ARMED SERVICES BOARD OF CONTRACTAPPEALS Appeal of-- Raytheon Missile Systems Company
Under ContractNo. NOOO 19-04-C-0569

APPEARANCES FORTHE APPELLANT: ) ) ) ) )

APPEARANCES FORTHE GOVERNMENT: ASBCA No. 59258

Robert M. Moore, Esq. Robert D. Windus, Esq. Jason C. Constantine, Esq.

Moore & Lee, LLP McLean, VA
Sharon S. Jones, Esq.

Counsel
Ronald J. Borro, Esq.

Navy ChiefTrial Attorney James T. DeLanoy, Esq.

Senior Trial Attorney TaylorFerrell, Esq.

Trial Attorney

OPINION BYADMINISTRATIVE JUDGE CLARKE
This is the quantum phase of

### RaytheonMissile Systems Company, ASBCA No. 57594, 13 BCA**~** 35,264, 

### recon. denied, 13 BCA**~** 35,321, wherein the Board sustained Raytheon's appeal inpart. We havejurisdictionpursuantto the ContractDisputes Act of 1978 (CDA), 41 U.S.C. §§ 7101-7109. Raytheon is entitled to $2,390,784 plus CDA interest. · 

### Objections
The parties electedto submitthe quantum case under Board Rule 11 on the record. Bothparties filed objections to various affidavits/declarations and documents. The Navy objects to affidavits from Mr. Blume and Mr. Torres arguing that the affidavits violate the best evidence rule. With respect to Mr. Blume the Navy seems to fault his testimony because he did not observe the fueling ofeach missile (Bd. corr. file, gov't obj. dtd. 21August2014 at 1). With respect to Mr. Torres the Navy complains that Raytheon is improperly presenting "experttestimony underthe guise oflaytestimony" (id. at 5). We have consideredthese and the other arguments made by the Navy and reject them.Raytheon presents a list ofobjections to Ms. Caccivio's and Mr. Grams' declarations. We consideredeachbasispresented for the objections and deny the objections.

Board Rule 11 specifically provides that "[a ]ffidavits, declarations, depositions, admissions, answers to interrogatories, and stipulations may be employed in addition to the Rule 4 file ifmoved and accepted into evidence

...to be made part ofthe record." By agreeing to a BoardRule 11 submission, each party is entitled to submit affidavits/declarations inplace ofthe live testimony that would have been available hadtheparties elected a hearing. In a BoardRule 11 submission eachparty has the opportunity to deal with aspects ofthese substitutes for live testimony by taking depositions and submittingtranscripts orthrough rebutting affidavits/declarations or documents. Theparties' objections to each other's affidavits/declarations are denied.

TheNavy objects to "annotated"DESC invoices for JP-I0 at Rule 4, tab 17, 1 and appellant's supplementalRule 4, tabs 166 and 169.2 Wewill deal with the Navy's objectionto appellant's supplemental Rule 4, tabs 166 and 169 later in this decision. Raytheon objects to an extensive variety ofdocuments. We consideredRaytheon's objections and deny them.

DISCUSSION


### The EntitlementDecision Familiarity with our entitlement decision is assumed. Generally, the case involvedthe government's $11.00/gallon increase in JP-10 cruise missilejet fuel to finance building a storage facility (Defense Fuel Support Point orDFSP), stocking it with JP-10, and covering losses on other commodities. We concludedthat Raytheon had not assumedthe risk ofan increase in fuel cost for financing the DFSP and stocking it. In our entitlement decision we sustainedRaytheon's appeal as it related to thatpart ofthe $11.00 increasedprice that was allocated to building the DFSP and purchasing fuel to stockit. We denied the appeal as it related to thatpart ofthe price increase usedto offset losses on otherDefense Energy Support Center (DESC) commodities. 

### Raytheon, 13 BCA**~** 35,264 at 173,117-18. Therefore, it is Raytheon's burdentoprove its damages byproving how many gallons offuel it purchased at the $25.00 rate and loaded into ContractNo. N00019-04-C-0569 (Contract 0569) missiles. Itis also Raytheon's burdentoprovehow much ofthe $11.00 increase was allocable to the causes we sustained in the entitlement appeal.

1This document was in the entitlement Rule 4 file and is already in the record. 2 Rule 4, tabs 163 to 170, were notpart ofthe evidence in the entitlementphase.DFSPandJP-10 Stock

From our entitlement decision we know that DESC contracted with Dixie to build the DFSP for $1,199,940 and that the DFSP was completed in FY09. We also know thatthe DFSP wouldhave a capacity of 130,000 gallons and that DESC purchased at least 100,000 gallons ofJP-10 to stockthe DFSP. Raytheon, 13 BCA**~** 35,264 at 173,109-10, finding 23. We also knowthat surplus money resulting from sales ofthe $25.00 JP-10 covered losses from the previous year on JP-10 and other aerospace energy commodities. Raytheon, 13 BCA**~** 35,264 at 173,110, finding 25. Raytheon supplements what we know from our entitlement decision with evidence from a DESC budgetpreparation sheetthat indicates DESC'sreserve inventory was projected to increase from 162 gallons in FY09 to 129,818 in FYl 1or apurchase of 129,656 gallons ofJP-10 (app. supp. R4, tab 134). During this time the price DESC paid Dixie for JP-10 ranged from $14.99 to $15.903 (R4, tab 54 at 4). Using the $14.99 price, the 129,656 reserve inventory would cost DESC $1,943,543. We need not be more precisebecause the total amount for buildingthe DESC and paying for the JP-10 to stock it ($1,199,940 

### + $1,943,543 = $3,143,483) is well above the $2,390,784 damage to Raytheon we calculate below as a result ofthe $11.00 price increase to $25.00/gallon.
Order on Proof of Costs
The Board issued an OrderonProofofCosts on 11 April 2014. Raytheon filed its Statement ofCosts (SOC) on 23 May 2014. The Navy responded to the SOC on 23 June 2014. Raytheonreplied to the Navy's response on 3 July 2014. Theparties then chose to file BoardRule 11 briefs and reply briefs that supplementedthe facts with additional Rule 4 documents and arguments. According to Raytheon, the Navy did not audit its SOC (app. br. at 2), and we find
no evidence ofan audit ofthe SOC in the record. While we draw no inference from this fact, the result is that the Navy's defense to Raytheon's SOC data is largely rhetorical.
Total Cost Claim
The Navy characterizes Raytheon's quantum analysis as a "total cost" claim and structures much ofits quantum briefs argument around the elements ofproofrequired to sustain a total cost claim (gov't br. at 27-36). We agree with Raytheon, this is not a total cost claim. See, e.g., Raytheon Co. v. White 305 F.3d 1354, 1365 (Fed. Cir. 2002) ("Underthe total cost method, the measure ofdamages is the difference between the actual cost ofthe contract and the contractor's bid."); WRB Corp. v. UnitedStates, 183 Ct. Cl. 409, 426 (1968) (total cost claim is difference between actual and estimated

3 Duringthis time periodRaytheon was paying DESC $25.00/gallon.

3 

# Iexpenses). Rather, Raytheon's approach to quantum identifies the number ofgallons of fuel priced at $25.00 that it loaded into Contract 0569 missiles and, with certain other adjustments, simply calculates quantum based onthe $11.00 difference between $14.00/gallonRaytheon bid and the $25.00/gallon charged. This approach is a direct quantification ofthe damage caused by the Navy's breach.
The Amountof FuelPerMissile

It is undisputed that the missiles are delivered to the Navy fully fueled. The parties could not agree on the number ofgallons offuel in each missile. Raytheon contends that each missile holds approximately 141 gallons offuel, 13 ofwhich are provided by the engine manufacturer and not Raytheon (app. hr. at 6-7). Therefore, Raytheon contends that it loads approximately 128 gallons offuel in each missile (app. hr. at 6).
The Navy objects to the last 13 pages ofthe documents at appellant's supplemental Rule 4, tab 166, thatpurport to list the weight offuel in missiles by tail number. We agree withthe Navy as to these pages because they do not appearto be attached orrelated to the email string in the first 6 pages oftab 166. The last 13 pages will not be considered by the Board. However, the emails in the first 6 pages appear regular on their face and contain relevant information that we rely upon. Appellant's supplemental Rule 4, tab 166, includes a copy ofDrawing 1492526, sheet 14, which is
an excerpt from a test document. The document indicates the following:

Usable Fuel Volume: Verify calculated quantity ofuseable fuel loaded 990 lbs minimum for PAV and 920 lbs minimum for RSS equipped missile. (App. supp. R4, tab 166 at 2) In a 23 August 2010 letter to the Defense ContractAudit Agency, Mr. Blumereferred to drawing 1492526, sheet 14, and explainedthat a gallon ofJP-10 weighs approximately 7.72 pounds and that 990 pounds offuel equatedto approximately 128 gallons (app. supp. R4, tab 167). The Navy contests the 128 gallons but its own calculations using specific gravity result in a mean of 126.3036 gallons offuel in each missile (gov'thr. at 14, 

### ii 54). We do not consider this a significant variance and we adopt 128 gallons as the number ofgallons in each missile provided by Raytheon for the computation ofquantum.
The Navy's QuantumArguments

In its initial BoardRule 11 briefthe Navy spent most ofits argument on the elements ofa total cost claim (gov'thr. at 26-35). Since we do not consider a total cost claim, this argument is unpersuasive. However, the Navy also appears to argue that since the DFSP was not built until FY09 that the additional amounts paid by

4Raytheon when the price was $25.00 in FY07 and FY08 must have gone to offset losses and could nothave been used to pay for the DFSP orthe JP-10 to stock it (gov't. br. at 36-37; gov'treply br. at 16). The Navy argues, "Raytheonhas obviously failed to meet its burden on demonstrating any amount of$25 JP-10 sold to it for the contract at issue was used to finance the DFSP" (gov'tbr. at 37). The record is replete with evidence that the $25.00 price was designed to finance the DFSP and pay for the JP-10 to stock it.4 The Navy's argument is unpersuasive.
The Navy also argues that it was Raytheon's fault that it incurred the additional costs associated with the increase to $25.00/gallon because of"delays or inefficiencies" (gov'treply br. at 22-24). The theory seems to be that Raytheon should have delivered
more missiles with the cheaper fuel before the price increased to $25.00 and therefore it should not recover for those missiles. There is no evidence that the Navy took any adverse action against Raytheon for these alleged inefficiencies or delays. Additionally,
some ofthis occurred before Raytheon learned ofthe Navy's comingprice increase in July 2006. After Raytheon first learned ofthe price increase it made a variety ofattempts to mitigate the damage to no avail. Raytheon, 13 BCA

### ,-i 3 5,264 at 173, 110-11, findings 26, 28-31. TheNavy's delays orinefficiencies argument is unpersuasive.
Quantum Calculations Raytheon relies onthree things to calculate its quantum amount: (1) 128 gallons permissile; (2) invoices at $25/gallon (R4, tab 17; app. supp. R4, tab 122); and (3) a list ofmissiles and DD 250 acceptance dates (app. supp. R4, tab 169). We accepted the 128 gallon figure above. We accept the invoices as evidence ofthe total number of gallons offuel purchased at the $25.00 rate. We discuss the list ofmissiles and DD 250 acceptance dates below. Raytheon must now establish how many ofthose gallons of $25.00 fuel were loaded into Contract 0569 missiles. Raytheon relies on the affidavit testimony of

### Mr. Thomas Blume to identify invoices associated with the gallons of$25.00 fuel loaded into Contract 0569 missiles. 

### Mr. Blumetestified as follows:

Inpreparing Raytheon's Certified Claim and the Revised/Certified Claim, I reviewed, in detail, every gallon ofJP-10 fuel that was delivered to Raytheon and where those gallons were utilized. I reviewed each Raytheon invoice from the Defense Energy Support Center ("DESC") through December 31, 2009 to determine the number ofgallons ofJP-10 Raytheon purchased at $25/gallon instead of$14/gallon under the FRP Contract.

4 See entitlement decision, Raytheon 13 BCA 

### ,-i 35,264, findings 21-32.

5I annotated the DESC invoices to denote the particular Tomahawk contract that was using the fuel in each invoice. I then comparedthese invoices to Raytheon's canceled checks and screenshots from Raytheon's accounting systemto determine the total impact ofthe Government's decision to increase the price ofJP-10 during Raytheon's performance ofthe FRP Contract. I included copies ofthe annotated invoices, canceled checks, and screenshots with Raytheon's Revised/Certified Claim. These items were part ofthe record in the entitlementproceedings (Rule 4(a) Tab 17) and were attached to Raytheon's Statement of Costs. (Blume aff. at 4, 

### ii 13) Mr. Blume also includedprojected fuel costs and gave a credit for fuel purchased for less than $14.00/gallon (id.).

Mr. Blume relied on the listing at appellant's supplemental Rule 4, tab 169, to documentthetotal number ofmissiles delivered under Contract 0569 (Blume aff. at 4). The Navy objects to this document (Bd. corr. file, gov't obj. dtd. 21 August 2014 at 6). The document at appellant's supplemental Rule 4, tab 169, is a tabular listing of 1,762 missiles, by tail number, delivered between 1 October 2006 and 29 September2010 (FY07 to FYlO). While Mr. Blume could have elaborated more onthe origins ofthis document, we conclude thathis sworn testimony is sufficient for
us to consider it. This is particularly true in view ofthe fact there is no evidence that theNavy made any attempt to audit this listing. We fail to understand the basis for the Navy's objection andreject its argument thatthe "DD 250 date does notrepresent the date ofmissile fueling" (Bd. corr. file, gov't obj. dtd. 21 August 2014 at 7). Itis obvious that the DD 250 date accepting each fully loaded missile will not be the date offueling. We deny the Navy's objection to appellant's supplemental Rule 4, tab 169. Using the listing at appellant's supplemental Rule 4, tab 169, Mr. Blume determined that Raytheon delivered 1,762 missiles between FY07 and FYlO (Blume aff. at 4). Mr. Blume testified: Raytheon delivered 1,762 Tomahawk missiles to the Governmentbetween FY07-FY10 whenthe price ofJP-10
was $25/gallon. See Rule 4(b) Tab 169. Afterreviewing all ofRaytheon's invoices from DESC for the purchase of JP-10 and determining the number ofgallons ofJP-10 purchased at $25/gallon, I determined that Raytheon fueled 1,749 missiles underthe FRP Contract using 223,879 gallons ofJP-10 purchased at $25/gallon. Notably, Raytheon actually purchased 303,875 gallons ofJP-10 at

6$25/gallon between FY07-FY10, but only 223,879 gallons
were for missiles underthe FRP Contract. (Blume aff. at 4-5, 

### ii 15) Mr. Blume does not elaborate on how he made his determination that 1,749 missiles were delivered under Contract 0569 with $25.00 fuel. However, it is obvious that Mr. Blume relied upon the following calculation for total gallons: 128 gallons/missile x 1,749 missiles= 223,879 gallons. Itis the 1,749 missiles thatwe question.

We cannot square Mr. Blume's 1,749 missiles with the records he relied upon. Without his explanation we are left to sortthe number out as bestwe can. There is a 13 missile difference between 1,762 and 1,749. That means that, according to Mr. Blume, the first missile loaded with $25.00 fuel was the fourteenth missile that was accepted by DD 250 dated 3 November 2006 (app. supp. R4, tab 169 at 1). We do not know how muchtime elapsed betweenthe loading ofthe fuel and signing ofthe DD 250 butwe know thatthe fuel was loaded beforethe DD 250 was signed because the missile was tendered for acceptance fully loaded with fuel. The first purchase of$25.00 fuel is shown on invoice numberP-611-078 dated 29 November 2006 (R4, tab 17 at 16). We do notknow when that fuel was delivered to Raytheon. We conclude, however, absent any explanation from Mr. Blume, that the $25.00 fuel, invoiced on 29 November 2006, likely was not loaded into the fourteenth missile accepted weeks earlier on 3 November 2006. Therefore we cannot accept Mr. Blume's 1,749 missiles as a basis for calculating quantum. The only firm dates we have to workwith are the fuel invoice dates and the missile acceptance, DD 250, dates. The first $25.00 fuel invoice is dated 29 November 2006. The first missile accepted after that date is number 19 accepted on 1December 2006, only two days afterthe invoice (app. supp. R4, tab 169 at 1). Ourproblem is that
we do not know when the first ofthe $25.00 fuel was loaded into the first missile. Given the record wehave, there is no precise way to determine which missile number
was the first to be loaded with $25.00 fuel. Therefore, we select one month, the month ofDecember 2006, as the period oftime to account for the uncertainty associated with the only firm dates we have to rely on. We find it is reasonable to conclude that missiles delivered in January 2007 and thereafter were loaded with $25.00 fuel. Ifit was an earlier date, Raytheon failed toprove that. The first missile accepted in January 2007
was number 65 accepted on 4 January 2007 (id.). Therefore, a reasonable approximation is 1,698 (1,762 minus 64) as the number ofContract 0569 missiles loaded with $25.00 fuel. We calculate the number ofgallons in those missiles that Raytheon loaded as 128 x 1,698 = 217,344. Therefore the value ofthe fuel loaded into the missiles is $11 x 217,344 = $2,390,784.5 It is Raytheon's burdento reduce this numberto account for losses from other commodities, the portion ofthe entitlement decision that denied Raytheon's appeal.

5 Having found for Raytheon inthis regard, we need not address its various other arguments in its initial quantumbrief. (app. br. at 15-24).

7Losses from Other Commodities

In its Rule 11 quantum briefRaytheon argues that it "specificallyrequested that the Governmentproduce documents indicating how much, ifany, ofthe increased profits from JP-10 sales was used to offset losses on other commodities, Rule 4(b) Tab 165" and that the "Government neverproduced any such documentation" (app. br. at 22). The document at Rule 4, tab 165 is a subpoena issued by the Boardto the Government with a list ofdocuments requested by Raytheon. While the document requests do not include a specific request for "losses on other commodities," the requests are broad enough to require production ofthis information. In its reply brief, the Navy quotes hearing testimony (on entitlement) by Ms. Murphy, DESC Director, where she agreedthat afterthe price increase to $25.00 the increase offset losses from other commodities (gov'treply br. at 16). The Navy argues: Raytheon suggests (AB 22)that it received no documents about DESC losses. That is refuted by the budget preparation sheets showing FY2006 JP-10 losses that had to be recovered in the next two fiscal years and Rule 4(b), Tab 61, on which Raytheonrelies and cites. Raytheon also received otherDESC documents that it chose whether or not to add to the record. Those added include: Rule 4(a) Tabs 82, 83, 85, 88; Rule 4(b) Tabs 45, 104, 134. In short, DESC produced everythingthat it had in its custody. Those portions thatRaytheon chose to use out ofthat collection ofdocuments represents the record evidence in the case as to DESC losses. (Gov'treply br. at 17) Nowhere in its reply briefor anywhere else does the Navy identify where in the documents it produced is the evidence oflosses attributable only to commodities other than JP-10.
What we confront is Raytheon with the burden ofproofto establish how much it shouldreduce its recovery for losses from othercommodities statingthat it did not receive documents that identify losses for other commodities. The Navy responds saying "yes we did provide the information." In its reply briefthe Navy identified eight Rule 4 tabs (see quote in previous paragraph) containing documents it contends provide Raytheon the evidence necessary to calculate the amountto be deducted. We reviewed these documents and sawnothing that obviously identified the dollar amounts oflosses from other commodities that would enable Raytheon orthe Boardto make the calculation. Therefore, we conclude that Raytheon's evidence onthis point is sufficient to carry its burden ofpersuasionthatthere is no reduction in its recovery to account for losses on other commodities.

8 

# I

f



# IMaterialBurden, G&A andProfit Raytheon makes several arguments in support ofits request for markup. Itargues that it included markup onthe $14.00 JP-10 it included in its price ofthe missiles sold to the Navy. It states that ifit had known it would have to pay $25.00 for JP-10 it would have included markup on the $25.00. (App. br. at 27) This fundamentally misses the pointthat nothing in this transaction was "sold to the Navy." The fuel was sold to Raytheon. The $11.00 increase did not include Raytheon's markup and the refund ofthe $11.00 should not include markup. To do so wouldrefund more to Raytheon than was taken bythe Navy. This would be an unjustified windfall to Raytheon.
The cases cited by Raytheon all stand for the proposition that changes that increase the cost ofperformance are entitled to markup. We agree withthat as a general proposition. However, this is notthe case. We decide that the Navy had no right to impose the increase onRaytheon inthe first place and werefund the $11.00 cost ofthe increase to Raytheon. There is no change that increases the cost of performancejustifying applying burdento the refund.
CONCLUSION Raytheon is entitledto $2,390,784 plus CDA interest from the date ofreceipt of the certified claim.
Dated: 3 September 2015

I concur

# ~tv~**CP~[u__** CRAIG S. C ARKE

# Administrati~ Judge Armed Services Board ofContractAppeals

I concur

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# ,//f:zi----

7MARK

## ~ER~ _RI_C_HARD

__ S_HA_C_KL_E_F_O_RD

___ _ Administrative Judge Acting Chairman Armed Services Board ofContract Appeals

9 Administrative Judge Vice Chairman Armed Services Board ofContractAppeals 

# tI certify that the foregoing is a true copy ofthe Opinion and Decision ofthe Armed Services Board ofContractAppeals in ASBCA No. 59258, Appeal of Raytheon Missile Systems Company, rendered in conformance with the Board's Charter.
Dated:

10 JEFFREYD. GARDIN Recorder, Armed Services Board ofContract Appeals