Court Opinion

ID: 4370780
Source: CourtListenerOpinion
Date Created: 2019-02-25 18:00:11.000753+00
Date Added: 2024-06-11T09:36:59.791179
License: Public Domain

ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeal of --                                   )
                                               )
Electric Boat Corporation                      )      ASBCA No. 58672
                                               )
Under Contract No. N00024-03-C-2101            )

APPEARANCES FOR THE APPELLANT:                        Stephen J. McBrady, Esq.
                                                      Skye Mathieson, Esq.
                                                      Michelle D. Coleman, Esq.
                                                       Crowell & Moring LLP
                                                       Washington, DC

APPEARANCES FOR THE GOVERNMENT:                       Craig D. Jensen, Esq.
                                                       Navy Chief Trial Attorney
                                                      Russell A. Shultis, Esq.
                                                      David B. Stinson, Esq.
                                                      David M. Marquez, Esq.
                                                      Alana M. Sitterly, Esq.
                                                       Trial Attorneys

          OPINION BY ADMINISTRATIVE JUDGE D'ALESSANDRIS
       ON THE GOVERNMENT'S MOTION FOR SUMMARY JUDGMENT
                      REGARDING ENTITLEMENT

       Pending before the Board is the motion for summary judgment regarding
entitlement filed by respondent, the Department of the Navy (government or Navy).
The Navy seeks entry of summary judgment holding that appellant, Electric Boat
Corporation (Electric Boat or EB), and its subcontractor Huntington Ingalls, Inc. (HII),
cannot establish economic injury directly caused by a change in federal law, and
requests dismissal of the appeal.

        On December 10, 2018, we granted, in part, the Navy's earlier-filed motion for
summary judgment, dismissing Electric Boat's claim for its own costs based upon the
statute of limitations, but denying the motion with regard to the costs of its
subcontractor HII. Electric Boat Corporation, ASBCA No. 58672, slip op.
(December 10, 2018). Thus, despite the fact that the vast majority of the parties'
briefing pertains to Electric Boat's costs, only HII's costs are at issue in this opinion.
For the reasons stated below, we deny the Navy's motion.
           STATEMENT OFF ACTS FOR PURPOSES OF THE MOTION

        This appeal pertains to Contract No. N00024-03-C-2101 (the contract) for the
construction of six Block II Virginia Class submarines (R4, tab 52). Familiarity with
our prior opinion is assumed, and only facts relevant to the current motion are included
here. The contract was primarily firm-fixed-price, but with some cost-reimbursement
line items. Construction of each submarine was a fixed-price line item with cost
sharing of costs above or below the target cost. (R4, tab 52 at 280-96) The contract
included Clause H-9, NAVSEA 5252.233-9103, DOCUMENTATION OF REQUESTS FOR
EQUITABLE ADJUSTMENT (AT)-ALTERNATE I (APR 1999), which stated:

             (a) For the purposes of this requirement, the term "change"
             includes not only a change that is made pursuant to a
             written order designated as a "change order" but also (i) an
             engineering change proposed by the Government or the
             Contractor pursuant to the "Other Change Proposals" or
             other requirements of this contract and (ii) any act or
             omission to act on the part of the Government in respect of
             which a request is made for equitable adjustment under the
             "CHANGES" clause or any other article or requirement of
             this contract.

             (b) Whenever the Contractor requests or proposes an
             equitable adjustment of $100,000 or more per vessel in
             respect of a change made pursuant to a written order
             designated as a "change order" or in respect of a proposed
             engineering change and whenever the Contractor requests
             an equitable adjustment in any amount in respect of any
             other act or omission to act on the part of the Government,
             the proposal supporting such request shall include the
             following information for each individual item or element
             of the request:

                    (3) Description of work which is substituted or
             added by the change. A list of identifiable components and
             equipment (not bulk materials or items) involved, should
             be included. Separate descriptions are to be furnished for
             design work and production work;

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                    (4) Description of interference and inefficiencies in
              performing the change;

              (c) Each proposal submitted in accordance with this
              requirement shall include a copy of the Contractor's ship's
              labor budget at the cost level in effect as of the date the
              event began, the cost incurred at the cost level as of the
              same date, and the proposed effect of the change at the cost
              class level.

              ( d) It is recognized that individual claims for equitable
              adjustment may not include all of the factors listed in
              subparagraphs (b) ( 1) through (b) (8) above, or that the
              Contractor may not reasonably be able to furnish
              complete information on all of the factors listed in
              subparagraph (b) ( 1) through (b) (8) above. Accordingly,
              the Contractor is only required to set forth in its request for
              equitable adjustment information with respect to those
              factors which are relevant to the individual request for
              equitable adjustment, or in the level of detail which is
              reasonably available to the Contractor.

              ( e) In addition to any information required under
              paragraph (b) above, each proposal submitted in support of
              a claim for equitable adjustment, under any requirement of
              this contract, in an amount which requires certified cost or
              pricing data, shall contain such cost or pricing data as the
              Contracting Officer shall require with respect to each
              individual claim item, and shall be in sufficient detail to
              permit the Contracting Officer to cross-reference the
              claimed increased costs, or delay in delivery, or both, as
              appropriate, with the information submitted pursuant to
              subparagraphs (b) ( 1) through (b) (8) hereof.

(R4, tab 52 at 428-30) The contract does not contain FAR 52.243-6, CHANGE ORDER
ACCOUNTING, permitting the contracting officer to require a contractor to maintain
separate accounts "of all incurred segregable, direct costs (less allocable credits) of
work, both changed and not changed, allocable to the change."

       As described in more detail in our previous opinion, the Occupational Health and
Safety Administration (OSHA) promulgated a new regulation, referred to as Subpart P,
Fire Protection in Shipyard Employment (29 C.F.R. § 1915.501 et seq.), that became
effective on December 14, 2004 (Fire Protection in Shipyard Employment, Final Rule,
69 Fed. Reg. 55,667-708, OSHA (Sept. 15, 2004)). Electric Boat contends that
compliance with Subpart P, which modified the regulations requiring a fire watch during
"hot work," increased its cost of performance by an amount sufficient to qualify for an
adjustment, pursuant to Clause H-30 of the contract, to the firm-fixed-price contract line
item for construction of the submarines.

       Relevant to this motion, on January 30, 2006, HII submitted its Estimate of
Cost Summary to Electric Boat, setting forth its "[a]dditional costs associated with
complying with the increased requirements invoked by OSHA 29 C.F.R. 1915
SUBPART P" totaling $27,524,878 (gov't mot., ex. 17). HII's claimed amount was
based on an estimate of 392,520 additional labor hours (id.).

        HII' s estimated cost impact was developed by determining which of its
departments had a high percentage of fire watch qualified personnel (gov't mot.,
ex. 101 at 3172-73). HII used its Labor Resources Plan from 2005 as a baseline for
labor to complete the submarines. HII then estimated, on a department-by-department
basis, the percentage of fire watch work performed before the effective date of
Subpart P and an estimate of the percentage increase in fire watch performed after the
effective date of Subpart P, with the exception of one department that estimated a set
number of fire watch hours per week for grinding, rather than welding, activity. (Id.
at 3174, 3204)

       Mr. James Myers, HII's executive in charge of cost and financing issues
provided deposition testimony to the effect that it would be impractical to separately
account for OSHA Subpart P costs. Mr. Myers testified that even if it were possible to
create a cost code for "fire watch" that would only include the direct labor of "an
individual to stand guard with a fire extinguisher" this would not measure the
"ancillary efforts associated with fire watch" and that measuring these costs would be
"nearly impossible" and that such "discrete cost intelligence would have been
marginal, very subjective at best." (App. opp'n, ex. 26 at 79, 87-88, 90-91) EB's
expert in cost estimating, Mr. James P. O'Hare, provided his opinion that HII's
estimating methodology for the Subpart P regulation was based on information from
supervisors familiar with HII's practices before and after Subpart P and that this was
"consistent with the practices of other shipyards for pricing REAs and changes" and
that HII' s estimate "provides a sound basis for adjudicating" the claim pertaining to
HII's costs (app. opp'n, ex. 42 at 12-13).

        The Navy prepared a Technical Advisory Report (TAR), dated September 9,
2009, regarding HII's portion of the claim. The TAR recommended compensating HII
for an increase of 13,548 direct labor hours (less than 5o/o of HII's claimed amount) as
a result of Subpart P (app. opp'n, ex. 64 at 15295-300). In addition, Navy witnesses

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testified at deposition that the OSHA Subpart P regulations caused an impact on EB
and HII* (see, e.g., app. opp'n, ex. 19, Hill Dep. at 99 ("OSHA required some
additional fire watch in the area of - say it was nothing else, grinding, there would
have to be some additional man-hours, but I don't think anywhere near what they
proposed."), see also ex. 56, Nixon Dep. at 66-67 (some impact), ex. 57, Brucker Dep.
at 32, 35, 37, 105, 118 (some magnitude), ex. 58, Lussier Dep. at 93-94 (imposed
some new requirements and credit given in analysis), ex. 59, Malone Dep. at 84
(estimate 30% of proposed impact)).

       On December 19, 2012, EB filed a certified claim pursuant to the Contract
Disputes Act, including both EB's and HII's claimed costs (R4, tab 71). The Navy
denied the claim on February 27, 2013 (R4, tab 76), and this appeal followed.

                                        DECISION

        We will grant summary judgment only if there is no genuine issue as to any
material fact, and the moving party is entitled to judgment as a matter of law. Celotex
Corp. v. Catrett, 477 U.S. 317, 322 (1986). A material fact is one that may affect the
outcome of the decision. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49
(1986). The moving party bears the burden of establishing the absence of any genuine
issue of material fact, and all significant doubt over factual issues must be resolved in
favor of the party opposing summary judgment. Mingus Constntctors, Inc. v. United
States, 812 F.2d 1387, 1390-91 (Fed. Cir. 1987). Once the moving party has met its
burden of establishing the absence of disputed material facts, then the non-moving
party must set forth specific facts, not conclusory statements or bare assertions, to
defeat the motion. Pure Gold, Inc. v. Syntex (U.S.A.), Inc., 739 F.2d 624, 626-27
(Fed. Cir. 1984).

        The Navy asserts that it is entitled to entry of summary judgment in its favor
because HII had the ability to separately track its fire watch activities but failed to do
so and thus HII fails to establish causation and does not provide a reliable basis for
calculating damages (gov't mot. at 121). Electric Boat opposes the motion, asserting
that material factual disputes regarding the ability of HII to separately track its costs,
and disputes regarding causation and damages prevent entry of summary judgment
(app. resp. at 20-26). We agree that material factual disputes prevent entry of
summary judgment.

       The Navy first argues that EB has not established causation for HII's claimed
costs. According to the Navy, the absence of actual cost data to support HII's claimed

* It is not always clear from the deposition transcript excerpts whether the deponents
         are referring to EB, HII, or both in their statements.

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 costs transforms the claim to a total cost claim or jury verdict award, and these theories
 require heightened proof of causation (gov't mot. at 101). According to the Navy, the
 fact that EB and HII did not maintain records sufficient to directly measure the
 increased costs means that EB and HII must be asserting a total cost claim or be
requesting a jury verdict award (gov't reply at 4). However, HII's costs are not in the
form of a total cost claim or request for a jury verdict. HII is relying upon estimates
by employees with personal knowledge of the events at issue (gov't mot., ex. 101
at 3172-74). This is an estimate of actual costs, and is not a total cost claim or request
for a jury verdict. A total cost method claim "seeks to recover the difference between
the actual cost experienced and cost anticipated in the bid.'' See, e.g., Crown Laundry
& Dry Cleaners, Inc., ASBCA No. 31900, 86-3 BCA ,r 19,112 at 96,610. A "jury
verdict" award is an award of damages where the amount of recovery can only be
approximated due to a justified inability to substantiate the amount of injury by direct
and specific proof. See, e.g., Service Engineering Co., ASBCA No. 40274, 93-1 BCA
,r 25,520 at 127,111 (quoting Joseph Pickard's Sons Co. v. United States, 532 F.2d
739, 742 (Ct. Cl. 1976)). Thus, HII is asserting an actual cost claim, with the
increased cost of performance measured by estimating the increase in fire watch work
performed after the implementation of Subpart P, rather than by direct measurement
(gov't mot., ex. 101 at 3172-74, 3204). To be sure, HII will need to demonstrate the
accuracy of its calculations at a hearing on the merits; however, as discussed below, at
the summary judgment stage, HII has demonstrated the existence of a material factual
dispute.

        While the Navy asserts that EB has not established causation (gov't mot.
at 102), EB has asserted facts sufficient to raise a factual issue. In fact, the Navy's
own TAR concluded that HII had incurred increased labor hours due to the Subpart P
regulation (app. opp'n, ex. 64). The Navy argues that its preliminary conclusions are
not binding because the Board conducts a de nova review (gov't reply at 6 n.6). While
the Navy's analysis is not binding on the Board, it is evidence that EB may cite to
demonstrate the existence of a material factual dispute. Moreover, numerous Navy
employees testified at their depositions that there was some impact to EB and HII as a
result of the regulation, even though they believed the claim to be inflated (app. opp'n,
exs. 19, 57-59). The Navy's citation to cases such as Southeastern Sen,ices, Inc.,
ASBCA No. 21278, 78-2 BCA ,r 13,239, for the proposition that appellant must
establish causation before recovering under the jury verdict method ignores the fact
that Southeastern Sen,ices was an opinion on the merits. The appellant in
Southeastern Services was permitted to present evidence of causation and damages
and the Board found that evidence lacking. However, the opinion does not stand for
the proposition that an appellant cannot have an opportunity to present its evidence.

      The Court of Federal Claims' holding in Ravens Group, Inc. v. United States,
112 Fed. Cl. 39 (2013), did dismiss a claim on summary judgment (gov't mot. at 104);
however, in that case the court found that the plaintiff had not demonstrated clear

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proof of injury. Ravens Group, 112 Fed. Cl. at 54-55. Although not binding on us in
any event, the Ravens Group opinion actually supports denial of the government's
motion. The plaintiffs contract provided for an adjustment to the contract if the
plaintiff incurred costs over $15,000 per month responding to service calls, and based
costs on labor hours. The plaintiff introduced evidence of an increase in the number of
service calls, but did not present evidence of an increase in the number of labor hours
because it had not recorded labor hours. The court granted summary judgment on the
issue, holding that the plaintiff had not established injury. Id Notably, the court
rejected the government's contention that the plaintiff could only establish injury
through actual labor hours, holding that it "might be able to establish injury by
demonstrating that the number of monthly labor hours spent on service calls-as
calculated by R. S. Means or other commercially available estimating systems and
based upon the daily work sheets-required compensation." Id at 55 n.16. Similarly,
here HII has estimated its increased cost of performance compared to a base period
before the implementation of Subpart P. The increase in estimated labor hours,
combined with the Navy's TAR and the deposition testimony of Navy witnesses that
there was an impact on the contractors is sufficient to create a factual issue that the
regulatory change caused a change in HII's performance and that there was an increase
in the cost of performance. Thus, we find that EB has established a material factual
issue regarding causation preventing the entry of summary judgment.

         The Navy additionally argues that EB cannot use estimates to support its claim
unless the contractor was unable to collect actual data due to circumstances beyond its
control (gov't mot. at 112 (citing Orlosky Inc. v. United States, 68 Fed. Cl. 296
(2005))). According to the Navy, "the Board requires contractors to show that it
would not be feasible to support a claim with actual cost data" (gov't mot. at 112).
Additionally, the Navy cites to contract Clause H-9 which requires EB to document its
requested adjustment with a "level of detail which is reasonably available to the
Contractor" (gov't mot. at 113 (citing R4, tab 52 at 430, Clause H-9(d))). Here, EB
presented deposition testimony and an expert report asserting that it was not feasible
for it to use actual cost data (app. opp'n, ex. 26 at 79, 87-88, 90-91, ex. 42 at 12-13).
Moreover, the contract did not contain FAR 52.243-6 that would have required EB to
maintain such data. Again, we find that material factual issues prevent the entry of
summary judgment in favor of the Navy.

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                                   CONCLUSION

       For the reasons stated above, the Navy's motion for summary judgment is denied.

       Dated: January 28, 2019

                                                DAVID D'ALESSANDRIS
                                                Administrative Judge
                                                Armed Services Board
                                                of Contract Appeals

 I concur                                       I concur

 RICHARD SHACKLEFORD                            J. REID PROUTY
 Administrative Judge                           Administrative Judge
 Acting Chairman                                Vice Chairman
 Armed Services Board                           Armed Services Board
 of Contract Appeals                            of Contract Appeals

      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. 58672, Appeal of Electric
Boat Corporation, rendered in conformance with the Board's Charter.

      Dated:

                                                JEFFREY D. GARDIN
                                                Recorder, Armed Services
                                                Board of Contract Appeals

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