U.S. Government Printing Office Office of the General Counsel Contract Appeals Board Appeal of Schlosser / Stromberg, Joint Venture CA-76-6 April 14, 1977 Vincent T. McCarthy. Chairman Jay E. Eisen, Member Drew Spalding, Member This is an appeal filed on May 24, 1976, by Schlosser/Stromberg, Joint Venture, 2400 51st Place, Hyattsville, Maryland 20781 (herein referred to as the contractor), under the disputes clause of the contract GPO, Phase II-Contract No. 5750, Clause 5, Standard Form 23-A. The Office of General Counsel is the Public Printer's representative for the determination of appeals under the disputes clause. 1. Findings of Fact a. This contract called for the construction in the improvement of air-conditioning and related services at the United States Government Printing Office, Washington, D.C. b. The parties to the Joint Venture arrangement are designated as W. M. Schlosser Company, Inc. (hereinafter referred to as Schlosser), and Stromberg Sheet Metal Works, Inc. (hereinafter referred to as Stromberg). Certain portions of the work were contracted by the joint venture to third parties other than Schlosser and Stromberg. c. The appeal arises from the issuance of several change orders pertaining to the contract. The amount in dispute is based on a claim by the contractor for a 10% commission of the total cost of work allegedly performed by Schlosser and Stromberg, as subcontractors, with other than the joint venture's own forces. d. The contract contains the General Provisions for construction contracts, Standard Form 23A (March 1953), which includes Clause 3, "Changes", which authorized an equitable adjustment in the contract price in the event of the issuance of change orders. It also contains Clause 23, "Equitable Adjustments", in the GSA Form 1139, April 1968, Section 0010, General Conditions as follows: "23. EQUITABLE ADJUSTMENTS 23.1 The provisions of the Changes Clause of Standard Form 23-A, General Provisions, are supplemented as follows: . . . 23.1.2 The maximum allowable overhead, profit and commission percentages, given at the end of this paragraph, shall be considered to include, but not be limited to, insurance other than that mentioned in this 'Equitable Adjustments' clause, bond or bonds, use of small tools, incidental job burdens, and general office expense. No percentages for overhead, profit or commission will be allowed on employment taxes under FICA and FUTA. The percentages for overhead, profit and commission shall be negotiated and may vary according to the nature, extent, and complexity of the work involved, but in no case shall exceed the following: Overhead Profit Commission "To contractor on work performed by other than his own forces -- -- 10% To contractor and/or the subcontractors for that portion of the work performed with their respective forces 10% 10% -- Not more than three percentages, not to exceed the maximum percentages shown above, will be allowed regardless of the number of their subcontractors, i.e., the markup on work subcontracted by a subcontractor will be limited to one overhead percentage and one profit percentage in addition to the prime contractor's commission percentage. On proposals covering both increases and decreases in the amount of the contract, the overhead, profit, and commission will be allowed on the net increase only." (Emphasis added.) Performance by the contractor is covered in part as follows: "32. PERFORMANCE OF WORK BY CONTRACTOR 32.1 The Contractor shall perform on the site, and with his own organization, work equivalent to at least twelve percent (12%) of work to be performed under the contract. If, during the progress of the work here under, the Contractor requests a reduction in such percentage, and the Contracting Officer determines that it would be to the advantage of the Government, the percentage of the work required to be performed by the :Contractor may be reduced with the written approval of the Contracting Officer." (Emphasis added.) e. The contracting officer denied the appellant's request for 10% commission on change order work performed allegedly by Schlosser and Stromberg as subcontractors. The contracting officer asserted that the joint venture entity itself, had no employees on-the-job, and that if the joint venture was to be treated as an entity distinct from its member firms, it would not meet the contractual requirement that the prime contractor perform 12 percent of the work on-the-job with its own forces. The contractor was willing to adjust his claim to a 5 percent commission ($10,199.33) which was rejected by the contracting officer. f. The appellant avers that it is entitled to its markup commission as an indirect cost based on the fact that valid subcontracts existed between the joint venture and Schlosser and Stromberg, and that these contracts amounted to arms length transactions between separate entities. Appellant stressed that the joint venture is an entity separate and apart from its constituent elements; that it did have unique overhead, separate and distinct from the overhead of its constituent elements and is, therefore, entitled to the commission on all change orders involving work subcontracted to its constituent elements in the same manner as if the subcontractor were a third party. Appellant further contends its unique expenses included costs associated with coordination of subcontractors, office expenses and the salaries of the project supervisor and the field superintendent. II. Opinion In order to resolve this dispute it is necessary to decide whether appellant's concept of an equitable adjustment and the proffered evidence established to the Board's satisfaction that the additional allowance in.the form of commission constitutes a cost item payable as an equitable adjustment pursuant to a change order for work performed for.the contractor "by other than his own forces." Equitable adjustments are corrective measures utilized to keep a contractor whole when the Government modifies a contract. The purpose underlying such adjustments is to safeguard the contractor against increased costs due to the change or modification of the contract. The agreement between the Schlosser and Stromberg Corporations as indicated by the express language adopted by the parties was a joint venture. It was established as a single business adventure for joint profit, for which purpose they combined their efforts, property, money, skill and knowledge, for the limited purpose of performing the requirements set forth with regard to GPO Contract 5750. The joint venture, under the terms of the contract is authorized to enter into contracts with subcontractors, for work to be rendered towards the completion of the contract. The Schlosser and Stromberg Corporations are not entities separate and distinct from the joint venture. They are intertwined as part of the joint venture. Under the terms of General Conditions �23.1.2. a contractor is only entitled to a commission on change order work when the work is performed "by other than [its] own forces." Therefore, it is concluded that because the change order work in question was done by the joint venture's own forces, the venture is not entitled to a commission. (Emphasis added.) Generally, the law applicable to partnership applies with respect to relation between members of a joint venture and third persons. Bushman Construction Co. v. Connor, 307 F.2d 888 (1962), 10th Circuit; Southland Corporation v. Shulman, 331 Fed.Supp. 1024 (1971), D.C. Md. 1971. It has been held that the Uniform Partnership Act (UPA) is applicable to joint ventures. Wood v. Western Beef Factory, Inc., 378 F. 2d 96 (1967), 10th Circuit. The Uniform Partnership Act, has been adopted by Congress for the District of Columbia by Section 1 of the Act, September 27, 1962, Title 41, D.C. Code, Section 308, and provides that: "Every partner is an agent of the partnership for the purpose of its business, and the act of every partner including the execution in the partnership name of any instrument, for apparently carrying on in the usual way the business of the partnership of which he is a member binds the partnership. . . ." Thus, when Schlosser and Stromberg executed the subcontracts to do the change order work, they were apparently carrying on the business of.the joint venture and were agents of the joint venture. Each being members of the joint venture, they act as agents for the other members in pursuit of the general scope of the enterprise. Taylor v. Brindley, 164 F. 2d 235 (1947), 10th Circuit. It appears, therefore, that the joint venture was attempting to do the impossible in attempting to subcontract the work to it's own constituent parts. Actually it was performing the work itself. No commission can be allowed because the joint venture performed the work in question with its own forces. We find, therefore, that the contractor's contention that the change order work was performed by other than its forces to be untenable and unreasonable. Even assuming the two corporations could be acting as separate entities, aside from the joint venture, the appellant would have breached its contract since it would not have complied with that portion of the contract which required the contractor to perform on the site with its own organization work equivalent to at least 12 percent of the total amount of work to be performed under the contract. We hold that the contractor is not legally entitled to any commission claimed as additional compensation. This appeal is denied.