Volume 98 — Federal Supplement

<p>Special Findings of Fact</p> <p>1. The individual and partnership plaintiffs in both of these cases are all citizens and residents of the State of North Carolina and the corporate plaintiff is organized under the laws of the State of Florida with its principal place of business in the State of North Carolina. The plaintiff McDevitt & Street Company is a corporation formerly known as the J. J. McDevitt Company. Mr. Edward W. Grannis, named as a party plaintiff in each of the petitions as originally filed, has since died, and the coadministrators of his estate have been substituted as plaintiffs in both of these actions.</p> <p>2. The two cases have been joined for purposes of trial, for the reason that they arose out of one cause of action and only one basic controversy is involved.</p> <p>3. In December 1940 the defendant entered into a cost-plus-a-fixed-fee contract dated December 10, 1940, with the J. J. McDevitt Company, a corporation organ-zied under the laws of the State of Florida, F. N. Thompson, an individual, E. W. Grannis, an individual, and V. B. Higgins, an individual, trading as V. B. Higgins Company, jointly and severally. Each of the parties named in the contract was at the time engaged in the contracting business in the State of North Carolina. In the performance of this contract the four contractors operated as the Grannis, Higgins, Thompson & McDevitt Company, and they will hereinafter sometimes be referred to as the contractor. The contract is identified as No. W-6826 qm-2. Under the terms of the contract the contractor was to construct an antiaircraft firing center, including the necessary buildings, temporary structures, utilities and appurtenances, later known as Camp Davis, near Wilmington, North Carolina. The cost of the project as estimated was $8,308,395, which estimate was later raised to $8,866,291. The contract provided that in addition to reimbursement of certain costs and rental of the contractor’s equipment as set forth in the contract, plaintiffs should receive a fixed fee of $257,560, which fee was later raised due to increased work, to $270,943, as complete compensation for the contractor’s services, including profit and all general overhead expenses.</p> <p>4. The contractor was required to keep accurate records and books of account, to take all cash and trade discounts and re-hates, and to account for and apply them in reducing the cost of the work. In addition, the contractor agreed at all times to use its best efforts in all acts under the contract to protect and subserve the interests of the Government. The contract also provided (a) that all work under the contract would be performed “in the shortest possible time,” in accordance with the drawings and specifications, and “subject in every detail” to the supervision, direction, and instructions of the contracting officer; (b) that the contractor would not enter into any subcontract for any portion of the work “except in the form prescribed by the Secretary of War, nor without the written approval of the Contracting Officer,” and (c) that the contractor would “at all times during the progress of the work keep at the site thereof a duly appointed and qualified representative who shall receive and execute on the part of the contractor such notices, directions and instructions as the contracting officer may give.”</p> <p>5. At the time the Camp Davis contract was negotiated, the parties representing the contractor conferred in Washington, D. C., with Mr. Lacy Moore, then Principal Construction Engineer and Chief of Section handling Cantons, Camps, Warehouses and Depots for the War Department. Mr. Moore introduced the members of the joint venture to Colonel Al-bertos Montgomery, the Constructing Quartermaster, and told them that all matters pertaining to the construction of Camp Davis were to be handled through Colonel Montgomery, as the representative of the contracting officer in charge of the contract work; and that if Colonel Montgomery required any advice as to any disputes or matters of any kind pertaining to his work, he was to contact Mr. Harry A. Fish, Supervising Constructing Quartermaster in the Washington office, who would secure the proper answers for him.</p> <p>6. It was agreed between the contracting parties that Mr. Qarence Parke Street of the J. J. McDevitt Company should serve as project manager for the contractor on the Camp Davis job.</p> <p>7. The work provided for in the contract was completed and accepted by the defendant, said work having been terminated at the convenience of defendant on May 29, 1941.</p> <p>8. Among the items of expenditures made by the contractor under and pursuant to the contract and for which it was entitled to be reimbursed by defendant were expenditures in the amount of $181,059.35, which were represented by a series of vouchers, a descriptive list thereof being attached to the petition in case No. 47210 as exhibit B. All of said items of expenditure totaling $181,059.35 were reimbursable items payable upon certification to and verification by the contracting officer of payrolls and invoices as provided in Article III of said contract. Reimbursement was not made with respect to said $181,059.35 nor any part thereof.</p> <p>9. Of the total fixed fee of $270,942, provided under the terms of the contract, only $209,830.50 has been paid. The balance of said fixed fee amounting to $61,-111.50 was duly verified and certified for payment by the contracting officer but said balance of the fixed fee has not been paid. The total amount of unreimbursed expenditures ($181,059.35) and unpaid balance of fixed fee ($61,111.50), for which claim is made in this suit with respect to said Camp Davis contract, is $242,170.85. -</p> <p>10. In addition to said Camp Davis com tract hereinabove referred to and discussed (No. W-6826 qm-2, dated December 10, 1940), another contract identified as No. Wr982-eng-1442, dated May 23, 1942, and commonly referred to as the Goldsboro contract, was entered into by and between the United States and a partnership consisting of E. W. Grannis, an individual, F. N. Thompson, an individual, V. B. Higgins Engineering Company, a partnership, and McDevitt & Street Contracting Company, a partnership, acting' as j oint coventurers under the name Grannis, Higgins, Thompson & McDevitt 'Company, for the construction of an Air Corps Technical School near Goldsboro, North Carolina. V. B. Higgins, who was a party to the Camp Davis contract, was a member of the partnership of V. B. Higgins Engineering Company.</p> <p>11. The Goldsboro Contract No. W-982-eng-1442 was likewise fully performed by the contracting parties named therein and the work therein contemplated was duly completed and accepted by the defendant. For the performance of the undertakings under the Goldsboro contract, the contracting parties as named therein became entitled to receive from the defendant the sum of $10,920,575.24, of which amount they have been paid $10,827,279.25. In addition to the amount thus paid to said contractors by the defendant, the defendant is entitled to a credit of $16,119.55, representing rental due from the contractors to the defendant for Government-owned equipment used in connection with the work so performed, and a credit by way of discount in the amount of $27,176.44, leaving a balance that has not been paid to said contractors of $50,000 under the Goldsboro contract. The defendant tendered payment of $90.'56 of the $50,000, which was refused, and $49,909.44 was withheld from payment.</p> <p>12. The amount of $292,080.29 withheld from payments otherwise due under the two contracts was withheld as representing profits realized by Edward W. Grannis and Frederick N. Thompson under purchase orders placed with them by the contractor for materials needed for the work on the anti-aircraft firing center at Camp Davis.</p> <p>13. When the work began it was discovered that the camp site was largely swampy ground, and it was necessary to use large quantities of sand and sand clay as a stabilizer. Only a small quantity of such material was found on the site, all of which was used. When it became apparent that large quantities of sand and sand clay would be required in the performance of the work, the contractor’s project manager, Mr. Street, discussed with Colonel Montgomery the method to be employed in securing the material. It was decided that the cheapest, quickest and most efficient method to secure the material was to place purchase orders for its delivery on the site. Objection was raised to permitting the contractor to operate a sand or clay pit off the site. The contractor's representative was directed to secure bids and place purchase orders for the material with the lowest bidder.</p> <p>14. Bids for sand clay were solicited in December 1940 and the low bid received was from Edward W. Grannis, one of the contracting parties. When it was determined that the bid of Mr. Grannis was the low bid, the contractor’s project manager, Mr. Street, questioned the propriety of one of the contracting parties furnishing material under a subcontract and asked Colonel Montgomery, who was fully aware that Mr. Grannis was one of the contracting parties, to refer the question to Washington for a ruling with respect thereto. Colonel Montgomery telephoned to Mr. Fish in Washington and asked him to secure a ruling as to whether a subcontract for purchase of sand and sand clay could properly be awarded to one of the four contracting parties. Mr. Fish then contacted the Legal Department of the Construction Division of the War Department and was advised that there was no objection to securing this sand by purchase order from Mr. Grannis. Mr. Fish so reported to Colonel Montgomery, who in turn informed Mr. Street of the decision.</p> <p>15. On December 21, 1940, Purchase Order No. 197 was issued by the purchasing agent for Grannis, Higgins, Thompson & McDevitt Company to E. W. Grannis for 200,000 cubic yards of sand clay to be delivered on the site by truck from a local pit, involving a truck haul of approximately 7% miles, at $1.00 per cubic yard, which was the amount of the bid of Mr. Grannis. On March 25, 1941, the order was increased to 350,000 cubic yards at the same price. On April 24, 1941, Purchase Order No. 903 was issued by the purchasing agent to E. W. Grannis for 100,000 cubic yards of sand clay at 75 cents per cubic yard.</p> <p>On January 11, 1941, the purchasing agent issued Purchase Order No. 802 to E. W. Grannis for 100,000 cubic yards of native sand, to be delivered at point of required use for filling holes in the roads, at 50 cents per cubic yard. On March 25, 1941, this order was increased to 300,000 cubic yards of native sand at the same price.</p> <p>On May 7, 1941, Purchase Order No. 1103 was issued to E. W. Grannis by the purchasing agent for 250,000 cubic yards of native sand at 47y% cents per cubic yard.</p> <p>All of these purchase orders were approved by the constructing quartermaster.</p> <p>16. Due to the swampy condition of the site, there was at first difficulty and risk involved in delivery of the stabilizing material, but as the material was used to build roads over which later deliveries were made, deliveries became less difficult and involved less risk. Grannis operated at a profit from the first, and as conditions improved the profits became larger. By the middle of March 1941, the conditions affecting the delivery of the material had greatly improved. On May 29, 1941, when work on the camp was terminated, the unfilled balance of these purchase orders was canceled. Deliveries and payments for the material were as follows:</p> <p>17. On February 11, 1941, the purchasing agent for Grannis, Higgins, Thompson & McDevitt Company issued a purchase order to F. N. Thompson, one of the four contracting parties, for the furnishing of B and C grade local sand for sand asphalt at a price of 88 cents per ton. This material was to be delivered to the plant or plants on the site and payment was to be made on the basis of the per ton mix in the asphalt plant. This purchase order was approved by the constructing quartermaster. On May 29, 1941, this purchase order was terminated. Delivery and payment was as follows: 53,379 tons at 88 cents: $46,973.52.</p> <p>18. The unit prices set forth in the purchase orders to Grannis and Thompson were reasonable prices for delivery on the site. Grannis and Thompson submitted invoices to the contractor for the material delivered, and these invoices were paid by the contractor.</p> <p>19. After payment for the materials delivered under the purchase orders, vouchers for reimbursement for the money paid to Grannis and Thompson were submitted to and paid by the defendant. Prior to the payment of all the fixed-fee and reimbursement vouchers, the defendant discovered that plaintiff Grannis had realized a large profit out of the delivery of the material. By computing the cost to Gran-nis in accordance with the terms of the cost-plus-fixed-fee contract, the profit amounted to $283,245.14. The profit to Thompson in connection with his furnishing of the asphalt sand, computed on the same basis, amounted to $8,835.15. The profits so computed amounted to $292,-080.29.</p> <p>20. The profit realized by Grannis as computed by the auditors of the defendant amounted to $283,245.14. According to the books and records of Mr. Grannis, his profit amounted to $203,190.72 only. The difference between the profits to Grannis as computed on the basis of a cost-plus-fixed-fee contract and on the basis of Grannis’ books amounted to $80,054.42. This resulted from the disallowance by the defendant’s auditor of the following amounts:</p> <p>(a) In performing his subcontracts, Mr. Grannis used some equipment that was owned by a partnership of which he was a member, and he computed the cost of the use of said equipment on the basis of subcontractor or third party rentals, whereas the Government computed such cost on the basis of rental rates provided in Article II, paragraph 2, of the contract for use on the project of contractor-owned equipment. This increased the indicated cost $57,910.</p> <p>(b) Mr. Grannis hired a number of trucks with operators to haul the sand and sand clay covered by his subcontracts, and as a result of mathematical errors in computing the amounts due to the owners of said trucks, they were paid $295.19 more than was due them.</p> <p>(c) Certain shovels and bulldozers were-rented and used in the clay pit operations by Mr. Grannis under agreements which provided for their repair. The cost of parts supplied after the work had been concluded, in the amount of $1,690.99, was-paid by Grannis. This item was included by Grannis in computing the cost of supplying the material, but the defendant did not consider it a proper item of cost.</p> <p>(d) A Federal tax of $6,443.64 was paid by Mr. Grannis on gasoline and oil used in the performance of his subcontracts- and he included this amount as an item of cost. The defendant refused to consider it as an item of cost, as it would not have been paid by a cost-plus contractor for the Government.</p> <p>(e) Mr. Grannis hired Mr. E. L. Godwin to serve as superintendent in charge of his subcontract operations, and in addition to his salary Mr. Godwin was reimbursed for expenses incurred by him in the performance of his duties. , Expense accounts of Mr. Godwin for the period January 1, 1941, to May 29, 1941, for which he was reimbursed by Mr. Grannis, amounted to $3,-275.85. This amount was included by Mr. Grannis as an expense of performing his sand and sand clay contracts. Items amounting to $2,797.92 were not considered proper as being unsupported items.</p> <p>(f) Mr. Grannis paid social security taxes of $2,194.13 with respect to the employees of truckers who hauled sand and sand clay under his Camp Davis subcontracts and he included that amount as a cost of performing the work. The defendant refused to consider this amount as an item of cost.</p> <p>(g) Mr. Grannis carried collision, public liability and property damage insurance on the hired trucks used in performing his subcontracts, and the cost of said insurance was $7,860.03. This sum was included by Mr. Grannis as an item of cost of performing his subcontracts but the defendant refused to consider it as an item of cost.</p> <p>(h) A legal fee of $750 was paid by Mr. Grannis to an attorney for his efforts in connection with the passage by the State Legislature of a law making it unnecessary for hired trucks on Government projects to pay a so-called State “hire” tax. ¡This amount was included by Mr. Grannis as a cost of performing his subcontracts, but it was disallowed by the defendant in its computations of profit.</p> <p>(i) Wage checks in the amount of $112.-52 were issued by Mr. Grannis that were never delivered. This amount was included in Mr. Grannis’ subcontract cost computations but was eliminated by the defendant in its computations.</p> <p>21. The profit realized by F. N. Thompson in the performance of the subcontract that was awarded to him for furnishing sand for use in the Camp Davis contract has been computed by defendant as amounting to $8,835.15. According to the books and records of Mr. Thompson, this profit amounted to $8,487.03 only, or a difference of $348.12. This difference represents Federal taxes paid by Mr. Thompson on gasoline and oil purchased by him and used in the performance of his subcontract. He included said taxes as a part of the cost of performing his subcontract, whereas the defendant refused to consider such items in its computation of cost.</p>