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UNITED STATES v. ADAMS

March 7, 1958

UNITED STATES OF AMERICA, PLAINTIFF,
v.
HERMAN ADAMS, D/B/A ADAMS MANUFACTURING COMPANY, DEFENDANT.



The opinion of the court was delivered by: John E. Miller, District Judge.

This is an action by the plaintiff, United States of America, against the defendant, Herman Adams, d/b/a Adams Manufacturing Company, growing out of a contract between the parties whereby the defendant undertook to manufacture and deliver to plaintiff a large number of wooden tent pins. Plaintiff alleges that the defendant defaulted, and that under the terms of the contract plaintiff purchased similar tent pins from another supplier at an excess cost of $4,810.83, which amount plaintiff is entitled to recover from the defendant.

The defendant in his answer raised two defenses: first, that the default arose out of causes beyond his control and without any fault or negligence on his part, and under the terms of the contract he would not be liable for excess costs; and second, that any excess cost incurred by the Government was caused by its own negligence and lack of diligence in purchasing the tent pins after it declared defendant to be in default.

Findings of Fact

1.

The plaintiff is the United States of America. The defendant is a citizen of Arkansas and a resident of the Fort Smith Division of the Western District of Arkansas.

2.

In 1953 and 1954 the defendant, Herman Adams, was engaged in the business of manufacturing wooden products, such as wooden boxes, pallets, and stakes, a large majority of which were sold to the United States. His place of business was located in Charleston, Arkansas.

Some of the contracts between Adams and the United States were negotiated contracts, i. e., contracts which were entered into after negotiations and discussions between the parties. Other contracts entered into between Adams and the United States were the result of successful bids by Adams; i. e., the United States, through the particular agency involved, would issue invitations for bids for the particular product involved and Adams would be the successful bidder.

In the latter part of 1953, Adams negotiated with the Contracting Officer of the Chicago Quartermaster Depot, United States Army, for a contract (defendant's Exhibit No. 1) under which Adams would manufacture wooden tent pins for the Army. In the course of the negotiations the following letter (defendant's Exhibit No. 2) was written by Adams' Assistant Manager, A. R. Schaffer, to the Contracting Officer:

"Dear Sir:

    "The pre-award survey of our plant facilities
  made by Mr. M.A. Friend, of the St. Louis QM
  Office, presented an excellent opportunity for a
  detailed study of the bid we submitted on the
  captioned proposal. Although we have had ten
  years of highly satisfactory production
  experience on ammunition boxes and pallets, this
  was our first venture on a Quartermaster item
  — and it was a welcome pleasure to be enlightened
  by a man of Mr. Friend's apparent competence in
  such matters. The discovery of two errors of
  omission in our bid calculations is proof that his
  visit was beneficial.
    "We would like to request that our bid be
  amended to allow for these oversights, as
  discussed below, but first wish to state that we
  shall fulfill the entire contract as originally
  bid — should you determine that it ought to be
  awarded to us on that basis.
    "To begin with, we deliberately bid this
  proposal at what we thought was the lowest
  possible figure, because we honestly believed
  that we had worked out a source of raw material
  which could save the Government a considerable
  amount of money and still make us a reasonable
  profit. Our plan was, and still is, to grade the
  No. 1 and No. 2 Red Oak needed for this contract
  out of the rough hardwood which we buy in
  quantities averaging 100,000 bd. ft. per week for
  production of pallets. This lumber is delivered
  to us at $45 or $50 per M, in almost any quantity
  we require, and experience has shown us that as
  high as 50% of it would grade out as No. 1 or No.
  2. We therefore believed that the production of
  tentpins would fit hand-in-glove with our already
  scheduled pallet production.
    "However, after analyzing the matter with Mr.
  Friend, we come to the conclusion that we failed
  to make allowance for two important items:
    "2. Packing and crating. A three-way conversation
  between Mr. Friend, Mr. Adams, and the undersigned
  revealed a misunderstanding of instructions within
  our plant in calculating this particular item.
  Normally, all of our bids for finished products are
  figured at so many dollars per M on gross board
  footage before cutting and surfacing — and we had
  interpreted Mr. Adams' directions to mean that the
  figure so calculated would be the FOB plant price
  per packaged pin. Actually, he intended it
  to be the price per finished pin, before crating.
  We are not, therefore, covered for the cost of the
  crate, although the weight of the crate was
  considered in arriving at shipping expenses.
    "Due to the above omissions, we now find it
  necessary to request amendment of our 16 November
  bids, adding $0.01784 per pin for Item 1 (Type I,
  16") and $0.02542 per pin for Item 2 (Type II,
  24"). These are additions to FOB plant prices,
  there being no change in delivery costs involved.
  A complete modified schedule of bids for each
  destination is attached, to avoid the need of
  your making the individual calculations.
    "It is almost needless to say, but we are
  greatly indebted to you for initiating the
  pre-award survey which brought these matters to
  light. We again express our willingness to go
  ahead with the contract as originally bid,
  absorbing the threatened loss, should you see fit
  to demand its performance — but your favorable
  consideration of our request for amendment would be
  most sincerely appreciated. Should we remain low
  bidder despite these increases, you may be assured
  of our utmost cooperation throughout the life of
  the contract.

"Very truly yours,

"Adams Manufacturing Company

"A.R. Schaffer

"Ass't. Manager"

On December 30, 1953, the negotiated contract was entered into between Adams and the Chicago Quartermaster Depot, United States Army, under which Adams was to manufacture 1,369,525 wooden tent pins for a total consideration of $123,391.51. With respect to inspection of the pins the contract contained the following provisions:

    "Inspection and Acceptance: Saving and
  reserving to the Government all rights under the
  Inspection provision, the procedure of Inspection
  for compliance with contract requirements at
  Contractor's plant and inspection (quantity and
  condition) and acceptance at destination will be
  followed.
    "Shipment must Not be made prior to inspection by
  either the Chief, QM Inspection Division, Chicago
  Quartermaster Depot or his authorized
  representatives. Contractor must notify the Chief,
  QM Inspection Division, Chicago Quartermaster
  Depot, 1819 West Pershing Road, Chicago 9,
  Illinois, when the items as called for herein are
  ready for inspection. Items Should Not Be Packed In
  Sealed Containers Prior To Inspection. (If
  practicable

  2 weeks advance notice is requested.) Should
  shipping point differ from that which is shown
  herein, contractor must so advise both the
  Contracting Officer and the Chief, QM Inspection
  Division, Chicago Quartermaster Depot.
    `"Material Inspection Receiving Reports:
  Shipment of the items as called for herein will
  be made, utilizing Material Inspection Receiving
  Reports to be furnished by this office. Shipment
  must not be made without same."

With regard to inspection, paragraph 5(a) of the General Provisions of the contract provided as follows:

    "(a) All supplies (which term throughout this
  clause includes without limitation raw materials,
  components, intermediate assemblies, and end
  products) shall be subject to inspection and test
  by the Government, to the extent practicable at
  all times and places including the period of
  manufacture, and in any event prior to final
  acceptance."

After the contract was entered into Adams began purchasing No. 1 and No. 2 red oak lumber which he intended to use in the production of the tent pins. Preparations were made for producing the pins, and on February 1, 1954, an inspection plan was executed by Leland S. Foster, one of plaintiff's inspection supervisors, delineating the method of inspection that would be used on the job (Defendant's Exhibit No. 3). Among other things the inspection plan provided that the point of acceptance inspection was "End item"; that the lot size would be a minimum of 8,001 and a maximum of 22,000; and that the "presentation" would be stationary. Under the heading "Special Details Governing Physical Arrangements of Product", it was provided that "Units, after final machining and before the treatment, will be stacked on pallets. Samples for visual and dimensional check will be selected at this point".

At the time this inspection plan was formulated the inspector on the job was T.T. Flint. About March 1, 1954, a new inspector, Joe Burkhart, replaced Flint. Burkhart appeared at approximately the time full-scale production began on the tent pins. For some reason and under some authority not shown by the record, Burkhart began making additional requirements of Adams over and above the requirements stated in the contract. For one thing, he required Adams to set up four inspection points rather than the one inspection point provided in the inspection plan executed by Foster. In addition to that, Burkhart was extremely strict in his requirements concerning the grade and quality of the lumber used to produce the tent pins. In fact, ...


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