
    475 F. 2d 630
    LING-TEMCO-VOUGHT, INC. v. THE UNITED STATES
    [No. 417-69.
    Decided March 16, 1973]
    
      
      Ha/rold Hof man, attorney of record, for plaintiff. Wynne Jafe <& Tinsley, of counsel.
    
      Thomas W. Petersen, with, whom was Assistant Attorney General Harlington Wood, Jr., for defendant.
    Before CoweN, Chief Judge, Davis, SkeltoN, Nichols, Kasi-iiwa, KttNzig, and BeNnett, Judges.
    
   Davis, Judge,

delivered the opinion of the court;

Plaintiff Ling-Temco-Vought, Inc. (“LTV”), sues the defendant in this action for $1,022,973.27, representing the amount which the plaintiff expended out of its own funds in completing a project that was originally undertaken by a corporation known as Frederick Fenski & Miller Electronics, Inc. (“FF & M”), under a 1961 contract between that corporation and the defendant, acting through the Bureau of Ships (“BuShips”), Department of the Navy. The suit is for breach not “under the contract.”

In the early 1960’s, the Navy had a need for a large-screen display system on which could be displayed, for the benefit of the personnel in the Combat Information Center (“CIC”) of a warship, data revealed by the ship’s radar concerning changes in the location of moving targets (such as aircraft, missiles, and vessels on the surface of the sea). FF & M’s business included the manufacture and sale of large-screen display systems for commercial applications. One of FF & M’s large-screen display systems employed an electro-mechanical technique and was sold under the trade name of Iconorama. Of all the workable large-screen display systems that were in existence during the early 1960’s, FF & M’s Iconorama was the only one that was available for shipboard use. However, the Navy regarded the commercial-type Iconorama as incapable of keeping track adequately of the movement of the large number of high-speed targets (jet aircraft and missiles) involved in an anti-air warfare environment.

Tn order to study FF & M’s Iconorama in a shipboard environment, and, if possible, to develop it into a satisfactory large-screen display system for CIC use aboard warships, the Navy Department (acting through BuShips) : (1) purchased a commercial-type Iconorama “off the shelf” and installed it aboard the U.S.S. Randolph for experimentation and observation; and (2) entered into a 1961 contract with FF & M, which basically required FF & M to adapt its Iconorama to military standards and requirements, and to produce two prototypes of the system thus revised. The device which FF & M contracted to produce was to be called a Tactical/Navigational Display System (“Tac/Nav”). At the time when the contract was entered into, both contracting parties knew that the two Tac/Nav’s were being purchased by the Navy for evaluation purposes.

After the contract was entered into, FF & M was acquired by and merged into LTV; and LTV, the plaintiff in the present case, was substituted for FF & M as the contractor under the contract. The effective date of this substitution was December 31, 1961.

The contract required the plaintiff to design, fabricate, test, and furnish two Tac/Nav’s to the Navy, together with preliminary drawings, working drawings, preliminary technical manuals, final technical manuals, various reports, and 60 man-days of engineering services to assist in the installation and checkout of the devices. The work was to be done on a cost-plus-a-fixed-fee basis; and all work (except the furnishing of the reports and the engineering services) was to be completed by June 30,1962.

The contract contained an estimated cost schedule in the amount of $464,753, and the fixed fee was to be $27,097. Thus, the estimated cost and the fixed fee totaled $491,850.

With respect to the estimated cost schedule, the contract contained a provision under the heading of “Limitation of Cost” which stated in part as follows:

(b) The Government shall not be obligated to reimburse the Contractor for costs incurred in excess of the estimated cost set forth in the Schedule, and the Contractor shall not be obligated to continue performance under the contract or to incur costs in excess of the estimated cost set forth in the Schedule, unless and until the Contracting Officer shall have notified the Contractor in writing that such estimated cost has been increased and shall have specified in such notice a revised estimated cost which shall thereupon constitute the estimated cost of performance of this contract. * * *

At a conference between the plaintiff and BuShips that was held on March 28,1962, the plaintiff asked that the estimated cost figure in the contract be increased by $590,000. BuShips told the plaintiff that it had not budgeted for or anticipated any cost overrun of such magnitude, and that it was not prepared to fund such an overrun. BuShips also stated that it would like to continue the contract, but not at the cost indicated, and asked what changes could be made to reduce the projected expenses. Possible areas of cost reduction were discussed. The conference was then recessed until the next day, so that the plaintiff could recompute the estimated overrun.

On March 29, 1962, the parties conferred again. At this conference, the plaintiff made a written submission listing certain changes that could be made to reduce the proposed increase in the estimated cost of the contract from $590,000 (the figure proposed by the plaintiff on March 28, 1962) to $358,028.

By means of a telegram dated March 30, 1962, BuShips notified the plaintiff that “the contract is hereby modified to increase the total estimated cost * * * by $358,028 * * Modification No. 3 was signed by the contracting officer on April 18, 1962, and by the plaintiff on April 24, 1962. It increased the estimated cost of the contract by $358,028 to a new total of $822,781, and it extended the completion date (except for the furnishing of the reports and the engineering-services) to August 15, 1962.

During April of 1962, the plaintiff concluded that the cost of completing the contract would exceed by some $250,000 the then-current estimated cost of $822,781. At about the end of April 1962, the plaintiff asked for a conference with Bu-Ships ; and it was held on May 3,1962. The plaintiff’s purpose in asking for a conference was to request a further increase of $250,000 hi the estimated cost of the contract. At the conference, however, the conferees did not discuss the dollar amount of any additional increase in the estimated cost of the contract. Instead, the plaintiff was given what it characterized as a “stern lecture” by BuShips on overruns, and was told that BuShips would terminate the contract rather than fund or accept an overrun. On the other hand, BuShips pointed out to the plaintiff various factors which indicated that it would be a good business risk on the part of the plaintiff if the plaintiff would complete the performance of the contract at its own expense.

The principal spokesman for BuShips at the conference on May 3,1962, was Captain Francis H. Cunnare, the head of Code 665 in BuShips. Code 665 had entered into and was administering the contract for BuShips and the Navy Department. It was Captain Cunnare who pointed out the factors which indicated that it would be a good business risk on the part of the plaintiff if the plaintiff would complete the performance of the contract at its own expense. Captain Cunnare’s representations in this respect are detailed in the findings. From the standpoint of the present litigation, the most significant of these representations will be outlined in the next two paragraphs.

Captain Cumiare told the plaintiff at the conference on May 3, 1962, that the Navy was not then considering any technique or concept other than Tac/Nav for accomplishing the large-screen display of information for CIC purposes.

Captain Cunnare also told the plaintiff that there was a “fantastic” market potential for the large-screen display system, which would justify the plaintiff in investing its own. funds for tbe completion of the performance of the contract. In this connection, Captain Cunnare stated that the Navy had firm requirements for production quantities of a large-screen display system similar to the Tac/Nav system that was being developed by the plaintiff under the contract, that these requirements were already programmed by the Navy, and that the Navy planned to put large-screen display systems on a large number of ships. Captain Cunnare’s presentation showed a requirement for the installation of large-screen display systems aboard 14 aircraft carriers over a period of approximately 5 or 6 years, an immediate requirement for 14 large-screen display systems aboard destroyers, and a total requirement for 350 large-screen display systems aboard destroyers over a period of from 5 to 8 years.

Promptly after the conference on May 3, 1962, the plaintiff’s personnel who had participated in the conference outlined Captain Cunnare’s presentation to the plaintiff’s top management. One of the persons who participated in the conference with BuShips and also in the conference with the plaintiff’s top management was the assistant comptroller of the plaintiff. He estimated for the benefit of the plaintiff’s top management, on the basis of an anticipated selling price of $150,000 per Tac/Nav per destroyer and $250,000 per Tac/Nav per aircraft carrier, that the Navy’s requirements indicated sales in the amount of approximately $56,-000,000 and, before taxes, a profit of approximately $5,600,000.

Another conference between the plaintiff and BuShips was held on May 8, 1962. The plaintiff’s vice-president in charge of the military electronics division was in the plaintiff’s group on that occasion. BuShips again told the plaintiff that it would not fund or accept an overrun; and that if overrun funds were requested, it would terminate the contract. However, BuShips also pointed out again the factors which indicated that it would be a good business risk on the part of the plaintiff if it would complete the performance of the contract at its own expense.

After these conferences, the plaintiff agreed to complete the performance of the contract with its own funds, and signed a letter to that effect under the date of May 8, 1962. This letter stated in part as follows:

* * * [T]he contractor agrees to complete the program * * * without requesting additional overrun relief above and beyond the anticipated overrun funds of $358,028 included in * * * Modification Number 3.

The plaintiff thereafter completed the performance of the contract. BuShips reimbursed the plaintiff for its expenditures in performing the contract, up to the amount specified in the estimated cost schedule of the contract, as revised, and paid the plaintiff the amount of the fixed fee specified in the contract, as revised. These payments fully discharged the financial obligation of BuShips to the plaintiff under the “Limitation of Cost” provision of the contract. However, the plaintiff, in completing the performance of the contract after May 8, 1962, expended $1,022,973.27 of its own funds, over and above the amount for which it received reimbursement from the Navy under the estimated cost schedule of the contract.

The Navy accepted the two Tac/Nav’s that were delivered under the contract and evaluated them in a shipboard environment. In 1963, the Tac/Nav system was subjected to an evaluation testing program aboard the U.S.S. Essex; and the report issued subsequent to this evaluation indicated that Tac/Nav was unable to keep up satisfactorily with the large number of high-speed targets involved in an anti-air warfare (“AAW”) environment. Thereafter, in order to determine whether Tac/Nav could perform satisfactorily in an anti-submarine warfare (“ASW”) environment — which involves slower targets than those involved in the AAW situation — another evaluation testing program for the Tac/ Nav system was performed in 1964, this one aboard the U.S.S. Wasp. Subsequent to the 1964 evaluation test, which was critical of the Tac/Nav system and indicated that it did not perform satisfactorily in an ASW environment, the Chief of Naval Material issued an order that no further procurements of the Tac/Nav system would be undertaken by the Navy. Therefore, the plaintiff never made any of the Tac/ Nav sales which it anticipated at the time when it agreed in May 1962 to complete the performance of the contract at its own expense.

The plaintiff contends that it should be reimbursed for the $1,022,973.27 which it expended out of its own funds in completing the performance of the contract, because it was misled by misrepresentations which were made by Captain Cunnare at the conferences on May 3 and 8,1962.

The evidence shows that Captain Cunnare made an incorrect statement at the conferences on May 3 and 8, 1962, when he said that the Navy was not then considering any technique or concept other than Tac/Nav for accomplishing the large-screen display of information for CIC purposes. It is true that Tac/Nav was the only such system that the Navy had contracted to purchase as of May 1962. However, the record shows that Code 685— which was an organization in BuShips separate and apart from Code 665, which Captain Cunnare headed and with which the plaintiff was working under its Tac/Nav contract — had begun work in early January of 1962 on the development of a performance-type specification for a large-screen display system which would be designed for use in the CIC’s of warships and which would utilize an electronic or photochromic technique, as distinguished from the scribing concept used by the plaintiff’s equipment. By May 8, 1962 — the date on which the plaintiff agreed to complete the performance of thei Tac/Nav contract at its own expense — a substantial amount of the work on Code 685’s proposed specification had been completed. Later, in April of 1963, BuShips awarded a contract to the Budd Company for the development of a large-screen display system in accordance with Code 685’s specification, which had been completed in the meantime. As of February 1971, the large-screen display system developed by the Budd Company had been placed in the characteristics of two amphibious command ships by the Navy.

The evidence also shows that none of the plaintiff’s personnel was aware as of May 1962 that the Navy was considering a technique different from Tac/Nav for large-screen displays to be used in CIC’s aboard warships. In addition, the trial commissioner found that “the evidence warrants the inference that if the plaintiff had known as of May 8, 1962, that another group in BuShips, not under the supervision of Captain Cunnare, was working on a specification for a large-screen display system using a technique different from the scribing technique (on which the plaintiff held the necessary patents), the plaintiff would not have agreed to fund, and would not have funded, the completion of the project under the contract.”

The plaintiff invokes these findings of reliance and misrepresentation as the foundation of its claim that the Government improperly interfered, by misrepresenting the existing facts, with LTV’s privilege under the “Limitation of Cost” clause, supra, to discontinue its performance when the United States refused to fund the work any further. The contention, in legal phrasing, is that the United States breached the contract by wrongfully inducing the plaintiff, through these misrepresentations, to give up an important contract right.

Defendant attacks the finding of reliance as unwarranted, and also challenges the characterization of defendant’s conduct as “misrepresentation.” However, for the purposes of the case, and without determining these issues one way or the other, we accept arguendo the commissioner’s conclusion that plaintiff relied on Captain Cunnare’s erroneous statements when it agreed to fund by itself the completion of the project. We also assume arguendo that these statements constituted affirmative and actionable misrepresentation. The court makes these hypothetical assumptions because we are persuaded that, even on those premises, plaintiff is barred from recovery by its own conduct after it discovered, in September 1962, the competing project which had been undertaken by Code 685.

On September 6, 1962, Code 685 published an advertisement in the Commerce Business Daily which plainly revealed the existence of this other project and called upon firms interested in research and development connected with such a project to make themselves and their experience known to the Navy. It was indicated that formal proposals might be requested later. The record shows that at that time — just four months after plaintiff had agreed to continue its own project with its own funds — plaintiff became quite aware that Code 685 was interested in procuring a large-screen display system utilizing an electronic or photochromic technique, and also that work along those lines was going forward.

Nevertheless, LTV did not stop work, nor did it protest to the Navy that the latter had misled plaintiff into issuing the letter of May 8, supra. Neither did the contractor reserve its right to bring suit or to file a claim. Apparently without any intimation to the Navy of dissatisfaction or unhappiness, LTV simply continued to the end to perform its contract and to spend its own funds on the overrun portion of the contract, knowing all the time that the Navy did not intend to reimburse it for such expenses and that the Navy thought and continued to think that the plaintiff fully agreed to that course.

More than that, plaintiff permitted the Government, after September 6th, to spend considerable federal money on this Tac/Nav contract. After May 8, both parties proceeded on the understanding that the plaintiff’s undertaking to complete the agreement at its own expense extended only to the in-scope work (as modified before May 8th). Both understood that LTV’s promise did not cover the contract as it might thereafter be changed. Therefore, after May 8th, whenever BuShips changed the contract by exercising options, adding out-of-scope work, or making changes in the in-scope work, it provided increased federal funds to cover the additional costs of such changes. This post-September 6th increase amounted to over $312,000, and added $2,205 to plaintiff’s fixed fee. (The contract continued into 1963 and 1964, the last modification being in August 1964.) Moreover, LTV, without any suggestion that its rights had been invaded, permitted the Navy to undertake field evaluations of plaintiff’s Tac/Nav system in both 1963 and 1964.

We have been given no adequate justification or explanation for this total silence, during the performance of the contract, by LTV after it learned about Code 685’s project in September 1962, and knew that the representations on which it says it relies were incorrect. The stark fact is that nothing was said until well after it became clear that the Navy would not purchase LTY’s product, and no cue was given at any prior time that plaintiff thought the Government had breached its obligation under the contract. Not only was performance continued normally, but no reservation of rights was made known and the defendant was permitted to incur some $315,000 in additional costs of its own, and to pursue evaluation tests, though it might well have terminated the contract at once and stopped all performance if it had been told that plaintiff was thinking of holding it liable for all expenses after May 8.

With respect to this very type of situation we recently said: “There is, of course, venerable authority that, wherever a contract not already fully performed is continued in spite of a known breach, the wronged party cannot avail himself of that excuse * * *. As a general proposition, one side cannot continue after a material breach by the other * * *, act as if the contract remains fully in force (although stopping performance would be fair and convenient), run up damages, and then go suddenly to court.” Northern Helex Co. v. United States, 197 Ct. Cl. 118, 125-26, 455 F. 2d 546, 551 (1972). In Northern Helex we found “particular circumstances [centering on the need to prevent wastage of helium] justifying further performance in the specific case,” 197 Ct. Cl. at 125-27,129, 455 F. 2d at 551-52, 553, but even then we rested, equally, on tbe significant facts that that contractor had made an express reservation of its rights when it continued performance, 197 Ct. Cl. at 128-30, 455 F. 2d at 552-53, and that the “Government was not hurt and it did not change its position.” 197 Ct. Cl. at 130-31, 455 F. 2d at 554. The court was at pains to spell out the “special aspect” and the “special facts” of that case, 197 Ct. Cl. at 126, 130, 455 F. 2d at 551, 553, which permitted the contractor to continue performance while at the same time claiming total breach. Analogous facts are not present here, as we have already pointed out and discuss again below.

An earlier decision in which a contracting party was held barred from enforcing a material breach it had for too long allowed to go unprotested is Acme Process Equip. Co. v. United States, 171 Ct. Cl. 324, 334-39, 347 F. 2d 509, 515-18 (1965), rev'd on other grounds, 385 U.S. 138 (1966). The contractor had breached its covenant-against-contingent-fees but, said the court, “the crucial point is that the defendant, after obtaining knowledge of the facts, waited until over a year later before canceling the agreement. Could an election to cancel be delayed for such a time ? We hold not. In our view, an election to annul the contract had to be made with reasonable promptness after the Government gained knowledge of the facts; by putting off its decision for an inordinately long period, the defendant lost the right it earlier had to terminate the contract without incurring any cost. * * * The sanction of contract cancellation is too drastic to permit a long delay. Beyond the time reasonably necessary to determine if there has been a misrepresentation or a violation of the covenant, the defendant cannot allow an unwary contractor to continue performance and thus incur large expenses, all of which the Government will refuse to reimburse if and when it decides to cancel the contract on the ground of the violation.” 171 Ct. Cl. at 335-36, 347 F. 2d at 515-16 (footnotes omitted).

The same over-all principle was applied in DeVito v. United States, 188 Ct. Cl. 979, 986-91, 413 F. 2d 1147, 1151-54 (1969), in which the Government, without any reservation of rights, permitted a defaulting contractor to continue performance for a considerable time before issuing a notice of default termination. “Where the Government elects to permit a delinquent contractor to continue performance past a due date, it surrenders its alternative and inconsistent right under the Default clause to terminate, assuming the contractor has not abandoned performance and a reasonable time has expired for a termination notice to be given. * * * The election is sometimes express, but more often is to be inferred from the conduct of the non-defaulting party. * * * The necessary elements 'of an election by the non-defaulting party to waive default in delivery under a contract are (1) failure to terminate within a reasonable time after the default under circumstances indicating forbearance, and (2) reliance by the contractor on the failure to terminate and continued performance by him under the contract, with the Government’s knowlege and implied or express consent.” 188 Ct. Cl. at 990-91, 413 F. 2d at 1153-54.

Acme and DeVito cannot rightly be distinguished as involving an effort by the non-defaulting party to cancel, annul, or terminate the whole contract, while LTV merely seeks damages for a breach. Even on that technical formulation, this case is fully comparable. Since plaintiff seeks all of its unreimbursed costs after May 8, its claim is the exact equivalent of a demand that the contract be deemed ended as of that date. LTV wishes to be placed m the same position as if it had terminated all performance and all obligations at that time — just as the defendant unsuccessfully sought to do in Acme and DeVito.

More fundamentally, we think that plaintiff does not meet the general standard which the law has been developing for a non-defaulting party, aware of a material breach, who desires to maintain the contract alive and functioning. Acme, DeVito, Northern Helex, and the provisions of the Uniform COMMERCIAL Code discussed in the Delew opinion, are but illustrations of the basic principle calling for fair treatment of both parties — -weighing the advantages to the injured side of continuing performance (with or without reservation of rights) against the disadvantages to the defaulter, and requiring that due opportunity be given the latter to make use of the options then lawfully available to him. However the legal conclusion be framed, in terms of “waiver” or “election” or “estoppel”, that is the core concept.

In this instance, LTV made its calculation entirely in its own favor, without proper consideration of the defendant’s position. If plaintiff had stopped performance in September claiming a breach, the Navy would then know that the United States might be liable for plaintiff’s costs from May 8 to that time, but it would also be free of any costs from September forward (including the $315,000 the Government itself expended thereafter). If plaintiff had continued performance but at the same time reserved its right to claim a breach, the defendant would have had the choice whether to terminate the contract entirely at that time (which it still had the right to do, cf. Nolan, Bros., Inc. v. United States, 186 Ct. Cl. 602, 606-10, 405 F. 2d 1250, 1253-55 (1969)) or to continue at the risk of having to pay greater damages and incurring additional costs. The record suggests the probability that, if plaintiff had then uttered such a reservation, this government right to terminate would have been exercised since the Navy was adamant against funding an overrun. In any event, if the United States had been timely warned, it would have been able to make its own choice whether or not to end performance at once, and it is this choice of which the defendant was deprived.

By omitting both of these steps, the contractor in effect retained all options for itself. Not aware of the undisclosed claim of a breach, the defendant allowed the contract to continue to completion (under the arrangement the Navy thought it had) and did not terminate. Thus, if LTY’s Tac/ Nav system survived the Navy’s tests and the contractor sold enough of the product to the Government, plaintiff would be reimbursed for all its expenses and make a profit. It could then forget about the breach claim which would be mooted for practical purposes. On the other hand, if the product failed (as it did), the contractor would be in a position to seek reimbursement through a breach suit. The result would be to protect LTV in all eventualities, at the expense of the Government’s rightful interests. It makes no difference that plaintiff may not actually have had this conscious design from September 1962 on. The patent inequity to defendant flows from LTV’s overt conduct in the way it shaped events, not from any subjective bad faith. The short of it is that, whatever its intentions, plaintiff did not act reasonably and fairly toward the Government when it continued performance after early September, without giving any indication of its misrepresentation claim. For that reason we hold it precluded from recovering on that demand.

There is an alternative claim of mutual mistake, on which little need be added. Though we assume arguendo a mutual mistake in May 1962 that plaintiff’s Tac/Nav system was the only available and viable one, we cannot read the record as showing that, if the truth had then been known, the Navy would have agreed at the time to pay for the over-run. Government resistance to further federal funding was too strong to permit any such inference mmc fro tunc; the more likely result would have been termination by mutual consent in May. Cf. Evans Reamer & Machine Co. v. United States, 181 Ct. Cl. 539, 550-53, 386 F. 2d 873, 879-81 (1967), cert. denied, 390 U.S. 982 (1968); Southwest Welding & Mfg. Co. v. United States, 179 Ct. Cl. 39, 51-54, 373 F. 2d 982, 989-91 (1967); Chernick v. United States, 178 Ct. Cl. 498, 506-07,372 F. 2d 492, 496-97 (1967). Furthermore, plaintiff’s silence after September 6 militates against this reformation-rescission claim, as well as against the breach count. If the defendant had then been told that the contract was bottomed on a mistake and that LTV wished reformation or rescission, the option of immediate termination (or of rescission) would have been available to the Government and probably would have been exercised. A very large amount of government money and effort would have been saved. “We are rightly admonished, in the region of mutual mistake, to seek just solutions.” National Presto Industries, Inc. v. United States, 167 Ct. Cl. 749, 768, 338 F. 2d 99, 111 (1964), cert. denied, 380 U.S. 962 (1965) (emphasis added). It is plainly inequitable to reform or rescind the agreement in 1973 at defendant’s expense when plaintiff foreclosed the Navy in 1962 from freeing itself at that time from the mistaken bargain.

The same reasons doom LTV’s suggestion that it be at least awarded a quantum meruit recovery; there is no way to balance the detriment to the Government occasioned by plaintiff’s silence after September 6th against any benefit the Navy may have obtained from plaintiff’s development work under the contract. In addition, the trial commissioner found, and we agree, that this record “does not contain any evidence on the basis of which the value which the Navy derived from the plaintiff’s developmental work under the contract could be expressed in financial terms.” Cf. Boyajian v. United States, 191 Ct. Cl. 233, 254, 423 F. 2d 1231, 1244 (1970).

The plaintiff is not entitled to recover and its petition is dismissed.

Findings op Fact

The court, having considered the evidence, the report of Trial Commissioner Mastin G. White, and the briefs and arguments of counsel, makes findings of fact as follow:

1. (a) The plaintiff, Ling-Temco-Vought, Inc. (“LTV”), is a corporation, duly incorporated under the laws of the State of Delaware.

(b) During all times pertinent to this case, the plaintiff’s business was primarily with the Government. As of April 1962, the plaintiff’s annual sales were approximately $325,000,000 to $350,000,000, of which approximately 90 percent was to the Government, with 85 percent being with the Department of Defense, of which some 50 percent to 60 percent was with the Navy Department.

2. (a) During the early portion of the 1960’s, there was in existence a corporation known as Frederick Fenski & Miller Electronics, Inc., or FF & M Electronics, Inc. (“FF & M”).

(b) FF & M’s business included the manufacture and sale of large-screen display systems for commercial applications. One of the large-screen display systems that FF & M produced employed an electro-mechanical technique, and was sold under the trade name of Iconorama.

3. The Bureau of Ships, United States Navy (“BuShips”), is an agency of the defendant.

4. (a) The invention of radar prior to World War II gave the United States a tremendous advantage during the war, because it enabled the United States to obtain and maintain air superiority, especially in the Pacific Theater of Operations. With the advent of radar, however, it became necessary for the Navy to take the raw information supplied by the radar, which was nothing more than a blip on a 10-inch or 12-inch cathode ray tube, and display it in a meaningful manner to the personnel in the Combat Information Center (“CIC”) of a warship.

(b) During World War II, the Navy utilized a relatively simple display technique. A radar operator with hand cranks controlled the movement of a dot, or “bug,” on the surface of the radar screen. When the bug was moved to the spot on the radar screen where a blip representing a target appeared, mechanical dials which were geared to the hand cranks would provide a read-out of the range or distance of that target from the ship carrying the radar, as well as the heading or direction of the target. Thus, a reading of 150 and 30° would indicate that the target on the radar screen was 150 nautical miles away in a direction that was 30° east of due north. Once this information was ascertained, the radar operator, through a telephone headset and mouthpiece, verbally conveyed the information to a second operator standing at a large vertical plotting 'board on which were inscribed concentric circles. Each circle represented a fixed distance from the ship, and the top of the board represented due north. The board’s operator would place a mark with a grease pencil on the board to represent the target picked up on the radar. When the radar operator called over new information on this target, the board operator would place another mark on the board to represent the target’s new location. In this manner, it was possible not only to ascertain the present location of a target, and the direction it was moving, but also to calculate its speed relative to the speed of the ship.

(c) During World War II, when aircraft speeds were relatively slow, this manual plotting system adequately permitted commanders to stay abreast of the situation. However, with the introduction of high-speed jets and missiles, the voice communication and manual plotting technique became inadequate, particularly in so far as anti-air warfare (“AAW”) was concerned.

(d) In attempting to improve this situation, one of the methods which the Navy investigated was an automatic plotting board. With this system, the radar operator’s function was identical with that previously explained in paragraph (b) of this finding, except that instead of conveying the information by voice, it was conveyed by electrical impulses to a device that pointed a light projector at the appropriate point on the vertical plotting board, and a mark would then be made at that spot. Marks would subsequently be made at other spots in a similar fashion as the target changed its position.

(e) During the late 1950’s and early 1960’s, a requirement existed for a large-screen display for CIC use, but there did not then exist a high-speed electronic plotting technique which could produce a large-screen display, and the electromechanical techniques similar to that utilized in FF & M’s Iconorama, which were available for large-screen displays, could not respond with the required speed, nor could they adequately display the large number of targets involved in the AAW situation.

(f) In addition to the AAW function previously mentioned, the Navy also has forces devoted primarily to antisubmarine warfare (“ASW”). These forces consist of relatively slow-speed, fixed-wing airplanes and helicopters, as well as surface ships and submarines. The ASW environment is very different from an AAW environment, in that it has fewer targets, as well as a much slower-moving situation than that experienced in the AAW environment.

5. (a) Of the large-screen display systems that were in existence during the early 1960’s, FF & M’s Iconorama was the only one that was available for shipboard use. However, the Navy regarded the commercial-type Iconorama as incapable of keeping track adequately of the large number of high-speed targets (jet aircraft and missiles) involved in the anti-air warfare environment.

(b) In order to study FF & M’s Iconorama in a shipboard environment and, if possible, to develop it into a satisfactory large-screen display system for CIC use aboard warships, the Navy (acting through BuShips) : (1) purchased a commercial-type Iconorama “off the shelf” and installed it aboard the U.S.S. Randolph for experimentation and observation; and (2) in 1961 entered into a contract with FF & M, which 'basically required FF & M to adapt its Iconorama to military standards and requirements, and to produce two prototypes of the system thus revised. The device which FF & M contracted to produce was to be called a Tactical/ Navigational Display System (“Tac/Nav”). (For the sake of convenience, the contract mentioned in item (2) of this paragraph will usually be referred to hereafter in the findings as “the contract.”)

(c) Diming the spring of 1962, FF & M having been acquired by and merged into LTV, the latter was substituted for FF & M as the contractor*. December 31,1961, was retroactively made the effective date of this substitution.

(d) The contract required the plaintiff to design, fabricate, test, and furnish two Tac/Nav systems, together with preliminary drawings, working drawings, preliminary technical manuals, final technical manuals, various reports, and 60 man-days of engineering services to assist in the installation and checkout of the systems. All work, except the furnishing of the reports and the engineering services, was to be completed by June 30,1962. The work was to be done on a cost-plus-a-fixed-fee basis; and the contract included an estimated cost schedule. The contract, as awarded, also included a spare-parts option that could be exercised by BuShips.

(e) Both contracting parties knew at the time when the contract was entered into that the two Tac/Nav systems were being purchased by the Navy for evaluation purposes.

(f )■ The contract contained a “LIMITATION OF COST” clause reading as follows:

(a) It is estimated that the total cost to the Government, exclusive of any fixed fee, for the performance of this contract will not exceed the estimated cost set forth in the Schedule, and the Contractor agrees to use his best efforts to perform the work specified in the Schedule and all obligations under this contract within such estimated cost. If at any time the Contractor has reason to believe that the costs which he expects to incur in the performance of this contract in the next succeeding thirty (30) days, when added to all costs previously incurred, will exceed eighty-five percent (85%). of the estimated cost then set forth in the Schedule, or if at any time, the Contractor has reason to believe that the total cost to the Government, exclusive of any fixed fee, for the performance of this contract will be substantially greater or less than the then estimated cost thereof, the Contractor shall notify the Contracting Officer in writing to that effect, giving his revised estimate of such total cost for the performance of this contract.
(b) The Government shall not be obligated to reimburse the Contractor for costs incurred in excess of the estimated cost set forth in the Schedule, and the Contractor shall not be obligated to continue performance under the contract or to incur costs in excess of the estimated cost set forth in the Schedule, unless and until the Contracting Officer shall have notified the Contractor in writing that such estimated cost has been increased and shall have specified in such notice a revised estimated cost which shall thereupon constitute the estimated cost of performance of this contract. When and to the extent that the estimated cost set forth in the Schedule has been increased, any costs incurred by the Contractor in excess of such estimated cost prior to the increase in estimated cost shall ,be allowable to the same extent as if such costs had been incurred after such increase in estimated cost.

(g) The estimated cost set forth in the contract schedule was $464,153, exclusive of the spare-parts option and the estimated cost of spare parts. The fixed fee was to be $27,097. Thus, the estimated cost and the fixed fee totaled $491,850.

(h) At the time when the contract was entered into, and at all times thereafter through the month of May 1962, at least, the Iconorama was the only workable large-screen display system then in existence that was available for shipboard use.

6. (a) On March 16, 1962, the plaintiff advised the contracting officer that by March 31, 1962, it would have spent or obligated 85 percent of the $461-,753 estimated cost; that it was preparing a summary of costs to completion which it would submit by March 23,1962; and that it would request further funds to perform the contract.

(b) The plaintiff requested additional funding by its letter of March 27,1962.

(c) On March 28, 1962, the parties held a conference to discuss the request for additional funding. The plaintiff asked that the estimated cost be increased by $590,000, plus an additional $90,000 for out-of-scope work. BuShips told the plaintiff that it had not budgeted for or anticipated any cost overrun of such magnitude, and that it was not prepared to fund such an overrun. BuShips also stated that it would like to continue the contract, but not at the cost requested, and asked what changes could be made to reduce costs. Possible areas of cost reduction were discussed. The conference was then recessed until the next day so that the plaintiff could recompute the estimated overrun.

(d) On March 29, 1962, the parties conferred again. The plaintiff presented two letters dated March 29, 1962. One listed 10 changes that could be made to reduce the proposed increase in the estimated cost of the contract from $590,000 to $358,028. It also showed the estimated cost of out-of-scope work as $86,069 (plus a fixed fee thereon of $5,164), for a total estimated cost increase of $444,097 and a total funding increase (cost plus fee) of $449,261. This would revise the total funding from $491,850 to $941,111. The second letter tabulated the additional fmids required as out-of-scope $86,069, fixed fee $5,164, and overrun anticipated $358,028, for a total of $449,261. BuShips told the plaintiff that it would attempt to secure the requested additional funding.

(e) By means of a telegram dated March 30, 1962, Bu-Ships notified the plaintiff that “the contract is hereby modified to increase the total estimated cost * * * by $358,028 * * Modification No. 3 was signed by the contracting 'officer on April 18, 1962, and by the plaintiff on April 24, 1962. It generally incorporated the agreement achieved at the conference on March 29, 1962. It increased the estimated cost by $358,028 to $822,781, and extended the completion date (except for the furnishing of engineering services and reports) to August 15,1962.

7. (a) During April 1962, the plaintiff concluded that the cost of completing the contract (without considering the cost of out-of-scope work) would exceed by some $250,000 the then-current estimated cost of $822,781.

(b) At about the end of April 1962, the plaintiff asked for a conference with BuShips; and one was held on May 3, 1962. The plaintiff’s purpose was to present a request for a further increase of $250,000 in the estimated cost of the contract. At the conference, however, the conferees did not discuss the dollar amount of any additional increase in the estimated cost of the contract. Instead, the plaintiff was given what it characterized as a “stern lecture” on overruns, and was told that BuShips would not fund or accept an overrun, and that instead, if an increase in the estimated cost was requested, BuShips would terminate the contract. On the other hand, BuShips pointed out various factors (see finding 8) which indicated that it would be a good business risk on the part of the plaintiff if the plaintiff would complete the performance of the contract at its own expense.

8. (a) At the conference on May 3, 1962, the principal spokesman for BuShips was Captain Francis H. Cunnare, the head of Code 665 in BuShips. Code 665 had entered into and was administering the contract for BuShips and the Navy.

(b) Captain Cunnare and his staff displayed to the plaintiff very elaborate charts which outlined the Navy’s requirements for large-screen display systems in the future, based on the number of aircraft carriers and destroyers in the fleet.

(c) Captain Cunnare stated that the Navy had firm requirements for production quantities of a large-screen display system similar to the Tac/Nav system that was being developed by the plaintiff under the contract, that these requirements were already programmed by file Navy, and tkat the Navy planned to put large-screen display systems on a large number of ships. Captain Cunnare’s presentation showed a requirement for the installation of large-screen display systems aboard 14 aircraft carriers over a period of approximately 5 or 6 years, an immediate requirement for 74 large-screen display systems aboard destroyers, and a total requirement for 850 large-screen display systems aboard destroyers over a period of from 5 to 8 years.

(d) Captain Cunnare stated that the plaintiff’s Iconorama system — the commercial system from which Tac/Nav was being developed — had been the subject of testing and evaluation by the Navy on board the U.S.S. Randolph, and that a report very favorable to the Iconorama had been issued by the U.S. Naval Operational Test and Evaluation Force (“OP/TEV/FOR”).

(e) Captain Cunnare indicated that there was a high degree of acceptance of the concept of the Tac/Nav display system in the Navy.

(f) In his presentation, Captain Cunnare in the most glowing terms indicated that the plaintiff, with its particular display system, was in a highly favored position with the Navy, since the plaintiff’s Tac/Nav system was the only large-screen display system which the Navy was considering for CIC use.

(g) Captain Cunnare told the plaintiff that it had the “inside track” over companies who might compete for future production business to supply large-screen displays to the Navy for CIC use, and that the plaintiff had a commanding position with respect to any possible competition, because, among the automatic large-screen display systems then in existence, the plaintiff’s system was the only workable one available for shipboard use. Captain Cunnare further stated that if the plaintiff would complete the performance of the contract, utilizing its own funds, it would gain a large market potential, since it would have an obvious lead over other companies with respect to obtaining production contracts to meet the Navy’s firm requirements for large-screen display systems,

(h) Captain Cunnare told tbe plaintiff that the scribing concept used by the plaintiff’s system was a scientific breakthrough.

(i) Captain Cunnare told the plaintiff that a large-screen display system for CIC use was a “must” for future warfare.

(j) Captain Cunnare told the plaintiff that its particular system was the best bet for meeting the current and future needs of the Navy for the large-screen display of information in CIC’s abroad ship.

(k) Captain Cunnare told the plaintiff that the Navy was not then considering any technique or concept other than Tac/Nav for accomplishing the large-screen display of information for CIC purposes.

(l) Captain Cunnare concluded that there was a “fantastic” market potential for the large-screen display system, which would justify the plaintiff in investing its own funds for the completion of the performance of the existing contract.

(m) One of the plaintiff’s conferees was its assistant comptroller. Using an anticipated selling price of $150,000 per Tac/Nav per destroyer and $250,000 per Tac/Nav per aircraft carrier, the plaintiff’s assistant comptroller estimated that the Navy’s requirements indicated sales in the amount of approximately $56,000,000 and, before taxes, a profit of approximately $5,600,000; and that if Tac/Nav systems were procured by the Navy only for three or four aircraft carriers and 74 destroyers, this would mean from 10 to 15 million dollars worth of business and a profit, before taxes, of from 1 to iy2 million dollars. He decided to discuss, and did discuss, the matter with plaintiff’s president, executive vice-president, and vice-president in charge of the military electronics division.

9. At the conference on May 3, 1962, both parties knew that the items under the contract had not yet been produced, had not yet been delivered, and had not yet been evaluated; and that the future ordering of additional systems by the Navy for installation in the CIC’s of warships was dependent on the two prototypes that were to be produced under the contract being able to perform satisfactorily when evaluated in a shipboard environment.

10. Mr. Bacsik and Mr. Wasserman, who had attended the conference on May 3,1962, as representatives of the plaintiff, outlined Captain Cimnare’s presentation to the plaintiff’s top management.

11. (a) On May 8,1962, the parties met again. The plaintiff’s vice-president in charge of the military electronics division was in the plaintiff’s group. The meeting lasted for some 3 hours.

(b) BuShips again told the plaintiff that it would not fund or accept an overrun; and that if overrun funds were requested, it would terminate the contract. BuShips again made a presentation similar to the one outlined in finding 8, as to the Navy’s requirements, as to the favorable reports on the plaintiff’s system, as to the plaintiff’s favorable competitive position if the contract were to be completed at the plaintiff’s expense, and as to the favorable prospects that would justify the plaintiff in funding the completion of the performance of the contract. While it is clear that BuShips wanted the contract completed, it also is clear that the plaintiff was not ordered or directed to continue with performance. The plaintiff at this crucial point in time had a right under the contract to discontinue performance of the contract; and if it had elected to do so, the plaintiff would have incurred little or no cost overrun.

12. (a) The plaintiff believed, on the basis of BuShip’s representations, that Captain Cunnare and Code 665 were in charge of the project to outfit the Navy’s ships with large-screen display systems, that Tac/Nav was the only system or technique which the Navy was considering, and that the plaintiff had a commanding position and the inside track with respect to its potential competition. Accordingly, the plaintiff believed that such risk as there was in the plaintiff’s completing the contract with its own funds constituted an acceptable risk.

(b) After these conferences, the plaintiff agreed to complete the performance of the contract with its own funds, and signed a letter to that effect.

13. On May 8, 1962, tbe plaintiff delivered to BuSliips a letter stating as follows:

8 Mat 1962.
To: Bureau of Ships, Department of the Navy, Washington 25, D.C.
Attn: Contracting Officer — Code 1716.
Subj: Contract NObs 86256.
Kef:
(a) FF&M letter Kef: 25-0856 dated 11 April 1962.
(b) FF&M letter Kef: 25-0855 dated 10 April 1962.
(c) FF&M letter dated 29 March 1962.
(d) Modification Number 3 to Contract NObs 86256 dated 18 April 1962.
1. Keference (a) advised the Contracting Officer that it was anticipated that 85% of cost funds would be expended or obligated on or about 28 April 1962. Estimate was based on cost funds allocated by Modification Number 3, reference (c) and out of scope funds requested by reference (b). Keference (a) also advised the Bureau that the contractor did not anticipate submission of a request for additional funds other than the out of scope funds as were requested by reference (b).
2. The contractor appreciates the importance to the Navy, of the equipment being procured under this contract and of the necessity of meeting precise delivery schedules in order that ship operations and deployment schedules will not be interfered with. The contractor wishes to assure the Bureau that every possible effort has been and will continue to be made to meet the amended contract delivery dates of one system on 1 July 1962 and the second system on 22 July 1962. Current estimates indicate that these dates will be met.
3. The contractor has proceeded in accordance with conference agreements of 28 March 1962 to eliminate a large number of substantial elements affecting cost and delivery, and is in urgent need of official confirmation of these deletions in order that the Los Angeles office of the Inspector of Naval Material may proceed in accordance with the Bureau’s authorizations and desires. Early receipt of contractual authorization to modify and incorporate these changes is an essential condition to meeting the delivery schedule and to the acceptance of firm cost negotiations.
4. A careful evaluation has just been completed of the entire program, with particular emphasis on the work schedule for the next seven weeks. There is evidence that the funding is marginal and that the presently allocated funds plus the out of scope funds either requested by-reference (b), or agreed to under the “Changes” clause, will not completely fund the program. However, the contractor confidently believes that he can control the over expenditure, and in line with this belief the contractor agrees to complete the program, modified as agreed to during the 28 March conference, without requesting additional overrun relief above and beyond the anticipated overrun funds of $358,028 included in reference (c) and Modification Number 3.
5. The contractor has taken significant and aggressive action to change the Management responsibility for operations in this plant and has made available the technical and manufacturing staff of Temco Electronics located in Garland, Texas as added insurance that the requirements of the contract will be met. Temco Electronics is a Corporate Division operating at approximately four times the business volume of the former FF&M electronics company, with years of experience in Naval electronics construction, further backed by the LTV Corporation, a contractor to the United States Navy for the past forty years.
Very truly yours,
/S/ R. C. Blaylock
Temco Electkonics
Display Systems Plant.
R. C. Blaylock
General Manager.

14. (a) It was not true as of May 1962 that the plaintiff’s Tac/Nav was the only technique or system which the Navy was then considering with respect to large-screen displays for CIC use.

(b) During the time frame in question, Code 685 was an organization in BuShips separate and apart from Code 665, the code that the plaintiff was working with under its Tac/Nav contract.

(c) On or about January 1, 1962, Code 685 began work on Specification Ships L-4256, which was a performance-type specification for a large-screen display system utilizing an electronic or photochromic technique. By May 8,1962, a substantial amount of the work on this specification had been completed. The completed specification was dated July 24, 1962.

(d) Thus, at tbe very time wben tbe representations referred to in finding 8 were made by BuSbips to tbe plaintiff, Code 685 of BuSbips was working on tire development of a specification for a large-screen display system for CIC use incorporating an electronic or photocbromic technique, as distinguished from tbe scribing concept used by the plaintiff’s equipment. Code 685 bad serious doubts regarding tbe desirability of procuring a large-screen display system using tbe scribing concept.

(e) One of tbe participants (other than Captain Cunnare) representing BuSbips at tbe conferences with tbe plaintiff on May 3 and 8, 1962, was aware at the time that Code 685 was working on tbe development of tbe specification referred to in paragraph (d) of this finding. This information was not disclosed to tbe plaintiff.

(f) As of May 8, 1962, none of tbe plaintiff’s personnel was aware that the Navy was considering a technique different from Tac/Nav for large-screen displays to be used in CIC’s aboard warships.

15. (a) On September 6, 1962, Code 685 published tbe following advertisement in tbe Commerce Business Daily:

U.S. Navy Department, Bureau of Ships, Washington, D.C.
RESEARCH AND DEVELOPMENT SOURCES SOUGHT
—Finns having demonstrated capabilities are sought to DEVELOP A SERVICE TEST MODEL LARGE SCREEN DISPLAY TO OPERATE AS A SUMMARY BRIEFING DISPLAY CAPABLE OF ACCEPTING DIGITAL INPUTS FROM A SHIP BOARD GENERAL PURPOSE COMPUTER AND VARIOUS RADARS. General Specifications for this large screen display are: 1000 line resolution; WTC 1 Visual Contract; Ratio, minimum of 8 half-tones; highlight brightness of 5 foot Lamberts Display and/or Generation of track history, symbols, lines, leaders and velocity vectors. Interested firms with security clearance of Confidential or higher having demonstrated development CAPABILITIES IN LARGE SCREEN DIGITAL DISPLAYS are invited to furnish not later than 24 Sept 62 the following info to U.S. Navy Department, Chief, Bureau of Ships (Attn: Code 109), Washington. 25, D.C. an outline of experience in the development of radar digital display and associated conversion equipment, background and experience of technical personnel who may be assigned to such project, a description of general and special facilities, an outline of previous projects, the total number of employees including all affiliates, and the type of industrial security clearance possessed. This Synopsis is not a request for proposal. Proposals may be requested later from sources possessing an industrial security clearance of Confidential or higher who are deemed qualified for this requirement based on evaluation results. If necessary, the Bureau will contact firm involved, but respondents are requested not to contact Bureau prior to solicitation of proposals. Firms selected for solicitation will receive detailed specifications.

(b) Subsequent to receiving responses to the advertisement of September 6, 1962, proposals were requested and received; and in April 1963 a contract was awarded to the Budd Company for the development of a large-screen display system utilizing an electronic or photochromic technique.

(c) As of February 1971, the large-screen display system developed by the Budd Company had been placed in the characteristics of two amphibious command ships by the Navy.

16. (a) The plaintiff completed the contract. In so doing, it completed the in-scope work as it existed on May 8, 1962 (as modified by later changes in specifications which increased the cost of performance and for which an equitable adjustment and commensurate increases in the estimated cost were made), and out-of-scope work added to the contract (which increased the cost of performance and for which the estimated cost stated in the contract was increased).

(b) After May 8, 1962, both parties proceeded on the understanding that the plaintiff’s promise to complete the contract at its expense extended only to the in-scope work, modified as indicated in the plaintiff’s letter of March 29, 1962. Both parties understood that the promise was not to complete, at the plaintiff’s expense, the contract as it might thereafter be changed. Therefore, whenever BuShips changed the contract by exercising options, adding ont-of-scope work, or making changes in the in-scope work, it added funds to cover the additional costs of such changes.

(c) Between October 17, 1962, when the plaintiff signed Modification 6, and August 19, 1964, when the plaintiff signed Modification 20, the contract was changed by Modifications 7 through 20. Modification 20 was the last modification to the contract. These modifications added several man-days for engineering services and sea trials, changed specifications, added parts, etc. Modification 13, signed in April 1963, changed the allowable costs article and the negotiated overhead rates article to substitute the Director of the Contract Audit Division for the Comptroller of the Navy, changes that would not have been necessary if the contract was a fixed-price contract. On an overall basis, Modifications 7 through 20 added $312,091.01 to the total estimated cost and brought the total to $1,542,959.01, and added $2,205 to the fixed fee and brought this total to $53,703. The total of the two was an estimated price of $1,596,662.01.

(d) The contract was not modified so as to require the plaintiff to complete it whether or not the cost exceeded the estimated cost set forth in the schedule.

(e) BuShips reimbursed the plaintiff for its expenditures in performing the contract, up to the amount specified in the estimated cost schedule of the contract, as modified, and paid the plaintiff the amount of the fixed fee specified in the contract, as modified.

17. (a) The Navy accepted the two Tac/Nav systems delivered under the contract and evaluated them in a shipboard environment (see paragraphs (b) and (c) of this finding). It paid the plaintiff approximately $1,588,606.56 under the contract. After evaluating the items, the Navy decided that they did not meet the current or anticipated requirements of the Fleet and, therefore, no contracts for the purchase of additional Tac/Nav systems were placed. As a result, the plaintiff’s expectations with respect to the additional business that it would receive after the contract was completed did not materialize, and the overrun costs which it had incurred in completing the contract could not be recouped out of profits it would have made on such additional business.

(b) During 1963, the Tac/Nav system was subjected to an OP/TEV/FOR evaluation test aboard the U.S.S. Essex, and the report issued subsequent to this evaluation indicated areas in which the Tac/Nav system produced undesirable results, with the primary fault noted being its inability to adequately display AAW data. It was unable to keep up with the large number of high-speed targets involved in an AAW environment.

(c) In 1964, in order to determine if the Tac/Nav system could perform satisfactorily in an ASW operation, another OP/TEV/FOR evaluation test was performed, this one aboard the U.S.S. Wasp. Subsequent to this evaluation test, which was critical of the Tac/Nav system and indicated that it did not perform satisfactorily in an ASW environment, the Chief of Naval Material issued an order that no further procurements of the Tac/Nav system would be undertaken by the Navy.

18. (a) Pending the evaluation testing of the two Tac/ Nav prototypes produced under the contract, as indicated in finding 17, the Navy had included a requirement for a Tac/ Nav type of system in the characteristics of several classes of ships, including the DE 1052’s, ocean mine sweepers, and mine command ships, as the Chief of Naval Operations considered it to be an essential system if it passed the evaluation testing.

(b) Subsequent to the Tac/Nav receiving an unfavorable OP/TEV/FOR evaluation, as indicated in finding 17, the specifications for the ships referred to in paragraph (a) of this finding were modified in order to remove the requirement for the Tac/Nav type of system.

(c) The evidence in the record warrants the inference, and it is found, that if the OP/TEV/FOR evaluation of the Tac/Nav had been favorable, there would have been a prompt procurement by the Navy of 26 additional Tac/Nav systems; that there would have been a subsequent procurement of at least 20 more Tac/Nav systems by the Navy; and that the number of Tac/Nav systems procured by tbe Navy would probably bave reached a total of approximately 100.

(d) Tbe evidence in tbe record warrants tbe inference, and it is found, that if tbe Tac/Nav system had received a favorable OP/TEV/FOR evaluation, tbe plaintiff’s completion of performance of the contract with its own funds would have resulted in a large market potential for the plaintiff, which bad a lead of several years over other companies with respect to obtaining contracts from tbe Navy for tbe production of large-screen display systems.

19. On or about September 6, 1962, the plaintiff became aware of the fact that Code 685 was interested in procuring a large-screen display system utilizing an electronic or photo-chromic technique. At that time plaintiff could easily have found out that this project of Code 685 was already in existence early in May 1962. However, the plaintiff continued to perform the contract and expended further funds of its own after September 6, 1962, in the performance of the overrun portion of the contract, knowing that the Navy did not intend to reimburse it for such funds and that the Navy thought and continued to think that plaintiff agreed to that course. Plaintiff did not protest to the Navy when it became aware in September 1962 of the existence of Code 685’s project.

20. The evidence in the record is sufficient to permit an inference to be drawn, and it is found, that the plaintiff would have agreed to complete, and would have completed, the remainder of the project under the contract at its own expense if the plaintiff had known in May of 1962 that the maximum potential market for Tac/Nav was probably limited to approximately 100 ships. The plaintiff would have estimated that this represented potential sales of approximately $15,000,000 and a potential profit, before taxes, of approximately $1,500,000. The cost of completing the project was estimated by the plaintiff in May of 1962 as amounting only to approximately $250,000.

21. (a) The nature of the Tac/Nav contract was experimental or developmental.

(b) Developmental work has some value, whether it succeeds or not.

(c) The work performed by the plaintiff under tbe contract constituted a good attempt to improve the capability of the warship CIC, and the Navy derived some benefit from the effort which the plaintiff put into the project.

(d) The plaintiff’s work under the contract was of value to the Navy in demonstrating a technique, just as other research and development work is of value whether it results in production or not.

(e) Research and development work is normally done on a cost-plus basis, just as the contract was let on a cost-plus basis.

(f) The record does not contain any evidence on the basis of which the value which the Navy derived from the plaintiff’s developmental work under the contract could be expressed in financial terms.

22. The unreimbursed portion of the plaintiff’s cost in completing the performance under the contract amounted to $1,022,973.27.

23. (a) The plaintiff filed with the contracting officer a claim for reimbursement of the amount which the plaintiff expended out of its own funds in completing the performance of the contract. This claim was denied by the contracting officer in a letter dated January 30,1967.

(b) The plaintiff appealed to the Armed Services Board of Contract Appeals from the contracting officer’s decision referred to in paragraph (a) of this finding. The board’s decision on the appeal was dated July 22, 1969 (ASBCA No. 12312). The board denied the claim insofar as recovery was sought under the contract, and it dismissed the claim for lack of jurisdiction insofar as recovery was sought on the basis of mutual mistake or misrepresentation.

CONCLUSION 03? LAW

Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes as matter of law that the plaintiff is not entitled to recover, and the petition is dismissed. 
      
      We are indebted to Trial Commissioner Mastin G. White for his opinion, the first section of which we incorporate. We reach the same port through a different channel.
     
      
       The petition asked for a recovery in the amount of $1,110,900, but the claim was later reduced by the plaintiff to $1,022,973,27.
     
      
       unknown to plaintiff, one of the Navy participants (other than Captain Cunnare) at the conferences on May 3 and 8, 1962, was aware at the time that Code 685 was working on the development of a specification of a display system with an electronic or photochromic technique.
     
      
       Plaintiff’s main argument on this aspect of the case is that there is no evidence that, when the plaintiff learned about the Code 685 program on September 6, it also knew (or learned) that that information had been withheld from it early in May 1962 — it says that, for all it knew, Code 685’s project might not have been in existence in May — and therefore that plaintiff did not know in September that the Navy had made a misrepresentation four months earlier. However, Code 685’s September advertisement shows on its face that the Navy had obviously been thinking for some time about that project, and we cannot believe that an easy inquiry by LTV, a very knowledgeable Navy contractor, would have failed to disclose that the other project was underway in May. If plaintiff did not actually learn this fact in September, it could and should have done so, and cannot now make a virtue of the blinders it chose to don.
      Plaintiff’s only other excuse for not ceasing performance in September is that, if it had done so, that would have been in breach of the post-May 8th modifications to the contract. Even if this were so, it would not excuse LTV’s failure to protest and make overt reservation of its rights. But, in any event, plaintiff’s legal position is incorrect; the Government’s material breach would have relieved the contractor of all its obligations under the contract and permitted it to elect to claim a total breach and to end all performance. Cf. Northern Helex Co. v. United States, 197 Ct. Cl. 118, 124-25, 455 F. 2d 546, 550-51 (1972).
     
      
       There may be exceptions or qualifications for such situations, governed by countervailing factors, as payments Illegally made by the Government. See Acme Process Equip. Co. v. United States, supra, 171 Ct. Cl. at 336, 347 F. 2d at 516; Acme Process Equip. Co. v. United States, 171 Ct. Cl. 251, 272-75, 347 F. 2d 538, 551-53 (1965).
     
      
       In the circumstances It would not be proper to allow plaintiff’s claim even If shaved down to the costs Incurred between May 8, and September 6, 1962. Because of the contractor’s conduct, the defendant Incurred very substantial expenses after the latter date and undertook the test evaluations. If plaintiff had alerted the Navy on time, the Government might have chosen to expend that money and effort In other, more productive, ways. There is no practicable method of assessing the net gains and losses. See also infra.
      
     
      
      
        See note 5, supra.
      
     