Appeal of

BARSH COMPANY

Under Contract No. 482980-98-B-0772
PSBCA No. 4481

APPEARANCE FOR APPELLANT:
Richard E. Brophy, Jr.

APPEARANCE FOR RESPONDENT:
S. Brent Baker, Esq.

OPINION OF THE BOARD

            Appellant, Barsh Company, has appealed the decision of the contracting officer denying its claim for termination costs following the termination for convenience of its contract with Respondent, United States Postal Service.  Appellant elected to proceed under the Board’s Accelerated procedure (39 C.F.R. §955.13(d)), and a hearing was held in Dallas, Texas.  Both entitlement and quantum are at issue.

FINDINGS OF FACT

            1.  On July 17, 1998, Respondent issued a solicitation for proposals for construction of security improvements to the downtown Waco federal building then owned by Respondent.  Appellant submitted its proposal for this project on August 12, 1998.  On approximately August 28, 1998, Appellant was informed that it would be awarded the contract.  At about the same time Appellant was asked to attend a pre-construction conference scheduled for September 3, 1998.  (Stipulation of the Parties Nos. (Stip.) 1, 4, 8; Transcript pages (Tr. ) 19, 20).

            2.  The request by Respondent to attend a pre-construction conference, prior to the actual award of the contract, led Appellant to believe there was an urgency to the project.  Because of this urgency, Appellant’s project manager immediately began preparations to perform the contract after it was awarded.  These preparations included writing subcontracts, negotiating and writing purchase orders, arranging to obtain a bond, and setting up job cost files.  During this same period of time, Appellant’s project manager also bid on another job.  (Tr. 17, 20-24, 27, 52-54, 66; Appellant’s Exhibits (AE) M, N, Q).

            3.  The pre-construction conference was held on September 3, 1998 and Appellant was informed at this conference that the contract would be awarded on the following day.  Thereafter, on September 4, 1998, Appellant was awarded the contract at a price of $560,021.00.  The contract contained a Termination for Convenience clause (Clause B-11)(January 1997) that allowed the Postal Service to terminate the contract for the convenience of the Postal Service.  In the event of a termination for convenience, the clause provided that the contractor would be paid its costs for work performed prior to the termination, plus a fair and reasonable profit on those costs and that any determination of costs would be governed by the cost principles set forth in the USPS Purchasing Manual^[1].  (Stip. 10-12; Tr. 19, 20; Appeal File Tab (AF) 1).

            4.  By letter dated September 23, 1998, received by Appellant on September 28, 1998, Respondent notified Appellant that the contract was terminated for convenience (Stip. 17).

            5.  On October 7, 1998, Appellant initially submitted a termination for convenience claim in the amount of $74,914.04, but later reduced the claim to $62,373.19 (Stip. 18).  The final amount claimed, $62,373.19, represented 80% of what Appellant had included in its contract price for project management ($67,796.95), for a total of $54,237.56, plus 15% profit ($8,135.63) on that amount.  Appellant used 80% because the project manager concluded that he had accomplished 80% of the project management for the entire job at the time of termination – namely, cost estimating, subcontract and contract negotiations, writing subcontracts and purchase orders, obtaining bonds, and creating job files had been completed.  In addition to the contract costs claimed, Appellant also incurred $1,575 in accounting fees and $1,440 in attorney fees in negotiating a possible settlement of its termination for convenience claim.  (Tr. 40, 41, 84, 85, 103, 104, 154, 155; AE M, N, O, P, S, U).

            6.  The first three items in Appellant’s claim, “cost estimating”, “subcontract negotiations” and “contract negotiations” were done by Appellant’s project manager in preparation of its proposal.  The remaining items were performed after Appellant learned it would receive the contract.  (Tr. 13-15, 20-22).

            7.  Appellant’s claim was audited by Respondent.  The auditor concluded that  the costs claimed by Appellant were not recoverable and, based on the audit, the contracting officer denied Appellant’s claim in its entirety (AF 8, 9, Respondent’s Exhibit No. 1).  Appellant filed a timely appeal of the final decision (Notice of Appeal).

            8.  Appellant’s project manager’s (and co-owner’s) annual salary, including bonuses, is approximately $185,000.  This is a reasonable salary for the owner and project manager of a construction company the size of Appellant.  (Tr. 58, 98, 99; AE T).  Overhead and support staff salaries for Appellant in fiscal year 1999 (the year in which the contract would have been performed) totaled $259,529.00.  The terminated contract represented 10.34% of Appellant’s contract billings for fiscal year 1999.  (AE T).

DECISION

            Appellant argues that the costs it seeks were incurred prior to the termination for convenience and are recoverable under the cost principles contained in the USPS Purchasing Manual.

            Respondent argues that certain of the costs Appellant seeks to recover are in the nature of bid preparation costs, were incurred prior to award of the contract, and are not recoverable in a termination for convenience claim.  Respondent further argues that Appellant did not support the costs it claims with time sheets or time logs and, therefore, failed to prove that it incurred any costs.

            The first three cost items Appellant claims, estimating and subcontract and contract negotiating, appear to have been incurred prior to submitting its proposal and in preparation of the proposal (Finding of Fact No. (FOF) 6).  These bid or proposal preparation costs are not recoverable as part of a termination for convenience claim.  See Beredo Construction Co., Inc., PSBCA No. 2888, 91-3 BCA ¶ 24,092.  The remainder of the items claimed, writing subcontracts and purchase orders, securing a bond and creating job files, although partially incurred prior to award of the contract, were incurred only after Appellant learned it would receive the contract and at a time Appellant reasonably believed there was an urgency to the project (FOF 2, 5, 6).  Because these costs were incurred to meet the contract schedule, Appellant is not precluded from recovering these start up costs on the ground that they preceded formal contract award.  See Codex Corporation v. United States, 226 Ct. Cl. 693 (1981); AT&T Technologies, Inc., DOTBCA No. 2007, 89-3 BCA ¶ 22,104; Jana, Inc., ASBCA No. 32,447, 88-2 BCA ¶ 20,651.

            Appellant’s project manager did not maintain time sheets or time logs of his efforts prior to the termination that would specifically identify the actual time spent in performing the above tasks.  However, Appellant argues that the methodology it used in formulating its claim (FOF 5), is the best reflection of the costs it incurred before the contract was terminated.  Using this methodology, Appellant has proposed a recovery of 80% of what it contends was the value of project management in the contract price.  However, there is no evidence that this amount bears any relation to the costs Appellant actually incurred, and the quantum of costs Appellant is entitled to recover should not be based on speculation.  See Deval Corporation, ASBCA Nos. 47132 and 47133, 99-1 BCA ¶ 30,182 citing Lisbon Contractors, Inc. v. United States, 828 F.2d 759, 767 (Fed. Cir. 1987).  We, therefore, decline to accept Appellant’s figures as a basis for allowing recovery.

            Since, however, there is ample evidence in the record that Appellant performed some of the contract preparatory work it claims (FOF 2, 6), we need not reject the claim in its entirety for failure of proof but, rather, can address the claim on a “jury verdict” basis.  See RRP Construction Co., Inc. , DOT BCA No. 2999, 1996 DOT BCA LEXIS 22 (Sept. 10, 1996); RHC Construction, IBCA No. 2083, 88-3 BCA ¶ 20,991.  There is sufficient evidence in the record of this appeal to determine an estimate of costs of Appellant’s project manager and clerical support staff efforts on this contract.  As of August 28, 1998, Appellant knew it had the contract and from that date until September 28, 1998 (the date it learned the contract was terminated for convenience) (FOF 1, 4), Appellant is entitled to be compensated for the costs it incurred in preparing to perform the contract.  For this one-month period we find, as a “jury verdict,” that Appellant is entitled to recover $9,650.  This amount represents one half of a month of the reasonable salary of its owner/project manager^[2] ($7,705), plus 10.34%^[3] of the same half month of its overhead and clerical support costs for fiscal year 1999 ($1,068), and 10% profit ($877) on the total of the two (see generally, FOF 8).  In addition, Appellant is entitled to recover $1,575 in accounting fees and $1,440 in attorney fees incurred in negotiating its termination settlement proposal with Respondent (FOF 5).

            The appeal is sustained to the extent indicated and is otherwise denied.

William K. Mahn
Administrative Judge
Board Member

I concur:
James A. Cohen
Administrative Judge
Chairman

[1]  The cost principles in the USPS Purchasing Manual provide, in the case of a termination for convenience, for recovery of reasonable start up and preparatory costs, as well as the accounting, legal and clerical expenses that are necessary to preparing and presenting settlement claims to the contracting officer (Stip. 13).

[2]   Appellant’s project manager testified that he prepared and submitted a bid on another job during the time period after he learned he had the subject contract and before termination (FOF 2).  Thus, we estimate that he spent 50% of his time during this period in contract preparatory work on this contract.

[3]   10.34% represents the percentage that the subject contract’s amount represented to Appellant’s total contract billings in fiscal 1999 (FOF 8).