text:
    Robert E. DAKAN and Cecelia Dakan v. The UNITED STATES.
    No. 12-69.
    United States Court of Claims.
    Feb. 20, 1974.

      Paul E. Anderson, San Francisco, Cal., attorney of record for plaintiff. C. Henry Veit, San Francisco, Cal., of counsel.
    Joseph Kovner, Washington, D. C., with whom was Asst. Atty. Gen., Scott P. Crampton, for defendant. Gilbert E. Andrews, Jr., Washington, D. C., and Roger A. Schwarz, Washington, D. C., of counsel.
    Before DAVIS, SKELTON and NICHOLS, Judges.
   OPINION

PER CURIAM:

This case was referred to former Trial Judge William E. Day, with directions to make findings of fact and recommendations for conclusion of law under the order of reference and Rule 134(h). The trial judge has done so in an opinion and report filed November 9, 1972. All of the exceptions to the trial judge’s opinion, findings of fact and recommended conclusion of law were filed by the plaintiff and the case has been submitted to the court on oral argument of counsel and the briefs of the parties.

The issue to be decided is the plaintiff’s claim for capital gain treatment for portions of the proceeds of a sale by him of a mortgage loan correspondent business. Before us, plaintiff conceded that a portion of the $200,000 sale price, designated by him as “The right to service loans: $54,943.80” must receive ordinary income treatment. However, citing Bisbee-Baldwin Corp. v. Tomlinson, 320 F.2d 929 (5th Cir. 1963), he claims capital gains treatment for elements of the “bundle of rights” he sold, designated by him as:

Files and Records ...................... $36,600
Bank lines of credit resulting from monthly escrow deposits ...................... $10,000
The right to originate loans .............. $60,000

Defendant does not deny capital gains treatment for $26,555.65, good will, and for certain other smaller items, one of which was “Furniture, furnishings, and equipment,” $9,900.55, as described in the sales agreement. However, defendant says, and we agree, that the contract goodwill item included by its terms “the goodwill attributable to the above described assets”, i. e., to the seller’s contracts with various insurance companies, and thus included the value of profit expectations, other than the right to service existing loans, incident to future business under those contracts, i. e., bank lines of credit and the right to originate loans. Moreover, defendant says, the “Furniture, furnishings, and equipment,” item included by its terms the files and records. Thus plaintiff would add an aggregate of $106,600 to the value allocated in the agreement of sale to two capital items, correspondingly reducing the non-capital items. His argument before us that he could make the allocation he contends for without inconsistency with the sales agreement is therefore shown to be untenable, and must be rejected.

The trial judge holds that in the absence of mistake, fraud, undue influence, etc., the taxpayer is bound by the allocations he made in the sales agreement, citing Commissioner v. Danielson, 378 F.2d 771 (3d Cir. 1967), cert. denied, 389 U.S. 858, 88 S.Ct. 94, 19 L.Ed.2d 123 (1967). We have twice recently cited Danielson with approval. Davee v. United States, 444 F.2d 557, 195 Ct.Cl. 184 (1971); Eckstein v. United States, 452 F.2d 1036, 196 Ct.Cl. 644 (1971). Danielson involved an allocation in a selling agreement between stock and a covenant not to compete, and it was held or assumed that the assignment of any value to the covenant not to compete was not in accord with economic reality. It was also held or assumed that a polarity in the tax treatment of buyer and seller was required, i. e., one had to be a counterpart of the other. Thus to sustain the seller’s position would jeopardize the buyer’s enjoyment of the tax treatment it presumably had bargained and paid for.

Defendant considers there is a similar polarity here, and its counsel stated before us that the pertinent tax year of the buyer, Commonwealth, is still open and will be disposed of in harmony with our decision to be made concerning the seller. Plaintiff, however, says there is no polarity and that the buyer is not necessarily precluded from amortizing an item in the “bundle of rights” solely because the seller obtains capital gains treatment for it.

The question is not free from difficulty but we do not think the outcome of the case depends on the answer. Let us assume arguendo there is no polarity and that plaintiff is therefore not “estopped” to take a position here adverse to the buyer’s interests. The fact remains, in this case, unlike Danielson, the trier of fact made no finding that the contract allocation lacked economic reality, and no exception is taken to the omission. As said in Davee, supra, 444 F.2d at 564, 195 Ct.Cl. at 196, the court is in a less favorable position than parties bargaining at arm’s length to determine the values of the various rights involved, and it will not revise their agreement in the absence of a shocking disproportion or manifest injustice to the public treasury. As we read Danielson, it was the finding of lack of economic reality in the allocation of value to the covenant not to compete, that brought forward considerations of estoppel and unfairness to the buyer. Here, if Commonwealth’s interests are not considered, the bargained agreement of sale still fixes the kind and value of the rights transferred and the Internal Revenue Service is within its rights in following the agreement, not an ex post facto allocation that repudiates the agreement. The Bisbee-Baldwin case involved a sale without any contract allocation and it is not authority for repudiating an allocation when a contract of sale makes one.

Plaintiff says he relied on Nelson Weaver Realty Co. v. Commissioner, 307 F.2d 897 (5th Cir. 1962), which held that all proceeds of a sale of a mortgage loan correspondent business were capital gains. He believed he could disregard an express contract allocation, and that his position would not be at polarity with the buyer’s. Danielson was not yet on the books. Bisbee-Baldwin in effect overrules Nelson Weaver Realty Co., insofar as the former holds that in the absence of contract allocation the tax consequences of such a sale must be determined separately as to each one of the “bundle of rights” transferred. It may be said the degree of reliance on Nelson Weaver Realty Co., is surprising in view of the fact it was decided in a circuit other than the one plaintiff lived in, by a divided panel and with a vigorous dissent by the distinguished Chief Judge. Failure to evaluate correctly the tax consequences of a sale is not the kind of mistake that might allow the court to reform the contract for tax purposes. See, Hamlin’s Trust v. Commissioner, 209 F.2d 761 (10th Cir. 1954).

Since the court is in agreement with the opinion, findings of fact and recommended conclusion of the trial judge it hereby adopts the same, as modified and supplemented by the preceding, as the basis for its judgment in this case. Accordingly, the petition is dismissed.

The opinion, findings of fact and conclusion of law of the trial judge follow:

The plaintiff, Robert Dakari, sold his mortgage loan correspondent business to Commonwealth, Inc., in 1962 and is now before this court contesting the Internal Revenue Service’s treatment of that sale. Plaintiffs sue for a refund of $47,896.-85, plus interest accruing from 1962 to 1964, paid when the Commissioner of Internal Revenue determined that $161,543.80 of the $200,000 received from the sale of the business did not qualify for capital gains treatment and consequently had to be taxed as ordinary income. Defendant denies the substance of plaintiff’s contentions and urges that this court apply the rule that parties to a sale of a mortgage loan correspondent business be bound to the tax consequences of their agreement so as to insure the integrity of their bargain and provide for effective, predictable administration of the tax laws.

Robert Dakan operated a mortgage loan correspondent business in the San Jose, California, area as a sole proprietorship. The mortgage loan correspondent business consisted of agreements which Dakan had with three insurance companies whereby the insurance companies agreed to take over mortgage loans solicited by Dakan and Dakan agreed to offer such loans to the insurance companies and, in most cases, to perform the necessary servicing functions required by the companies after the loans had been taken over. As compensation Dakan received interest commissions each month amounting to ¥m or Yis of 1 percent of the outstanding balance of loans placed by Dakan with the particular insurance companies.

Though Dakan was entitled to commissions, he retained no ownership interest in the loans. By terms of the agreements with the insurance companies, Dakan had a general claim for commissions against each insurance company but did not have a specific lien on the loan payments due each company. The three insurance companies possessed the right, upon written notice, to terminate at will their correspondent agreements with Dakan. In addition, the agreements could not be assigned without the companies’ consent.

Dakan entered into a preliminary agreement with Commonwealth on April 30, 1962. By terms of this agreement, Dakan received an interest-free loan of $100,000 from Commonwealth and agreed to solicit and develop loans for Commonwealth in the San Jose area for the next 18 months. During this period, Commonwealth had a right of first refusal on all loans developed by Dakan. Commonwealth’s practice was to offer loans accepted by it to other lenders, including Penn and Standard, and claim all applicable servicing fees paid by these companies. At the same time, Dakan was allowed to continue to place loans with Northwestern in amounts commensurate with his previous loan placement practice and to retain all placement fees paid by borrowers, regardless of by whom these loans were taken over.

Dakan assigned all rights in his contracts with Penn and Standard to Commonwealth as security for the $100,000 loan. .Fees earned for servicing these contracts were split evenly between Dak-an and Commonwealth during the 18-month period. The loan was to be repaid quarterly from Dakan’s net earnings. Commonwealth also acquired a 3-year right of first refusal to purchase Dakan’s business.

As a result of the April 30, 1962 agreement, Standard accepted Dakan’s assignment of his servicing agreement to Commonwealth. Penn, on the other hand, cancelled its agreement with Dak-an and executed a new agreement with Commonwealth.

On January 11, 1962, Dakan requested a ruling from the Internal Revenue Service (IRS) concerning the tax consequences of a sale of his mortgage servicing business. The Service, in a reply dated August 14, 1962, declined to rule whether the proceeds from such a sale would be treated as capital gains or ordinary income. The Service, however, did note that it supported the Tax Court’s decision in Nelson Weaver Realty Co., 35 T.C. 937 (1961), where the Tax Court held that proceeds from the sale of a mortgage service business represented consideration for the transfer of a future right to receive income and consequently should be treated as ordinary income. This decision was reversed on appeal, however, before Dakan sold his business (Nelson Weaver Realty Co. v. Commissioner, 307 F.2d 897 (5th Cir. 1962)). Dakan was notified of this reversal in a September 28, 1962 letter from Mr. Samuel E. Neel, General Counsel of the Mortgage Bankers’ Association (MBA), of which Dakan was a member. The letter indicated that the Fifth Circuit Court of Appeals had ruled that a mortgage service contract, held for an extended period of time (8 years), was a “capital asset” whose sale, absent a specific contractual allocation, would require capital gains treatment. The letter concluded by pointing out that an amount paid, by a buyer for goodwill in the purchase of a mortgage correspondent business was not amortizable while an amount allocated as payment for the right to earn contract fees was amortizable as long as the service contract had a limited ascertainable life. Dakan forwarded all this information to Robert H. Andresen, counsel for Commonwealth, during the time he was engaged with Andresen in negotiating the sale of Dakan’s business to Commonwealth.

At a meeting in October 1962, between Dakan and Commonwealth representatives Andresen, Holbrook and Yaz-zalino, Dakan was informed that Commonwealth intended to amortize the portion of the sale price allocated to the contract rights. It was suggested that Dakan obtain his own counsel for guidance during the negotiations, but Dakan declined, deciding instead to rely upon the integrity of the Commonwealth representatives. In his testimony, Dakan denied that any fraud, duress, or undue influence had been brought to bear upon him to enter into the agreement with Commonwealth or that any representative of Commonwealth had ever attempted to deceive him at any time with regard to the tax effect Commonwealth was attempting to incorporate into the sales contract. Dakan executed his sales agreement with Commonwealth with full knowledge of Commonwealth’s intent to gain tax advantages from the specific terms of the agreement. In doing this, Dakan apparently was under the mistaken impression that the allocation of the purchase price for tax purposes, offered by Commonwealth and made a part of the sale agreement, would not affect his own treatment and reporting of the transaction for tax purposes.

By an agreement of November 30, 1962, Dakan sold the mortgage loan correspondent business to Commonwealth for $200,000. The agreement reviewed the terms of the April 30, 1962 agreement between Commonwealth and Dakan calling for Dakan to solicit and develop business for Commonwealth in the San Jose area for 18 months and for Dakan to assign his contract rights under the Penn and Standard contracts as security for the $100,000 loan.

The sale agreement also itemized the property and assets to be sold. Commonwealth purchased Dakan’s right to receive servicing income on the Penn and Standard loans made previous to April 30, 1962, and his right to the deferred renewal commissions on Northwestern loans made up to November 30, 1962, and thereafter. The balance of the itemization covered a lease, furnishings, supplies, and goodwill. The purchase price was specifically allocated in the contract among these assets. Individual values were assigned for the three contract rights and for the four “capital assets” mentioned above.

An immediate credit was given to Dakan for $57,500, the amount then outstanding on the $100,000 loan. The rest of the purchase price was paid to Dakan in four equal installments of $35,625 paid with interest in 1963 and 1964.

Dakan and his wife filed joint tax returns for ■ the years in question, 1962-1964, reporting the transaction on the installment basis in accordance with the provisions of § 453 of the Internal Revenue Code. Dakan reported the entire amount as gain from the sale of a capital asset. The Commissioner of Internal Revenue disallowed Dakan’s treatment and assessed deficiencies, treating the proceeds from the sale of the contract rights as ordinary income.

Dakan protested this tax treatment unsuccessfully, paid the deficiencies, and brought this action for a refund.

Whether Dakan is entitled to a refund is a question of substance versus form. The plaintiff contends that the amounts assigned to the contract rights in the sale agreement ought to be broken down so that the elements which go to make up the value of such contract rights are given their required tax treatment. For the proposition, the plaintiff relies on Revenue Ruling 55-79, 1955 Cum.Bull. 370 and Bisbee-Baldwin Corp. v. Tomlinson, 320 F.2d 929 (5th Cir. 1963), among others.

Revenue Ruling 55-79 indicates that:

For Federal income tax purposes, the sale of a going business operated as a sole proprietorship does not constitute the sale of a single asset. Such a sale constitutes a sale of the individual assets comprising the business. For the purpose of determining whether the gain on the sale of a particular asset is to be included in the gross income as an item of ordinary income or whether it is to be treated as gain from the sale of a capital asset, all of the individual assets sold must first be classified * * *.

Bisbee-Baldwin dealt with the sale of a mortgage loan correspondent business. The Fifth Circuit held that assets of a mortgage loan business included both capital and noncapital items and, consequently, such assets had to be examined carefully in order to be accorded their proper tax treatment. The court followed its practice in previous cases of describing Bisbee-Baldwin’s assets as a “bundle” of rights. See, Nelson Weaver Realty Co. v. Commissioner, supra; Commissioner v. Killian, 314 F.2d 852 (5th Cir. 1963). Part of the “bundle” which Bisbee-Baldwin sold was its right to receive annual servicing commissions on the principal balance outstanding on the mortgages. The court ruled that the consideration paid for this substantial right to receive future income should be taxed as ordinary income since it was “a substitute for the income which would have been earned by Bisbee-Baldwin had the contracts not been transferred,” 320 F.2d at 934. This holding followed the rule set out in Commissioner v. P. G. Lake, Inc., 356 U.S. 260, 78 S.Ct. 691, 2 L.Ed.2d 743 (1958) that present payments for the right to receive future income are taxable as ordinary income.

The rest of the “bundle” in Bisbee-Baldwin, however, was deemed to consist of capital assets. Among those items identified were: the value of the mortgage loan business as a “feeder” for other business, including insurance and real estate; the positive effect on the servicing agent’s credit rating caused by the monthly deposits of escrow payments in his bank account; the extensive files and records maintained by the servicing agent; and finally, goodwill — the likelihood that past and present customers will do business at the same place in the future. As the court stated in Bisbee-Baldwin, supra:

if _ -X- * * * *
These items are closely related to the everday business operations of the taxpayer. They are not so integrally related, however, as to be insusceptible of separate valuation. 320 F.2d at 935.

The plaintiff contends that the same sort of separate valuation ordered in Bisbee-Baldwin and Rev.Rul. 55-79 should be made with respect to the Dak-an-Commonwealth sale agreement. Dak-an urges that the $161,543.80 paid by Commonwealth for the contract rights be allocated in the following manner: $10,000 for the use of the escrow funds; $36,600 for the files and records; $60,-000 for the right to originate loans; and $54,943.80 for the right to service mortgage loans solicited for the three insurance companies. Under this allocation, plaintiff would be entitled to capital gains treatment on all but the $54,943.-80 allocated to the right to service the previously solicited mortgage loans.

In advocating such treatment, however, plaintiff disregarded the important differences between his case and Bis-bee-Baldwin. No agreement between the parties, such as was made between Dakan and Commonwealth, existed in Bisbee-Baldwin; nor was there a specific, bargained-for allocation of the purchase price, such as appeared in the sale agreement between Dakan and Commonwealth. Bisbee-Baldwin only received net termination fees after various investors had cancelled their servicing agreements with Bisbee-Baldwin and had given their business to other agents, 320 F.2d at 931. The court, in a 2-1 decision, found that the transaction was, in substance, a two-party transfer in which Bisbee-Baldwin transferred its rights to the servicing contracts to its successor agents. 320 F.2d at 936.

In the present case, the purchase price was allocated among the assets of the Dakan business with the full knowledge and acquiescence of Robert Dakan. The allocation was part of the bargain which the two parties reached. The trial transcript reflects this fact:

Cross-examination of Dakan by Mr. Schwarz.
Q Did Mr. Holbrook [of Commonwealth] make it clear to you [Dakan] that portions which you had contracted with him to allocate to your rights in the contract with each of the insurance companies stated in that agreement would be amortized on a tax return to Commonwealth ?
Did he or did he not state that or make that clear to you ?
A [Dakan] Well, Mr. Holbrook or Mr. Andresen [Commonwealth’s attorney] or Mr. Yazzolino [another Commonwealth representative] or somebody did state that. I am not sure which individual propounded it.

Since the right of Commonwealth to amortize that part of the purchase price allocated by the parties to the contract rights with the three insurance companies was an integral part of the bargain made by the two parties, and since any decision in the plaintiff’s favor changing the effect of this bargain will ad-vei’sely affect Commonwealth’s tax treatment of the transaction, the Bis-bee-Baldwin rationale will not be applicable here. This determination is not reached lightly. The plaintiff has offered a strong argument favoring allocation of the contract rights without regard for the terms of the Dakan-Com-monwealth agreement. The fact remains, however, that the plaintiff bargained away his right to allocate the bundle of contract rights transferred to Commonwealth. Accordingly, he is es-topped to advocate any “sub-allocation” of the terms of the sale agreement. To grant such a “sub-allocation” in face of the facts present in this case would cause a significant, harmful effect on the stability of any future allocations in cases similar to this one.

In Commissioner v. Danielson, 378 F.2d 771 (3d Cir. 1967) (4-3 opinion), cert. den. 389 U.S. 858, 88 S.Ct. 94, 19 L.Ed.2d 123 (1967), the Third Circuit reversed the Tax Court and held that parties are bound by the tax consequences of their sale agreements absent proof sufficient to void the legal effect of the agreement.

******
[A] party can challenge the tax consequences of his agreement as construed by the Commissioner only by adducing proof which in an action between the parties to the agreement would be admissible to alter that construction or to show its unenforceability because of mistake, undue influence, fraud, duress, etc. Commissioner v. Danielson, supra, at 775.

The Third Circuit reached its holding in Danielson even though it found sufficient evidence to support the Tax Court’s finding [44 T.C. 549 (1965)] that the sum ($152 of the $374 per share price) allocated to a seller’s covenant not to compete had no independent basis or arguable relation with business reality. 378 F.2d at 774. The Third Circuit rejected the traditional argument that the legitimate operation of the tax laws should not be determined by the form of a transaction [Gregory v. Helvering, 293 U.S. 465, 55 S.Ct. 266, 79 L.Ed. 596 (1935)] and reached an opposite determination for very substantial reasons.

In the first place, the court thought it important in Danielson to determine whether a covenant not to compete had actually been executed since an amount paid for such a convenant is an amortizable expense for a purchaser and must be treated as ordinary income by a seller. Ullman v. Commissioner, 264 F.2d 305 (2d Cir. 1959). Goodwill, on the other hand, cannot be amortized by a purchaser since it has no limited ascertainable life. The proceeds from the sale of goodwill, however, can be report-, ed as a capital gain by a seller. Thus, the Danielson court thought it exceedingly probable that parties to transactions would determine the financial aspects of an agreement for a purchase or sale of a business with reference to the tax consequences that the terms of such an agreement would engender. With this in mind, the court concluded that:

* * * * * -X
[T]o permit a party to an agreement fixing an explicit amount for the covenant not to compete to attack that provision for tax purposes, absent proof of the type which would negate it in an action between the parties, would be in effect to grant, at the instance of a party, a unilateral reformation of the contract with a resulting unjust enrichment. Commissioner v. Danielson, supra, at 775 of 378 F.2d.

Second, the court pointed out that if such attacks on the agreements reached by parties to a transaction were permissible the predictable tax consequences of all agreements would be lost. Parties would be forced into the courtroom in order to protect the nature of their purchase and sale agreements.

Finally, the court was wary of the tax administration problems that would be caused if parties to transactions were free to advocate mutually repugnant tax characterizations for their transactions.

Despite the fact that this case does not involve a covenant not to compete as did Danielson, the rationale applied in that ease is still pertinent here.

The facts of this case irrefutably indicate that the bargain which Commonwealth reached with Dakan established contractual terms favorable to Commonwealth’s own tax purposes. Dakan realized that Commonwealth was attempting to write such language into the sale agreement and was content to believe that it could ignore such terms and file its tax return in a manner favorable to its own tax purposes. In this belief, Dakan was mistaken. The principle that one party to a contract should not be able to alter the tax consequences of his agreement to the detriment of the other party once the agreement has been consummated is too well established.

In St. Louis-San Francisco Railway Co. v. United States, 444 F.2d 1102, 95 Ct.Cl. 343, 350-351 (1971), cert. denied 404 U.S. 1017, 92 S.Ct. 678, 30 L.Ed.2d 665 (1972), this court recently rejected an attempt by a taxpayer to recharacterize the tax consequences of an exchange of income debentures and no-par common stock for preferred stock having a par value equal to the face value of the debentures. Taxpayer attempted to convince the court to assign a value to the common stock in an effort to support its claim that an amortizable debt discount had been incurred in the exchange. The court rejected this proposition, noting that “[c]ommon stock is not a fixed debt obligation” by whose issue an issuer makes a “definite obligation for the future.” 195 Ct.Cl. at 351, 444 F.2d at 1106. The court indicated that it was difficult for the preferred shareholders of St. Louis-San Francisco Ry. to assume that any additional interest had been given in the exchange on account of the issuance of the common stock. The court concluded its consideration of taxpayer’s agreement by indicating that:

* * * * * *
The taxpayer cannot alter or repudiate its bargain to the detriment of the other side of the exchange, at this late date, in order to obtain a tax advantage for itself. Id.

Dakan is attempting to do precisely the same thing in this case as was attempted in St. Louis-San Francisco Ry. He urges this court to satisfy his own tax whimsey by upsetting the terms of the sale agreement specifically bargained for by Commonwealth. This, the court cannot rightfully do accordingly, it is concluded that the plaintiffs are not entitled to recover and their petition should be dismissed.

       The opinion, findings of fact, and recommended conclusion of law are submitted pursuant to Rule 134(h).

      . Cecelia Dakan is joined as a plaintiff because joint returns were filed with her husband.

      . Penn Mutual Life Insurance Company (Penn), Standard Insurance Company (Standard), and Northwestern Mutual Life Insurance Company (Northwestern).

      . Penn paid a commission each month amounting to V12 of i/í> of 1 percent of the outstanding balance, and Standard and Northwestern paid %2 of Vi of 1 percent.


source: Caselaw Access Project

author: DAVIS, Judge:

license: Public Domain

text:
    KECO INDUSTRIES, INC. v. The UNITED STATES.
    No. 173-69.
    United States Court of Claims.
    Feb. 20, 1974.

      Robert G. Adair, Dayton, Ohio, attorney of record, for plaintiff.
    David R. Schlee, Washington, D. C., with whom was Acting Asst. Atty. Gen. Irving Jaffe, for defendant. Judith Ann Yannello, Washington, D. C., of counsel.
    Before DAVIS, KASHIWA, and KUNZIG, Judges.
   OPINION

DAVIS, Judge:

This suit by a disappointed bidder for the recovery of bid preparation costs comes to the court for the second time. Our earlier decision, Keco Industries, Inc. v. United States, 428 F.2d 1233, 192 Ct.Cl. 773 (1970), held that the claimant had standing to sue and denied defendant’s motion for summary judgment, remanding the case to the trial division for fact-finding. A trial has been had, and plaintiff now takes exception to the findings and opinion of Trial Judge Mastín G. White and to his conclusion that plaintiff’s petition should be dismissed.

The disputed procurement was for ground air conditioners, which are gasoline-powered cooling devices used to service military aircraft before flight. The Department of the Air Force, through the San Antonio Air Material Area (“SAAMA”), originally issued an invitation for bids in early 1966, but cancelled the invitation when a briefing conference revealed confusion in the bidders’ minds about technical requirements. Later, a request for technical proposals was sent to a number of firms, as the first part of a two-step advertised procurement. Of the companies solicited, three replied, but only two submissions were found to be technically acceptable — the proposal of plaintiff Keco Industries, and that of Acme Industries. Acme’s proposal requested two departures from the specifications; both concerned the government-furnished equipment. One deviation was the use of V-belt (indirect) drive rather than direct drive to power the government-furnished compressor; the other was the use of a generator rather than a battery to power the cooling fan motor (the generator and battery were both components of the government-furnished engine). The Government acquiesced and timely amended the final specification to permit both design changes as authorized alternatives. Acme received the contract award after its bid, based on these alternatives, was found to be substantially lower than Keco’s.

During performance, Acme encountered difficulty in implementing the two specification deviations which it had requested. Adaptation of this particular compressor to V-belt drive required a costly bearing assembly, and the 25 am-phere generator accompanying the government-furnished engine could not provide sufficient power to drive the cooling fan motor (a 100 amphere alternator was needed). Both problems were solved by the Government’s issuance of formal change orders, sanctioning the required modifications and increasing the contract price.

Learning of these changes, plaintiff Keco filed a protest with the General Accounting Office, arguing that Acme should bear the cost of the modifications necessary to accommodate the specification changes which Acme itself had sought in its technical proposal. In his first decision (B-162538, August 15, 1968), the Comptroller General held for Acme on one of the items but agreed that Acme was financially responsible for the other alteration. However in January 1969 he reversed himself after Acme requested reconsideration. Briefly, the later opinion found that information in the hands of Air Force personnel “ * * * was sufficient to require such personnel to question the feasibility of the Acme design shown in its technical proposal, and since the answer to the problem was readily available to the Air Force but not to Acme, such information may be considered as tantamount to actual knowledge.” On this theory, the Comptroller General withdrew his partial opposition to Air Force payment to Acme of the full costs of the change orders.

Plaintiff then brought suit in this court, asserting that the Government had acted arbitrarily and capriciously and breached its implied promise fairly and honestly to consider the Keco bid. The damages sought were bid preparation expenses and anticipatory profits. Defendant moved for summary judgment, urging that Keco lacked standing to bring suit, and that the pleadings did not present enough of a suggestion of arbitrary and capricious action to warrant a trial. As noted above, this motion was denied (except as to the claim for anticipatory profits), and trial was directed and held. The trial judge found that, at the time when the Government accepted Acme’s proposal, the former did not know that the proposal was unworkable and would have to be changed. The judge also determined that the defendant’s action in awarding the contract to Acme did not amount to arbitrary or capricious action in regard to this plaintiff. We affirm and adopt these conclusions.

I.

It is clear, in the first place, that plaintiff did not prove that the pertinent Air Force officials had actual knowledge that Acme’s technical proposal would be unworkable without major changes. Plaintiff has shown us no reason why this trial finding as to actual knowledge should be disturbed. Indeed, had plaintiff launched a solid challenge to this finding, the court would be well within discretionary limits in refusing even to consider the argument, because plaintiff filed very sketchy and incomplete proposed findings before the trial judge, without citation to the record. See Rule 134(d)(1) and (g); WRB Corp. v. United States, 183 Ct.Cl. 409, 417 (1968). In any case, the very most that can be said, on this record, is that the interested Air Force officials had access to data which, if they had considered it (which they did not), might well have raised questions about the technical feasibility of Acme’s proposal.

II.

Having reached this conclusion, the trial judge did not go further and decide whether the failure of the officials to search out and consult all the information available to them constituted a lack of due diligence. Rather, he assumed that such conduct on the part of the Government’s procurement people would not provide a basis for recovery of bid preparation expenses by Keco, since he found that in this instance the Air Force’s decision to permit Acme’s requested deviations was reasoned, even if incorrect or negligent.

To test the correctness of this holding that simple negligence is not enough to ground recovery here, it will be helpful to start by surveying, generally, the several types of claims disappointed bidders may present, and the varying considerations pertinent to these different classes of demands for compensation. The proper treatment of the specific situation now before us follows, we think, from certain of the overall principles which should govern the various kinds of actions for monetary relief by rejected bidders.

In the process of procurement by formal advertising, the awardee must ordinarily fulfill three main requirements: (1) his bid must be the one “most advantageous to the Government, price and other factors considered,” (2) he must be adjudged “responsible,” (i. e., able and willing to perform the contract), and (3) his bid must be “responsive,” (i. e., conform in all material respects to the invitation). ASPR §§ 2.103, 2.407-1; FPR §§ 1-2.103, 1-2.407-1. In certain procurements, the awardee must clear another hurdle or two as well; he must show that he is a “small business” concern, or that performance will take place in a “labor surplus area,” etc. Conceivably, the- Government may err in making any of the above determinations with respect to any bidder. And if it does, a frustrated bidder may feel that such irregularities (in the treatment of his bid or that of a competitor) deprived him of a fair shot at the contract.

But if one thing is plain in this area it is that not every irregularity, no matter how small or immaterial, gives rise to the right to be compensated for the expense of undertaking the bidding process. So it has been, and continues to be, necessary to develop rules and standards for judicial review of the various administrative steps in the process, and the scope of the duties owed at each stage by the Government to the allegedly aggrieved participant.

The ultimate standard is, as we said in Keco Industries I, supra, whether the Government’s conduct was arbitrary and capricious toward the bidder-claimant. We have likewise marked out four subsidiary, but nevertheless general, criteria controlling all or some of these claims. One is that subjective bad faith on the part of the procuring officials, depriving a bidder of the fair and honest consideration of his proposal, normally warrants recovery of bid preparation costs. Heyer Products Co. v. United States, 140 F.Supp. 409, 135 Ct.Cl. 63 (1956). A second is that proof that there was “no reasonable basis” for the administrative decision will also suffice, at least in many situations. Continental Business Enterprises v. United States, 452 F.2d 1016, 1021, 196 Ct.Cl. 627, 637-638 (1971). The third is that the degree of proof of error necessary for recovery is ordinarily related to the amount of discretion entrusted to the procurement officials by applicable statutes and regulations. Continental Business Enterprises v. United States, supra, 452 F.2d at 1021, 196 Ct.Cl. at 637 (1971); Keco Industries, Inc. v. United States, supra, 428 F.2d at 1240, 192 Ct.Cl. at 784. The fourth is that proven violation of pertinent statutes or regulations can, but need not necessarily, be a ground for recovery. Cf. Keco Industries I, supra, 428 F.2d at 1240, 192 Ct.Cl. at 784. The application of these four general principles may well depend on (1) the type of error or dereliction committed by the Government, and (2) whether the error or dereliction occurred with respect to the claimant’s own bid or that of a competitor.

A. Because of the complexity of the formal advertising process, it is best to separate out the various steps and to treat first with errors charged with respect to the plaintiff’s own bid. A disappointed bidder may, for instance, allege that his own bid was improperly read or evaluated as to the “price and other factors” criterion. As we have said, it is enough for recovery if an adequate showing is made that the Government acted in bad faith, e. g., by predetermining the awardee or by harboring a prejudice against the plaintiff. Heyer Products Co. v. United States, supra, 140 F.Supp. at 413-414, 135 Ct.Cl. at 69-71 (1956). And suits for injunction in other courts, dealing with this matter, have held that relief should be granted when the Government awards a contract without any reasonable basis for its actions. M. Steinthal & Co. v. Seamans, 147 U.S.App.D.C. 221, 455 F.2d 1289, 1301 (1971); Rudolph F. Matzer & Assoc., Inc. v. Warner, 348 F.Supp. 991, 994-995 (M.D.Fla.1972). This is the standard we accepted in Continental Business Enterprises, supra. Although based on external facts and circumstances rather than a showing of animosity toward plaintiff or favoritism for a competitor, this principle is not far removed from the bad faith test; courts often equate wholly unreasonable action with conduct motivated by subjective bad faith. Cf. Rudolph F. Matzer & Assoc., Inc. v. Warner, 348 F.Supp. at 995. It would be premature to comment on whether negligence in lesser degree, in the “price and other factors” evaluation of a bidder’s own bid, can sometimes, in certain situations, suffice for recovery. But it is worth noting that procurement officials ordinarily have a high degree of discretion in determining whether a bid is “most advantageous to the Government.”

A bidder may also contend that his bid was improperly rejected as nonre-sponsive. The regulations provide that an awardee’s bid must “comply in all material respects with the invitation” (ASPR § 2.301(a); FPR § 1-2.301 (a)), and list specific instances of nonconformity which require rejection of the bid (ASPR § 2.404-2; FPR § 1-2.404-2). If a defect fits within the narrow category of mandatory rejection (e. g., failure to state a price, if required), then the disqualified bidder would have little room for argument. If, on the other hand, the existence vel non of a defect involves the exercise of judgment, or if it is an irregularity minor enough to be waivable under ASPR § 2.405 or FPR § 1-2.405, then the cognizable complaint is that this discretion was clearly-abused in the particular circumstances. Presumably, a showing that there was clearly no reasonable basis for the official action would be enough. It is much less clear whether there could be specific situations in which some lesser showing would suffice.

A party submitting a responsive and low bid may still be adjudged not “responsible,” and thus denied the award. ASPR § 2.404-2(g); FPR § 1-2.404-2(e). Ordinarily, the contracting officer will have very wide discretion in making this determination (standards are set forth at ASPR § 1.900 et seq. and FPR § 1-1.1203), and thus a complaining bidder would normally have to demonstrate bad faith or lack of any reasonable basis in order to prevail.

If a prospective government contractor clears all these requirements in an advertised procurement, he may still be found ineligible for award in some cases, e. g., where the contract has been “set aside” for a small business or for a labor surplus area concern. In each such case, there are procedures for determining eligibility, and the degree of leeway granted government officials by those procedures would ordinarily frame the appropriate standard for judicial review.

B. Because the selection of an awar-dee from a raft of competitive bidders is a comparative process, a prospective contractor may complain, as here, that government actions favoring another bidder —without any misreading or misevaluation of the claimant’s own bid — prejudice the complainant’s chances for the award. Of course, where such favoritism or discrimination stems from subjective bad faith (e. g., predetermination of the award), the rejected bidder can recover under the rule of Heyer Products Co., supra. We held in Keco Industries, Inc. I that such bad faith exists prima facie when the Government accepts a bid knowing that costly changes will be required because of the basis on which the competitor bid.

But in those cases where dishonesty and bad faith are absent, the rules governing the claimant’s rights when the Government errs with respect to his own bid need not automatically be carried over, in every instance, to the comparable situation where the objective error solely concerns a competitor’s proposal. As our prior decisions have implicitly recognized, the Government’s duty to treat a bid honestly and fairly runs first of all to the enterprise submitting that bid. Cf. Heyer Products Co. v. United States, 140 F.Supp. 409, 135 Ct.Cl. 63 (1956); Continental Business Enterprises v. United States, 452 F.2d 1016, 196 Ct.Cl. 627 (1971). The procuring agency’s enforceable responsibility to a bidder to read or evaluate properly his competitor’s bid may be appreciably less in certain situations. (One relevant factor in this connection is that, although the harm asserted is that the plaintiff would likely have received the award but for incorrect preference given his successful competitor’s bid, there is no assurance that any bidder would have obtained the award since the Government retains, in its discretion, the right to reject all bids without any liability. Robert F. Simmons & Assocs. v. United States, 360 F.2d 962, 175 Ct.Cl. 510 (1966); ASPR § 2.404 et seq., FPR § 1-2.404 et seq.).

For instance, there would seem to be a strong presumption against entitlement to bid preparation expenses where the allegation is that the Government incorrectly adjudged a competitor to be “responsible” prior to contract award. As we have noted, procurement officials have a great deal of discretion in making this determination (aside from a prior suspension or debarment), and some of the criteria are not readily susceptible to reasoned judicial review. See ASPR §§ 1.900 et seq.; FPR § 1-1.1203. In addition, correct appraisal of the responsibility of a prospective contractor is clearly in the self-interest of the procuring agency; there is a built-in stimulus against error. If the determination is erroneous, and the contractor ultimately defaults on his obligation, the Government will likely suffer substantial delay and inconvenience, even though the defaulting, party will be liable to answer in damages, including perhaps re-procurement costs. See, e. g., ASPR §§ 8.707, 8.709; FPR §§ 1-8.707, 1-8.709. Absent fraud or bad faith, it is not easy, therefore, to conjure up situations in which a disappointed bidder could recover bid preparation expenses under the claim that the defendant wrongly appraised the awardee as “responsible”.

Again, it may be that even a proven violation of some procurement regulation, in selecting the competitor, will not necessarily make a good claim. Not every regulation is established for the benefit of bidders as a class, and still fewer may create enforceable rights for the awardee’s competitors. Cf. Chris Berg, Inc. v. United States, 426 F.2d 314, 317, 192 Ct.Cl. 176, 182-183 (1970). On the other hand, it could be — we do not decide — that competitors do have an enforceable right against the making of an award to a clearly nonconforming bidder, even where the agency failed to appreciate that the bid was materially non-responsive. Cf. Prestex Inc. v. United States, 320 F.2d 367, 162 Ct.Cl. 620 (1963); Albano Cleaners, Inc. v. United States, 455 F.2d 556, 559, 197 Ct.Cl. 450, 455 (1972); ASPR § 2.301; FPR § 1-2.301. Or it could be that a claim will follow from the defendant’s failure to pursue the established procedures in selecting an awardee in a small business or labor surplus area set-aside. Cf. Allen M. Campbell Co. v. United States, 467 F.2d 931, 933-934, 199 Ct.Cl. 515, 520-521 (1972); Mid-West Constr., Ltd. v. United States, 387 F.2d 957, 961-962, 181 Ct.Cl. 774, 782-783 (1967); Otis Steel Products Corp. v. United States, 316 F.2d 937, 940, 161 Ct.Cl. 694, 699-700 (1963).

We mention these varying situations, not presented in this case, only to stress the possibility of separate rules for separate classes of problems. The point is that, in those instances in which the alleged Government wrongdoing concerns only ■ the prevailing bid and not the claimant’s own rejected proposal, there should be careful examination of the claimant’s particular rights and interests with respect to that specific type of misconduct. There may well be no one umbrella rule or principle for all such cases.

III.

With this general background, the remaining issues in this case can be readily resolved. We have held in Part I, supra, that plaintiff has failed to prove that the Air Force had actual knowledge that the Acme proposal would not work without costly changes. Accordingly, the rule of Heyer Products Co., supra, does not apply. It may be — this factual question does not have to be decided— that the procuring officials were negligent or less diligent than they should have been in investigating and evaluating whether the Acme bid was the more advantageous to the Government. But even on this assumption we agree with the Trial Judge that the Air Force made a reasoned, if erroneous, decision (see footnote 3, supra); like him, we cannot say that there was no reasonable basis for the official action. There may have been some lack of care but certainly the negligence was not gross nor was the decision irrational or totally lacking in reason. That being so, Keco has no meritorious claim.

The mere failure to exercise due diligence in the appraisal of the advanta-geousness of a competitor’s bid, when that omission amounts to simple negligence, is not a sufficient showing of arbitrary or capricious conduct to warrant recovery of bid preparation expenses. The Government’s duty to exercise care in evaluating the “price and other factors” of a bid runs first to the proponent of that bid and to the public and its representatives, and only then to another bidder. The responsibility to the latter is too attenuated to justify assessing damages for simple negligence, especially in light of the broad discretion of procurement officials in that aspect of the bid process. Moreover, litigation which second-guesses bid determinations, through efforts to show ordinary lack of due care in appraising competing proposals, should not be encouraged where the award was rational and made in good faith. The interference from such suits, and their impact upon eon-tracting activities, would exact too great a price in the procurement process. Cf. Continental Business Enterprises, Inc. v. United States, supra, 452 F.2d at 1022, 196 Ct.Cl. at 639.

IV.

Plaintiff also objects to the Trial Judge’s ruling on a matter of procedure. Early in the trial, plaintiff sought to introduce evidence of other alleged Government misconduct during the same procurement. The judge refused to admit such evidence, because the points to which it related had not been alleged with particularity in the pleadings, as required by Rule 33(b); the judge also denied permission to amend the pleadings to include these matters. The new averments of misconduct were that defendant accepted Acme’s bid although it was materially nonresponsive. At the oral argument it was revealed that, although full pretrial proceedings had been held, no mention of these subjects was made by plaintiff until the trial.

Plaintiff argues that our opinion in Keco Industries, Inc. I gave carte blanche to prove any instance of arbitrary and capricious conduct in awarding this contract. It is not clear that the specific language alluded to (428 F.2d at 1240, 192 Ct.Cl. at 784) was meant to cover anything other than the Air Force’s permission to Acme to use V-belt drive and a generator-powered cooling fan motor — the only specific defects referred to in the petition. But even if the court contemplated that other defects might be raised in the future, the opinion in no way dispensed with the normal rules of pleading and trial practice. At best, the court indicated that other instances of government misconduct could be shown if properly and timely brought into the case.

It is undisputed that the only specific acts of government wrongdoing mentioned or referred to in the petition (as originally filed or as amended) were the two with which the trial judge dealt. Plaintiff contends, however, that it preserved other possible bid-procedure defects by alleging in its petition, generally, a violation of “Section 2, Paragraph 5” of the Armed Services Procurement Regulations. This is apparently a reference to the four-page section in ASPR describing the two-step formal advertising. The citation obviously falls far short of the specificity called for by Rule 33(b), which requires that: “In all averments (1) of fraud * * * (2) of mistake, or (3) of action alleged to be arbitrary, capricious, or so grossly erroneous as to imply bad faith, the circumstances constituting fraud, mistake, or arbitrary, capricious or erroneous action shall be stated with particularity. * * * ” A naked allegation of arbitrary and capricious action is not sufficient to trigger a trial. Greenway v. United States, 163 Ct.Cl. 72, 82 (1963). Plaintiff did plead with particularity the circumstances surrounding the Government’s acceptance of Acme-requested departures from the specifications, but no allegation was made or suggested as to a material nonconformity in Acme’s bid. The petition simply did not present those additional grounds.

The fact that the bid nonconformities were raised by plaintiff before the Comptroller General prior to trial is of no help since, as defendant rightly points out, there is no requirement that issues raised administratively be pursued before this court. On the contrary, the submission to the General Accounting Office reenforces that plaintiff was or should have been aware, long before the trial, of a possible nonconformity in the Acme bid. Plaintiff’s counsel admitted at the trial in 1971 that Keco was aware, from 1969 at the latest, that the final product deviated from the invitation in the two respects now charged, but he argued that Keco did not actually know until the Comptroller General’s decision of May 10, 1971 — one month before trial — that Acme had included these departures from the specifications in its bid. This latter point is not a good enough excuse. Plaintiff cannot be permitted to sit silent until full proof of every aspect of its potential claim appears. Under our Rule 36, plaintiff could have raised the issue of a nonconforming bid, of which it was sufficiently alerted in 1969, and then sought further proof through discovery procedures. After plaintiff became aware in 1969 that the final Acme product departed from the invitation requirements, it had enough information to amend its petition and seek additional facts.

We conclude, as did the Trial Judge, that plaintiff never raised, prior to trial, any issue relating to nonconformity in Acme’s bid, and that it did not have justification for omitting such allegations if it wished to raise the point. The Trial Judge’s exclusion of evidence on this matter was a proper way of enforcing the court’s rules of pleading and pretrial practice. See Rule 39(b); McCormack on Evidence 440 n. 34 (2d ed., 1972); cf. Rule 114(b)(4).

On a similar basis, we uphold the refusal to permit amendment of the petition at the trial. This is a matter within the discretion of the trier. See Loral Electronics Corp. v. United States, 409 F.2d 578, 580-581, 187 Ct.Cl. 499, 503 (1969); cf. Huling v. United States, 401 F.2d 998, 1003, 185 Ct.Cl. 407, 414-416 (1968); see Rule 39(b). It would be different if plaintiff had exposed these issues early in the pretrial proceedings, or if there were some proper excuse for the belated unfolding of the new contention. In the present context, we cannot say that the Trial Judge abused his discretion in refusing to allow the amendment.

For these reasons, we hold that plaintiff is not entitled to recover. The petition is dismissed.

FINDINGS OF FACT

The court, having considered the evidence, the decision and findings of Trial Judge Mastín G. White, and the briefs and arguments of counsel, makes findings of fact as follows:

1. The plaintiff, Keco Industries, Inc., is an Ohio corporation engaged in business as a manufacturer of specialized air conditioning equipment, primarily for United States military requirements.

2. (a) On February 3, 1966, the San Antonio Air Material Area (“SAAMA”), Department of the Air Force, solicited bids under Invitation for Bids (“IFB”) No. 41-608-66-813 for quantities of the MA-3 air conditioner. The MA-3 air conditioner is a ground air conditioner powered by a gasoline engine and designed to provide cooling for military aircraft prior to take-off.

(b) A bidders briefing conference was held on February 15, 1966, to clarify any questions that prospective offerors might have. A conference! was held because procurement had not been made for the MA-3 air conditioners since 1960 (at the Mobile Air Material Area) and because the pertinent specification had been changed considerably in the interim. Eight firms were represented at the bidders conference. The discussions at the conference raised serious questions as to whether or not the interested firms understood the technical requirements in a manner which would produce satisfactory performance in the event of a contract award. Based upon the questions raised, a determination was made by the contracting officer to cancel the IFB in existence and to solicit technical proposals.

3. (a) On April 12, 1966, a letter request for technical proposals (“LRFTP”) was sent to 47 firms by the San Antonio Air Material Area in connection with the Air Force’s requirement for MA-3 air conditioners. Interested bidders were requested to submit technical proposals for 100 MA-3 air conditioners as the first step of a two-step formal advertising procedure, as contemplated by the Armed Service Procurement Regulations (ASPR), Part 5, Section 2.

(b) The LRFTP provided that the MA-3 requirement was to be produced in accordance with specification MIL-A-26107D, dated October 5, 1970, as amended on an attachment to the LRFTP.

(c) Subparagraph 1(d) of the LRFTP provided that the Government would furnish the following components for use in the fabrication of the air conditioner :

(d) Part one of attachment 2 to the LRFTP provided that evaluation of technical proposals would be based upon the following criteria:

(1) Understanding of problem;
(2) Soundness of approach;
(3) Compliance with requirements; and
(4) Ease of maintenance.

(e) The LRFTP provided that federal and military specifications and standards cited in the solicitation were available from the Naval Supply Center in Philadelphia, or could be examined at SAAMA or various Defense Contract Administration Offices throughout the United States. Commercial specifications and standards were stated to be available from their publishers and not the Government.

4. The ASPR provisions referred to in the LRFTP defined two-step formal advertising generally as follows:

2-501 General. Two-step formal advertising is a method of procurement designed to expand the use and obtain the benefits of formal advertising where inadequate specifications preclude the use of conventional formal advertising. It is especially useful in procurements requiring technical proposals, especially those for complex items. It is conducted in two steps:
(i) Step one consists of the request for, and submission, evaluation, and, if necessary, discussion of a technical proposal, without pricing, to determine the acceptability of the supplies or services offered. As used in this context, the word “technical” has a broad connotation and includes engineering approach, special manufacturing processes, and special testing techniques. When it is necessary in order to clarify basic technical requirements, related requirements such as management approach, manufacturing plan, or facilities to be utilized may be clarified in this step. Conformity to the technical requirements is resolved in this step, but capacity and credit, as defined in 1-705.4, are not.
(ii) Step two is a formally advertised procurement confined to those who submitted acceptable technical proposals in step one. Bids submitted in step two are evaluated and the awards made in accordance with Parts 3 and 4 of this Section.
Two-step formal advertising requires that the contracting officer work closely with technical personnel and that he utilize their specialized knowledge in determining the technical requirements of the procurement, in determining the criteria to be used in evaluating technical proposals, and in •making such evaluation. An objective of this method is to permit the development of a sufficiently descriptive and not unduly restrictive statement of the Government’s requirement, including an adequate technical data package, so the subsequent procurements may be made by conventional formal advertising.

5. (a) On April 20, 1966, Acme Industries, Inc. (“Acme”), a prospective bidder, requested from SAAMA certain performance data relative to the Trane compressor, as follows:

(1) RPM;
(2) Brake horsepower;
(3) Capacity curve: RPM versus
brake horsepower on R-12 and R-22 refrigerant;
(4) Maximum allowable condensing;
(5) Maximum allowable suction temperatures ; and
(6) Maximum allowable RPM for R-12 and R-22 refrigerant.

(b) In response to this request for data, SAAMA conducted a routine general search for data of any nature which they might have on the Trane compressor. This search did not turn up any data. Due to the unavailability of data, Acme Industries was advised by SAAMA to contact the local Trane office for assistance. The Acme Industries representative stated that Trane had already advised that the data had not been developed or otherwise did not exist. He further stated that no further requests would be made and that Acme’s proposal would be based on extrapolated data. A.s a result of the Acme request, the Air Force requested, and shortly thereafter obtained, from Trane a catalog (DS-361) containing information relative to the applicable compressor. This catalog was apparently forwarded to Acme. There is also evidence that a copy of Trane catalog DS-361 had previously been delivered to Acme during the bidder’s conference in February 1966. The Air Force also obtained capacity curves from Trane and mailed them to Acme.

6. (a) Technical proposals were submitted by the plaintiff, by Acme, and by Therm-Air Manufacturing Co., Inc. Evaluation of these technical proposals was performed by a panel at SAAMA. The group was headed by Adam Rozos, a mechanical engineer with considerable experience in the application of various air conditioning equipment. In addition to Mr. Rozos, the panel consisted of another mechanical engineer in air conditioning and refrigeration equipment, a mechanical engineer with aircraft specialization, and an electrical engineer.

(b) The evaluation was performed under the four criteria which were listed in the letter request for technical proposals. In evaluating the proposals, the team assumed that the would-be contractors were knowledgeable as to the characteristics of the Government-furnished property (“GFP”) and had ascertained whether it was compatible with their design. Detailed design criteria were neither solicited nor evaluated. A substantial amount of expertise on the part of the would-be contractors was expected.

7. (a) The Acme proposal requested two deviations from the pertinent specification. One deviation requested by Acme was that it be permissible for the compressor to be driven by a V-belt, in lieu of being directly driven from the prime mover (engine); and the other was that it be permissible for the cooling-air fan to be driven by an electric motor powered by the generator on the Government-furnished engine, in lieu of being driven by the prime mover. The SAAMA evaluation team discussed whether these two deviations should be allowed. In addition, Mr. Rozos counseled with Mr. Madrid, his branch chief, as to whether the proposed deviations were acceptable.

(b) The consensus of the SAAMA engineers was that the deviations should be permitted, because they would promote ease of maintenance, simplification of operation, and longer life of the engine.

(c) The operative assumption of the evaluation team, based on their past experience with air-conditioner compressors and other rotating machinery, was that the compressor could be driven indirectly without any problems.

(d) As to the electric motor deviation the evaluation team assumed that Acme had determined that sufficient power was available to power the motor for the cooling-air fan. In fact, Acme’s proposal assured the Government that sufficient power would be available.

(e) The SAAMA evaluation team neither discussed nor contemplated the possibility that problems might arise from these deviations.

8. (a) As a result of the evaluation of the three proposals: (1) the proposal of Therm-Air was declared to be unresponsive to the invitation; (2) the Acme technical proposal and its two proposed deviations were deemed acceptable; and (3) the plaintiff’s technical proposal was considered acceptable, although its alternate proposal to employ a different compressor was deemed to be unacceptable.

(b) Specification MIL-A-26107D was amended to reflect the two acceptable Acme deviations, (1) by permitting the compressor either to be driven by a V-belt or to be directly driven by the prime mover, and (2) by permitting the cooling-air fan to be driven by the prime mover, or by a V-belt, or by an electric motor. The specification had previously required both the compressor and the cooling-air fan to be driven only by the prime mover.

(c) Both Acme and Keco were advised of the results of the evaluation, including the optional specification changes which were authorized as a result of the Acme proposal.

9. (a) Upon receiving notification of the optional specifications, the plaintiff evaluated the feasibility of making the MA-3 with the use of the permissible alternatives. The plaintiff concluded that both of the changes could be effected within the limitations set forth by the specification. However, the plaintiff did not alter its proposal because it believed that these options would be more costly to implement than the plaintiff’s original proposal. Specifically, the plaintiff was of the opinion that it would be necessary to adapt the Trane compressor, which the plaintiff considered suitable only for direct drive, with expensive alterations in order to permit indirect drive. The plaintiff also knew that the generator supplied with the Government-furnished engine was not sufficient to drive the cooling-air fan, but that performance could be achieved within the specification if the contractor was willing to furnish an adequate power source.

(b) At the time of the issuance of the LRFTP, the plaintiff had been contracting with the defendant for nearly 20 years relative to the manufacture and design of ground cooling equipment similar to the MA-3 which was to be produced under the contract contemplated in the LRFTP.

10. (a) On May 31, 1966, an invitation for bids (“IFB”) was issued by SAAMA, soliciting bids from those firms (Keco and Acme) which had submitted acceptable technical proposals. The requirements for the MA-3 were the same as previously indicated in the first step, except that it was to be produced pursuant to the specification, as amended, and the respective technical proposals of Acme and Keco. The IFB further provided that “Nothing contained in said Technical Proposals shall constitute a waiver of any of the provisions of the specifications and drawings cited above. In the event of conflict between the Government Specifications/drawings and your Technical Proposal, the provisions of the Government Specifications and drawings shall govern.”

(b) At the bid opening on June 10, 1966, it was determined that Acme bid $7,770 per unit for a 1-year 100-unit procurement, and $7,500 per unit for the multi-year 300-unit procurement; and that Keco bid $12,800 per unit for the 1-year requirement and $12,200 per unit for the multi-year requirement.

(c) Due to the large variance between the Acme and Keco bids, the contracting officer requested that Acme verify in writing whether its bid was correct as submitted, or whether it had made a mistake in its bid. Acme - confirmed that its bid was correct, as based on its technical proposal and the Government furnishing the compressor and engine, complete with accessories. Accordingly, an award of the contract (F-41608-67C-1139) was made to Acme as the low bidder.

11. (a) Subsequent to the award of the contract, Acme began to encounter certain problems in connection with its performance under the contract. It was first ascertained, shortly after the award, that the 25-amp generator furnished with the specified GFP engine would not provide sufficient current for the cooling-air fan. A change order was issued, directing the contractor to use and furnish a 100-amp alternator to overcome this difficulty.

(b) In the latter part of September 1966, Acme encountered difficulty in driving the compressor by a V-belt from the prime mover (or engine). It was determined that an adapter assembly was necessary to relieve the side loads imposed by the belt drive. A change order was issued, directing the contractor to incorporate a suitable adapter assembly.

(c) The contracting officer’s initial position was that Acme was not entitled to further compensation for any additional costs which it incurred to correct these performance problems. The basis for his opinion was that since both the compressor and engine were commercial items, the contractor should have the responsibility for any incompatibility between these components and its technical proposal. The contracting officer and his superiors in the Directorate of Procurement and Production at SAAMA took the opposite position following receipt of advice from the staff judge advocate that the Government was liable for any necessary changes because it had available to it the full range of data on the Government-furnished components and, therefore, that acceptance of the technical proposal was a guarantee that the GFP would work as planned. Relative to the compressor, the testimony at the trial indicated that the only data which the staff judge advocate was aware that the Government had was Trane catalog DS-361.

(d) The two changes resulted in modifications to the contract which increased the contract price for one year by $135,000 for the generator change and $154,335 for the compressor adaptation.

12. (a) The plaintiff protested the administration of the contract to the Comptroller General by letters dated September 14, 1967, and September 21, 1967. The plaintiff claimed that it was error for the Government to assume liability for the changes in connection with the compressor drive and the generator for the fan motor. Instead, the plaintiff argued that Acme assumed the risk of inability to perform pursuant to its technical proposal, particularly since it had requested the two specification deviations which were now causing Acme difficulties.

(b) Concerning the Air Force position that it had greater knowledge than Acme as to the suitability of V-belt drive for the compressor, the plaintiff stated as follows:

Information that the GFP compressor would not operate properly with a simple Y-belt drive was available to anyone in the industry qualified to responsibly offer itself to the Government as a contractor for this kind of equipment. It was available. Keco had it. Keco affirms that it is readily available in trade channels. What is the validity, then, of SAAMA’s determining to pay oüt hundreds of thousands of dollars to Acme for changes simply because SAAMA had in its files the kind of information hundreds of air conditioning manufacturers, air conditioner dealers, and suppliers had as well. There was no obligation on the part of SAAMA to search out and distribute data available easily elsewhere — or even if it wasn’t. * * *

(c) Regarding the generator, the plaintiff claimed that the available literature clearly showed that the specified engine came with a 25-amp generator. Testimony at the trial confirmed that literature was readily available from the Government or from the manufacturer of the engine which reflected that the particular engine shown by the LRFTP to be GFP came with a 25-stamp generator.

(d) It was requested by the plaintiff that the changes authorized by the contracting officer be disapproved, and that the contractor be defaulted or the award held invalid.

13. (a) In an opinion rendered on August 15, 1968 (B-162538), the Comptroller General came to the following conclusion as to the generator problem:

In the light of the above, we conclude that Acme’s reference in its proposal to a 100 Amp generator, in the absence of any information in the specifications as to what size generator would be furnished with the Government furnished engine, was adequate notice that the proposal was based upon a 100 Amp generator being furnished by the Government. Since it further appears that the substitution of an alternator for the generator was initiated by the Government for its own purposes, we find no basis for objection to the Government’s action in agreeing to pay for this change.

(b) (1) As to the compressor, the Comptroller General stated in part as follows:

In view of the foregoing it is our opinion that the legal conclusion of the staff judge advocate is based upon error of fact, and that such conclusion cannot be supported on the facts presently of record. Accordingly, in the absence of a clear showing that the Air Force knew, when the proposal was submitted and evaluated, that belt drive could not be accomplished in the manner indicated on the Acme drawing, and failed to advise Acme to that effect, we must consider the allowance of any price increase representing increased costs resulting from additional materials or design changes necessary to successful application of a V-belt drive to be unauthorized.

(2) The Comptroller General suggested that appropriate corrective action be taken with respect to the change order on the compressor unless affirmative proof of the Air Force’s actual knowledge of the feature of the compressor that caused the contractor’s difficulty could be shown.

14. Following the determination referred to in finding 13, Acme asked the Comptroller General to reconsider his decision on the compressor problem, and submitted a memorandum in support of its request.

15. (a) On November 13, 1968, the Air Force commented on the Acme memorandum (see finding 14), in response to a request from the Comptroller General. The Air Force recommended that payment to Acme of compensation for the additional cost required to adapt the compressor to V-belt drive be approved. This was based on two findings: (1) that Acme was unsuccessful in its efforts to obtain data on the GFP compressor referred to in finding 5; and (2) that although the Air Force did not have actual knowledge that V-belt drive would be a problem, data (primarily in the form of an assembly drawing) were available to the Air Force — and not to Acme — that might have caused an engineer to question the feasibility of V-belt drive.

(b) The assembly drawing referred to by the Air Force in its comments was found at SAAMA in October of 1968.

(c) The Air Force letter to the Comptroller General stated that the Air Force had this drawing in its possession prior to the submission of Acme’s technical proposal. The testimony at the trial indicated that it is an open question as to when SAAMA first had possession of the drawing.

(d) The assembly drawing for the Trane compressor indicated that the compressor’s discharge valve might be in a position that would interfere with mounting a flywheel for a V-belt.

16. In view of the representations made by the Air Force (see finding 15(c) ), the Comptroller General in a decision dated November 13, 1969 (B-162538), removed his objection to payment for the modifications to the compressor drive. The Comptroller General stated in part as follows:

In view of such statements by the Air Force, we conclude that, in the peculiar circumstances of this case, the actual information in the hands of the Air Force personnel responsible for the procurement with respect to the Government furnished compressor was sufficient to require such personnel to question the feasibility of the Acme design shown in its technical proposal, and since the answer to the problem was readily available to the Air Force but not to Acme, such information may be considered as tantamount to actual knowledge. * * *

17. Most reciprocating compressors built in the last 30 years, of the type involved in the present case, have been capable of being belt-driven.

18. At the time when the Government accepted Acme’s proposal, the Government did not know that Acme’s proposal was unworkable and would have to be changed.

19. The defendant’s action in awarding the contract to Acme did not amount to arbitrary or capricious action in regard to the plaintiff.

CONCLUSION OF LAW

Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes as a matter of law that plaintiff is not entitled to recover and its petition is dismissed.

      . Plaintiff also appeals from the trial judge’s exclusion of certain evidence; this issue is treated in Part IV, infra.

      . The record shows that, at the time when Acme’s technical proposal was evaluated by the SAAMA panel of engineers, the Government may have had in its possession an assembly drawing of the government-furnished Trane compressor which indicated that the compressor’s discharge valve might be in a position that would interfere with mounting a flywheel for a V-belt, as proposed by Acme. The evidence also shows sthat the Government had literature concerning the government-furnished engine which reflected that it was equipped with a 25-amp generator. But it also appears that the SAAMA panel members who evaluated and approved Acme’s technical proposal were not familiar with these particular materials, and that they did not conduct a full investigation relative to the availability of pertinent data on the government-furnished property and its suitability for use in the manner proposed by Acme.

      . With respect to the deviations proposed by Acme, (1) the panel reviewing the proposal assumed, on the basis of their past experience with air-conditioner compressors and other rotating machinery, that the compressor to be furnished by the Government could be driven indirectly through the use of a V-belt, without causing any problems (most reciprocating compressors built in the last 30 years, of the type involved in the present case, have been capable of being belt-driven) ; and (2) the panel also assumed that Acme had determined that sufficient power would be available from the generator on the government-furnished engine to power the motor for the cooling-air fan (Acme’s proposal asserted that sufficient power would be available for such a purpose).

      . The Armed Service Procurement Regulations are codified at Title 32, Code of Federal Regulations, and the Federal Procurement Regulations are in Title 41, Citations are to the 1972 and 1973 editions, respectively.

      . Suits for injunctive relief in the District Courts can provide guidance in this area, but it must be kept in mind that the standards for awarding an injunction are different in some respects. Delay in the procurement process is not an element in a bid preparation cost suit (Continental Business Enterprises v. United States, supra, 452 F.2d at 1022, 196 Ct.Cl. at 638), and the existence of a damage remedy is sometimes reason for denial of injunctive relief. (M. Steinthal & Co. v. Seamans, 147 U.S.App.D.C. 221, 455 F.2d 1289, 1302 (1971)).

      . A prior determination of debarment or suspension acts as a prejudgment of nonrespon-sibility. Nash & Cibinic, Federal Procurement Law 258 n. 5 (2d ed., 1969).

      . We treat here with the choice of a competitor, not the rejection, of the claimant’s own bid as improper.

      . The two unauthorized deviations were said to be: (1) use of aluminum instead of copper fins in the condenser coils, and (2) use of an evaporation-type pre-cooler instead of an air-to-air heat exchanger.

      . “Plaintiff also alleges that defendant did not abide by its own regulations [footnote 10 omitted], which would bring the case directly under the facts of Scanwell, which involved a contract award contrary to the provisions in the invitation for bids. However, we do not feel it necessary to explore this particular contention since we find that plaintiff has already made out an allegation of arbitrary and capricious action sufficient to warrant a trial. Therefore we will leave this particular point to be decided by the trial commissioner in connection with his examination of whether defendant’s action in awarding the contract to Acme was in fact arbitrary or capricious.” [emphasis in original]

      . Rule 36 states in pertinent part: “When the plaintiff cannot state his case with the requisite particularity without an examination of documents or things or other information in the possession of the United States, * * * he may file a petition in conformity with Rule 21(c), stating his claim as far as is in his power and specifying the documents or things or other information he requires. * * * Within 30 days after the filing of such petition, he shall file a motion * * * to obtain from the proper department or agency of the United States such documents or things or other information as may be deemed necessary. * * * ”

      . But see finding 12 (e).


author: COWEN, Chief Judge.

text:
    Vance and Virginia JOVICK v. The UNITED STATES.
    No. 149-72.
    United States Court of Claims.
    June 20, 1973.
    Gene W. Reardon, Denver, Colo., atty. of record, for plaintiff. Reardon, Reardon & Reardon, Denver, Colo., of counsel.
    Richard D. Silvester, Washington, D. C., with whom was Asst. Atty. Gen. Scott P. Crampton, for defendant. Gilbert E. Andrews Jr., and Theodore D. Peyser, Jr., Washington, D. C., of counsel.
    Before COWEN, Chief Judge, and DAVIS, SKELTON, NICHOLS, KASHIWA, KUNZIG and BENNETT, Judges.
   COWEN, Chief Judge.

In this suit for refund of Fereral income taxes, plaintiffs claim that Section 105(d) of the Internal Revenue Code of 1954 entitles them to a sick pay-disability exclusion against the disability retirement income reported on their joint returns for 1967 through 1969. For the reasons hereinafter stated, we hold that plaintiffs are entitled to the exclusion.

The material facts are not in dispute. Plaintiff Vance Jovick was a member of the United States Civil Service Retirement System while employed with the Central Intelligence Agency (hereinafter referred to as the CIA). On December 31, 1959, Mr. Jovick retired from the CIA on a disability pension. At the time, his age was 54 and he had achieved 28% years of creditable Federal service. In each of the years in suit, Mr. Jovick received disability income in excess of $5,200, which would be the maximum income exclusion a taxpayer might receive under § 105(d).

Plaintiffs filed amended joint returns for each of the years in suit claiming $5,200 sick pay exclusion in each of the several years. The IRS tax auditor allowed a partial sick pay exclusion for 1967 based on the assumption that Mr. Jovick could have retired when he reached age 62 in 1967. No sick pay exclusion was allowed for 1968 and 1969. The Government now contends that the tax auditor was incorrect in allowing a partial exclusion in 1967 and that in truth the taxpayer could have retired in 1965 when he was 60 years old and had 30 years’ service.

Plaintiffs contend that none of these dates can be correct for it is speculation whether Mr. Jovick would have retired before the statutory retirement age of 70.

The Government’s argument is posited on Treasury Regulation § 1.105-4(a) (3) (i) (a) which states in pertinent part:

Section 105(d) applies only to amounts attributable to periods during which the employee would be at work were it not for a personal injury or sickness. Thus, an employee is not absent from work if he is not expected to work because, for example, he has reached retirement age. If a plan provides that an employee, who is absent from work on account of a personal injury or sickness, will receive a disability pension or annuity as long as he is disabled, section 105(d) is applicable to any payments which such an employee receives under this plan before he reaches retirement age as defined in (6) of this subdivision, but section 105(d) does not apply to the payments which such an employee receives after he reaches such retirement age. * * *

For a definition of retirement age, one is referred to Treasury Regulation § 1.-79-2(b) (3) (i) (a)(1) and (2). In the instant case, plaintiff’s retirement age under the regulation would be the earliest age that he could have retired under the law (age 60 with 30 years’ service). For the purposes of this case, we shall call this his optional retirement age.

We would be inclined to delve into the history of this regulatory provision were it not that the Sixth Circuit recently declared the regulation invalid on the ground that it deprives a taxpayer of a benefit conferred by statute. Brooks v. United States, 473 F.2d 829 (6th Cir. 1973).

The regulation upon which defendant relies (Reg. 1.79-2(b) (3)) resulted from an amendment made in 1966 and was first struck down in Walsh v. United States, 322 F.Supp. 613 (E.D.N.Y.1970), as an unauthorized restriction on a statutory benefit. Walsh was followed in Brooks v. United States; 339 F.Supp. 1031 (M.D.Tenn.1971), which was affirmed by the Sixth Circuit on February 8, 1973.

Brooks was a career employee with the duPont Corporation. He was retired for disability after 37 years of service and 60 years of age. At age 60, he was also qualified for optional longevity retirement. Mandatory retirement was at age 65. In commenting on the Government’s application of Treasury Regulations §§ 1.105-4(a) (3) and 1.79-2(b)(3), the court held that Brooks was absent from work because of sickness within the meaning of section 105(d) of the Code. The court went on to state:

While it cannot be doubted that income received after the mandatory age will be taxable regardless of whether the pension began as a disability pension, we hold that the Government’s position, as outlined in the regulation, is untenable. The statute is clear and unambiguous in providing for an exclusion of payments made to any employee for a period of absence from work caused by illness. The money that this taxpayer receives between the age of 60, when he was forced to retire by illness, and 65, when he would have to retire whether or not healthy, is received because of his absence from work because of illness. [Brooks v. United States, 473 F.2d at 831 (6th Cir. 1973).]

We agree with the Sixth Circuit’s holding and its interpretation of the applicable statute. An employee who absents himself from work because of retirement for disability prior to his mandatory retirement age is, we think, one of the class of individuals intended to be benefited by the statute.

Finding itself without support in the case law, defendant advances an additional argument in the instant case on a ground not considered in Brooks. The defendant contends that a CIA regulation would have required plaintiff to retire at age 60. With respect to this regulation, we note, first, that it does not purport to abrogate the provisions of the statute relating to the mandatory age for the retirement of civil service employees generally. Instead, it is a statement of a general policy that CIA employees are expected to plan to retire after completing 30 years of service at age 60, but it also makes provision for the retention of those who are asked to remain.

In support of its contention, defendant has submitted an affidavit by the Director of Personnel of CIA that there was nothing in Mr. Jovick’s file at the time of his disability retirement (at age 54 on December 31, 1959) to indicate that he would have been asked to continue service in the Agency after he reached the age of 60 on April 2, 1965. We think this affidavit does not aid defendant. Under the provisions of the regulation, Mr. Jovick’s supervisors would not have been required to discuss retirement plans with him until April 2, 1963, two years before he would have attained age 60. It is therefore extremely unlikely that in 1959, there would have been any papers in the file to indicate that he would or would not have been requested to continue his employment in the CIA after he became 60 years of age. As against this affidavit, we have plaintiff’s positive affidavit that had it not been for his disability retirement, he would not have retired prior to attaining 70 years of age because of his financial needs and family circumstances. In view of all these circumstances, including the provisions of the CIA regulation, it would take a great deal of speculation to find that Mr. Jovick would have been requested to retire from his position in the CIA when he became 60 years of age and that he would have ended his employment in the Government at that time.

In attempting to bolster its argument that the CIA regulation requires the employees of that Agency to retire at age 60 after 30 years of service and that the regulation is valid, defendant relies on the special statutory exception to the normal procedure for the removal of civil service employees. This special statute, 50 U.S.C. § 403(c), provides that notwithstanding the provisions of any other law, the Director of Central Intelligence may “in his discretion, terminate the employment of any officer or employee of the Agency whenever he shall deem such termination necessary or advisable in the interests of the United States, * * We find this argument unpersuasive and hold that this statutory exception does not change the mandatory retirement age, because the statute specifically provides that “such termination shall not affect the right of such officer or employee to seek or accept employment in any other department or agency of the Government if declared eligible for such employment by the United States Civil Service Commission.’ Thus, if we assume that Mr. Jovick might have been requested to retire from the CIA when he became 60 years of age, we can also assume that he would have been employed in some other department or agency of the Government and have continued in that employment until he attained the age of 70.

However, speculation as to these several possibilities provides little help in resolving the principal issue before us. That issue is the validity of the regulation relied upon by the Government. As. previously stated, we have concluded that it is invalid and ineffective to “deprive a taxpayer of a benefit conferred by statute.” Brooks v. United States, swpra.

Plaintiffs’ motion for summary judgment is granted; defendant’s cross motion is denied; and judgment is entered for plaintiffs with the case remanded to the trial division to determine the amount of the recovery in accordance with Rule 131(c).

      . Section 105(d) reads in pertinent part:
      “§ 105 Amounts received under accident and health plans

      * * * * *
      (d) [as amended by Sec. 205(a), Revenue Act of 1964, P.L. 88-272, 78 Stat. 19].

        Wage continuation plans. — Gross income does not include amounts referred to in subsection (a) if such amounts constitute wages or payments in lieu of wages for a period during which the employee is absent from work on account of personal injuries or sickness; but this subsection shall not apply to the extent that such amounts exceed a weekly rate of $100. # # * t)

      . In addition, the auditor computed an exclusion based on the return of taxpayer’s contributions to the Civil Service Retirement Fund. However, the return on contributions to the retirement fund are not in issue in this case.

      . See Act of July 31, 1956, ch. 804 § 401, 70 Stat. 736. This was the law in effect on April 2, 1965, the day Mr. Jovick reached age 60. In 1966, this law was amended and codified. See 5 U.S.C. § 8336.

      . See Act of July 31, 1956, ch. 804 § 401, 70 Stat. 736, now amended and codified in 5 U.S.C. § 8335.

      . Regulation § 1.79-2(b) (3) (i) (a) (1) and (2) :
      “(1) The earliest age indicated by such plan at which an active employee has the right (or an inactive individual would have the right had he continued in employment) to retire without disability and without the consent of his employer and receive immediate retirement benefits computed at either the full rate or a rate proportionate to completed service as set forth in the normal retirement formula of the plan, i. e., without actuarial or similar reduction because of retirement before some later specified age, or.
      “(2) The age at which it has been the practice of the employer to terminate, due to age, the services of the class of employees to which he last belonged.”

      . The personnel regulation reads as follows:
      “44. RETIREMENT
      a. GENERAL
      (1) Staff employees, staff agents (including military staff agents), excluding only those receiving temporary appointments, participate in the Civil Service Retirement System. Certain temporary employees who participated in the system immediately prior to their temporary employment with the Agency retain their coverage under the Civil Service Retirement Act, as amended.
      (2) Career agents may be granted retirement benefits. Contract personnel who participated in the system immediately prior to their employment under contract without a break in service of more than 3 days continue to participate in the system.
      (3) The amount of retirement benefits, insofar as Agency employment is concerned, is based on Agency salary. Retirement deductions for integrees, except military staff agents, will be made by the integrating agency on the basis of the individual’s integrated salary with subsequent adjustment in accordance with the provisions of R 20-605. Section V, Settlement of Compensation Differences.
      b. POLICY. The Agency encourages employees to retire voluntarily as soon as they are eligible to do so under the Civil Service Retirement System. Employees are, therefore, expected to plan to retire upon completing 30 years’ service at the age of 60, or after five or more years of service at the age of 62, except .when requested by the Agency to remain in service.
      c. RETIREMENT BOARD. The CIA Retirement Board is established to ensure uniform application of the retirement policy in subparagraph b above, and in cases of unusual circumstances to act on appeals connected therewith. The board is composed of three members appointed by the Director of Central Intelligence. The Office of Personnel provides administrative support to the board.
      d. DEPUTY DIRECTORS. Deputy Directors shall determine for individual employees under their jurisdiction whether or not it is desirable, because of skills or other qualifications which are needed and should be preserved for the Agency to retain them beyond the normal retirement date established by Agency policy. They shall ensure that supervisors discuss retirement plans with employees two years before the projected retirement date and shall review each case annually thereafter.
      e. OFFICE OF PERSONNEL. The Office of Personnel provides staff guidance, administrative support, and counseling services in connection with the Civil Service Retirement System. The Office of Personnel shall:
      (1) Inform employees five years before their eligibility for retirement of the Agency’s retirement policy and the various benefits and services available to them, at the same time providing the names of these employees to the appropriate Deputy Directors.
      (2) Conduct a preretirement counseling program for Agency presonnel which will:
      (a) Provide the opportunity for employees to obtain advice and counsel regarding personal problems, accrued benefits, privileges, and obligations pertaining to retirement.
      (b) Assist employees as retirement approaches, in developing both preretirement and postretirement plans.
      (3) Process applications in connection with civil service retirement for Agency personnel, including applications requiring secure processing and applications for refunds requiring internal processing.
      (4) Make available within the Agency general information concerning retirement and furnish specific information as requested. For security reasons, Agency personnel will be expected not to contact the Civil Service Commission directly.
      f. THE COMPTROLLER. The Comptroller maintains records of and withholds retirement deductions, and makes payment of direct refunds as authorized by the Director of Personnel.”