Inland Container, Inc. v. United States

512 F.2d 1073, 21 Cont. Cas. Fed. 83,804, 206 Ct. Cl. 478, 1975 U.S. Ct. Cl. LEXIS 16

• Court: United States Court of Claims
• Decided: March 19, 1975
• Docket: No. 350-70
• Status: Published

Opinion

Per Curiam : This case comes before the court on exceptions by the parties to the recommended decision filed March 4, 1974, by Trial Judge David Schwartz, pursuant to Rule 134(h), having been submitted to the court on the briefs and oral argument of counsel. Upon consideration thereof, since the court agrees with the trial judge’s recommended decision, as hereinafter set forth, it hereby affirms and adopts the same as the basis for its judgment in this case. Therefore, it is concluded that plaintiff is entitled to recover and judgment is entered for plaintiff and against defendant in the sum of $34,831.72,

OPINION OP TRIAL «JUDGE

Schwartz, Trial Judge:

This is an action for $92,570 as damages for breach by the Defense Depot at Ogden, Utah, of three contracts with plaintiff for the Depot’s requirements of fiberboard shipping boxes. The claim is here found valid. Damages, held assessable under the convenience-termination clauses in the contracts, are found to be proven under the third contract only, in the amount of $84,831.72.

The Defense Depot, a facility of the Defense Supply Agency, Department of Defense, stocks and, as needed, packs and ships electronic equipment, clothing and other supplies to military installations throughout the world, primarily, at the times involved, to installations in Southeast Asia. Plaintiff is a manufacturer of corrugated fiberboard boxes, with its principal place of business in Ontario, California. Beginning in 1967 the Depot awarded to plaintiff three consecutive, annual contracts for boxes. The first contract covered only Schedules VI and VII of the invitation, the second contract only Schedule VII. In the third contract, which extended from September 1969 to September 1970, plaintiff was awarded Schedules III through VI, a substantial portion of the total invitation and a significant increase over the previous contracts.

The contracts were what is known as requirements-type contracts. The first contract obligated the Depot “to order from the contractor all of its requirements” of the designated boxes “that may in the judgement [sic] of the contracting officer be required during the contract term.”¹ The second and third contracts provided that “the Government shall order from the Contractor all the * * * [boxes] which are required to be purchased by the” Depot.²

Prior to the award to the third contract, Depot officers, including the contracting officer — the Depot’s procurement officer for boxes — had solicited plaintiff, and other box manufacturers, to locate a branch plant near the Depot. The officers did this in the interest of promoting competition and facilitating Government orders of boxes. Plaintiff was willing, if it could get enough business from the Depot to warrant a branch plant. Accordingly, on receipt of the substantial award of the third contract, plaintiff established a second plant at Clearfield, Utah, not far from the Depot in Ogden, with the expectation that the Depot’s business would carry the plant for a year and the hope that meanwhile other business would be developed.

The alleged breach resides in the practice of the Depot, throughout the three contracts, of ordering the boxes it needed from the General Services Administration, under a system to be described, before placing an order with plaintiff pursuant to the contract in force. The Depot’s orders for plaintiff’s boxes during the third contract amounted to $146,099; during the same period orders placed with GSA for the type of boxes covered by the contract amounted to $446,720.

The Depot-GSA relationship was unknown to plaintiff until well into the third contract, when plaintiff had already established the branch plant and saw that it was practically idle for insufficient orders. The branch plant, opened in mid-November 1969, did a gross business of $54,000, of which $35,000 was for boxes for the Depot, before it closed in March 1970, with a loss of $35,000.

It appears that GSA, and particularly GSA Denver, with which the Depot dealt, stocked not only boxes but other supplies as well for requisition by federal agencies. Specifically, GSA regularly stocked most of the boxes on the schedules of the contracts with plaintiff. Operating under requirements contracts, with box manufacturers other than plaintiff, providing for 70-day delivery, OSA ordered boxes in advance of the Depot’s needs, to meet those needs. The Depot paid GSA for the boxes; the payments went into a revolving fund which financed the system, and the price was fixed so that OSA would “break even” on the operation.

OSA and the Depot had a close working relationship involving forecasts of need by the Depot, periodically updated, a computerized system at GSA which would automatically reorder boxes when stocks fell below a pre-set level and the storage of boxes in GSA warehouses until the Depot called for them. Telephone orders were placed by the Depot for boxes needed urgently and deliveries or pick-ups could be arranged by telephone on GSA or Depot trucks. In consequence, GSA could deliver boxes to the Depot with great promptness, often on the same day, from stocks kept by GSA suppliers or warehouses as near to the Depot as Clear-field. If GSA Denver was unable to meet the Depot’s needs from its own stocks, it would draw on other GSA warehouses, in Texas or elsewhere.

The net result was that GSA stocked or was able promptly to provide a ready supply of most of the kinds of boxes used by the Depot. Plaintiff got the leavings, including, prominently, all of the Depot’s need for special boxes, called full-flap, difficult and time-consuming to make. Almost 85 percent of the boxes ordered from plaintiff under its third contract were these full-flap boxes. GSA did not stock these boxes.

The Depot was not without some doubts over its treatment of plaintiff, though, as will appear, its officers believed they were doing the correct thing under “regulations.” The contracting officer testified that at about the time of the award of the third contract it occurred to him that in the light of the Depot’s practice of ordering boxes from GSA, the requirements clauses in the outstanding contracts might be confusing or misunderstood. A clause was thereupon drafted, to be added to solicitations for such contracts, stating that “boxes available from Government Agencies will not be ordered under this contract” [emphasis in the original].

What the effect of such a clause might have been — whether it gives sufficient notice of the practice described here — - need not be decided, for the clause was not added to any of the contracts now in suit. The episode is important as tending to show some awareness by the Depot that the contract words “required to be purchased” and “required,” might (as is now held) be taken to include the boxes ordered from GSA and purchased by it to meet the Depot’s requirements.

As a defense to the claim of breach, the Government says, first, that the boxes were not “purchased” (a word found only in the clause in the second and third contracts, see note 2, supra), but requisitioned. Except for this, there is apparently no contest of the basic proposition that the language used was clear enough to create an obligation to order from plaintiff all of the Depot’s requirements of boxes to be purchased. Goldwasser v. United States, 163 Ct. Cl. 450, 325 F. 2d 122 (1963); Locke v. United States, 151 Ct. Cl. 262, 283 F. 2d 521 (1960).

The contention is that boxes available on the shelves of a sister agency, when obtained by requisition, are not “purchased.” This may well be so in a simple case of the reimbursable requisition of boxes originally procured by the sister agency for its own needs. Here, however, boxes were being purchased systematically and continually, at the request of a using agency, to meet the needs of that agency. The effect was the same as if the Depot itself was purchasing in advance of requirements, to meet its requirements. The Depot was purchasing, by ordering from GSA, and GSA was, in these circumstances, the purchasing agent or arm of the Depot, engaged in regularly purchasing boxes on behalf of the Depot, to meet the Depot’s requirements. Purchases, in the sense of the contract, could be said to have been made by either the Depot or GSA.

The Government emphasizes that no purchases were made to fill a specific Depot order. True, GSA made purchases only to replenish stocks and not, upon receipt of an order, to fill that order. But it makes little difference, for purposes of a contract for boxes “required to be purchased,” that purchases are made in advance of the need, to provide stocks to meet needs when they arise, rather than after the need has become immediate. The boxes were still required to be purchased, and were in fact purchased, by the Depot or by its purchasing agent to meet the principal’s requirements.

That the ordering paper was called a “requisition” is also immaterial. A “requisition” is an administrative name, here, for the paper transfer from an agent-purchaser to a principal-user of boxes which had already been purchased. The whole system was designed to bring about the purchase of required boxes, and the using agency paid a price which included all the elements of a purchase, including, presumably, the costs of the buying agency.

A next defense is based on regulations of the Defense Supply Agency, internal to the Agency and not published in the Federal Register, and a provision in the Armed Services Procurement Regulations (ASPR), published, of course, in the Federal Register, and thus binding on the plaintiff and having the force of law. Depot personnel testified that regulations of their Agency known as DSAR 4140.39, DSAM 4140.2 and DSAM 5335.1 required them to order boxes from GSA as they did, despite the contract with plaintiff; they had not heard of the regulation in ASPR. The text of the Agency regulations, without their context, was introduced in evidence. The Government in its post-trial brief recognizes that the Defense Supply Agency regulations were internal to the Agency, that is, not officially printed in any way that would give plaintiff constructive notice of them. Reliance is put on the latter two of the internal regulations, which are said to have presumably issued in implementation of the ASPR provision, and on the ASPR provision, itself.

The definitions in DSAR 4140.39, of “DSA Manager,” “DSA-managed Items” and “DSA Centrally Procured Items,” describe a system for procurement by a “DSA Manager” of items of supply which are “DSA-Managed.” None of the regulations list or describe DSA-Managed items. A “DSA-Managed” item is “managed by the DSA Manager normally for DoD as a whole.” “DSA-Managed Items” may be procured by two methods. They are “either centrally procured by the DSA Manager or are decentralized to the using Military Services for local procurement.” The DSA Manager makes the decision that the item of supply shall be “centrally procured by the DSA Manager for DoD as a whole, or that the item is decentralized to the using Military Services for local procurement from the General Services Administration or commercial sources.” “Local Purchase,” the last of the terms defined, is said to mean: “The action of a requisitioning or using activity to purchase, for its own use or for use by supported units, items of supply authorized for local purchase from commercial sources.”

This regulation, DSAB. 4140.39, is entitled “Authorization for Local Purchase of DSA Centrally Procured Items.” Aside from the definitions already described, it refers to the two methods of procurement of DSA-managed items — centralized and decentralized — and with certain immaterial exceptions it authorizes two kinds of “ [1] ocal purchase of any DSA centrally procured, commercial-type item”: (1) to fill an emergency, immediate use requirement, and (2) where the procurement line item does not exceed $2,500.

DSAM 4140.2 and DSAM 5335.1 revise and increase to three the permitted instances of local purchase of centrally procured items as follows: (1) for emergency, immediate use, (2) where the value of the local purchase will not exceed $10, and (3) when authorized specifically by the “central item manager.” DSAM 5335.1 then adds this sentence, presumably the language relied upon by the defendant: “General Services Administration (GSA) and Defense Logistics Services Center (DLSC) excess listings are a primary source of supply.” The sentence plainly refers to the three kinds of authorized local purchases of centrally procured items.

The Government’s contention is, apparently, that the procurement of boxes which took place in the instant case was a “local purchase,” for which GSA was designated as a “primary source of supply,” and that the designation prevailed despite and during the term of the contracts with plaintiff.

It is difficult to accept that the term “local purchase” could ever have included such systematic, substantial procurement of boxes as here took place under the contracts with plaintiff. For instance, at one time, at least, during the period here involved, under DSAB 4140.39, effective June 13, 1969 (the only one of the three regulations bearing an effective date), local purchases were permitted only in emergencies and for items whose value was not in excess of $2,500. Moreover, the term “local purchases” seems to be limited to items “centrally” procured or managed. No showing has been made that (1) boxes were a “DSA-Managed Item,” (2) that they were such an item “centrally procured” or, (3) that the procurement here was a “local purchase” of a DSA-managed item, centrally procured. If, as has not been shown, fiberboard boxes were a “DSA-Managed Item,” it seems most likely that the procurement of boxes by the Depot was not a local purchase of a centrally procured item but rather a “local procurement” of a “decentralized” item of supply.

The three regulations are thus not shown to be applicable to the present case. They are addressed to “local purchases” as an exception to “centralized procurement” of “DSA-Managed Items,” and there has here been no proof that boxes were such items, so procured, and that the Depot’s purchases were “local purchases.”

The regulation published in the Federal Register, ASPR 5-201, 32 CFR § 5.201 (1960),³ is similarly not shown to be applicable. It too relates to “local purchases”; it provides that items “decentralized for local purchase * * * will be ordered from the [GSA] Depots unless delivery requirements cannot be met.” Here, again, there is no showing that the formal and very substantial procurement which took place was a “local purchase” and thus no showing that the regulation is applicable, and no need to reach questions as to the force of the regulation, were it applicable.

Another defense raised by the Government would justify orders to GSA on the ground that plaintiff frequently failed to meet the delivery-time requirements in the contract — 14 calendar days in the first contract and 10 working days in the second and third contracts — and that GSA had a better record in making deliveries. Plaintiff was late in delivering 75 percent of its orders. According to a rating system used by the Depot, plaintiff got “poor” and “very poor” marks for delivery more than 50 percent of the time. GSA delivered 60 percent of orders placed with it in 14 days or less; plaintiff delivered only 25 percent of its orders in that number of days.

The comparison between plaintiff and GSA in this respect is unfair. GSA had the advantage of a revolving fund which financed advance buying and warehousing of boxes until they were needed. Moreover, there is evidence that plaintiff’s poor delivery record was due in substantial part to the fact that the Depot ordered from plaintiff all of its requirements of the special “full-flap” box which took more time and trouble to manufacture than regular boxes. Orders for these boxes, while within the contract, were unexpectedly large in volume and they slowed plaintiff down in making deliveries of both the special and regular boxes. Nevertheless, it does seem that plaintiff’s delivery record was far from perfect, and that GSA’s record was substantially better.

The contracting officer testified, in support of the defense based on delivery records, that the Depot’s war-related mission was such that it could not have tolerated plaintiff’s delivery record on all the boxes the Depot needed. The testimony is rejected as unconvincing. It was self-serving, given by an officer not particularly expert, and not corroborated by contemporary documents or any communication of such a view to plaintiff at the time.

Further, an exchange of letters early in the third contract, between plaintiff and the Depot’s general counsel, evidences recognition by the Depot that even orders for boxes needed in 24 hours were by the contract to be offered to plaintiff. It appears that in October 1969, the Depot solicited bids on a contract for boxes to be supplied within 24 hours. Plaintiff promptly protested, citing a clause in the third contract⁴ providing that orders for boxes required sooner than 10 working days must first be offered to plaintiff, and could be placed elsewhere only if plaintiff declined the business. The Depot’s general counsel agreed, and replied that the invitation was designed to, and would be amended to provide only for orders of those boxes for 24-hour delivery as plaintiff first refused.

The defendant’s concern over plaintiff’s delays in deliveries is greater now than it was at the time. At the time, there may well have been adequate ground to terminate plaintiff for default. This, however, the Government deliberately chose not to do. The contracting officer testified that he did not terminate plaintiff’s contract for the reason that the Depot could not have obtained better deliveries by going elsewhere. The Depot complained of plaintiff’s deliveries only to the extent of issuing three cure notices, and in all three instances plaintiff cured the default in the time allowed. In no other way did the Government seek to urge plaintiff to make faster delivery or deliveries as required by the contract.

Having taken no other steps to complain or to terminate the contract at the time, the Government cannot now raise plaintiff’s delay as a retroactive default to excuse its own breach. The delay was waived. Cf. De Vito v. United States, 188 Ct. Cl. 979, 413 F. 2d 1147 (1969).

There is no valid defense to the claim of breach.

For the breach, plaintiff claims damages composed of estimated lost profits under all three contracts, at 10 percent of the dollar volume of business diverted from it to GSA, and an operating loss of $34,831.72 at the Clearfield branch plant for the year of the 1969-70 contract.

Lost profits may not be recovered, by reason of the termination-for-convenience clause, present in all three contracts. Though the contracts were breached without reference to or reliance upon the termination-for-convenience clauses, it is settled that the clause nevertheless restricts the damages recoverable for the breach to those which would have been allowable under the convenience-termination clause, had it been invoked. Nesbitt v. United States, 170 Ct. Cl. 666, 345 F. 2d 583 (1965), cert. denied 383 U.S. 926 (1966); G. C. Casebolt Co. v. United States, 190 Ct. Cl. 783, 421 F. 2d 710 (1970); John Reiner & Co. v. United States, 163 Ct. Cl. 381, 325 F. 2d 438 (1963), cert. denied, 377 U.S. 931 (1964).

In Nesbitt v. United States, supra, the court held that even if plaintiff’s contract be deemed, as alleged, to be a contract for all of the Government’s requirements, the Government could still have placed orders elsewhere, on a partial termination for convenience from time to time; and that the omission to invoke the termination clause “makes no difference and that the clause nevertheless sets the limit on any recovery.” 170 Ct. Cl. at 669, 345 F. 2d at 585. The case is thus particularly apposite, for the convenience-termination clause in the contract here also permits termination “in whole, or from time to time in part.” 32 CFR § 8701(a) (1969) subparagraph (a), April 1966 text.⁵

Alleged lost profits aside, there remains the operating loss of $34,831.72 suffered by plaintiff at its Clearfield branch in the year of the third, 1969-70, contract.

By the reasoning of Nesbitt v. United States, supra, plaintiff is in the position as if from time to time during the third contract the Depot notified it of a partial termination to the extent of a particular order placed with GSA for boxes which should, under the contract, have been ordered from plaintiff. Such a partial termination would surely not have required plaintiff to abandon performance. The Government was in reality and in the hypothetical partial, repeated terminations, insisting upon performance by plaintiff. “Reasonable commercial judgment” required that plaintiff continue performance. Northern Helex Co. v. United States, 197 Ct. Cl. 118, 129, 455 F. 2d 546, 553 (1972).

In establishing its plant at Clearfield, in preparation for the Government’s orders, plaintiff is to be analogized to the contractor who buys a bulldozer to perform a Government contract which is then terminated for the Government’s convenience. Appeal of Grimsrud, ASBCA No. 7971,1962 BCA ¶3562.

The plant was established on the strength of the award of the third contract, and closed in less than 6 months, with a loss of $34,831.72 for lack of orders. It would not bave been established without the contract and its promise of all the Depot’s box purchases for a year. Plaintiff had no right, of course, to expect further contracts, but it could and did expect that the Government’s business would enable it to break even, at the new plant, in the year of the contract; meantime other business might be found. That the expectations were not unreasonable is shown by the volume of the GSA’s purchases for the use of the Depot, $466,720.98. Had this business come to plaintiff, the reasonable profit, at 10 percent, would have approximated the losses suffered.

The Government argues that since a substantial part of the $446,000 worth of boxes was ordered in the first 2 months of the contract, before the Clearfield plant became operational in mid-November, 1969, the arithmetic of hypothetical profit for the Clearfield plant shows that it would have lost $2,000 even had it received the business diverted to GSA. Perhaps so, but with the larger volume of business, the plant would not have closed in March 1970, when it did, and in the months following March might well have netted $2,000 and more from private business. Such de mmkrms calculations as the Government relies upon are beside the point— which is that the plant was established — reasonably so and at the urging of the Government — in preparation for the performance of the work under the contract. In consequence, when the plant was forced to close in 6 months, for lack of Government orders, in breach of the contract, its operating loss is a fair approximation of the “initial costs and preparatory expense,” within the meaning of the convenience-termination clause.⁶ The result is no more a penalty or damages for a tort or for consequential damages than any conventional award of out-of-pocket losses for breach of contract or an allowance, in an administrative termination settlement, of substantial preparatory costs, economically wasted by reason of an early convenience termination.

It is immaterial to the stated result that such orders as were placed were communicated to plaintiff’s main plant at Ontario, California, and that $70,000 of the $106,000 in orders placed after the Clearfield plant became operational were in fact filled at the Ontario plant. The loss at Clearfield was hardly deliberate or self-inflicted to buttress the case for breach. Plaintiff doubtless planned to fill some orders at its main plant, and it cannot be expected that the main plant should have been entirely deprived of what business there was, in favor of the new branch plant. Had the Depot ordered from plaintiff the boxes it required, the additional orders would doubtless have been filled at Clearfield.

It may be said that the analogy to Appeal of Grimsrud, supra, is not entirely apt, that the equation of the operating loss with allowable “preparatory expense” is not exact, or that some more refined basis exists for computing plaintiff’s “preparatory expense.” The answer to such doubts can only be that the use of the amount of the operating loss as a measure of initial costs and preparatory expense is a reasonable and the best possible method for computing damages, on the limited record presented. As such, it is sufficient basis for a verdict. It is difficult and perhaps impossible to apply the allowable-costs convenience-termination rules literally in judicial proceedings for a determination of breach-of-contract damages. Analogies must be used, and leeway allowed to absorb the strains inevitable in a judicial inquest into damages under a set of rules written for an administrative negotiation. G. L. Christian & Associates v. United States, 160 Ct. Cl. 1, 17, 312 F. 2d 418, 427, rehearing denied, 160 Ct. Cl. 58, 320 F. 2d 345, cert. denied, 375 U.S. 954 (1963), rehearing denied, 376 U.S. 929, 377 U.S. 1010 (1964), 170 Ct. Cl. 902, cert. denied, 382 U.S. 821 (1965); Manloading & Management Associates, Inc. v. United States, 198 Ct. Cl. 628, 461 F. 2d 1299 (1972), 203 Ct. Cl. 725 (1973). Especially is this so in the unusual case presented in which the preparatory expenses are not the costs of preliminary work on a single job in an existing and continuing plant, but the losses suffered when a whole plant is established to perform one piece of work and closes with a loss when the work is not forthcoming.

This is still a breach of contract case, though damages are to be determined under the convenience-termination clause. In estimating damages, this court “occupies the position of a jury under like circumstances.” Specialty Assembling & Packing Co. v. United States, 174 Ct. Cl. 153, 184, 355 F. 2d 554, 573 (1966). Judgment against a liable defendant for damages suffered is not to be withheld for inability to compute the damages precisely; mathematical precision is not essential to the determination. Eastman Co. v. Southern Photo Co., 273 U.S. 359, 379 (1927); Brand Investment Co. v. United States, 102 Ct. Cl. 40, 44, 58 F. Supp. 749, 751 (1944), cert. denied, 324 U.S. 850 (1945). In the absence of a more reliable method of determining damages, the amount of the verdict in a bench trial, whether comprising “initial costs and preparatory expense” or more traditional elements of damages, may, therefore, be as unarticulated — as approximate or, even, as subjective — as a verdict by a jury.

On these principles it is concluded that $34,831.72, the amount of the first year operating loss at the Clearfield plant, is a “fair and reasonable approximation” of the damages, such as a termination settlement officer might allow, or, if not, then in any event such as a jury might award. Specialty Assembling & Packing Co. v. United States, supra; cf. WRB Corp. v. United States, 183 Ct. Cl. 409, 425 (1968).

Plaintiff is entitled to recover $34,831.72.

FINDINGS OF FACT

1(a). Plaintiff is a closely-held California corporation, organized in 1967, with its principal office and place of business at Ontario, California, about 40 miles east of Los Angeles. It is engaged in the manufacture of boxes of various sizes, principally from sheets of corrugated fiberboard.

(b) The majority of the outstanding stock of the plaintiff corporation is owned by William J. Warren, its president, and Edward F. Hansen, its vice president. Both Mr. Warren and Mr. Hansen testified on behalf of plaintiff.

2. The contracting agency involved in the case is the Defense Depot Ogden, Utah (DDOU), in these findings called the Depot, a facility of the Defense Supply Agency, Department of Defense. The function of the Depot, at the relevant times, was, on receiving material release orders from the various defense supply centers for military supplies, to select, pack and ship the needed supplies. For supplies such as electronic equipment, clothing, textiles and general supplies, the Depot had a world-wide mission — that is, it responded to orders from the military throughout the world.

3(a). Suit is brought for breach of three consecutive contracts for the supply of boxes, awarded by the Depot to the plaintiff in 1967, 1968 and 1969, each for a period of 1 year.

(b) The first contract, No. DSA-003-68-C-008, awarded July 26,1967, and herein called the 1967-68 contract, covered only Schedules VI and VII of the seven schedules in the solicitation, a minor part of the entire solicitation.

(c) The second, No. DSA-003-69-C-008, awarded July 31, 1968, and called the 1968-69 contract, covered only Schedule VII of the seven schedules in the solicitation, also a minor part of the solicitation.

(d) The third, No. DSA-003-70-D-0126, awarded September 3, 1969, and called the 1969-70 contract, covered Schedules III-VI of the six schedules of the solicitation, a large part of that solicitation and the only substantial award of the three.

4(a). All three contracts were what is known as requirements-type contracts.

(b) The 1967-68 contract contained the following provision on the subject of requirements:

THIS IS A REQUIREMENT TYPE CONTRACT FOR FIBERBOARD BOXES. THE CONTACTOR WILL BE REQUIRED TO FURNISH THE SUPPLIES ORDERED DURING THE LIFE OF THE CONTRACT IN THE QUANTITIES ORDERED WITHIN THE LIMITATIONS SPECIFIED HEREIN. THE GOVERNMENT WILL BE OBLIGATED TO ORDER FROM THE CONTRACTOR ALL OF ITS REQUIREMENTS OF THE ITEMS PROVIDED HEREUNDER THAT MAY IN THE JUDGEMENT [sic] OF THE CONTRACTING OFFICER BE REQUIRED DURING THE CONTRACT TERM.

(c) Both the 1968-69 and the 1969-70 contracts contained the following provision:

REQUIREMENTS: (1966 OCT)

a. This is a requirements contract for the supplies or services specified in the Schedule, and for the period set forth therein. Delivery of supplies or performance of services shall be made only as authorized by orders issued in accordance with the clause entitled “Ordering”. The quantities of supplies or services specified herein are estimates only and are not purchased hereby. Except as may foe otherwise provided herein, in the event the Government’s requirements for supplies or services set forth in the Schedule do not result in orders in the amounts or quantities described as “estimated” or “maximum” in the schedule, such event shall not constitute the basis for an equitable adjustment under this contract.

b. Except as otherwise provided in this contract, the Government shall order from the Contractor all the supplies or services set forth in the Schedule which are required to be purchased by the Government activity identified in the “Ordering” clause.

c. The Government shall not be required to purchase from the Contractor, requirements in excess of the limit on total orders under this contract, if any.

There is no provision in either the 1968-69 or the 1969-70 contract which would make operative the “except as otherwise provided” clause in the foregoing subparagraph (b).

(d) The 1969-70 contract contained a further subpara-graph under REQUIREMENTS, not appearing in the 1968-69 contract, providing as follows:

e. If delivery of any quantity of an item covered by the contract is required by reason of urgency prior to the earliest date that delivery may be specified under this contract and if the Contractor will not accept an order providing for the accelerated delivery, the Government may procure this requirement from another source.

5(a). Provisions for minimum and maximum orders and delivery time are set out below. The major provision as to which an issue has been raised is that which required delivery in 14 calendar days (in the first contract) and 10 working days (in the second and third contracts) of the maximum of 6,000 boxes which could be required in any delivery.

(b) The first, 1967-68, contract. (1) The contract contains the following with respect to maximum and minimum quantities and deliveries:

MINIMUM AND MAXIMUM REQUIREMENTS.

a. Orders will not be placed for less than the minimum or in excess of maximum quantities shown in the schedules of any specific size except as provided in para. c. below.

b. The maximum contract quantity that the Government can require the contractor to deliver in the initial delivery or subsequent deliveries against the delivery order shall be as follows:

$ $ ‡ ‡ ‡

2. Schedules * * * VI, and VII— * * * 6000 boxes of a specific size or a total aggregate quantity of 6000 boxes per day for Schedules * * * VI, & VII.

c. Subject to acceptance by the contractor, orders may be placed for less than the minimum or in excess of the maximum requirements as provided above. If contractor fails to reject such orders within 24 hours after receipt, such failure will constitute acceptance by the contractor. Rejection of any such order will relieve the Government of its obligation hereunder and will permit purchase of the rejected quantitities from other sources.

VARIATION IN QUANTITY: A variation in quantity of plus or minus 5% will be allowed as to any single item order.

(2) Delivery of the daily maximum of the 6,000 boxes, or less, was required to be made within 14 calendar days, as follows:

DELIVERY SCHEDULES:

Delivery is REQUIRED to be made in accordance with the following:

APPLICABLE TO SCHEDULES * * * VI, AND VII:

‡ ‡ ‡ ‡ ‡

b. It is * * * mandatory that on any individual order exceeding 6000 boxes, delivery of the first 6000 boxes shall be effected within 14 calendar days after placement of order. Additional deliveries thereof will be made at the rate of not less than 6000 of each individual size ordered each 24 hours after the date of the initial delivery of 6000 boxes.

(c) The second, 1968-69, contract. (1) The contract contains the following with respect to maximum and minimum quantities and deliveries:

DELIVERY ORDER LIMITATIONS:

(a) Minimum Order: When the Government requires boxes covered by this contract less than the minimum quantities indicated in the schedules of any specific size, the Government shall not be obligated to purchase, nor the contractor obligated to furnish the boxes under this contract.

(b) Maximum Order: The Contractor shall not be obligated to deliver, in the initial delivery or subsequent deliveries, in excess of the quantities as follows:

*****

3. Schedules * * * VII — 6000 boxes of a total aggregate quantity of 6000 boxes per working day.

(c) Notwithstanding the foregoing, the contractor shall honor any order received which exceeds the maximum order limitations set forth above unless the order or orders which exceed the maximum limitations are rejected within 24 hours after receipt, together with notice of intent not to make shipment of the items called for and the reasons therefor. Upon receipt of this notice, the Government may secure supplies from another source.

(d) The Government is not required to order a part of any one requirement from the contractor when such requirement exceeds the maximum order limitations set forth in “b” above.

(2) In this contract, delivery of the daily maximum of 6,000 boxes, or less, was required to be made within 10 working days, as follows:

DELIVERY SCHEDULES:

Delivery is REQUIRED to be made in accordance with the following:

*****

APPLICABLE TO SCHEDULES * * * VII:

b.It is * * * mandatory that on any individual order exceeding 6,000 boxes, delivery of the first 6000 boxes shall be effected within 10 working days after placement of order. Additional deliveries thereof will be made at the rate of not less than 6000 of each individual size ordered each 24 hours after the date of the initial delivery of 6000 boxes.

(d) The third, 1969-70, contract. (1) The contract contains the following with respect to maximum and minimum quantities and deliveries:

DELIVERY ORDER LIMITATIONS (1965 AUG)

a. Minimum Order: When the Government requires supplies covered by this contract in an amount of less than the minimum quantities shown in the schedule of any specific size the Government shall not be obligated to purchase nor the contractor obligated to furnish any supplies under this contract.

b. Maximum Orders: The contractor shall not be obligated to honor:

* * * * *

2. Schedules III through VI:

(a) Any order for a single call in excess of 12,000 boxes.

(b) Any order for a combination of calls in excess of 12,000 boxes, or

(c) A series of orders from the same ordering office in the course of 4 calendar days which in the aggregate call for quantities to the extent that the aggregate is in excess of the limitations provided in a and b above.

c. Notwithstanding the foregoing the contractor shall honor any order received which exceeds the maximum order limitations set forth above unless the order or orders which exceed the maximum limitations are returned to the issuing office within 5 calendar days from the date of issue thereof, together with written notice of intent not to make shipment of the item called for and the reasons therefore [sic]. Upon receipt of this notice the Government may secure the supplies from another source.

d. The Government is not required to order a part of any one requirement from the contractor when each requirement exceeds the maximum order limitations set forth in “b” above.

(2) Delivery of 6,000 boxes (half the daily maximum of 12,000 boxes, or less) was required to be made within. 10 working days, as follows:

DELIVERY SCHEDULE: (Applicable to Schedules III thru VI)

Delivery is REQUIRED to be made in accordance with the following:

*****

b. (1) Orders for 6,000 boxes or less of each separate call to an aggregate quantity of 6,000 boxes shall be delivered at destination within ten (10) working days after receipt of a call.

(3) As noted above in connection with the requirements provisions (finding 4(d)) this contract also provided that if delivery of an item covered was required by reason of urgency, prior to the date which might under the contract be specified, “and if the Contractor will not accept an order providing for the accelerated delivery, the Government may procure this requirement from another source.”

6. Each of the three contracts incorporated by reference the termination-for-convenience clause of April 1966 required by ASPR 7-103.210, 32 CFR .§ 7.103-21 (c), and set out in ASPR 8-701a, 32 CFR § 8.701(a) (1969).

7(a). For some time prior to the award of the third contract, Mr. A. J. Bybee, the head of the procurement branch at the Depot, and also the contracting officer on the three contracts with plaintiff, and other depot officers had solicited plaintiff and other box manufacturers to locate a branch plant in the Salt Lake City-Ogden area, near the Depot, in the interest of promoting competition and facilitating the Depot’s procurement of boxes.

8(a). Plaintiff was willing, if it could get enough business from the Depot to support such a plant. The amount of business under the contracts prior to the third contract was, however, insufficient. On the award of the third contract, plaintiff felt there would be enough business to support a branch plant and it acceded to the solicitation of the Depot.

(b) Thus, following the award on September 3, 1969 of Schedules III through VI of the 1969-70 contract, a large part of the solicitation, plaintiff established a branch plant at Clearfield, Utah, 15 miles from the Depot in Ogden. Plaintiff expected that the costs of the plant would be covered, in the first year, 'by the Depot’s business, that is, that the plant would be supported by the business under the third contract, for the period of the contract.

9. Clearfield, Utah, was selected because in plaintiff’s conversations with the Depot personnel it had appeared that there was only one source of containers in the local area. While plaintiff’s officers expected that the Depot business would support this branch plant, they hoped to develop business from other sources, such as other military and Air Force bases in the area.

10. Since plaintiff’s hid on the third contract had specified its plant at Ontario, California, as the place of performance, plaintiff advised Mr. Bybee of its decision to locate a plant at Clearfield and arranged for a modification of the contract to permit performance either at Ontario or at Clearfield. The modification was effective November 18, 1969, and the plant became operational at about that time. Plaintiff did not expect to perform the contract solely at Clearfield.

11. While the Depot ordered boxes from plaintiff under all three contracts, it did not by far order all of the boxes it needed and used, and it did not use plaintiff as a source of supply to be drawn upon first. All during the time of the three contracts, the Depot, before it would place orders with plaintiff, would first procure boxes (of the kind covered by the contracts with plaintiff) from General Services Administration (GSA), particularly from GSA Denver, which, pursuant to a system to be described, stocked boxes to meet the Depot’s forecasted requirements.

12. During the third contract the volume of the Depot’s orders to plaintiff was $146,099. In the same period the Depot ordered boxes of the same type from GSA whose manufacturers’ price to GSA was $466,720.

13. The Depot’s procurement of boxes from GSA took place pursuant to a GSA program for common buying of supplies, in large quantities, for federal agencies at their instance. The supplies were stocked in GSA stores and warehouses and distributed to agencies, as were the boxes now involved, on request by stock number listed in a GSA catalog or stock list of items which have been standardized for central GSA procurement. There is no contention or evidence that plaintiff had actual notice of the system of procurement by GSA for the Depot, except such legal notice as it may have had by virtue of regulations quoted below in finding 28.

14. The GSA purchasing and warehousing system is not supported by appropriations, but by a revolving fund, maintained by payments for supplies by the using agencies sufficient to enable GSA to “break even.” The Depot paid such a “break-even” price for the boxes it received from GSA.

15(a). On receipt, from the storage and transportation branch, of a requisition for boxes, the Depot’s supply branch would at the relevant times first check its own shelves to see whether it had the necessary boxes on hand. If the boxes were not on hand the branch ordered them from GSA, provided (1) they were of a size and style stocked by the GSA and (2) GSA could meet the necessary delivery requirement,

(b) If GSA were unable to furnish the boxes in the time required, the supply branch would arrange to have the boxes fabricated in the Depot’s own box shop (some were made there) or, more often, request the Depot’s procurement branch to purchase them, in the case of the boxes of the kind under the contract then in effect.

16(a). Requisitions for supplies from commanders in the field would designate a priority for shipment. High priorities for shipments to Southeast Asia were more frequent during the period of the first two contracts than during the third, but they accounted for a substantial number of the boxes used by the Depot during all three contracts.

(b) The materials release order, whose receipt by the Depot initiates a shipment, repeats the priority given on the original requisition. The Depot’s storage and transportation branch then selects the stock described in the requisition, and places a requisition with the supply branch for the particular size and style of boxes necessary to package the items for shipment.

17(a). The supply branch had two procedures for obtaining boxes from GSA, one for emergency needs — that is, requiring delivery within 15 days — and the other for routine needs.

(b) For an emergency need, a technician in the branch would telephone the GSA regional office in Denver to determine whether the boxes were available from GSA. GSA in Denver would then screen its computer listings to see whether the boxes were available, and, if so, where.

(c) If the boxes were available at the GSA warehouse in Clearfield, Utah, only 15 miles from the Depot in Ogden, GSA would authorize their release by telephone and the boxes would be delivered, possibly on the same day as ordered, by GSA truck or by a Depot truck sent from Ogden.

(d) If the boxes were available in the time required, the Depot’s supply branch would do the paper work and follow up the telephone order with a completed requisition.

(e) When GSA Denver advised the Depot that it could not meet a 15-day delivery requirement, the Depot would arrange to fabricate the boxes in the Depot’s box shop or, more often, obtain the needed boxes through the procurement branch, under a requirements-type contract such as the outstanding contract with plaintiff.

18 (a). The procedure for boxes needed in a routine period such as 30 or 45 days was for a requisition for the boxes to be mailed to the GSA regional office in Denver.

(b) On receipt of the requisition, if the boxes were not available in the sense of being physically on hand, GSA Denver would backorder, i.e., it would send the Depot’s supply branch a status report indicating that the boxes were already on order from a GSA supplier and stating when GSA could make delivery. The Depot’s supply branch, in turn, would advise the requesting office of the promised delivery date and inquire whether such delivery was acceptable. If the delivery offered was not acceptable the supply branch would cancel the order and have the procurement branch place an order for the boxes under the existing requirements-type contract.

(c) The Depot had few cancellations of such orders to GSA during the period here involved, because the spaced deliveries by GSA’s suppliers were seldom so far apart as to prevent the routine needs from being satisfied.

19(a). GSA procured the boxes which it supplied to the Depot, pursuant to contracts with suppliers providing for 70-day delivery. Purchases were made regularly, under these contracts, as GSA’s shelf stocks were depleted by Depot and agency orders. Thus purchases were made in advance of Depot orders, and not to fill a particular order.

(b) Orders were placed, and automatically reviewed by a computerized system when shelf stocks reached a set level, so as to keep on hand sufficient stock to meet the forecasted needs of the Depot and any other agencies using the GSA’s system. The forecasts of anticipated demand were based on data concerning past use, furnished by GSA and periodically revised.

(c) In this manner GSA was able to meet the Depot’s orders for 15, 30 and 45 day delivery though its contracts with suppliers required only 70-day delivery.

(d) Under this system GSA in the 3-year period involved met the Depot’s needs for most of the boxes in use by the Depot, leaving for procurement from the plaintiff only boxes which GSA could not supply in the time required and boxes not supplied by GSA at all and on the schedules of the contract with plaintiff — this last category called, by a Depot witness, the “cat and dog” boxes.

20. GSA records, which may not be complete, show that in the three periods corresponding to the three contracts between the Depot and plaintiff, the total price to GSA of the boxes bought for the Depot, of the kind covered by the contracts with plaintiff, was as follows:

$42,218.34 in 1967-68 (5 months)

45,409.50 in 1968-69

466,720.98 in 1969-70

21(a). In the year of the third contract plaintiff’s main plant at Ontario, California filled $40,000 in orders placed before the Clearfield plant was opened, and $70,000 of the $106,000 in orders placed thereafter. The total of the Depot’s orders from plaintiff under the third contract was, as noted above, $146,099.

(b) The Clearfield plant was thus virtually idle. Government orders in sufficient volume were not forthcoming. It did a gross of $54,350,91, filled $36,000 of Depot orders and closed tlie following March, in tbe spring of 1970, with a net operating loss of $34,831.

22(a). Some time prior to the solicitation of the third contract on July 24, 1969, Mr. Bybee had become concerned over what on the stand he called a possible “confusion” and “misunderstanding” from the requirements clause in use. After consultation with counsel, the following “Note” was drafted and added to a solicitation for a similar contract issued in August 1970:

With reference to paragraph (b) of above Requirements Clause, [the same clause as appears in the third contract, see finding 4(c)] boxes available from Government Agencies will not be ordered under this contract. [Emphasis in original.]

(b) Mr. Bybee testified that the Note was intended to clarify the contracting process theretofore in effect, not to alter the existing procurement practices.

(c) The Note appears in an invitation, not in dispute in this case, issued August 7, 1970. It does not appear in the invitation to bid on the third contract, issued, as noted above, on July 24,1969.

23(a). Plaintiff was late in its delivery — required within 10 working or 14 calendar days of the order — of more than 78 percent of the orders placed with it. According to the agency’s rating system, its performance was “poor” or “very poor” on more than 50 percent of its deliveries.

(b) GSA Denver had a better record than plaintiff in meeting delivery requirements. GSA delivered 61.6 percent of the orders in 14 days or less; the plaintiff delivered only 23.65 percent of its orders in the same number of days. GSA’s advantages were its system of warehousing in advance to meet the Depot’s requirements, the costs of which the Depot or GSA presumably paid, and the fact that GSA was not called on to provide the Depot with a type of box known as special full flap (SFF), especially difficult and time-consuming to make.

24(a). Of all the boxes ordered by the Depot from plaintiff, 35.4 percent were the special full flap (SFF) containers. None of these were ordered from GSA. An unusually large number were ordered from plaintiff, more than had been expected, although the orders were permissible under the contract.

(b) These SFF boxes were more profitable to the manufacturer than the more commonplace regular slotted containers, but also more difficult to manufacture.

(c) There were available on the market special machine attachments for the simplified making of SFF boxes. Plaintiff did not invest in such a machine. The record does not show an economic relationship between the price of the machine and the circumstances obtaining.

(d) The manufacture of SFF boxes in the quantities ordered by the Depot created a strain on plaintiff’s manufacturing facilities which resulted in delays in deliveries of not only the SFF boxes but also other boxes.

25. Factors, in addition to the difficulties in making SFF boxes, causing late deliveries, were 1) delivery time from plaintiff’s plant in Ontario, California to the Depot in Ogden, Utah and 2) delivery time in ordering fiberboard, in a time of short supply.

26(a). Mr. Bybee testified that in his opinion the Depot’s mission and the frequency of high priority shipments to Southeast Asia, including Viet Nam, during the time of plaintiff’s three contracts were such that the Depot could not have tolerated on all its box orders such poor delivery performance as plaintiff’s overall record indicates.

(b) There is no evidence that this view was shared by officers senior to the witness or more competent than he in the matter, or that he or others urged plaintiff to hasten its deliveries, other than by the address to plaintiff of three default notices, all of which were cured in the time specified.

(c) Mr. Bybee did not cancel or terminate the contract because of the late deliveries. His reason was that better delivery could not have been obtained elsewhere.

27. The reason for the preference in orders which was given to GSA over plaintiff was not plaintiff’s delivery-time performance but a belief that the purchases from GSA were required by regulations set out in the following finding.

28(a). Depot personnel testified that in their practice of ordering boxes from GSA while the contracts with plaintiff were in effect they were acting in compliance with regulations, namely, DSA Regulation 4140.39, DSAM 4140.2 and DSAM 5335.1. All were introduced in evidence; only one, DSA Regulation 4140.39, bears a date, June 13,1969. All are described by the Government as internal, that is, not published in the Federal Register or elsewhere publicly.

(b) There is no evidence that plaintiff had knowledge of these regulations prior to entering into any of the contracts.

(c) The Government in its post-trial brief relies on the latter two of these regulations, DSAM 4140.2 and DSAM 5335.1, and contends that they were issued presumably to implement Armed Services Procurement Regulation (ASPR) 5-201, 32 CFR § 5.201 (1969), set out below in this finding.

(d) The personnel who testified to the regulations they believed required them to order boxes from GSA despite the contracts did not know of a provision of ASPR on the subject.

(e) The first of the three internal regulations, DSAR 4140.39, provides as follows:

DEFENSE SUPPLY AGENCY

Headquarters

Cameron Station

Alexandria, Virginia 22314

DSAH-OP

13 Jun 69

DSA REGULATION

No. 4140.39

AUTHORIZATION FOR LOCAL PURCHASE OF DSA CENTRALLY PROCURED ITEMS

I. PURPOSE

To prescribe policy guidance and responsibilities for the authorization of requisitioning organizations local purchase actions for DSA centrally procured items.

III. SCOPE

This DSAR is applicable to HQ, DSA and Defense Supply Centers (DSCs).

II. GENERAL

A. Background. Procurement of DSA-managed items is performed on both a centralized and decentralized basis under the provisions of DoD, DSA, and Military Services regulations. DSA centrally procured items are those items for which DSCs are responsible for supplying customer requirements through centralized procurement as the normal method of supply. Under certain conditions a DSA centrally procured item may be obtained by a requisitioner through a local purchase action. The criteria established herein were developed to identify these conditions.

B. Policy

1.Local purchase of any DSA centrally procured, commercial-type item, except drugs, pharmaceuticals and subsistence, is authorized at the option of the using/requiring organization, without referral to DCSs provided the following criteria apply:

a. The procurement is for an emergency, immediate-use requirement.

b. The procurement line item value does not exceed $2500.00.

ifc * * ❖ #

4. Local purchase actions under the provisions of this DSAB will be included in demand data accumulated for centrally-procured items.

5. DSCs will not return requisitions to using/requiring organizations for a local purchase action for DSA centrally procured items.

C. Definitions

1. D8A Centrally Procured Items. Items centrally procured by the DSA Manager for supply support of all authorized requisitioners. DSA-managed items designated for centralized procurement are assigned Supply Status Codes 1,8,4,5,6 or 8.

2. DSA-Hanaged Items. Items managed by the DSA Manager normally for DoD as a whole, and which are either centrally procured by the DSA Manager or are decentralized to the using Military Services for local procurement.

3. DSA Manager. A DSC having responsibility for management method determination to the effect that the item of supply is centrally managed by the DSA Manager for DoD as a whole, or that the item is decentralized to the using Military Services for local procurement from the General Services Administration or commercial sources.

4. Local Purchase. The action of a requisitioning or using activity to purchase, for its own use or for use by supported units, items of supply authorized for local purchase from commercial sources.

This DSAR supersedes DSAR 4140.39 24 Oct 68, and Change 1.

* * * ¡Ü *

(f) The second of the two internal regulations, DSAM 4140.2, one of the two relied upon by the defendant in its post-trial brief, provides in relevant part as follows:

d. Eequisitioning/requiring activities have the option of taking local purchase action for any DSA-integrated managed, centrally procured item, commercially available, provided:

(1) Such actions are limited to immediate use requirements generated by emergency conditions such as a work stoppage, or

(2) Such actions for a routine requirement were determined to be the most economical method of supply and the total line item value does not exceed $10.00.

(g) The third of the two internal regulations, DSAM 5335.1, the second of the two relied upon by the defendant in its post-trial brief, provides in relevant part as follows:

a. Normally DSA activities will obtain supplies and equipment by requisitioning on the supply distribution system. Local purchase of centrally managed items, if available off the shelf from commercial sources, will be accomplished when authorized under the provisions of DSAM 4140.2 or when authorized specifically by the central item manager. General Services Administration (GSA) and Defense Logistics Services Center (DLSC) excess listings are a primary source of supply.

(h) ASPE 5-201, 32 CFE §5.201 (1969), 28 Fed. Eeg. 12562 (Nov. 23,1963), provides as follows:

§ 5.201 Procurement from General Services Administration stores depots.

It is the policy of the Department of Defense that for an item which has been decentralized for local purchase and which is available from the General Services Administration stores depots, such items will be ordered from the Depots unless delivery requirements cannot be met. The mandatory provisions of Department of Defense, General Services Administration Interagency Purchase Assignments (§ 5.1201-7) are not applicable to decentralized items which are within these assignments and which are available from the stores depots. Such items will be ordered in accordance with the above stated policy. [28 F.R. 12562, Nov. 23,1968]

29(a). By letter dated October 23, 1969, Mr. Warren, plaintiff’s president, protested an invitation to bid issued by the Depot on October 17, 1969, shortly following the award of the third contract to plaintiff. The invitation for bid asked for bids on a contract to furnish fiberboard boxes on a 24-hour delivery schedule.

The invitation was subsequently withdrawn to avoid conflict with plaintiff’s contract.

Mr. Warren’s letter, addressed to Jack Fairclough, Esq., counsel to the Depot, took the position that the invitation of October 17,1969 was a violation of the requirements provisions of the contract with plaintiff, under which, he wrote, plaintiff “has a legal and completely binding contract to provide all the government’s requirements as clearly authorized in the contract.”

The letter stated as follows:

1. It is my opinion that the above mentioned Invitation for Bid is in direct conflict and violation of the existing contract issued to Inland Container Inc. (Contract #DSA-003-70-C-0010) [sic]. The existing contract which Inland now has provides very clearly on Page 13 under “Requirements” (1966 Oct) paragraphs a, b, c, d, e, f and g that Inland Container Inc. is obligated to supply and the government is obligated to buy “all the supplies or services set forth in the schedule which are required to be purchased by the Government.”

Paragraph e. specifically states that under urgent conditions, the government must first request Inland Container Inc. to meet the urgent delivery requirement and upon our refusal, may have the option to procure the requirement from another source. We are currently aware and have evidence that this provision of our current contract has been violated repeatedly. Inland Container Inc. desires to know what corrective action and or consideration will be made by the government to rectify these past and all future flagrant violations of our agreement. I believe Inland Container Inc. has a legal and completely binding contract to provide all the government’s requirements as clearly outlined in the contract. Should any new contract or agreement be attempted which clearly conflicts with the existing contract to the extent that Inland Container Inc. is deprived, after due consideration, preparation and performance, of the legal right to manufacture and deliver the requirements legally contracted for sufficient grounds would be established for legal action to prevent such an act.

(b) On the following day, October 24, 1969, Mr. Warren sent a further letter to Mr. Fairclough, amplifying plaintiff’s objection to the published invitation:

I would like to further clarify my recent letter to you regarding the type of legal action contemplated by Inland Container Inc. should the government award any new contract which violates the terms of our existing contract.

Inland Container Inc. will immediately file suit against the government for profits lost as a result of being illegally deprived of our right to manufacture the goods called for and legally contracted for by the government in our existing contract.

(c) The Depot’s counsel, Mr. Fairclough, responded on October 28, 1969. tie wrote that the protested invitation would be amended to make it “clearer” that orders would be placed under the complained-of contract only if plaintiff under its contract refused the order calling for delivery in 24 hours.

Eeference is made to your letters of 23 and 24 October 1969, in which you protest the issuance of subject invitation in view of your requirements contract, issued pursuant to IFB DSA-003-70-B-0016.

You first question said invitation because of a conflict in the Depot’s duty to order boxes under your contract when a second contract is contemplated for the same boxes. The note on page 11 of IFB 0119 was to obviate any such conflict by causing orders to be placed under IFB 0016 first and under IFB 0119 only if the initial contractor could not deliver in 24 hours.

In order to make this clearer IFB 0119 is being amended as follows:

“NOTE: The Government shall not be required to order from any contractor hereunder unless delivery is required, in 24 hours and the contractors under IFB DSA-70-B-0016 have refused such order calling for delivery in 24 hours.”

* * * * *

With reference to your letters the foregoing information is considered to be ample reply to all objections you have voiced and your protests as to the issuance of IFB 0119 are rejected.

Intermediate Conclusions on Liability

30(a). The procurements by the Depot of boxes from and through GSA were purchases to fill requirements through GSA as an agent. The procurements were not merely acquisitions from a sister agency of supplies on the latter’s shelf, for GSA bought to meet the Depot’s forecasted needs. A purchase to meet requirements is no less so because done by an agent in advance of the need, on the basis of a forecast of requirements. GSA’s purchases for use by the Depot were purchases by the Depot.

(b) The episode of the Note drafted by the contracting officer at about the time of the execution of the third, 1969-70 contract, and designed to explain that boxes “ordered” from other agencies would not be purchased under such a contract as plaintiff held (finding 22), but nevertheless not added to the contract with plaintiff, shows an understanding by the Depot that the contract was reasonably to be read as including the requirements of boxes actually being satisfied by procurement from GSA.

(c) The exchange of letters between the general counsel of the Depot and plaintiff concerning an invitation to bid on boxes to be delivered in 24 hours, issued shortly after the effective date of the third, 1969-70, contract shows that the Depot well understood the third, 1969-70, contract with plaintiff as requiring that orders for boxes to be delivered within 24 hours were required to be offered to plaintiff. This was not done; instead needs for such boxes were filled by procurement from GSA.

(d) The procurements from GSA were purchases of boxes “required” and “required to be purchased” (finding 4(c)) within the meaning of the contracts in suit. The purchases from GSA were therefore presumptively in breach of the contracts with plaintiff, subject to any merit in the defenses made.

31(a). None of the four regulations (set out in finding 28), relied upon by the Government as directing or dictating the practice of procurement from GSA, required or directed that when boxes were under contract with a private source, as was here the case, the boxes should nevertheless be ordered from GSA in preference to being ordered in accordance with the contract.

(b) The three DSA regulations relied upon were internal to the Defense Supply Agency and plaintiff had neither actual nor constructive notice of them. They relate to “central procurement” of “DSA-managed items” of supply and to authorization for “local purchase” of such items. They have not been shown to he applicable to the instant case. It has not been made to appear that the procurement here involved was the kind contemplated by the regulations.

(c) The fourth regulation relied upon was published in the Code of Federal Eegulations, and plaintiff thus had constructive notice of it. The regulation does not, however, affect the construction of the contracts with plaintiff, require disregard of its obligations, or give notice of the practice engaged in by the Depot of acquiring boxes from GSA before ordering under a private direct contract with a manufacturer such as was here in effect. Moreover, this regulation, too, relates to “local purchases” and the procurements here involved have not been shown to he such as to be subject to the regulation.

(d) The four regulations are neither justification for nor defense to the presumptive breach.

32. (a) The defense based on plaintiff’s late deliveries has not been established. The contention of defendant that the urgent mission of the Depot in connection with the war in Southeast Asia did not permit the toleration of plaintiff’s tardiness is rejected as not proven.

(b) The evidence on which it is based is found not to be probative. The underlying opinion testimony is self-serving, post-facto testimony; the opinion testified to is not shown to have been the opinion of officers more senior than the contracting officer for boxes, and it was neither recorded nor communicated to plaintiff at the time.

(c) Evidence that the defendant did not, at the time, believe that plaintiff’s tardiness was not acceptable is to be found in the fact that the remedies for late delivery provided in the contract were not utilized. Such defaults as occurred were cured, in the three instances in which 10-day letters were addressed to plaintiff on account of late delivery, and defendant did not find it needful to invoke other or further remedies for tardiness. Defendant deliberately withheld termination on the ground of late deliveries, because it would have been inconvenient and useless to go elsewhere; better delivery could not have been obtained from other sources.

(d) The instances of plaintiff’s tardiness in meeting delivery requirements were tolerated and acquiesced in. The defendant is thereby deemed to have waived the late deliveries.

33. At all relevant times, the plaintiff was ready, willing and able to perform under the contracts. In particular, during the period of the 1969-70 contract, plaintiff’s Clearfield plant, established to handle expected business from the Depot, was idle for substantial periods, and had a great deal of unused capacity.

34. The Government breached the contract and is liable for damages according to law.

35. The damages are to be computed in accordance with the termination-for-convenience clauses in the contracts. Profits lost to the contractor — that is anticipatory profits — are not recoverable under such convenience-termination clauses.

36(a). In the 5-month period of March-July 1968, towards the end of the period of the first, 1967-68, contract, the dollar volume of the Depot’s purchases through GSA of boxes required by the contract to be purchased from plaintiff, was $42,218.34. While the record does not contain comparable figures for the remainder of the period of the first contract, it is reasonable to extrapolate these figures backwards over the prior 7 months, to arrive at a total for the 12 months of $101,324.04 as the amount of the Depot’s purchases elsewhere of boxes covered by the contract with plaintiff.

(b) In the period of the second, 1968-69, contract the dollar volume of tbe Depot’s purchases through GSA of boxes required by the contract to be purchased from plaintiff was $45,409.50.

(c) The claim by plaintiff to a 10 percent profit on the business lost to it by reason of defendant’s breach, amounting to $10,132.40 on the first contract and $4,540.95 on the second contract, would be reasonable were anticipatory profits recoverable under a convenience-termination clause.

37(a). There is no evidence in the record of the expenses or costs of the Ontario plant in the period of the first two contracts or of any other costs, payments or profits during that period allowable under the convenience-termination clauses in those contracts.

(b) Accordingly, plaintiff has not proved any recoverable damages for the breach of the 1967-68 and 1968-69 contracts.

38(a). (1) In the period of the third, 1969-70, contract, the dollar volume of the Depot’s purchases through GSA required by the contract to be purchased from plaintiff was $466,720.98.

(2) This sum should be reduced by $16,797.41 to $449,923.57 on account of the Depot purchases below the minimum orders under the third contract, and thus not required to be purchased from plaintiff.

(3) The reduced sum of $449,923.57 should further be reduced by 15 percent to $382,435.03, on account of freight charges, which under the third contract were to be borne by plaintiff, leaving the sum of $382,435.03 as the dollar volume of the business lost to plaintiff by reason of defendant’s breach of the third contract.

(b) Plaintiff’s claim to a 10 percent profit on this business, lost to it by reason of defendant’s breach, or $38,243.50, would be reasonable were anticipatory profits recoverable under the convenience-termination clause.

39. There is no evidence in the record of any costs, expenses and payments during the period of the third, 1969-70, contract allowable under the convenience-termination clause in the contract, other than the plaintiff’s operating losses at its branch plant at Clearfield, Utah.

40. Plaintiff established the branch plant in Clearfield, induced to do so by direct encouragement of responsible Depot personnel and on the basis of its rightful expectation of performance of the third, 1969-70, contract. While plaintiff hoped to get some non-Government business, it expected the Depot’s business to carry the plant in the 1-year period of the contract. The Clearfield plant may therefore be treated, for purposes of the termination-for-convenience clause, as established in preparation for the performance of the third contract. Since the plant closed in less than 6 months, for lack of orders, the loss suffered at the plant may, therefore, be treated as initial costs and costs preparatory to performance, allowable under the governing convenience-termination clause, the April 1966 edition set out in 8 CFR § 8.701 (a) (1969).

41. In fact, for lack of Government orders, the Clearfield plant remained totally or partly idle for substantial periods and it was shut down, in March 1970, with an operating loss as follows:

Material_ $40, 792. 03

Direct Labor_ 13, 004. 63

Administrative Expense (as corrected; see defendant’s pretrial submission) (Managerial salaries, clerical salaries, office equipment rental $500)_ 17, 048. 00

Rent_ 3, 250. 00

Salaries_ 1, 834. 80

Taxes and Licenses_ 149. 65

Utilities_ 500. 00

Repair and Maintenance_ 1, 140. 50

Depreciation_ 1, 333. 28

Plant Supplies_ 496. 60

Equipment Rental_ 300. 00

Gasoline and Oil_ 1, 629. 92

Truck Rental_ 500. 00

Travel and Entertainment_ 2, 357. 24

Telephone and Telegraph_ 847. 17

Stationary and Supplies_ 228. 22

Postage_ 60. 00

Subscription and Dues_ 19. 33

Professional Fees_ 81. 38

Interest_ 2,021.98

Business Debts — Bad Debts_ 834. 41

Miscellaneous-»,_ 753. 49

- $89, 182. 63

Gross Income_ 54, 350. 91

Operating Loss_ $34, 831, 72

42(a). There being no better evidence of preparatory costs in the record, the operating loss of $34,831.72 is in the circumstances a reasonable equivalent of the unreimbursed preparatory costs for the performance of the contract allowable under the termination-for-convenience clause. These circumstances include the following:

(1) Plaintiff was in part induced by the Depot to establish the plant to perform the Depot’s work, and in part by its expectation of the business.

(2) Plaintiff expected that the Depot business would carry the plant in its first year; had the Depot met its obligations, the expectation would have been realized. Had the $466,000 or $382,000 of orders that went to GSA been given to plaintiff, as the contract required, the profit at 10 percent would have more than defrayed the plant’s operating expenses, kept the plant in operation and avoided the loss. This is not said by way of supporting an award to plaintiff of its lost profits, but rather to confirm the reasonableness of treating the costs of the plant lost to plaintiff as an expense incurred in the preparation for the performance of the contract.

(3) The plant was actually established to perform the contract, went idle and was shut down with a loss in the amount stated, for lack of Depot orders.

(b) (1) No doubt is cast on the conclusion in the foregoing subparagraph (a) by reason of the circumstances that plaintiff filled at its Ontario plant $70,000 of the $106,000 in orders received after the Clearfield plant became operational. Finding 21. Work for both plants was doubtless the expectation; had the Depot met its obligations work for both plants would have been provided; and when orders did not come, it could not be expected that plaintiff would deprive its parent headquarters plant of what work there was.

(2) Nor is the conclusion made doubtful by the fact that plaintiff did approximately $19,000 worth of non-Government business at the Clearfield plant. The plant was established to perform the contract with the Government and plaintiff expected that the Government’s business would carry the plant.

(3) Such items as the cost of “interest” and “entertainment” in foregoing finding 41, ordinarily not allowable in convenience-termination proceedings, will not be deducted from the loss to be allowed because (a) they were incurred, and were verified in the Government’s audit, (b) no objection has been made, (c) interest may be allowable in proper circumstances, where a loan was devoted entirely to performance of the contract, as in the findings in Manloading & Management Associates, Inc. v. United States, 203 Ct. Cl. 725 (1973), (d) entertainment may have been proper, as a cost of non-Government business which lessened the plant’s loss, and, finally, (e) because the items of cost listed in finding 41 are not being allowed for their intrinsic nature, as such, but as elements in an overall operating loss at the plant, established in preparation for performance of the contract.

43. In these circumstances, the sum of $34,831.72 is therefore a reasonable amount, in the nature of a jury verdict, to be assessed against defendant as the damages for its breach of the 1969-70 contract with plaintiff.

CONCLUSION OF LAW

Upon the foregoing findings of fact and opinion, which are adopted by the court and made a part of the judgment herein, the court concludes as a matter of law that plaintiff is entitled to recover of and from the United States and judgment is therefore entered for plaintiff in the amount of thirty-four thousand eight hundred thirty-one dollars and seventy-two cents ($34,831.72).

1 The first, 1967-68, contract provided:

“THIS IS A requirement TYPE CONTRACT POR FIBERBOARD BOXES. THE CONTRACTOR WILL BE REQUIRED TO FURNISH THE SUPPLIES ORDERED DURING THE LIFE OF THE CONTRACT IN THE QUANTITIES ORDERED WITHIN THE LIMITATIONS SPECIFIED HEREIN. THE GOVERNMENT WILL BE OBLIGATED TO ORDER FROM THE CONTRACTOR ALL OF ITS REQUIREMENTS OF THE ITEMS PROVIDED HEREUNDER THAT MAY IN THE JUDGEMENT [sic] OF THE CONTRACTING OFFICER BE REQUIRED DURING THE CONTRACT TERM.”

2 The second and third contracts, for 1968-69 and 1969-70, provided: “* * * the Government shall order from the Contractor all the supplies * * * -which are required to be purchased by the Government activity identified in the ‘Ordering’ clause.”

3 Ҥ 5.201 Procurement from General Services Administration stores depots.

“It is the policy of the Department of Defense that for an item which has been decentralized for local purchase and which is available from the General Services Administration stores depots, such items will be ordered from the Depots unless delivery requirements cannot be met. The mandatory provisions of Department of Defense, General Services Administration Interagency Purchase Assignments (§ 5.1201 — 7) are not applicable to decentralized items which are within these assignments and which are available from the stores depots. Such items will be ordered in accordance with the above stated policy. [28 F.R. 12562 Nov. 23, 1963]”

4 “e. If delivery of any quantity of an Item covered by the contract Is required by reason of urgency prior to tbe earliest date that delivery may be specified under this contract and if the Contractor will not accept an order providing for the accelerated delivery, the Government may procure this requirement from another source.”

5 “(a) The performance of work under this contract may be terminated by the Government in accordance with this clause in whole, or from time to time in part, whenever the Contracting Officer shall determine that such termination is in the best interests of the Government. Any such termination shall be effected by delivery to the Contractor of a Notice of Termination specifying the extent to which performance of work under the contract is terminated, and the date upon which such termination becomes effective.”

6 32 CFR § 8.701(a) (1969) subparagraph (e)(ii)(A), April 1966 ed. provides as follows:

“(11) The total of—

“(A) The costs incurred In the performance of the work terminated, including initial costs and preparatory expense allocable thereto, but exclusive of any costs attributable to supplies paid or to be paid for under paragraph (e) (1) hereof