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The CHAIRMAN. Now at this point

Mr. HAWES (interposing). Mr. Chairman, could I make one other correction of Mr. Burton's statement ?

The CHAIRMAN. Yes.

Mr. Hawes. It is a very small matter. He said that we were discussing forms for these other clauses. What we have been discussing for some time is a revision of the termination clause for fixed-price supply contracts, that is this 324 of which you were given a copy yesterday.

The CHAIRMAN. Now at this point, do you people use the same type termination clause contracts as the Army?

Mr. KENNEY. The Navy Department has a termination clause which is inserted in fixed-price contracts for supplies where the amount involved is in excess of $500,000 or where the estimated period of performance under that contract is in excess of 6 months, and I would like to put in the record that clause, and I will give copies of that to each one of you.

The CHAIRMAN. We would be glad to have that in the record. Does that cover the entire Navy termination clause contracts ?

Mr. KENNEY. That clause, or a clause substantially similar to it, is inserted in all fixed-price supply contracts of the size and for the estimated period of performance that I have just specified, entered into by the Bureau of Ordnance, the Bureau of Supplies and Accounts, and the Bureau of Aeronautics.

That clause is as follows:

TERMINATION

(a) This contract may be terminated by the Government in whole or in part whenever

(1) The contracting officer shall after the commencement of performance determine that termination is for the best interest of the Government; or

(2) The contractor refuses or fails to make delivery of the articles or materials to be furnished under this contract in accordance with specifications, schedules, and drawings within the time specified in this contract, or within any extension of such time, and such refusal or failure is not due to an excusable delay as hereinafter defined ; or

(3) The contractor makes any defaults in performance under this contract other than those covered by subparagraph (2) hereof, and fails to proceed to cure such defaults within a period of 10 days after receipt from the contracting officer of a notice of default specifying the default.

Termination shall be effected by delivery to the contractor of a notice of termination specifying the cause of termination, the extent to which performance of the contract shall be terminated, and the date upon which termination shall become effective which date shall not be earlier than 10 days after the date of receipt of the notice of termination.

(b) After receipt of notice of termination, contractor shall (1) terminate work on the contract on the date and to the extent sepcified in the notice of termination; (2) submit to the contracting officer within 10 days after receipt of notice of termination or such further period as may be specified by the contracting officer a list of all unperformed orders and subcontracts relating to this contract; (3) place no further orders for materials or facilities except as may be necessary for completion of such portions of the contract as may not be terminated or as directed by the contracting officer; (4) cancel and terminate all orders and subcontracts not necessary for the performance of any work required to be performed under the notice of termination; (5) assign to the Government all of the right, title, and interest of the contractor under such orders or subcontracts as the contracting officer may direct; (6) transfer title to and deliver to the Government in the manner and at the times directed by the contracting officer, such of the plans, drawings, materials, fabricated parts, work in process and completed work relating to the performance of this contract, as the contracting officer may direct; (7) complete performance of such part of the contract as shall not have been terminated by the notice of termination; and (8) take such action as the contracting officer may direct for the protection and preservation of the property in the possession of the contractor and in which the Government has an interest.

(c) In addition to the remedies otherwise provided the Government may, with respect to contracts terminated for the causes set forth in paragraphs (a) (2) or (a) (3) hereof, purchase in the open market or otherwise obtain supplies of a character similar to those called for by the contract and in a quantity which, together with the articles hitherto completed and delivered to and accepted by the Government, shall not exceed the quantity called for under the contract. If the cost to the Government of articles so procured exceeds the price for such articles under this contract, the contractor shall be liable for such excess.

(d) After termination of this contract in the manner provided in this article, the Government within a reasonable time shall pay to the contractor the following amount:

(1) For articles completed and delivered and accepted by the Government, a sum equivalent to the aggregate price for such articles computed in accordance with the unit price specified in the contract.

(2) For work performed on uncompleted articles in process and materials on hand a sum determined as follows:

(A) Where the contract has been terminated for the causes set forth in paragraph (a) (1) hereof the total of (i) a percentage of the contract price, reduced by the amount of any payments under (1) above, equal to the percentage of completion of such uncompleted articles at the time of termination or in the event of inability between the Government and the contractor to agree as to the percentage of the completion, the cost of work performed under this contract other than work performed on articles completed and delivered and accepted by the Government, plus a sum not less than 142 percent nor more than 6 percent of such cost as determined by agreement between the contractor and the contracting officer, (ii) the purchase price of unworked and unprocessed materials on hand owned by contractor and purchased for performance of this contract, (iii) any reasonable expense incidental to termination under paragraph (6) hereof of orders or subcontracts, and (iv) any other reasonable expense incidental to termination of this contract that may be agreed upon between the parties.

(B) Where the contract has been terminated for any of the causes set forth in paragraphs (a) (2) or (a) (3) hereof, the cost of plans, drawings, materials, fabricated parts and work in process transferred to the Government in accordance with the directions of the contracting officer.

(3) The reasonable cost of the preservation and protection of property as required under paragraph (6) hereof. The total sum to be paid the contractor under this paragraph (d) shall not exceed the contract price for such work if completed.

(e) The obligation of the Government to make any of the payments required under paragraph (d) hereof shall be subject to (1) any unsettled claims against the contractor for labor or materials, (2) deductions for the excess cost of articles purchased in accordance with paragraph (c) hereof, (3) any claim which the Government may have against the contractor, (4) deductions for any advance payments, progress payments, unit payments, or partial payments made to the contractor under or in connection with this contract, and (5) reasonable deductions by the Government on account of defects in the materials or workmanship of completed or partially completed work delivered hereunder or other defaults under this contract.

(f) For the purpose of paragraph (d) (2) hereof the cost of work performed shall be determined in accordance with the explanation of principles for determination of costs under Government contracts promulgated by the War Department and the Navy Department April 1942. Such cost shall include as of the date of termination the cost of materials in process and the expenses of the contractor incurred in the placing of orders for materials not worked on or in process but excluding the purchase price of such materials not worked on or in process. The contractor shall make available to the Government at all reasonable times at the office of the contractor all of its books, records, documents, and other evidence bearing on the cost to the contractor of the work in process.

(9) Excusable delays.—The contractor shall not be charged with any liability for failure or delay in making deliveries when such failure or delay (herein called an excusable delay) of the contractor in making deliveries is due to unforeseeable causes beyond the control and without the fault or negligence of the contractor, including but not restricted to (1) acts of God or of the public enemy, (2) acts of the Government of the United States or any State or political subdivision thereof, (3) fires, flood explosions, earthquakes, or other catastrophes, (4) epidemics, (5) quarantine restrictions, (6) strikes, (7) freight embargoes, (8) unusually severe weather, (9) inability of the contractor to obtain equipment or material when the contracting officer determines that such inability is due to the operation of Governmental priorities, preferences or allocations of equipment or material, or (10) delays of a subcontractor or supplier in furnishing material owing to one or more of the foregoing causes, unless the contracting officer shall determine that the materials or supplies to be furnished under the subcontract are procurable from other sources, and shall have crdered the contractor to procure such materials or supplies from other sources. If the contractor shall fail to notify the contracting officer in writing of the cause of any such excusable failure or delay within 10 days from the date it appears that such cause will delay deliveries under this contract or within such longer period as the contracting officer or his duly authorized representative, shall, prior to the date of final settlement of the contract, specify for the giving of such notice, the contractor shall lose all right to an extension of time for delivery by reason of such cause. Promptly on receipt of such notice, the contracting officer shall ascertain the facts and extent of failure or delay, and if the contracting officer shall find that the failure or delay was occasioned by any one or more of the said causes, he shall revise the delivery schedule accordingly. The finding of fact of the contracting officer shall be final and conclusive, subject only to appeal within 30 days by the contractor to the Secretary of the Navy or his duly authorized representative, whose decision on such appeal, as to the facts of the failure or delay, shall be final and conclusive.

Mr. KENNEY. Perhaps, since you gentlemen are not as familiar with the procedure of the Navy Department as you are with the War Department, I should explain the procurement procedures of the Navy Department.

The CHAIRMAN. You understand why we are interested in this from the Navy's standpoint, because yesterday the Navy asked us to include it in this bill that we were considering:

Mr. KENNEY. That is correct, Mr. Chairman.

Differing from the War Department, the great majority of procurement by the Navy Department is centralized in the various bureaus in Washington; thus, what we term the technical bureaus the Bureau of Yards and Docks, the Bureau of Supplies and Accounts, the Bureau of Ordnance, the Bureau of Ships—do the procuring of those technical matters which are under their particular cognizance. So this clause which I have enumerated is used by those various bureaus in fixed-price contracts of the character that I have enumerated.

Now, we also have a clause that is used in cost-plus-a-fixed-fee contracts. We also have a termination article that is used in the construction contracts that are entered into by the Bureau of Yards and Docks, and we also have a termination and cancelation clause that is used in contracts for the construction of ships.

The CHAIRMAN. Can you furnish the committee with a copy of each one of those ?

Mr. KENNEY. Yes, sir.
The CHAIRMAN. I think they should go in the record.

Mr. KENNEY. The termination clause currently used in cost-plus-afixed-fee contracts for supplies is as follows:

88467-43-3

TERMINATION

(a) This contract may be terminated by the Government in whole or in part whenever

(1) The contracting officer shall determine that termination is for the best interest of the Government; or

(2) The contractor refuses or fails to make delivery of the articles or materials to be furnished under this contract in accordance with specifications, schedules, and drawings within the time specified in this contract, or within any extension of such time, and such refusal or failure is not due to an excusable delay as hereinafter defined; or

(3) The contractor makes any defaults in performance under this contract other than those covered by subparagraph (2) hereof, and fails to proceed to cure such defaults within a period of 10 days after receipt from the contracting officer of a notice of default specifying the default.

Termination shall be effected by delivery to the contractor of a notice of termination specifying the cause of termination, the extent to which performance of the contract shall be terminated, and the date upon which termination shall become effective, which date shall not be earlier than the date of receipt of the notice of termination,

(b) After receipt of notice of termination the contractor shall (1) terminate work on the contract on the date and to the extent specified in the notice of termination; (2) submit to the contracting officer within 10 days after receipt of notice of termination a list of all unperformed orders and subcontracts relating to this contract; (3) place no further orders for materials or facilities except as may be necessary for completion of such portions of the contract as may not be terminated or as directed by the contracting officer; (4) cancel and terminate all orders and subcontracts not necessary for the performance of any work required to be performed under the notice of termination; (5) assign to the Government all of the right, title and interest of the contractor under such orders or subcontracts as the contracting officer may direct; (6) deliver to the Government, in the manner and at the times directed by the contracting officer, such of the plans, drawings, materials, fabricated parts, work in process and completed work relating to the performance of this contract, as the contracting officer may direct; (7) complete performance of such part of the contract as shall not have been terminated by the notice of termination; and (8) take such action as the contracting officer may direct for the protection and preservation of the property in the possession of the contractor and in which the Government has an interest.

(c) After termination of this contract in the manner provided in this article, the Government shall pay to the contractor within a reasonable time after such termination the following:

(1) The allowable cost determined in accordance with the provisions set forth in the section of this schedule entitled “Compensation" of the work performed under this contract prior to the effective date of termination or under the terms of the notice of termination, together with the proportion of the fixed fee which such cost bears to the total estimated cost of performance of this contract;

(2) Any reasonable expense incidental to termination under paragraph (b) hereof of orders or subcontracts;

(3) The reasonable cost of the preservation and protection of property as required under paragraph (b) hereof;

(4) Any other reasonable expense incidental to termination of this conor partially completed work delivered hereunder or other defaults under this contract.

tract that may be agreed upon between the parties. Provided, however, That with respect to a contract terminated for either of the causes set forth in paragraphs (a) (2) or (a) (3) hereof the fixed fee payable to the contractor shall be only that portion of the total fixed fee that the estimated cost of completed articles delivered and accepted bears to the total estimated cost.

(d) The obligation of the Government to make any of the payments required under paragraph (c) hereof shall be subject to (1) any unsettled claims against the contractor for labor or materials, (2) any claim which the Government may have against the contractor, (3) deductions for any advance payments, progress payments, unit payments or partial payments made to the contractor under or in connection with this contract, and '(4) reasonable deductions by the Government on account of defects in the materials or workmanship of completed

(e) Excusable delays. The contractor shall not be charged with any liability for failure or delay in making deliveries when such failure or delay (herein called an "Excusable delay") of the contractor in making deliveries is due to unforeseeable causes beyond the control and without the fault or negligence of the contractor, including but not restricted to (1) acts of God or of the public enemy, (2) acts of the Government of the United States or any State or political subdivision thereof, (3) fires, floods, explosions, earthquakes, or other catastrophes, (4) epidemics, (5) quarantine restrictions, (6) strikes, (7) freight embargoes, (8) unusually severe weather, (9) inability of the contractor to obtain equipment or material when the contracting officer determines that such inability is due to the operation of governmental priorities, preferences, or allocations of equipment or material, or (10) delays of a subcontractor or supplier in furnishing material owing to one or more of the foregoing causes, unless the contracting officer shall determine that the materials or supplies to be furnished under the subcontract are procurable from other sources, and shall have ordered the contractor to procure such materials or supplies from other sources. If he contractor shall fail to notify the contracting officer in writing of the cause of any such excusable failure or delay within 10 days from the date it appears that such cause will delay deliveries under this contract or within such longer period as the contracting officer or his duly authorized representative, shall, prior to the date of final settlement of the contract, specify for the giving of such notice, the contractor shall lose all right to an extension of time for deJivery by reason of such cause. Promptly on receipt of such notice, the coul. tracting officer shall ascertain the facts and extent of failure or delay, and if the contracting officer shall find that the failure or delay was occasioned by any one or more of the said causes, he shall revise the delivery schedule accordingly. The finding of fact of the contracting officer shall be final and conclusive, subject to appeal within 30 days by the contractor to the Secretary of the Navy or his duly authorized representative, whose decision on such appeal, as to the facts of the failure or delay, shall be final and conclusive.

Mr. KENNEY. The termination clause included in cost-plus-a-fixedfee construction contracts in the Bureau of Yards and Docks is as follows:

TERMINATION OF CONTRACT

ARTICLE 13. (a) Should the contractor at any time refuse, neglect, or fail to prosecute the work with promptness and diligence, or should conditions arise which in the opinion of the contracting officer make it advisable or necessary for the interests of the Government to cease work under this contract, the Government may terminate this contract by a notice in writing from the contracting officer to the contractor. Such termination shall be effective in the manner and upon the date specified in said notice and shall be without prejudice to any claims which the Government may have against the contractor. Upon receipt of such notice, the contractor shall promptly comply with all instructions of the contracting officer in the premises, whether contained in such notice or subsequently given, including without limitation his instructions concerning the following matters: The discontinuance of the work and acquisitions therefor; the furnishing of information concerning, and the action to be taken respecting, all outstanding orders and subcontracts; the disposition of property in the possession of the contractor in which the Government has an interest; and the action to be taken to preserve and protect work already in progress, and material, plant, and equipment on such work or in transit thereto.

(0) If the ground, or one of the grounds, for terminating the contract is, ir the opinion of the contracting officer, a default of the contractor, the notice of termination shall so state, and the contracting officer may at his option and in addition to all other rights the Government may have, forthwith enter upon the premises and take that possession thereof and of all materials, tools, equipment, appliances, privileges, rights, and options (including without limitation all rights to possession of real property) and facilities owned or controlled by the contractor which the contracting officer may determine is essential to the completion of the work, and may complete, or employ any person or persons to complete, the work.

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