ARMED SERVICES BOARD OF CONTRACT APPEALS 
Appeal of -- ) 
) 
Kelly-Ryan, Inc. ) 
) 
Under Contract No. W911KB-05-C-0016 ) 
APPEARANCES FOR THE APPELLANT: 
APPEARANCES FOR THE GOVERNMENT: 
ASBCA No. 57168 
Dale R. Martin, Esq. 
Kevin D. Fowler, Esq. 
Abigail Z. Jin, Esq. 
Terrence J. Kelley, Esq. 
Barokas Martin & Tomlinson 
Seattle, WA 
Thomas J. Warren, Esq. 
Acting Engineer Chief Trial Attorney 
Brian S. Smith, Esq. 
Carl F. Olson, Esq. 
Engineer Trial Attorneys 
U.S. Army Engineer District, 
Pacific Ocean 
OPINION BY ADMINISTRATIVE JUDGE DICKINSON 
This appeal arises from a contract awarded by the Army Corps of Engineers 
(government or Corps), to Kelly-Ryan, Inc. (appellant or KRI) to construct harbor 
improvements at False Pass, Alaska, in the Aleutian Islands. Both entitlement and 
quantum are before us for decision. 
FINDINGS OF FACT 
A. Background and Pre-Contract Matters 
1. False Pass, Alaska, is located on Unimak Island in the Aleutian Islands. It 
occupies a remote, but strategic, location on the west side of the Isanotski Strait, the 
shortest transit route between the Gulf of Alaska and the Bering Sea. False Pass is 670 
miles southwest of Anchorage, Alaska, and approximately 2000 miles from Seattle, 
Washington, the location ofKRI's business office. (Compl. ii 70; tr. 9/10; finding 3) 

I l 
. ...._ ... 
8 0 _,.. 
--
Par:i(ic Or:fOn 
-
False Pass was so remote that all crew, materials and equipment had to be brought in 
by barge. It took two-three weeks for a sea-going barge to make the trip from Seattle 
to False Pass. As a result of the remote location and time to transport items required to 
perform contract work, it was necessary to prepare "months instead of weeks" in 
advance. (Tr. 9/10) 
[O]ne of the reasons it was such a big deal on this 
job is in Alaska generally and remote Alaska in particular, 
you're way out in the Aleutians .... They're very difficult 
and expensive to get to. 
They have extreme winters, and the logistics of it 
required very careful planning because the Corps' intent, 
and I think the contractor[']s, in bidding on these, are 
trying t[o] do the jobs in as few ... seasons as possible, 
because the mob[ilization] and demob[ilization] alone are 
so expensive. 
(Tr. 7/49-51) Because False Pass was so far north, the work was seasonal, essentially 
six months of work followed by six months of winter: 
[T]he Aleutians ... [are] a different world .... [This is] the 
case with respect to the geography and sheer distances 
involved, regarding how weather is a daily concern, how 
unforgiving that part of the world is on equipment, vessels 
and people, and where getting to the nearest store can be 
akin to driving all the way across Texas for a package of 
batteries or a few groceries .... 
2 

Contractors have to "hit the beach" with virtually 
everything they need and might need, [to] get the work 
done, and retreat at the onset of winter .... 
[C]ontractors face the ... enemies of high winds, 
extreme tides, protracted periods of cold and wet weather, 
remoteness, and just plain tough dangerous conditions .... 
The television series The Deadliest Catch is filmed just 
north and west of False Pass. 
(Stipulated Rule 41 (hereinafter "SR4"), tab 19 at 1185-86; see also tr. 6/151, 7/207) 
[I]fyour time overruns, it's not like if you're on a 
non-seasonal job, say down on the lower 48. [In the lower 
48] you have a 12 month job. If it overruns a month or 
two, it's not the end of the world. Here, if you overrun on 
any seasonal job, ... you're into another whole year. 
And as far as the impact on a construction 
company, .. .it's big in terms of dollars and cents, but it's 
also big in terms of if you lose a season, you've lost the 
ability to find other work the next season. You've tied up 
your bonding capacity. You've tied up ... overhead .... 
[W]hen you have seasonal work, it's just not the same as 
non-seasonal work. 
(Tr. 9/10-11) Because of the remote location and short construction season, advance 
planning was particularly important: 
I (Tr. 1/84) 
You have to make extensive and very thorough 
advance planning and arrangements. It's a short season, 
and contractors that work in Alaska want to be gainfully 
employed. So if you want to hire a subcontractor to do a 
specialty task like dredging, you need to get that contractor 
- you need to be able to commit to that contractor with a 
specific time frame, so that that contractor will be 
available. 
Because if they don't sign up with you, they're 
looking for business some place else, because they've got 
- again, they've got a short construction season, just like 
everybody else, and they want to be fully booked for the 
year. 
3 

So there's a lot of advance planning that's 
necessary, and over the winter is the time to repair 
equipment, to line up barges. It gives the contractor an 
opportunity to tweak its operation. It may decide that one 
barge is too big or too small and maybe we can swap this 
barge out for that barge, and all of those things take time 
and planning. 
You want to make sure that your crews are going to 
be available for the next season, and any long lead 
materials like the materials for the bridge and dock, it all 
has to be ordered, fabricated, delivered, containerized and 
ready to load on that barge when the time comes, because 
there's no hardware stores in False Pass, and you've got to 
take it with you or you're bringing it in on a four-seater 
aircraft, or you have to wait for the next barge. 
[I]t takes time and it takes funding, because you 
can't make commitments without knowing that you're 
funded. When you make a commitment to a dredging 
subcontractor to perform dredging, and they pass up on 
other work because they know they have a good contract at 
False Pass, you've got to have the money, the funding 
available to pay them. 
(Tr. 6/152-53, 155-56, 162-64, 7/223) 
2. The Corps had been working for ten years to move forward with two harbor 
projects in Alaska: one at Sand Point and one at False Pass, which is the subject of 
this appeal (SR4, tab 106; tr. 7/102-03). 
3. KRI is a small business (tr. 21165) started by brothers Kelly Pleas, president, 
and Ryan Pleas, vice president, in 1979, specializing in marine construction at remote 
sites in Alaska primarily for the Corps and the Navy, including several earlier projects 
at False Pass. KRI was familiar with the continuing contracts funding clause, 
CCC-5001 (see finding 9), as all ofKRI's previous contracts with the Corps had 
included it.2 KRI's home office is in Seattle, Washington, and the company usually 
performs one large project at a time. (Tr. 1/57-60, 21182-83, 5/71, 71160-71) We find 
2 CO Williams testified that "most of your civil works contractors are very familiar 
with the clause" (tr. 13/42). 
4 

that the False Pass project was the only large project performed by KRI after April 
2006 (see finding 34). 
KRI's experience with Alaska Marine Construction 
was extensive. Among the major projects it had constructed 
prior to False Pass, the two most recent were St. Paul I and 
St. Paul II [see finding 6]. These were Corps projects which 
required substantially the same type of construction as was 
called for on the breakwater and dredging at False Pass; 
rubble mound type (EM-1110-2-1100, Chapter VI). Design 
of the rock structures on those projects was similar. The 
rock placement specification was identical. 
(SR4, tab 19 at 1200; see also tr. 6/173) 
4. In February-April 2005 the Corps was aware of pending legislation that 
would affect the funding of continuing contracts and was also aware that no funds for 
the False Pass project were in the FY 2006 budget. David Lau, Pacific Ocean 
Division, provided the following analysis to Corps Headquarters (HQUSACE) on 
4 April 2005 in his request for approval to advertise and award the False Pass project: 
Sufficient funds are available to award a continuing 
contract [for the 2005] Fiscal Year. The project has 
received Congressional Add appropriations of $4,442,000 
in Fiscal Year 2005. There are no funds for this project 
included in the Corps of Engineers' Fiscal Year 2006 
budget request because the project is still under review by 
the Administration. We are expressing a Fiscal Year 2006 
capability of$7,416,000 for this project. 
The following alternate contracting options were 
evaluated. 
Fully Funded Contract- A fully funded contract requires 
that all funds be available at the time of contract award. 
We currently do not have all required funding to award a 
fully funded contract. 
Multiple Fully Funded Contracts- Multiple fully funded 
contracts involve separating the construction of the project 
into smaller contracts to meet anticipated funding stream. 
5 

Construction [of] this project could ... be potentially broken 
into two smaller contracts one for construction of the 
breakwater and one for dredging. Because of the project's 
remote location, it is estimated that this could result in 
increased cost of approximately $1.3 million dollars more 
due to the potential of having to pay added mobilization 
costs associated with two contracts. Because of the added 
costs ... of multiple contracts, this option is not 
recommended. 
Extended Duration Contracts- Extended duration contracts 
involve adjusting and extending the construction schedule 
to meet anticipated funding stream in conjunction. The 
current schedule is based on a 36-month construction 
period. Because of the short summer construction season 
in Alaska, it is estimated that extending the construction 
would result in increased costs of approximately $1 million 
dollars per year. Because of the added costs to extend the 
project, this option is not recommended. 
"Standard" Continuing Contract Clause- The "Standard" 
Continuing Contract Clause is contained in EF ARS 
S52.232-500 I C3l and used for multi-year, incrementally 
funded construction contracts in connection with projects 
that have been specifically adopted by Congress in 
authorizing legislation and appropriations are sought from 
Congress annually to cover contract payments to be made 
during the year. Because the project is still under review 
by the Administration and the project is not included in 
the Corps Fiscal Year 2006 budget request, use of the 
Standard Continuing Contract clause is not 
recommended for this project. [Emphasis added] 
"Alternate" Continuing Contract Clause- The "Alternate" 
Continuing Contract Clause is similar to the "standard" 
clause. However, unlike the "standard" clause, the liability 
of the Government for payments beyond the funds 
reserved under the alternate clause is contingent on the 
reservation of additional funds. The "alternate" clause is 
contained in EFARS S52.232-5002l 4l and is used in 
3 Referred to in this decision as "CCC-5001'' (finding 9). 
4 Hereafter referred to as "IFC-5002." 
6 

incrementally funded civil works contracts when contract 
authority does not exist to obligate the entire contract price 
in advance of appropriations. We recommend use of the 
"alternate" clause for award of this project. This 
would allow us to award the contract with currently 
available funding, while limiting the liability of the 
Government for payment beyond funds reserved. 
[Emphasis added] 
We are currently scheduled to advertise this project for 
construction in April 2005 and award a contract in June 
2005. Subject to availability of funds, construction 
completion is scheduled in Fiscal Year 2007. 
(SR4, tab 106) Mr. Lau further explained his recommendation to advertise the False 
Pass project with the "Alternate" Continuing Contract clause: 
[B]ecause the Alternate clause specifically states that 
"Funds are not available at the inception of this contract to 
cover the entire contract price" and ... "The liability of the 
United States for payments beyond the funds reserved for 
this contract is contingent on the reservation of additional 
funds." Although the project has Congressional 
authorization, this project has not yet been cleared by the 
Administration, thus, we cannot include funding for this 
project in the President's budget. Continued funding will 
depend on future Congressional Adds. 
(SR4, tab 106 at 1-2) Contrary to his own recommendation, on 6 April 2005, after 
coordination with HQUSACE, Mr. Lau agreed with the HQUSACE "strategy" to 
advertise the False Pass project with the '"Standard' Continuing Contract Clause" (id. 
at 1). The Solicitation contained EFARS 52.232-5001, CONTINUING CONTRACTS (MAR 
1995) [CCC-5001] with no mention ofthe EFARS 52.232-5002, CONTINUING 
CONTRACTS (ALTERNATE) (MAR 1995) clause [IFC-5002] (SR4, tab 14 at 356-57, 388). 
5. KRI's project manager (PM) at all times relevant to this appeal was 
James Swantz. Mr. Swantz, together with Kelly Pleas, did the estimating and 
scheduling for KRI projects (tr. 4/45-46, 140-41, 71172). In the course ofKRI's bid 
preparation Mr. Swantz and Kelly Pleas conducted site visits at several quarries on 
Dutch Harbor that included Northern Mechanical's (Dutch Harbor) and Western 
Marine's (Sand Point) quarries. They also visited the load out facility at Sand Point. 
(Tr. 4/46-47, 82-86, 7/177-79) 
7 

l 
6. KRI completed work at St. Paul Island under two fixed-price contracts awarded 
by the Corps. The CCC-5001 funding clause was incorporated by reference in both of 
those contracts (SR4, tab 27 at 325; tr. 21183-87, 3110-13, 46, 4/65). St. Paul Island is 
one of the Pribilof Islands in the middle of the Bering Sea and is considered one of the 
most remote villages in Alaska. The first St. Paul Island contract (St. Paul I) required 
KRI to build a set of three 1,200 foot by 300 foot underwater reefs in front of the St. Paul 
Island breakwater, one of the tallest breakwaters in the world, and to replace some of the 
large armor stones in the breakwater. The second St. Paul Island contract (St. Paul II), 
completed in 2005 just prior to award of the False Pass contract now at issue, required 
KRI to build a jetty, dredge and install "a ladder of small reefs perpendicular to the 
breakwater" between the breakwater and the three reefs installed in the first contract. 
(SR4, tab 134; tr. 1160-62, 3/46-50, 7 /164- 72) KRI's Swantz was the project engineer on 
St. Paul I and was the project manager on St. Paul II (tr. 4/43-44, 52-54, 61-62). The 
Corps' contracting officer (CO) with whom KRI worked on the St. Paul II contract was 
CO Davidson (tr. 2/102-04, 13/54). The False Pass project was attractive to KRI, in part, 
because: 
(Tr. 7/182) 
We were in the area. We were coming off of St. 
Paul, and that was an advantage. We had a crew and a 
Corps administrative staff that was ideal. I mean we - they 
took care of our requests quickly. When we would have 
any concerns or communications with them, they would 
get back to us immediately, and .. .I wanted to continue 
that. It seemed like things were working well. 
7. The bid opening took place on 21June2005 (SR4, tab 14 at 86-90). KRI's 
bid, including the options for dredging and the dock and bridge, was for $19,729,300. 
The Corps' estimate, including profit, was $20,076,812. KRI verified its bid on 28 June 
2005. (SR4, tabs 6, 14 at 66-67, tab 19 at 704; tr. 1/65-71, 3/57-59) Further analysis of 
both KRI's bid and the Corps' estimate revealed that KRI's bid included $13.8 million 
dollars of direct costs compared to the Corps' estimate that included $13 million dollars 
of direct costs (tr. 9/23-24). The DCAA audit report of KRI's claim opined that KRI's 
bid was unreasonable, however, after careful consideration of the complete record 
before us, including our examination of the DCAA audit (finding 104), we find KRI's 
bid to be reasonable. 
B. Contract 
8. On 11 July 2005 Contract No. W911KB-05-C-0016 in the fixed-price 
amount of $15,981,000 was awarded to KRI for the construction of three rock 
breakwaters (the options for dredging and the dock and bridge were not exercised at 
8 

I 
the time of contract award) to be constructed at the False Pass, Alaska, harbor (SR4, 
tabs 7, 14 at 1015-17) as shown below: 
(SR4, tab 36 at 2 (the Causeway Breakwater is usually referred to throughout the record 
as the South Breakwater)) The contractual completion date was 890 days after KRI 
received the Notice to Proceed (NTP) (SR4, tab 14 at 87). The contract performance 
period included two construction seasons (2006 and 2007) (SR4, tab 19 at 819, 822). The 
NTP was received by KRI on 28 July 2005 (SR4, tab 8), making the contractual 
completion date 4 January 2008. The contract specified that no in-water work was 
permitted to be performed between 1 October and 30 March of any year (SR4, tab 11 at 
33, tab 14 at 403, 1090). CO Davidson (see finding 6), then the branch chief, signed the 
contract (SR4, tabs 7, 14 at 1015-17; tr. 12/191, 13/22-23). The contract, as awarded, 
included a lump sum of $2,540,050 for "Mobilization/Demobilization, complete" (SR4, 
tab 14 at 1019). 
9 

9. The Continuing Contract Clause, EFARS 52.232-5001 [CCC-5001] 
contained in the solicitation (finding 4) and the contract as awarded provided: 
(a) This is a continuing contract, as authorized by 
Section 10 of the River and Harbor Act of September 22, 
1922 (33 U.S. Code 621). The payment of some portion of 
the contract price is dependent upon reservations of funds 
from future appropriations, and from future contribution to 
the project having one or more non-federal project 
sponsors. The responsibilities of the Government are 
limited by this clause notwithstanding any contrary 
provision of the "Payments to Contractor" clause or any 
other clause of this contract. 
(b) The sum of $100,000.00[51 has been reserved for 
this contract and is available for payments to the contractor 
during the current fiscal year. It is expected that Congress 
will make appropriations for future fiscal years from which 
additional funds together with funds provided by one or 
more non-federal project sponsors will be reserved for this 
contract. 
(c) Failure to make payments in excess of the 
amount currently reserved, or that may be reserved from 
time to time, shall not entitle the contractor to a price 
adjustment under the terms of this contract except as 
specifically provided in paragraphs (f) and (i) below. No 
such failure shall constitute a breach of this contract, 
except that this provision shall not bar a breach-of-contract 
action if an amount finally determined to be due as a 
termination allowance remains unpaid for one year due 
solely to a failure to reserve sufficient additional funds 
therefore. 
( d) The Government may at any time reserve 
additional funds for payments under the contract ifthere 
are funds available for such purpose. The contracting 
officer will promptly notify the contractor of any 
additional funds reserved for the contract by issuing an 
administrative modification to the contract. 
5 (See also SR4, tab 142 at 2; tr. 3/47, 14/165) 
10 

( e) If earnings will be such that funds reserved for 
the contract will be exhausted before the end of any fiscal 
year, the contractor shall give written notice to the 
contracting officer of the estimated date of exhaustion and 
the amount of additional funds which will be needed to 
meet payments due or to become due under the contract 
during that fiscal year. This notice shall be given not less 
than 45 nor more than 60 days prior to the estimated date 
of exhaustion. 
(f) No payments will be made after exhaustion of 
funds except to the extent that additional funds are 
reserved for the contract. The contractor shall be entitled 
to simple interest on any payment that the contracting 
officer determines was actually earned under the terms of 
the contract and would have been made except for 
exhaustion of funds. Interest shall be computed from the 
time such payment would otherwise have been made until 
actually or constructively made, and shall be at the rate 
established by the Secretary of the Treasury pursuant to 
Public Law 92-41, 85 ST AT 97, as in effect on the first 
day of the delay in such payment. 
(g) Any suspension, delay, or interruption of work 
arising from exhaustion or anticipated exhaustion of funds 
shall not constitute a breach of this contract and shall not 
entitle the contractor to any price adjustment under the 
"Suspension of Work" clause or in any other manner under 
this contract. 
(h) An equitable adjustment in performance time 
shall be made for any increase in the time required for 
performance of any part of the work arising from 
exhaustion of funds or the reasonable anticipation of 
exhaustion of funds. 
(i) If, upon the expiration of sixty (60) days after 
the beginning of the fiscal year following an exhaustion of 
funds, the Government has failed to reserve sufficient 
additional funds to cover payments otherwise due, the 
contractor, by written notice delivered to the contracting 
officer at any time before such additional funds are 
reserved, may elect to treat his right to proceed with the 
11 

work as having been terminated. Such a termination shall 
be considered a termination for the convenience of the 
Government. 
G) If at any time it becomes apparent that the funds 
reserved for any fiscal year are in excess of the funds 
required to meet all payments due or to become due the 
contractor because of work performed and to be performed 
W911KB-05-B-0009 under the contract during the fiscal 
year, the Government reserves the right, after notice to the 
contractor, to reduce said reservation by the amount of 
such excess. 
(SR4, tab 14 at 356-57, 1075) 
10. FAR 43.103, Types of contract modifications, provides: 
Contract modifications are of the following type: 
(a) Bilateral. A bilateral modification 
(supplemental agreement) is a contract modification that is 
signed by the contractor and the contracting officer. 
Bilateral modifications are used to--
( 1) Make negotiated equitable adjustments 
resulting from the issuance of a change order; 
(2) Definitize letter contracts; and 
(3) Reflect other agreements of the parties 
modifying the terms of contracts. 
(b) Unilateral. A unilateral modification is a 
contract modification that is signed only by the contracting 
officer. Unilateral modifications are used for example, 
to--
( 1) Make administrative changes; 
(2) Issue change orders; 
(3) Make changes authorized by clauses other than 
a changes clause (e.g., Property clause, Options clause, or 
Suspension of Work clause); and 
( 4) Issue termination notices. 
An "Administrative change" is defined in FAR 43.101 as: 
[A] unilateral (see 43.103(b)) contract change, in writing, 
that does not affect the substantive rights of the parties 
12 

(e.g., a change in the paying office or the appropriation 
data). 
11. FAR, Subpart 43.2-Change Orders, provides: 
(a) Generally, Government contracts contain a changes 
clause that permits the contracting officer to make 
unilateral changes, in designated areas, within the general 
scope of the contract. 
(FAR 43.201) The Changes clause incorporated into the contract by reference 
(FAR 52.243-4) provided that the CO "may ... make changes in the work within the 
general scope of the contract" and that the CO "shall make an equitable adjustment 
and modify the contract in writing" if any such change "causes an increase or decrease 
in the Contractor's cost of, or the time required for, the performance of any part of the 
work under this contract, whether or not changed by any such order" (SR4, tab 15 at 
21-22). CO Williams testified as to his understanding that "the Changes clause 
protects the contractor's rights "because they can go ahead and submit an REA claim, 
if they don't agree with the unilateral mod that's been given to them" (tr. 121198-200). 
12. FAR 33.204 provides that: 
The Government's policy is to try to resolve all contractual 
issues in controversy by mutual agreement at the 
contracting officer's level. Reasonable efforts should be 
made to resolve controversies prior to the submission of a 
claim. 
Consistent with that policy, contracting officers "shall negotiate equitable adjustments 
resulting from change orders in the shortest practicable time," taking into account an 
appropriate cost analysis. FAR 43.204(b)(l), (b)(4) (emphasis added). 
13. The contract incorporated by reference: FAR 52.248-3, VALUE 
ENGINEERING-CONSTRUCTION (FEB 2000) (SR4, tab 14 at 337, tab 15 at 26-27); and, 
FAR 52.249-2, TERMINATION FOR CONVENIENCE OF THE GOVERNMENT (FIXED-PRICE) 
(MAY 2004) (SR4, tab 14 at 337), which enumerated multiple potential sources of 
termination settlement costs (SR4, tab 15 at 3 1-3 5). 
14. The contract specifications included Section 01016, "SPECIAL ITEMS 
(CIVIL WORKS)," which included: 
13 

1.17 PARTNERING 
a. The Government intends to encourage the 
foundation of a cohesive partnership with the 
Contractor and its subcontractors. This partnership 
will be structured to draw on the strengths of each 
organization to identify and achieve reciprocal goals. 
The objectives are effective and efficient contract 
performance, intended to achieve completion within 
budget, on schedule, and in accordance with plans 
and specifications. 
b. This partnership will be bilateral in makeup, and 
participation will be totally voluntary. 
Implementation of this initiative will be a topic of 
discussion at the Preconstruction Conference. Other 
recurring or special purpose meetings, as agreed 
between the Government and the Contractor, will be 
held as necessary to resolve contentious issues and 
maintain the partnering spirit. 
(SR4, tab 14 at 1081, 1086) 
15. The three different types of rock required to be used in the False Pass 
project were described as: 
Core rock is basically the core, the center of the 
breakwater, and it's usually the largest quantity that's 
involved in the rock supply. The second layer outside of 
that is B rock . 
... There's a spec [SR4, tab 14 at 1527-28]. In the 
spec there's a gradation clause, and the gradation clause 
determines what the core rock is made up of .... [C]ore 
rock can be anything from, I mean sand and gravel and dirt 
to quality, well-graded stone. In False Pass' case, that core 
rock was the best grade of core rock I've ever seen. 
There's no sand, there's no small chunks in it .... I 
believe the smallest rock was 20-25 pounds that you could 
use, and they would allow up to 160 pounds, I think. It 
seemed to me the size of a small basketball maybe.... So 
14 

that rock actually had to be processed, to get all the fines 
out of it. 
... Brock. That is the next size up, and now you're 
into a fairly good sized stone. I'm not going to remember 
exactly what False Pass was, but it seemed to me that the 
largest B rock was around a 1, 000 pounds, and that was a 
fairly tight spec, and I was very concerned about it. But as 
it turns out, you put the B rock into the big jaw that 
Northern Mechanical had. 
If you opened it up as big as it would go and you 
powered the B rock into it, it would crunch away and it 
would come out almost perfect. It was almost right on 
spec.. . . Then the armor stone, it's more selective. I mean 
it's - a guy on a backhoe picking up a stone and setting it 
aside and putting it in a pile and then you can handle it 
with a front-end loader. 
(Tr. 7/187-88) 
16. The total amount of funds reserved to the contract, by date, were as 
follows: 
Source Date Total Funds on 
Contract 
Contract 7/11/2005 $100,000 (findings 8, 9) 
Award 
P00003 1/9/2006 $5,900,000 Unilateral (finding 24) 
P00004 4/27/2006 $8,350,000 Unilateral (finding 39) 
P00005 7/17/2006 $8,350,000 Unilateral (finding 42) 
(Deleted CCC-5001, added IFC-5004) 
Stated to be ($10,500,000 reserved to 
contract) but no funds added by the 
modification. 
--- 8/23/2006 $8,350,000 Email (no modification) (finding 54) 
($13,500,000 stated to be reserved to 
contract but no modification) 
15 

P00006 9/19/2006 $10,450,000 Unilateral (finding 58) 
P00007 3/1/2007 $13,450,000 Unilateral (finding 65) 
($3 million from DOT) 
P00008 3/19/2007 $19,729,300 Unilateral (finding 66) 
(Deleted IFC-5004, added CCC-5001) 
(See also SR4, tab 30 at 3, tab 142; tr. 141165-72, 17 4-80) 
C. Contract Performance, Claim and Appeal 
17. KRl's PM Swantz managed the project from KRI's office in Seattle and 
was in communication with the jobsite at least once or twice every workday (tr. 4/44, 
71-72). He described his responsibilities and duties: 
I manage the flow of information to and from the 
site. I track the daily progress. I take care of scheduling, 
pay estimates, pretty much everything involved with the 
project. As issues come up that need to be escalated, [to] 
Kelly or Ryan, I make them aware of it. 
I keep them up to date on accounting, financial 
information. I am the liaison with the owner. So I work 
with Lynn Meyers primarily ... the [Corps'] Project 
Engineer for this False Pass, actually St. Paul and False 
Pass Projects.£61 
Generally the day to day operations, little stuff like 
that I took care of through Lynn. As you see Ryan [Pleas] 
on some of the more important issues, dealt with 
[CO Williams] directly too. 
6 Project Engineer Meyers managed the Corps' onsite quality assurance representatives 
(QARs), was the "eyes and ears" of the ACO and the "primary interface" 
between KRI and the Corps. He was assigned to the False Pass project for its 
entirety. (Tr. 13/10, 86-87) The QARs were onsite at False Pass for the entire 
construction season each year (tr. 13/14). 
16 

(Tr. 4/44-45) 
[I visit the job from time to time. The people at the 
jobsite] send in daily reportsPl by email or depending on 
how long ago, faxes. And then once Kelly and Ryan, and I 
have reviewed those, we would then call the field and 
follow up on any issues and discuss the progress made or 
concerns identified in those daily reports. 
18. In the late fall of 2005 KRI began mobilizing equipment from St. Paul 
Island in the Bering Sea to an embarkation point near the False Pass jobsite (see 
finding 6; tr. 4/50). KRI used several barges that had been modified for the St. Paul 
project to meet American Bureau of Shipping (ABS) requirements and to stand up to 
the wear and tear of hauling rock: 
The hardest service on a barge is hauling rock. No, 
the hardest service is hauling armor stone. 
But all rock service is heavy, and it really increases 
your maintenance cost, and you have an extra component 
that you need to add heavy duty fences down both sides, 
and some type of a wear deck that goes across the floor of 
the barge, so that as you load and unload and your activity 
on the barge, it fends off the wear and tear, and you don't 
get into the steel [of] the barge deck .... 
... Once that steel wear gets below the amount that's 
allowed by ABS, basically the value of your barge just 
drops in half or less. 
So when we looked at basically St. Paul to start 
with, we took a few barges, I believe it was three, and 
made those conversions to the deck, so that we could haul 
the armor stone for them. Then there are a couple of other 
barges that are in the Northwest that have the ABS load 
lines that you need to cross the ocean, and the wear decks. 
(Tr. 71167-68) 
19. The equipment selected by KRI to perform the False Pass project work: 
[W]as well suited for its intended use [and a list of that 
equipment was included in KRI's daily reports to the 
7 Both the Corps' QAR daily reports and KRI's daily reports are in the record at 
Stipulated Rule 4, tab 1 7. 
17 

Corps onsite personnel] .... The fleet varied from year to 
year, depending upon the type of work being done. A brief 
perusal [of the list] reveals an impressive fleet; KRI was 
well equipped .... 
(SR4, tab 19 at 1200; see also tr. 6/173) Much of the equipment utilized by KRI in 
performance of the contract was rental equipment: 
[T]he big barges are rental, the tug is rental. The cranes, 
the big cranes are rental. So [when we demobilize] we 
need to get those back, so that they come off rent and we 
don't sit with them all year. 
Seattle [is home for that equipment], and so we 
demobed all of that back to the home base, and then 
basically the other parts of the job are to winterize the 
equipment, move stuff. ... 
... So we would take selective pieces back to Dutch 
Harbor, where they were secure in the quarry, and we had 
a mechanic's shop. 
(Tr. 7/205) All of the non-rental equipment was normally left onsite or at Dutch 
Harbor over the winters between construction seasons, but the non-rental equipment 
would also have to be demobilized back to Seattle by barge ifthe contract were 
terminated for lack of funds (tr. 7 /205-06). 
20. The Energy and Water Development Appropriations Act of2006 (E&WDA), 
Pub. Law No. 109-103, was passed on 19 November 2005 (SR4, tabs 23, 143). 
The [E& WDA] includes new legal limitations that severely 
constrain many of the Corps existing processes and 
procedures used in the execution of the Civil Works 
program. 
(SR4, tab 110 at 1) The E&WDA was described by Mr. Loew, CECW-1, as "a big 
deal" and "a sea change in Corps of Engineers' business practices for civil works 
projects" (tr. 7/88-93). Mr Loew was responsible, at the HQUSACE level, for: 
[T]he development of the [Corps'] Civil Works budget, 
which is a compilation of all of the budgets of the districts 
18 

and divisions, all the field offices, to negotiate that inside 
the Corps through our Chief of Engineers, and then present 
it to the Assistant Secretary of the Army for Civil Works. 
(Tr. 7/80) He had decades of program management and fund management experience. 
After passage of the E& WDA, it was the responsibility of his office to prepare the 
Corps' guidance to its program management community, the EC 11-2-189 (see 
finding 23 ). He also coordinated on the Corps' guidance to its contracting community 
(see findings 23, 30). (Tr. 7/79-86, 107-08, 117-22, 133) 
21. On 2 December 2005 contract Modification No. POOOO 1 exercised the 
contract line item numbers (CLINs) 0015 and 0016 options that added the dredging of the 
entrance channel to the harbor, as well as the harbor basin. The contract completion date 
of 4 January 2008 remained unchanged and the contract price was increased by 
$1,132,300 from $15,981,000 to $17,113,300. (SR4, tab 14 at 2047-48, tab 19 at 822) 
22. On 19 December 2005 Contract Modification No. P00002 exercised CLINs 
0013 and 0014 options that added the construction of a bridge and dock as components 
of the causeway breakwater. Again, the contract completion date of 4 January 2008 
remained unchanged and the contract price was increased by $2,616,000 from 
$17,113,300 to $19,729,300. (SR4, tab 14 at 2035-36). 
23. On 31 December 2005 HQ USA CE published Circular EC 11-2-189, its 
statement of Corps policy for implementation of the E&WDA (finding 20), as well as 
budgeting and programming instructions, which was distributed to all Corps civil 
Divisions and Districts (SR4, tab 110). Circular EC 11-2-189, published as guidance 
to the Corps program management community (tr. 7/133, 13/119-21), provided: 
This Circular provides [Corps] program and project 
management policies and practices to ensure that execution 
of the [FY 2006] annual appropriations is conducted in 
accordance with the statute [P.L. 109-103], direction and 
intent of the Administration and Congress.... It documents 
changes in Corps processes that must be incorporated into 
FY2006 execution plans and acquisition strategies to 
ensure that implementation of programs, projects, and 
activities (PP A) in FY2006 complies with the new legal 
restrictions and commitments made to the Congress .... 
2. Applicability. This Circular applies to all HQUSACE 
elements, major subordinate commands and district 
commands having Civil Works responsibilities. It is 
applicable to all [Corps] Civil Works programs, projects, 
19 

and activities (PPA) in all Civil Works Appropriations 
upon publication of this Circular. This guidance is 
effective immediately, and supersedes all other 
reprogramming guidance including ER 11-2-201. District 
and Division offices shall inform CECW-1 [see finding 20] 
of any problems with the implementation of this guidance. 
c. Actions on Existing Continuing Contracts. With 
respect to existing continuing contracts, the Corps has a 
bilateral agreement with contractors based on the true 
continuing contract clause [EFARS 52.232-5001]. The 
Corps, therefore, cannot unilaterally modify existing 
contracts to require the contractor to work within 
funds reserved in compliance with the new limitations 
contained in P.L. 109-103. HQUSACE will develop a 
standard memorandum for use by Contracting Officers to 
notify all contractors working under an existing continuing 
contract that they cannot rely on reprogramming to add 
funds to their contract, and if funds are exhausted, the 
Corps may have to consider terminating their contract. ... 
[T]he following steps must be taken (in the order 
provided below) to ensure existing continuing contracts 
are in compliance with provisions of P .L. 109-103: 
( 1) Negotiate with the contractor and reach 
agreement to modify the contract to limit the 
Government's liability to funds currently available in 
FY2006. This action could require the contractor to develop 
and prosecute a schedule based on funding levels that are 
less than optimum. This option could include items such as 
the contractor agreeing to not charging the Government for 
any suspension or demobilization/mobilization costs. 
Realize that limiting the Government's liability increases 
the contractor's risk and, therefore, is likely to increase 
the cost of the contract. 
(2) Seek approval to reprogram and add 
additional funds to the project, if and when the contractor 
notifies the Corps that it expects to exhaust available 
funding. Reprogramming of funds into the project will be 
20 

limited by Section 101 of P.L. 109-103 as described in 
paragraph 10 of this Circular. 
(3) Terminate the contract, and reprocure as a 
fully funded contract. Since funds are required to 
terminate the contract and to reprocure as a fully 
funded contract, the termination and reprocurement 
may need to occur in different fiscal years. 
All of the options listed above could have significant cost 
implications from a contractual perspective. The actual 
impacts will depend on factors unique to each contract 
and project. 
(SR4, tab 110; tr. 7 /119-29) (Emphasis added) Mr. Loew testified that "[t]his is a 
directive. It's not a choice." (Tr. 7 /95) 
So in short it says get with the contractor. 
Bilaterally negotiate a mod. It also says in the instruction 
to this we expect, we expect that that will cause problems 
in some contracts, and it could be schedule problems or 
cost (problems). 
So you work those out with your contractor, and if 
you can solve the problem, like I say it takes a little more 
money, do a reprogramming, solve the problem and put the 
clause in, so that the costs of this year are covered. 
It says if you can't solve the funding problem, then 
terminate the contract. Those instructions are absolutely 
clear. 
(Tr. 7 /98-99) Further detailed instructions by HQUSACE were later distributed 
throughout the Corps, as guidance to the Corps contracting community (tr. 7/133, 
131120-21), in the "PARC 8 Instruction Letter (PIL), Continuing Contracts and 
Incrementally Funded Contracts for Fiscal Year 2006," dated 22 March 2006 (see 
finding 30). 
24. Contract Modification No. P00003, dated 9 January 2006, added funds to 
the contract in the amount of $5,800,000, making the total funds on the contract 
$5,900,000 (SR4, tab 14 at 2029-30; tr. 13/6-9, 57-58, 62-63, 96-104, 123-27) 
8 Principal Assistant Responsible for Contracting, CEPR (EF ARS 1.201-100) 
(tr. 71129-130), the Corps' headquarters for the contracting field (tr. 13/36). 
21 

25. A Pre-Construction Meeting was held on 26 January 2006 during which 
KRI submitted value engineering documents (VE or VECP) proposing an open cell 
design for the bridge and dock (tr. 13/15-16). The minutes of the meeting do not 
contain any mention by the Corps to KRI of the impending change in funding policy. 
(SR4, tab 11 at 28-42; tr. 1/94-98) KRI's inquiry about being paid for rock stored at 
Dutch Harbor near the rock source was discussed (SR4, tab 11 at 41-42; tr. 3/129-130, 
4/56-57, 13/29-32). The appropriate clause permitting such payment was incorporated 
by reference into the contract as awarded as "SCR-33, PAYMENT FOR 
MATERIALS DELIVERED OFF-SITE (MAR 1995) (EFARS 52.232-5000): SEE 
SECTION 00700: CONTRACT CLAUSES." Nevertheless, the Corps maintained that 
it would not pay for stored materials until the full text of the clause was added by 
modification; we find no evidence that such a modification was ever issued. (SR4, 
tab 14 at 336-57, 1074; tr. 3/54-57, 107-09, 130-31) 
26. KRI's original construction schedule/work plan and cash flow estimate 
dated 16 December 2005 (SR4, tab 11 at 3-8, tab 18 at 75-76; tr. 3/89-99, 4/53-54, 
9/59-60) was updated to include the dredging, dock and bridge that were added by 
Modification Nos. POOOOl and P00002 (findings 21-22; tr. 4/53-54). The updated 
schedule was submitted to the Corps with a data date of 1 February 2006 and showed 
mobilization to the jobsite by 30 May 2006 and demobilization from the jobsite at the 
end of the construction season from 30 August 2006 - 6 September 2006. The 
1 February 2006 schedule also showed its plan to mobilize to the jobsite 11-31 May 
2007 for the 2007 construction season and demobilize from the jobsite at the end of 
the 2007 construction season from 28-30 August 2007. KRI's schedule planned that 
the work performed would earn payment of $10,065,300 in the 2006 construction 
season and the balance of the contract amount, $9,664,000, in the 2007 construction 
season. (SR4, tab 11at7-8, tab 18 at 12-18, 67-73; tr. 3/92-104, 109-12) KRI's 
1 February 2006 work plan for the 2006 construction season called for two barges to 
haul rock between Dutch Harbor and the jobsite, as well as completion of the North 
Breakwater in 2006. The length of the East Breakwater was planned to be partially 
constructed, through armor stone placement, in 2006. The remaining work on the East 
Breakwater and construction of the South Breakwater were planned to be completed in 
2007. The dock and bridge were tied into the South Breakwater and KRI planned to 
perform the dock and bridge work concurrent with placement of the South Breakwater 
rock. (Tr. 71192-93) Per specifications, the dredging was not to commence until all 
three of the breakwaters had been constructed to a minimum height of 1.25 meters. 
Accordingly, KRI's plan anticipated that the dredging subcontractor would mobilize to 
perform its work commencing in June of 2007. Dredging in the east channel had to 
follow construction of the bridge and dock. The critical path throughout contract 
performance was through rock placement. (SR4, tab 19 at 241-43, 248; tr. 21107-08, 
9/52, 116). After consideration of the extensive record before us, we find that KRI's 
1 February 2006 construction schedule was reasonable and further find that, had the 
22 

work been performed as planned, the contract would have been completed on time (see 
also SR4, tab 19 at 248). 
27. On 5 January 2006 KRI entered into a $6, 100,000 contract with its primary 
source of the rock to be utilized on the project, Northern Mechanical at the Ugadaga 
Quarry at Dutch Harbor, Alaska. The contract specified that all of the rock needed for 
the False Pass project was required to be produced by 15 November 2006 and 
Northern Mechanical started producing rock for the project over the 2005/2006 winter 
before its subcontract with KRI was executed. The rock was planned to be transported 
between the Dutch Harbor and the False Pass jobsite using two barges (see 
finding 26). KRI also made preliminary arrangements with a supplemental/alternate 
rock supplier, Western Marine9 at its Sand Point Quarry, to be used if Northern 
Mechanical was unable to deliver the sizes and/or quantities of rock required to meet 
KRI's production schedule. (SR4, tab 19 at 756, 1194, tab 20 at 2; tr. 3174-85, 
4/50-51, 68-71, 71175-82, 185-86, 16/8-9, 25-26) As bid and planned by KRI, the cost 
of the rock was the largest item of project cost to KRI, followed by the bridge and 
dock and then dredging (tr. 4/51 ). In a separate agreement KRI offered to Northern 
Mechanical the use of some of KRI' s equipment from the St. Paul Island project to 
lower the price of rock (SR4, tab 19 at 1200; tr. 4/50-51, 68-69, 5110-14, 7/181, 185). 
Northern Mechanical produced rock for False Pass through 31 May 2007 (SR4, tab 24 
at 179-90; tr. 10/138-40) and there was work at the quarry in June 2007 but no rock 
production (SR4, tab 24 at 191; tr. 10/140). 
28. The process of rock production was described as: 
[T]he mining operation is done on the face of the quarry, 
and the blast, come down. They set in front with very 
large machines and pulled the rock apart, and the initial 
sort is there. It gets pulled back with front end loaders, and 
in the case of core rock, they run it through a large jaw and 
then a screen or actually a grizzly that separates the core 
rock into the pay item, and the reject, and the reject on that 
material is the stuff that was too small. 
Then the reject on the upper end would go to a B 
rock sorting area. The armor stone, the way the Corps 
handles their armor stone process, is they want you to paint 
a rock that is on the large side of the armor size, and then 
they want you to paint a rock that's on the small size. You 
have those two rocks that oppose each other. 
9 Western Marine was also the contractor with whom the Corps contracted for 
performance of the Sand Point harbor project (see findings 2, 5, 29, 44). 
23 

The operator[]s in the front end loaders can look at 
those as they're sorting it out, and they can basically tell 
what an armor stone is, and then they stockpile those armor 
stones. 
(Tr. 71183; see also 4/70-71, 7/179) 
29. CO Williams was the contracting officer and PM Wierzbicki was the 
project manager for both the False Pass and Sand Point 10 projects (SR4, tab 14 at 167; 
tr. 13/43, 138-39). As project manager, Wierzbicki was responsible for project 
funding and funding related decisions, while contracting officers made contracting 
decisions (tr. 12/193, 13/58; see also finding 24 ). By email dated 20 March 2006, 
PM Wierzbicki notified CO Williams and CO Davidson 11 ofthe following: 
Continuing Contracts 
All existing contracts MUST be re-negotiated 
immediately (if not already) to include new clause where 
contractors agree NOT TO EXCEED amount available for 
the project (carry over plus amount appropriated for 
project this FY). Congressional intent is for Contractors to 
stay within amount available for project and keeping 
Congressional control of the amount allocated for the 
project. 
HQ has not sent this letter instructing us to do this 
as yet. Waiting for the guidance to be signed. 
In anticipation of the Guidance, we have negotiated 
with Western Marine for the on-going Sand Point harbor 
contract. The contract completion was extended [one work 
season] to 1 October 2007.... This funding policy will be 
discussed at the False Pass harbor partnering meeting on 
3 April with [KRI]. From now on, no more contracts will 
be awarded as continuing contracts under the Construction, 
General appropriation without a waiver from Assistant 
Secretary of the Army (Civil Works). 
(SR4, tab 14 at 1999-2000; tr. 13/132; see also SR4, tab 145) The Corps recognized 
that the change in funding policy would possibly affect KRI's construction schedule 
such that KRI would need an extension of the contract performance period, just as the 
10 (See findings 2, 5) 
11 (See findings 6, 8) 
24 

Corps had granted one to Western Marine (SR4, tab 3 at 169). The bilateral 
modification negotiated by the Corps with Western Marine for the Sand Point project 
replaced the CCC-5001 with "52.232-5003 Special Continuing Contract Clause" 12 and 
extended the performance period by 247 days. The Sand Point project was the only 
then-existing continuing contract in the Alaska district, other than the False Pass 
project, which was over $10,000,000. CO Davidson signed the Western Marine 
modification. (SR4, tab 14 at 78, 144, 1999-2000, 2306-07, tab 145; tr. 131139-45) 
30. The 22 March 2006 PIL (see finding 23) contained the Corps' express 
requirements for the implementation of the E&WDA: 
1. References: 
a. Section 10, River and Harbor Act of 1922 (Public 
Law 67-362); 33 U.S.C. §621. 
b. Energy and Water Development Appropriations Act 
of 2006 (Public Law 109-103 ). 
c. Engineering Circular 11-2-189 "Execution of the 
Annual Civil Works Program" (2006). 
d. EF ARS Subparts 32. 7 and 52.2 
e. CECW-1 Letter "Existing Continuing Contracts 
Notification Letter," (February 13, 2006). 
2. Background: 
a. The [E&WDA] included provisions that 
restricted the Corps authority to reprogram funds and 
award continuing contracts in fiscal year 2006 .... Section 
108 of the 06 E& WDA prohibits the Corps from awarding 
or modifying an existing continuing contract when doing 
so would commit an amount in excess of the amount 
appropriated for that project pursuant to the 06 E& WDA, 
plus any amounts available from carryover or 
reprogramming. Section 101 of that act restricted the 
Corps reprogramming authority. 
b. In light of the legal restrictions on continuing 
contracts, the Corps must change its implementation of 
12 Hereafter referred to as "IFC-5003." This is a different incremental funding clause 
than the IFC-5004 unilaterally modified into KRl's contract because Sand Point 
was in the President's budget for 2007 and False Pass was not. 
25 

existing continuing contracts, as well as the terms it uses to 
award new multi-year contracts that are not fully funded. 
3. Purpose: 
a. The existing continuing contract clause (EF ARS 
52.232-5001) permits the contractor to work beyond the 
amount reserved to the contract for a fiscal year. Doing so, 
creates a legal liability to pay the contractor for such costs, 
even though - under the existing continuing contract 
clause - we do not have to make the payments until the 
next fiscal year. Accordingly, because the clause permits 
contractors to commit the government in excess of the 
amount appropriated for that project plus available 
carryover and reprogramming, use of this clause runs a 
high risk of violating Section 108 of the 06 E& WDA. 
Therefore, the existing continuing contract clause 
should not be used in new or existing solicitations, 
unless specifically authorized by CECW-1 [see 
finding 20] and ASA(CW) or his delegatee. 
b. In order to implement the Corps Civil Works 
program under the new continuing contract restrictions, the 
Corps has chosen to draft two new clauses.... The second 
clause - found at Attachment B [IFC-5004] - is an 
incremental funding clause. It also does not permit the 
contractor to work beyond the amount reserved and 
expressly requires the contractor to stop working when 
funds are exhausted. Note that since both clauses limit 
the amount payable to the contractor and require the 
contractor to stop work, contractors' estimates will 
likely increase their prices in order to account for this 
increase in risk. The difference between these two 
clauses is that under the incremental funding clause, 
the government's liability for termination costs is 
limited to the amount reserved on the contract. In 
contrast, under the clause at Attachment A, the 
government is responsible for all costs pursuant to the 
termination for convenience clause regardless of the 
amount reserved on the contract. This memorandum 
provides guidance on when to use the clause at Attachment 
A and when to use the clause at Attachment B. 
26 

4. Existing Continuing Contracts: 
a. This section applies to all contracts that have 
been awarded with the so-called "True" Continuing 
Contract Clause (EFARS 52[.]232-5001) that have not 
been completed. For those contracts, the Engineering 
Circular governing Fiscal Year 2006 operations requires 
limiting the Government's liability through one of the 
following (in order of precedence): 
(1) Negotiate with the contractor and reach 
agreement to modify the contract to limit the 
Government's liability to funds currently available in FY 
2006. This action could require the contractor to develop 
and prosecute a schedule based on funding levels that are 
less than optimum. This option could include items such 
as the contractor agreeing not to charge the Government 
for any suspension or demobilization I mobilization costs. 
Realize that limiting the Government's liability increases 
the contractor's risk and, therefore, is likely to increase the 
cost of the contract. 
(2) Seek approval to reprogram and add 
additional funds to the project, if and when the contractor 
notifies the Corps that it expects to exhaust available 
funding. Reprogramming of funds into the project will be 
limited by Section 101 of P .L. 109-103 ~s described in 
paragraph 10 of Engineering Circular [EC] 11-2-189. 
(3) Terminate the contract, and reprocure as a 
fully funded contract. Since funds are required to 
terminate the contract and to reprocure as a fully funded 
contract, the termination and reprocurement may need to 
occur in different fiscal years .... 
b. We recommend using the model letter developed 
by CECW-1 to explain the change in law to those 
contractors working under an existing continuing contract. 
See Ref. le ... .£1 31 
13 The only copy of the referenced model letter we have found in the extensive record 
before us is a 3 February 2006 draft of the letter (SR4, tab 105). We have 
found no evidence that CO Williams actually used the recommended model 
27 

c. For all contracts awarded with the continuing 
contract clause at EF ARS Part 52.232-5001, unless you 
have approval to continue the contract as a continuing 
contract pursuant to paragraph Sc of the EC, you must 
delete the continuing contract clause from the contract.. .. 
For those continuing contracts that do not have funding in 
the budget for the out years, replace the continuing 
contract clause with the Incremental Funding clause found 
in Attachment B .... The incremental funding clause in 
Attachment B limits the government's total liability­
including termination costs - to the amount reserved and, 
therefore, should be used when future year funding is less 
certain. 
d. The 52.232-5001 clause must be replaced 
through a bilateral modification; a unilateral 
modification is not sufficientP 4l So long as the 
contractor anticipated meeting its schedule this fiscal year 
using only the funds reserved to the contract, modifying 
the contract using the clause in Attachment A could be at 
no cost. However, we expect most contractors will 
attempt to justify an equitable adjustment due to the 
increased costs or risks associated with these new 
clauses. Your office should use its discretion to ensure 
that any required equitable adjustment is both a result of 
increased costs directly attributable to a funding shortfall 
and also is reasonable. A contractor may have expected to 
work beyond the amount reserved for the contract this 
fiscal year. In such a case, work with the contractor to 
letter, nor have we found even a reference to the model letter by CO Williams 
or any other Alaska District Corps personnel. 
14 Mr. Loew, CECW-I (see finding 20), testified: 
(Tr. 7/151) 
[T]he contract is a bilateral agreement. We put out a set of 
plans and specifications. The contractor bid on that. So 
we have arrived at a bilateral document, and a change like 
this, which could impact cost or schedule, we do not have 
the option of doing this without discussing it with the 
contractor, and reaching a mutual solution. 
28 

l 
develop a new execution schedule that starts later in the 
year or only requires earnings equal to the amount reserved 
in this fiscal year. We recognize that changing the 
schedule may also prompt the contractor to request an 
equitable adjustment. Again, work with contractor to 
ensure any equitable adjustment is a result of increased 
costs directly attributa~le to a funding shortfall and is 
reasonable. 
6. Incrementally Funded Contracts: 
a. The PARC office has received several requests 
for guidance on incrementally funded contracts. Because 
of the new legal restriction on continuing contracts for this 
fiscal year, the EC directs contracting officers to consider 
acquisition alternatives such as incrementally funded 
contracts. An incrementally funded contract is one in 
which the agency enters into a multi-year contract without 
obligating the entire amount of the contract at the time of 
award; the agency only obligates the amount needed each 
year of the contract, and the Government's liability under 
the contract at any given time is limited to the amount 
reserved for the contract at that time. Such contracts are 
generally prohibited unless authorized by statute. See 41 
U.S.C. § 11. The Corps is authorized to use incrementally 
funded contracts by the same statute that authorizes us to 
use continuing contracts - 33 U.S.C. [§]621. Therefore, 
incremental funding is available only for those contracts 
that could have used continuing contracts under the 
guidance at EFARS Part 32.705-lOO(a). 
b. No approval is needed from either the ASA(CW) 
or CECW-1 to solicit or award an incrementally funded 
contract. Although the clause at Attachment B [IFC-5004] 
limits the Government's termination liability to the amount 
reserved in the contract, any termination carries a high 
administrative cost to the Corps that may include litigation 
and reprocurement. Therefore, to avoid unnecessary 
terminations contracting officers should have a reasonable 
expectation that the project will receive funding in future 
years. When work can be segmented into discrete and 
29 

viable work segments, contracting officers should 
consider awarding a fully funded base contract with 
options as an alternative. 
8. Commanders and Directors should disseminate this PIL 
widely, to include all acquisition personnel at your 
respective activities. 
(SR4, tab 22; tr. 7/99, 129-47) (Emphasis added, footnotes omitted) Mr. Loew, 
CECW-1 (finding 20) testified: 
You have to negotiate with the contractor first, to 
determine if there's any cost associated with the IFC, and 
if there is, you should include that, the solution to that cost 
or schedule problem in the modification. 
They're ... to sit down with the contractor and see if 
that clause is going to have an impact on your cost or 
schedule or risk that we have to deal with, and to figure out 
what that is, then the modification would take care of that. 
... The law says that the Corps of Engineers can no 
longer have an existing, continuing contract underway that 
has planned expenditures in excess of the amount available 
in that contract. That's a change. That's a huge change for 
us. 
So the guidance basically says this is how you deal 
with that problem. You now figure out if your contract 
price for this year is still adequate, and if it's not, take 
these steps to either make it adequate or, if you can't do 
that, terminate it. The law does not allow us to continue 
with that contract if there's not enough funds in it to cover 
that year's cost. 
30 

[The guidance was followed on] hundreds and 
probably thousands of contracts. 
(Tr. 7/143-45; see also tr. 7/146-57) CO Williams testified that the PIL did not tell 
him what to do if the contractor refused to sign a bilateral modification (tr. 13/122-23, 
25, 14/22), but we find the PIL to be very clear in its direction that if you don't, or 
can't, negotiate a bilateral modification (option 1) and you don't or can't reprogram 
funds (option 2), the only other option (option 3) is to terminate the contract for 
convenience (see tr. 13/207-13 ). 
31. The PIL' s Attachment B [IFC-5004] incremental funding clause was a new 
clause (see finding 30) that was not in existence at the time of the solicitation or the 
contract as awarded to KRI. IFC-5004 provided: 
Attachment B 
52.232-5004 Incremental Funding Clause 
(a) Funds are not available at the inception of this 
contract to cover the entire contract price. The liability of 
the Government is limited by this clause notwithstanding 
any contrary provision of the "Payments to Contractor" 
clause or any other clause of this contract. The sum of 
$ has been reserved for this contract and is 
available for payment to the contractor during the current 
fiscal year. It is expected that Congress will make 
appropriations for future fiscal years from which additional 
funds, together with funds provided by one or more 
non-federal project sponsors, will be reserved for this 
contract. 
(b) Failure to make payments in excess of the 
amount currently reserved, or that may be reserved from 
time to time, shall not be considered a breach of this 
contract, and shall not entitle the contractor to a price 
adjustment under the terms of this contract. 
( c) The Government may at any time reserve 
additional funds for payments under the contract if there 
are funds available for such purpose. The contracting 
officer will promptly notify the contractor of any 
additional funds reserved for the contract by issuing an 
administrative modification to the contract. 
31 

( d) If earnings will be such that funds reserved for 
the contract will be exhausted before the end of any fiscal 
year, the contractor shall give written notice to the 
contracting officer of the estimated date of exhaustion and 
the amount of additional funds which will be needed to 
meet payments due or to become due under this contract 
during that fiscal year. This notice shall be given not less 
than 120 days prior to the estimated date of exhaustion. 
Unless informed in writing by the contracting officer that 
additional funds have been reserved for payments under 
the contract, the contractor shall stop work upon [] the 
exhaustion of funds. 
( f) Any suspension, delay, or interruption of work 
arising from exhaustion or anticipated exhaustion of funds 
shall not constitute a breach of this contract and shall not 
entitle the contractor to any price adjustment under a 
"Suspension of Work" or similar clause or in any other 
manner under this contract. 
(g) An equitable adjustment in performance time 
shall be made for any increase in the time required for 
performance of any part of the work arising from 
exhaustion of funds or the reasonable anticipation of 
exhaustion of funds. 
(h) If, upon the expiration of one-hundred ( 100) 
days after the beginning of the fiscal year following an 
exhaustion of funds, the Government has failed to reserve 
additional funds for this contract sufficient to cover the 
Government's estimate of funding required for the first 
quarter of that fiscal year, the contractor, by written notice 
delivered to the contracting officer at any time before such 
additional funds are reserved, may elect to treat his right to 
proceed with the work as having been terminated. The 
Government will not be obligated in any event to 
reimburse the contractor for any costs incurred after the 
exhaustion of funds regardless of anything to the contrary 
in the clause entitled "Termination for Convenience of the 
Government." 
32 

U) The term "Reservation" means monies that have 
been set aside and made available for payments under this 
contract. Reservations of funds shall be made in writing 
via an administrative modification issued by the 
contracting officer. 
(SR4, tab 22 at 7) 
32. In an email dated 31 March 2006, in response to KRI's inquiry about topics 
for discussion at the first Partnering Meeting set for 3 April 2006, Corps project 
engineer Meyers responded: 
Sorry it took me so long to get back to you. The only thing 
we want to discuss is the following: 
Funding of contract vs. contractor's schedule 
Possible time extension needed by KRI because of 
the above issue. 
(SR4, tab 3 at 9, 169) This was the first indication KRI had that funding or schedule 
were potentially an issue. 
33. The first two Partnering Meetings (see finding 14) utilized a facilitator as "a 
way of cutting through a lot of the paperwork and getting to the heart of matters and 
getting to the meat of matters quickly without a bunch of letter writing." The facilitator, 
Lane Tucker, prepared and distributed the minutes of the Partnering Meetings held in 
April and May 2006. (Tr. 1/98-99, 7/42-48, 54, 58-65, 69-73, 13/55-56) 
34. The first Partnering Meeting took place in Anchorage, Alaska, on 3 April 
2006 prior to the commencement of jobsite work during the first construction season 
(see finding 26). In attendance were representatives of the Corps, KRI and the 
Aleutians East Borough (the end user of the project, referred to in the record as either 
the sponsor, the customer or AEB). (SR4, tab 111; tr. 7176-77) The meeting minutes 
began with a statement of seven (7) Project Goals to include: 
3) Producing a quality project that conforms to the 
plans and specifications and addresses the needs and 
priorities in the feasibility study. The harbor is the 
first priority; the dock is second; and then the 
bridge. 
33 

4) Working as a team with open and prompt 
communication[.] 
6) Protecting the environment, and being aware of the 
window for work: no in-water work between 
November 15 and March 31; no piles until after 
April 15.£151 
7) Realizing savings through the Value Engineering 
proposals[.] 
(SR4, tab 112) Specifically, with respect to communications, the minutes stated that: 
All parties agree that open and prompt 
communication is critical to the success of the project. To 
facilitate this process, it was agreed that a joint 
teleconference will be held once a week on Wednesdays at 
9 a.m. beginning June 7, 2006. 
The parties recognize that the timely submission of 
proposals and reviews is important to the successful 
completion of the project. The Corps advised that meeting 
its review times has generally not been a problem. 
(SR4, tab 112 at 2; tr. 1/100-01) Facilitator Tucker's meeting minutes further contain 
the following record of issues discussed pertinent to the matters now before us: 
A. Funding 
[After handing out a copy of the PIL (tr. 3/123, 
4/162-163, 7/53),] [t]he Corps explained that Congress has 
recently passed legislation restricting its ability to 
reprogram funds. Hence, the Corps will need to execute a 
bilateral modification with KRI to incorporate [an 
15 The contract, as awarded and at the time of the 3 April 2006 meeting, prohibited 
in-water work from 1 October thru 30 March (finding 8). The contract was not 
modified to extend in-water work through 14 November until Modification 
No. POOOlO dated 13 November 2007 (findings 78, 83). 
34 

incremental funding clause] into the contract.£161 The Corps 
will officially notify KRI of funding issues by letter [see 
n.13 infra]. 
The Corps' interpretation of the effect of this 
change is that $8.5 million£171 is available for work on this 
contract through September 30, 2006 (Fiscal Year 2006). 
ALL COSTS, including requests for equitable adjustment, 
termination for convenience costs, demobilization, etc., 
MUST come from this $8.5 million. The Corps will not be 
certain that additional funds are available for contract work 
until Congress passes the next appropriation bill. 
KRI had budgeted [to earn] approximately $10.5 
million for work during FY 06. Hence, the bilateral 
modification will have to address changes in the scope of 
work that can be undertaken during FY 06, and the costs of 
those changes due to the new funding mandate. 
In order to address this issue, the Corps will send 
KRI a letter on or before April 14, 2006, setting forth its 
preference for the scope of work undertaken in FY 06. 
KRI will respond on or before May 3, 2006. On May 5, 
2006, appropriate representatives from the Corps, KRI, and 
False Pass will conduct a partnering meeting to discuss 
viable options and respective cost impacts. 
B. Off-Site Material Storage 
... KRI explained that it proposed to handle the 
storage of material on this job much the same as it handled 
material storage on the St. Paul [Island] job [see findings 6, 
25] .... 
In the meeting, KRI advised the Corps that this 
issue needed to be resolved in order to address the changes 
16 There was agreement among witnesses that the discussion referred to three different 
funding clauses in general as continuing contract clauses but that the subject of 
an incremental funding clause to be modified into the contract was the primary 
topic of discussion (tr. 3/123, 7/66-68). 
17 The amount on the contract as of Modification No. P00004, issued 27 April 2006, 
was $8,350,000 (finding 16). 
35 

that would be required by the new contract funding clause 
to be incorporated with the bilateral mod, and that it is 
time-sensitive because the quarry operator is currently 
producing rock under contract to KRI. KRI also advised 
the Corps that renegotiating the rock contract would almost 
certainly result in additional contract costs. 
C. Value Engineering Proposals 
KRI has submitted two value engineering proposals [for 
the bridge and dock]. 
D. 
General: 
Method of Work QuestionsP 81 
The rock will be quarried, and KRI has 
leased and permitted an area for loading. 
Rock will be barged to False Pass and 
deposited with a G.P.S. survey system. KRI 
is finalizing the barge and mobilizing; there 
will be two barges to start and three later. 
KRI expects departure around April 11 or 12, 
2006. Activity will start after the high water 
mark shows. KRI expects the first load of 
rock to arrive in False Pass during the first 
part of June. The transit time is 
approximately 26 hours; the unloading times 
will vary. 
Rock Schedule: 
Rock will be quarried throughout the 
summer; completed in August. 
Building of Breakwater: 
18 We find that the work plan detailed in these minutes is the 1 February 2006 work 
plan submitted by KRI after the bridge and dock were added to the contract but 
before the Corps notified KRI of the funding clause change (see finding 26). 
36 

The B rock will be placed at various levels, 
and after confirmation the A rock will be 
placed. Armor stone will probably be 
alternated on the second barge. 
Under the current work plan, the north 
breakwater will be completed first, and it will 
be used to set up the system on the rest of the 
job. The long [Eastl 191] breakwater will then 
be built. -
KRI intends to use a progressive sequence, 
rather than placing all core rock, then all B 
rock, then all A rock. For pay purposes, KRI 
will use its construction control survey gear. 
E. Miscellaneous 
All of the bridge and dockwork will be 
postponedl 201 to save money; the city and 
borough are okay with this. 
(SR4, tab 13 at 3-6, tabs 111-12; tr. 4/58-61, 7/48-54, 7/193-96, 13/170-75) Facilitator 
Tucker testified: 
What the Corps wanted to talk about was how can 
you reprogram or resequence this job? What can you do 
for the amount currently funded on the contract, 
particularly given that you have [to] conserve a certain 
amount of money prior to being done. Here, the ice is out 
and the season is usually in a typical year, June to the end 
of August. 
They can go perhaps late May to early September, 
but it's a very short season that you have available to get to 
these locations and then get back to your staging area, 
which is typically Seattle for Alaska projects. 
19 (See finding 8) 
20 "Postpone[ ment of] the dock and bridge to save money, even if looked at alone, 
constituted a serious impact to the project" (SR4, tab 19 at 1317). 
37 

The sequencing of work, the means and methods, 
the scope of work that was going to be performed during 
that first season had to be adjusted. So I think the issue 
with respect to that was the Corps was to send a letter 
telling KRI what it would like to see accomplished for the 
amount of money it was going to spend, in the event that it 
didn't get anymore money, and KRI was going to respond, 
and then we were going to have a second partnering 
meeting. 
(Tr. 7 /51, 53-54, 56) With respect to the funding issues discussed at the meeting, the 
notes of KRI's Ryan Pleas state: 
[PM] Wierzbicki f1 ro ]m the Corps stated that they only 
have $8.5 million for the False Pass Project this year. Next 
year[']s budget has not been finalized by Congress. Corps 
will send KRI letter regarding funding. KRI can not spend 
more than $8.5 million including complete demob costs 
and termination costs. Corps will send KRI a bilateral 
modification for the contract which will insert a new clause 
(see handoutl21 l). KRI [is] entitled to recoup any 
termination costs or extra costs due to the need to change 
means and methods to accommodate the funding issues. 
KRI also entitled to extended time to complete project. If 
contract is extended the [C]orps will need to extend the 
real estate agreements. In no case should KRI plan on 
spending more than $8.5 million this year. If they go over 
this amount they do so at their own risk of not getting paid 
for the amount above $8.5 million. 
(SR4, 190 at I; tr. Ill 01-03, 109-22) After the Partnering Meeting and related 
discussions that day with Corps personnel, it was Ryan Pleas's understanding that: 
So, in other words, if you had eight and a half 
million dollars, you have to figure out ... how much it 
would cost or how much you should reserve .... 
21 Ryan Pleas testified that the handout he received during the Partnering Meeting was 
a pamphlet, identified by the Corps as the PIL (tr. 11101). KRI's Swantz agreed 
(tr. 4/59-60). 
38 

You take how much the termination costs are, you 
subtract that from the total amount of funding that's 
available and you end up with an amount that you can 
actually use to do the work. 
[I]f we went through and spent-say we had an 
eight-and-a-half-million-dollar cash flow schedule ... and 
we just went ahead and did the eight and a half million [of 
work] and at the end of the season they terminated our 
contract, we would get nothing in termination 
reimbursement. There would be no money left. 
Well, it was obvious to everybody that this was 
going to impact our work plan. So, we were talking about 
we needed to adjust our work plan in order to be able to 
leave enough money for a possible termination. 
And at this meeting, ... they're telling us there is no 
guarantee, you know. They're hopeful they're going to get 
more money, but there is no guarantee .... I've never come 
into a contract like this with the Corps where they're right 
up front telling us they got a funding problem .... 
Of this magnitude, I mean, ... it's like they're telling 
us that they got to put this clause in our contract and no 
guarantee that Congress is going to come up with any more 
money. So, you guys need to make sure you stay within 
that funding cap, including you need to leave yourself 
room for termination costs. 
So we talked about in the meeting some options ... , 
what we could do to tailor back our plan. 
Well, one of them was-and it was actually the 
Corps' suggestion, was to postpone the dock and bridge. 
Later on we had discussions I know Kelly [Pleas] 
and I had discussions specifically with [PM Wierzbicki]. I 
know it's not in the minutes, but during break we were 
batting around different ideas. And one of them was the 
39 

[PIL]-right in the [PIL] they'd say talk to the-work with 
the contractor, talk to them about starting later. 
And so, we asked that question and, you know, he 
didn't show any objection to it.. .. [O]ne of the questions 
we asked him was what would be your preference? Do 
you want us to show up early, hit it hard and then go home 
early, or do you want us to be there longer ... so that you 
have a chance to get the funding? 
And his preference was for us to stay there longer. 
And so, that was his advice is I would stay there longer and 
do what you got to do because ... the funding may not come 
for a while. I can't tell you when it's going to come, but, 
anyway, those were the kind of discussions we had. 
We talked about starting later. We talked about 
cutting back to one barge. What we were trying to do is 
come up with a way that we could stay out there and end 
up at the end of the season building something 
that ... would stand up over the winter. But also if they had 
terminated the contract, would be in a condition or in a 
state that would be easy to come back and finish whether it 
be on our contract or somebody else's .... 
[W]e talked about that we were going to ... have 
some cost impacts and that we would have to sit down and 
figure that out and come up with a way to get reimbursed 
for it. 
My recollection [with respect to the Corps promise 
to send a letter by 14 April 2006 indicating their 
preferences for work to be done in the first work season] is 
the Corps agreed that they would huddle amongst 
themselves and figure out a plan of how they wanted us to 
proceed or how they wanted the work left [at the end of the 
season] .... 
... Once we got their preferences, we would sit down 
and come up with some options and figure out-well, we'd 
40 

have another meeting with them. The next partnering 
meeting we would sit down and figure out a plan of action 
to go forward. 
Well, one thing we knew is that we didn't want to 
get caught without enough funding to cover our 
termination costs because it was pretty much drilled in our 
head in this meeting that funding was definitely not a for 
sure thing and they still had to deal with Congress on it. 
But at the same time, they were hopeful that maybe they'd 
get some other money into the contract. 
So, anyway, our thought coming away from the 
meeting was that we've got to make sure that we plan this 
so we leave enough reserve so that, if they do terminate the 
contract, that we end up not having to come out of our own 
pocket to fund the project. 
[W]e knew ... we were going to have to slow the job 
down. We wouldn't be able to perform as much work 
based on the current, the funding level that they had 
established at the meeting . 
. . .I came away from the meeting that they basically 
were telling us you better start planning your work for this 
funding cap because it's coming, it's definitely coming, 
and we might as well be all on the same page and start 
adjusting your plan right now. I mean, that's what we 
were talking about in the meeting. I mean, we talked about 
changing our plan in order to accommodate this funding 
cap. [There was no discussion that KRI should wait until 
the contract was actually modified to include the 
Incremental Funding Clause.] 
(Tr. 11103-07, 112-14, 122-25; see also tr. 2/35-36, 57-58, 3/121-26, 4/60-67, 90-91, 
8/145-47 ("It was communicated to us that termination was a possibility.")) 
CO Williams agreed that, at the time of the 3 April 2006 Partnering Meeting, the 
Corps was not certain of additional funds beyond the $8,350,000 the PM already had 
41 

and which were not actually reserved to the contract until 26 April 2006 (see finding 
39; tr. 13/56-58). 
35. KRI's Ryan Pleas expressed his primary concern about the Corps' post-award 
change of the funding clause in the contract: 
(Tr. 5/154) 
I just don't see how somebody can - or a 
contracting officer can just - they make a change to 
something so fundamental and important to the contract. 
In other words, I mean, if. .. that project had that IFC 
clause in it before we bid it, I could have assessed the risk 
and I might have said, "You know what? I don't know ifl 
want to bid this job." I can't take that kind of risk, or ifl 
bid it, I'm going to put a bunch of money on it because the 
IFC clause, especially in a contract that's remote in Alaska, 
is a whole different duck. 
Under the continuing contracts clause, we don't 
have to - we're not worried about the funding stream. 
36. KRI's planned cash flow (i.e., revenue) schedule was based on KRl's 
planned performance of contract work shown in its construction schedule. The 
construction schedule included only items of work required by the contract. As a 
result, the cash flow schedule based upon KRI's work plan did not include anything 
for possible termination for convenience costs or REAs/claims. (Tr. 1/103-04) 
3 7. The Corps never sent KRI the letter it promised by 14 April 2006 
(finding 34) expressing its preferences for the work to be completed in the 2006 
construction season. There were also no meetings between the 3 April and 5 May 
(finding 40) Partnering Meetings in which there was discussion with KRI on the 
subjects of amendments to KRl's work plan or the amount of funds then reserved to 
the contract that KRI believed it necessary to set aside for possible termination, 
changes and/or claims. (Tr. 13/187-89; see also tr. 11137, 6/145-46) In the absence of 
the promised input from the Corps as to what work it preferred be performed in the 
2006 construction season, KRI proceeded on its own to develop an alternative work 
plan for FY 2006, taking into account that all costs including requests for equitable 
adjustment and termination for convenience costs had to come from the $8,350,000 
reserved to the contract for FY 2006 (SR4, tab 11 at 125; tr. 5163-65). 
Forecasting the necessity of reserving an allowance of 
approximately $3.8 million to $4.5 million for reserves in 
order to cover demobilization, equitable adjustments and 
42 

I 
termination expenses, KRI scaled back the amount of 
construction that it could perform in 2006 in order to stay 
within the mandated funding restriction. 
(SR4, tab 5 at 16-17; tr. 11125-34 (details of reserve; always kept $4 million in mind), 
152-55, 3/121-22, 138-46, 154-63, 4/97-98, 167-69, 175-94, 7/207-08) 
So the schedule that we had prepared and turned 
in, ... didn't apply anymore. But the problem is ... that if 
you change the schedule you don't get paid because you 
have to have an approved change or a mod to the contract 
to make a change to the completion date.£221 
So we would make our schedules up showing the 
original January [2008 completion] schedule, as far as a 
two-year schedule, 2006 and 2007. And then part of the 
scheduling process is every month or every time you tum it 
in for a pay request is that you update the as-built portion. 
So the schedule reflected what was actually going on 
accurately in the field, but it was showing the original 
$19.7 million contract over a two-year period. 
So the issue we had was I don't know if we're 
getting funding tomorrow. I don't know if we're going to 
be terminated. I don't-you know, we're not sure how to 
change the schedule until we've come to an agreement 
with the Corps what the plan is going forward. 
So, anyway, that 2006 period was ... a period of time 
where we basically had to live with the original schedule 
[for purposes of payment]. 
We didn't know or we didn't have any word on 
funding, so we didn't- again, we still don't know what we 
22 In order to be paid for the work it was doing KRI had to submit schedules that showed 
the original contract completion date (CCD) because the Corps would reject any 
schedule that showed a later projected contract completion date as a result of the 
Corps' request for a later start and the change in planned work due to the 
possibility of a termination for convenience if Congress did not appropriate more 
funds for the project beyond what was then already on the contract. As a result, 
KRI continued to submit schedules showing the original CCD as required by the 
Corps but included a note on each stating that they were inaccurate and why that 
was the case. (SR4, tab 14 at 2203; tr. 8/72-80, 91-94) 
43 

have. We don't know if we're getting terminated. We 
don't know if we're going to end up with a funny contract. 
We're just kind of in limbo land. 
(Tr. 1/155-57; see also 3/164-65, 176-77, 4/97-98, 71196-97; see also finding 68) 
38. At the time of the 3 April 2006 Partnering Meeting, rock was being stockpiled 
by Northern Mechanical at the quarry at Dutch Harbor. KRI was concerned about having 
enough funds on the contract to pay its rock supplier, given the change of funding clause 
in the contract and the resultant changes in KRI's construction schedule which then 
forced changes in its cash flow schedule. (SR4, tab 20; tr. 1/115-16, 153-54, 3/74-85). 
39. On 27 April 2006 the Corps issued unilateral Modification No. P00004 which 
added $2,450,000 to the contract, bringing the total funds reserved to the contract to 
$8,350,000 (SR4, tab 14 at 2018-19). As of 18 July 2006, KRI had not received a copy of 
Modification No. P00004 even though it had been asking CO Williams for a copy since at 
least 14 June 2006 (SR4, tab 34 at 1-7). Due to the funding limitations imposed by the 
Incremental Funding clause, it was important to KRI to have copies of the actual 
modifications showing the funds on the contract: 
When you get closer to the end of the season and 
they're telling you they got $3 million and we're running 
up to the stop amount where we have to stop, I want to see 
the piece of paper, because I don't want to overshoot and 
end up having a shortfall if they cancel the project. 
I like to see the piece of paper. You know, early on 
in the season, you know, you expect that the mod will 
come in in enough time that you don't have to again slow 
down even more. 
(Tr. 31184) More important than KRI's preference for a formal contract modification 
to memorialize the addition of funds to the contract, the IFC-5004 which was 
unilaterally added to the contract by the Corps, required that the only valid notification 
of additional funds reserved to the contract that a contractor was entitled to rely upon 
was a formal contract modification (see finding 31). 
40. The second Partnering Meeting took place on 5 May 2006 as previously 
scheduled. The scant two pages of meeting minutes are as follows: 
(I) Funding Increase/Continuing Contracts Clause: 
The Corps indicated that contract funds are now 
available in the amount of $10.5 million, and that 
this amount includes all changes and any 
44 

termination costsY 31 The Corps also stated that it 
expected another $5 million to be available on 
October 1, 2006. KRI advised that its cost of $10.5 
million for work this season does not include 
demobilization or termination costs. The Aleutians 
East Borough ("AEB") advised that they will have 
an additional $4 million in sponsor money 
available. The Corps indicated that they could send 
KRI a letter advising it that this additional sponsor 
money was available. KRI stated that they needed to 
receive that letter by August, 2006. The Corps 
indicated that the "continuing contracts clause" 
modification was not ready to be issued. There was 
discussion concerning whether that mod would be 
issued as a unilateral mod or whether the Corps 
would attempt to negotiate a bilateral modY 41 
Given the current status of funding, it was not 
necessary to resolve that issue at this meeting. 
(3) VE Proposal: The Corps indicated that it could not 
accept the VE proposal based upon the information 
it had been provided to date. After some discussion, 
it was concluded that the Corps wanted a VE 
proposal that complied with FAR 52.248-3. 
Garth Howlett and Alan Christopherson from the 
engineering firm PND£251 joined the meeting to 
23 This statement is contrary to the evidence. As of 5 May 2006 there was $8,350,000 
in funds on the contract. Additional funds were not put on the contract until 
Modification No. P00006 brought the total funded amount to $10,450,000 on 
19 September 2006 (findings 16, 58) 
24 Ryan Pleas testified that the "discussion" was actually an argument between 
CO Williams and PM Wierzbicki (tr. 11143, 146-147). The record before us 
shows that it was PM Wierzbicki's position that a bilateral modification was 
required (see finding 29) and that CO Williams chose to believe otherwise (see 
findings 30, 43-46). 
25 PND Engineering was the owner of the patent on the open cell dock which used "so 
much less steel" than the Corps' design in the contract as awarded. However, 
the Corps was familiar with PND' s patented method of design and required 
additional assurance of safety factors before the design could be approved. 
(SR4, tab 10 at 80-81; tr. 4/54-57, 161, 14/213-17). KRI engaged the PND 
45 

present information concerning the VE proposal. 
PND indicated that it could provide the requested 
package within four to five weeks, and that it would 
also provide to the Corps its previously negotiated 
patent language. The Corps indicated that it needed 
one week to review the VE package. KRI indicated 
that it would provide a hard dollar number for the 
VE proposal savings. 
(4) Dock Plan: The AEB indicated that the plan for 
the dock was acceptable to the customer, and a 
meeting was scheduled for Friday, May 12, 2006, to 
see if additional moorage could be added on the 
south side. 
(6) Other: 
KRI plans on putting rock in the water 
starting June 15-21 through early 
September, 2006. 
(SR4, tab 13 at 7-8, tab 14 at 2391-92, tabs 115, 190 at 3-4; tr. 1/137-48, 4/64-68, 90, 
7 /59-61, 7I196-97 (PM Wierzbicki said if the Corps didn't get more funding, the 
contract would be terminated)) 
41. KRI commenced project work in accordance with its amended work plan, 
starting work in July 2006 instead of the 15-21 June start discussed at the 5 May 2006 
Partnering Meeting, and with a "scaled down" operation to allow it to continue 
working for as long as possible in the 2006 construction season. We find no record of 
any contemporaneous objection from the Corps as to KRI's amended planned start 
date or its actual start date. KRI concentrated its efforts in the 2006 construction 
season on installation of the core rock for all three of the breakwater structures. (SR4, 
tab 19 at 250; tr. 3/126, 4/92-95, 5/45-57; see also SR4, tab 16 at 37, 39, 92-93, 210, 
212, 7/197-202) The Corps' schedule expert Mr. Ockman opined in his expert report 
that KRI's "late start" in 2006 was caused by KRI's "failure to gear up at the site." He 
further opined that, as a result, KRI was responsible for 29 days of delay. (SR4, tab 19 
engineers on a time and material basis because KRI wanted to keep the VECP 
design "alive" but KRI could not be sure, until additional funds were 
appropriated by Congress and added to the contract by the Corps, that the False 
Pass contract would not be terminated for convenience (tr. 11157-58, 4/78-79). 
46 

at 250) In his testimony, however, he found KRI's July 2006 start to be "ambitious, 
but reasonable" (finding 49). We find that KRl's start of work at the jobsite in 2006 to 
be due to the Corps' unilaterally-imposed funding changes to the contract and to be in 
accordance with the expressed preference and agreement of PM Wierzbicki (see 
findings 26, 34, 40). It was Mr. Ockman's opinion that "(t]his one delay, alone, would 
have pushed [KRI] into a third construction season" (SR4, tab 19 at 283). 
42. After the 5 May 2006 Partnering Meeting, there was no communication 
from CO Williams to KRI about contract funding until a 9 July 2006 email (tr. 4/80) to 
which, without any additional discussion or negotiation since the Partnering Meeting, 
was attached a draft bilateral Modification No. P00005: 
As we discussed in our last meeting, attached is the 
modification which deletes the old Continuing Contracts 
clause and replaces it with the new Incremental funding 
clause. This mod also serves as documentation showing 
the amount of funding currently available on the contract. 
The project manager is continuing to search for more 
funding, but as we discussed in the Partnering Sessions, 
additional funding will have to be added by congress. We 
do not have a timeline on the availability of additional 
funding, but it could be as late as early next Fiscal Year 
(mid October 2006). If you have any questions, please let 
me know. Please let me know if Kelly-Ryan is willing to 
sign the modification. If Kelly-Ryan is unwilling to sign 
the modification, I will have to issue the modification 
unilaterally. This mod does not remove your rights to 
submit a Request for Equitable adjustment and/or claim. 
In accordance with the clause, $10.5 million is all the 
funding we currently have which includes any termination 
or claim costs. If you have any questions, let me know. I 
will be on leave starting Wed, July 19, 2006, and would 
like an answer either way before then. 
(SR4, tab 14 at 2342-47, tab 34 at 6-8, tab 155 at 11) KRI declined to sign Modification 
No. P00005 because it did not include or acknowledge any monetary or schedule impact 
as a result of the clause (SR4, tab 14 at 2124, 2126, 2325; tr. 1/158-64, 2/28-32, 
31180-82, 4/82, 13/49). 
There was never any option. It was this is the mod, here, 
sign it. There was never any negotiation, never a 
discussion about it other than here it is, sign it. No time, 
no money. Just sign it. 
47 

(Tr. 3/180-181) One week later, on 17 July 2006, again without discussion or negotiation, 
Modification No. P00005 was issued unilaterally by CO Williams (SR4, tab 34 at 6-7, 
tab 14 at 2339, 2126). 
43. CO Williams was aware of EC 11-2-189 and the PIL, as well as specific 
direction within the Corps, that he was required to either negotiate a bilateral 
modification or terminate the contract for convenience (see findings 23, 29-30, 44). 
Nevertheless, he admitted in testimony and documentary evidence that he did not 
respond to requests for funding modification information from KRI and that he had no 
contact or discussion with KRI between the 5 May 2006 Partnering Meeting and his 
9 July 2006 email forwarding the draft bilateral modification. CO Williams admitted 
that the entire extent of his "negotiation" with KRI on the subject of a bilateral 
modification to change the funding clauses consisted of his 9 July 2006 email 
statement, "Please let me know if [KRI] is willing to sign the modification." If KRI 
declined to do so, he believed he had no choice but to replace the Continuing Contracts 
clause with the Incremental Funding clause by unilateral modification. (SR4, tab 14 at 
2124-28, 2284-85, 2289, 2339, 2348; tr. 13/194-219, 221-26, 14/21-22) 
44. By email dated 28 July 2006 Corps attorney, Michael Gilbert, notified 
Christopher Tew, Alaska District Chief of Construction, that: 
The issue concerning unilateral modifications for 
continuing contracts was raised during yesterdays PRB. 
The two contracts involved are False Pass and Sand Point. 
Our office was not consulted, and did not coordinate, on 
the False Pass modification. We do not know ifthe Sand 
Point modification has been accomplished. We believe the 
False Pass contract was incorrectly modified on 17 Jul 06 
by Dave Williams of your office. Accordingly, based upon 
PARC guidance, you should cancel the unilateral 
modification and either negotiate a bilateral modification 
or terminate the contract and reprocure as a fully-funded 
contract. Please advise us of what corrective action you 
decide to take and if we can assist you in this matter. 
Attached is our 23 Mar 06 legal opinion, which was 
based upon a 22 Mar 06 PARC memo, that responded to a 
query from RM with courtesy copies to PM and CT. I also 
have attached a 21 Mar 06 e-mail that suggests 
[CO Williams] was aware of the prohibition before the 
modification was made. What personnel action you take, 
if any, is at your discretion, but I suggest you look into this 
apparent violation of failure to comply with law and policy 
48 

guidance. I also send you this information for you to 
discuss with your staff and address with on-going 
contracts. 
If we can assist, please let us know .... 
(SR4, tab 14 at 1989, tab 166 at 30) 
45. On 8 August 2006 CO Williams told Mr. Tew and CO Davidson that "[a] 
possible solution to this would be to rescind the unilateral modification. Since I know the 
contractor will not sign the bilateral modification [without an equitable adjustment 
including time and/or money], we could continue to 'negotiate' the bilateral mod." (SR4, 
tab 14 at 2279; tr. 14/29-30, 33 (he couldn't explain why he put "negotiate" in quotes)). 
Mr. Tew responded: "At the end of the day, ifthe contractor won't sign a bilateral action, 
then we have 2 choices - terminate or seek a waiver per the PIL" (SR4, tab 14 at 2279; 
tr. 14/33-34). CO Williams ignored both choices and did nothing to rescind the unilateral 
modification or to otherwise follow the Corps' guidance/direction (tr. 13/53-54). 
46. In addition, contrary to all express guidance and direction otherwise, after 
he specifically elected not to negotiate a bilateral modification, CO Williams also 
made the conscious decision not to consider a termination for convenience: 
At the time I sent [P00005], I decided not to pursue a 
[termination for convenience] until we were sure we would 
not receive funding for FY07. During the period of 
July 17, 2006 when the unilateral modification was issued 
until the full funding was added March 19, 2007 I was in 
continuous contact with the [Corps] PM in regards to 
funding for FY07 and we were assured by congressional 
staffers that full funding would be provided for this 
contract. Unfortunately, we could not pass this 
information along to the contractor until the funding bill 
was signed. In an email from [Corps Office of Counsel on 
28 July 2006] it was recommended that I rescind the 
unilateral modification. In consultation with the PDT[26l, I 
made the decision to not change the funding clause or start 
a Termination for Convenience process until we knew the 
funding status for FY07. 
(SR4, tab 14 at 2124, 2126; tr. 13/225) 
26 District/Center Project Delivery Team (PDT). EFARS 1.170-100( d). 
49 

[B]ut in my mind we have failed if we terminate a contract. 
Now we no longer have a project. Our sponsors, Aleutians 
East Borough, is not getting a harbor, and who knows 
when they will get a harbor? 
So, in my mind, I never really considered 
terminating the contract at this point in time . 
... [T]erminating a contract at this point in time is a 
very high likelihood that the contract will not get refunded 
and be completed. 
(Tr. 13/44-45, 209, 220) The Corps had been trying to get the False Pass project funded 
for ten years (finding 2). 
47. Mr. Loew, CECW-1(finding20), described the process to be used if a 
Corps district needed help applying the new funding policy: 
The process would have been for them, let's just say 
they needed reprogramming support, would have been to 
look inside the district to see if they had funds available, 
and then if they didn't[,] seek their division's help and if 
division couldn't do it, then they would come to my office 
for help. 
I am not aware of any cases where districts came 
forward and needed the help that they didn't get it.... In 
the first partnering meeting minutes, which I read, I 
thought that the district was on target at that point. 
They had read the guidance. They said they were 
going to work through a bilateral modification. They 
recognized that the contractor had additional costs, and it 
just appeared to be a matter of time, and in fact I think they 
were setting that to be resolved at the next partnering 
meeting, which took place in early May. 
Then things went south 180 degrees, in my opinion. 
They never got with the contractor. I mean this was 
serious enough on this contract, and I say on this contract, 
because as has been explained, there are tremendous 
logistical problems associated with work in the Aleutians, 
to get your equipment out. 
You had to do early planning and you have to have 
stuff on site at the beginning of the construction season, 
50 

ready to go to take advantage of that construction season. 
So I guess I'm trying to point out that the contractor not 
only needed the money, but he needed [it] well [in] 
advance of the place he was going - at the point in time he 
was going to place it. 
For instance, he needed the money to order the steel 
for a year before that steel was going to be on site. So he 
had to commit, and this clause clearly created funding 
uncertainty. What should have happened, in my opinion, 
and they would be typical program project management 
practices that everybody does all the time. 
The district should have gotten with that contractor, 
and when I say the district, I mean the project development 
team, which includes the project manager, in this case 
Contracting, in this case Construction, Engineering. They 
should have sat down with that contractor and say well 
okay, you're projecting that there's going to be a funding 
deficit in the middle of the first construction season. How 
much money is that? What is your deficit? 
They should have entered into a negotiation at that 
time. They should have nailed down the amount of 
money, which at that time, my reading, was very small. 
Somewhere between one million and four million dollars 
they could have solved that problem that day. 
They didn't do that, and I mean it's not 
understandable why they didn't, but they never got with 
the contractor. They never put a number that they could 
work with to handle the reprogramming or anything else, 
and so then it just, you know, continued to go south in my 
op1mon. 
(Tr. 7 /100-02) 
48. In the period from 13 July 2006 to at least 19 September 2006, termination of 
the contract for convenience was a possibility due to no additional funds from Congress 
(SR4, tab 14 at 2127, tab 118; tr. 14/68-73). 
49. The first schedule KRI submitted (with Pay Estimate #2) after Modification 
No. POOOOS had a data date of30 July 2006 (SR4, tab 16 at 21-72, tab 19 at 301-02). 
The cash flow estimate showed earnings from placing core rock beginning in July 
2006 and contained the following note prominently displayed on both pages: 
51 

The above cash flow is based on the current billable 
projections and DO NOT include liabilities associated with 
modification P000[0]5. 
(SR4, tab 16 at 48-49) KRI decided to use one rock transport barge, instead of the two 
originally planned, and to place only core rock for all three breakwaters in the 2006 
construction season (SR4, tab 5 at 18-19; tr. 11149-51, 3/126, 4/67-68, 72-74, 93, 
6/149-53, 7/206, 220-21). KRI planned to place as many lineal feet of core rock as 
possible in 2006 in order to have the project in the best possible position for 
breakwater completion and dredging in the 2007 work season, assuming funding was 
received for FY 2007. KRI's alternative schedule "left options open in the event the 
Corps added more money to the contract in 2006." (SR4, tab 19 at 1186-87) The 
Corps' schedule expert, Mr. Ockman, testified that this alternative work plan schedule 
was "ambitious, but it was reasonable" and "very similar to their original plan" except 
that they started one month later (tr. 12/88, 93-96). 
50. The Corps elected not to provide input to KRI to assist it in making 
decisions about preferred work for FY 2006 (finding 37; SR4, tab 11 at 374; tr. 11152, 
4/64 ), and we have found no evidence that the Corps, either its onsite or offsite 
personnel, ever objected during the 2006 construction season to KRI' s amended work 
plan or the work it accomplished (see SR4, tab 19 at 1188; tr. 6/153). Not until one 
month after KRI had demobilized from the jobsite at the end of the 2006 construction 
season did the Corps mention a concern about leaving only core rock in the 
breakwaters over the winter (finding 61). 
51. KRI was told repeatedly by the Corps to be sure to set aside from the funds 
reserved to the contract an amount that KRI estimated would cover any termination for 
convenience costs and potential claims (see findings 34-35, 37, 40). 
[KRI was] told ... in the meeting that it was up to us 
to figure out how much we needed to reserve and just 
make sure that you watch, you know, watch your ass 
because it's on us. I mean, if we run over, I mean, if they 
shot the job down, it was made very clear by 
[PM Wierzbicki] that if they shut the job down, if you 
don't have enough left in your contract to cover 
termination, you're not going to get reimbursed. He made 
that very clear. 
And so, you know, he didn't really care how we did 
it. He wasn't asking to be involved in the calculation. He 
just said you guys need to understand that the Corps is 
doing business differently now, and we can't do it the way 
we used to with this new [Incremental Funding] clause. So 
52 

we took him seriously, and we came up with our own idea 
of what we thought and then planned accordingly. 
(Tr. 11133-34) We have found no evidence in the record that the Corps ever required 
KRI to provide, nor even asked KRI, for the amount of reserve it had calculated, even 
though CO Williams testified that such information would have been "very important" 
(tr. 1/135, 13/68-69, 14/49). CO Williams testified: 
Well, we never discussed dollar amounts that he 
would have to hold back. I mean we made it clear that all 
the costs he thought he would need for termination would 
need to be part of this reserved amount that was indicated 
in these minutes. 
Potentially [the contractor had the risk ifhe made 
the number too low], but ... , I would expect that a heavy 
civil contractor doing this type of business for many years 
should have a pretty good estimating system. So, one 
would think he could do a pretty good job estimating his 
costs, especially since [ t ]he demob costs were already 
priced in the contract. 
... There's never any obligation for the contractor to 
spend up to the amount of money on the contract that 
we've reserved. And he can earn up to that amount, but if 
he decides on his own to prosecute the progress differently 
to where his earnings don't go up [to] that level, there's no 
requirement on the government's part for them to earn up 
to that point .... 
Obviously, when the contract is completed, he will 
bill for the full contract amount as funded. But we're not 
going back to say, "You're spending too little. Spend 
more." 
Q And obviously, if he feels it is good business 
for him to save a cushion so that he doesn't overspend the 
funded amount, that's okay too, isn't it? 
A Yes. 
Q 
A 
That's his prerogative, correct? 
Yes. 
53 

I 
Q And that's because he's got the financial risk, 
doesn't he? 
A Yes . 
. . .I will say [the contractor] has to account for his 
[potential] termination costs if he feels he's going to incur 
them and keep that amount of money set aside in the 
unfortunate event that we might have to terminate the 
contract. 
(Tr. 13/178, 184-85) 
52. The amount of available funds reserved by KRI at the Corps' direction to 
cover possible termination for convenience and claims (see finding 3 7) complicated 
the requirement in both the CCC and IFC for contractor notification to the Corps prior 
to exhaustion of funds. 
[Y]ou don't actually exhaust the funds. That is why I say 
you have to take into consideration the reserve for the 
termination cost. 
So, it is a little confusing because yes, they have 
$10.5 million for the job but we can't use all of it for 
construction. You have to hold some in reserve for 
termination. So, I guess it depends on how you define 
exhaustion, whether maybe you have to include the 
termination for convenience, money that you may have to 
draw on if they terminate the contract. You have to 
anticipate that might happen. So, that is kind of the way I 
looked at it. I thought we had to look at it that way. 
We would not use all of the funds for construction 
in 2006. We would have to hold or not draw some of those 
funds and leave them there for a possible termination. 
Q So, still looking at paragraph D of the 
incremental funding clause attached to Mod 5, how did 
you handle the 120-day notice provision? 
A Well, at this point, this was issued in July, 
there wasn't 120 days left in the fiscal year. So, I think 
there was I don't know, 70 something days left. So, we 
54 

couldn't comply with the 120 days. We did send a letter 
shortly after this was issued explaining that it wasn't 
possible to give them the 120 days' notice . 
... [T]he fiscal year is September 30, the year-end. 
And it was about mid-July when this was issued. So, there 
wasn't 120 days. When this was issued, there wasn't 120 
days before the fiscal year-end. There was no way to 
comply. 
(Tr. 2/32-34) KRI notified the Corps of this complication by letter dated 3 August 
2006 (SR4, tab 11at19, 121, 125; tr. 2/36-45, 3/188-90, 5/62-63, 14/52-58). 
[W]e wanted to know ifthe Corps had any 
preferences on how they wanted the work site left, you 
know what state they would like us to leave it in. We 
thought that it would be prudent for them to have input into 
that since we are not sure whether we are coming back 
next year .... We [also] didn't want to have our [rock] 
supplier end up making rock that we couldn't pay them for, 
basically .... We don't want to get into a situation where 
we end up having to pay out-of-pocket if this job gets 
terminated. 
(Tr. 2/45-47) CO Williams acknowledged KRI's letter and agreed a meeting was 
warranted, however, despite KRI's numerous attempts to schedule such a meeting, no 
meeting on this subject was ever held (SR4, tab 120; tr. 2/41-42, 47-48, 5/59-62). 
53. As early as the April and May Partnering Meetings, and in numerous phone 
calls and letters, KRI had advised the Corps that additional funds would have to be 
committed to the project by August 2006 or the project would have to be shut down 
two months earlier than planned (SR4, tab 11 at 121-22, 125, tab 14 at 2391; 
tr. 1/140-41, 2/42-45, 4/90-92). 
54. On 23 August 2006 KRI again requested input from the Corps: 
We would like to request that a conference call take place 
Thursday of this week as was suggested yesterday. It is 
important that we get into the details with the Corps 
because our figures indicate that funding will be exhausted 
within the next couple of weeks. We want to discuss how 
55 

to handle the shutdown of the work. Our view is that the 
Corps should have input and our course of action 
necessarily will be influenced by how the Corps assesses 
the potential future of this contract. 
We had a lengthy conference yesterday with our 
rock supplier. He also will be affected by the shutdown, 
and mentioned unamortized front-end costs and the added 
cost of a demobilization. You can appreciate our concern 
that allowing him to continue producing rock, at this point. 
rapidly exhausts the limited remaining funds. 
We see the objective of tomorrow's call as reaching 
an understanding upon a course of action that serves the 
interest of all parties. At the same time, that course of 
action has to assure that the $10.5 million of available 
funds will not be exceeded. We are proceeding in 
accordance with the unilateral modification, treating it as a 
directive that under no circumstance should there be any 
costs incurred on or in connection with the project that 
exceeds the $10.5 million funding cap. 
We obviously will respond to any questions or 
concerns you have and will be prepared to deal with any 
form of expanded agenda you may think is appropriate. 
(SR4, tab 11 at 125; tr. 31147-49) Later that same day, CO Williams advised by email 
that "we are in the process of receiving $3.0 million from the Department of 
Transportation" (see finding 55) and that "for planning purposes, the current contract 
funding is $13.5 million" (SR4, tab 24 at 165; tr. 13/45-46, 61-62, 14/65-68, 73-74). 
However, the contract's IFC clause specifically required that the only valid notification 
of additional funds on the contract was a formal contract modification 27 (finding 3 1) and 
KRI conducted itself accordingly (see finding 39). We find that, as of23 August 2006, 
the contract was actually funded in the amount of $8,350,000 (finding 16). 
55. In early-September 2006, the Corps was in contact with the Department of 
Transportation (DOT) regarding $3,000,000 in DOT funds for the False Pass project 
(SR4, tab 14 at 2262, tab 165). The record shows that DOT was prepared to send the 
funds to the Corps in early-September 2006, however, the Corps advised DOT that 
they could not complete all the paperwork to obligate the funds to the contract before 
the close of the fiscal year and requested that DOT "[ w ]ait until next fiscal year and 
send it when you can" (SR4, tab 34 at 8, tab 165 at 24 ). The DOT funds were not 
added to the contract by the Corps until 1March2007 (finding 65; tr. 3/150-51). 
27 The CCC clause had the same requirement (finding 9). 
56 

56. Hesitant to expend more contract funds in the absence of a modification 
actually reserving funds to the contract, KRI then shut down for the winter and 
demobilized from the jobsite on 15-18 September 2006 (SR4, tab 17 at 416-36). This 
was only slightly different from its original and amended 2006 plans (SR4, tab 18 at 
10, 14, 19; tr. 16/69). 
57. During the 2006 construction season, Northern Mechanical at the Dutch 
Harbor quarry was "not getting the yield of armor stone that he had hoped for" so KRI 
went to its "backup plan, which was Western Marine's Sand Point Quarry" (SR4, 
tab 10 at 50-51, tab 19 at 1194-95; tr. 2/54-56, 4/82-86; see findings 5, 27). 
They had a pit there and they were making exactly the 
same products. There was another boat harbor being built 
160 miles away to the east. And that was one of the 
beauties of bidding the job at the time we did at False Pass 
was we had two great sources of rock 160 miles on either 
side of our project. And so, the problem was that by not 
having the funding available to cut a [purchase order] for 
that, their job finished at the end of 2006 and they 
de-mobed out of the pit [back to Seattle]. 
(Tr. 2/54-56, 7/217-18; see also SR4, tab 24 at 158-59) 
58. On 19 September 2006 the Corps issued unilateral Modification 
No. P00006 which increased the contract funding from $8.35 million to $10.45 million 
(SR4, tab 155 at 15). CO Williams described the surrounding circumstances as: 
[PM Wierzbicki] stated that the additional $3.0M will be 
transferred from DOT in early next fiscal year. Any 
termination actions or further discussion with the 
contractor have been postponed until we get word of 
passage of the congressional bill that should contain 
additional funds for False Pass. If additional funding is not 
received by early next calendar year, we will begin 
discussions with the contractor on either extending the 
contract[] or terminating it. 
(SR4, tab 14 at 2127) 
59. Because of the remote location and short construction season, advance 
planning and preparation over the winter 2006/2007 (October through March 
(finding 8)) was particularly important (finding 1). KRI's expert witness Mr. Egbert 
testified: 
57 

The lack of funding really deprived [KRI] of the 
opportunity to plan for and to perform or make the advance 
obligations and cost commitments that it needed for the 
2007 season. So the time frame is that the - [KRI] 
operated under the - operated since the May partnering 
meeting with the thought that they were going to have a 
funding cap of[$] 10.5 million, and that existed up until 
March of 2007. 
So [KRI] looked at the fact that they had spent $6.1 
million or something like that - not spent. They had 
earned. The earnings under the contract were [$]6.1 
million,l28l and doing the math, you've got -you've got 
[$]4.4 million available. So you've got the[$] 10.5 million 
funding cap and subtract [$]6.1 million that's been earned 
under the contract, and there's a little over $4 million left. 
You subtract, ifthe contract ended that day, then 
[KRI] would have to demobilize. Well, the balance of 
their demobilization line item on their application was $1 
million. So that $4 million that's left is now down to $3 
million, and they would have to pay for the rock that's 
been produced in the quarry but not paid for. 
How much does that cost? Well, that's really an 
unknown cost and that's a judgment call. So say it's [$1] 
million. So now ... you're left with $2 million. You've got 
[$] 13 million dollars' worth of work to perform and $2 
million in the bank. 
So you really can't go forward with very much. I 
mean you could order bridge and dock materials, but then 
you can't-you don't have any money to fund any labor on 
site. If you go to the site, it can't do much. You can't put 
a dent in a $13 million scope of work with $2 million. 
So [KRI]'s hands were really tied. From the time 
they demobilized in September of [2006], [KRI]'s hands 
were tied until March 1st of 2007, when another $3 million 
or so was put into the contract. 
(Tr. 6/152-53, 155-56, 162-64, 7 /223) 
60. On 16 October 2006 KRI notified CO Williams that, in order to prepare for 
the 2007 construction season and make timely commitments for transportation, crews and 
28 Pay Estimate #5, signed by ACO Jong, shows $6,101,361.70 earned for work 
performed under the contract as of 4 December 2006 (SR4, tab 16 at 200). 
58 

materials, KRI needed to know by mid-November 2006 whether funding for the rest of 
the project was available. CO Williams did not respond to KRI's request (see finding 45 
(Corps had reason to believe that full funding of the contract in 2007 was likely but did 
not share that information with KRI) ). (SR4, tab 11 at 3 7 4, tab 19 at 1189-90, tab 190 
at 5, tab 192 (PART 1) at 19; tr. 2/58-66, 3/191-95, 4/91-94, 7/210-11) 
61. On 17 October 2006, a month after KRI had demobilized from False Pass 
for the winter (tr. 31191, 4/92), the Corps expressed concern by letter about leaving 
just core rock in the breakwaters over the winter (SR4, tab 10 at 54 ), however: 
[W]e asked the Corps for their input. You know what, 
during this whole period of time, all of 2006 [construction 
season], they gave no input. None. So you know, we did 
what we thought was the right thing to do. And we asked 
them on more than one occasion to give us some input, no 
response. 
(Tr. 3/191, see also 71197-98, 16/14-15) By doing so, KRI was able to complete all 
three breakwaters to the contractually-required minimum height so that dredging could 
commence "right off the bat" in the 2007 construction season and minimized the risk 
that rework of the rock layers would become necessary due to winter wave action 
(SR4, tab 19 at 1188; tr. 2/49-50, 4/90-92, 94-96, 6/152, 7/197-204, 13/64-65). Prior 
to demobilizing in September 2006, KRI performed an interim survey of the core rock 
placed in 2006 in the breakwaters and planned another survey if/when it returned to 
the jobsite in 2007 which, when compared to the 2006 survey, would identify any 
winter damage (tr. 13/64-65). Upon returning to the jobsite in 2007: 
They've handled the winter just fine. There was 
very minor movement and only isolated to just a couple of 
spots and there was no material lost. 
(Tr. 16/15) We have not found any evidence in the record before us, nor have the 
parties directed us to any, that the core rock placed in 2006 experienced any significant 
damage over the winter (see, e.g., SR4, tab 19 at 1312; tr. 13/65). 
62. On 29 December 2006 KRI sent a letter of concern to the CO: 
We believe that a partnering meeting is in order. There are 
several pressing issues that require discussion and 
clarification. Most of the items on our agenda relate to 
funding. and the effect that the present funding limitation 
is having, and will continue to have, upon our materials 
59 

procurement, mobilization and work plan for the 2007 
construction season. 
The first order of business is to share with you our 
understanding of the present situation. In accordance with 
Modification P00006, the current funded amount for our 
contract is $10.450,000. There has been much discussion 
regarding availability of an additional $4,000,000. Our 
3 August 2006 letter, Serial 019, requests that these funds 
be committed before October 1, 2006. This commitment 
was not made, nor was the Corps able to meet the 
November 2006 date which was suggested by your office as 
a likely point at which commitment of these funds would be 
forthcoming. Accordingly, as matters stand at year-end 
2006, the $10,450,000 funded amount still applies. 
Further to that same point: Modification P00005, dated 
16 July 2006, unilaterally deleted the Continuing Contract 
Clause from our contract and replaced it with the 
Incremental Funding Clause. KRI's position has been that 
the original contract cannot be altered unilaterally, and that 
KRI retains all of the protection and rights as may be 
applicable under the Continuing Contract Clause. On the 
other hand, we understand the Corps' Modification Action 
to mean that you intend to administer the project as though 
the Incremental Funding Clause was part of the contract. 
With that background in mind, we have analyzed our work 
plan and schedule for the 2007 construction season. The 
schedule submitted on 26 October 2006 indicates a 
mobilization start on 1 April 2007, with construction on 
the east breakwater starting one month later. That 
schedule submission bears a caveat stating "Schedule is 
predicated on a timely notification of sufficient funding to 
purchase materials and secure related equipment, 
anticipated to be mid-November per our conversations." 
Based upon our present cost forecast, and having in mind 
the restrictions described in the Incremental Funding 
Clause, a $10,450,000 funding cap effectively forecloses 
KRI from performing any work on the breakwaters during 
the 2007 construction season. This conclusion is based 
upon the following calculation: 
60 

As of 12/ 27106 amount funded 
Payments to date 
Available Funds 
Items payable on or before 2007 mobilization 
Armor Rock to be billed 
B Rock to be billed 
Core Rock to be billed 
Activity 74050, bridge materials (bid) 
Activity 75050 dock material (bid) 
TOTAL 
Mobilization increment 4/1/07 
Payable on or before 2007 mobilization 
$10,450,000 
6, I 01,361 
$ 4,348.639 
$1.200.000 
500.000 
510.000 
440,000 
1 .347,000 
$3.997.000 
$ 600.000 
$4.597,000 
As these figures illustrate, there is a shortfall of $248.361 
($4,597.000 payable as against $4,348,639 available funds 
equals $2[ 4]8,361 shortfall). This does not take into 
account any termination or demobilization costs. 
You can see why we are anxious to meet and explore the 
alternatives. If a partnering facilitator is not available, we 
should meet anyway with your key people and ours. KRI 
is prepared to work with you in developing the most cost 
efficient solution possible provided, of course. that KRI is 
not exposed to the financial risk of performing work for 
which we do not receive due and timely payment. We 
suggest a meeting anytime during the week of January 15, 
or the latter part of the previous week if you are able to 
assemble the necessary participants by then. Please 
advise[.] 
(SR4, tab 11at135-36; tr. 2/53-56, 66, 68-72, 31191-95) CO Williams thought KRI's 
suggestion for a meeting was "a good idea" (SR4, tab 14 at 2236), however, we have 
found no evidence such a meeting took place and CO Williams did not respond to 
KRI's letter of concern. 
63. As of 4 January 2007 the Corps internally recognized a funding shortfall 
for the False Pass project of$5,279,300, even after future receipt of an additional $4 
million from AEB (see finding 40), and was discussing ways to downsize the project 
because "the change in our current political situation has left this and many other 
projects without promising resolution for the funding short falls currently experienced" 
(SR4, tab 121). The Corps' project engineer Meyers described to ACO Jong the 
then-current state of the project, as well as its "Proposed Construction Direction": 
61 

Award date: 7-11-05 
Award Amount: $19,729,300.00 
Awarded Options: $3,748,300.00 (CLIN's 13-16 ~ 
Bridge, Dock, Dredge to -5.334M, 
and Dredge to -3.8 lOM) 
Performance Period: 890 calendar days 
Contract Completion Date: 2-05-08l291 
Current funding: $10.45M 
Potential additional funding: ~$4.0M (Aleutian's East Borough) 
Current Funding Shortfall: $5,279,300.00 
Construction Progress: Core Rock only has been 
placed at all 3 breakwater locations 
No breakwater has a complete 
complement of placed core rock­
additional placement and shaping 
will be required prior to the start of 
B-Rock or Armor Rock placement 
No dredging has been started 
No inner or outer harbor fish 
habitat construction started 
No bridge work has started. 
Proposed Construction Direction: 
29 This is an obvious typographical error, as the original contract completion date of 
5 January 2008 had not been modified. 
62 

• Complete construction of South Breakwater 
IA W project plans and specs including: 
o Place balance of core rock for south 
breakwater and shape as required 
o Placement of B-Rock layer 
o Placement of Armor Stone layer 
• Complete construction of North Breakwater 
IA W project plans and specs including: 
o Place balance of core rock for north 
breakwater and shape as required 
o Placement ofB-Rock layer 
o Placement of Armor Stone 
o Construction of bridge as designed 
including all fish habitat requirements (to 
not construct the bridge at this time 
would be cost prohibitive in the future) 
• Complete construction of East Breakwater IA W 
plans and specs including: 
o Place balance of core rock for north 
breakwater and shape as required 
o Placement ofB-Rock layer 
o Placement of Armor Stone on the exterior 
edges of the northern and southern ends of 
the east breakwater as funding will allow 
• Delay construction of the following items to 
another construction season (this will necessitate 
the execution of a contract extension mod and 
will included [sic] costs for mobe/de-mobe, KTR 
& Government housing/per diem costs: 
63 

o Mobe/De-mobe Costs - ~+$1. 7M 
estimated 
o Construct dock @ end of Causeway -
-$ l .952M - tear-off of Causeway end to 
facilitate construction will cost some $' s, 
but may be off-set by savings from VE. 
o Dredge & Stockpile to -5.334M -
-$608,400.00 
o Dredge & Stockpile to -3.8 IOM -
-$523,900 
o Installation of Reef Balls, complete -
-$56,800.00 
o Construct Nav-Aide Marker Base­
-$37,000.00 
o Clear & Grub Disposal Areas­
-$37 ,500 .00 
o Hydro Surveys CLIN's 0002 -0008 -
~-$98,000.00 
o Dredge & Dispose Entrance Channel Mat'l 
- -$939,300.00 
o Construct Surface causeway surface layer 
- ~-$21,000.00 surface layer from shore 
to bridge should be constructed this year 
o Construct base causeway surface layer­
~-$21, 125 .00 surface layer from shore 
to bridge should be constructed this year 
Postponing the above mentioned items nets an initial 
reduction of -$4,238,225.00 until the following year, but 
does not include the ~$1. 7M requirement for an additional 
mobe/de-mobe and camp costs for and [sic] additional 
year. 
64 

The estimated funding shortfall of $5,279,300.00 less the 
available work item costs that can be postponed until next 
year of -$4,238,225.00 still leaves a funding shortfall of 
$1,041,075.00 ~this means that ~$1,041,075.00 worth of 
Armor stone cannot be produced or placed. 
(SR4, tab 121; tr. 14/92-94) This information was not shared with KRI (tr. 2/74). We 
find that the Corps recognized that, due to the current funding at $10,450,000, certain 
work would have to be deleted, descoped or pushed into later years and that the Corps' 
estimate of shortfall at the time was much greater than KRI's $248,361(finding62). 
We also find that neither KRI 's nor the Corps' calculations of shortfall included 
potential claims or termination for convenience costs. 
64. On 19 January 2007 ACO Jong, two weeks after he received the Corps' 
own state-of-the-project summary and funding shortfall calculation (finding 63), 
responded to KRI's 29 December 2006 letter (finding 62), and agreed that a meeting 
"was needed" (SR4, tab 10 at 62-63). The Corps suggested that a meeting take place 
over a month later "near the end of the third week in February 2007," by which time: 
[W]e should have received word from Congress on the 
status of funding for this project and can clarify the 
funding and contractual issues you have. 
(SR4, tab 10 at 62-63; tr. 2/72-73) A meeting did not take place until 20 March 2007 
(finding 67; tr. 4/88-89), more than two months after KRI's requested meeting date of 
15 January 2007. 
65. On 1 March 2007 Modification No. P00007 was issued to increase the 
contract funding to $13,450,000, reflecting the Corps' receipt of $3,000,000 from the 
DOT for the False Pass project (SR4, tab 14 at 2127, 2259; see finding 55). 
66. On 19 March 2007, one day before the scheduled Partnering Meeting (see 
finding 64 ), the Corps again unilaterally modified the contract. Modification 
No. P00008 added funds to make the contract fully funded in the amount of 
$19, 729 ,300, deleted the IFC and re~nstated the CCC that had been in the contract at 
the time of award. (SR4, tab 14 at 2125, 2127, tab 155 at 19-20; tr. 13/72-75, 
14/100-05) Until the issuance of Modification No. P00008, KRl could not be sure that 
the contract would be fully funded and not terminated. However, KRI's schedule had 
planned the start of the in-water work for the 2007 construction season to begin in 
April 2007 and, since the funding was not assured until the issuance of the 
Modification (finding 31 at U)), none of the preparatory work normally performed 
65 

over the winter, such as making financial commitments to secure crew, materials and 
subcontractors for work to be performed in remote False Pass, had been performed. 
March is too late in the year to begin planning for a 
mobilization and placing effort that same year, if you 
expect to function efficiently within the short construction 
season in the Aleutian Islands. 
(SR4, tab 19 at 1201; see also findings 1, 59) As a result, KRI was only able to 
complete $3,360,000 of the $10,253,000 of the contract work it had planned for the 
2007 season (SR4, tab 19 at 820, 823, 1189-90; tr. 9/53-58, 118-20). 
67. In a letter dated 27 March 2007, KRI stated the following as a "follow up" 
to the 20 March 2007 partnering meeting: 
This letter is a follow up to our March 20, 2007 Partnering 
meeting. We were relieved and gratified at that meeting to 
learn that funding for the balance or our contract work was 
available and that the Corps was deleting the Incremental 
Funding Clause which had been engrafted upon our 
contract by unilateral Modification P00005. 
Raised and discussed at the meeting was a question 
regarding how our schedule for the remaining work had 
been impacted now that the funding risk was removed. We 
appreciated your frank recognition that as we had pointed 
out in our previous correspondence, our ability to purchase 
materials and mobilize for the 2007 construction season 
was critically affected. 
Since the Partnering meeting, we have worked with our 
suppliers and our barging resources. We have evaluated 
the remaining work in terms of labor, equipment and 
project management requirements. Various scenarios 
involving added labor, overtime labor, added barging and 
additional equipment have been assessed, along with 
virtually every acceleration option we could come up with. 
Regrettably. on a cost-benefit basis, our conclusion is that 
the chance of completing the project this year is so slim 
that an attempt to do so would be economically 
prohibitive. It is far more likely than not, even if we 
discounted the uncertainty of weather and the likelihood 
66 

i 
I 
I 
l 
that we will be unable to secure delivery of the dock and 
bridge materials until sometime in July. that we would end 
up incurring the cost associated with an accelerated 2007 
work effort; and with all of that money having been spent, 
we still would incur the demobilization - standby -
remobilization costs of an extra season. 
We can detail all this for you, and present a schedule that 
reflects a 2007 completion. Making that effort and 
incurring the costs necessary to meet such a schedule is not 
a risk that KRI would undertake. and we cannot and do not 
recommend the Corps take that risk either. Absent 
contrary direction from you, our plan is to develop a 
schedule that defers the dock and bridge work into 2008. 
We will have that schedule in your hands this week, to be 
followed by a forecast REA reflecting the additional 
demobilization, standby and remobilization costs. 
(SR4, tab 11 at 165-66) The Corps has not directed us to any evidence that the Corps 
provided "contrary direction" to KRI insisting that the project be completed in 2007. 
Because the additional funding of the contract occurred literally just days prior to 
KRI's planned start of the 2007 work season in April, KRI could not begin to prepare 
for the 2007 construction season until immediately after the 20 March 2007 meeting. 
So we were left to scramble on just securing the 
crews, tugs and barges, armor rock, supply, most notably 
the Flexi[-F]loat [see finding 71], that was probably the 
biggest headache because we identified that we needed it 
in [2006], but it was an expensive tool to assemble and put 
together and absent the funding it would not be something 
that we'd get reimbursed for most likely from the 
Government if we were terminated. 
(Tr. 41105; see also SR4, tab 19 at 1190-91; tr. 7 /19-20) It was KRI's assessment that the 
contract work it had planned to complete in the 2007 construction season could not be 
accomplished because it would take months to make up for the lack of winter preparatory 
work. As of late March 2007, KRI's planned alternate armor rock source, Western 
Marine, had demobilized to Seattle and never came back to Alaska30 (finding 57; 
tr. 2/137-39, 4/84-86, 16/9-11), its dredging subcontractor, Nehalem River Dredge, was 
no longer available for the 2007 season (tr. 4/51-52, 94, 71173-74, 189, 221, 16111) and 
30 Western Marine later in March agreed to sell to KRI approximately 12,000 tons of 
armor stone that it left behind at its Sand Point Quarry (SR4, tab 24 at 160-61). 
67 

l 
the price of steel had increased significantly, which "basically ate up all of the savings" 
of the VECP bridge and dock design (SR4, tab 19 at 772-77; tr. 2/134, 4/101-04, 
9/53-54). KRI proposed to develop and provide to the Corps an updated schedule that 
deferred the dock and bridge work into 200831 , "followed by a forecast REA reflecting 
the additional demobilization, standby and remobilization costs" (SR4, tab 11 at 165-66, 
374; tr. 2/81-90). 
68. By letter dated 10 April 2007 ACO Jong replied that: 
Your plan to develop a schedule that defers 
completion of the bridge and dock until 2008 is 
unacceptable, until you receive a formal contract 
modification for an increase in time; and such a 
modification cannot be initiated until the Government 
receives an official Request for Equitable Adjustment 
(REA) with appropriate justification that supports such 
action. We look forward to reviewing your REA as well 
your plan for completing the remainder of the work 
through a schedule that reflects the most current 
conditions. Until then, you are to proceed with your 
construction efforts based upon the original contract 
completion date of 5 Jan 2008. 
(SR4, tab 10 at 69) KRI's Swantz, who prepared KRI's schedules, testified: 
I had to keep showing the January 5, 2008, completion 
date and ... they wouldn't accept anything else, so 
ultimately the tasks just kept building up towards the end 
of the job. 
I needed to show them, yet I couldn't show them in 
2008 when they would legitimately happen .... 
... [T]he as-built reflected what was actually 
constructed. 
31 The VECP bridge and dock were originally scheduled to be on the spring 2007 
mobilization barge, but because of the delays caused by funding restrictions, it 
had to be sent to Alaska on a separate trip in 2008 (tr. 2/134-35, 3/127-28). 
68 

In general it was the best we could do was maybe a 
month out and then the tasks started to bunch up, so it 
would at least give people [an] indication of the near 
future, but the question mark hanging over the project kind 
of made the balance of the schedule not, I don't want to 
say not relevant, but not representative of what actually 
was occurring because at that point in time we already 
knew we were going to 2008. 
The field crews would develop their own schedule 
in conjunction with me and those typically were two weeks 
out and they just, being there at the site they were able to 
better identify the situation. 
(Tr. 41106-09; see also finding 37; tr. 4/194-98, 5/35-44) KRI responded to ACO Jong 
on 18 April 2007 that: 
[Y]our letter ... sounds very much like an acceleration 
order. We believe such an order to be inconsistent with the 
understanding reached at the Partnering Meeting as to what 
the Corps wanted. You can appreciate our reluctance to 
incur acceleration costs in the absence of specific 
recognition by the Corps that it intends to insist upon 
adherence to the original date of January 5, 2008. 
Finally, we are uncertain regarding what is meant 
by "an official Request for Equitable Adjustment (REA)". 
At the Partnering Meeting, we presented details of the 
impacts that resulted from funding issues on this project. 
The [CO] acknowledged that our correspondence over past 
months have spelled out what these impacts were. They 
included such critical matters as our being disabled from 
issuing purchase orders for needed materials, and our not 
being able to tie up the necessary transportation 
commitments, and so forth. 
At this point, our Request for Equitable Adjustment 
of the contract time is tied to the schedule we are 
developing. This schedule shows the effects of the funding 
restriction. It does reflect "the most current conditions". 
69 

Our Request for Equitable Adjustment of the 
contract amount, however, only can reflect the presently 
known materials and transportation cost escalations, along 
with a forecast of an additional demobilization. standby. 
and remobilization expense. It would be impractical to 
forecast all of the time and cost impacts because the extent 
to which the course of events may further affect our 
already-impacted construction effort remains an unknown. 
Our suggestion regarding the best way to deal with the 
situation is as follows: 
1. We will continue to develop, and will 
submit, the schedule that reflects the known 
impacts, that is to say. "the most current 
conditions", accompanied by a Request for 
Equitable Adjustment of the contract time to 
incorporate the new completion date shown by that 
schedule. 
2. We will submit a Request for Equitable 
Adjustment of the contract amount that covers the 
material and transportation cost escalations incurred 
to date; and we will submit a proposal reflecting our 
forecast of the costs attributable to the additional 
construction season. 
3. We do not want to jeopardize timely 
response to our Pay Request. If the Corps believes 
that, until there has been a formal action taken on 
our request for equitable adjustment of the contract 
time. it must have a schedule reflecting a 5 January 
2008 completion date, we will provide one. That 
submittal will have to be qualified with a statement 
that such schedule does not "reflect the most current 
conditions" on the project, and does not depict the 
activity durations that in fact do reflect those most 
current conditions. 
4. We will not undertake the costs and added 
effort that would be needed to accelerate our 
construction effort so as to try and achieve a 
70 

5 January 2008 completion date unless specifically 
directed to do so by the Corps. 
We ask that you immediately advise us, upon your 
receipt and review of this letter, if in the event that our 
course of action has not been made clear; or whether.the 
Corps prefers to direct some course of action other than 
what we have outlined in this letter. 
(SR4, tab 11 at 248-49; tr. 2/90-94) 
69. The Corps' expert witness, Mr. Ockman, testified that a contractor's 
schedules are supposed to include information identifying problem areas and/or 
delaying factors actually experienced on the critical path of the project, as well as any 
resultant impact on the contract completion date (tr. 11/123-24). Mr. Ockman further 
testified that: 
[C]ontractors need to base their time extension requests on 
the schedule. 
And more important they need to show ... that the 
time extension is justified because the events leading to the 
request for additional time affect the critical path and 
absent those events, they would be able to finish earlier. 
(Tr. 11/125) However, as a result of the Corps' repeated direction that, in order for 
KRI to be paid, it must submit schedules showing it would finish on time by the 
original contract completion date, KRI's submitted schedules artificially compressed 
remaining contract work, making them inaccurate representations of actual 
circumstances (see, e.g., SR4, tab 10 at 69, tab 11at250-64; tr. 2/94-96, 4/75-76 ("not 
an effective tool for scheduling"), tr. 12/27-35). We find no evidence that the Corps 
objected to KRI's schedules that had to be known by the Corps' onsite QAR personnel 
to be inaccurate representations of what was actually planned and performed. Every 
schedule submitted by KRI between May 2006 and 13 November 200732 contained 
specific language stating that it did not include funding clause impact information 
(tr. 12/32-33). Mr. Ockman specifically gave, as an example of an improper schedule, 
KRI's October 2006 schedule in which KRI noted that work originally planned to be 
performed in 2006 was deferred to 2007, yet the schedule showed no change to the 
planned completion date (tr. 11/124). For that reason, the schedules submitted by KRI 
for the 2006 and 2007 work provide no accurate information to us regarding how the 
work in that period was actually planned to be performed or how it was actually 
32 The date on which Modification No. POOO 11 unilaterally extended the contract 
performance period to 5 January 2009 (finding 83). 
71 

performed. To the extent those schedules were relied upon by witnesses for either 
party as accurate representations of planned and/or actual work, we find their reports 
and testimony in that regard to have little credibility. 
70. In a 3 May 2007 "Memo for Record," CO Williams stated: 
During the most recent partnering session held on 
March 19,l33l 2007, funding issues were discussed .... 
During the course of the partnering session, [KRI] stated 
that they plan to submit a request for equitable adjustment 
detailing their reasons for the additional costs and time 
extension to September I, 2008. It should be noted that 
there are several statements in the PIL that state, "Realize 
that limiting the Government's liability increases the 
contractor's risk and, therefore, is likely to increase the 
cost of the contract." In my opinion the funding issues 
spelled out in this memo did impact the contract. Whether 
or not these impacts can be quantified will have to be 
addressed in an [REA] from the contractor. Some 
government personnel feel that any REA is unjustified 
since the contractor is currently behind schedule and will 
not finish the project on time even with full funding. Most 
likely in their REA the contractor will state that they 
slowed their schedule based on the funding issues. These 
issue[ s] will need to be reviewed by the government in the 
context of the REA. [Emphasis added] 
In addition a VE for Open Cell dock and bridge 
abutments has been submitted by the contractor. Only 
recently has the government received a complete VE 
package for review, so this may also factor in the delays. I 
expect that the contractor will also use VE delays to justify 
their REA. 
(SR4, tab 14 at 2125, tab 28; tr. 13/101, 105-09) KRI's Ryan Pleas' notes from the 
meeting state his understanding that "[CO] Williams agrees that the funding issue has 
affected KRI schedule" (SR4, tab 190 at 6; tr. 2/79-80). 
71. The Flexi-Float utilized by KRI in contract performance was a: 
33 This is an obvious typographical error as the date of the Partnering Meeting is 
20 March 2007 in the balance of the record. 
72 

[M]odular barge constructed of cells and connected to 
produce different sizes and shapes of [floating] work 
platforms .... [T]he excavator (Hitachi EX 800) was fixed 
to the flexi-float work platform. Fabrication and assembly 
of the flexi-float did represent a significant expense, not to 
mention requiring an engineering design, acquiring the 
components, fabrication and shipping it to False Pass 
required approximately twelve weeks of time. Of course, 
there was no money to commit in 2006, and there would be 
no need for this equipment if the contract were to be 
terminated. 
The flexi-float proved a very effective tool for the 
work, so much so that Dutra leased it from KRI in 2009 
and used it to construct a similar project at Dutch Harbor 
(the Carl E. Moses Project). 
(SR4, tab 19 at 1201-02; see also id. at 1311; tr. 8/158) 
[T]he Flexi[-F]loat. .. also was equipped with spuds and 
winches, so it could move itself around, it could nose up to 
the breakwater and shape and then once a particular area 
was done it could move over and continue, so it was kind of 
its own a[ u ]tonymous little unit. 
(Tr. 41105-06, 5/29-30) Use of the Flexi-Float was not planned, nor included, in KRI's 
original bid and the cost of the Flexi-Float is not included in KRI's claim now before 
us (tr. 5/29-35, 8/158, 161-62; SR4, tab 5 at 279). KRI first considered the use of the 
Flexi-Float tool in August 2006 when it was placing core rock for the east breakwater. 
KRI discovered that its original plan to shape core rock using the Hitachi excavator 
working on top of each the breakwaters would not work for the east breakwater 
because the location of that breakwater further from shore and into the harbor 
presented safety issues. (SR4, tab 19 at 1200-01; tr. 15/23) KRl used the Flexi-Float 
pontoons as the water-based structure on which it mounted its excavator that 
performed the shaping and placement of B rock and armor stone the following season. 
The Flexi-Float was fabricated and mobilized to the jobsite after the contract was fully 
funded in March 2007. (Tr. 5/57-59, 7119-20, 8/159-61) 
72. In a phone call on 16 May 2007, CO Williams directed KRl to submit "the 
narrative portion of its REA by 25 May 2007 and the cost portion of its REA no later than 
9 June 2007 (SR4, tab 10 at 82). By letter dated 25 May 2007 KRI submitted its request 
73 

for a "forecast[ ed]" 289-day extension of the contract performance period, which would 
change the completion date for in-water work to 30 September 2008. KRI stated that it 
was preparing a REA addressing the impacts of the funding issues on its costs of contract 
performance. KRI further stated that "[ d]etails of the entire situation are a matter of 
record" and attached to their letter "a chronology that catalogs developments over the 
past year." (SR4, tab 11at373-81; see also id. at 388; tr. 2/97-102, 7/213-14) 
73. By letter dated 2 July 2007 CO Davidson rejected KRI's request for an 
extension of the contract performance period and further stated that the Corps was no 
longer interested in KRI's VECP proposal for the dock and bridge because KRI had 
not provided certain calculations and safety information (SR4, tab 10 at 117-20, 
tab 124; tr. 13117-18). This was the first direct contact by CO Davidson with KRI in 
the False Pass contract since she signed the contract at award (finding 8). It was at this 
point in the project that CO Davidson became the lead CO and CO Williams was in 
more of a supporting role as he was very busy with other contracts assigned to him 
(tr. 12/191-92, 13/128-32). 
74. By letter dated 17 July 2007 CO Davidson again denied KRI's request for 
an extension of the contract performance period and required that KRI submit a detailed 
recovery schedule no later than 30 July 2007 and to include a "detailed account of 
activities you plan to take to get back on schedule" for contract completion by the 
original contract completion date of 5 January 2008 established before the funding 
restrictions were unilaterally imposed (SR4, tab 10 at 132-34; tr. 2/109-10, 8/80-91). 
75. KRI responded to CO Davidson's 17 July 2007 letter: 
Your C-0054 "Letter of Concern" transmitted on 
19 July comes as a surprise and disappointment. We have 
dealt almost exclusively with Mr. Williams as Contracting 
Officer on this project. Your phone call to me on July 2, 
2007 implied that you were assuming a hands-on role, but 
my sense from that conversation was that you fully 
understood the situation on the project, and were briefed 
on the seriousness of the impact caused by the 
government's unilateral attempt to modify the funding 
provisions of the contract. 
... KRI repeatedly has advised the Corps, over the 
last several months, that this project cannot be completed 
by the 5 January 2008 Contract Completion Date. The 
delay stems directly from government funding restrictions. 
74 

We have spelled this out in correspondence and in 
meetings with your representatives. The situation is 
detailed in the Request for Equitable Adjustment of the 
contract time which we were requested to submit. The 
companion adjustment of the contract price, one aspect of 
which is the escalation in steel prices described in our 
VECP Serial Letter #50, is still being evaluated. 
Your letter says that "at this time the government is 
requiring a detailed recovery schedule ... which ... shall also 
include a detailed account of actions you plan to take to get 
back on schedule ... ". I respectfully suggest to you that this 
directive is an unmitigated acceleration order. Please 
review our previous correspondence. We have made the 
point several times that the schedule submitted showing 
the original Contract Completion Date are for pay purposes 
only. These schedules do not reflect actual job progress, 
nor do they show impact to the schedule re~ulting from 
government-caused delay. You will see from the record 
that KRI has analyzed the cost and likely results of an 
accelerated work effort this construction season. Our 
analysis is that chances of recovery to the extent needed 
for a 5 January 2008 completion were so slim and exposed 
to uncertainties that it didn't make practical sense to try. 
The likely result would have been adding costs for the 
extra season to the compensable costs involved in the 
unsuccessful acceleration effort. Consequently, our course 
of action and progress on the project, as your staff has been 
advised, has been geared to avoiding the acceleration costs. 
The project is in dire need of a partnering session. 
We will make ourselves available at the earliest date 
(excluding 2 & 3 August) you can schedule. I think a 
facilitator would be helpful, and request that you and I 
spend some time one-on-one before the general partnering 
session begins. 
(SR4, tab 11 at 508-09; tr. 21110-13, 8/6-10, 177-79; see also SR4, tab 5 at 36-3 8; 
tr. 2/130-31) 
76. While KRI was disappointed with the tone of her letter, KRl's experience 
working with CO Davidson on the previous St. Paul Island contract was that she was a 
good communicator and KRI was pleased to have her involved in the False Pass 
contract. 
75 

And once [CO Davidson] came onboard, ... [s]he got 
the parties together and we ended up getting [the bridge 
and dock issues] solved in a matter of no time. I mean for 
as long as this thing festered, it was amazing how quickly 
it could be solved . 
... Kelly [Pleas]. .. called her right after [her] letter 
came and he just started up a dialogue and the two of them 
got it figured out and got it back on track and literally, it 
took a very small tweak to the design and it was approved. 
I mean it was a lot of just, that whole issue was really not a 
big deal. It was something that could have been solved if 
somebody had just done what she did and gotten together 
the parties, it could have been solved a long time ago. 
(Tr. 21103-07; see also tr. 71182, 14/217-18, 223-25; see also SR4, tab 193) 
77. A Partnering Workshop was set for 21August2007 with KRI's stated 
agenda: 
2. Schedule Impacts to the Project. KRI would like 
an opportunity to review schedule impacts that have 
affected our progress and efficiency to date. Primary 
among these, as you might expect, is the funding 
restrictions by Mod. P-0005. I see this discussion 
beginning with a review presentation by KRI detailing the 
ways we believe our work has been affected. We would 
look forward to Corps reaction to that presentation. 
3. Impacted Schedule. We will have in your hands, 
in advance of the meeting, a work shop schedule that 
reflects actual progress to date. It will be the basis for 
discussions and layout the anticipated sequencing and 
durations of the remaining project work. Again, we 
anticipate reaction and discussion from the Corps. I 
believe you would agree with me that it does not make 
sense for us to continue submitting schedules showing 
completion by the original January 5, 2008 date, just so 
that our pay estimates can be processed. 
76 

4. Cash Flow Issues: As is obvious to everyone, 
KRI has performed a significantly smaller part of the 
overall work to date than we had planned. This is the 
result of the schedule impacts recapitulated in Item 2. Our 
costs are going to be higher than planned because of the 
additional barging we will need, the winter-over cost, the 
expense of an additional demobilization and remobilization 
because of the extra season, and so forth. We would like 
to discuss the costs with you and your staff at the 
Partnering Workshop, and discuss ways and means of 
partnering a solution. 
5. KRI's Pending REA. We submitted a Request for 
Equitable Adjustment of the Contract Time on 25 May 
2007. It is our understanding that Mr. Williams and his 
staff had acknowledged that KRI had been impacted by the 
funding restriction. We also were confident that the time 
impact and the cost impact would be reviewed as separate 
issues. Our request was that the time issue be dealt with 
expeditiously so as to avoid the necessity for submitting 
artificial schedules reflecting the original contract 
completion date, and also to eliminate any need your staff 
might have to dispatch cure notices and requests for 
recovery schedules. I believe both sides understand where 
we stand on these issues, and KRI suggests that we work 
out something that recognizes where the project presently 
stands, where it is headed, what caused the impacts to the 
original schedule, and how we can work together toward 
an efficient, cost mitigating effort that takes these project 
realities into account. 
We would appreciate receiving advance notification 
of any additional agenda items the Corps would like to put 
on the table, if you are able to do that. KRI is looking 
forward to this Partnering Workshop session as an 
opportunity. We do not see that there are any problems on 
the project that cannot be solved, and we do not feel there 
are any pending issues that the parties will be unable to 
resolve if the spirit is willing. You have my commitment 
for a full-fledged, cooperative effort. 
(SR4, tab 11 at 568-69; tr. 2/114-15) 
77 

78. The minutes of the 21 August 2007 Partnering Workshop include: 
1. Value Engineering Change Proposal (VECP). 
KRI plans to take the VECP savings along with the 
dredging and rock underruns and applied [sic] them to 
the increased costs for OH and Mob/Demob to extend 
the project to September 8, 2008. With these costs 
accounted for, the net contract increase would be 
approximately $743,857.00. As part of this change 
the rock quantities would be changed from Unit 
Prices to Lump Sum items. This allows the 
government to factor in the underruns and provide an 
avenue to apply the unit price savings back to the 
contract. If this is not done, accounting for the 
underruns will have to wait until the end of the 
contract. As for the underrun quantities, KRI is 
satisfied with the quantities for Dredging and B rock, 
but need to verify the quantities for the armor rock. 
James Swantz from KRI is in the process of verifying 
the numbers and plans to have the final pricing 
information submitted to the government. .. by August 
27, 2007. Action Item: KRI 
KRI and the government discussed whether to 
submit the changes as a VECP or Design change. 
Bill Walters made the point that rather than 
submitting the VECP and the other changes 
separately, it would be more efficient to consider 
the VECP a design change and roll all the changes 
into one bilateral mod. KRI will continue to work 
the changes and the VECP and the government will 
look into the best way to submit the changes. 
Action Item: Government. 
2. Funding/Cash Flow Issues. 
During the discussion on the funding issues, KRI 
referenced their Serial Letter 027 dated 
78 

December 26, 2006£341 which discussed their funding 
shortfalls. While this letter provided information on 
the contractor's status of funds, from the 
government's viewpoint, it did not provide a 
complete picture of financial impact to the contractor 
due to the continuing contract clause changes. KRI 
needs to logically lay out in detail how they were 
impacted by the contract clause changes. During 
discussion, KRI stated that they signed a subcontract 
in the amount of $6.1 million for rock at the time of 
contract award which they applied against the $10.5 
million in funding provided by the government. The 
government stated that this is the type of information 
we need in the REA. KRI will submit their cash 
flow analysis on the funding changes as part of their 
request for equitable adjustment. KRI will provide 
the written REA on schedule and cost impacts by 
August 27, 2007 so the government can analyze 
them before the meeting on September 5, 2007. 
Action Item: KRI 
KRI presented draft numbers on the impact of the 
changes in funding. The draft proposal presented 
by KRI proposed a time extension for the contract 
to September 8, 2008 at an estimated additional cost 
of $743,857.00. The contract would be increased to 
an estimated $20,466,857.00. This is based on an 
underrun of approximately $1.3 million. If these 
changes are not enacted, the contractor would 
request an increase of the contract to 
$22,061,001.00. Action Item: KRI 
3. Schedule. The Corp[s] will do a mod to increase the 
in water work window to November 15, 2007. KRI 
presented their schedule based on a completion date 
of September 30, 2008. Action Item: Government 
(SR4, tab 13 at 9-10; tr. 21115-18, 4/30-33 (VECP savings of more than $1 million 
used to cover transportation and design of the dock and bridge), tr. 4/96-98, 112-13, 
14/217-20; see also SR4, tab 10 at 156-57) 
34 The actual date of the letter is 29 December 2006 (SR4, tab 11 at 135-36; see also 
finding 62). 
79 

79. On 29 August 2007 KRI provided to CO Davidson its 11-page "Funding 
Impacts and Cash Flow" which included a narrative, spreadsheet and backup 
attachments for costs incurred as of 31 December 2006, which KRI summarized as 
showing that its costs of performance at that time were "about 22%" above the amount 
of available funding without taking into consideration "any additional T[/]C costs or 
the additional equipment standby costs pending the demob[ilization ]" (SR4, tab 11 at 
573-80; tr. 4/112-17). The Corps did not respond to KRI's 29 August 2007 
submission (tr. 4/117). 
80. The minutes of the 5 September 2007 partnering meeting state: 
1. Alternate Bridge and Dock. [KRI's] Swantz handed 
out drawings on the alternate Bridge and Dock for 
review [tr. 4/117-18]. PND is still working on the 
calculations and should have them complete by 
September 13, 2007. KRI will review them and 
submit them to the Corps by September 19, 2007. The 
government should complete the review within two 
weeks. KRI has stated that they have reserved 
manufacturing space for the remaining sheet piles and 
can keep that reservation for a month at which time 
they well [sic] have to cancel or make a financial 
commitment with the supplier. Keeping to the 
schedule above, they expect a late February to early 
March delivery of the bridge girders to Seattle. 
2. Schedule. The contractor handed out a revised 
schedule. [ACO] Jong asked what work they planned 
to do for the remainder of this construction season. 
KRI plans to complete the Brock on the east 
breakwater; complete the north breakwater; and 
complete the E breakwater to mean high water from 
Station 100 to 220. KRI plans to make one more trip 
to Sand Point to pick up rock. They are currently 
planning to demobilize for the season on 
September 30, 2007. To allow for potential delays the 
in water date will be extended to November 5, 2007. 
The revised completion date was discussed. The 
contractor originally proposed September 30, 2008 as 
the new completion date. The government expressed 
concern with this date since it would not allow 
sufficient time to complete the final documents on the 
80 

contract. Based on discussions, it was decided to 
extend the [contract] completion date to [January 5, 
2009 and November 15, 200[8l35l] for completion of 
the in-water work]. KRI will be submitting a revised 
schedule reflecting the new completion date.l36l 
5. Work Next Season. [PM] Wierzbicki asked KRI if 
they would be adding additional crews next year since 
so far they have completed 37% of the work. [KRI's] 
Swantz stated that KRI will have a separate crew to 
build the bridge and dock. They also may add an 
additional barge. KRI plans [to] run multiple 
operations using two track hoes with GPS systems and 
one without.. .. 
6. Draft Funding Requirements. Referencing the draft 
funding requirements provide[ d] by KRI dated August 
27, 2007, no documentation was provided to back up 
any of the claimed increases in pricing for the new 
design. [CO Davidson] discussed the fact that since 
this is a sole source negotiation[,] all prices have to be 
backed up. In addition [she] asked that [KRI] submit a 
Certificate of Current Cost or Pricing Data. Using 
page 2 of the document, [KRI's] Swantz explained 
how he arrived at the numbers for the material 
differences. KRI will provide backup documentation 
supporting their numbers by September 19, 2007. In 
their revised submission, KRI will provide overhead 
and profit percentages. 
No documentation was provided to support 
commitments to the rock suppliers. If KRI had a 
signed contract for all the rock from [Northern 
35 The language in the draft modification and the context of the discussions indicates to 
us that the "2007" was intended to be "2008" (SR4, tab 127 at 3). 
36 After the agreement to an extension of the contract completion date, KRI was able to 
submit an October 2007 construction schedule that "showed true representative 
work into 2008" (tr. 4/110-11). 
81 

Mechanical], why are [they] receiving Armor rock 
from [Northern Mechanical] and Sand Point. KRI 
explained that they were not getting the planned yield 
from [Northern Mechanical] quarry. KRI stated that 
based on funding limitations, it was better to work 
with the quarry. KRI referenced Serial Letter 055 that 
showed they were running out of money. 
7. The wording in the draft mod was reviewed with KRI .... 
8. Since we are waiting on the final package [for the 
bridge and dock] to be submitted by 19 Sep 07, the 
rock sizing and in water work windows will be done 
with an earlier mod. KRI will submit changes as a 
complete package. 
(SR4, tab 13 at 11-13, tab 14 at 2375-77; tr. 21121-26; see also SR4, tab 19 at 
1195-99) It was KRI's understanding that the bridge and dock design, as well as the 
time impact of the unilateral funding clause changes, had been addressed in the 
meeting and that only the dollars associated with both remained to be resolved. Once 
a DCAA audit was completed, KRI expected that a bilateral modification of the 
contract would be negotiated to settle the dollars. (Tr. 2/127-28) 
81. By letter dated 18 September 2007, the Corps notified KRI that $110,800 
had been withheld from KRI's Pay Estimate #9 because, even though the parties had 
negotiated an extension to the contract completion date (finding 80), the Corps had not 
yet actually modified the contract and was still requiring KRI to show the original 
completion date and basing payment on the inaccurate schedule. "[Y]ou are behind 
schedule, and the attached project schedule is only proposed and not, at this time, 
contractually binding." The Corps' letter continued: 
We understand that a pending contract modification 
is being worked by both parties to extend the contract 
completion date, but unfortunately all issues have not been 
resolved, nor has the pending contract action taken place. 
Once the pending contraction [sic] action has been 
executed and the Government has approved your proposed 
schedule, then these monies will be returned with the next 
pay estimate submission. 
(SR4, tab 10 at 155) 
82 

82. By the end of the 2007 construction season, 63% of the contract work 
remained to be completed (finding 80; tr. 3/196-99). 
83. Bilateral Modification No. POOO 10 dated 13 November 2007 extended the 
end of the period for in-water work from 1 October to 15 November (SR4, tab 14 at 
1889; see also finding 80). Unilateral Modification No. POOOl l, also dated 
13 November 2007, incorporated into the contract KRl's approved design for the 
VECP bridge and dock, now referred to as "Alternate Bridge & Dock." 37 The 
modification was "issued as a Notice to Proceed" and directed KRI to commence the 
work. The contract price was unchanged, pending definitization in a later modification 
(see finding 98), and it was anticipated that 75% of the bridge and dock work would be 
completed prior to definitization. (SR4, tab 14 at 1630-35; tr. 13/19-21) In addition, 
the contract completion date was formally extended to 5 January 2009. (SR4, tab 155 
at 25-27; tr. 4/29). At the hearing CO Williams testified that the Corps extended the 
contract performance period because: 
[W]e realized that by the time we accepted 
the ... design ... there was nowhere [near] enough time to 
install it within the original contract period. 
(Tr. 13/19-20) However, in later testimony, CO Williams agreed with ACO Jong's 
statements made contemporaneously with the negotiation of the new contract 
completion date, that there was no additional time added for the bridge and dock (SR4, 
tab 10 at 65-66, tab 14 at 2203; tr. 14/110-11 ). KRI had not asked for additional time 
for the bridge and dock work (tr. 8/95, 105, 179-80) and it was KRI's understanding 
that the extension of the contract performance period was acknowledgement by the 
Corps of the time portion of the impacts on KRI's performance caused by the funding 
restrictions unilaterally imposed (tr. 2/129-30, 8/94-97, 106-07, 182-83). It was also 
KRI's understanding that, after completion of a DCAA audit of the pricing for the 
bridge and dock38, another contract modification would be issued for an increase in the 
contract price resulting from the bridge and dock, as well as the monetary impacts of 
the unilateral funding restrictions (tr. 2/132-34). 
37 CO Williams testified that the bridge and dock design was not referred to as a VECP 
because approval and incorporation of the design was not going to result in a 
savings to either KRI or the Corps because the price of steel had gone up so 
much (tr. 13/20). 
38 Unilateral Modification No. P00012, dated 4 December 2007, expressly postponed 
the pricing of the alternate bridge and dock work until after a DCAA audit had 
been conducted (SR4, tab 14 at 1604-05). 
83 

84. CO Davidson requested a DCAA audit ofKRI's 18 September 2007 proposal 
for the increased cost of the bridge and dock design in the amount of $954,814. The 
DCAA audit report was issued 7 March 2008. (SR4, tab 19 at 541-77, 719) 
85. The parties met on 10 April 2008 to negotiate the additional cost of the 
alternate bridge and dock as well as KRI's alleged impacts due to the unilateral change in 
funding clauses. CO Davidson conducted the meeting, the minutes of which show that: 
9. The government and contractor discussed that this 
claim needed to be settled globally, looking at the 
contract as a whole. This means the burden is on 
the Contractor to provide the Government with 
supporting documentation showing where they are 
losing money on this contract. After that is 
provided, the parties must look at these items and 
assess whether this was contractor caused or 
Government caused. We discussed using the 
modified total cost method to negotiate settlement 
of this claim. By using the total cost method, the 
Contractor must show the actual costs and 
substantiated future cost. After we have this 
amount, then it will be compared to the actual price 
on the contract. If there is a loss, then we will 
discuss who caused the loss. 
10. The Contractor said it was going to take some time 
to get all the documentation required for the global 
process. The Government asked how much time. 
The Contract[ or] stated they would call the [CO] on 
Monday and set a date when all the documentation 
would be ready and when the parties could meet 
again. 
(SR4, tab 13 at 14-16; tr. 2/134-42) CO Williams had no direct involvement with the 
funding of the project. Corps project manager (PM) Wierzbicki and the ACO were 
responsible for the funding of the project (see also finding 29). PM Wierzbicki died in 
April 2008 (see SR4, tab 32; tr. 2/155). 
86. KRI mobilized to the jobsite and resumed work on 11 April 2008 (app. br. at 19). 
Knowing the funding well in advance we got up there in 
the first week of April, so we were humming along. We 
were shaping rock, the dock and the bridge were going in 
84 

well, we were really pleased that the shaping, it's how the 
project should've gone when we knew the funding was 
there. 
We were firing on all cylinders. The only constraint 
really was the supply of the armor stone, not so much the 
shaping of the armor stone, but the supply, our alternate 
source having not been available, we need to travel much 
further, and so the time between barges became the 
constraining factor. 
(Tr. 4/121-24) 
87. After losing its alternative/supplemental source for rock due to the funding 
restrictions (finding 67; tr. 4/84-86), KRI discovered that there were no other sources 
in Alaska that were producing the required armor rock. As a result, it had to go to 
suppliers in British Columbia, Canada, and the northwest United States, some of 
which were 2,000 miles away from the job. Transporting armor stone from those 
locations took up to 18 days to reach the jobsite and by this point in time the price of 
fuel was more than double what KRI had included in its bid. (SR4, tab 19 at 1195-99, 
1315-16; tr. 21137-39, 8/18-23). 
88. By letter dated 23 April 2008 KRI submitted detailed cost data for the 
alternate bridge and dock design per CO Davidson's request two weeks earlier: 
As agreed to in our meeting with you in Anchorage on 
April 10, 2008 we are submitting the attached 
documentation of accumulated cost-to-date of 
$3,488,298.35 for mobilization and demobilization [for the 
VECP bridge and dock] from the beginning of the project 
through April 17, 2008. This information is what you 
requested in order to allocate additional money to the 
mobilization CLIN 0001. 
The following documentation is taken from KRI's cost 
accounting system and organized by the cost code 
breakdown activities used to track and report costs to the 
accounting system. The reporting of daily labor to the 
appropriate activity codes is entered into the system 
weekly. Invoicing is entered into the AP system after 
coding by the field personnel. 
In this submittal, the payroll analysis report shows only the 
labor involved in mobilization and demobilization through 
85 

April 17, 2008. It further breaks it down to cost code 
activity. Each employee charged to the activity is listed 
showing total hours worked and total cost including 
payroll tax burden. The AP report shows all invoices 
charged to the various cost code activities. As requested, 
copies of those invoices greater than $3,000 are included in 
this submittal. 
At this time, KRI is preparing documentation for the total 
accumulated cost-to-date for all activities for this project 
through April 17, 2008 plus forward pricing to finish the 
project. It is anticipated that the format and depth of 
documentation will be similar to this submittal. After your 
review please indicate if this meets your requirements. We 
are planning on having the information on the total cost for 
the completed project to your office as agreed by May 14, 
2008 and then meeting with you on May 20, 2008. 
(SR4, tab 11at1912; tr. 21140-42) 
89. On 14 May 2008 KRI submitted an uncertified 39 modified total cost REA 
in which it sought a total of $16,049,937: 
Please consider this letter as part ofKRI follow-up to our 
April 10, 2008 meeting. We transmitted part of our 
documentation, consisting of our job cost accounting 
records for this project, under Serial letter 069 dated 
13 May 2008. With this letter we are sending detailed job 
cost reports reflecting materials, labor and equipment 
expended on the project from inception through April 2008 
[see finding 91]. As you requested, we have included 
copies of individual invoices in amounts exceeding $3,000. 
The remaining documentation will be forwarded not later 
than Wednesday, May 15, 2008. We believe this satisfies 
the mutually agreed commitment date. KRI is anticipating 
a meeting for resolution of the entire matter at our 
scheduled gathering in your office on May 20, 2008. 
39 KRI intended the 14 May 2008 submission, in the format requested by CO Davidson, 
to be an informal "starting point for negotiation" (tr. 3/34-46, 196-99). 
86 

The attachments to this letter set forth the KRI Request for 
Equitable Adjustment of the contract time and amount. 
The basis for this Request has been documented in 
extensive correspondence over the past year-and-a-half. At 
our April I 0th meeting, we felt both sides recognized that 
fault was not at issue. The circumstances were not caused 
by either KRI or the Corps. They were the result of 
Federal Legislation.£401 Specifically, the Corps necessarily 
responded to a mandated Congressional enactment when it 
issued Modification P-00005 on 17 July 2006 and deleted 
"EFARS 52.232-5001 Continuing Contracts (MAR 1995)" 
and inserted "52.232-5004 Incremental Funding Clause 
(IFC)". 
The resulting funding restriction seriously impacted our 
entire contract. KRI was precluded from mobilizing and 
carrying the job plan that was the basis for our bid. Every 
feature of our work was impacted. We were unable to buy­
out the project. We were unable to make commitments to, 
and as a result were prevented from assembling, the field 
management and crews that we had confidently relied 
upon as the basis for our pricing of the work. Ultimately, 
we were prevented from effectively carrying out our plan 
for performing the work at the site, and had literally to 
dabble at the work and shorten the work season. These 
problems are carried over in to the 2007 construction 
season. In a period of spiraling prices, we were unable to 
commit to our suppliers because doing so would have 
exceeded the mandated funding limit. This meant that KRI 
could not purchase the dock and bridge materials, and 
these were items which experienced a month-to-month 
price escalation. This impacted rock placement on the 
south breakwater because these were concurrent 
construction operations. The effect upon our overall work 
increased because we were unable to commit to the 
experienced field personnel we had counted on to perform 
this work. 
The impacts to our project work were both direct and 
indirect. A crucial example is the KRI rock supplier in 
4° Kelly Pleas testified that, based on information he learned after he wrote this letter, 
he no longer "agree[d] that Congress caused this problem" (tr. 8/53). 
87 

Dutch Harbor. Work in the quarry there had to be 
suspended. The reason? KRI could not haul rock away 
from Dutch Harbor as had been planned and scheduled. 
Both the quarry and the staging point for hauling to the 
project site had stockpile limitations. The result is that 
KRI now will have to purchase part of the project rock 
requirements from a different, more distant and more 
expensive source. 
All of these subjects were discussed at our April 10th 
meeting. The focus of the meeting, from our viewpoint, 
turned to exploring how we should deal with the problem. 
Even though this was not a problem caused by anyone at that 
meeting, it nonetheless has resulted in a situation both sides 
have to deal with fairly and realistically. Discussion of the 
situation led to both sides searching for a way to pursue an 
appropriate adjustment of the contract time and price. 
You were of the view that a Modified Total Cost method 
of pricing the Request for Equitable Adjustment was 
appropriate in the circumstances. That approach seemed 
reasonable and was acceptable to KRI. You asked that we 
document and submit our accrued project cost, and that we 
furnish a detailed forecast of the 2008 project completion 
pricing. This is the information we have developed, and 
which we are submitting in preparation for the May 20th 
meeting and negotiations. 
This approach, as was discussed during the meeting, 
required that we establish our project cost. The purpose of 
these submittals is to demonstrate those costs to you and 
your staff. We recognize that our plan for resolution of 
this matter depends, partly at least, upon our forecast of the 
2008 costs-to-be-incurred. You have to be concerned that 
these forecasts are viable. We have to be reasonably 
certain that KRI is not taking an unrealistic and 
unacceptable level of risk. This is an issue that we look 
forward to resolving with you at the May 20th meeting. 
The question of contractor inefficiencies has been raised. 
We recognize that the Modified Total Cost method of 
pricing an equitable adjustment anticipates that the costs 
being claimed by the contractor have been reasonably 
88 

incurred, and that the contractor is not itself responsible for 
those cost over-runs which are at issue by reason of 
inefficiencies, or because elements of his bid may have 
been unrealistic. 
We believe those issues can be worked through 
successfully between us. KRI's analysis shows, and we 
think we can satisfy you and your staff, that the entire plan 
and execution of the work on this project has been 
impacted by the Congressionally-imposed funding 
limitation. We recognize, and we expect, that you and 
your staff will be looking for contractor inefficiencies 
which were self-inflicted. KRI is prepared to meet and 
work through any issue in this regard that might be raised. 
You will see from the project accounting we are presenting 
that the effect upon our work was devastating. The cost 
over-runs are beyond anything in our 25-year experience 
as a company doing business with the Corps in Alaska. 
The schedule below lays out our cost-accounting 
experience on the project as a result of the funding 
limitation that was imposed. 
Total Costs Incurred from Job Inception through Apri 12008 15,074,601 
Estimated Cost To Complete 14,798,083 
Total Costs Incurred to Date Plus Estimated Cost to Complete 29,872,684 
Original Bid (less profit and overhead) 16,237,822 
Direct Costs 13,634,862 
G&A@9.5% 1,295,312 
Profit (a) 7 .5% 1,119,763 
Request for Equitable Adjustment 16,049,937 
The foregoing recapitulation presents an extraordinary, in 
fact from our view it is an astonishing, picture of what has 
occurred, and we expect reaction from your end will be 
identical to ours. 
All we can say is that Congressional Legislation, 
regardless of how well-intentioned and cost-saving 
motivated it might have been, often ignores the operational 
realities of your agency and of our Company. 
Please let us know if you require any additional 
information in advance of our May 20th meeting. We fully 
89 

recognize, at KRI, that this is a difficult and challenging 
scenario for you to deal with on the eve of your retirement, 
but you have our assurance that we will work diligently to 
develop a disposition that protects the interests of the 
Corps while allowing KRI to successfully complete the 
outstanding project issues and continue its history of 
productive work for the Corps and other public owners in 
Alaska. 
(SR4, tab 11 at 2086-96; tr. 2/142-48, 3/27-37) Ryan Pleas testified: 
[At the time the 14 May 2008 REA submission was made], 
we were being told that, I'm trying to settle this thing. 
This is, the job is going on. I'm trying to get some cash 
flow. And we're trying to put the best spin on it we can 
because we don't want to be confrontational. We're trying 
to get together with the Corps and settle this thing. 
(Tr. 3/203-09) CO Davidson had announced she planned to retire in June 2008 and 
"there was a real push to get this done before she retire[d]" (tr. 21149). The Corps did 
not request any information from KRI in addition to what it submitted in support of its 
14 May 2008 REA (tr. 2/148-49, 152-53). A meeting was.scheduled for 20 May 2008 
(findings 90-92). 
90. On 16 May 2008 KRI notified CO Davidson that its 5 May 2008 Pay 
Request in the amount of $1,300,000.00 was reduced by the Corps and processed for 
only $696,779.01. The difference was the amount of mobilization costs KRI had 
incurred and submitted as part of the Pay Request. 
Needless to say, we have been counting on the Corps 
making full and timely payments .... 
I would like to take a moment and summarize for you 
KRI's financial situation on the project. As shown in our 
Serial Letter 070, costs to complete the project this year, 
exclusive of overhead, are $14.8 million. In order to 
maintain our planned schedule for the remaining work, 
KRI requires a cash flow of roughly $2.3 million per 
month. As of April 30, 2008, KRI's out-of-pocket costs on 
the project, exclusive of overhead, stand at $15.5 million. 
Payments made by the Corps on the contract stand at $10.5 
million. The net cash shortfall exceeds $4.5 million. 
90 

You can appreciate, considering the size of our company, 
that we have tapped deeply into our cash resources. The 
bottom of that barrel has been reached. There is no need 
for me, in this letter, to recapitulate the severe effect that 
the federally imposed funding restriction has had upon this 
project, and upon our company. We already have explored 
the dimensions of that problem with you and your staff. 
Suffice to say, the cash flow situation is at a point where it 
will seriously impair our ability to maintain the schedule 
for 2008 completion. It could not be in the government's 
best interest, and it certainly is not in the best interest of 
KRI for us to scale back our operation and run the risk that 
this project will spill over into yet another year, with the 
inevitable cost escalations that will entail. I would 
appreciate talking with you about this issue one-on-one, 
and we would like to have it included as a priority item on 
the agenda for our Tuesday, 20 May 2008 meeting. 
(SR4, tab 11 at 2097-98; tr. 21150-52) The Corps did not respond to KRI's letter (tr. 21152). 
91. Sometime prior to the parties' meeting on 20 May 2008, KRI had provided 
to CO Davidson boxes of information to support its REA: 
There were boxes and boxes of documents. Because, as 
you could imagine, there is a lot of invoices and payroll 
reports and all the backup in computer reports and binders 
and stuff. It was quite a pile of information. 
(Tr. 2/166-67; see findings 88-89; see also tr. 4/119) 
92. The parties met on 20 May 2008 to discuss KRI's REA. Ryan Pleas 
testified that: 
I was in a very positive mood. I thought that when 
we were going into this meeting, we were actually going 
to, for the first time since this project had started, this is the 
first time [the Corps] actually agreed to sit down and go 
through the numbers and come up with some sort of plan 
to take care of this issue or the issues that had been in play 
in this job from Day 1. 
91 

You know it seemed like, at first, a typical kind of 
partnering type meeting. We met in Chris Tew's office .... 
I think he is chief of Contracting in the Anchorage Corps 
office .... [T]hey couldn't get a conference room .... There 
wasn't anything available at that facility. 
So, Mr. Tew had a small conference table kind of 
off to the side of his desk. And so, somebody had 
suggested we use that because [Mr. Tew] was going to be 
in another meeting. So, we all went in and sat around that 
table. And [Mr. Tew] came into the office, I think right 
about the time we started our meeting .... I don't 
remember him sitting at the table. He was over by his desk 
or sitting behind his desk getting ready, apparently, for his 
other meeting. But we started our discussion .... 
My recollection is that Mr. Tew got up. He was 
kind of listening in. And he got up and I think we were 
just starting to talk about all the stuff, all the 
documentation we had provided [finding 91]. I think it 
was sitting in some boxes in the room there.l41 1 And he got 
up and he walked over [to] the table and basically, as I 
remember it, he looked at my brother, Kelly, and said, I 
will give you five minutes to explain your case because I 
have got to go to a meeting. So, you explain your whole, 
basically, your whole case, why you are entitled, in five 
minutes because I have got to go to another meeting.. . . He 
seemed a little angry.... He just seemed agitated. But 
again, I didn't know Mr. Tew. I had never met him before. 
So, maybe that is just his demeanor. I don't know. 
So anyway, Kelly spent about five minutes 
explaining as best as he could. I know Kelly kind of 
indicated it was a little unfair that he would be asking for a 
five-minute explanation when this problem took place over 
many years. 
41 Ryan Pleas testified that "when I looked over at the boxes, it didn't look like 
anybody had looked at them" (tr. 2/167). 
92 

At the end of Kelly explaining in five minutes 
because Mr. Tew was like looking at his watch. He had to 
get going. He said something to the effect that you know 
what, really what you should do is go out and find the 
money and finish the job because we don't have any 
money. And for us to get the money, we have to go to 
Congress to get it. It will be easier, it will be faster for you 
to file a claim and get it from the Ju[dgment] Fund. 
I was in shock and I am sure Kelly was, too. I know 
we were both in shock. It was just stunning .... [Mr. Tew 
left and] we were left with [CO Williams] and 
[CO Davidson]. And I think basically he just told us we 
are not going to deal with your REA. Just go find the 
money. Finish it yourself. 
And I think the meeting kept going a little longer. 
We are still talking, I think, about the VECP, trying to 
come up with some way to settle that out. I mean at that 
point, I hardly was paying attention. 
(Tr. 21153-58; see also SR4, tab 13 at 17-18, tab 190 at 13; tr. 21159-60, 4/30, 120-21, 
8/27-29) Kelly Pleas testified: 
That was like the worst day of my life. 
(Tr. 8/28) Even though Mr. Tew was on the Corps' witness list, it never put him on 
the stand to testify nor did it offer any other credible contemporaneous evidence to 
rebut Ryan Pleas' testimony and notes on the subject of the 20 May 2008 meeting. 
After the meeting: 
[KRI] had to decide what to do. So, one of the options was 
to just walk off the job .... I think we wrote a letter ... right 
after this meeting, trying to get back together and try to 
resurrect this thing. We knew that [CO Davidson] was 
retiring. So, we figured that any chance of getting this 
thing done would be much better with her there. So, yes, I 
know we sent letters trying to salvage this thing. 
93 

(Tr. 2/161) Even though CO Williams declined KRI's phone requests for another 
meeting, KRI's 23 May 2008 letter formally requested another meeting with the Corps 
to go over KRl's REA: 
This letter is a follow-up to our Tuesday meeting, and 
more particularly, to our Thursday afternoon phone 
conversation. We tried unsuccessfully several times to call 
[CO Davidson], and appreciate you talking with us. You 
have indicated that the Corps will not agree to our request 
for a further, immediate meeting. Apparently we have 
failed to convey to you, [Mr. Tew], and [CO Davidson] 
and the Corps' staff how critical the situation is on this 
project. Plainly and directly, the circumstances are such 
that we cannot wait for you and the others to meet 
internally next Tuesday, as you suggest, and begin 
formulation of a position letter. 
I felt we made it very clear at the Tuesday meeting that, in 
order to complete the project in the 2008 construction 
season, KRI has to make multi-million dollar commitments 
for materials and transportation requirements within the 
next couple of weeks. We were advised that the Corps has 
no source of payment beyond the currently committed 
$19.8 million. The forecast we prepared, at the Corps' 
request shows a project cost exceeding $34 million. We 
left that meeting with the impression that everyone 
understood KRI cannot make the commitments for 
materials and transportation if the Corps is unable to fund 
the project requirements. 
Since our April 10th meeting, we have been developing the 
backup that [CO Davidson] requested. She wanted a 
"global settlement" of the financial issues on this project. 
Needless to say, so did we. [CO Davidson] proposed, and 
we agreed, to a Modified Total Cost approach. Both sides 
were committed to arriving at this global settlement before 
[CO Davidson] retired in early June. The Tuesday, May 
20th meeting, we understood, was the point at which the 
global settlement would be negotiated. You surely can 
appreciate our surprise and disappointment when we were 
told, at the outset of that meeting, that the Corps has no 
way of obtaining funds for this project beyond the current 
$19 .8 million until next year at the earliest. How could the 
94 

Corps expect to achieve a global settlement without 
money to pay for the work? Your suggestion that we 
"finish the job, file a claim", in response to which you 
would '"issue a Contracting Officer's Decision" is entirely 
unsatisfactory. We did not a sign a contract which requires 
us to fund the work, even if the $15 million differential 
between project cost and available government funding 
was something our bank would sponsor. [Emphasis added] 
This project was commenced with a Partnering Meeting. It 
was at that Meeting the Corps advised that there would be 
a financing restriction imposed which was not part of the 
contract we bid and signed. Adding this clause to our 
contract was a fundamental alteration of the agreement. 
No one appreciated at the time how critical and material 
this unilaterally imposed revision to the contract was, 
because none of us forecast the spiraling costs for fuel, 
materials and the other project requirements. The Corps 
has to deal with this problem. It is unrealistic and unfair to 
suppose that the Corps simply can tum its back on the 
situation and expect that we will take care of it. 
We need and respectfully request a Partnering Meeting 
early next week. We ask that you have Greg, Tony or one 
of the other legal staff present so that we can be 
represented. Would you please call me as quickly as you 
receive this letter? We thank you in advance for a prompt, 
and much needed response. 
(SR4, tab 11 at 2105-06; tr. 8/171-176) Despite KRI's pleas, the Corps never met with 
KRl again after the 20 May 2008 meeting to discuss its REA (tr. 2/161-62). 
93. By letter dated 29 May 2008, CO Williams announced that he would be 
taking over as the lead CO on the False Pass contract again and he required that KRI 
convert its REA into a certified claim: 
This letter is in response to Serial Letters 067, 069, 070, 
071, 073, and 07 4 submitted by you. We, too, recognize 
the importance of settling these issues as quickly as 
possible; however, the following tasks need to be 
accomplished before we can do so. 
95 

Based on the amount of your Request for Equitable 
Adjustment (REA), the government considers this a claim, 
not a REA. As such, you will need to treat this matter 
accordingly and certify your claim in accordance with 
FAR 52.233-1 Disputes (July 2002), Alt I (Dec 1991). 
In your Serial Letter 070, dated 14 May 2008 you 
state your basis for this REA for over $16 million having 
been "documented in extensive correspondence over the 
past year-and-a-half'. I do not concur with this statement, 
and simply referencing correspondence in a general basis 
does not sufficiently address your claim. Further, the 
government needs to determine the merit of your claim 
before any discussion regarding the resolution of disputed 
costs can occur. 
In addition to the certification above in order for the 
government to review your claim, the following three 
points need to be addressed in detail: 
1. Government action in violation of your contract 
or that gave rise to your REA. 
2. Proof that government action caused impacts on 
your schedule/costs. 
3. Proof of what schedule delays or additional costs 
that are reimbursable. 
Once we have received in writing the cause and 
effect information detailed above, then a meeting between 
the Government and Kelly-Ryan to discuss this matter 
would be acceptable. 
You are reminded that FAR 52.233-1 Disputes (July 
2002), Alt I (Dec 1991 ), para. (i) states, "The Contractor 
shall proceed diligently with performance of this contract, 
pending final resolution of any request for relief, claim, 
appeal, or action arising under or relating to the contract, 
and comply with any decision of the Contracting Officer." 
If it is your intent to stop performance on your contract 
before all work is completed, you are required to notify the 
government immediately so that we can take appropriate 
action to protect our interests including notification of your 
surety. 
96 

As indicated in the above paragraph, an immediate 
response is required on whether or not you intend to 
complete the contract. Please feel free to call me at (907) 
753-5571 if you have questions regarding this matter. 
(SR4, tab 10 at 184-85; tr. 13/83-86) All the work KRI had done to submit its 14 May 
2008 REA with "boxes and boxes" of supporting documentation to CO Davidson's 
requirements (findings 89, 91) was apparently treated by CO Williams as if it had 
never been provided. As Ryan Pleas testified: 
We have been going through this for so long with this 
office and we have explained our position over and over 
again. And so now, he is basically ignoring everything 
that has happened prior to this and he is saying start over 
and explain your whole thing again. 
(Tr. 21164-65, 5/68-69) 
94. By letter dated 11 June 2008, KRI expressed its disappointment in the 
apparent change in the Corps' approach to KRI's REA and the contract administration 
of the False Pass project: 
This is a partial response to your May 29, 2008 letter. To 
begin with, I thought we were on a first-name basis with 
you, Sandi [Davidson], and the others on the Corps Project 
Delivery Team. We believed that KRI and the Corps are 
partners in this project. The positions taken by the Corps 
at our May 20, 2008 meeting obviously marked an about­
face by the Corps, and a full-fledged retreat from the 
partnering commitment that all of us made over two years 
ago. From the "global resolution" that [CO Davidson] had 
proposed, and we had worked diligently to bring about, it 
now appears you have embarked upon a path of global 
conflict, with KRI being viewed as your opposition. 
Since you repeatedly have refused KRI's request for a 
follow-up partnering session to the May 20, 2008 meeting; 
and since your letter imposes enormous documentation 
pre-conditions to any meeting, these being conditions 
which you fully appreciate would divert attention, energy 
97 

and funds from KRI's construction efforts on the project, 
you effectively have mandated that we deal with the 
situation by jousting with the Corps on terms you have 
imposed. This seems to us a fundamentally different 
Agency approach than we have come to expect based upon 
the work we have done with the Alaska District Corps over 
the past 30 years. We remain convinced that you should 
reconsider the path you have chosen to deal with these 
issues, and persist in our belief that an immediate, full 
fledged, all-issues-on-the-table partnering session is the 
best way to present and pursue the interests of all 
concerned parties. 
(SR4, tab 11 at 2107-08; tr. 21167-68, 4/30-33) CO Williams did not respond to KRI's letter. 
95. One week later, by letter dated 18 June 2008, the Corps' requested a 
proposal from KRI to perform additional work to stop beach erosion at the False Pass 
site (tr. 2/173). KRI responded: 
Your Proposal Request raises questions and concerns 
regarding the Corps' management of this entire project. 
Preliminary assessment of this added work is that it will 
carry a substantial, six-digit contract value. KRI 
repeatedly has been hindered and frustrated in its 
performance of the work on this project by the funding 
restrictions that have been imposed. Based upon what we 
were told by the Corps at our May 20, 2008 meeting, you 
do not have funds to pay for the escalated costs of the work 
already under contract. How can it be that the Corps now 
proposes to significantly increase the performance costs by 
adding new work? 
[KRI also asked if the Corps considered a termination for 
convenience of the contract at that point an option.] 
(SR4, tab 11 at 2287-88; tr. 21170, 173-76) Once again, CO Williams did not respond 
to KRI's letter. 
96. By email dated 18 July 2008 and letter dated 21 August 2008, KRI 
continued to request that CO Williams engage with it to resolve the financial status of 
the project (SR4, tab 11 at 2342-43, tab 34 at 9; tr. 2/168-70, 5/69-70) There is no 
evidence that CO Williams responded to either communication. 
98 

97. KRJ's Ryan Pleas testified that, faced with CO Williams' apparent refusal to 
engage on the subject of the financial status of the project, as well as his direction that 
KRI was nevertheless to proceed with the contract work to completion (finding 93): 
Interestingly enough, ... at this point, we could have, 
if [the incremental funding] clause had been in [the 
contract], we could have said we are stopping 
work ... because [it] is going to use up all of the available 
funds for the contract. But by taking that clause and 
switching [back to the continuing contracts clause] with 
Mod [P00008], we no longer had the right to do that. 
[Going back to the continuing contracts clause] 
gave us an opportunity to settle. This claim, there was no 
restriction on the Corps or on us on the funding. I mean 
the [continuing contracts clause] allowed you to go beyond 
the amount funded to the contract. And a contractor can 
work beyond that and you don't have to worry about not 
getting paid. 
(Tr. 2/171-72) 
[W]e could have made a decision to walk off the job. I 
mean, that was an option that we talked about. It was not 
something that we wanted to do. Our preference was to 
finish the job. 
So, we ended up going to our bonding company and 
sitting down with them, explaining the situation and 
convinced them that the best option was to work with us 
and provide the financing to get the job done. 
[Originally w ]e had what they call limited 
indemnity, which is really hard to get. You have to have 
years of experience and you have to have a bonding 
company. And you have to have a good relationship with 
the bonding company, a good track record because 
bonding companies, they don't do that much anymore, 
especially for small contractors. 
99 

But we had a good track record through the years. 
So, they agreed, at one point, to give us a limit of each a 
half a million dollars. Most of the time, it is an unlimited 
guarantee. You just sign away everything you own to 
them. And if they have to, they can go after all of your 
assets. And Kelly and I had a limited, so we were half a 
million dollars each, at that time [to secure the bond for the 
full contract amount]. 
[W]e notified the bonding company that we had a 
problem. What we thought was going to get resolved in 
our May 20 partnering meeting was apparently not going 
to happen. So, we needed assistance or the bonding 
company would need to hire somebody to finish the job 
because one way or another, though, the job had to get 
done and it was up to them what they wanted to do. 
What ended up happening was, of course, the 
bonding company, they wanted more indemnity from 
Kelly and I for them to participate in loaning the money. 
So, they asked for another million dollars each in 
indemnity. So, we agreed. 
So, now our indemnity is, we raised our indemnity 
from half a million dollars to $1.5 million each . 
.. .I mean, it wasn't an easy decision but. .. we were 
very confident we had a good claim. We just, in our heart 
of hearts, felt that if we get this thing before reasonable 
people that we would be able to settle this thing. You 
know, it was something that we just thought that just 
needed to get to a place where somebody with a little less 
hands-on from the Corps side looking at it, maybe we 
could sit down and settle this thing . 
.. .It was 6.25 percent interest on all funds advanced 
to the project. So, what we would do is we would make 
draw requests and provide the documentation. And they 
would fund the project on an as-needed basis. And we 
100 

would file, give them reports, keeping them up to date on 
where the project stands. And as the loan grew, of course, 
the interest is ongoing. And to this day, it is still 6.25 
percent on the amount that we had to borrow. 
[Safeco Surety] hired somebody to go out and look 
at the job. And they had hired, they actually hired an 
accountant to come in and look at our books. They 
satisfied themselves in short order that we were the ones to 
finish the job. I mean they knew that there was nobody 
going to finish that job more efficiently than we could. 
[At the time of contract completion, KRI had borrowed 
and was obligated to repay to Safeco] [ r ]ight around 
$10 million. 
(Tr. 21169-70, 176-80; see also SR4, tab 182 at 85-191; tr. 5/113-14, 8/29, 32) 
98. Final pricing of the alternate bridge and dock was definitized by bilateral 
Modification No. P00013, dated 3 October 2008, which stated that: 
Any additional costs for Alternate Bridge and Dock design 
and related Third Year Mobilization/Demobilization will 
be covered by changing the contract from a unit price to 
lump sum [of$19,729,300]. 
(SR4, tab 14 at 1591-94; tr. 4/28-29, 13/24-25). The net monetary effect of 
Modification No. P00013 was zero; the additional cost of the alternate bridge and dock 
and associated additional mobilization was netted against the savings from KRI's 
underrun for rock. CO Williams testified that: 
[M]y intent from changing unit price to lump sum was it 
effectively helped the contractor out. [KRI came to me 
with a request:] "In order to finish the contract, ... we need 
to get a loan from our surety and it is imperative that we 
get the full contract amount." 
At this point all parties predicted an under run [for] 
rock because this is [a] unit priced contract. The 
101 

contractor's pay based on the final survey and based on the 
quantities being placed up to this point, it was expected 
that would be an under run [for] rock, which would mean 
the contractor wouldn't get the full contract amount. 
Obviously, by being able to have a set contract 
amount that they knew they were ... going to get, it 
gave ... their surety the confidence to give them a loan. 
That was the whole purpose of this. Effectively, we took 
the predicted shortfall and gave that to the contractor. 
(Tr. 13/25-27) The contract completion date of 5 January 2009 remained unchanged. 
Modification No. POOO 13, as executed by the parties, included the following release 
language: 
F. CLOSING STATEMENT 
In consideration of the modification agreed to herein as 
complete equitable adjustments for the Contractor's 
Alternate Bridge and Dock design as submitted via serial 
letter H-061 dated 11 Oct 2007, proposal for adjustment, 
the Contractor hereby releases the Government from any 
and all liability under this contract for further equitable 
adjustments attributable to said Alternate Bridge and dock 
design and related Third Year Mobilization/ 
Demobilization (except for claims and all impacts related 
to the changes in funding clause as executed in unilateral 
Modification P00005, dated 17 Jul 2006 which deleted 
EF ARS 52.232-5001 Continuing Contracts (MAR 1995) 
and replaced it with 52.232-5004 Incremental Funding 
Clause)[.] 
(SR4, tab 14 at 1594) During the parties' negotiation of the release language, 
CO Williams repeatedly assured KRI that the above-quoted language reserved KRI's 
right to claim for all additional costs related to the Corps' unilateral changes of the 
funding clauses in the contract, while it released the Corps from liability for any 
further costs associated with the alternative bridge and dock design as well as any 
additional mobilization/demobilization costs associated with the bridge and dock 
(SR4, tab 169 at 1-5, 13, 21, 30-33; see also tr. 4/32-35, 37-41, 8/111-12, 13/27-28, 
127-28, 141150-57). 
99. The contract specified that construction would not occur in the winter when 
endangered species birds were in the area (SR4, tab 14 at 442, 449-50, 461-62, 467) 
but that was based on the original date of no in-water work after 1 October each year 
102 

(finding 8). Modification No. POOOIO, however, extended the cutoff date for in-water 
work to 15 November of each year (finding 83) On 27 October 2008 ACO Jong 
advised KRI that it could do in-water work after 15 November ifthe following 
stipulations were met: 
• A qualified person from the Alaska District Corps of 
Engineers is present on-site for all construction 
operations after this date; 
• The Contractor agrees to shut down all construction 
activities if in the opinion of the Government 
representative a Stellar Eider comes within 250-feet of 
the outermost oceanside edge of the project site; 
• The Contractor agrees that all construction operations 
will remain shut down until released by the same 
Government representative; 
• The Contractor will provide transport to/from the 
project site for up to 3-representatives during this time, 
and 
• The Contractor agrees that the stipulations identified 
above will be at no additional cost to the Government. 
Please respond, in writing, to this office either positively or 
negatively by close of business on 31 Oct 2008. 
(SR4, tab 10 at 225-26; tr. 86-90 (CO admitted that the weather after 15 November "is 
not the best.")) By letter dated 5 November 2008 CO Williams offered to further relax 
the distance from KRI's work to a bird (SR4, tab 10 at 231-33; tr. 13/90-91). As a 
result of the associated costs of complying with the Corps' "five stipulations," KRI 
suspended operations at False Pass on 16 November 2008, necessitating a fourth work 
season. KRI proposed to complete the project NL T 12 June 2009. The work left at 
the end of the 2008 season to be completed in 2009 was about $1 million, or ~ 5%. 
(Tr. 8/37-38; see finding 100) The Corps found KRI's proposal unacceptable and 
advised that liquidated damages would be assessed and threatened to terminate the 
contract for default (SR4, tab 19 at 772). We find that KRI was not contractually 
obligated to work beyond the contractual in-water work date and that its decision to 
demobilize for the season was reasonable given the weather considerations that late in 
the season at a remote Alaskajobsite (see findings 1, 59). We find no evidence in the 
record, nor have the parties directed us to any, that liquidated damages were ever 
assessed. 
103 

100. The parties participated in a telephone conference on 11 December 2008 
during which the following was discussed: 
KRI affirmed that their intention was to return to the 
project on April 1, 2009 and complete the project by June 
30, 2009 per their most recent schedule #20. 
KRI was asked about their plans for the start of 
work in the spring. KRI responded that they have just 
under two barge loads of armor stone remaining and the 
barges are scheduled to depart in early March to be on the 
job site in April. Two crews will work on the breakwaters 
simultaneously placing stone, one crew on the east 
breakwater and the other on the causeway. The plan is to 
complete the project on June 12, 2009, but the final 
drawings will not be submitted until June 30, 2009. 
(SR4, tab 13 at 19-20, tab 14 at 2369- 70) 
101. The Corps accepted the project as substantially complete on 16 June 2009 
and the Quality of Workmanship was rated Above-Average as it met or exceeded 
contract requirements (tr. 2/182, 5/68, 8/39, 13/220, 14/87-88, 15/83). 
D. Claim and Contracting Officer's Final Decision 
102. On 24 November 2009 KRI submitted five volumes to the Corps 
containing its 3,054-page certified claim in which it asserted its entitlement to 
damages in the amount of $36,231,362 resulting from three breaches of contract by the 
Corps: 
Material Breach No. 1: the removal of the CCC-5001 from the contract and 
the insertion of the IFC-5004 by unilateral Modification No. P00005; 
Material Breach No. 2: the removal of the IFC-5004 from the contract and the 
insertion of the CCC-5001 by unilateral Modification No. P00008 42; 
42 KRI appears, in its post-hearing brief and reply brief, to have abandoned its claimed 
Material Breach No. 2 as a stand-alone breach of the contract and we will not 
address it further. 
104 

Material Breach No. 3: breach of the duty of good faith and fair dealing to 
include Material Breach Nos. 1 and 2 as well as various enumerated Corps 
actions and inactions in its administration of the contract which caused the 
contract work "to become more difficult, more time consuming, and more 
expensive to perform." 
(SR4, tab 3 at 17-66; see also SR4, tab 2 at 5) KRI also sought an extension of the 
contract performance period to June of 2009 (SR4, tab 3 at 19; tr. 5/67-68, 72-83, 
87-92, 194-98). By letters dated 30 September 2011and26 June 2013, KRI amended 
the amount sought in its claim to $25,313,031, exclusive of Contract Disputes Act 
(CDA) interest (amended compl. at 30-34; SR4, tab 11at2622-25, tab 182 at 1-2, 7-11; 
tr. 5/104-09). KRI's amended claim sought breach damages calculated as follows: 
A. Damages through 9 January 2007 in the amount of$5,808,719.19, alleged 
to be calculated on the basis of termination for convenience principles and 
referred to by KRI as "Termination Settlement Pricing"; 
B. Damages from 10 January 2007 through project completion in the amount 
of$19,326,328.55, calculated by KRI to be based on what KRI estimated 
the project would have cost the Corps if the project had been terminated for 
convenience instead of unilaterally incorporating the IFC-5004 into the 
contract and then the project was reprocured in 2008 which is referred to by 
KRI as "Restitution Pricing." 
(SR4, tab 5; tr. 3159-60, 63-71, 5/95-96; amended compl. ,-r,-r 71, 76-81) 
103. On 22 January 2010 CO Williams notified KRI that he would issue a 
contracting officer's final decision (COFD) on the subject of KRI's 24 November 
2009 certified claim no later than 24 November 2010, one year after receipt of the 
certified claim. On 4 March 2010 KRI filed its notice of appeal from a deemed denial 
of its 24 November 2009 certified claim which was docketed as ASBCA No. 57168. 
The Corps filed a motion to dismiss the appeal as premature and, after briefing by both 
parties, the Board found the period of time specified by the Corps for completion of 
the COFD to be unreasonable under the circumstances and denied the Corps' motion. 
Kelly-Ryan, Inc., ASBCA No. 57168, 11-1BCAi-134,629. 
104. A DCAA audit of KRI's 24 November 2009 certified claim was begun 
sometime in 2010 (SR4, tab 19 at 719-20) and the resultant DCAA audit report was 
issued on 23 March 201243 (SR4, tab 19 at 578-668, tab 138). The audit report states: 
43 We find no evidence that the Corps ever requested DCAA audits ofKRI's later 
amendments to its claim (findings 102, 106-08). 
105 

Entitlement to the price adjustment claim is a legal issue. 
Because entitlement is a legal issue, the primary purpose of 
our examination is to review the quantum aspects of the 
claim. 
(SR4, tab 138 at 3) Despite this statement, the audit report devoted more than half of 
its 91 pages to the DCAA auditor's legal interpretation of contract clauses and 
determinations of entitlement ("to properly determine ifthe Government was 
responsible for the claimed costs") as its basis for questioning $40,541,437, more than 
$4 million more than the $36,231,362 total costs claimed by KRI (id. at 9-24, 26, 
30-41, 51-58, 67-70, 75-78; see also SR4, tab 19 at 669-752, tab 187; tr. 6/10-25, 
29-59, 59-64, 113-16). We find the audit report not to be credible to the extent it 
makes such entitlement determinations which are beyond its authority. 44 We find the 
audit report credible only to the extent it analyzes claimed costs on the basis of 
whether KRI actually incurred the costs it claims to have incurred and that those costs 
are allowable and allocable to this project. We also find the credibility of the audit 
report to be further weakened by unrebutted evidence 45 that the audit work papers do 
not support the various audit methodologies described, nor certain of the amounts 
questioned. (SR4, tab 187 at 2-3, 7, 22, 25, 29, 31, 33) 
105. On 30 May 2012 the Corps finally issued a COFD, 2Yi years after 
submission of the certified claim and 1 Yi years after the parties entered into discovery 
in KRI's appeal from a deemed denial (SR4, tab 2; tr. 13/93-95, 109-12; see also 
amended compl. iii! 82-89). CO Williams testified that this was the first COFD he had 
ever been involved with as a CO and he did not author the 101-page COFD. Instead, 
after the COFD was prepared by Corps attorneys and contracting personnel who had 
no involvement in the False Pass project, CO Williams took "several afternoons" to 
review it and provided two comments which were incorporated before he signed it. 
(Tr. 13/146-70, 14/35-39, 42-51, 14/35-36) The COFD denied KRI's certified claim 
in its entirety, taking no responsibility for any of the delays or increased costs incurred 
by KRI (SR4, tab 2). 
106. On 12 June 2013, after receiving the COFD and DCAA audit report, KRI 
submitted its "Supplemental and Alternative Contract Adjustment Pricing of its 
Compensable Damages, using Modified Total Cost Methodology" ("MTC pricing 
submission") in the amount of $20,482, 166 using the methodology requested by the 
44 See BAE Systems San Francisco Ship Repair, ASBCA No. 58809, 14-1 BCA 
if 35,642 at 174,535 (DCAA audit report is advisory only, only the CO has 
authority to decide contractor claims). 
45 The Corps did not offer testimony from the auditor or any other DCAA personnel 
involved in either of the two audits performed under this contract. 
106 

Corps and recommended by DCAA (SR4, tab 5 at 70; tr. 51128-32, 171-82, 8/25-26, 
138). KRI broke down the total amount of its MTC pricing submission as follows: 
Total cost before adjustments: 
Total booked direct costs from KRI's Job Cost History $34,970, 152 
Report 
-Less booked actual equipment, maintenance and repair -4,743,786 
costs 
-Plus equipment, maintenance and repair costs estimated 4,724,661 
using Corps manual EP 1110-1-8 
-Plus equipment standby expense 1,643,123 
Total direct job costs $36,594, 150 
Adjustments to total cost called for bl'. MTC Qricing 
QrinciQles: 
-Plus allowable direct job costs not booked in KRI's Job 16,532 
Cost History Report 
-Less "KRI adjustments for extra costs not the -3,915,062 46 
responsibility of the government (costs not included in the 
bid estimate, cost over-runs that were the responsibility of 
KRI" 
-Less additional costs questioned by DCAA "or -87,987 
determined by KRI to be unallowable, unallocable, not the 
responsibility of the government, or understated in the bid" 
-Miscellaneous costs not allowed per DCAA audit -137,367 
Total direct job cost2 adjusted Qer MTC Qricing $32,470,266 
QrinciQles: 
-Plus G&A (11.383%) 3,696,090 
Subtotal $ 36, 166,356 
-Plus profit (I 0%) 3,616,636 
Subtotal $ 39,782,992 
-Less amount paid by the Corps under the contract -19,445,279 
46 KRI's support for this reduction to its MTC pricing is contained in the record at 
Stipulated Rule 4, tab 5 at 166-313. 
107 

l 
Subtotal, claim without additional bond expense $ 20,337,713 
-Plus "additional bond expense that will be incurred by 144,453 
KRI for the claim amount" when paid 
Total, MTC pricing claim, exclusive ofCDA interest $20,482, 166 
(SR4, tab 5 at 68-70) The 1190-page MTC pricing submission provided KRI's 
alternative calculation of damages arising from the three material breaches articulated 
in KRI's 24 November 2009 certified claim, relied on the thousands of pages of 
documentation previously provided to the Corps with KRI's 24 November 2009 claim 
(finding 102), as well as including explanations of each category of cost along with 
supporting documentation (including copies of all supporting invoices over $3,000). 
• This is not a new and different claim. It is based 
upon the same entitlement principles, and the same 
project and cost records, upon which KRI based its 
November 26, 2009 certified claim submittal to you. 
• The method of quantifying KRI's recoverable 
damages is the principal difference between this 
submittal and KRI's original submittal. 
• KRI maintains its position that the damages to which 
it is entitled on this appeal should be calculated and 
awarded on the Termination For Convenience and 
Restitution Pricing which we utilized in the Original 
Equitable Adjustment/Breach Claim. 
• KRI's submission of this Modified Total Cost 
alternative is not intended to substitute for, or to 
amend, the Original Equitable Adjustment/Breach 
Claim. It is supplemental and alternative. 
KRI has reviewed carefully the comments made in the 
CO[F]D and the DCAA Audit Reports regarding the 
company cost records. This Modified Total Cost submittal 
has accounted for those comments wherever we found that 
an adjustment needed to be made. Those adjustments to 
some extent will affect the cost calculations used in the 
November 2[4], 2009 submittal. Such adjustments will be 
made by amending the Complaint filed with the ASBCA. 
The Amended Complaint also will assert a separate Count 
utilizing the Modified Total Cost Pricing.l471 
47 KRI filed the referenced amended complaint with the Board on 31 May 2013. 
108 
l 

I have been advised that because the Modified Total Cost 
Pricing is what the Government agreed should be the 
"method to negotiate settlement of this claim," it would be 
appropriate, even though not required, that the cost or 
pricing data be certified. Accordingly, I hereby certify that 
the cost or pricing data submitted herewith to the 
Contracting Officer or the Contracting Officer's 
representative in support of KRI's Supplemental and 
Alternative Contract Adjustment Pricing of its 
Compensable Damages, are accurate, complete and current 
as of the date of this letter. 
(SR4, tab 5 at 2; see also tr. 8/45-59) 
I 07. On 13 May 2014, KRI submitted a third amendment to its claimed 
termination/restitution damages (see finding 102) in the total amount of $28,233,818, 
exclusive ofCDA interest (SR4, tab 182 at 1-29, 52-195; tr. 5/83-86, 92-95, 104-18, 
165-71, 182-88, 9/28-33). 
108. Also on 13 May 2014, KRI submitted an update to its alternative MTC 
calculation of damages (finding 106) in the total amount of $23,402,953, exclusive of 
CDA interest (SR4, tab 182 at 30-195; tr. 5/118-34, 9/34-35). The update started with 
the $20,482,166 total presented in the original MTC pricing submission (finding 106) 
and then presented additional adjustments as follows: 
Total 2 MTC Qricing, claim 2 exclusive of CDA interest $20,482, 166 
DescriQtion of additional adjustments: 
-Less "Credit for Revised Demobilization Transportation -612,296 
Impact" for equipment left at Dutch Harbor and not 
demobilized to Seattle 
-Plus calculation error in estimated equipment, 462,360 
maintenance and repair costs using Corps manual EP 1110-
1-8 
-Plus "Cost of Borrowing" through 30 April 2014 (see 3,052,477 
findings 92, 97) 
-Less claim preparation costs booked to job costs -2,353 
-Less bond adjustment in original MTC pricing submission -144,453 
Adjusted Subtotal $23,237,901 
109 

-Plus updated "additional bond expense that will be 165,052 
incurred by KRI for the claim amount" when paid 
Total 1 MTC (!ricini: claim 1 exclusive of CDA interest $23,402,953 
(SR4, tab 182 at 50) The 195-page updated MTC pricing submission included 
explanations and supporting documentation. 
109. Just a few months before the hearing in this appeal, KRI's expert witness 
Mr. Humphreys updated his expert report in which he recommended the further 
recalculation of KRI's MTC pricing submission to increase its claimed damages to 
$31, 111, 139, exclusive of CDA interest (SR4, tab 19 at 1175-76). 
110 .. We find that KRI's use of the Corps manual to estimate its equipment 
costs for purposes of its claim submissions was not appropriate under the 
circumstances that its actual equipment, maintenance and repair costs were available 
and calculated accurately enough that KRI was able to determine the specific amount 
of its actual costs in order to reduce its claimed costs by that amount and then add the 
higher estimated amount resulting from use of the manual. After careful examination 
of the record before us, we further find that the actual Total Booked Direct Costs, as 
well as the adjustments, reductions and additions to actual costs made by KRI, that are 
listed in KRI' s first and second MTC pricing submissions (findings 106, 108) are 
supported by the contemporaneous documentation provided to the Corps and DCAA 
by KRI from its Job Cost History Report and accounting records. With the exception 
of its attention to KRI' s use of the Corps manual to estimate equipment and 
equipment-related related costs, the Corps has offered arguments challenging KRl's 
claimed costs but it has offered almost no credible factual evidence to rebut KRI's 
claimed costs. We, therefore, find the claimed costs contained in the first two MTC 
pricing submissions to be credible presentations of KRI's actual costs incurred in 
performing the False Pass project. 
111. KRI's complaint and amended complaint reiterated the three material 
breaches contained in its certified claim as the legal basis for the damages it now seeks 
(see finding 102). 
DECISION 
KRI's certified claim seeks damages it claims resulted from material breaches of 
the contract by the Corps which caused the contract work "to become more difficult, 
more time consuming, and more expensive to perform" (SR4, tab 3 at 39). The claimed 
material breaches now before us for decision are: (1) the removal of the CCC-5001 from 
the contract and the insertion of the IFC-5004 by unilateral Modification No. P00005; 
and, (2) a continuing breach of the implied duty of good faith and fair dealing by the 
110 

Corps in its administration of the contract (findings 102, 111). It is the Corps' position 
that it did not breach any of its express or implied duties or obligations under the contract 
and that none of the delays, interruptions or additional costs claimed by KRI were caused 
by the actions or inactions of the Corps. 
In order to meet its burden of proof with respect to each claimed breach of 
contract, KRI must prove that: ( 1) there is a valid contract between KRI and the 
Corps; (2) there is an obligation or duty on the part of the Corps arising out of the 
contract; (3) the Corps has breached that duty or obligation; and ( 4) KRI has suffered 
damage as a result of the breach. Military Aircraft Parts, ASBCA No. 60009, 16-1 
BCA if 36,388 at 177,410. 
A breach is material if it relates to a matter of vital 
importance or goes to the essence of the contract. "The 
standard of materiality for the purposes of deciding 
whether a contract has been breached 'is necessarily 
imprecise and flexible.'" In determining the materiality of 
a breach, we may consider some or all of the "significant" 
circumstances from the RESTATEMENT (SECOND) OF 
CONTRACTS § 241 : 
(a) the extent to which the injured party will be 
deprived of the benefit which he reasonably expected; 
(b) the extent to which the injured party can be 
adequately compensated for the part of that benefit of 
which he will be deprived; 
( c) the extent to which the party failing to perform or 
to offer to perform will suffer forfeiture; 
( d) the likelihood that the party failing to perform or 
to offer to perform will cure his failure, taking 
account of all the circumstances including any 
reasonable assurances; 
(e) the extent to which the behavior of the party 
failing to perform or to offer to perform comports 
with the standards of good faith and fair dealing. 
Consumers Oil Co., ASBCA No. 24172, 86-1 BCA 
if 18,647 at 93,713-14. "[I]t is not to be expected that, in 
every case, each of the five [ § 241] circumstances will be 
111 

l 
pertinent. ... It is to be expected, however, that 
circumstances (a) ('the extent to which the injured party 
will be deprived of the benefit which he reasonably 
expected') will always be a pertinent consideration." 
Hansen Bancorp, Inc. v. United States, 367 F.3d 1297, 
1312 (Fed. Cir. 2004); see also Consumers Oil, 86-1 BCA 
~ 18,647 at 93,713-14 (it is "important" to consider the 
extent to which the injured party will be deprived of the 
benefit of the exchange). Ultimately, whether a breach is a 
material breach depends on the nature and effect of the 
violation in light of how the particular contract was 
viewed, bargained for, entered into, and performed by the 
parties. Stone Forest, 973 F .2d at 1551. 
Highland Al Hujaz Co., Ltd., ASBCA No. 58243, 16-1BCA~36,336 at 177,165 
(some citations omitted). 
There is no dispute that, at all times relevant to the matters before us, there was 
a valid contract between KRI and the Corps and the first element of proof is therefore 
met. We will next address elements 2 and 3 with respect to each claimed breach of 
contract. Finally we will address whether and to what extent KRI's claimed damages 
have met the requirement of element 4. 
A. Removal of the CCC-5001 from the contract and the insertion of the IFC-5004 by 
unilateral Modification No. P00005 
1. Material Breach of an Express Term of the Contract 
The first material breach claimed by KRI is the Corps' unilateral removal and 
replacement of the CCC-5001 with IFC-5004 in Modification No. P00005 a year after 
contract award. It is the Corps' position that the unilateral actions of removal and 
replacement were not a breach, arguing that the CCC-5001 and IFC-5004 were 
essentially the same clause and so the exchange was merely an administrative change 
to the contract that was within CO Williams' authority (gov't hr. at 53-55). The FAR 
defines an administrative change as one that does not affect the substantive rights of 
the parties (findinglO). 
On 11 July 2005 the parties executed the contract for the False Pass project that 
is now at issue and the bargain struck by the parties included, among other rights, 
duties and obligations, KRI's express obligation to perform the contract work by 
4 January 2008 and the Corps' express obligation to fund the contract in accordance 
with the CCC-5001. It is difficult to imagine a contract term of more vital importance 
than the funding clause that established the Corps' funding obligations. The failure to 
112 

fulfill an express obligation contained in the contract is a breach of contract. Metcalf 
Construction Co. v. United States, 742 F.3d 984, 990 (Fed. Cir. 2014). 
The great weight of the voluminous record before us makes clear that there were 
very significant differences between the CCC-5001 and IFC-5004 in the way they 
affected the funding of contract work, claims and termination costs. The CCC-5001 
made the Corps liable to pay a contractor for work performed, as well as possible claims 
and termination costs, from funds beyond these reserved to the contract. It was this 
potential for future liability beyond the funds reserved to the contract that Congress 
expressly prohibited by its passage of the E&WDA. (Findings 4, 9, 20, 23, 30) The 
IFC-5004, a new clause unilaterally added to KRI's contract a year after contract award 
to replace the CCC-5001, limited the Corps' liability to whatever funds were reserved to 
the contract; any work, claims or termination costs incurred beyond that amount would 
no longer be paid in the future from other funds as they had been under the CCC-5001 
(findings 4, 23, 30-31). This was acknowledged by HQUSACE to be a "big deal" and a 
"huge" "sea change" in the way the Corps had traditionally conducted its business when 
dealing with continuing contracts (findings 20, 30). The record supports KRI's 
description of how, after the unilateral addition of IFC-5004 to its contract, the False Pass 
project became a very different construction project from the one advertised, bid and 
awarded: 
The financial flexibility available to the contractor under 
the CCC[-5001 ], stands in stark contrast to the strict 
limitations under the IFC[-5004], which include the 
necessity for estimating and maintaining a holdback 
reserve to cover costs which attend the risk of termination, 
very much a real risk because the project is not in next 
years' budget and thus has not been "funded" for those 
years, accompanied by the contractor knowing that he is 
not entitled to be paid for contract work performed or 
obligations incurred which exceed the amount funded to 
the contract. These differences ... foreseeabl[y] can, and in 
fact, do, affect the way that a contractor plans and executes 
his construction operation. That contractor having bid and 
planned his project with assurance that the entire contract 
amount is available for him to use and to commit, but on 
the eve of starting work is advised that just a part of the 
money is there, and he must not spend or make 
commitments beyond that lesser amount because the 
Government is not obligated to pay any more than that 
lesser amount, in addition to which he must calculate and 
not spend whatever sum may be needed to cover claims 
from costs of termination, the cost of demobilization, 
113 

amounts owed to subcontractors and suppliers for expenses 
they have incurred regardless of whether their product has 
been incorporated into the project, and so forth. 
(App. hr. at 36-37; see also app. hr. at 47-54) Not only did the change in funding 
clauses potentially require very different planning of the work for any contract, but 
KRI's False Pass contract was further complicated by the unique requirements of an 
already-shortened construction period in an extremely remote location with unique 
supply circumstances (findings 1, 3, 32, 34-35, 59). 
HQUSACE recognized with the passage of the E&WDA in November 2005 
that changing the funding clause in existing contracts without negotiating appropriate 
consideration could constitute a breach of contract and it immediately issued guidance 
to both the program management community and the contracting community making 
clear that, while it was mandatory to change the funding clause in contracts such as 
KRI's that were not funded in the out-years, a unilateral modification of the existing 
contracts was "not sufficient." The Corps' guidance took care to specifically direct 
that the Corps' compliance with the legislation by program management and 
contracting personnel be accomplished in a manner that would limit the Corps' 
financial risk while at the same time making sure the affected contractors' financial 
risk was also limited. Both guidance documents directed that a bilateral modification 
was to be negotiated and, if that could not be accomplished, then either additional 
funds were to be reprogrammed to the contract or the contract was to be terminated for 
convenience. (Findings 4, 20, 23, 30-31) It is undisputed that CO Williams was fully 
aware ofHQUSACE's guidance but consciously ignored it and took none of the three 
directed actions. Instead he chose to replace the funding clause by unilateral 
Modification No. P00005. Even though HQUSACE and his supervisor directed him to 
rescind the unilateral modification and follow the guidance, he ignored their direction. 
(Findings 29-30, 32, 40, 42-45, 47) 
When CO Williams unilaterally removed the CCC-5001 and replaced it with 
the IFC-5004, admittedly without attempting to negotiate with KRI, the Corps reduced 
its own contractual obligation without giving any valuable consideration in return to 
KRI. As we said in Supply & Service Team GmbH, ASBCA No. 59630, 17-1 BCA 
~ 36,678 at 178,599: 
After all, if one party were to simply reduce its obligations 
under the contract and the other received nothing in return, 
there would be no consideration to the short-changed party 
for having waived its contractual expectations. 
This is the very definition of a material breach of an express term of the contract. 
114 

The Corps argues that the contract (whether it contains the CCC-5001 or the 
IFC-5004) expressly precludes a claim for breach of contract (gov't br. at 49-50). 
However, what the funding clause in the contract actually prohibits is a breach of 
contract claim based upon a failure to add funds to the contract (see findings 9, 31 ). 
There is no language prohibiting claims based on other breaches of contract. The basis 
ofKRl's first alleged breach is not that the Corps failed to add funds, but that the 
Corps unilaterally changed the entire funding clause long after the bargain was struck 
at the time of contract award, the effect of which was a shifting of financial risk to KRI 
for work, claims and/or termination costs which had been allocated to the Corps under 
the CCC-5001 at the time of advertisement, bid and contract award. KRl's other 
breach claim, addressed below, is an alleged material breach of the implied duty of 
good faith and fair dealing. There is also nothing in the contract precluding this claim. 
We find no legal basis for the Corps' argument that the contract prohibits KRI's 
breach of contract claims and reject it. 
The Corps argues that there were always enough funds reserved to the contract 
in 2006 for KRI to complete the work as it had originally planned. The 
contemporaneous record amply demonstrates that, when KRI set aside enough funds to 
cover the possibility of claims and termination costs as it was repeatedly directed by 
the Corps to do, there were only enough funds reserved to the contract to perform the 
$6.1 million of work that KRI completed prior to demobilizing for the winter 
(findings 34, 36-37, 51). In that case, the Corps argues, KRI breached the contract by 
failing to provide the proper notice under the IFC-5004 in anticipation of an 
exhaustion of funds. First, the record shows that KRI provided multiple notices to the 
Corps during the 2006 construction season that, once it set aside the amount for 
possible claims and termination costs as required by the Corps, the remaining funds 
reserved to the contract required that KRI reduce its planned work for that season. If 
KRI's notices did not meet the letter of the unilaterally imposed IFC-5004, it was 
because, by the time the Corps actually modified the contract to include the clause, the 
time for notification had already passed (findings 31, 42). Second, the source of the 
breach argued by the Corps, the IFC-5004, did not exist in KRl's contract until the 
Corp's breach of that contract by unilaterally replacing the CCC-5001 with the 
IFC-5004 over a year after contract award. The Corps' breach of contract was, 
therefore, the first, or antecedent, breach which provided KRI with a legal excuse for 
nonperformance with the notice requirement under the IFC-5004. Laguna 
Construction Company, ASBCA No. 58324, 14-1 BCA, 35,748 at 174,948, aff'd, 
Laguna Constr. Company v. Carter, 828 F.3d 1364, 1369-71 (Fed. Cir. 2016). 
On the basis of the foregoing, we find that KRI has met its burden of proof as to 
elements 2 and 3 of its claimed material breach of an express contract term. 
115 

2. Material Breach of the Implied Duty of Good Faith and Fair Dealing 
KRI claims next that the Corps' unilateral replacement of the CCC-5001 with 
the IFC-5004, in addition to being a breach of an express term of the contract, also 
breached the Corps' implied duty of good faith and fair dealing (finding 102). In 
addition to the rights, duties and obligations expressed in the contract, both KRI and 
the Corps owed each other the implied duty of good faith and fair dealing that is 
inherent in every contract. 
In Metcalf Construction Co. v. United States, 742 F.3d 
984, 990 (Fed. Cir. 2014), the United States Court of 
Appeals for the Federal Circuit affirmed the basic 
principle that the parties to a government contract are 
under a duty of good faith and fair dealing in the 
performance and enforcement of the contract, and that 
failure to fulfill that duty constitutes a breach. "The 
covenant of good faith and fair dealing .. .imposes 
obligations on both contracting parties that include the 
duty not to interfere with the other party's performance 
and not to act so as to destroy the reasonable 
expectations of the other party regarding the fruits of the 
contract." Id. at 991 (citing Centex Corp. v. United 
States, 395 F.3d 1283, 1304 (Fed. Cir. 2005). 
In order to prove a violation of the duty, a 
contractor need not necessarily prove that the government 
specifically targeted action to obtain the benefit of the 
contract or that the government's actions were 
undertaken for the purpose of delaying or hampering 
performance of the contract. Metcalf, 742 F.3d at 993. 
Rather, the implied duty of good faith and fair dealing is 
"limited by the original bargain: it prevents a party's acts 
or omissions that, though not proscribed by the contract 
expressly, are inconsistent with the contract's purpose 
and deprive the other party of the contemplated value." 
Id. at 991. 
Military Aircraft Parts, 16-1 BCA ~ 36,388 at 177,411. 
In particular, a "bait and switch" breaches the duty 
of good faith and fair dealing. Teresa A. Mc Vicker, P. C., 
ASBCA Nos. 57487, 57653, 12-2 BCA ~ 35,127 at 
172,463. A bait and switch occurs when the government 
116 

l 
awards a significant contract benefit to a contractor, only 
to improperly eliminate that benefit soon thereafter. 
K2 Solutions, Inc., ASBCA No. 60907, 17-1BCA'if36,801at179,375-76. The Court 
of Appeals for the Federal Circuit found a breach of the implied duty of good faith and 
fair dealing in Centex Corp. v. United States, 395 F.3d 1283 (Fed. Cir. 2005), and First 
Nationwide Bank v. United States, 431 F.3d 1342 (Fed. Cir. 2005), both cases in which 
legislation was specifically targeted to eliminate a material part of the consideration 
and precise benefit contracted for. 
The issue is not whether Congress can enact 
legislation that abrogates or modifies existing government 
contracts; the issue is whether the government is liable for 
the consequences of such action. While a contract does not 
prevent Congress from enacting legislation, the 
government may incur liability for damages when the 
legislation materially affects performance of the contract. 
Winstar, 518 U.S. at 870; see Mobil Oil Exploration, 530 
U.S. at 619-20 .... When the government as contracting 
party makes a promise in exchange for a benefit, it is 
bound by mutual obligations, as any party to a contract is 
bound. 
[The legislation at issue] was directed at existing contracts 
to which the government was a party, and retroactively 
abrogated contract provisions entered into under the prior 
policy.. . . The Court of Federal Claims correctly held that 
the United States is liable for the financial consequences of 
this action as it affected existing contracts. 
First Nationwide Bank, 431 F.3d at 1350-51; see also Centex, 395 F.3d at 1309. 
Cases in which the government has been found to 
violate the implied duty of good faith and fair dealing 
typically involve some variation on the old bait-and­
switch. First, the government enters into a contract that 
awards a significant benefit in exchange for consideration. 
Then, the government eliminates or rescinds that 
contractual provision or benefit through a subsequent 
action directed at the existing contract. The government 
may be liable for damages when the subsequent 
government action is specifically designed to reappropriate 
the benefits the other party expected to obtain from the 
117 

transaction, thereby abrogating the government's 
obligations under the contract. [Citation omitted] 
Precision Pine & Timber, Inc. v. United States, 596 F.3d 817, 829 (Fed. Cir. 2010). 
The Corps was aware, prior to its preparation of the solicitation for the False 
Pass project, of the impending passage of the E& WDA legislation which directed a 
change in the Corps' policy regarding the funding of continuing contracts (finding 4), 
a change that HQUSACE recognized would be a "sea change" in how it funded 
continuing contracts (findings 20, 30). Nevertheless, the Corps (HQUSACE and the 
Alaska District) advertised, accepted bids, and awarded the False Pass contract with 
the CCC-5001 in it instead of the IFC-5004, with full knowledge that the CCC-5001 
would have to be replaced with the IFC-5004 at some later time. The Corps did not 
share this knowledge with KRI. (Findings 20, 47) By its failure to share the 
information, the Corps retained to itself all knowledge of the need to later remove the 
CCC-5001 funding clause from the contract and replace it with the more restrictive 
IFC-5004. Without any knowledge of the coming change in funding clauses, KRI 
prepared its bid and planned its means, methods and schedule for completing the 
contract work based upon the CCC-5001 with which it was familiar. As Ryan Pleas 
testified: 
I mean, if. .. that project had that IFC clause in it before we 
bid it, I could have assessed the risk and I might have said, 
"You know what? I don't know if I want to bid this job." 
I can't take that kind of risk; or if I bid it, I'm going to put 
a bunch of money on it because the IFC clause, especially 
in a contract that's remote in Alaska, is a whole different 
duck .... Under the continuing contracts clause, we don't 
have to -we're not worried about the funding stream. 
(Finding 35) Contemporaneous evidence shows us that the Corps (Alaska District) 
was well aware that the change in funding clause from the CCC-5001 to the IFC-5004 
was required and could impact KRI's schedule and costs. Nevertheless, the Corps 
elected to withhold this information from KRI until 3 April 2006, almost a year after 
contract award and months after the Corps' receipt and acceptance of KRI's schedule 
and cash flow forecasts based on the CCC-5001. (Findings 26, 29, 32, 34) The Corps 
thus kept all reduction of financial risk to itself, while at the same time it increased 
KRI's financial risk, rather than limiting KRI's risk as required by the E&WDA, EC 
and PIL (findings 4, 23, 30). 
On the basis of the foregoing, we hold that the Corps' unilateral replacement of 
the CCC-5001 with the IFC-5004 constituted a bait-and-switch which is a breach of 
the Corps' implied duty of good faith and fair dealing. 
118 

B. Continuing Breach of the Implied Duty of Good Faith and Fair Dealing 
KRI further claims that the Corps continued to breach its implied duty of good 
faith and fair dealing by engaging in a "multi-year pattern of delay and avoidance" by 
refusing to discuss or otherwise address the contract performance and financial 
impacts suffered by KRI as a result of replacement of the CCC-5001 with the 
IFC-5004 (finding 102). As we discussed above, the Corps had the implied duty under 
the contract to not delay, hamper or otherwise interfere with KRI's performance of the 
contract and thereby to deprive KRI of its reasonable expectations of the contract's 
value at the time of contract award. This duty was in addition to the express terms of 
the contract such as the partnering, changes and disputes clauses that imposed express 
duties and obligations upon the Corps. The Corps argues that all delays and impacts 
experienced by KRI in the performance of the contract were caused by KRI and not by 
the Corps. 
The contemporaneous record shows that, during the 2006-2009 contract 
performance period, the Corps' recognized that the change from the CCC-5001 to the 
IFC-5004 was a significant change in how the Corps funded contracts such as the one 
awarded to KRI and that the change could affect KRI' s means, methods and schedule. 
The Corps (Alaska District) negotiated a bilateral contract modification with Western 
Marine (see finding 29), the contractor on the only other continuing contract project in 
the Alaska District over $10,000,000, but never attempted to fulfill its affirmative duty 
to negotiate a bilateral contract modification with KRI under the False Pass contract 
(findings 29, 42-45, 47). The Corps repeatedly directed KRI to be sure to set aside 
enough of the funds reserved to the contract to cover any additional work, and 
potential claims and termination costs (items that would have been the Corps' liability 
under the CCC-5001 but were KRI's liability under the new IFC-5004), 
contemporaneous evidence that -the Corps knew and understood the significant 
differences in the two clauses. The Corps also repeatedly assured KRI that it could 
submit a claim for any impacts resulting from the unilateral change in funding clauses 
along (see findings 11, 34, 68, 89, 92, 94, 98), which is compelling contemporaneous 
evidence that the Corps also understood that the funding clause change could affect 
KRI's planned and actual performance of the contract work. 
As we have found, any analysis of actual work performance in comparison to 
KRI's schedules for construction seasons 2006 and 2007 are of little value to us 
because the Corps would not process KRI's payment requests unless KRI's schedule 
showed the original contract completion date. This forced KRI to manipulate its 
schedules to show planned work to be something other than was actually planned in 
order to comply with the Corps' demand. (Findings 37, 68, 75, 77) The Corps, for the 
first time in its COFD, offers arguments with little, if any, credible evidentiary support 
in an attempt to convince us that all delays and increased costs experienced by KRI 
119 

were of its own making. Except as expressly addressed below, we have carefully 
considered these arguments and found them to be unpersuasive. 
For the first time in the COFD the Corps argued that KRI delayed the start of 
the project in 2006 because it was not ready to begin work. The contemporaneous 
record, however, is very clear that KRI's late start was the Corps' specific choice after 
acknowledging that the effect of the IFC-5004 on the funding available for the 2006 
construction season, after KRI set aside a certain amount to cover items that would 
previously have been funded under the CCC-5001, was less than the work KRI had 
planned to perform in its previously-approved schedule for 2006. It was also the 
Corps' decision to delay the bridge and dock work (regardless of whether the original 
design or KRI's VECP) to a later season. (Finding 34) 
The record shows that there was a very real concern on the part of the Corps 
and KRI that Congress would not appropriate additional funds in support of the False 
Pass project beyond those already reserved to the contract in 2006 and that, if there 
were no additional funds, the contract would need to be terminated for convenience 
(findings 34, 40, 46, 48, 58). This very real possibility of termination for convenience, 
and KRI's estimated potential costs associated with it, required KRI, under the 
IFC-5004 and in compliance with the Corps' continued reminders to do so, to continue 
to set aside a certain amount of the funds reserved under the contract in 2006 to cover 
additional work, claims and termination costs. Nevertheless, CO Williams refused to 
meet with KRI to discuss the matter and further refused to even consider termination 
because that would likely result in the end of a project that the Corps had been trying 
to get done for 10 years (finding 46). Over the winter between the 2006 and 2007 
construction seasons, when KRI would normally have been making arrangements and 
financial commitments in preparation for the 2007 construction season, KRI could not 
do so because it had no way of knowing whether there would actually be a 2007 
construction season: ( 1) if Congress did not appropriate more funds, the contract 
would be terminated for convenience and there would be no further work to prepare 
for; and, (2) until the Corps issued a contract modification reserving additional funds 
to the contract and it was known that the contract would not be terminated, there were 
not sufficient funds remaining, after setting aside funds to cover costs previously 
covered by the CCC-5001, to cover the commitments that KRI had to make in 
preparation for the 2007 construction season. KRI was in a holding pattern of the 
Corps' making and there was no contact from the Corps with regard to funding from 
the fall of 2006 until March 2007 when KRI was first made aware that the contract 
was not terminated and Congress had appropriated the balance of the contract award 
amount of funds. KRI had planned to mobilize for the 2007 construction season in 
April 2007. However, since it had been unable to perform the necessary preparation 
over the winter, it was not able to perform a good deal of the work it had planned to 
complete in that season. The Corps argues that the reason KRI was unable to perform 
as it had planned in the 2007 construction season was because of rock production 
120 

difficulties by its subcontractor, Northern Mechanical. The contemporaneous record, 
however, shows that Northern Mechanical' s difficulties were with production of armor 
stone, the final layer of rock to be placed on the breakwaters, and that there was no 
issue with production or placement of either core rock or B rock in that season. In 
fact, the Corps recognized in Modification No. POOO 13 that KRI had actually needed 
less rock than originally planned (i.e. a rock underrun) to complete the breakwaters to 
contract specifications (finding 98). 
In July 2007, CO Davidson became involved as the primary CO and her first 
contact with KRI was to demand, without any apparent recognition of the unilateral 
funding clause change and the resulting impacts to KRI's schedule, that KRI complete 
contract performance by the original completion date. Once she was more fully 
informed by KRI as to what had occurred before her involvement, CO Davidson 
requested that KRI submit an REA in two parts: the first part, REA I, was to address 
KRI's request for an extension of the contract performance period due to the impacts 
of the unilateral funding clause change and the second part, REA II, was to address 
KRI's request for compensation for the monetary impacts suffered by KRI as a result 
of the impacts ofthe unilateral funding clause change. KRI did so. (Findings 72-73, 
76, 77, 85, 88-89, 91) The parties met on 20 May 2008 but CO Davidson's professed 
goal of negotiating a global settlement of all issues then-existing was never realized. 
Instead, chief of contracting Tew told KRI that: 
(Finding 92) 
[KRI] should ... go out and find the money and finish the job 
because [the Corps doesn't] have any money. And for [the 
Corps] to get the money, [it would] have to go to Congress 
to get it. It will be easier, it will be faster for [KRI] to file 
a claim and get it from the Ju[dgment] Fund. 
CO Davidson retired in June 2008 and CO Williams resumed the lead CO role 
for the False Pass project. CO Williams immediately abandoned KRI's 13 May REA 
submission and CO Davidson's plan to use the REA as a basis to negotiate a global 
settlement. Instead, he required KRI to prepare and submit a certified claim meeting 
more stringent requirements than those required by CO Davidson. (Findings 93-95) 
KRI submitted its certified claim on 24 November 2009 (finding 102). Following 
Mr. Tew's direction to KRI to find the money, complete the project and file a claim, as 
well as CO Williams' direction to proceed to perform the contract to completion 
(finding 93), KRI, as an experienced marine construction contractor in long-term good 
standing with its surety, was able to borrow the money to fund the contract's 
completion (finding 97). 
121 

Throughout the contract performance period the Corps had encouraged, 
sometimes directed, KRI to continue work to complete the False Pass project that the 
Corps had been trying to get accomplished for ten years. All the while, the Corps, 
knowing it had no more money to fund the contract work, also encouraged, and 
sometimes directed, that KRI submit REAs or claims for the extra time and extra costs 
KRI had continuously notified the Corps it was experiencing as a result of the 
continuing impacts of the Corps' post-award unilateral modification adding the 
IFC-5004 to the contract in 2006. When KRI submitted REAs and claims, the Corps 
consistently failed to respond to them in any meaningful way .. Finally, 3 years after 
contract completion, CO Williams signed a 10 I-page COFD that was authored by 
others not involved with the contract in which the Corps denied liability for any of the 
impacts experienced by KRI. The Corps had gotten the False Pass project completed, 
at KRI' s great expense, and now argues before us that it owes KRI nothing more than 
the original contract amount. 
On the basis of the foregoing, we hold that the Corps' continued failure to 
address KRI's many attempts to resolve the funding issues and related impacts to 
KRI's performance of the contract work constituted a continuing breach of the Corps' 
implied duty of good faith and fair dealing. KRI has met its burden of proof of 
elements 2 and 3 of its claims for breach of the Corps' implied duty of good faith and 
fair dealing. We now tum to the fourth element of damages. 
C. Damages 
Having found that KRI has met its burden of proving elements 1-3 of breach of 
contract, we now tum our attention to the fourth element of damages. 
The RESTATEMENT {SECOND) OF CONTRACTS § 344 
(1981 ), sets forth the pertinent principles underlying the 
judicial remedies for breach of contract: 
Judicial remedies under the rules stated in this 
Restatement serve to protect one or more of the 
following interests of a promisee: 
(a) his "expectation interest," which is his interest in 
having the benefit of his bargain by being put in as 
good a position as he would have been in had the 
[breach never occurred], 
(b) his "reliance interest," which is his interest in being 
reimbursed for loss caused by reliance on the contract 
122 

by being put in as good a position as he would have 
been in had the contract not been made, or 
( c) his "restitution interest," which is his interest in 
having restored to him any benefit that he has conferred 
on the other party. 
C/2, Inc., ASBCA No. 59948, 16-1BCA~36,410 at 177,533. Each of these remedies 
is designed to make the non-breaching party whole; the one most appropriate to the 
circumstances is to be applied. 
KRI claims that: 
Thus, impacts from the Government breach were 
immediate, from and after the April 3, 2006 Partnering 
Meeting. The impacts were substantial, necessitating a 
major revision and reduction of KRI's original work plan. 
And the impacts were continuing, spilling over into the 
2007 construction season and severely impairing 
construction operations all that season due to the 
uncertainty of further funding, the potential for 
termination, which meant that the hold back reserve had to 
be maintained; and residual effects spilled over into 2008 
because of the substantial (63%) amount of work that still 
remained to be done, and because of the armor rock supply 
issues which trace directly back to 2006. 
(App. br. at 117) As a result, KRI claims damages: (a) for the period from contract 
start through 9 January 2007 in the amount of $5,808, 719 .19 using Termination 
Settlement pricing; and, (b) for the period from 10 January 2007 through contract 
completion in the amount of$19,326,328.55 using restitution pricing (findings 102, 
107). In the alternative, KRI argues that the damages to which it is entitled should be 
calculated using the modified total cost methodology as requested by the Corps, 
recommended by DCAA and agreed to by the parties (findings 106, 108). 
There was no termination of KRI's contract and there is therefore no basis for using 
termination settlement principles in the calculation of breach damages. KRI's use of 
restitution pricing in its calculation of damages claims that the value to the Corps of the 
False Pass project should be based on the contract prices for other allegedly similar 
projects which were awarded by the Corps in 2008-2009 (SR4, tab 3 at 77-101). We find 
KRI's arguments in this regard to be based on speculation which is not an appropriate 
basis for the calculation of damages under the circumstances before us here. We do, 
however, find KRI' s unrebutted evidence of the escalation in the costs of various 
123 

components of the performance of the allegedly similar projects to be credible evidence 
which corroborates KRl's evidence of its own actual increased costs. 
Under the circumstances presented in this appeal, we believe expectation 
interest principles to be the most appropriate method of calculating a remedy to 
provide KRI with the benefit of the bargain it made in the contract as advertised, bid 
and awarded. Teresa A. Mc Vicker, P.C., ASBCA Nos. 57487, 57653, 12-2 BCA 
ii 35, 127 at 172,465 (citing Anchor Savings Bank, FSB v. United States, 597 F.3d 
1356, 1362 (Fed. Cir. 2010)). 
With respect to the measurement of expectancy 
damages, the RESTATEMENT (SECOND) OF CONTRACTS 
§ 347 (1981) provides as follows: 
Subject to the limitations stated in §§ 350-53, 
the injured party has a right to damages based 
on his expectation interest as measured by 
(a) the loss in the value to him of the other party's 
performance caused by its failure or deficiency, plus 
(b) any other loss, including incidental or 
consequential loss, caused by the breach, less 
( c) any cost or other loss that he has avoided by not 
having to perform. 
C/2, 16-1BCAii36,410 at 177,533 (emphasis omitted). Proof of breach damages 
requires that: (1) the damages were reasonably foreseeable by the Corps at the time of 
contracting; (2) the damages were caused by the Corps' breaches of contract; and 
(3) KRI has supported the damages with reasonable certainty. Yankee Atomic Elec. 
Co. v. United States, 536 F.3d 1268, 1273 (Fed. Cir. 2008). 
We have found that the Corps was well aware at the time it awarded the 
contract that the change in funding clauses made mandatory by the E& WDA would 
likely result in increased time and/or costs to perform existing continuing contracts. 
Nevertheless, the Corps made the conscious decision to advertise, accept bids and 
award the False Pass contract with the CCC-5001, knowing that the clause would have 
to be replaced by the IFC-5004 after award. When the Corps unilaterally replaced the 
CCC-5001 with the IFC-5004, it breached the contract. When the Corps time and 
again failed to address KRI' s repeated notifications of incurrence of increased costs 
throughout performance of the contract, all the while directing that KRI complete the 
contract, it breached its implied duty of good faith and fair dealing, as well as its 
124 

express duties under the Changes and Disputes clauses. The incurrence of damages in 
the form of increased performance time and increased costs resulting from the Corps' 
breaches of contract was therefore clearly foreseeable by the Corps at the time it 
awarded the contract. The False Pass project was the only large project performed by 
KRI at all times relevant to the matters before us and there is no credible evidence in 
the voluminous record before us that the costs claimed by KRI were not incurred in 
performance of the False Pass project. We are satisfied that any costs incurred by KRI 
in performance of the False Pass project which were not caused by the Corps' breaches 
of contract have been removed from its claimed damages. We have found that the 
record supports KRI's appropriately adjusted first and second MTC pricing 
submissions as credible presentations of the increased costs, incurred by KRI as a 
result of the Corps' breaches (finding 110). 
KRI's various REA and claim submissions all start with the total booked direct 
costs incurred by KRI on this project. DCAA audited nearly all of those costs and, with 
very few exceptions, found them to have been supported as incurred. To the extent the 
DCAA audit credibly questioned certain claimed costs for reasons other than 
unauthorized entitlement determinations, we are satisfied that KRI has removed them 
from its amended claim calculations. The Corps' own expert witness, Mr. Cotton, 
agreed that KRI's documentation supported its calculations in its various updated claim 
pricing submissions. Mr. Cotton also opined that $2,100,000 ofKRI's updated claimed 
total costs had not been audited by DCAA and, therefore, should not be considered. 
(Tr. 10/ 166-67, 182-85, 202-06) It is not a requirement of KRI' s burden of proof that 
costs supported by it to the Corps have been audited, particularly when it is the Corps' 
decision alone whether or not to request an audit or supplemental audit. The failure of 
the Corps to request an audit of the claimed incurred job costs, or any portion of them, is 
certainly not dispositive of whether those costs have been incurred. It is well established 
that the '"preferred' method of proving a claim is by 'actual cost method."' Systems San 
Francisco Ship Repair, ASBCA No. 58809, 16-1 BCA ,-r 36,226 at 176, 734. Audited or 
not, we have found KRI's claimed job costs to be supported in the record and to be 
credible presentations of actual job costs (finding 110). 
After due consideration of the voluminous record before us, including 
documentary, testimonial and expert witness evidence from both parties, we find KRI 
to be ~ntitled to the following damages resulting from the Corps breaches of contract: 
Total booked direct costs $34,970, 152 
-Plus later-identified costs not booked 16,532 
-Less reduction in demobilization -612,296 
-Less unallowable costs -87,987 
125 

-Less other costs disallowed by DCAA -137,367 
-Less costs "that are not, or might not be, the -3,915,062 
responsibility" of the Corps 
Total adjusted direct costs $30,233,972 
-Plus G&A ( 11.383%) 3,441,533 
Subtotal $ 33,675,505 
-Plus profit (10%) 3,367,550 
Subtotal $ 37,043,055 
-Less amount paid by the Corps under the contract -19 ,445,279 
Subtotal $ 17,597,776 
-Plus cost ofKRI's borrowing to comply with CO $3,052,477 
direction to complete the project while at the same time 
refusing to discuss KRI's claimed monetary impacts 
Total $20,650,253 
(SR4, tab 5 at 68-70, tab 19 at 1175-81, tab 182 at 50-51) 
The Corps argues that the cost of borrowing in KRI's claim is expressly 
unallowable because it is interest, however, under the circumstances now before us, 
the cost of borrowing the funds to complete the Corps' project as directed was a direct 
result of the Corps' breaches of contract and a business expense not reasonably 
foreseeable by KRI at the time the contract was awarded and the parties' bargain was 
struck. The Court of Appeals for the Federal Circuit has agreed that: 
[W]hile interest on a claim is not recoverable, interest as a 
claim should be. 
Such an award is not one of interest, but a direct 
consequence of the breach. Proper circumstances for 
award in that case was debt that is "directly traceable [and] 
clearly in connection with" the Government's breach. 
Arizona Public Service Co. v. United States, 93 Fed. Cl. 384, 394 (2010) (citation 
omitted). KRI argues in its reply brief that the total amount of the expense is now 
larger than the amount it previously claimed and further states a daily rate to use in 
126 

calculation of the amount up to the date of payment to KRI (app. reply br. at 40-41). 
While we are mindful that such an expense is, in fact, a continuing expense, the record 
has been closed since the end of the hearing in this matter and we decline to award an 
amount larger than the one contained in KRI's claim which we have held is supported 
by record documentation. Likewise, KRI's claims included estimated additional bond 
expense which we do not include in our calculation of breach damages because the 
actual amount is unknown and not supported in the record before us. 
CONCLUSION 
We sustain the appeal in the amount of $20,650,253, plus CDA interest pursuant 
to 41 U.S.C. § 7109 calculated from 24 November 2009 until paid. 
Dated: 5 December 2017 
I concur 
RICHARD SHACKLEFORD 
Administrative Judge 
Acting Chairman 
Armed Services Board 
of Contract Appeals 
127 
Administr- tive Judge 
Armed Services Board 
of Contract Appeals 
Administrative Judge 
Vice Chairman 
Armed Services Board 
of Contract Appeals 

I certify that the foregoing is a true copy of the Opinion and Decision of the Armed 
Services Board of Contract Appeals in ASBCA No. 57168, Appeal of Kelly-Ryan, Inc., 
rendered in conformance with the Board's Charter. 
Dated: 
128 
JEFFREY D. GARDIN 
Recorder, Armed Services 
Board of Contract Appeals