GRANTED IN PART: November 6, 2013
CBCA 2235
RUSSELL SAND & GRAVEL COMPANY, INC.,
Appellant,
v.
INTERNATIONAL BOUNDARY AND WATER COMMISSION,
Respondent.
Mickey Beisman of Law Offices of Mickey Beisman, Albuquerque, NM, counsel for
Appellant.
Steven M. Fitten and Eric C. Meza, Office of the Legal Advisor, United States
Section, International Boundary and Water Commission, El Paso, TX, counsel for
Respondent.
Before Board Judges DANIELS (Chairman), GOODMAN, and DRUMMOND.
DANIELS, Board Judge.
The International Boundary and Water Commission (IBWC) terminated for the
convenience of the Government a delivery order it had issued to Russell Sand & Gravel
Company, Inc. (RS&G) under a contract for the supply and delivery of embankment material. 
RS&G then submitted a claim to the IBWC for termination settlement costs.  The agency’s
contracting officer denied the claim, and RS&G appealed her decision to the Board.
We conclude that the contracting officer had no valid basis for denying the claim, but
that RS&G has overstated the amount it is due.  The appeal is granted in part.


CBCA 2235 2
Findings of Fact
The IBWC determined that it needed to reconstruct levees in the Mesilla Valley area
of Doña Ana County, New Mexico, along the Rio Grande River, to provide flood protection. 
In May 2008, the agency sought price quotations for various materials to be used in this work
– embankment material, flex base, coarse aggregate, concrete sand, and miscellaneous
embankment.  RS&G was the low bidder for embankment material.
The contracting officer for this procurement, Patricia S. Singer, made inquiries of
RS&G concerning its responsibility for performing the work.  The company informed her,
“We are capable of supplying this project using our own resources.”  Ms. Singer determined
that the company was responsible:  “Russell Sand & Gravel Co. Inc. [has] adequate financial
resources to perform the contract [and] the necessary production, technical equipment and
facilities, or the ability to obtain them, to perform the required services.”  Although the
agency suggests that RS&G’s statement was not accurate and misled Ms. Singer into an
incorrect determination, we find that the opposite is true.  As explained at hearing by Russell
Casados, RS&G’s president:
We had some heavy equipment, trucks.  We had a pit that was leased from the
New Mexico State Land Office that contained the material and the borrow pit
that met the specifications of the embankment material.  We had a finance
company in place so that we were able to purchase equipment whenever
necessary.  We had accounts with different rental companies so we had the
availability of being able to lease whatever equipment or rent whatever
equipment we might need for the project.
On June 25, 2008, the parties entered into a contract for supply and delivery of the
embankment material.  The contract provided that the IBWC would purchase material
delivered by RS&G at the price of $7.49 per ton.  If the number of tons estimated in the
solicitation (2,705,755) had been purchased, the contract would have been worth
$20,266,104.95.
The contract stated, “THIS IS A FIRM FIXED PRICE REQUIREMENTS
CONTRACT” and included Federal Acquisition Regulation (FAR) clause 52.216-21,
“Requirements (Oct 1995).”  The instrument provided more specifically:
Any supplies and services to be furnished under this contract shall be ordered
by issuance of delivery orders or task orders by the individuals or activities
designated in the Schedule.  Such orders may be issued from CONTRACT
AWARD through EIGHTEEN (18) MONTH [sic] OF CONTRACT AWARD

CBCA 2235 3
DATE. . . .  Any order issued during the effective period of this contract and
not completed within that period shall be completed by the Contractor within
the time specified in the order . . . provided, that the Contractor shall not be
required to make any deliveries under this contract after AFTER [sic] 24
HOURS FOLLOWING THE EXPIRATION OF THE CONTRACT PERIOD
OF EIGHTEEN (18) MONTHS FROM CONTRACT AWARD DATE.
The contract contained some language about minimums and maximums.  In FAR
clause 52.216-19, “Order Limitations (Oct 1995),” it said, under the heading “Minimum
order,” that whenever the Government required less than eighteen tons of embankment
material, “the Government is not obligated to purchase, nor is the Contractor obligated to
furnish, those supplies . . . under the contract.”  The clause also said that if the Government
ordered more than the estimated amount of 2,705,755 tons, the contractor would not be
obligated to honor the order, as long as the contractor returned the order within seven
calendar days after it was issued.  The contract provided as well that the “contractor shall
guarantee that a maximum daily delivery rate of 18 tons of requested materials can be met.”1 
The contract incorporated by reference FAR clause 52.212-4, “Contract Terms and
Conditions – Commercial Items (Feb 2007).”  This clause includes the following
Termination clause:
Termination for the Government’s convenience.  The Government reserves the
right to terminate this contract, or any part hereof, for its sole convenience.  In
the event of such termination, the Contractor shall immediately stop all work
hereunder and shall immediately cause any and all of its suppliers and
subcontractors to cease work.  Subject to the terms of this contract, the
Contractor shall be paid a percentage of the contract price reflecting the
percentage of the work performed prior to the notice of termination, plus
reasonable charges the Contractor can demonstrate to the satisfaction of the
Government using its standard record keeping system, have resulted from the
termination.  The Contractor shall not be required to comply with the cost
accounting standards or contract cost principles for this purpose.  This
paragraph does not give the Government any right to audit the contractor’s
records.  The Contractor shall not be paid for any work performed or costs
incurred which reasonably could have been avoided.
1 The parties seem to agree that the contract’s reference to a “maximum daily
delivery rate of 18 tons” was in error and should have read, “1800 tons,” but the contract was
never modified to make this change.

CBCA 2235 4
48 CFR 52.212-4(l) (2007).
The IBWC issued two delivery orders under this contract.  On June 30, 2008, it issued
an order for 213,351 tons of embankment material, at a price of $1,597,998.99.  On July 25,
2008, the agency issued an order for 600,000 tons, at a price of $4,494,000.  Throughout
contract performance, the parties did not distinguish between the delivery orders; the two
were treated as, in effect, a single order for 813,351 tons of material.
The IBWC established the rate at which the material was delivered to the job site, for
placement by agency personnel.  Although the rate varied over time, Robert Ramzy, the
agency’s onsite supervisor for the levee project, testified that 1800 tons per day “was pretty
much our norm.”  Mr. Ramzy said that the material RS&G delivered met all specifications
and that no issues were ever raised about its quality.
By mid-2009, RS&G was concerned that because the agency had set production rates
so low, delivery of all 813,351 tons ordered could not be completed by the date eighteen
months after contract award (December 25, 2009).  A meeting was arranged in the office of
Congressman Harry Teague of New Mexico to discuss the situation.  According to RS&G
President Casados, the IBWC assured him at this August meeting that the orders could be
completed as much as a year after the scheduled contract closing date.  We accept this
testimony, which was unchallenged at hearing.  The IBWC included on its witness list the
agency’s representative at the meeting, acquisition chief Hugo White, but chose not to
present him as a witness.2
On September 25, 2009, however, Contracting Officer Singer sent an e-mail message
to RS&G stating, “[D]elivery of material reference subject contract is temporarily suspended
until further notice.”  Three days later, Acquisition Chief White told the contractor:
S&B Infrastructure, LTD is designing various reaches along the Upper Rio
Grande on behalf of the USIBWC [United States Section, International
Boundary and Water Commission].  These reaches will be designed and
2 Mr. White did send Mr. Casados a letter allegedly summarizing their
understanding.  The letter makes no sense, however.  It says that “Delivery Orders issued to-
date are expected to be fulfilled within twelve (12) months of issuance . . . and will remain
open until fulfilled within the twelve (12) month period.”  By the time of the meeting, more
than twelve months had passed since each of the delivery orders had been issued, so if the
sentence in the letter were to be honored, RS&G would have been precluded from making
any additional deliveries.

CBCA 2235 5
packaged for national competition among interested sources.  The USIBWC
in-house operation which required your material was negatively impacting the
A/E’s [architect/engineer’s] ability to proceed with the design, therefore a
temporary suspension was put in effect on those contracts providing
embankment material along affected reaches.  The length of this suspension
depends on the A/E’s ability to expeditiously complete various analyses.
The following month, on October 23, Ms. Singer told Mr. Casados that “modification
to terminate for convenience for [sic] subject DO [delivery order] will be forthcoming by
early next week.”  On October 27, she sent RS&G a contract modification terminating the
second delivery order for the convenience of the Government.  (By this time, the first
delivery order had been completed.)
Mr. Casados then laid off the majority of the company’s workers on the project,
returned equipment he had rented for the job, and began to pursue other work for the
company’s own equipment which had been devoted to the contract.  During the following
year, RS&G bid on forty-five to fifty projects and tried to get work as a subcontractor or
materials supplier on other projects for which the equipment could be used.  The company
was unsuccessful in these efforts.  It was the low bidder for two contracts, but one of the jobs
was put out for re-bid and the other was awarded to another firm after a bid protest.  Due to
a downturn in the economy, Mr. Casados testified, little work was available and his
competitors were bidding so aggressively that he was unable to find other work for the
equipment.  With few exceptions, the vehicles the company had used on the IBWC project
remained idle.
On September 16, 2010, Mary Casados – Mr. Casados’ wife, as well as the
secretary/treasurer and co-owner of RS&G – sent the following e-mail message to Ms. Singer
and Mr. White:
While preparing to submit our settlement proposal for the subject Termination
of contract IBM08D0005[,] Russell Sand & Gravel has determined that under
our accounting system, unit costs for work in process and finished products
cannot readily be established prior to completion of all the work initially
ordered . . . .  Therefore, as required under [FAR] section 49.206-2, bases for
settlement proposals of the FAR, we request your approval to submit our
proposal under the total cost basis.
Ms. Singer responded on September 23:

CBCA 2235 6
This is your written notification of the Contracting Officer’s decision on your
request to submit your termination settlement proposal as a ‘total cost basis’
in accordance with Federal Acquisition Regulation (FAR) part 49.206-2.  Your
request for a settlement is denied based upon the terms of the contract as stated
herein.
. . . .
This is a ‘requirements’ type contract, reference contract FAR clause 52.216-
21.  The quantities specified in the schedule of the contract are estimates only
and are not purchased by the contract.  If the Government’s requirements do
not result in ordering the quantities described in the schedule as estimated or
maximum, that fact shall not constitute the basis for an equitable price
adjustment.  Further, the minimum order quantities specified in accordance
with the ‘Order Limitation’ FAR clause 52.216-19 of the contract was [sic]
satisfied.
 . . .  This is the final decision of the Contracting Officer.  You may appeal this
decision to the Civilian Board of Contract Appeals.
Undaunted, RS&G submitted a termination settlement proposal to Ms. Singer on
September 28.  The proposal was prepared by Mr. Casados in conjunction with Gene
Beisman, a highly experienced construction engineer who had a long history of costing
projects and had been involved in roughly a dozen convenience terminations.  The two men
took all of their figures from RS&G’s cost records.  The proposal was submitted on a
government Standard Form 1435, “Settlement Proposal – Inventory Basis,” and included a
certification which was pre-printed on the form and signed by Mr. Casados.  The proposal
requested payment of $945,644.31, which was the difference between the asserted costs
incurred on the project and the payments RS&G had received from the IBWC.  The asserted
costs included those for equipment between the date of termination of the delivery order and
October 2010, which is when the company calculated it would have completed its material
deliveries had the production rate been the 1800 tons per day which had predominated during
the life of the orders.  RS&G included with its proposal a cover letter which stated, “In an
undated letter recently, you denied this proposal without ever having seen it.  Therefore,
[RS&G] asks that you review its enclosed Convenience Termination Settlement Proposal and
issue a decision based on your review.”
Ms. Singer wrote a “determination and findings” on October 1, concluding that “the
claim . . . is not valid and shall not be paid.”  She explained, “Russell has not demonstrated
to the satisfaction of the government using standard record keeping system, resulting from

CBCA 2235 7
the T4C [termination for convenience].”  She then sent RS&G a letter dated October 14,
stating, “This . . . is to advise you that the Contracting Officer stands by its [sic] decision
delivered to you via certified mail on September 28, 2010.  Your request for a settlement is
denied.”
RS&G appealed from both of Contracting Officer Singer’s decisions on December 9,
2010.
After the appeal was filed, the IBWC finally began to consider RS&G’s termination
settlement proposal critically.  On January 11, 2011, Mr. White, who was by then the
contracting officer for this contract, prepared what he called “Contracting Officer Statement
of Facts and Analysis of Termination Proposal.”  In this document, he concluded that the
contractor was entitled to $226,518.  Mr. White also prepared questions about the proposal
and its supporting documentation, and he sent those questions to RS&G on February 7.
RS&G responded to the questions and submitted an amended settlement proposal on
March 3, 2011.  This proposal was submitted on a government Standard Form 1436,
“Settlement Proposal (Total Cost Basis).”  Like the September 28, 2010, proposal, this one
included a certification which was pre-printed on the form and signed by Mr. Casados.  The
certification on this Standard Form 1436 is identical to the certification on the Standard Form
1435, which had been submitted earlier.  The amended proposal sought payment of
$758,039.  It differed from the original proposal only in that it eliminated two items –
depreciation for vehicles more than five years old and an inadvertent double-counting of
some equipment ownership costs – and added one item, facilities capital cost of money
(FCCM).
Because this proposal forms the basis of RS&G’s claim as presented at hearing and
in the briefs, we set it forth here in detail:
Labor $   928,711.88
Equipment   1,761,817.06
  Ownership costs $   939,207.823
    Registration and insurance   $   317,187.65
    FCCM             85,351.96
    Depreciation           536,668.22
  Rent        52,285.43
  Major repairs      310,316.30
3 We note this total is one cent less than the sum of its three components.

CBCA 2235 8
  Maintenance and fuel      460,007.51
Material      124,339.11
Project overhead      129,510.56
Total project direct costs $2,944,378.61
Project general & administrative
  expenses      109,074.82
Subtotal $3,053,453.42
Profit (12%)      366,414.41
Settlement expenses        35,000.00
Total project value $3,454,867.83
Less: payments received           (  2,696,829.47)
Total claimed $   758,038.36
After receiving this proposal, on March 10, 2011, Mr. White wrote a second
“Contracting Officer Statement of Facts and Analysis of Termination Proposal.”  In this
document, he concluded that RS&G was entitled to $297,747.25.  Mr. Casados rejected this
offer as insufficient reimbursement for the costs RS&G had incurred, and the parties
proceeded to litigate the case.
At some point during 2011, IBWC counsel asked the agency’s internal audit program
manager, Christopher Parker, to review the proposal.  On January 5, 2012, Mr. Parker
produced a position paper on the matter.  He concluded, after taking what he called an
“enterprise level approach,” “It is my opinion that none of the settlement proposal should be
allowed – primarily because RS&G already made a profit in 2008 and 2009.”  Under Mr.
Parker’s approach, the “contract termination expenses are to be portrayed as a representative
and proportional estimate of the entity’s operations for 2008 and 2009.”  At hearing, Mr.
Parker explained, “This is a simple matter of allocating expenses.  The RS&G settlement
proposal over-allocates expenses to the IBWC.”  Mr. Parker believed that RS&G “underbid
this contract by 36 percent. . . . So it was evident to me that perhaps they underbid too low
on this contract, and yet the figures showed they still made money.”  The IBWC characterizes
Mr. Parker as an expert, but it did not attempt to qualify him as an expert at hearing.  Mr.
Parker acknowledged that he has no experience whatsoever with bidding construction jobs
or analyzing convenience termination settlements.  We find that whatever expertise he may
have is not applicable to analyzing RS&G’s settlement proposal/claim.  Nevertheless, we
discuss his analysis below because the IBWC relies heavily upon it.

CBCA 2235 9
After Mr. Parker’s paper was issued, on February 23, 2012, Mr. White penned his
third analysis of the proposal.  This time, he concluded, “The net result of the Government
review and analysis reflects Russell did not have any excess total project costs (utilizing the
Cost Method approach) and therefore the Government is not obligated to pay any amount to
[RS&G].”  On April 24, 2012, Mr. White wrote a fourth analysis of the proposal.  His
conclusion this time was identical to the one he reached in the third analysis.
Discussion
The IBWC terminated for the convenience of the Government a delivery order it had
issued to RS&G under a contract for the supply and delivery of embankment material.4 
Under the terms of the contract, when the contract (or in this case, a delivery order) is
terminated for the convenience of the Government, the agency is required to make two
varieties of payment to the contractor.  The first is “a percentage of the contract price
reflecting the percentage of the work performed prior to the notice of termination.”  There
is no doubt that the agency paid this amount.  The second is “reasonable charges the
Contractor can demonstrate to the satisfaction of the Government using its standard record
keeping system, have resulted from the termination.”  (These charges do not include, the
contract says, “costs incurred which reasonably could have been avoided.”)  Because the
parties have not been able to agree on the reasonable charges that resulted from the
termination, we must determine that amount here.
We must keep in mind a couple of basic principles when making the determination. 
First, as enunciated in the FAR, “A settlement should compensate the contractor fairly for
the work done and the preparations made for the terminated portions of the contract,
4 The parties have devoted excessive attention to whether the contract is a
requirements contract (RS&G’s position) or an indefinite delivery/indefinite quantity contract
(the IBWC’s).  The contract plainly states that it is a requirements contract, and agency
counsel is incorrect in asserting that the agency ordered a contractually-required minimum
amount of embankment material.  (The only minimum in the contract is an amount of
material less than which the agency need not order from the contractor and which, if ordered,
the contractor may refuse to supply.)  The nature of the contract is unimportant to the
resolution of this case, however.  The agency issued two delivery orders under the contract,
and each of those delivery orders, standing alone, constituted a fixed-price contract.  The
contractor has never contended that the agency improperly diverted to other vendors orders
which should have been given to it under the contract, and it has not sought any costs which
resulted from anything other than the delivery orders.

CBCA 2235 10
including a reasonable allowance for profit.”  48 CFR 49.201(a).  Thus, as the Court of
Appeals for the Federal Circuit has said – 
A contractor is not supposed to suffer as the result of a termination for
convenience of the Government, nor to underwrite the Government’s decision
to terminate.  If he has actually incurred costs . . . , it is proper that he be
reimbursed those costs when the Government terminates for convenience and
thereby [cuts] off his ability to amortize those costs completely.
Jacobs Engineering Group, Inc. v. United States, 434 F.3d 1378, 1381 (Fed. Cir. 2006)
(quoting Kasler Electric Co., DOT CAB 1425, 84-2 BCA ¶ 17,374, at 86,566-67).
Second, to effectuate this purpose, the Government’s decision to terminate a contract
for convenience essentially acts to convert a fixed-price contract into a cost reimbursement
contract.  Divecon Services, LP v. Department of Commerce, GSBCA 15997-COM, et al.,
04-2 BCA ¶ 32,656, at 161,636; Airo Services, Inc. v. General Services Administration,
GSBCA 14301, 98-2 BCA ¶ 29,909, at 148,071; Richerson Construction, Inc. v. General
Services Administration, GSBCA 11161, et al., 93-1 BCA ¶ 25,239, at 125,704 (1992);
Praecomm, Inc. v. United States, 78 Fed. Cl. 5, 12 (2007), aff’d, 296 F. App’x 929 (Fed. Cir.
2008) (citing White Buffalo Construction, Inc. v. United States, 52 Fed. Cl. 1, 4 (2002), and
Best Foam Fabricators, Inc. v. United States, 38 Fed. Cl. 627, 638 (1997)).  The
Government’s Standard Forms 1435 and 1436 for convenience termination settlement
proposals recognize this principle by directing a contractor to make its proposal on a total
cost basis, showing its costs and profit, plus settlement expenses, less payments received, to
arrive at an amount requested.  The IBWC’s reliance on Servidone Construction Corp. v.
United States, 931 F.2d 860 (Fed. Cir. 1991), and Trafalgar House Construction, Inc. v.
United States, 73 Fed. Cl. 675 (2006), for the proposition that the total cost method of
calculating claims is disfavored is misplaced.  The courts in those cases were addressing
claims for equitable adjustments under fixed-price contracts, not claims for termination costs
under what have essentially been converted into cost reimbursement contracts.
To determine the proper amount of recovery, we review each of the elements of
RS&G’s  claim, using the headings established by the contractor.   We use precise numbers,
as the contractor did in its proposal.  We hasten to add, however, that this should not have
been necessary.  As the FAR explains –
Fair compensation is a matter of judgment and cannot be measured exactly. . . . 
The use of business judgment, as distinguished from strict accounting
principles, is the heart of a settlement. 

CBCA 2235 11
. . . .
Cost and accounting data may provide guides, but are not rigid measures, for
ascertaining fair compensation.  In appropriate cases, costs may be estimated,
differences compromised, and doubtful questions settled by agreement.  Other
types of data, criteria, or standards may furnish equally reliable guides to fair
compensation.  The amount of recordkeeping, reporting, and accounting
related to the settlement of terminated contracts should be kept to a minimum
compatible with the reasonable protection of the public interest.
48 CFR 49.201(a), (c).  Because the parties resist settlement so strenuously, however, we
believe that we must proceed as we do. 
Labor.  The contractor’s records include a lengthy and detailed document showing
“IBWC Payroll by Week” for the duration of its work under the delivery orders issued by the
agency.  The document shows wages for each of the contractor’s employees on a weekly
basis.  The total payroll, less payments to Mr. and Mrs. Casados, is $920,564.73.  RS&G
acknowledges that $29,964.07 of the total payroll was for labor involved in other projects,
so only $890,600.66 was for labor under the delivery orders issued by the IBWC.  To this
amount, the contractor adds $38,111.22 in costs for worker’s compensation insurance and
drug testing of its truck drivers.  The total noted for labor is $928,711.88.
The IBWC challenges this figure on three grounds.  First, the actual payroll devoted
to the IBWC work must have been less than alleged because it constitutes 74.69% of the
company’s wage costs for 2008 and 2009, but the IBWC work constituted only 28.15% of
the company’s sales in 2008 and 37.93% of its sales in 2009.  Second, the records include
wages for employees who are not listed on a foreman’s notes for particular days.  Third, the
records include wages for some employees who have addresses in Los Ojos, New Mexico,
which is four hundred miles north of the job site, and therefore could not have been working
on this project.
None of these assertions is a valid reason for questioning RS&G’s labor costs.  As to
the first, as pointed out by the company’s accountant, Dean Willingham, the wage payments
and sales receipts are not directly comparable because the records of the former are on a cash
basis and the reports for the latter were prepared on an accrual basis.  We do not know
whether the numbers cited by the agency are correct because the record contains no
foundation for them, other than bald statements in Mr. Parker’s report.  Even if the wages
and sales could be compared, we have no idea of the extent to which any of RS&G’s projects
involved labor costs or capital costs, or the profit margins of any of the projects.  The IBWC
did not bother to engage in discovery about these matters, and it did not present any evidence

CBCA 2235 12
about them.  Further, if the agency is correct in its surmise that only 62 to 72% of the wages
(and other costs claimed) were actually spent for work under the contract, the company’s
profit on the job would have been enormous.  We will discuss this further below, under the
heading “Profit.”  For the moment, it is sufficient to say that the wages claimed are
proportionate to a reasonable profit on the job, and this factor helps to persuade us that those
wages are reasonably stated.
As to the agency’s second assertion, the IBWC did not bother to call the foreman as
a witness to ask about the discrepancies.  RS&G says, plausibly, that the foreman’s notes list
people at the site where he was working (the IBWC levees), but other employees were
working at another site (the pit from which the embankment material was taken).  The
contractor’s rejoinder to the third assertion is simple and makes sense: some employees lived
permanently in Los Ojos, where the company is headquartered, but while they were working
on the project, they were lodged temporarily near the job site.
We do make two minor modifications to RS&G’s charges for labor.  (1) Mr. Beisman,
the very knowledgeable individual who assisted in preparation of the settlement
proposal/claim, noted in his expert report that after further review of the company’s records,
he determined that $8358.63 in labor costs included in the claim should actually have been
charged to other customers’ orders.  We accept this amendment, decreasing the payroll
amount devoted to the IBWC work to $882,242.03.  (2)  With this change, the percentage of
labor costs listed in the payroll records, but associated with other jobs, becomes 4.163%.  The
parties agree that charges incurred for many items, listed below, should be reduced by the
proportion attributable to other jobs.  RS&G has used, as a proxy for that proportion, the
percentage of labor costs which were attributable to other jobs.  (The contractor
miscalculated that percentage as 3.259%, using an incorrect number for the wages paid to
Mr. and Mrs. Casados; the percentage should have been 3.255%.)  Having no other guide
rationally suggested, we use the one suggested, modified to include the number we find
appropriate.  In our judgment, the practice of allocating 4.163% of costs claimed to other jobs
should be applied to charges for worker’s compensation insurance and drug testing of drivers
as well.  We reduce those charges by that percentage.  The charges therefore become
$36,524.65.  The total labor charge for the IBWC delivery orders was $882,242.03 (wages)
plus $36,524.65 (insurance and drug testing), or $918,766.68.
Equipment – ownership.  Under this heading, RS&G lists three subcategories,
registration and insurance, facilities capital cost of money (FCCM), and depreciation.  For
each of these categories, the contractor shows its costs for the period of time from July 2008,
when it began work under the IBWC’s delivery orders, until October 2010, when it would
have completed work if the second delivery order had not been terminated for convenience
and the production rate had remained the predominant 1800 tons per day during the period

CBCA 2235 13
after termination.  As to FCCM and depreciation, RS&G includes analyses, prepared by Mr.
Beisman, on a vehicle-by-vehicle basis.  The FCCM figures are, for each vehicle, for the
period from the time the vehicle was brought to the job until October 2010 or the earlier date
on which the vehicle was taken off the job and used for other purposes.  The depreciation
figures are shown in similar fashion; they are also divided between the time when the job was
ongoing and the time after termination occurred.  The charges claimed and documented are
$317,187.65 for registration and insurance, $85,351.96 for FCCM, and $536,668.22 for
depreciation of vehicles.
The IBWC’s objection to including these costs in the claim is diffuse.  The agency
does not complain about any of Mr. Beisman’s calculations.  In its posthearing brief,
however, the agency maintains that depreciation is claimed for some vehicles which had been
fully depreciated before contract performance began, and that FCCM should not be allowed
because the contractor did not allocate those costs among different projects.  Earlier, in Mr.
White’s analyses, none of the costs were allowed for the period after termination occurred. 
Mr. White also testified at deposition that ownership costs should not be allowed because the
contractor’s vehicles were being used on other projects.  When he was asked, however, if
there was “documentary . . . evidence that they were used on other projects than the IBWC
project?”, he responded, “I did not see any documentation.”  Instead, he said, he relied solely
on the word of Mr. Parker and agency counsel.  Neither Mr. Parker nor counsel directed us
to such evidence, and there is none in the record.
Again, the agency’s concerns are misplaced.  RS&G has explicitly removed from its
claim all depreciation for vehicles which were fully depreciated before contract performance
began.  Allocating FCCM among different projects is inappropriate because, with a small
exception noted below, every vehicle for which those costs are noted was devoted solely to
this project during the relevant time period.
The FAR contains a specific cost principle for costs continuing after termination:
Despite all reasonable efforts by the contractor, costs which cannot be
discontinued immediately after the effective date of termination are generally
allowable.  However, any costs continuing after the effective date of the
termination due to the negligent or willful failure of the contractor to
discontinue the costs shall be unallowable.
48 CFR 31.205-42(b).  We find that RS&G’s thesis that but for the termination, work would
have continued for another year is valid.   Mr. Casados testified convincingly that RS&G
tried hard but failed, during this year after termination, to get work for which the vehicles
could be used.  The costs associated with the vehicles could not be discontinued during the

CBCA 2235 14
time when contract performance would have continued, but for the termination.  These costs
are consequently allowable.
We do make some modifications to the claimed amounts.  First, because the vehicles
were used for other small projects as well as IBWC work, we deduct the proportion of the
work on those other projects, 4.163%, from the amount in each of the three categories. 
Second, to assist in the determination of an appropriate profit on this contract, we divide the
costs between those incurred during contract performance and those incurred during the
following year, when performance would have continued but for the termination.  For
registration and insurance, and FCCM, the division is proportionate; for depreciation, it is
as per Mr. Beisman’s calculations.  With these two changes, we find that the costs were as
follows:
July 2008 to October 2009 October 2009 to October 2010
Registration and insurance $173,704.64 $130,278.48
FCCM     46,742.15     35,056.61
Depreciation   293,916.96   220,409.77
We note that these three categories and project general and administrative expenses
(discussed below) are the only ones for which RS&G seeks reimbursement for post-
termination costs.
Our third modification involves FCCM.  FCCM “is an imputed cost designed to
compensate a contractor for the opportunity and inflationary costs of holding fixed assets
used to perform a contract.”  AT&T v. General Services Administration, GSBCA 11730, 95-2
BCA ¶ 27,869, at 138,969.  This cost is generally applicable to cost-reimbursement contracts,
where it must be identified in the proposal in order to be claimed.  48 CFR 31-205.10(b)(3). 
When a fixed-price contract is terminated for the convenience of the Government, it
essentially becomes a cost-reimbursement contract, so FCCM may be claimed there even
though it was not identified in the proposal.  AT&T, 95-2 BCA at 138,970; Fiesta Leasing
& Sales, Inc., ASBCA 29311, 87-1 BCA ¶ 19,622, at 99,287-88, 292; (decision holding that
commercial vehicles – buses, in that case – are eligible for application of FCCM).  Because
FCCM is an accounting concept which is an offset against profit, however, see Office of
Federal Procurement Policy Policy Letter 80-7, 45 Fed. Reg. 82,594 (Dec. 15, 1980), we
remove it from the costs on the basis of which profit may be calculated.  This is the practice
followed by Mr. Beisman, as well, in the expert report he submitted, correcting what he
properly perceived as an error in the development of the settlement proposal/claim.

CBCA 2235 15
Equipment – rent.  RS&G spent $52,285.43 to rent equipment which it used in
performance of the IBWC delivery orders.  Allocating 4.163% of this amount to the other
small jobs the contractor took on with this equipment, we determine that $50,108.79 should
be charged to the project in question.
Equipment – major repairs.  RS&G spent $320,770.20 to repair equipment used on
the project.  (Only $310,316.30 is claimed, since the contractor deducted 3.259% for non-
IBWC work done using the equipment.)  All the repairs took place during contract
performance.  The agency, following Mr. Parker’s lead, is concerned that this amount is more
than the company’s financial statements show it spent for repairs in 2008 and 2009.  This
concern is allayed by Mr. Willingham’s testimony that many of the repair costs are included
on the statements among “equipment expenses.”  Those expenses are considerably greater
than the amounts claimed for repairs of equipment used on the IBWC project.  We allocate
4.163% of the repair costs to other projects, leaving $307,416.54 attributable to the work for
the IBWC.
Equipment – maintenance and fuel.  RS&G spent $475,504.19 for maintenance and
fuel for vehicles used on the project.  (Only $460,007.51 is claimed, since the contractor
deducted 3.259% for non-IBWC work.)  We allocate 4.163% of these costs to other jobs,
leaving $455,708.95 attributable to the IBWC work.
Material.  RS&G spent $124,339.11 for material used on the project – primarily
royalties to the New Mexico Land Office, from whose pit the company secured embankment
material, and also lesser costs for material testing.  We allocate 4.163% of these costs to other
jobs, leaving $119,162.87 attributable to the IBWC work.  
In the agency’s posthearing brief, under the heading “Direct Material,” the IBWC
discusses royalty payments made by the company to Mr. and Mrs. Casados.  These payments
have nothing whatsoever to do with the IBWC contract or this case.  Mr. and Mrs. Casados
own a gravel pit in Los Ojos, in northern New Mexico, and when RS&G extracts material
from that pit, it pays royalties to Mr. and Mrs. Casados.  The company did not extract any
material from the Los Ojos pit for this project.
Project overhead.  RS&G spent $133,873.50 on direct project overhead, including
items such as rent for office space and living quarters for employees, fencing, and utilities,
during contract performance.  (Only $129,510.56 is claimed, since the contractor deducted
3.259% for non-IBWC work.)  We allocate 4.163% of these costs to other jobs, leaving
$128,300.35 attributable to IBWC work.

CBCA 2235 16
Total project direct costs.  The sum of the above figures (excluding FCCM) is
$2,797,774.03: $2,447,085.78 during contract performance and $350,688.25 in continuing
costs which could not be discontinued (despite the contractor’s best efforts) after termination.
Project general and administrative expenses.  RS&G attributes to this category
$60,597.12 in pay and vehicle expenses for Mr. and Mrs. Casados in working on the IBWC
delivery orders during contract performance, and $4039.81 per month (or $48,477.70 for
twelve months5) as continuing costs for the following year.  As the contractor explains, these
were costs charged directly to the project.  Following our practice as to other items, we
attribute 4.163% of these costs to other work, allocating $104,534.03 to IBWC work:
$58,074.46 during contract performance and $46,459.57 in continuing costs which could not
be discontinued after termination.
Subtotal.  The total of project direct costs (excluding FCCM) and project general and
administrative expenses is $2,902,308.06: $2,505160.24 during performance and
$397,147.82 in continuing costs.
Payments received.  RS&G says that it received $2,696,829.47 in payments from the
IBWC on the delivery orders.  Mr. Parker’s analysis states that the contractor received only
$2,651,279.  We have examined the records presented by the two parties as to this matter and
reach the following conclusions:  With a very few small exceptions, the records show
identical amounts paid at virtually identical times.  Two of the three instances of difference
may well be attributable to the IBWC’s mischaracterizing, as payments for embankment
material, reimbursements for gross receipts tax to be paid by the contractor to the State of
New Mexico.  Even with regard to the information in the agency’s records, Mr. Parker’s
statement is incorrect; he included tax reimbursements among the payments for material, and
the contractor’s claim excludes all such reimbursements.  The principal difference between
the contractor’s total payments number and the agency’s is that the agency’s records are
incomplete; they do not include the final payment to the contractor, which was in the amount
of $198,031.93.  It is inconceivable that RS&G would not have billed after September 11,
2009, for material it had delivered as late as September 25.  The contractor’s number for total
payments received is correct.
Profit.  RS&G’s termination settlement proposal/claim includes a 12% profit on costs
incurred.  The contractor explains that it generally makes a profit of between 10 and 15% on
jobs like this one, and to be conservative, it picked 12% as a reasonable profit.  
5 The total is two cents shy of twelve times the monthly figure.

CBCA 2235 17
The IBWC notes, with regard to profit, Mr. Parker’s conclusion that the contractor
“underbid this project by 36%.”  By this statement, Mr. Parker evidently meant that RS&G’s
bid was 36% lower than the next lowest bid for the job.  (His math is wrong: RS&G’s bid of
$7.49 per ton is actually 38.85% lower than the next lowest bid of $10.40 per ton.)  We do
not understand how the relationship between the two bids has anything to do with costs
incurred or a reasonable profit.  We do not understand, as well, Mr. Parker’s testimony that
“to evaluate their profit on the IBWC contract, I would have to use something like the
Eichleay formula that takes a pro rata share and allocates it to just the IBWC.”  “The
Eichleay formula is used to ‘equitably determine allocation of unabsorbed overhead to allow
fair compensation of a contractor for government delay.’”  Nicon, Inc. v. United States, 331
F.3d 878, 882 (Fed. Cir. 2003) (quoting Wickham Contracting Co. v. Fischer, 12 F.3d 1574,
1578 (Fed. Cir 1994)).  The claim we analyze here does not involve unabsorbed overhead or
government delay.  The formula has nothing to do with the situation here.
We do believe, however, that 12% is not an appropriate figure for profit in this
situation.  Under our analysis, RS&G incurred costs of $2,505,160.24 in performing under
the IBWC contract, and it received $2,696,829.47 in payments for the material it delivered. 
The difference between these two figures, $191,669.23, represents a profit of 7.65% on its
costs.  Applying a 7.65% profit to the continuing costs which could not be discontinued after
termination ($397,147.82, excluding FCCM), we find that an additional $30,381.81 in profit
is appropriate.  The total amount for profit on this job is $222,051.04.
Suppose we had allocated only 67% of each of RS&G’s expenses to the IBWC
project, as suggested by the agency.  (Sixty-seven percent is the mid-point of the range urged
by the agency, 62 to 72%.)  If we had done so, using the methodology above, we would have
concluded that the total costs incurred during contract performance were only $1,725,690.19. 
The contractor’s profit would have been $971,139.21, or 56.28% of its costs.  This unlikely
scenario serves only to reinforce our belief that the costs claimed are reasonable.
Settlement expenses.  RS&G contends that it incurred $35,000 in expenses to prepare
its settlement proposal.  The IBWC says that these expenses are unallowable because “RS&G
never earnestly participated in negotiations.  They did not seek to arbitrate or mediate.”  This
statement is not true; the contractor did respond to the agency’s requests for information, and
it did modify its proposal upon further review.  Even if the statement were true, however, it
would not be cause for denying reimbursement for preparation of the proposal.  Whether a
contractor accepts an agency offer in response to a proposal does not affect the validity of
a contention that the contractor spent money to prepare the proposal.  We allow the $35,000
claimed for settlement expenses.

CBCA 2235 18
Total project value.  This entry consists of the sum of total project direct costs
($2,797,774.03), project general and administrative expenses ($104,534.04), profit
($222,051.04), settlement expenses ($35,000), and FCCM ($81,798.76).  That sum is
$3,241,157.87.
Total claimed.  This is the difference between the total project value ($3,241,157.87)
and the payments received for delivery of embankment material ($2,696,829.47).  This
amount, which we consider an equitable termination settlement award, is $544,328.40.
Before closing, we mention two other subjects.  The first is interest.  Under the
Contract Disputes Act, “[i]nterest on an amount found due a contractor on a claim shall be
paid to the contractor for the period beginning with the date the contracting officer receives
the contractor’s claim . . . until the date of payment of the claim.”  41 U.S.C. § 7109(a)(1)
(Supp. IV 2011).  A contractor claim of more than $100,000 may be considered by a
contracting officer, however, only if it is accompanied by a certification as to specified
matters.  Id. § 7103(b).  
RS&G’s president signed a certification on a Standard Form 1435 when he submitted
the company’s initial termination settlement proposal.  By asking for a contracting officer’s
decision, he also effectively designated the proposal a claim.  This was reasonable, since the
contracting officer had already made clear (by denying the claim before it was made) that the
parties were at an impasse regarding the proposal.  The president also signed a certification
on a Standard Form 1436 when he submitted the company’s revised proposal/claim.  In
James M. Ellett Construction Co. v. United States, 93 F.3d 1537, 1545 (Fed. Cir. 1996), the
Court of Appeals for the Federal Circuit noted that the Government had accepted a
certification on a Standard Form 1436 as containing language similar to the certification
language of the Contract Disputes Act.  Since then, courts and boards of contract appeals
have held that such a certification is not deficient for Contract Disputes Act purposes.  E.g.,
Scan-Tech Security, L.P. v. United States, 46 Fed. Cl. 326, 336 (2000); Medina Construction,
Ltd. v. United States, 43 Fed. Cl. 537, 547-48 (1999); Walashek Industrial & Marine, Inc.,
ASBCA 52166, 00-1 BCA ¶ 30,728, at 151,791; Metric Constructors, Inc., ASBCA 50843,
98-2 BCA ¶ 30,088, at 148,940.  We follow this practice by holding that RS&G’s claim was
properly certified at the outset.  Interest shall run from the date the contracting officer
received the claim (no later than October 1, 2010, since on that date she wrote an analysis of
it) until the date of payment.6
6 Had we not agreed with the other courts and boards that the Standard Form
1435/1436 certification meets Contract Disputes Act standards, the result would be the same. 
(continued...)

CBCA 2235 19
The final subject on which we comment is something that has consumed a great deal
of the IBWC’s attention: the New Mexico gross receipts tax (GRT).  The contract
incorporated by reference FAR clause 52.212-4.  Paragraph (k) of that clause, entitled
“Taxes,” states, “The contract price includes all applicable Federal, State, and local taxes and
duties.”  Notwithstanding this provision, from the very beginning of the contract, RS&G
billed, and the IBWC paid, the New Mexico GRT on invoices for delivery of embankment
material.  In April 2009, the contracting officer told the contractor that she had “made a
determination to allow payment of taxes not initially included in your price,” but that under
pressure from her finance office, she would have to modify the contract to continue the
practice.  On May 13, 2009, the parties agreed to a modification which states that it is “to
provide provision for taxes are applicable against this contract due to the location of the
merchant’s business is in a state that does not afford the federal government a tax-exempt
status under its state and local laws.”
This modification was in keeping with the general practice, as explained by RS&G
President Casados, that “in New Mexico, you don’t include GRT with your unit bid prices. 
It’s almost impossible to figure out what the rate’s going to be because the rate changes every
six months.”  Mr. Casados testified that RS&G did not include GRT in its unit pricing for the
contract, and the contractor presented evidence of bids from other companies on IBWC
solicitations for levee-building materials which do not include New Mexico GRT in unit
pricing.
The contractor’s termination settlement proposal/claim makes no mention of GRT as
a cost or receipt, which is appropriate since the company in effect did nothing more than
collect from the agency and pass through to the State all charges for GRT.  Nevertheless, the
IBWC thinks that RS&G engaged in some sort of shenanigans with regard to this tax.  Mr.
Parker thinks that the company sometimes delayed, after receiving money from the agency
to pay GRT, in making payments to the State.  Ultimately, however, he testified that the
company has paid to the State all GRT that it owed on the project.  
6 (...continued)
Under the Act, a defective certification may be corrected at any time before a board of
contract appeals enters its judgment on the claim.  41 U.S.C. § 7103(b)(3).  If the
certification is corrected, any interest found due runs from the date on which the contracting
officer received the claim.  Id. § 7109(a)(2).  To be safe, RS&G submitted a certification
signed by its president, with the precise language specified in the Act, in September 2012.

CBCA 2235 20
If RS&G made late payments to the State of New Mexico – and Mrs. Casados, the
company secretary/treasurer who made the payments, strenuously denies that it did – that is
a matter for the State to raise with the company.  It has nothing to do with this case.
Decision
The appeal is GRANTED IN PART.  The International Boundary and Water
Commission shall pay to Russell Sand & Gravel Company, Inc., as a consequence of the
agency’s termination for convenience of a delivery order it issued under a contract with the
company, the sum of $544,328.40.  The agency shall also pay to the contractor interest on
this amount, at the rates prescribed under the Contract Disputes Act, 41 U.S.C. § 7109(b),
from the date on which the contracting officer received the company’s September 28, 2010,
claim until the date of payment.
_________________________
STEPHEN M. DANIELS
Board Judge
We concur:
_________________________ _________________________
ALLAN H. GOODMAN JEROME M. DRUMMOND
Board Judge Board Judge