B-164003, SEPT. 16, 1968

B-164003: Sep 16, 1968

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TO OLD DOMINION CORPORATION: REFERENCE IS MADE TO YOUR LETTER OF APRIL 8. BEING THE TIME FOR WHICH LIQUIDATED DAMAGES OF $90 PER DAY WERE ASSESSED BY THE CONTRACTING OFFICER. AUTHORITY TO SETTLE AND ADJUST ALL CLAIMS BY AND AGAINST THE GOVERNMENT OF THE UNITED STATES WAS VESTED IN THE GENERAL ACCOUNTING OFFICE BY SECTION 305 OF THE BUDGET AND ACCOUNTING ACT OF JUNE 10. BOTH YOUR CLAIM FOR A GREATER EQUITABLE ADJUSTMENT AND THE GOVERNMENT'S CLAIM FOR LIQUIDATED DAMAGES ARE THEREFORE PROPERLY COGNIZABLE BY THIS OFFICE. WE ARE BOUND BY FACTUAL DETERMINATIONS MADE PURSUANT TO THE DISPUTES CLAUSE OF GOVERNMENT CONTRACTS. UNLESS SUCH DECISIONS ARE FRAUDULENT OR CAPRICIOUS. OR ARE NOT SUPPORTED BY SUBSTANTIAL EVIDENCE. 41 U.S.C. 321.

B-164003, SEPT. 16, 1968

TO OLD DOMINION CORPORATION:

REFERENCE IS MADE TO YOUR LETTER OF APRIL 8, 1968, REQUESTING OUR REVIEW OF TWO DECISIONS OF THE ARMED SERVICES BOARD OF CONTRACT APPEALS (ASBCA), IN CONNECTION WITH CLAIMS FILED BY OLD DOMINION CORPORATION ON BEHALF OF MONTGOMERY, INC., THE CORPORATION'S SUBCONTRACTOR, UNDER CONTRACT W.T.C. NO. 8-64 (ASBCA NOS. 11553 AND 11554, DATED MAY 18, 1967). THE FIRST DECISION ALLOWED $222.78 OF THE SUBCONTRACTOR'S CLAIM FOR $2,739.05 AS AN EQUITABLE ADJUSTMENT OWING THE CONTRACTOR BECAUSE OF A CHANGED CONDITION ENCOUNTERED DURING PERFORMANCE; THE SECOND ALLOWED A TIME EXTENSION OF FIVE DAYS FOR EXCUSABLE DELAYS, FOR WHICH THE SUBCONTRACTOR CLAIMED 118 DAYS, BEING THE TIME FOR WHICH LIQUIDATED DAMAGES OF $90 PER DAY WERE ASSESSED BY THE CONTRACTING OFFICER.

AUTHORITY TO SETTLE AND ADJUST ALL CLAIMS BY AND AGAINST THE GOVERNMENT OF THE UNITED STATES WAS VESTED IN THE GENERAL ACCOUNTING OFFICE BY SECTION 305 OF THE BUDGET AND ACCOUNTING ACT OF JUNE 10, 1921, 42 STAT. 24 (31 U.S.C. 71). BOTH YOUR CLAIM FOR A GREATER EQUITABLE ADJUSTMENT AND THE GOVERNMENT'S CLAIM FOR LIQUIDATED DAMAGES ARE THEREFORE PROPERLY COGNIZABLE BY THIS OFFICE. HOWEVER, IN CONSIDERING SUCH CLAIMS, WE ARE BOUND BY FACTUAL DETERMINATIONS MADE PURSUANT TO THE DISPUTES CLAUSE OF GOVERNMENT CONTRACTS, UNLESS SUCH DECISIONS ARE FRAUDULENT OR CAPRICIOUS, OR ARBITRARY OR SO GROSSLY ERRONEOUS AS NECESSARILY TO IMPLY BAD FAITH, OR ARE NOT SUPPORTED BY SUBSTANTIAL EVIDENCE. 41 U.S.C. 321.

SINCE THE AMOUNT OF AN EQUITABLE ADJUSTMENT IS GENERALLY REGARDED AS A FACTUAL QUESTION UNDER THE RULING OF THE SUPREME COURT IN UNITED STATES V CALLAHAN WALKER CONSTRUCTION COMPANY, 317 U.S. 56 (1942), THE DECISION OF THE ASBCA ON THE CLAIM MAY BE DISREGARDED BY US ONLY ON ONE OF THOSE GROUNDS. THE BOARD'S DECISION AS TO THE FACTS GIVING RISE TO THE DELAY IN PERFORMANCE IS ALSO CONCLUSIVE ABSENT ONE OF THE ENUMERATED GROUNDS. REQUESTING REVIEW, YOU ALLEGE THAT BOTH DECISIONS ARE DEFECTIVE IN THAT NEITHER IS SUPPORTED BY SUBSTANTIAL EVIDENCE.

THE DETAILS OF THE CLAIMS AND THE MANNER IN WHICH THEY AROSE ARE STATED IN THE OPINION OF THE ASBCA AS FOLLOWS:

"THESE APPEALS UNDER A CONSTRUCTION CONTRACT INVOLVE A CLAIM FOR $2,739.05 EXTRA COSTS FOR A CHANGED CONDITION (NO. 11553); AND A CLAIM FOR A TIME EXTENSION OF 118 DAYS, WITH CONSEQUENT ELIMINATION OF $10,620 LIQUIDATED DAMAGES, BASED ON THE CHANGED CONDITION AND ON A LABOR SHORTAGE (NO. 11554).

"THE SUBJECT CONTRACT, DATED 15 MAY 1964, AND IN THE AMOUNT OF $240,908, PROVIDES FOR ADDITIONS AND ALTERATIONS TO BUILDING B-25 AT WARRENTON TRAINING CENTER, STATION -B-, WARRENTON, VIRGINIA. THE CONTRACT REQUIRED APPELLANT (HEREAFTER -OLD DOMINION-), TO COMMENCE PERFORMANCE WITHIN 5 DAYS AFTER RECEIPT OF NOTICE TO PROCEED AND TO COMPLETE THE WORK WITHIN 225 DAYS THEREAFTER. THE CONTRACT ASSESSED LIQUIDATED DAMAGES OF $90 FOR EACH DAY OF DELAY IN COMPLETION.

"OLD DOMINION AWARDED MONTGOMERY, INC. (HEREAFTER -MONTGOMERY-) A SUBCONTRACT ON 15 JULY 1964, FOR THE EXCAVATION AND CONCRETE WORK. THE SUBCONTRACT DOES NOT SPECIFY A COMPLETION DATE BUT THE RECORD INDICATES THAT A DATE OF 24 SEPTEMBER 1964 WAS ESTABLISHED. MONTGOMERY DID NOT COMPLETE ITS PHASE OF THE WORK UNTIL 20 JANUARY 1965.

"OLD DOMINION'S CONTRACT COMPLETION DATE WAS INITIALLY ESTABLISHED AS 10 JANUARY 1965. BY CHANGE ORDER NO. 1, WHICH IT ACCEPTED, THE TIME WAS EXTENDED TO 14 JANUARY 1965. THE CONTRACT WAS COMPLETED AND BENEFICIAL OCCUPANCY TAKEN BY THE RESPONDENT ON 28 MAY 1965, A COMPLETION DELAY OF 133 DAYS.

"BY LETTERS DATED 14 FEBRUARY 1966, OLD DOMINION FORWARDED MONTGOMERY'S CLAIMS FOR $2,490.05 AND A TIME EXTENSION OF 20 DAYS BECAUSE OF THE ROCK ENCOUNTERED DURING EXCAVATION, AND A FURTHER TIME EXTENSION OF 98 DAYS BECAUSE OF MONTGOMERY'S INABILITY TO OBTAIN COMPETENT LABOR TO DO THE WORK. BASED ON MONTGOMERY'S CLAIMS, OLD DOMINION DEMANDED $2,739.05 EXTRA COMPENSATION AND A TIME EXTENSION OF 118 DAYS. FROM THEIR DENIAL THESE APPEALS WERE TAKEN.

"THE PARTIES HAVE STIPULATED THAT MONTGOMERY ENCOUNTERED ROCK DURING EXCAVATION FOR FOOTINGS AND THAT THIS CONSTITUTED A CHANGED CONDITION ENTITLING APPELLANT TO ADDITIONAL COMPENSATION AND AN EXTENSION OF PERFORMANCE TIME. THE PARTIES HAVE FURTHER STIPULATED THAT THE ROCK CONDITION ELIMINATED A CONTRACT REQUIREMENT FOR THE UNDERPINNING OF THE EXISTING BUILDING ENTITLING RESPONDENT TO A CREDIT FOR THE SAVINGS IN MONEY AND PERFORMANCE TIME. THE ISSUES PRESENTED REQUIRE A DETERMINATION AS TO (1) COST AND TIME OF EXCAVATION IN THE SOIL SHOWN IN THE CONTRACT BORINGS; (2) COST AND TIME OF EXCAVATION IN THE ROCK ENCOUNTERED; AND (3) COST AND TIME OF PERFORMING UNDERPINNING.'

WE HAVE OBTAINED FROM THE ASBCA THE COMPLETE RECORD OF THE APPEAL PROCEEDINGS, INCLUDING THE TRANSCRIPTS OF TESTIMONY, AND FIND THEREFROM AS FOLLOWS:

AT THE HEARING MR. MONTGOMERY, PRESIDENT OF MONTGOMERY, INC., SUBMITTED THE FOLLOWING DATA TAKEN FROM HIS RECORDS TO SHOW THE COMPANY'S ACTUAL COST OF THE SUBCONTRACT WORK AS PERFORMED, INCLUDING EXCAVATING IN ROCK, AND HIS ESTIMATE OF WHAT THE COST WOULD HAVE BEEN HAD THE EXCAVATION TAKEN PLACE IN SOIL:

ROCK SOIL LABOR

$2,886.48 $ 560.00 COMPRESSOR AND HAMMER 540.05 STEEL

471.00 450.00 CONCRETE $16.50 C.Y.

(70-1/2 C.Y.) 1,163.25 (65 C.Y.) 1,072.50

$5,060.78 $2,082.50 MR. MONTGOMERY ALSO INTRODUCED WORK RECORDS TO SHOW THAT THE CHANGED CONDITION RESULTED IN 20 WORKING DAYS IN EXCESS OF THE TIME ESTIMATED FOR EXCAVATING IN SOIL. HOWEVER, HIS TESTIMONY ON CROSS- EXAMINATION AS TO THE RESPECTIVE QUANTITIES OF SOIL AND ROCK WHICH COULD BE EXCAVATED BY A MAN IN ONE DAY DID NOT INDICATE NEARLY SO LARGE A DIFFERENCE IN COST AS APPEARED FROM THE COST FIGURE PRESENTED.

THE GOVERNMENT'S PROJECT ENGINEER, PHILLIP R. DEXTER, AN ENGINEER WITH CONSIDERABLE COST ESTIMATING EXPERIENCE, TESTIFIED THAT ONLY 53 CUBIC YARDS OF CONCRETE WOULD BE REQUIRED FOR THE FOOTINGS; THAT THE COST OF EXCAVATING IN ROCK, BASED ON A STANDARD ESTIMATOR'S HANDBOOK UTILIZING A HIGHER WAGE SCALE THAN THE COMPANY PAID HERE, WOULD BE LESS THAN ONE- FOURTH OF THE AMOUNT CLAIMED AND THAT THE CHANGED CONDITION SHOULD NOT HAVE REQUIRED MORE THAN THREE EXTRA WORKING DAYS. MR. DEXTER ALSO ATTRIBUTED THE DIFFERENCE BETWEEN HIS ESTIMATE OF THE AMOUNT OF REQUIRED CONCRETE AND MONTGOMERY'S DATA REGARDING THE AMOUNT OF CONCRETE USED TO WASTE. MR. MONTGOMERY ATTRIBUTED THE DIFFERENCE TO THE OUTBREAKING OF ROCK BEYOND THE EXCAVATION LINES DURING EXCAVATION RESULTING IN LARGER POURS THAN PLANNED. IN ADDITION, HIS TESTIMONY FAILED SATISFACTORILY TO ACCOUNT FOR FOUR YARDS OF THE 70-1/2 YARDS OF CONCRETE CLAIMED.

THE BOARD ON THIS CONFLICTING TESTIMONY CONCLUDED THAT A REASONABLE ALLOWANCE FOR THE REQUIRED CONCRETE WOULD BE 65 CUBIC YARDS. DETERMINING THE EXCAVATING COSTS AND EXTRA WORKING TIME ATTRIBUTABLE TO THE CHANGE, THE BOARD UTILIZED MR. MONTGOMERY'S OWN TESTIMONY AS TO THE DAILY AMOUNT OF ROCK THAT COULD BE EXCAVATED BY ONE MAN AS COMPARED TO THE DAILY AMOUNT OF SOIL THAT COULD BE REMOVED. IT THEN CALCULATED COST AND WORKING TIME DIFFERENTIALS BETWEEN THE TWO OPERATIONS AND SUBTRACTED THE PROJECT ENGINEER'S ESTIMATE OF THE TIME AND MONETARY SAVINGS ACHIEVED BY THE ELIMINATION OF THE UNDERPINNING REQUIREMENT.

IN CALCULATING THE ADJUSTMENT IN THIS MANNER, THE BOARD REJECTED THE HISTORICAL COST FIGURES OF MONTGOMERY AS BEING WHOLLY UNREASONABLE. THE COURT OF CLAIMS HAS HELD THAT IN DETERMINING THE AMOUNT OF AN EQUITABLE ADJUSTMENT THE PROPER MEASURE OF THE ADJUSTMENT IS THE COST AND TIME REASONABLY REQUIRED TO EFFECT THE CHANGE. BRUCE CONSTRUCTION CORP. V UNITED STATES, 324 F.2D 516 (1963), AND KECO INDUSTRIES, INC. V UNITED STATES, 364 F.2D 838 (1966). ACTUAL COST, WHEN ESTABLISHED, IS PRESUMED TO BE REASONABLE, AND THE PARTY OBJECTING THERETO HAS THE BURDEN OF SHOWING THE COST AND TIME CONSUMED IN EFFECTING THE CHANGE WERE UNJUSTIFIED. WE BELIEVE THE RECORD HERE CONTAINS SUBSTANTIAL EVIDENCE SUPPORTING THE FINDING OF THE BOARD. THUS, THE HIGHEST COST FOR EXCAVATION IN ROCK LISTED BY AN ESTIMATOR'S HANDBOOK WAS $11.00 PER CUBIC YARD AS COMPARED TO MONTGOMERY'S LABOR COSTS OF OVER $41.00PER CUBIC YARD, AND MR. DEXTER TESTIFIED THAT IT WOULD HAVE BEEN UNECONOMICAL TO HAVE RENTED A COMPRESSOR AND HAMMER FOR EXCAVATING IN THE TYPE OF ROCK ENCOUNTERED. MR. MONTGOMERY'S OWN TESTIMONY THAT ONE MAN COULD EXCAVATE TWO CUBIC YARDS OF ROCK PER DAY, IF PROJECTED OVER THE ENTIRE PERIOD OF EXCAVATION, WOULD HAVE RESULTED IN SIGNIFICANTLY LOWER LABOR COSTS AND REQUIRED WORKING DAYS THAN ARE ALLEGED TO HAVE OCCURRED. WE BELIEVE THIS EVIDENCE CONSTITUTES SUBSTANTIAL JUSTIFICATION FOR FINDING THAT MUCH OF THE COST AND TIME EXPENDED BY THE CONTRACTOR WAS UNJUSTIFIED, THEREBY PERMITTING THE BOARD TO DETERMINE THE ADJUSTMENT ON A MORE OBJECTIVE BASIS. WE CANNOT CONCLUDE THAT THE BOARD'S USE OF MONTGOMERY'S OWN LABOR ESTIMATE, CITED ABOVE, AS A METHOD FOR DETERMINING THE EXTRA COST AND TIME REQUIRED BY THE CHANGED CONDITION WAS ARBITRARY OR THAT THE USE OF MR. DEXTER'S ESTIMATES FOR THE ADJUSTMENT REQUIRED BY THE ELIMINATION OF THE UNDERPINNING REQUIREMENT WAS ERRONEOUS.

MONTGOMERY REQUESTED AN ADDITIONAL 98-DAY EXTENSION BECAUSE OF A LABOR SHORTAGE. HE CONTENDED THAT BEFORE PERFORMANCE BEGAN HIS CONCRETE FOREMAN AND TWO EXPERIENCED CARPENTERS QUIT THEIR JOBS AND THAT DURING CONSTRUCTION AN ADDITIONAL 19 MEN LEFT THEIR POSITIONS. ATTEMPTS TO RECRUIT MEN IN THE WARRENTON, VIRGINIA, AREA AND IN WASHINGTON, D.C., MET WITH LITTLE SUCCESS. THE INABILITY TO RECRUIT LABOR WAS ATTRIBUTED TO A SHORTAGE OF QUALIFIED LABOR IN THE WARRENTON AREA AND UNWILLINGNESS OF LABOR FROM WASHINGTON, D.C., TO WORK AT WARRENTON, SOME 50 MILES DISTANT.

THE BOARD DENIED THE REQUESTED EXTENSION AND HELD THAT THE INABILITY OF A CONTRACTOR TO OBTAIN PERSONNEL WAS NOT AN EXCUSABLE CAUSE OF DELAY UNDER THE STANDARD DEFAULT CLAUSE, INCORPORATED BY REFERENCE IN THE SUBJECT CONTRACT, WHICH PROVIDED THAT THE CONTRACTOR WOULD NOT BE LIABLE FOR DELAYS DUE TO CAUSES BEYOND HIS CONTROL AND NOT DUE TO HIS FAULT OR NEGLIGENCE.

IN VIEW OF MONTGOMERY'S ADMITTED FAILURE TO INVESTIGATE THE AVAILABILITY OF REPLACEMENT LABOR IN THE WARRENTON AREA PRIOR TO BIDDING, WE CANNOT CONSIDER THE BOARD'S CONCLUSION TO BE UNSUPPORTED. ADDITIONALLY, WE NOTE THAT MR. DEXTER ATTRIBUTED MUCH OF THE DELAY CLAIMED HERE TO OTHER FACTORS, INCLUDING FAILURE OF COORDINATION AND POOR HOUSEKEEPING.

YOU ALSO MAINTAIN THAT THE AMOUNT OF LIQUIDATED DAMAGES ASSESSED HERE SHOULD BE CONSIDERED A PENALTY SINCE THE GOVERNMENT DID NOT SHOW DAMAGE RESULTING FROM THE DELAYED OCCUPANCY WHICH JUSTIFIED THE IMPOSITION OF SUCH A SUM. OUR OFFICE HAS HELD THAT IN DETERMINING WHETHER A STIPULATION FOR LIQUIDATED DAMAGES IS A PENALTY, THE ONLY MATTER FOR CONSIDERATION IS THE RELATIONSHIP BETWEEN THE AMOUNT STIPULATED FOR LIQUIDATED DAMAGES AND THE POTENTIAL LOSSES OR DAMAGES WHICH WERE IN THE CONTEMPLATION OF THE PARTIES WHEN THE AGREEMENT WAS MADE. B-160944, SEPTEMBER 14, 1967. ORDER FOR A LIQUIDATED DAMAGE PROVISION TO BE JUDGED A PENALTY, IT MUST BE CONCLUSIVELY SHOWN THAT THERE WAS NO POSSIBLE RELATIONSHIP BETWEEN THE AMOUNT STIPULATED FOR LIQUIDATED DAMAGES AND THE CONTEMPLATED LOSSES. COMP. GEN. 252. SINCE YOU ORIGINALLY ASSENTED TO THE VALIDITY OF THIS PROVISION BY ACCEPTING THE CONTRACT, IT WAS YOUR RESPONSIBILITY TO INTRODUCE SUFFICIENT EVIDENCE TO ESTABLISH THIS PROPOSITION. NO EVIDENCE CONCERNING THIS MATTER HAVING BEEN PRESENTED BY YOU, THERE APPEARS TO BE NO BASIS UPON WHICH EITHER THE BOARD OR OUR OFFICE COULD CONCLUDE THAT THE AMOUNT OF LIQUIDATED DAMAGES COULD NOT BE RELATED TO POSSIBLE DAMAGES SUFFERED BY THE GOVERNMENT BECAUSE OF THE DELAYED OCCUPANCY.

UPON THE RECORD BEFORE THE BOARD AND IN THE LIGHT OF THE STATUTORY STANDARDS AND THE RULING OF THE SUPREME COURT IN CARLO BIANCHI AND CO. INC. V THE UNITED STATES, 373 U.S. 709 (1963), WE FIND NO BASIS UPON WHICH WE MAY PROPERLY REFUSE TO ACCEPT THE DECISION OF THE ASBCA ON THE SUBJECT CLAIMS AS BINDING UPON OUR OFFICE. YOUR CLAIMS ARE THEREFORE DENIED.