ARMED SERVICES BOARD OF CONTRACTAPPEALS Appeal of-- ) ) Missouri Department ofSocial Services ) ) Under ContractNo. W911S7-09-D-0029 )
APPEARANCE FOR THE APPELLANT:

APPEARANCES FOR THE GOVERNMENT: ASBCA No. 59191

Keith L. Baker, Esq.

Baker, Cronogue, Tolle & Werfel, LLP McLean, VA Raymond M. Saunders, Esq.

Army ChiefTrial Attorney MAJ Travis P. Sommer, JA CPT Harry M. Parent III, JA

Trial Attorneys
OPINION BYADMINISTRATIVE JUDGE MCILMAIL
INTRODUCTION

On 6 July 2016, we severed this appeal, for purposes ofdecision, from ASBCA No. 58944, with which it was consolidated for hearing, and stayed that appeal pending a decision in this one. Only the issue ofentitlement is before the Board (tr. 1/7). Appellant seeks an equitable adjustment ofcontract prices, or, in the alternative, a "termination settlement," following the government's partial termination for convenience ofa requirements contract. 1

1 Although the conclusion ofappellant's 3 June 2015 post-hearing briefing states that it is entitled to termination costs and an adjustment ofcontractprices, its briefing elsewhere indicates that it seeks those forms ofreliefonly in the alternative (app. br. at 1, 15, 26). In addition, on 5 July 2016, appellant sent a letterto the Board, referring at page 3 to its "alternative claim for a termination settlement." We find that appellant seeks termination costs and an adjustment ofcontractprices only in the alternative, consistent with the approach in its claim to the contracting officer (R4, tab 76 at 5).FINDINGS OF FACT

1. On 25 September2009, the Mission and Installation Contracting Command-Fort Leonard Wood (government) awarded the contract referenced above to appellant, Missouri Department ofSocial Services, for the provision offood service operations at 18 dining facilities at FortLeonard Wood, Missouri (R4, tab 1at1).2 The contract was for
a base year, with three option years, for services at 18 facilities, designated in the contract
as DFACs 630, 653, 657, 735, 739, 754, 820, 821, 836, 930, 1010, 1011, 1740, 2105, 3223, 1268, 1231, and 5073 (id. at 3-11, 13, 23, 33). On 25 September2009, the government issued Delivery OrderNo. 1, for services during the baseyear; that is, 26 September 2009 through 31 August 2010 (R4, tab 5). The government subsequently issued contract modifications that exercisedthe three option years; that is, through 31 August 2013 (R4, tabs 17, 26, 66). Appellant contracted with EDP Services, Inc. (EDP), pursuantto the Randolph-Sheppard Act, to submit a proposal for the contract and to perform the food services required under the contract (tr. 1/77-78).

2. In developing its proposed pricing for the contract, EDP relied on Technical Exhibits (TE-2s) supplied bythe government for each dining facility (DFAC). The TE-2s specified for each DFAC information such as the operating schedule, serving hours, seating capacity, number ofdiners to be servedper meal, and otherrelevant informationthatEDP relied on in coming up with a price (tr. 1142-43; app. supp. R4, tab 5 at 19-22 (representative example)). Based on that information, EDP built estimates oftotal costs percontractyearto providethe required services at all 18 DFACs. Each of thesetotal cost estimates contained both variable and fixed costs and profit at a rate of 3 percent. For instance, EDP estimated, for Option Year 2, total cost and profit of $30,457,068.71.3 (App. supp. R4, tab 3 at 6). Variable costs within this amount consistedprimarily of"production labor" (cooks, attendants, cashiers, etc.) that couldbe expectedto vary in directproportion to the volume ofbusiness in a DFAC (tr. 1/32-34; app. supp. R4, tab 3 at 5-6). Fixed costs includedthe salaries ofthe overall project manager, building managers, maintenance workers, and van operators; costs ofthejob site office at FortLeonard Wood; and costs associated with the home office, which were unlikely to vary with volume ofbusiness (tr. 1134-36; app. supp. R4, tab 3 at 5-6).

3. The total number of"production hours" estimated by EDP for eachyear ofthe contract, including Option Year 2, for all 18 DFACs was 1,279,423 (tr. 1137; app. supp. R4, tab 3 at 5). To price the services to be provided at each DFAC, EDP calculated a "retail rate" by taking the total estimated cost and profit for the year (minus direct costs that do not bearoverhead orprofit) and dividing it by the total number ofestimated

2 Although the contract lists the name ofthe contractor as "Social Services Missouri Dept" (R4, tab I at I), we understand that to be a reference to appellant. 3 This figure does not include additional direct costs that do not bear overhead orprofit.

2production hours for the year. For Option Year 2, this arithmetic resulted in a "retail rate" of23.8053 ($30,457,068.71 + 1,279,423 = 23.8053) (tr. 1137-39). EDP then multiplied the retail rate for the contract year times the number ofproduction hours per day for each DFAC to come up with a daily unit price for each DFAC (tr. 1/38). For instance, for DFAC 630 in Option Year 2, the daily unit price was $6,046.55 for weekdays and $5,260.97 for weekend days (app. supp. R4, tab 2 at 7). The daily price
was invoiced by EDP for each day ofoperation for each DFAC.

4. On4 August 2011, the government issued Modification No. P00005, exercising Option Year 2 (R4, tab 26 at 1 ). On 6 October 2011, the government issued
apartial contracttermination for convenience, which removed six DFACs (735, 821, 1010, 1268, 1231, and 5073) from the contract (R4, tab 38).

5. The contract includes FAR 52.216-21, REQUIREMENTS (OCT 1995)-ALTERNATE I (APR 1984), providing at paragraph (c) that "the Government shall order from the Contractor all ofthat activity's requirements for supplies and services specified in the Schedule that are required to be purchased by the Government activity oractivities specified in the Schedule that exceed the quantities that the activity may itselffurnish within its own capabilities" (R4, tab 1at 136-37). The contract also incorporates by reference FAR 52.249-2, TERMINATION FOR CONVENIENCE OF THE GOVERNMENT (FIXED-PRICE) (MAY 2004), which provides, at paragraph (g), that:
Ifthe Contractor and the Contracting Officer fail to agree on the whole amountto be paid because ofthe termination ofwork, the Contracting Officer shall pay the Contractorthe amounts determined bythe Contracting Officer as follows, but without duplication ofany amounts agreed on underparagraph (t) ofthis clause: (1) The contractprice for completed supplies or services accepted by the Government (or sold or acquired under subparagraph (b)(9) ofthis clause) not previously paid for, adjusted for any saving offreight and other charges. (2) Thetotal of- (i) The costs incurred in the performance ofthe work terminated, including initial costs and preparatory expense allocable thereto, but excluding any costs attributable to supplies or

3services paid orto be paid under subparagraph (g)(I) ofthis clause; (ii) The cost ofsettling and paying termination settlementproposals underterminated subcontracts that are properly chargeable to the terminated portion ofthe contract ifnot included in subdivision (g)(2)(i) ofthis clause; and (iii) A sum, as profit on subdivision (g)(2)(i) of this clause, determined by the Contracting Officerunder 49.202 ofthe Federal Acquisition Regulation, in effect on the date ofthis contract, to be fair and reasonable; however, ifit appears that the Contractor would have sustained a loss
on the entire contract had it been completed, the Contracting Officer shall allow no profit under this subdivision (iii) and shall reduce the settlementto reflectthe indicated rate ofloss. (3) The reasonable costs ofsettlement ofthe work terminated, including- (i) Accounting, legal, clerical, and other expenses reasonably necessary for the preparation of termination settlement proposals and supporting data; (ii) The termination and settlement ofsubcontracts (excludingthe amounts ofsuch settlements); and (iii) Storage, transportation, and other costs incurred, reasonably necessary for the preservation, protection,
or disposition ofthe termination inventory. Paragraph (1) ofFAR 52.249-2 further provides that "[if] the termination is partial, the Contractor may file aproposal with the Contracting Officer for an equitable adjustment ofthe price(s) ofthe continued portion ofthe contract." (Id. at 133)

6. On 24 June 2013, following unsuccessful attempts to negotiate aprice increase for the remaining contract work, appellant submitted a certified claim for the increased

4costs ofperforming the remaining contract work (R4, tab 76).4 The contracting officer, in
a final decision dated 5 December 2013 (misdated 5 December 2012) denied appellant's claim and stated, inter alia:

The remainder ofthe proposal addresses adjustments to contractual costs after the date ofthe termination notice. These issues should properly be addressed in arequest for equitable adjustment separate and independent ofthe termination settlementproposal in accordance with FARPart 49.208.

This determination does not preclude filing a request for equitable adjustment for the continued portion ofthe contract. Any request for equitable adjustment shall be in the format prescribed in FAR49.208(a) which may be found in FAR Part 15.408 Table 15-2. (R4, tab 79 at 1-2) Attrial, the contracting officertestified thathe had reviewed the request for equitable adjustment contained in appellant's 24 June 2013 claim but had made no determination regarding it (tr. 2/32). He statedthat although FAR49.208 does not require that a request for equitable adjustment be deferred until after agreement is reached on termination costs, it was his right to insist that it be deferred so as to ensure that there was no duplication ofcosts between an equitable adjustment and a termination settlement (tr. 2/32-34).

7. Appellanttimely appealed from the final decision on 28 February 2014.

8. The record in this appeal contains evidence that the reduction in production hours caused by the termination ofsix facilities increased appellant's cost of performing the remaining work. Its original pricingproposal estimated 1,279,423 production hours for all 18 facilities per year, but afterthe elimination ofsix facilities the revised estimate oftotal production hours per year was 980,682 (tr. 1146; app. supp. R4, tab 54 at 17). This would indicate that without an upward revision to the "retail rate" for Option Years 2 and 3, appellant would not recover all ofits fixed costs. This is because when contract pricing is calculated using the same arithmetic

4 Although entitled "Revised Partial Termination Settlement Proposal," the submission requests a contracting officer's final decision and includes the certification required by the Contract Disputes Act for claims in excess of $100,000 (R4, tab 76 at 7-8).

5as used in the original pricingproposal; the fixed costs have not changedbut the number ofproduction hours has gone down, increasing the priceperhour. The record indicates thatthe retail rate would have to increase from 23.8053 to 25.2242 for Option Year2 and from 24.6301to26.4137 for Option Year 3 in order for appellant to recover its fixed costs to the extentprovided for in its original proposal (tr. 1/46-48; app. supp. R4, tab 3 at 5-8, tab 54 at 17-19). In addition, appellant's expert testified, using a different methodology, that appellant had approximately $717,000 of unrecovered fixed costs in Option Year 2 and $805,054 ofunrecovered fixed costs in Option Year 3 (tr. 11130-33; app. supp. R4, tab 53 at 7).5

DECISION

As indicated by the inclusion ofthe requirements clause, which providesthat "the Government shall order from the Contractor all ofthat activity's requirements for supplies and services specified in the Schedule that exceed the quantities thatthe activity may itselffurnish within its own capabilities," the contract is ofthe requirements type, meaning that the governmentpromised not to purchasethe contract subject matter from other sources. 

### See Modern Systems Technology Corp. v. United States, 979 F.2d 200, 205 (Fed. Cir. 1992). Appellant claims entitlementto an equitable adjustment ofthe prices ofthe continuedportion ofthe contract (app. hr. at 13). Pursuantto FAR 52.249-2(1), where the government terminates a portion ofa requirements contract with the type oftermination clause at issue here, the contractor is entitled to an equitable adjustment ofthe prices ofthe continued portion ofthe contract for any increased cost ofthe remaining orunchanged work incurred as a result ofthe discontinuance ofthe terminated work. 

### See Wackenhut Services, Inc., ASBCA No. 55691,**08-1BCA~33,831at167,436.** In 

### Wackenhut, the government contracted for base operating support services to be provided at two facilities. The Board found the contractor entitled to an increase in contractprices after the governmentterminated the work at one ofthe facilities, because the terminated facility provided a substantial part ofthe allocation base for the contractor's indirect facility management and administration cost pool, increasing the indirect cost ofcontinuingto performthe work at the remaining facility. Id. Similarly, here, the record is sufficient to establish thatthe partial termination increased the cost oftheremaining work, demonstrating entitlementto an equitable adjustment in contractprices for that work. 

### See Wackenhut, 08-1 BCA**~** 33,831 at 167,436. Appellant showed that its original proposal priced the contractto recover its fixed costs through a retail base rate based on 1,279,423 production hours annually,

5 Because we are to decide entitlement only in this appeal, we make no finding regarding quantum. The evidence cited is relevant to whether appellant has shown any damage resulting from the government's partial termination.

6and that the reduced production hours following the removal ofsix facilities left it with unrecovered fixed costs in the absence ofan increase in that rate (findings 2, 3, 8). Appellant is entitled to an equitable adjustment ofthe prices ofthe portion ofthe contract continued after 6 October 2011. The amount ofthe adjustment to which appellant is entitled is not currently before us.
The government does not address FAR 52.249-2(1) or dispute appellant's evidence ofharm. Rather, it says thatjustbecause the government's requirements did not meet its estimatedrequirements does not mean that appellant is entitled to an equitable adjustment, and that there are no allegations thatthe government acted in bad faith orprepared a negligent estimate (gov'tbr. at 23). Butthat misses the point. Appellant andthe government entered into a different contract than existed after 6 October 2011-onethat included 50% more dining facilities and 298,741 more production hours than did the contract afterpartial termination. Presumably, addressing such a change in the parties' expectations is the purpose ofFAR 52.249-2(1). Indeed,
we have indicated elsewhere that a partial termination ofa requirements contract that includes language similarto FAR 52.249-2(1) alone entitles the contractorto an equitable adjustment ofthe prices ofthe continued portion ofthe contract. See Viktoria Transport GmbH& Co., KG, ASBCA No. 30371, 88-3 BCA**~** 20,921 at 105,738 (applying DAR 7-103.21(OCT1974) in the context ofdiversion ofrequirements to another contractor); R.G. Robbins, Co., ASBCANo. 26521,**82-1BCA~15,643** at 77,270 (quoting DAR7-103.21(i) (OCT 1974), with language substantially identical to FAR 52.249-2(1)).

The contracting officer in his final decision declined to decide appellant's equitable adjustment claim on the basis that FAR49.208 requires a "separate and independent"request for equitable adjustment aftertermination costs have been settled (finding 6). At trial he conceded that the FAR did not require a "separate and independent" request for equitable adjustment. Moreover, the government does not advance that argument; accordingly, we consider it abandoned. In any event, appellant's claim to entitlementto a "termination settlement" underFAR 52.249-2(g) is in the alternative to its claim to an adjustment ofcontract prices (app. br. at 15). In view ofourdecision finding appellant entitled to an adjustment ofcontract prices under FAR 52.249-2(1), appellant's alternative claim to reliefunderFAR 52.249-2(g) is moot, and we need not address it further.

7CONCLUSION

Forthe foregoing reasons, the appeal is sustained as to entitlement, and is remanded to the parties for the prompt negotiation ofquantum.
Dated: 15 November 2016

I concur

# ~~Af:/, MARKN. STEMPLER

# ~ Administrative Judge Acting Chairman Armed Services Board ofContract Appeals

I concur

8

# ~~ Administrative Judge Armed Services Board ofContract Appeals

I concur

ificHARDSHACKLEFORD Administrative Judge Vice Chairman Armed Services Board ofContractAppealsI certify that the foregoing is a true copy ofthe Opinion and Decision ofthe Armed Services Board ofContractAppeals in ASBCA No. 59191, Appeal ofMissouri Department ofSocial Services, rendered in conformance with the Board's Charter.
Dated:

9 JEFFREY D. GARDIN Recorder, Armed Services Board ofContract Appeals