most part they were allocated between Union and Lincoln on the basis of the number of pieces shipped rather than on the basis used for allocating the principal factory costs which had been distributed on plaintiff’s books. These additional factory costs, less factory credits, were then added to the principal factory costs, and the general and administrative expenses were allocated thereto in the ratio of 13.7243 percent so that the total fuze cost was stated at $520,333.68. After allowing for payments and credits, plaintiff’s remaining costs were allocated to contract No. 1932 in the sum of $125,108.75, and to contract No. 828 in the sum of $205,580.38. In the item of factory credits, which were deducted from other factory costs, plaintiff listed engineering costs of $21,130, which were allocated in the claim partly to contract No. 1932 and partly to contract No. 828. In fact, however, these engineering expenses were incurred for the benefit of contract No. 828 and were previously claimed by plaintiff and allowed in repricing the cost of fuzes under that contract.

In plaintiff’s claim, the amount allowed as a credit for billings to contract No. 828 did not include the sum of $29,-772.69, which represented the cost of certain fuze parts which were shipped to the Lincoln plant and sold by plaintiff at that point to another contractor.

4. On October 29, 1945, an accountant of the Army Air Forces Field Accounting Offices made an audit of plaintiff’s books and records and sent plaintiff a copy thereof on November 2,1945. In this audit, which is in evidence as Plaintiff’s Exhibit No. 11 and hereinafter referred to as the FAO audit, the accountant reduced plaintiff’s claim of $520,333.68 for total fuze costs to $446,871.85 by making the following adjustments:

(a) Factory costs were reduced in the sum of $20,796.04 on account of an adjustment of $1,050 in the cost of certain material received from the Elwood Arsenal, and in the sum of $19,746.04 for factory burden, which was found to have been improperly charged to fuze production in the automatic screw machine department in the Union plant.

(b) Other factory costs were reduced in the sum of $11,-855.52 for factory overhead expense improperly charged to salvage, inspection, and packaging of fuzes, since plaintiff’s accounting system did not provide for such a distribution of overhead.

(c) The FAO determined that plaintiff’s administrative expenses, calculated at 13.7243 percent of factory costs, represented the ratio determined by plaintiff for the period from August 8,1944, to February 28,1945. Since plaintiff’s fiscal year ended November 80, its November costs included voluminous year-end adjustments, which unduly burdened costs during the months of fuze production. The FAO used the quarter ending February 28,1945, for the application of general and administrative expenses and found that these represented only 7.046 percent of factory costs for that quarter. This reduced the general and administrative expenses claimed by plaintiff by $40,810.27.

While the detailed figures upon which the adjustments made by the FAO are not set out in full in Plaintiff’s Exhibit No. 11, the accounting theory upon which the results were obtained is proper and the reductions were apparently justified.

5. After making the reductions described in (a) and (b) of the preceding finding, the FAO combined plaintiff’s principal factory costs, which had been distributed on its books, with the undistributed other factory costs, to arrive at total factory costs of $424,888.02. However, instead of dividing these costs between contract No. 1932 and contract No. 828 on the basis used by plaintiff in its cost-accounting system, the FAO determined that the normal cost for each separate fuze part manufactured at Union should be the manufacturing cost of the part at Lincoln or Union, whichever was lower, or 10 percent lower than Union costs where the Lincoln plant had not produced the particular part. Upon this premise, the FAO determined that plaintiff’s normal manufacturing costs were $382,927.25 and that the balance of $41,960.77 should be considered as starting load costs at its Union plant. By applying the normal cost to parts used by the Union plant for fuzes delivered under contract No. 1932, and the same cost to the parts transferred to Lincoln for use on contract No. 828, the FAO allocated approximately 56 percent of both the normal costs and the starting load costs to contract No. 1932 and 44 percent to contract No. 828, whereas plaintiff had distributed principal factory costs on the basis of 46 percent to contract No. 1932 and 54 percent to contract No. 828. A deduction was then made for billings, including a credit for the item of $29,772.69, which had been erroneously omitted from plaintiff’s claim. General and administrative expenses were then allocated at the ratio described in Finding 4 (c) above. As a result of this audit, it was determined that the total of plaintiff’s unrecovered costs at Union, New Jersey, was $231,493.90 and that of this amount there should be allocated to contract No. 1932 the sum of $166,911.33 and to contract No. 828 the sum of $64,582.57.

Plaintiff accepted the FAO determination of the amount of its unrecovered costs. Although the method of allocation used by the FAO was not in accord with that followed by plaintiff, plaintiff was not concerned about the fact that the FAO had allocated a larger proportion of the costs to contract No. 1932 than was allocated under the system used in preparing plaintiff’s claim. No final settlement had then been made under contract No. 828, and plaintiff expected to be paid the total amount which the FAO determined to be due, regardless of how the payments were distributed between the two contracts.

Following plaintiff’s acceptance of the amount determined in the FAO audit, plaintiff and defendant entered into Supplemental Agreement No. 11 to Contract No. 828 under date of November 13,1945. This agreement provided for an adjusted unit price for the fuzes delivered under that contract and plaintiff was paid the $64,582.57, as recommended in the FAO audit. As a part of this final settlement, plaintiff released all of its claims under contract No. 828.

6. After plaintiff’s claim under contract No. 1932 had been denied by the contracting officer and his decision had been affirmed on appeal by the Appeal Board, Office of Contract Settlement, plaintiff brought this action to recover the sum of $166,911.33, the amount which the FAO determined should be allocated to contract No. 1932. The court decided that plaintiff was entitled to recover, and thereafter defendant had an independent audit made of plaintiff’s books and records by the FBI. This audit, hereinafter referred to as the FBI audit, is in evidence as Defendant’s Exhibit No. 14.

Although the evidence does not disclose how the adjustments were made, the FBI audit fixed plaintiff’s total fuze costs at $475,431.44, instead of $520,333.68, as claimed by plaintiff on August 5, 1945. After allowing for credits, in-eluding the recovery of $64,582.57 on contract No. 828 under the FAO audit, it was determined in the FBI audit that plaintiff’s remaining unrecovered fuze costs were $191,498.67, of which $106,457.60 was allocated to contract No. 1932, and an additional $85,041.07 was allocated to contract No. 828. Plaintiff has accepted the determination that its total un-recovered costs were $191,498.67, and now claims that it is entitled to recover that amount in this action, in view of the fact that a final settlement under contract No. 828 was made on November 13, 1945.

7. In the FBI audit, general and administrative expenses were applied at the ratio of 8.031 percent of total factory costs, instead of at the rate of 7.046 percent used in the FAO audit.

In the FBI audit, the “normal cost” basis used in the FAO audit was not adopted. Instead, the FBI accountants used the same methods which were applied by plaintiff in its original claim for distributing principal factory costs, for allocating undistributed factory costs, and for computing general and administrative expenses before first allowing for factory credits. As a result, the FBI audit failed to credit the factory cost with $112,883.46 for parts transferred to the Lincoln plant on a factory cost basis prior to applying the general and administrative expense. This caused the application of more than $9,000 of excessive general overhead expense.

The FBI audit did not eliminate the $11,855.52 for factory burden, which the FAO had determined was improperly charged. This fact, plus the addition of general overhead applied to that amount, resulted in the addition of $12,807.52 to the costs determined in the FBI audit.

By adopting the method applied by plaintiff in its original claim for allocating undistributed factory costs, the FBI audit allocated such costs on the basis of the number of parts shipped. This resulted in the excessive loading of approximately $33,000 against contract No. 828, with a similar reduction to contract No. 1932. The method used did not take into account the great differences in the factory costs of the parts produced.

8. Plaintiff’s manufacturing costs at its Union plant were incurred in the partial performance of contract No. 1932, but the allocation of a substantial portion of such costs to contract No. 828 became necessary by reason of the transfer of a large quantity of unassembled component parts to the latter contract.

At the time the FAO audit was made, plaintiff’s unrecov-ered costs for the manufacture of fuzes at its Union, New Jersey plant, were $231,493.90. Although the method employed by the FAO for allocating the total unrecovered costs between contracts Nos. 1932 and 828 was not used by plaintiff in distributing its principal factory costs, the FAO determination, as well as the allocations therein, was accepted by plaintiff and a final settlement of contract No. 828 was made pursuant thereto. The remaining sum of $166,911.33 represents the total of plaintiff’s unrecovered costs that are properly chargeable to contract No. 1932.

9. After the termination of contract No. 1932, plaintiff incurred certain accounting and legal expenses in the preparation of its claim and in the settlement negotiations relating thereto. Plaintiff had an assistant treasurer who was paid a salary of $12,000 per year. From August 2, 1945, to about January 1,1949, most of his time was devoted to the work of preparing and attempting to settle plaintiff’s claim. However, he performed other work for plaintiff during that time.

Plaintiff has also incurred legal expenses in connection with this suit, but the evidence does not establish the amount of the above-described expenses that were incurred by plaintiff, either prior to or since the filing of this action.

CONCLUSION OK LAW

Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes that as a matter of law the plaintiff is entitled to recover, and it is therefore adjudged and ordered that plaintiff recover of and from the United States the sum of one hundred sixty-six thousand, nine hundred eleven dollars and thirty-three cents ($166,911.-33), together with interest thereon at the rate of 2% percent per annum from March 24, 1945, to date of payment. 
      
       See Finding 10 (126 C. Cls. 100).
     