127 F. Supp. 591 | Ct. Cl. | 1955
delivered the opinion of the court:
The plaintiff, a trade school, sues to recover $132,206.83 for tuition and tools furnished veteran students pursuant to a contract with the Veterans’ Administration. The defendant asserts three counterclaims based on prior contracts. The plaintiff was engaged in teaching automobile mechanical courses to veterans and nonveterans in Detroit, Michigan. The plaintiff furnished instruction books, supplies and equipment to veterans under two contracts with the Veterans’ Administration (hereinafter referred to as the VA) covering the period from October 11, 1948, to March 31, 1949. The tuition rate for these two contracts was 62.5 cents per clock hour of instruction. Negotiations on the third contract, No. V3029-V-753, which was to become effective April 1,1949, began in January 1949. On February 23,1949, pursuant to the VA’s request, the plaintiff submitted cost data
During the period of negotiations for the fourth contract, V3029-V-2176, the plaintiff was operating under a memorandum agreement dated February 1, 1950, which provided that the school would be paid for services in the amounts set forth in the formal contract. It further provided that it would remain in effect until the formal contract was approved. The plaintiff requested a 75-cent tuition rate, but the VA only allowed 49’ cents stating that that was the amount determined to be fair and reasonable. The formal contract was signed on August 16,' 1950, but the VA did not finally approve' it until after September 18, 1950, after the plaintiff’s school was closed for lack of funds¡ The record' indicates that the plaintiff was under a great deal of pressure to accept the 49-cent rate, inasmuch as it was in need of funds and the VA had refused to pay the plaintiff anything for the instruction, etc., furnished under the memorandum agreement until the contract was signed. The plaintiff submitted vouchers and requested payment under the contract. On September 28, 1950, the VA paid the plaintiff $9,598.52 of its claim.
The defendant admitted in its amended answer that the plaintiff furnished instruction, etc., under the memorandum agreement and the fourth contract, and agreed at the trial that $88,777.90 is due the plaintiff under the fourth contract. Of this, $73,187.31 represents tuition at the rate of 49 cents per hour and $15,590.59 represents charges for tools.
Therefore, the only part of the plaintiff’s claim that is in dispute is the $43,444.12, which represents the difference between the 75-cent rate that the plaintiff contends it is entitled to under Public Law 610 (64 Stat. 336, 338) and the 49-cent rate that the defendant concedes is due the plaintiff.
The defendant has three counterclaims. The first is for $66,648.20, which represents the difference between the 75-cent rate paid the plaintiff under the third contract, V3029-V-753, and the 55-cent rate that the defendant contends was a fair and reasonable rate for that contract. The defendant contends that the plaintiff misrepresented the rent that it was paying and the number of students that it expected to instruct when it submitted the cost data which was used in detei’mining the 75-cent rate for the third contract, V3029-V-753. The defendant contends that Mr. McSweeny was the owner of the lease for the school premises and that he was only paying the owner $650 a month for the whole building, whereas the cost data indicated that he was paying $900 a month for half of the building. The evidence clearly does not support this contention. Kathleen E. Snider was the owner of the premises located at 3646 Woodward Avenue. She had originally leased the premises to Mr. McSweeny, but through the execution of new leases and various assign
The defendant’s contention that the plaintiff misrepresented the number of students that it expected to instruct in order to obtain a higher tuition rate is also without merit. The plaintiff was requested to submit cost data for November and December of 1948 and a 10-month projection thereof. The plaintiff projected 129,600 hours on the estimated enrollment of 100 students for 30 clock hours of instruction per week. This data was furnished on February 23, 1949. The plaintiff’s records show that there were 70 new enrollments and an average of 90 men in attendance and six absent for the month of January. They also show that there were 29 new enrollments and an average of 101 in attendance and nine absent in February. This did not represent such a sharp increase in students that would require the plaintiff to notify the YA that its 100 estimate was so inaccurate that a new tuition rate was warranted. It is true that the enrollments increased considerably toward the end of the contract. This was partly due to the YA’s request of plaintiff to take several hundred students from another school that had closed. This could not have been foreseen and we believe that the plaintiff’s estimate at the time made with the facts then available was reasonable. The defendant has not proved that the plaintiff misrepresented any material fact and its first counterclaim must, therefore, fail.
(e) Oharge. The amounts billed by the institution to the Veterans’ Administration for “supplies” rests on the following: (1) The institution will assure itself that the Veterans’ Administration is not billed at an unreasonable price. * * * (6) If the institution furnishes items of “supplies,” specifically purchased for trainees only, i. e., not handled through a book or supply store for all students, such items will be billed at cost to the institution. [38 CNR 21.539]
The plaintiff contends that the prices charged were reasonable since the plaintiff had a poor credit standing and, therefore, could not take advantage of a larger discount, and further that the above regulations were only guides in determining a reasonable price and were merged into the executed contracts. The regulations were not merged into the contracts. Article 8 of the contracts specifically provided that the terms of the contracts were subject to and governed by the VA regulations. The regulations required the plaintiff to furnish the tools to the VA at the most reasonable price that the plaintiff could obtain. The plaintiff purchased the tools from a close friend and employee, Mr. Allen, and later Mr. Allen’s corporation. Mr. Allen, and later his corporation, purchased the tools from the tool supplier at a 25 to 3314 percent discount, but charged the plaintiff the dealers’ price. The tools were delivered direct to the plaintiff since Mr. Allen had no warehouse facilities. Mr. Allen received $57,245.86 for lending his credit and the credit of his corporation which had no assets and no function
The defendant’s third counterclaim was one charging a duplication of cost. This contention, however, has been abandoned. The defendant now contends that if the second counterclaim is allowed it is entitled to the return of the 10 percent handling charges paid the plaintiff on the amount of the second counterclaim. The plaintiff was paid under Article 1, subsection (e), of the contracts, 10 percent of the tool price as handling charges. Inasmuch as we have held that the defendant is entitled to a return of $45,795 of the tool charges, it follows that it is also entitled to a return of the 10 percent handling charge thereon, or $4,579.50.
We turn now to the plaintiff’s claim relating to Public Law 610. The tuition rate paid by the VA to schools was the “customary cost of tuition” as defined by statute. If the school had no “customary cost of tuition” the VA paid a negotiated fair and reasonable rate. Section 2 of Public
* * * In any case in which one or more contracts providing a rate or rates of tuition have been entered into in two successive years, the rate established by the most recent contract shall he considered to be the customary cost of tmtion notwithstanding the definition of “customary cost of tuition” as hereinbefore set forth. [Italics supplied.]
The above-quoted section is very clear and leaves little room for argument. If the YA wanted to contract with a school that met the 2-year requirements, which the plaintiff did, it had to pay the rate of the most recent contract because
The defendant contends that if the plaintiff was entitled to the 75-cent rate, then it waived it because it accepted the 49-cent rate. We do not believe that the plaintiff has waived its right to the 75-cent rate. The plaintiff furnished its services beginning on April 1, 1950, under a memorandum agreement dated February 1,1950. This agreement provided that the plaintiff would be paid for its services in the amounts set forth in a formal contract which was to be executed. It also provided that it would remain in effect until the formal contract was approved. During the period of negotiations Public Law 610 was enacted (July 13,1950), which we have held entitled the plaintiff to the 75-cent rate. The YA took the position that Public Law 610 did not cover courses of less than 30 weeks and refused to give the plaintiff the 75-cent rate, and refused to pay the plaintiff for its services performed after April 1, 1950, until it signed the formal contract at the 49-cent rate. The formal contract was signed on August 16,1950, but was not finally approved by the YA until after September 18, 1950, the date that the plaintiff closed for lack of funds. The plaintiff contends that the formal contract, Y3029-Y-2176, never became a binding contract between the parties since it was not approved by the YA until after the school had closed. The plaintiff performed the services under a valid memorandum agreement for a rate to be established in a formal contract. Public Law 610 provided, insofar as the plaintiff is concerned, that the rate was 75 cents. The YA lacked the right and power to pressure the plaintiff into accepting a lower rate than that established by Congress. The acceptance of the lower rate
The plaintiff is entitled to judgment in the amount of $81,847.52..
It is so ordered.
EINDINGS OP PACT
The court, having considered the evidence, the report of Commissioner Paul H. McMurray, and the briefs and argument of counsel, makes findings of fact as follows:
1. Plaintiff is a Michigan corporation in the business of conducting a trade school for the teaching of automobile mechanical courses to veterans and nonveterans, having had its place of business in the city of Detroit, Michigan.
2. Joseph H. McSweeny, doing business as McSweeny Trade School, entered into two contracts with the Veterans’ Administration to furnish instruction to veterans under Public Law 16, 78th Congress, and Public Law 346, 78th Congress. One of the contracts was entered into on October 8, 1948, and the other on October 11,1948, and were numbered respectively, V3029-V-634 and V3029-V-V599. These contracts were to run for the period October 11,1948, to March 31, 1949. The charges to be paid by the Veterans’ Admin
3. On or prior to March 1,1949, plaintiff was incorporated, all of its capital stock having been issued to Joseph H. McSweeny. The corporation took over the assets and liabilities of the school and completed the contracts undertaken by the school.
4. Following the negotiations which began in January 1949 and pending approval of a formal contract to furnish instruction under Public Laws 16, and 346, 78th Congress, plaintiff and the Veterans’ Administration entered into a memorandulm agreement on March 1, 1949, pursuant to which plaintiff agreed, as of April 1,1949, to furnish instruction, books, supplies and equipment, as approved by the Veterans’ Administration, to persons designated by that agency, in the amounts to be as set forth in the formal contract. This formal contract, No. V3029-V-753 which became effective April 1, 1949, was executed by the plaintiff March 14, 1949, and by the Veterans’ Administration March 29, 1949. This contract was for a 12-month period, April 1, 1949, through March 31,1950.
5. For the purpose of providing a basis upon which a fair tuition rate could be agreed upon, plaintiff, under date of February 23, 1949, submitted certain data to the Veterans’ Administration and on March 25,-1949, plaintiff submitted further data relating to certain minor details. The contract contained a. provision that the tuition rate would be 75# per clock hour of instruction.
6. The data referred to in finding 5 was submitted to one Jack S. Newby, employed at the time as a contract officer by the Veterans’ Administration. Mr. Newby, as one of the contract officers of the Veterans’ Administration, had the assignment of obtaining cost experience data and other information to be used in the determination by certain designated officials of a fair and reasonable compensation for the services to be rendered by the McSweeny Trade School. Mr. Newby was not authorized to make such determination but could make recommendations to his superior on the subject. Under the applicable, regulations the amount of .tuition pay
(1) The customary charge, if found to be fair and reasonable.
(2) A fair and reasonable charge where the customary charge is determined not to be fair and reasonable.
Plaintiff had had no customary charge for the specific courses involved here, although plaintiff’s president, as an individual, had entered into contracts at 62.50 per clock hour, commencing October 11, 1948. It was further provided by applicable regulations that after analyzing the cost data the Manager, Eegional Office, Veterans’ Administration, should determine, on the basis of the total number of all students trained, and the cost of expense items listed in the regulations, whether the customary charges of the educational or training institution were fair and reasonable. He was required by the regulations, in making this determination, to give consideration to the fact that it is not fair and reasonable for the Veterans’ Administration to pay a charge based upon the full cost of operating an educational institution under abnormal situations, such as periods when enrollments in the institution are far below the normal capacity and expectancy of the institution, or where operating costs are greatly in excess of normal operating costs for other comparable institutions in the same locality.
7. Plaintiff submitted cost data as to Joseph H. Mc-Sweeny’s actual costs in November and December 1948, and its costs projected for the first 10 months of 1949, which projection was, necessarily under the circumstances, only an estimate. Under the item of “rental,” plaintiff showed a figure of $1,800 for the two months of November and December 1948, a rate of $900 per month, for 48 percent of the floor space of the building where plaintiff’s school was to be conducted, and a projected rental cost for the 10 months of 1949 of $11,450 for 7iy2 percent of the floor space of the building.
The projected rental cost was, for the 12-month period covered by contract V3029-V-753, less than the actual rental cost to the plaintiff for the total period óf the contract. Plaintiff expanded the space used for the school because of
Kathleen E. Snider was the owner of the premises located at 3646 Woodward Avenue. She had originally leased the premises to Mr. McSweeny, but through the execution of new leases and various assignments Mrs. McSweeny became the lessee several years before Mr. McSweeny contracted with the defendant. Mrs. McSweeny subsequently transferred the lease to a corporation of which she owned the entire stock. Mrs. McSweeny, and later her corporation, subleased 13,000 square feet of the premises to Mr. Mc-Sweeny and the plaintiff for $900 a month with an option in the sublessee to sublease the entire premises for $1,850 a month. Some of this rental was in fact paid and some is still owing. Mrs. McSweeny had been receiving rent from a subtenant of the building for several years before she subleased to McSweeny. The evidence concerning the amount of such rent is contradictory and far from conclusive. It appears that the rental for the entire building had previously been less than the amount charged to plaintiff at the beginning of the school term in 1948 for space which was not more than one-half of the entire building. The fair rental value of the entire building in 1948 was $18,000 per year.
8. The cost data submitted by plaintiff disclosed that during November and December 1948, McSweeny Trade School had furnished students with 5,486 clock hours of instruction. The record actually discloses that during November and December 1948 plaintiff furnished 6,668 clock hours of instruction. Thus the cost data submitted by plaintiff contained an error of 1,182 hours for attendance in November and December 1948. This mistake resulted from leaving off the last week in December due to the fact that the school had a 4-week billing period. The actual hours were 6,668 hours rather than 5,486 hours. This error did not prejudice the estimated number of hours for the 10-month so-called projected period since the 129,600 hours, which were projected for the 10-month period, were not a multiple of 5,486 hours. The error was less than one percent of the total number of
In the Summary of Cost Operations the number of hours projected for the 10-month perid extending from January 1 to October 31, 1949, was 129,600 hours. This was equivalent to an estimated attendance of 12,960 hours per month, which amounted to 38,880 hours for the months of January, February, and March 1949. The actual clock hours of instruction from January 1 to March 31,1949, were 36,256 hours. It, therefore, appears that the parties overestimated the actual hours of instruction by 2,615 hours during the 3-month period January to March 1949.
In computing the hours of tuition the parties were concerned with hours of attendance and not the total number of students who enrolled or the number of different students who might be attending the school at different times during any particular period.
9. Although Mr. Newby assumed during the course of his negotiations with the plaintiff that enrollments in the school had increased after December 1948, he did not believe this fact was too material. He did not consider it proper to give much weight to the actual enrollment during the first two months of the school term as this would present a distorted picture since it was generally known that enrollments usually increased considerably after a school became organized and was functioning properly. He was familiar with the instructions contained in the Veterans’ Administration Manual M 7-5, paragraph 80, c, which reads as follows:
c. When the Manager Has Completed His Analysis of Cost Data. When the Manager has completed his analysis of the cost data, he will determine on the basis of the total number of all students trained and cost of the items listed herein after reflecting known changes in costs whether the customary charges of the educational or training institution are fair and reasonable. In making this determination, the Manager will give consideration to the fact that it is not fair and reasonable for the VA to pay a charge based on the full cost of operating an educational institution under abnormal situations, such as periods when enrollments in the institution are far*459 below the normal capacity and expectancy of the institution, or where operating costs are greatly in excess of normal operating costs for other comparable institutions in the same general locality. Contracts, when required, will be negotiated to provide payment not to exceed the amounts determined by the Manager to be fair and reasonable as provided herein.
Mr. Newby expressed the opinion that $900 per month was a fair and reasonable rent for approximately 50 percent of the total space in the building occupied by the school under the first contract. If he had known that the entire building, in which the school was housed, had been rented to a tenant prior to August 1948 for $900 per month, it would have led him to further inquiry. In negotiating this contract, Mr. Newby used the same procedure and practice that he followed in negotiating contracts with approximately 100 other schools.
10. Mr. Newby’s supervisor at the Veterans’ Administration was David M. Myers, contract supervisor. Because of lack of personnel in the contract unit to make a check of educational institutions, the Veterans’ Administration adopted a practice of accepting certified cost data submitted by schools without verification. Contract officers, such as Newby, had been given instructions, not only through Veterans’ Administration regulations, but, also by Mr. Myers, to report all known changes at schools which might affect the contract rates, and copies of the regulations containing such requirement had also been sent to Joseph H. McSweeny. Mr. Myers approved the contract March 29, 1949. Mr. Myers testified that, had he known the facts with reference to the number of clock hours of instruction plaintiff had given veterans and nonveterans in November and December 1948, the rental being paid to the owner of the school property and the increase in enrollments in the first quarter of 1949 over those of November and December 1948, he would not have approved the contract allowing a rate of per hour. Most of this information was available, but was not requested by anyone representing Veterans’ Administration. The contract was mailed to plaintiff March 29, 1949. A supplement to the contract was mailed to plaintiff on April 15,1949.
12. Mr. Newby had no authority to finally approve or negotiate a contract with the plaintiff, such authority was vested in three individuals in addition to the Administrator of Veterans’ Affairs, namely, the Manager of the Detroit Eegional Office, the Assistant Manager, and the Chief, Vocational Eehabilitation and Education Division of the Detroit Eegional Office.
At the time the contracts involved herein were executed, J. F. Campbell occupied the position of Chief, Vocational Eehabilitation and Education Division, and in that capacity had authority to enter into the subject contracts. Before Mr. Campbell approved contract No. V3029-V-758, it had been reviewed, together with the accompanying detailed cost data, by several other officials of the Veterans’ Administration who were superior in authority to Mr. Newby.
13. In November 1949 the Michigan Trade School, which was also training veterans in auto mechanics, was closed. The Veterans’ Administration requested plaintiff to take over part of the students who had previously received their training at the Michigan Trade School. Since it was necessary for plaintiff to increase its floor space, plaintiff opened a new
14. From November 1949 to February 1950, plaintiff received between 600 and 700 students who had formerly attended the Michigan Trade School. This influx of new students from the closed school greatly increased the number of hours of instruction beyond the amount which had been estimated and greatly increased the profit of plaintiff. After operating the branch school at 30 Webb Avenue, Detroit, Michigan, for about four months, it was closed by the plaintiff.
15. On May 17, 1951, after the petition was filed in this court, defendant sent plaintiff’s attorney a notice that it had determined that contract V3029-V-753, should have been negotiated on the basis of 550 per clock hour of instruction as a fair and reasonable rate, and enclosed with that letter a summary of its recomputation of the tuition rate. This was more than two years after the contract had been approved. The letter advised plaintiff that an overpayment of the tuition rate of 200 per clock hour of instruction existed and that the finance office would advise plaintiff as to the exact amount of the overpayment.
The difference between the amount paid to the plaintiff for 333,241 clock hours of instruction at 750 per clock hour and the amount which defendant now claims is proper, namely 550 per clock hour of instruction, is $66,648.20.
16. The plaintiff admits that an error was made in reporting the the number of clock hours of instructions for the months of October and November 1948 in that the number of
17. The contracts entered into between the plaintiff and the defendant included the following:
(1) Contract V3029-V-634 was executed and proposed to cover the period for operation of the McSweeny Trade School from October 11,1948, to March 31, 1949. By Memorandum Agreement signed by both parties on October 8, 1948, it was specified that the school would proceed to furnish instruction, books, tools, etc., effective October 11,1948, and remain in effect until a formal contract covering the services outlined in such memorandum was approved.
(2) Contract V3029-V-599 was executed November 1, 1948. This contract was likewise covered by a Memorandum Agreement to be effective October 11, 1948, and worded in the same manner as the Memorandum relating to contract V3029-V-634. Each of these two contracts provided for a 62%$ per clock hour of instruction for a 400-hour course.
(3) Contract V3029-V-753, which became effective April 1,1949, provided for a tuition rate of 75? per clock hour of instruction for a 360-hour course. This con*463 tract is the one which was reconsidered by the Veterans’ Administration and a determination made by that agency that a fair and reasonable rate of tuition was 550 per clock hour of instruction rather than 750 as provided in the original contract which was signed and approved by both plaintiif and defendant. The difference of 200 per clock hour is one item of the plaintiff’s claim for money withheld by the defendant on the theory that it constituted an overpayment based upon incomplete and incorrect cost data considered at the time the contract was negotiated.
(4) Contract V3029-V-2176 was signed on Aug. 16, 1950, covering the period from April 1, 1950, to March 31, 1951. The course included 360 clock hours of instructions at 490 per clock hour of actual instruction given.
18. Contract V3029-V-753 contained the following pertinent provisions:
Article 1. IhstructioN * * *
(d) The Contractor will furnish outright to the veteran, as needed, such books, supplies and equipment as are necessary for the satisfactory pursuit and completion of the courses as referred to in paragraph (c) above. It is understood and agreed that the books, supplies, and equipment to be so furnished will consist of those items required, but in no instance greater in variety, quality, or amount than are required by the Contractor to be provided personally by other and all students pursuing the same or similar courses.
Article 7. LimitatioN
It is understood and agreed that the terms of this contract are subject to and will be governed by, Veterans’ Administration regulations issued pursuant to Public Laws 16 and 346, as amended, and that any obligation assumed by the Veterans’ Administration under this contract is limited to the appropriated funds made available therefor.
:|i ‡ %
SCHEDULE I
6. TOOLS AND BOOKS
A tool list for the course is contained on pages 15 and 16 of Exhibit A. The prices shown for the items listed are estimated and are subject to change to reflect fluctuations in market prices.
*464 EXHIBIT A
TOOLS EEQUIEED FOE BASIC AUTO MECHANICAL COUESE HEEBEAND MECHANICS TOOL SET
pRICE bEFORE nOV. 15 1948
pRICE aFTER nOV. 15 1948
(There follows an itemized description of 103 tools witli the dealers’ price of each tool specified and showing the change in prices between the dates indicated)
19. During the period when plaintiff entered into the Veterans’ Administration contracts, the VA regulations contained, inter alia, the following two restrictions relating to charges for tools:
A. — The institution will assure itself that the Veterans’ Administration is not billed at an unreasonable price. 38 C.F.E. 21.539 (e) (1).
B. — If the institution furnishes items of “supplies” specifically purchased for trainees only, i. e., not handled through a book or supply store for all students, such items will be billed at cost to the institution. 38 C.F.E. 21.539 (e) (6).
20. At all times during the operation of the McSweeny Trade School, Inc., there were both veteran and nonveteran students. The plaintiff charged the Veterans’ Administration the same prices for tools furnished the veterans which it charged nonveterans, namely, the prices set forth in the price lists which were attached to and made part of the written contracts.
21. Between October 11, 1948, and May 26, 1950, Mr. McSweeny, as an individual, or the plaintiff furnished tools to veteran students for which the Veterans’ Administration was billed and the Veterans’ Administration paid the amount of such billings. In furnishing such billings, Mr. McSweeny or plaintiff represented that the tools had been purchased by plaintiff either from the Allen Supply Company or from the State Supply Corporation.
22. The Allen Supply Company was a trade name for C. E. Allen, who became plaintiff’s secretary and treasurer
23. Mr. C. E. Allen was first affiliated or associated with Mr. McSweeny in 1942 in connection with the Trade School operated in Cincinnati, Ohio. After engaging in various types of employment and enterprises, Mr. Allen again went with Mr. McSweeny on a full-time employment basis at the McSweeny Trade School in March 1949. Prior to March 1949 he had worked part-time for Mr. McSweeny. He participated on behalf of the McSweeny Trade School in the negotiations leading to the execution of the contract dated March 14, 1949, V3029-V-753, and prepared most of the cost data on which the tuition rate was predicated.
Mr. Allen was employed by the school either part-time or full-time when he was personally obtaining the benefit of
The relationship between the McSweenys and Allen was extremely close. The record fails to disclose, however, that Mr. McSweeny, the McSweeny Trade School, or the defendant, were credited with any portion of the discount allowed on tools sold for the use of the school.
Mr. McSweeny’s credit standing was not as good as that of C. E. Allen at the time and the firm which sold tools for the use of the school, namely, the Stuart Tool & Service Company, preferred to deal with Mr. Allen.
In making arrangements for the purchase of tools for veteran students, plaintiff did not assure itself that the Veterans’ Administration was billed at reasonable prices for such tools.
Mr. McSweeny or the plaintiff could have purchased the tools from other sources at a larger discount, notwithstanding his or its poor credit position, because of the fact that the Veterans’ Administration was indirectly paying for the tools. The discount would not have been as much as 25 to 33ys percent. It is found, from a consideration of the whole record, that the tools could have been purchased by Mr. McSweeny or the plaintiff, directly, or through Allen, for a discount of at least $45,195.
24. All the contracts, except contract V3029-V-2176, contained the following provision for compensation to the contractor for tools furnished:
Article 1. * * *
(e) At prices charged the institution, except that it is understood and agreed that the institution in submitting vouchers for books, supplies, and equipment furnished*467 to veterans may add to the total of each such voucher 10% of the total as compensation for handling and issuing of such material. A charge of $0.25 will be allowed as a handling charge for each Government surplus book issued. The 10% handling charge shall not apply to Government surplus books.
Joseph H. McSweeny and plaintiff billed the Veterans’ Administration and received on account of such billings $18,-761.61 as handling charges on the sale of tools pursuant to contract V3029-V-753. This contract, as drafted and approved, contained the above provision providing for an an allowance of 10 percent for handling charges on the sale of tools. This same provision was inserted in the two other contracts, V3029-V-599 and V3029-V-634, executed prior to the negotiation of contract V3029-V-753. Basic authority for such handling charges is contained in Veterans’ Administration Eegulations published in Manual M7-5 Par. 80 (d) Change 4, dated May 17,1948, and Change 10, dated February 21,1949.
25. The Veterans’ Administration, in its contract made August 16,1950, V-3029-V-2176, provided as follows:
6. Books and tools :
$ $ $ $ $
f. It is further understood and agreed that where the enrollment in the institution or course involved consists solely or primarily of veterans pursuing the course under the provisions of Part VII and Part VIII, Veterans Regulation 1 (a) as amended, the Veterans Administration will pay for books, supplies, and equipment, including tools, at a price the particular item may be' purchased in a competitive market. It is agreed that the Contractor will submit or make available to the Veterans Administration such data and information as will clearly indicate to the satisfaction of the Veterans Administration that the agreed amount to be paid by the Veterans Administration for items necessary for veteran training under Part VII and Part VIII is no greater^ than the lowest price at which such items can be procured in a competitive market. Acceptable bids will show prices for items delivered to the school (i. e., f. o. b. the school) and also will show all trade discounts. Where tools, supplies, and equipment are purchased by the Veterans*468 Administration for veterans who are training on-the-job, which are the same or comparable to those required by the school to be furnished by veterans, the Contractor agrees that one of the bids will be from such a Veterans Administration designated supply source. After the Veterans Administration has determined that the items will be furnished to veterans at reasonable prices in accordance with the foregoing, the Contractor may select the source of supply. It is further agreed that only the amounts and kind of tools, supplies and equipment which normally are required by well established schools offering the same or similar instruction and which are essential to the training process will be provided for training of veterans under Part VII and Part VIII, as amended.
g. It is further understood and agreed that the Veterans Administration will not pay a marked up price to the institution (whether or not within retail or list price) where the supplies have been procured from or through a dummy corporation or other affiliate of the institution, but will pay for such supplies at an amount not in excess of the cost thereof to such dummy corporation or affiliate.
Plaintiff submitted vouchers to the Veterans’ Administration for tools supplied to veterans in training under the aforesaid contract. The amount of these charges is $15,-590.59, which has not been paid by the Veterans’ Administration and constitutes part of the amount for which plaintiff is suing herein. The plaintiff also submitted vouchers to the Veterans’ Administration for tuition at the rate of 490 per hour. The amount of these vouchers unpaid is $73,187.31 and constitutes part of the amount for which plaintiff is now suing.
26. During the period of negotiations for the fourth contract, V3029-V-2176, plaintiff was operating under a memorandum agreement dated February 1,1950, which provided that the school would be paid for services in the amounts set forth in the formal contract. During the period of these negotiations plaintiff was incurring a large expense in the payment of salaries and rent and other disbursements in connection with operating the school. On July 13,1950, Public Law 610, 81st Congress, became effective under the terms of which schools could be paid 75 percent of the amount of current invoices for tuition during the period of negotiations. The Veterans’ Administration held that Public Law 610,
From April 1 to September 18,1950, the Veterans’ Administration paid no part of the tuition or tool cost charged by the plaintiff for the training of veterans. It was during this period that Mr. C. R. Allen loaned plaintiff the sum of $10,000 which he borrowed from the Industrial National Bank in order that the plaintiff might have funds to continue operating the school. The record shows that the plaintiff was under pressure to accept the 490 rate inasmuch as it was in need of funds and the Veterans’ Administration had refused to pay the plaintiff anything for the instruction, etc., furnished under the memorandum agreement until the contract was signed.
27. After contract V3029-V-2176 was signed on August 16, 1950, plaintiff proceeded promptly to submit invoices to the Veterans’ Administration for tuition which had not been paid by the Veterans’ Administration. The first of these invoices was submitted in August 1950. On or about September 18, 1950, the auditing department of the Veterans’ Administration informed plaintiff that it had been instructed to hold up payment and, since plaintiff’s funds were exhausted and its accounts payable in arrears, the McSweeny Trade School was closed September 18, 1950. After the school was closed, plaintiff received payments on September 28,1950 totaling $9,598.52.
28. For several months after the school was closed, plaintiff and its attorney endeavored to obtain payment óf the invoices from the Veterans’ Administration or a statement as to why the payments were being withheld. The only answer plaintiff received was that the Veterans’ Administration was recomputing some charges for rent, instructors’ salaries, and tools, but no definite statement was furnished as to when plaintiff might expect a settlement of the account.
The balance of plaintiff’s claim is for the sum of $43,444.12, representing a claim for tuition at the 260 per hour rate under Public Law 610 of the 81st Congress. This 260 per hour is the difference between the 490 rate set forth in the last contract, V3029-V-2176 and the 750 rate of the previous contract, V3029-V-753.
29. Defendant by counterclaim seeks reimbursement as follows:
Under the first counterclaim:
Tuition: paid at 75$ per hour instead of the claimed fair rate of 55$ per hour, resulting
in claimed overpayment of- $66,648.20
Under the second counterclaim:
Tools: on which C. R. Allen, as Allen Supply Company and State Supply Corporation, received discounts of- 57,243.86
Under the third counterclaim:
Handling Chakge fob Tools :
Contract V3029-V-753 — claimed the 10% handling charge on amount of excess billing for tools of- 5, 724.39
Total_$129, 616.45
If all of defendant’s counterclaims are allowed, they should be reduced by the admitted total of outstanding unpaid vouchers for tuition and tools under contract Y3029-Y-2176 of $88,777.90.
30. In considering the defendant’s first counterclaim it is found that the cost data and other information, which was furnished defendant as a basis for determining the tuition rate per clock hour of instruction in contract V3029-V-753, was incomplete and in some instances inaccurate. Certain errors and omissions have been admitted by the plaintiff and explanations of how they occurred offered. The record is not deemed sufficient to establish fraud by the plaintiff or a deliberate intent to withhold pertinent data for the purpose óf obtaining a'more favorable contract. The contract officer representing the Veterans’ Administration failed to properly discharge his responsibility in that he did not obtain the available data necessary to enable him or his superiors to check the accuracy of the’ cost data submitted by the plaintiff.- Those-who had the authority to approve of disapprove the proposed contract admitted that they accepted the data submitted by the school without attempting to verify its accuracy; Tt was stated by one or more of defendant’s wit
The attempt to recompute and redetermine the tuition rate came long after the mutually approved contract had been completed on the part of the plaintiff. The proposed reduction in the tuition rate was not a “negotiated” adjustment.
It is not established that the requested tuition rate of 99.2$ per clock hour of instruction, which was reduced to 75$ per clock hour at the time of approval of the contract, would have been substantially affected if no inaccuracies or omissions had occurred in the cost data submitted. Both plaintiff and defendant were dealing with a situation which was unusual, namely, attempting to arrive at a proper tuition rate on the basis of prior experience of the plaintiff when there had been but little experience which could be utilized for the purpose, namely about two months’ operation. Even when the contract was signed in March 1949, only four months of the school’s period of operation had been completed. At that time it would still have been necessary to project the figures relating to cost data for the remainder of the 12-month period and this, at best, could have been nothing more than an uncertain estimate.
31. As shown by the facts and circumstances outlined in findings 21, 22 and 23, plaintiff failed to furnish tools for use of students at the lowest rate obtainable and, accordingly, did not comply with the provisions of the applicable regulations previously set forth in finding 19. The plaintiff could have purchased the tools for $45,795 less than it charged the defendant.
32. With respect to defendant’s third counterclaim, it is observed that the charge for handling tools was authorized by a provision in the contract involved. The same provision had been included in two prior contracts between the plaintiff and the Veterans’ Administration. The contract form did not originally contain such a provision but it was typed in as a special or additional provision in all the contracts which were negotiated between the parties except contract V3029-V-2176, which particular contract was not executed until after contract V3029-V-753, on which this suit is based, was completely performed.
CONCLUSION OP LAW
Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes that as a matter of law plaintiff is entitled to recover $132,222.02 on its petition, and defendant is entitled to recover of plaintiff the sum of $50,374.50 on its counterclaim, making a net recovery for plaintiff in the sum of $81,847.52.
Paragraph 11 of part VIII of the Veterans’ Regulation Numbered 1 (a), as amended, is amended by adding at the end thereof a new subparagraph (d) as follows
“(d) As used in this part, the term ‘customary cost of tuition’ or ‘customary charges’ or ‘customary tuition charges’ shall mean that charge which an educational or training institution requires a nonveteran enrollee similarly circumstanced to pay as and for tuition for a course, except that the institution (other than a nonprofit institution of higher learning) is not regarded as having a ‘customary cost of tuition’ for the course or courses in question in the following circumstances:
“(A) Where the majority of the enrollment of the educational and training institution in the course in question consists of veterans in training under Public Laws 16 and 346, Seventy-eighth Congress, as amended; and
"(B) One of the following conditions prevails:
“1. The institution has been established subsequent to June 22, 1944.
“2. The institution, although established prior to June 22, 1944, has not been in continuous operation since that date.
“3. The institution, although established prior to June 22, 1944, has subsequently increased its total tuition charges for the course to all students more than 25 per centum.
“4. The course (or a course of substantially the same length and character) was not provided for nonveteran students by the institution prior to June 22, 1944.
“For any course of education or training for which the educational or training institution involved has no customary cost of tuition, a fair and reasonable rate of payment for tuition, fees, or other charges for such course shall be determined by the Administrator. In any case in which one or more contracts providing a rate or rates of tuition have been entered into in two successive years, the rate established by the most recent contract shall be considered to be the customary cost of tuition notwithstanding the definition of ‘customary cost of tuition’ as hereinbefore set forth. For the purpose of the preceding sentence ‘contract’ shall include contracts under Public Law 16 (Seventy-eighth Congress, March 24, 1943), Public Law 346 (Seventy-eighth Congress, June 22, 1944), or any other agreement in writing on the basis of which tuition payments have been made from the Treasury of the united States.”
38 CFB. 21.467 (c) ; 38 CFB 21.693.
This is the net amount after deduction of the $9,598.52 tuition paid plaintiff by the VA.