## Facts

- The Army awarded Acme Process Equipment Company a prime contract to manufacture 2,751 75‑mm recoilless rifles at a fixed unit price (about $384.95).
- Acme, inexperienced in rifle manufacturing, performed through itself and subcontractors and encountered delays and major cost overruns, which it attributed to subcontractor problems and defects in government-furnished machinery.
- The government granted time extensions but assessed liquidated damages for certain delays.
- The United States ultimately canceled the contract, asserting statutory and contractual violations, including an allegedly illegal contingent-fee arrangement, illegal kickbacks tied to subcontract awards, and false claims.
- Acme denied that the asserted violations justified cancellation and alleged the government terminated to exit an increasingly expensive, allegedly obsolete weapons program.
- Acme sued the United States for breach of contract and sought restitution (restoration based on benefits conferred), rather than expectancy damages under the contract price.
- A Court of Claims commissioner treated Acme’s remedy as limited to damages, so the record did not develop evidence on the reasonableness of Acme’s manufacturing costs.

## Issues

1. Whether the United States validly canceled the contract based on alleged contingent-fee and related statutory violations when it acted after a substantial delay despite prior knowledge.
2. Whether government delay and continued dealings with the contractor could waive or forfeit the government’s ability to annul the contract without compensating the contractor.
3. Whether a contractor may pursue restitution against the United States for wrongful cancellation, rather than being confined to expectancy damages.
4. Whether alleged kickbacks, false claims, or conflicts of interest barred recovery or justified treating the contractor’s claims as fraudulent.

## Decision

- The Court of Claims held the cancellation improper insofar as it relied on contingent-fee and related violations after the government unreasonably delayed and thereby lost the right to annul without cost.
- The court held Acme could pursue restitution for the value conferred on the government, subject to offsets, and remanded for determination of the restitution amount and related adjustments (including issues involving government-furnished equipment).
- The court rejected the government’s fraud-based defenses (including kickback/false-claim theories) as insufficiently proven to bar recovery or establish the requisite intent to defraud.

## Legal Principles

- A party with knowledge of alleged grounds for cancellation may forfeit the ability to invoke those grounds cost-free by unreasonably delaying and continuing performance-oriented dealings.
- Wrongful cancellation by the government can support restitution to prevent unjust enrichment where the government retains benefits of the contractor’s performance, subject to appropriate offsets.
- Allegations of fraud or statutory misconduct do not automatically bar recovery; the government must prove the necessary elements, including intent where required, to impose forfeiture-type consequences.

## Conclusion

The Court of Claims ruled that the government’s belated reliance on asserted statutory violations made its cancellation improper, allowed Acme to seek restitution for benefits conferred rather than limiting it to expectancy damages, and remanded for calculation while rejecting inadequately supported fraud-based defenses.


United States v. Acme Process Equip. Co., 347 F.2d 509 (Ct. Cl. 1965)