H. J. Lyness Construction, Inc. v. United States

In the United States Court of Federal Claims
No. 11-129C
(Filed: May 15, 2015)
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*
H.J. LYNESS CONSTRUCTION, INC., *
* Cross-Motions For Summary Judgment
Plaintiff, * On Damages
*
v. *
*
THE UNITED STATES, *
*
Defendant. *
*
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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However, the NTP was rescinded by GSA on November 16, 2006, due to issues with the fire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period of time between when the NTP was issued and when it was rescinded, no performance of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
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