ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeal of

-- ) ) Aero Tech Services Associates, Inc. ) ASBCA No. 61682 )

Under Contract No. FA8106

- 17

- D

- 0009 )

APPEARANCE FOR THE APPELLANT: Deborah Appel, Esq.

Law O ffice of Deborah Appel
Bronx, NY

APPEARANCE S FOR THE GOVERNMENT: Jeffrey P. Hildebrandt, Esq.

Air F orce Deputy Chief Trial Attorney

Isabelle P. Cutting, Esq. Capt Jacquelyn C. Fiorello, USAF

Trial Attorney s

OPINION BY ADMINISTRATIVE JUDGE THRASHER

Aero Tech Services Associates, Inc. (ATSA) seeks reimbursement for labo r cos ts
incurred under Contract No. FA8106

- l7

- D

- 0009 ( “ 0009 Contract ” ) in logistic al support of two E

- 9A aircraf t at Tyndall Air Force B ase, Florida. ATSA’s claim is that the fixed hourly labor rate to repair or replace aircraft parts, which applies to

“subcon tractors” under “Over & Above” (O & A) contract line item numbers (CLIN) X007AA, does not apply to “ vendors ”

. Rather, ATSA’s position is that any labor hourly charges are part of the “material cost” for which ATSA is entitled to full reimbursement

under C LIN 007AC

. We deny the appeal.

FINDINGS OF FACT

Background

1. The 82nd Aerial Targets Squadron at Tyndall Air Force Base, Florida employs two E

- 9A aircraft whose primary mission is to act as a surveillance platform to ensure the Gulf of Mexico waters are clear of civilian boaters and aircraft during live missile launches and other hazardous military activities within the test range ( R4, tab 6 at 53

- 5 4)

. T he se aircraft are maintained by contractor

provided logistics . Relevant to this appeal, the c ontractor

- provided logis tics support for these aircraft s
, which includes over and above (O & A) tasks, engineering services including development, test and FAA certif ication of modifications,

and installation of modifications and depot maintenance s upport ( id. at 53)

. “ O & A

C harges are G overnment directed tasks within [the] scope of the contract but not2 specifically forecasted such as ; [sic] bird s trikes, lightning strikes, FOD [ ( foreign object damage ) ] , dropped or damaged components

, ” and other g overnment directed actions ( R4, tab 6 at 14). ATSA currently provides this support under the

0009 contract.

2. This dispute arises out of a specific O & A situation when the appellant cannot repair or replace an item in

- house and must remove the item and send it to an outside contractor for repair or replacement. Upon return of the item to appellant, the outside contractor will invoice appellant either charging a fixed la bor rate or a total price encompassing both labor and material with no visibility or

breakout of the amount or time or labor involved (tr. 22

- 23 ). Appellant refers to the outside contractor in these situations as a “vendor”, not a subcontractor, insisting that a “vendor” is distinguishable from a subcontractor and vendor charges are reimbursable as part of “material costs” under CLIN X007AC (app br. at 2). The end result being

, appellant would be fully reimbursed for all labor costs.

3. In contrast, the government argues there is no separate “vendor” category

under the contract because the term vendor is defined within the definition of subcontractor (gov’t br. at 8). Therefore in these situations, the contract’s hourly rate, whether disclosed or not, i s capped by CLIN X007 at the hourly labor rate in the contract ( id. at 6). Likewise, the government argues that material costs proposed by the contractor may not include labor costs ( id. at 7).

Comparison between the Previous Contract and the 0009 Contract Follow

- on Solicitation

4

. A T S A performed these logistics services for six years under the previous contract, Contract No. FA8106

- 11

- C

- 0004 (0004 contract) (R4, tab 1). On August 4
, 2016, the Air Force issued a request for proposals (RFP) for a follow

- on contract under Soli citation No. FA8106

- 16

- R

- 0008 ( R4, tab 6 at 1 ). Relevant here, the government substantially changed the acquisition strategy

related to the O & A pricing

, converting the 0004 contract prime and

subcontract O & A CLINs from cost to fixed price CLINs. Major Toyama, the lead contracting officer on the source selection, testified that the O & A 0004 contract prime and subcontractor costs for CLIN 000 7 was converted into a firm fixed price CLIN in the 0009 contract based upon h istorical data from the previous six year contract

. ( T r. 59

- 60)

5

. By way of comparison , the 0004 contract included an O & A subcontracting mark

- up rate. This fixed subcontract pass

- through mark

- up factor represented the administrative costs of obtaining the subcontract effort, including all indirect costs plus fee associated with obtaining the subcontract effort. The fixed subcontract pass

- through mark

- up factor was then added to the price paid by the3 c ontractor to the outside contractor to determine a fixed price amount for the

subcontract effort. ( R4, tab 1 at 12) The net effect of this clause was to fully

reimburse the contractor for subcontractor services: the amount charged to the

contrac tor for the subcontract service, plus an administrative fee ( fixed subcontract

pass

- through mark

- up factor) for obtaining the subcontractor effort. In contrast, the

follow

- on contract solicitation established a single fixed O & A labor rate, proposed by t he offerors that applied to the prime contractor and all subcontractors, eliminating the subcontracting mark

- up rate found in the 0004 contract ( R4, tab 6 at 15, 140

- 41 ). This effectively converted what had been a cost reimbursable clause for the complete cost paid the subcontractor for its services to a fixed price clause based upon t he proposed fixed labor rates.

6

. The follow

- on solicitation required al l proposed pricing to be submitted in

a Pricing Matrix that would be incorp orated into the contract ( R4, tab 57 at 12). The

10 different O & A labor rates found in the 0004 contract were reduced to only

two: a single labor rate for work hours and a single O & A labor rate for overtime ( R4, tab 1 at 198

, tab 6 at 140).

7

. Additionally, t he follow

- on solicitation flagged the change in pricing strategy warning the offerors of the additional cost risk from subcontractors and

vendors [ emphasis added ] in out years, stating:

Offerors are strongly advised to seriously note risk for firm fixed pricing in contract out

- years. Such risk is

considered contractor risk and not risk to the Government. Proposed pricing shall be sufficient to cover such contractor risk of future unknowns, such as subcontractor

rate in creases in contract out

- years, as well as material cost

increases in out

- years or potential changes in teaming with specific subcontractors/vendors . This also includes unanticipated changes in subcontractors’ or vendors’
[ emphasis added ] pricing in the ou t

- years. For example,

as out

- year performance periods are reached over time, subcontractor pricing (on which these originally proposed fixed wrap rates are based) could change. As a result, future subcontractor pricing may not correspond with the origina l proposed FFP rates. Revision of proposed firm fixed pricing will not be accepted by the Government to cover any additional costs in the future out

- years. Offerors shall be held to their originally proposed pricing, i.e., FFP

rates for all CLINs.

(R4 , tab 57 at 17) (emphasis added)4 ATSA’s Follow

- on Contract Proposal

8

. ATSA su bmitted its final proposal revision on May 8, 2017 ( R4, tab 5 at 1 ). Mr. Christopher Bloomer , Vice P resident of Operations for A TSA testified he helped prepare the proposal on this contract and has been working on the contract

since September 2017 (tr. 23 )

. He also testified he read the language in CLIN 000 7

of the solicitation that st a tes all rates apply to prime contrac tors and all

subcontractors but noted the proposal did not include subcontracto rs performing work on this contract because of the distinction the industry make s between

su bcontractors and vendors (tr. 25

- 28 )

.

9

. ATSA’s proposal reflects the distinction ATSA makes between

“ subcontractor s ” and “ vendors ”

. Both the technical volume and pricing volume

of ATSA’s proposal state that 100% of all work will be done by ATSA i.e., no t
subcontractors , but then provided a list of twelve key “vendors” ( R4, tab 5 at 2, 77)

. For example, s ection 2 of the pricing volume is entitled SUBCONTRACTOR

AND VENDOR PRICING ” ( id. at 78). That section explains why AT SA decided not to

use
, what they consider, subcontractors on this contract but clearly states when it is required to go out to a vendor f or completion of a specific task it will enter into a subcontract relationship to accomplish the work , stating

, “Each of the key vendors identified will be subcontracted to support the identified tasks as required.” (R4, tab 5

at 100

- 01)

10

. The government awarded the 0009 contract to ATSA on May 31, 2017 (R4, tab 6 at 1). Shortly thereafter, ATSA entered into a contract agreement with Pratt & Whitney (P & W), effective September 1, 2017

. The contract agreement refers

to the contract relationsh ip between the parties as a “SUBCONTRACT

A GREEMENT” ( R4 tab 53 at 5) . Accordingly, we find that P & W was a subcontractor to ATSA under its contract with the government.

Relevant 0009 Contract Provisions

11

. T hree of the contract’s O & A provisions are relevant to this appeal :

CLIN X007

- OVER AND ABOVE WORK PROCEDURES

(a) Over and Above Labor Rates (Fixed Hourly): The price negotiated by the PCO/ACO shall be based on “hands on” labor hours multiplied by the contract fixed hourly rate. The number of “hands on” labor hours required shall be negotiated between the contractor and the PCO/ACO. “Hands on” labor hours to be used in negotiated fixed hourly

rate items are restricted to those defined below. The fixed5 hourly rate includes charge s for: “hands on” labor cost; any

labor cost not included in the definition of “hands on” labor for which the contractor accounts as direct labor; burdens; general and administrative expenses; and other allowable costs and profit. The fixed hourly rate d oes not include direct parts and materials.

For the purposes of negotiating prices for the fixed hourly rate items, the “hands on” labor hours to which the fixed hourly rate is applied, are limited to only that labor performed by personnel actually engage d in the direct performance of work required. “Hands on” labor shall not include any labor performed by support of supervisory type personnel, such as,

but not limited to: timekeepers, payroll clerks, purchasing, material handling, quality control, stori ng and issuing personnel. Quality control personnel are considered as those personnel who apply standards to finished work/products to determine that finish production work is serviceable in all

respects.

(b) Material Handling Rate Items: The price neg otiated by the PCO/ACO shall be based on material proposed multiplied by the contract fixed material handling rate. The material required shall be negotiated between the contractor and the

PCO/ACO. “Materials” are those parts or materials purchased, supp lied, manufactured, or fabricated by the Contractor for the sole purpose of incorporating them into or making them a part of the end products or components thereof covered by this contract. The Material Handling Rate includes charges for: burdens; genera l and administrative expenses; and other allowable costs and profit.

. . .

The anticipated or negotiated hours, when multiplied by the fixed hourly rate plus any material costs multiplied by the material handling rate, constitute the firm fixed price for the

over and above work.

(R4, tab 6 at 12

- 14) ( emphasis added )6 12

. CLIN X007AA, OVER AND ABOVE

- LABOR RATE

.

OVER AND ABOVE

- FIXED HOURLY RATE FIRM

FIXED PRICE AS DIRECTED BY THE ACO/PCO. ***ALL

RATES APPLY TO PRIME CONTRACTOR AND ALL

SUBCONTRACTORS***

. . .

This SubCLIN uses the fixed hourly rates in Attachment 2, Pricing Matrix. These rates shall be used in negotiating a price

when direct labor is involved for Over and Above requirements. Overtime hours will be used only at the direction

of the ACO/PCO.

( I

d. at 14

- 15)

13

. CLIN X007AC, OVER AND ABOVE

- PARTS AND MATERIALS

AND MAT ERIAL HANDLING

.

FIRM FIXED PRICE AS DIRECTED BY THE ACO/PCO.

The work called for under this item shall be acco mplished when and as directed by the PCO/ACO in accordance with

DFARS 252.217

- 7028 and the Over and Above Work

Procedures stated in CLI N X007. The work under this sub

CLIN includes parts and materials for repairs beyond fair wear and tear (BFWT) including replacement of GFE support equipment and those parts using the material handling rate in Attachment 2, Pricing Matrix. The material ha ndling rate shall represent the administrative costs of obtaining parts and materials for Over and Above requirements not included in the flying hour rate. The Material Handling Rate shall include all indirect costs plus fee associated with obtaining

mate rials for the prime and all subcontractors. The Material Handling Rate shall be added to the negotiated material price to determine a fixed price amount for the materials. All costs included within the fixed hourly rates, or fixed price CLINs

elsewhere i n this contract must be excluded from calculations used by the Contractor to arrive at its Material Handling Rate.

. . .7 DEFINITION OF MATERIALS: “ Materials ” are those parts or materials purchased, supplied, manufactured, or fabricated by the Contractor for the sole purpose of incorporating them into or making them a part of the end products or components thereof covered by this contract

.

( I

d. at 16) (emphasis added)

14. On December 15, 2017, ATSA submitted Work Request No. 17

- 015 seeking c ontracting o fficer (CO) approval for work valued at an estimated $4,409.68

. ATSA sought a Mobile Repair Team from P & W to come to Tyndall Air Force Base to evaluate the severity of magnesium corrosion in the intake air inlet case in one of its engines. The evaluation was required to determine the depth of repair necessary to allow the engine to remain in service. ( R4, tab 9 at 1, 3) The use of P & W for this work was founded on the subcontract agreement between ATSA and P&W entered into shortly after t he 0009 contract award, eff ective September 1, 2017 ( R4

, tab 53 at 5). ATSA recommended that the work be charged under CLIN X007AC,

O & A Parts, Materials , and Material Handling. ( R4, tab 9 at 3)

15

. On December 20, 2017, the Defense Contract Management Agency (DCMA) requested that ATSA break down its costs in greater detail, explaining that the

g overnment would only pay for O & A labor at $55.12 an hour ( R4, tab 9 at 24

- 25). ATSA resubmitted its revised Work Request No. 17

- 015 on February 15, 2018 ( R4,

tab 9 at 8

- 9 ). Of the total $4,409.68 proposed, ATSA anticipated that la bor would cost $2,938.50 ( id. at 8). On May 1 4, 2018, the CO a pproved the work request ( R4, tab 9 at 17). On May 15, 2018, ATSA submitted an invoice seeking $2,938.50 in labor costs ( R4, tab 9 at 29). DCMA agreed to pay no more than $1,543.36 because ATSA had not used the $55.12 O & A labor rate in a ttachment 2 of the c ontract. Negotiations between the parties reached an impasse on May 2 1 , 2018

. ( R4, tab 9 at 27)

16

. On May 30, 2018, ATSA filed a claim with t he CO for the $1,395.14 difference between the $2,938.5 requested and the $1,543.36 rec eived ( R4, tab 22

at 1 ). The stated basis for the claim was described as :

The amount claims ( sic ) and items at issue arise out of

CLINS X007XX

- Over and Above. CLIN X007AA is

“ Over & Above

- Labor Rate ” which specifically states that it applies to the prime contractor and all subcontractors. CLIN X007AC applies to “ Over & Above

- Material and

Material Handling ”.

. . .8 It is ATSA ’ s position that any labor hour charge (whether shown as a separate charge or incorporated into

the bill as a flat charge) is part of the “ material cost ” for

which ATSA is entitled to full reimbursement for under

CLIN 007AC. It seems that the government ’ s position

is that this vendor labor rate is capped at the $55.12 hourly rate.

. . .

ATSA was the prior contractor on the previous contract (FA8 l 06

- 11

- C

- 0004) and performed the same repair

and maintenance for six (6) years. The standard process for those years was that any outside vendor costs (including labor) under the Over and Above CLIN was reimbursed at the full rate by the government with the appropriate negotiated burdens. In this contract [the] government is trying to hold ATSA to the $55.12 hour rate for any labor charged by those outside vendors regardless of

. . . how much the vendor charges for its

labor.

. . .

A subcontractor is a company with which there is a contractual relationship to perform work under the contract that is negotiated in advance, that sets rates, terms and

conditions. If a prime can ’ t negotiate a contract then it is free to go to another sub contractor that is offering the same services and attempt to enter into a subcontract with them. A vendor is a supplier of parts/labor that is based on an “ as needed ” relationship and that does not rise to the level of a

subcontractor as a vendor is free to offer its services to any company that requires same. This was the definition that applied to the prior contract that ATSA performed on for six years. There was nothing in the solicitation (that resulted in this contract) that indicated that the government was taking a different position from the prior contract.

( I

d. at 1

- 3) On June 1 8, 2018, the CO denied ATSA ’ s claim ( R4, tab 27 at 1)

. ATSA appeale d the decision to the Board on Jul y 2, 2018 , which was docketed as

ASBCA No. 61682

.9 DECISION

This appeal turns upon our interpretati on of three of the contract’s O & A provisions

- CLIN X007

- OVER AND ABOVE WORK PROCEDURES, CLIN X007AA, OVER AND ABOVE

- LABOR RATE, and CLIN X007AC, OVER AND

ABOVE

- PARTS AND MATERIALS AND MATERIAL HANDLING

. ( F inding s 11

- 13 ) The government argues that the plain language of the contract, CLIN X007,

unam biguously establishes that appellant must propose labor charges at any

subcontractor tier for O & A work under the contract’s fixed hourly labor rates and

the contract defines the term “vendor” in the definition of subcontractor

. ( G ov ’t br. at 6) In contrast

, appellant’s position is that “[t]his disagreement sets up a classic case of a latent ambiguity in which there is a reasonable interpretation by both parties as to the meaning of a term

. ” ( A pp. br. at 3) Appellant summarized the

p arties’ disagreement a s:

Here, the Government believes by inserting the word

“ subcontractor ” under CLIN X007AA it gave the contractor
sufficient notice that the labor rate would apply to all vendors as well. ATSA, based on its reading and prior conduct and performance between the parties and industry standards, had no inkling that the term “ subcontractor ” would encompass

their v endors.

( I

d. at 4)

O ur threshold issue is whether the plain language of the contract “supports only one reading or supports more than one reading and is ambiguous

. ” James G. Davis Construction Corporation , ASBCA Nos. 58000, 58002, 15

- 1 BCA ¶ 35,818

at 175,154 ( citing NVT Technologies, Inc. v. United S tates , 370 F.3d 1153, 1159 (Fed. Cir. 2004 ) ). The mere fact that the parties differ in their respective interpretations of the contract language is not enough, both interpretations must fall

within a “ ‘zone of reasonableness

. ’ ” Metric

- Constructors, Inc. v. NASA , 169 F.3d 747, 751 (Fed. Cir. 1999) (citations omitted). Such a determination begins with the plain language of the contract to discern the objective intent of the parties.

James G. Davis 15

- 1 BCA ¶ 35,818 at 175,154 (citations omitted)

.

We agree w ith the government’s position that the plain language of the contract, as applied to this dispute

, is unambiguous

. It is our understanding that the dispute before us only involves charges for an outside contractor to evaluate the severity of magnesium corrosion in the intake air inlet case in one of its engines to determine the depth of repairs necessary to allow the engine to remain in service,

i.e. onl y services not parts

. ( F inding 14 ) Consequently, a reading of the plain10 language of the contract does not support appellant’s argument that the services provided by P & W in this dispute would be reimbursed under the O & A material clauses, CLIN X007(b) and CLIN X007AC, because the services at issue do not

meet the definition of “material costs” in those clauses

. ( S ee f indings 11 , 13 ) The

reimbu rsement w ould only involve the fixed

– price O &A Labor Rate

CLIN X007AA

. ( F inding 12 ) Even assuming this were a situation where materials/parts were involved and replaced, a plain reading of the two clauses is clear that the only reimbursable costs are, “ [t] he an ticipated or negotiated hours, when multiplied by the fixed hourly rate plus any material costs multiplied by the material handling rate

. . . .” (finding 1 1 )

.

May We Consider Extrinsic Evidence of Trade Practice and Industry Standards?

When the language of a contract is unambiguous, it must be given its “plain and ordinary” meaning and the Board may not look to extrinsic evidence to interpret its provisions. McAbee Constr., Inc. v. United States , 97 F.3d 1431, 1435 (Fed. Cir. 1996) (ci tation omitted)

. However, e ven when a contract is unambiguous, we

have found it a ppropriate to turn to one form of extrinsic evidence

— evidence of trade practice and custom. DynCorp International LLC

, ASBCA No. 5924 4, 17

- 1 BCA ¶ 36,653 at 178,494 ( citing TEG

- Paradigm Environmental , Inc. v. United States

, 465 F.3d 1329, 1338 (Fed. Cir. 2006) )

. Such extrinsic evidence may be considered to confirm that the parties intended the term to have its plain and ordina ry meaning

. ( I d. )

Extrinsic Evidence

Appellant argues that under prior practice on the 0004 contract “vendors” is an industry term related to the O & A requirements and that ATSA’s position is that

“vendors ” in these situations are not a “subcontractor” subject to a subcontract agreement holding them to the negotiated rates in the 0009 contract O & A CLINs

XX007 and X007AA

. ( A pp. br. at 3) Our findings establish that the contract language of both the 0004 a nd 0009 contracts do not include the word “vendor”

. However, both parties use these terms within the follow

- o n solicitation and ATSA’s proposal in response. This indicates this term is recognized and used within this industry as appellant asserts

. ( F inding s 7

- 9 )

That being said, logically r eimbursement under the contract CLINs at issue only apply to work for which the contractor, ATSA, has either performed in house, or more likely as in this appeal, contracted for with an outside contractor, a

“ vendo r ”

. T he evidence also establishes that when ATSA act ual ly contracts with the vendor, ATSA considers the vendor to become a “ subcontractor ” (finding 10)

. Although ATSA’s proposal on the current contract clearly recognizes a distin ction

between the two terms, the proposal states, “[E]ach of the key vendors identified11 will be subcontracted to support the identifie d tasks as required.” ( F inding 9 ) This reality is further rein forced by the facts of the specific dispute before us. ATSA

entered into a subc ontract agreement with P&W shortly after award of the 0009

contract . So, under the specific facts of this dispute, the work was given to a contractor that was never a “vendor” under appellant’s definition but instead was in

fact a subcontractor ( f i nding 1 0 )

. Consequently, the extrinsic evidence of trade practice confirms our unambiguous interpretation of the contract language. *

In summary, after consideration of all the evidence, we hold that appellant is bound by the fixed labor rate it bid for CLIN X00 7AA and the materials and materials handling CLIN X007AC is inapplicable. The extrinsic evidence confirms this interpretation. We have considered trade practice evidence but we conclude that trade practice does not support appellant’s position.

* ATSA’s primary argument is that the contract language is ambiguous and a

consideration of the extrinsic evidence supports ATSA’s reading of the contract language that trade practice in this business recognizes a distinction between the

terms “subcontractor” and vendor”. This, ATSA argues, creates a latent ambiguity triggering the application of the principle of contra proferentum

, construing the contract language agains t the drafter, in this case the government (app

. br. at 9 ).

Since our examination of the extrinsic evidence of trade practice supports a finding that the contract language is unambiguous

, we need not address ATSA’s contra proferentum argument.12 CONCLUSION

For the forgoing reasons, this appeal is denied.

Dated: March 30 , 2020

JOHN J. THRASHER Administrative Judge

Chairman

Armed Services Board of Contract Appeals

I concur I concur

RICHARD SHACKLEFORD Administrative Judge

Vice Chairman

Armed Services Board of Contract Appeals OWEN C. WILSON Administrative Judge

Vice Chairman

Armed Services Board of Contract Appeals13 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. 61682, Appeal of Aero Tech Services Associates, Inc. , ren dered in conformance with the Board’s Charter.

Dated: March 30, 2020

PAULLA K. GATES

- LEWIS Recorder, Armed Services Board of Contract Appeals