Court Opinion

ID: 9447716
Source: CourtListenerOpinion
Date Created: 2023-08-03 22:41:52.592248+00
Date Added: 2024-06-11T17:31:09.158939
License: Public Domain

JONES, Chief Judge
(dissenting in part).
The contract involved here was experimental in nature. Both Beam and defendant understood this. The requirements of Contract 955 included a certain type of rubber cable. It was necessary that the cable meet rigid tests. Neither party knew whether such a cable could be produced. Beam was willing to undertake it. The Government gave Beam four different chances to produce such a cable. Each cable failed to meet the test. Shortly thereafter the contracting officer terminated the contract for default.
On June 4, 1952, Beam appealed the contracting officer’s termination of Contract 955. The Armed Services Board of Contract Appeals held a hearing in May 1953, and on October 1, decided that the evidence did not justify burdening appellant with the liabilities of a default. At most, said the Board, the evidence would justify only a termination for convenience.
“Under the circumstances of this case, we are of the opinion that the proper remedy was that of termination for the convenience of the Government, if termination was desired. * * * Appellant’s failure to live up to contract time of performance was quite obviously the result of the awaiting of tests, in which delay the Government was active in participating and which it accepted as an incident of performance. It was an excusable delay, and should not subject appellant to the liability of a default * * [Finding 28.]
The liabilities the Board sought to obviate were the damages the Government might sustain in entering repurchase contracts. In fact, the Government entered into two repurchase contracts for the procurement of the electric lighting sets originally covered by Contract 955 at no additional cost.
Shortly after the Board decision, Beam’s counsel requested of the contracting officer various forms prescribed for filing termination claims under contract section 21, “Termination for Convenience of the Government.” The contracting officer responded with the forms and stated in reference to the Board decision as follows:
“In view of said decision the Government deems the above notice of default to have been issued pursuant to Clause 21 of the contract entitled, ‘Termination for the Convenience of the Government,’ * *
Thereafter, counsel for Beam stated his belief that “the contractor is not limited to the rights specified in said clause entitled ‘Termination for Convenience of the Government’, and that the notice of termination constituted a breach of the contract for which the contractor is entitled to recover damages, which would apparently be in excess of the amounts payable under the ‘Termination for Convenience of the Government’ clause.” [Emphasis supplied.]
Subsequently, this suit was filed, with the plaintiff claiming all of Beam’s costs plus the expected profit on the entire contract. The plaintiff bases this claim on the position that the Government should not be allowed to change the designation of a termination from one for default to one for the convenience of the Government.
In these circumstances, with a contract as uncertain of performance as the one involved in this suit, to permit a recovery of $180,000 in wholly speculative profits cannot be justified. I am convinced, however, that the plaintiff should be allowed to recover the costs and pro rata profits which would have been allowed had the Government originally assigned the proper designation to the termination of the contract.
This case ought not be considered as an ordinary breach of contract situation with but an added twist — the Government trying to avoid paying damages by converting a frank breach of contract *788into a termination for convenience. An original assumption that there has been a breach of contract by the Government only serves to becloud critical consideration of the issues and is improper. In this case, if the Government had any right to terminate, any right by whatever designation to issue a termination order, there has been no breach at all. Possibly there has been a procedural error, but such error should not have the effect of a breach of contract.
I conceive this case as being roughly analogous to one where a party in suit proves less, or more, than it alleged and tries to amend its pleadings to conform to the proof. Here, the Government failed before the Contract Appeals Board to prove an inexcusable default by the contractor, but it appears the Government did establish grounds for terminating the contract for convenience. Thereupon, the Government amended the termination notice from “default” to “convenience of the Government.”
For example, if a vendee, obligated under a valid sales contract, refuses tender of the goods stating incorrectly that the proper delivery date has passed, apparently the vendee has breached his contract. But if, thereafter, he proves that the goods irreparably failed to meet the contract specifications, there is little doubt that he has a valid defense against suit. It is the refusal of the tender, an act which the vendor claims was wrongful, for which he brings suit. If the vendee had any valid reason for his refusal of the tender, even if he stated the wrong reason in the beginning, he will avoid a judgment of damages, providing only that the vendor has not been misled to his detriment by the original reason assigned to the refusal of tender. According to Professor Williston, “To hold, as a broad proposition, that stating one reason for refusing to accept tendered performance precludes a promisor from later stating another reason * * * seems almost grotesque.” This case should be judged by similar principles.
Certainly, it would be outrageous if the Government could escape paying damages for failing to perform its own contractual obligations by retroactively antedating any such misconduct with a termination order — “for the convenience of the Government.” For example, if the Government failed to deliver material which it had contracted to furnish on March 1, it could not properly issue on April 1, a termination order antedated February 1. That kind of governmental convenience would be beyond the contemplation of the parties to the contract.
In this case, however, the plaintiff claims that the breach of contract was the issuance of the termination order, not some ether act, before which the Government is trying to insert a termination order. Plaintiff is correct if the termination could only be substantiated on a finding of unjustifiable default. But if the Government, in the first instance, had a right to terminate the contract under any designation, then I fail to see that there has been a breach at all. The Government then did what it had a right to do, terminate, although it gave the wrong reason. Furthermore, if the plaintiff was injured by the delay in properly designating the termination, it may recover in the final settlement provided in the “Termination for Convenience of the Government” section of the contract. It is not entitled, however, to all its expected profits on the entire contract.
There are few precedents in the field to guide the court. One Supreme Court case is in point. In College Point Boat Corp. v. United States, 1925, 267 U.S. 12, 45 S.Ct. 199, 69 L.Ed. 490, affirming this court, Justice Brandéis stated that the Government had an unconditional right to cancel the contract in suit even though the Government itself had clearly breached the contract, and notwithstanding the plaintiff was already in this court suing the Government for its breach. The court’s opinion in the case before us points out that the cancellation in College Point was permitted by a special statute then in force, whereas in this case, all the parties’ rights must be derived from the contract provisions them*789■selves. While I agree here with the majority opinion, I do not believe that the ■Government’s rights under this contract are much inferior to those it had under the College Point statute. The contract here gave the Government a broad right to terminate, not wholly unconditional, a right which might be exercised only for the best interests of the United States. But absent proof of fraud or caprice, I believe the contracting officer’s judgment of the best interests of the United States vis a vis the contract ought to be conclusive.
A diligent search has failed to uncover ■any significant statute, regulation, or even case discussion of what criteria a ■contracting officer must consider in determining when termination of a contract is in the best interests of the Government. It is reasonable to assume that ■such criteria might include the technical progress made by the contractor in the research and development phases of the work, current and future availability of financing, current labor-management relations, continued need for the equipment —either greater or less than when the •contract was let, availability of alternative producers, and estimated production and delivery dates when it appears that the contract dates cannot be met.
We know the contractor was experiencing serious difficulty in obtaining the required rubber cable. The trial commissioner who heard the evidence and saw the witnesses face to face, saw fit to quote in finding 28 portions of the opinion of the Armed Services Board of Contract Appeals. The trial commissioner followed the quotation with this sentence:
“Some of the findings or determinations of the ASBCA were not supported by substantial evidence.”
The trial commissioner also added this footnote:
“(1) On February 26, 1952, Beam submitted its fourth cable sample to ERDL to be tested. This cable was tested by ERDL after termination of Contract 955. It passed some of the requirements of the specifications but did not meet the physical requirements. Testimony before the Board on this point was incorrect, contrary to the facts. Beam contended and defendant’s counsel at the time and a witness admitted that the cable had met the requirements of Contract 955. However, laboratory reports now in evidence, and testimony during the trial by the laboratory technician who made the tests, reveal that while the cable passed the low-temperature test, it failed to meet other physical requirements and was not acceptable.”
The trial commissioner found, and I agree, that even the fourth cable sample submitted by Beam failed to meet the contract specifications and was unacceptable. The majority has seen fit to eliminate the above-quoted sentence and footnote and substitute a finding that all of the Board’s findings were supported by substantial evidence. I would restore the trial commissioner’s findings.
At best, the degree of rubber cable development is a disputed point. Besides the rubber problems, Beam was still handicapped by his inability to improve his financial position and was further hampered by a lack of production space. It was extremely doubtful that Beam could ever have performed the contract. Surely all must agree that the Government was not obliged to let the development and production drag on indefinitely. Considering all of this, the contracting officer, whatever other criteria he may have used, might with all justification have concluded that quicker results would be obtained with another contractor.
The determination of convenience of the Government is primarily one for the contracting officer and the administrative agency. In this case, I am unwilling to contradict the determination as made for I see nothing arbitrary or unjust in the result. Therefore, it is my conclusion that the Government had grounds for terminating the contract for convenience when it first issued the termination *790order, and should be permitted to amend the order to read “Termination for Convenience of the Government.” But in doing so it must pay any damage that may have been caused by the delay in assigning the proper reason for the termination.
There is another reason why I must dissent from the decision of the court. I believe that Beam did default its contract and that the plaintiff is trying to recover here by side-stepping the express provisions of the contract.
Section 11 of the contract entitled “Default” describes default procedures in detail, as follows:
“(a) The Government may, subject to the provisions of paragraph (b) below, by written Notice of Default to the Contractor terminate the whole or any part of this contract in any one of the following circumstances :
“(i) if the Contractor fails to make delivery of the supplies or to perform services within the time specified herein or any extension thereof; or
“(ii) if the Contractor fails to perform any of the other provisions of this contract, or so fails to make progress as to endanger performance of this contract in accordance with its terms, * *
Subsection (b) provides for circumstances where nonperformance is excused and protects the contractor from liability for “excess cost if any failure to perform the contract arises out of causes beyond the control and without the fault or negligence of the Contractor.” Expressly included among these uncontrollable causes are “acts of the Government.”
These sections are clear and uncontroverted. The dispute centers on the application of subsection 11(e), which provides:
“If, after notice of termination of this contract under the provisions of paragraph (a) of this clause, it is determined that the failure to perform this contract is due to causes beyond the control and without the fault or negligence of the Contractor pursuant to the provisions of paragraph (b) of this clause, such Notice of Default shall be deemed to have been issued pursuant to the clause of this contract entitled “Termination for Convenience of the Government,” and the rights and obligations of the parties hereto shall in such event be governed by such clause. * * * ” [Emphasis supplied.]
This paragraph, by its terms, applies only when there has been a failure to perform which is found to be excusable.
I believe it manifest from the facts of this case that Beam did fail to perform the contract. Beam agreed to deliver 500 electric lighting equipment sets commencing on or before November 20,1951. Delivery was to be completed by February 21, 1952, yet as of April 3, 1952, none of the sets had been produced, and of course none delivered. The primary cause of Beam’s failure to perform was the unavailability of rubber cable sufficient in quality to meet the contract specifications. Beam knew in the beginning of the risks inherent in the contract, for a new low-temperature rubber had to be developed if the contract requirements would be met. To this end, Beam subcontracted the rubber production to one of America’s largest rubber manufacturers. Nevertheless, delivery dates, came and passed with no suitable rubber produced and no lighting sets assembled. Various change orders were issued from time to time modifying the technical specifications of the sets to be manufactured, but Beam never received an extension of delivery schedule by contract, modification.
I accept the Board’s determination-that Beam’s failure to deliver the sets resulted in part from the Government’s delay in testing the rubber samples. The Board was properly concerned lest Beam be burdened with the drastic liabilities of a default. I agree that Beam’s delay was excusable, but it was delay well be*791yond the contract delivery dates. That the Government was not free from error does not mean it had to wait indefinitely for the sets. True, the rubber company was ever-closer approaching success when the contract was terminated, adding a hint of melodrama to the case, but solicitude for the plight of the contractor alone should not act to deprive the Government of unambiguous contract rights.
The contractor’s nonperformance was excusable, but it is a rare situation, indeed, where excusable nonperformance -can be equated with full performance. 'Certainly the facts permit no such equation here. The contractor did not perform but should not be subjected to the liability of a default; neither should such liability be rested on the Government.
Subsection 11(e) of the contract states "that when, as here, a Notice of Default is deemed to have been issued pursuant to the clause of the contract entitled “Termination for Convenience of the Government”, the rights and obligations of the ■parties to the contract shall in such event Ue governed by that clause. Accordingly, the contractor ought to recover the sum -of his costs, $69,347.33; a profit (6 percent of costs), $4,160.84; settlement expenses, $729.00; less partial payments ■received, $16,052.01; totaling a net .amount of $58,185.16. I believe that this is the full amount allowable to plaintiff regardless of whether the matter is treated as a breach of contract or otherwise. I can find no just ground for adding any .additional amount.
Findings of Fact
The court, having considered the evidence, the report of Commissioner Paul H. McMurray, and the briefs and argument of counsel, malees findings of fact .as follows:
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2. On June 27, 1951, Beam and defendant, acting through the United States Army Corps of Engineers, Philadelphia District, entered into Department -of Defense Negotiated Contract No. DA 36-109-ENG-955 (referred to hereinafter as contract 955). Under this contract Beam agreed to deliver to defendant 500 No. 2, iy2 kw electric lighting equipment sets at a price of $925 for each set, delivery to commence on or before November 20, 1951, and to be completed by February 21, 1952, plus 500 No. 4, 5 kw electric lighting equipment sets at a price of $2,425 for each set, delivery to commence on or before November 20, 1951, and to be completed by April 22, 1952. The total contract price was $1,-675,000. Among the terms of the contract were the following provisions:
“Partial Payments
“Partial payments, which are hereby defined as payments prior to delivery, on work in progress for the Government under this contract, may be made upon the following terms and conditions.
“(a) The Contracting Officer may, from time to time, authorize partial payments to the Contractor upon property acquired or produced by it for the performance of this contract: Provided, that such partial payments shall not exceed 75 percent of the cost to the Contractor of the property upon which payment is made, which cost shall be determined from evidence submitted by the Contractor and which must be such as is satisfactory to the Contracting Officer: Provided further, that in no event shall the total of unliquidated partial payments (see (c) below) and of unliquidated advance payments if any, made under this contract, exceed 80 percent of the total contract price of supplies still to be delivered.
“(b) Upon the making of any partial payment under this contract, title to all parts, materials, inventories, work in process and nondurable tools theretofore acquired or produced by the Contractor for the performance of this contract, and properly chargeable thereto under sound accounting practice, shall forthwith vest in the Government; and title to all like property thereafter acquired or produced by the Contractor for the performance of this contract and properly chargeable thereto as aforesaid shall vest in the Government forthwith upon said acquisi*792tion or production: Provided, that nothing herein shall deprive the Contractor of any further partial or final payments due or to become due hereunder; or relieve the Contractor or the Government of any of their respective rights or obligations under this contract.
“(c) In making payment for the supplies furnished hereunder, there shall be deducted from the contract price therefor a proportionate amount of the partial payments theretofore made to the Contractor, under the authority herein contained.
“(d) It is recognized that property (including, without limitation, completed' supplies, spare parts, drawings, information, partially completed supplies, work in process, materials, fabricated parts and other things called for herein) title to which is or may hereafter become vested in the Government pursuant to this clause will from time to time be used by or put in the care, custody or possession of the Contractor in connection with the performance of this contract. The Contractor, either before or after receipt of notice of termination at the option of the Government, may acquire or dispose of property to which title is vested in the Government under this clause, upon terms approved by the Contracting Officer: Provided, that after receipt of notice of termination, any such property that is a part of termination inventory may be acquired or disposed of only in accordance with the provisions of the clause of this contract entitled Termination for Convenience of the Government and applicable laws and regulations. The agreed price (in ease of acquisition by the Contractor) or the proceeds received by the Contractor (in case of any other disposition), shall, to the extent that such price and proceeds do not exceed the unliquidated balance of partial payments hereunder, be paid or credited to the Government as the Contracting Officer shall direct; and such unliquidated balance shall be reduced accordingly. Current production scrap may be sold by the Contractor without approval of the Contracting Officer but the proceeds will be applied as. provided in this paragraph (d), provided, that any such scrap which is a part of termination inventory may be sold only in accordance with the provisions of the Termination for Convenience of the Government of this contract and applicable-laws and regulations. Upon liquidation of all partial payments hereunder or upon-, completion of deliveries called for by this, contract, title to all property (or the proceeds thereof) which has not been delivered to and accepted by the Government under this contract or which has. not been incorporated in supplies delivered to and accepted by the Government under this contract and to which title has vested in the Government under this clause shall vest in the Contractor. Under General Provisions were the following :
“5. Inspection
“(a) All supplies (which term-throughout this clause includes without limitation raw materials, components, intermediate assemblies, and end products) shall be subject to inspection and test by the Government, to the extent practicable at all times and places including the period of manufacture, and in any event prior to final acceptance.
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“(c) * * * All inspections and tests by the Government shall be performed in such a manner as not to unduly delay the work. * * *
“11. Default
“(a) The Government may, subject to-the provisions of paragraph (5) below, by written Notice of Default to the Contractor terminate the whole or any part of this contract in any one of the following circumstances:
“(i) if the Contractor fails to make delivery of the supplies or to perform the services within the time specifiedherein or any extension thereof; or
“(ii) if the Contractor fails to perform any of the other provisions of this contract, or so fails to make progress as *793"to endanger performance of this contract in accordance with its terms, and in either of these two circumstances does not cure such failure within a period of 10 days (or such longer period as the Contracting Officer may authorize in writing) after receipt of notice from the Contracting Officer specifying such failure.
“(b) The Contractor shall not be liable for any excess costs if any failure to perform the contract arises out of causes beyond the control and without the fault or negligence of the Contractor. Such causes include, but are not restricted to, acts of God or of the public enemy, acts of the Government, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, unusually severe weather, and defaults of subcontractors due to any of such causes unless the Contracting Officer shall determine that the supplies or services to be furnished by the subcontractor were obtainable from other sources in sufficient time to permit the Contractor to meet the required delivery schedule.
“(c) In the event the Government terminates this contract in whole or in part as provided in paragraph (a) of this clause, the Government may procure, upon such terms and in such manner as the Contracting Officer may deem appropriate, supplies or services similar to those so terminated, and the Contractor shall be liable to the Government for any excess costs for such similar supplies or services, Provided, That the Contractor shall continue the performance of this ■contract to the extent not terminated under the provisions of this clause.
“(d) If this contract is terminated as nprovided in paragraph (a) of this clause, -the Government, in addition to any other rights provided in this clause, may require the Contractor to transfer title and deliver to the Government, in the manner and to the extent directed by the Contracting Officer, (i) any completed supplies, and (ii) such partially completed supplies and materials, parts, tools, dies, jigs, fixtures, plans, drawings, information, and contract rights (hereinafter called ‘manufacturing materials’) as the Contractor has specifically produced or specifically acquired for the performance of such part of this contract as has been terminated; and the Contractor shall, upon direction of the Contracting Officer, protect and preserve property in possession of the Contractor in which the Government has an interest. The Government shall pay to the Contractor the contract price for completed supplies delivered to and accepted by the Government, and the amount agreed upon by the Contractor and the Contracting Officer for manufacturing materials delivered to and accepted by the Government and for the protection and preservation of property. Failure to agree shall be a dispute concerning a question of fact within the meaning of the clause of this contract entitled “Dispute.”
“(e) If, after notice of termination of this contract under the provisions of paragraph (a) of this clause, it is determined that the failure to perform this contract is due to causes beyond the control and without the fault or negligence of the Contractor pursuant to the provisions of paragraph (6) of this clause, such Notice of Default shall be deemed to have been issued pursuant to the clause of this contract entitled ‘Termination for Convenience of the Government,’ and the rights and obligations of the parties hereto shall in such event be governed by such clause. (Except as otherwise provided in this contract, this paragraph (e) applies only if this contract is with a military department.)
“(f) The rights and remedies of the Government provided in this clause shall not be exclusive and are in addition to any other rights and remedies provided by law or under this contract.
“12. Disputes
“Except as otherwise provided in this contract, any dispute concerning a question of fact arising under this contract which is not disposed of by agreement *794shall be decided by the Contracting Officer, who shall reduce his decision to writing and mail or otherwise furnish a copy thereof to the Contractor. Within 30 days from the date of receipt of such copy, the Contractor may appeal by mailing or otherwise furnishing to the Contracting Officer a written appeal addressed to the Secretary, and the decision of the Secretary or his duly authorized representative for the hearing of such appeals shall be final and conclusive: Provided, That if no such appeal is taken, the decision of the Contracting Officer shall be final and conclusive. In connection with any appeal proceeding under this clause, the Contractor shall be afforded an opportunity to be heard and to offer evidence in support of its appeal. Pending final decision of a dispute hereunder, the Contractor shall proceed diligently with the performance of the contract and in accordance with the Contracting Officer’s decision.
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“21. Termination for Convenience of the Government
“(a) The performance of work under this contract may be terminated by the Government in accordance with this clause in whole, or from time to time in part, whenever the Contracting Officer shall determine that such termination is in the best interests of the Government. Any such termination shall be effected by delivery to the Contractor of a Notice of Termination specifying the extent to which pei’formance of work under the contract is terminated, and the date upon which such termination becomes effective.
“(b) After receipt of a Notice of Termination, and except as otherwise directed by the Contracting Officer, the Contractor shall (1) stop work under the contract on the date and to the extent specified in the Notice of Termination; (2) place no further orders or subcontracts for materials, services or facilities except as may be necessary for completion of such portion of the work under the contract as is not terminated; (3) terminate all orders and subcontracts to the extent that they relate to the performance of work terminated by the Notice of Termination; (4) assign to the Government, in the manner, at the times, and to the extent directed by the Contracting Officer, all of the right, title and' interest of the Contractor under the orders and subcontracts so terminated; (5) settle all claims arising out of such termination of orders and subcontracts, subject to the approval or ratification of the-Contracting Officer, which approval or ratification shall be final for all the purposes of this clause; (6) transfer title and deliver to the Government, in the manner, at the times, and to the extent, if any, directed by the Contracting Officer, (i) the fabricated or unfabricated' parts, work in process, completed work, supplies, and other material produced as a part of, or acquired in connection with the performance of the work terminated by the Notice of Termination, and (ii) the completed or partially completed plans, drawings, information, and other property which, if the contract had been completed, would have been required to be furnished to' the Government; (7) use its best efforts to sell, in the manner, at the times, to the extent, and at the price or prices directed or authorized by the Contracting Officer, any property of the types referred to in provision (6) of this paragraph, Provided, However, that the Contractor (i) shall not be required to extend credit to any purchaser, and (ii) may keep any such property at a price or prices approved by the Contracting Officer; and provided further that the proceeds of any such transfer or disposition shall be applied in reduction of any payments to be made by the Government to the Contractor under this contract or shall otherwise be credited to the price or cost of the work covered by this contract or paid in such other manner as the Contracting Officer may direct; (8) complete performance or such part of the work as shall not have been terminated by the Notice of Termination ; and (9) take such action as may be necessary, or as the Contracting Officer *795may direct, for the protection and preservation of the property related to this contract which is in the possession of the -Contractor and in which the Government has or may acquire an interest.
“(c) After receipt of a Notice of Termination, the Contractor shall submit to the Contracting Officer its termination claim, in the form prescribed by the Contracting Officer. Such claim shall be submitted promptly but in no event later than one year from the effective date of termination, unless one or more extensions in writing are granted by the Contracting Officer upon request of the Contractor made in writing within such one .year period or authorized extension thereof. Upon failure of the Contractor to submit its termination claim within the time allowed the Contracting Officer shall determine, on the basis of information available to him, the amount, if any, due to the Contractor by reason of the termination.
“(d) Subject to the provisions of paragraph (c), the Contractor and the Contracting Officer may agree upon the whole or any part of the amount or amounts to be paid to the Contractor by reason of the total or partial termination of work pursuant to this clause, which amount or amounts may include a reasonable allowance for profit, but only on work done in connection with the terminated portion of the contract. The contract shall be amended accordingly, and the Contractor shall be paid the agreed amount. Such amendment shall be final and conclusive upon the Contractor and the Government. Nothing in paragraph (e) of this clause, prescribing the amount to be paid to the Contractor in the event of a failure of the Contractor and the Contracting Officer to agree upon the whole amount to be paid to the Contractor by reason of the termination of work pursuant to this clause, shall be deemed to limit, restrict, or otherwise determine or affect the amount or amounts which may be agreed upon to be paid to the Contractor pursuant to this paragraph (d).
“(e) In the event of the failure of the Contractor and the Contracting Officer to agree as provided in paragraph (d) upon the whole amount to be paid to the Contractor by reason of the termination of work pursuant to this clause, the Government, but without duplication of any amounts agreed upon in accordance with paragraph (d), shall pay to the Contractor the amounts determined as follows:
“(1) For completed supplies accepted by the Government and not theretofore paid for, a sum equivalent to the aggregate price for such supplies computed in accordance with the price or prices specified in the contract, appropriately adjusted for any saving of freight or other charges;
“(2) The total of—
“ (i) the costs incurred in the performance of the work terminated, exclusive of any costs attributable to supplies paid or to be paid for under paragraph (e) (1) hereof.
“(ii) The cost (which may include a reasonable allowance for profit to subcontractors or vendors, but only on work done in connection with the terminated portion of any subcontract or order) of settling and paying claims arising out of the termination of work under subcontracts or orders, as provided in paragraph (b) (5) above, which are properly chargeable to the terminated portion of the contract (exclusive of amounts paid or payable on account of supplies or materials delivered or services furnished by subcontractors or vendors prior to the effective date of the Notice of Termination, which amounts should be included in the costs payable under (i) above), provided that—
“(A) Each such claim has been settled with the written approval of the Contracting Officer; or
“(B) If a final judgment has been rendered against the Contractor, or a subcontractor or vendor, by a court of competent jurisdiction determining the liability of the Contractor, subcontractor, or vendor with respect to any such claim, *796the Contracting Officer has determined that such judgment or a part thereof is allocable to the terminated portion of the contract.
“(In order for a judgment to be allowable under this Sub-paragraph (ii), the Contractor, or subcontractor or vendor concerned, must have given the Contracting Officer prompt notice of the initiation of the proceedings in which such judgment was rendered and offered in writing to give the Government complete control of the defense of the proceedings, and must have diligently defended the suit, or, if the Government has assumed con trol of the defense of the proceedings, must have rendered such reasonable assistance as has been requested by the Government. If such judgment includes amounts for loss of anticipatory profits or consequential damages, such amounts will not be allowable under this subparagraph.)
“(iii) a sum equal to 2% of that part of the amount determined under (i) which represents the cost of articles and materials not processed by the Contractor, plus a sum equal to 8% of the remainder of such amount, but the aggregate of such sums shall not exceed 6% of the whole of the amount determined under (i) above.
“(3) The reasonable costs of settlement, including accounting, legal, clerical, and other expenses reasonably necessary for the preparation of settlement claims and supporting data with respect to the terminated portion of the contract and for the termination and settlement of subcontracts thereunder, together with reasonable storage, transportation, and other costs incurred in connection with the protection or disposition of termination inventory.
“The total sum to be paid to the Contractor under (1) and (2) of this paragraph (e) shall not exceed the total contract price as reduced by the amount of payments otherwise made and as further reduced by the contract price of work not terminated. Except for normal spoilage, and except to the extent that the Government shall have otherwise expressly assumed the risk of loss, there shall be excluded from the amounts payable to the Contractor as provided in paragraph (e) (1) and paragraph (e) (2) (i) , any amounts allocable to or payable in connection with property which is destroyed, lost, stolen, or damaged so as to become undeliverable to the Government, or to a buyer pursuant to paragraph (b) (7).
“(f) The Contractor shall have the right of appeal, under the clause of this contract entitled ‘Disputes’, from any determination of the amount due to the Contractor, made by the Contracting Officer under paragraphs (c) or (e) above, except that if the Contractor has failed to submit its claim within the time provided in paragraph (c) above and has failed to request extension of such time, he shall have no such right of appeal. In any case where the Contracting Officer has made a determination of the amount due under paragraph (c) or (e) above, the Government shall pay to the Contractor the following: (i) if there is no right of appeal hereunder or if no timely appeal has been taken, the amount so determined by the Contracting Officer, or (ii) if an appeal has been taken, the amount finally determined on such appeal ; any such determination being final and conclusive upon the Contractor and the Government.
“(g) In arriving at the amount due the contractor under this clause there shall be deducted (1) all unliquidated advance or other unliquidated payments on account theretofore made to the Contractor, (2) any claim which the Government may have against the Contractor in connection with this contract, and (3) the agreed price for, or the proceeds of sale of, any materials, supplies or other things kept by the Contractor or sold, pursuant to the provisions of this clause, and not otherwise recovered by or credited to the Government.
“(h) If the termination hereunder be partial, prior to the settlement of the terminated portion of this contract, the *797Contractor may file with the Contracting Officer a request in writing for an equitable adjustment of the price or prices specified in the contract relating to the continued portion of the contract (the portion not terminated by the Notice of Termination), and such equitable adjustment as may be agreed upon shall be made in such price or prices.
“(i) The Government may from time to time, under such terms and conditions as it may prescribe, make partial payments and payments on account against costs incurred by the Contractor in connection with the terminated portion of this contract whenever in the opinion of the Contracting Officer the aggregate of such payments shall be within the amount to which the Contractor will be entitled hereunder. If the total of such payments is in excess of the amount finally agreed or determined to be due under this clause, such excess shall be payable by the Contractor to the Government upon demand, together with interest computed at the rate of 6% per annum, for the period from the date such excess payment is received by the Contractor to the date on which such excess is repaid to the Government.
“(j) Any determination of costs under paragraph (e) or (e) hereof shall be governed by the Cost Principles set forth in Section XY of the Armed Services Procurement Regulation, as in effect on the date of this contract.
“ (k) Unless otherwise provided for in this contract, or by applicable statute, the Contractor, from the effective date of termination and for a period of three years after final settlement under this contract, shall preserve and make available to the Government at all reasonable times at the office of the Contractor but without expense to the Government, all its books, records, documents, and other evidence bearing on the costs and expenses of the Contractor under this contract and relating to the work terminated hereunder, or, to the extent approved by the Contracting Officer, photographs, microphotographs, or other authentic reproductions thereof. * * * ”