Court Opinion

ID: 211488
Source: CourtListenerOpinion
Date Created: 2011-03-13 08:28:07+00
Date Added: 2024-06-11T09:31:05.436550
License: Public Domain

United States Court of Appeals for the Federal Circuit

                                      05-5052

                       JACOBS ENGINEERING GROUP, INC.,

                                                       Plaintiff-Appellant,
                                          v.

                                 UNITED STATES,

                                                       Defendant-Appellee.

        Robert J. Symon, Spriggs & Hollingsworth, of Washington, DC, argued for
plaintiff-appellant.

       James W. Poirier, Trial Attorney, Commercial Litigation Branch, Civil Division,
United States Department of Justice, of Washington, DC, argued for defendant-
appellee. With him on the brief were Peter D. Keisler, Assistant Attorney General and
David M. Cohen, Director.

Appealed from: United States Court of Federal Claims

Judge George W. Miller
 United States Court of Appeals for the Federal Circuit
                                         05-5052

                        JACOBS ENGINEERING GROUP, INC.,

                                                        Plaintiff-Appellant,

                                             v.

                                    UNITED STATES,

                                                         Defendant-Appellee.

                          ______________________________

                           DECIDED: January 19, 2006
                          ______________________________

Before MAYER, Circuit Judge, FRIEDMAN, Senior Circuit Judge, and BRYSON, Circuit
Judge.

FRIEDMAN, Senior Circuit Judge.

       A development and construction contract required the government to reimburse

the contractor for 80 percent of its cost of performing the contract.          The contract’s

termination-for-the-convenience-of-the-government       clause    (“termination      clause”)

required the government upon such termination to pay the contractor “[a]ll costs

reimbursable” under the contract. See 48 C.F.R. § 52.249-6(g); Jacobs Eng’g Group,

Inc. v. United States, 63 Fed. Cl. 451, 455 (2005) (trial court decision). The question is

whether, when the government so terminated the contract, it was required to reimburse

the contractor for all of the costs the contractor incurred up to that point or only for 80

percent of them. Reversing the United States Court of Federal Claims, we hold that the

contractor may recover all of its cost, rather than 80 percent.
                                            I

      The government entered into a contract with Jacobs Engineering Group, Inc.

(“Jacobs”)’ predecessor (whose contract Jacobs took over when it acquired the

predecessor) to develop, design, fabricate, construct, and install a gasification

improvement facility. No fee was payable to the contractor, but the contract contained

the following cost sharing provision covering the “total estimated cost for the work” of

$28,750,375:

               Cost Sharing. The Contractor and the Government agree to
               share the cost of the effort for Phase I and Phase II as
               follows:

                           Government           Contractor     Total
                              (80%)               (20%)       (100%)
               Phase I     $19,850,784          $4,962,696 $24,813,480
               Phase II      3,149,515              787,379   3,936,894
               Total       $23,000,299          $5,750,075* $28,750,374

               *Includes foregone fee in the amount of $1,181,594 for
               Phase I and $169,531 for Phase II.

      The contract further provided that if the contracting officer approved a cost

overrun, the contractor’s share would be 20 percent.

      The contract also contained a standard termination for convenience clause,

Federal Acquisition Regulation (“FAR”) § 52.249-6 (May 1986), which authorized the

government to “terminate performance of work [if] [t]he Contracting Officer determines

that a termination is in the Government’s interest.” If that occurred, the government was

required to pay the contractor “[a]ll costs reimbursable under this contract, not

previously paid, for the performance of this contract before the effective date of the

termination, and part of those costs that may continue for a reasonable time with the

05-5052                                    2
approval of or as directed by the Contracting Officer.”       FAR § 52.249-6(g)(1) (May

1986).

         The contract also authorized the contractor to discontinue the project after Phase

I was completed unless it received what it deemed “adequate cost sharing and . . . an

advanced patent waiver.” If the contractor did so, it would “be liable for 20% of the

costs incurred during the performance period.”

         During performance, the government terminated the contract for its convenience

(because it did not have funds to complete performance).             Jacobs submitted a

termination settlement proposal which sought reimbursement of 100 percent of its costs,

which the government rejected. The contracting officer then rejected Jacobs’ claim for

recovery of all of its costs, limiting recovery to 80 percent. Jacobs challenged that

decision in the United States Court of Federal Claims.

         On cross-motion for summary judgment, the court granted the government’s

motion and entered a judgment on its behalf. 63 Fed. Cl. at 459. The court stated:

               The termination clause does not invalidate the cost-sharing
               provision of the Contract. Rather, it clearly seeks to fashion
               a remedy for the contractor in conjunction with the cost-
               sharing provisions. Thus, only those costs that would be
               reimbursed under the Contract will be paid to the contractor
               in the event of a termination for convenience. Here 80
               percent of Jacobs’s costs were reimbursable under the cost-
               sharing provision and therefore, under the termination for
               convenience clause, Jacobs is entitled to only 80 percent of
               its costs not previously paid.

Id. At 457 (emphasis in original) (citations omitted).

                                              II

         The termination clause required the government, upon terminating the contract,

to pay the contractor “[a]ll costs reimbursable under this contract.” The government

05-5052                                       3
contends, as the Court of Federal Claims held, that since the contract required it to

reimburse the contractor for only 80 percent of the costs, its payment under the

termination clause is limited to 80 percent of the costs. We conclude, however, that the

term “all costs reimbursable” defines the type or kind of costs for which the contract

provides reimbursement and not the amount of such costs.

      The contract specifies a substantial number of costs that are reimbursable and

some that are not. Reimbursable costs include “fabricated or unfabricated, parts, work

in process, completed work, supplies, and other materials procured or acquired for the

work terminated, . . . completed or partially completed plans, drawings, information, and

other property that . . . would be required to be furnished to the Government, . . . and

the jigs, dies, fixtures, and other special tools and tooling acquired or manufactured for

this contract.” FAR § 52.249-6(c)(6) (May 1986). They also include costs allowable

under FAR § 31.2 (see FAR § 52.249-6(h) (May 2004)), such as labor relations costs

(FAR § 31.205-21), plant protection costs (FAR § 31.205-29), and help-wanted

advertising costs for jobs specific to the project (FAR § 31.205-34(a)(1)). On the other

hand, entertainment costs (FAR § 31.205-14), fines and penalties (FAR § 31.205-15),

and general help-wanted advertisement costs (FAR § 31.205-34(b)) are not

reimbursable. The termination clause’s reference to “all costs reimbursable” under the

contract appears designed to incorporate the contract’s division between reimbursable

and non-reimbursable costs.

      Throughout the contract, when the parties intended the 80 percent – 20 percent

division of costs to cover particular situations, they explicitly so provided. The table

shown above specified the amount of the costs for each phase of the contract that each

05-5052                                     4
party would bear.      If the contractor terminated performance after Phase I was

completed, it would “be liable for 20% of the costs incurred during the performance

period.” If there was an approved cost overrun, the contractor was required to absorb

20 percent of it.

       In these circumstances, it seems most unlikely that if the parties had intended the

termination clause to limit the contractor to 80 percent of the termination costs, they

would not have said so instead of providing that the government would pay “[a]ll costs

reimbursable” under the contract.      We cannot read the latter phrase covering “all”

reimbursable costs to mean 80 percent of such costs. In any event, to the extent there

is an ambiguity on the point, it must be resolved in favor of Jacobs, the non-drafter of

the contract.

       Our conclusion also accords with the basic financial situation underlying the

contract. FAR § 16.303(b) states that “[a] cost-sharing contract may be used when the

contractor agrees to absorb a portion of the costs, in the expectation of substantial

compensating benefits.” If the contract had been completely performed at an estimated

cost of more than $28 million, the government’s reimbursement of only 80 percent of

that amount presumably would have resulted in a substantial loss to the contractor.

Jacobs tells us in its brief that the reason the contractor entered into such a seemingly

unattractive venture was the anticipation that as a result of its performance, it would

obtain valuable patent rights, to which the contract referred.

       As a result of the government’s termination of the contract, Jacobs was denied

the opportunity to obtain such patent rights. In these circumstances, it seems unfair to

Jacobs to deny it full reimbursement for the costs of its performance up to the

05-5052                                      5
government’s contract termination, which thwarted its possibility of obtaining the patent

rights.    “A contractor is not supposed to suffer as the result of a termination for

convenience of the Government, nor to underwrite the Government’s decision to

terminate.     If he has actually incurred costs . . . , it is proper that he be reimbursed

those costs when the Government terminates for convenience and thereby custs [sic]

off his ability to amortize those costs completely.” In re Kasler Elec. Co., DOTCAB

1425, 84-2 BCA ¶ 17374 (May 21, 1984).

                                      CONCLUSION

          The judgment of the Court of Federal Claims is reversed and the case is

remanded to that court to award damages.

                              REVERSED AND REMANDED.

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