Northrop Grumman Systems Corporation v. United States ( 2022 )

No. 12-286C
(Filed: October 17, 2022)
NOT FOR PUBLICATION
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NORTHROP GRUMMAN SYSTEMS
CORPORATION, Motion for
Reconsideration,
Plaintiff, Delay damages;
Concurrent
v. delay.
THE UNITED STATES,
Defendant.
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ORDER ON MOTION FOR RECONSIDERATION
On June 27, 2022, the court, after trial, entered an order adjudicating
plaintiff’s complaint and defendant’s cross-claim in this breach of contract
action. We rejected much of plaintiff’s affirmative claim for breach of
contract damages, although we awarded $66,713,926.25 1 plus interest,
reflecting the amount plaintiff was due as the contract balance plus several
smaller discrete cost items and minus the government’s proven discrete cost
claims. We rejected virtually in whole defendant’s counter-claim for
damages associated with delay and breach through non-performance, with
the exception of several more minor discrete cost claims. Judgment was
deferred pending the parties’ calculation of interest under the Contract
Disputes Act.
1
That amount, stated in the conclusion of our trial opinion, was the result of
a minor clerical error in the tally of the sum of the discrete cost items proven
by defendant. As pointed out in the parties’ joint status report of July 18,
2022, the correct amount owed to plaintiff is $66,708,926.25. That error will
be corrected in the order for judgment.
Pending is defendant’s motion for reconsideration, limited to the
court’s finding that defendant had not proved any entitlement to delay
damages. We directed plaintiff to file a response. The matter is fully briefed.
For the reasons set out below, we deny the motion for reconsideration. While
we reject on the merits defendant’s request that we reconsider entitlement,
we alternatively reopen for the sole purpose of making additional findings
with respect to the damages aspect of the counter-claim.
I. Defendant’s Delay Claim—Entitlement
Defendant’s request for reconsideration rests primarily on our
statement in the trial opinion that the government’s scheduling expert
provided “no basis on which we could calculate our own measure of damages
for the period of time during which defendant was not concurrently delaying
the final FAT test.” 160 Fed. Cl. 744, 778 (2022). Defendant now cites other
testimony from Mr. McGrath 2 as evidence upon which the court could craft
a reasonably certain measure of damages for the period of delay prior to the
Postal Service’s insistence on the CASTR changes. The evidence cited now
is comprised of Mr. McGrath’s testimony regarding the mounting delay
beginning with Northrop’s initial FAT failure in August 2008, which
continued until June 2009, when the Postal Service made its CASTR
demand, and the planning schedules prior to June 2009, which, according to
defendant, show the “baked-in” delay as of each of the planning schedules. 3
This comparison between planning schedules and the Mod. 2 schedule of
deployment results in 385 machine months, which can be multiplied by Mr.
Lesch’s lost savings per machine month figure of $142,916 to net delay
damage of $55,022,660, defendant argues now.
Plaintiff answers that the court did not ignore any of the planning
schedules, nor any testimony from Mr. McGrath, and thus there is no basis
on which reconsideration can be granted under the rules—the evidence is
neither new nor was it ignored such that it would constitute plain error. See
Bishop v. United States, 26 Cl. Ct. 281, 285-86 (1992). Further, Northrop
argues that the assertion that the government’s damages period could be
shifted to the eight months prior to the CASTR changes directive is new and
is thus inappropriate to raise in a post-trial motion. We agree.
2
As defendant points out, we inadvertently referred to Mr. McGrath as Mr.
McGovern in the trial opinion.
3
Defendant also argues that plaintiff essentially admitted the same in its
second certified claim by adopting a “but-for” schedule that showed
Northrop’s delay for this period.
2
As we noted in our trial opinion, defendant has not heretofore claimed
“entitlement . . . to the eight months of time after the initial FAT failure but
before its CASTR directive.” Id. at 778 n.28. Its delay damages theory prior
to trial, during trial, and in its post-trial briefing was based on the 10 months
of ultimate delay to deployment of the final machine. It cannot recover for
that delay, however, because it too delayed the project by insisting on
CASTR changes prior to retesting, which delayed the project for a year. Id.
at 778. Nothing in defendant’s motion calls into question those findings. As
such, reconsideration is unavailable.
Mr. McGrath’s testimony regarding the various planning schedules is
likewise unavailing as a basis for reconsideration because, as we noted in our
opinion, he did not consider the impact of CASTR-related delays in his
conclusions regarding accumulated delay. We disagreed with his conclusion
that CASTR was unrelated to the ultimate delay of the machines. We cannot,
after-the-fact, filet and reassemble the record of his testimony to provide a
new basis for a delay finding based on assumptions not made by him.
Further, as Northrop points out in its response to the present motion, the
bulk of the now-claimed 385 lost machine months were incurred after the
beginning of the Postal Service-caused delay period. The general rule is that
a party cannot recover for delay during a period in which it was concurrently
delaying the project. E.g. Blinderman Const. Co., Inc. v. United States, 695
F.2d 552, 559 (Fed. Cir. 1982). In the abstract, a party might be able to
establish damages in similar circumstances, even when the delayed events
take place during the concurrent period, due to a root cause analysis which
shows that the delay was solely the other party’s fault and was incurred prior
to the period of concurrency. Here, however, Mr. McGrath’s analysis lacks
this sort of nuance. He did not consider the effect of CASTR change-caused
delay. The court, thus, has no basis on which to conclude that any of the
now-asserted lost savings were solely due to plaintiff’s failure to pass FAT.
We deny reconsideration on this issue.
II. Defendant’s Proof of Damages for Delay
Because we rejected defendant’s entitlement to delay, it was
unnecessary for us to address damages. We noted, however, that “we have
serious misgivings about how defendant calculated the financial impact of
each month of delay in machine delivery.” 160 Fed. Cl at 788 n.29. In its
motion for reconsideration, defendant challenges that aside and argues that it
had demonstrated a means of calculating the value of each month of
plaintiff’s delay in delivering each machine. We reopen our prior findings
3
for the purpose of making additional, albeit presumably unnecessary,
findings to support our skepticism.
In our earlier opinion, and to some extent additionally explained
above, our fundamental difficulty with defendant’s damage theory is that it
was not presented in a complete fashion. There was never a coherent
connection made between the collective claim for ten months of delay, the
individual month by month claims for each allegedly delayed machine, and
the performance calendar. Nevertheless, even if at least one month of delay
for at least one machine had been established, defendant never satisfactorily
proved what that month of delay cost the Postal Service.
The overall approach to damages for delay made sense. Use of the
machines allowed the Postal Service to reap the benefit of labor efficiency
resulting from the flat mail sorting machines: the machines were more
efficient than human beings at sorting each a carrier’s mail in delivery
sequence. Without time spent sorting mail in the office, each carrier was
able to cover a larger territory, thereby allowing the elimination of whole
carrier routes. I.e., the same delivery points could be covered with fewer
carriers. Given the lack of perfect fungibility between routes, carriers, and
addresses, and given the need to adhere to certain labor contract requirements
as well, the generation of savings would not have been one hundred percent
efficient, and we were not looking for exactitude. Nevertheless, measuring
the effect on a large, nationwide, scale should, at least theoretically, have
shown an overall reduction in the number of routes and a concomitant
reduction in mail carrier hours. As plaintiff’s expert, Mr. Tucker testified,
“if you take manual sorting and put it on a machine, I would expect office
hours to decrease.” Tr. 10436. And that is what defendant’s experts, Mr.
Joel Lesch, a CPA, and Mr. John McGrath claim to have shown.
Plaintiff’s damages expert, Mr. Tucker, accepted the conceptual
framework of Mr. Lesch’s lost savings model, including the cost of operating
the machines and generally the cost of the labor hours, but disagreed with a
critical input, namely, the city carrier hours saved. Plaintiff agrees that hours
were saved but posits that the cost to operate the machines exceeded the value
of any hours saved, i.e., no net savings. The crux of the disagreement
between the experts was the question of which dataset from which to draw
the labor hours to make a comparison of hours spent by carriers pre and post-
FSS machines coming online. Defendant used the Postal Service’s Site
Activation Report (“SAR”) database while plaintiff drew its conclusions
from the Postal Service’s Management Operating Data System (“MODS”).
4
There is no dispute that results drawn from the SAR’s data were never
anything other than estimates, which the Postal Service used as a projected
baseline from which it made route adjustments. The SAR data that Mr. Lesch
used was from the January 2, 2015 SAR report. Despite that, he and the
government insist that it provides the proper comparators for calculating any
lost savings because it was created and maintained by Mr. Rice at the Postal
Service to track carrier routes eliminated due to FSS implementation. The
fact that it does not track actual day-by-day hours expended is a benefit,
according to Mr. Lesch, because it thus does not suffer from seasonality bias
(more mail during the holiday season). Tr. 9645-47. It is a consistent
baseline against which the Postal Service measures its performance and
makes adjustments. Plaintiff’s expert, Mr. Tucker, in fact, used the route
adjustment figures from the SAR in his analysis of lost savings. Mr. Lesch
further explained that he had adjusted the figures to account for declining
mail volumes to ensure that his model did not account for savings not due to
FSS machines. Tr. 9238-39.
MODS, on the other hand, was accounting data, meaning it was a
collection of actual city carrier hours, routes, and mail volumes. Mr. Tucker
thus averred that it provided a more reliable basis from which to draw
conclusions regarding lost savings. He looked at the hours recorded for city
carriers at locations for the month prior to a FSS machine coming online and
compared them with the hours expended in the first full month after the FSS
machines were in use. The results, according to Mr. Tucker, were drastically
different than those found by Mr. Lesch using the SAR. It showed no net
savings after adding in the costs associated with running the FSS machines.
This is the result of two main differences. Mr. Tucker found that the SAR-
based assumption of hours expended per route post-FSS was understated
(7.94 vs. 8.28), meaning that the assumed savings were overstated. This
seemingly small difference adds up over the 33,573 remaining routes after
consolidation. The result is a difference of saved hours per route of 8.14
using the SAR versus only 4.81 using the MODS data.
Mr. Tucker was also unconcerned with seasonality because he
performed two independent calculations of the potential effect on his
numbers. The first, an adjustment of the monthly figures to compare them
to high, medium, or low volume figures had a minimal impact. It resulted in
a minor increase in savings, but not enough to change his conclusion of no
net savings. Tr. 10375. Mr. Tucker’s second seasonality analysis was
essentially a comparison of his figures to the monthly mean. When adjusting
to the mean (using the average instead of the actual monthly figures), he
likewise found no net savings.
5
When confronted with these two different approaches, we find Mr.
Tucker’s the more reliable. Although the SAR is not contrived, in the sense
that the Postal Service does use it to make decisions regarding route
adjustments, it is not reflective of what happened in fact. As explained by
Mr. Hooper from the Postal Service, it was a continuously updated set of
baseline estimates. It is useful for planning and forecasting, but not for
calculating lost savings. MODS, on the other hand, recorded the effort
actually expended and paid for by the Postal Service. Although the snapshots
taken by Mr. Tucker in his month before versus month after comparison
might have been narrow, his seasonality and sensitivity analyses were robust
enough to assure us that his was work was more likely to represent what
actually happened. Further, his conclusions more closely align with the
Postal Service’s own statements to the Postal Regulatory Commission.
Through 2016, the Postal Service repeatedly represented that it could not
isolate any savings associated with the FSS machines. In fact, in 2018, the
Postal Service came up with figures that were nearly 75 % lower than those
found by Mr. Lesch. When plugged into the damages model, they result in
no net savings. Tr. 10341-42 (Tucker).
The parties presented other arguments regarding declining mail
volumes and the increase in parcels delivered with the growth of e-
commerce. Although unnecessary to discuss in any greater detail, we find
that neither of these factors militate in favor of a finding of net savings. In
sum, defendant has not proven the quantum of the savings it claims, even if
we assume, and we cannot, the delay prior to the CASTR directive as
compensable. Defendant cannot raise a new damages theory on
reconsideration. Even if it could, it would not be supported by the evidence,
and, in any event, no lost actual savings were proven at trial. Accordingly,
defendant’s motion for reconsideration (ECF No. 355) is denied. Judgment
will be entered by separate order.
s/Eric G. Bruggink
ERIC G. BRUGGINK
Senior Judge
6