Hallmark-Phoenix 3, LLC

ARMED SERVICES BOARD OF CONTRACT APPEALS
Appeal of -- )
)
Hallmark-Phoenix 3, LLC ) ASBCA No. 61049)
Under Contract No. W9124J-08-C-0026 )
APPEARANCES FOR THE APPELLANT: Bryant S. Banes, Esq.
Sean D. Forbes, Esq.
Neel, Hooper & Banes, P.C.
Houston, TX
APPEARANCES FOR THE GOVERNMENT: Raymond M. Saunders, Esq.
Army Chief Trial Attorney
ChristinaLynn E. McCoy, Esq.
Trial Attorney
OPINION BY ADMINISTRATIVE JUDGE PAGE
Appellant seeks to recover $63,013.98 for increased wages and fringe benefit costs
associated with the United States Department of Labor (USDOL) requirement that it pay
its employees in accordance with wage determination (WD) 2005-2049, Revision 16
(Rev. 16) during the eight-month and three-day extension period of its contract with the
government. This amount is the difference in costs between WD 2005-2049, Revision 8
(Rev. 8), which was the applicable wage determination at the time of contract award and
Rev. 16, the wage determination applicable during this portion of contract performance,
to which the government was obligated to adjust the contract, but did not. The parties
have elected to proceed pursuant to Board Rule 12.2. 1 We sustain the appeal.
FINDINGS OF FACT
The Contract
1. On 29 September 2008, the Mission and Installation Contracting Command
at Fort Sam Houston, Texas (MICC-FSH) and Hallmark-Phoenix 3, LLC (appellant,
HP3, or the contractor) entered into Contract No. W9124J-08-C-0026 for logistics
services operations in support of the United States Army Garrison at the Presidio of
Monterey in California (USAG POM) (R4, tab 1). 2 The period of performance
1
A decision under Rule 12.2 shall have no value as precedent, and in the absence of
fraud, shall be final and conclusive and may not be appealed or set aside.
2
MICC-FSH and USAG POM are referred to collectively as the "government."
included a 90-day, phase-in period (id. at 24 3), plus a nine-month base period and four
12-month option years (id. at 1-5). The firm-fixed-price contract contained contract
line item numbers (CLINs) at unit prices for supplies/services, logistics plans and
operations, transportation, and maintenance; a separate CLIN for contractor manpower
reporting was at no cost to the government (id. at 2-18). The contractor was to be paid
a total of $1,713,346 for the base year (id. at 1).
2. Among standard contract clauses is FAR 52.217-8, OPTION TO EXTEND
SERVICES (Nov 1999), which provides:
The Government may require continued
performance of any services within the limits and at the
rates specified in the contract. These rates may be adjusted
only as a result of revisions to prevailing labor rates
provided by the Secretary ofLabor. The option provision
may be exercised more than once, but the total extension of
performance hereunder shall not exceed 6 months. The
Contracting Officer [CO] may exercise the option by
written notice to the Contractor within 15 calendar days
before the contract expires.
(R4, tab 1 at 114) (Emphasis added)
3. Among standard contract clauses incorporated by reference was
FAR 52.233-1, DISPUTES (JUL 2002)-ALTERNA TE I (DEC 1991) (R4, tab 1 at 111 ).
Also incorporated by reference is FAR 52 .222-41, SER VICE CONTRACT ACT OF 1965
(Nov 2007). It provides, in pertinent part:
(c) Compensation. ( 1) Each service employee
employed in the performance of this contract by the
Contractor or any subcontractor be paid not less than the
minimum monetary wages and shall be furnished fringe
benefits in accordance with the wages and fringe benefits
determined by the Secretary ofLabor, or authorized
representative, as specified in any wage determination
attached to this contract.
3
Where applicable, we adopt pagination added by the parties to Rule 4 file
documents.
2
(d) Obligation to Furnish Fringe Benefits. The
Contractor or subcontractor may discharge the obligation
to furnish fringe benefits specified in the attachment or
determined under subparagraph (c)(2) of this clause by
furnishing equivalent combinations of bona fide fringe
benefits, or by making equivalent or differential cash
payments, only in accordance with Subpart D of 29 CFR
Part 4.
(Id.) (Emphasis added)
4. The contract also included USDOL Wage Determination No. 2005-2049,
Revision 8 (Rev. 8) dated 24 June 2008 (R4, tab 1 at 123). This was a later WD than
that contained in the solicitation upon which HP3 bid the contract (tr. 2/160). Under
Rev. 8, the monthly contract price as awarded was $167,962 (tr. 1/114-15; app. supp.
R4, tab 11). Although the contractor provided timely notice of several changed WDs
during the course of performance, the government incorporated only Rev. 16 into the
contract by unilateral Modification No. P00038 dated 16 November 2013. The
government never changed the contract price to reflect the increased wages and
associated costs imposed on the contractor. (Tr. 11114-21, 2/160; R4, tabs 1, 38)
5. Also incorporated by reference is FAR 52.222-43, FAIR LABOR STANDARDS
ACT AND SERVICE CONTRACT ACT - PRICE ADJUSTMENT (MULTIPLE YEAR AND
OPTION CONTRACTS) (Nov 2006), which provided in pertinent part:
(d) The contract price or contract unit price labor
rates will be adjusted to reflect the Contractor's actual
increase or decrease in applicable wages and fringe
benefits to the extent that the increase is made to comply
with or the decrease is voluntarily made by the Contractor
as a result of
( 1) The Department of Labor wage determination
applicable on the anniversary date of the multiple year
contract, or at the beginning of the renewal option
period ....
(2) An increased or decreased wage determination
otherwise applied to the contract by operation of law; ...
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(e) Any adjustment will be limited to increases or
decreases in wages and fringe benefits as described in
paragraph (d) of this clause, and the accompanying
increases or decreases in social security and unemployment
taxes and workers' compensation insurance, but shall not
otherwise include any amount for general and
administrative costs, overhead, or profit.
(f) The Contractor shall notify the [CO] of any
increase claimed under this clause within 30 days after
receiving a new wage determination unless this
notification period is extended in writing by the [CO]. The
Contractor shall promptly notify the [CO] of any decrease
under this clause .... The notice shall contain a statement
of the amount claimed and any relevant supporting data
including payroll records, that the [CO] may reasonably
require. Upon agreement of the parties, the contract price
or contract unit price labor rates shall be modified in
writing. The Contractor shall continue performance
pending agreement on or determination of any such
adjustment and its effective date.
(g) The [CO] or an authorized representative shall
have access to and the right to examine any directly
pertinent books, documents, papers and records of the
Contractor until the expiration of 3 years after final
payment under the contract.
(R4, tab 1 at 111)
6. HP3 and Data Monitor Systems, Inc., (DMS) entered into a subcontract that
was effective 29 October 2008 for the purpose of performing the instant contract (app.
supp. R4, tab 12 at 734-35). Paragraph 24 of the subcontract, "INVOICING AND
PAYMENT" required appellant to pay DMS's invoices "within fifteen (15) calendar
days of receipt or within fifteen (15) business days after receipt of the Government's
payment covering the amounts submitted by HP3, which ever is later." Paragraph 28
"DISPUTES" described the process to be followed by the parties in the event of a
dispute and the manner in which HP3 would sponsor a pass-through claim to the
government on behalf ofDMS (id. at 740-42).
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The Parties' Settlement Agreement from HP3 's Appeal to the United States
Court ofFederal Claims
7. In December 2012, the parties entered into a settlement agreement to resolve
HP3's appeal in the amount of $1,285,475.99 before the United States Court of
Federal Claims. Although the matter was originally heard on a deemed denial basis,
the CO issued a final decision (COFD) that granted the portion ofHP3's claim relating
to parts reimbursement. The COFD denied the contractor's demand to recover for
excess workload and additional costs associated with revised wage rate
determinations. Under the settlement of the remaining issues, the government paid
HP3 a total of$733,138.53. (App. supp. R4, tab 12 at 8-12)
8. Paragraph 8 of the settlement agreement provides in relevant part:
For Option Year 04, which is ongoing, HP3 releases,
waives, and abandons any claims for excess workload and
for wage determination, including but not limited to any
claims for costs, interest, expenses, attorney fees, and
damages of any sort with respect to such claims for excess
workload and wage determination. Furthermore, HP3 does
not hereby release, abandon, or otherwise waive any other
claims that may arise out of its performance of the contract
during Option Year 04, with the exception of any claims
for excess workload and wage determination, as herein
described.
(R4, tab 12 at 9-10)
9. Paragraph 12 defines the scope of the settlement agreement:
This agreement is for the purpose ofsettling this case, and
for no other. Accordingly, this agreement shall not bind
the parties, nor shall it be cited or otherwise referred to, in
any proceedings, whether judicial or administrative in
nature, in which the parties or counsel for the parties have
or may acquire an interest, except as is necessary to effect
the terms of this agreement.
(R4, tab 12 at 10-11) (Emphasis added)
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The Contract Extension Period
10. On 25 October 2013, following Option Year 4 (OY4), the government
unilaterally extended the contract in accordance with FAR 52.217-8 from 29 October
2013 through 28 December 2013 (R4, tab 37). The government added and incrementally
funded new 5000-series CLINs (R4, tabs 37, 40-41, 43).
11. Subcontractor DMS on 19 November 2013 advised HP3 that its cost of the
"Extension Increase" using Rev. 16 was $178.33 per month" (app. supp. R4, tab 12 at
101-05).
12. The CO on 16 November 2013 incorporated Rev. 16, dated 19 June 2013
into the contract extension. Rev. 16 called for a $ .10 health and welfare adjustment,
and no increase or decrease in prevailing wage rates, over WD 2005-2049, Revision
15 (Rev. 15). (R4, tab 38) There was no evidence that the government incorporated
wage determination revisions 9 through 15 into the contract or that it accordingly
adjusted the contract price as called for by FAR 52.222-43(d) (R4, tab 1, passim; see
also R4, tab 49 at 13-14 ).
13. Bilateral contract Modification No. P00035 dated 28 April 2014 extended
the performance period through 28 August 2014, and adjusted the price by $671,848
for this four-month extension period (R4, tab 44 ). The modification acknowledged
that Rev. 16 remained in effect and that the "[i]ncorporation of Wage Adjustment in
accordance with the wage determination is forthcoming" (id. at 2).
The Contractor's Requests for Compensation and the Government's Response
14. Appellant on 22 September 2014 wrote the CO seeking a "cost increase for
the subject contract" that was certified as required by the Contract Disputes Act of
1978 (CDA), 41 U.S.C. § 7103(b)(l). In relevant part, HP3 said that this claim
"includes our previous WD requests which have not yet been incorporated into the
contract but were paid for OY1-0Y4 (not the extension) in the certified contract claim
settlement dated 13 Dec 2012." As excerpted in relevant part, HP3 summarized its
additional costs associated with Rev. 16:
New Original Increase #Months #days Total
Monthly Monthly Adjustment
Price Amount per CLIN
8 3
5001 $6,442.19 $6,430.00 $12.19 $97.52 $0.40 $97.92
5002 $73,101.33 $70,859.00 $2,242.33 $17,938.64 $73.72 $18,012.36
5003 $63,623.54 $58,610.00 $5,013.54 $40,108.32 $164.83 $40,273.15
5004 $32,574.89 $32,063.00 $511.89 $4,095.12 $16.83 $4,111.95
Total Request for Equitable
Adjustment $62,495.38
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(R4, tab 49 at 1, 6) This amount was increased to $63,013.98 by appellant's 25 July
2016 correspondence (R4, tab 118).
15. The CO on 27 October 2014 informed HP3 that the government was
processing its claim. "However, per legal review, we have been advised that, in
accordance with the contract claim settlement agreement dated 13 December 2012,
paragraph 8, you are not entitled to any claims for excess workload and wage
determination for OY4 and extension." The government said it would consult with
"the contract trial attorney for further clarification of the settlement" and would keep
the contractor informed. (R4, tab 50)
16. Thus began a period of about a year and a half in which the parties exchanged
correspondence regarding HP3 's request (see, e.g., R4, tabs 58-60). A pattern emerged,
in which HP3 provided information requested by various government personnel
evaluating the request, a period of delay would ensue, the contractor would inquire
regarding the status of its demand, and the government would either offer assurances that
the matter would be addressed or asked for information that HP3 contended it had already
provided (see, e.g., R4, tabs 60, 62, 66, 68-69, 72, 74, 76, 79, 83, 86-87, 89, 93). On
12 August 2015, appellant wrote the CO concerning the government's lack of response.
It reminded her that the government's letter of 27 October 2014 "allege[d] that HP3's
claim is barred by waiver in the settlement agreement and [that she] assumed the
responsibility of conferring with [counsel] on this matter." HP3 advised that as it had not
heard from the CO or its counsel, it would "consider this a deemed denial and move to
litigation if this matter is not resolved by August 31, 2015." HP3 denied that paragraph 8
of the settlement "bar[red] this claim [and there] was certainly no waiver that covered any
extension beyond OY4." (R4, tab 60)
17. Following further exchanges between the parties, the government on
12 May 2016 asked HP3 to provide one month of payroll data (R4, tab 99). The
contractor responded with this information on 13 May 2016, and noted that it had
provided this on 23 November 2015 (R4, tab 100). Appellant asked again for updates
on 8 and 21 June 2016, and was told that the matter was pending and that the
government would ask for more information (R4, tabs 103-05). HP3 expressed
disappointment with the additional delay on 22 June 2016, and the government said
that it anticipated a decision by 29 July 2016 (R4, tabs 105-06). Further
correspondence ensued regarding the status of funding and how the matter would be
processed (R4, tabs 107-08).
18. HP3 on 25 July 2016 submitted a second certified request for a cost increase
for the eight-month, three-day period of 29 October 2013 - 2 July 2014. Attached was a
"Claim Summary Sheet"; the "HP Claim"; and its subcontractor "DMS Claim." The
contractor sought an "Extension Increase" of "$178.33 per month" and a total of
$63,013.98. (R4, tab 117) Again, the governIJlent continued to ask for additional
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information and the contractor responded (R4, tabs 118-21 ). On 30 August,
26 September, and 7 December 2016, HP3 again asked for a timeline from the
government (R4, tabs 122-24). The CO replied on 7 December 2016 that "[t]he Wage
Adjustment ha[ s] not been denied" and that she would work on providing HP3 with a
"projected dead line [sic] with a decision and way forward" (R4, tab 125). Appellant on
3 January 2017 again asked the CO for a "time line for the Government's resolution of
this claim" (app. supp. R4, tab 10). HP3 on 6 February 2017 appealed to the Board on
the basis of a "deemed denial" by the CO.
The Parties' Stipulations Regarding Appellant's Financial Records
19. Ms. Pamela Barber was the former vice president for finance and accounting
for HP3. The parties stipulated that Ms. Barber "used contemporaneous time records to
input labor hours and other data related to the WD adjustment and to HP3's accounting
system; that these records were signed ... by the employee and on-site manager, and she
relied on these contemporaneous records for what was placed in the accounting system of
HP3." Ms. Barber "can also confirm that the ... labor payments and health-and-welfare
payments to the [employee stock option plan] and health insurance reflected in HP3's
accounting system were actually made." She would have testified that "the time sheets
[were] in a file cabinet and [she] left them there when she left [HP3] in 2014. That office
has since been closed, and that's why it's so hard to find them." Further, "despite a
diligent search, Mr. Freeman [president of HP3] is not able to find the underlying time
sheets, although there remains a dispute about whether those duplicate records need to be
maintained." Finally, the parties stipulated that Mr. Sook of DMS "will say that he has
not been paid for the last two months of the extension period, two months and three days
of the extension period .... [and] that there is nothing owed to him prior to that" but that he
"paid all his employees in accordance with the wage determinations and that he adjusted
the wages for the extension period in accordance with Rev. 16." (Tr. 1/100-03) We
accept appellant's explanation that it was unable to locate original payrolls records and
that they were lost during a move; HP3 's assertion that the accounting records on which
it relies reflect contemporaneous labor and fringe benefit costs, and that it made the
necessary corrections for minor posting errors; and that DMS paid its employees in
accordance with Rev. 16 for the extension period but has not been paid by HP3.
DECISION
Entitlement
The contractor's entitlement hinges upon two obligations that are clearly stated
in the contract. The first is the contractor's duty under FAR 52.222-41, SERVICE
CONTRACT ACT OF 1965 (Nov 2007), to compensate its workers, and provide fringe
benefits, in accordance with the minimums stated in the then-applicable USDOL wage
determination, here Rev. 16. We find that, during the extension period, HP3 and DMS
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paid their employees and furnished fringe benefits using Rev. 16 in compliance with
FAR 52.222-41. (Findings 3-4, 6, 19)
The second obligation is that of the government to adjust the contract price as
required by FAR 52.222-43, FAIR LABOR STANDARDS ACT AND SERVICE CONTRACT
ACT- PRICE ADJUSTMENT (MULTIPLE YEAR AND OPTION CONTRACTS) (Nov 2006).
Paragraph ( d) of this provision states that the "contract price or contract unit price
labor rates will be adjusted to reflect the Contractor's actual increase or decrease in
applicable wages and fringe benefits to the extent that" the change is made as a result
of the USDOL applicable wage determination. Paragraph (f) requires the contractor to
timely notify the government of such a change, which HP3 did. (Findings 4-5)
The record shows that although HP3 complied with paragraph (f), the CO never
amended the parties' original contract, which incorporated Rev. 8, to reflect successive
WD revisions. The government does not explain this lapse, as it was obligated to
make this change but did not do so. By the time of the extension period at issue,
USDOL required compliance with Rev. 16, which was more costly to the contractor
than Rev. 8. (Findings 4, 5, 12-13) We find that the government failed to fulfill this
obligation, and that appellant is entitled to recover the price increase occasioned by
Rev. 16 over Rev. 8. The change in the applicable wage determination, and the
appropriate change in contract price, were to be "applied to the contract as a matter of
law" (FAR 52.222-43(d)); this is specifically authorized for contract extensions by
FAR 52.217-8.
Affirmative Defenses Asserted by the Government
The government's opposition to HP3's entitlement to increased costs rests upon
two late-raised affirmative defenses, to which appellant objected. These are that
"HP3'S DECEMBER 2012 SETTLEMENT RELEASE PRECLUDES
ADJUSTMENTS TO WAGE RATES UNDER WD 2005-2049, REV. 16," and that
"HP3'S [SIC] IS BARRED UNDER ACCORD AND SATISFACTION TO ANY
ADJUSTMENT FOR THE FINAL TWO MONTHS AND THREE DAY
EXTENSION" (gov't br. at 21-24). The Board provisionally allowed testimony at
hearing but cautioned the government that it must justify its untimely assertions. The
government responded that these defenses should be allowed, as "HP3 was on notice of
the [government's] available defenses, and was not prejudiced" (gov't reply br. at 5).
We sustain appellant's objections. FED. R. CIV. P. 8(c)(l) requires a party
responding to a pleading to "affirmatively state any available or affirmative defenses,"
which include accord and satisfaction and release. 4 This rule requires timely notice to
4
The FED. R. CIV. P. are not directly applicable to the Board, but we consider these for
guidance when the Board's Rules do not directly speak to the issues. We
9
the opposing party, and the government offered no excuse for failing to do so. Even if
the Board allowed the government to pursue these defenses, these would fail for want
of proof. We find that the December 2012 settlement agreement did not bar the instant
appeal for wage-related increased costs for the extension period nor did it modify the
terms of the contract (R4, tab 12 at 8-10).
The government produced no evidence that appellant intended to release its
right to recoup the cost of increased wage requirements for the extended period. See,
e.g., Optex Systems, Inc., ASBCA No. 58220, 14-1 BCA if 35,801 at 175,097. Nor did
the government prove there was accord and satisfaction simply "because [HP3] is a
signatory to bilateral Modification P00035" which applied Rev. 16, which had "only a
$.10 [health and welfare] adjustment, and not prevailing wage increases." In
particular, the government has not proven the essential element that there was a
meeting of the minds that this modification was intended as accord and satisfaction for
costs incurred during the contested extension period. See, e.g., Bell BC! Co. v. United
States, 570 F.3d 1337, 1341 (Fed. Cir. 2009) (quoting O'Connor v. United States, 308
F.3d 1233, 1240 (Fed. Cir. 2002)). Notably, the government adduced no testimony
from the CO or any competent government representative to support this contention.
Quantum
Appellant seeks to recover $63,013.98. We reject the government's contention
that HP3 is entitled, at most, to the increased cost of complying with Rev. 16 over
Rev. 15, which was used during OY4 as a result of the settlement agreement (see, e.g.,
gov't br. at 21-22; gov't reply br. at 2). The government overlooks the fact that the
contract price was never adjusted to incorporate the increased costs of compliance with
Rev. 15. We hold that the starting point to calculate the cost impact of Rev. 16 was
Rev. 8, which was the only prior wage rate specified in the contract.
The government also criticizes appellant for failing to produce original payroll
records to substantiate its claim, which it asserts were lost during a move (finding 20).
While these would be the best proof of the contract's increased expenses, we deem the
records produced in support of its claim to be adequate. We accept HP3 's assertion,
which the government did not successfully rebut, that it corrected the relatively minor
errors it made with respect to incorrectly paid workers and in its accounting entries and
that the currently-requested amount is correct (app. reply hr. at 5). We reject the
government's contention that HP3 is not entitled to the amounts due to its
subcontractor DMS. Appellant successfully demonstrated that its agreement with
DMS provided for HP3 to pay the subcontractor after it received payment from the
government. (Findings 6, 19)
regard FED. R. CIV. P. 8(c)(1) as appropriate here as a matter of fundamental
fairness, particularly in this expedited Rule 12.2 appeal.
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CONCLUSION
We sustain appellant's appeal, and hold that the contractor is entitled to recover
the $63,013.98 it seeks plus interest pursuant to the CDA, 41 U.S.C. § 7109, from the
date of its 22 September 2014 claim.
Dated: 23 June 2017
``
PAGE~
REBA
Administrative Judge
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. 61049, Appeal of
Hallmark-Phoenix 3, LLC, rendered in conformance with the Board's Charter.
Dated:
JEFFREY D. GARDIN
Recorder, Armed Services
Board of Contract Appeals
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