#### McKENZIE CONSTRUCTION CO. v. THE UNITED STATES

[No. A-330.

February 20, 1928]

*On the Proofs*

*Dent Act; extra worfo; refusal of supplemental contract; performance.*— A Government contractor, engaged in cantonment construction at cost plus determinable fees not exceeding a certain maximum, was directed by an officer of the Army who was without authority to contract, to do certain work which the contractor considered to be outside his contract, and accordingly requested therefor a supplemental contract, which was refused. Without further protest he proceeded with and completed the work so directed. *Held,*that the circumstances did not raise the implication of a contract under the Dent Act to pay additional compensation for the disputed work.

*646
      *The Reporter’s*statement of the case:

*Mr. Jenmings O. Wise*for the plaintiff. *Mr. Roseoe Fer-tioh*was oq the brief.

*Mr. Edwin S.*McCrary, with whom was *Mr. Assistant Attorney General Herman J.*Galloway, for the defendant. *Messrs. J ohn G. Ewing*and *Frank J. Keating'*were on the brief.

The court made special findings of fact, as follows:

I. The plaintiff is a corporation duly incorporated under the laws of the State of Missouri, w,ith its principal place of business at San Antonio, in the State of Texas, and is now, and was at the times of the different transactions described .in these findings, engaged in the general contracting business.

II. The plaintiff, by A. J. McKenzie, its vice president and general manager, and the United States, by Brigadier General I. W. Littell, Q. M. C., N. A., its contracting officer, entered into a formal written contract, dated as of November 1, 1917, whereby the plaintiff was to furnish labor, material, tools, machinery, equipment, facilities," and supplies, and do all things necessary for the construction and completion of alterations, additions, and repairs at Camp Travis, Fort Sam Houston, Tex., as might from time to time be ordered in writing within s,ix months from said November 1, 1917. The Government agreed to pay for said supplies and work, and also a fee to be determined as provided in the contract, a copy of which is attached to the amended petition No. 2, marked *“*Exhibit A,” and is made a part of these findings by reference.

As will appear from Exhibit A, it was agreed that the total fee to the contractor should in no event exceed the sum of $15,000.00, anything in the contract to the contrary notwithstanding.

Before the contract was signed by either party, the plaintiff was advised by telegram from the contracting officer November 25, 1917, that it had been selected as contractor for the aforesaid work and that a formal contract would be forwarded. On December 2, 1917, plaintiff began actual work on the construction required by the contract.

*647III. After the contract was executed by the contractor it was delivered to the Government along with the following letter:

San Antonio, Tex., *December 19, 1917.*Camp Quartermaster,

*damp Travis, Fort Sam Houston, Tex.*

Dear Sir : In accordance with your instructions, we hand you herewith executed copies of contracts, with bonds and resolution of our company, showing authority for signing bond.

Under article 3 of the contract, we note that the total fee to be received on this contract is $15,000.00. Under the schedule in the first part of the article this would cover work up to $187,500.00, since $15,000.00 .is 8% of the above amount. At the present time, we have authorizations for about $130,000.00 worth of work. Although we are not in a position to presume how much work you will have for us to do under this contract, it would seem from present indi-, cations that within the next five months the total amount will run over $187,500.00.

We do not take it that Government would require us to do, say, $500,000.00 worth of work for a fee of $15,000.00, but that this contract is a standard contract furnished for all cantonments, and that in case this work should develop to be any appreciable amount greater than $187,500.00 within the time specified, that the Government would be willing to make a change in the contract.

We are not quite clear on this point and would be pleased to have you ascertain, if possible, what the Government’s attitude is on the subject. Perhaps they mean that we shall not run our expenditures over $187,500.00, in which case we should be advised.

Yours very truly,

McKenzie Construction Compant.

On December 29, 1917, the contracting officer forwarded to the camp quartermaster at Camp Travis, Texas, an executed number of the aforesaid contract for delivery to the contractor, and upon its receipt the camp quartermaster delivered it to the contractor.

On December 31,1917, the plaintiff telegraphed to the contracting officer at Washington, D. C., as follows:

“Authorizations to date on contract for alterations and require Camp Travis total over one hundred eighty-seven thousand dollars. The fee on this amount at eight per cent

*648will nearly equal maximum fee of fifteen thousand dollars as provided in contract. Can we not increase this maximum fee to cover additional work before contract is finally executed ? ”

This telegram was replied to by the contracting officer by letter of January 4, 1918, as follows:

“ 1. Acknowledgment is made of the receipt of your telegram of December 31st.

“2. The contract has already been executed and filed in the various departmental files. Your request can therefore not now be granted.

“ 3. In making this contract this office estimated that there would be about $200,000 worth of work to be done under it, and it fixed the maximum fee accordingly. Should the amount of work which you are required to do run to a figure which is out of all proportion to this estimated amount, a supplemental agreement will be made. Should any large job come up which is also not contemplated in this contract, this office will be free to make a new contract and select a new contractor, if it so desires, for the performance of such work.”

IV. A supplemental agreement under date of January IS, 1918, providing for a maximum compensation of $40,000.00, with no change in the time provided in the original contract, was prepared by the Government, sent to and executed by the contractor, but this supplemental agreement was never executed on behalf of the Government.

V. At the time the contract of November 1,1917, was made it was contemplated the cost of the alterations, additions, and repairs would not exceed $200,000.00, and on that estimate a fee not to exceed $15,000.00 was provided.

Subsequently additional storehouses and hospital facilities, not contemplated at the time the original contract was made, were authorized, and the cost of the work greatly exceeded $200,000.00. Accordingly, on February 20, 1918, a supplemental contract to the contract of November 1, 1917, was executed between the plaintiff and the Government which extended the time to eight instead of six months and provided for a maximum fee of $60,000.00. A copy of the supplemental agreement is attached to the said amended petition, marked “ Exhibit B,” and made a part hereof by reference.

VI. The War Department issued orders authorizing construction. These went to the constructing quartermaster, *649who issued orders to the contractor based on these authorizations, and frequently the constructing quartermaster’s orders to proceed were withheld or withdrawn, owing to other instructions. It was his practice frequently to order work to be performed a considerable time after the orders authorizing the construction had been received, or sometimes the work which had been authorized was not ordered to be performed at all. He ordered no work of the contractor until he was authorized by the construction division.

VII. On June 22, 1918, the constructing quartermaster stationed at Camp Travis, Fort Sam Houston, Tex., at the request of the construction division of the Army, reported the amount authorized to July 1, 1918, to be expended was $1,458,622.61, and the contracts would not be completed before August 15, 1918.

VIII. At the expiration date of eight months from November 1, 1911, or on June 30, 1918, a very large amount of work for which authorizations had been issued was unfinished. The contractor continued to perform the work, and during the month of August a second supplemental contract was forwarded to it, which was duly executed by both the plaintiff and the defendant. This supplemental contract bore date of July 1, 1918, and modified the contracts of November 1, 1917, and the supplemental contract of February 20, 1918, by changing the time from eight to nineteen months and increasing the maximum fee to $100,000.00. A copy of the contract is annexed to the -said amended petition, marked “ Exhibit C,” and made a part hereof by reference.

IX. During the course of the contract the plaintiff was required to do work not only at Camp Travis but also at Fort Sam Houston, Camp Stanley, Camp Bullis, and Remount Stations Nos. 1, 2, and 3.

In order to combine the work at all these camps under the same contracts, a third supplemental contract was executed by the parties, dated August 1, 1918, modifying the contract of November 1, 1917, as modified by the supplemental contracts of February 20, 1918, and of July 1, 1918, so as to include all the camps under its provisions. A copy of this contract is annexed to the said amended petition marked “ Exhibit D,” and made a part hereof by reference.

*650X. In October, 1918, the constructing quartermaster, Camp Travis, Tex., received orders to build some permanent hospital wards of tile and concrete at Fort Sam Houston, Tex., and as these, buildings were for the returning overseas soldiers who had been wounded, gassed,, and had pneumonia, and as the hospital facilities were inadequate, it was necessary that the permanent buildings be erected as rapidly as possible.

XI. At the time this work was ordered Colonel F. G. Chamberlain was the constructing quartermaster detailed to service in the division in which plaintiff’s operations were being carried on. All authorizations for work were sent by wire or letter from the supervising constructing quartermaster at Washington to Colonel Chamberlain, who, in turn, directed the contractor to perform the services outlined in the authorization. This officer, in person or by his subordinates, also supervised and inspected the work under construction by plaintiff. He had no authority to make or to alter a contract. When plaintiff was directed to proceed with the work under the authorization referred to in Finding X, he discussed with the constructing quartermaster the question of securing a supplemental contract to cover same, and the constructing quartermaster advised plaintiff that he would assist in securing a new contract to cover such work. The constructing quartermaster accordingly recommended a supplemental contract covering the work authorized after July 1, 1918, providing additional compensation therefor. The chief of the contract division of the construction division of the Army, Colonel Shelby, however, refused to make a new supplemental contract. A. J. McKenzie, vice president and general manager of plaintiff company, also discussed the matter of a new contract with Colonel Shelby, and was informed that no new contract would be made.

XII. On October 27, 1918, the constructing quartermaster in the field reported to the construction division that the actual payments and future payments estimated on the as: sumption that the work in progress would absorb unobli-gated balances as of October 16, 1918, was in round numbers $2,191,200.00, which was made up as follows:

*651Total payments, exclusive of fee-$1, 048,400.00 Total obligations, exclusive of fee- 177,900.00 Obligated balance of allotment, exclusive of fee_ 822, 5.00 .00

2,048, 800. 00

$34,400. 00 50, 500.00 57, 500. 00 -— 142,400. 00 Fee paid-Fee unpaid_ Estimated fee on unobligated balances.

2,191, 200.00

XIII. The total actual cost of the work under authorizations issued on projects authorized and assignments

made prior to July 1, 1918, was-$1, 254, 608.23

/The total cost of work under authorizations issued after July 1, 1918, to complete and cover changes in plans and additions to projects authorized prior to July 1, 1918, was_ 204, 014.38

Making a total cost of work on projects authorized prior to July 1, 1918, of_ 1,458, 622.61

The total actual cost of work executed under authorizations issued on projects authorized after July 1, 1918, was_ 638, 328.81

Making a total of al,l work performed of_ 2,096, 951.42

XIV. All work wap completed by June 1, 1919, and the contractor received full payment for all costs of the work performed, together with a fee of $100,000.00.

XV. Pursuant to the provisions of the act of March 2,

1919, commonly known as the Dent Act, the plaintiff, prior to June 30, 1919, presented the claim upon which this suit is brought to the Secretary of War, who denied it May 1,

1920, and no award was made thereon. (Decisions of the War Department, Board of Contract Adjustment, Volume V, p. 108.)

.The court decided that plaintiff was not entitled to recover.

Moss, *Judge,*

delivered the opinion of the court:

On November 1, 1917, plaintiff, the McKenzie Construction Company, entered into a cost-plus contract with the Government for /such alterations, additions, and repairs at Camp Travis, Fort Sam Houston, Texas, as might be ordered *652from time to time in writing, within six months from the date of the contract. As compensation for its services plaintiff was to receive a fee based upon a percentage of the cost of construction varying with the amount of the total cost, in no event to exceed the sum of $15,000. It was estimated that the work required under this contract would amount to approximately $200,000. Plaintiff signed this contract and sent same to the camp quartermaster with a letter dated December 19,1917, in which it was stated—

> “We do not take it that the Government would require us to do, say, $500,000 worth of work for a fee of $15,000, but that this contract is a standard contract furnished for all cantonments, and that in case thffi work should develop to be any appreciable amount greater than $187,500 within the time specified, that the Government would be willing to make a change in the contract.

> “ We are not quite clear on this point and would be pleased to have you ascertain, if possible, what the Government’s attitude is on the subject. Perhaps they mean that we shall not run our expenditures over $187,500, in which case we should be advised.”

Deceiving no response to its letter, plaintiff on December 81, 1917, sent a telegram to the officer in charge of cantonment construction calling attention to the fact that the authorizations for work under the contract had already exceeded the sum of $187,500, the fee for which would almost equal the maximum fee of $15,000, and' inquiring whether or not the maximum fee could not be increased before .the contract should be finally executed. In response to this telegram plaintiff was advised by letter that the contract had already been executed and filed, and that its request could not be granted. It was further stated in said letter that “ Should the amount of work which you are required to do run to a figure which is out of all proportion to this estimated amount a supplemental agreement will be made. Should any large job come up which is also not contemplated in this contract this office will be free to make a new contract and select a new contractor if it so desires for the performance of such work.”

*653On February 20, 1918, certain additional storehouses and hospital facilities having been authorized, the .cost of which, it was estimated, would amount to about $1,000,000, the original contract was amended by extending the period to eight months instead of six months and providing for a maximum fee of $60,000. On July 1, 1918, said contract was again amended to cover, other work not contemplated at the time the original contract was modified providing for a maximum fee of $100,000 and extending the time to June 1, 1919, or nineteen months from the date of the original contract. It was estimated that the work under this contract would cost approximately $2,000,000. This supplemental contract contained the following recital:

> “At the time the said contract of November 1, 1917, was modified the contractor was informed that the cost of the alterations, additions, and repairs contemplated would not exceed $1,000,000, and a fee of not to exceed $60,000 based upon that estimate was provided; and that in the event the Government should decide to do more work at that camp, which would run out of proportion to .the estimated $1,000,000, the Government would be free either to select a new contractor or require, such additional work to be done under said contract of November- 1, 1917, as modified, in which event a supplemental agreement would be drawn increasing the maximum fee so as to make the same commensurate with the additional work ordered to be done thereunder. Additional hospital facilities and other work, not contemplated at the time the original contract was modified, have now been authorized, the cost of which will greatly exceed $1,000,000, and it is desired that said contractor shall perform the same. Therefore, this supplemental agreement is made in furtherance of said above-recited understanding between the parties to the contract of November 1, 1917, as modified.”

On August 1,1918, the parties entered into another supplemental agreement which did not, however, alter the terms of the contract, but merely set forth the names of the various camps at which work was being performed.

All work under the original and supplemental contracts, including the work for which plaintiff is now claiming payment, was completed within the contract period of nineteen months, and plaintiff received payment for all costs of the *654work performed, together with compensation in the sum of $100,000.

It is plaintiff’s contention that in addition to the amounts already received it is entitled to recover the sum of $44,-878.42 as compensation for certain work performed by it, which it is alleged was not in contemplation when the supplemental contract of July 1, 1918, was executed. It appears that in September or October, 1918, the constructing quartermaster received instructions to construct-certain permanent hospital wards at Fort Sam Houston. Whereupon plaintiff was directed to proceed with said work. In the belief that this work was not covered by the supplemental contract of July 1, 1918, plaintiff sought to secure another supplemental contract to provide for additional compensation, and in this effort the constructing quartermaster gave his assistance. The Government, however, through its authorized contracting officer declined to execute a supplemental contract. The evidence is contradictory as to the reason assigned by the Government for its refusal to enter into a supplemental agreement. The positive statement of Colonel Shelby, who was chief of .the Contract Division of the Construction Division of the Army, was that, in his opinion, the work was in reasonable contemplation of the supplemental agreement fixing the maximum fee at $100,000.00. It was the *recollection*of the constructing quartermaster that when he requested the chief of the- Contract Division to make a new contract he was advised that the war was over and that the matter of an additional contract would not be considered. This point of difference, however, does not seem to be material. Plaintiff claimed that the work which it was directed to perform Avas not in contemplation of the contract and the supplements thereto. A supplemental agreement was requested by the constructing quartermaster and was denied. The vice president and general manager of plaintiff company also discussed the question with Colonel Shelby and was informed that no new contract would be made. In continuing with the work to its completion plaintiff was either proceeding under a contract which limited its compensation to $100,000 or it was *655proceeding without any contract whatever. Plaintiff contends that the contract of November *1, 1917,*construed with reference to plaintiff’s letter of December 19, 1917, and the several supplemental contracts constituted an express contract by which the Government is rendered liable for compensation for the alleged additional work. The documents referred to, taken separately or construed together, in no sense constitute a contract for an indefinite performance or an unlimited compensation. The conduct of plaintiff itself in requiring a supplemental contract on two occasions when plaintiff was directed to perform work which it believed was not in contemplation of the contract was a clear recognition on its part of the necessity of securing supplemental contracts for work not contemplated in the original or modified agreements. Plaintiff further contends that if it is not entitled to recover under the contract it should be entitled under the circumstances surrounding the whole transaction to recover a fair compensation for its services on an implied contract. The court is also reminded that the Dent Act provides for compensation in such a case as this, upon “ a fair and equitable basis.” Under the peculiar facts of this case the doctrine of implied contract could have no application. The new work was ordered to be performed by a Government officer who had no authority to make or alter a contract. When application was made to the proper officer for a supplemental contract it was refused. If the work in question had been performed under the order of an officer of the Government having authority to make contracts, but without the formality of a written contract, a case might be presented to which the principle of implied contract could apply. Plaintiff’s purpose in requesting a new agreement was to provide for additional compensation on account of work which it believed was not in contemplation of the existing contract. The plain meaning and effect of the refusal by the Government to enter into such a contract was to deny plaintiff’s claim for such additional compensation. It is clear that no *implied*agreement to pay the additional compensation could arise in the face of a specific refusal to enter into a *written*agreement having precisely the same *656effect. The position of plaintiff on this point is obviously illogical and unsound.

If, however, the court should be of the opinion that plaintiff is entitled to recover fair, compensation in this case, as claimed by plaintiff, what would be the measure of recovery ? The record is silent on this question. The schedule of compensation under what is known as the cost-plus contract program under which plaintiff operated could not be accepted as a proper measure for arriving at fair and reasonable compensation. It is a matter of common history that under the exigencies of war and under the operation of the cost-plus system services such as that rendered by plaintiff received unusual and unprecedented remuneration. Plaintiff’s own contract, under which it was paid $100,000 for services extending over a period of less than nineteen months, is an apt example of the situation prevailing throughout the whole of the Government’s activities during the period of the war. The rates of compensation for the same services could not reasonably be expected to continue after the war had closed. The court, therefore, in the absence of any evidence as to fair compensation could not consider a recovery on that basis.

It is urged that the work which plaintiff was directed by the constructing quartermaster to perform was required for the welfare of the wounded soldiers returning from overseas, and was of an emergency nature, and that a refusal on its part to proceed with the work until a supplemental contract could be secured would have been an unpatriotic, if not a reprehensible, act. It should be mentioned, however, in this connection that when this situation arose plaintiff, as shown by the evidence, was still operating within the $100,000 fee limit. If plaintiff had renewed its request for a supplemental contract, with notice of its purpose to decline to perform any other work after the limit under the existing contract had been reached, it is reasonable to assume that a satisfactory adjustment of the matter would have been speedily reached. At any rate, ordinary prudence would have dictated such a course. In the face of the positive refusal by the Government to make the contract, plaintiff *657without further protest continued with the work to its final completion. In the opinion of the court plaintiff is not entitled to recover, and it is so ordered.

Gem-iam, *Judge;*Booth, *Judge;*and Campbell, *Chief*Justice, concur.