Cases No. 40-A and 41-B.

In re CONTRACT WITH BIBB MANUFACTURING CO. FOR COTTON DUCK..

1. CONTRACTS-CANCELLATION OF-WAIVER OF CANCELLATION.—Where a manufacturer upon notice to immediately cease work on his contracts with the Government protests, claiming that compliance therewith would cause excessive injury due to the peculiar circumstances of his case in response to which he is informed: "You will be notified as soon as possible concerning further action," after which communications of a similar nature passed between the contractor and the Government agents until learning that the Government was treating its original request to cease work sent to other contractors at the same time it was sent the contractor in question as a finality, the contractor ceased work 21 days after the original request, the contractor is entitled to compensation for the work performed between the date the original request to cease work was received and the day work was actually stopped. Under these circumstances if the Government representatives had desired that the original notice be treated as a finality some positive instruction and definite action along that line should have been communicated to the contractor and he should not have been lulled with false security by being informed that he would be advised further.

2. SAME-INTEREST ON MONEY Due under GOVERNMENT CONTRACT— RESOLUTION OF WAR DEPARTMENT CLAIMS BOARD ZONE BOARD. In determining whether a contractor is entitled to interest or not the Zone Board should be guided by the resolution adopted by the War Department Claims Board January 21, 1919.

3. SAME IMPLIED CONTRACTS, SETTLEMENT OF-SECRETARY OF WAR, POWERS OF.—The only authority conferred upon the Secretary of War to adjust implied contracts arises out of the provisions of the act approved March 2 entitled "An act to provide relief in cases of contract connected with the prosecution of the war, and for other purposes."

4. SAME-IMPLIED CONTRACTS-CLAIMS UNDER ACT APPROVED MARCH 2, NECESSARY ELEMENTS OF.-In order to constitute a valid claim under the act approved March 2, relating to the settlement of contracts connected with the prosecution of the war there must be an agreement, express or implied, and there are three essential elements to such an agreement. (1) It must have been entered into for a purpose connected with the prosecution of the war. (2) Such agreement must have been performed in whole or in part, or expenditures must have been made, or obligations incurred upon the faith of the same prior to November 12, 1918. (3) Such an agreement must not have been executed in a manner prescribed by law.

5. SAME IMPLIED CONTRACTS, FACTS INSUFFICIENT TO CREATE.Where a manufacturer enters into a contract for the erection of additional facilities in anticipation of receiving a Government contract which he later receives no implied obligation is imposed on the Government to compensate the manufacturer for the excessive cost of such additional facilities.

Col. Garnett, writing the opinion of the Board, May 23, 1919.

FINDINGS OF FACT.

1. This company is making claims against the Government under contract No. 491-A, dated December 24, 1917, with the Quartermaster Corps, United States Army for furnishing and delivering duck, and supplementary agreements modifying said contract, and under C. G.-2444, dated October 17, 1918, from the Clothing and Equipage division, relative to No. 9 substitute gray duck. Capt. Thomas R. Jones, examiner for the War Department Board of Contract Adjustment, has at the request of the Board, visited the plants of the petitioner, making investigation of each of these claims, and has submitted exhaustive reports of his investigations. As a result of his visits and the two reports filed by him, the petitioner has, in many respects, modified each of its claims to meet the views of Capt. Jones. The said reports will be forwarded with this opinion to the claims board, Director of Purchase, with the general instructions that the principles laid down therein should be followed in making settlement of said claims. There are three questions, however, involved in these reports which will be discussed in detail below: First, as to the date of termination of said contracts; second, the question of interest; and third, item No. 7, in the claim under order No. 916 B/C and C. G. No. 2707, for reimbursement for a reasonable proportion of the excessive cost of the steam-power plant erected by the petitioner at its Osprey Mill.

DECISION.

1. Should settlement be made as of November 16, 1918, or of December 9, 1918.

The zone board was unwilling to make settlement except upon the basis of November 18, and therefore these claims have been brought before the War Department Board of Contract Adjustment by appeal from the action of the zone board.

After the signing of the armistice, to wit, on November 18, the following telegram was delivered to the Columbus plant of the claimant:

"NEW YORK CITY, Nov. 18, 1918.

"BIBB MANUFACTURING COMPANY,

"Columbus, Georgia:

"You are requested to discontinue warping for any War Department contracts and to arrange for the transfer of your looms from these materials as rapidly as possible, pending adjustment of these contracts with you. A statement of the uncompleted balance of each war contract caused by this transfer should be furnished as early as practicable to cotton goods procurement branch, 109 East 16th Street, New York.

"WOOD CLOTHING, "DONALD."

In reply to this telegram the Bibb Manufacturing Co., from its Macon plant, sent the following telegram, dated November 18, to the cotton goods procurement branch of the Quartermaster General, New York City:

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MACON, GA., November 18, 1918. "Our Columbus mill has telephoned to us message received from you to-day requesting that we discontinue warping on any War Department contracts and to arrange for transfer of our looms from these materials rapidly as possible. We do not see how it is physically possible for us to comply with this request, and wish to explain that our business prior to the war was solely confined to the manufacture of fabrics for automobile tires. When the Government came to us requesting that we make duck we were heavily engaged in our regular line, but we laid this aside and assisted the Government with the percentage of our production asked for. Later, at Government request, this percentage was increased. Since that time production of tires has been curtailed by governmental action, and it will take our customers some time to secure stocks of rubber and reorganize their factories for full production so that they can take regular goods from us. About two-thirds of our production now on war goods, and if this is stopped we have no other business to take its place, and, for the reasons above given, it will be some time before our customers can place orders, due to Government curtailment of their business. To stop the production of goods on war contracts would cause us a tremendous direct loss, as special cotton for these goods has already been purchased, and, in addition, a shut down and stoppage of our plants would be of incalculable injury to us, as our labor would be thrown out of employment and become scattered in their attempt to find some work to do. We would then in a few months be faced with the problem of securing and training a new organization for the special goods we make and for which our help is expertly trained. We are sure the Government does not want to do us such great harm, and with these facts before you, would like to hear from you further."

In response to this telegram the cotton goods procurement branch, under date of November 22, wrote the Bibb Manufacturing Co. the following letter:

"1. Your telegram of the 18th instant acknowledging receipt of telegram of November 17th has been received. You will be notified as soon as possible concerning further action."

On November 20 the Bibb Manufacturing Co. wrote the cotton goods procurement branch, Quartermaster General, New York City, a letter setting out the telegram of November 18, addressed to the company and the reply telegram, dated the same date, both quoted above, and in stating the position taken by it in the telegram said that 66 Iwe are bound to believe that the statement we have made of our situation will cause you to withdraw the request contained in your telegram of the 18th."

To this letter the cotton goods procurement branch, by letter dated November 25, replied as follows:

"1. Letter of the 20th instant, acknowledging receipt of telegram of November 17th, has been received. You will be notified as soon as possible concerning further action."

Under date of November 20 the cotton goods procurement branch also wrote the Bibb Manufacturing Co. a letter, as follows:

"1. The Government is entering upon an extensive program for the termination of its duck contracts.

"2. Some of your contracts are for commercial goods, which could probably very conveniently be sold to the civilian trade without expense to the Government.

"3. Will you please advise this office by return mail, or as soon as possible, which of your contracts can immediately be thus terminated."

Replying to this letter under date of November 23 the Bibb Manufacturing Co. again laid its situation before the cotton goods procurement branch, and concluded as follows:

We are quite sure the Government does not wish to injure us in any way, and see no plan other than to continue on these goods as at present."

Subsequently learning that the Government was treating its request sent out to all duck contractors on November 18 as a finality and terminating the contracts as of that date, the Bibb Manufacturing Co. stopped warping on December 9, 1918.

All other contractors for duck in the same zone complied with the telegram of November 18 and stopped warping as of that date.

The question for decision by the Board is whether, under the foregoing telegrams and correspondence, the Bibb Manufacturing Co. was justified in continuing the warping of its product and whether the settlement between the Government and the company should be based upon the status of the plant as of December 9 or November 18.

We are clearly of the opinion that under the foregoing correspondence the Bibb Manufacturing Co. was justified in continuing its warping and that settlement of its claim should be based upon the status as of December 9, rather than as of November 18. The telegram of November 18 was a request to discontinue warping. The reply thereto was an explanation of why it would be almost impossible for the company to comply with the request and the close of the reply telegram expressed the belief that the Government did not intend to do the company any harm, and stated that the Bibb Manufacturing Co. would like to hear further on the matter. To this the cotton goods procurement branch under date of November 22, sent a telegram acknowledging receipt of the prior telegram and stating "you will be notified as soon as possible concerning further

action." In the correspondence which ensued, the Government representatives took no definite stand upon the request made by the Bibb Manufacturing Co. to be informed further as to whether the Government intended it to shut down its warping but always left the matter open for further action. Under these circumstances it seems clear that, if the Government representatives had desired that the telegram of November 18 should be treated as a finality, some positive instruction and definite action along that line should have been communicated to the company, and the company should not have been lulled with false security by being informed that it would be advised further.

2. Interest.

The claims of the contractor involve the question of the allowance of interest on every item of its claims from January 1, 1919, to May 1, 1919. An extract of minutes of meeting of the War Department Claims Board of January 21, 1919, contains the following resolution, presented by Mr. Dorr and adopted by the claims board:

"Resolved, That it should be the policy of the claims board in the adjustment of uncompleted contracts to permit an allowance of compensation for the use of the working capital of the contractor actually employed in that part of the contract which is not carried to completion. If the capital so employed is borrowed capital, then the allowance of compensation for its use should be the interest actually paid by the contractor. If the working capital so employed belongs to the contractor himself, then the compensation should be at the interest rate prevailing in the district in which the contract is adjusted. If, however, the adjustment provides for the payment of compensation in lieu of profits, as provided for under the provision of Supply Circular 111, based on a percentage of the cost of material, labor, etc., on the uncompleted portions of the contract, and such compensation exceeds the compensation that would otherwise be made for the use of the working capital employed, there is no occasion to make any such allowance for the use of capital employed whether that capital is or is not borrowed, and whether the contractor is or is not paying interest thereon. Before allowing compensation for the working capital employed in the uncompleted portion of the contract, great care should be exercised to see that this item has not been covered in some other item of the adjustment, such as allowance for overhead, handling charges, etc., so that there will be no duplication of allowance."

In making settlement, the Zone Board should be guided by the foregoing resolution.

3. Claim for reimbursement for excessive cost of steam power plant.

Under item No. 7, of claim under order No. 916 B/C and C. G. No. 2707, the claim is made for reimbursement for a reasonable proportion of the excessive cost of a steam power plant erected by the claimant at its Osprey Mill, the total cost of which when complete is