DENIED: February 16, 1993 GSBCA 11771, 11830 ACE SERVICES, INC., Appellant, v. GENERAL SERVICES ADMINISTRATION, Respondent. Benjamin N. Thompson, Dunn, NC, counsel for Appellant. Martin A. Hom, Real Property Division, Office of General Counsel, General Services Administration, Washington, DC, counsel for Respondent. Before Board Judges DANIELS (Chairman), HENDLEY, and WILLIAMS. DANIELS, Board Judge. After Ace Services, Inc. (Ace) had begun performance of two contracts with the General Services Administration (GSA) for custodial services at federal facilities in the state of Texas, the company that had written Ace's workers' compensation insurance policies withdrew from that state. Ace was able to secure replacement insurance only at a much higher premium. The contractor maintains that this made the contracts commercially impracticable to perform, and that the Government is consequently obligated to pay for the increased premiums. Alternatively, Ace invokes the doctrine of contra proferentem to establish a reading of the contract which requires that GSA pay the extra costs. Neither theory is applicable to the facts of this case. We deny the appeals. Findings of Fact[foot #] 1 1. This decision involves two separate firm, fixed-price contracts. The one implicated in GSBCA 11830 is for custodial services at three federal facilities in Austin, Texas; the base period of performance was June 1, 1990, through May 31, 1991, and GSA holds options to extend the contract for four separate twelve-month periods. This contract initially required GSA to pay for services rendered at the rate of $23,315 per month; the amount was subsequently modified twice, each time by less than five percent. Appeal File, GSBCA 11830, Exhibit 1. The contract at issue in GSBCA 11771 is for similar services at a building in Fort Worth, Texas, from September 1, 1991, through August 31, 1992, with two twelve-month optional performance periods. The initial contract amount was $70,630 per month; as with the Austin contract, minor adjustments in price were later made. Appeal File, GSBCA 11771, Exhibit 1. 2. Each contract contains a Federal Acquisition Regulation (FAR) clause which states: "The Contractor shall, at its own expense, provide and maintain during the entire performance period of this contract, at least the kinds and minimum amounts of insurance required in the Schedule or elsewhere in the contract." Appeal File, GSBCA 11771, Exhibit 1 at 66; id., GSBCA 11830, Exhibit 1 at 64 (FAR 52.228-5 (SEP 1989)). The contracts specify, in identical paragraphs, what those kinds and amounts are: "Liability insurance coverage, written on the comprehensive form of policy, is required in the amount of . . . $100,000 for workmen's compensation . . . ." Id., GSBCA 11771, Exhibit 1 at 32; id., GSBCA 11830, Exhibit 1 at 41. 3. Each contract also contains a price adjustment clause which specifies that if the Department of Labor issues a wage determination which applies to wages and fringe benefits being paid to janitors for work under the contract, the option period prices will be increased or decreased commensurate with the mandated change in those wages and benefits. This clause states that "[t]he Contractor warrants that the prices in this contract do not include an allowance for any contingency to cover increased costs for which adjustment is provided under this clause." Appeal File, GSBCA 11771, Exhibit 1 at 76-77; id., GSBCA 11830, Exhibit 1 at 73-74. The benefits specified in the relevant Labor Department wage determinations are payments for health and welfare, vacation, holidays, sick leave, uniform allowance (if applicable), and (for the Fort Worth contract only) ----------- FOOTNOTE BEGINS --------- [foot #] 1 The parties agreed to submit these cases for a decision on the basis of the written record. Rule 11; Order (Sept. 24, 1992). Ace's brief is nonetheless styled a motion for summary relief. Whether this decision is considered to be on motion for summary relief or not is of academic interest only, since no relevant facts are in dispute. For the record, however, we state that Ace's characterization is incorrect. ----------- FOOTNOTE ENDS ----------- severance allowance. Id., GSBCA 11771, Exhibit 1 at 61-63; id., GSBCA 11830, Exhibit 1 at 98-100, amend. 4. 4. In preparing its bids for these contracts, Ace obtained a quotation from Utica National Insurance Group (Utica) for workers' compensation insurance. This quotation was at rate of $11.38 per one hundred dollars of payroll. Ace used this rate in calculating its bids and purchased the insurance from Utica. Appellant's Memorandum of Points and Authorities, Exhibits A-C. 5. On October 1, 1991, the Utica policies expired. By this time, Utica had determined not to write additional workers' compensation policies in Texas -- a decision that neither Ace nor its insurance agent had anticipated when the policies had been purchased. Ace was able to secure replacement policies only through the state's assigned risk pool. The premiums for these policies were calculated by Ace to be 68.3 percent higher than the rates the firm had been paying to Utica. Appeal File, GSBCA 11771, Exhibit 4; id., GSBCA 11830, Exhibit 3. 6. On December 18, 1991, Ace submitted claims to the contracting officers for the incremental cost of workers' compensation insurance premiums. The amounts of the claims were $1,773.79 per month on the Austin contract and $5,368.97 per month ($64,427.70 per year) on the Fort Worth contract. Appeal File, GSBCA 11771, Exhibit 3; id., GSBCA 11830, Exhibit 2. The contracting officers denied the claims on the ground that the contracts were firm, fixed-price instruments which did not provide for adjustments to price based on changes in insurance rates. Appeal File, GSBCA 11771, Exhibit 8; id., GSBCA 11830, Exhibit 4. 7. The contracting officers' decisions were appealed on March 19 (GSBCA 11771) and May 8 (GSBCA 11830), 1992. After Government counsel noted that the claim on the Fort Worth contract (GSBCA 11771) was for more than $50,000 but was not certified, the Board suspended proceedings in that case to permit Ace to resubmit the claim with the requisite certification and the contracting officer to issue a decision on the new claim. Ace took the necessary action on May 4, 1992. The contracting officer has never responded, and on September 24, 1992, the Board directed that GSBCA 11771 proceed as an appeal from the contracting officer's deemed denial of the certified claim. Discussion Ace maintains that GSA should reimburse it for the increase in workers' compensation insurance premiums which the firm suffered after its insurance carrier ceased doing business in Texas. Appellant advances two alternate theories of recovery. First, it contends that the Government should bear the incremental cost because the increase made contract performance commercially impracticable. Second, the contractor contends that it is entitled to an equitable adjustment in the prices because the contracts are ambiguous with regard to which escalations in cost the Government agreed to cover, and therefore should be construed against the party that drafted them, GSA. The concept of commercial impracticability is "grounded upon the assumption that in legal contemplation something is impracticable when it can only be done at an excessive and unreasonable cost." Natus Corp. v. United States, 178 Ct. Cl. 1, 9, 371 F.2d 450, 456 (1967). "The law excuses performance (or, in the case of Government contracts, grants relief through a change order) where the attendant costs of performance bespeak commercial senselessness; it does not grant relief merely because performance cannot be achieved under the most economical means." Id. at 11, 371 F.2d at 457. The Restatement of Contracts explains further: Performance may be impracticable because extreme and unreasonable difficulty, expense, injury, or loss to one of the parties will be involved. . . . However, "impracticability" means more than "impracticality." A mere change in the degree of difficulty or expense due to such causes as increased wages, prices of raw materials, or costs of construction, unless well beyond the normal range, does not amount to impracticability since it is this sort of risk that a fixed-price contract is intended to cover. Restatement (Second) of Contracts 261 cmt. d (1979). A leading case on the subject suggests this framework for determining whether, in a particular situation, performance was truly impracticable: When the issue is raised, the court is asked to construct a condition of performance based on the changed circumstances, a process which involves at least three reasonably definable steps. First, a contingency -- something unexpected -- must have occurred. Second, the risk of the unexpected occurrence must not have been allocated either by agreement or by custom. Finally, occurrence of the contingency must have rendered performance commercially impracticable. Unless the court finds these three requirements satisfied, the plea of impossibility must fail. Transatlantic Financing Corp. v. United States, 363 F.2d 313, 315-16 (D.C. Cir. 1966). In the instant appeals, Ace has demonstrated that the increase in insurance premiums was not anticipated. This is not the sort of unexpected event on which a claim of impracticability may rest, however; the contingency must be one "the non- occurrence of which was a basic assumption on which the contract was made." U.C.C. 2-615(a) (1989); see also Restatement (Second) of Contracts ch. 11 introductory note (1979). Furthermore, even where properly invoked, the "unexpected development raises rather than resolves the impossibility issue." Transatlantic, 363 F.2d at 316. The risk of the occurrence cited by Ace is presumed to have been allocated to appellant by the nature of the contract -- firm, fixed-price. Natus, 178 Ct. Cl. at 14, 371 F.2d at 458-59; Robert L. Merwin & Co., GSBCA 6621, 83-2 BCA 16,745, at 83,274. This is particularly so because the instrument expressly allocated to GSA the risk of other cost increases. In addition, Ace has not shown that the increase in insurance premiums rendered performance commercially senseless. Appellant has only shown that its own costs rose beyond what it had anticipated, and this is not sufficient to prevail. Jennie-O Foods, Inc. v. United States, 217 Ct. Cl. 314, 580 F.2d 400 (1978). Tribunals look to the increased cost of performance of a contract, taken as a whole, as a guide in determining whether the rise is excessive and unreasonable. The Armed Services Board of Contract Appeals recently held that a claim of commercial impracticability was without merit because the appellant did not show that the increased cost was "more than a willing buyer would have paid for the work, or that it was otherwise an extreme and unreasonable expense." C & M Machine Products, Inc., ASBCA 39371, et al. (Jan. 7, 1993). In that case, the board found that performing at a cost increase that was thirty-one percent of the contract price was not commercially impracticable. In so doing, it cited Gulf & Western Industries, Inc., ASBCA 21090, 87-2 BCA 19,881 (cost overrun of fifty or seventy percent not sufficient to constitute commercial impracticability), and American Trading & Production Corp. v. Shell International Marine, Ltd., 453 F.2d 939 (2d Cir. 1972) (thirty-two percent cost increase over contract price insufficient). This Board has held that a twelve percent increase "falls far short of the applicable standard[]" of a result "positively unjust to the parties." Merwin, 83-2 BCA at 83,274. In these appeals, the unavailability of insurance, outside an assigned risk pool, caused Ace to incur a significant increase in one small category of costs. Viewing contract costs as a whole, however, we see that the increase amounted to only about eight percent of the monthly price of each agreement. Such a small increase, relative to the total value of a contract, does not bespeak commercial senselessness. Ace has not shown that the contracts were impracticable to perform. Ace also maintains that the contracts are ambiguous with regard to which escalations the Government is to cover. The Board has already decided that the price adjustment clause in question clearly says that the Government must adjust the contract price only in accordance with the Department of Labor's wage determinations, and that if, as here, increases in workers' compensation insurance premiums are not included in those determinations, they do not come within the scope of the clause. Ogden Allied Government Services v. General Services Administration, GSBCA 11788 (Dec. 2, 1992). Accordingly, we find no ambiguity in the price escalation clause; appellant must bear the increased costs of the insurance. Decision The appeals are DENIED. _________________________ STEPHEN M. DANIELS Board Judge We concur: _________________________ _________________________ JAMES W. HENDLEY MARY ELLEN COSTER WILLIAMS Board Judge Board Judge