BOARD OF CONTRACT APPEALS
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON, DC 20401
In the Matter of )
)
the Appeal of )
)
BANTA COMPANY ) Docket No. GPO BCA 03-91
Jacket Nos. 245-004 and 245-006 )
Purchase Orders 82047 and 82137 )
DECISION AND ORDER
This appeal, timely filed by Banta Company, Curtis Reed Plaza,
P. O. Box 60, Menasha, Wisconsin 54952 (hereinafter the
Appellant or Contractor), is from the final decision, dated
November 27, 1990, of Contracting Officer Jack G. Marken
(hereinafter Contracting Officer), of the U.S. Government
Printing Office, North Capitol and H Streets, NW., Washington,
DC 20401 (hereinafter Respondent or GPO or Government),
denying the Appellant's separate claims for additional
compensation in the amounts of $103,025.13 on Purchase Order
82047, Jacket No. 245-004, and $18,241.00 on Purchase Order
82137, Jacket No. 245-006. Instead, the Contracting Officer
concluded that the Appellant owed the Government $54,505.00
and 32,219.00, respectively, and he issued the appropriate
contract modifications for the recovery of those amounts (R4
File, Tabs UU and WW).1 For the reasons which follow, the
Contracting Officer's decision is MODIFIED, and the
Appellant's claim is ALLOWED to the fair and reasonable amount
of $72,830.00.
BACKGROUND
The facts in this appeal are uncontroverted and are set forth
here essentially as stipulated by the parties. See, Banta
Company, GPO BCA 03-91, Stipulation of Undisputed Facts, dated
October 9, 1991 (hereinafter Joint Stipulation).2
1. On June 16, 1989, GPO awarded the Appellant Jacket No.
245-004 under Purchase Order No. 82407 (R4 File, Tab E). The
contract covered by Jacket No. 245-004 required the Appellant
to produce 4,701,000 copies of an 88-page Internal Revenue
Service (hereinafter IRS) tax booklet at a contract price of
$727,902.00, with an "added rate" to be paid for additional
copies ordered. Joint Stipulation, ¶ 2, pp. 1-2.
2. On July 5, 1989, GPO awarded the Appellant Jacket No.
245-006 under Purchase Order No. 82137 (R4 File, Tab J). The
contract covered by Jacket No. 245-006 required the Appellant
to produce 911,000 copies of a 120-page IRS tax booklet at a
contract price of $222,986.00, with an "added rate" to be paid
for additional copies ordered. Joint Stipulation, ¶ 3, p. 2.
3. The pre-production samples of the tax booklets, which
were required under the specifications in both Jacket No.
245-004 and Jacket No. 245-006, were timely submitted to GPO
by the Contractor in August 1989, and were fully approved by
the Respondent in September 1989 (R4 File, Tabs N, P and R).3
Joint Stipulation, ¶¶ 4, 5, p. 2.
4. On September 21, 1989, GPO issued a Printing
Specification Change Order (PSCO) which directed the Appellant
to reduce the number of pages per booklet to be printed under
Jacket No. 245-006 from 120 pages to 112 (R4 File, Tab Q).4
Joint Stipulation, ¶ 6, p. 2.
5. On September 25, 1989, GPO issued another PSCO which
directed the Appellant to reduce the number of pages per
booklet to be printed under Jacket No. 245-004 from 88 pages
to 80 (R4 File, Tab S).5 Joint Stipulation, ¶ 7, p. 3.
6. The relevant contract documents-Jacket Nos. 245-004 and
245-006, and Purchase Orders 82047 and 82137-incorporate the
standard GPO "Changes" clause by reference. Joint
Stipulation, ¶ 8, p. 3; Exhibit A. See, GPO Contract Terms,
Solicitation Provisions, Supplemental Specifications, and
Contract Clauses, GPO Pub. 310.2, Effective December 1, 1987
(Rev. 9-88), Contract Clauses, ¶ 4 (hereinafter GPO Contract
Terms). The "Changes" clause provides:
(a) The Contracting Officer may at any time, by written
order, and without notice to the sureties, if any, make
changes within the general scope of this contract in any
one or more of the following:
(1) Drawings, designs, or specifications when the
supplies furnished are to be specially manufactured
for the Government in accordance with the drawings,
designs, or specifications.
(2) Method of shipment or packing.
(3) Place of delivery.
(b) If any change causes an increase or decrease in the
cost of, or the time required for, performance of any part
of the work, whether or not changed by the order, the
Contracting Officer shall make an equitable adjustment in
the contract price, the delivery schedule, or both, and
shall modify the contract.
(c) The contractor must submit any "proposal for
adjustment" (hereinafter referred to as proposal) under
this article within 30 days from the date of receipt of the
written order. However, if the Contracting Officer decides
that the facts justify it, the Contracting Officer may
receive and act upon a proposal submitted anytime before
final payment.
(d) If the contractor's proposal includes the cost of
property made obsolete or excess by the change, the
Contracting Officer shall have the right to prescribe the
manner or the disposition of the property.
(e) Failure to agree to any adjustment shall be a dispute
under article 5 "Disputes." However, nothing in this
article shall excuse the contractor from proceeding with
the contract as changed.
7. After the Appellant received the PSCOs from the
Respondent, it advised GPO that the changes in specifications
under each Jacket and Purchase Order would require a change in
press configuration and could require additional paper stock
to be ordered, and as a result of these changes, the
Contractor anticipated an increase in its costs (R4 File, Tabs
U and V).6 Joint Stipulation, ¶ 9, p. 3.
8. In response, the Respondent advised the Appellant to
submit documentation of those costs to the Contracting
Officer, so that GPO and the Contractor could negotiate an
equitable adjustment in the contract prices (R4 File, Tabs X
and Y). Joint Stipulation, ¶ 10, p. 3.
9. The Appellant printed the tax booklets required by Jacket
Nos. 245-004 and 245-006 and Purchase Orders 82047 and 82137
in conformity with the revised specifications. The Contractor
performed all of the work required under both contracts in a
timely manner and to the complete satisfaction of GPO. Joint
Stipulation, ¶ 11, pp. 3-4. See, GPO Contract Terms, Contract
Clauses, ¶ 4.(e).
10. The changes in the specifications required by GPO
under Jackets Nos. 245-004 and 245-006 and Purchase Orders
82047 and 82137, resulted in additional expenses for the
Appellant which it would not otherwise have incurred. Because
of these changes, approximately 50 percent of the paper stock
which had already been manufactured for each Jacket Number
would not fit the new press and forms configurations necessary
to print booklets conforming to the revised specifications.
In order to meet the changed specifications and complete the
contract work in a timely and completely satisfactory manner,
the Contractor revised its production plans and "slit" the
already manufactured paper stock.7 The parties agree that the
new press configurations required to print the tax booklets
under each Jacket Number in conformity with the Government-
revised specifications, increased the manufacturing costs of
the Appellant. Joint Stipulation, ¶ 12, p. 4.
11. The Government-furnished camera copy for Jacket No.
245-004 was delivered to the Appellant late. The Contractor
was without any fault or negligence for this late delivery of
the camera copy. Because of the late arrival of camera copy
for Jacket No. 245-004, Appellant also incurred increased
costs (R4 File, Tab W).8 Joint Stipulation, ¶ 13, p. 4.
12. The Appellant submitted properly certified claims for
an equitable pricing adjustment resulting from the changes in
specifications under each Jacket, and the late arrival of
camera copy under Jacket No. 245-004. For Jacket No. 245-004,
the Contractor certified an equitable pricing adjustment claim
totaling $103,025.13 for the specification changes and the
late delivery of the Government-furnished camera copy (R4
File, Tabs U, W, and AA). For Jacket No. 245-006, an
equitable pricing adjustment of $18,241.00 was sought by the
Appellant (R4 File, Tabs V and Z). Joint Stipulation, ¶ 14,
pp. 4-5.9
13. On January 22, 1990, the Contracting Officer wrote to
GPO's Office of the Inspector General (hereinafter OIG) and
asked that an audit be conducted on both of the Appellant's
claims (R4 File, Tab BB). Joint Stipulation, ¶ 15, p. 5.
14. As part of the Respondent's evaluation of the
Appellant's two equitable pricing adjustment claims, GPO's
Plant Planning Division (hereinafter the PPD) reviewed the
Contractor's original and revised production plans under each
Jacket. The PPD confirmed that the actions taken by the
Appellant to accommodate the changes in the specifications
under both Jackets and the late arrival of camera copy under
Jacket No. 245-004 were reasonable and necessary under the
circumstances (R4 File, Tabs EE, FF, HH and KK).10 Joint
Stipulation, ¶ 16, p. 5.
15. On October 23, 1990, the OIG issued its audit report
concerning both of the Appellant's equitable adjustment claims
(R4 File, Tab PP) (hereinafter OIG Audit Report). Among other
things, the OIG Audit Report found the following:
a. The Appellant had submitted a revised claim of
$112,106.00 under Jacket No. 245-004, including an
equitable adjustment of $60,825.00 in costs for press
changes due to the reduction in page count, and an
equitable adjustment of $51,281.00 in the contract price
because of excessive press downtime and lost paper sales
when GPO furnished the camera copy late. However, on April
9, 1990 and June 11, 1990, respectively, the Contractor had
written to the Contracting Officer and clarified that it
actually claimed an equitable adjustment of $103,025.13
under Jacket No. 245-004 (R4 File, Tabs CC and MM); and
b. The Appellant had submitted a revised equitable
adjustment claim of $18,241.00 under Jacket No. 245-006,
involving $6,732.00 in costs due to press changes-i.e., the
cost of unusable paper stock when the paper roll sizes were
changed to fit the new press and forms configuration-and
$11,509.00 in costs for lost press sales.11 Joint
Stipulation, ¶ 17, pp. 5-6.
16. The OIG auditors used two methods to evaluate the
Appellant's proposals and recommend equitable pricing
adjustments in connection with Jackets Nos. 245-004 and
245-006. These methods were respectively called the "specific
cost" ("actual cost") method and the "total cost" method.12
Joint Stipulation, ¶ 18, p. 6.
17. Under the "specific cost" method, the OIG auditors
analyzed the specific items claimed by the Appellant to
determine if they were allowable, reasonable, and allocable to
the changes in the specifications for Jacket Nos. 245-004 and
245-006, respectively, and to the late arrival of camera copy
under Jacket 245-004.13 Joint Stipulation, ¶ 19, p. 6.
18. Under the "specific cost" method, the OIG auditors:
a. "Questioned" $53,279.00 of the Appellant's revised
claim of $112,106.00 under Jacket No. 245-004, and
accordingly recommended that the Appellant be awarded an
equitable price adjustment of $58,827.00; and
b. "Questioned" $7,365.00 of the Appellant's claim of
$18,241.00 under Jacket No. 245-006, and accordingly
recommended that the Appellant be granted an equitable
pricing adjustment of $10,876.00.14 Joint Stipulation, ¶
20, pp. 6-7.
19. Under the "total cost" method, the OIG auditors
claimed to have compared the Appellant's anticipated financial
position before the changes in specifications and the late
arrival of camera copy to the Contractor's actual financial
position after the contracts were performed, in order to
determine the resulting financial impact.15 Joint
Stipulation, ¶ 21, p. 7.
20. Under the "total cost" method, the OIG auditors
recommended that GPO award itself a credit totalling
$86,724.00, reflecting equitable adjustments reducing the
contract prices under Jacket Nos. 245-004 and 245-006. Joint
Stipulation, ¶ 22, p. 7.
21. On November 27, 1990, the Contracting Officer issued
his "Final Decision Notice" informing the Appellant that he
would issue contract modifications for Jacket Nos. 245-004 and
245-006 to recover the credits due GPO from the Contractor in
the amounts of $54,505.00 and $32,219.00, respectively,16 as
recommended by the OIG auditors under the "total cost method"
(R4 File, Tab UU).17 Joint Stipulation, ¶ 23, p. 7.
22. On December 18, 1990, the Contracting Officer issued
the contract modifications for Jackets Nos. 245-004 and
245-006, respectively (R4 File, Tab WW). In addition, the
Appellant received a notice from GPO, dated December 19, 1990,
stating that the Respondent had deducted the $86,724.00 in
credits due to GPO from an invoice submitted the Contractor on
a different, undisputed contract-Jacket No. 265-209-printed
approximately a year after Jacket Nos. 245-004 and 245-006.
Joint Stipulation, ¶ 24, p. 8; Exhibit B.
ISSUES PRESENTED
The ultimate question in this appeal is whether or not the
Appellant is entitled to an equitable adjustment because of
the changes ordered by the Respondent, and if so, how much?
However, resolution of that issue depends on the answer to
four other questions, namely:
1. Can two contracts which were originally bid at a loss
be converted into a contract for profit, on the one hand,
and a substantially reduced loss contract, on the other
hand, by means of an equitable adjustment arising from
deductive changes ordered by the Government? Stated
otherwise, what is the impact of the so-called "loss bid"
rule on the Appellant's equitable adjustment claim?
2. Can the Appellant's claim for delay and downtime costs
resulting from the Government's late delivery of camera
copy for Jacket No. 245-004, be considered under the
"Changes" clause?
3. Did the Contracting Officer apply the correct cost
accounting method to the Appellant's equitable adjustment
claim, or should some other approach have been used
instead?
4. What is the appropriate amount of the Appellant's
equitable adjustment or the Respondent's credit, as the
case may be?
POSITIONS OF THE PARTIES18
The crux of the Appellant's position in this case is that the
standard "Changes" clause entitles it to a full recovery of
the cost increases flowing from the changes to the
specifications. App. Brf., p. 1. First, the Appellant
contends that equitable adjustment principles allow it to
recover a reasonable profit on the changed work, regardless of
whether or not the contract was originally bid at a loss.
App. Brf., p. 3 (citing, Keco Industries, Inc., ASBCA Nos.
15184, 15547, 72-2 BCA ¶ 9,576, mot. for reconsid. denied,
72-2 BCA ¶ 9,633) (hereinafter Keco Industries). Thus, the
Contractor objects to the OIG auditors' comparison of the
Appellant's "financial position" before the changes with its
actual "financial position."19 App. Brf., p. 6. The
Appellant argues that their methodology is fatally defective
because it assumes that any improvement in the Contractor's
financial performance resulted from the changes to the two
contracts. Id. Instead, the Appellant believes that because
the auditors also recognized that the changes led to cost
increases which would not otherwise have occurred, then the
improvement in financial performance arose from other factors,
and it is entitled to retain the benefit of its economies.20
App. Brf., p. 7 (citing, Turner Affidavit, ¶ 24); App. R.
Brf., p. 4.
Second, the Appellant contends that it is entitled to be
reimbursed for the Government's delay in delivering the camera
copy for Jacket No. 245-004. App. Brf., p. 1. Relying on
language in the "Schedule" specification of the contract, the
Contractor argues that the Government's delay is a "change,"
and not a breach of contract. App. R. Brf., p. 4. See, R4
File, Tab A, p. 4 (Schedule), Tab G, p. 4 (Schedule). In the
Appellant's opinion, this contract specification takes
precedence over the general clause in GPO Contract Terms-the
"Extension of Schedules" provision-which the Respondent relies
upon. App. R. Brf., p. 5. See, GPO Contract Terms, Contract
Clauses, ¶ 12(c)(1).
Third, the Appellant argues that the application of the "total
cost" method to its claim was in error, and that the "specific
cost" approach is the appropriate mechanism for determining
the amount of its equitable adjustments.21 App. Brf., p. 2;
App. R. Brf., p. 2. The Contractor contends that the "total
cost" method is not favored by the Courts, and should be used
only in "extreme" cases where there is no other proof.22 App.
Brf., p. 4 (citing, Turnbull Inc. v. United States, 180 Ct.Cl.
1010, 389 F.2d 1007 (1967); F.H. McGraw & Co. v. United
States, 130 F.Supp. 394 (Ct.Cl. 1955)); App. R. Brf., p. 2.
The Appellant believes that "other proof" clearly existed in
this case, since the OIG auditors first considered and
calculated an equitable adjustment based on the "specific
cost" method. App. Brf., p. 4; App. R. Brf., pp. 3-4.
Consequently, it was error for the OIG auditors to prefer the
alternative "total cost" method in this case. App. Brf., p. 5
(citing, Turner Affidavit, ¶ 7); App. R. Brf., p. 3.
Furthermore, the Appellant argues that because it cannot be
determined with certainty what the total costs of the two
disputed contracts would have been if the deductive changes
not occurred, the OIG auditors' assumption that the total cost
of performing the work was the same as the bid price based on
the Contractor's standard estimates is fatal to the use of the
"total cost" method.23 App. Brf., pp. 5-6 (citing, Turner
Affidavit, ¶ 23). Accordingly, the Appellant believes that
the "specific cost" technique is the appropriate method to
determine the equitable pricing adjustments for the contracts
in dispute. App. Brf., p. 7; App. R. Brf., p. 4.
Finally, the Appellant believes, for all of these reasons,
that it is entitled to an equitable adjustment in this appeal.
The Contractor says that the range of potential recovery could
span from a maximum adjustment of approximately $120,000.00,
if all additional direct and indirect costs which are
associated with the changes are included, to a minimum
adjustment of at least $68,496.00, considering only the direct
costs allowed by the OIG auditors. App. Brf., pp. 3-4
(citing, Turner Affidavit, ¶¶ 10, 12-14). However, the
specific relief sought by the Appellant is: (1) a refund of
the $86,724.00 taken from Jacket No. 265-209 as a Government
credit; and (2) an equitable pricing adjustment of at least
$68,946.00, plus a refund of the $15,200.00 in credits given
to the Government by the Contractor because of reduced paper
costs, or a total recovery of no less than $84,146.00. App.
Brf., p. 7.
The Respondent, on the other hand, believes that the equitable
adjustment process is not solely for the benefit of the
Contractor, but the Government is also entitled to a fair
result. Res. Brf., p. 4. Furthermore, the Respondent
contends that the Appellant has not met its burden of proving
that the page reductions resulted in additional compensable
costs. Id.
On the first issue, the Respondent claims that the Appellant,
contrary to well-established principles of law, seeks to
convert a fixed-price contract which it bid at a loss into a
total cost recovery contract simply because the Government
reduced slightly the amount of work. Res. Brf., p. 4. The
Respondent states that under the law, a contractor in a loss
position on an entire contract cannot shift the burden of its
losses to the Government just because a change order has been
issued.24 Res. Brf., pp. 5-6 (citing, Pacific Architects &
Engineers, Inc. v. United States, 203 Ct.Cl. 499, 491 F.2d 734
(Ct.Cl. 1974); S. N. Nielson Company v. United States, supra,
141 Ct.Cl. 793; Massman Construction Company, ENGBCA No. 3660,
81-1 BCA ¶ 15,049; Itek Corporation, ASBCA No. 13528, 71-1 BCA
¶ 8,906); Res. R. Brf., p. 4. As the Respondent sees this
case, the change reducing the number of printed pages,25
"undoubtedly" lowered the Appellant's level of production
effort, and meant that less raw materials would be needed to
perform the contracts.26 Res. Brf., p. 5. Therefore, in
order to keep the parties in the same relative financial
position which existed before the changes, the Government was
entitled to take a credit which would restore the Appellant's
anticipated losses.27 Res. Brf., pp. 5-6. In the
Respondent's view, anything less would result in a "windfall"
for the Appellant based on the fortuitous occurrence that the
Government decided to make deductive changes in both
contracts.28 Res. R. Brf., pp. 4, 6.
Second, the Respondent admits that the Government was
responsible for the delay in sending the camera copy to the
Contractor, but argues that the Appellant's reimbursement
demand is really a breach of contract claim which cannot be
considered under the "Changes" clause. R. Brf., p. 7.
Furthermore, the Respondent reminds the Board that it is
without jurisdiction to hear claims for breach of contract
because GPO is a Legislative branch agency, and hence is not
covered by the Contract Disputes Act, Pub. L. 95-563 (November
1, 1978), 92 Stat. 2383, 41 U.S.C. §§ 601, 606 (CDA).29 R.
Brf., pp. 7-8 (citing, United States v. Utah Construction and
Mining Co., 384 U.S. 394 (1966); Harbor Printing & Copy
Service, Inc., GPOCAB No. 77-5 (1977); Cloverleaf Enterprises,
Inc., GPOCAB No. 79-12 (1980); and Information Systems, Inc.,
GPOCAB No. 78-11 (1979)).30 Thus, the Respondent contends
that the Appellant's sole remedy is to be found within the
contract itself, namely, in the clause which provides for an
automatic extension of the delivery schedule in the event of a
delay caused by "any action" of the Government. R. Brf., p. 8
(citing, United States v. Rice, 317 U.S. 61 (1942)). See, GPO
Contract Terms, Contract Clauses, ¶ 12(c)(1). Since such an
extension was granted to the Appellant in this case, it has
received the full relief allowed by the contract. R. Brf., p.
8.
Third, the Respondent believes that its use of the "total
cost" approach here was fundamentally sound.31 Res. Brf., p.
6. It argues that employment of the "total cost" method was
proper because of the difficulty in ascertaining the exact
effect of the changes on the Contractor's costs with any
accuracy. Res. Brf., p. 7. To the Respondent, the
Appellant's "specific cost" approach is inadequate in this
case because the Government-ordered changes completely altered
the Appellant's production methods, namely, its press and
forms configuration, thus " . . . making it difficult, if not
impossible to determine the differences to cost elements
attributable to the changes in production."32 Res. R. Brf.,
p. 3 (citing, Declaration of Edwin L. Hawse, ¶ 5). See, R4
File, Tabs U, V, AA and HH. According to GPO, this change in
production methods makes direct comparisons of pre-change and
post-change costs using the "specific cost" method problematic
and futile, and militates in favor of the "total cost"
technique.33 Res. Brf., p. 7; Res. R. Brf., p. 3. For all of
these reasons, therefore, the Respondent believes that the
Appellant's claim is without merit, and it urges the Board to
deny the appeal and affirm the decision of the Contracting
Officer. Res. Brf., p. 9; Res. R. Brf., p. 6.
DECISION34
This appeal is unique in the annals of the Board. The case
not only involves the consideration of complex principles of
cost accounting and the law of Government contracts, but the
application of those rules is made even more difficult because
the parties, for all practical purposes, have switched places
with regard to the cost accounting methods they rely upon to
support their respective positions.35 As a consequence, the
Board candidly admits that it has struggled long and hard to
reach a decision in this case because its exhaustive research
has failed to disclose any precedents directly on point.36
However, the Board has a responsibility to put an end to this
controversy. Lawrence D. Krause, AGBCA No. 76-118-4, 82-2 BCA
¶ 16,129, at 80,073; Johnson, Drake & Piper, Inc., ASBCA No.
9824, 65-2 BCA ¶ 4868, at 23,073. See also, Cibinic and Nash,
p. 520. In that undertaking, the Board is ever mindful of
those basic equitable adjustment principles which are the
philosophical compass for navigating a way through the shoals
of this complex and difficult dispute.
1. Under settled principles, two contracts originally bid
at a loss, cannot be converted into a contract for profit,
on the one hand, and a substantially reduced loss contract,
on the other, by means of an equitable adjustment arising
from deductive changes ordered by the Government. Rather,
the relative financial positions of the parties must be
maintained.
The first issue for the Board is a question of law, not fact.
Indeed, the question goes to the heart of the equitable
adjustment process itself. Simply stated, the issue is
whether the standard "Changes" clause supersedes the so-called
"loss bid" rule in situations where, as here, the Government
orders changes which increase the contractor's costs for the
work, so that the contractor, regardless of its negative bid,
is entitled to an upward adjustment in the contract price?
From its own research, the Board concludes that the "loss bid"
rule cannot be ignored in the equitable adjustment process,
and thus it agrees with the Respondent's position on this
issue.
An equitable adjustment is basically a corrective measure
designed to keep a contractor whole when the Government
modifies a contract. J.F. Shea Company, Inc. v. United
States, 10 Cl.Ct. 620, 627 (1986) (citing, Bruce Construction
Corporation v. United States, 163 Ct.Cl. 97, 100, 324 F.2d
516, 518 (1963)); Dick & Kirkman, Inc., VABCA Nos. 1545, 1581,
84-3 BCA ¶ 17,662, at 88,082; CRF, A Joint Venture of CEMCO,
Inc. and R.R. Communications, Inc., ASBCA No. 17340, 76-1 BCA
¶ 11,857, at 56,805 (hereinafter CRF,
A Joint Venture). Since the purpose of an equitable adjustment
is to place a contractor in the position it would have been in
had the change not occurred, then, as a general rule, the
adjustment also should not alter the contractor's profit or loss
position from what it was before the change occurred.37 J.F.
Shea Company, Inc. v. United States, supra, 10 Cl.Ct. at 627;
Pacific Architects & Engineers, Inc. v. United States, supra, 203
Ct.Cl. at 508, 491 F.2d at 739; Nager Electric Company, Inc. and
Keystone Engineering Corporation v. United States, 194 Ct.Cl.
835, 851-53, 442 F.2d 936, 945-46 (1971) (hereinafter Nager
Electric Company); Keco Industries, Inc. v. United States, 176
Ct.Cl. 983, 999-1002, 364 F.2d 838, 849-850 (1966), cert. denied,
386 U.S. 958 (1967); CRF, A Joint Venture, supra, 76-1 BCA ¶
11,857, at 56,804; Hensel Phelphs Construction Company, ASBCA No.
15142, 71-1 BCA ¶ 8,796. See also, Cibinic and Nash, pp.
544-45.
The basic principle was succinctly stated by the Claims Court
in Nager Electric Company-a deductive change case-when it
said:
The equitable adjustment, in other words, should not
increase the [contractor's] loss nor decrease it at the
expense of the Government.
194 Ct.Cl. at 853, 442 F.2d at 946. In Pacific Architects &
Engineers, Inc., the Claims Court explained the rationale for
this doctrine:
[An] equitable adjustment may not properly be used as an
occasion for reducing or increasing the contractor's profit
or loss, or for converting a loss to a profit or vice
versa, for reasons unrelated to a change. A contractor who
has underestimated his bid or encountered unanticipated
expense or ineffi- iciencies may not properly use a change
order as an excuse to reform the contract or to shift his
own risks or losses to the Govern- ment.38 [Citations
omitted.] [Emphasis added.]
203 Ct.Cl. at 508, 491 F.2d at 739. See also, Aoki Corporation,
supra, 91-2 BCA ¶ 23,848, at 119,522; Dick & Kirkman, Inc.,
supra, 84-3 BCA ¶ 17,662, at 88,082. The Government, of course,
bears the burden of proving that the contract was in a loss
position. Aoki Corporation, supra, 91-2 BCA ¶ 23,848, at 119,522
(citing, Lisbon Contractors, Inc. v. United States, 828 F.2d 759,
769 (Fed. Cir. 1987); Arrow, Inc., ASBCA No. 39621, 90-3 BCA ¶
23,217).
The Joint Stipulation is silent on whether the Contractor
submitted loss bids on the two contracts in question.
However, that fact is not seriously questioned by the
Appellant. Besides, the Board believes there is enough
compelling evidence in the record to reach that conclusion.39
Thus, the Board finds that the Appellant did bid both
contracts involved in this appeal at a loss-i.e., at a
negative gross margin-and that it did not intend to recover
its real estimated costs. See, R4 File, Tabs LL, MM and PP.
Furthermore, the Board finds that the Appellant's bids were
motivated by business reasons other than a desire to make a
profit, namely, the twin aims of being competitive and having
work for its employees to avoid potential layoffs during a
slack period of its business cycle. See, R4 File, Tab MM.
Consequently, in deciding that instead of an equitable
adjustment for the Appellant the Government was due a credit,
the Contracting Officer was simply applying the "black letter"
law which holds that the adjustment process should leave the
parties in the same profit or loss position that existed
before the changes were made in the contract. See, R4 File,
Tabs RR and UU, ¶ 3. See, e.g., J.F. Shea Company, Inc. v.
United States, supra, 10 Cl.Ct. at 627 (1986); Pacific
Architects & Engineers, Inc. v. United States, supra, 203
Ct.Cl. at 508, 491 F.2d at 739; Nager Electric Company, Inc.,
supra, 194 Ct.Cl. at 851-53, 442 F.2d at 945-46; S.N. Nielsen
Company v. United States, supra, 141 Ct.Cl. at 796-797; CRF, A
Joint Venture, supra, 76-1 BCA ¶ 11,857, at 56,804. See also,
Cibinic and Nash, pp. 544-45. In the context of this appeal,
the Board is unable to say that the Contracting Officer's
reliance on that basic rule is clearly erroneous.
2. The Appellant's claim for delay or downtime costs
resulting from the Government's late delivery of camera
copy for Jacket No. 245-004, is a proper matter for
consideration under the "Changes" clause.
The second issue before the Board finds the parties at odds
over whether GPO's standard "Changes" clause allows the
Appellant to recover its costs for the delay caused by the
Government's late delivery of camera copy for Jacket No.
245-004. GPO Contract Terms, Contract Clauses, ¶ 4. This
issue, like the preceding matter concerning the "loss bid"
rule, is also a question of law, since it requires that the
Board to interpret both the contract language and GPO's
procurement regulations. Cf., RD Printing Associates, Inc.,
GPO BCA 02-92 (December 16, 1992), Sl. op. at 13; General
Business Forms, Inc., GPO BCA 2-84 (December 3, 1985), Sl. op.
at 16 (citing, John C. Grimberg Company v. United States, 7
Ct.Cl. 452 (1985)). In that regard, the Appellant believes
that it is entitled to an equitable adjustment because, among
other reasons, both contracts contain language which instruct
the Government to negotiate supplemental agreements with the
Contractor ". . . for the contract changes". See, R4 File,
Tab A, p. 4 (Schedule), Tab G, p. 4 (Schedule). The
Respondent, on the other hand, argues that the automatic
extension of the delivery schedule, which the Contractor
received by virtue of the "Extension of Schedules" clause in
the contract, is the exclusive remedy for the delay.40 GPO
Contract Terms, Contract Clauses, ¶ 12(c)(1). Under the
circumstances of this case, the Board believes that the
position advocated by the Appellant is sounder as a matter of
law.
The Board's examination of cases involving contractor claims
for the recovery of delay and impact costs, teaches it that a
vital consideration is the timing of the delay with respect to
the Government-ordered change. In the simplest situation,
extra costs stemming from a "naked" delay, that is, a
disruption of work resulting from some Government action which
does not physically change the work under the contract, are
usually not recoverable under the standard "Changes" clause.41
See, Model Engineering & Manufacturing Corporation, ASBCA No.
7490, 1962 BCA ¶ 3,363; Weldfab, Inc., IBCA No. 268, 61-2 BCA
¶ 3,121. Also cf., Editors Press Incorporated, GPO BCA 03-90
(September 4, 1991), Sl. op. at 18-19. Instead, recovery for
such delays-i.e., those which precede the issuance of a change
order-must be pursued either as a breach of contract, or under
the "Suspension of Work" or "Government Delay of Work"
clauses, such as GPO's "Extension of Schedules" clause. Cf.,
Luria Brothers & Company. v. United States, 177 Ct.Cl. 676,
369 F.2d 701 (1966). See generally, Cibinic and Nash, p.
522-24. On the other hand, the cases hold that if a delay
occurs from some Government action after a change order is
issued, the contractor may recover delay and impact costs for
both changed and unchanged work. Thus, the ASBCA has ruled
that:
Where costs in a work item are increased as a direct result
of a change in that item, the increased costs are
compensable, including costs of delays in performance in
the change order. [Emphasis added.]
Power Equipment Corporation, ASBCA No. 5904, 1964 BCA ¶ 4,025, at
19,815, mot. for reconsid. denied, 1964 BCA ¶ 4,228. See also,
Coastal Drydock and Repair Corporation, ASBCA No. 36754, 91-1 BCA
¶ 23,324, at 117, 002 (increased cost of disrupted unchanged work
flowing directly from the change is compensable under the
"Changes" clause); Merritt-Chapman and Scott v. United States,
192 Ct.Cl. 851, 429 F.2d 431 (1970); Paul Hardeman, Inc. v.
United States, 186 Ct.Cl. 743, 752, 406 F.2d 1357 (1969)
(concurring opinion of Judge Davis).42 See generally, Cibinic
and Nash, pp. 525-26. In other words, recovery is allowed if
there is a clear nexus between the change ordered by the
Government and the delay experienced by the contractor.
The reason why recovery is allowed for the contractor's delay
and disruption costs which are the direct and necessary result
of the Government's change order, can be found in the language
of the "Changes" clause itself. See, Cibinic and Nash, p.
524. In that regard, the standard "Changes" clause for fixed-
priced contracts provides, in pertinent part:
(b) If any change causes an increase or decrease in the
cost of, or the time required for, performance of any part
of the work, whether or not changed by the order, the
Contracting Officer shall make an equitable adjustment in
the contract price, the delivery schedule, or both, and
shall modify the contract.
See, FAR § 52.243-1 (Changes-Fixed-Price). The drafters of the
clause, which first appeared in the 1967 revision to the FAR,
stated that under this language:
[A]n equitable adjustment clearly encompasses the effect of
a change order upon any part of the work, including delay
expense, provided, of course, that such effect was the
necessary, reasonable, and foreseeable result of the
change. [Emphasis added.]
See, 32 Fed. Reg. 16269 (1967).
Even a cursory examination of GPO's "Changes" clause, which
was incorporated by reference in both contracts here,
discloses that the language is identical to the wording of the
FAR "Changes" clause. GPO Contract Terms, Contract Clauses, ¶
4(b). Under settled rules of construction, the Board must
presume that when the drafters of GPO's "Changes" clause
adopted the FAR language verbatim, they also accepted the
uniform interpretation given to those words by the 1967
revision committee, Executive branch contract appeals boards,
and the courts. Cf., United States v. Aguon, 851 F.2d 1158
(9th Cir. 1988); Van Cleef v. Aeroflex Corporation, 657 F.2d
1094 (9th Cir. 1981); L.B. Foster v. Railroad Service, Inc.,
734 F.Supp. 818 (N.D. Ill. 1990). Furthermore, the cost
accounting principles governing GPO contracts reenforce the
Board's belief that GPO's "Changes" clause is intended to
apply to a contractor's delay and disruption costs flowing
from Government changes to the contract. In that regard, the
applicable accounting rules provide that payment for equipment
downtime is allowable if, inter alia, the machinery was
necessary when acquired and is now idle because of changes in
requirements, production economies, reorganization,
termination, or other causes which could not have been
foreseen.43 See, GPO Procurement Directive 306.2, Subject:
Contract Cost Principles and Procedures, dated April 1, 1988,
p. 22, ¶ 25(b)(2) (Idle facilities and idle capacity costs)
(hereinafter GPO Contract Cost Principles). Therefore, the
Board concludes that GPO's standard "Changes" clause, like the
parallel provision in the FAR, allows a contractor to recover
compensation for delay expenses stemming from a change order
upon any part of the work as part of an equitable
adjustment.44
All the relevant facts necessary to decide this issue on the
merits have been stipulated by the parties. Thus, the
Appellant was awarded the contract for Jacket No. 245-004 on
June 16, 1989. Joint Stipulation, ¶ 2, pp. 1-2. Thereafter,
on September 25, 1989, GPO issued a PSCO for Jacket No.
245-004 which reduced the number of pages per booklet from 88
pages to 80. Joint Stipulation, ¶ 7, p. 3. The delay
occurred when the camera copy for Jacket No. 245-004 failed to
arrive on the morning of October 10, 1989, as expected, and
was not delivered until October 12, 1989 (R4 File, Tab W).
The parties agree that the Government was solely to blame for
the delay, and that the late arrival of the camera copy caused
the Appellant to incur increased costs.45 Joint Stipulation,
¶ 13, p. 4. It is clear from these facts that the Appellant's
delay costs were incurred after the Respondent issued the
change order for Jacket No. 245-004 and were a direct result
of that change. Therefore, the Board believes that the
Contractor's claim for its increased costs stemming from the
Government's late delivery of camera copy for Jacket No.
245-004 is a proper matter for consideration under the
"Changes" clause. Power Equipment Corporation, supra, 1964
BCA ¶ 4,025. Accordingly, it will allow the claim to the
extent indicated in Appendix I of this opinion.46
3. Neither the Appellant's "actual cost" method of
cost accounting, nor the Respondent's "total cost"
formula, is appropriate under the circumstances of this
case. Instead, the Board believes that the best method
for determining a fair and reasonable equitable
adjustment is the "jury verdict" technique.
The penultimate question in this appeal concerns the parties'
dispute over the relative merits of two totally different cost
accounting methods as the vehicle for determining the
Appellant's equitable adjustment or the Respondent's credit,
as the case may be. The Appellant urges the Board to adopt
the "actual cost" method, while the Respondent contends that
only the "total cost" approach is appropriate.47 In the
Board's view, however, neither method is entirely adequate in
the circumstances of this case.
The Appellant correctly argues that the preferred method for
establishing the amount of an equitable adjustment is through
the introduction of actual cost data.48 See, e.g., Dawco
Construction, Inc. v. United States, supra, 930 F.2d at 882;
Cen-Vi-Ro of Texas v. United States, 210 Ct.Cl. 684 (1976);
Buck Brown Contracting Co., IBCA No. 1119-7-76, 78-2 BCA ¶
13,360; Engineered Systems, Inc., DOTCAB No. 75-5, 76-2 BCA ¶
12,211; Bregman Construction Corporation, ASBCA No. 15020,
72-1 BCA ¶ 9,411. As a rule, actual costs are proved through
the introduction of the contractor's accounting records, which
will be accepted if they had been audited by the Government
and are unrebutted. Celesco Industries, ASBCA No. 22251, 79-1
BCA ¶ 13,604. If the accounting records are not available due
to no fault of the contractor, the costs may be established on
the basis of estimates,49 see, e.g., Bailey Specialized
Buildings, Inc., ASBCA No. 10576, 71-1 BCA ¶ 8,699, if they
are supported by detailed, substantiating data.50 See, e.g.,
R. G. Robbins & Company, ASBCA No. 27,516, 83-1 BCA ¶ 16,420;
Leopold Construction Company, ASBCA No. 23705, 81-2 BCA ¶
15,277; Paccon, Inc., supra, 65-2 BCA ¶ 4,996.
The "total cost" method, on the other hand, is a formula for
determining a price adjustment by deducting the bid estimate
from the actual costs incurred and holding the Government
responsible for the difference. See, Wunderlich Contracting
Company v. United States, 173 Ct.Cl. 180, 351 F.2d 956 (1965);
Akon, Inc., supra, 90-3 BCA ¶ 23,250; Santa Fe Engineers,
Inc., ASBCA No. 36682, 90-3 BCA ¶ 23,020, at 115,567; R.C.
Hedreen Company, GSBCA No. 4841, 78-2 BCA ¶ 13,475. As
indicated by the Appellant, the "total cost" method is not
favored by the boards and courts. See, e.g., Joseph
Sternberger v. United States, 185 Ct.Cl. 528, 401 F.2d 1012
(1968); WRB Corporation v. United States, supra, 183 Ct.Cl.
409 (1968); S.W. Electronics & Manufacturing Corporation,
ASBCA No. 20698, 77-2 BCA ¶ 12,631, aff'd, 228 Ct.Cl. 333, 655
F.2d 1078 (1981). However, the "total cost" approach is not
prohibited per se, but it generally is not used if another,
more reliable, method is available to establish the
contractor's actual costs.51 See, e.g., Servidone
Construction Corporation v. United States, supra, 931 F.2d at
862 (citing, Great Lakes Dredge & Dock Co. v. United States,
119 Ct.Cl. 504, 559, 96 F.Supp. 923, 926 (1951), cert. denied,
342 U.S. 953 (1952)); Dawco Construction, Inc. v. United
States, supra, 930 F.2d at 881, fn. 3 (citing, G.M. Shupe,
Inc. v. United States, 5 Cl.Ct. 662, 676 (1984)); Boyajian v.
United States, 191 Ct.Cl. 233, 423 F.2d 1231 (1970);
Wunderlich Contracting Company v. United States, supra, 351
F.2d 956, 965; Robert McMullen & Son, Inc., ASBCA No.
19129, 76-2 BCA ¶ 12,072. See generally, Cibinic and Nash,
pp. 514-19.
Because the "total cost" method is generally suspect, the
presence of four safeguards is required in order for its use
to be endorsed by the boards and courts, namely:
. . . (1) the nature of the particular losses make it
impossible or highly impracticable to determine them with a
reasonable degree of accuracy; (2) the [contractor's] bid
or estimate was realistic; (3) its actual costs were
reasonable; and (4) it was not responsible for the added
expenses. [Citations omitted.] [Emphasis added.]
WRB Corporation v. United States, supra, 183 Ct.Cl. at 426. See
also, Servidone Construction Corporation v. United States, supra,
931 F.2d at 861; Santa Fe Engineers, Inc., supra, 90-3 BCA ¶
23,020, at 115,566-67; Wilbur Smith & Associates, Inc., ASBCA No.
35301, 89-3 BCA ¶ 22,025, at 110,782. Whether all four
safeguards must be proved, or whether a "total cost" adjustment
may still be made even if one criterion is not met, is not
settled in the cases. See, Cibinic and Nash, p. 515. However,
the ASBCA is clearly of the opinion that the evidence must
satisfy all four elements of the test, and that the failure to
prove just one of the criteria will prevent a "total cost"
recovery. See, e.g., Michael, Inc., ASBCA No. 35653, 92-1 BCA ¶
24,412, at 121,863; Santa Fe Engineers, Inc., supra, 90-3 BCA ¶
23,020, at 115,567; Tagoroli Corporation, ASBCA Nos. 32995,
32996, 89-2 BCA ¶ 21,864, at 109,974. In light of the fact that
the four WRB Corporation safeguards are expressed in the
conjunctive-by use of the word "and"-the Board believes that the
view espoused by the ASBCA is sound, and is fully in accord with
the intention of the Claims Court. Cf., Bruce v. First Federal
Savings and Loan Association of Conroe, Inc., 837 F.2d 712, 715
(5th Cir. 1988); Comtech, Inc. v. National Technical Schools, 711
F.Supp. 522, 524 (D.Ariz. 1989) (citing, New Hampshire Automobile
Dealers Association, Inc. v. General Motors Corporation, 620
F.Supp. 1150, 1157-58 (D.N.H. 1985)). See generally, 1A Sands,
Sutherland Stat. Const. § 21.14 (4th ed. 1985). Therefore, the
Board adopts that interpretation for cases in this forum.
The plain meaning of the applicable law requires that the
Board reject the Respondent's use of the "total cost" method.
Specifically, the Board finds that the second element in the
WRB Corporation test-that the Contractor's bid or estimate was
realistic-simply cannot be fulfilled under the facts of this
case.52 WRB Corporation v. United States, supra, 183 Ct.Cl.
at 426. [Emphasis added.] See, R.C. Hedreen Company, supra,
78-2 BCA ¶ 13,475, at 65,926. See also, Cibinic and Nash, p.
517. The common dictionary definition of the word "realistic"
is "tending to face facts," or, as a derivative of the word
"real," it describes something which is "factual," "actual,"
or "true." WEBSTER'S NEW WORLD DICTIONARY, p. 1118 (4th ed.
1988). Therefore, as the Board understands the second test of
WRB Corporation, the evidence must show that the Contractor's
bid bore some reasonable approximation to the costs it
expected to incur on the contract. The evidence in this case
shows just the opposite. In that regard, the Board has
already found that: (1) the Appellant lowered its cost
estimates and submitted loss bids on both contracts; (2) the
loss bids were an intentional act by the Contractor motivated
by sound business reasons; and (3) the Appellant never
intended to recover its actual estimated costs at the time it
submitted its bids. The cases establish that where, as here,
a contractor submits a bid which is too low for the work, the
trier of fact cannot find that the bid estimates were
reasonable for the purposes of the "total cost" method.
Tagoroli Corporation, supra, 89-2 BCA ¶ 21,864, at 109,971-72,
109,974. Consequently, because the Appellant submitted bids
which were artificially lower than the cost estimates it
calculated, the bids cannot be said to be a true reflection of
the Appellant's anticipated costs on the two contracts.
Accordingly, on the basis of this record, the Board must
conclude that the Contractor's bid estimates were unrealistic
per se, thus negating the use of the "total cost" technique
because WRB Corporation's second safeguard is not satisfied.
However, rejection of the Respondent's "total cost" method
does not mean, ipso facto, that the Board adopts the
Appellant's "actual cost" technique. As the Board sees it,
the same circumstance which nullifies the "total cost"
approach-the fact that the Appellant purposely bid both
contracts at a loss-also undermines the use of the "actual
cost" method in this case. Among other things, in order to
prevail on its "actual cost" theory, the Appellant must prove
that its costs were reasonable.53 See, Celesco Industries,
supra, 79-1 BCA ¶ 13,604; Triple "A" Machine Shop, Inc., ASBCA
No. 21561, 78-1 BCA ¶ 13,065 (1978); Cal Constructors, ASBCA
No. 21179, 78-1 BCA ¶ 12,992 (1977). This is so because the
touchstone for determining the amount of an equitable
adjustment is the difference between what it reasonably would
have cost to perform the work as originally required and what
it reasonably cost to perform the work as changed. General
Builders Supply Co. v. United States, 187 Ct.Cl. 477 (1969);
Zurfluh Enterprises, Inc., VABCA No. 1941, 85-1 BCA ¶ 17,789;
Dick & Kirkman, Inc., supra, 84-3 BCA ¶ 17,662; Lawrence D.
Krause, supra, 82-2 BCA ¶ 16,129; Celesco Industries, supra,
79-1 BCA ¶ 13,604; Jack Picoult, VACAB No. 1221, 78-1 BCA ¶
13,024. Whether a contractor's costs are reasonable is a
question of fact depending on the circumstances.54 Nager
Electric Company, Inc., supra, 194 Ct.Cl. at 851-53, 442 F.2d
at 945-46.
In this case, the Appellant submitted bids which were
artificially lower than the real cost of the work, as forecast
by its basically sound formal cost estimating system, and
never intended to recover its actual costs on these
contracts.55 Because the Contractor's bids were not meant
to be a true reflection of its projected job costs, the Board
has no benchmark by which to determine the reasonableness of
the costs for performing the work as originally required and
as subsequently changed by the Government. Zurfluh
Enterprises, Inc., VABCA No. 1941, 85-1 BCA ¶ 17,789; Dick &
Kirkman, Inc., supra, 84-3 BCA ¶ 17,662; Lawrence D. Krause,
supra, 82-2 BCA ¶ 16,129; Jack Picoult, supra, 78-1 BCA ¶
13,024. Therefore, the Board is unable to say that the
Appellant has sustained its burden of showing that its costs
were reasonable under the circumstances in this case.56 Cf.,
Michael, Inc., supra, 92-1 BCA ¶ 24,412, at 121,863.
Moreover, the Board agrees with the Respondent, albeit for
different reasons, that the bifurcated cost accounting
approach taken by the Appellant -intentionally lowering its
job estimates for the purposes of bidding, but seeking an
equitable adjustment on the basis of actual job costs-makes it
difficult to accurately gauge the effect of the Government's
changes on the Contractor's costs. Without such proof,
establishing a causal connection between the Appellant's
increased costs and the changes ordered by the Government
becomes a herculean task.57 Since the Board is unable to
determine the reasonableness of the Appellant's costs on the
basis of this record, it must also conclude that the
Contractor has failed to support its use of the "actual cost"
method. Accordingly, the Board also rejects the Appellant's
contention that its unfiltered costs after the Government-
ordered changes should be the basis of an equitable
adjustment. Cf., Dick & Kirkman, Inc., supra, 84-3 BCA ¶
17,662.
Having found that both the "actual cost" method and the "total
cost" approach are inappropriate, the Board now finds itself
on the horns of a dilemma. On the one hand, the Board cannot
ignore the undisputed fact in this case that the Government's
changes caused the Appellant to alter its methods of
production; i.e., its press and forms configuration. On the
other hand, the Board knows that while there is no standard by
which to measure the reasonableness of the Contractor's costs,
it is nonetheless inescapable that the contract changes
ordered by the Respondent had some cost impact. Furthermore,
the Board's quandary is complicated by the rule which
prohibits converting a loss contract into one for profit or
vice versa-about as close to an immutable principle as one can
find in Government contract law-which is also involved in this
case. The law, however, provides a way out this conundrum.
Under the so-called "jury verdict" method, where a board or
court finds an entitlement to an equitable adjustment but the
evidence is incomplete, or the amount cannot be determined
with any degree of mathematical precision, it may exercise its
discretion to resolve conflicting evidence concerning the
claim and arrive at a fair amount of compensation.58 See,
e.g., Assurance Company v. United States, 813 F.2d 1202, 1205
(Fed. Cir. 1987); S.W. Electronics & Manufacturing Corporation
v. United States, 228 Ct.Cl. 333, 655 F.2d 1078 (1981), aff'g
ASBCA No. 20698, 77-2 BCA ¶ 12,631; Electronic & Missile
Facilities, Inc. v. United States, 189 Ct.Cl. 237, 416 F.2d
1345, 1358 (1969); Dawco Construction, Inc., ASBCA No. 42120,
92-2 BCA ¶ 24,915; Gricoski Detective Agency, GSBCA Nos.
8901(7823), 8922(7824), 8923(7825), 8924(7826), 8925(7827),
8926(7828), 90-3 BCA ¶ 23,131; E.W. Eldridge, Inc., ENGBCA No.
5269, 90-3 BCA ¶ 23,080; Harvey C. Jones, Inc., IBCA Nos.
2070, 2150, 2151, 2152, 2153, 2467, 90-2 BCA ¶ 22,762. See
generally, Cibinic and Nash, pp. 519-22. The key to the use
of the "jury verdict" method is the presence of sufficient
evidence to permit the determination of a fair and reasonable
approximation of damages.59 J.E.T.S. Incorporated, ASBCA No.
28083, 88-2 BCA ¶ 20,540, at 103,859 (citing, Schuster
Engineering, Inc., ASBCA Nos. 28760, 29306, 30683, 87-3 BCA ¶
20,105). While the "jury verdict" technique is generally not
favored, like the "total cost" method it also is not
prohibited per se.60 Dawco Construction, Inc. v. United
States, supra, 930 F.2d at 880; Specialty Assembling & Packing
Company v. United States, 174 Ct.Cl. 153, 355 F.2d 554, 572
(1966). Thus, a trier of fact may allow recovery if it
determines that: (1) clear proof of injury exists; (2) there
is no more reliable method for computing damages; and (3)
there is sufficient evidence to make a fair and reasonable
approximation of damages.61 See, Dawco Construction, Inc. v.
United States, supra, 930 F.2d at 880 (citing, WRB Corporation
v. United States, supra, 183 Ct.Cl. at 425); Gricoski
Detective Agency, supra, 90-3 BCA ¶ 23,131; Harvey C. Jones,
Inc., supra, 90-2 BCA ¶ 22,762; J.E.T.S. Incorporated, supra,
88-2 BCA ¶ 20,540; Lawrence D. Krause, supra, 82-2 BCA ¶
16,129. In the Board's judgment, all of the elements
necessary for use of the "jury verdict" method are present in
this case, and it is appropriate to resolve this dispute by
that approach.
4. Applying the "jury verdict" method, the Board
concludes that the Respondent took too large a credit for
the page deletions on both contracts, and that the
Appellant is entitled to a total refund of $72,830.00 as a
reasonable equitable adjustment in this case.
The central question in this dispute concerns the quantum of
relief; i.e., how much of an equitable adjustment is due the
Appellant or, in the alternative, how much of a credit is the
Government entitled to? Since this case is before the Board
because the Appellant objects to the Government taking a
credit for the deleted work instead of allowing the
Contractor's claim for an equitable recovery, the Respondent
was obligated to prove how much downward adjustment should be
made.62 Nager Electric Company, Inc., supra, 194 Ct.Cl. at
853, 442 F.2d at 946; Jackson Engineering Company, Inc., ASBCA
No. 27104, 85-3 BCA ¶ 18,418; R & E Electronics, Inc., VABCA
Nos. 2227, 2299, 2300, 85-3 BCA ¶ 18,316; Globe Construction
Co., ASBCA No. 21069, 78-2 BCA ¶ 13,337; G.L. Cory, Inc.,
GSBCA No. 4383, 77-2 BCA ¶ 12,824. As a rule, the
Government's credit for deleted work in a fixed-price contract
is measured by the net cost savings to the contractor.63 S.N.
Nielsen Company v. United States, supra, 141 Ct.Cl. at 793;
Jackson Engineering Company, Inc., supra, 85-3 BCA ¶ 18,418;
Unicom Systems, Inc., ASBCA No. 29468; 84-3 BCA ¶ 17, 675;
N.G. Adair, Inc., ASBCA No. 25961, 83-2 BCA ¶ 16,887; Fordel
Films West, ASBCA No. 23071, 79-2 BCA ¶ 13,913; Celesco
Industries, supra, 79-1 BCA ¶ 13,604. See also, Cibinic and
Nash, pp. 483, 496. Consequently, to sustain its burden of
proof in this case, the Respondent must show: (1) the extent
to which the contract requirements were reduced; (2) the
savings which resulted therefrom; (3) that the Contractor's
effort was, in fact, reduced by the contract change; and (4)
that the amount of downward price adjustment was reasonable.64
R & E Electronics, Inc., supra, 85-3 BCA ¶ 18,316; Zurfluh
Enterprises, Inc., supra, 85-1 BCA ¶ 17,789; Celesco
Industries, supra, 79-1 BCA ¶ 13,604; Southeastern Services,
Inc., ASBCA No. 21278, 78-2 BCA ¶ 13,239; Industrial Textile
Mills, Inc., ASBCA No. 18163, 73-2 BCA ¶ 10,232.
From its analysis of the record, the Board concludes that the
Respondent has not sustained its burden of proof.
Specifically, the Government has failed to show that the
Appellant's effort was, in fact, reduced by the contract
change. Cf., ACS Construction Company, Inc. of Mississippi,
supra, 87-1 BCA ¶ 19,660. As indicated previously, the key to
the Respondent's argument is its assumption that the changes
which reduced the number of printed pages under each contract
"undoubtedly" lowered the level of production effort, meant
that less raw materials would be needed to perform the
contracts, and were the cause of the "dramatic" reduction in
the Appellant's potential losses under the contracts. Res.
Brf., p. 5. However, GPO has offered no evidence to support
this premise beyond these mere allegations and self-serving
and conclusory statements, which are insufficient to carry its
burden of proof on the "level of effort" issue. Cf., Fry
Communications, Inc./InfoConversion Joint Venture, GPO BCA
9-85, Decision on Remand (August 5, 1991) Sl. op. 32-33, fn.
31 (citing, Fry Communications, Inc./InfoConversion Joint
Venture v. United States, 22 Cl.Ct. 497, 510 (1991)); Tri-
State Services of Texas, Inc., ASBCA No. 38010, 89-3 BCA ¶
22,064; Gemini Services, Inc., ASBCA No. 30247, 86-1 BCA ¶
18,736). To the contrary, the Respondent has stipulated to
facts which tend to show that the Appellant's level of effort
was increased because of the changes. Thus, the parties agree
that in order to satisfactorily perform the contracts as
modified, the Contractor revised its production plans under
each contract, slit the rolls of paper on hand which had
already been procured for the work instead of ordering new
stock, and reconfigured its presses. Joint Stipulation, ¶ 12,
p. 4. The parties also concur that when these steps were
reviewed by the Respondent's PPD, they were found to be
reasonable and necessary under the circumstances. See, Joint
Stipulation, ¶ 16, p. 5. As a rule, a party is bound by its
stipulations, Morelock v. NCR Corporation, 586 F.2d 1096, 1107
(6th Cir. 1978), cert. denied, 441 U.S. 906, 99 S.Ct. 1995
(1979), and such evidentiary agreements freely entered into
are controlling and conclusive on all issues of fact.65
Bromley Contracting Company, Inc. v. United States, supra, 14
Cl.Ct. at 74 (citing, Gersham & Company v. United States, 200
Ct.Cl. 97, 112, 470 F.2d 542, 551 (1972)). FED. R. CIV. P.
16. While a court or board may reject a factual stipulation
if it is "demonstrably false" or contrary to the facts in the
record, Dillon, Read & Company, Inc. v. United States, 875
F.2d 293 (Fed. Cir. 1989); Bromley Contracting Company, Inc.
v. United States, supra, 14 Cl.Ct. at 74 (citing, Kaminer
Construction Corporation v. United States, 203 Ct.Cl. 182,
197, 488 F.2d 980, 988 (1973)), the record here fails to
disclose any evidence which would contradict the stipulation
in this case.66 But for the fact that the Contractor
intentionally submitted loss bids on both contracts, the
matter might have ended here. However, since GPO awarded the
two contracts on the basis of those loss bids, the Board
cannot ignore the rule which prevents an equitable adjustment
from being used as a vehicle for altering the relative
financial positions of the parties following Government-
ordered changes. Nager Electric Company, 194 Ct.Cl. at 853,
442 F.2d at 946; Pacific Architects & Engineers, Inc., 203
Ct.Cl. at 508, 491 F.2d at 739; Aoki Corporation, supra, 91-2
BCA ¶ 23,848; CRF, A Joint Venture, supra, 76-1 BCA ¶ 11,857.
The Appellant seeks to avoid the consequences of that
principle by arguing that the case law-specifically Keco
Industries-sufficiently modifies the basic doctrine to allow
payment of its claim regardless of the fact that it submitted
loss bids.67 App. Brf., p. 3. Keco Industries, Inc., supra,
72-2 BCA ¶ 9,576. The Board believes, however, that insofar
as the Contractor's theory implies that notwithstanding a loss
bid, all Government-ordered changes which result in increased
costs must, of necessity, lead to reformation of the contract,
that view is clearly contrary to the unambiguous requirements
of the law prohibiting such a windfall result.68 Pacific
Architects & Engineers, Inc. v. United States, supra, 203
Ct.Cl. at 508, 491 F.2d at 739; Aoki Corporation, supra, 91-2
BCA ¶ 23,848, at 119,522; Dick & Kirkman, Inc., supra, 84-3
BCA ¶ 17,662, at 88,082.
On the other hand, although the Board thinks the Appellant is
seeking to prove too much through Keco Industries, that case
is not without some relevance to the facts in this dispute.
The clear teaching of Keco Industries is that a contractor who
bids a job at no profit may still be entitled to recover a
fair profit on additional work which results from Government
changes.69 See, Cibinic and Nash, p. 547. Thus, it is
noteworthy that both contracts in this dispute treat increases
or decreases to the bid quantities of tax booklets as
Government "changes" entitling the Contractor to reimbursement
at an "Added Rate," which is different from the bid rate.
See, R4 File, Tab A, p. 3 (Changes in Quantity), Tab G, p. 3
(Changes in Quantity). Obviously, since no bidder at the time
bids were submitted, could possibly know if changes to the
quantities specified would ever occur, it appears to the Board
that subsequent Government orders for additional copies of the
pamphlets fall within the ambit of the Keco Industries
exception to the "loss bid" rule. Indeed, it also seems that
when GPO included the payments made to the Appellant for those
additional copies in its calculations of the Government credit
on both contracts (R4 File, Tab PP, Appendix V, p. 12, fn. 3;
Appendix VI, p. 14, fn. 2), it was nibbling at the margins of
the principle established in CRF, A Joint Venture, which
forbids the Government from adding to a contractor's loss.
CRF, A Joint Venture, supra, 76-1 BCA ¶ 11,857, at 56,804.
Thus, the record discloses that the Contractor reduced the
"Added Rate" when the Government ordered the page reductions
to each contract, and was paid for the additional work at the
lower figure (R4 File, Tabs U and V).70 Consequently, the
Government's credit magnified the Appellant's loss even
further by subjecting those payments to an additional
reduction, and effectively added to the loss the Contractor
would have experienced if there had been no change order. Cf.,
CRF, A Joint Venture, supra, 76-1 BCA ¶ 11,857, at 56,804-05.
See also, Langoma Industries, Inc., supra, 57-2 BCA ¶ 1370.
As the Board has already stated, the "jury verdict" method
needs sufficient evidence in the record to permit the
determination of a fair and reasonable approximation of
damages. See, Assurance Company v. United States, supra, 813
F.2d 1202; S.W. Electronics & Manufacturing Corporation v.
United States, supra, 228 Ct.Cl. 333, 655 F.2d at 1088;
Electronic & Missile Facilities, Inc. v. United States, supra,
189 Ct.Cl. 237, 416 F.2d 1345; Gricoski Detective Agency,
supra, 90-3 BCA ¶ 23,131; E.W. Eldridge, Inc., supra, 90-3 BCA
¶ 23,080; J.E.T.S. Incorporated, supra, 88-2 BCA ¶ 20,540;
Lawrence D. Krause, supra, 82-2 BCA ¶ 16, 129. In this case,
the Board finds that the Appellant's evidence, as audited by
GPO, provides enough of a basis upon which to predicate a
"jury verdict" award. Cf., E.W. Eldridge, Inc., supra, 90-3
BCA ¶ 23,080, at 115,901 (citing, Bruno Lan v. United States,
195 Ct.Cl. 370 (1971)); Celesco Industries, supra, 79-1 BCA ¶
13,604. That is, even though the Respondent's overall "total
cost" approach has been rejected, the information contained in
that portion of the OIG Audit Report is the best available in
the record for the Board's use in determining a "jury
verdict." Cf., S.W. Electronics & Manufacturing Corporation
v. United States, supra, 228 Ct.Cl. 333, 655 F.2d at 1078;
E.W. Eldridge, Inc., supra, 90-3 BCA ¶ 23,080, at 115,901;
Schuster Engineering Inc., supra, 87-3 BCA ¶ 20,105; Celesco
Industries, supra, 79-1 BCA ¶ 13,604. Also cf., Pavement
Specialists, Inc., ASBCA No. 17410, 73-2 BCA ¶ 10,082. In
essence, of the two accounting methods presented in the OIG
Audit Report, the Board believes that the gross "total cost"
figures, which use the Contractor's loss bid estimates as the
starting point for an examination of the costs flowing from
the changes, are an appropriate basis for determining the
equitable adjustment by a "jury verdict" technique. Cf., E.W.
Eldridge, Inc., supra, 90-3 BCA ¶ 23,080, at 115,901 (citing,
J.D. Abrams, ENGBCA No. 4332, 89-1 BCA ¶ 21,379; Parkdale
Building Maintenance, ENGBCA No. 5232, 90-1 BCA ¶ 22,319);
State Mechanical Corporation, VABCA No. 2797, 91-2 BCA ¶
23,830 at 119,440 (citing, Zurfluh Enterprises, Inc., supra,
85-1 BCA ¶ 17,789).
The Board's specific cost analyses regarding Jacket Nos.
245-004 and 245-006 are set forth in Appendix I and Appendix
II to this opinion, respectively. Appendix III summarizes the
Board's calculations relating to the appropriate Government
credit and the refund due the Appellant. In that regard, it
is well-settled that a board of contract appeals has the
authority to recalculate the amount of a deduction taken by
the Government. See, Mit-Con, Inc., ASBCA No. 43021, 92-1 BCA
¶ 24,632; Arctic Corner, supra, 86-3 ¶ 19,304; R & E
Electronics, Inc., supra, 85-3 BCA ¶ 18,316; Steve P. Rados,
Inc., supra, 82-1 BCA ¶ 15,624; Varo, Inc., supra, 72-2 BCA ¶
9,717. Essentially, the Board finds that: (1) the Government
was only entitled to a total credit of $32,748.00 for both
contracts; (2) the Respondent mistakenly included the
Appellant's delay and downtime costs as part of its overall
calculations instead of treating them separately; and (3) the
Contractor is entitled to a refund of $72,830.00 as an
equitable adjustment in this case.71 In the final analysis,
the Board concludes that although the Respondent was entitled
to some credit for the page deletions, it overestimated the
impact of the deductive changes and took too much of a
reduction in the price of both contracts. R & E Electronics,
Inc., supra, 85-3 BCA ¶ 18,316; Zurfluh Enterprises, Inc.,
supra, 85-1 BCA ¶ 17,789; Celesco Industries, supra, 79-1 BCA
¶ 13,604.
Although this decision allows the Government less of a credit
for the deleted work than it took, the Board believes that its
cost analysis represents a fair and reasonable proximation of
the Contractor's costs resulting from the Government page-
reduction changes in both contracts. Cf., E.W. Eldridge,
Inc., supra, 90-3 BCA ¶ 23,080; Arctic Corner, supra, 86-3 BCA
¶ 19,304. The Board has reached this conclusion for the
following reasons:
1. The main purpose of an equitable adjustment is to keep a
contractor whole when the Government modifies a contract by
limiting the repricing of the agreement to the effect of the
change alone. See, J.F. Shea Company, Inc. v. United States,
supra, 10 Cl.Ct. at 627; Dick & Kirkman, Inc., supra, 84-3 BCA
¶ 17,662, at 88,082; Lawrence D. Krause, supra, 82-2 BCA ¶
16,129, at 80,073. Consequently, the Board believes,
consistent with this underlying philosophy, that the equitable
adjustment rules should be liberally construed and applied
where possible. E.W. Eldridge, Inc., supra, 90-3 BCA ¶
23,080, at 115,901.
2. The Board's computations give full effect to the rule
which requires that an equitable adjustment not alter a
contractor's profit or loss position from what it was before
the change occurred, see, J.F. Shea Company, Inc. v. United
States, supra, 10 Cl.Ct. at 627; Pacific Architects &
Engineers, Inc. v. United States, supra, 203 Ct.Cl. at 508,
491 F.2d at 739; Nager Electric Company, Inc., supra, 194
Ct.Cl. at 853, 442 F.2d at 946, and isolates impact costs to
the changes alone. See, Cibinic and Nash, p. 482. On the
other hand, the Board's decision also recognizes the
ameliorating effect of Keco Industries, by excluding payment
for the work performed in producing additional quantities of
the tax booklets from the impact of the "loss bid" rule. Keco
Industries, Inc., supra, 72-2 BCA ¶ 9,576, mot. for reconsid.
denied, 72-2 BCA ¶ 9,633. Cf., CRF, A Joint Venture, supra,
76-1 BCA ¶ 11,857; Langoma Industries, Inc., supra, 57-2 BCA ¶
1370.
3. The information contained in the Respondent's audit of
the Contractor's records reasonably supports the Board's
calculations of the amount approximating the impact of the
change on the Appellant. S.W. Electronics & Manufacturing
Corporation v. United States, supra, 228 Ct.Cl. 333, 655 F.2d
at 1078; E.W. Eldridge, Inc., supra, 90-3 BCA ¶ 23,080;
Schuster Engineering Inc., supra, 87-3 BCA ¶ 20,105; Celesco
Industries, supra, 79-1 BCA ¶ 13,604.
4. The Board's approach harmonizes the conflicting positions
advanced by the parties with respect to the appropriate cost
accounting method to be applied in this case. Cf., Condor
Reliability Services, Inc., supra, 90-3 BCA ¶ 23,254; E.W.
Eldridge, Inc., supra, 90-3 BCA ¶ 23,080; J.E.T.S.
Incorporated, supra, 88-2 BCA ¶ 20,540; Arctic Corner, supra,
86-3 BCA ¶ 19,304.
5. The Board's determination that the Appellant's claim for
recovery of its increased costs resulting from the
Government's failure to timely deliver the camera copy for
Jacket No. 245-004, should be considered under the "Changes"
clause, is fully consistent with the case law and GPO's own
procurement and cost accounting regulations. See, Paul
Hardeman, Inc. v. United States, supra, 186 Ct.Cl. at 752, 406
F.2d 1357; Power Equipment Corporation, supra, 1964 BCA ¶
4,025, See also, GPO Contract Terms, Contract Clauses, ¶ 4(b)
(Changes); GPO Contract Cost Principles, ¶ 25(b)(2) (Idle
facilities and idle capacity costs).
Therefore, when the Board considers the quantum of relief
issue in light of the evidence, cases, authorities, and
applicable regulations, it will ALLOW the Appellant's claim to
the fair and reasonable amount of $72,830.00. The Contracting
Officer's decision is MODIFIED, accordingly.
ORDER
From the foregoing analysis, the Board finds and concludes
that: (a) the Appellant's claim is subject to the rule that an
equitable adjustment may not properly be used to reduce or
increase a contractor's profit or loss, or convert a loss to a
profit or vice versa; (b) the Contractor's claim for delay and
downtime costs is a proper matter for consideration under the
"Changes" clause; (c) the "jury verdict" technique, rather
than the "actual cost" method or "total cost" formula,
furnishes the best approach for determining a fair and
reasonable equitable adjustment in this case; and (d) under
the "jury verdict" method, the Appellant is entitled to a
total refund of $72,830 as a reasonable equitable adjustment.
THEREFORE, the Board MODIFIES the Contracting Officer's
decision and REMANDS the case with instructions that
appropriate arrangements be made to pay the Contractor in
accordance with this opinion. RD Printing Associates, Inc.,
supra, Sl. op. at 37; General Business Forms, Inc., supra, Sl.
op. at 23.
It is so Ordered.
November 15, 1993 STUART M. FOSS
Administrative Judge
_______________
1 The Contracting Officer's appeal file, assembled pursuant
to Rule 4 of the Board's Rules of Practice and Procedure, was
delivered to the Board on March 26, 1991. GPO Instruction
110.12, Subject: Board of Contract Appeals Rules of Practice
and Procedure (GPO Instruction 110.12), dated September 17,
1984 (Board Rules), Rule 4. It will be referred to hereafter
as R4 File, with an appropriate tab letter(s) also indicated.
The R4 File consists of documents identified as Tabs A
through YY.
2 The Joint Stipulation was accepted by the Board on October
10, 1991. See, Banta Company, GPO BCA 03-91, Order Accepting
Joint Stipulation of Undisputed Facts, dated October 10,
1991.
3 The Joint Stipulation erroneously shows the relevant dates
as 1991 not 1989. See also, Joint Stipulation ¶¶ 6 and 7,
pp. 2-3. This is an obvious typographical error which is
corrected herein.
4 Both contracts here contain the same "CHANGES IN QUANTITY"
clause, which provides: "The Government may submit increases
or decreases of up to 15% of the pamphlet and envelope
quantities shown in Exhibit 1 until the date specified in the
schedule. These quantity adjustments may be made via
successive updates of Exhibit 1 or by telephone. Billing
adjustments for scheduled quantity changes will be at the
contractor's quoted 'ADDED RATE'. (See Offers Section) If
no changes have been received by the scheduled date for final
quantity adjustments, the bid quantities will stand as the
contract quantity. Any further adjustments, due to
extenuating circumstances, will be negotiated with the
contractor." See, R4 File, Tab A, p. 3, and Tab G, p. 3.
The Appellant contends that the GPO "Printing Specification
Change Order" was not issued in accordance with this "CHANGES
IN QUANTITY" clause. Complaint of Banta Company (undated but
received by the Board on April 29, 1991), ¶ 6, pp. 2-3
(hereinafter Complaint). In any event, according to the
Contractor, the clause only allows changes in the total
number of booklets ordered, not in the number of page's per
booklet. Id.
5 See, note 4 supra. Complaint, ¶ 7, pp. 3-4.
6 On October 3, 1989, the Appellant wrote to the Contracting
Officer concerning the additional costs resulting from the 8-
page reduction in the tax booklet covered by Jacket No.
245-004 (R4 File, Tab U). A similar letter was sent to the
Contracting Officer on October 5, 1989, with respect to the
8-page reduction in the tax booklet covered by Jacket No.
245-006 (R4 File, Tabs V). Both letters are essentially the
same, and told GPO that: (a) the page adjustment occurred
when all of the paper stock had been ordered and a large
number of booklets already manufactured; (b) the page count
adjustment forced the Contractor to change production methods
due to press delivery capabilities; and (c) approximately 50%
of the paper stock already manufactured would not fit the new
press and forms configuration (R4 File, Tabs U and V). The
Appellant's October 3, 1989, letter told the Respondent that
the additional costs on Jacket No. 245-004 amounted to a
total of $63,647.00, consisting of the following items: (a)
slitting 382,000 pounds of stock into new (smaller) roll
sizes-$26,358.00; (b) the value of the paper from slitting
the stock into smaller rolls- $27,169.00; (c) round-trip
freight charges from the Contractor's facility to the
slitting subcontractor-$1,780.00; and (d) additional press
crews needed to handle excessive roll changes due to use of
smaller rolls-$8,340.00 (R4 File, Tab U). As for Jacket No.
245-006, the Appellant's October 5, 1989, letter said that
additional costs incurred would amount to $18,366.00,
consisting of: (a) 26,500 pounds of paper stock ordered but
not usable because of the change in the number of
pages-$6,857.00; and (b) 30 hours of lost press
time-$11,509.00 (R4 File, Tab V). By separate letters to the
Contracting Officer on January 5, 1990, the Appellant made
certain minor adjustments to its cost calculations on each of
the disputed Jacket numbers (R4 File, Tabs Z and AA). Thus,
for Jacket No. 245-006, the Contractor figured its cost of
unusable paper stock as $6,732.00, and its lost press time as
34 hours (R4 File, Tab Z). On Jacket No. 245-004, the
Appellant told GPO that the cost of slitting was $21,422.00,
that the charge for the paper tonnage lost in slitting was
$27,114.00,and that round-trip freight charges were now
$1,204.00; there was no change in its calculation of crew
charges (R4 File, Tab AA). By letter dated April 9, 1990,
the Appellant adjusted its calculations on Jacket No.
245-004; i.e., the cost of slitting was $21,943.00, the
tonnage lost in the slitting process was $20,898.00, and the
round-trip freight charges were $1,116.00 (R4 File, Tab CC).
7 See, note 6 supra.
8 On October 17, 1989, the Appellant wrote to the Contracting
Officer concerning its additional costs resulting from the
late arrival of the Government-furnished camera copy under
Jacket No. 245-004, which caused the Contractor to experience
". . . excessive down time on our presses along with
anticipated lost paper sales (R4 File, Tab W). As indicated
in the Appellant's letter, the camera copy was expected to
arrive the morning of October 10, 1989, and the Contractor
hoped to have it on one of its presses (Press No. 22) by noon
that day, and on another (Press No. 6) early on October 12,
1989. However, the camera copy did not arrive until late on
October 12, 1989. Because of this, the Appellant claimed a
combined loss for both presses of $51,281.00; i.e., a loss on
Press No. 22 of $44,892.00 ($27,550.00 for 58 hours of
downtime plus $17,342.00 in lost paper profit) and a loss on
Press No. 6 of $6,389.00 ($3,893.00 for 11-1/2 hours of
downtime plus $2,496.00 in lost paper profit, as corrected by
the Appellant's letter of January 5, 1990) (R4 File, Tabs W
and AA).
9 Jacket No. 245-006 is incorrectly shown as Jacket No.
245-046 in the Joint Stipulation. This is an obvious
typographical error which the Board corrects herein.
10 The PPD review concerned the Appellant's revised press
layouts in light of the changes to the contracts under both
Jackets (R4 File, Tabs EE, FF and HH). The record shows
that after reviewing the Contractor's adjustments, the PPD
staff not only agreed that the Appellant's revised press
layout plan was reasonable, but they could not suggest a
better plan (R4 File, Tabs HH and KK).
11 See, OIG Audit Report, Basis of Claim-Jacket Number
245-004 and Basis of Claim-Jacket Number 245-006, p. 1. As
indicated in the OIG Audit Report, the premise behind the
Appellant's claim under Jacket No. 245-004 was that the
Government (a) made a constructive change to the contract
when it reduced the number of pages in the tax booklet, and
(b) caused a disruption to the Contractor's operations by
providing camera copy late. As for its Jacket No. 245-006
claim, the Appellant's comparable premise was that the
Government caused a change in the Contractor's production
methods by reducing the number of pages in the tax booklet.
12 As indicated in the Joint Stipulation, the OIG auditors
called one of the costing accounting methods they employed
the "specific cost" method. See, OIG Audit Report, Results
of Audit, p. 2. In Government contract law parlance, the
"specific cost" method is usually called the "actual" cost
method. See, John Cibinic, Jr. & Ralph C. Nash, Jr.,
Administration of Government Contracts 2d ed., (The George
Washington University, 1986), p. 508 (hereinafter Cibinic and
Nash). Accordingly, except for citations to the Joint
Stipulation, the OIG Audit Report, or other references to the
R4 File where the term "specific cost" is used, such as in
briefs, the Board prefers, and will employ the common
Government contract law name for this cost accounting
technique-the "actual" cost method-in this opinion.
13 See, OIG Audit Report, Results of Audit, ¶ 1, p. 2.
14 See, OIG Audit Report, Specific Cost Method, p. 2 and
Appendix IV.
15 See, OIG Audit Report, Results of Audit, ¶ 2, p. 2. The
OIG auditors believed that the "total cost" method" was
preferable for evaluating the Appellant's claims, since the
Contractor changed planned production methods to accommodate
the page reductions by the Government. OIG Audit Report,
Results of Audit, p. 2. Furthermore, the "total cost" method
restored the Appellant to the same financial position-i.e.,
profit and loss position-that the Contractor planned to have
before the changes and delays by the Respondent. Id. In
that regard, the OIG auditors found that the Appellant had
bid these jobs at a loss, that it did not intend to recover
its estimated costs, and that it had sought these contracts
to be competitive and to have work for its employees to
"avoid potential layoff's [sic] during a somewhat slack
period of [its] business cycle." See, R4 File, Tabs LL and
MM. Also see, OIG Audit Report, Total Cost Method, p. 3.
Moreover, the OIG auditors thought that the "total cost"
method was more appropriate in this case ". . . because the
net impact of the various changes made by the Government was
to benefit the [C]ontractor by reducing the [C]ontractor's
anticipated losses by $54,505.00 (from $154,598.00 to
$100,093.00) on Jacket [No.] 245-004 and by $37,219.00 (from
a $26,356.00 loss to a $10,863.00 profit) on Jacket [No.]
245-006." See, OIG Audit Report, Total Cost Method, p. 2.
Thus, they concluded that ". . . when the Government reduced
the work (i.e. page count) to be performed by the [C]
ontractor, a smaller loss was realized on Jacket Number
245-004, and a profit was realized on Jacket Number 245-006."
See, OIG Audit Report, Total Cost Method, p. 3.
16 The Contracting Officer based his decision on the
Appellant's admission that it had bid both jobs at a loss.
As explained in the "Final Decision Notice," the rationale
for the decision was: "The basic theory to an equitable
adjustment is to leave the parties in the same position
costwise and profitwise as they were had there been no
change. The basic profit or loss position of the parties is
a result of the original contract formation process and
changes should not be allowed to alter that position." See,
R4 File, Tab UU, ¶ 3.
17 Actually, the OIG auditors recommended Government credits
of $54,505.00 and $37,219.00 on Jacket Nos. 245-004 and
245-006, respectively. See, OIG Audit Report, Total Cost
Method, p. 2. Thus, there is a $5,000.00 difference
between the actual credit taken by the Government and the
credit recommended by the OIG auditors for Jacket No.
245-006. The record discloses that the $37,219.00 figure was
adopted by the Contracting Officer in directing the
preparation of a contract modification for Jacket No. 245-006
(R4 File, Tabs PP and VV). However, when the Respondent
issued a contract modification for Jacket No. 245-006 only
$32,219.00 was claimed as a credit (R4 File, Tab WW).
Therefore, the total actual credit claimed by the Government
and subtracted from another contract awarded to the Appellant
was $86,724.00 (R4 File, Tab XX).
18 Both parties submitted briefs setting forth their
respective positions on the issues in this appeal. The Brief
of Appellant Banta Corporation was filed with the Board on
November 7, 1991 (hereinafter App. Brf.). The Respondent's
Brief was also submitted to the Board on November 7, 1991
(hereinafter Res. Brf.). In addition, both parties submitted
reply briefs on November 22, 1991 (hereinafter App. R. Brf.
and Res. R. Brf., respectively). The Board's understanding
of the positions of the parties is based on the Appellant's
Complaint, the Respondent's Answer, the formal briefs filed
by the parties, and the discussions at the prehearing
conference on July 23, 1991.
19 In making this argument, the Appellant challenges the OIG
auditors' reliance on the Contractor's own standard estimates
for comparison purposes. App. Brf., p. 6. The Appellant
argues that the use of such standard estimates is not favored
by the courts or contract appeals boards and may not be used
unless they are shown to be accurate. App. Brf., pp. 5, 6
(citing, S. N. Nielsen Company v. United States, 141 Ct.Cl.
793 (1958); Air-A-Plane Corporation, ASBCA No. 3842, 60-1 BCA
¶ 2,547 (1960) at p. 12,229; McBride, Government Contracts
(Mathew Bender & Co. 1987), at 28-557 (McBride). In that
regard, the Appellant relies on its own auditing expert,
Jerry L. Turner, to explain that the Contractor's actual
total costs deviated substantially from standard estimates on
all of its 1989 GPO contracts, including the two involved in
this appeal. App. Brf., p. 6 (citing, Affidavit of Jerry L.
Turner, ¶¶ 21-22) (Turner Affidavit). See also, Affidavit of
Allan J. Williamson, ¶¶ 4-7 (Williamson Affidavit).
Furthermore, the Appellant believes that notwithstanding any
other shortcomings with the "total cost" approach, the
Respondent's use of the standard estimates for the purposes
of the audit had only "marginal relevance," particularly
since the actual contract costs deviated substantially from
those estimates. App. R. Brf, p. 3. Therefore, the
Appellant also contends that as the Respondent failed to
develop any reliable evidence of what the Contractor's actual
costs on the two contracts would have been without the
changes, the "total cost" method cannot be used in this case,
". . . even if it was appropriate to do so as a matter of
contract law." Id.
20 The Appellant rejects the Respondent's argument that the
page reductions in the two tax booklets also reduced the
level of effort involved in the performance of the contracts.
App. R. Brf., p. 1. To the contrary, the Contractor contends
that the undisputed evidence shows that the reduced page
counts substantially increased the level of effort. Id.
(citing, Williamson Affidavit, ¶ 9). As for GPO's argument
that it is entitled to a credit for the changes that reduced
the contractor's cost of performance, the Appellant says that
it gave the Government such a credit, but insists that it
should be allowed to recover its increased costs to the
extent that they exceed the costs avoided. App. Brf., p. 3;
App. R. Brf., p. 2.
21 According to the Appellant, the "specific cost" method
would result in an equitable adjustment which considered the
reasonable cost of the extra labor and materials plus
appropriate overhead markups, plus profit, based on the
actual costs incurred by a contractor. App. Brf., p. 2
(citing, McBride, note 19 supra, at 28-555; Ocean Technology,
ASBCA No. 21363, 78-1 BCA ¶ 13,204).
22 The Appellant notes that the Claims Court has stated that
the "total cost" method is ". . . tolerated only when no
other mode . . . [is] available. . .". App. Brf., p. 4
(citing, WRB Corp. v. United States, 183 Ct.Cl. 409 (1968)).
The reason behind the hostility of the Court to the "total
cost" approach is that it involves speculation, and hence is
not as reliable as the "specific cost" method. App. Brf. p.
5.
23 The Appellant contends that the purpose of an equitable
adjustment is to compensate a contractor for the difference
between the total cost of performing the work as bid and the
total cost performing the work as required. App. Brf., p. 5.
(citing, Air-A-Plane Corporation, supra, 60-1 BCA ¶ 2,547;
McBride, note 19 supra, at 28-556-57). Therefore, as the
Appellant sees it, the failure of the OIG auditors to
determine the Contractor's actual total cost of the contracts
as bid, defeats the recognized purpose of an equitable
pricing adjustment. Id.
24 The Respondent also notes that the concept of retaining a
contractor's loss position is not unique to claims filed
under the "Changes" clause. Res. Brf., p. 7. Thus, the
Federal Acquisition Regulation (FAR) provisions governing
termination for convenience of fixed-price contracts states
that any settlement ". . . shall not allow a profit if it
appears that the contractor would have incurred a loss had
the entire contract been completed." See, FAR § 49.203
(Adjustment for loss).
25 The Government-ordered changes to Jacket Nos. 245-004 and
245-006 required the Appellant to print 37,608,000 fewer
pages and 7,288,000 fewer pages, respectively. According to
the OIG audit, the page reduction on Jacket No. 245-004
reduced the amount of the Appellant's loss from $154,589.00
to $100,093.00. As for Jacket No. 245-006, the Contractor's
estimated loss of $26,356.00 was converted into a $10,863.00
profit after the change. Res. Brf., p. 5. See, R4 File, Tab
PP, p. 2.
26 The Respondent points to the Appellant's billings to show
that the Contractor accepted this concept. Res. Brf., p. 5.,
fn. 2 (citing, R4 File, Tab PP, pp. 12, 14). Indeed, the
Respondent believes that the reduction in the Appellant's
potential losses under the contracts because of the changes
was "dramatic". Res. Brf., p. 5. See, note 25 supra.
27 The Respondent observes that the deletion of work or items
under a firm fixed-price supply contract usually reduces the
contractor's performance costs, gives it an advantage over
other bidders who competed for the contract, and entitles the
Government to a concomitant price reduction. Res. Brf., p. 4
(citing, Plaza Maya Limited Partnership, GSBCA No. 9086, 91-1
BCA ¶ 23,425; Goetz Demolition Company, ASBCA No. 39129, 90-3
BCA ¶ 23,241; Art Cap Company, Inc., ASBCA No. 3793, 58-1 BCA
¶ 1,623). When work is deleted, the general practice is for
the Government to lower the contract price by the amount of
costs saved by the contractor because of the changes. Res.
Brf., p. 5. Also, under the standard Government "Changes"
clause, the Government does not have to expressly reserve a
right to take credit for contract changes. Res. Brf., p. 4
(citing, Madison Park Clothes, Inc., ASBCA Nos. 4155, 4166,
4200, 61-1 BCA ¶ 2,966).
28 The Respondent dismisses the Appellant's claim that
factors other than the Government-ordered changes were
responsible for its improved financial performance, by
arguing that the Contractor has failed to identify any such
factors. Res. R. Brf., p. 4. Furthermore, the Respondent
contends that the Appellant's reliance on Keco Industries for
the proposition that Government changes can convert a loss
contract into one for profit, is misplaced. Keco Industries,
Inc., supra, 72-2 BCA ¶ 9,576. Res. R. Brf., p. 5. The
Respondent believes that Keco Industries stands for nothing
more than the principle that ". . . evidence developed during
the bidding process is probative of the amount of recovery,
if any, available following a Government change." Id.
29 Specifically, the Board is without jurisdiction to
consider "pure" breach of contract claims-i.e., breach claims
not redressable under a specific contract provision. The
Wessel Company, Inc., GPO BCA 8-90 (February 28, 1992), Sl.
op. at 46 (hereinafter Wessel Company). In that regard, it
was understood by the parties in Wessel Company that the CDA
did not apply GPO contracts. See, The Wessel Company, Inc.,
supra, Sl. op. at 17, fn. 18 (citing, Tatelbaum v. United
States, 749 F.2d 729, 730 (Fed. Cir. 1984)).
30 The Board was established by the Public Printer in 1984.
GPO Instruction 110.10C, Subject: Establishment of the Board
of Contract Appeals, dated September 17, 1984. Prior to the
Board's creation, appeals from decisions of GPO Contracting
Officers were considered by ad hoc contract appeals boards.
R.C. Swanson Printing and Typesetting Company, GPO BCA 15-90
(March 6, 1992), Sl. op. at 28, fn. 30. The opinions of
these ad hoc boards are cited herein as "GPOCAB" in order to
differentiate them from the decisions the Board. It is the
Board's policy to follow the decisions of the ad hoc boards
where applicable and appropriate. See, e.g., Chavis and
Chavis Printing, GPO BCA 20-90 (February 6, 1991), Sl. op. at
9, fn. 9; Stephenson, Inc., GPO BCA 02-88 (December 20,
1991), Sl. op. at 18, fn. 20.
31 According to the Respondent, under the "total cost"
method, costs incurred following a change are measured by
computing the total cost of performance of the entire job and
subtracting the original estimate of the work in question
made during the bidding process. The difference between the
total cost of the work and the bid estimate is the proper
cost to be included in the equitable adjustment. The
Respondent contends that this computation method resolves all
doubts about performance costs in favor of the Appellant by
assuming that all such costs exceeding the original estimate
resulted from the change. Res. Brf., p. 6. In that regard,
the Respondent believes that the Appellant's reliance on
Turnbull Inc. v. United States, supra, 389 F.2d 1007, and
F.H. McGraw & Co. v. United States, supra, 130 F.Supp. 394,
is misplaced. The Respondent states that the reason the
"total cost" method is not favored by the courts is that,
under normal circumstances, it is seen as biased in favor of
the equitable adjustment claimant. Res. R. Brf., p. 1. As
indicated by the Claims Court in McGraw, the "total cost"
method can be unsatisfactory because ". . . it assumes
plaintiff's costs were reasonable and that plaintiff was not
responsible for any increase in cost, and because it assumes
that plaintiff's bid was accurately computed. . .". Id.
(citing, F.H. McGraw & Co. v. United States, supra, 130
F.Supp. at 400). The Respondent argues that such assumptions
are not present in this case. Id.
32 The Respondent also believes that using the "specific
cost" method would be wholly inappropriate in this case
because it would allow a result which is contrary to well-
established equitable adjustment principles, namely
converting a firm fixed-price contract originally bid at a
loss into a cost reimbursement contract. Res. Brf., pp. 4,
7. See also, Res. R. Brf., p. 4.
33 In the Respondent's view, when the impact of the changes
is coupled with the Appellant's "sophisticated" cost
estimating system, the conclusion is warranted that the
"total cost" method is both reliable and appropriate in this
case. Res. R. Brf., p. 3. Consequently, the Respondent also
concludes that it was not error for the Contracting Officer
to rely on the methodology used by the audit team, as shown
in the OIG Audit Report, in reaching his final decision in
this case. Res. Brf., p. 8. Although he awarded the
Respondent a credit on both contracts, the pre-change loss
position of the Appellant was maintained, and thus the result
was consistent with Government contract law and regulations.
Res. Brf., p. 9; Res. R. Brf., pp. 5-6. Furthermore, the
Respondent finds it "curious" that the Appellant is
attempting to undermine its own bid estimates. Res. R. Brf.,
p. 2. See, note 19 supra. Regardless, the Respondent
believes that the two bids prepared by the Appellant's
Estimating Manager using the company's formal cost estimating
system were an accurate representation of the historical
costs for such work, as reflected in the Contractor's job
cost system. Id. Since the OIG auditors also concluded that
the Appellant's costs were, for the most part, reasonable,
the Respondent argues that the Appellant's bid based on the
company's standard estimates was an accurate one, and that
the application of the "total cost" method in this case was
appropriate. Id.
34 The record on which the Board's decision is based consists
of: (1) the Pleadings (Appellant's Complaint; Respondent's
Answer); (2) the R4 File (Tabs A-YY); (3) the Prehearing
Conference Report; (4) the Stipulation of Undisputed Facts
signed by both parties; and (5) the briefs submitted by the
parties pursuant to the Board's Briefing Order (the
Appellant's Brief, the Appellant's Reply Brief, the
Respondent's Brief, and the Respondent's Reply Brief).
35 In a typical equitable adjustment situation involving
deleted work, it is generally the Government which seeks a
decision on the basis of "actual cost," while the contractor
usually advances the "total cost" method of calculation.
See, e.g., McMillan Brothers Constructors, Inc., EBCA No.
328-10-84, 91-1 BCA ¶ 23,351; Akon, Inc., ENGBCA No. 5593,
90-3 BCA ¶ 23,250; Ordnance Materials, Inc., ASBCA No. 32371,
88-3 BCA ¶ 20,910. See also, Cibinic and Nash, p. 483. But
see, E.W. Eldridge, Inc., ENGBCA No. 5269, 90-3 BCA ¶ 23,080
(the board used the highest "total cost" approach figure
presented by the Government).
36 The Board regrets that it has taken almost two years to
issue a decision in this case. However, apart from the
complex nature of the appeal, an additional obstacle to a
quick resolution was the state of this record. On occasion,
an appeal is filed which should not proceed without a formal
hearing. See, D.M. Summers, Inc., VACA No. 2750, 89-3 BCA ¶
22,123, at 111,274. In retrospect, this was such a case.
The appeal record shows that the Appellant initially asked
for a hearing in this matter. See, Complaint, Fourth Claim
for Relief, ¶ a), p. 18. Board Rules, Rule 8. Yet, at the
conclusion of the prehearing conference on July 23, 1991, the
parties agreed with the Board that except for one telephone
conversation, all other material facts were fairly well
understood and no hearing was necessary. See, Prehearing
Conference Report, dated August 20, 1991, p. 7 (hereinafter
PCR). Consequently, a hearing in this appeal was waived.
Id. Instead, the matter was submitted to the Board for
resolution on the record, as supplemented by the Joint
Stipulation and the parties' briefs and reply briefs,
including affidavits. See, PCR, pp. 7-8. Board Rules, Rule
11. After wrestling with this record for almost two years,
the Board is now ready to admit that even though there is
enough undisputed evidence to decide the issues, it may have
been a mistake not to conduct a hearing in this matter.
Among other things, the record contains certain evidentiary
conflicts which perhaps could have been resolved by a
hearing. See, note 39 infra. Furthermore, the Board is
confronted with "dueling affidavits"; i.e., affidavits from
the party opponents contradicting each other on essential
points, which as the Armed Services Board of Contract Appeals
(hereinafter ASBCA) noted is "not the stuff of which positive
findings are made." COPE, Inc. d/b/a L.D. Copenhagen
Mechanical Contractor, ASBCA No. 30,418, 87-1 BCA ¶ 19,420.
Perhaps the problem is endemic to Rule 11 proceedings,
because it is undeniable that "[a]ffidavits permit artfully
drawn statements and convenient omissions which are not
subject to the persistent and probing questions of an
examiner . . .", D.M. Summers, Inc., supra, 89-3 BCA ¶
22,123, at 111,274, and may "reflect a conscious attempt to
achieve a specific result." See, Shumate Constructors, Inc.,
VABCA No. 2772, 90-3 BCA ¶ 22,946, at 115,192. See also,
Schoenfeld Associates, VABCA Nos. 2104, 2510-2517, 87-2 BCA ¶
19,648; ACS Construction Company, Inc., ASBCS Nos. 28193 and
28666, 86-1 BCA ¶ 18,627; Bruce-Anderson, Inc., ASBCA No.
28099, 84-1 BCA ¶ 17,177. Nonetheless, it is well-settled
that an appellant in a Rule 11 proceeding is responsible for
providing adequate evidence to allow the board to make a
finding in its favor. Shumate Constructors, Inc., supra,
90-3 BCA ¶ 22,946, at 115,192 (citing, Jan-Beck Associates,
VABCA Nos. 2107, et al., 87-2 BCA ¶ 19,831; Schoenfeld
Associates, supra, 87-2 BCA ¶ 19,648). See also, Dawson
Construction Company, Inc., VABCA Nos. 2000, 2016, 86-3 BCA ¶
19,322, at 97,723 ("[T]he 'essential burden of establishing
the fundamental facts of liability, causation and resultant
injury' remains with the Contractor. [Citation omitted.]");
J.C. Edwards Contracting and Engineering, Inc., VABCA Nos.
1947, 1969, 85-2 BCA ¶ 18,068, at 90,690 ("Where an appeal
presents an affirmative claim by a contractor against the
Government, the ultimate burden of proof or persuasion is
upon the claimant and the final evidentiary question is
whether the claim is supported by substantial evidence and
proved by a preponderance of the evidence. [Citation
omitted.]"). The Board cannot avoid its responsibility
either, and we make our decision on the record as we find it.
Shumate Constructors, Inc., supra, 90-3 BCA ¶ 22,946, at
115,192.
37 The reason for this approach was stated in Bruce
Construction Corporation: "Since the purpose underlying such
adjustments is to safeguard the contractor against increased
costs engendered by the modification, it appears patent that
the measure of damages cannot be the value received by the
Government, but must be more closely related to and
contingent upon the altered position in which the contractor
finds himself by reason of the modification." Bruce
Construction Corporation v. United States, supra, 163 Ct.Cl.
at 100, 324 F.2d at 518.
38 Although the Claims Court speaks of ". . . converting a
loss to a profit or vice versa, for reasons unrelated to a
change[.]", this is not to say that a loss can be transformed
into a profit for reasons related to a change. Instead, the
cases tell us that the financial balance must be maintained,
and indeed, the underscored language appears to be
extraneous. See, Aoki Corporation, ENGBCA No. PCC-62, 91-2
BCA ¶ 23,848, at 119,522 (quoting, Pacific Architects and
Engineers, Inc. v. United States, supra, 203 Ct.Cl. 499, 491
F.2d 734, without the underscored words). Indeed, the ASBCA
has held that it is improper for the Government to add profit
to a deductive change because, on a losing contract, the
price adjustment should not add to the loss the contractor
would have experienced if there had been no change order.
CRF, A Joint Venture, supra, 76-1 BCA ¶ 11,857, at 56,804
(citing, Keco Industries, Inc. v. United States, supra, 176
Ct.Cl. 983, 364 F.2d 838). The reason for this rule is that:
". . . elimination of a profit factor on deleted items [under
a loss contract] is necessary in order to avoid [increasing
the] loss to [the contractor] resulting from the deletion."
Id., at 56,804-05. Furthermore, the purpose of this
equitable adjustment principle in loss situations is: ". . .
to safeguard the contractor against increased costs
engendered by the modification," thereby ". . . keeping the
contractor whole." Id., at 56,805. See also, Langoma
Industries, Inc., ASBCA No. 3890 et al., 57-2 BCA ¶ 1370.
39 In reaching this conclusion, the Board recognizes that
there is a conflict in the record on this point, and that the
Appellant is the source of the confusion. Thus, the record
shows that on June 11, 1990, the Appellant's Estimating
Manager, James A. Liebhauser, wrote to the OIG's Supervisory
Auditor, Edwin L. Hawse, supplying certain information
related to the Contractor's equitable adjustment claims.
Among other things in that letter, Liebhauser stated with
respect to Jacket No. 245-004: "Please refer to the attached
Estimate Workup Sheet (Exhibit A) showing our manufacturing
cost workup with a (-171/2 percent GM) applied in order to
match unrealistic bids in effect in 1989. As stated by Mr.
Williamson our intent in taking on GPO work in this time
frame, at low margins, is to avoid potential layoff's [sic]
during a somewhat slack period of our business cycle." See,
Letter from James A. Liebhauser to Mr. Edwin Hawse, dated
June 11, 1990, ¶ I. General (1), p. 1 (R4 File, Tab MM).
[Emphasis added.] Similarly, for Jacket No. 245-006,
Liebhauser said: "Please refer to the attached Estimate
Workup Sheet (Exhibit A) showing our manufacturing cost
workup with a (-10.6 percent GM) applied. Again the same
background applies as on Jacket [Number] 245-004." Id., ¶ I.
General (1), p. 3 (R4 File, Tab MM). [Emphasis added.]
Indeed, at the prehearing conference on July 23, 1991,
Counsel for the Appellant admitted that the Contractor had
anticipated a loss when it bid on the contract. PCR, p. 5.
However, the record also shows that on November 12, 1990,
after the Appellant had been informed of the results of the
OIG's audit, Liebhauser wrote to the Contracting Officer and
stated, in pertinent part: "Although 1989 was a very
competitive bid year, the [Appellant] in no way planned on
taking work with a 17-1/2 percent paper and manufacturing
loss. The numbers you refer to on our 'estimate' are just
numbers used as a basis to determine on a year-in and year-
out method where pricing levels are going. . . . I would
wonder why any of your auditing staff would realistically
assume that any bidder would sell paper, which is at least 50
percent of the job cost, for less money than they are pay for
the material." See, Letter dated November 12, 1990 from
James A. Liebhauser to Mr. Jack G. Marken, dated November 12,
1990, ¶ 4, p. 1 (R4 File, Tab SS). [Emphasis added.] In the
Board's view, the Appellant's second letter is a self-serving
an unpersuasive effort to explain away its low bid
"estimates," which the Respondent had relied on in awarding
the two contracts. Cf., Singleton Contracting Corporation,
GSBCA No. 8548, 90-2 BCA ¶ 22,748. Accordingly, when the
second letter is also considered in light of the Contractor's
subsequent prehearing conference admission, the Board has no
trouble believing that the Appellant's earlier communication
with GPO is factually closer to the truth. See, e.g., Gulf
Contracting, Inc., ASBCA Nos. 30195, 32839, 33867, 90-1 BCA ¶
22,393; Metroplex Industrial Constructors, Inc., EBCA Nos.
397-6-87, 402-12-87 through 404-12-87, 89-3 BCA ¶ 22,174.
40 As already mentioned, the Respondent also contends that
the Appellant's demand for reimbursement is really a
disguised breach of contract claim which cannot be considered
under the "Changes" clause. R. Brf., p. 7. As a rule,
breach of contract damages are not recoverable if the
contract itself provides a remedy. See, Triax-Pacific, A
Joint Venture, ASBCA No. 36353, 91-2 BCA ¶ 23,724. However,
even though the Board has no jurisdiction to hear breach of
contract claims, see, note 29 supra, it has stated that
breach of contract damages and contract provisions for
extensions of time are not mutually exclusive; i.e., in the
appropriate forum, the fact that the contract includes a
provision for extension of time to perform does not exclude
the possibility that recovery may also be had in the form of
damages for breach of contract. The Wessel Company, Inc.,
supra, Sl. op. at 27, fn. 29 (citing, The Kehm Corporation v.
United States, 93 F.Supp. 620, 624-25 (Ct.Cl. 1950)). The
simple holding of Wessel Company, another case involving the
impact of Government delays, is that the Board is not an
appropriate forum to resolve "pure" breach of contract
claims.
41 One exception to this rule are delays resulting from
defective specifications. See, J.W. Hurst & Son Awnings,
Inc., ASBCA No. 4167, 59-1 BCA ¶ 2,095. See also, Donald R.
Stewart and Associates, AGBCA Nos. 84-226-1, 84-227-1,
84-228-1, 84-239-1, 84-240-1, 84-241-1, 85-168-1, 89-222-1.
89-223-1, 89-224-1, 89-225-1, 92-1 BCA ¶ 23,705 (Government
delay in approving a seasonal shutdown request allowed the
contractor to recoup idle equipment costs); Smith-Cothran,
Inc., DOTBCA Nos. 1931, 2022, 89-1 BCA ¶ 21,554 (contractor
only entitled to compensable costs which would not otherwise
have been incurred); E. Patti & Sons, Inc., PSBCA Nos. 1024,
1100, 85-2 BCA ¶ 18,144.
42 Judge Davis joined in the court's opinion because he
understood it to " . . . lay down and apply the same standard
as has been used by the Boards of Contract Appeals in cases
such as Ivey Bros. Construction Co., Inc., ENGBCA No. 1764
(1960) (unreported decision); Gust K. Newberg Construction
Co., ENGBCA No. 2754, 67-2 BCA¶ 6,490, at 30,116-18; I.K.
Construction Co., ENGBCA No. 10987, 67-1 BCA ¶ 6,271, at
29,027; Eastridge Excavating Contractors, Inc., ENGBCA No.
2683, 67-1 BCA ¶ 6,379, at 29,534-35; A.L. Harding, Inc.,
DCAB No. PR-44, 65-2 BCA ¶ 5,261, at 24,777, aff'd on
reconsid., 66-1 BCA ¶ 5,463, at 25,590-91, and Power City
Construction & Equipment, Inc., IBCA No. 490-4-65, 68-1 BCA ¶
7,126, at 33,024-26. That rule permits an equitable
adjustment to cover increased costs which were the direct and
necessary result of the change or changed conditions, where
the condition or the change directly leads to disruption,
extra work, or new procedures. [Emphasis added.]" Paul
Hardeman, Inc. v. United States, 186 Ct.Cl. at 752, 406 F.2d
1357.
43 This accounting principle basically adopts the "standby
ownership expense" rule which allows reimbursement for idle
equipment which was reasonably and necessarily set aside and
awaiting use in performing the contract. Cf., J.D. Shotwell
Company, ASBCA No. 8961, 65-2 BCA ¶ 5,243 (If the board
concludes that a contractor would prudently have held the
idle equipment in readiness to perform the Government
contract rather than making some other disposition of it, the
Government will be charged for that equipment). See also,
Wardroup & Associates, ASBCA No. 23433, 79-1 BCA ¶ 13,693.
It should be noted, however, that profit is not included in
any adjustment made for increases in cost of performance
caused by the delay or interruption of contract work. See,
Cibinic and Nash, p. 481 (citing, FAR § 52.212-15).
44 The contractor, of course, has the burden of proving a
causal connection between the delay and its costs. Cooper
Mechanical Contractors and Continental Engineering, IBCA Nos.
2744-2749, 2692, 2706-2713, 2714, 92-2 BCA ¶ 24,821; Gerald
Miller Construction Company, IBCA No. 2292, 91-2 BCA ¶
23,829.
45 The Appellant's claim for delay costs for Jacket No.
245-004 is detailed in note 8 supra. Briefly, the Contractor
believes that the Government owes it a total of $51,281.00
for downtime and ancillary lost paper profits for two presses
(R4 File, Tabs W and AA).
46 The Appellant also claims that equipment downtime costs
resulted from the changes on Jacket No. 245-006. As
explained in the OIG Audit Report, these downtime costs were
incurred because the press originally scheduled for Jacket
No. 245-006 could not be used for other printing work (R4
File, Tab PP, p. 4). In that regard, the record shows that
the changes left the Contractor with insufficient time to
find other work for the press, because jobs are usually
scheduled 3-4 months in advance (R4 File, Tab Z, p. 1).
Since the Board agrees that the changes were directly
responsible for the equipment downtime experienced by the
Appellant, it sustains the claim to the extent recommended by
the OIG auditors, which it finds reasonable. Accordingly,
the downtime claim for Jacket No. 245-006 is allowed in the
amount indicated in Appendix II of this decision.
47 As previously indicated, the "specific cost" method
referred to in the Joint Stipulation, the OIG Audit Report,
and in the parties' posthearing briefs, is usually called the
"actual" cost method. See, note 12 supra. Accordingly, the
Board will hereinafter use the term "actual cost" method when
referring to this cost accounting technique in this opinion.
48 The reason for this bias was clearly stated by the Federal
Circuit in Dawco Construction, Inc. v. United States, when it
said: ". . . the 'actual cost method' is preferred because it
provides the court, or contracting officer, with documented
underlying expenses, ensuring that the final amount of the
equitable adjustment will be just that-equitable-and not a
windfall for either the [G]overnment or the contractor."
Dawco Construction, Inc. v. United States, 930 F.2d 872, 882
(Fed.Cir. 1991), rev'g, 18 Cl.Ct. 682 (1990).
49 While the contractor's original or bid estimate can be
used to determine the cost of the work, later evidence, such
as purchase order prices or vendor quotations, are normally
better evidence of the costs that the contractor would have
incurred. See, e.g., Atlantic Electric Company, GSBCA No.
6016, 83-1 BCA ¶ 16,484. If there is no such evidence,
however, the bid estimate may be considered the best
available proof of this amount. Select Contractors, Inc.,
ENGBCA No. 3919, 82-2 BCA ¶ 15,869; Dawson Construction
Company, Inc., GSBCA No. 5672(5308)-Rein, 81-2 BCA ¶ 15,387,
aff'd on reconsid., 82-2 BCA ¶ 15,914; Onetta Boat Works,
Inc., ENGBCA No. 3733, 81-2 BCA ¶ 15,279; Pruitt, Inc., ASBCA
No. 18344, 73-2 BCA ¶ 10,213. But see, Ordnance Materials,
Inc., supra, 88-3 BCA ¶ 29,910.
50 Even if estimates are used, the contractor still has the
burden of proof. Cf., Lagarelli Brothers Construction
Company, Inc., ASBCA No. 34793, 88-1 BCA ¶ 20,363; Clary
Corporation, ASBCA No. 19,274, 74-2 BCA ¶ 10,947. In that
regard, expert testimony is often helpful in the presentation
of estimates, see, e.g., Turnbull, Inc. v. United States,
supra, 389 F.2d 1007 (1967); Sovereign Construction Company,
ASBCA No. 17792, 75-1 BCA ¶ 11,251, and in verifying the
validity of the statistical methods and estimating techniques
used as well as demonstrating that they are properly applied.
See, e.g., Rohr Industries, Inc., ENGBCA No. 4094, 82-2 BCA ¶
15,867. See generally, Cibinic and Nash, pp. 485-86, 508-13.
Perhaps the best use of expert testimony is to show the
relationship of actual and estimated cost data to the
circumstances giving rise to the adjustment. See, e.g.,
Coastal Drydock and Repair Corporation, supra, 91-1 BCA ¶
23,324, at 117,002 (citing, Luria Brothers & Co. v. United
States, supra, 369 F.2d 701; Paccon, Inc., ASBCA No. 7890,
65-2 BCA ¶ 4,996, mot. for reconsid. denied, 65-2 BCA ¶
5227).
51 As the Federal Circuit indicated in Servidone Construction
Corporation v. United States, "[a] trial court must use the
total cost method with caution and as a last resort."
Servidone Construction Corporation v. United States, 931 F.2d
860, 861 (Fed. Cir. 1991), aff'g, 19 Cl.Ct. 346 (1990).
Similarly, the ASBCA has stated that: "[The] total cost
[method] . . . has only been tolerated when no other mode of
proof was available and when the reliability of the
supporting evidence was fully substantiated." Santa Fe
Engineers, Inc., supra, 90-3 BCA ¶ 23,020, at 115,556. The
reason for this mistrust of the "total cost" method is found
in the potential for bidding inaccuracies to unjustifiably
reduce the contractor's estimated costs, and for performance
inefficiencies to inflate a contractor's costs, thus skewing
an accurate computation of damages. Servidone Construction
Corporation v. United States, supra, 931 F.2d at 861-62.
Consequently, before a board or a court will approve the
"total cost" method, it must be satisfied that: (1) the
Government is not charged with the difference between actual
cost incurred and the bid merely because the difference
exists; (2) proper safeguards exist; (3) there is no better
method of proving costs; and (4) there is some basis of
reaching a determination of a reasonable amount related to
the entitlement found. WRB Corporation v. United States,
supra, 183 Ct.Cl. 409; Ingalls Shipbuilding Division, Litton
Systems, Inc., ASBCA No. 17579, 78-1 BCA ¶ 13,038; Fermont
Division, Dynamics Corporation of American, ASBCA No. 15806,
75-1 BCA ¶ 11,139.
52 It also seems to the Board that the nature of the evidence
in this case clearly refutes the first safeguard as well;
i.e., that it is impossible or highly impracticable to
determine the Contractor's losses with any reasonable degree
of accuracy. However, since the failure to prove even one
criterion defeats the WRB Corporation test, it is unnecessary
for the Board to explain the reasons for its belief.
53 In addition, a contractor must also show the total amount
of money to which it is entitled, Lawrence D. Krause, supra,
82-2 BCA ¶ 16,129, at 80,073; Onetta Boat Works, Inc., supra,
81-2 BCA ¶ 15,279; Click Company, Inc., GSBCA No. 3007, 70-1
BCA ¶ 8335; Campbell Company, General Contractor, Inc., IBCA
No. 722, 69-1 BCA ¶ 7574, and the causal connection between
its increased costs and the changes ordered by the
Government, S.W. Electronics & Manufacturing Corporation,
supra, 77-2 BCA ¶ 12,631, aff'd, 228 Ct.Cl. 333, 655 F.2d
1078. See generally, Cibinic and Nash, pp. 504-05.
54 As explained by the Claims Court: "The search for
'reasonability,'. . ., is not limited to inquiry of such
factors as 'fair market value' or 'historical cost.' . . .
The reasonable cost concept includes both 'objective' and
'subjective' elements . . . The objective focus is on the
costs that would have been incurred by a prudent businessman
placed in a similar overall competitive situation . . .
However, unless it also takes into account the subjective
situation of the contractor, a test of 'reasonable cost' is
incomplete. . . ." Nager Electric Company, Inc., supra, 194
Ct.Cl. at 851-53, 442 F.2d at 945-46.
55 Indeed, the record shows that the Appellant's bid on
Jacket No. 245-004 deviated enough from the range of the
other 10 responsive bids that GPO asked the Contractor
confirm it before awarding the contract (R4 File, Tab C).
56 As mentioned previously, the Claims Court's guidelines for
resolving equitable adjustment disputes instruct us to look
at a contractor's subjective situation in our "reasonable
cost" analysis. See, note 54 supra. Nager Electric
Company, Inc., supra, 194 Ct.Cl. at 851-53, 442 F.2d at
945-46. In that regard, the Board recognizes that the
Appellant may have felt that it had sound business reasons
for bidding both contracts at a loss here; e.g., remaining
competitive and having work for its employees during a slack
period. Nonetheless, the Board believes that those
subjective reasons, no matter how valid, do not overcome the
results of our objective examination of the Appellant's costs
under the "prudent businessman" test.
57 See, note 54 supra.
58 The reason the "jury verdict" technique is usually viewed
as an evidentiary tool, rather than as a method of proof of
the amount itself, is simple enough. As explained by the
ASBCA: "There is neither a single nor a precise method of
arriving at the dollar amount of an equitable adjustment. In
general we seek to reach a figure as an equitable adjustment
which represents the cost to a reasonably efficient
contract[or] of performing the changed work under his
contract. Evidence of this amount may be found in the actual
costs of the particular contract, to the extent that those
costs are not shown to be other than reasonable, and in
engineering estimates of reasonable cost made by experts who
bring into play their experience and knowledge to attempt to
visualize the price at which that reasonably efficient
contractor could perform. Neither estimating nor accounting
are such exact arts that either can produce figures which
will be agreed to by all parties without legitimate argument.
We recognize that often, despite protestations to the
contrary, extreme positions on monetary entitlement are taken
during litigation. . . . [We must determine] . . . a figure
as the amount of an equitable adjustment . . . [which] . . .
ordinarily is . . . some place between the amount contended
for by each party to the litigation. . . . This is a figure
which in the view of the trier of the facts is fair in light
of all the facts of the case, or, put another way, is
supported by consideration of the entire record." See,
Johnson, Drake & Piper, Inc., supra, 65-2 BCA ¶ 4868, at
23,073. Similarly, the Agriculture Board of Contract Appeals
has observed that: "It is not essential that the amount be
ascertainable with absolute exactness or mathematical
precision. [Citations omitted.] It is enough if the
testimony and evidence adduced is sufficient to enable the
court or board (acting as the jury) to make a fair and
reasonable approximation of the amount recoverable.
[Citations omitted.]" See, Lawrence D. Krause, supra, 82-2
BCA ¶ 16,129, at 80,073. See also, Greenwood Construction
Corporation, Inc., AGBCA No. 75-127, 78-1 BCA ¶ 12,893.
59 In essence, notwithstanding the requirement for proof of
costs, the cases disclose a hesitancy to completely deny
recovery in cases where it is reasonably certain that an
injury did, in fact, occur. See, e.g., Meva Corp. v. United
States, 206 Ct.Cl. 203, 220-21, 511 F.2d 548 (1975) (where
the court allowed a "jury verdict" recovery because it was
"equally clear" that the contractor suffered substantial
monetary damage in direct consequence of the Government's
breach of contract). See also, e.g., Harold Benson, AGBCA
No. 384, 77-1 BCA ¶ 12,490 (where the evidence did not
support the amount claimed by the contractor but did indicate
that the amount allowed by the contracting officer was too
low); Custom Roofing Company, ASBCA No. 19164, 74-2 BCA ¶
10,925 (where the board granted a "jury verdict" recovery
based on "rough estimates"); and Rocky Mountain Construction
Company, IBCA No. 1091-12-75, 77-2 BCA ¶ 12,692 (where the
board applied the "jury verdict" to an item whose cost was
"totally unclear"). Indeed, under the "jury verdict"
technique, a board may even go so far as to make its own
calculations of an equitable adjustment if it is not
satisfied with the computations of either the contractor or
the Government. See, e.g., Steve P. Rados, Inc., AGBCA No.
77-130-4, 82-1 BCA ¶ 15,624; Varo, Inc., ASBCA No. 15000,
72-2 BCA ¶ 9,717. In short, the teaching of the cases is
that it is error for a trier of fact to totally deny a
contractor's claim when entitlement is clear and there is
some evidence upon which to base a "jury verdict" recovery.
See, e.g., Assurance Company v. United States, supra, 813
F.2d at 1205; S.W. Electronics & Manufacturing Corporation v.
United States, supra, 228 Ct.Cl. 333, 655 F.2d at 1088;
Electronic & Missile Facilities, Inc. v. United States,
supra, 189 Ct.Cl. 237, 416 F.2d at 1358; Eagle Paving, AGBCA
No. 75-156, 78-1 BCA ¶ 13,107. Thus, the "jury verdict"
method works in harmony with two purposes of the equitable
adjustment procedure in general, namely to recognize and give
appropriate consideration to the special circumstances of
each case, and to avoid blind computations of additional
costs or cost savings. G.M. Company Manufacturing Inc.,
ASBCA No. 2883, 57-2 BCA ¶ 1505, at 5,234.
60 The reason that the courts and boards distrust the "jury
verdict" method is because of its primary danger, namely: " .
. . the risk that unrealistic assumptions will be adopted and
extrapolated, greatly multiplying an award beyond reason, and
rewarding preparers of imprecise claims based on undocumented
costs with unjustified windfalls." Dawco Construction, Inc.
v. United States, supra, 930 F.2d at 882.
61 Even when proof of causation is not fully demonstrated, a
board may use the "jury verdict" approach to reduce the
amount claimed. See, e.g., Steve P. Rados, Inc., supra, 82-1
BCA ¶ 15,624, where the contractor had provided detailed
evidence of the events that had occurred and of the costs
which had been incurred, the board made its own computations
of the amount of claimed costs that were attributable to
Government action. Compare, Joseph Pickard's Sons Company v.
United States, 209 Ct.Cl. 643, 532 F.2d 739, 742 (1976)
(where the Claims Court refused to use the "jury verdict"
method to prove causation).
62 As a rule, the burden of proof in establishing the total
amount of an equitable adjustment falls on the party who is
claiming the benefit of the adjustment. See, Cibinic and
Nash, p. 504. Thus, a contractor has the affirmative burden
of proving the amount of money to which it is entitled.
Lawrence D. Krause, supra, 82-2 BCA ¶ 16,129; Onetta Boat
Works, Inc., supra, 81-2 BCA ¶ 15,279; Globe Construction
Co., supra, 78-2 BCA ¶ 13,337. Meanwhile, the Government
must establish the amount of the credit it took. Zurfluh
Enterprises, Inc., supra, 85-1 BCA ¶ 17,789; CRF, A Joint
Venture, supra, 76-1 BCA ¶ 11,857; Hudson Garment Company,
Inc., ASBCA No. 4645, 60-1 BCA ¶ 2628. Whether that burden
has been met is determined by the "preponderance of the
evidence" test. Teledyne McCormick-Selph v. United States,
214 Ct.Cl. 672, 558 F.2d 1000 (1977); Wilbur Smith &
Associates, Inc., ASBCA No. 35301, 89-3 BCA ¶ 22,025. See,
Cibinic and Nash, p. 504.
63 As explained by the ASBCA: " When a change deletes work,
the Government is entitled to an amount equal to what it
would have reasonably cost the contractor to have performed
the work. In other words, the price reduction for the
deletion should leave the contractor in the same financial
condition as it would have been the change order had not been
issued. [Citation omitted.] While the proper measure of the
price reduction is what it would have cost [the contractor]
to perform the deleted work, the ascertainment of this figure
is not always easy since by definition the 'actual costs' of
deleted work are not available." ACS Construction Company,
Inc. of Mississippi, ASBCA No. 33550, 87-1 BCA ¶ 19,660, at
99,550. Also see, Condor Reliability Services, Inc., ASBCA
No. 40538, 90-3 BCA ¶ 23,254, at 116,675-76. Obviously, if
the contractor realized no savings from a change, the
Government will not be awarded a price reduction. See, e.g.,
L.G. Lefler, Inc. v. United States, 6 Cl.Ct. 514 (1984).
64 As indicated in note 63 supra, sustaining this evidentiary
burden may not be an easy task for the Government because
deleted work is not actually performed. ACS Construction
Company, Inc. of Mississippi, supra, 87-1 BCA ¶ 19,660, at
99,550. Consequently, a board may have to find the requisite
proof in the "comparative reasonableness" of the estimates
presented by the respective parties. Jackson Engineering
Company, Inc., supra, 85-3 BCA ¶ 18,418, at 92,492. Indeed,
it has been noted that estimates are used almost exclusively
to establish the cost of deleted work. Cibinic and Nash, p.
510. See, Arctic Corner, ASBCA No. 29545, 86-3 ¶ 19,304.
65 The Respondent also stipulated that the Government-ordered
changes resulted in additional expenses and increased
manufacturing costs for the Appellant, and that the
Contractor incurred increased costs because of the Government
delay in furnishing the camera copy under Jacket No. 245-004.
Joint Stipulation, ¶¶ 12, 13, p. 4. These stipulations
represent conclusions of law which are not binding on the
boards or courts. See, Bromley Contracting Company, Inc. v.
United States, 14 Cl.Ct. 69, 74 (1987), aff'd, 861 F.2d 729
(Fed. Cir. 1988) (citing, Swift & Company v. Hocking Valley
Railroad, 243 U.S. 281, 289, 37 S.Ct, 287, 289-90, 61 L.Ed.
722 (1917); Hegeman-Harris & Company v. United States, 194
Ct.Cl. 574, 581, 440 F.2d 1009, 1012 (1971); Sac and Fox
Tribe of Indians v. United States, 161 Ct.Cl. 189, 198, 315
F.2d 896, 901, cert. denied, 375 U.S. 921, 84 S.Ct. 266, 11
L.Ed.2d 165 (1963)); Reynolds Construction, Inc., ASBCA No.
32047, 89-3 BCA ¶ 22,126. Also cf., Sinicropi v. Milone, 915
F.2d 66 (2nd Cir. 1990); National Labor Relations Board
Union, Local 6 v. Federal Labor Relations Authority, 842 F.2d
483 (D.C. Cir. 1988).
66 To hold that the Respondent has failed to show a reduction
in the Appellant's contractual effort because of the
Government-ordered changes is not the same as saying that
there was no lessening of the requirements on the Contractor
whatsoever. That there was some reduction in the contract
here is beyond cavil. However, what the record demonstrates
is a reduction in the number of pages per copy, not the
number of copies which had to be produced under each
contract. See, note 25 supra. Thus, while the page
reduction for Jacket No. 245-004 required 37,608,000 fewer
total pages, the Appellant nonetheless still had to produce
4,701,000 copies of the tax booklet. Similarly, the
Government change to Jacket No. 245-006 subtracted 7,288,000
total pages, but the Contractor was still responsible for
producing 911,000 copies of the tax pamphlet. Furthermore,
the record shows that GPO solicited bids for these contracts
on the basis of the complete job-i.e., the total number of
tax booklets to be produced plus ancillary work-not "per
page"; indeed, even quotes for additional quantities were to
be submitted "per 1,000" copies of the pamphlet. R4 File,
Tab A, pp. 22-23, and Tab G, pp. 20-21. The Respondent
assumes that because the Government required less pages,
ergo, less effort was required by the Contractor. To the
contrary, in the Board's view, the reduction in the amount of
paper required to perform the contract is offset by the
increased activity on the part of the Contractor which was
necessary to conform existing paper stocks to the contract
changes, and which the Respondent itself found reasonable and
necessary. Cf., Celesco Industries, supra, 79-1 BCA ¶
13,604.
67 It should be noted that notwithstanding its holding in
Keco Industries, the ASBCA expressly found that contractor,
in fact, bid the work expecting a profit, not a loss. See,
Keco Industries, Inc., supra, 72-2 BCA ¶ 9,576, at 44,733
("Even if appellant based its bid on the original contract on
performance without a profit (and the Board finds appellant
did not) it would not follow that work required by changes
that increased appellant's costs should therefore be
performed without a profit." [Emphasis added.]). Hence, no
matter how sound the rule is in other circumstances, in the
actual context of Keco Industries itself, the principle is
mere dicta. Furthermore, it should also be observed that the
changes in Keco Industries, were not deductive, as here, but
rather the extra work and costs were caused by the fact that
the Government's original drawings specifications were
defective.
68 In Condor Reliability Services, Inc., the ASBCA stated:
"The rule applicable to the price is . . . 'the difference
between the reasonable cost of performing without the change
or deletion and the reasonable cost of performing with the
change or deletion.' [Citation omitted.] The result should
not change the contractor's loss or profit position before
the change occurred. In other words, there should be no
repricing of the contract as a whole. [Emphasis added.]"
Condor Reliability Services, Inc., supra, 90-3 BCA ¶ 23,254,
at 116,675-76.
69 The contractor has the burden of proof of establishing
that it performed additional work beyond its initial contract
obligation for which it is entitled to extra compensation.
Jan-Beck Associates, supra, 87-2 BCA ¶ 19,831, at 100,322
(citing, Schoenfeld Associates, supra, 87-2 BCA ¶ 19,648).
Such proof is clear from the record in this case.
70 The Appellant initially quoted a printing and binding
"Added Rate" for Jacket No. 245-004 of $128.20 per 1,000
copies (R4 File, Tab E), which was subsequently changed to
$129.20 per 1,000 (R4 File, Tab U). For Jacket No. 245-006,
at bid the "Added Rate" for printing and binding was $213.95
per 1,000 copies (R4 File, Tab J). When the Government
ordered page reductions to each tax booklet, the Appellant
lowered its "Added Rate" to $126.86 per 1,000 copies, and
$209.34 per 1,000 copies, respectively (R4 File, Tabs U and
V).
71 The Appellant's refund includes a return of the credits
which it had already given the Respondent for the paper
savings achieved when the Government reduced the number of
pages in the tax booklets. See, OIG Audit Report, pp. 12
(Appendix V, fn. 3), 14 (Appendix VI, fn. 2) (R4 File, Tab
PP).