ARMED SERVICES BOARD OF CONTRACT APPEALS
Appeal of -- )
)
Environmental Safety Consultants, Inc. ) ASBCA No. 58343
)
Under Contract No. N62470-95-B-2399 )
APPEARANCE FOR THE APPELLANT: Mr. Peter C. Nwogu
President
APPEARANCES FOR THE GOVERNMENT: Ronald J. Borro, Esq.
Navy Chief Trial Attorney
Ellen M. Evans, Esq.
Senior Trial Attorney
OPINION BY ADMINISTRATIVE JUDGE FREEMAN
Environmental Safety Consultants, Inc. (ESCI), appeals the deemed denial of
its settlement proposal/claim for the government's convenience termination of the
captioned contract (hereinafter "Contract 2399"). The government contends that
ESCI' s claim is not based on its actual incurred costs but on prices, and that it has not
proven its actual incurred costs as required by the termination clause of the contract.
ESCI responds in pertinent part 1 that (i) the convenience termination did not convert
the firm-fixed-price contract into a cost-reimbursement contract, and (ii) the contract
changes and costs that were incurred for each of the six Bid Items were negotiated and
settled and are not subject to further actual cost determination. We find no merit in
appellant's argument. We find that the incurred costs of the terminated work with a
reasonable profit thereon are less than the progress payments made by the government,
and that the settlement expenses have not been proven in any amount. Accordingly,
we deny the appeal.
1
We say in pertinent part because most of ESCI' s brief is devoted to its claims for
contract time and price adjustments and for breach of contract damages that
were not submitted to the contracting officer for decision within six years of
accrual as required by the Contract Disputes Act of 1978 (CDA), 41 U.S.C.
§ 7103(a)(l) and (4)(A), or otherwise were settled by mutual agreement in
bilateral Modification No. P00006 to the contract. See Environmental Safety
Consultants, Inc., ASBCA No. 58343, 14-1 BCA if 35,681, and finding 3
below.
FINDINGS OF FACT
A. Submission of the Termination for Convenience
Settlement Claim to the Contracting Officer
1. Contract 2399 was awarded to ESCI on 13 November 1995. The contract
required ESCI to remove old and install new underground and above ground fuel storage
tanks at the Naval Weapons Station (NWS), Yorktown, Virginia. The total contract price
at award was $561,764.25. The specified contract completion date was 16 August 1996.
The contract schedule consisted of six priced "Bid Items." Bid Item OOOIA was a
firm-fixed-price item in the amount of $358,754 for "the entire work, complete in
accordance with the drawings and specifications, but excluding work described in Bid
Items OOOIB, OOOIC, OOOID, OOOIE and OOOIF." The Bid Items excluded from the work
under Bid Item 000 IA were unit priced items per gallon for removal and disposal of
specified quantities of fuel (OOOIB), sludge material (OOOIC), and water contaminated
petroleum (OOOID), and per cubic yard for specified quantities of petroleum contaminated
soil (OOOIE and OOOIF). (R4, tab I at 15, 16, 29)2
2. ESCI began work on the site on 2 April 1996 and performed the work with
its own personnel until I 0 October 1996. At that time ESCI had missed the specified
completion date and to avoid a termination for default, it agreed to subcontract the
entire completion of the work to a competent subcontractor. From November 1996 to
16 June 1997, Rickmond Environmental, Inc., performed the contract work as a
subcontractor to ESCI. Rickmond stopped performance after 16 June 1997 because
ESCI failed to pay Rickmond invoices in the amount of $114,239.60. See
Environmental Safety Consultants, Inc., ASBCA No. 51722, 11-2 BCA i! 34,848
at 171,429-30, findings 12-19.
3. On 24 June 1997, ESCI and the government, in bilateral Modification
No. P00006, agreed to the following changes to the contract:
1. The contractor shall provide all materials, labor, and
equipment to accomplish the following:
PC0-01:
a. Delete Bid Item OOOlB, fuel removal.
b. Provide 36,210 gallons of fuel removed.
c. Delete Bid Item OOOlE, contaminated soil removal
2
All Rule 4 citations refer to the Rule 4 filed in ASBCA No. 51722.
2
<500 ppm.
d. Delete Bid Item 0001 F, contaminated soil removal
>500 ppm.
e. Provide 1,000 CY of contaminated soil removal.
f. Remove a 120-gallon UST and demolish the existing
washrack at Building 1828.
g. Delete the removal of Tank No. 714.1, as shown on
NAVFAC Drawing #4307235.
h. Delete the installation of Tank No. 709.6, as shown
on NA VFAC Drawing #4307235.
1. Provide the in-place closure of three (3) US Ts, Tank
Nos. 719, 1828, and 2006.
J. Subcontract all remaining work, including
supervision, quality control, and punchlist items.
k. Provide additional overhead costs incurred due to
subcontracting.
I. Remove an 8,000-gallon UST, Tank No. 457.2, as
shown on NA VF AC Drawing #4307231.
m. Provide additional labor and time for entering,
leaving, and working in the Q-Area.
n. Provide extended overhead for the Government
delays under this contract.
2. TOTAL AMOUNT OF ADDITIONAL WORK
$199,301.00
TOTAL AMOUNT OF CREDITS
$199,192.00
The total contract price is increased by $109.00 from
$561,764.25 to $561,873.25.
3
The contract completion date is extended 308 calendar
days from August 26, 1996, to June 30, 1997.
The foregoing is agreed to as constituting full and
equitable adjustment and compensation (both time and
money) attributable to the facts of [sic] circumstances
giving rise to the change directed hereby, including, but
not limited to, any changes, differing site conditions,
suspensions, delays, rescheduling, accelerations, impact, or
other causes as may be associated therewith.
(R4, tab 2 at 11-12)
4. No work on the contract was performed after 16 June 1997. After
12 months of fruitless negotiation with ESCI to restart and complete the work, the
government on 12 June 1998 terminated Contract 2399 "completely" for default
(R4, tab 2 at 13). At termination, none of the Bid Items on the Contract Schedule had
been completed and accepted for final payment by the government (R4, tab 14 at 17).
On 26 August 1998, ESCI appealed the default termination to this Board. That appeal
was docketed as ASBCA No. 51722. On 28 September 2011, the Board sustained the
appeal. Pursuant to paragraph (c) of the FAR 52.249-10, DEFAULT (FIXED-PRICE
CONSTRUCTION) (APR 1984) clause of the contract, this decision converted the default
termination to a termination for convenience of the government. See Environmental
Safety Consultants, 11-2 BCA ~ 34,848 at 171,433. Familiarity with that decision is
presumed.
5. The FAR 52.249-2, TERMINATION FOR CONVENIENCE OF THE GOVERNMENT
(FIXED-PRICE) (APR 1984)-ALTERNATE I (APR 1984) clause of Contract 2399 stated in
pertinent part:
( d) After termination, the Contractor shall submit a
final termination settlement proposal to the Contracting
Officer in the form and with the certification prescribed by
the Contracting Officer ....
(e) Subject to paragraph (d) above, the Contractor
and the Contracting Officer may agree upon the whole or
any part of the amount to be paid because of the
termination. The amount may include a reasonable
allowance for profit on work done. However, the agreed
amount, whether under this paragraph (e) or paragraph ( t)
below, exclusive of costs shown in subparagraph (f)(3)
below, may not exceed the total contract price as reduced
by ( 1) the amount of payments previously made and (2) the
4
contract price of work not terminated. The contract shall be
amended, and the Contractor paid the agreed amount.
Paragraph (f) below shall not limit, restrict, or affect the
amount that may be agreed upon to be paid under this
paragraph.
(f) If the Contractor and Contracting Officer fail to
agree on the whole amount to be paid the Contractor
because of the termination of the work, the Contracting
Officer shall pay the Contractor the amounts determined as
follows, but without duplication of any amounts agreed
upon under paragraph (e) above:
( 1) For contract work performed before the
effective date of termination, the total (without duplication
of any items) of -
(i) The cost of this work;
(ii) The cost of settling and paying termination
settlement proposals under terminated subcontracts that are
properly chargeable to the terminated portion of the
contract if not included in subdivision (i) above; and
(iii) A sum, as profit on (i) above, determined by
the Contracting Officer under 49.202 of the Federal
Acquisition Regulation, in effect on the date of this
contract, to be fair and reasonable; however, if it appears
that the Contractor would have sustained a loss on the
entire contract had it been completed, the Contracting
Officer shall allow no profit under this subdivision (iii) and
shall reduce the settlement to reflect the indicated rate of
loss.
(2) The reasonable costs of settlement of the work
terminated, including -
(i) Accounting, legal, clerical, and other expenses
reasonably necessary for the preparation of termination
settlement proposals and supporting data;
(ii) The termination and settlement of subcontracts
(excluding the amounts of such settlements); and
5
(iii) Storage, transportation, and other costs
incurred, reasonably necessary for the preservation,
protection, or disposition of the termination inventory.
(h) The cost principles and procedures of Part 31 of
the Federal Acquisition Regulation, in effect on the date of
this contract, shall govern all costs claimed, agreed to, or
determined under this clause.
(R4, tab 1 at 69)
6. On 5 July 2012, ESCI submitted to the contracting officer a Standard Form
(SF) 1436 "Settlement Proposal (Total Cost Basis)" for the termination for convenience.
The settlement proposal requested a net payment of$1,183,366.59. The largest item in
the proposal was $1,021,306.13 for "DIRECT LABOR." The proposal was signed and
certified by ESCI's President/CEO (Mr. Peter Nwogu). The certification stated that: "the
charges as stated are fair and reasonable." (App. supp. R4, tab 1, vol. I, tab 3 at 1, 4)
7. On 14 September 2012, ESCI converted its termination settlement proposal
to a termination settlement claim under the Contract Disputes Act of 1978 (CDA),
41 U.S.C. §§ 7101-7109. The contracting officer refused to either negotiate a
settlement agreement or issue a final decision on the claim. She alleged that the claim
was "conceived in fraud and is permeated by fraud" and that she lacked authority to
either settle or decide the claim. On 29 September 2012, ESCI appealed the deemed
denial of the claim to this Board. The appeal was docketed as ASBCA No. 58343.
See Environmental Safety Consultants, 14-1 BCA ii 35,681 at 174,666.
B. Submission of the Claim for DCAA Audit
8. On 22 March 2013, ESCI's 5 July 2012 termination settlement claim was
submitted by the contracting officer for audit by the Defense Contract Audit Agency
(DCAA) (Bd. ex. 1 at 4). Initially, ESCI refused to cooperate with an audit. On
10 July 2013, the Board ordered ESCI to provide, as requested by the auditor, all
books and records relevant to the claim (Bd. corr. file). ESCI provided its books and
records to the government, and a "walk-through" of the termination settlement claim
was conducted by the DCAA with ESCI's president on 22 August 2013 (Bd. corr. file,
ltr. dtd. 8 November 2013).
9. At the 22 August 2013 "walk-through" meeting, the assigned auditor
(Mr. Horton) questioned Mr. Nwogu about the $1,000,000 item for direct labor. At
hearing, Mr. Horton testified as to the discussion of this issue as follows:
6
MR. HORTON: ... When Mr. Nwogu was
discussing the contract correspondence, I asked several
times about the $1 million because it's a significant
amount in comparison to the contract value, so it definitely
raises that area of concern.
While questioning Mr. Nwogu about that $1 million,
I was told that I did not understand or I was not listening.
He was angry and irritated. At one point, my supervisor
and branch manager actually left the conference room. I
think they had to go get some documents and I continued
to ask Mr. Nwogu about the proposed line items for the
direct labor. Mr. Nwogu became very agitated, walked
around the actual conference room table and grabbed my
chair and began shaking it while he was shouting this is the
labor.
JUDGE FREEMAN: While you were sitting in it?
MR. HORTON: Yes, yes, while I was sitting in it,
he grabbed the arm of it and started shaking it very
violently while shouting this is labor.
But going back to the $1 million, we were able to
derive that it was based on contract price based upon the
four hour walk through and that it contained multiple cost
elements such as direct labor, materials, other costs.
At one point during the walk through, Mr. Nwogu
asserted that it was the estimated total contract price
assuming that he were to complete the contract and that he
was entitled to the full amount of money regardless of how
much the contract-regardless of how much of the contract
work was completed or how much ... costs he incurred
because it was a firm fixed price contract.
(Tr. 2/334-35)
10. At the 22 August 2013 walk-through meeting, the DCAA personnel also
inquired about the $252,503.97 for "SETTLEMENT WITH SUBCONTRACTORS"
in Item 14 of the SF 1436. Mr. Horton testified on that issue as follows:
We inquired about that amount and Mr. Nwogu informed
us that there wasn't a subcontractor proposal [and] that he
7
estimated the cost for him to complete that particular effort
based upon contract price, he stated that it was work that
he lost out on because another contractor performed the
effort and therefore, he priced that work using the contract
price as assuming that he had completed the work. So
that's how he derived the $252,000.00.
(Tr. 2/336-37)
11. Following the walk-through meeting, the DCAA evaluated the adequacy of
the claim for audit. Mr. Horton described the adequacy evaluation as follows:
We evaluated the termination claim for adequacy and we
conducted the walk through as well and based upon the
results of those two items, we determined that the
termination claim was inadequate for audit.
During our evaluation we discovered that the claim
was based on contract price as compared to costs incurred.
Also, the contractor co-mingled cost elements in the line
item for direct labor. Those were the most significant of
the issues discovered during the walk through and the
adequacy assessment.
(Tr. 2/329)
12. On 24 February 2014, DCAA issued a "Basis For Disclaimer of Opinion"
report stating in pertinent part that:
Based upon the results of our adequacy evaluation,
we determined that ESCl's July 5, 2012 termination for
convenience settlement proposal does not comply with the
requirements of FAR 49.206-2(b)(2), Bases for Settlement
Proposals, and FAR 49 .206-1 (c), Submission of Settlement
Proposals, and therefore, is inadequate.
ESCI's termination for convenience settlement
proposal was not prepared using actual costs incurred
through the effective date of the termination, but instead
was based on an estimated increased contract price ....
8
Due to the significance of the proposal inadequacies
discussed in the Basis for Disclaimer of Opinion section,
we were unable to perform an audit or alternative
procedures sufficient in scope to enable us to express, and
we do not express, an opinion on whether the proposed
costs and supporting data complies in all material respects
with the applicable requirements in the Federal Acquisition
Regulations (FAR) ....
(Bd. ex. 1 at 4-5)
C. Pre-Hearing Discovery
13. On 4 April 2014, the government served 24 discovery requests on ESCI
with respect to the records supporting the 5 July 2012 termination claim (Bd. ex. 3).
On 13 April 2014, ESCI responded to the government's discovery requests with the
following message to the government and Board:
Appellant is asking the Board to immediately direct
Ms. Evans [government counsel] to come down here and
inspect and make copies of appellant's accounting records.
Ms. Evans lies to you could be exposed, if she can come
down and make copies. In previous dispute she came
down with DCAA and made copies. That avoided or
prevented her lies that appellant did not cooperate by
providing ESCI' s accounting or contract documented
records. The lies need to stop. It is really a shame that the
Board can believe lies from Ms. Evans. Appellant is tired
of listening to lies that are racially motivated.
Attached is appellant's response to Ms. Evans discovery
request and appellant is waiting for her to come and make
copies and inspect records.
(Bd. corr. file, email dtd. 13 April 2014)
14. The attachment to ESCI's 13 April 2014 response consisted of
argumentative allegations that the requested documents had been provided to the
DCAA, or that they did not exist or that they were irrelevant to the issues in the appeal
(Bd. corr. file).
15. By order dated 30 April 2014, the Board noted a possible lack of
jurisdiction over the claimed increased costs in ESCI's Termination Settlement claim
9
in excess of the contract price ($561,873.25) at termination. The parties were directed
to submit briefs on the issue. (Bd. corr. file)
16. On 20 May 2014 the Board ordered ESCI to respond to ten of the
government's 4 April 2014 discovery requests (Bd. ex. 4). ESCI responded to the
order between 19-25 June 2014 (Bd. corr. file; Bd. ex. 5). The response denied that
ESCI had a job cost ledger for the contract and was otherwise such that the
government on 10 July 2014 moved to dismiss the appeal for ESCI's failure to comply
with the order (Bd. ex. 5 at Item l; Bd. corr. file).
17. On 2 July 2014, ESCI submitted a revised SF 1436 for its Termination
Settlement Claim to the contracting officer. The revised claim, among other things,
reduced the claimed "DIRECT LABOR" from $1,021,306 to $507 ,322, and the net
payment requested from $1,183,366.59 to $364,536.45 (Bd. ex. 6 at 6). While the
amount of direct labor was substantially reduced, the methodology of the claim was
still based on price and not on incurred cost (tr. 2/346-47).
18. On 25 July 2014 the Board granted in part a government motion to dismiss
the appeal to the extent of the claimed costs of performance in excess of the contract
price at termination. See Environmental Safety Consultants, 14-1BCA~35,681 at
174,668. Familiarity with that decision is presumed.
19. On 19 September 2014 the hearing for the appeal was set for 17-18 November
2014. By order dated 15 October 2014, the hearing was limited to the issue of whether
ESCI's 5 July 2012 Termination Settlement Proposal/Claim "is allowable, proven as to
amount and in compliance with the FAR 52.249-2 Termination for Convenience of the
Government (Fixed[-]Price) (Apr 1984}-Alternate I clause of the contract and FARs
applicable thereto." (Bd. corr. file)
20. On 23 October 2014, the Board denied the government's 10 July 2014
motion to dismiss for ESCI's failure to comply with the Board's 20 May 2014
discovery order, but did impose a sanction for the non-compliances. The sanction was
that: "no documents or testimonial evidence, other than the testimony of Mr. Nwogu,
that should have been, but were not disclosed by ESCI in its responses to the discovery
order will be allowed to be offered by appellant for admission into evidence at the
hearing." See Environmental Safety Consultants, Inc., ASBCA No. 58343, 14-1 BCA
~ 35,786 at 175,047, 175,051. Familiarity with that decision is presumed.
21. By Board orders dated 23 October, 27 October and 5 November 2014,
all documents and testimony admitted in evidence in the default appeal (ASBCA
No. 51722), ESCI's 5 July 2012 Termination Settlement Proposal/Claim (previously
identified as app. supp. R4, tab 1) and Board Exhibits 1 through 6, were admitted in
evidence for the present appeal on the termination settlement claim (ASBCA
No. 58343) (Bd. corr. file).
10
22. The Board order of 27 October 2014 also required that all other documents
proposed by the parties for hearing exhibits be provided to the opposing party and to the
Board no later than 5 November 2014. The government complied with that order
delivering 28 proposed hearing exhibits (approximately 673 pages) on 5 November 2014
(Bd. corr. file). ESCI did not comply with the order. Starting on 11November2014
and concluding on the early morning of the first day of the hearing on 17 November
2014, ESCI made 23 separate submissions totaling 348 pages of proposed hearing
exhibits (Bd. corr. file). At hearing, the presiding judge told ESCI that any documents
submitted for evidence after 5 November 2014 would be accepted only as offers of
proof and would not be considered as evidence in the decision on this appeal (tr. 1/8-9). 3
D. ESCI's Claimed Settlement Items
23. At the start of the hearing on 17 November 2014, ESCI requested that the
hearing consider both its 5 July 2012 termination settlement claim and its 2 July 2014
amendment of that claim. The government did not object and the presiding judge
ruled that both would be considered. (Tr. 1/8-9)
24. For Item 1, "DIRECT MATERIAL," ESCI claims no amount in either its
5 July 2012 claim or in its 2 July 2014 amendment. For Item 2, "DIRECT LABOR,"
ESCI claims $1,021,306.13 in its 5 July 2012 claim and $507,322.00 in its 2 July 2014
amended claim. (App. supp. R4, tab 1, vol. 1, tab 3 at 1; Bd. ex. 6 at 6) 4 At hearing,
ESCI's president testified that "everything was included, including material and
everything was included in that labor" (tr. 1/96-97). He further testified that from
15 December 1995 to October 1996, the "labor and labor-related expenses for this
project is $154,261.64" (tr. 11116 ). 5
25. The Board's 20 May 2014 discovery order Item 5 required ESCI to:
"Provide complete, legible copies of all payroll records and time-keeping records for
this contract including, but not limited to, all certified payrolls for ESCI and for each
subcontractor" (Bd. ex. 3 at 3, ex. 4 at 3). The payroll records provided by ESCI in
3
Post-hearing, ESCI has submitted an additional 1,500 plus pages of proposed
exhibits for offer ofproof(Bd. corr. file 25 Nov. - 16 Jan. 2015). These
documents were not ruled on by the Board and hence the government's motion
to strike is moot.
4
These two citations refer respectively to the SF 1436 on which ESCI's 5 July 2012
termination settlement claim and its 2 July 2014 amended termination
settlement claim were asserted. The citations are applicable to, but will not be
repeated in, the findings on the SF 1436 claim items that follow.
5
In October 1996, ESCI subcontracted all remaining work to Rickmond
Environmental, Inc., to avoid a default termination (see finding 2).
11
response to Item 5 were not the weekly certified payrolls for work on Contract 2399
required by the FAR 52.222-8, PAYROLLS AND BASIC RECORDS (FEB 1988) clause of
the contract. 6 The payroll records provided in the response to discovery order Item 5
showed for each worker the gross hours worked and gross pay for the work for the pay
period, but did not indicate the job on which the work was performed. In 1996, ESCI
had six other jobs having a total contract value of $1,369,420 in addition to Contract
2399 (ex. G-6). The total man hours in the ESCI payrolls provided in Item 5 were
3,739.70. The total gross payroll shown for those hours was $45,033.85. (Bd. ex. 5,
Item 5 at 6, 26, 127, 156, 297, 311, 320, 321, 325, 341, 351, 362, 369, 379, 401)
26. The daily Contractor Construction Reports on Contract 2399 prepared by
the ESCI site superintendant named the workers present, their specific trade, their
specific tasks performed and their specific hours worked. At hearing, the
government's construction management expert witness, Charles Heckman, testified
that the daily reports showed 3140.8 total labor hours and a gross direct labor cost
incurred by ESCI for Contract 2399 on the construction site from April through
October 1996 of $38,830.47. (Ex. G-27 at 18; tr. 2/285-93)
27. The testimony of ESCI's president that the direct labor cost was
$154,261.64 left unexplained the remaining $867,044.49 in "DIRECT LABOR"
claimed by ESCI in its 5 July 2012 claim and the remaining $353,060.36 in "DIRECT
LABOR" claimed in its 2 July 2014 amended claim. The government expert witness
Mr. Heckman compiled a register of all ESCI checks to its subcontractor Rickmond
and to various equipment and service suppliers that were provided by ESCI in the
response to the 20 May 2014 discovery order and in the record of ASBCA No. 51722.
The total amount of these checks ($178,348.78), less duplicates, checks for other
projects, and checks comingling costs incurred for other projects ($49,894.13) was
$128,454.65. (Ex. G-28; tr. 2/293-96)
28. For Item 5 "OTHER COSTS (from Schedule B)," ESCI claims $13,000 in
its 5 July 2012 claim, and $23,675 in its 2 July 2014 amended claim. ESCI's
explanation in Schedule B of its 5 July 2012 claim is: "Costs after June 30, 1997" and
"Volumes 1 & II & III Files," "Rule 4 Files" and "Table 1 & II Attached" (app. supp.
R4, tab 1, vol. I, tab 3 at 2). Tables I and II are price and estimated "incurred" cost
schedules for the proposed termination settlement. We find no explanation of the
alleged $13,000 "OTHER COSTS" in any of the referenced documents, and no
evidence that the $13,000 is an actual incurred cost supported by invoices or cancelled
checks identifiable on their face as being for work on Contract 2399.
29. ESCI' s explanation in Schedule B of its 2 July 2014 amended claim for
"OTHER COSTS" is "Materials left in the trailer at work site" ($300); "Construction
6
(See R4, tab 1 at 56).
12
equipment left on site" ($200); "Labor contract management Table 20-9" ($23, 175)
(Bd. ex. 6 at 7). The materials left on site are described as "safety gears, overal[l],
coats, boots, gloves, etc." The construction equipment left on site is described as
"shovels, buckets, hoses, pumps, HNU, sheet." (Id.) In the absence of any evidence
that the described materials and equipment were unique for the Contract 2399 work
and of no value otherwise, or that the government refused to allow ESCI to remove its
materials and construction equipment when the contract was terminated, ESCI' s
abandonment of the materials and equipment was not a cost of the work. Table 20-9 is
a listing by week from the last week of June 1997 to the second week of June 1998 of
the hours and hourly rate for "Management" in each week. 7 The hourly rate for all
hours is $75. (Id. at 15) However, there are no job cost accounting records
maintained in the ordinary course of business or other objective evidence that the
claimed amount of $23, 175 was actually paid by ESCI or otherwise incurred as a legal
liability (see finding 16). On this record, we find the Item 5 "OTHER COSTS" in both
ESCI's 5 July 2012 claim and in its 2 July 2014 amended claim unproven in any
amount.
30. For Item 6, "GENERAL AND ADMINISTRATIVE EXPENSES (from
Schedule C)" ESCI claims $17,000 in its 5 July 2012 claim, and $22,709.32 in its
2 July 2014 amended claim. ESCI's "DETAIL OF EXPENSES" in Schedule C of the
5 July 2012 claim is: "Delays 32 months. See Volume 1 & II & III Files. See Rule 4
Files Documentation. See Tables 1 & II." ESCI's "METHOD OF ALLOCATION"
in Schedule C is: "administrative costs." (Id.) "Administrative costs" is not a method
of allocation. We find no support for the proposed $17 ,000 in G&A expenses in the
Schedule C references which are the same as in Finding 27 for "OTHER COSTS."
Moreover, Item No. 3 in the Board's 20 May 2014 discovery order stated: "Provide a
complete, legible copy of ESCI's general corporate ledger for the years 1995 through
1998" (Bd. ex. 3 at 3, ex. 4 at 3). ESCI did not provide a copy of its general corporate
ledger (Bd. ex. 5, tab 3). Without the general corporate ledger, detailing the specific
expenses in the G&A cost pool, and without the supporting payroll, invoices and
cancelled checks for those expenses, we find the claimed expenses unproven in any
amount. ESCI's Schedule C in its 2 July 2014 claim states that its G&A claim is
derived from the Eichleay Formula. However, since the amount of the G&A cost pool
has not been proven in any amount, there is nothing that the Eichleay Formula can be
applied to.
31. For Item 7, "TOTAL COSTS (Items 1thru6)," ESCI claims $1,051,306 in
its 5 July 2012 claim, and $553,706.32 in its 2 July 2014 amended claim, as the sum of
its claimed proposed direct labor, other costs and G&A costs. On the evidence cited
above, we find that the direct labor incurred cost is no more than $38,830.47 and other
7
While the table purports to show management direct labor for June 1997 to June
1998, the title says it is for "Pre-Termination Labor in Contract Management
June 2012 -June 18 2014."
13
direct costs are no more than $128,454.65. The "OTHER COSTS" and "GENERAL
AND ADMINISTRATIVE EXPENSES" in the 5 July 2012 and 2 July 2014 claims
are not proven in any amount. Accordingly, Item 7 is not more than $167,285.12.
32. For Item 8, "PROFIT (Explain in Schedule D)," ESCI claims $155,145.90
in its 5 July 2012 claim, and $6,958.00 in its 2 July 2014 amended claim. ESCI's
explanation in Schedule D of the 5 July 2012 claim is: "Subcontractor Profits
199,599.80," "Terminated work loss 198,850.55," and "See Volume II [sic], II & III
Attached: Rule 4 File Documentations" (app. supp. R4, tab 1, vol. I, tab 3 at 2). We
find no rational connection between the claimed profit amount and the explanation in
Schedule D. Pursuant to paragraph (f)(l)(iii) of the FAR 52.249-2, Termination for
Convenience of the Government (Fixed-Price) (Apr 1984}-Alternate I clause of the
contract, and FAR 49 .202 referenced therein, the profit on a termination settlement is
to be determined under FAR 49 .202 in effect on the date of the contract to be fair and
reasonable. However, FAR 49.202(a) also expressly prohibits profit on settlement
expenses, anticipatory profits and consequential damages. ESCI' s claimed profit is
14. 76 percent of its claimed total costs of $1,051,306. That same profit percentage
applied to our finding of a proven total cost of no more than $167 ,285 .12 would allow
a profit of $24,691.28. We consider that amount to be fair and reasonable.
33. For Item 9, "TOTAL COSTS (Items 7 and 8)," ESCI claims $1,206,452.03
in its 5 July 2012 claim, and $560,664.32'in its 2 July 2014 amended claim. We have
found above (findings 31, 32) a proven total for Items 7 and 8 of no more than
$191,976.40.
34. For Item 10, "DEDUCT FINISHED PRODUCT INVOICED OR TO BE
INVOICED," ESCI claims $268,326.62 in its 5 July 2012 claim, and $507,322.00 in
its 2 July 2014 amended claim. At termination, however, none of the six priced Bid
Items had been completed and accepted for final payment by the government (see
finding 4). Therefore, there were no finished products invoiced or to be invoiced. 8
The amounts claimed by ESCI are progress payment amounts which to the extent
actually paid by the government ($303,990.20) are to be included in Item 18 of the SF
1436 "ADVANCE, PROGRESS & PARTIAL PAYMENTS (from Schedule H)," and
not as finished product invoices under Item 10.
35. For Item 11, "TOTAL (Item 9 less Item 10)," ESCI claims $938,125.41 in
its 5 July 2012 claim and $53,342.32 in its 2 July 2014 amended claim. We have
8
One ofthe Item 10 amounts in the 2 July 2014 amended claim was $135,102 for
alleged "Contract work completed, accepted and verified for changed work
PC0-01 payment by government Pursuant to Contract Modification P00006 of
June 23/24, 1997" (Bd. ex. 6 at 10). This claim is patently without merit. The
net contract price increase for all PC0-01 work under Modification No. P00006
of the contract was $109.00, not $135,102 (see finding 3).
14
found that at contract termination there was no finished product invoiced or to be
invoiced. Accordingly, we find Item 11 to be $191,976.40.
36. For Item 12, "SETTLEMENT EXPENSES (from Schedule E)," ESCI
claims $175,248.40 in its 5 July 2012 claim, and $200,262.73 in its 2 July 2014
amended claim. On Schedule E in its 5 July 2012 claim, ESCI describes its settlement
expenses as "Consultations 6/30/97 - 6/12/98" and as "'ESCI standby costs. See
Volume III Documentation. See Rule 4 File." Volume III of the 5 July 2012 claim is
entitled in pertinent part "ESCI's Incurred Costs from June 30, 1997 thru June 12,
1998" (app. supp. R4, tab 1, vol. III at 1). We have found nothing in Volume III
supporting a cost of $175,000 for "SETTLEMENT EXPENSES" as defined in
Alternate I, paragraph (f)(2) of the Termination for Convenience clause of the contract
(see finding 5).
37. In Item 12, Schedule E, of the 2 July 2014 amended claim, ESCI claims the
following amounts: $36,975 for "Labor in preparation for T4C Table 20-10," $6,000
for "Consultant," $8,000 for "Home office use," $103,935.73 for "Legal fees Item No.
20-14 Exhibits," $26,102 for "Legal fees in administration of contract," $5,000 for
"Documents preservations," and $14,250.12 for "Response Item 20-6 Exhibit." Table
20-10 in the 2 July 2014 amended claim is a summary listing by week from the first
week of June 2012 to the fourth week of June 2014 of the hours worked at $75 per
hour for preparing the termination for convenience claims (Bd. ex. 6 at 16-17). There
are no contemporaneous time sheets or other evidence supporting the Table 20-10
summary. There are no invoices or other evidence supporting the claimed
"Consultant" cost, the claimed "Documents preservations" cost, the claimed "Home
office use" cost, the claimed "Legal fees in administration of contract" or the claimed
"Response Item 20-6 Exhibit." The "Legal fees Item No. 20-14 Exhibits" do not
support any amount of the $103,935.73 claimed as a "settlement expense." The 20-14
Exhibits are 193 pages of legal billings. One hundred twenty-four ( 124) of those
pages are billings for legal work related to a National Park Service contract and a
Corps of Engineers contract (Bd. ex. 5, vol. III, tab 20-14 at 7-130). The 69 pages of
legal billings related to Contract 2399 are in the total amount of $44,836 for work
performed from 26 November 1996 to 28 Februaryl999 (id. at 1-6, 132-93).
Obviously these legal costs were not incurred in the preparation and presentation of a
termination settlement claim that arose no earlier than 28 September 2011 when the
default termination was converted to a convenience termination. On this record, ESCI
has failed to prove settlement expenses in any amount.
38. For Item 13, "TOTAL (Items 11and12)," ESCI claims $1,113,373.81 in
its 5 July 2012 claim and $253,605.05 in its 2 July 2014 amended claim. We have
found above that Item 12 has not been proven in any amount. Accordingly, Item 13
remains $191,976.40.
15
39. For Item 14, "SETTLEMENT WITH SUBCONTRACTORS (from Schedule
F)," ESCI claims $252,503.97 in its 5 July 2012 claim and $110,931.40 in its 2 July
2014 amended claim. In Schedule F of both claims ESCI lists only one subcontractor,
Rickmond Environmental, Inc. At hearing, Rickmond's president testified that
Rickmond never submitted a termination settlement claim to ESCI nor did it ever
receive a termination settlement payment from ESCI (tr. 2/227-28, 239). Regarding the
source of the claimed settlement with Rickmond, the DCAA auditor testified at hearing
that the matter was discussed at the 22 August 2013 walk-through meeting with ESCI's
president as follows:
Q. To what extent were you able to inquire about
the $252,000.00 amount that appears in the claim for a
subcontractor termination settlement? Did you get that
far?
A. We did. We inquired about that amount and
Mr. Nwogu informed us that there wasn't a subcontractor
proposal that he estimated the cost for him to complete that
particular effort based upon contract price, he stated that it
was work that he lost out on because another contractor
performed the effort and therefore, he priced that work
using the contract price as assuming that he completed the
work. So that's how he derived the $252,000.00.
(Tr. 2/336-37) On this evidence, we find the "SETTLEMENT WITH
SUBCONTRACTORS" item unproven in any amount.
40. For Item 15, "GROSS PROPOSED SETTLEMENT (Items 13 thru 14),"
ESCI claims $1,365,877. 78 in its 5 July 2012 claim, and $364,536.45 in its 2 July
2014 amended claim. Since we have found no incurred cost for a termination
settlement with subcontractors, the proven gross proposed settlement remains at
$191,976.40.
41. For Item 16, "DISPOSAL AND OTHER CREDITS (from Schedule G),"
ESCI claims $182,511.19 in its 5 July 2012 claim, and no amount in its 2 July 2014
claim. On the Schedule G "DESCRIPTION," in the 5 July 2012 claim, ESCI stated
"Amount of work not completed as of June 12, 1998," entered an amount of $95,000,
and stated: "See Volume 1, II, & III and Rule 4 File Documentations. See Table 1 &
II attached." There is no explanation for the difference between the $182,511.19 in
Item 16 and the $95,000.00 in Schedule G or in the documents referenced therein.
"DISPOSAL AND OTHER CREDITS" for purposes of a convenience termination
settlement are described in the DCAA Contract Audit Manual in pertinent part as
follows: "Credit amounts included in a settlement proposal normally represent: (1) an
offer by the contractor to purchase inventory at less than cost, (2) the proceeds from
16
the sale of termination inventory, or (3) a combination of (I) and (2)." DCAAM,
7640.1, December 6, 2011. There is no evidence that ESCI retained or sold any
termination inventory for its own use or took any other action for which a credit is due
the government.
42. For Item 17, "NET PROPOSED SETTLEMENT (Item 15 less 16)," ESCI
claims $1,183,366.50 in its 5 July 2012 claim, and $364,536.45 in its 2 July 2014
amended claim. Since we have found no basis for Disposal and Other Credits in this
record, the proven net proposed settlement remains no greater than $191,976.40.
43. For Item 18, "ADVANCE, PROGRESS & PARTIAL PAYMENTS (from
Schedule H)," ESCI left the item blank in both its 5 July 2012 claim and its 2 July
2014 amended claim. The evidence shows that four progress payments in the total
amount of $213 ,217. 80 were made in 1996 and two progress payments in the total
amount of$90,772.20 were made in the first five months of 1997 for a total amount of
$303,990.00. (R4, tabs 13, 57, 73, 89, 113, 125)
44. For Item 19, "NET PAYMENT REQUESTED (Item 17 less 18)," ESCI
claims $1,183,366.50 in its 5 July 2012 claim and $364,536.45 in its 2 July 2014
amended claim. However, since the progress payments paid by the government to
ESCI ($303,990.00) are greater than the total amount of the proven incurred cost,
reasonable profit and termination settlement expenses ($191,976.40), we find no net
payment due ESCI under the terms of the Termination for Convenience clause of the
contract.
DECISION
The Default clause in Contract 2399 states that if a termination for default is
subsequently reversed, the termination will be considered as a termination for
convenience. The Termination for Convenience clause in Contract 2399 states that if
the parties cannot agree on a termination settlement, the contracting officer will issue a
decision determining the settlement based on "the cost" of the terminated work, a
reasonable profit on that cost, and the contractor's reasonable settlement expenses.
The Termination clause further provides that the settlement, excluding the settlement
expenses, cannot exceed the contract price and that the costs will be determined under
the FAR Part 32 allowable cost provisions for cost reimbursement contracts. (See
findings 4, 5)
The precedent is well established that when a fixed-price non-commercial items
government contract is terminated for convenience, it essentially becomes a cost
reimbursement contract. D.E. W., Inc. and D.E. Wurzbach, A Joint Venture, ASBCA
Nos. 50796, 51190, 00-2 BCA ,-r 31,104 at 153,632; Durette, GmbH, ASBCA
No. 34072, 91-2 BCA ,-r 23,756 at 118,972; R.G. Robbins & Co., ASBCA No. 27516,
83-1 BCA iJ 16,420 at 81,691-92. Due to the termination, ESCI is entitled to receive
17
its "costs" of performing the work terminated, not its "price." SWR, Inc., ASBCA
No. 56708, 15-1 BCA ~ 35,832. The precedent is also well established that a
contractor terminated for convenience "bears the burden of proving the fact of loss
with certainty, as well as the burden of proving the amount of loss with sufficient
certainty so that the determination of the amount...will be more than mere
speculation." Lisbon Contractors, Inc. v. United States, 828 F.2d 759, 767 (Fed. Cir.
1987) (citing Willems Indus., Inc. v. United States, 295 F .2d 822, 831 (Ct. Cl. 1961 ),
cert. denied, 370 U.S. 903.
ESCI's 5 July 2012 termination settlement claim was found by the DCAA to be
a price-based claim, and the DCAA "disclaimed" any audit opinion on the claim. At
hearing the DCAA auditor testified that the 2 July 2014 amended claim was also a
price-based claim. In response to the government's discovery request and the Board's
discovery order, ESCI among other things, (i) admitted that it did not maintain a job
cost ledger, (ii) provided gross payroll records that did not identify the job(s) on which
the employee was being paid, and (iii) provided copies of checks payable to a
subcontractor and vendors that for the most part were unsupported h)'. invoices.
Based on the findings above, ESCI has failed to carry its burden of proof for the
net settlement payment claimed under either its 5 July 2012 termination settlement
claim or its 2 July 2014 amended termination settlement claim. ESCI' s termination
settlement expenses are not proven in any amount, and the proven costs of the
terminated work with a reasonable allowance for profit ($191,976.40) do not exceed
the progress payments already paid to ESCI by the government ($303,990.00). 9
9
The government moves in both its main and reply briefs for the sanction of dismissal
of the appeal on grounds of (i) the "outrageous pre-trial antics" of ESCI's
president, including unfounded attacks on counsel, refusal to cooperate with
DCAA and government counsel in discovery, and physically accosting a
DCAA auditor, and (ii) at hearing giving slanderous and perjured testimony
against a Naval Officer who was not present (gov't main hr. at 32-35; reply br.
at 2-10). In light of our decision on the merits of the appeal, we find the motion
to dismiss moot. However, we note that at hearing the testimony against the
Naval Officer (tr. 11210-22) was convincingly rebutted by two credible
witnesses (tr. 2/210-21, 223-24).
18
CONCLUSION
The appeal is denied.
Dated: 2 March 2015
MONROE E. FREEMAN, JR. I \
Administrative Judge
Armed Services Board
of Contract Appeals
I concur I concur
~~% pt; RICHARD SHACKLEFORD
Administrative Judge Administrative Judge
Acting Chairman Vice Chairman
Armed Services Board Armed Services Board
of Contract Appeals of Contract Appeals
I certify that the foregoing is a true copy of the Opinion and Decision of the
Armed Services Board of Contract Appeals in ASBCA No. 58343, Appeal of
Environmental Safety Consultants, Inc., rendered in conformance with the Board's
Charter.
Dated:
JEFFREY D. GARDIN
Recorder, Armed Services
Board of Contract Appeals
19