PSBCA No. 5291
January 02, 2008
Appeal of
ABCON ASSOCIATES INC.
Under Contract No. 415046-96-B-0050
PSBCA No. 5291
APPEARANCE FOR APPELLANT:
Louis N. Haas, Esq.
Haas & Najarian, LLP
APPEARANCE FOR RESPONDENT:
Barbara H. Frazier, Esq.
St. Louis Law Office
United States Postal Service
OPINION OF THE BOARD
Respondent, United States Postal Service, awarded Appellant, Abcon Associates Inc., a contract to renovate a portion of a Postal Service facility. Respondent eventually terminated the contract for default. Appellant challenged the termination in the United States Court of Federal Claims, and, after trial, the Court overturned the termination, converting it to one for the convenience of the Postal Service. Appellant submitted a convenience settlement proposal, and the contracting officer issued a final decision granting in part and denying in part Appellant’s claim. Appellant filed this timely appeal from the denial of certain portions of its claim.
At the election of the parties, this appeal is being decided on the record without an oral hearing in accordance with 39 C.F.R. §955.12.
FINDINGS OF FACT
1. On or about April 29, 1996, Respondent entered into a contract with Appellant for extension of the loading dock and installation of three freight elevators at Respondent’s Queens Processing and Distribution Center (“Queen’s P&DC”) located in Flushing, New York. The contract price was $4,125,628. (Joint Stipulation of Facts and Issues (“Stip.”) 14; Supplement to Appeal File, tab (“SAF”) 7; Appeal File, tab (“AF”) 57 (Appendix A)).
2. On November 10, 1996, the parties entered into bilateral Modification M01 for additional work that increased the contract price by $88,700, to $4,214,328 (AF 3).
3. In July 1997, Appellant submitted requests for equitable adjustments (“REAs”) numbered 2 through 20, seeking monetary and performance time adjustments for claimed defective specifications, differing site conditions, changed work and delays caused by Respondent. Appellant did not characterize its submission as a claim, did not submit estimates, subcontractor billings, or any other supporting documentation, and did not request a final decision. Although a number of the individual REAs exceeded $100,000, Appellant did not provide a Contract Disputes Act certification. The total amount claimed pursuant to the REAs was $1,046,480.30. Despite several requests by Respondent, Appellant never provided documentation to support the amounts claimed in the REAs. (SAF 2; Affidavit of M. Zenobio, Jr. (“Zenobio Decl.”), Exhibit B; Respondent’s Exhibit (“Resp. Exh.”) A; AF 46 (pp. 787, 796, 1013, 1157, 1287-1289, 1317, 1389-1390, 1393, 1450-1452, 1509)).
4. By letter dated December 29, 1997, the contracting officer addressed each of the REAs, granting some in full or in part and denying some. In total, the contracting officer allowed Appellant a contract price increase of $201,310.24 for the requested changes, out of the total of $1,046,480.30 requested. However, the contracting officer also determined that Appellant was liable under the contract for liquidated damages in the amount of $297,000. Applying the liquidated damages to the allowed equitable adjustment resulted in a net reduction of the contract price by $95,689.76. The contracting officer characterized his December 29 letter as a final decision and included language advising Appellant of its right to appeal. On December 30, 1997, Respondent issued unilateral Modification M03, which reflected the net result set forth in the December 29 letter and effected a net reduction to the contract price of $95,689.76. (AF 9, 10; Declaration of D. Weir).
5. On December 31, 1997, Respondent terminated the contract for default (Stip. 15; AF 11, 57 (Appendix B)).
6. After the termination, Appellant’s surety, USF&G, took over responsibility for completion of the work not completed by Appellant. On March 20, 1998, Appellant submitted to the surety an estimate of $1,713,245 as what it would cost Appellant to complete the project, with final completion to occur within about 5 1/2 months. The estimate did not include any amounts for field supervision, overhead or profit. (SAF 12; Zenobio Decl. ¶15). However, the surety determined not to proceed with Appellant. USF&G issued a solicitation for the uncompleted work to several contractors and awarded a contract to Arena Construction Co. Inc., the lowest of three bidders for the job. The surety paid Arena a total of $2,702,465 to complete the work. (Stip. 16; AF 14 (see p. 140), 21, 22, 62 (p. 675); Zenobio Decl. ¶16). Respondent did not prepare an estimate of the cost to complete the project (Appellant’s Submission Re Settling the Record, Respondent’s Answer to Request for Admission No. 3).
7. Appellant appealed the termination for default to the United States Court of Federal Claims, filing its Complaint on July 13, 1998 (Stip. 17). As reflected in its Complaint, the relief Appellant sought was a determination that the termination for default was invalid, conversion of the termination to one for Respondent’s convenience, remand to the contracting officer for administrative settlement under the contract’s Termination for Convenience clause, and attorney fees and costs. (AF 25 (p. 393)).
8. Appellant’s Complaint asserted 11 counts as bases for the relief sought. Count VIII asserted that Respondent had improperly assessed liquidated damages and Count XI asserted that in its administration of the contract Respondent had breached its duty to cooperate. In Count X, Appellant asserted that REAs 2 through 20, which Appellant had submitted before the termination (Finding 3), demonstrated that Appellant would have completed the project by the contract completion date, properly extended as warranted by the REAs and, thus, was not in default. (AF 25 (pp. 390-392)).
9. On June 29, 2001, the Court issued its Opinion and Order granting judgment in favor of Appellant on Counts VIII and XI and in favor of Respondent on the remaining counts. In doing so and by its Judgment filed July 17, 2001, the Court converted the termination for default to a termination for convenience. The Court concluded that Respondent had improperly assessed liquidated damages based on interim milestones in the contract, thus interfering with Appellant’s ability to pay its subcontractors and perform the contract, and in other ways failed to cooperate with Appellant’s contract performance. (AF 47; Stip. 18).
10. Notwithstanding its decision favoring Appellant, the Court found “much to criticize in [Abcon’s] discharge of its responsibilities under the contract,” including problems with the quality and management of its subcontractors and little regard for its responsibilities regarding scheduling the work. The Court noted that Appellant’s subcontractors had caused some delays that were attributable to Appellant. The Court did not address the dollar value of any of the REAs or the amount by which any other actions of Respondent had increased Appellant’s costs of performance. (AF 46 (p. 1610), AF 47 (p. 610)).
11. Appellant submitted its convenience settlement proposal, certified by its president, on or about December 1, 2003, requesting $3,853,578.41 (subsequently adjusted to $3,948,747.50) (Stip. 20; AF 57). The settlement proposal claimed that during 1997 Appellant was incurring overhead expense of $27,155.27 per month on the Queens P&DC project (AF 57 (Appendix N)).
12. At Respondent’s request, Appellant’s claim was audited by the Defense Contract Audit Agency (“DCAA”), which issued its report on November 29, 2004 (Stip. 21, 22).
13. The audit confirmed that Appellant incurred and paid project costs and overhead as follows:
Direct Purchases $2,279,804
Direct General Conditions 164,155
Project Personnel Payroll 351,307
Total $2,795,266
Overhead 450,999
$3,246,265
The audit reflected that Respondent had paid Appellant $2,503,435 as of the date of the audit. (AF 62 (pp. 679-683)).
14. DCAA concluded that Appellant was not entitled to recover costs it incurred in performing the REA work that exceeded the $201,310.24 allowed by the contracting officer in unilateral Modification M03 (AF 9, 10). From the total amount claimed by Appellant for the proposed modifications, $1,046,480.30 (Finding 3), the auditor subtracted the amount granted for the REAs in Modification M03 and the amount claimed by Appellant for two of the REAs (13 and 15), which the auditor concluded were not performed, to result in the audit questioning the remaining $826,327 of REA-related costs that Appellant incurred. (AF 62 (pp. 679-681)).
15. The audit also reflected that Appellant had paid USF&G $1,700,000 under its indemnity agreement with the surety for costs incurred by the surety (with another $100,000 to be paid if Appellant received at least that much in its convenience settlement with Respondent). Among the costs incurred by the surety, and reimbursed by Appellant, were $248,632 paid under its payment bond to Appellant’s subcontractors for work they had performed before the termination, and $87,322 for retainages withheld from subcontractors for pre-termination work. (AF 62 (pp. 672, 674)).
16. The parties conducted negotiations but were unable to reach an agreement regarding Appellant’s convenience settlement claim (Stip. 24).
17. The contract’s Termination for Convenience clause provided for the contracting officer’s unilateral determination of the amount to be paid Appellant in the event the parties were unable to negotiate a convenience settlement:
“e. If the contractor and the contracting officer fail to agree on the amount to be paid to the contractor by reason of the termination, the contracting officer will determine the amount, if any, due the contractor and pay the contractor the contract price for completed and accepted supplies or services not previously paid for (adjusted for any saving of freight and other charges) and, with respect to all other contract work performed before the effective date of termination, the total of
1. The cost of such work;
2. The cost of settling and paying claims arising out of the termination of work under subcontracts;
3. A profit on e.1 above, determined by the contracting officer to be fair and reasonable; but if it appears that the contractor would have sustained a loss on the entire contract had it been completed, no profit will be included, and an appropriate adjustment will be made reducing the amount of the settlement to reflect the indicated rate of loss.
f. The total sum to be paid to the contractor may not exceed the total contract price as reduced by the payments made and as further reduced by the terminated [sic].”
(AF 2, Contract Clause H.5, TERMINATION FOR CONVENIENCE (Clause B-11) (October 1987)).
18. The first sentence of subsection f of the Termination for Convenience clause included in the contract (and quoted in Finding 17, above) differed from the language of the standard Postal Service clause referenced in the clause’s title: B-11 of date October 1987. As included in Respondent’s Procurement Manual, the first sentence of subsection f read, “The total sum to be paid to the contractor may not exceed the total contract price as reduced by the payments made and as further reduced by the contract price of work not terminated.” (Postal Service Procurement Manual, Publication 41, TL-8, July 12, 1995 (“Procurement Manual”), Vol. 2).
19. Respondent’s Procurement Manual, then incorporated by reference at 39 C.F.R. Part 601 (1995), required that clause B-11 be included “in all fixed-price contracts not awarded using simplified procedures.” (Procurement Manual, Appendix B, Section B.2.1.b).[1]
20. On May 9, 2005, the contracting officer issued a final decision awarding Appellant $2,405,795.75 (subsequently amended to correct a clerical error) in termination for convenience settlement costs (AF 67, 68; Stip. 25, 26).[2] Of relevance to this appeal, the contracting officer in his award,
a. Denied recovery for Appellant’s incurred costs because the sum of the amount Appellant had already been paid under the contract, $2,503,435.30, and the surety’s cost to complete the work not performed by Appellant exceeded the Termination for Convenience clause’s subsection f contract price cap on a convenience recovery (Finding 17);
b. Nevertheless, included in the award the $297,000 in liquidated damages previously withheld in Modification M03 (Finding 4), plus interest;
c. Denied Appellant recovery of the $248,632 paid by the surety to Appellant’s subcontractors for pre-termination work (Finding 15) because Appellant had already billed and been paid for such work in earlier payments made by Respondent. He allowed $500 for this claim for the surety’s cost of obtaining subcontractor ratifications;
d. Allowed as a settlement expense the $87,322 Appellant paid the surety on account of subcontractor pre-termination retainages (AF 67 (p. 694));
e. Denied recovery of profit, concluding that not only had the contract price cap been exceeded but that Appellant was in a loss position at the time of termination; and
f. Concluded that even if the price cap had not been reached, nothing would be due for the incurred costs associated with the REAs beyond the $201,310.24 the contracting officer had awarded on December 29, 1997 (Finding 4) because Appellant had not appealed that final decision and because, in his view, the Court of Federal Claims had determined that Appellant was not entitled to recovery based on the REAs. (AF 67).
21. Appellant appealed the final decision to the Board. In this proceeding, Appellant challenges (1) the contracting officer’s application of the contract price limitation of the Termination for Convenience clause to its award; (2) the denial of $826,327 of costs related to the REAs; (3) the denial of profit; and (4) the denial of recovery of Appellant’s reimbursement of the surety’s payment of $248,132 to subcontractors for pre-termination work.
22. Appellant claims $1,315,589, calculated as follows:
Direct Purchases $2,279,804
Direct General conditions $ 164,155
Project Personnel $ 351,307
Subtotal: $2,795,266
Indirect Overhead $ 450,999[3]
Subtotal: $3,246,265
Profit@10% $ 324,627
Total: $3,570,892
Less Amount Paid by Respondent $2,503,435
Costs claimed $1,067,457
Plus amount Appellant paid to USF&G
for subcontractors’ pre-termination
work, which was disallowed by the
contracting officer $ 248,132
Grand Total of Claim $1,315,589
DECISION
Contract Price Limitation on Recovery
In his final decision, the contracting officer determined that subsection f of the Termination for Convenience clause (Findings 17, 18) barred Appellant’s recovery of its claimed costs and profit because the sum of payments made to Appellant and to Arena for the project exceeded the contract price.[4] Appellant argues that subsection f did not authorize the contracting officer to reduce the contract price ceiling by Arena’s cost to complete the project.
Postal Service regulations (Findings 18, 19) having the force and effect of law required that the Termination for Convenience clause as set forth in Respondent’s Procurement Manual be included in Appellant’s contract, and the provisions of the clause
“must be deemed terms of the contract even if not specifically set out therein, knowledge of which is charged to the contractor. G.L. Christian & Associates v. United States, 160 Ct. Cl. 1, 12, 15, 312 F.2d 418, 424, 426, reh. denied, 160 Ct. Cl. 58, 320 F.2d 345, cert. denied, 375 U.S. 954 (1963).”
DeMatteo Constr. Co. v. United States, 220 Ct. Cl. 579, 591, 600 F.2d 1384, 1391 (1979) (further citations omitted). Accordingly, the Queens P&DC contract will be read as including the full text of the first sentence of subsection f of the Termination for Convenience clause as set forth in Postal Service procurement regulations applicable at the time the contract was entered into.[5] See Alta Constr. Co., PSBCA Nos. 1463, 2920, 96-1 BCA ¶ 27,961, n. 1, and 94-3 BCA ¶ 27,053, n. 1; Stephens Industries, Inc., PSBCA No. 141, 76-2 BCA ¶ 11,988 at 57,509.
Respondent argues that reading subsection f as set forth in the Procurement Manual requires a downward adjustment to the contract price ceiling to account for the surety’s cost to complete the project. We disagree. The reference in subsection f to “work not terminated” contemplates a partial convenience termination, where the contractor continues performing a portion of the contract work. In a partial convenience termination, the contract price of the continuing (unterminated) work is the basis of the contractor’s recovery for its completion. Thus, the reduction in subsection f of the Termination for Convenience clause necessarily lowers the contract price cap in a partial termination for convenience by the contract price of the work not terminated, thereby applying the limitation, properly adjusted, only to the terminated portion of the contract. The termination for default of Appellant’s contract became a convenience termination of the entire contract upon its conversion by the Court of Federal Claims. Therefore, neither the purpose of the limitation nor the plain meaning of the language of subsection f permits reduction of the contract price limit by the amount paid to Arena to complete the work or any other estimate of the cost to complete the work after the complete termination for convenience. See Airo Services, Inc. v. General Services Administration, GSBCA No. 14301, 98-2 BCA ¶ 29,909 at 148,071; Alta Constr. Co., PSBCA Nos. 1463, 2920, 92-2 BCA ¶ 24,824 at 123,834; Precision Specialty Corp. v. United States, 15 Cl. Ct. 1, 7 (1988); but see Maitland Bros. Co., ASBCA No. 43088, 93-3 BCA ¶ 26,007, aff’d on reconsideration, 94-1 BCA ¶ 26,285; A.A. Beiro Constr. Co., DC CAB No. D-822, 2002 DCBCA LEXIS 1, January 3, 2002.
Accordingly, the applicable contract price limitation is at least:
Original Contract Price $4,125,628
Modification M01 88,700
Total $4,214,328
Less Payments Made
Before Termination $2,503,435
Less Refunded Liquidated
Damages $ 297,000
Less Contract Price of
Work Not Terminated 0
Contract Price Cap $1,413,893
Therefore, the contract price cap, which is Appellant’s maximum convenience settlement recovery, does not limit Appellant’s recovery in this appeal as the cap exceeds Appellant’s claim of $1,315,589.[6]
Denial of Incurred Costs Related to the REAs
Respondent argues that Appellant may not recover the costs associated with the REAs in excess of the $201,310 granted by the contracting officer in unilateral Modification M03, notwithstanding the Board’s rejection of its arguments regarding the contract price cap, discussed above.
Respondent argues, first, that as found by the DCAA auditor, the Court of Federal Claims considered and denied Appellant’s claims for its REAs. However, a review of Appellant’s Complaint before the Court reflects that Appellant did not seek a monetary recovery related to its REAs but, rather, raised Respondent’s alleged failure to pay Appellant adequately and grant extensions for the changed and delayed work addressed in the REAs as grounds for overturning the termination for default (Finding 8). Conversion of the default termination to a convenience termination was the only relief sought in that proceeding (Finding 7) and was the relief granted by the Court (Finding 9). Although the Court found for Respondent on the count addressing the REAs (Findings 8, 9), we do not understand the Court to have made any determination as to Appellant’s entitlement to recover its costs of performing the work in a termination for convenience settlement. Therefore, the decision by the Court of Federal Claims does not preclude Appellant’s recovery of costs it incurred associated with the REAs.
Next, Respondent argues that the Board has no jurisdiction to decide Appellant’s entitlement to equitable adjustments because the REAs were addressed in the contracting officer’s final decision of December 29, 1997 (Finding 4), and Appellant did not appeal that final decision. Respondent also argues that as some of the REAs exceeded $100,000 and were not certified, notwithstanding the contracting officer’s issuance of what he intended to be a final decision, the Board lacks jurisdiction over those REAs. Additionally, Respondent suggests that the Board’s consideration of the REAs at this time would be barred by the 6-year limitation period set forth in §6 (a) of the Contract Disputes Act (“CDA”) (41 U.S.C. §605(a)). Appellant argues that the REAs were never submitted as claims at all and that the contracting officer had no authority to issue a final decision on its draft modifications. Appellant apparently agrees with Respondent that the Board does not have jurisdiction to consider the REAs as “claims” and to decide Appellant’s entitlement to an equitable adjustment.
Respondent argues its position as if Appellant were seeking equitable adjustments under an unterminated firm-fixed-price contract. The language of the Termination for Convenience provision in Appellant’s contract simply provides that, except as specifically limited elsewhere in the clause, the contracting officer will pay the contractor for work performed before the effective date of termination, to the extent Respondent has not already paid for the work (Finding 17, Termination for Convenience clause, subsection e.1).
“[T]he general effect of the Termination [for convenience] clause is to convert the terminated portion of the contract into a cost reimbursement contract and to provide for allowance of all costs incurred in performance of the terminated portion of the contract.”
Caskel Forge, Inc. , ASBCA No. 7638, 1962 BCA ¶ 3318.
“Equitable adjustment claims normally are ‘merged’ into the pricing provisions of the termination for convenience clause and determining specific costs attributable to claim events generally is superfluous unless a ‘loss contract’ is alleged or an increase in the contract price is sought.”
Worsham Constr. Co., ASBCA No. 25907, 85-2 BCA ¶ 18,016 at 90,369 (citations omitted).
Once the termination was converted to one for the convenience of Respondent, Appellant became entitled to recover its reasonable, allocable, and allowable costs, including costs related to unpriced changes, constructive changes, suspensions of work, differing site conditions, defective specifications, and even for some work performed that might not have complied in all respects with the contract. See Alfair Dev. Co., ASBCA Nos. 53119, 53120, 05-2 BCA ¶ 32,990 at 163,511; Safeco Ins. Co. of America, ASBCA No. 52107, 03-2 BCA ¶ 32,341 at 160,022; M. E. Brown, ASBCA No. 40043, 91-1 BCA ¶ 23,293 at 116,818.
Under the circumstances of this appeal, any absence of compliance with requirements regarding submission and consideration of the REAs as CDA claims does not preclude Appellant’s recovery of the costs it incurred in performing the work, including the work covered by the REAs, in a termination for convenience settlement. Pursuant to the DCAA audit, the costs incurred by Appellant have been established (Finding 13) and are not in dispute. Therefore, Respondent’s proposed reduction of the convenience settlement award by the $826,327 it concluded was related to costs of performing denied REAs (Finding 20f) was not justified. Appellant is entitled to include the costs incurred performing the work addressed in the REAs in its total incurred and recoverable costs.
Profit
Respondent argues that Appellant would have suffered a loss on the project had it completed it and that subsection e.3 of the Termination for Convenience clause[7] precludes including any amount for profit in Appellant’s award. To determine whether Appellant would have suffered a loss, we compare the contract price to the sum of Appellant’s pre-termination costs of performance and what it would have cost Appellant to complete the project. If Appellant’s total costs for completion of the project would have exceeded the contract price, it was in a loss position and may not recover profit. See Alfair Development Co., ASBCA Nos. 53119, 53120, 05-2 BCA ¶ 32,990 at 163,516. The incurred costs are established by the audit, but we have conflicting evidence regarding what would have been Appellant’s cost to complete the project.
Respondent, relying on McCollum v. United States, 6 Cl. Ct. 373 (1984), argues that the cost of completion to be used in determining whether Appellant was in a loss position should be the amount the surety paid to Arena, $2,702,465, notwithstanding Appellant’s estimate that it could complete for $1,713,245 (Finding 6). While the surety’s use of some form of competitive bidding to obtain the price lends credibility to the Arena figure, we have no details about this bidding process and no Postal Service contemporaneous estimate to confirm the reasonableness of Arena’s price (Finding 6). This contrasts with the facts in McCollum, where the government presented substantial evidence to support the reasonableness of its price to complete the work and to demonstrate that it had gone to great lengths to reprocure at the lowest possible cost. Further, “generally it is more expensive for a new contractor to complete a job started by another than for the original contractor to finish the work” in view of such factors as mobilization and the need for a period to familiarize itself with the work. See Dale Constr. Co. v. United States, 168 Ct. Cl. 692, 735 (1964).
Appellant argues its contemporaneous estimate is an accurate value for its cost to complete the work and should be used in determining whether it would have made a profit. The wide disparity between Appellant’s estimate and Arena’s actual costs casts some doubt on the estimate, and we note that in its estimate of its cost to complete the project, Appellant did not include field supervision or overhead (Finding 6). In its convenience settlement proposal, Appellant noted overhead accruing at $27,155 per month (Finding 11), which would have totaled an addition to its cost to complete of approximately $150,000 over the anticipated 5 1/2 months of the continued project (Finding 6). Finally, considering the record before the Court of Federal Claims indicating Appellant had some difficulty managing the project efficiently (Finding 10), we are not persuaded that Appellant would have been able to produce a completed project within its estimate. While we believe the amount paid Arena overstates what would have been Appellant’s cost to complete, we also believe that Appellant’s estimate of March 20, 1998, is overly optimistic. Considering the overhead and field supervision omitted from its estimate and based on a jury verdict, we conclude that Appellant’s cost to complete the project would have been $1.9 million.
Appellant correctly argues that it is Respondent’s burden to demonstrate Appellant was in a loss position such that it should be denied profit on its termination for convenience recovery. See Safeco Ins. Co. of America, ASBCA No. 52107, 03-2 BCA ¶ 32,341 at 160,022; R&B Bewachungs GmbH, ASBCA No. 42214, 92-3 BCA ¶ 25,105 at 125,158. However, Respondent has made a prima facie case in this regard by demonstrating that the sum of Appellant’s incurred direct costs and overhead plus its cost to complete the project exceeded the contract price. See Alfair Dev. Co., ASBCA Nos. 53119, 53120, 05-2 BCA ¶ 32,990 at 163,512. Appellant’s costs and overhead[8] incurred and paid prior to termination totaled $3,246,265 (Finding 13), and we have determined above that its cost to complete the project would have been $1,900,000. Additionally, the surety paid on Appellant’s behalf $248,632 to subcontractors for pre-termination work and $87,322 for subcontractor retainages (Finding 15). Appellant’s total costs on the project, had it completed performance, would have been, therefore, at least $5,482,219, a figure substantially higher than the contract price at termination of $4,415,638.[9]
Accordingly, unless there are other adjustments to the figures used in calculating Appellant’s profit/loss position that demonstrate Appellant would not have suffered a loss, Appellant would not be entitled to profit on its convenience recovery. It is Appellant’s burden to demonstrate entitlement to sufficient upward adjustments to take it out of an apparent loss position. See Alfair Dev. Co., ASBCA Nos. 53119, 53120, 05‑2 BCA ¶ 32,990 at 163,512; Foremost Mechanical Sys., Inc. v. General Services Administration, GSBCA Nos. 13250-C(12335), et al., 98-1 BCA ¶ 29,652 at 146,921-922.
While the rigor of proof in a convenience termination situation may be less than proof of entitlement to an equitable adjustment to a fixed-price (unterminated) contract, see Foremost Mechanical Sys., Inc. v. General Services Administration, GSBCA Nos. 13250-C(12335), et al., 98-1 BCA ¶ 29,652 at 146,921, Appellant must still show liability, causation, and damage to obtain an adjustment to the contract price. Alfair Dev. Co., ASBCA Nos. 53119, 53120, 05-2 BCA ¶ 32,990 at 163,512, citing Servidone Constr. Corp. v. United States, 931 F.2d 860, 861 (Fed. Cir. 1991). Appellant must provide sufficient proof to permit the Board to determine the amount of any upward adjustment to the contract price that is based on more than speculation. Alfair Dev. Co., ASBCA Nos. 53119, 53120, 05-2 BCA ¶ 32,990 at 163,513, citing Lisbon Contractors, Inc. v. United States, 828 F.2d 759, 767 (Fed. Cir. 1987).
Before the Court of Federal Claims, the substance of many of the REAs and other interferences by Respondent was discussed at length, raised by Appellant as evidence that Respondent delayed its progress and increased its costs of performance, in order to support Appellant’s argument that the termination for default was improper. Appellant did not seek an increase to the contract price via an equitable adjustment in that proceeding (Findings 7-9). Accordingly, there was substantial evidence before the Court addressing liability and causation, but there was none regarding the extent of damage, i.e., the amount of any equitable adjustment to which Appellant might be entitled. In this appeal, we have not been provided any documentation or other support for the figures contained in Appellant’s REAs. All we have are unsupported numbers listed on the REAs themselves, and Appellant has argued that these were considered as drafts and not claims. As a result, we have no basis on which to calculate an upward adjustment to the contract price.
Appellant points to decisions holding that profit on a convenience settlement will not be denied when the Government substantially contributed to the increased costs and it is not possible to separate the Government portion of the loss from the possible losses caused by the contractor. E.g., Safeco Ins. Co. of America, ASBCA No. 52107, 03-2 BCA ¶ 32,341 at 160,023; Wolfe Constr. Co., ENG BCA No. 5309, 88-3 BCA ¶ 21,122 at 106,655-56. The Court of Federal Claims concluded that Respondent had contributed to Appellant’s financial difficulties (Finding 9), but “also found much to criticize in [Appellant’s] discharge of its responsibilities under the contract.” (Finding 10). While it may not be possible to separate precisely Appellant’s from Respondent’s contributions to the increased costs incurred, even if we were to conclude that all of the matters addressed in the REAs were sufficient to warrant equitable adjustments in the amounts claimed by Appellant, which we cannot do on this record, Appellant would still have experienced a loss had it completed the project.[10]
Appellant’s total costs on the project, had it completed performance, would have been at least $5,482,219.[11] Its receipts, i.e., the adjusted contract price, would have been at most, $5,260,808 (Adjusted contract price at termination of $4,214,328 (which does not include the $201,310 granted in Modification M03) plus the total amount claimed for the REAs, $1,046,480.30). Thus, even assuming a 100% recovery for Appellant on the REAs, it still would have sustained a loss.[12]
Appellant has not demonstrated a basis for increasing the contract price beyond its costs, and the evidence in the record is that Appellant was in a loss position and “would have sustained a loss on the entire contract had it been completed” (Finding 17 (paragraph e.3)). Consequently, Appellant may not recover profit on its costs.[13]
Subcontractor Payments Made by Surety
Respondent correctly points out that payments made by the surety under its payment bond for pre-termination work by subcontractors ($248,632) are not convenience settlement expenses. However, such costs should be considered direct costs and added to that portion of Appellant’s claim. See Foremost Mechanical Sys., Inc. v. General Services Administration, GSBCA Nos. 13250-C(12335), et al., 98-1 BCA ¶ 29,652 at 146,921-922. Respondent asserts that Appellant had already billed and been paid for the subcontractor work in question, and that allowing Appellant recovery in this appeal would constitute double payment.
However, as discussed above, once the termination was converted to one for Respondent’s convenience, the contract essentially became a cost reimbursement contract, and Appellant is entitled to recover its incurred allowable direct costs, subject only to the contract price cap. See Astro Dynamics, Inc., ASBCA No. 41825, 91-2 BCA ¶ 23,807 at 119,208. The audit confirmed that these claimed pre-termination direct costs were incurred by Appellant and paid by the surety, and in calculating Appellant’s recovery, the Board has given Respondent credit for all payments it made to Appellant. Accordingly, Appellant may recover as a direct cost the $248,132 paid to its subcontractors by the surety and reimbursed by Appellant ($248,632 paid by the surety to subcontractors less the $500 allowed by the contracting officer (Finding 20c)).
Miscellaneous
In the last few pages of their lengthy briefs, the parties raise some additional claims for relief. Respondent argues that as our review of the contracting officer’s unilateral determination of Appellant’s convenience settlement award is de novo, see Wilner v. United States, 24 F.3d 1397, 1402 (Fed. Cir. 1994); White Buffalo Constr., Inc. v. United States, 52 Fed. Cl. 1, 7 (2002), certain of the amounts awarded by the contracting officer should be revisited and Appellant should be put to its proof of entitlement if the Board determines Appellant is entitled to any recovery at all. For example, it suggests Appellant performed certain work poorly and that it should not be entitled to recover for the surety’s (Arena’s) rework of such items. Respondent also questions the contracting officer’s allowance of interest on a loan taken by Appellant to allow it to pay the surety under its indemnity agreement. Appellant claims profit on the $248,132 payment the surety made to Appellant’s subcontractors.
Given the finding above that Appellant is not entitled to profit, its added claim is moot. Respondent’s new claims were not raised in the pleadings or as issues in the parties’ Joint Stipulation of Facts and Issues, and they are inadequately developed in the record. Accordingly, we decline to address them.
Conclusion
We calculate Appellant’s recovery as follows:
Costs and Overhead $3,246,265 (Finding 13)
Profit 0
Plus Surety’s subcontractor payments $ 248,132 (Finding 15)
Less Amount Paid by Respondent $2,503,435 (Finding 13)
Less Refunded Liquidated Damages[14] $ 297,000 (Finding 20b)
Total $ 693,962
Appellant is entitled to Contract Disputes Act interest on the above amount from December 1, 2003 (Finding 11), until paid. Calculation of interest is remanded to the parties.
Norman D. Menegat
Administrative Judge
Board Member
I concur: I concur:
William A. Campbell David I. Brochstein
Administrative Judge Administrative Judge
Chairman Vice Chairman
[1] Simplified procedures are available only for contracts valued at $100,000 or less (Procurement Manual, Section 4.3.1.b).
[2] Respondent paid the amount of the amended award, $2,399,283.59, to Appellant’s benefit into an interpleader action in the United States District Court for the Eastern District of New York (AF 67-69).
[3] Appellant contends it incurred overhead expenses of $526,846. However, it accepted the auditor’s figure above for purposes of prosecuting this appeal. (Appellant’s Opening Brief, p. 2, fn. 1; see AF 62 (p. 679)).
[4] Respondent had paid Appellant $2,503,435 before termination (Finding 13), and the surety paid Arena $2,702,465 (Finding 6), for a total of $5,205,900. The original contract price was $4,125,628 (Finding 1), and as increased by Modification M01 ($88,700 (Finding 2)) and the portion of M03 allowing partial recovery for the REAs ($201,310 (Findings 3, 4)) resulted in a total contract price of $4,415,638 as calculated by the contracting officer.
[5] “The total sum to be paid to the contractor may not exceed the total contract price as reduced by the payments made and as further reduced by the contract price of work not terminated.” (Finding 18)
[6] Adding the $201,310 price adjustment granted by the contracting officer in Modification M03 would raise the contract price cap higher, as would giving Appellant credit for the value of REAs above the amount allowed by the contracting officer.
[7] Subsection e.3 provides, “[I]f it appears that the contractor would have sustained a loss on the entire contract had it been completed, no profit will be included” in the contracting officer’s determination of the amount due the contractor after the termination for convenience. (Finding 17).
[8] Appellant claims its overhead was actually $75,847 higher than the figure found by the auditor and used in this appeal, which would increase its incurred costs by that amount. (Finding 22, n. 3).
[9] The original contract price of $4,125,628 (Finding 1) was increased $88,700 by Modification M01 (Finding 2), and $201,310 by Modification M03 (Finding 4), resulting in a contract price at termination of $4,415,638. Using Appellant’s estimated price of $1,713,245 with or without adding in the $150,000 for overhead would still result in total costs exceeding the contract price.
[10] Appellant has identified other instances where it claims entitlement to a contract price increase because Respondent’s conduct increased its costs, see Appellant’s Opening Brief, p. 16, n. 22, but it has provided no support for price adjustments of any particular amount.
[11] Appellant’s costs and overhead incurred prior to termination totaled $3,246,265 (Finding 13) plus its cost to complete the project of $1,900,000 plus the $248,632 and $87,322 the surety paid to subcontractors for pre-termination work and retainages (Finding 15) equals $5,482,219.
[12] We note that using Appellant’s claimed cost of completion, $1,713,245, in this calculation would still produce a total cost for the project, $5,295,464, that would exceed Appellant’s receipts.
[13] Respondent does not seek to reduce any recovery to which Appellant might be entitled by applying the loss adjustment formula of subsection f of the Termination for Convenience clause. Respondent’s Legal Brief, p. 80.
[14] Respondent is entitled to credit for its refund of the liquidated damages made pursuant to the contracting officer’s unilateral award. See White Buffalo Constr., Inc. v. United States, 52 Fed. Cl. 1, 19 (2002).