Court Opinion

ID: 6331384
Source: CourtListenerOpinion
Date Created: 2022-04-13 22:00:13.498516+00
Date Added: 2024-06-11T09:23:10.370425
License: Public Domain

ARMED SERVICES BOARD OF CONTRACT APPEALS
 Appeals of -                                  )
                                               )
 Fluor Intercontinental, Inc.                  ) ASBCA Nos. 62550, 62672
                                               )
 Under Contract No. W912BU-11-D-0003           )

 APPEARANCES FOR THE APPELLANT:                   James A. Hughes, Jr., Esq.
                                                   Hughes Law PLC
                                                   Arlington, VA

                                                  Andrea L. Reagan, Esq.
                                                  Donald M. Yenovkian II, Esq.
                                                  R. Austin Kusnir, Esq.
                                                   Counsels

 APPEARANCES FOR THE GOVERNMENT: Michael P. Goodman, Esq.
                                  Engineer Chief Trial Attorney
                                 Kyle A. Guess, Esq.
                                 John A. Skarbek, Esq.
                                 John R. Lockard, Esq.
                                  Engineer Trial Attorneys
                                  U.S. Army Engineer District, Norfolk

                 OPINION BY ADMINISTRATIVE JUDGE HERZFELD
                ON THE GOVERNMENT’S MOTION TO DISMISS AND
                APPELLANT’S MOTION FOR SUMMARY JUDGMENT

       Respondent, the United States Army Corps of Engineers, moves to dismiss part of
appellant Fluor Intercontinental, Inc.’s (Fluor) complaint for failure to state a claim upon
which relief may be granted. In particular, the agency seeks to dismiss Fluor’s attempt to
recover subcontractor Blanchard Machinery Company’s (Blanchard) termination costs
because Blanchard estimated some of its costs using an inapplicable cost principle. Fluor
cross-moves for summary judgment, asserting that Fluor’s decision to settle with
Blanchard was reasonable and, thus, should be awarded all its costs from settling with
Blanchard. We find that Fluor has plausibly pleaded a claim for recovery of its
subcontractor costs, but that there is a genuine dispute of material fact as to whether and
what amount of its costs were reasonable. Thus, we deny both motions.
                                               .
           STATEMENT OF FACTS FOR PURPOSES OF THE MOTIONS

        On December 3, 2010, the Corps of Engineers awarded an electrical support
services multiple-award task order contract to Fluor (Contract) and to a competitor,
Inglett and Stubbs Intercontinental (Inglett & Stubbs), for a base one-year period and
four, one-year option periods (R4, tab 3 at 93, tab 2 at 8). On February 14, 2011, Fluor
entered a subcontract with Blanchard Machinery Company (Blanchard) using a basic
ordering agreement (Subcontract) following from a teaming agreement to pursue the
Contract (first amended compl. ¶¶ 10-12; app. supp. R4, tab 13 at 307-59 (basic ordering
agreement); app. supp. R4, tab 13 at 297-306 (teaming agreement)).

        With a closing date of September 25, 2012, the Corps of Engineers issued a task
order solicitation and Fluor submitted a proposal to quickly provide leased generators to
operate and maintain a 30 megawatt power plant at the airfield in Bagram, Afghanistan
(first amended compl. ¶ 24; R4, tab 10 at 232-33). On February 4, 2013, the Corps of
Engineers awarded Fluor task order 10 (Task Order) under the Contract and issued a
notice to proceed (first amended compl. ¶¶ 4, 29; R4, tab 2 at 42-46). On February 27,
2013, Fluor issued a purchase order to Blanchard to lease generators, switches, and
control panels to meet the Task Order requirements (codifying a “verbal/facsimile”
agreement on February 18, 2013) (first amended compl. ¶ 17; app. supp. R4, tab 13
at 406-69). Because Fluor would need to provide the government power generating
capacity within 60-120 days of the notice to proceed, Fluor had previously authorized
Blanchard to purchase, ready, and ship the equipment in September 2012, which
Blanchard did (first amended compl. ¶¶ 26-27; app. supp. R4, tab 13 at 95 (indicating the
generator acquisition dates); R4, tab 8 at 181 (acknowledging that Blanchard shipped the
generators to Dubai)).

         On February 27, 2013, the Corps of Engineers issued a stop-work order to Fluor
(first amended compl. ¶ 5; R4, tab 4 at 109). On March 18, 2021, Inglett & Stubbs filed a
protest with the Government Accountability Office (GAO) challenging the award of the
Task Order to Fluor (R4, tab 11 at 248; first amended compl. at 9 n.3). On April 12,
2013, GAO dismissed the protest after the Corps of Engineers took corrective action
(R4, tab 11 at 282-83). While taking corrective action, the Corps of Engineers realized
that it failed to timely exercise the options under the Contract and, thus, could not use the
Contract as a vehicle to issue task orders to obtain these services (R4, tab 6 at 141).

       On May 24, 2013, the Corps of Engineers terminated Fluor’s Task Order for
convenience (first amended compl. ¶ 5; R4, tab 6 at 143-46). As part of the convenience
termination notice, the Corps of Engineers directed Fluor to cease all activities and
discussed procedures for submitting a termination settlement proposal (R4, tab 6
at 143-46). Additionally, the Corps of Engineers specifically reminded Fluor of the
contractor’s obligations to its subcontractors: “You remain liable to your subcontractors
and suppliers for proposals arising because of the termination of their subcontracts or

                                             2
orders. You are requested to settle these settlement proposals as promptly as possible.
For purposes of reimbursement by the Government, settlements will be governed by the
provisions of Part 49” (R4, tab 6 at 144).

       The Contract incorporated by reference two Federal Acquisition Regulation (FAR)
standard termination for convenience provisions: (1) FAR 52.249-1, TERMINATION
FOR CONVENIENCE OF THE GOVERNMENT (FIXED-PRICE) (SHORT FORM)
(APR 1984); and (2) FAR 52.249-2, TERMINATION FOR CONVENIENCE OF THE
GOVERNMENT (FIXED-PRICE) (MAY 2004) (first amended compl. ¶ 72; R4, tab 2
at 31). Additionally, the Contract included two clauses requiring Fluor to flow down
certain other FAR and Defense Federal Acquisition Regulation Supplement (DFARS)
clauses to subcontractors providing commercial items: (1) FAR 52.244-6,
SUBCONTRACTS FOR COMMERCIAL ITEMS (APR 2010); and (2) DFARS
252.244-7000, SUBCONTRACTS FOR COMMERCIAL ITEMS AND COMMERCIAL
COMPONENTS (DOD CONTRACTS) (AUG 2009) (first amended compl. ¶ 59; R4,
tab 2 at 30-31). FAR 52.244-6 otherwise discourages flowing down more clauses in
commercial items subcontracts, but states, “Contractor may flow down to subcontracts
for commercial items a minimal number of additional clauses necessary to satisfy its
contractual obligations.” FAR 52.244-6(c)(2).

       Fluor flowed down the two commercial items subcontract clauses to Blanchard in
the purchase order (first amended compl. ¶ 20; app. supp. R4, tab 13 at 423). 1 However,
as permitted by these two clauses, Fluor also flowed down the short form Termination for
Convenience clause to Blanchard as part of the Subcontract, including the entire FAR
provision:

                As prescribed in the FAR 49.502(a)(1), insert the following:
                “The Contracting Off[ic]er, by written notice, may terminate
                this contract, in whole or in part, when it is in the
                Government’s best interest. If this contract is terminated, the
                rights, duties, and obligations of the parties, including
                compensation to the Contractor, shall be in accordance with
                Part 49 of Federal [A]cquisition [Regulation] in effect on the
                date of the award of this contract.”

(First amended compl. ¶ 15 (quoting DFARS 52.249-1); app. supp. R4, tab 13 at 318
(same)) The Subcontract included several forms with terms and conditions, including an

1
    The supplemental appellant’s Rule 4 file includes two tabs labeled as “13.” We have
         labeled the second as “13.2” for ease of reference. Also, we use the pdf page
         numbers for appellant’s supplemental Rule 4 file because appellant did not add
         page numbers as we generally require. ASBCA Rule 4(c) (“Any documents
         without internal page numbers shall have page numbers added.”).
                                               3
additional termination for convenience clause that promised any termination payment
“shall be promptly and mutually agreed to” by Fluor and Blanchard (first amended
compl. ¶ 16; app. supp. R4, tab 13 at 330).

       Fluor submitted a termination settlement proposal (dated December 19, 2013) to
the Corps of Engineers seeking $5,179,655 in termination costs (first amended compl.
¶ 42; R4, tab 13; app. supp. R4, tab 13.2 at 4, tab 15 at 1). Among other settlement costs,
the termination settlement proposal included Blanchard’s termination settlement proposal
of $3,370,768 as “settlements with subcontractors” (first amended compl. ¶ 42; app.
supp. R4, tab 13.2 at 4, tab 15 at 1; R4, tab 13 at 332).

       The Corps of Engineers referred the termination settlement proposal to the
Defense Contract Audit Agency (DCAA) to audit the proposal; Fluor and Blanchard
answered questions and provided additional information to DCAA over the next several
months (first amended compl. ¶ 42; R4, tab 8). In July 2014, while the DCAA audited
the proposal (including Blanchard’s costs), Fluor’s complaint alleges that Fluor paid
Blanchard $3,116,991.20 based on Blanchard’s termination settlement proposal (leaving
an unpaid balance due of $253,776.80) (first amended compl. ¶ 46). The Corps of
Engineers denies, for lack of information, the allegation that Fluor made a settlement
payment to Blanchard (answer ¶ 46). 2

       On December 15, 2015, DCAA issued an audit report of Fluor’s termination
settlement proposal, attaching DCAA’s earlier November 10, 2015 separate audit report
of Blanchard’s termination settlement proposal (first amended compl. ¶¶ 54-55; R4,
tab 8). The DCAA questioned $3,013,324 of Fluor’s $5,179,655 termination settlement
proposal, which resulted in DCAA opining that Fluor had demonstrated $2,166,331 in
allowable costs:

                                                            RESULTS OF
                                                            AUDIT
                Cost Element       Settlement Proposal     Questioned Difference
             Direct Material                    $511,506             - $511,506
             Direct Labor                        338,093      101,391   236,702
             Other Costs                          73,296             -    73,296
             Subcontractors                    3,370,768    2,374,480   966,288
             G&A                                  63,994             -    63,944
             Profit                              741,572      537,453   204,119
             Settlement Expenses                  80,426             -    80,426

2
    We refer to the answer to the first amended complaint as the “answer” throughout this
         opinion.
                                              4
          Total                            $5,179,655       $3,013,324 $2,166,331

(First amended compl. ¶ 70; R4, tab 8 at 163)

    The “subcontractors” category in the audit report related to Blanchard’s costs and
DCAA broke down its audit of those costs as follows:

                                                         RESULTS OF AUDIT
                Cost Element        Settlement Proposal Questioned Difference
           Material/Equipment                 $675,513            - $675,513
           Shipping and Storage                367,824     161,692   206,132
           Technician (Labor)                   11,182            -    11,182
           Equipment Depreciation               1,634,527     1,634,527          -
           Overhead                               316,977       316,977          -
           Cost of Money                          112,374       112,374          -
           Profit                                 231,406       148,909     82,496
           Settlement Expenses                     20,965             -     20,965
           Total                            $3,370,768       $2,374,479   $966,289

(First amended compl. ¶ 67; R4, tab 8 at 165, 178)

       Blanchard’s termination settlement proposal included equipment costs (first
amended compl. ¶ 36; app. supp. R4, tab 13 at 10). Blanchard calculated its costs for the
generators and related equipment using five-year straight-line depreciation (first
amended compl. ¶ 40; app. supp. R4, tab 13 at 12). Blanchard’s proposal referenced
FAR 31.205-11 – the cost principle for depreciation – and noted that it used the Internal
Revenue Service “depreciable lives and calculated on a straight-line basis” (app. supp.
R4, tab 13 at 12; first amended compl. ¶ 40). Fluor asserts that Blanchard’s depreciation
amount excluded any subcontractor or prime contractor mark-ups and that Blanchard
and Fluor incurred and should have received overhead and profit for the depreciation
costs disallowed under the profits and overhead categories above (first amended compl.
¶¶ 68, 71).

       During the audit, Blanchard’s then-chief financial officer (CFO) communicated
with the DCAA auditor, explaining Blanchard’s decision to use depreciation to value the
costs of the generators and equipment (although we have not found a copy of the
communication in the Rule 4 files, but the agency’s answer admits to the text of the
communication incorporated in the complaint) (first amended compl. ¶ 39; answer ¶ 39).
DCAA questioned why Blanchard did not use the rental rate for the equipment rather

                                            5
than deriving the cost through depreciation (first amended compl. ¶ 39; answer ¶ 39).
Blanchard asserted that it used depreciation over other approaches based on its
“interpretation of the guidelines relating to contracts that are terminated for convenience
by the government, our agreement and discussions with Fluor and discussions with our
advisors” (first amended compl. ¶ 39; answer ¶ 39). But, Blanchard provided DCAA an
estimate of the rental rate of $6,224,103 (a rate that Blanchard’s current CFO attests to in
an affidavit attached to appellant’s brief) (first amended compl. ¶ 39; answer ¶ 39;
app. resp., Dalys Johnson aff. ¶ 8). Fluor pleads that Blanchard “understated” its costs by
using the lower depreciation-based settlement proposal of $3,370,768 instead of the
$6 million rental rate (first amended compl. ¶ 41). Fluor alleges that Blanchard used
depreciation as an approach that “best approximated the cost it would incur in disposing
of the power equipment” (first amended compl. ¶ 40). Given that Blanchard’s proposal
used cost estimates, Fluor alleges that it considered the rental rates (and lower
depreciation cost) as a basis for finding Blanchard’s termination costs reasonable and for
paying Blanchard’s termination costs in July 2014 (first amended compl. ¶¶ 45-46).

       DCAA recommended denial of Blanchard’s equipment depreciation costs based
on the requirements of the depreciation cost principle – FAR 31.205-11 (first amended
compl. ¶ 58; R4, tab 8 at 180-81). DCAA acknowledged, “In reviewing the supporting
documentation and inquiry with the subcontractor, we determined that the generators
were shipped from the U.S. to Dubai and held in storage without being turned on for this
subcontract” (R4, tab 8 at 181; see first amended compl. ¶¶ 37-38). Nevertheless, DCAA
quoted FAR 31.205-11(c), which states that “allowable depreciation shall not exceed the
amount used for financial accounting purposes, and shall be determined in a manner
consistent with the depreciation policies and procedures followed in the same segment on
non-government business” (R4, tab 8 at 180-81 (quoting FAR 31.205-11(c)); first
amended compl. ¶ 58). DCAA found that Blanchard “including depreciation costs in
excess of what they had recorded for financial accounting purposes caused this material
noncompliance” (R4, tab 8 at 181; first amended compl. ¶ 62). Fluor’s complaint states
that Blanchard uses a declining balance depreciation method (not straight-line) for
Federal tax purposes and “did not depreciate the equipment in its accounting records
other than for tax purposes” (first amended compl. ¶¶ 58, 62; R4, tab 8 at 181).

        Ultimately, Fluor reduced its termination proposal from $5,179,655 to $5,106,772
(first amended compl. ¶ 70 n.5; app. supp. R4, tab 46 at 1). In 2018, the Corps of
Engineers paid Fluor $2,166,331 (the amount recommended by DCAA as allowable),
leaving an unpaid and disputed amount of $2,940,441 (first amended compl. ¶¶ 70 n.5,
82; app. supp. R4, tab 46 at 2; R4, tab 3 at 95). On September 18, 2018, Fluor requested
a contracting officer’s determination regarding the unpaid and disputed amount (first
amended compl. ¶ 77; answer ¶ 77; notice of appeal at 2 (ASBCA No. 62550)). The
Corps of Engineers never responded and Fluor appealed the deemed denial to the Board
on May 22, 2020 (ASBCA No. 62550) (first amended compl. ¶ 6). On July 30, 2020, the
Corps of Engineers’ contracting officer adopted the reasoning of DCAA’s audit report

                                             6
and issued a final decision denying Fluor’s $2,940,441 claim (first amended compl. ¶ 7;
R4, tab 3). On September 9, 2020, Fluor appealed the contracting officer’s final decision
(ASBCA No. 62672).

       In its complaint, Fluor noted that its original termination settlement proposal had
included certain estimated costs because, for example, Blanchard had not disposed of the
generators and other equipment (first amended compl. ¶ 50). In its complaint and in the
Johnson Affidavit attached to its opening brief, Fluor now provides new claim amounts
based on Blanchard’s actual costs (which it did not have at the time of its termination
settlement proposal) as evidence that its settlement with Blanchard was reasonable (first
amended compl. ¶¶ 61-66; Johnson aff. ¶¶ 5-7.7). Comparing these January 2021 actual
costs with the prior settlement proposal and the Corps of Engineers’ payment of those
costs renders the following table:

                                                                    RESULTS OF AUDIT
      Cost Element            Jan. 2021            Settlement       Questioned Allowed
                             Actual Costs           Proposal                    & Paid
 Material/Equipment              $1,766,347              $675,513             - $675,513
 Shipping and Storage               312,366               367,824      161,692   206,132
 Technician (Labor)                  11,182                11,182             -   11,182
 Equipment Depreciation                   0             1,634,527    1,634,527         -
 Overhead                           316,977               316,977      316,977         -
 Cost of Money                      883,464               112,374      112,374         -
 Profit                             231,406               231,406      148,909    82,496
 Settlement Expenses                 20,965                20,965             -   20,965
 Total                            $3,542,706          $3,370,768     $2,374,479   $966,289

(First amended compl. ¶¶ 61-67, 76; Johnson aff. ¶¶ 5-7.7; R4, tab 8 at 165, 178)
Although Fluor’s complaint and the Johnson affidavit both include the new $1,766,347 in
actual material/equipment costs, only the complaint indicates that these “costs were
slightly offset by a net gain of $586,000 resulting from the eventual sale of the
generators;” the Johnson affidavit’s calculation does not discuss this potential mitigating
amount (first amended compl. ¶ 61). The Corps of Engineers’ answer denies Fluor’s
allegations regarding the increased costs to the material/equipment and cost of money
(answer ¶¶ 50, 61-66, 82).

     When the Corps of Engineers filed its answer to the amended complaint, it also
moved to partially dismiss the appeals. Fluor cross-moved for summary judgment.

                                             7
                                         DECISION

       Fluor Has Plausibly Pleaded a Claim for its Subcontractor Settlement Costs

        The Corps of Engineers moves to partially dismiss Fluor’s complaint for failure to
state a claim for recovery of its subcontractor Blanchard’s costs of supplying generators
and other equipment. The Corps of Engineers asserts that FAR Part 31’s cost principles
apply because the Contract used termination provisions prescribed by FAR Part 49
(including the requirement to consider the cost principles in assessing termination costs)
and that they preclude Fluor from obtaining the recovery it seeks. Despite conceding the
applicability of FAR Part 49 in its complaint and flowing down a FAR Part 49
termination clause into the Subcontract, Fluor asserts in its response to the government’s
motion that it entered a commercial items subcontract with Blanchard resulting in the
applicability of FAR Part 12 and inapplicability of the cost principles. As discussed
below, we disagree. However, even though FAR Part 12 does not apply, when we apply
the cost principles under FAR Part 31 and the fairness principle under FAR Part 49, Fluor
has plausibly pleaded a claim to recover its subcontractor termination settlement costs.

       A.     Standard of Review

        The Board’s rules do not include an equivalent to FED. R. CIV. P. 12(b)(6) or
12(c), but we permit motions to dismiss for failure to state a claim upon which relief may
be granted. Kamaludin Slyman CSC, ASBCA No. 62006, 21-1 BCA ¶ 37,849
at 183,789. “To survive a motion to dismiss, a complaint must contain sufficient factual
matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S.
544, 570 (2007)). “A claim has facial plausibility when the [complaint] pleads factual
content that allows the [Board] to draw the reasonable inference that the [respondent] is
liable for the misconduct alleged.” Id. Plausibility requires more than alleging facts
“merely consistent with” the requested relief. Id.; Kamaludin Slyman, 21-1 BCA
¶ 37,849 at 183,789. However, we look at the facts and do “not countenance dismissal of
a complaint for imperfect statement of the legal theory supporting the claim asserted.”
Johnson v. City of Shelby, 574 U.S. 10, 11 (2014).

        The Board “must accept well-pleaded factual allegations as true and must draw all
reasonable inferences in favor of the claimant.” Kellogg Brown & Root Servs., Inc. v.
United States, 728 F.3d 1348, 1365 (Fed. Cir. 2013). We are not limited to the four-
corners of the complaint, but look also to the contractor’s or government’s claim – the
wellspring of our jurisdiction – and look at “matters incorporated by reference or integral
to the claim, items subject to judicial notice, matters of public record, orders, items
appearing in the record of the case, and exhibits attached to the complaint whose
authenticity is unquestioned,” as appropriate. 5B CHARLES A. WRIGHT & ARTHUR R.
MILLER, FED. PRAC. & PROC. CIV. § 1357 (3d ed.); see also A&D Auto Sales, Inc. v.
                                               8
United States, 748 F.3d 1142, 1147 (Fed. Cir. 2014); Kamaludin Slyman, 21-1 BCA
¶ 37,849 at 183,789. 3

         B.     Fluor’s Termination Costs, Including its Subcontractor Blanchard’s Costs,
                Are Subject to the Standards in FAR Part 49, Not FAR Part 12

        “A contractor’s entitlement to compensation in a termination for convenience is
determined by those applicable clauses of the FAR that are incorporated into the contract
at issue.” Campus Mgmt. Corp., ASBCA No. 59924, 17-1 BCA ¶ 36,727 at 178,876.
Here, as noted above, the Contract incorporates two termination clauses deriving from
FAR Part 49: (1) FAR 52.249-1, TERMINATION FOR THE CONVENIENCE OF
THE GOVERNMENT (FIXED-PRICE) (SHORT FORM) (APR 1984); and (2)
FAR 52.249-2, TERMINATION FOR CONVENIENCE OF THE GOVERNMENT
(FIXED-PRICE) (MAY 2004) (first amended compl. ¶ 72; R4, tab 2 at 31). As
pertinent here, the long-form termination for convenience clause (52.249-2) states: “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.” FAR 52.249-2(i); FAR 49.113 (“The cost principles and procedures
in the applicable subpart of part 31 shall, subject to the general principles in 49.201,
(a) be used in asserting, negotiating, or determining costs relevant to termination
settlements under contracts with other than educational institutions, . . .”). Unlike the
FAR clauses in the Contract, the commercial items clause excludes the use of the cost
principles in assessing terminations: “The Contractor shall not be required to comply
with the cost accounting standards or contract cost principles for this purpose.”
FAR 52.212-4(l). Typically, “the commercial items clause’s recovery is price based,
while the standard clause’s recovery is cost based.” ESCGov, Inc., ASBCA No. 58852,
17-1 BCA ¶ 36,772 at 179,186.

       Fluor seeks to avoid application of FAR Part 31, asserting that its Subcontract
purchased commercial items from Blanchard and, therefore, the commercial items
termination clause governs Fluor’s recovery of its termination costs here (app. resp.
at 13-15). However, the Contract does not include the commercial items terms and
conditions clause (FAR 52.212-4) with the commercial items termination provision. Nor

3
    Although the government submitted an answer here and was certainly not precluded
         from doing so, we do wish to underscore that it had the option of requesting a
         delay in filing that pleading until after we had resolved the pending motion.
         Under the Federal Rules of Civil Procedure (which do not bind us, but are
         helpful), typically “the filing of a motion that only addresses part of a complaint
         suspends the time to respond to the entire complaint, not just to the claims that are
         the subject of the motion.” Fed. Contracting, Inc. v. United States, 128 Fed. Cl.
         788, 797 (2016) (quoting 5B Charles A. Wright & Arthur R. Miller, Fed. Prac. &
         Proc. Civ. § 1346 (3d ed.)); FED. R. CIV. P. 12(a)(4)(A); RCFC 12(a)(4)(A).
                                                9
did Fluor include the commercial items termination provision in its Subcontract with
Blanchard. Instead, Fluor included the short form of the FAR Part 49 fixed-price
termination provision, which states terminations for convenience “shall be in accordance
with Part 49 of Federal [A]cquisition [Regulation] in effect on the date of the award or
this contract.” (First amended compl. ¶ 15 (quoting DFARS 52.249-1); app. supp. R4,
tab 13 at 318 (same)) Indeed, in contrast to its briefs, Fluor’s complaint explicitly
acknowledges, “FAR Part 49 applies to the termination of Task Order 10 of the Contract”
(first amended compl. ¶ 22). 4

        Fluor counters that the Contract required Fluor to flow down, as it did, two
Commercial Items provisions to any commercial items subcontract: (1) FAR 52.244-6,
SUBCONTRACTS FOR COMMERCIAL ITEMS (APR 2010); and (2) DFARS
252.244-7000, SUBCONTRACTS FOR COMMERCIAL ITEMS AND COMMERCIAL
COMPONENTS (DOD) CONTRACTS (AUG 2009) (first amended compl. ¶¶ 20, 59;
R4, tab 2 at 30-31; app. supp. R4, tab 13 at 423; app. resp. at 15 n.1). And Fluor notes
that the Corps of Engineers’ answer admitted that these clauses were in the Contract and
Blanchard provided commercial services (answer ¶ 59; app. resp. at 13). However,
neither clause includes a termination provision nor requires a prime contractor to flow
down FAR 52.212-4 (which includes the commercial items termination provision). To
the contrary, that FAR clause specifically permits a prime contractor to “flow down to
subcontracts for commercial items a minimal number of additional clauses necessary to
satisfy its contractual obligations.” FAR 52.244-6(c)(2). And, as noted above, regardless
of Fluor’s current characterization of the Subcontract, Fluor flowed down the standard
short form termination provision to Blanchard (FAR 52.249-1) instead of the commercial
items termination provision.

4
    Fluor’s concession in its complaint that FAR Part 49 applies and Fluor’s choice of using
         the FAR Part 49 termination provision in the Subcontract instead of FAR Part 12’s
         termination provision distinguishes this appeal from JKB Solutions & Services,
         LLC v. United States, 18 F.4th 704 (Fed. Cir. 2021), where the Federal Circuit did
         not apply the termination provision in the contract. The footnotes tell the story of
         that appeal. There, for purposes of summary judgment, the government did not
         contest that the contract provided non-commercial services rather than commercial
         items (which, by definition, included commercial services). Id. at 710 n.2.
         Because the government conceded the contract did not provide commercial items,
         the Federal Circuit concluded that the commercial items termination provision
         incorporated in the contract did not apply. Id. at 706-08. The contractor asserted
         that it could pursue breach damages without any termination provision. The Court
         of Federal Claims, however, never assessed whether the Christian doctrine
         required incorporation of another termination for convenience clause and the
         Federal Circuit remanded for consideration of that issue. Id. at 707, 708 n.1
         (discussing G.L. Christian Assocs. v. United States, 312 F.2d 418 (Ct. Cl. 1963)).
                                              10
       Nonetheless, Fluor asserts that our decision in SWR should govern, but that
decision (as Fluor recognizes) related to a termination of a commercial items prime
contract that included FAR 52.212-4, not a prime contract or subcontract without it.
SWR, Inc., ASBCA No. 56708, 15-1 BCA ¶ 35,832 at 175,204 (“The contract also
contained FAR 52.212-4 . . . .”). Fluor’s complaint conceded the applicability of
FAR Part 49 and the Contract and Subcontract both used termination provisions derived
from FAR Part 49 (not FAR Part 12). Fluor cannot now avoid FAR Part 49’s application
of the FAR Part 31 cost principles in assessing its termination settlement costs.
Ultimately, we must apply the termination provisions in the Contract, which does not
incorporate the Commercial Items termination provision but instead the standard
termination provisions and principles of FAR Part 49. Campus Mgmt. Corp., 17-1 BCA
¶ 36,727 at 178,876.

       C.     Notwithstanding the Applicability of FAR Parts 31 and 49 to This Contract,
              Fluor Has Pleaded a Claim for Blanchard’s Termination Costs Relating to
              the Generators and Equipment

        A termination for convenience of a task order in a non-commercial items contract
effectively converts a fixed-price contract into a cost-reimbursement contract, which
entitles a contractor to recover allowable costs and reasonable profit. Envtl. Safety
Consultants, Inc., ASBCA No. 58343, 15-1 BCA ¶ 35,906 at 175,522; Best Foam
Fabricators, Inc. v. United States, 38 Fed. Cl. 627, 638 (1997). “The regulations
provide that the cost principles in Part 31.2 of the Federal Acquisition Regulations
(‘FAR’) are to ‘be used in asserting, negotiating, or determining costs relevant to
termination settlements,’ but they are subject to the general fairness principles of section
49.201(a).” Nicon, Inc. v. United States, 331 F.3d 878, 885 (Fed. Cir. 2003) (quoting
FAR 49.113(a)); Best Foam, 38 Fed. Cl. at 638 (“Allowability is determined using the
cost principles set forth in FAR part 31, subject to the general principle that the
contractor should be compensated fairly for the work terminated.”). FAR Part 31’s cost
principles permit recovery of “allowable” costs that comply “with all of the following
requirements: (1) Reasonableness. (2) Allocability. (3) [Cost Accounting Standards or
generally accepted accounting principles]. (4) Terms of the contract. (5) Any limitations
set forth in this subpart.” Geren v. Tecom, Inc., 566 F.3d 1037, 1040 (Fed. Cir. 2009)
(quoting FAR 31.201-2).

        FAR 49.201(a) states, “A settlement should compensate the contractor fairly for
the work done and the preparations made for the terminated portions of the contract,
including a reasonable allowance for profit.” FAR 49.201(a); SWR, Inc., 15-1 BCA
¶ 35,832 at 175,223. “The standard for termination settlement proposals recognizes . . .
that the settlement may need to be based upon estimates.” Phoenix Data Solutions LLC,
ASBCA No. 60207, 18-1 BCA ¶ 37,164 at 180,922. “The use of business judgment, as
distinguished from strict accounting principles, is the heart of a settlement.”
FAR 49.201(a); see also Codex Corp. v. United States, 226 Ct. Cl. 693, 698 (1981)
                                             11
(reconciling “the strict standard of allowable costs . . . and the fairness concept . . . is a
matter primarily within the discretion of the Board of Contract Appeals”). “Although the
burden is on the contractor to show entitlement to a larger settlement amount, . . . the
overall purpose of a termination for convenience settlement is to fairly compensate the
contractor and to make the contractor whole for the costs incurred in connection with the
terminated work.” Nicon, 331 F.3d at 885.

                1.     Fluor Has Plausibly Alleged a Claim Based on the Termination Cost
                       Principle and Need Not Rely on the Depreciation Cost Principle

       Here, the Corps of Engineers’ motion to dismiss relates to the fifth element of
allowability – limitations in FAR Part 31. FAR 31.201-2(a)(5). In particular, the Corps
of Engineers asserts that Fluor has failed to plausibly plead a claim for recovery of
Blanchard’s costs for the generators and other equipment because Blanchard’s
termination settlement proposal estimated those costs using the depreciation cost
principle – FAR 31.205-11 (gov’t mot. at 7-9). And, because Blanchard estimated its
costs based on the depreciation cost principle (FAR 31.201-11), the Corps of Engineers
asserts that Fluor may only recover its subcontractor termination settlement costs with
Blanchard under that cost principle or not at all (gov’t mot. at 6-9; gov’t reply at 2-5).

       As reflected in Fluor’s complaint, strict adherence to the depreciation cost
principle would result in no recovery, as DCAA recommended and the contracting officer
concluded (first amended compl. ¶¶ 7, 58; R4, tab 3; tab 8 at 180-81). For a
subcontractor not governed by the Cost Accounting Standards such as Blanchard,
“allowable depreciation shall not exceed the amount used for financial accounting
purposes, and shall be determined in a manner consistent with the depreciation policies
and procedures followed in the same segment on non-Government business.”
FAR 31.205-11(c). Fluor acknowledges that Blanchard calculated its generator costs
using straight-line depreciation, but Blanchard uses the declining balance depreciation
method for Federal tax purposes, and “did not depreciate the equipment in its accounting
records other than for tax purposes” (first amended compl. ¶¶ 58, 62; R4, tab 8 at 181).
Thus, Blanchard’s termination settlement proposal that calculated generator costs using
depreciation was inconsistent with its normal depreciation policies and procedures. 5

5
    The Corps of Engineers relies on a General Services Board of Contract Appeals
         (GSBCA) decision, which applied the depreciation cost principle
         (FAR 31.205-11) to bar a contractor’s attempt to recover on property that had
         already been fully depreciated. Herman B. Taylor Constr. Co. v. Gen. Servs.
         Admin., GSBCA No. 15421, 03-2 BCA ¶ 32,320 at 159,906. In Taylor
         Construction, the GSBCA dealt with a different issue under the depreciation cost
         principle – that a contractor cannot recover a rental charge for fully depreciated
         equipment without the government’s agreement. Id. (citing FAR 31.205-11(1)
         and Union Boiler Works, Inc. v. Caldera, 156 F.3d 1374, 1376 (Fed. Cir. 1998)).
                                              12
        Fluor counters, however, that it is not relying on the depreciation cost principle
(which Blanchard merely used to estimate its costs) but the termination cost principle –
FAR 31.205-42 – and the Contract’s Termination for Convenience contract clause
(FAR 52.249-2) that permits recovery of costs from subcontractor settlements (app. resp.
at 15-16; app. reply at 3-6). The termination cost principle states, “Subcontractor claims,
including the allocable portion of the claims common to the contract and to other work of
the contractor, are generally allowable.” FAR 31.205-42(h). The Contract’s long-form
termination for convenience clause permits Fluor to recover “[t]he cost of settling and
paying termination settlement proposals under terminated subcontracts that are properly
chargeable to the terminated portion of the contract . . . .” FAR 52.249-2(g)(2)(ii). “A
prime seeking to recover the costs of settling with a sub under the ‘settled and paid’
clause . . . need not strictly prove the allowability, reasonableness, and allocability of all
of the sub’s costs.” Morrison Knudsen Corp. v. Fireman’s Fund Ins. Co., 175 F.3d 1221,
1252 (10th Cir. 1999). The FAR also states that the termination contracting officer must
evaluate whether the settlement “was arrived at in good faith, is reasonable in amount,
and is allocable to the terminated portion of the contract . . . .” FAR 49.108-3(c). Thus,
allowability of a contractor’s costs in settling a subcontractor’s claim depends on “the
reasonableness and prudence of the settlement, including the competence and good faith
with which the negotiations were conducted[,] and the adequacy of the information upon
which the settlement was based.” Gen. Dynamics Land Sys., Inc., ASBCA No. 52283,
02-1 BCA ¶ 31,659 at 156,411.

       Fluor alleges (and the Corps of Engineers admits) that Blanchard informed DCAA
during the audit that Blanchard had estimated its costs using the depreciation principle
and Blanchard would have used other methods to calculate its costs had it believed it
could (first amended compl. ¶ 39; answer ¶ 39). Blanchard informed DCAA those other
methods (such as charging the rental rate or using declining-balance depreciation) would
have resulted in higher cost estimates (first amended compl. ¶ 39; answer ¶ 39). Fluor
alleges that Blanchard used its estimate mainly because it more closely approximated
what it expected to cost to dispose of the generators and other equipment (first amended
compl. ¶ 40). Even DCAA acknowledged that Blanchard had purchased and timely
shipped the equipment to the Middle East, where it sat ready for performance prior to
termination (R4, tab 8 at 181; first amended compl. ¶¶ 37-38). Indeed, Fluor alleges that
Blanchard’s actual costs of disposing of the equipment closely approximated its
estimated costs provided to DCAA (first amended compl. ¶¶ 61-66). Fluor alleges that it
acted reasonably in settling with Blanchard because the actual costs incurred by
Blanchard match the amount Fluor and Blanchard had already provided the Corps of

       We note first that GSBCA cases are not binding upon us except to the degree that
       we find them to be persuasive authority. Moreover, here, the equipment was new
       and had not been depreciated, so this particular aspect of the cost principle is not
       relevant to these appeals. Nor did the costs at issue relate to settlement of a
       subcontractor’s costs, as here.
                                             13
Engineers and DCAA in the estimated costs in the termination settlement proposal (first
amended compl. ¶¶ 50, 61-66).

       Based on all these allegations, we believe that Fluor has plausibly pleaded a claim
for recovery of its subcontractor costs even though Fluor seeks to demonstrate the
reasonableness of recovery based on the actual increased costs incurred rather than the
estimates provided in Blanchard’s termination settlement proposal. Johnson, 574 U.S.
at 11; Phoenix Data, 18-1 BCA ¶ 37,164 at 180,922 (noting that termination settlements
may be “based on estimates”); Raytheon Co., ASBCA No. 57743 et al., 17-1 BCA
¶ 36,724 at 178,847 (“An increase (or reduction) on appeal in the amount claimed does
not constitute a new claim under the CDA as long as the nature of the claim and basic
operative facts are essentially the same.”), aff'd, 940 F.3d 1310 (Fed. Cir. 2019).
Termination settlements must balance strict application of the cost principles with
assuring fairness to the contractor terminated for convenience. Nicon, 331 F.3d at 885;
FAR 49.201(c) (“Cost and accounting data may provide guides, but are not rigid
measures, for ascertaining fair compensation.”). Fluor plausibly alleges Blanchard
incurred costs for obtaining, shipping, and storing the equipment, and Fluor should not
shoulder the costs of the government’s convenience termination decision for following
the agency’s direction to settle these costs with its subcontractor. Nicon, 331 F.3d at 885;
Jacobs Eng’g Grp., Inc. v. United States, 434 F.3d 1378, 1381 (Fed. Cir. 2006) (“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.” (Citation
omitted)); (R4, tab 6 at 144 (termination letter reminding Fluor of obligation to
“promptly” settle with subcontractors)) Fluor should be permitted to provide evidence to
prove its well-pleaded allegations.

              2.     Fluor Has Plausibly Alleged Notice to the Agency Regarding its
                     Subcontractor Settlement

        The Corps of Engineers asserts that, even if Fluor was permitted to show the
reasonableness of its settlement with its subcontractor Blanchard, Fluor cannot recover
because Fluor failed to obtain contracting officer approval under FAR 49.108-3 prior to
paying its subcontractor to settle its termination proposal (gov’t reply at 5-6 n.6).
FAR 49.108-3(b)(2) states that a termination contracting officer “shall require that . . .
[t]he prime contractor submit, for approval or ratification, all termination settlements
with subcontractors.” FAR 49.108-3(b)(2); Parson Global Servs., Inc. ex rel. Odell Int’l,
Inc. v. McHugh, 677 F.3d 1166, 1172 (Fed. Cir. 2012) (recognizing that FAR 49.108-3
“allows prime contractors to settle with subcontractors and then submit these settlements
to the TCO for approval”); Lockheed Martin Corp. v. England, 424 F.3d 1199, 1201
(Fed. Cir. 2005) (noting that a prime contractor’s proposed termination settlement with a
subcontractor would not “become final until approved or ratified by the Termination
Contracting Officer”).

                                            14
       In December 2013, Fluor provided Blanchard’s 474-page termination settlement
proposal as part of Fluor’s termination proposal, listing the total amount of Blanchard’s
settlement proposal of $3,370,768 as “settlements with subcontractors” (first amended
compl. ¶ 42; app. supp. R4, tab 13.2 at 4, tab 15 at 1, tab 13 (Blanchard termination
settlement proposal)). Fluor has adequately alleged that Blanchard’s termination
settlement proposal provided the Corps of Engineers with sufficient information to meet
the requirements of FAR 49.108-3. H.J. Lyness Constr., Inc. v. United States, 121 Fed.
Cl. 287, 295 (2015) (denying claim based on FAR 49.108-3 where “[t]he documentation
submitted to GSA at the time of the audit was insufficient to support the award of
subcontractor settlement costs, and Plaintiff has failed to provide the Court with any
additional documentation that could supplement the record on the issue”), aff’d, 652 F.
App’x 972 (Fed. Cir. 2016). Indeed, as noted above, DCAA’s audit report (which was
not issued until December 2015 – two years after Fluor submitted its termination
settlement proposal) verified that Blanchard incurred costs by purchasing, shipping, and
housing the generators in the Middle East in preparation for this Contract (R4, tab 8
at 181; first amended compl. ¶¶ 37-38).

       Moreover, Fluor has alleged that it entered a settlement agreement with Blanchard
in July 2014 for the subcontractor’s termination costs eight months after submitting its
termination settlement proposal to the Corps of Engineers in December 2013 (first
amended compl. ¶ 46). Indeed, Fluor alleged that it acted reasonably by not awaiting the
two-year-long DCAA audit by “promptly” settling as the Corps of Engineers directed
Fluor when the agency terminated the Task Order in May 2013 (and as Fluor promised
Blanchard in the Subcontract) (first amended compl. ¶ 16; app. supp. R4, tab 13 at 330;
R4, tab 6 at 144). Thus, Fluor has plausibly pleaded that it met its obligation under
FAR 49.108-3 and has appealed the contracting officer’s decision denying recovery of its
settlement with Blanchard. Whether Fluor should recover its subcontractor settlement
costs remains a question of disputed fact that we look at next.

       The Current Record Does Not Establish Fluor’s Costs and, Thus, We Deny
       Summary Judgment in its Favor

       A.     Standard of Review

       Board Rule 7(c) permits summary judgment motions and “looks to Rule 56 of the
Federal Rules of Civil Procedure for guidance.” ASBCA Rule 7(c)(2). FED. R. CIV.
P. 56 requires granting “summary judgment if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
FED. R. CIV. P. 56(a). “[A]t the summary judgment stage the judge’s function is not
himself to weigh the evidence and determine the truth of the matter but to determine
whether there is a genuine issue for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
249 (1986).

                                            15
        “At the summary judgment stage, facts must be viewed in the light most favorable
to the nonmoving party only if there is a ‘genuine’ dispute as to those facts.” Scott v.
Harris, 550 U.S. 372, 380 (2007). The nonmovant must “do more than simply show that
there is some metaphysical doubt as to the material facts” to defeat a summary judgment
motion. Id. (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
586-87 (1986)). Finally, on summary judgment, we apply the “substantive evidentiary
standard of proof that would apply at the trial on the merits.” Anderson, 477 U.S. at 252.

         B.     There is a Genuine Dispute of Material Fact Regarding the Reasonableness
                and Amount of Costs Relating to Fluor’s Settlement with Blanchard

        For convenience termination costs, the “claimant bears the burden of proving the
fact of loss with certainty, as well as the burden of proving the amount of loss with
sufficient certainty so that the determination of the amount of damages will be more than
mere speculation.” Lisbon Contractors, Inc. v. United States, 828 F.2d 759, 767 (Fed.
Cir. 1987) (quoting Willems Indus., Inc. v. United States, 295 F.2d 822, 831 (Ct. Cl.
1961)); Envtl. Safety Consultants, 15-1 BCA ¶ 35,906 at 175,522. Fluor’s summary
judgment motion and the extant record do not suffice to establish an absence of a genuine
dispute of material fact as to the reasonableness and amount of Fluor’s costs in settling
with Blanchard. 6

        Fluor asserts in its complaint that it paid Blanchard $3,116, 991.20 to settle, but
the record includes nothing to support that allegation (first amended compl. ¶ 46). Fluor
relies on the Corps of Engineers’ citation of Fluor’s complaint as the basis for finding this
fact undisputed (app. resp. at 18; gov’t mot. at 4). The agency clearly treated that fact as
undisputed only for purposes of its motion to dismiss, where it “must accept well-pleaded
factual allegations as true” to prevail. Kellogg Brown & Root, 728 F.3d at 1365. In fact,
the Corps of Engineers’ answer denies, for lack of information, the allegation that Fluor
made a settlement payment to Blanchard (answer ¶ 46). Fluor must do more than simply
rely on its pleadings to demonstrate the fact and amount of settlement, particularly where
the Corps of Engineers’ answer denies it. While Blanchard’s estimated costs in its
termination settlement proposal and allegation of subcontractor settlement and payment
assisted Fluor in surviving dismissal, the current record lacks sufficient evidentiary proof
to demonstrate an undisputed material fact necessary for summary judgment.

6
    Typically, Fed. R. Civ. P. 56 “requires the nonmoving party to go beyond the pleadings
         and by her own affidavits, or by the ‘depositions, answers to interrogatories, and
         admissions on file,’ designate ‘specific facts showing that there is a genuine issue
         for trial.’” Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986) (quoting Fed. R.
         Civ. P. 56(e)). Because Fluor has failed to show an absence of a genuine dispute
         of material fact, the Corps of Engineers’ has prevailed despite its unsupported
         responses that “upon information and belief” Fluor’s allegations were not true.
                                               16
        Additionally, the record is unclear whether Fluor acted reasonably in settling with
Blanchard for the alleged amount. “Cost reasonableness is a ‘question of fact.’” Kellogg
Brown & Root, 728 F.3d at 1360 (quoting Gen. Dynamics Corp. v. United States,
410 F.2d 404, 409 (Ct. Cl. 1969)). “The standard of assessing reasonableness is flexible”
and we “consider many fact-intensive and context-specific factors.” Id. at 1360 (citing
FAR 31.201-3). Fluor has alleged that it acted reasonably in settling with Blanchard
because Blanchard’s actual costs, including costs of capital, justified the estimates
provided in the termination settlement proposal provided to DCAA (first amended compl.
¶¶ 61-66). For factual support, Fluor relies solely on an affidavit of Blanchard’s current
chief financial officer to explain the actual costs Blanchard incurred in disposing of the
generators and other equipment (app. resp., Johnson aff. ¶¶ 5-7.7). However, the record
includes no back-up documentation that is necessary to justify the reasonableness of these
actual incurred costs. “A reference in a claim is inadequate to constitute a showing
sufficient that no reasonable trier of fact could find other than for appellant.” Orbital
Sciences Corp., ASBCA No. 50171, 00-1 BCA ¶ 30,860 at 152,344. Fluor must provide
more than just its allegations in its claim or complaint and may not simply rely on alleged
costs “asserted under oath by a company official” but must provide some documentation
supporting its termination costs. First Division Design, LLC, ASBCA No. 60049, 18-1
BCA ¶ 37,201 at 181,102.

        Moreover, Fluor’s complaint alleges that Blanchard’s actual incurred “costs were
slightly offset by a net gain of $586,000 resulting from the eventual sale of the
generators;” but the affidavit’s calculation does not discuss this potential mitigating
amount and whether it impacts Blanchard’s actual costs (first amended compl. ¶ 61).
Even a terminated party has a duty of mitigation. Ind. Mich. Power Co. v. United States,
422 F.3d 1369, 1375 (Fed. Cir. 2005) (“Mitigation is appropriate where a reasonable
person, in light of the known facts and circumstances, would have taken steps to avoid
damage.”). If Blanchard actually mitigated these costs, then that potentially impacts the
reasonableness of any settlement and the agency’s liability to reimburse Fluor.

       Ultimately, at this time, Fluor has failed to provide sufficient evidentiary proof to
demonstrate an absence of a genuine dispute of material fact. In response to the agency’s
motion to dismiss Fluor stated, “There is a genuine issue of material fact regarding the
actual costs incurred by Blanchard resulting from the termination for convenience”
(app. resp. at 12). We agree, and think this statement equally applies to Fluor’s motion
for summary judgment. Fluor may very well have evidence to show that it acted
reasonably, but Fluor neither provided undisputed evidence with its summary judgment
motion nor has it yet included such evidence in any supplements to the Rule 4 file. Thus,
we deny Fluor’s motion for summary judgment.

                                            17
                                    CONCLUSION

      For the foregoing reasons, we deny the Corps of Engineers’ motion to partially
dismiss Fluor’s appeal and deny Fluor’s motion for summary judgment.

      Dated: March 29, 2022

                                                 DANIEL S. HERZFELD
                                                 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 Nos. 62550, 62672, Appeals of
Fluor Intercontinental, Inc., rendered in conformance with the Board’s Charter.

      Dated: March 29, 2022

                                               PAULLA K. GATES-LEWIS
                                               Recorder, Armed Services
                                               Board of Contract Appeals

                                          18