Court Opinion

ID: 2805609
Source: CourtListenerOpinion
Date Created: 2015-06-04 15:00:12.45677+00
Date Added: 2024-06-11T12:45:29.002282
License: Public Domain

ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeal of --                                  )
                                              )
Jaynes Corporation                            )      ASBCA No. 59234
                                              )
Under Contract No. W912PL-09-C-OOIO           )

APPEARANCE FOR THE APPELLANT:                        Judith Ward Mattox, Esq.
                                                      Colorado Springs, CO

APPEARANCES FOR THE GOVERNMENT:                      Thomas H. Gourlay, Jr., Esq.
                                                      Engineer Chief Trial Attorney
                                                     John F. Bazan, Esq.
                                                      Engineer Trial Attorney
                                                      U.S. Army Engineer District, Los Angeles

                 OPINION BY ADMINISTRATIVE JUDGE CLARKE

       This is a quantum case relating to our 7 May 2013 Rule 12.3 and Rule 11
decision in Jaynes Corporation, ASBCA No. 58385. The Board has jurisdiction
pursuant to the Contract Disputes Act (CDA), 41 U.S.C. §§ 7101-7109.

                                      DISCUSSION

       The Army Corps of Engineers awarded Contract No. W9l2PL-09-C-OO10 to
Jaynes Corporation (Jaynes) on 26 May 2009 to design and build an unmanned aircraft
systems operations facility at Creech Air Force Base, Indian Springs, Nevada. Jaynes
Corporation, ASBCA No. 58385, 13 BCA ~ 35,311 at 173,348. Jaynes claimed that the
government improperly rejected certain pipe to be used in a fire sprinkler system. In our
7 May 2013 decision the Board found "[t]he government changed the contract when it
rejected appellant's initial pipe submittal. Appellant is entitled to recover its costs
associated with the change, plus CDA interest on that amount from the date of receipt of
the claim by the contracting officer." Jaynes, 13 BCA ~ 35,311 at 173,353. We
sustained the appeal on entitlement and remanded the matter to the parties to determine
quantum. Id. The parties were unable to agree on quantum and on 1 April 2014 we
docketed appellant's request that the Board determine quantum as ASBCA No. 59234.

       Jaynes claims increased costs of $56,305 plus CDA interest from 20 June 2012
(app. br. at 2; app. reply hr. at 7). Although the government challenges certain profit
and Jaynes' failure to credit the government with salvage value of the rejected pipe, it
does not dispute the accuracy of the itemized costs that Jaynes presents or the 20 June
2012 date. While the government admits that it "must pay Jaynes reasonable costs
related to what this constructive change caused Jaynes in damages" (gov't br. at 1), it
makes several arguments in its defense of quantum that we briefly discuss.

Jaynes' Quantum Numbers

        Jaynes' 20 June 2012 certified claim is in the amount of $56,305. Jaynes,
13 BCA ii 35,311 at 173,352. This amount is based on Southland Industries, Inc.,
Jaynes' pipe subcontractor, calculation of the cost of the replacement Wheatland 1 pipe
of$50,579.70 (app. br. at 2, ex.Bat 5of11). This amount included a 17% mark-up for
"Margin" (app. br., ex.Bat 5of11). Appellant included an affidavit from Mr. Nicolas
Sfeir, VP Southland Industries, stating that a "mark-up" of 17% margin was their normal
rate for similar government work (id. at 2of11). We interpret margin to include both
overhead and profit.

          Appellant takes Southland's $50,579.70 and calculates its claim as follows:

          Cost for Material (Schedule 40 Pipe)               $50,579
          Appellant's Overhead and Profit (10%)              $ 5,058
          Appellant's Bond and Insurance                     $ 668
          Total                                              $56,305

{App. br. at 2, ex.Bat 5of11)

Adjustments to Jaynes' Quantum Numbers

       In his affidavit, Mr. Sfeir explains that the cost of materials amount of$28,221.39
used above was an estimate and that the actual cost was $27,434.69. Therefore, the
$50,579.70 must be reduced by $786.70 for a value of $49,793.00. The claim value is
then changed as follows:

         Cost for Material (Schedule 40 Pipe)                $49,793.00
         Appellant's Overhead and Profit (10%)               $ 4,979.30
         Appellant's Bond and Insurance                      $ 668.00
         Total                                               $55,440.30

(App. br., ex.Bat 1 of 11, ex.Cat 13-16of16)

1
    The support for this amount states that it is for the rejected Allied pipe, but the invoices
         and Mr. Sfeir's affidavit establish that Southland used the Wheatland numbers
         (app. br., ex.Bat 1, 5of11).

                                                2
Salvage Value ofRejected Allied Pipe

        Appellant states that the salvage value of the rejected Allied pipe is $1,295
(app. br., ex.Bat 9of11). The government does not contest this amount, but contends
that this amount should be credited to the government in the total quantum calculation.
Appellant counters that it need not credit the government the salvage value of the pipe
because the contract was a fixed-price contract and not a time and materials contract
(app. reply br. at 3). Appellant provides no case precedent in support of this position
and its cite to a FAR provision is unpersuasive. We agree with the government that it
should receive a credit in the amount of $1,295 for the salvage value of the Allied pipe
retained by appellant. The value of the claim then becomes $55,440.30 - $1,295.00 =
$54,145.30.

Unreasonable Profit

       The government points out that appellant includes 10% mark-up for its overhead
and profit and that its subcontractor included a 17% mark-up in its calculation. We
consider Jaynes' 10% for both profit and overhead reasonable. We accept Mr. Sfeir's
assertion in his affidavit that 17% "mark-up" for overhead and profit is Southland's
usual rate and therefore consider it reasonable.

Design Costs

       The government objects to Southland including $400 in "Design Impact" costs
associated with the replacement Wheatland pipe (app. br., ex.Bat 5of11).
The government contends it should be responsible for this amount because "Jaynes,
however, was already obligated under the contract to design the system and has been
paid for the design" (gov't br. at 5). The government overlooks Southland's 4 May
2012 letter that explains the design time was spent on material submittals (app. br., ex. B
at 4 of 11 ). We find the $400 spent on submittals for government approval of the
replacement pipe reasonable.

Rejected Allied Pipe

       The government makes several arguments 2 based on the idea that since the
government rejected the Allied pipe before Jaynes purchased it, Jaynes caused its own
damage. We agree with appellant's characterization of this argument as "absurd"
{app. reply br. at 4). The government never had the right to reject the Allied pipe that
was fully in conformance with contract requirements. The government, primarily
ACO Caskie, was wrong on 2 December 2011, wrong on 2 February 2012, wrong on
10 April 2012, wrong on 3 May 2012, wrong on 4 May 2012 and wrong on 8 May 2012.

2
    Arguments D and E at government brief pages 5 to 7.

                                             3
Jaynes, 13 BCA ~ 35,311 at 173,349-52, findings 4-9, 12. The government was
consistently and persistently wrong and we will not shift the fault to appellant.

The Government's Cost Difference Argument

       The government's final argument is that the proper measure of damages is "the
reasonable cost to perform the work as originally required and the reasonable cost to
perform the work as changed" (gov't br. at 7). While this premise may be an accurate
description of the computation of an equitable adjustment under the Changes clause, the
government's argument does not follow this principle in that it suggests that the damage
simply be the difference in the cost of the Allied pipe and the Wheatland pipe when
appellant, due to the government's change had to buy both pipes. We reject this method
of calculating damages because it would result in Jaynes paying for both the Allied pipe
and the Wheatland pipe and recovering only the difference in cost which is certainly not
an equitable adjustment.

Quantum Decision

       Jaynes was entitled to use the Allied pipe and since it was required to replace the
Allied pipe with Wheatland pipe, Jaynes is entitled to recover its increased costs
associated with the constructive change of$54,145.30 plus CDA interest from 20 June
2012.

                                     CONCLUSION

       Jaynes is entitled to $54,145.30 plus CDA interest from 20 June 2012.

       Dated: 19 May 2015

                                                 Administ tive Judge
                                                 Armed Services Board
                                                 of Contract Appeals

RICHARD SHACKLEFORD
Administrative Judge
Vice Chairman
Armed Services Board
of Contract Appeals

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      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. 59234, Appeal of Jaynes
Corporation, rendered in conformance with the Board's Charter.

      Dated:

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

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