Syllabus THOMAS E. ZODA v. THE UNITED STATES [No. 353-55. Decided January 20, 1960] ON THE PROOFS Contracts; breach-termination.—In an action by plaintiff to recover da mages resulting from the allegedly unjustified termination by defendant of its contract to manufacture and deliver cathode ray oscilloscopes to the United States, it is held that although the Government waived the delivery requirements of the contract, the record shows that it thereafter gave the plaintiff a reasonable time within which to make delivery and that the plaintiff, despite promises to deliver, did not do so and was not able to do so because of financial difficulties, and, accordingly, defendant was not unreasonable in terminating the contract for default. The court further held that the defendant was entitled to recover on its counterclaim for excess costs incurred by the Government upon reletting the contract, such reletting having been proper. United States 72(7), 73(3), 75 the Government has waived the time limitations contained in United States 72 (8) Contracts; termination-for default; reletting of contract terminated for default-rights of Government.-After terminating its contract with plaintiff who was in default, the Government obtained bids from all the original bidders except one who was at that time experiencing technical problems in production, and it let the contract to a company with whom it had consulted regarding the work prior to terminating plaintiff's contract. Under the circumstances of the case, the court found neither action constituted impropriety on the part of the Government officials. United States 73(4) Mr. Norman Roth for the plaintiff. Mr. Max E. Green berg as on the briefs. Mr. William A. Stern, II, with whom was Mr. Assistant Attorney General George Cochran Doub, for the defendant. Opinion of the Court 148 C. Cls. LARAMORE, Judge, delivered the opinion of the court: Plaintiff, the assignee of Television Equipment Corporation (hereinafter referred to as TEC) sues to recover damages for the alleged unjustified termination of a contract to manufacture and deliver cathode ray oscilloscopes. Defendant is counterclaiming for excess costs on reletting. The facts briefly are these: Plaintiff, on September 22, 1950, entered into a contract with the United States acting through the Civil Aeronautics Administration (hereinafter referred to as CAA) for the manufacture and delivery of 606 VHF cathode ray oscilloscopes for the sum of $105,965.16. Prior to the award of the contract, TEC's plant was inspected by representatives of CAA. These representatives informed TEC that its testing equipment was inadequate. However, notice to proceed with performance under the contract was given TEC by the CAA on October 6, 1950. The contract provided for the delivery of an initial unit 60 days from and including the effective date of the notice to proceed, 10 units within 30 calendar days after receipt by the contractor of the Government's approval of the initial unit, and remaining units at the rate of 40 units each 7-calendarday period thereafter. The specifications of the contract provided that the oscilloscopes to be manufactured included a VHF (very high frequency) component having an impedance of 1,000 ohms and a sensitivity of 3 volts per inch of deflection and the vacuum tube amplifier could not be used therein. This component had never been manufactured commercially before this contract. On October 11, 1950, TEC wrote to CAA setting forth a resume of the engineering problems presented in connection with the work under the contract in suit. As part of its solution to such problems, the use of a vacuum tube amplifier was suggested. On October 20, 1950, CAA replied by letter stating that the use of a vacuum tube amplifier should be avoided, if practicable, because of certain undesirable results which were experienced from such use. This letter reads in part as follows: 49 Opinion of the Court In view of these facts it is suggested that an experimental unit be constructed so that measurements may be made to determine the maximum deflection sensitivity which can be expected in practice without the use of vacuum tube amplifiers. It is requested that we be advised as soon as the information is available regarding the maximum deflection sensitivity which can be achieved for input impedances of 500 ohms and 1000 ohms. Please do not hesitate to advise if we may be of any assistance since we believe that rather close liaison between your company and ourselves is desirable at this stage of the contract. Engineers employed by TEC found it difficult to produce the specification component without the use of a vacuum tube amplifier. Since this use was forbidden by the specifications, TEC, by letter, suggested certain modifications to the contract specifications, the most important of which was the lowering of the requirement of input impedance from 1,000 to 500 ohms. The letter concluded: There will be no modifications in contract price or time required by us for the above changes in specifications. CAA replied by letter stating that the suggested specification modifications had been approved. The letter concluded: No change in contract price or time is entailed and issuance of the change order by the Procurement Branch will be your official notification of the modification of the specification requirements. Change Order No. 1 was accordingly issued and provided: No change in contract time or price is involved. Change Order No. 1 resulted in the easing of the original requirements. By January 11, 1951, because of large scale purchases growing out of the Korean incident, TEC had difficulty in obtaining the material deliveries. Consequently, TEC requested a defense order number (a priority) which was issued. This priority was forwarded to TEC on January 24, 1951. On February 8, 1951, TEC's engineers brought an engineering model of the oscilloscope to the CAA in Washington. Opinion of the Court 148 C. Cls. It was demonstrated and did not function properly. After two days spent in rearranging components and building aluminum shields for various circuits, TEC took the model back to its plant with the understanding that TEC would advise CAA when the oscilloscopes would be ready for testing. On March 14, 1951, arrangements were made for testing TEC's engineering model oscilloscope at Poughkeepsie, New York. In the course of making such arrangements, TEC advised Mr. Bartholomew, CAA's project engineer, that 30 percent of the material needed for the contract in suit was on hand or under firm commitment from the supplier. TEC further advised that orders had been placed on all components and that it was preparing a letter to be sent to CAA's expediter for assistance in difficult phases of procurement. On March 16, 1951, CAA's engineers witnessed tests of an engineering model of the oscilloscope. The engineer reported that with further corrections the model would meet specifications. TEC reported that it would freeze the design of the scope and proceed to set up production as fast as delivery of component parts would allow. CAA requested that TEC advise it of any encountered problems which would delay delivery, in order that it (CAA) might do all it could to insure deliveries of these equipments. On April 4, 1951, a representative of TEC telephoned CAA and stated he had been spending nearly all his time expediting delivery of materials and components for the contract and that he hoped to commence production work on the following Monday. He stated that several components were still in short supply but that the first unit would probably be ready for testing within the next three weeks. On April 6, 1951, TEC's sales engineer called CAA asking whether it would be possible to cancel the contract, stating that it was learned that contract material costs amounted to $170 per unit, whereas the contract price was $174 per unit. This request for cancellation was apparently coupled with a request for a contract renegotiation. At any rate, TEC was advised that two courses were open to it-(1) to cancel the contract for non-performance with excess costs on reletting, or (2) performance by TEC of the contract. TEC was also 49 Opinion of the Court told that CAA was without authority to change their contract arrangement. On April 26, 1951, TEC informed CAA that it intended to proceed with the contract and further stated that it (TEC) hoped to have two pre-production models ready for preliminary Government inspection sometime the following week. On May 11, 1951, CAA wrote to TEC's president reminding him that the contractor had hoped to have two preproduction models ready for preliminary inspection sometime the first week in May but that as of that date CAA had received no information as to the status of the work or what TEC proposed to do about the contract. CAA further requested that TEC furnish it with a statement not later than May 18, 1951, setting forth the status of the work and the action proposed to be taken by TEC. TEC, by its president, replied stating that it hoped to have two pre-production models ready for Government inspection by June 1, 1951 and that it had procured components and materials for the production run of the oscilloscopes. TEC further stated that a large part of the materials were on hand. TEC again advised of a number of problems which it had previously outlined (that it required a higher contract price) and requested that if CAA "has not the power to solve these problems that the matter be taken up with the Department of Commerce." No pre-production models were ready for Government inspection by June 1 and accordingly on June 12, 1951, TEC was advised in a letter from CAA in part as follows: As you are aware delivery of the initial unit under this contract was due December 4, 1950. We have subsequently been informed of certain delays in the production of the prototype, but your letter of May 14, 1951, indicated that two pre-production models would be ready for inspection on June 1, 1951. Our needs are such that we cannot allow further delays in the production of this equipment. Accordingly, you are hereby notified that, unless these pre-production models are completed and ready for inspection on or before June 20, 1951, and unless we are simultaneously furnished with positive evidence of your ability to furnish the production quantities at the rate set forth in 617448-62- -5 |