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petitioner a fee of 15 percent in excess of labor and material
costs and subcontractor fees. Clinch River had little startup
capital and was required to take out lines of credit to finance
the mill renovation.
Under the October 1987 written contract, total payments due
petitioner for renovation of the mill were estimated at
$2,730,000, and completion of the renovation was estimated for
March 1, 1988. Payments were to be made by Clinch River to
petitioner periodically as renovation of the mill progressed, and
final payment was to correspond with the completion of the
renovation.
Not until July of 1988, however, did petitioner complete
renovation of the mill, and, by the time the renovation was
complete, total payments due petitioner from Clinch River under
the cost-plus contract had increased to $5,136,000.
Because of the large increase in the costs of renovation
over the $2,730,000 that petitioner initially had estimated and
because of financial difficulties that Clinch River experienced
during renovation of the mill, Clinch River did not make timely
payments to petitioner, and both Clinch River and petitioner
recognized that Clinch River would have difficulty making the
full payment due petitioner for petitioner's renovation of the
mill. By letter dated April 18, 1988, petitioner wrote Clinch
River and offered to make adjustments in the payments due
petitioner from Clinch River for renovation of the mill.
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