Court Opinion

ID: 4361101
Source: CourtListenerOpinion
Date Created: 2019-01-23 18:00:06.650252+00
Date Added: 2024-06-11T14:48:13.438581
License: Public Domain

ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeals of --                                 )
                                              )
ABS Development Corporation                   )       ASBCA Nos. 60022, 60023, 61042
                                              )                  61043,61044,61045
                                              )                  61046,61164
                                              )
Under Contract No. W912GB-10-C-0047           )

APPEARANCES FOR THE APPELLANT:                        Michael H. Payne, Esq.
                                                      Lane F. Kelman, Esq.
                                                       Cohen Seglias Pallas Greenhall &
                                                         Furman, P.C.
                                                       Philadelphia, PA

APPEARANCES FOR THE GOVERNMENT:                       Michael P. Goodman, Esq.
                                                       Engineer Chief Trial Attorney
                                                      Brett R. Howard, Esq.
                                                       Engineer Trial Attorney
                                                       U.S. Army Engineer District, Europe

                OPINION BY ADMINISTRATIVE JUDGE MCILMAIL

      Appellant brings claims for additional compensation, and challenges the
government's assessment of liquidated damages, related to a contract for construction
work in Israel. The government says that the contract is void ab initio.

                                 FINDINGS OF FACT

       On September 30, 2010, the government and appellant, ABS Development
Corporation, contracted for ABS to perform construction work at an Israeli Navy
shipyard in Haifa, Israel, for $26,956,562 (R4, tab 5 at 2, 5). ABS has been paid the
amended contract price of approximately $46 million (tr. 2/92). The solicitation and
resultant contract provided that "[t]his procurement is restricted to United States firms''
only (R4, tab 21 at 2). Offers from non-U.S. firms would be rejected (R4, tab 260 at 7).

       In its original, August 2010 proposal, ABS (a Delaware corporation based in New
York (tr. 1/116)) represented that it was a subsidiary of Ashtrom International, Ltd.,
which "is fully owned by Ashtrom Group Ltd." (R4, tab 85 at 5049). ABS further
represented that Ashtrom Group was an Israeli company, and that only two project
personnel (the chief executive officer of ABS, and a purchasing manager) would be ABS
personnel, neither of whom would be on-site in Israel (id., R4, tab 22 at 3171 ). The
proposal also represented that the remaining 39 personnel on an organizational chart
would be Ashtrom Group personnel, subcontractors, or independent consultants (R4,
tab 22 at 3171).

        On September 2, 2010, the contracting officer informed ABS that it was in the
competitive range, but that weaknesses had been identified in the proposal, including
that "ABS has no presence in Israel," and that "[t]he US Government does not
negotiate with subcontractors" (R4, tab 75 at 3600). On September 16, 2010. the
contracting officer asked ABS to "review your price proposal to see if any additional
costs savings can be realized," and informed ABS that "[t]he Government remains
concerned that the prime contractor does not have a management presence on site in
key positions and as previously noted, the government does not negotiate with
subcontractors" (id. at 3602). The contracting officer advised ABS that "if you choose
to revise your bid schedule, please complete and return the revised bid schedule and
proposal revisions" by September 17, 2010 (id.).

      On September 19, 2010, ABS responded by thanking the contracting officer
"very much for your confirmation letter of September 16[,] 2010 and for the
opportunity to clarify your concerns" (R4, tab 23 at 3190). ABS further wrote:

              Please find below our respond [sic] to your letter and
              concerns:

              1.    Technical proposal-Management approach

             ABS Development Corporation will directly prequalify and
             employ all Construction Management personnel.
             The CM personnel [lead] by the Project manager will
             report directly to ABS Development CEO and be the
             source of communication with the USACE [U.S. Army
             Corps of Engineers].

(Id.) (Emphasis added) ABS included in its response a revision to its proposal that
represented (including in a new organizational chart) that the project manager and both
assistant project managers would be ABS employees on-site in Israel (R4, tab 23
at 3190-91). The revision further represented that other ABS employees, as well as
Ashtrom Group employees, would report to the ABS project managers (id. at 3191).
Indeed, the revision represented that 20 management and design-level positions that
the original proposal indicated would be filled by Ashtrom Group personnel would be
filled by ABS personnel who would be on-site in Israel (id. at 3190-3207). ABS's          I
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response evidently satisfied the contracting officer's concerns; she awarded the
contract to ABS only 11 days later, on September 30, 2010 (see R4, tab 5 at 2). The

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     contracting officer and Source Selection Authority (SSA) Marilyn Jackson, was, at the
     time of the hearing, retired, and did not testify at the hearing (id.; tr. 6/38).*

             However, ABS never hired anybody to work at the project site in Israel; all on-site
     work was performed by Ashtrom Group employees or subcontractors to Ashtrom Group
     (see tr. 1/160). That is the reasonable inference we draw from the following answer from
     ABS's CEO:

                              Q How much of the funds that the government
                          paid for this project each month to ABS
                          Development did you transfer each month directly
                          to Ashtrom?

                              A All of it.

     (Id.; see also tr. 4/223) Indeed, ABS understood that the project was "too big" for it,
     and wanted Ashtrom to carry it out (tr. 4/223). ABS paid none of the personnel depicted
     on the chart below the level of the CEO (see tr. 1/161-62); rather, Ashtrom Group paid
     those persons, with money transferred to Ashtrom Group by ABS (tr. 2/69-70). In
     particular, ABS did not hire the on-site project manager, contrary to the representation in
     its September 19, 2010 letter to the contracting officer that it would "employ all
     Construction Management personnel" (tr. 1/162, 194; R4, tab 23 at 3190). We find that
     ABS never intended, itself, to hire any on-site personnel, and that had it responded to the
     contracting officer's concerns by confirming that it would perform as originally proposed
     (that is, with no ABS personnel on-site), ABS would not have obtained the contract.

            In ASBCA Nos. 60022, 60023, and 61042-61046, ABS brings claims for
     additional compensation and an extension of time to the contract performance period.
     In ASBCA No. 61164, ABS challenges the government's assessment of liquidated
     damages for alleged late completion of the contract work.

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     * The parties each cite a "Source Selection Decision Document," ostensibly prepared
            for the contracting officer's signature, that states that the contract will be
            awarded to ABS (tr. 4/35-37; R4, tab 255 at 22; gov't br. at 14; app. reply at 6).
            We do not credit that document; in addition to the contracting officer not
                                                                                                   '
            having testified, the document is not signed or dated (R4, tab 255). The record
            does not establish that the SSA's rationale upon awarding the contract is
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lI          captured by that unsigned document.
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                                        DECISION

        The government says that the contract is void ab initio because, the government
says, ABS misrepresented that it would have on-site ABS project managers in Israel in
order to obtain the contract, but, subsequently, did not hire anyone to work in Israel (gov't
br. at 2-3, 8-10, 14). When a contractor makes a promise of future performance in a
proposal and later fails to perform, this generally will be a basis for liability for breach of
contract but not for misrepresentation; to also prove misrepresentation, the government
must prove a misrepresentation at the time of proposal, such as that the contractor did not
intend to perform or knew it could not perform. L. C. Gaskins Construction Co., ASBCA
No. 58550 et al., 17-1 BCA ,r 36,780 at 179,287 (citing RESTATEMENT (SECOND) OF
CONTRACTS§ 159 cmt. c, d (1981)). Where an appellant has obtained a contract through
a material misrepresentation, with no realistic intention of performing in accordance with
that representation, the contract is void ab initio, resulting in denial of the appeal. See
Vertex Construction & Engineering, ASBCA No. 58988, 14-1 BCA ,r 35,804 at 175,109
(appellant's misrepresentation that it would provide a master electrician as required by the
contract, and the government's reliance on said misrepresentation, was enough to render
the contract void ab initio ). Here, shortly before obtaining the contract but after the
contracting officer twice expressed concerns to ABS that its proposal showed no ABS
management presence in Israel, ABS represented to the contracting officer that it would
directly hire 20 personnel to perform on-site work, including the project's manager and
assistant managers, instead of relying upon its Israeli parent company to fill those
positions and perform that on-site work. That representation was material: the
contracting officer had twice indicated to ABS that the government would only be
negotiating on the project with the prime contractor.

        In reality, ABS never hired anyone to perform on-site work; Ashtrom Group
did, consistent with ABS's original proposal. Indeed, ABS never intended to hire any
on-site personnel, and had it not misrepresented to the contracting officer that it would
hire ABS personnel to fill key, on-site management positions, the contracting officer
would not have awarded ABS the contract. Consequently, the contract is void ab
initio. Cf Vertex, 14-1 BCA ,r 35,804 at 175,109. ABS urges the Board to infer from
the absence of any testimony from Ms. Jackson, the contracting officer/SSA who
awarded the contract, that she did not rely upon the misrepresentation that the
government alleges (see app. reply at 7). We decline to draw that adverse inference.
ABS does not demonstrate that Ms. Jackson, who was retired at the time the hearing
was held, was peculiarly within the power of the government to produce as a witness.
See Ace Constructors, Inc. v. United States, 70 Fed. Cl. 253, 270-71 n.17 (2006), ajf'd,
499 F.3d 1357 (Fed. Cir. 2007). Moreover, the record shows that appellant
misrepresented its direct involvement with the project in order to obtain the contract.
Accordingly, the contract is void ab initio.

      Because the contract is void ab initio, we need not address the parties' other
arguments, and the appeals in which ABS brings affirmative claims are denied. See Servicios

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y Obras Isetan S.L., ASBCA No. 57584, 13 BCA, 35,279 at 173,163. For the same reason.
the appeal from the government's assessment of liquidated damages is sustained as no valid
contract ever came into existence. See Data General Corporation, ASBCA Nos. 21865,
22568, 79-2 BCA, 14,185 at 69,831-33 (sustaining appeals from default termination and
assessment of excess reprocurement costs where "no valid contract came into existence");
see also Dante Calcagni, ASBCA No. 49903, 98-1 BCA, 29,554 at 146,511-12 (Harty, A.J.,
concurring). As such, the government cannot assess liquidated damages.

                                        CONCLUSION

    ASBCA Nos. 60022, 60023, 61042, 61043, 61044, 61045, and 61046 are denied.
ASBCA No. 61164 is sustained.

       Dated: January 7, 2019

                                                  ~~
                                                   Administrative Judge
                                                   Armed Services Board
                                                   of Contract Appeals

 I concur                                          I concur

                                                  ~~~----··-·
 RICHARD SHACKLEFORD                               OWEN C. WILSON
 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 Nos. 60022, 60023, 61042,
61043, 61044, 61045, 61046, 61164, Appeals of ABS Development Corporation,
rendered in conformance with the Board's Charter.

       Dated:

                                                   JEFFREYD. GARDIN
                                                   Recorder, Armed Services
                                                   Board of Contract Appeals
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