Brief: GENERAL BUILDERS SUPPLY CO. V. UNITED STATES
Opinion by Davis
Facts
"General Builders Supply Co., Inc., the plaintiff, made a contract in 1964 with the General Services Administration" General Builders Supply Co. v. United States, 409 F.2d 246, 247 (Fed. Cir. 1969)
General Business subcontract with Hupp
"Hupp built pre-production models and submitted them for inspection to the Government, which rejected them three times. The contract was then terminated for default on the ground that the pre-production models failed to meet the specifications. No production refrigerators were made or delivered." General Builders Supply Co. v. United States, 409 F.2d 246, 247 (Fed. Cir. 1969)
"the Board of Contract Appeals of the General Services Administration determined that the work had been improperly terminated for default. The case was returned to the contracting officer for calculation of the recovery for the erroneous termination." General Builders Supply Co. v. United States, 409 F.2d 246, 247–248 (Fed. Cir. 1969)
General builders wanted costs but also anticipated profits for itself and Hupp
"The contracting officer allowed recovery of $6,491.77, for the costs, but denied the demand for unearned but anticipated profits. Plaintiff was satisfied with the cost computation but appealed the rejection of the profit."
"The Board of Contract Appeals affirmed, holding that the default clause in the contract did not permit the award of anticipatory gain." General Builders Supply Co. v. United States, 409 F.2d 246, 248 (Fed. Cir. 1969)
No factual controversy. Both parties moved for summary judgment
Issue
Is Government liable for anticipated profits, under law or the contract?
Rule
The concept of an "equitable adjustment" has had a long history in federal procurement, going back for about fifty years. See United States v. Callahan Walker Constr. Co., 317 U.S. 56, 63 S.Ct. 113, 87 L.Ed. 49 (1942); United States v. Rice, 317 U.S. 61, 63 S.Ct. 120, 87 L. Ed. 53 (1942); Ribakoff, Equitable Adjustments Under Government Contracts, in Government Contracts Program, The George Washington University, Changes and Changed Conditions 26, 27 (Gov't Contracts Monograph No. 3, 1962).
General Builders Supply Co. v. United States, 409 F.2d 246, 249 (Fed. Cir. 1969)
"The consistent practice appears to have been that an "equitable adjustment", as that phrase is used in these articles, can cover an allowance for a profit on work actually done, but does not encompass unearned but anticipated profits. See United States v. Callahan Walker Constr. Co., supra,317 U.S. at 61, 63 S.Ct. 113; Bennett v. United States,371 F.2d 859, 864, 178 Ct.Cl. 61, 69-70 (1967); cf. Bruce Constr. Corp. v. United States, 324 F.2d 516, 163 Ct.Cl. 97 (1963). " General Builders Supply Co. v. United States, 409 F.2d 246, 249 (Fed. Cir. 1969)
"The plaintiff ... maintains that a different reading for 'equitably adjusted' is proper in the newer 'default' article. " General Builders Supply Co. v. United States, 409 F.2d 246, 249 (Fed. Cir. 1969)
The Federal Procurement Regulations provided that, on termination of a fixed-price contract, "[a]nticipatory profits and consequential damages shall not be allowed" (41 C.F.R. § 1-8.303(a) (1968)
"It has long been held that, on cancellation of a contract under the power of eminent domain, just compensation does not include anticipatory profits. Russell Motor Car Co. v. United States, 261 U.S. 514, 523-24,43 S.Ct. 428, 67 L.Ed. 778 (1923)" General Builders Supply Co. v. United States, 409 F.2d 246, 251 (Fed. Cir. 1969)
"A major reason for the initiation and increasing use of convenience-termination articles has been to allow the Government to avoid paying unearned profits. G.L. Christian Assoc. v. United States, 312 F.2d 418, 426-427, 160 Ct.Cl. 1, 15-16, rehearing denied, 320 F.2d 345, 160 Ct.Cl. 58, cert. denied, 375 U.S. 954, 84 S.Ct. 444, 11 L.Ed.2d 314 (1963); Nolan Bros., Inc. v. United States, supra note 3, 405 F.2d, at 1256, 186 Ct.Cl. at 607. " General Builders Supply Co. v. United States, 409 F.2d 246, 251 (Fed. Cir. 1969)
Analysis
"This is far from an unnatural interpretation [that equitable adjustments do not cover anticipated profits" since, in these clauses, the "equitable adjustment" is usually tied by express words to an increase or decrease in the contractor's costs." General Builders Supply Co. v. United States, 409 F.2d 246, 249 (Fed. Cir. 1969)
With regard to amounts, a termination is essentially the same as a change under the "changes" clause reducing the number of items to be furnished. In fact, a "change" of that kind can often be characterized as a partial termination, and vice versa. Cf. Williamsburg Drapery Co. v. United States, 369 F.2d 729, 177 Ct.Cl. 776 (1966); Nesbitt v. United States, 345 F.2d 583, 170 Ct.Cl. 666 (1965), cert. denied, 383 U.S. 926, 86 S. Ct. 931,15 L.Ed.2d 846 (1966); National Presto Indus., Inc. v. United States, 338 F.2d 99, 102, 167 Ct.Cl. 749, 753 (1964), cert. denied, 380 U.S. 962, 85 S.Ct. 1105, 14 L.Ed.2d 153 (1965). Whether the decrease be total or partial, and whether it be called a change or a termination, the focus will still be on the amount of money with which the contractor should be left as a result of the transaction.
General Builders Supply Co. v. United States, 409 F.2d 246, 250 (Fed. Cir. 1969)
"equitable adjustment" has become a term of art (in federal contracts) with a commonly understood meaning in the aspect involved in this case ( compare Ambrose-Augusterfer Corp. v. United States, 394 F.2d 536, 545, 184 Ct.Cl. 18, 33 (1968)), and that accepted content should be followed unless there are very strong counterbalancing reasons.
General Builders Supply Co. v. United States, 409 F.2d 246, 250 (Fed. Cir. 1969)
"In other words, the problem of the 'equitable adjustment' is entirely comparable whether the contractor is faced with a termination or with a change in quantity of work. There is therefore no reason for discarding the historical meaning that term has acquired under the 'changes' and like clauses." General Builders Supply Co. v. United States, 409 F.2d 246, 250 (Fed. Cir. 1969)
"It is possible that this particular plaintiff did not comprehend the impact of the meaningful words 'equitably adjusted' in the 'default' article of the contract, but nevertheless there was much to put it on notice. " General Builders Supply Co. v. United States, 409 F.2d 246, 250 (Fed. Cir. 1969)
The Federal Procurement Regulations provided that, on termination of a fixed-price contract, "[a]nticipatory profits and consequential damages shall not be allowed" (41 C.F.R. § 1-8.303(a) (1968)), and said expressly that directives like the one just quoted could be used (in addition to computing the award on a convenience-termination) "for guidance in negotiating a settlement agreement, or in making an equitable adjustment" (41 C.F.R. § 1-8.000(b) (1968) (emphasis added)).
Moreover, the meaning of "equitable adjustment" had become, so to speak, a "trade usage" for those engaged in contracting with the Federal Government. The knowledgeable federal contractor would understand it, and plaintiff, if it was not so knowledgeable, was charged with making itself aware of that usage. Cf. Uniform Commercial Code § 1-205.
General Builders Supply Co. v. United States, 409 F.2d 246, 250–251 (Fed. Cir. 1969)
"In 1967, GSA required convenience-termination clauses in contracts like the present one, so that from that time on the problem now before us is unlikely to arise." General Builders Supply Co. v. United States, 409 F.2d 246, 251 (Fed. Cir. 1969)
"The trend has been steadily adverse to the allowance of that component of common-law damages, and the policy of federal procurement law is no longer what plaintiff insists. See Nolan Bros., Inc. v. United States, supra, and cases cited." General Builders Supply Co. v. United States, 409 F.2d 246, 251 (Fed. Cir. 1969)