Court Opinion

ID: 2747658
Source: CourtListenerOpinion
Date Created: 2014-11-03 20:00:06.734819+00
Date Added: 2024-06-11T12:08:50.555210
License: Public Domain

ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeal of--                                   )
                                              )
Environmental Safety Consultants, Inc.        )      ASBCA No. 58343
                                              )
Under Contract No. N62470-95-C-2399           )

APPEARANCE FOR THE APPELLANT:                        Mr. Peter C. Nwogu
                                                      President

APPEARANCES FOR THE GOVERNMENT:                      Ronald J. Borro, Esq.
                                                      Navy Chief Trial Attorney
                                                     Ellen M. Evans, Esq.
                                                      Senior Trial Attorney

            OPINION BY ADMINISTRATIVE JUDGE FREEMAN ON
            THE GOVERNMENT'S RENEWED MOTION TO DISMISS

         On 10 July 2014, the government submitted this renewed motion to dismiss the
appeal on the grounds that (i) Environmental Safety Consultants, Inc., (ESCI) has not
complied with the Board's 20 May 2014 discovery order, and (ii) ESCI's failure to
retain cost records as required by the contract has prejudiced the government's ability
to respond to ESCI' s allegations in the appeal. ESCI opposes the motion stating that
(i) it provided its books and records for government inspection as required by FAR and
(ii) the fact that its books and records did not contain evidence of actual incurred costs
was no basis for dismissing the appeal or applying sanctions (opp'n at 9). On review
ofESCI's responses to the discovery order, we find substantial non-compliances
which warrant prohibiting ESCI from producing at hearing any documentary evidence
or witness that should have been disclosed in the discovery ordered by the Board.
Accordingly, that sanction is ordered and the motion to dismiss is denied.

       STATEMENT OF FACTS (SOF) FOR PURPOSES OF THE MOTION

       1. The captioned contract, awarded on 13 November 1995, (hereinafter
"Contract 2399") was terminated for default on 12 June 1998. On 28 September 2011,
the Board sustained an appeal from the default termination. Pursuant to the terms of
the contract, that decision converted the default termination to a termination for the
convenience of the government. See Environmental Safety Consultants, Inc., ASBCA
No. 51722, 11-2 BCA ~ 34,848. Familiarity with that decision is presumed.
        2. On or about 5 July 2012, ESCI's submitted to the contracting officer a total
cost basis termination settlement proposal with a net payment request of$1,183,366.59
for the termination of Contract 23 99. On 14 September 2012, ESCI converted the
proposal to a claim under the Contract Disputes Act of 1978 (CDA), 41 U.S.C.
§§ 7101-7109. The contracting officer refused to either negotiate a settlement
agreement or issue a final decision on the claim. She alleged that the claim was
"conceived in fraud and is permeated by fraud" and that the contracting officer "lacks
authority to decide it or settle it." See Environmental Safety Consultants, Inc.,
ASBCA No. 58343, 14-1BCAif35,681 at 174,666. On 29 September 2012, ESCI
appealed the deemed denial of its claim, and that appeal (ASBCA No. 58343) is
presently before us.

       3. The Federal Acquisition Regulation (FAR) 52.249-2, TERMINATION FOR
CONVENIENCE OF THE GOVERNMENT (FIXED-PRICE}-ALTERNATE 1(APR1984) clause
(hereinafter "the Termination clause"), of the captioned contract states in pertinent
part:

                     (f) If the Contractor and Contracting Officer fail to
              agree on the whole amount to be paid the Contractor
              because of the termination of work, the Contracting Officer
              shall pay the Contractor the amounts determined as
              follows ...

                     ( 1) For contract work performed before the
              effective date of termination, the total (without duplication
              of any items) of -

                     (i) The cost of this work;

                     (h) The cost principles and procedures of Part 31 of
              the Federal Acquisition Regulation, in effect on the date of
              this contract, shall govern all costs claimed, agreed to, or
              determined under this clause.

       4. The FAR 31.201-1, "Composition of total cost" provision, in effect on the
date of Contract 23 99, stated in pertinent part: "(a) The total cost of a contract is the
sum of the direct and indirect costs allocable to the contract, incurred or to be incurred,
less any allocable credits," plus any allocable cost of money pursuant to 31.205.10.

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        5. FAR 49.206-2(b )(2), applicable to all contracts that provide for termination
for the convenience of the government, 1 states in pertinent part that: "When the
total-cost basis is used under a complete termination, the contractor must itemize all
costs incurred under the contract up to the effective date of termination."

        6. The FAR 52.214-26, AUDIT-SEALED BIDDING (APR 1985) clause of
Contract 2399, states at paragraph (b)(2) that: "Records pertaining to appeals under
the Disputes clause or to litigation or the settlement of claims arising under or relating
to the performance of this contract shall be made available until disposition of such
appeals, litigation or claims."

       7. ESCI's 5 July 2012 total cost basis termination settlement claim was
submitted for audit to the Defense Contract Audit Agency (DCAA) on 22 March 2013.
On 24 February 2014, the DCAA issued a "DISCLAIMER OF OPINION" report.
The stated reasons for the disclaimer included, among other things, that:

                      Based upon the results of our adequacy evaluation,
               we determined that ESCI's July 5, 2012 termination for
               convenience settlement proposal does not comply with the
               requirements of FAR 49.206-2(b)(2) Bases for Settlement
               Proposals, and FAR 49 .206-1 (c ), Submission of Settlement
               Proposals, and therefore, is inadequate.

                     ESCI' s termination for convenience settlement
               proposal was not prepared using actual costs incurred
               through the effective date of the termination, but iiistead
               was based on an estimated increased contract price.

(Bd. corr., DCAA Report)

       8. On 4 April 2014, the government served 24 discovery requests on ESCI in
the captioned appeal. On 14 April 2014, ESCI answered the request with
argumentative allegations that the documents had already been provided to the
government, or did not exist, or were irrelevant to the issues in the appeal. (Bd. corr.)

       9. On 25 April 2014, the government moved for an order to compel discovery
(Bd. corr.). On 20 May 2014 the presiding judge issued a discovery order stating in
relevant part:

1
    See FAR 49 .002.

                                             3
             ESCI will deliver to the Atlanta DCAA Branch Office, no
             later than 20 June 2014, the responsive documents in a
             separate marked package for each of the following requests
             in the government's 24 April 2014 motion: Nos. 1, 2, 3, 5,
             11, 12, 13, 14, 19, and 20. IfESCI has no responsive
             documents for a particular request, it shall so state in
             writing with its submission. After inspection and copy at
             the DCAA office, the government will return the submitted
             documents to ESCI. A single document "dump" by ESCI
             for all of the above-listed requests, without a separate
             package of documents for each request, or inclusion of
             clearly non-responsive documents in a package for a
             particular request, will be considered a non-compliance
             with this order.

                    For any non-compliance with the foregoing orders,
             the Board will entertain a motion for appropriate sanctions,
             up to and including dismissal of the appeal.

(Id.)

        10. On or about 25 June 2014, ESCI submitted its response to the presiding
judge's 20 May 2014 order. ESCI's response provided no documents, explanation or
other response to four of the ten production requests for which a response was required
by the 20 May 2014 order. Those four requests were: Request No. 12 for "copies of
all purchase orders for costs incurred under the subject contract"; Request No. 13 for
"copies of all receipts for costs incurred under the subject contract"; Request No. 14
for "copies of all subcontractor and vendor agreements relating to this contract"; and
Request No. 19 for "a complete list of the witnesses you intend to call at trial." The
six requests in the 20 May 2014 order for which some substantive response was
provided by ESCI and the response to each are set forth in SOF ~~ 11-20 below.

       11. Request No. 1 was: "Provide a complete, legible copy of the actual record
you used to contemporaneously accumulate and track the actual costs expended for
this contract." ESCI's response was:

             No. [sic] such record was required under the contract
             and was not developed.

                                           4
                For the appellant's CDA claim as part of the Termination
                for Convenience (T4C) claim, appellant used the
                subcontract agreement and the request for equitable
                adjustment (REA) claim documentation to track additional
                costs related to appellant's CDA claim. Appellant used the
                Fixed Price Bid Cost Break Down by Work Division: (See
                Letter Dated September 20, 1995). Also there were
                invoices submitted to government used to track the earned
                contract work.

                All included in the Item No. 1 Response Package)

       12. The documents submitted by ESCI in its Item No. 1 response package do
not individually or collectively accumulate and track the actual costs expended on the
contract. Moreover, although ESCI denies in its response that it "developed" a record
to "accumulate and track the actual costs expended for this contract," the table of
contents in each of its annual corporate financial statements for the years 1995, 1996
and 1997, show a "SCHEDULE OF JOB REVENUE AND COSTS" as an item in the
statement. 2

       13. Request No. 2 was: "Provide a complete, legible copy of your current list
of actual costs expended for this contract; state the date on which such list was
compiled and identify who compiled it." ESCI's response was:

                No. [sic] such record was required under the contract and
                was not collected. The contract did not require ESCI to
                perform this line of work. For the appellant's CDA claim
                as part of the T4C claim there are bilateral contract
                modification, pre-termination costs and post-termination
                costs related to appellant's T4C claims. (See Packages in
                Item #20)

         14. The documents submitted in ESCI's response to Request No. 2 including
those in the Packages in Item 20 do not individually or collectively provide a current
list of actual costs expended on the contract. Some of the separate packages of
documents submitted by ESCI under Request No. 20 include canceled checks or
invoices indicating payment to suppliers and subcontractors for work under Contract
2399, but there is no current list of the actual incurred costs of the contract. The total

2
    The "SCHEDULE OF JOB REVENUE AND COSTS" for the year 1995 was
         inadvertently disclosed by ESCI in its otherwise non-responsive submission of
         documents for Production Request No. 3 (see SOF ii 15).

                                             5
amount of the cancelled checks and invoices marked paid in the documents submitted
in response to Request No. 20 was $143,050.08.

       15. Request No. 3 was: "Provide a complete, legible copy ofESCI's general
corporate ledger for the years 1995 through 1998; make the original available for
inspection by the government." ESCl's response was: "There is Package Cover Sheet
Item #3 Containing ESCI's Corporate Financial Statements, 1995, 1996, 1997, 1998."
The annual corporate financial statements may have been prepared in part from data
recorded in the general corporate ledger but they were not the ledger itself. ESCI
provided no explanation for its failure to provide the requested general corporate
ledger or copy thereof.

        16. Request No. 5 was: "Provide complete, legible copies of all payroll
records and time-keeping records for this contract, including, but not limited to, all
certified payrolls for ESCI and each subcontractor." ESCI's response was: "Due to
passage of time and after eighteen (18) years most of the records could not be located.
The ones located are enclosed as Package Cover Sheet Item # 5 Some Employees
Payroll Records."

         17. The documents submitted in response to Request No. 5 are 423 pages of
which only 16 pages are identifiable on their face as payroll for direct labor on
Contract 2399. Twelve of these 16 pages are a subcontractor's weekly payrolls,
required for compliance with the Davis Bacon Act, totaling $4,439.50 for the period
12 December 1996 to 5 February 1997 (ESCI Response, tab 5 at 86-97). Although
ESCI claims $1,021,306 for "DIRECT LABOR" on its SF 1436 total cost basis
termination settlement claim, there are no Davis-Bacon Act weekly payroll records for
ESCI's direct labor on the contract in its response to Request No. 5. Three pages in
the response are time sheets of an ESCI employee working directly on Contract 2399
during the weeks of 9, 16, and 23 February 1996 with a gross pay amount of $1,553.79
(id. at 267-68, 271). One page in the response is the time sheet of another ESCI direct
employee charging 4.5 hours at a gross payroll amount of $45.00 to "NWS-Project" on
9 September 1996 (id. at 105).

        18. Request No. 11 was: "Provide complete, legible copies of all invoices for
costs incurred under the subject contract; make the originals available for government
inspection." ESCI's response was: "Don't have all the invoices. There are invoices
from subcontractor Rickmond related to post-termination for convenience costs and

3
    Contract 2399 included the FAR 52.222-6, DA VIS-BACON ACT (FEB 1995) clause
        and the FAR 52.222-8, p AYROLLS AND BASIC RECORDS (FEB 1988) clause
        (ASBCA No. 51722, R4, tab 1 at 66).

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changed work for appellant's termination for convenience package. Package Item
No. 11."

       19. The 54 pages of documents submitted by ESCI in its response package to
Item No. 11are19 pages of invoices ofRickmond Environmental, Inc., and 35 pages
of change order and other pricing documents either supporting those invoices or
proposals for payments on change orders. The Rickmond invoices were dated from
9 December 1996 to 18 July 1997 for work performed as a subcontractor under
Contract 2399. The total amount billed to ESCI on these invoices was $147,059.60.
The total amount of payments by ESCI to Rickmond recorded on these invoices was
$13,680.

       20. Request No. 20 was: "Provide complete, legible copies of each of the
documents you brought with you to the DCAA audit 'walk through' in connection
with that agency's adequacy review of your termination for convenience claim under
the subject contract; make the original documents available for government
inspection." ESCI' s response was the submission of 612 pages of documents in
numbered packages, with description of contents and number of pages as follows:

             20-1    Bond/Insurance Costs related to post-termination
                     cost (13 pages).
             20-2    Contractor Production Report, Labor Hours/
                     Equipment@ Site Work (2 pages).
             20-3    Changed Work May 28, 1996 (4 pages).
             20-5    Sub Contractor Production Report/Labor/
                     Equipment 1996/1997 (19 pages).
             20-6    Terminated (Unfinished) Work Amount (4 pages).
             20-7    Unpaid Completed Work at Fixed Contract Price
                     (16 pages).
             20-8    Contract Modification for Changed Work
                     PC0-01 (23 pages).
             20-9    Pre-Termination Contract Work Labor Costs Source
                     611997-6/1998 (73 pages).
             20-10   Post-Termination Unrelated to T4C Settlement Cost
                     Source (7/1997 through 05/1998) (148 pages).
             20-11   Unpaid invoices by the government (30 pages).
             20-12   Sub Contractor invoices for work directed by the
                     government ( 11 pages).
             20-13   List of outstanding payments due in June 23, 1997
                     Invoice No. 7 (61 pages).
             20-14   Bond and Insurance source claim (212 pages).

                                         7
       21. While a significant number of the submitted documents for Request No. 20
had no relevance to ESCI's termination settlement claim (e.g. 123 pages in package
20-14 that related to contracts other than Contract 2399), all of the submitted
documents literally met the request for all documents that ESCI had brought to the
"walk-through" with the DCAA of its termination settlement claim.

                                      DECISION

        The Board's 20 May 2014 discovery order required ESCI to comply with
Production Request Nos. 1, 2, 3, 5, 11, 12, 13, 14, 19 and 20 of the government's
discovery requests of 4 April 2014. The Board's order further provided that:
"inclusion of clearly non-responsive documents in a package for a particular request,
will be considered a non-compliance with this order." (SOF ~ 9) The documents
submitted for the government's Request Nos. 1, 2, and 3 were clearly not responsive to
those requests. The documents submitted for Request No. 1 did not accumulate and
track the actual costs expended on the contract. The documents submitted for Request
No. 2 did not provide a current list of actual costs expended for the contract. The
documents submitted for Request No. 3 were not the general corporate ledger for the
years 1995-1998. (See SOF ~~ 9-13)

       With respect to Production Request Nos. 1 and 2, ESCI contends that the
contract did not require it to maintain a record of actual costs expended on the
contract. We disagree. ESCI is claiming a total cost basis termination for convenience
settlement determination by the contracting officer. For ESCI's total cost termination
settlement claim that was not settled by agreement of the parties, the contract
Termination clause at paragraph (f)(l)(i) required the contracting officer to determine
"the cost of this work" (SOF ~ 3). Paragraph (h) of the Termination clause stated that
FAR Part 31 "shall govern all costs claimed, agreed to, or determined under this
clause" (SOF ~ 3). FAR 31.201-1 defined the total cost of a contract as "the sum of
the direct and indirect costs allocable to the contract, incurred or to be incurred, less
any allocable credits, plus any allocable cost of money pursuant to 31.205 .1 O" (SOF
~ 4). FAR 49 .206-2(b)(2) required that for a total cost termination settlement claim
"the contractor must itemize all costs incurred under the contract up to the effective
date of the termination" (SOF ~ 5).

       ESCI also contends in its responses to Request Nos. 1 and 2 that it did not in
fact maintain job cost records (SOF ~~ 11, 13). This contention however is shown to
be mistaken by ESCI's own corporate financial statement for the years 1995, 1996 and
1997 when Contract 2399 was being performed (SOF ~ 12).

      The documents submitted for the government's Production Request Nos. 5 and
11 were in each case a mixed bag of responsive and non-responsive documents. Four

                                            8
hundred and seven (407) of the 423 pages in the submittal for Request No. 5, and 35 of
the 54 pages in the submittal for Request No. 11 were non-responsive to the request.
(SOF iii! 17, 19) The "passage of time" does not excuse ESCI's inability to provide
the payrolls for Request No. 5. The Audit-Sealed Bidding clause of the contract
required ESCI to retain records pertaining to the appeal until disposition of the appeal
(SOF if 6). The inclusion of the non-responsive pages in the submittals for Request
Nos. 5 and 11 were clear non-compliances with the Board's order.

      For Production Request Nos. 12, 13, 14 and 19, ESCI's response was silence.
No purchase orders, no receipts for costs incurred, no subcontractor or vendor
agreements, and no list of witnesses intended to be called at hearing were provided in
response to the specific requests (SOF if 10).

       On this record, we find substantial non-compliances with the Board's order.
Our longstanding authority to impose sanctions for non-compliance with our
discovery orders is set forth in Turbomach, ASBCA No. 30799, 87-2 BCA if 19,756
at 99,953-54 as follows:

                    It cannot be disputed that this Board has the
              inherent power to control the discovery process in appeals
              before it. We have im~lemented this authority, in part,
              with Rules 31 and 35. 41 Our power to impose sanctions is
              broad and may even extend to dismissal of an appeal.
              Metadure Corp. v. United States, 6 Cl. Ct. 61 (1984). We
              have issued orders prohibiting the introduction of evidence
              (Arcon Pacific Contractors, ASBCA No. 25057, 81-2
              BCA if 15,225; Integrity Management International, Inc.,
              ASBCA No. 18289, 75-1BCAif11,235), prohibited the
              calling of witnesses (Industrial Design Laboratories, Inc.,
              ASBCA No. 21603, 80-1BCAif14,269), and drawn
              adverse inferences (Bromley Contracting, Inc., ASBCA
              No. 20271, 77-2 BCA if 12,715). Thus, the Board has
              available to it, and has used, a variety of sanctions
              designed to enforce compliance with our Rules and orders
              and secure the just and expeditious resolution of the
              disputes before us.

4
    Now Rules 16 and 17.

                                           9
       An appropriate sanction for ESCI's non-compliances with the Board's 20 May
2014 discovery order is that no documents or testimonial evidence, other than the
testimony of Mr. Nwogu, that should have been, but were not disclosed by ESCI in its
response to the discovery order will be allowed to be offered by appellant for admission
into evidence at the hearing.

       Dated: 23 October 2014

                                                  111~'2b~~
                                                  MONROE E. FREEMAN, JR.
                                                  Administrative Judge
                                                  Armed Services Board
                                                  of Contract Appeals

I concur                                          I concur

Administrative Judge
                                                  RIC~FORD
                                                  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. 58343, Appeal of
Environmental Safety Consultants, Inc., rendered in conformance with the Board's
Charter.

       Dated:

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

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