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Ni Industries Inc. v. United States

Decided: March 14, 1988.

NI INDUSTRIES, INC., APPELLANT,
v.
THE UNITED STATES, APPELLEE



Appealed from Armed Services Board of Contract Appeals.

Friedman and Davis, Circuit Judges, and Miller, Senior Circuit Judge.

Davis

DAVIS, Circuit Judge.

NI Industries, Inc. (NI) appeals from a final decision of the Armed Services Board of Contract Appeals (ASBCA or Board), ASBCA No. 30293, upholding a contracting officer's decision to deny appellant's value engineering change proposal. Concluding that the agency improperly relied on an agency rule that should have been published but was not, we reverse and remand.

I. Background

This dispute concerns an aspect of the government's value engineering change program (VECP). Under this program, a contractor may submit a VECP to the Government, proposing a change to the contract that will reduce the overall cost of contract performance to the Government without affecting essential requirements. If the agency adopts the proposed change, the submitting contractor is entitled to share in the resulting cost savings. The value engineering program is governed by the standard Value Engineering clause, Defense Acquisition Regulation (DAR) ยง 7-104.44, which was required to be included in all supply contracts exceeding $100,000.

On June 23, 1982, the United States Army Armament Materiel Readiness Command (ARRCOM) awarded basic ordering agreement DAAA09-82-G-7822 to NI for the production of pressfit and pinned eight-inch M509 steel body projectiles. On the next day, ARRCOM issued delivery order 0001 to NI for the production of 21,550 M509 projectiles. This delivery order contained the Value Engineering clause.

Following design changes to the projectile, the Army, on May 16, 1983, approved a contract change for the M509 to use threaded bases made from extruded aluminum rod -- instead of the pressfit and pinned bases -- and modified NI's contract accordingly on May 25, 1983. Throughout May 1983, NI repeatedly asked to be allowed to use aluminum forgings (instead of aluminum rods) to manufacture the threaded bases, stating that this substitution would save approximately $15 per projectile. NI also told ARRCOM of its intention to submit this cost-reduction proposal as a VECP. In the last week of May 1983, NI began preparing its written VECP.

However, at about the same time, the other manufacturer of the M509 projectile for the Army, Chamberlain Manufacturing Corp. (Chamberlain), independently thought of the same cost-saving change. On June 13, 1983, Chamberlain sent to the Army a VECP that suggested the use of forgings. On June 21, 1983, NI submitted its written VECP. On that same day (June 21, 1983), NI telephoned the ARRCOM contract specialist and told him that NI had submitted a VECP requesting the use of forgings that would save $26 per unit. ARRCOM received Chamberlain's VECP that afternoon and entered it in the ARRCOM command log. On June 22 and 23, 1983, NI sent telexes to the contracting office summarizing its VECP. On June 27, 1983, ARRCOM received NI's VECP and logged it in. Government engineers eventually determined the VECP's submitted by NI and Chamberlain to be identical, although neither contractor knew beforehand of the other's submission of a VECP.

On July 15, 1983, ARRCOM personnel met to decide how to resolve the issue of duplicate VECP's. ARRCOM's value engineering office representative stated that it was ARRCOM policy to accept or reject identical VECP's according to the date of entry into the command log. Before July 1983, neither the contracting officers, contract specialists, nor the two contractors were aware of this policy. Because ARRCOM entered Chamberlain's VECP into the command log on June 21 and NI's VECP on June 27, the value engineering representative concluded that Chamberlain's VECP should be accepted and NI's VECP should be rejected. During this meeting, Mr. Sobkowiak, ARRCOM's contract specialist for NI's contract, did not mention that NI had provided him with oral notices of its VECP on May 28 and June 21, 1983.

After Mr. Sobkowiak requested the ARRCOM legal office to review NI's VECP and the legal office sent its opinion to Janice Isenberg, the newly-appointed contracting officer for NI's contract, Ms. Isenberg notified NI that its VECP was considered to be a duplicate submission.

On September 21, 1983, ARRCOM personnel again met to discuss NI's VECP. Once more they did not discuss NI's May and June communications concerning its intention to submit the VECP and its submission of the VECP. They ultimately decided to follow ARRCOM Standard Operating Procedure (SOP) 700-2, part of an internal, unpublished set of operating procedures. Under the appendix to SOP 700-2, the VECP proposal first entered on the command log is entitled to all the savings afforded by the provisions of its contract. (SOP 700-2 embodied the ARRCOM policy which, as we have stated, was previously unknown to NI, Chamberlain, the contracting officer, or the contract specialists.) Finally, on September 24, 1983, Ms. Isenberg, the CO, issued a final decision denying NI's VECP.

NI appealed this decision to the ASBCA which denied the appeal finding that, because NI's VECP was not accepted by ARRCOM, the Board could not review the CO's decision to accept or ...


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