#### LANG PRODUCTS COMPANY v. THE UNITED STATES.

[No. 175-A.

Decided March 19, 1923.]

*On the Proofs.*

*Cost-plus contract; advances made; compensation.*— Where a contractor enters into a cost-plus contract under which he receives advances of funds for purchase of buildings, machinery, and equipment for the manufacture of certain articles, which advances are paid back in full with interest, and after the completion of said contract the Government gives an order to the *176said contractor to manufacture other articles of the same kind, the advances made under said contract can not be considered in fixing his percentage upon the cost of the work.

*The Reporter's*statement of the case:

*Mr. William II. White, jr.,*for the plaintiff. *Taylor, Jackson, Brophy <& Nash*were on the briefs.

*Mr. Alexander H. McCormick,*with whom was *Mr. Assistant Attorney General Robert II. Lovett,*for the defendant.

The following are the facts of the case as found by the court:

I. The plaintiff is a corporation duly organized and existing under the laws of the State of Maryland. On or about November 9, 1918, it received from the Bureau of Steam Engineering, Navy Department, “Navy Order N-5408 ” directing it to manufacture for the Navy 500 double 2-bladed pusher propellers for flying boats, and on or about the 25th of November, 1918, it received from the same source a modification of the above-mentioned order. The plaintiff accepted the original order in writing and did not indicate its acceptance of the modification in writing, but payments to the plaintiff were made in accordance with the terms of the modified order and applied as made upon cost of production. Said order and modification thereof are attached to plaintiff’s petition and made a part thereof by reference as “ Exhibits 1 and 2,” respectively, and are made a part hereof by reference.

II. Prior to the spring of 1918 the Lang Propeller Co. had been and at that time was engaged in the business of manufacturing aircraft propellers, but its facilities were limited, and the Navy Department, desiring to increase the production of propellers, solicited representatives of the Lang Propeller Co. to organize another company, for which the Lang Propeller Co. should furnish the working organi-gation, and engage in the business of manufacturing propellers for the Navy Department on a cost-plus basis, and the Lang Products Co. was accordingly incorporated, the stock thereof being held by the Lang Propeller Co. A con*177tract, numbered 36538 and being the contract upon which plaintiff’s cause of action No. 174r-A, this date decided, is-predicated, was entered into, under which the Navy Department provided a fund with which to purchase buildings and machinery and equipment to engage in the manufacture of propellers for the Navy Department. The Lang Products Co. purchased land, for which it gave its own obligation in the sum of $10,000, buildings were purchased by the Navy Department at an expense of $42,500, and other portions of the advanced sum used in preparing for and in the manufacture of propellers. The Lang Products Co. was required to repay to the United States all the money advanced, with 4 per cent interest thereon, and to purchase from the United States the plant acquired for its use, and it did repay the United States all moneys which by said contract it was obligated to repay, with 4 per cent interest thereon, and purchased from the United States the manufacturing buildings acquired for this purpose, at a price of $55,000.

As an inducement to the entering into that contract it was represented to said company that further orders for aircraft propellers would be placed with it.

III. Contract No. 36538, above referred to, provided for the payment to plaintiff of a profit of 15 per cent upon the cost of production of the propellers involved, and out of the performance of that contract plaintiff realized a profit of $39,489. The order here involved made no provision for any advance payment to the plaintiff on account of the cost of production, there were delays in the making of the regular progress payments, and the plaintiff was compelled to and did apply its said profits made under contract No. 36538 to the carrying on of the work called for by the Navy order here involved.

IV. Navy Order No. N-5408 was fully performed by the plaintiff at a total ascertained cost of $124,367.83, of which $107,329 was the ascertained cost of labor, material used, factory overhead, and general and administrative expenses, denominated “ cost of production,” and $17,038.83 was cost of tools, jigs, and fixtures, machines, inventory of raw materials, scrap, and sundry expenses, all the above-stated *178items having been ascertained by the authorized representative of the Navy Department.

Said sum of $124,367.83 was paid to the plaintiff in accordance with the provisions of the modification of the original order and upon attempted final settlement the Navy Department determined that a fair profit to be allowed the plaintiff was 1 per cent upon said sum of $107,329, amounting to $1,074.29, and tendered plaintiff said sum of $1,073.29 in full for its proper dues, which plaintiff declined to accept.

In determining that said 1 per cent was all that should be paid to the plaintiff company for the performance of the work called for by said order, the Navy Department reviewed all the provisions of contract No. 36538 and the advances made to the plaintiff under that contract, and concluded that by reason of such advances the plaintiff had no invested capital of its own and that because of such aid extended to the plaintiff in the performance of said contract it was only entitled to said 1 per cent as a fair profit upon the performance of the Navy order here involved.

Y. Fifteen per cent upon the amount determined on by the Navy Department as “ cost of production ” under said Navy Order N-5408, to wit: $107,329.00, amounting to $16,099.35, is a fair profit to the plaintiff as compensation for the performance of said order.

DowNet, Judge,

delivered the opinion of the court:

The plaintiff seeks to recover a fair profit as compensation to it for the production of 500 aircraft propellers called for by a Navy order and modification thereof made a part of the findings by reference. It was paid the ascertained cost of production and was tendered a profit thereon of 1 per cent, which it declined.

This order followed a cost-plus contract which had been made by the Navy Department with the plaintiff under which the plaintiff was paid, in accordance with a provision of that contract, a profit of 15 per cent on the cost of production, and because of the basis upon which the Navy Department proceeded in attempting settlement under this order, which is also the basis upon which this action is here defended, the findings herein made incorporate features *179of that contract. Plaintiff’s suit on that contract, being No. 174-A, is this day decided. *(Ante,*p. 167.)

In determining an award to plaintiff in this matter the Navy Department reverted to that contract, reviewed the provisions thereof with reference to advanced funds for operating expenses, the acquisition of a plant, etc., and, apparently because of the assistance rendered to the plaintiff in accordance with the terms of that contract, concluded that it should have but a ridiculously meager profit on the cost of producing the propellers here involved. If that contract might be reverted to for any purpose in the determination of plaintiff’s rights under this order, fairness would seem to require recognition of the fact that whatever was done by the United States in that respect was in accordance with the provisions of the contract, that such inducements were for the purpose of building up a plant and organization to produce propellers needed in an emergency, that such method of accomplishing the Government’s purpose was common and justified by the necessities, and more than all of that, that the money advanced was repaid with interest, and that the plant purchased was taken over by the plaintiff at a price in excess, so far as appears, of its cost to the United States. The attitude of the department in this matter was so unjustified that we find difficulty in giving it any serious consideration.

The compensation to the plaintiff by way of profit on cost of production of the propellers called for by the contract was provided for in the contract and nothing appears to indicate that it was otherwise than reasonable. If, with the Navy Department’s views as to the consideration to be given to the matter of aid furnished, that profit was a reasonable one under the contract, how much the more is it to be regarded as wholly within the bounds of reasonableness as applied to the performances of the order here involved in connection with which the plaintiff proceeded upon its own resources. But the whole view taken of the matter was wrong. In return for the aid furnished under the contract the plaintiff assumed heavy burdens and discharged its obligations. And it may not, if this line of discussion is at all pertinent, be inappropriate to say that, as appears from *180the findings in that case and our conclusion therein, the plaintiff did not escape rather severe *treatment.*

But irrespective of procedure in that matter the plaintiff is entitled to a reasonable profit on the production of the propellers called for by the Navy order here involved, and we have awarded judgment accordingly.

Judgment for plaintiff in the sum of $16,099.35.

Graham, *Judge;*Hat, *Judge;*Booth, *Judge;*and Campbell, *Chief*Justice, concur.