Opinion ID: 494000
Heading Depth: 2
Heading Rank: 3

Heading: The Evidence of Default

Text: 30 The sole basis here for termination for default was Lisbon's failure, under General Provision 5 of the contract, to prosecute the work ... with such diligence as will insure its completion within the time specified in th[e] contract. At trial, the government did not offer direct testimony or any other direct evidence on the time which it estimated it would take Lisbon to complete the contract. Indeed, the contracting officer acknowledged that the government did not undertake a study to determine whether Lisbon could complete the work within the required time, or determine how long it would take a follow-on contractor to do the work. Such a comparison is mandated by the relevant procurement regulations. 41 C.F.R. Sec. 1-18.803-5(a)(3). 31 The government argues that it was, nevertheless, justified in terminating for failure to make progress because Lisbon (1) did not sufficiently support its revised construction schedule to show the manner in which it would regain time to achieve the due date and (2) failed to designate an acceptable, full-time superintendent. Thus, per the government, the contracting officer had reasonable doubts concerning Lisbon's ability to complete the job in a timely fashion. Under the Discount decision, the government argues, the default for untimely progress was justified, the contractor being required in Discount to reasonably assure the contracting officer that he could complete the job on time. 32 The Claims Court made the following findings: 33 26. At the start of the April 30, 1980, meeting, the matters [the government] had complained about were in the following status: 34 (1) Versatile's subcontract had been terminated. 35 (2) [Lisbon] had a full-time superintendent. 36 (3) All previous complaints on various work item deficiencies had been remedied; the work had been inspected; and [Lisbon] had been paid for the work. 37 (4) Lisbon had submitted a revised schedule which showed the work could be completed timely, using procedures that accorded with [the government's] interpretation of the specifications on the sleeper joint issue. 38 Slip op. at 39. 39 To give any viability to the government's justification argument, the government must persuade us that findings (2) and (4) above are clearly erroneous. A finding of fact is clearly erroneous when  'although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.'  Milmark Servs., Inc. v. United States, 731 F.2d 855, 857 (Fed.Cir.1984) (quoting United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948)). 40 The record before us indicates that the parties arranged the April 30, 1980 meeting between Lisbon's president and the contracting officer to resolve their differences so they could pursue completion of the project. The superintendent and revised construction schedule problems were matters the parties sought to resolve at the meeting. 41 Whether Mr. Campellone, Lisbon's vice president, was a full-time superintendent on April 30, 1980, was disputed. The government maintains his health was too poor to permit him to work full time. He had been accepted by the government in January when there was minimal construction activity and it was intended he would serve only temporarily until the superintendent dispute was resolved. There is no dispute that Lisbon was prepared to discuss superintendence at the meeting, and that the meeting broke up before that issue was reached. On the record before us, we are not persuaded that the Claims Court's finding of fact (2) above is clearly erroneous. 42 The government maintains that the Claims Court erred in finding that Lisbon had submitted a revised schedule of work at the time of termination. Per the government, the schedule was not acceptable because Lisbon did not supply the details of the additional work forces and equipment necessary to complete the job under the contract. The government asked, for example, for the names of specific laborers Lisbon would commit to the job and for copies of sub-contracts. Per the government, these deficiencies, viewed in the context of past poor performance, were a sufficient basis for concluding that the contractor could not finish on time. The government also urges that Lisbon's president admitted at the meeting that Lisbon could not complete the work without a change in the contract specifications. 43 One purpose of the meeting was to work out problems of the work schedule. There was conflicting evidence concerning what occurred at the meeting, and the trial court found the testimony of Lisbon's witnesses more persuasive, a decision to which we must defer. Also the Claims Court took into consideration the circumstances surrounding Mr. Marques' alleged admission and discounted its importance. We agree it does not outweigh the other evidence. Per the Claims Court, the submitted revised schedule did not depend on obtaining a change in specifications and would have been taken up had the government not ended the negotiations following the altercation. The Claims Court also held, and we agree, that the contractor's failure to give all the requested details on the revised schedule was not in itself evidence of failure to make progress on the work which would justify the default termination. 44 In sum, we hold that on the basis of the entire record, the Claims Court did not err in determining that the government improperly terminated Lisbon for default. The Claims Court properly converted the termination for default to a termination for convenience of the government as provided by General Provision 5 of the contract. IV Proof Of Termination Costs 45 The government contends that, under the correct legal standard, Lisbon failed to prove various cost items and that the Claims Court erred in including them in Lisbon's damage award. In our earlier opinion remanding this case, this court noted that the Claims Court had made inadequate findings on Lisbon's damage claim and had apparently shifted the burden of proof to the government to establish that the costs were improper, contrary to the precedent of Willems Indus., Inc. v. United States, 295 F.2d 822, 831, 155 Ct.Cl. 360 (1961), cert. denied, 370 U.S. 903, 82 S.Ct. 1249, 8 L.Ed.2d 400 (1962). In Willems the Court of Claims held, [t]he claimant bears the burden of proving the fact of loss with certainty, as well as the burden of proving the amount of loss with sufficient certainty so that the determination of the amount of damages will be more than mere speculation. On remand, the Claims Court restated the basis for its allowance of the asserted items of cost. After reviewing the transcript of trial testimony and the exhibits introduced at trial, we hold that the Claims Court was clearly erroneous with respect to the allowance of several items. The government was under no obligation to present evidence attacking an item if Lisbon did not prove prima facie that it was properly included. On the record before us, we are compelled to conclude that Lisbon failed to make a prima facie showing in several instances. 46 General Provision 18 of the contract incorporates by reference 41 C.F.R. Sec. 1-8.703 (1979) describing the parties' rights on termination for convenience of the government. Section 1-8.703 provides for reimbursement of the contractor for the cost and profit on work performed prior to the termination and any other reasonable cost incidental to termination of work under the contract and not otherwise recovered or credited to the government. Having reviewed the evidence and the government's arguments, we set aside the trial court's findings on the following items: 47 Reinforcing steel (delivered--not used) market value $ 4,186.58 6' PVC drain pipe 1,714.56 3/4 ' expansion joint material 17,832.81 55# building paper 536.89 Pourthane joint sealant 2,213.76 48 With respect to the above items, Lisbon's witness Lancaster testified that Lisbon purchased those materials for this job, and invoices were submitted to establish the amounts, except for the first. 49 The applicable federal procurement regulations impose an obligation on the contractor to [t]ake such action as may be necessary ... for the protection and preservation of the property related to this contract which is in the possession of the Contractor and in which the Government has or may acquire an interest. 41 C.F.R. Sec. 1-8.703(b)(9). Further, the contractor's termination costs must be reduced by: [T]he agreed price for, or the proceeds of the sale of, any materials, supplies, or other things kept by the Contractor or sold, pursuant to the provisions of this clause, and not otherwise recovered or credited to the Government. 41 C.F.R. Sec. 1-8.703(h)(3). 50 Lisbon offered no evidence to explain what happened to the above materials. The government asserts that the record shows Lisbon kept them. The government points to an entry in the construction job journal for the project for May 12, 1980, which states that the contractor loaded and removed some reinforcing steel and PVC pipe, and other materials from the site. Also, prospective follow-on bidders were informed that the listed materials were available from Lisbon. Lisbon argues that it is irrelevant that it took possession of the goods because it could not use the items purchased for the project in view of the termination. 51 Under the regulations, a contractor is not entitled to reimbursement for the entire cost of materials simply because they were purchased for the job. The principle of mitigation of damages pervades the regulations. Moreover, Lisbon had the burden of proof on any cost item of its claim which, for those items, includes proof, inter alia, that the materials were not kept by the contractor or sold. It may not recover simply by pleading ignorance of the fate of those materials. On this record the trial court's finding that the items in issue were proved to be termination costs is clearly erroneous. Lisbon did not carry its burden of proving that the amounts were allowable costs. 52 The largest item which the government seeks to disallow is for Liability for Reinforcing Steel in the amount of $24,348.93. To support this item, Lisbon submitted a letter from the supplier which stated that the supplier was intending to fill the follow-on contractor's order with the specially fabricated items it had manufactured for Lisbon and that, if that deal went through, Lisbon would be liable only for a balance of $24,348.93 on its account. This evidence of liability is sufficient to support the Claims Court's finding. Contrary to the government's argument, Lisbon was not required to submit a paid bill to establish this item as an allowable cost. 53 The government's remaining arguments on damages are also without merit. It makes an argument that several cost items, which were incurred before termination, namely, the cost of wells, pump rentals, and fuel for its trailers, are not allowable because Lisbon did not perform major items of work during the time. The regulations provide for payment of costs of all contract work performed prior to the effective date of the Notice of Termination. 41 C.F.R. Sec. 1-8.703(e)(1). It is undisputed that dewatering was necessary for Lisbon to proceed. Heat for trailers is a routine expense of performance. That Lisbon was not performing major items of work at the time the expenses were incurred is not a basis for disallowance. 54 Having reviewed the record and considered all of the government's arguments, we conclude that the Claims Court was not clearly erroneous in awarding any items of cost except for the five items indicated above. In view of the items disallowed, it will be necessary, in addition, to reduce the profit figure which is computed as a percent of the cost of work incurred prior to termination. 41 C.F.R. Sec. 1-8.703(e)(1)(iii). 10 55 Finally, we affirm the denial of the government's asserted setoff in the amount of $20,570 for corrective work. We do not decide the issue on the legal ground urged by Lisbon that a setoff cannot be made for corrective work where a convenience termination is involved. See Western States Painting Co., ASBCA No. 13843, 69-1 BCA (CCH) p 7616, 35,379 (Apr. 11, 1969); J.D. Shotwell Co., ASBCA No. 8961, 65-2 BCA (CCH) p 5243, 24,691-92 (Nov. 30, 1965). We do reject the government's argument that Lisbon had the burden to disprove the government's claimed setoff. The burden was on the government to prove the amount. In this case the Claims Court noted that the government proposed a finding that the follow-on contractor ... did not have to undertake corrective measures. Lisbon agreed to some adjustment for corrective work, and the ambiguous evidence which the government calls to our attention to prove the balance does not convince us that the Claims Court's denial of the setoff was clearly erroneous. V