HCS, Inc. ( 2016 )

ARMED SERVICES BOARD OF CONTRACT APPEALS
Appeal of -- )
)
HCS, Inc. ) ASBCA No. 60533
)
Under Contract No. N69450-l 5-M-5346 )
APPEARANCE FOR THE APPELLANT: Mr. Douglas Reitmeyer
Vice President for Litigation
APPEARANCES FOR THE GOVERNMENT: Ronald J. Borro, Esq.
Navy Chief Trial Attorney
Robert G. Palmer, Esq.
Associate Counsel
Naval Facilities Engineering Command
Southeast
Jacksonville, FL
OPINION BY ADMINISTRATIVE JUDGE HARTMAN
The Department of the Navy unilaterally modified a contract's scope of work to
require a contractor to cap a leaking 4" pipeline that perpendicularly intersected an 8"
pipeline in lieu of replacing "up to 60 feet" of the 8" pipeline deemed originally by the
Navy to be the source of a water leak. After completion of all contract work, the Navy
unilaterally reduced the price of the parties' contract by more than 50%. Appellant
seeks in this accelerated Board Rule 12.3 appeal its original fixed-price for the
contract, less an adjustment for materials bid that it was not required to use and new
materials added to the contract as a result of the Navy's unilateral change.
FINDINGS OF FACT
In July of 2015, a Department of the Navy contracting officer (CO),
LT Joel Overson, requested receipt of quotes from small businesses to "Provide all
Labor, Materials, equipment, Tools, Transportation and Management necessary to
repair [an] 8" pipe and isolation valve" at Naval Air Station (NAS) Corpus Christi,
Texas (R4, tab 1; tr. 89-90). The request contained a "STATEMENT OF WORK"
providing as follows:
I. Isolate, drain, excavate, provide adequate shoring to
ensure prevention of collapse/undermining of
surrounding area(s). selectively demolish, and remove
up to three twenty foot (20'-0") long sections of eight
inch (8" dia.) steel water line sections located along
A venue "C" that may have failed and are leaking and,
as necessary, fittings ... that along with the pipe are
buried at a maximum depth of up to approximately
ten feet (10'-0") as well as the four inch diameter
(4" dia.) Isolation Valve located approximately
adjacent to Building 20 ....
3. Expose the existing potentially leaking sections of eight
inch diameter (8" dia.) steel water piping section(s) by
excavating the existing and adjoining/surrounding areas
of the existing asphalt and/or concrete-base parking lot
area(s) as necessary utilizing various safe methods of
excavation (including saw cutting where appropriate)
to completely expose leaking piping section(s) and
utilize a trench box to provide the necessary shoring
and limit the ultimate amount of excavation required.
5. Having determined what excavated and existing
section(s) and fitting(s) of the eight inch diameter
(8" dia.) have in-fact failed and are leaking,
selectively demolish and remove the affected
section(s) of eight inch diameter (8" dia.) of water line
and fittings (if required) with the piping sections to
facilitate the necessary and direct installation of the
replacement section length(s) of eight-inch diameter
(8" dia.) ... poly or High Pressure Certified HDPE
Piping, as well as the appropriate and matching
material eight-inch diameter (8" dia.) Pipe Fittings ....
6. Having excavated and exposed the existing
failed/leaking isolation valve (Valve 119). selectively
demolish and remove the existing isolation valve
(Valve 119), and then install a replacement isolation
valve that exactly matches the existing isolation
valve ....
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9. After having completed the installation and connection
of the new section of Poly or High Density
Polyethylene (HOPE) eight inch diameter (8"
dia.) ... Water Piping Sections(s), and the new four inch
diameter (4" dia.) isolation valve ... perform the
appropriate flow and leak testing for both the newly
installed piping and the newly installed isolation valve,
remove the trench box utilized for shoring, backfill
(as required) the excavated trenched section opening(s),
and replace the excavated asphalt parking area to match
the existing asphalt parking area(s) to complete
restoration of the job site area(s) to a normal condition.
[Emphasis added]
(R4, tab 1 at 4-5) The quotation request stated that the period of performance is
20 calendar days and that there would be a site visit for potential offerors "to satisfy
themselves as to the general and local conditions that may affect the cost of the
performance of the work to the extent that such information is reasonably attainable"
(id. at 3, 5). The request incorporated by reference various standard contract clauses,
including Federal Acquisition Regulation (FAR) 52.233-1, DISPUTES-ALT. 1 (MAY
2014); FAR 52.236-2, DIFFERING SITE CONDITIONS (APR 1984); and FAR 52.243-5,
CHANGES AND CHANGED CONDITIONS (APR 1984) (R4, tab 1 at 21-22). Attached to the
request was a .. PROJECT LOCATION MAP," which contained an arrow pointing to
a specific area at the NAS Corpus Christi along .. C" Street, and stated: "ISOLATE 8"
ISO-VAL VE 121 A AND EFFECT REPAIRS TO REPLACEMENT OF FIVE FOOT
(5'-0") LONG SECTION OF EXISTING 8" DIA. WATER LINE" (R4, tab 1at51).
On 17 August 2015, the CO amended the statement of work in the request for
quotations to advise potential offerors that:
4. Groundwater is an ongoing issue that any trenching or
digging related project can encounter. As such the
contractor should take prudent steps to deal with any
groundwater encountered in a manner consistent with
both regulatory/statutory requirements and safety
practices.
(R4, tab 2 at 8)
Appellant, HCS, Inc. (HCS), is a small business located in Waco, Texas, about
five hours away from NAS Corpus Christi. Both the president of HCS, Carl Ballerino,
and Ben Moberg, president of HCS's prospective pipe-repair subcontractor, Quality
Contracting, attended the site visit at NAS Corpus Christi. Based on his experience
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that most pipe leaks occur at pipeline joints and the small size of the sink-hole that
existed at the site of the NAS leak, Mr. Moberg, believed the NAS leak likely occurred
at a pipeline joint, and could be replaced by cutting and removing a small section of
the pipe and installing a short section of new pipe (along with appropriate couplings).
He prepared a bid for Mr. Ballerino/HCS based on this belief, Mr. Ballerino/HCS
relied upon that bid in preparing HCS' prime contractor bid, and HCS submitted to the
CO a bid in the sum of $40,975.00, which was within 2 percent of the government's
estimated cost for performance of the work specified. (Tr. 166, 273-76; exs. G-1, A-1)
On 3 September 2015, the Department of the Navy CO awarded Contract
No. N69450-l 5-M-5346 to HCS for the pipeline repair work at NAS Corpus Christi
and HCS entered into a subcontract with Quality Contracting with respect to the
performance of that work. Thereafter, HCS (and Quality) obtained the necessary
approval of plans, permits, and training certification necessary to proceed with the
work. (R4, tab 4; tr. 7, 33-38, 229, 237-38, 248-49)
On Tuesday, 8 December 2015, Mr. Moberg traveled about five hours from
Waco, Texas, to Corpus Christi, Texas, with two IO-foot sections of 8" pipe and two
mechanical couplings. After arriving at the site, he located the utilities and measured
the depth of the pipe to be repaired. (R4, tab 13 at 1, 29; tr. 236, 251-52) The next
day, on 9 December 2015, Mr. Moberg used a backhoe to excavate a trench about 10'
deep and IO' long in the vicinity of the sink hole exposing the 8" pipe deemed leaking,
installed a trench safety box, performed checks to ensure the trench was safe for men
to work, discovered that a 4" pipe perpendicularly intersected the 8" pipe in a "tee"
joint near the sinkhole, requested NAS '·turn on'" the water to the 8" pipeline (which
had been "turned off' since discovery of the sinkhole months earlier), and water began
coming into the newly dug trench from the side of the trench where the 4" pipe ran.
Because the leak appeared to be coming from the 4" pipe Mr. Moberg excavated the
4" line for a distance of about IO' and exposed a leak in that line. (R4. tab 13 at 3:
ex. A-17 at 3; tr. 14, 20, 64, 254-59)
Mr. Moberg then had the water to the 8" line shut off and notified the CO's
representative (COR), an ensign who had graduated from the Naval Academy only a
few months earlier, that the water leak was in a 4" pipe intersecting the 8" pipeline
specified to be repaired and sought direction from the Navy. The ensign promptly
came to the work site. Mr. Moberg asked where the 4" pipe intersecting the 8" pipe
went and was told that it was a "dead-end line." The 4" pipe previously had supplied
water to a nearby building that had been demolished and had been capped at time of
demolition years ago. Mr. Moberg advised the ensign that there were two options. He
could remove the •'tee joint" where the 4" line joined the 8" line and replace it with a
piece of 8" pipe and two couplings, which he had with him on site to repair the 8"
pipe, since the 4" pipe was not in use. Alternatively, he could place a cap on the
4" pipe between its intersection with the 8" pipe and the leak in the 4" pipe, but he
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would have to procure a cap for the 4" pipe. The ensign advised Mr. Moberg during
his 5 to 10 minute visit to the site that he could not make the call as to which option to
pursue and would have to get back to him, that he should stop work on the leak, and
that he should proceed with the other specified work, i.e., replacement of the 4" valve.
(Tr. 8-9, 15-16, 40-42, 56-57, 64-65, 67, 258, 260-63, 267, 274-77)
On Thursday, lO December 2015, the following day, Mr. Moberg pumped water
out of the trench he dug the day before and spent two hours using a saw to cut concrete
paving overtop the 4" valve to be replaced. Quality Contracting then left the site to
travel five hours home to Waco, Texas. (R4, tab 13 at 8; ex. A-17 at 8; tr. 42, 62)
In drafting the scope of work for the contract, the Navy's engineer with the
Utilities and Management Branch of the Public Works Department at NAS Corpus
Christi knew that there was a 4" pipeline intersecting the 8" pipeline near the sinkhole
that ran for about 20 to 30' that had been ·'capped-off years earlier.'' The engineer,
however, •·surmised that the leak was coming from the 8" line'' because the 4" line
"had been capped and abandoned at the end of the run." If the engineer had been
informed after excavation that the leak was in the 4" pipeline, rather than the 8"
pipeline, he may have recommended that the Navy have Quality remove the "tee''
joint and replace it with a piece of pipe, but he was not consulted by either the Navy
COR or field engineering representative. (Tr. 159-63, 173-76, 180, 183-84, 186-87)
On or about Monday, 14 December 2015, the Navy's COR and engineering
technical representative decided together that the "best way forward" was to cap the
4" pipe line between its intersection with the 8" line and the leak. The contractor thus
was instructed by the government to continue its work to resolve the leak by "capping"
the 4" pipe line. Mr. Moberg of Quality, therefore, purchased a cap for the 4" line
from a supplier located near his home base in Waco before returning to Corpus Christi.
(Tr. 14-16, 23, 42-44, 185-86, 267-68) In a Request for Proposal (RFP), the COR
asked that HCS "'[ e ]stimate credit back to government for 8 inch waterline work not to
be completed'' by 18 December 2015 (R4, tab 11 at 24 (14 December COR email)).
On Tuesday, 15 December 2015, five days after departing Corpus Christi,
Quality again traveled five hours to Corpus Christi with a 4" cap. It then worked for
five and a half hours at the NAS site. It excavated the hole for the valve replacement
and installed the trench box for that replacement. (R4, tab 13 at 11; ex. A-17 at 11;
tr. 42, 268)
On Wednesday, 16 December 2015, Quality worked for 10 hours. It replaced
the valve specified for replacement, pumped ground water from the trench it had dug
previously in the vicinity of the leak, cut and removed a piece of the 4" pipeline about
8' from the 8" pipeline prior to the leak on the 4" pipeline, and then placed a cap upon
the 4" pipeline running to the joint at the 8" pipeline. The following day, on Thursday,
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17 December 2015, Quality worked 11 hours. It "Pressured up the Waterline" and
new valve to operating pressure. The Navy COR inspected the work and, when there
was no leak, Quality then backfilled both holes and poured concrete paving in the area
of the valve. (R4, tab 13 at 15, 19; ex. A-17 at 15, 19, 21; tr. 274-77) The same day,
Quality prepared an estimate for the change in work showing a net change to contract
price of -$1,435.00 as follows:
Credit for change in proposed work.
Labor: $600.00
Fittings $660.00
8" pipe $360.00
Total credit for change $1,620.00
Additional for change in proposed work:
Labor: $100.00
Cap $85.00
Total credit for change $18 5. 00
Net Change to Contract $-1435.00
(R4, tab 11 at 23 (Moberg email))
On Friday, 18 December 2015, Quality worked ten and a half hours. It
landscaped the area that it had disturbed, cleaned up the job site, and demobilized.
The COR, who had authority to direct performance of work necessary to accomplish
the project, directed Quality to perform a water clarity test to ensure that the water in
the pipeline was drinkable. The water clarity test was not work specified in the
contract. Quality attempted to perform the test but employees of the NAS plumbing
department all had gone home early for the weekend so no one was available to tum
on the water necessary to perform that test. (R4, tabs 4, 13 at 23; ex. A-17 at 23;
tr. 52-55, 272-73)
On Monday. 21December2015, Mr. Moberg traveled about five hours back
to Corpus Christi, got the NAS plumbing department to tum on the water for the
pipeline, flushed the water out of the fire hydrant on the comer of Second Street and
A venue C, pulled a water sample from the same hydrant, delivered that sample to the
county office for testing, and traveled about five hours back to Waco, Texas, for a total
of 18 work hours (R4. tab 13 at 27; ex. A-17 at 27; tr. 52-55).
Mr. Moberg returned to his supplier in Waco the 2 pieces of 8" pipe and
2 couplings he had purchased for a credit, which was subject to a re-stocking fee
(tr. 268-69, 271). On Tuesday, 22 December 2015, Quality stated that its costs due to
the change in work requiring the water quality test were $1,500.00. Quality also
6
offered a credit of $34.00 per foot for 60 feet of 8" pipe to resolve the issue of a NAS
credit but maintained no such credit was due because the "original contract states
UP TO 60' OF PIPE'' and thus "was not a per foot bid." (R4, tab 7) (Emphasis in
original) By email of the same date, CO Overson advised HCS that the COR had
issued to HCS the RFP for the credit, the COR was more intimately involved with
details of the project. the COR was on vacation that week, and conversation regarding
the credit due would need to occur the next week. Six days later, on 28 December
2015, the COR advised the CO that the following changes should be made in the
statement of work for the contract:
[E]liminate the following:
1. Excavate, expose, remove and replace up to 60 linear
feet of eight inch diameter (8" dia.) steel water line
sections with up to 60 linear feet of eight inch diameter
(8" dia.) ... direct matching equivalent of poly or High
Pressure Certified HDPE Piping, as well as the
appropriate and matching material eight-inch diameter
(8" dia.) pipe fittings ....
2. All labor, equipment, materials, transportation, and
supervision necessary to complete the above ....
[A]dd the following:
1. Cut and cap four inch diameter (4" dia.) waterline
branch attached to eight inch diameter (8" dia.)
waterline main to eliminate existing leak on the 4"
dia. waterline. Cap the four inch diameter ( 4" dia.)
waterline with matching materials.
2. Take a water sample and have the sample tested by
Nueces County Water Lab.
(R4, tab 12 at 11) The same day, the CO notified HCS by email he was "not
entertaining hypotheticals about the 8" pipe." He stated that:
Per the changes clause in the contract, that portion of work
will be removed from the scope, since it was discovered to
not be the source of the leak. Since that work will be
removed from the contract it is therefore not a relevant
discussion point, aside from the equitable adjustment that
we now need to settle.
7
We await your response to the RFP received from
[the COR]. Your response should include:
-the equitable adjustment due the Government for
the removal of work associated with the 8" pipe
(excavation, replacement, etc.)
-the equitable adjustment due HCS for exposing and
capping the 4" line
-the equitable adjustment due HCS for taking the
water sample
While I am not going to get into specific pricing at
this time, we both know that it is not realistic that this
would be a no-cost change, as Doug [Reitmeyer] is hoping
for. You would not have bid the same amount for the work
that was actually required .....
... The contractor is requested to provide a cost
break-down detailing materials, equipment, and labor to
demonstrate the accuracy of the incurred costs. The
contractor is requested to provide bills of lading, supplier
quotes, receipts, or other material evidence.
Mr. Reitmeyer replied by email on behalf of HCS the same day that:
This was a firm, fixed price contract which has been
completed and accepted by the government. As such, the
government is not entitled to "bills of lading, supplier
quotes, receipts, or other material evidence" or any other
costs related to the original scope of the contract that was
completed, only for any "extra" work that wasn't
contemplated by the original contract.
(R4, tab 6 at 3-5) Two days later, on 30 December 2015, CO Overson notified HCS as
follows:
Your response to the RFP ... has not been received ....
Your response is due to me NL T 05 January 2016.
If no response is received, I will have no recourse but to
execute the deductive contract modification based upon the
Government's estimate of costs.
8
I had hoped to negotiate a fair and reasonable
settlement, but it seems that Doug is steering HCS towards
another direction.
If you choose to provide a response, I am requesting
that you provide a cost break-down detailing materials,
equipment, and labor to demonstrate the accuracy of the
incurred costs, including bills of lading, supplier quotes,
receipts, or other material evidence. You certainly have
the right to not provide those supporting documents.
However, if we cannot reach an agreement now, and I am
forced to execute the modification unilaterally, you will
have to provide those documents later in support of any
request for equitable adjustment that you may seek, per the
disputes clause. So feel free to hang on to that right, but it
will only draw out longer the resolution that we both seek.
(R4, tab 6 at 2)
Sometime in January 2016, the COR, who possessed a degree in mechanical
engineering from the Naval Academy awarded seven months earlier, but who had no
actual experience in performing construction work, other than his approximately seven
months as a COR at NAS Corpus Christi, used '"RS Means'' to prepare an estimate of
the cost of performing his proposed modified scope of contract work. While both the
bid submitted by HCS and the Navy's original estimate for performing contract work
by its engineer 'in the Utilities and Management Branch, Public Works Department,
NAS Corpus Christi, were within 2% of each other, the COR's estimate of cost for
performing the revised contract work was about 50% less than both the original
Navy estimate and HCS's bid, i.e., $19,892.87. (R4, tab 5 at 2; ex. A-16 at 4; tr. 6, 15,
58-61, 92)
On 27 January 2016, CO Overson issued a modification to the contract making
revisions in the contract scope of work exactly as stated in the CO R's proposal of
28 December 2015 quoted above (both deletions and additions). The CO stated in the
27 January modification that, ''[a]s a result of this [contract] modification, the total
funded amount [is] decreased by $21,082.13 from $40,975.00 to $19,892.87." (R4,
tab 5 at 3)
On 24 February 2016, HCS submitted to the CO a claim "to be paid the original
contract sum,'' i.e., $22,564.00 additional. HCS explained that the '"original contract
was $40,975.00" and, "minus a customer credit of $236.00'' and $18, 175.00 it had
been paid, the sum due it for performance of the contract was $22,564.00. HCS
indicated Quality had provided a material credit of $968.00 ($732.00 for 2 fittings and
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$236.00 for 20' of 8" pipe) and a credit of $600.00 for labor and equipment. (See R4,
tab 7 at 3, 7)
On 5 April 2016, CO Sandra White, Chief of Contracting, Naval Facilities
Engineering Command Southeast, Jacksonville, Florida, who received the claim on
7 March 2016 (R4, tab 8), issued a decision which found there was ·'a partial
entitlement" to the claim relating to .. unilateral deductive contract modification
descoping contract work" and "remanded the claim" to CO Overson at Corpus Christi
..to facilitate negotiations'· regarding an "appropriate price adjustment associated with
the contract." The decision stated that it was ·'the Final Decision of the Contracting
Officer" and could "be appealed to the [ASBCA]." (R4, tab 9; tr. 124, 127)
One week later, on 12 April 2016, HCS filed its appeal with this Board. The
next day, on 13 April 2016, CO Overson sent Mr. Ballerino ofHCS an email stating:
I am prepared to offer $5,164.00 to cover the portion of the
claim that we have determined to have merit. That amount
probably will not satisfy you though, as I understand that
you feel you are due the full $22k.
I have also heard that it can cost more than $1 OOK to go
through the ASBCA appeal process. If that is true, the
economics of it don't make much sense to me, but of
course you have the right to do so.
(App. supp. R4, at 8; R4, tab 10)
On 18 July 2016, we held a one-day trial in Waco, Texas, in this accelerated
appeal pursuant to ASBCA Rule 12.3. During trial, the COR testified that HCS did
everything it was required to do by the contract's statement of work, except replace
part of the 8" pipeline. The COR further testified that, if the contractor had replaced
one foot of the 8" pipeline and resolved the leak, it would have complied with all
requirements of the scope of work. (Tr. 50-52, 66-67) The COR admitted that if
Quality had been allowed to (a) remove the "tee joint" from the 8" pipeline to the 4"
pipeline and (b) replace the joint with a piece of about 18"-long 8" pipe and couplings
it had brought to the site, Quality would have resolved the leak problem and complied
with all contract requirements (tr. 66-67, 73-74). The COR added, however, that he
stopped Quality from performing work on the 8" pipe after discovery of the leak
location and later directed Quality perform work outside the scope of contract work
(i.e., cap the 4" pipeline in lieu of replacing the ''tee joint" in the 8" pipe) that Quality
performed (tr. 66-67, 70, 81). The COR testified he also directed performance of a
water test outside the scope of contract work that the contractor performed and that the
contractor was entitled to reimbursement fot its costs related to that work (tr. 52-53).
10
Mr. Moberg testified during trial that he anticipated two trips to Corpus Christi
when bidding the job. He added, however, that he had to make a third trip to Corpus
Christi due to the unavailability of NAS plumbing personnel on a Friday to tum on
water to the 8" pipeline to perform the water quality test newly added by the COR.
(Tr. 270-72)
DECISION
In this appeal, the Navy argues it is entitled to reduce the contract price of
$40,975.00 by $21,082.13, i.e., by more than 50%, to $19,892.87 due to a unilateral
change directed by the COR during contact performance - capping of the 4" pipeline
perpendicularly intersecting the 8" pipeline originally deemed leaking by NAS Corpus
Christi prior to the location of the actual leak in the 4" pipeline in lieu of replacing part
of the 8" pipeline thought to be leaking. According to the Navy, it is owed the credit
in price because the parties' contract "required the Appellant to completely excavate
the entire sixty feet of eight inch pipe," then to "'demolish and replace" that pipe, and
upon completion of the pipe replacement to restore the area excavated to "its 'normal
condition,"' but all of that work unilaterally was deleted from the contract by the CO
(gov't br. at 1, 4) (emphasis deleted). The Navy adds that, since HCS "has provided
no receipts, costs, accounting records or other documentation to justify its demand for
the full contract price," the contract price owed "can only be established" by the
Navy's '·estimate" and "deductive change calculations provided in the Rule 4 file"
(gov't br. at 3).
HCS argues that its contract was a firm-fixed-price contract and the Navy has
converted the contract into one for cost reimbursement after completion of all contract
work. According to HCS, the only aspect of the originally specified work it did not
complete was replacement of part of the 8" pipeline, which the COR directed not be
performed when directing the contractor to install a cap upon the 4" pipeline. HCS
states that while the Navy is entitled to ·'bills of lading, supplier quotes. receipts, or
other material evidence" of costs related to the •·extra'' work that wasn't contemplated
by the original contract and added by the COR, i.e., capping of the 4" line, it is not
entitled to demand proof of cost of "all work performed'' and then ''reprice'' the entire
contract after completion of both the original and added contract work based on actual
costs incurred or an estimate of such costs by its COR or other personnel. (R4, tab 6
at 3; tr. 72-79, 126-27, 147-49)
The Navy is correct that, under the Changes clause, the contract price must be
equitably adjusted when a change in the contract work causes an increase or decrease in
the cost of performance of the work. CTA. Inc., ASBCA No. 47062, 00-2 BCA
~ 30,947 at 152,761-62; Mills Trucking, Inc., ASBCA Nos. 50163, 50164, 97-1 BCA
~ 28,907 at 144,115; FAR 52.243-5. Because the purpose underlying an equitable
11
adjustment is to safeguard both contractors and the government against the increased
costs engendered by modifications adding or deleting contract work, respectively, an
equitable adjustment must be closely related to and contingent on the altered position in
which the contractor finds itself by reason of the modification. Nager Elec. Co. v.
United States, 442 F .2d 936, 946 (Ct. Cl. 1971 ); Bruce Cons tr. Corp. v. United States.
324 F.2d 516, 518 (Ct. Cl. 1963). Where a credit is claimed for decreased work, as
here, the credit is measured by the contractor's net cost savings. CTA, 00-2 BCA
~ 30,947 at 152,762; Forde! Films West, ASBCA No. 23071, 79-2 BCA ,-i 13,913
at 68,298. In sum, with respect to a change that deletes contract work, the government
is entitled to a downward adjustment in contract price to the extent of the savings
flowing to the contractor therefrom. CTA, 00-2 BCA ~ 30,947 at 152,762; Celesco
Indus., Inc., ASBCA No. 22251, 79-1BCA,-i13,604 at 66,683.
The government has the burden of proving the amount of cost savings due
to deletion of work. Nager Elec., 442 F.2d at 946; Celesco Indus., 79-1 BCA ,-i 13,604
at 66,684. A contractor. therefore, is entitled to receive its contract price. unless the
government demonstrates the government is entitled to a price reduction for deleted
work. CTA. 00-2 BCA ,-i 30,947 at 152,762; Mills Trucking, 97-1BCA~28,907 at
144,115.
We initially examine the language of the parties' contract to ascertain what was
required of HCS. While the Navy contends that HCS was required ''to completely
excavate the entire sixty feet of eight inch pipe,'' then ..demolish and replace'' the
60 feet of pipe, and on completion of replacement restore the 60-foot area excavated to
.. its 'normal condition,"' the contract awarded HCS provided it was to excavate and
remove "up to three twenty foot...long sections of eight inch ... [diameter] steel water
line sections" and HCS was to "[ e ]xpose the existing potentially leaking sections of
eight inch diameter ... steel water piping ... as necessary" (R4, tab 1 at 4) (emphasis
added). Further, the parties' contract provided that, "[h]aving determined what
excavated and existing section( s) and fitting( s) of the eight inch diameter... [pipe] have
in-fact failed and are leaking," HCS was to "selectively demolish and remove the
affected section(s) of eight inch diameter. .. water line and fittings (ifrequired) ... to
facilitate the necessary and direct installation of the replacement section length(s)"
(R4, tab 1 at 4) (emphasis added). Accordingly, there was no express contractual
requirement that HCS excavate, demolish, and replace 60 feet of pipe. Instead, it was
only required to do so "selectively" and .. as necessary."
As found above, HCS excavated approximately 10 feet of the 8" pipeline and
ascertained that the leak was not coming from the 8" pipeline, but from a 4" pipeline
that joined at a "tee joint" the 1O' of 8" pipeline excavated. HCS then excavated about
10 feet of the 4" pipeline and located the leak approximately 8' along the 4" pipeline.
HCS therefore excavated and exposed about 20' of pipeline (or up to 60 feet of pipe) as
necessary and determined which sections of excavated and existing pipe had failed.
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While HCS was prepared to demolish (and replace with a new piece of pipe and two
couplings) the part of the 8" pipe that would have stopped the leak, i.e., the tee joint to
the 4" pipe that went nowhere, HCS was told to pursue an alternative course of action
by the Navy's COR. In order to stop the leak, the COR directed HCS to demolish and
remove part of the 4" pipe and to ..cap'' the 4" pipe where HCS had demolished and
removed part of that pipe, which had been abandoned years earlier when it was capped
further along that pipeline when the building it supplied water to was demolished.
HCS performed the new work directed by the COR, i.e., the demolition of 4" pipe and
the installation of a cap, along with the remaining work specified by its original
contract, i.e., the excavation and replacement of a 4" isolation valve at another
location, the backfilling of all areas excavated, and the restoration of areas excavated
to their normal condition. Thus, HCS performed all of the work required by its
original contract, except for the replacement of part of the 8" pipe to stop the leak.
While it could have used the couplings and less than 3 feet of the pipe it had brought
with it to replace the tee joint to the 4" pipe, thereby stopping the leak of water flowing
through the 8" pipe to the 4" pipe, the COR directed that HCS install a new piece of
pipe, a .. cap," on the 4" line of pipe. Accordingly, the only potential savings flowing
to HCS from the Navy's "change" in contract work was with respect to the labor and
material it needed to "selectively" install a replacement piece of 8" pipe.
While the installation of the 4" cap was an addition to the scope of contract
work, HCS did not submit a claim to the COR for an equitable adjustment based on
that change. Rather. it simply proposed offsetting its proposed credit to the Navy for
not replacing any part of the 8" pipe with its costs associated with its replacement of
part of the 4" pipe with a cap. The Navy, however, rejected the contractor's proposal,
electing to have its inexperienced COR estimate the price of "all" of the contract work,
i.e., the cost of capping a 4" pipe and replacing the 4" valve at another location. Using
R.S. Means, the COR arrived at an estimate for this work that was more than 50% less
than the contract award price and more than 50% less than the government's original
estimate for performance of contract work. The CO then adopted the COR's
·•estimate" as the contract price, asserting it was proper because the CO was
unilaterally deleting all work associated with the 8" pipeline from the contract's scope
of work more than a month after all of that work, except replacement of part of the 8"
pipe, actually was performed by HCS.
As discussed above, the burden of proof is on the Navy to show the amount of
cost savings due to its deletion of work. In this appeal, the Navy relies on the cost
estimate prepared by the COR and another estimate (prepared during litigation by a
Florida engineer employed by the Navy) based upon Means. During trial, the Navy
presented no testimony regarding actual preparation of the estimates or specific cost
savings due to deletion of contract work, asserting in sum that the engineers' written
calculations spoke for themselves. It maintained simply that its CO deleted all work
relating to the 8" pipeline after the contractor had completed that work (other than the
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replacement of part of the 8" pipe), necessitating the repricing of the entire fixed-price
contract on a cost incurred basis (including replacement of the 4" valve at another
location), and the Navy was free to estimate such costs using Means because HCS
failed to come forward with evidence of all costs it had incurred.
We are aware of no authority allowing the Navy to delete work from a contract
after work performance and then refuse to pay for the work initially specified and
performed, and the Navy cites us no legal authority for such action. The sole basis
offered by the Navy for re-pricing the entire contract here is its alleged existence of a
Type I ''differing site condition," i.e., a leak in a 4" rather than 8" pipe lbcated at the
geographic location specified by the Navy, a site which it knew prior to contract award
contained both 4" and 8" water pipeline. No claim of a differing site condition,
however, has been asserted by HCS in writing, as expressly required by the differing
site condition clause. FAR 52.236-2. We, therefore. need not decide whether a 4"
difference in size of water pipe leaking constitutes a "material" difference in site
condition under the facts of this appeal, as the Navy now asserts.
At trial, Mr. Moberg testified under oath that he returned to his supplier in
Waco 2 pieces of 8" pipe that was 1O' in length and 2 couplings he had purchased
previously for a credit, which was subject to a re-stocking fee. He estimated prior to
returning these materials that he would obtain a credit of $1,020.00 but actually was
given a credit of about $968.00 ($732 for fittings and $236 for 20' of 8" pipe) (see R4,
tab 7 at 3; tr. 268-69, 271). He estimated during contract performance the change
would save $600.00 in labor and provided a credit of $600.00 for labor and equipment.
The total credit Quality provided for deletion of 8" pipe work therefore was $1,568.00
(R4, tab 7). With respect to the additional new 4" pipe work, Quality asserts that it is
owed $150.00 for the pipe cap and $200.00 for labor. Quality also asserts it is owed
$1,500.00 for performing the water quality test that the COR and CO conceded was
additional work not originally specified and directed by the COR. The net change in
contract priced based on these numbers is that HCS is entitled to $282.00 more than its
original contract price for performing the work at NAS Corpus Christi.
At trial, the Navy did not specifically challenge the reasonableness of any of the
dollar amounts presented by Quality or HCS. Simply put, the Navy did not carry its
burden of proof. It has made no showing here of entitlement to a price reduction based
on deleted work. CTA, 00-2 BCA ~ 30,947 at 152,761-62; Mills Trucking, 97-1 BCA
~ 28,907 at 144.115.
A contractor is entitled to receive its contract price where the government fails
to demonstrate entitlement to a contract price reduction for deleted work. Based upon
the record here (including unchallenged costs for conceded extra work), we conclude
HCS is entitled to a contract price of$41,257.00 ($40,975.00 + $282.00).
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CONCLUSION
The appeal is sustained. HCS is entitled to recover $23,082.00 ($41,257 .00 less
the sum it already has been paid of $18, 175.00), plus interest under the Contract
Disputes Act in accordance with 41 U.S.C. § 7109 from 7 March 2016, the date of
receipt of the claim, until paid.
Dated: 20 September 2016
TERRENCES.HARTMAN
Administrative Judge
Armed Services Board
of Contract Appeals
I concur
RICHARD SHACKLEFORD
Administrative Judge
Vice Chairman
Armed Services Board
of Contract Appeals
I certify that the foregoing is a true copy of the Opinion and Decision of the
Armed Services Board of Contract Appeals in ASBCA No. 60533, Appeal ofHCS,
Inc., rendered in conformance with the Board's Charter.
Dated:
JEFFREY D. GARDIN
Recorder, Armed Services
Board of Contract Appeals
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