Court Opinion

ID: 2752230
Source: CourtListenerOpinion
Date Created: 2014-11-17 19:00:24.858619+00
Date Added: 2024-06-11T13:05:51.424834
License: Public Domain

ARMED SERVICES BOARD OF CONTRACT APPEALS

    Appeal of --                              )
                                              )
    Job Options, Inc.                         )     ASBCA No. 59314
                                              )
    Under Contract No. HDEC08- l 3-C-0003     )

    APPEARANCE FOR THE APPELLANT:                   :rvtr.JeffreyJohnson
                                                      CEO

    APPEARANCE FOR THE GOVERNMENT:                  Ronald S. Hom, Esq.
                                                     Assistant General Counsel
                                                     Defense Commissary Agency
                                                     Fort Lee, VA

                   OPINION BY ADMINISTRATIVE JUDGE THRASHER
                              PURSUANT TO RULE 12.3

        Job Options, Inc. (JOI), seeks an equitable adjustment for increased labor costs
associated with the storage of additional goods under a contract with the Defense
Commissary Agency (DeCA) to provide inventory management, shelf stocking, and
janitorial services for the Camp Pendleton Commissary. The parties agreed to submit
the appeal on the record pursuant to Board Rule 11. JOI elected the Board Rule 12.3
accelerated procedure on 14 May 2014. The government concedes entitlement and this
decision only addresses quantum. We have jurisdiction pursuant to the Contract
Disputes Act of 1978, 41 U.S.C. §§ 7101-7109.

                                 FINDINGS OF FACT

The Contract

        1. JOI was awarded Contract No. HDEC08-13-C-0003 on 30 October 2012 to
provide shelf stocking, receiving/storage/holding area operations (RSHA), and custodial
tasks for the Camp Pendleton Marine Corps Base (MCB) Commissary, Camp Pendleton
MCB, California (R4, tab 1at1, 61). 1 The contract was awarded as a firm-fixed-price

1
    The award was sole source to JOI because the services required, shelf stocking,
         RSHA, and custodial tasks, are listed on the procurement list established
         by the Committee for Purchase From People Who Are Blind or Severely
         Disabled pursuant to the provisions of the Javits-Wagner-O'Day Act, 41 U.S.C.
         §§ 8501-8506. This required the government to obtain the services from a
         qualified non-profit work center and JOI was chosen to provide the service.
         (R4, tab 32)
(FFP) contract with a base year and four option years (R4, tab 1 at 3-25). This appeal
only relates to the base year, 1November2012 through 31 October 2013, and only three
of the nine areas of performance, Shelf Stocking Operations, Overwrites, and Storing
Items under RSHA Operations.

Shelf Stocking Operations & Overwrites

        2. The number of cases JOI stocks every month is based upon orders from the
Frequent Delivery System (FDS) algorithm. The FDS algorithm provides an estimate
of how much product is necessary to fill the shelves. Because the FDS algorithm is not
100% accurate, occasionally some stock cannot be shelved and must be stored. This
extra stock, that is delivered but has to be temporarily stored, is referred to as an
Overwrite. The Performance Work Statement (PWS), § 4.3.3.2.1.2., defines Overwrite
cases as:

              [C]ases that the Government has ordered from FDS
              distributors for replenishment stocking, and that the
              Contractor has moved to the sales floor to stock; but which
              the Contractor cannot stock in shelf space available in item
              allocations.

(R4, tab 1 at 79)

        3. The contract recognizes there is a cost incurred with removing (pulling) cases
from the floor to be temporarily stored and provides a mechanism to compensate the
contractor if the number of monthly overwrites exceeds an estimated monthly overwrite
percentage. PWS § 4.3.3.8. provides a measure of estimated overwrite cases per month,
stating:

              The estimated percentage of overwrite cases per month is
              7% percent of the total monthly cases available for stocking
              by the Contractor. In accordance with Schedule B of the
              contract, the Contractor shall be entitled to invoice the
              Government for the number of cases exceeding the
              estimated monthly overwrite percentage. Any case(s) that
              the Government specifically directs the Contractor to stock
              shall be included in the number of total cases available for
              stocking.

(R4, tab 1 at 81) Computation for payment for excess overwrites is found in
Technical Exhibit 1 , 5.1.3., which states in pertinent part:

              The Contractor shall be entitled to invoice the Government
              for the number of cases exceeding the estimated monthly

                                            2
              overwrite percentage. The price per case for invoiced
              overwrites shall be a percent of the current per-case stocking
              price, as indicated on Schedule B of this contract. There
              shall be no claims against the Government when overwrites
              are at or below the estimated percentage for any month.

(R4, tab 1 at 114)

        4. Shelf stocking operations are performed on a fixed-price basis: JOI is paid a
set price for each case it actually stocks. JOI invoiced for payment using "SHELF
STOCKING CASES STOCKED" (Form 70-114) (R4, tab 22 at 8). The price per case,
as bid by JOI, was based upon an annual estimated quantity of cases provided in the
solicitation (R4, tab 1 at 3, contract line item no. (CLIN) OOOlAA). JOI's bid price
included the cost of overwrites, i.e., pulling the excess cases and temporarily storing
them, up to 7% each month. CLIN OOOlAA states that JOI will, "[P]erform Shelf
Stocking Operations that include overwrites between 0% and 7% in accordance with
paragraph 4.3.3.8. of the PWS, Attachment I." (Id.)

       5. There is no basis in the contract for modifying the stocking unit price during
the same contract performance period if the actual cases stocked exceed the estimated
quantities. However, the contract does provide for adjusting the stocking unit price in a
follow-on year under certain limited circumstances. Clause 52.217-4506(a), PRICE
ADJUSTMENT FOR FOLLOW-ON YEAR REPRICING (JUL 2009), states in pertinent part:

             a. This is a firm, fixed-price contract with provisions for
             unit prices that are not subject to adjustments on the basis of
             the contractor's cost experience or cost growth in performing
             the contract. The only factors subject to adjustment due to
             follow-on year repricing will be wage rates/fringes, federal
             or state mandated changes to payroll expenses, and other
             payroll expense changes deemed appropriate for payment by
             the contracting officer that may be outside the contractor's
             control such as Worker's Compensation premiums. Scope
             and workload changes shall be handled in a separate
             proposal from renewal proposals.

             e. On a case-by-case basis, the Contracting Officer shall
             review the estimated shelf stocking workload in the contract
             to ensure it adequately reflects the actual cases stocked. The
             contractor may request that the Contracting Officer review
             the estimated shelf stocking workload if there is a 10% or
             greater variance in workload for cases stocked which occurs

                                            3
              over a six-month period. Workload/price changes are not
              mandatory/automatic when reviews occur, and are dependent
              upon reasons for and/or circumstances surrounding the
              variance. If the Contracting Officer determines an
              adjustment is warranted, the price should be negotiated and
              the contract modified accordingly.

(R4, tab 1 at 38-39)

Storing Items under RSHA Operations

        6. The process of storing and pulling items is a RSHA function (R4, tab 1 at 85,
§§ 4.4.2.7., 4.4.2.8.). The stored items only include operating supply items, residual
stock from displays and semi-perishable items identified by the store director (id. §
4.4.2. 7. ). Unlike shelf stocking operations, RSHA operations are priced, and the
contractor is paid, a fixed monthly amount to provide the service. Although specific
products stored have an associated estimate of cases per month to be stored, there is no
basis in the contract for reimbursing the contractor for the actual number of cases above
the estimated amounts. PWS § 4.4.2. 7. provided an estimated number of cases to be
stored each month, as follows:

        Estimated number of line items and cases per month to STORE:
                                                Line Items        Cases
        Semi-nerishables. (a):                     265            8.000
        Oneratim1 Sunn lies (b ):                    55              600
        [OTAL TO STORE (a+b):                      320            8,600

(Id.)

        7. On 20 November 2013, JOI submitted a request for equitable adjustment
(REA) to the contracting officer (CO) requesting a CO's final decision (COFD) granting
a contract adjustment of $48,006.42 for additional labor incurred as a result of storing
more semi-perishable cases in the warehouse than estimated in the RSHA section of
the PWS during the period 1 November 2012 through 31October2013. JOI explained
its basis for the request and calculation methodology as follows:

              This occurred as the result of significantly smaller
              percentage of the total cases stocked from the nightly FDS
              load than was contemplated in the contract coupled with a
              much higher percentage of cases stocked from the residual
              sections of the warehouse. Special buys and promotional
              purchases accounted for a much greater percentage of total
              orders than was estimated in the PWS of the contract. The
              extra labor incurred from warehousing and storing more
                                            4
             cases in the crowded warehouse and then working the
             residual stock onto the shelves on the sales floor is the
             justification for this request for equitable adjustment.

             We are unable to use the monthly RSHA report to provide
             an accurate number for cases JOI stored over the time
             period involved because DECA is failing to produce and
             record the required daily and monthly data for cases stored.
             The PWS for this contract however, calls for 96,000 cases
             annually to be stored in the warehouse. The actual figure
             that we derived during the twelve months (Nov 2012
             through Oct 2013) is 193,194 additional cases that had to
             be warehoused and stored. Eventually these stored cases
             were moved from the warehouse to their place on the shelf.

             We calculate additional labor in the following manner: the
             additional 193, 194 cases stored divided by 86 cases per
             hour (which is the productivity factor in storing
             merchandise) for a total of 2,246.44 hours. At a fully
             burdened wage rate of $21.37 dollars for a material
             handling position this yields a total REA of $48,006.42.

(R4, tab 11) JOI removed all actual FDS overwrites from the calculations, stating,
"Although overwrites are not a part of the number of estimated cases to store in accordance
with 4.4.2.7, we have removed them so we can narrow down the cases and show the actual
additional cases Stored and Stocked from the backroom" (id. at 2). The claim requested a
final decision from the CO within 60 days (id. at 1).

       8. The CO responded with a final decision on 25 April 2014 granting JOI
$40,524.95 of the $48,006.42 claimed. The decision accepted JOI's general
methodology for calculating the amount due but disagreed with some areas of JOI's
calculations, stating:

                    In reviewing the documentation submitted, as well
             as case count sheets for the period of time referenced
             above, the following determinations were made:

                 1. New FDS cases totaled 688,548 vs. 688,835.

                 2. Overwrite cases totaled 50,266 vs. 50,276.

                 3. New FDS cases stocked totaled 638,282 vs. 638,559.

                 4. Actual cases stocked totaled 991,281 vs. 991,340.

                                           5
                  5. The difference between the total cases stocked and
              the new FDS cases stocked was 352,999 vs. 352, 781.

                  6. Removing the percentage of overwrite cases
              specified within the PWS (7% of 1,048,644 estimated
              annual cases or 73,405 cases) and stored cases (103,200 per
              the PWS), results in 176,394. This methodology provided
              consideration for the overwrite cases that were less than the
              specified percentage, or 23,139 less cases.

                  7. In addition to the removal of the cases associated
              with overwrites and stored cases, it was determined
              appropriate to also remove the cases associated with Day
              Vendor and Day FDS. Day Vendor cases are issued by the
              government to the contractor to stock, to remedy not in
              stock (NIS) situations at the merchandise shelf location.
              Day FDS cases do not require the level of warehousing that
              is required for other types of cases, such as overwrites and
              stored cases. The removal of these cases (Day Vendor@ 0
              cases and Day FDS @ 13,308 vs. 13,311 cases) results in a
              balance of residual cases for the specified period of
              performance of 163 ,086 vs. 193, 194.

                  8. Loaded wage rate for Material Handler of $21.37[.]

As a result, the CO denied the claim in part stating:

              [It] has been determined that the contractor warehoused an
              additional 163,086 cases of merchandise during the
              specified period of performance. Using the productivity
              rate referenced within the claim, the effort associated with
              the handling of the additional cases results in a total of
              1,896.35 additional labor hours. As such, the monies due
              the contractor total $40,524.95."

(R4, tab 22 at 1-2)

       9. JOI appealed the COFD to the Board on 14 May 2014 electing the Board's
accelerated procedures under Board Rule 12.3 (Bd. corr.). In its appeal, JOI alleged that
the CO "inappropriately applied a flawed and inconsistent methodology" (compl. at 1).

      10. In its answer, the government recognized that a segment of the CO's original
determination was incorrect; that the correct number of stored cases should be 103,200,

                                             6
which combined the storage amount for semi-perishables and operating supplies, and
conceded the appropriate number of total stored cases should be 96,000. Consequently,
the government conceded credit to JOI for the 7,200 case difference entitling JOI to an
additional $1,789.12. (Answer at 3)

       11. The parties elected to submit their cases on the record pursuant to Board
Rule 11 (Bd. corr. fax dtd. 24 July 2014).

                                      DECISION

       The government concedes appellant is entitled to an equitable adjustment for
labor costs incurred in storing additional cases of semi-perishable goods that exceed the
number of cases estimated in the contract (finding 8). At this point, the dispute is only
about the methodology for calculating appellant's recovery. Specifically, the parties
only disagree regarding the correct methodology for calculating overwrites and the
number values within the various categories stocked and stored items. The following is
a summary of the calculation methodology employed by the parties:

                                         JOI              DeCA
                                      Calculation       Calculation       Difference
1  Night FDS Cases Received            688,835           688,548             (287)
2  Less FDS Night Overwrites           -50,276           -50,266              (10)
3  Actual FDS Cases Stocked            638,559           638,282             (277)
   at Night (row 1minus2)
4 Total Cases Stocked                   991,340           991,281             (59)
5 Total Cases Warehoused                352,781           352,999             218
   (row 4 minus 3)
6 Subtract Overwrites                   -50,276           -73,405            23, 129
7 Subtract: Number of Stored            -96,000           -96,000               0
   Cases Estimated in Contract
8 Sub-Total (row 5 minus                206,505           183,594           (22,911)
   rows 6 & 7)
9 Subtract: Day vendor cases               -0                -0                 0
10 Subtract: Day FDS Cases              -13,311           -13,308              (3)
11 Additional Cases stored              193,194           170,286           (22,908)
   (row 8 minus rows 9 & 10)

      We conclude that the government's numbers for stocking and storing are more
accurate and should be used in our calculation. These numbers are derived from the
monthly totals on the "SHELF STOCKING CASES STOCKED" form used by
appellant to invoice and receive payment (finding 4). Therefore, the fundamental
remaining difference between the parties is what number should be used in the
calculating overwrites (line 6 above). Appellant argues the actual number of

                                            7
overwrites it stored should be applied in the calculation while the government
argues the correct number should be the total estimated number appellant bid on,
which was the basis for determining the price.

      Appellant's argument focuses upon the overwrites associated with the specific
items that resulted in excess storage costs. The parties agree the specific items
associated with the claimed excess storage had an estimated storage of 96,000 store
merchandise cases annually with 7% of those cases being overwrites. Appellant
actually stored 193, 194 extra cases of store merchandise, of which 50,27 6 were
overwrite cases. Appellant argues the actual number of overwrites should be
subtracted, without regard to the amount of total overwrite services performed.
(App. hr. at 5-6)

     The government agrees appellant is entitled to recover for amounts stored
above the estimates in the contract but argues that appellant's methodology does not
recognize the fact that the contract price already accounts for 73,405 overwrite cases
for which appellant has already been paid; the government's position is that to allow
an additional 23,129 cases to be included in the calculation would result in the
government paying twice for these items (gov't hr. at 3-5).

      We agree with the government; if the actual number of overwrites are
subtracted, as appellant argues, appellant will be paid twice for the labor associated
with storing 23,129 cases. Despite appellant's arguments to the contrary, both the
stocking and storage (RSHA) service areas are priced on a FFP basis (findings 4, 6;
app. reply hr. at 1, 3-5). However, appellant may invoice for the costs of overwrites
that exceed 7% in a given month (finding 3). Appellant's bid price presumably
included labor costs in both service areas, including the labor costs of temporarily
storing overwrites up to 7% of the cases stored. So the price for stocking cases
already includes the cost of labor for temporarily storing overwrite cases up to 7% of
the estimated total. As a result, appellant has been paid for any overwrites up to 7%
of the cases stored. The calculation used here by the parties calculates the total
number of items stocked and warehoused subtracting out the number of cases
estimated in the specific area that appellant claims excess storage labor costs. If the
number of overwrites subtracted are limited to the actual number associated with the
specific service area, as appellant argues, it will undercount the number of
overwrites. We conclude the government's proposed method of calculating
overwrites is more accurate, i.e., 7% of the total annual estimated stocking service
requirement (day, night and display stocking estimates).

                                           8
                                    CONCLUSION

       Subtracting the anticipated total number of overwrites, 73,405, results in
 170,286 additional total cases stored. Applying the labor productivity factor of 86
 cases per hour yields 1,980 additional hours and when multiplied by the wage rate
 of$2l.37 equates to a total due of$42,312.60. The COFD granted appellant
 $40,524.95 (finding 8). Therefore, this appeal is sustained in the amount of
 $1,787.65 with CDA interest thereon starting 27 April 2014. The balance of the
 costs claimed are denied.

       Dated: 5 November 2014

I concur

RICHARD SHACKLEFORD
Administrative Judge
Vice Chairman
Armed Services Board
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. 59314, Appeal of Job
Options, Inc., rendered in conformance with the Board's Charter.

       Dated:

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

                                            9