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Bill Strong Enterprises, Inc. v. Shannon

Decided: March 2, 1995.


Appealed from: Board of Contract Appeals Armed Services.

Before Rich, Clevenger, and Schall, Circuit Judges.


CLEVENGER, Circuit Judge.

Bill Strong Enterprises, Inc. (BSE) appeals from a decision of the Armed Services Board of Contract Appeals (ASBCA or Board) denying BSE's claim for recovery of consulting costs. Bill Strong Enters., Inc., ASBCA Nos. 42946, 43896, 93-3 BCA P 25,961 (1993). Because the Board misconstrued the applicable regulation, we reverse and remand for further proceedings.


On June 18, 1987, the Department of the Army (Government) awarded BSE a fixed-price contract (Contract No. DACA27-87-C-0073) for the renovation of family housing units at Selfridge Air National Guard Base, Mt. Clemens, Michigan. By a letter dated May 26, 1988, BSE notified the Government that houses were being released to it out of sequence, resulting in increased costs of approximately "$300,000 to date" and an estimated $1,500,000 for the entire contract. In a letter to the contracting officer (CO), dated June 9, 1988, BSE requested a final decision regarding the out-of-sequence availability of houses, but the letter did not request monetary relief, nor was it certified. Subsequent letters from the CO to BSE requested itemization of BSE's increased costs and informed BSE that an audit would be necessary.

On May 24, 1989, BSE sent the Government a letter, entitled "Claim against Government." In this letter, BSE alleged that the Government's delay in making the housing units available to BSE increased BSE's cost of performance by $520,001. BSE also alleged that, by consistently releasing the housing units out of sequence, the Government increased BSE's cost of performing the contract by an additional $52,000. In a letter dated June 6, 1989, the Government requested BSE to submit cost and pricing data with a Standard Form 1141, in accordance with Clause 71 of the contract. On June 14, 1989, BSE supplied the Government with a completed Standard Form 1141. On June 16, 1989, the Government requested the Defense Contract Audit Agency (DCAA) to audit BSE's claims, specifically, the significant discrepancy between the Government's records of the number of houses made available to BSE and the number alleged by BSE. DCAA was also asked to examine BSE's basis for determining its costs due to the out-of-sequence availability of housing units.

Renovation of all housing was completed and accepted by the Government on July 31, 1989.

On September 14, 1989, in response to DCAA's requests for specific cost data and additional information, BSE hired Excell, Inc., a consulting firm, to revise its data for resubmission to the CO. According to the contract between Excell and BSE, Excell's responsibilities were to review, analyze, and determine the technical and overall merit of issues, develop a specific proposal, and prepare a Request for an Equitable Adjustment (REA) for BSE. The contract further stated that the REA preparation effort was "undertaken with no view toward litigation . . . . [but was limited] to the pursuit of an administrative remedy." In a letter dated September 28, 1989, BSE notified the Government that BSE's claim needed modification and requested an "immediate abeyance" of its previously submitted May 24 claim, stating that BSE would revise its claim documents.

On November 30, 1989, BSE submitted a revised certified claim, entitled "Request for Equitable Adjustment," for a total amount of $995,568, which included the costs for delay, and included $122,336 (eventually amended to $190,248) in costs for Excell's work in preparing the submittal. On December 8, 1989, the Government requested that BSE withdraw by letter its May 24, 1989 request for a CO's final decision. The Government noted that the "Changes Clause" of the contract governs BSE's REA, and noted that the Government was assuming that BSE was not requesting a final decision at that time. In a December 13, 1989 letter, BSE withdrew its May 24, 1989 submittal.

On December 14, 1989, the Government ordered DCAA to audit BSE's November 30, 1989 claim. The DCAA audit report noted that BSE had submitted the revised claim because of DCAA's questions in its preliminary review of the May 24, 1989 claim. DCAA found that, unlike BSE's initial calculation, the calculation by Excell was based upon actual costs and employee time card records. DCAA questioned $529,572 of BSE's alleged substantive cost increase, but did not question the claimed amount for Excell's costs.

On October 26, 1990, the parties reached a settlement in which the Government agreed to pay BSE $290,000 for the delay and out-of-sequence availability costs. The settlement agreement, memorialized in Modification P00019, explicitly excluded the preparation costs BSE paid to Excell. In a memorandum of understanding, the parties agreed that the CO would issue a final decision regarding the recoverability of Excell's fees. The administrative aspects of the contract thus concluded with Modification P00019, executed one year and a half after field work under the contract was completed.

In a March 1, 1991 decision, the CO denied the recovery of Excell's costs incurred in preparing the November 30, 1989 submission. The CO found that the Government had acknowledged the shortage of unit availability and had discussed with BSE "that it recognized partial merit for the issues of lack of available units and the issuance of houses out of the specified sequence." The CO emphasized, however, that the Excell claim preparation was performed after the completion of the contract work and was consequently "not incurred in connection with the actual performance of the work." BSE appealed this final decision to the Board.


In its appeal to the Board, BSE argued that, under the Federal Acquisition Regulations (FAR) and previous Board decisions, consultant costs are recoverable if such costs pertain to the presentation of costs arising from a performance-related claim that the Government did not dispute. Relying on Allied Materials & Equipment Co., ASBCA No. 17318, 75-1 BCA P 11,150 (1975), BSE asserted that its costs in hiring Excell were recoverable because they were incident to the administration and performance of the contract and were not related to the prosecution of a claim against the Government. BSE argued that, as in Allied, the conflict between BSE and the Government never became so "disputatious" as to reach the level of a claim against the Government, especially since BSE incurred the consultant costs to facilitate settlement negotiations.

In its brief to the Board, the Government argued that a claim against the Government existed at the time BSE hired Excell and that Excell's costs were incurred in furtherance of the prosecution of that claim. The Government emphasized that the consultant fees were incurred after contract performance was completed and, thus, argued that the costs could not be performance related.

In a 3-2 split decision, the Board affirmed the CO's decision. The majority of the Board found that, at the time of BSE's November 30, 1989 submission, the Government did dispute the amount claimed by BSE. The Board held that, under FAR 31.205-33(d) (48 C.F.R. § 31.205-33(d) (1987)*fn1 ), BSE's consultant costs were "unallowable" because they were "incurred in the 'prosecution of claims . . . against the Government.'"*fn2 The Board held that BSE's November 30, 1989 submission was a valid claim, according to the definition of a "claim" in FAR 33.201 and the requirements of Dawco Construction, Inc. v. United States, 930 F.2d 872 (Fed. Cir. 1991), since a dispute between the parties existed at the time of that submission. The Board noted that BSE incurred Excell's claim preparation costs after the contract had been completed.

The majority also formulated an alternative holding in response to the Dissenting members of the Board. The Board found that even if the November 30, 1989 submission did not satisfy all of the requirements of a "claim" under the Contract Disputes Act (CDA) and Dawco -- because no dispute existed -- the request was still unallowable since the requirements for "claims . . . against the Government" under FAR 31.205-33 differ from the requirements for a claim necessary to establish jurisdiction under the CDA. Thus, according to the majority, BSE's consultant costs were incurred in the prosecution of a claim against the Government under FAR 31.205-33, and whether BSE had made a "claim," as defined in FAR 33.201, as of the time of the November 30, 1989 submission was irrelevant.

The Dissenting members of the Board argued first that BSE and the Government had not reached a dispute stage at the time of the November 30, 1989 submission, but rather, were in a fact-finding stage both believed to be necessary before they could negotiate the amount due to BSE. The Dissent noted that the Government never took issue with the merits of BSE's request, but simply demanded more data in order to calculate the amount that the out-of-sequence availability of houses and Government delay cost BSE. The Dissent also emphasized the fact that BSE, with the consent of the Government, withdrew its May 24, 1989 request for a final decision shortly after its November 30, 1989 submission. According to the Dissent, those actions by the parties were evidence that matters had not "ripened into dispute." Since negotiations regarding the amount owed to BSE had not yet begun, neither a dispute nor an impasse had arisen, and, thus, the November 30, 1989 submission was not a valid claim under the CDA, the Dissent stated, citing Dawco, 930 F.2d at 878, and Transamerica Insurance Corp. v. United States, 973 F.2d 1572, 1579 (Fed. Cir. 1992). The Dissent concluded that BSE's consultant costs were recoverable as "necessary business costs which were not incurred in connection with the prosecution of a claim or appeal against the Government." The Dissent also challenged the majority's alternative ...

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