___________________________________________________________ MOTION FOR RECONSIDERATION GRANTED IN PART; DECISION MODIFIED: June 30, 1993 ___________________________________________________________ GSBCA 11161-R, 11263(11045)-REIN-R, 11430-R RICHERSON CONSTRUCTION, INC., Appellant, v. GENERAL SERVICES ADMINISTRATION, Respondent. Robert J. Martinez and Sally B. Pfund of Williams & Jensen, P.C., Washington, DC, counsel for Appellant. Marie N. Adamson and M. Leah Wright, Office of General Counsel, General Services Administration, Washington, DC, counsel for Respondent. Before Board Judges LaBELLA, NEILL, and HYATT. HYATT, Board Judge. Respondent has requested reconsideration of the Board's decision in these consolidated appeals. The appeals involved a dispute over the compensation due to appellant, Richerson Construction, Inc. (RCI), as a consequence of the termination for the convenience of the Government of its contract to perform construction work in a federal building in Houston, Texas. The appeal docketed as number 11161 was of the deemed denial of Richerson's claim for termination settlement expenses in the amount of $377,185; the appeal docketed as number 11263(11045)- REIN was of the contracting officer's denial of Richerson's claims for equitable adjustments to the contract price as a result of the Government's wrongful rejection of RCI's proposed millwork subcontractor and for Government-caused delay. Finally, the appeal docketed as number 11430 challenged the contracting officer's decision reducing RCI's contract price by some $39,575 to reflect the cost to repair allegedly defective work. We granted all three appeals and, after adjusting for payments already made, held that RCI was entitled to recover $297,847. Richerson Construction, Inc. v. General Services Administration, GSBCA 11161, et al., 93-1 BCA 25,239 (1992). Respondent has moved for partial reconsideration of our decision principally with respect to two issues. The first concerns the decision to allow recovery of both legal expenses in preparing the claim and interest on the termination for convenience submittal, which respondent contends is tantamount to a "double recovery" of these costs. The second issue pertains to the award and calculation of profit and overhead. Legal Expenses and Interest Respondent first asks the Board to reconsider its holding that RCI's submission of a certified settlement proposal constituted a "claim" for purposes of the Contract Disputes Act of 1978 and, in particular, this Act's provision for the accrual of interest. 41 U.S.C. 611 (1988). Respondent points out that customarily the submission of a settlement proposal is simply a means to trigger the negotiation process. As such, the requisite dispute is not yet in existence.[foot #] 1 In the alternative, respondent posits that if the submission of the termination settlement proposal is deemed to constitute submission of a claim, then the legal costs incurred by appellant in connection with preparing that submission must necessarily be considered to be nonrecoverable litigation preparation costs. Thus, respondent takes issue with that aspect of the Board's decision that provides that interest would be awarded as of the date the settlement proposal was certified and submitted to the contracting officer while at the same time awarding certain attorney fees as part of the settlement claim. Although we decline to modify our holding in this respect, we agree that the decision requires clarification. Respondent correctly states that in ordinary circumstances submission of a termination settlement proposal merely serves to open negotiations between the contractor and the Government. In general, such a submission is not regarded as a claim for purposes of the running of interest under the Contract Disputes Act. Gardner Machinery Corp. v. United States, 14 Cl. Ct. 286 (1988); Bravo Manufacturing, Inc., ASBCA 41838, 92-1 BCA 24,514. Respondent also recognizes, however, that there are rare instances in which disputes as to the allowability of costs ----------- FOOTNOTE BEGINS --------- [foot #] 1 Respondent properly notes that in the absence of a dispute there can be no formal "claim" for purposes of the CDA. Dawco Construction Inc. v. United States, 930 F.2d 872 ___________________________________________ (Fed. Cir. 1991); Mayfair Construction Co. v. United States, 841 _________________________________________ F.2d 1576 (Fed. Cir. 1988). ----------- FOOTNOTE ENDS ----------- claimed under the settlement proposal had existed prior to the termination for convenience and submission of a settlement proposal. In identifying such circumstances, the Armed Services Board has observed: In view of the prior history of disagreements between the parties over amounts due under the contract we conclude that the termination proposal was a claim submitted to the contracting officer and that interest on the amount found due, payable pursuant to the Contract Disputes Act, runs from the date the contracting officer received appellant's claim certification until payment of the amount due. HSQ Technology, ASBCA 32272, 86-3 BCA 19,221, at 97,198. Respondent urges that HSQ is inapplicable because in the instant case the actual costs claimed by RCI had never been discussed in the context of a convenience termination settlement proposal. This distinction is unduly narrow, however. The history of this case is discussed in detail in the principal decision. The record contains ample evidence of on-going disputes concerning RCI's entitlement to equitable price adjustments and other relief in connection with the Government's administration of its contract.[foot #] 2 At the time the proposal was submitted, respondent's established position was that RCI was in a loss position and not entitled to recover the lion's share of its settlement proposal, which assumed that the adjustments to the ceiling price would be made based on RCI's entitlement to these adjustments. Taking these facts into account, the Board concluded that as a practical matter, RCI could have no solid expectation that these well-developed disagreements would readily be resolved in negotiations respecting its settlement proposal. Thus, the rule applied in HSQ was deemed to be applicable in the circumstances at hand and we see no basis for ruling otherwise. Moreover, we are not persuaded that the inclusion of legal fees incurred by RCI in preparing the settlement proposal must thus automatically be treated as litigation legal expenses as opposed to fees incurred in preparing a settlement proposal. This is not the "double" recovery that respondent claims it is. Recovery of interest and legal expenses incurred in claim ----------- FOOTNOTE BEGINS --------- [foot #] 2 To summarize, respondent terminated RCI's construction contract for default at the eleventh hour, after having presented RCI with a punch list of items to be corrected. RCI appealed the default termination to the Board. Just prior to the scheduled hearing on that matter the parties settled, agreeing that the default termination would be converted to one for the convenience of the Government. Prior to reaching this settlement, the contracting officer had categorically denied appellant's claims for equitable adjustments based on Government- caused delays and wrongful rejection of RCI's proposed subcontractor. Richerson. _________ ----------- FOOTNOTE ENDS ----------- preparation are not two sides of the same coin. As we explained in the underlying opinion, it is the nature of the activities that drives the determination of whether legal expenses are to be deemed litigation costs as opposed to costs incurred in preparing a settlement proposal. 93-1 BCA at 125,712-13. Timing is not the critical factor. Accordingly, we deny respondent's request for reconsideration of this portion of our opinion. Profit and Overhead With respect to profit, the Board held in its decision that appellant had borne its burden to justify an award of profit at a rate of twelve percent. Respondent points out to us that the actual amount of profit awarded appears to be overstated, because it was calculated on the amount that was claimed by RCI rather than on the amount awarded. Respondent is correct, and we grant its motion for reconsideration on this issue.[foot #] 3 The more complex aspect of respondent's argument arises in connection with the Board's award of profit on overhead in its calculation of the amount of termination settlement costs owed to RCI. Respondent argues that the Board's analysis in concluding that the contract ceiling should be adjusted to reflect extended home overhead costs incurred as a consequence of Government- caused delays is predicated on a "suspension of work" theory rather than on a "changed" work theory. As such, according to ----------- FOOTNOTE BEGINS --------- [foot #] 3 Respondent also asserts that appellant has achieved a double recovery of profit in the Board's award of $77,234 with respect to subcontractor costs incurred in connection with the millwork claim. Respondent asserts that this amount already included $6,851 for profit and $12,811 for overhead. By awarding this amount and adding profit on top, respondent believes the Board has somehow doubly compensated appellant for profit. This argument confuses the Board's holding that the contract ceiling should be adjusted in the amount of $77,234 to account for changed work incurred in connection with the millwork portion of the contract with the Board's actual award of the amount stipulated by the parties to have been incurred with respect to __________ subcontractors. The amount by which the contract ceiling was adjusted did not serve as the measure of recovery, however. This adjustment was made solely for the purpose of determining whether appellant's contract was in a loss position or not. By regulation, appellant's recovery under the convenience termination is cost-based. Appellant states that the amounts stipulated to in regard to incurred costs, see 93-1 BCA at ___ 125,711, do not in fact permit an improper double recovery of profit. Absent a further showing by respondent that this stipulated amount in fact mistakenly included recovery of profit, which is not evident on the present record, we see no basis to grant reconsideration on this ground. ----------- FOOTNOTE ENDS ----------- respondent, RCI should not be permitted to recover profit on the amount of overhead awarded. See Pittman Construction Co., GSBCA 4897, et al., 81-1 BCA 14,847. Appellant disagrees, urging that respondent has confused the Board's adjustment of the contract ceiling price (by an amount calculated under the Eichleay formula to reflect overhead costs associated with the extended Government-caused delays experienced in completion of the project) with the actual award of overhead costs to RCI. The amount of overhead calculated to be due RCI under the applicable regulations providing for costs to be awarded under a termination for convenience was allocated on the basis of the percentage contract billings of RCI's various contracts during the period of performance of this contract. As we stated in the underlying decision, this is a common and well accepted accounting method. Appellant further argues that the regulations call for the award of a reasonable profit on actual costs. 41 CFR 49.206-2(b)(2) (1992). Finally, appellant points out that respondent itself addressed the delay claims under the Changes clause in issuing modification PS07 to the contract. Under the Changes clause, as opposed to the Suspension of Work clause, an award of profit on the overhead amounts is proper. We agree with appellant that the award of overhead itself was proper and should not be confused with the Board's adjustment of the contract ceiling. We are, nonetheless, persuaded by respondent's argument that the underlying rationale supporting recovery of overhead in this case is in fact predicated on a suspension of work, rather than a changed work, theory. As a practical matter, the actual overhead costs incurred and awarded in connection with the termination settlement represent overhead costs incurred as a result of the same delays for which the contract ceiling price adjustment was justified. Respondent is correct that profit would not ordinarily be available on this amount and, under Board precedent, has not been granted even in the context of a termination for convenience settlement claim. See Marlin Associates, GSBCA 5663, 82-1 BCA 15,739, at 15,739. Accordingly, we agree that the amount of profit awarded to appellant must be recalculated. The amount awarded to RCI in Richerson was $352,622. After removing profit on overhead and awarding profit on the amount awarded at a rate of 12 percent, the amount initially awarded to RCI is reduced by $19,289, to $333,333. Decision Respondent's motion for reconsideration is GRANTED IN PART. The Board's decision is amended as stated above. _______________________________ CATHERINE B. HYATT Board Judge We concur: ____________________________ _______________________________ VINCENT A. LaBELLA EDWIN B. NEILL Board Judge Board Judge