Court Opinion

ID: 9452591
Source: CourtListenerOpinion
Date Created: 2023-08-04 17:45:39.019135+00
Date Added: 2024-06-11T17:33:16.863612
License: Public Domain

SKELTON, Judge
(concurring in part and dissenting in part) :
I join in the concurring and dissenting opinion of Judge Davis for the reasons stated by him.
In addition, the guidelines set forth in the Armed Services Procurement Regulations found in the Code of Federal Regulations (C.F.R.) were as available to the plaintiff as they were to the Armed Services Board of Contract Appeals. The plaintiff had the burden of showing how and wherein it had been determined unfairly that it had made a fair and reasonable profit without the claimed escalation of prices. It was required to do this within the provisions of the contract and regulations. The Board was only required to consider the proof offered by plaintiff and was not compelled to comment on those regulations which were not invoked by the plaintiff’s evidence.
We must assume in the absence of evidence to the contrary, that the Board, in the exercise of its discretion, followed the guidelines in the regulations. We should not send the case back to the Board for the purpose of requiring it to spell out specifically and in detail which of the rules it followed and to what extent, especially where there is no showing that it considered evidence dehors the record or other improper evidence.
Also, I think the decision of the Board should be approved for the further reason that insofar as it is for us to judge the plaintiff has failed to show that it made less than a fair and reasonable profit. The facts show that in the beginning it expected to make a profit of 6.67 per cent ($7,363,000) on its costs. When the job was completed it found that it had made a profit of 9.58 per cent on its costs, or a profit of $11,262,-084.27. Most businessmen would be happy to make this kind of profit. Certainly plaintiff has not shown it is less than fair and reasonable. Plaintiff seeks an additional sum of $7,284,236.45 by way of escalation of price which would give it a profit of $18,546,320.72 or 15.77 per cent over its costs. The Board properly concluded on the evidence before it that this increase was not necessary in whole or in part for plaintiff to make a fair and reasonable profit on the contract and there was substantial evidence in the record as a whole to support the Board’s decision.
I would hold that plaintiff is not entitled to recover and would dismiss its petition.
DAVIS, Judge, joins in the foregoing opinion of Judge SKELTON.
APPENDIX A
Excerpt from Armed Services Procurement Regulation, Title 32 (Cum. Supp. as of January 1, 1960)
§ 3.808-1 General
A fair and reasonable provision for profit or fee cannot be made by simply applying a certain predetermined percentage to the cost estimate or selling price of a product. Rather, the profit or fee should be first established as a dollar amount, after considering the factors set forth in this section. Therefore, where a fee is involved and it is necessary to determine the percentage relationship between the fee and the estimated cost of the contract in order to comply with administrative and statutory *536limitations on fees for cost-reimbursement type contracts, the percentage shall be determined only after the dollar amount of the fee has been established for negotiation purposes. [Amdt. 49, 24 F.R. 10631, Dec. 24, 1959]
§ 3.808-2 Factors for Determining Fee or Profit
The factors set forth in subparagraphs (a) through (i) below should be considered in determining profit or fee in all contracts, whether for supplies or services; for construction work; or for experimental, developmental, or research work; and whether of the fixed-price type or of the cost-reimbursement type unless otherwise specified in the particular factor. All of the following factors, as set forth in paragraphs (a) through (i) of this section should be evaluated in the light of the basic policy set forth in § 3.801-1 which provides that supplies and services shall be procured from responsible sources at fair and reasonable prices calculated to result in the lowest overall cost to the Government:
(a) Effect of Competition. Where competition is adequate and effective and proposals are on a firm fixed-price basis, the contracting officer normally need not consider in detail the amount of estimated profit included in a price. Where effective competition is lacking, the estimate for profit for the proposed fixed fee should be analyzed in the same manner as all other elements of price, applying the factors set forth in this section.
(b) Degree of Risk. (1) The degree of risk assumed by the contractor should influence the amount of profit or fee a contractor is entitled to anticipate. For example, where a portion of the risk has been shifted to the Government through cost-reimbursement or price re-determination provisions, unusual contingency provisions, or other risk-reducing measures, the amount of profit or fee should be less than where the contractor assumes all risk.
(2) Some cost-plus-a-fixed-fee contracts and task orders for research and development call for the delivery of prototypes of other “hardware.” Other such contracts or task orders require only that the contractor exert its “best efforts” to deliver the required end item. Frequently this is because the contractor is not willing to assume the additional burden of incurring substantial cost overruns without additional fee in order to complete performance. When the contract calls for delivery of developed models in accordance with well-defined performance or design characteristics or a predetermined delivery schedule, or both, in contrast to an obligation only to exert its “best efforts” to develop and deliver such models, payment of the fee should be conditioned on performance in accordance with the contractor’s obligation to deliver, and in such cases the contractor may be entitled to a larger fee both because of the risk inherent in its commitment and because of the successful completion of the work.
(c) Nature of Work to Be Performed. A major consideration in the determination of the amount of profit or fee, particularly in connection with experimental, developmental, or research work, is the difficulty or complexity of the work to be performed and any unusual demands of the contract, such as whether the project involves a new approach unrelated to existing equipment or only refinements on existing equipment, whether the caliber or class of engineer involved is that of an “idea-man,” or whether the contractor is to be required by the contract to assign to the work unusually skilled talent.
(d) Extent of Government Assistance. The Department of Defense encourages its contractors to perform their contracts with the minimum of financial, facilities, or other assistance from the Government. Where extraordinary financial, facilities, or other assistance must be furnished to a contractor by the Government, such extraordinary assistance should have a modifying effect in determining what constitutes a fair and reasonable profit or fee. (See also § 3.404-3(d).)
*537(e) Extent of the Contractor’s Investment. The extent of a contractor’s total investment (i. e., both equity and borrowed capital) in the performance of the contract will be taken into consideration in determining the amount of the fee or profit.
(f) Character of Contractor’s Business. Recognition must be given to the type of business normally carried on by the contractor, the complexity of manufacturing techniques, the rate of capital turnover, and the effect to each individual procurement upon such business. For example, where a contractor is engaged in an industry where the turnover of working capital is low, generally the profit objective on individual contracts is higher than in those industries where the turnover is more rapid.
(g) Contractor’s Performance. In addition to the factors set forth in § 3.101, the contractor’s past and present performance should be evaluated in such areas as quality of product, quality control, scrap and spoilage, efficiency in cost control (including need for and reasonableness of cost incurred), meeting delivery schedules, timely compliance with contractual provisions, creative ability in product development (giving consideration to commercial potential of product), engineering (including inventive, design simplification, and development contributions), management of subcontract programs, and any unusual services furnished by the contractor. Where a contractor has consistently achieved excellent results in the foregoing areas in comparison with other contractors in similar circumstances, such performance merits a proportionately greater opportunity for profit or fee. Conversely, a poor record in this regard should be reflected in determining what constitutes a fair and reasonable profit or fee.
(h) Subcontracting. In negotiating the profit or fee, the nature and extent of any subcontracting should be considered, particularly as it bears on the contractor’s performance, administrative responsibility, financial investment, and degree of risk as outlined above. The degree and nature of subcontract programs vary on a broad spectrum. While it is not possible to define precisely the exact profit or fee treatment to be accorded each situation, the general guidelines which follow will be taken into consideration. The evaluation of a contractor’s subcontracting program should not consist merely of applying arbitrary percentages of profit to subcontract prices in negotiating the prime contract price. A relatively large amount of subcontracting need not make for negotiation of a lesser profit or fee — the character and circumstances of the subcontracting and the effect on the prime contractor’s costs must be taken into account. Although purchased material and subcontracted work are usually properly included in the base upon which profit is computed, instances may arise in which a significant portion or portions of a contract are subcontracted in such a way that only a minimum amount of responsibility or risk remains with the prime contractor. In such a case, the amount of fee or profit should be less than where the contractor assumes substantial risk. Of primary importance is the degree to which the subcontracting provides a better product and lower costs, with timely delivery, and in which the contractor assumes heavy managerial effort, responsibility and risk. In this connection, consideration should be given to the contractor’s past and present effectiveness in offering to qualified small business concerns and to firms in labor surplus areas an opportunity to compete for subcontracts (see for example § 1.707-3) and to the contractor’s furnishing assistance to such concerns as they require or as the Government may specifically request. A contractor’s effectiveness in furnishing such opportunity or assistance to an unusual or exceptional degree, should be given favorable consideration in determining the amount of fee or profit.
(i) Unrealistic Estimates. If records reveal that a contractor’s actual costs are consistently lower than his estimated costs (indicating a practice of excessive *538estimates), and if the contractor refuses to provide what seems to be reasonable estimate of costs, a lower profit or fee should be considered. [Arndt. 49, 24 F.R. 10632, Dec. 24, 1959]