Before PHILLIPS, BRATTON, and HUXMAN, Circuit Judges.
This was an action to recover extra wages and taxes paid to electricians in the performance of the electrical work required in the construction of a government hospital at Brigham City, Utah, known as Bushnell General Hospital. A rather detailed statement of the facts is necessary to present the legal problems involved in this appeal. The plaintiffs will be referred to as the Electric Companies and the defendants as the Contractor.
On May 1, 1942, the government, through the War Department, entered into a fixed-fee construction-management contract with the Contractor for the construction of the Bushnell Hospital. The contract provided that the Contractor should furnish the labor, materials, tools, machinery, equipment, facilities and supplies not furnished by the United States, and management services necessary for the completion of the hospital, for which the government agreed to pay a fixed fee of $105,000 for their services. The performance of the contract was subject in all respects to the supervision, direction and instruction of the Contracting Officer of the government. The contract authorized the Contractor to enter into subcontracts with the approval of the Contracting Officer, but provided that in so doing the Contractor could not bind the government. The contract further provided that the Contractor should be reimbursed for such expenditures in the performance of the work as were approved by the contracting office, including expenditures for materials, labor, and subcontracts. The government reserved the right to pay directly to the subcontractors all sums due them for labor and materials under the subcontracts. The contract required the Contractor or any subcontractor to pay all mechanics and laborers compensation at wage rates not less than those determined by the Secretary of Labor, regardless of any contractual relationship existing between the Contractor, the subcontractor and the mechanics and laborers, and that all wage rates should be approved in writing by the contracting office. It further provided that all disputes arising under the contract should be decided by the Contracting Officer, whose decision should be in writing, subject to appeal by either party to the Chief of Engineers, whose decision was final and conclusive on the parties thereto.
On May 11, 1942, the Electric Companies entered into a subcontract with the Contractor in which they agreed to furnish all labor, materials, tools, machinery, and all other requirements necessary for the completion of the electric requirements at the hospital, subject to the general supervision of the Contractor, for all of which they were to receive a lump sum of $111,019.14 as their compensation. The subcontract recited that they had read and were familiar with the prime contract and with the respective rights and liabilities of the Contractor and the government thereunder. The subcontract provided that the Electric Companies should be paid directly by the government and that it was subject to renegotiation on written demand by the Secretary of War, and that any amounts found to represent excessive profits should be eliminated therefrom. A schedule attached to the main contract fixed the base rate of pay for electricians at $1.25 per hour. The Electric Companies were cognizant of this schedule and used this rate of pay in figuring the amount of their bid under the subcontract.
On May 26, 1942, after the Electric Companies had entered upon the performance of their contract, the District Engineer at Salt Lake City in charge of construction, received a teletype advising all interested parties that the rate of pay for electricians was raised to $1.50 per hour effective as of May 25. The teletype was signed "Chief of Engineers, by Captain Jacobs." All the parties to the subcontract were advised by the district office of the receipt of this teletype. The Electric Companies continued to pay electricians at the rate of $1.25 per hour. Representatives of the government returned their payroll or wage reports with a statement that the pay to electricians was too low and thereafter refused to accept their payroll reports until the wage was increased.
This increase in the wage rate was discussed with Captain Flandro, a United States Army officer in charge of the project, and with M. W. Lippman, project manager for the Contractor. The Electric Companies were ordered to put the increased wage rate into effect. This they refused to do until they had it in writing that they would be reimbursed for the difference. On August 10, 1942, Captain Flandro wrote and following letter to the Contractor: "Gentlemen: You are hereby instructed to notify your plumbing and electrical sub-contractors that as of May 26, 1942 they should pay their electricians and plumbers respectively $1.50 per hour for straight time." Upon receipt of this letter, on August 11, 1942, Lippman, project manager for the Contractor, wrote the Electric Companies the following letter:
"Gentlemen: 1. This is to notify you that as of May 26, 1942, you are to classify Electricians at $1.50 per hour, for straight time.
"2. On the completion of the Project, if definite evidence can be shown that you figured your work at a lower scale, your Company will be reimbursed for the difference. The reason for delaying this action until the completion, is that a wage adjustment can be made at the same time as the re-negotiation audit. * * *
"Cahill Engineers, Limited,
The authority of Lippman as project manager to represent the Contractor is clearly established.
Upon receipt of Lippman's letter the Electric Companies increased the wages retroactive to May 26, 1942. On December 9, 1942, the Electric Companies submitted a statement to the Contractor for the additional sums thus expended by them. This claim was approved by the Contractor's project manager and was sent in regular course to the government for payment. Payment was refused by the local pay-master and the claim was then submitted to the Comptroller-General, who likewise refused to pay the claim, holding that the United States was not liable. Thereafter, this suit was ...