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Universal Restoration Inc. v. United States

August 22, 1986


Appealed from: U.S. Claims Court. Judge White


Before MARKEY, Chief Judge, BENNETT, Senior Circuit Judge, and NIES, Circuit Judge.

NIES, Circuit Judge.

Universal Restoration Inc. appeals the decision of the United States Claims Court*fn1 holding that Universal had violated the Truth in Negotiations Act and that Universal's recovery under the contract was precluded by the contract's defective pricing clause. The dispute centers on the amount charged by the contractor for overhead which was found to be excessive. We reverse.


The subject contract required the repair and restoration of the ceiling and the clerestory vaults of the National War College, a National Historic Landmark located at Fort McNair, Washington, D.C. The structure's inner dome and clerestory vaults are constructed of "Gustavino" terra-cotta tiles specially layered in depth so as to constitute primary support for the central dome of the structure. In May, 1974, some of the tiles which formed the ceiling area, some sixty-five feet above the floor of the rotunda, loosened and fell to the floor causing a safety hazard and raising doubts as to the structural integrity of the dome itself.

The government requested Universal, a small firm with highly regarded expertise in the field of restoration and renovation of historic buildings, including experience with terra-cotta tiles, to submit a price proposal on a time-and-material basis for emergency repair work to the dome. Universal, on May 28, 1974, submitted a price proposal of $65,000, which specified an overhead rate of 115% and a profit rate of ten percent of direct labor costs. These rates were Universal's standard add-ons and, as a matter of company policy, Universal would accept nothing less than its established mark-ups on any contract.

The government determined that Universal was the only source available to perform the emergency work and that Universal's price proposal was fair and reasonable when compared with similar type contracts for time and materials and the government's own cost estimate. The contracting officer made no attempt to negotiate with Universal for a reduction in any part of its proposal. The government awarded the contract to Universal on May 31, 1974.

In August, 1974, the government began to enlarge the scope of work to be performed as a result of engineering studies (not made by Universal) with respect to what was required and as additional funds became available. The contract price rose incrementally over a nine month period to $1,349,800.*fn2 With respect to each modification, the rates proposed in Universal's original May, 1974, proposal remained in effect. Each time, the government accepted Universal's price proposal without attempting to negotiate for a reduction in any part of its proposal. The contracting officer and the Board of Awards did, however, determine that Universal's proposal in each instance was both fair and reasonable based on government estimates and the previous work performed on the project. Universal satisfactorily completed the contract on September 23, 1975.

During the contract period, Universal billed the government for work performed in the amount of $1,220,644.87, the billings being calculated on the basis of the 115% markup for overhead. Universal made no calculations of its actual overhead rate in connection with these billings. The government paid Universal $1,021,204 and withheld the balance, pending audit clearance of Univsersal's complete billings. This withholding was the subject of several audits and a long running dispute between the parties.

The contract became the subject of intense auditing once it became an after-the-fact cause celebre because of its growth in price from a modest $65,000 to in excess of $1,000,000. Between August, 1975, and March, 1981, the government audited Universal's performance six times. Two of these audits were routine voucher audits. Four audits were performed with respect to Universal's cost and pricing data and overhead expense with the 115% overhead rate being the focus of the audits. Two of these audits were made the subject of Universal's board appeal. The first audit indicated that Universal's overhead rate remained at about 115% throughout the contract period. However, the second audit report, based on a one month period, concluded that Universal's overhead rate had declined and that, if Universal had furnished current overhead data at the time of each contract modification, the contracting officer would have negotiated a lower overhead rate. The second audit recommended a reduction of $130,561 in the contract price. After the parties failed to resolve the dispute through negotiations, the contracting officer issued a final decision in favor of the government. Universal timely appealed to the Armed Services Board of Contract Appeals.


A. The Statute

The Truth in Negotiations Act, Pub. L. 87-653, § 1(e), 76 Stat. 528-29 (1962), codified as amended at 10 U.S.C. § 2306(f), requires that (1) certain government contractors and would-be contractors must certify, to the best of their knowledge and belief, that the "cost of pricing data [they] submitted [to the government] was accurate, complete and current," and (2) any contract under which such a certificate is required shall contain a provision that "the price to the Government, including profit or fee, shall be adjusted to exclude any significant sums by which it may be determined by the head of the agency that such price was increased because the contractor . . . furnished cost or pricing data which was inaccurate, incomplete or noncurrent."*fn3 To implement the Truth in Negotiations Act, the government mandated the inclusion in every contract subject to the Act of a uniform clause entitled "Price Reduction for Defective Cost or Pricing Data."*fn4 32 C.F.R. §§ 3-807-5, 7-104.29(b) (1970). At the time of the instant contract, ...

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