
    MAURICE L. BEIN, INDIVIDUALLY, AND MAURICE L. BEIN, INC. v. THE UNITED STATES
    [No. 44619.
    Decided December 6, 1943]
    
    
      
      Mr. Herman J. Galloway for the plaintiffs. Mr. Harry D. Ruddiman and King & King were on the briefs.
    
      Mr. Donald B. MacGuineas, with whom was Mr. Assistant Attorney General Francis M. Shea for the defendant.
    
      
      Defendant’s motion for new trial overruled May 1,1944.
    
   Whaley, Chief Justice,

delivered the opinion of the court:

The plaintiffs jointly and severally entered into a contract with the United States, through the Assistant Administrator of the Federal Emergency Administration of Public Works, to furnish the materials and perform the work for the construction of the superstructure, including the electrical overhead and underground distribution system, included by “General Work for Base Bid No. 6” for the Brewster Housing Project, No. H-1201, in Detroit, Michigan, in strict accordance with the specifications, schedules, and drawings, for the consideration of $2,971,000.

This housing project consisted of 38 buildings and occupied 7 city blocks in the city of Detroit. On four of the blocks the excavation for and construction of the foundations had been performed by another contractor before the contract with the plaintiffs was entered into. In three other blocks the plaintiffs were to excavate for and construct the foundations and to construct the buildings on the foundations on all of the blocks.

The project was to be completed within 410 calendar days after notice to proceed. The notice was given to plaintiffs on June 25, 1937, which fixed the completion date as August 9,1938, which change orders extended to September 5,1938.

The project was completed on August 11, 1938, 26 days before the completion date as extended. The plaintiffs were paid the sum of $3,001,090.76, which was the contract price plus certain charges which were agreed to by change orders. The plaintiffs executed a release to the defendant excepting in the release two claims for additional payment — (1) for increased cost, loss and damage resulting from heating and steam mains not being located as shown on specifications and drawings and change from heating buildings by heat from the Detroit Edison Compan 7/ to a central heating plant in the sum of $48,000.00; and (2) for reimbursement for money which plaintiffs were required to pay because of charges against site of -work by Public Water Works System of the City of Detroit in the sum of $5,077.41.

Plaintiffs seek to recover a muck larger sum in the petition but, having reserved only these two items and stated these several amounts, they are confined to only these specified items and amounts. P. J. Carlin Construction Co. v. United States, 92 C. Cls. 280, 305.

The first item involves the extra costs plaintiffs incurred in furnishing temporary heat. The whole plan as depicted in the contract, drawings, and specifications was conceived and based on the use of steam heat to be furnished by the Detroit Edison Company. This company had mains, vaults, and pipes laid in certain streets in the city of Detroit and furnished steam for the purpose of heating buildings. It was the intention of the defendant to use this system of heating in this project. All the plans, drawings, and specifications specifically show that plaintiffs’ contract was to cover only the plumbing that would connect with this system. The drawings show that a main was in the street adjacent to the project. The contract definitely states that the contractor is to construct a meter vault to this system after it has been brought into the ground of the project and the specifications state

Steam for the heating system will be supplied from the mains of the Detroit Edison Company * * *. Steam service piping will be brought by the Detroit Edison Co. to the point indicated in the meter vault indicated on block 500. The Contractor shall furnish the meter vault, and continue the piping underground to all the buildings * * *.

And the specifications further state

Steam for the heating system will be supplied from the source shown on the drawings, * * *.

The contract drawings plainly show a 14-inch main of the Detroit Edison Company in the street adjacent to the project running into the company’s valve pit in the street and from this main steam was to be brought by a 12-inch pipe into a meter vault on the premises and at a short distance therefrom connected with the Government’s steam main feeding the radiation system.

An investigation or inspection of the site would not have helped the plaintiffs. Had they discovered that the main of the Detroit Edison Company was not on the street adjacent to the project that would not have prevented the Detroit Edison Company from erecting the main and bringing its facilities to the property by the time the plaintiffs were ready to make the connections inside the property. When the note on the drawings showed “14" Detroit Edison Co. Main,” it was a reasonable presumption that were the main not there it would be there at the proper time. There are other notes on the drawings such as “D. E. Co. Terminates Steam Main here,” and “Contr. Connects to D. E. Co. Main here.” All these notes gave notice to the plaintiffs that the facilities of the Detroit Edison Company would be available when the connections had been made inside the project for the temporary heat which plaintiffs were to furnish. No examination or inspection of the site would have shown that situation.

Plaintiffs’ work was confined to the distribution of the heating and the connection with the Detroit Edison Company’s main. A permanent heating system, independent of the Edison Company’s is not mentioned in the contract, drawings, or specifications.

Under the instructions to bidders the specifications do provide that bidders are to make their own estimate of the facilities attending the execution of the proposed contract and are notified to visit the site to fully acquaint themselves with conditions as they exist, but, even without these instructions, a bidder looking at the drawings would have come to the conclusion that the main of the Edison Company’s system of heating was adjacent to the project or would be brought to the place marked on the map showing it adjacent to the project.

Before the contract was executed plaintiffs knew that the defendant was negotiating with the Detroit Edison Company for the use of its heating system in the project and plaintiffs subsequently sought terms with this company for the temporary heating.

The defendant and the Detroit Edison Company could not arrive at a satisfactory contract with the result that the defendant changed the plans for the heating system by installing its own plant.

The contract for the erection of this plant was given to another company but plaintiffs were given a change order for the installation of return pipe lines. The Detroit-Edison system did not use return pipe lines. The change of the plans of the heating system radically changed the basis on which both parties had contracted. Both believed that the heat could be obtained from the Detroit Edison Company. The defendant based the entire project heating lay-out and advertised for bids with the specifications and drawings based on obtaining heat from the Detroit Edison Company.

The plaintiffs made their bid, executed the contract and went to work relying on these statements. They were justified in making their bid with the understanding that temporary heat could and would be obtained from the Detroit Edison Company and that they would not be required to construct an independent heating plant.

If the bidders were not so justified, it is plain that in a project of this magnitude they would have had to bid that much higher, resulting, in the event that a hook-up with the Edison system became an accomplished fact, in unearned profit to themselves and a corresponding inexcusable loss to the Government. It is to be noted that the Government did not ask for alternative bids.

The contract provides under “Temporary Heating”:

1. The Contractor shall provide temporary heating, covering, and enclosures as necessary and to the satisfaction of the Contracting Officer to protect all work and material against damage by dampness and cold. * * *
2. The Contractor shall supply such heating equipment as may be required and/or he may utilize with the approval of the Contracting Officer the heating equipment to he installed, u/nder the Contract Documents, or such portions thereof as are ready and available, provided that he shall leave the same in proper and acceptable condition upon completion of the work. Salamanders or other open fires will not be permitted in the buildings after the buildings have been enclosed. * * * [Italics ours.]

This section of the specifications permits plaintiffs to elect whether they will erect their own temporary heating plant or use the Detroit Edison Company’s heating system. That system was the only one mentioned under the contract documents. The prohibition against the use of open fires or salamanders, combined with the fact that the heating system for the project did not provide for return pipes which are necessary for an independent heating system, necessarily forced the plaintiffs to rely on the temporary heat to be obtained from the Detroit Edison Company.

The defendant and the Detroit Edison Company were unable to agree on a fair and reasonable contract for the supply of heat to the project and the plaintiffs endeavored to procure temporary heat from the Detroit Edison Company but the price was prohibitive. The revenue which would have been derived from furnishing temporary heat did not justify the capital investment which the extension of the heating system to the location adjacent to the property would have necessitated. The Government having failed to make a contract for permanent heat, the Detroit Edison Company would not extend their system opposite the project unless the contractor would pay a revenue for the temporary heat which would cover the capital investment.

After the plans of the Government were changed so as to provide an independent heating system for the project and the plaintiffs were unable to procure temporary heat from the Detroit Edison Company, they were forced to erect their own temporary heating plant at a heavy extra outlay and now seek to recover the difference between the cost of this temporary heating plant and what it would have cost to provide temporary heat from the Detroit Edison Company under the original plans.

The positive statements in the contract as to the source from which heat was to be procured must be taken as true and binding upon the Government and loss resulting from the mistaken representation of an essential condition should fall upon the defendant rather than upon the plaintiffs even though there are provisions in other paragraphs of the contract requiring the contractor to make independent investigations of facts. Hollerbach v. United, States, 233 U. S. 165.

Plaintiffs are entitled to recover the extra cost caused by the defendant’s change in the contract.

Plaintiffs expended for salamanders $321.88 and for labor $3,960.09, making a total of $4,281.92; for the erection and demolition of the temporary heating plant, including labor, etc., as shown in Finding 22, the sum of $23,896.71; and on the operation of this temporary plant, including fuel, labor, etc., as shown in Finding 22, the total sum of $18,689.22.

The combined costs of temporary heat were $46,867.85 from which must be deducted the cost which the Edison Company would have charged for temporary heat, viz, $32,142, leaving a balance of $14,725.85. This sum the plaintiffs are entitled to recover.

The second claim is for back charges plaintiffs were forced to pay before the Water Department of the City of Detroit would issue permits to connect with the water supply. When the property was cleared the Water Board had removed and capped the old water stubs and charged against the property for this work the sum of $5,077.40.

When application was made by the plaintiffs for permits to make the water connections with the buildings the Water Board refused to issue permits unless these back charges were paid. In order to proceed with the work plaintiffs paid this sum under protest in addition to the charges for the permits. When plaintiffs were notified of the refusal of the Water Board to issue permits until these back charges had been discharged, they called upon the defendant to clear this indebtedness. The defendant ruled under the contract that plaintiffs were obligated to pay this sum. This ruling upon appeal was affirmed by the head of the Housing Authority.

The contract provides under the heading of “Permits”:

1. The contractor shall, without additional expense to the Government, obtain all required licenses, permits, certificates, etc., for work outside the Government’s property lines, relating to the use of streets and sidewalks, the protection of public traffic, connections to utility service lines, etc. The Contractor will not be required to obtain building or other permits for work inside the Government’s property lines.
2. The Contractor is cautioned, however, that when it is his responsibility to make connections to City and other Utility Lines, the fact that the Government does not require the obtaining of permits for work inside the Government’s property lines, does not excuse the Contractor from doing all things required by the City or Utility Company controlling said lines as a condition precedent to the granting of permission to tie into the lines.

In Addendum No. 2 it is provided:

The contractor shall provide and/or arrange with the Detroit Water Board to provide the required water service piping, shut off boxes, valves, meters and meter installation as indicated on the drawings and in accordance with the Detroit Water Board standards, and shall pay all costs in connection therewith.

These sections apply to permits and charges which are necessary to be procured and paid after the contract was entered into and have no application whatsoever to charges which were incurred or charged against the property while cleaning the site or for any other reason. It was the defendant’s responsibility to clear the site and these back charges had no connection whatsoever with obtaining the permits, etc., for the work which plaintiffs had contracted to perform. They constituted an indebtedness against the property and not an obligation undertaken in the contract. When the contracting officer and the head of the department ruled that plaintiffs had to discharge these back charges it was a misinterpretation and wrongful construction of the contract provisions. Plaintiffs are entitled to recover $5,077.40 on this claim.

The decisions of the contracting officer and the head of the department on appeal on both issues were so grossly erroneous that they should be set aside as amounting to bad faith.

Plaintiffs are entitled to recover $19,803.25.

It is so ordered.

Whitaker, Judge, and Littleton, Judge, concur.

Whitaker, Judge,

concurring:

I concur in the foregoing opinion, but I should like to add the following:

I think we are bound by the decisions of the contracting officer and head of the department if there is any substantial basis for them; but I do not think there is. I am convinced that the contract documents left no room for doubt that the Detroit Edison Company was to furnish the heat for the buildings and that this source of heat would be available for the necessary temporary heat; and that, this being true, there was no reasonable basis for the ruling of the contracting officer and the head of the department that the contractor was obliged to go to the extra expense of obtaining temporary heat through other means.

I am also convinced that no reasonable man could have interpreted the contract documents to require the plaintiffs to pay the charge of the water company, for which they were in no wise responsible and which, indeed, wras incurred before they entered upon the performance of the contract.

This being true, I think under numerous decisions of this court and of the Supreme Court we have authority to set aside the contracting officer’s decision and render that decision which the facts demand.

In Rego Building Corporation v. United States, 99 C. Cls. 445, we cited numerous decisions of the Supreme Court on the duty of the contracting officer under contracts similar to this one, and on the power of this court to set aside his decisions. The Supreme Court in them said that a contracting officer is under the duty of acting impartially in settling disputes; he is not to act as the representative of one of the contracting parties, but as an impartial, unbiased judge, and it said that if he fails to so act, but acts arbitrarily, or if his decision is so grossly erroneous as to imply bad faith, that this court has jurisdiction to set aside his decision.

Some contracting officers regard themselves as representatives of the defendant, charged with the duty of protecting its interests and of exacting of the contractor everything that may be in the interest of the Government, even though no reasonable basis therefor can be found in the contract documents; but the Supreme Court has said that in settling disputes this is not his function; his function, on the other hand, is to act impartially, weighing with an even hand the rights of the parties on the one hand and on the other.

So, when a case comes before us in which the contracting officer rules against the contractor, and there is no substantial basis in the contract to support his ruling, or no substantial evidence to support it, or when his decision is grossly erroneous, we can hardly conclude that he has acted impartially; we can hardly say that he has been faithful to his duty to render impartial decisions; or, to paraphrase the language of prior decisions, that he has acted in good faith.

I think there was no substantial basis for the contracting officer’s decision on either question in this case, and that, therefore, we have the right to set it aside and render that decision which we think should have been rendered by him.

For these reasons I concur in the result reached..

Madden, Judge,

I agree with the decision that the plaintiffs are entitled to recover on both counts of their claim. I would, however, base that decision upon somewhat different grounds.

Under the terms of the contract, the contractor entrusted to the contracting officer, subject to an appeal to the head of the department, large powers of decision with reference to important matters. Under Article 16 of the contract, that official’s power was not, as is frequently the case, expressly limited to deciding disputes as to questions of fact. The words of the contract purported to give him the powers of decision of “all * * * disputes concerning questions arising under this contract * * *” with exceptions not material here. The Government urges that this court is foreclosed by this provision from all except a very narrow field of decision, i. e., whether the decisions of the contracting officer and the head of the department wrere “so grossly erroneous as to imply bad faith.” It urges that, whether the decisions of the officials be decisions of questions of fact or questions of law, the proper function of the court is equally limited, by a contract written as this one is written.

I think the first task of the court is the construction of Article 15 to ascertain what the parties meant by it. When a contractor with the Government signs a contract containing such language, he must recognize that he is entrusting to the agents of the other party powers of great potential harm to him. He is, perhaps, willing to do this in the case of the Government when he would not be willing to so contract with a party other than the Government, for various reasons. One is that the Government is a large and desirable customer for contractors, and therefore he cannot afford to object to the terms which it, because of the large number of its contracts, has stereotyped into all of them. Another is that while the officers to whom the contract delegates powers of decision are agents of the Government, the other contracting party, they are also public officials who, as such, are presumably worthy of trust, and they have no financial interest in the questions which may arise under the contract which interest would cause them not to be impartial. But, after having suggested reasons why a contractor is willing to sign such a potentially disadvantageous contract at all, we still have for determination the question of how much he meant to sign away when he agreed to Article 15.

The Government concedes that Article 15. does not mean what it literally says, when it concedes that there is a narrow range of decision left to us. This means, I suppose, that the contractor did not intend to submit, without judicial review, to a decision of the officials named in the contract which decision a court, if it had jurisdiction to decide the question, would classify as “so grossly erroneous as to imply bad faith.” I think that the contractor did not intend to go even quite that far, though I recognize that the distinction which I suggest may be only a verbal one. If a court in which the contractor seeks relief can justify its taking hold of the case only by applying such strong language as “arbitrary,” “capricious,” “so grossly erroneous as to imply bad faith,” then the contractor has a nearly impossible burden if he seeks relief in court. Public officials who become heads of departments and contracting officers are only rarely guilty of conduct which merits such language of condemnation. Hence, unless courts merely use the strong language when in fact they mean something else, as, e. g., that they are unable to see any evidence of any substantial weight to sustain the official’s decision, the administrative determination under Article 15 is final in practically all cases.

I think that the contractor does not intend, when he agrees to Article 15, to submit without judicial review to' a decision, when all the substantial evidence and all the relevant data normally considered in arriving! at such a decision are against the decision. I cannot imagine why any contractor would be willing to make such a bargain, or why the Government would want him to make it. It would follow that he had not made it, and had reserved a right to submit to a court the question of whether he had been subjected to such a decision.

This conclusion would recognize, of course, that not only the official who made the administrative decision, but also the reviewing court, are human beings, and that what seemed to the official to be evidence of substance may not seem so to the court, -and that the court may, in a particular case, be wrong and the administrative official right. These human variations cannot be escaped whether the review be of the weight of the evidence, or its existence. And when the administrative official, at first, and the court, at last, have decided upon the basis of what each can see, they have done all that can be done. Neither should be required to apply epithets to the other, as a condition precedent to jurisdiction.

The relation between judge and jury, the relation between quasi judicial fact finders and reviewing courts, have been, in this respect, what I think the relation is between this court and the officials named in Article 15 of Government contracts. I see no reason why that relation would not work out as well, in practice, in the latter case as in the former ones.

In applying what I have said above to the instant case, both as to the question of the temporary heating and that of the charges made by the City of Detroit for removing old water pipes, all the evidence and other relevant data which are of substance seem to me to go against the decisions of the administrative officials. I think it was assumed, without qualification, by both parties to the contract that the steam line of the Detroit Edison Company would be available for temporary heat, and that that assumption, being of importance in computing the amount of the plaintiffs’ bid, became a part of the contract. I think that, as to the water pipes, the Government was under a duty to make the premises available for the plaintiffs’ work, and that the language of the contract imposing on the plaintiffs the duty to obtain licenses is not susceptible of application to these charges made by the city. For these reasons I think the court is right in deciding these questions on their merits, and giving the plaintiffs the relief which it has given.

Littleton, Judge, also concurs in the two foregoing concurring opinions.

Jones, Judge, took no part in the decision of this case.  