Case Name: BATESON-STOLTE, INC. v. THE UNITED STATES
Court: United States Court of Claims
Jurisdiction: United States
Decision Date: 1959-04-08
Citations: 145 Ct. Cl. 387
Docket Number: No. 141-57
Parties: BATESON-STOLTE, INC. v. THE UNITED STATES
Judges: MaddeN, Judge, concurs.
Reporter: United States Court of Claims Reports
Volume: 145
Pages: 387–399

Head Matter:
BATESON-STOLTE, INC. v. THE UNITED STATES
[No. 141-57.
Decided April 8, 1959]
Mr. John L. Kilcullen for the plaintiff. Mr. 0. P. Easter-wood, Jr., and Messrs. McNutt, Dudley and Easterwood were-on the briefs.
Mr. Ola/re E. Walker, with whom was Mr. Assistcmt Attorney General George Oochran Doub, for the defendant.

Opinion:
WhitakeR, Judge,
delivered the opinion of the court:
This is a suit for $193,637.95 in additional expenses incurred by plaintiff in the performance of a Government contract.. The defendant has moved the court for judgment on the pleadings dismissing plaintiff's petition on the ground that it fails to state a claim upon which relief can be granted. In an opinion dated May 7, 1958, this court denied defendant's motion without prejudice in order to allow plaintiff to amend its petition to allege the substance of those portions of the subject contract upon which it relied as required by rule 12 (d) of the Rules of this court. Plaintiff has now amended its petition and defendant has renewed its motion.
The facts as alleged by the petition are as follows: Plaintiff,a joint venturer composed of J. W. Bateson, a Texas corporation, and Stolte, Inc., a California corporation, on October 11, 1950, contracted with the Corps of Engineers,, U.S. Army, for the construction of a powerhouse and appurtenant structures at the Clark Hill Project, Clark Hill, Georgia and South Carolina. The total contract price was $7,079,790.50 and called for the completion of the work by November 30,1954. At the time that the contract was entered into there was ample labor in the area and no other Government projects were competing for the úse of this labor force.
In preparing its bid, the plaintiff considered the labor cost and supply in the area and estimated such costs on the basis of prevailing wage rates. The wage rates as determined by plaintiff were the same as those found by the Secretary of Labor in accordance with the provisions of the Davis-Bacon Act, as amended, 40 U.S.C. 276a.
Simultaneously with the award of the contract for the Clark Hill powerhouse, the Government, acting through the Atomic Energy Commission, was planning the construction of a major project involving expenditures estimated at approximately a billion and a quarter dollars in the same area as the Clark Hill Project, and within a week after plaintiff signed its contract, the contract for the Atomic Energy-project was awarded. The Corps of Engineers had been consulting with the Atomic Energy Commission as to the location of the project and was charged with the responsibility of obtaining the necessary land by purchase and/or •condemnation.
The Government realized that the Atomic Energy project would substantially affect the labor supply, labor rates, and conditions in the area, since they estimated that approximately 35,000 construction workers would be needed. Plaintiff's petition does not show whether or not plaintiff knew •of the Government's Atomic Energy project, but in estimating its labor costs it did not take into consideration the fact that it would be in competition with Atomic Energy for the available labor.
In February 1951, the Secretary of Labor, pursuant to the .Davis-Bacon Act, determined the wages to be paid on the Atomic Energy project. In making this determination, the -Secretary found that the prevailing wage rates in the locality •at that time, which were the same as the wages paid by plaintiff, would not be high enough to draw an adequate supply of labor. Consequently the Secretary utilized wages rates prevailing in metropolitan areas as far as 150 miles from the project site. These wage rates were considerably in excess •of the wage rates actually prevailing in the locality on current construction, including the wage rates that plaintiff was paying on the Clark Hill powerhouse project. This disparity between the wage rates on the Atomic Energy project •and plaintiff's project made it exceedingly difficult for plaintiff to obtain and hold construction workers, who were disposed to transfer to the Atomic Energy project because of the higher wages. This necessitated the raising of wages on plaintiff's job in order to put it on a parity with the competing project. However, during the period January 25, 1951, to August 2,1951, plaintiff was prohibited from raising wages by reason of a wage freeze imposed by the Wage Stabilization Board. In order to offset the wage freeze, plaintiff offered its workers substantial overtime so that their take home pay would equal that of workers on the Atomic Energy project. After the freeze was lifted, plaintiff increased its wage rates up to the level of the rates authorized' for the Atomic Energy project.
Because of the increased costs in labor caused by the competition of the Atomic Energy project, plaintiff alleges it paid $193,637.95 in wages which were not contemplated at the time it bid on the contract. Plaintiff made a claim for the-increased wages resulting from the Atomic Energy project. This claim has been denied and plaintiff has brought suit on the ground that such denial was capricious or arbitrary or so grossly erroneous as necessarily to imply bad faith, or was not supported by substantial evidence. Plaintiff contends that it is entitled to recover under article 4 of the contract governing changed conditions, or, in the alternative, that it is entitled to recover on the basis of a breach by defendant of an implied condition in the contract that neither party will hinder the other in the discharge of the obligations created by the contract.
Article 4 of the contract, relating to changed conditions, requires an equitable adjustment only for subsurface and/or latent physical conditions. Plaintiff's complaint does not relate to physical conditions and, therefore, it is not entitled to recover under article 4; but it may be entitled to recover on the alternative ground it asserts, which is the implied condition in every contract that neither party will hinder the other in its performance or increase the cost thereof.
In estimating the cost of doing the job plaintiff, of course, used the prevailing wage rate. Had it known of the large labor force to be employed on the Atomic Energy job and that a higher minimum wage rate was to be fixed for this job, in order to attract this large force, plaintiff, of course, would have used this higher rate, and its bid would have been this much higher. But there are indications that plaintiff did not know this. At any rate, it bid on the basis of the prevailing wage.
Plaintiff's petition alleges that at the time the Corps of Engineers and plaintiff entered into the contract, the Corps of Engineers had knowledge of the fact that the Atomic Energy Commission was preparing to build an enormous plant adjacent to plaintiff's project. It does not expressly allege, but it is implied, that the Corps of Engineers knew that a very large labor force would be necessary to construct the Atomic Energy project and that this labor force could not be secured in the immediate vicinity of the work, but would have to be secured in urban centers where the prevailing wage rate was considerably higher than the rate prevailing in the immediate vicinity of the work. If the Corps of Engineers in fact knew these things, and if in fact the plaintiff did not know about them, it would seem that it was the duty of the Corps of Engineers to disclose these things to the plaintiff prior to entering into a contract with it.
If the defendant knew that it was going to do a thing which of necessity would require plaintiff to pay a wage greater than that prevailing in the community in which its work was to be done, and the plaintiff was ignorant of this fact, it would seem that good faith required the defendant to apprise plaintiff thereof. If defendant caused the increase in the wages plaintiff had to pay, defendant is liable for the increase. It seems hardly necessary to cite authority for this statement, but this is the clear implication of the decision of the Supreme Court in United States v. Beuttas, 324 U.S. 768, 772, et seq.
There can be no doubt about the fact, if the facts assumed are true, that the Government, by the construction of the Atomic Energy Commission project in the immediate vicinity of plaintiff's work, did in fact necessitate the payment of higher wages by plaintiff, and thus cause an increase in cost of performance of plaintiff's contract.
But this does not necessarily render the defendant liable. It is at least questionable that defendant should be held liable, unless the agency dealing with plaintiff had knowledge of what the Atomic Energy Commission was going to do. If it had been the Atomic Energy Commission that had dealt with plaintiff, it would have been its duty to disclose to plaintiff that it was going to use this very large labor force on this other project, so plaintiff could have taken this into consideration in estimating its labor costs. If it had not done so, it would have been responsible for the increase over what plaintiff had estimated in preparing its bid. But, in a business so vast as that engaged in by the United States Govern ment, with its multitudinous departments, bureaus, and independent agencies, with various and sundry projects ¡scattered all over the world, it is impossible for one department to know what another department is going to do. In such case, it seems unreasonable to charge one agency with knowledge of what another one is going to do. It would seem that defendant should be held liable only if the agency that dealt with plaintiff had knowledge of the impending employment of this huge labor force.
But we have assumed in the foregoing statement that plaintiff was ignorant of the fact that the Atomic Energy Commission was going to construct this huge project. If it knew of the enormity of the project, it should have known that the necessary labor could not have been secured in the .'immediate vicinity and would have to be secured elsewhere, which would probably necessitate the payment of higher wages, in which event it also would have to pay wages higher than those prevailing in the community. We do not know what information plaintiff had. The petition alleges that the Atomic Energy Commission awarded a contract for its project within one week from the date plaintiff signed its contract. If so, and if the Atomic Energy Commission advertised for bids on its project, plaintiff knew or should have known that the Atomic Energy Commission was going to construct its project, but we do not know whether or not :the Atomic Energy Commission advertised for bids. This we would like to know. Whether or not plaintiff had knowledge, or should have had knowledge, of the impending construction of this project is quite material. We would also like to know if plaintiff was chargeable with knowledge that this very large labor force was to be employed.
We think it is immaterial to a proper disposition of this ease that the Government in the erection of the Atomic Energy Commission project was or was not performing a sovereign act. Even though it was, the Government must have known that by the performance of that act it was going >to increase plaintiff's cost of performance. If it had this knowledge, and plaintiff did not have it, it was under the duty to disclose it, whether it was a sovereign act or not. 'The Government's status as a sovereign confers upon it no privilege to mislead contractors, or to profit from their-ignorance.
Plaintiff does not need to call in question the action of the-Secretary of Labor in determining the prevailing wage in-the community in which plaintiff was to do its work, and his action in determining the prevailing wage in the 150-mile-radius from which the Atomic Energy Commission had to-draw its labor. Its case rests, not on these acts of the Secretary of Labor, but upon the obligation on the part of the-Corps of Engineers to disclose material information relating-to the cost of performance, which may have been in its-possession, and of which plaintiff was possibly ignorant.
Because we do not know what knowledge the Corps of' Engineers had, and because we do not know what information the plaintiff had, or could have obtained by reasonable-diligence, we think the case should be referred to a commissioner for the development of all the facts.
In the foregoing observations we have refrained from expressing positive opinions on the law of the case, preferring-to wait for that until we are in possession of the full facts.. The observations made are only for the guidance of the parties and the trial commissioner in the taking of testimony.. When all the facts are in, we shall then be in position to come-to a conclusion on the question of defendant's liability.
Defendant's motion for judgment on the pleadings is overruled. The case will be referred to a trial commissioner for trial.
It is so ordered.
MaddeN, Judge, concurs.