Stanley Forman Reed

“ It is said that statutes providing for the renegotiation of war contracts indicate that in 'certain instances the government seeks to recover abnormally high contract profits.' These efforts of Congress to safeguard the public interest against unjust exactions provide no excuse for the narrow construction the Court today gives the 'cost-plus-a-percentage-of-cost' prohibition. They but emphasize the intention of Congress to devise many safeguards against unfair procurement prices which might unjustly enrich some few people at the expense of the many. ”

“ We have never decided that there may not be circumstances short of those necessary to hold private contracts illegal, under which the government may in condemnation proceedings, obtain judicial ascertainment of just compensation, despite a single contracting officer's agreement to pay more, and despite his attempted waiver of the Constitutional provision that the government need only pay 'just compensation' for land it takes for public use. ”

“ The vice of cost-plus contracts is not inherent in the vendors' contract. That vice basically is the incentive to the contractor to inflate his future costs to increase his profits since the Government is already bound to pay any future undetermined 'costs.' The amounts to be paid under petitioners' contracts are not subject to change by future action of the vendor. The Government knew the total cost when it became bound on the contract. If we read the vendors' contract as affected by the McDowell contract, no cost-plus contract emerges. ”

“ It is the Government here who pays the contingent fee and pays it not for securing a contract from the Government but a contract for the Government. The agent acts under the highest legal and moral responsibilities to his principal, the Government. There is no place for financial temptation or political pressure to influence public officials. Tendentious fraud does not exist in such a contingent contract. It may be most desirable to pay agents only in the event that they are successful in accomplishing their purpose. We are dealing here with public policy. ”

“ The evil of such contracts is that the profit of the other party to the contract increases in proportion to that other party's costs expended in the performance. The danger guarded against by the Congressional prohibition was the incentive to a government contractor who already had a binding contract with the Government for payment of undetermined future costs to pay liberally for reimbursable items because higher costs meant a higher fee to him, his profit being determined by a percentage of cost. ”

“ Such official failures are not chargeable to a third party dealing with the Government in good faith. It may be unwise for the Government to pay its purchasing agent a commission which is figured on cost of purchases to the Government but there is no statutory prohibition. Since the United States is the purchaser of the land at the option price, no one can receive cost plus anything. Neither the vendors nor McDowell agrees to buy from a third party and sell to the Government at an advance. The vendors' contract has neither the form nor the vice of a cost-plus contract. ”

“ Public policy. The Government advances a further and distinct argument for affirming the judgment of the Circuit Court of Appeals that the vendors' contract is invalid. This is that the contracts of Muschany and Andrews are invalid as against public policy because of the interest of McDowell which is antagonistic to the United States and because of the contingent character of the McDowell fee, which, it is asserted, is paid by the vendors for the procurement of the contract of sale. We think that it is inadmissible to view the McDowell contract and the vendors' contracts as unrelated. ”

“ In the first place, this Court has long held 'market value' to be the proper standard of value in eminent domain proceedings, and in considering market value, it has consistently been held that landowners are not entitled to increased amounts because the government announces that it needs property in a vicinity. ”

“ The District Court escaped the necessity of making a finding as to market value by holding that market value was immaterial since 'The circumstances of this case show that other considerations were in the minds of the parties when the option was taken. The necessity of national defense had flashed upon the country. The imminence of the peril was impressive. The land must be acquired at once, without the delay incident to condemnation. ”

“ Whatever other disadvantages the cost-plus-a-fixed-fee system mat have, no incentive to raise the cost arises from the fixed fee. But when a percentage fee or compensation is provided for, which diminishes or increases in proportion to costs, there is ample motive or at least tendency to increase such costs. ”

“ This Court now holds that the government is irrevocably bound by the contracting officer's 'acceptance' of the McDowell options. And while the immediate judgment directly affects only the two pieces of property here involved, the principles announced uphold the validity of all the McDowell-procured agreements, even though the agreed cost stipulated in those agreements might in condemnation proceedings be judicially determined to exceed just compensation. The District Court in these two cases did not determine what would be just compensation. ”

“ Prior to consideration of the two principal issues raised by the petitioners and respondent in their arguments before this Court, it seems necessary to refer to the allegations of fraud, unconscionable dealing, bad faith and misrepresentation on which respondent relied in the trial court as invalidating petitioners' contracts. As is indicated, 323 U.S. 54-56, 65 S.Ct. 445, 446, supra, the trial court specifically found against the respondent on these issues. Nor did the Circuit Court of Appeals reverse the trial court's findings. ”

“ See Revenue Act of 1942, ch. 619, 56 Stat. 798, Title VIII Renegotiation of War Contracts-Sec. 801 (c) (6) , 50 U.S.C.A.Appendix § 1191 (c) (6) ; Revenue Act of 1943, ch. 63, P.L. 235, 78th Cong., 2d Sess., Title VII, Sec. ”