[Congressional Record Volume 140, Number 32 (Monday, March 21, 1994)]
[House]
[Page H]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: March 21, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
 CONTRACTUAL ACTIONS, CALENDAR YEAR 1993 TO FACILITATE NATIONAL DEFENSE

  The Clerk of the House of Representatives submits the following 
report for printing in the Congressional Record pursuant to section 
4(b) of Public Law 85-804:

                           Office of the Secretary of Defense,

                                   Washington, DC, March 15, 1994.
     Hon. Thomas S. Foley,
     Speaker of the House of Representatives, Washington, DC.
       Dear Mr. Speaker: In compliance with Section 4(a) of Public 
     Law 85-804, enclosed is the calendar year (CY) 1993 report 
     entitled Extraordinary Contractual Actions to Facilitate the 
     National Defense.
       Section A, Department of Defense Summary, indicates that 54 
     contractual actions were approved and that 4 were 
     disapproved. Those approved include actions for which the 
     Government's liability is contingent and can not be 
     estimated.
       Section B, Department Summary, presents those actions which 
     were submitted by affected Military Departments/Agencies with 
     an estimated or potential cost of $50,000 or more. A list of 
     contingent liability claims is also included where 
     applicable. The Defense Logistics Agency, Ballistic Missile 
     Defense Organization, Defense Information Systems Agency, 
     Defense Mapping Agency, and the Defense Nuclear Agency 
     reported no actions, while the Departments of the Army, Navy, 
     and Air Force, provided data regarding actions that were 
     either approved or denied.
           Sincerely,
                                                       D.O. Cooke,
                                                         Director.
       Enclosure: As stated.


                         department of defense

 EXTRAORDINARY CONTRACTUAL ACTIONS TO FACILITATE THE NATIONAL DEFENSE 
                 (Public Law 85-804) Calendar Year 1993


                                foreword

       On October 7, 1992, the Deputy Secretary of Defense 
     (DEPSECDEF) determined that the national defense will be 
     facilitated by the elimination of the requirement in existing 
     Department of Defense (DoD) contracts for the reporting and 
     recoupment of nonrecurring costs in connection with the sales 
     of military equipment. In accordance with that decision and 
     pursuant to the authority of Public Law 85-804, the DEPSECDEF 
     directed that DoD contracts heretofore entered into be 
     amended or modified to remove these requirements with respect 
     to sales on or after October 7, 1992, except as expressly 
     required by statute.
       In accordance with the DEPSECDEF's decision, on October 9, 
     1992, the Under Secretary of Defense for Acquisition directed 
     the Assistant Secretaries of the Army, Navy, and Air Force, 
     and the Directors of the Defense Agencies, to modify or amend 
     contracts that contain a clause that requires the reporting 
     or recoupment of nonrecurring costs in connection with sales 
     of defense articles or technology, through the addition of 
     the following clause:
       The requirement of a clause in this contract for the 
     contractor to report and to pay a nonrecurring cost 
     recoupment charge in connection with a sale of defense 
     articles or technology is deleted with respect to sales or 
     binding agreements to sell that are executed on or after 
     October 7, 1992, except for those sales for which an Act of 
     Congress (see section 21(e) of the Arms Export Control Act) 
     requires the recoupment of nonrecurring costs.
       This report reflects no costs with respect to the reporting 
     or recoupment of nonrecurring costs in connection with sales 
     of defense articles or technology, as none have been 
     identified for calendar year 1993.

 CONTRACTUAL ACTIONS TAKEN PURSUANT TO PUBLIC LAW 85-804 TO FACILITATE 
                THE NATIONAL DEFENSE, CALENDAR YEAR 1993

                Section A--Department of Defense Summary

 SUMMARY REPORT OF CONTRACTUAL ACTIONS TAKEN PURSUANT TO PUBLIC LAW 85-804 TO FACILITATE THE NATIONAL DEFENSE-- 
                                              JANUARY-DECEMBER 1993                                             
----------------------------------------------------------------------------------------------------------------
                                                      Actions approved                       Actions denied     
    Department and type of action     --------------------------------------------------------------------------
                                        Number    Amount requested   Amount approved    Number        Amount    
----------------------------------------------------------------------------------------------------------------
      Department of Defense, total...        54      25,783,716.00      25,783,716.00         4     5,076,107.75
                                      --------------------------------------------------------------------------
Amendments without consideration.....         2      25,000,000.00      25,000,000.00         3     4,896,207.75
Implied contract of ``fair                                                                                      
 consideration''.....................         1         783,716.00         783,716.00         0             0.00
Award new contract...................         0               0.00               0.00         1       179,900.00
Contingent liabilities...............        51               0.00               0.00         0             0.00
                                      ==========================================================================
      Army, total....................         2         783,716.00         783,716.00         1       833,860.75
                                      --------------------------------------------------------------------------
Amendments without consideration.....      \1\1  .................  .................      \3\1       833,860.75
Implied contract of ``fair                                                                                      
 consideration''.....................      \2\1         783,716.00         783,716.00         0             0.00
                                      ==========================================================================
      Navy, total....................        49      25,000,000.00      25,000,000.00         2     4,062,347.00
                                      --------------------------------------------------------------------------
Amendments without consideration.....         1      25,000,000.00      25,000,000.00         2  \4\4,062,347.00
Contingent liabilities...............        48               0.00               0.00         0            0.00 
                                      ==========================================================================
      Air Force, total...............         3               0.00               0.00         1       179,900.00
                                      --------------------------------------------------------------------------
Award new contract...................         0               0.00               0.00         1    \5\179,900.00
Contingent liabilities...............      \6\3               0.00               0.00         0             0.00
                                      ==========================================================================
Defense Logistics Agency, total......         0               0.00               0.00         0             0.00
Ballistic Missile Defense                                                                                       
 Organization, total.................         0               0.00               0.00         0             0.00
Defense Information Systems Agency,                                                                             
 total...............................         0               0.00               0.00         0             0.00
Defense Mapping Agency, total........         0               0.00               0.00         0             0.00
Defense Nuclear Agency, total........         0               0.00               0.00         0            0.00 
----------------------------------------------------------------------------------------------------------------
\1\Intes Construction Company ACAB No. 1235A. Supplemental Decision. Released amounts previously approved but   
  withheld from contractor (under ACAB No. 1235, 10 Apr 92) until contract was complete. Contract was completed 
  in 1993. ($2,500,000 was reported last year and will not be reported again to avoid duplication.)             
\2\Mela Associates, Inc., requested extraordinary contractual relief under Public Law 85-804. The request for   
  relief was approved for $783,716.                                                                             
\3\Thiokol Corporation requested extraordinary contractual relief in the amount of $833,860.75, plus interest,  
  under Public Law 85-804. The request for relief was denied.                                                   
\4\Denials involved Trident Marine Corporation ($1,062,347.00) and RD&D Corporation ($3,000,000.00).            
\5\Subcontractor requested payment directly from the Government for work performed for the prime contractor and 
  for which the prime contractor did not pay.                                                                   
\6\Two additional indemnifications were approved; however, the Air Force has deemed them to be ``CLASSIFIED,''  
  not subject to this report's purview.                                                                         

                     Section B--Department Summary

       Contractor: Intes Construction Company.
       Type of action: Amendment Without Consideration.
       Actual or estimated potential cost: Supplemental Decision 
     (Released amounts previously approved but withheld from 
     contractor (under ACAB No. 1235, April 10, 1992) until 
     contract was complete. Contract was completed in 1993. 
     ($2,500,000 was reported last year and will not be reported 
     again to avoid duplication).
       Service and activity: United States (U.S.) Army Corps of 
     Engineers.
       Description of product or service: Construction of a 
     composite medical facility at Incirlik, Turkey.
       Background: In ACAB No. 1235, dated 10 April 1992, the 
     Board granted relief to Intes Construction Company by 
     extending the period of performance to December 31, 1992, and 
     increasing the contract price by $2.5 million, payable only 
     when the contract was satisfactorily completed. Intes 
     requests that the Board modify its decision to permit early 
     release of part of the $2.5 million. The Corps of Engineers 
     recommends approval.
       The U.S. Army Corps of Engineers reports that Intes was 
     able to negotiate deferment of actions by its creditors based 
     upon the expectation of receiving payment in December 1992. 
     Subsequent to the Board's decision and Intes' arrangements 
     with its creditors, the completion date was extended as a 
     result of change orders issued by the U.S. Army Corps of 
     Engineers. Performance was issued by the U.S. Army Corps of 
     Engineers. Performance was further delayed by Intes due to 
     its inability to obtain adequate financing. Currently Intes 
     finds itself facing the same plight that brought it to the 
     Board with its original request.
       Justification: The U.S. Army Corps of Engineers recommends 
     that the Board authorize immediate release of $1 million, an 
     additional $100,000 for each additional one percent of 
     progress, and the remainder upon completion. Although Intes 
     requested that payments be made at the rate of $250,000 
     instead of $100,000, and linked to time as opposed to 
     progress, it now agrees that the restructuring proposed by 
     the U.S. Army Corps of Engineers will be sufficient to enable 
     it to complete the project. The U.S. Army Corps of Engineers 
     maintains that these measures are adequate to address the 
     concern expressed by the Board in the original decision. The 
     U.S. Army Corps of Engineers notes that the job is 92 percent 
     complete, that less than $1.5 million worth of work remains, 
     and that $700,000 retainage will provide ample incentive for 
     Intes to finish the work.
       Decision: The Board agrees with the U.S. Army Corps of 
     Engineers, and therefore, authorizes the immediate release of 
     $1 million, additional payments of $100,000 for each 
     additional one percent of completion, and payment of the 
     remaining $700,000 upon completion of performance.
       This action will facilitate the national defense.
       Contractor: Thiokol Corporation.
       Type of action: Amendment Without Consideration.
       Actual or estimated potential cost: $833,860.75.
       Service and activity: U.S. Army Armament, Munitions and 
     Chemical Command (AMCCOM).
       Description of product or service: Settling a suit filed by 
     the family of a Thiokol employee who died several days after 
     being seriously burned in a fire at the Longhorn Army 
     Ammunition Plant.
       Background: Thiokol Corporation submitted an application 
     for relief under Public Law 85-804 through the U.S. Army 
     Armament, Munitions and Chemical Command (AMCCOM), seeking an 
     amendment without consideration to contract DAAA09-90-C-0990 
     in the amount of $833,860.75, plus interest. The request 
     represents the cost of settling a suit filed by the family of 
     a Thiokol employee who died several days after being 
     seriously burned in a fire at the Longhorn Army Ammunition 
     Plant. AMCCOM forwarded the request to the Board with a 
     recommendation that relief be granted.
       After consideration of Thiokol's written submissions, its 
     testimony before the Board, and the recommendation of AMCCOM, 
     the Board has determined that relief is not appropriate for 
     the reasons set forth below.
       Statement of facts: Thiokol has operated and managed the 
     Longhorn Army Ammunition Plant for many years under a series 
     of cost-reimbursable operating contracts. These contracts 
     included indemnification provisions covering unusually 
     hazardous risks such as detonation or combustion of 
     explosives and incendiary materials. The contract under which 
     Thiokol seeks relief, however, was a separately negotiated, 
     firm-fixed-price contract for the production of flares. It 
     did not include an indemnification provision. (Hereinafter, 
     this contract is called the Flare Contract to distinguish it 
     from the Operating Contract.)
       The Flare Contract was negotiated during the Spring and 
     Summer of 1990. On several occasions during the course of 
     negotiations, Thiokol was advised of the separate nature of 
     the contract. Insurance was an item of discussion four times. 
     Specifically, the contract specialist advised Thiokol that 
     the Flare Contract was not a ``standard government owned, 
     contractor operated (GOCO) contract,'' and that Thiokol would 
     need to get its own insurance. Thiokol ultimately responded 
     with a letter stating that its liability needs were met by 
     Worker's Compensation Insurance. The contract was awarded on 
     November 30, 1990, without an indemnification provision.
       During the same time frame, the Army and the operators of 
     18 Army ammunition plants were engaged in the final stages of 
     defining the risks to be indemnified under a consolidated 
     indemnification authorization for operating contracts 
     pursuant to the Secretary's authority under Public Law 85-
     804. The process concluded with a memorandum of decision, 
     dated November 14, 1990, that authorized inclusion of 
     indemnification provisions in the operating contracts for 18 
     specified ammunition plants. The new indemnification 
     provision was added to Thiokol's Operating Contract on 
     December 20, 1990.
       The fire occurred on September 27, 1991, when excess hexane 
     was dumped into a trough that flowed to a collection pan. 
     After the fire, a grounding strap was found next to the 
     collection pan. Apparently, it had not been connected while 
     the hexane was being dumped. Thus, investigators determined 
     the most probable cause of the fire to be an electrostatic 
     discharge that ignited hexane vapors.
       Two Thiokol employees were seriously burned and 
     hospitalized. One of them died several days later as a result 
     of a heart attack. The family of the decedent filed suit on 
     January 24, 1992, under the following provision of the Texas 
     Worker's Compensation Act:
       This section does not prohibit the recovery of exemplary 
     damages by the surviving spouse of heirs of the body of a 
     deceased employee whose death was caused by an intentional 
     act or omission of the employer or by the employer's gross 
     negligence . . . [Article 8308-4.01(b), Texas Revised Civil 
     Statutes]
       Shortly thereafter, Thiokol sent AMCCOM a letter requesting 
     authority to retain outside counsel. The letter cited 
     provisions of the Operating Contract. In conversations 
     between AMCCOM counsel and Thiokol counsel, Thiokol was again 
     advised that the indemnification provision of the Operating 
     Contract did not extend to work under the Flare Contract, and 
     that the Flare Contract did not include an indemnification 
     provision. Thiokol then unilaterally stopped work and 
     commenced negotiations to add an indemnification provision to 
     the contract. In May 1992, the Secretary authorized 
     prospective indemnification.
       Justification: Thiokol states that it performed the Flare 
     Contract under the assumption that it was covered by the 
     indemnification provision in the Operating Contract. This 
     assumption was based upon the historical indemnification 
     of operating contracts and the Secretary's execution, at 
     about the time of the Flare Contract award, of the 
     consolidated authorization for Operating Contract 
     indemnification. Thiokol cites FAR Section 50.302-2, 
     Correcting Mistakes, as authority for relief.
       It asserts that the mistake was, or should have been, 
     apparent to the contracting officer based upon historical 
     dealings with the company.
       Decision: The Secretary's November 14, 1990, memorandum 
     authorizes AMCCOM to include an indemnification provision in 
     operating contracts. It further authorizes contracting 
     officers to extend coverage to subcontracts under operating 
     contracts and to third party contracts when the ultimate 
     purchaser of the items is an agency of the United States.
       The memorandum did not address indemnification under other 
     contracts between Thiokol and AMCCOM (such as the flare 
     contract). Thus, it did not provide authority to include an 
     indemnification provision in the flare contract.
       We find no reasonable basis for Thiokol to have been misled 
     by the memorandum. It clearly did not establish umbrella 
     coverage for all hazardous activities undertaken by the 
     Longhorn Division. It merely authorizes the extension of 
     indemnification under specified circumstances. While it is 
     conceivable that Thiokol may have been confused about whether 
     its contract was a third party contract, it is unmistakably 
     clear that the memorandum does not provide for self-operating 
     extensions of coverage. Some action is required by the 
     parties to implement the authority. It was incumbent upon 
     Thiokol to initiate that action.
       We also find no reasonable basis for Thiokol's assumption 
     that it was covered by the Operating Contract indemnification 
     provision. To the contrary we find ample reason to believe 
     that Thiokol knew or should have known, that it was not 
     covered by the Operating Contract. AMCCOM specifically 
     advised Thiokol that it would require insurance because the 
     Government would not be responsible for any risk of injuries 
     sustained in contract performance. Thiokol responded with an 
     assertion that it was covered by the Operating Contract as 
     was further advised that it interpretation was accurate for 
     equipment but not with regard to accidents resulting in 
     injuries to employees. Although AMCCOM did not explicitly 
     discuss the absence of an indemnification provision in the 
     Flare Contract, we believe its actions were more than 
     sufficient to put Thiokol on notice that employee injuries 
     were not covered by either the Flare Contract or the 
     Operating Contract.
       There may be circumstances under which the Board would 
     grant relief for liabilities related to an unindemnified 
     contract, however, they are not presented by this request. 
     Notwithstanding the importance of indemnification in 
     munitions production, the Board must insist that the parties 
     bear some minimum responsibilities in an arm's length 
     bargain. To do otherwise would encourage laxity in important 
     matters such as this. It is the Board's view that Thiokol 
     bears the responsibility for assessing the risks associated 
     with a contract and for requesting indemnification, if 
     appropriate. Given the discussions concerning insurance, the 
     sophistication of the applicant, and the unambiguous terms of 
     the indemnification authorization, it is the unanimous view 
     of the Board that relief is neither justified nor 
     appropriate.
       Contractor: MELA Associates, Incorporated.
       Type of action: Implied Contract of ``Fair Consideration''.
       Actual or estimated potential cost: $783,716.
       Service and activity: U.S. Army Information Systems 
     Selection and Acquisition Agency (ISSAA).
       Description of product or service: Proposal preparation and 
     other work directed by ISSAA.
       Background: MELA Associates, Incorporated submitted an 
     application for relief under Public law 85-804 through the 
     U.S. Army Information Systems Selection and Acquisition 
     Agency (ISSAA) for costs incurred in proposal preparation and 
     other work directed by ISSAA in anticipation of a contract 
     award. For the reasons set forth below, it is the unanimous 
     view of the Board that relief should be granted in the amount 
     of $783,716.
       Statement of facts: Section 8(a) of the Small Business Act 
     established a program that authorizes the Small Business 
     Administration (SBA) to enter into contracts with other 
     agencies and to subcontract the work to eligible businesses. 
     Under this program the SBA may request a specific requirement 
     from an agency for subcontracting to a particular firm. In 
     October 1991, the SBA requested the Installation Transition 
     Processing (ITP) project for MELA (a small, disadvantaged, 
     woman-owned business). ISSAA agreed and commenced 
     negotiations with MELA in December 1991.
       The ITP project was intended to provide computer hardware 
     and software in support of Army installations throughout the 
     United States to process five sustaining base automation 
     systems including (1) Installation Support Modules, (2) 
     Standard Army Retail Supply Support Installation, (3) 
     Standard Army Maintenance System/Table of Distribution and 
     Allowances, (4) Standard Installation/Division Personnel 
     System-3, and (5) Army Food Management Information Systems.
       Because the Army was under tight time constraints to begin 
     fielding systems under the ITP project, ISSAA directed MELA 
     to begin performing a substantial amount of work related to 
     the requirement in addition to submitting a proposal. This 
     work included analyzing the Army's requirements, evaluating 
     and testing alternative system designs, and configuring 
     components to satisfy compatibility requirements to meet the 
     ITP specialized information processing needs. Although no 
     written agreement was executed, ISSAA expected to compensate 
     MELA for these pre-contract costs after the contract was 
     awarded. ISSAA's confidence in this arrangement was based 
     upon the virtual certainty of a contract award after 
     acceptance of a project by the SBA.
       As it happens sometimes with virtual certainties, this one 
     did not mature. In response to protests, the details of which 
     are not relevant to this decision, the SBA determined that 
     MELA did not satisfy the ``regular dealer'' requirements of 
     the Walsh-Healy Act. Since MELA was no longer eligible for 
     the award, ISSAA withdrew the ITP project from the 8(a) 
     program on May 28, 1992, leaving MELA with dashed 
     expectations and a host of uncompensated costs relating to 
     the project.
       Justification: In ACAB decision Nos. 1236 and 1237, Public 
     Law 85-804 Applications of LDH Instandsetzungswerke and REM 
     Ryder System-EWK GmbH, dated January 17, 1991, the Board 
     determined that its authority to grant relief does not turn 
     on the existence of an express, written contract. In that 
     decision the Board authorized amendment of the implied 
     contract of ``fair consideration'' created when an offeror 
     submits a proposal in response to a government solicitation. 
     The instant application differs from the LDH decision in that 
     the contract resulting from the ITP solicitation would have 
     been with a party (the SBA) other than the applicant. We 
     believe, however, that there is little question that the 
     parties to the implied contract of ``fair consideration'' are 
     MELA and ISSAA. ISSAA requested the proposal and MELA 
     furnished it. Thus, there is at least one contract available 
     for adjustment by the Board.
       Beyond the implied contract of ``fair consideration,'' it 
     is also likely that an implied (if not express) contract was 
     created when ISSAA directed MELA to begin performance of the 
     requirement with the expectation that MELA would be 
     compensated after contract award. The likelihood of the 
     latter contract raises an issue concerning the availability 
     of other adequate relief authority within the Army (FAR 
     Section 50.102(a)). Arguably, ISSAA could reduce to writing 
     the action it has already taken.
       We find that such relief, even if available, would be 
     inadequate. ISSAA has noted that the line between proposal 
     costs and the work it directed is not clear. Significant 
     delay would be entailed in differentiating these costs. 
     Because MELA is a small, disadvantaged business that has 
     already borne many of these costs for over a year, we believe 
     that additional delay would be inappropriate.
       Decision: The Board finds that granting relief would 
     facilitate the national defense. With regard to the work 
     directed by ISSAA, the Army's interest in fairness demands 
     immediate compensation. We also find that granting proposals 
     costs are appropriate considering the unique circumstances of 
     this application, i.e., that segregation of these costs would 
     result in unacceptable delay, that MELA bears no 
     responsibility for the turn of events that resulted in the 
     withdrawal of the requirement, and that MELA is a small, 
     disadvantaged business. Therefore, subject to the 
     availability of funds to be obtained by ISSAA, and to the 
     release by MELA of all claims against the Army arising out 
     of, or related to, the ITP project, ISSAA is authorized and 
     directed to formalize the implied contracts in a consolidated 
     document and make payment in accordance with this decision.
       The Board finds that granting relief would facilitate the 
     national defense.
       Contingent liabilities: None.
       Contractor number: None.


                         department of the navy

       Contractor: Trident Marine Corporation.
       Type of action: Amendment Without Consideration.
       Actual potential cost: $1,062,347.00.
       Service and activity: The Department of the Navy.
       Description of product or service: Cleaning, abrasive 
     blasting, and corrosion control services on Navy ships.
       Background: The original request was submitted on May 3, 
     1991. The Contracting Officer requested additional 
     information from the contractor on June 21, 1991. In 
     addition, the Contracting Officer requested a Defense 
     Contract Audit Service (DCAA) audit on May 21, 1992. 
     Following receipt of additional information from the 
     contractor and from DCAA, the Contracting Officer has 
     forwarded the claim with a recommendation for denial.
       The contractor, Trident Marine Corporation (Trident), 2305 
     56th Street, Hampton, Virginia, 23661, submitted the subject 
     claim for $1,062,347 under contract N00189-89-D-0175. This is 
     a fixed price, requirements-type contract for cleaning, 
     abrasive blasting, and corrosion control services on Navy 
     ships. By awarding a requirements contract, the Navy agreed 
     that all requirements for this type of services would be 
     fulfilled through this contract with Trident. The original 
     contract included a base year and two one-year options for a 
     total estimated value of $4,549,420. The contract was awarded 
     on February 7, 1989, and expired on February 7, 1991, after 
     the Government chose not to exercise the second option. 
     Trident states that the shortage of delivery orders under the 
     contract has caused substantial losses and has threatened the 
     firm's viability.
       The information in paragraph one provides sufficient basis 
     for a final decision. Trident provided a Certified Public 
     Accountant's (CPA) report to substantiate its position. DCAA 
     performed an independent audit and compared its findings with 
     those of the CPA.
       Contracting personnel at Naval Supply Center (NSC), 
     Norfolk, Virginia, indicate that Trident is not essential to 
     the Navy's operations. The services performed under this 
     contract are not highly technical in nature and could be 
     performed by a number of other contractors. NSC awarded this 
     contract based on full and open competition.
       Justification: Trident bases their claim on five major 
     factors. First, Trident claims that the Government caused 
     them to incur excess labor costs to support the contract. 
     Second, they claim that the contract required them to incur 
     costs for a larger facility. Third, they claim that in order 
     to perform, they had to lease additional equipment which 
     remained idle. Fourth, they claim that they are entitled to 
     lost profits. Finally, they claim that the Government delayed 
     and disrupted performance of the contract.
       Trident is requesting money to compensate them for each of 
     the costs detailed in the above paragraph. However, the DCAA 
     audit shows that Trident has no basis for the amounts it is 
     requesting. The analysis below shows that the Government did 
     not cause a loss in any of the claimed five areas.
       Trident's claim regarding labor costs is based on three 
     components: certification time for flame spray operators, 
     salaries for quality assurance and program management 
     personnel, and wages for idle workers kept on hand to staff 
     the contract. As shown below, the facts do not support any of 
     these components.
       a. Although Trident personnel indicate that they had to 
     train and certify 14 flame spray operators, their original 
     proposal indicated they would only be using three operators, 
     and that they already employed two of the three. Moreover, 
     Trident has no time sheets or other labor records to support 
     the number of hours claimed. Trident management personnel 
     indicated that they have never used time sheets. However, 
     they did submit time sheets to support their claim of 
     Government delay.
       b. Trident requests reimbursement for the salaries of two 
     individuals--a quality assurance manager and a program 
     manager. Trident cannot identify the individuals whose 
     salaries it is requesting, nor does Trident have payroll 
     records for these individuals.
       c. Trident claims they employed eight worker full time for 
     the entire two-year tenure of the contract. They request that 
     the Government reimburse them completely for the cost of 
     these workers. However, Trident has no time sheets or other 
     labor records to support the cost of the workers. The fact 
     is, Trident did receive orders under this contract, hence the 
     workers could not have been idle. In addition, it is possible 
     that Trident used these workers for other contracts.
       With labor records documenting that these individuals were 
     actually employed or that they were idle, the claim is 
     unsubstantiated.
       Trident requests money to cover the expense they incurred 
     to lease a larger facility. However, Trident indicated in its 
     original proposal in response to the solicitation that the 
     existing facility would be adequate for performance of the 
     contract. There is no evidence that the Government required 
     them to move to a larger facility.
       Trident requests reimbursement for a flame spray system and 
     blast room that it leased for performance of the contract. As 
     a result of a preaward survey and a Certificate of Competency 
     investigation, Trident had to guarantee that it would acquire 
     the needed equipment. Trident had a duty to show that it was 
     a responsible offeror. Without the extra equipment, they 
     would not have been responsible (they could not have 
     performed successfully). Whether or not they included the 
     cost for the equipment in their proposal, they must bear the 
     cost for the equipment.
       Trident included in its request an amount equal to ten 
     percent of the estimated contract value to account for lost 
     profits. However, the contractor received orders under the 
     contract, which included profit in each line item. Trident is 
     really asking for the profits it thought it would receive. 
     FAR Section 50.302-1(b) indicates that the Government is not 
     to adjust the contract price to account for a decrease in 
     anticipated profits. Also, the estimated contract price 
     already includes profit, so Trident would be collecting 
     double profit.
       Trident indicates that the Government delayed and disrupted 
     work on three occasions. However, when DCAA questioned the 
     validity of the claim and time sheets used to support it, 
     Trident withdrew the portion of its claim related to 
     allegations of delay and disruption.
       Decision: a. Essentiality. FAR Section 50.302-1(a) states 
     that the contract may be amended when the contractor's 
     ``continued operation as a source of supply is found to be 
     essential to the national defense.'' NSC Norfolk contracting 
     personnel indicate that Trident is not an essential source of 
     supply. On the contrary, there are a number of sources for 
     these services. Consequently, it was found that Trident is 
     not essential to the national defense.
       b. Government action. FAR Section 50.302-1(b) states that 
     ``when a contractor suffers a loss (not merely a decrease in 
     anticipated profits) under a defense contract because of 
     Government action . . . fairness may make some adjustment 
     appropriate.'' First, Trident cannot show that it suffered a 
     loss, because it has inadequate financial records. Second the 
     alleged losses are not Government-caused, since these were 
     financial risks of which the contractor was or should have 
     been aware. Third, Trident has withdrawn the only direct 
     claim of Government delay and disruption. Finally, Trident is 
     attempting to recover anticipated profits, which is 
     unacceptable. There is no evidence that a loss took place, or 
     that Government action caused such a loss. It was, therefore, 
     determined that the contractor did not suffer a loss because 
     of Government action.
       c. Conclusion. Since the contractor is not essential to the 
     national defense, and since the Government did not cause the 
     contractor to suffer a loss, the contractor is not entitled 
     to an amendment without consideration under FAR Section 
     50.302-1.
       Contractor: RD&D Corporation.
       Types of action: Amendment Without Consideration.
       Actual or estimated potential cost: $3,000,000.00.
       Service and Activity:
       Naval Regional Contracting Center, Washington.
       Description of product or services: To build four extra-
     heavy duty lathes.
       Backgound: The subject action is a request for Amendment 
     Without Consideration under FAR Section 50.302-1. The request 
     was originally submitted to the Naval Regional Contracting 
     Center, Washington, on December 23, 1991, with necessary 
     additional information provided to the Contracting Officer 
     throughout much of 1992. After thorough analysis of the 
     complete request, the Contracting Officer forwarded it with a 
     recommendation for denial.
       The contractor, RD&D Corporation (RD&D), 4693 Iroquois 
     Avenue, Erie, Pennsylvania, claims that its costs to build 
     four extra-heavy duty lathes under contracts N00600-87-C-0894 
     and N00600-87-C-1078 exceeded the total prices of the two 
     contracts by $4,949,381, with attendant interest expense of 
     $1,195,164.60. The request for adjustment is for $3,000,000, 
     which RD&D described as the amount ``sufficient to insure 
     [sic] the company's viability.'' This is consistent with the 
     statutory requirement that a contract may be amended without 
     consideration, but only to the extent necessary to avoid 
     impairment to the contractor's productive ability.
       Justification: The fact that losses were incurred in 
     performing Government contracts is not basis alone for 
     exercising the authority of Public Law 85-804. RD&D, however, 
     has cited both of the examples presented in FAR Section 
     50.302-1 as applicable in this case. The contractor asserts 
     that it expended additional costs to construct lathes which, 
     by complying with contract specifications, exceeded the 
     Navy's real requirements; the claim is that Government 
     insistence on infeasible specifications caused unnecessary 
     rework and redesign effort. RD&D also claims that its losses, 
     no matter how caused, impair its productive ability as a 
     source of supply which is essential to the national defense, 
     thereby entitling the firm to contract adjustments which 
     would ensure its continued operation.
       Technical issues of timing regarding submission RD&D's 
     request are directly related to the issue of the firm having 
     exhausted its administrative remedies. Contract adjustment is 
     only authorized if the contractor submits its request before 
     all obligations under the contract have been discharged and 
     if it has exhausted all remedies available to it under the 
     contract within the agency.
       The subject matter of RD&D's claims (defective 
     specifications and/or impracticability of performance) are 
     matters routinely addressed and resolved by The Armed 
     Services Board of Contract Appeals (ASBCA) pursuant to the 
     Contract Disputes Act. However, it may be that RD&D's 
     financial situation, in itself and as the wholly-owned 
     subsidiary of a holding company (Sudbury, Inc., of Cleveland, 
     Ohio) recently discharged from Chapter 11 bankruptcy with the 
     expressed intent of selling RD&D, could be considered to 
     require relief more quickly than could be obtained through 
     the ASBCA.
       Final payment had already been made on contract N00600-87-
     C-0894 before RD&D submitted its application for relief. But 
     final payment for contract N00600-87-C-1078 was not made 
     until several months after submission of the request. Since, 
     however, the requested contract adjustment of $3,000,000.00 
     is not related directly to losses under either contract, but 
     rather is stated to be the amount needed to maintain the 
     productive capacity of the firm, consideration of the request 
     as being related exclusively to contract 1078 would make it 
     timely under Public Law 85-804.
       RD&D asserts that its costs of performance for both 
     contracts increased because of actions on the part of the 
     Government. This assertion is summarized as: the Government's 
     initial insistence on and prolonged adherence to a Headstock 
     Horsepower drive of 100 H.P. 3 R.P.M. As a result of the 
     Government's action in this regard, RD&D expended additional 
     costs on engineering, design, material and work to construct 
     lathes that were far more massive robust [sic], and 
     sophisticated than necessary to meet the Navy's real 
     requirements.
       RD&D claims that it had to proceed with design and 
     construction of the lathes ``without the benefit of knowing 
     the practical application of the specified capability,'' and 
     that the Navy eventually ``agreed to the relaxation of the 
     100 horsepower, 3 R.P.M. test requirement.''
       None of the three elements of this claim rises to the level 
     of Government action which would result in relief under 
     Public Law 85-804:
       a. The Navy awarded contracts which contained performance 
     specifications and test requirements. The specifications were 
     written to satisfy the 50-year life cycle of necessary 
     equipment, based on shipyard experience with current 
     equipment and anticipated usage for known and expected 
     materials comprising ship propeller shafts. The performance 
     specifications were clear, unambiguous and achievable.
       b. RD&D has stated that its offered prices for the two 
     contracts were generally based on design and cost of a 
     previously manufactured lathe. However, after the contracts 
     were awarded, RD&D discovered that ``a far more massive, 
     complex and sophisticated design would be required.'' Over a 
     two year period, RD&D completed an ``iterative series of 
     preliminary and critical design reviews'' in order to 
     ``improve the probability that the machine would meet the 
     `letter' of the detailed specifications.'' Any costs which 
     RD&D incurred in excess of the offered prices appear to have 
     resulted from the firm having undertaken its in-depth 
     engineering analysis after award of the contracts.
       c. The lathes which RD&D delivered were accepted by the 
     Navy as meeting the performance specifications of the 
     contracts. The original test requirements were relaxed, by 
     contract modification, at the request of the contractor; 
     however, the purpose of the tests--to demonstrate that the 
     equipment could perform as required--never changed.
       In the alternative to the assertion that its losses were 
     incurred due to Government action, RD&D contends that its 
     contracts may be amended without consideration because it 
     suffered losses--however caused--which impair is productive 
     ability as a source of supply essential to the national 
     defense.
       The Navy does not consider RD&D to be an essential 
     supplier. The four lathes delivered by RD&D, which represent 
     all known requirements for this type of equipment, have a 50-
     year useful life; no additional procurements are anticipated. 
     While it may become necessary to relocate one or more of 
     these lathes, RD&D's assistance would be useful but not 
     necessary.
       In accordance with FAR Section 50.305(d), all other 
     Government agencies identified as having an interest in the 
     issue of RD&D's essentiality to the national defense were 
     requested to provide their advice. Their input was as 
     follows:
       a. The United States Department of Commerce, International 
     Trade Administration, identified RD&D as ``the only domestic 
     supplier left'' which manufactures a machine ``that meets the 
     requirement for shaft turning as solicited by the Navy.'' The 
     Navy's needs, however, have already been met; other similar 
     requirement, have already been met; other similar 
     requirements, if there are any, can be met by several firms 
     which the Department of Commerce concedes have ``the capacity 
     (facilities) to manufacture equipment comparable to the 
     Navy's needs.''
       b. The Office of the Assistant Secretary of Defense, 
     Production and Logistics, provided information on prior 
     contracts performed by RD&D, but did not conduct an 
     independent assessment of RD&D's ``essentiality to the 
     national defense industrial base'' since that effort would 
     duplicate the Navy's direct requests for information to 
     military and civilian agencies.
       c. The Department of the Army, for which RD&D has provided 
     a substantial amount of equipment to Watervliet Arsenal, 
     considers the contractor to be ``a valuable supplier within a 
     dwindling domestic base for machine tools,'' but not an 
     essential supplier.
       d. The National Aeronautics and Space Administration, 
     George C. Marshall Space Flight Center, ``cannot support a 
     determination that RD&D Corporation is essential for the 
     national defense.'' As a lower-tier subcontractor to both 
     Martin Marietta Manned Space Systems and to Babcock & Wilcox, 
     RD&D is a ``cost and schedule advantageous source'' for 
     manufacture and rehabilitation of large machine tools. But 
     alternate sources have been identified for all required work.
       Decision: a. Government action. FAR Section 50.302-1(b) 
     states that ``when a contractor suffers a loss (not merely a 
     decrease in anticipated profits) under a defense contract 
     because of Government action . . . fairness may make some 
     adjustment appropriate.'' In this case, award of a contract 
     and insistence upon adherence to performance specifications 
     do not represent actions which warrant that the contract 
     price be adjusted in the interest of fairness.
       Therefore, it is determined that the contractor did not 
     suffer a loss because of Government action.
       b. Essentiality. FAR Section 50.302-1(a) provides that a 
     contract may be amended when a ``loss under a defense 
     contract, however caused, will impair the productive 
     ability'' of a contractor whose ``continued operation as a 
     source of supply is found to be essential to the national 
     defense.'' RD&D, however, is not a unique supplier of items 
     for which there is any known or anticipated requirement.
       Therefore, it is determined that the contractor is not 
     essential to the national defense.
       c. Conclusion. Since the Government did not cause the 
     contractor to suffer a loss under contracts N00600-87-C-0894 
     and N00600-87-C-1078, and since the contractor's continued 
     operation is not essential to the national defense, the 
     request of RD&D Corporation for amendment of these contracts 
     without consideration is denied.
       Contractor: Avondale Industries, Inc.
       Type of action: Amendment Without Consideration.
       Actual or estimated potential cost: $25,000,000.00.
       Service and activity: The Department of the Navy.
       Description of product or services: Detail design and 
     construction of LSD (CV) 49-51 (N00024-88-C-2048).
       Background: By letter of December 22, 1992, Avondale 
     Industries, Inc. (Avondale), New Orleans, Louisiana, 
     submitted a request under P.L. 85-804 seeking an Amendment 
     Without Consideration of $25 million under its contract for 
     detail design and construction of LSD (CV) 49-51 (N00024-88-
     C-2048). Avondale requests immediate relief to preclude an 
     adverse opinion by its outside auditors, which would impair 
     Avondale's current relationships with its creditors, and 
     would, in all probability, force Avondale to seek protection 
     of Federal bankruptcy laws. Avondale states that P.L. 85-804 
     relief is appropriate in that it has submitted requests for 
     equitable adjustments under its contracts with the Navy for 
     over $340 million, and these have not been resolved. The 
     Naval Sea Systems Command (NAVSEA) forwarded this request by 
     letter of March 1, 1993, to the Navy Contract Adjustment 
     Board (NCAB) and recommended approval of the request.
       Status of the Avondale Contracts: Avondale had a backlog of 
     approximately $769 million in Navy contracts for ship 
     construction and repair on September 30, 1992. The majority 
     of this effort, associated with the T-AOs (N00024-88-C-2050) 
     and the LSD (CV)s (N00000-00-0000) is expected to result in 
     an overall loss, without consideration of the pending 
     requests for equitable adjustment (REAs). Each of these 
     contracts was awarded to Avondale after competitive bidding, 
     with Avondale being the lowest responsive offeror.
       Status of the REAs: In late 1991, Avondale informed NAVSEA 
     that it was planning to submit a number of REAs in addition 
     to those already submitted. These REAs amount to over $340 
     million, covering a number of NAVSEA contracts. NAVSEA 
     promptly created an evaluation team consisting of appropriate 
     technical, procurement and legal professionals. The last of 
     these REAs was submitted in September 1992. The evaluation 
     team is being assisted by the Defense Contract Audit Agency 
     (DCAA) for audit support. Additional outside accounting and 
     technical support is also being used to expedite the 
     evaluation. Not including audit support some thirty 
     Government personnel are dedicated to resolving these claims. 
     Because of the number and the complexity of the claims, they 
     cannot be immediately analyzed or resolved. Extensive 
     technical analysis reports must be prepared and legal 
     entitlement positions must be determined. This effort will 
     require several months before NAVSEA will be in a position 
     to make fair and reasonable proposals for resolving these 
     REAs.
       Current financial situation: Although Avondale is currently 
     performing its contractual obligations, due to its outflow of 
     cash to cover losses on Navy contracts and the time required 
     to resolve the REAs, Avondale's cash flow position is such 
     that if additional funds are not provided in 1993, it is 
     forecasted that the Avondale cash position will be 
     insufficient to meet operational requirements. NAVSEA has 
     advised that Avondale is currently undergoing an annual 
     financial audit by its independent auditors, which is 
     required to be completed and submitted to the Securities and 
     Exchange Commission by March 31, 1993. The auditors have 
     indicated to Avondale and to NAVSEA that based on Avondale's 
     projected financial condition, they will issue an opinion 
     questioning Avondale's ``going concern'' status. Such a 
     qualified opinion would breach certain of Avondale's credit 
     agreements with its banks and would raise the realistic 
     expectation that Avondale would seek protection under Federal 
     bankruptcy laws. Avondale has also stated that such a 
     qualified opinion would cause certain loans to be accelerated 
     and become payable. In the event of bankruptcy, there is a 
     real probability that Avondale will cease work on 
     unprofitable contracts, and will seek to repudiate such 
     contracts. Avondale has worked with its banks to restructure 
     its debt. NAVSEA has assisted in this effort to restructure 
     these arrangements. In addition, NAVSEA has already taken 
     action to improve Avondale's cash flow by increasing progress 
     payments to Avondale. The Assistant Secretary of the Navy 
     (FM) approved unusual progress payments for Avondale on April 
     9, 1992. While current forecasts indicate that Avondale will 
     have available cash until the June-November 1993 period, the 
     auditors have indicated that they will be forced to issue a 
     qualified opinion at the end of March 1993, unless additional 
     sources of funding can be identified. NAVSEA has extensively 
     reviewed these cash projections, and has presented them to 
     the Navy Contract Adjustment Board. This situation compels 
     the Navy to act at this point.
       Consideration of alternatives: The following alternatives 
     have been considered but are unsatisfactory for the reasons 
     indicated. Take no action on the Avondale request and await 
     the auditor's opinion. It's very probable that a qualified 
     opinion will be issued, causing creditors to refuse further 
     credit, consequently creating the potential that Avondale 
     would seek the protection of Federal bankruptcy law. Actions 
     after bankruptcy cannot be predicted. A contract can be 
     assumed or rejected, and it's likely that Avondale would 
     reject its larger loss contracts. The Navy would then have to 
     take action to preserve the hull construction work, and find 
     another contractor, or renegotiate with Avondale. These 
     actions are both unsatisfactory from a planning standpoint 
     and from a financial standpoint.
       In the event of bankruptcy and rejection of certain 
     contracts, the Navy would have to complete the work in 
     another yard. Because of the large number of ships under 
     repair or under construction, this is an impractical 
     alternative. NAVSEA has performed an analysis of the cost to 
     complete the ships under contract at other facilities and has 
     estimated that it would cost approximately $532 million more 
     than to have the ships completed by Avondale. In addition, 
     based on recent experience in attempting to complete two 
     other ships at another shipyard, this estimate is highly 
     dependent on the ability of the new shipyard to schedule in 
     such work, and the ability of the new shipyard to obtain 
     necessary skilled labor and professional workforce. In 
     addition to the cost of completion, significant delays can be 
     expected. The Navy would have to select a completion 
     contractor(s), arrange for transfer of the ships, materials 
     and equipment, and provide for the transfer and review of 
     necessary engineering products. Schedule slippages are 
     therefore expected to be lengthy.
       Await resolution of the REAs: The analysis of the REAs will 
     not be completed in time to yield significant cash 
     settlements and to avert a qualified opinion. Since such an 
     opinion will begin a train of events that will make obtaining 
     additional credit difficult if not impossible, REA resolution 
     will be too late to address the problem. At this point, 
     twenty REAs have been submitted, totaling about $343 million. 
     These REAs must be reviewed from a technical standpoint, 
     resulting in a Technical Analysis Report (TAR). After TAR 
     completion, a legal analysis is performed to determine 
     whether entitlement has been demonstrated, and to provide 
     NAVSEA with legal advice and recommendation in resolving the 
     claims. This process has, as described above, been expedited, 
     but due to the complexity of the REAs, immediate resolution 
     is not possible.
       Determinations: The Navy Contract Adjustment Board 
     determines that it is essential to the national defense to 
     grant immediate aid under P.L. 85-804 to resolve the 
     immediate Avondale short term cash flow problems for the 
     following reasons:
       1. The completion of the ships are essential to the 
     national defense. The Vice Chief of Naval Operations has 
     affirmed the requirement for a fourth LSD (CV) class ship by 
     letter dated December 11, 1992. This assumes completion of 
     the existing vessels. In addition, the T-AO class is part of 
     a long term operational requirement. Continuation of these 
     ships is therefore crucial.
       2. Absent P.L. 85-804 relief, Avondale will receive an 
     opinion by its auditors that will question its going concern 
     status. Such a qualified opinion will impair Avondale's 
     ability to obtain loans and additional work, and impair the 
     continuation or completion of the ships under construction.
       3. A consideration of the alternatives reveals no practical 
     or feasible alternatives. Completing the ships at another 
     shipyard would add significant cost and undue schedule delay.
       4. Immediate P.L. 85-804 relief will accomplish the 
     objective of allowing Avondale to continue working into 1994, 
     and permitting the resolution of the REA's.
       Conclusion: Applicable regulations provide that no 
     contract, amendments, or modifications shall be entered into 
     under the authority of P.L. 85-804 unless other legal 
     authority in the Department is deemed lacking or inadequate. 
     In the current case, the financial situation of Avondale is 
     such that absent immediate action, Avondale's credit will be 
     impaired and it may seek protection from its creditors under 
     the bankruptcy laws. This will result in unacceptable 
     uncertainty, delay and possible work stoppage on essential 
     Navy ship construction. Further, because of the complexity of 
     the pending requests for equitable adjustment and the period 
     of time necessary for evaluation and resolution, the NCAB 
     considers the normal contract disputes resolution process 
     inadequate to resolve Avondale's financial situation.
       FAR Section 50.302-1(a) provides: ``When an actual or 
     threated loss under a defense contract, however caused, will 
     impair the productive ability of a contractor whose continued 
     performance on any defense contract . . . is found to be 
     essential to the national defense, the contract may be 
     amended without consideration, but only to extent necessary 
     to avoid such impairment to the contractor's productive 
     ability.''
       Decision: For the foregoing reasons, the NCAB has concluded 
     that Avondale faces an actual or threatened loss which will 
     impair its productive ability on contracts whose continued 
     performance is essential to the national defense. The 
     operating forces need the ships under construction. The 
     relief of $25 million recommended by NAVSEA is considered 
     adequate to supplement the ash flow position of Avondale to 
     achieve the Navy's purpose of maintaining Avondale as a going 
     concern until the analysis of the REAs is complete and an 
     overall resolution of the REAs can be expected.
       The Navy Contract Adjustment Board adopts the NAVSEA 
     recommendations that this relief be conditioned as follows: 
     the modification(s) preclude the use of any amounts in excess 
     of $2 million provided pursuant to P.L. 85-804 for the 
     payment of any principal on debt; funds are not authorized 
     under P.L. 85-804 for payment to Avondale in the event 
     Avondale's creditors attach any assets of Avondale, in the 
     event any of Avondale's creditors initiate foreclosure 
     proceedings on any secured debt, or in the event Avondale's 
     creditors, or Avondale itself, files a petition for 
     involuntary or voluntary bankruptcy; in the event that a 
     settlement of the REAs is not achieved by mutual agreement, 
     any amounts paid to Avondale pursuant to P.L. 85-804 shall 
     offset any recovery ultimately obtained by Avondale through a 
     court or board of contract appeals proceeding; and further 
     provided that Avondale and its creditors (``the Bank Group'') 
     implement the ``Key Terms and Conditions'' in general 
     accordance with the creditor's letter of February 5, 1993.
       Accordingly, the Navy Contract Adjustment Board in the 
     exercise of the authority delegated to it, grants an 
     amendment without consideration under P.L. 85-804 in the 
     amount of $25 million, and finds that this is essential to 
     the national defense. The increase will be applied at the 
     discretion of the contracting officer to avoid a negative 
     cash flow. As requested by NAVSEA, the contracting officer is 
     authorized to amend any or all of the current Navy contracts 
     with Avondale, under which losses are occurring, as may be 
     administratively convenient. The contracting officer shall 
     provide for such internal controls and audits as are deemed 
     necessary to validate appropriate use of this money.

                         Contingent liabilities

       Provisions to indemnify contractors against liabilities 
     because of claims for death, injury, or property damage 
     arising from, nuclear radiation, use of high energy 
     propellants, or other risks not covered by the Contractor's 
     insurance program were included in these contracts; the 
     potential cost of the liabilities cannot be estimated since 
     the liability to the United States Government, if any, will 
     depend upon the occurrence of an incident as described in the 
     indemnification clause. Items procured are generally those 
     associated with nuclear-powered vessels, nuclear armed 
     missiles, experimental work with nuclear energy, handling of 
     explosives, or performance in hazardous areas.
                                                                 Number
Contractor:
    Litton Systems, Inc...............................................1
    Kearfott Guidance and Navigation Corp.............................4
    General Electric Company..........................................3
    Westinghouse Electric Corporation.................................3
    General Dynamics Corporation, Electric Boat Division..............1
    Honeywell, Inc....................................................2
    Raytheon Company..................................................3
    EG&G Reticon Corporation..........................................1
    Interstate Electronics Corporation................................2
    Martin Marietta Defense Systems...................................6
    Lockheed Missiles & Space Company.................................7
    Rockwell International Corporation................................2
    Paramax Systems Corporation.......................................4
    Vitro Corporation.................................................1
    Hughes Aircraft Company...........................................6
    McDonnell Douglas Aerospace.......................................1
    Newport News Shipbuilding and Drydock Company.....................1
                                                               ________

      Total..........................................................48


                      department of the air force

       Contractor: Commercial Siding and Maintenance Company.
       Type of action: Award New Contract.
       Actual or estimated potential cost: $179,900.00.
       Service and activity: Plattsburgh Air Force Base, New York.
       Description of product or services: Replacement of Room on 
     the F-111 Flight Simulator Building.
       Background: Commercial Siding and Maintenance (CSM) was a 
     subcontractor to L&H Development Corporation (L&H) under 
     Contract No. F30636-87-C0742 to replace the roof on the F-111 
     Flight Simulator Building at Plattsburgh Air Force Base, New 
     York. CSM claims it performed work under its contract with 
     L&H, the prime contractor, but that L&H's owner disappeared 
     and absconded with all the funds that L&H had received from 
     the Air Force for work performed under the contract. CSM 
     requests that the Air Force enter into a contract with it, 
     reimbursing it for its out-of-pocket expenses of $179,900.00 
     that it claims it expended in performing its subcontract with 
     L&H.
       CSM failed to file suit under L&H's payment bond before the 
     expiration of the statute of limitations under the Miller 
     Act. In addition, CSM claims it did not bring suit directly 
     against the prime contractor because it alleges that L&H had 
     declared bankruptcy. (The Bankruptcy Notice submitted by CSM 
     says that the name of the debtor is Donald L. Maracle, also 
     known as an officer in L&H Development Corporation. While 
     this notice does not show that L&H had declared bankruptcy, 
     this fact is not relevant to the Board's decision.) Instead, 
     CSM sought relief under P.L. 85-804 from the contracting 
     officer. The contracting officer denied the request, 
     concluding that the Air Force did not have privity of 
     contract with CSM. CSM now seeks ``to have a contract entered 
     into between the U.S. Government and Commercial Siding as a 
     subcontractor to provide payment for the outstanding 
     balance due to Commercial Siding.''
       Justification: The Air Force, through its Air Force 
     Contract Adjustment Board (Board), has decided to review the 
     contracting officer's decision. Under the appropriate 
     circumstances, and agency may grant relief to subcontractors. 
     While such relief is normally granted by amendment to the 
     prime contract, for the use and benefit of the subcontractor, 
     relief, if warranted, may be granted directly to the 
     subcontractor by directing the contracting officer to enter 
     into a contract with the subcontractor for the purpose of 
     effecting payment to the subcontractor.
       CSM, as a subcontractor, seeks relief under the Board's 
     authority to grant contract adjustments. Under Federal 
     Acquisition Regulation (FAR) Section 50.302-1 (48 C.F.R. 
     Section 50.302-1), which CSM quotes in its request, contract 
     adjustments are authorized as follows:
       When a contractor suffers a loss (not merely a decrease in 
     anticipated profits) under a defense contract because of 
     Government action, the character of the action will generally 
     determine whether any adjustment in the contract will be 
     made, and its extent. When the Government directs its action 
     primarily at the contractor and acts in its capacity as the 
     other contracting party, the contract may be adjusted in the 
     interest of fairness. Thus, when Government action, while not 
     creating any liability on the Government's part, increases 
     performance cost and results in a loss to the contractor, 
     fairness may make some adjustment appropriate.
       CSM has not established that it is entitled to relief under 
     FAR Section 50.302-1. It is essential, under FAR Section 
     50.302-1, that there be some Government action that causes 
     harm to the contractor. No such action is present in the case 
     of CSM. In the cases relied upon by CSM, contractors, 
     including subcontractors, were provided relief because some 
     type of Government conduct harmed the contractor.
       In the present case, the Government did not engage in any 
     action, or inaction, that harmed CSM. While CSM, in passing, 
     alleges that ``the government failed to ensure that the 
     individual sureties possessed the requisite assets,'' this 
     allegation is unproven and irrelevant.
       In a supplement to its request, CSM alleges that ``[p]art 
     of the problem in the one (1) year [Miller Act statute of 
     limitations] expiring was that the government was insisting 
     on warranties which was part of the original contract. . . 
     .'' This allegation does not establish government action that 
     has increased CSM's performance cost or that has resulted in 
     a loss to CSM, as is required by FAR Section 50.302-1(b). 
     Other than the accusation itself, CSM presents no evidence 
     that the Government engaged in any action causing harm to 
     CSM. Moreover, the allegation is irrelevant because CSM never 
     sought relief from the surety.
       CSM's inability to obtain payment is the result of its 
     failure to file suit under the Miller Act, rather than any 
     Government action. Although CSM argues that it is without any 
     other legal remedy, CSM could have brought suit against L&H's 
     surety. Congress enacted the Miller Act, 40 U.S.C.A Sections 
     270a-270d (West 1986), to protect subcontractors from prime 
     contractors who do not pay for work performed on a government 
     contract. Section 270a of the Miller Act provides that the 
     prime contractor must post a payment bond to guarantee 
     payment of the subcontractors.
       If the subcontractor is not paid, then it may sue on the 
     bond in federal district court, but the suit must be 
     commenced within one year after the day on which the last 
     labor was performed or material supplied. 40 U.S.C.A Section 
     270b (West 1986).
       Decision: The Board has granted the request for review, but 
     denies relief. CSM has failed to establish that it is 
     entitled to relief under P.L. 85-804. Any loss that CSM has 
     suffered is due to the conduct of the prime contractor and 
     its failure to seek relief under the Miller Act or against 
     L&H. Because CSM has failed to show that Government action 
     contributed to its loss, relief under P.L. 85-804 and FAR 
     Section 50.312-1 is inappropriate. All members of the Board 
     concur in this decision.

                         Contingent liabilities

       Provisions to indemnify contractors against liabilities 
     because of claims for death, injury, or property damage 
     arising from nuclear radiation, use of high energy 
     propellants, or other risks not covered by the contractor's 
     insurance program were included in one contract; the 
     potential cost of the liabilities cannot be estimated since 
     the liability to the United States Government, if any, will 
     depend upon the occurrence of an incident as described in the 
     indemnification clause.
Contractor:                                                      Number
    McDonnell Douglas Space Systems Company (DELTA II Program)........1
    Civil Reserve Air Fleet (Somalia).................................1
    Civil Reserve Air Fleet (Southwest Asia)..........................1
                                                               ________

      Total........................................................\1\3

\1\Two additional indemnifications were approved; however, the Air 
Force has deemed them to be ``classified,'' not subject to this 
report's purview.

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