H. J. Lyness Construction, Inc. v. United States , 2015 U.S. Claims LEXIS 593 ( 2015 )


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  •             In the United States Court of Federal Claims
    No. 11-129C
    (Filed: May 15, 2015)
    ************************************
    *
    H.J. LYNESS CONSTRUCTION, INC., *
    *                Cross-Motions For Summary Judgment
    Plaintiff,        *                On Damages
    *
    v.                            *
    *
    THE UNITED STATES,                  *
    *
    Defendant.        *
    *
    ************************************
    OPINION AND ORDER
    DAMICH, Senior Judge:
    Plaintiff, H.J. Lyness Construction, Inc. (“HJL”), seeks damages stemming from the
    termination for convenience by the General Services Administration (“GSA”) of HJL’s contract
    to renovate and provide security improvements to the lobby of a federal building in Cincinnati,
    Ohio. Previously, this Court determined that Plaintiff’s claims for its settlement costs were not
    barred. Defendant then conceded liability. The case is now before the Court on the issue of
    damages. For the reasons set forth below, Defendant’s Motion for Summary Judgment is
    granted with correction for a clerical error.
    I.      Facts
    On August 15, 2006, HJL entered into Contract No. GS05P06SLC3014 with GSA.
    Compl. at ¶ 2. The contract was a firm-fixed price contract in the amount of $1,830,000 for
    lobby renovations and security improvements to the John Weld Peck Federal Building in
    Cincinnati, Ohio. Id. The performance bond, certificate of insurance and security clearances
    were thereafter reviewed and approved by GSA and on November 9, 2006, GSA issued the
    initial notice to proceed (“NTP”). Appendix to the Defendant's Cross-Motion for Summary
    Judgment and Response to Plaintiff's Motion for Partial Summary Judgment ("DA") 5.
    However, the NTP was rescinded by GSA on November 16, 2006, due to issues with the fire
    evacuation plan associated with the contract design. DA 159. The parties agree that in the brief
    period of time between when the NTP was issued and when it was rescinded, no performance of
    1
    the contract occurred. 1 Affidavit of Carl P. Meglan at 6. The contract was ultimately terminated
    for convenience on April 6, 2009. DA 65-68.
    In connection to the termination for convenience, on April 10, 2009, HJL requested the
    settlement proposal form which was transmitted to HJL eighteen days later. DA 69-70. On
    February 24, 2010, HJL contacted GSA and again requested the settlement proposal form. Even
    though the contracting officer had stated that she would not consider HJL's settlement proposal,
    on March 17, 2010, HJL submitted it. DA 85-90. In the settlement proposal, HJL requested
    $563,792 as settlement for the termination for convenience. DA 87. HJL then resubmitted the
    termination settlement proposal to the contracting officer as a certified claim. DA 82-90. Sixty
    days passed following HJL's claim submission without a final decision from the contracting
    officer. HJL then filed this suit seeking the amount of $563,792 that it had set forth in its
    settlement proposal. See generally Compl. After the filing of the Complaint, the Inspector
    General's office of the GSA conducted a multi-day onsite audit of HJL's settlement proposal.
    DA 155-170. The audit noted several discrepancies in HJL’s proposed numbers and concluded
    that HJL was actually due $30,180.59. Id.
    II.      Procedural History
    The parties have filed cross-motions for summary judgment. This Court has previously
    issued an Opinion in this case, holding that Plaintiff’s claims were not barred by a May 6, 2009
    release because the parties’ course of conduct created a genuine issue of material fact on the
    matter. See H.J. Lyness Construction, Inc. v. United States, 
    2015 U.S. Claims LEXIS 16
     (Fed.
    Cl. Jan. 21, 2015). The Court therefore denied-in-part Defendant’s Motion, and ordered that
    Plaintiff’s Motion be held in abeyance until liability was established. 
    Id.
     The Court also ordered
    the parties to file a Joint Status Report outlining the next steps to be taken in the litigation, as the
    issues of liability and damages had yet to be determined. 
    Id.
    Following this opinion, the parties filed a Joint Status Report (“JSR”). In the JSR,
    Defendant stated that it had “decided to waive any further argument concerning the release and
    will concede liability in this case.” JSR at 1. Furthermore, “the parties respectfully request that
    the Court decide the issues concerning damages that were raised in the parties’ cross-motions for
    summary judgment, enter an order deciding any material facts pursuant to RCFC 56(g), or take
    any other action that the Court deems proper.” 
    Id.
     The issue remaining before the Court is the
    amount of damages owed to Plaintiff. Plaintiff avers that it is owed $563,792.00, the full amount
    asked for in the settlement proposal. Defendant, on the other hand, contends that the GSA
    properly corrected amount owed to HJL as a result of the audit, and that $30,180.59 is the proper
    amount.
    III.     Legal Standards
    A motion for summary judgment will be granted only if “there is no genuine issue as to
    any material fact and . . . the movant is entitled to judgment as a matter of law.” RCFC 56
    1
    During the delay, HJL performed work for GSA as a result of change orders issued by GSA. For a full discussion
    of this work, see H.J. Lyness Construction, Inc. v. United States, 
    2015 U.S. Claims LEXIS 16
     (Fed. Cl. Jan. 21,
    2015). This work, however, was not part of the base contract that is at the heart of the instant case.
    2
    (c)(1); Celotex Corp. v. Catrett, 
    477 U.S. 317
    , 322 (1986). When considering a summary
    judgment motion, the court’s proper role is not to “weigh the evidence and determine the truth of
    the matter,” but rather “to determine whether there is a genuine issue for trial.” Anderson v.
    Liberty Lobby, Inc., 
    477 U.S. 242
    , 249 (1986). A fact is “material” if it “might affect the
    outcome” of the suit; a dispute is genuine if the evidence is such that a reasonable trier of fact
    could find for the nonmoving party. 
    Id. at 248
    . Pursuant to RCFC 56(g), “[i]f the court does not
    grant all the relief requested by the motion, it may enter an order stating any material fact –
    including an item of damages or other relief – that is not genuinely in dispute and treating the
    fact as established in the case.”
    The party moving for summary judgment may prevail by demonstrating via the pleadings
    or other materials in the record (such as depositions, documents, affidavits or declarations,
    stipulations, admissions, interrogatory answers, etc.) the absence of any genuine issues of
    material fact or by showing the absence of evidence to support the nonmoving party’s case.
    Celotex, 
    477 U.S. at 322-23
    . If the moving party makes such a showing, the burden shifts to the
    nonmoving party to demonstrate that there is a genuine issue of material fact. 
    Id. at 324
    . Any
    inferences that may be drawn from the underlying facts “must be viewed in the light most
    favorable to the party opposing the motion.” United States v. Diebold, Inc., 
    369 U.S. 654
    , 655
    (1962). Similarly, “[i]n cases in which there is doubt as to the existence of a genuine issue of
    material fact, that doubt must be resolved in favor of the nonmovant.” Cooper v. Ford Motor
    Co., 
    748 F.2d 677
    , 679 (Fed. Cir. 1984).
    IV.     Discussion
    Because the Defendant has conceded liability, the only issue remaining before the Court
    is the amount of damages that Plaintiff should receive from the termination for convenience. In
    its Motion, Defendant has provided a table breaking down the total amount sought by Plaintiff
    into various categories, showing where the parties are in disagreement – that table is as follows:
    Cost Element              HJL’s Settlement Proposal         Adjusted Amount From
    (A87)                       Audit (A164-68)
    Direct Material Costs            $72,864.00                       $72,768.39
    Direct Labor Costs               $10,382.00                       $8,502.53
    Other Costs                      $96,762.00                       $33,222.50
    General and Administrative       $422,830.00                      $15,983.28
    Expenses
    Total Costs                      $602,838.00                      $130,476.70
    Profit                           $60,284.00                       $13,047.67
    Subtotal                         $663,122.00                      $143,524.37
    Settlements with                 $14,014.00                       $0
    Subcontractors
    Net Amount                       $677,136.00                      $143,524.37
    Payments Made By GSA             $113,344.00                      $113,343.78
    Total Amount Due To HJL          $563,792.00                      $30,180.59
    3
    There is a discrepancy in seven of the cost elements listed: direct materials, direct labor, other
    costs, general and administrative costs, profit, settlements with subcontractors, and payments
    made by GSA. The Court shall turn to each cost individually in order to ascertain the correct
    amount owed to HJL.
    A. Direct Materials
    In its settlement proposal, HJL sought $72,864.00 in costs for direct materials. Pl.’s Mot.
    at 3. After performing its audit, GSA concluded that the proper amount should be $72,768.29.
    Def.’s Mot. at 7. The discrepancy of $95.61 was because that amount was incurred after the date
    of the termination for convenience and is therefore not compensable pursuant to FAR 49.206-
    2(b)(2). 
    Id.
     In its Response and Reply, Plaintiff argues that Defendant has failed to point to a
    specific part of the record to support its position that the $95.61 was incurred after the contract
    termination date. Pl’s Response and Reply at 4. However, as Defendant notes, the appendix
    shows a direct cost for certified mail of $95.87 2 incurred by Plaintiff on April 14, 2009, eight
    days after the contract was terminated. DA 204. The Court concludes that this cost was properly
    reduced by GSA and that the correct amount owed to Plaintiff for direct materials is $72,768.13.
    B. Direct Labor
    In its settlement proposal, HJL sought $10,382.00 in costs for direct labor. Pl.’s Mot. at
    3. After performing its audit, GSA concluded that the proper amount should be $8,502.53. 
    Id.
    The amount $1,879.47 was excluded due to HJL counting its fringe benefits expense twice, as
    both a direct labor cost and an indirect (general and administrative) expense. Def.’s Mot. at 7.
    GSA acknowledged that fringe benefits are an allowable expense but that because HJL had
    charged that expense indirectly, it could not charge that expense directly to the project. DA 164-
    165. Plaintiff does not disagree that it accounted for the costs as indirect costs; rather, Plaintiff
    argues that it should be allowed to recover this cost because it can be directly traced to the base
    contract between HJL and GSA. Pl.’s Reply and Response at 5-6.
    The Court concludes that the fringe benefits expense of $1,879.47 was properly excluded
    by GSA in the audit. Plaintiff cites Orlosky Inc. v. United States, 
    68 Fed. Cl. 296
    , 314, for the
    proposition that “costs that can be directly traced to a specific contract can be recovered if
    otherwise proven, regardless of how a contractor accounts for the same in its financial statements
    or records.” Pl.’s Mot. at 4. However, nothing in Orlosky can be fairly interpreted as supporting
    the reading that Plaintiff now advances before the Court. Indeed, Orlosky is entirely silent on the
    issue of whether costs can be recovered if they can be directly traced and otherwise proven
    regardless of how they are accounted for by a contractor.
    The Court agrees with Defendant that allowing Plaintiff to now recover the fringe
    benefits expense as a direct labor cost would result in a double recovery. Def.’s Mot. at 16.
    When Plaintiff made the accounting decision to classify the fringe benefits expense as an indirect
    cost, it lost the ability to recover it later as a direct cost. By accounting for the fringe benefits as
    an indirect expense, that expense has already been incorporated into the rest of Plaintiff’s
    2
    Defendant notes that although the actual amount is $95.87, due to an administrative error, the incorrect number of
    $95.61 was input. Def’s Reply at 5.
    4
    indirect expenses and proportionally allocated among its other contracts, along with all other
    expenses accounted for as indirect expenses. This means that part of this cost has already been
    charged to Plaintiff’s other contracts as an indirect expense. To now allow Plaintiff to recover
    this amount as a direct expense would lead to a situation where Plaintiff has overcharged its
    other contracts for its indirect expenses – in other words, it would allow Plaintiff to recover more
    than the actual cost itself. Thus, the Court concludes that GSA properly disallowed the fringe
    benefit expense. Plaintiff is entitled to $8,502.53 for direct labor costs. To the extent that
    Plaintiff can recover the share of indirect expenses unabsorbed by this contract, that amount is
    covered infra in Section D of this opinion.
    C. Other Costs
    In its settlement proposal, HJL sought $96,762.00 in other costs. This amount contains
    three components: $17,000.00 paid to Automatic Control Systems, Inc. as a deposit for security
    equipment, $16,222.50 paid to Wernke Welding & Steel for structural steel shop drawings, and
    $63,539.44 paid to Meglan, Meglan, and Company, Limited (“Meglan”), who assisted HJL with
    preparation of the requests for equitable adjustments and the termination settlement proposal.
    DA 165. After performing its audit, GSA did not dispute the first two amounts but found that the
    third amount was accounted for elsewhere by HJL as an indirect (general and administrative)
    expense. Id. at 8. GSA acknowledged that although this cost is an allowable expense, because
    HJL had charged the Meglan expense indirectly, it could not also charge that expense directly to
    the project. DA 165. As with the direct labor costs, Plaintiff does not dispute that it accounted
    for the Meglan expense as an indirect cost. Plaintiff advances the same argument: that it should
    be entitled to recover this expense regardless of how it was classified and accounted for because
    it can be directly traced to the contract.
    For the same reasons discussed supra in Section B, the Court concludes that GSA
    properly disallowed the $63,539.44 paid to Meglan because it has been accounted as an indirect
    expense. Accounting for this expense as an indirect expense has allowed Plaintiff to allocate it
    proportionally among its other contracts. Allowing Plaintiff to recover the expense directly now,
    in its entirety, would result in a double recovery for Plaintiff. Therefore, the Court holds that
    Plaintiff is entitled to $33,222.50 in other costs.
    D. General and Administrative
    By far the largest amount sought by HJL relates to General and Administrative expenses,
    specifically unabsorbed overhead. 3 HJL seeks $422,830.00 in unabsorbed overhead relating to
    the delay. Pl.’s Mot. at 5. Plaintiff arrived at this number using a formula created specifically
    for this case by Carl Meglan, who also serves as Plaintiff’s expert witness. In its audit, GSA
    3
    Unabsorbed overhead is an indirect cost that has been described by the United States Court of Appeals for the
    Federal Circuit thusly: “Indirect costs include such things as home office overhead, defined as costs that are
    expended for the benefit of the whole business, which by their nature cannot be attributed or charged to any
    particular contract. Generally a contractor recovers these indirect costs by allocating a proportionate share to each
    of its contracts. However, when the government causes a delay or suspension of performance, this decreases the
    stream of direct costs against which to assess a percentage rate for reimbursement. In such a situation, a portion of
    the home office overhead is ‘unabsorbed.’” Nicon, Inc. v. United States, 
    331 F.3d 878
    , 882 (Fed. Cir. 2003)
    (internal citations and quotation marks omitted).
    5
    rejected this calculation as “unsupportable” and “not based on any method approved under the
    case law” while noting the calculations contained various flaws, including not taking into
    consideration that “overhead expenses would have increased if HJL actually performed the
    contract work, HJL revenues showed no indication of being adversely influenced by the alleged
    ‘hold’ period, . . . and HJL’s overhead rate also showed no pattern of being adversely influenced
    . . . .” Def.’s Mot. at 9. Instead, GSA’s auditors determined that the appropriate amount is
    $15,983.28. 
    Id.
     Unsurprisingly, Plaintiff does not agree with this reduction and believes the
    original amount it submitted to be proper because it argues that it meets the criteria for recovery
    of unabsorbed overhead and that the formula used to calculate the amount is fair and reasonable.
    Pl.’s Mot. at 8.
    The Federal Circuit has held that there is only one proper method of calculating
    unabsorbed home office overhead: the Eichleay formula, originally set forth in Eichleay Corp.,
    60-2 B.C.A. (CCH) P 2688, at 13,568 (ASBCA July 29, 1960). See Wickham Contracting Co v.
    Fischer, 
    12 F.3d 1574
    , 1575 (Fed. Cir. 1994); see also Melka Marine Inc. v. United States, 
    187 F.3d 1370
    , 1374-75 (Fed. Cir. 1999). Before the Eichleay formula can be applied, a contractor
    must meet three strict prerequisites: (1) There must have been a government-caused delay of
    uncertain duration; (2) the contractor must show that the delay extended the original time for
    performance or that, even though the contract was finished within the required time period, the
    contractor incurred additional costs because he had planned to finish earlier; and (3) the
    contractor must have been on standby and unable to take on other work during the delay period.
    Nicon, 
    331 F.3d at 883
    . Additionally, the Eichleay formula can only be applied in a factual
    situation where performance on a contract has begun – it is not applicable to a situation in which
    the contract is terminated before the commencement of performance. 
    Id. at 886
    .
    Plaintiff concedes that the Eichleay formula cannot be used to calculate its unabsorbed
    overhead because performance of the contract had never started – GSA rescinded the notice to
    proceed before Plaintiff could begin performance, and this delay continued until the termination
    of the contract for convenience. Def.’s Mot. at 5. However, Plaintiff relies upon the narrow
    holding of Nicon Inc. v. United States for the proposition that its own formula should be allowed
    for calculating the unabsorbed overhead expense. 
    331 F.3d 878
     (Fed. Cir. 2003). In Nicon, the
    plaintiff sought damages for unabsorbed overhead where performance had never commenced
    before the contract was terminated for convenience by the government. 
    331 F.3d at 881
    . The
    court held that “the Eichleay formula as it is set forth in our precedent is the exclusive formula
    for the calculation of damages for unabsorbed overhead due to a period of government-caused
    delay in situations where performance has begun” and that the formula “must be strictly applied
    and may not be modified to make it apply to situations in which there is no performance on the
    contract.” 
    Id. at 888
    . However, the court also held that in situations in which contract
    performance has not yet begun, a contractor “may recover unabsorbed overhead costs as part of
    its termination for convenience settlement if a reasonable method of allocation can be
    determined on the facts of the case and the contractor can otherwise satisfy the strict
    prerequisites for recovery of unabsorbed overhead costs.” 
    Id.
     These strict prerequisites are the
    same ones a contractor must meet in order to use the Eichleay formula. 
    Id. at 887
    .
    In the instant case, the Court finds that it need not determine whether Plaintiff’s proposed
    formula for calculating unabsorbed overhead is reasonable because Plaintiff has not met the strict
    6
    prerequisites for recovery of unabsorbed overhead. As stated above, Plaintiff must show that (1)
    there was a government-caused delay; (2) the delay extended the period of performance beyond
    what was originally anticipated; and (3) that Plaintiff was required to remain on standby during
    the period of delay. Defendant concedes that the first two requirements have been met but
    argues that Plaintiff cannot meet the third requirement because it was not required to remain on
    standby during the delay. Def.’s Mot. at 19.
    When determining whether a contractor was on standby during a period of delay, the
    court first determines “whether the CO [] issued a written order that [1] suspend[ed] all the work
    on the contract for an uncertain duration and [2] require[d] the contractor to remain ready to
    resume work immediately or on short notice. P.J. Dick, Inc. v. Principi, 
    324 F.3d 1364
    , 1371
    (Fed. Cir. 2003). If those two conditions are met, the contractor need not offer further proof of
    standby; otherwise, the contractor must demonstrate standby through indirect evidence. 
    Id.
     The
    requirement to remain on standby is a demanding one; if a contractor is not required to return to
    work at full speed and/or full strength, the standard for remaining on standby is not met. 
    Id.
     The
    contractor “must be required to keep at least some of its workers and necessary equipment at the
    site, even if idle, ready to resume work on the contract (i.e., doing nothing or working on
    something elsewhere that allows them to get back to the contract sight on short notice). 
    Id.
    Furthermore, the Court of Federal Claims has previously held that “[a] contractor cannot
    be said to have personnel and equipment available to perform ‘immediately and at full speed’
    when it makes extensive use of subcontractors and cannot guarantee the availability of those
    subcontractors.” Redland Co. v. United States, 
    97 Fed. Cl. 736
    , 750 (Fed. Cl. 2011) (Judge
    Block). In Redland Co., the court, considering cross motions for summary judgment, found that
    the plaintiff “relied on subcontractors to perform a majority, if not the entirety, of the [] work.”
    
    Id.
     The court further determined that plaintiff could not guarantee the availability of its
    subcontractors to return to work immediately and at full strength because, inter alia, plaintiff had
    not even entered into a contract with one of its prime subcontractors. 
    Id.
     Thus, plaintiff could
    not meet the strict requirements of being on standby because “[p]laintiff’s ability to start work
    immediately and at full speed thus depended no less critically on the availability of plaintiff’s
    subcontractors than it did on the availability of plaintiff’s own personnel and equipment” and
    could not recover damages for unabsorbed overhead. 
    Id.
    Plaintiff has not proffered any evidence that directly proves it was required to remain on
    standby – there is no written order by a contracting officer requiring Plaintiff to remain ready to
    resume work immediately or on short notice. Thus, Plaintiff must prove standby by indirect
    evidence. P.J Dick, 
    324 F.3d at 1371
    .
    The Court finds that Plaintiff, like the plaintiff in Redland Co. cannot be considered to
    have been on standby because Plaintiff has offered little in the way of indirect evidence to
    suggest it was required to remain on standby by the government. Plaintiff has only submitted
    one piece of evidence to prove that it was on standby: the deposition of Erica Bradbury, the GSA
    contracting officer assigned to the contract. In that deposition, the following exchange occurred:
    7
    Q.       (Plaintiff’s Counsel) Well, in any event, during the time that this problem
    was going on, Lyness was on standby to begin work on the base contract,
    weren’t they?
    A.       (Ms. Bradbury) Yes.
    Deposition of Erica Bradbury at 22. Aside from that exchange, there is nothing to suggest that
    Plaintiff was required to remain on standby. For instance, Plaintiff has not produced any
    evidence that it kept workers and equipment at the site ready to commence performance on the
    contract, or any depositions of its employees to that effect. Furthermore, Ms. Bradbury was not
    the contracting officer assigned to the contract at the time the delay started. Affidavit of Harry J.
    Lyness, Exhibit Q. Ms. Bradbury was not assigned to the contract until August 12, 2008, nearly
    two years after the initial NTP was issued and rescinded. 
    Id.
     Thus she is not the individual who
    would have placed Plaintiff on standby when the delay commenced. When asked other
    questions about the specifics of the base contract, Ms. Bradbury frequently responded that she
    did not know the answer. For example, Ms. Bradbury was unaware if HJL had ever been issued
    a notice to proceed, she was unaware of the status of the project at the time she came on, or why
    HJL was eventually terminated for convenience. The Court concludes that, standing alone, this
    testimony is not sufficient to prove that Plaintiff was required to remain on standby during the
    delay, especially considering that the requirement to remain on standby is a demanding one.
    Additionally, whether Plaintiff itself was on standby is immaterial because Plaintiff
    intended to rely on subcontracts to provide the vast majority of the value associated with the
    contract. In a cost estimate sheet prepared by Plaintiff, Plaintiff estimated that the entire cost of
    the project would be $1,708,803.00 4, of which $1,519,325.00 would come from subcontractors,
    with the remaining costs consisting of estimated labor and material costs of HJL. DA 92.
    Clearly, Plaintiff intended to make extensive use of subcontractors in order to provide a majority
    of the contract’s value. However, Plaintiff offers no evidence to suggest that it could guarantee
    the availability of its subcontractors or nor their ability to perform upon the contract immediately
    and at full strength. It is not apparent that Plaintiff had entered into a contract with all of the
    subcontractors required to resume work at full speed, or whether Plaintiff communicated with its
    subcontractors on the need to remain on standby themselves in order to assure performance on
    the base contract could be started immediately once the delay had ceased. With such a large
    portion of the work to be completed by subcontractors and no evidence to suggest that Plaintiff
    had the ability to resume work on the contract immediately and at full strength, the Court
    concludes that Plaintiff was not on standby. Accordingly, “plaintiff has failed to satisfy the strict
    prerequisites for recovery of unabsorbed overhead costs because it was not on standby during the
    period of delay.” Redland Co., 97 Fed. Cl. at 751 (internal quotation marks and citations
    omitted).
    Nevertheless, Plaintiff will not be left without any compensation in this area. Although
    the GSA audit disallowed the entirety of Plaintiff’s proposed general and administrative costs,
    the audit determined that Plaintiff is entitled to expenses based upon a G&A rate applied to its
    proposed direct costs. DA 167. GSA examined Plaintiff’s fiscal years ended December 31,
    2006, though December 31, 2009 (the fiscal years in which Plaintiff was affected by the contract
    4
    The actual value of the contract awarded to Plaintiff was $1,830,000.
    8
    delay), and determined that a weighted average G&A rate of 13.96 percent would be appropriate.
    Id. GSA then applied that number to the audit adjusted numbers of Plaintiff’s direct costs and
    arrived at a proposed amount of $15,983.28. 5 However, as noted above, due to a clerical error,
    the wrong amount for Direct Materials was computed. Using the correct amount, the Court finds
    that Plaintiff is owed $15,983.24. This amount shall be used by the Court in the final calculation
    for damages.
    E. Settlements With Subcontractors
    Plaintiff seeks $14,014.00 owing to settlement agreements it entered into with three
    subcontractors. 6 Pl.’s Mot. at 4. In its audit, GSA concluded that because HJL failed to adhere
    to FAR Part 49, regarding termination of contracts and settlements with subcontractors, it could
    not recover this amount. Def.’s Mot. at 10. Specifically, the GSA found that HJL failed to
    provide (1) adequate accounting information to support the amounts negotiated with its
    subcontractors; (2) support showing Lyness submitted the subcontractor settlement agreements
    to the contracting officer for approval; (3) written and signed settlement agreements with its
    subcontractors; and (4) proof of payment or accounting data showing a liability of these
    settlements. DA 168.
    FAR 49.108-3 is the regulation that governs the settlement procedure between a prime
    contractor and its subcontractors. It requires, inter alia, that each settlement must “be supported
    by accounting data and other information sufficient for adequate review” and that a prime
    contract must “submit, for approval or ratification, all termination settlements with
    subcontractors.” FAR 49.108-3.
    Plaintiff has provided no evidence to suggest that the required documentation was ever
    submitted to GSA. Rather, it appears that Plaintiff merely submitted invoices that it received
    from the three subcontractors, which GSA considered during the audit. DA 168. Plaintiff has
    included these invoices as part of the affidavit of Harry J. Lyness, submitted on August 8, 2014.
    The affidavit also notes that, regarding each invoice, Plaintiff communicated its acceptance of
    the demand for payment to each subcontractor. Affidavit of Harry J. Lyness, ¶7-9. However,
    no communication to the subcontractors indicating acceptance and payment of the settlement has
    been included, nor has any formal documentation, such as a settlement agreement signed by both
    Plaintiff and its subcontractor. It is clear from the record before the Court that Plaintiff did not
    follow the proper settlement procedure, as required by FAR 49.108-3. The documentation
    submitted to GSA at the time of the audit was insufficient to support the award of subcontractor
    settlement costs, and Plaintiff has failed to provide the Court with any additional documentation
    that could supplement the record on the issue. Therefore, the Court holds that GSA properly
    denied the costs associated with subcontractor settlements.
    F. Profit
    5
    ($72,768.39 (Direct Materials) + $8,502.53 (Direct Labor) + $33,222.50 (Other Costs)) * 0.1396 = $15,983.28.
    6
    This number is the sum of the following: a $1,500.00 settlement with Siemering Tile Co., Inc., a $7,324.00
    settlement with McCool Plaster & Drywall, Inc., and a $5,190.00 settlement with Trebor Electrical Contractors. DA
    168. GSA adjusted each amount to $0.00 in its audit.
    9
    In its settlement proposal to GSA, Plaintiff proposed a profit amount of $60,284.00. DA
    167-168. Plaintiff arrived at this number by applying a profit rate of 10% to all of its direct costs
    as well as its general and administrative expenses. Compl. Exhibit B. In the audit, GSA
    accepted Plaintiff’s proposed profit rate of 10%, but found the correct amount should be
    $13,047.67. DA 168. Defendant notes that the difference in profit amount reflects the
    disagreement over the cost total to which the 10% rate should be applied. Def.’s Mot. at 10.
    Nowhere in Plaintiff’s Motion for Summary Judgment or its Response and Reply does it make
    any argument that this adjustment in profit cost total was improper. However, because Plaintiff’s
    proposed profit amount is based on the sum of two other submitted amounts which are in
    dispute, the Court shall assume that Plaintiff intended to object to this amount and that the lack
    of inclusion is the result of a mere oversight.
    Because the Court has determined that GSA properly disallowed portions of both direct
    costs and general and administrative expenses, supra Sections A, B, and D, the Court finds that
    the 10% profit rate should be applied to the amount of $130,476.40. 7 This yields a profit amount
    of $13,047.64. This amount shall be used by the Court in its calculation for total damages.
    G. Payments Made by GSA
    In its settlement proposal, Plaintiff reduced its proposed amount by the payments it
    received from GSA for work performed in connection with various change orders that were at
    the heart of the Court’s previous opinion in this case. See H.J. Lyness, 
    2015 U.S. Claims LEXIS 16
     at *2-5. Plaintiff submitted that it had received $113,344.00. DA 168. In its audit, GSA
    corrected this amount to $113,343.78. 
    Id.
     The Court assumes that when submitting the
    settlement proposal, Plaintiff chose to round up the amount to the nearest dollar figure. In any
    event, GSA’s adjustment resulted in an increase to Plaintiff, albeit of a mere $0.22.
    Unsurprisingly, Plaintiff has not raised any objection to this adjustment. Therefore, the Court
    accepts the amount of $113,343.78.
    H. Final Calculation
    With all of the issues regarding individual costs now resolved, the Court shall turn to the
    total amount that is owed to Plaintiff. That calculation is set forth in the following table:
    Cost Element                                  Final Amount
    Direct Material Costs                         $72,768.13
    Direct Labor Costs                            $8,502.53
    Other Costs                                   $33,222.50
    General and Administrative                    $15,983.24
    Expenses
    Total Costs                                   $130,476.40
    Profit                                        $13,047.64
    Subtotal                                      $143,524.04
    Settlements with Subcontractors               $0.00
    7
    ($72,768.13 (Direct Costs) + $8,502.53 (Direct Labor) + $33,222.50 (Other Costs) + $15,983.24 (General &
    Administrative)) * 0.10 = $13,047.64.
    10
    Net Amount                             $143,524.04
    Payments Made by GSA                   $113,343.78
    Total Amount Due to HJL                $30,180.26
    V.      Conclusion
    For the reasons set forth above, the Court holds that Plaintiff is entitled to recover
    $30,180.26 in settlement costs as a result of the termination of the contract for convenience.
    Defendant’s Motion for Summary Judgment on Damages is hereby GRANTED with correction
    for clerical error and Plaintiff’s Motion is hereby DENIED. The Clerk is directed to enter
    judgment accordingly.
    s/ Edward J. Damich
    EDWARD J. DAMICH
    Senior Judge
    11