Lilley-Ames Company, Inc. v. United States , 293 F.2d 630 ( 1961 )

JONES, Chief Judge.

This is a contract action. The plaintiff contracted to produce and deliver barrack bags for the defendant. The plaintiff alleges that the defendant furnished it with defective material whereby the plaintiff sustained costs in excess of its bid price. The plaintiff brings this suit to recover that alleged excess.

The facts of this case are as follows. On April 6, 1953, the Armed Services Textile and Apparel Procurement Agency, Departments of the Army, Navy, and Air Force, issued an invitation for bids for the manufacture and delivery of olive drab denim barrack bags to certain designated sites between August and November 1953. The barrack bags were to be manufactured from Government-furnished olive drab denim.

Pursuant to the provisions of the invitation to bid, plaintiff secured a sample barrack bag from the Quartermaster Corps. Plaintiff studied the sample bag with regard to the nature of the sample bag’s material and construction. Plaintiff made a pattern conforming to the sample and to the plaintiff’s understanding of the specifications. As the plaintiff read the specifications, they provided for Government-furnished cloth containing a maximum of 1% percent sizing.¹ Sizing is an additive chemical which is put into the material before it is woven to prepare the warp yarns for the weaving process. The trial commissioner has found that sizing, which is commonly referred to as starch, gives cohesiveness to the fibers and tends to stiffen a fabric. Desizing, on the other hand, is a process for starch removal. Ordinarly such removal is done preparatory to bleaching •or dyeing the material.²

After studying the sample cloth, the plaintiff found the sample material similar to that which it believed the Government was going to furnish. At about the time plaintiff received this invitation to bid, the plaintiff had been making utility caps for the Marine Corps out of a. herringbone twill furnished by defendant. Plaintiff used some excess yardage of the leftover herringbone twill and made several bags from it. On the basis of the production of these bags, plaintiff prepared its unit labor costs. On May 26, 1953, plaintiff was awarded the contract for the production and delivery of 216,-600 barrack bags at a total price of $77,-127.30.³

When the Government-furnished olive drab denim was received by plaintiff, the plaintiff was surprised to discover that the material was stiffer and heavier than both the cloth in the Government sample and the cloth in the herringbone twill out of which plaintiff made the bags upon which it based its unit labor costs. The denim furnished to the plaintiff contained approximately 10 percent nonfibrous materials of which about 7 percent was sizing.⁴ As we have seen, however, the plaintiff was operating on the assumption that the Government-furnished material would contain a maximum of 1% percent sizing.

The trial commissioner in his findings has pointed out that a shop, such as the plaintiff’s, set up to process only the softer, more flexible material would have great difficulty in using denim containing a high degree of sizing. The evidence in this case clearly bears out the truth of this observation. Plaintiff’s sewing machines were unable to process the stiff material. As a consequence, the machines broke down. Plaintiff’s operators could not get the material through the machine folder. The needles on the needle machines were alternately misshapen, burned, and broken. These difficulties and many others all flowed from the fact that the Government-furnished material contained more sizing than was anticipated.⁵

Plaintiff sent successive letters to the contracting officer protesting the nature of the Government-furnished material. The contracting officer denied the plaintiff’s claim. He reasoned that Federal Specification CCC-D-186 ⁶ permitted the denim to contain a maximum of 13 percent sizing, finishing, and other nonfibrous materials. The contracting officer concluded that since the Government-furnished material contained only 7 percent sizing, the material was not defective.

On appeal, the Armed Services Board of Contract Appeals on August 14, 1956, decided that plaintiff was entitled to an equitable adjustment since the Board concluded that the Government-furnished material was not fully in accord with the specifications. The Board interpreted specification JAN-D-504⁷ to apply. That specification required that the Government-furnished denim should not exceed 1 yz percent sizing content. The Board concluded that the basic specification, MIL-B-2378a[A],⁸ required that the Government-furnished denim be desized so as to produce a fabric with satisfactory sewing qualities. The Board remanded the case to the contracting officer for a determination as to the amount plaintiff should recover. On January 14, 1957, the contracting officer decided that plaintiff was entitled to an equitable adjustment of $4,700.44. Upon appeal, on December 30, 1957, the Army Contract Appeals Panel decided that the amount of the equitable adjustment should be' $12,996.60. This amount has been paid to plaintiff.

The principal issue in this case is a simple one. Did the Government-furnished material contain more sizing than that provided for by the specifications? Defendant vigorously relies on Federal Specification CCC-D-186 which says that the cloth shall not contain more than 13 percent for class C of finishing nonfibrous materials. Plaintiff for its part relies on Military Specification, JAN-D-504,⁹ referenced in the basic specification, which provides that dyed fabric shall not contain more than iy2 percent sizing. We reject defendant’s theory that CCC-D-186¹⁰ entitled it to furnish the plaintiff with material containing 7 percent sizing. The words “sizing” and “nonfibrous material” are not interchangeable terms. Nonfibrous material includes sizing but is not identical with it. CCC-D-186 permits 13 percent nonfibrous material; it does not refer to sizing. According to the plaintiff’s understanding, the specification that spelled out the amount of sizing permissible in the Government-furnished material was JAN-D-504 which stated that the sizing would not be in excess of 11/2 percent. Plaintiff found the material in the sample bag consistent with this interpretation. The herringbone twill which it used to make the bags on which it based its unit labor costs for this contract likewise conformed to this interpretation of the specification. It is elemental contract law that where the contract specifications are ambiguous, the ambiguity should be construed against their author. Wunderlich Contracting Co. v. United States, 143 Ct.Cl. 876, 878. We think that as a matter of law the Government-furnished material was not fully in accord with the specifications. We note that this was the Board’s conclusion as well.¹¹

Plaintiff says that the Board’s decision is arbitrary and capricious and not supported by substantial evidence because the sum allowed is not sufficient. Defendant also attacks the Board’s decision and alleges that the Board has been arbitrary and capricious because as a matter of law the specifications permitted the defendant to furnish denim containing 7 percent sizing. As we have said above, we cannot accept the defendant’s theory that its material conformed to specifications as a matter of law. Consequently, we find no merit in defendant’s counterclaim.

The plaintiff contends that it is entitled to additional damages beyond those allowed by the Board. The plaintiff’s theory in this regard generally appears to be that it should be recompensed for the total loss it experienced under this contract. For example, plaintiff actually sustained a total increase in labor costs of 60 percent. But only a portion of this increase can be ascribed to the fact that the defendant supplied the plaintiff with material of a high rather than a low degree of sizing. The plaintiff of course can recover only for those expenses occasioned from the furnishing of highly-sized denim by the defendant. The plaintiff may not include all costs arising from the performance of the contract as the basis for its recovery. The defendant is under no obligation of “reimbursing it [plaintiff] for whatever losses it incurred, notwithstanding their nature.” Christensen Construction Co. v. United States, 72 Ct.Cl. 500, 514. See also Chain Belt Company, a Wisconsin Corporation v. United States, 115 F. Supp. 701, 127 Ct.Cl. 38, 58. Both the decision of the Armed Services Board of Contract Appeals and the independent findings of our trial commissioner show that only a 35 percent increase in labor costs is attributable to the furnishing of substantially sized denim. ¹²

The Board allowed the plaintiff 22.8 percent of the amount reached by using this 35 percent figure for increased overhead. The 22.8 percentage was obtained from plaintiiFs bid estimate. The Board apparently applied this percentage because no evidence had been adduced before it indicating what plaintiff’s actual overhead costs were. From the evidence taken before this court, however, we have found that plaintiff’s actual overhead costs were not 22.8 percent of its direct labor costs, but 61.77 percent.¹³

We think that in measuring plaintiff’s loss arising from the highly sized denim, we should use the actual percentage of overhead experienced by plaintiff rather than plaintiff’s hypothetical bid estimate. In Great Lakes Dredge & Dock Co. v. United States, 96 F.Supp. 923, 119 Ct.Cl. 504, 558, this court was presented with the choice of applying a hypothetical estimate or a proven actual cost figure in measuring damages. We said in that case at page 925 of 96 F.Supp., at page 558 of 119 Ct.Cl.:

“In a case such as this, where the contracting officer approved plaintiff’s method of operation, and where we have found that the plaintiff’s actual increased costs were necessary and reasonable, we think the contract contemplated that those actual costs, and not the costs of some hypothetical alternative solution of the problem, should be the basis of the equitable adjustment.” [Emphasis supplied.]

Application of the actual percentage of 66.77 for overhead rather than the bid estimate percentage of 22.8 percent requires us, of course, to make a slight adjustment in plaintiff’s total profit allowance.¹⁴ We find that these adjustments entitle the plaintiff to $17,233.13,¹⁵ instead of the amount of $12,996.60 which the Board did allow, a difference of $4,236.53, a result which we are confident the Board would have reached had it been presented with the same factual evidence.

Judgment will be entered for the plaintiff in the amount of $4,236.53. Defendant’s counterclaim will be dismissed.

It is so ordered.

1 . Finding 2(d).

2 . Finding 10(a) and (b).

3 . Finding 5.

4 . Finding 10(c).

5 . Findings 6 and 7.

6 . Finding 2(c).

7 . Finding 2(d).

8 . Finding 2(b).

9 . Finding 2(d).

10 . Finding 2(c).

11 . Finding 20.

12 . Finding 25(a).

13 . Finding 25(b).

14 . Finding 25(c).

15 . For the breakdown of the various damage items comprising this total, see finding 25(b), (c), and (d).