B-154459, JUN 10, 1971

B-154459, JUN 10, 1971

CONTRACTS - DELAY DAMAGES - KENNEDY CENTER ADVISING THAT THE PROPOSED SETTLEMENT IN THE AMOUNT OF $110,000 OF THE CLAIM OF JOHN B. KELLEY, INC., FOR DELAY DAMAGES ARISING OUT OF THE COMPANY'S SUBCONTRACT FOR MASONRY WORK INVOLVED IN THE CONSTRUCTION OF THE KENNEDY CENTER IS REASONABLE. HOWEVER, THE METHOD OF COMPUTING THE GOVERNMENT-CAUSED PERIOD OF DELAY AND OF COMPUTING THE AMOUNT OF DAMAGES SHOULD BE MODIFIED IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE COMP. GEN. IN FUTURE SETTLEMENTS.

TO MR. KUNZIG:

REFERENCE IS MADE TO A LETTER, DATED AUGUST 21, 1970, FROM MR. HART T. MANKIN, GENERAL COUNSEL, TRANSMITTING A PROPOSED SETTLEMENT IN THE AMOUNT OF $110,000 ON THE CLAIM OF JOHN B. KELLY, INC. (KELLY), FOR DELAY DAMAGES ARISING OUT OF THE COMPANY'S SUBCONTRACT FOR THE MASONRY WORK INVOLVED IN THE CONSTRUCTION OF THE JOHN F. KENNEDY CENTER FOR THE PERFORMING ARTS.

WHILE, FOR THE REASONS SET FORTH BELOW, WE CANNOT AGREE THAT YOUR ADMINISTRATION CORRECTLY COMPUTED THE PERIOD OF GOVERNMENT-CAUSED DELAY OR USED PROPER METHODS IN DETERMINING THE AMOUNT OF DAMAGES, WE HAVE CONCLUDED FROM OUR ANALYSIS OF THE RECORDS MADE AVAILABLE BY YOUR ADMINISTRATION THAT THE PROPOSED SETTLEMENT IS REASONABLE AND WOULD BE IN THE INTEREST OF THE GOVERNMENT. ACCORDINGLY, YOU ARE AUTHORIZED TO PAY THE SUM OF $110,000 AS FULL AND FINAL SETTLEMENT OF THE CLAIM. BELIEVE, HOWEVER, THAT SINCE A CONSIDERABLE NUMBER OF ADDITIONAL SIMILAR CLAIM SETTLEMENTS MAY BE SUBMITTED FOR OUR APPROVAL, A REVIEW OF THOSE AREAS IN WHICH WE DO NOT AGREE WITH THE PROCEDURES FOLLOWED IN THE INSTANT CLAIM WOULD BE ADVISABLE.

THE RECORD INDICATES THAT KELLY INITIALLY SUBMITTED A CLAIM FOR 44 WEEKS OF DELAY DAMAGES, CONSISTING OF COSTS FOR ADDITIONAL TIME FOR FOREMEN, HOIST ENGINEERS, AND EQUIPMENT, OCCURRING AFTER JANUARY 1, 1970, WHICH, IT IS STATED, WAS THE COMPLETION DATE ORIGINALLY CONTEMPLATED FOR KELLY'S SUBCONTRACT.

A REVIEW TEAM COMPOSED OF REPRESENTATIVES OF THE PRIME CONTRACTOR AND YOUR ADMINISTRATION HELD TWO NEGOTIATION MEETINGS WITH KELLY. THE FIRST MEETING ON DECEMBER 17, 1969, ESSENTIALLY INVOLVED THE SUBMISSION OF LIMITED CLARIFYING INFORMATION BY KELLY AND REQUESTS FOR LIMITED INFORMATION BY THE REVIEW TEAM. AT A SECOND MEETING, ON MARCH 24, 1970, KELLY WAS OFFERED $81,000 FOR SETTLEMENT OF HIS CLAIM, WHICH HE REJECTED. THE $81,000 WAS ESTIMATED ON THE BASIS OF COMPLETION OF THE MASONRY WORK IN 25 ADDITIONAL WEEKS, BEGINNING JANUARY 1, 1970. OFFERS AND COUNTER OFFERS WERE MADE, AND KELLY ACCEPTED AN OFFER OF $110,000 WHICH CONSIDERED 31 WEEKS TO BE THE ADDITIONAL TIME NECESSARY TO COMPLETE THE WORK. THE 31 WEEK DELAY PERIOD WAS STATED TO EXTEND FROM JANUARY 1 TO AUGUST 1, 1970.

THE CONTRACTING OFFICER'S DESIGNATED REPRESENTATIVE SUBSEQUENTLY REVIEWED THE PROPOSED SETTLEMENT AND DETERMINED THAT IT WAS REASONABLE. HOWEVER, HE DETERMINED THAT THE 31 WEEK PERIOD OF OVER-RUN ACTUALLY EXTENDED FROM FEBRUARY 11 TO SEPTEMBER 15, 1970, THE THEN EXPECTED DATE OF SUBSTANTIAL COMPLETION, AFTER ELIMINATING DELAY PERIODS WHICH WERE CAUSED BY AN ILLEGAL STRIKE AND THE ISSUANCE OF CHANGE ORDERS. WITH RESPECT TO THESE LATTER DELAYS IT WAS DETERMINED THAT THEY DID NOT AMOUNT TO A BREACH OF CONTRACT.

FROM OUR REVIEW OF THE RECORD WE BELIEVE THAT THE MAXIMUM PERIOD OF DELAY EXPERIENCED BY KELLY FROM ALL CAUSES WOULD BE 35 WEEKS FROM JANUARY 1, 1970, TO SEPTEMBER 1, 1970. IN THIS REGARD, IT IS OUR OPINION THAT THE ORIGINAL COMPLETION DATE OF JANUARY 1, 1970, AND THE REVISED COMPLETION DATE OF SEPTEMBER 1, 1970, WHICH THE SUBCONTRACTOR ANTICIPATED DURING CLAIM NEGOTIATIONS, SHOULD CONSTITUTE THE COMMENCEMENT AND TERMINATION OF THE DELAY PERIOD. REDUCTION OF THIS MAXIMUM BY ABOUT THREE WEEKS FOR STRIKES AND FOUR WEEKS FOR CHANGE ORDER WORK RESULTS IN A FIGURE OF 28 WEEKS OF DELAY.

WITH RESPECT TO THE PROCEDURES WHICH WERE EMPLOYED IN DETERMINING THE AMOUNT OF DAMAGES FOR THE DELAY PERIOD WE NOTE THAT AN ESTIMATE WAS COMPUTED BY YOUR REPRESENTATIVES BASED ON AN ASSUMED AVERAGE WORK FORCE OF 45 MEN FOR THE 31 WEEK DELAY PERIOD, WHICH RESULTED IN A MAN-DAY DELAY OF 6,975, WHEREAS KELLY ONLY REQUESTED WAGE INCREASES RELATED TO 5800 MAN- DAYS FOR 44 WEEKS. BY THE TIME THIS ESTIMATE WAS PREPARED IT WAS QUITE OBVIOUS THAT KELLY HAD NOT BEEN USING AN AVERAGE WORK FORCE OF 45 MEN, AS IS INDICATED BY THE FOLLOWING:

45 MEN X 5 DAYS PER WEEK X 65 WEEKS 14,625 MAN-DAYS, OR MORE THAN KELLY'S TOTAL ORIGINAL ESTIMATE OF 14,500 MAN-DAYS.

IN THIS CONNECTION, SINCE KELLY WAS AWARDED A FIXED PRICE SUBCONTRACT, EVEN THOUGH THE PRIME CONTRACT WAS COST-PLUS-FIXED-FEE, WE BELIEVE IT MUST BE PRESUMED THAT KELLY INCLUDED AMOUNTS FOR THE TOTAL HOURS OF WORK REQUIRED, COMPUTED AT THE LABOR RATES IN EFFECT OR ANTICIPATED DURING THE CONTEMPLATED TERM OF PERFORMANCE. AS KELLY HAS BEEN REQUIRED TO PERFORM A PORTION OF HIS ORIGINAL ESTIMATED MAN-HOURS DURING A HIGHER WAGE PERIOD THAN HE CONSIDERED IN PREPARING HIS PROPOSAL, HE HAS BEEN DAMAGED BY THE DIFFERENCE IN WAGE RATES FOR THE APPLICABLE TIME PERIODS; BUT ONLY FOR THOSE HOURS OF HIS ORIGINAL ESTIMATE WHICH FALL IN THE DELAY TERM OF HIGHER COSTS. FOR EXAMPLE, IT WOULD NOT BE APPROPRIATE TO REIMBURSE KELLY FOR MAN-DAYS REQUIRED IN EXCESS OF THE 14,500 MAN-DAYS, IF THESE EXCESS MAN-DAYS WERE CAUSED BY KELLY'S UNDERESTIMATING IN HIS ORIGINAL PROPOSAL. IN THIS CASE, WE BELIEVE THAT THE ACTUAL ADDITIONAL HOURS EXPENDED BY KELLY IN COMPLETING HIS WORK OR THE NUMBER OF ADDITIONAL WEEKS ACTUALLY USED, ARE FACTORS WHICH ARE NOT RELEVANT TO COMPUTATION OF AN ESTIMATE OF THE DAMAGES.

WE BELIEVE, THEREFORE, THAT A PROPER POINT OF DEPARTURE FOR THIS TYPE OF CLAIM IS THE SUBCONTRACTOR'S ORIGINAL ESTIMATES AND SUPPORTED PERCENTAGE OF JOB COMPLETION. IN THIS REGARD, WE NOTED THAT SUPPORTING DATA WAS NOT OBTAINED FOR KELLY'S ALLEGED ORIGINAL ESTIMATE OF 14,500 MAN-DAYS. DURING THE FIRST NEGOTIATION MEETING, KELLY WAS REQUESTED TO FURNISH A CERTIFICATE AS TO THE NUMBER OF MAN-HOURS OF LABOR INCLUDED IN HIS ESTIMATE AT THE TIME OF SUBMISSION OF HIS PROPOSAL. THIS CERTIFICATE WAS APPARENTLY NEVER FURNISHED, AS THE CERTIFICATION PROVIDED TO THIS OFFICE WAS DATED MAY 20, 1971.

IN THIS CONNECTION DURING NEGOTIATIONS KELLY ALLEGED THAT 5800 MAN DAYS OF WORK REMAINED TO BE DONE AFTER JANUARY 1, 1970, BASED UPON 40 PERCENT OF THE WORK REMAINING AFTER JANUARY 1, 1970. KELLY'S 40 PERCENT FIGURE IS SUBSTANTIATED BY THE PERCENTAGE OF JOB COMPLETION FIGURES PROVIDED BY MCSHAIN. THUS, ON JANUARY 1, 1970, KELLY HAD USED 8700 MAN-DAYS, OR 60 PERCENT, OF HIS ORIGINAL ESTIMATE OF 14,500 MAN DAYS. HOWEVER, AS KELLY ALSO PERFORMED CHANGE ORDER WORK DURING THE NORMAL CONTRACT PERFORMANCE PERIOD, THE MAN-DAYS RELATED TO THE CHANGE ORDERS MUST BE DEDUCTED FROM MAN-DAYS OF DELAY ATTRIBUTABLE TO THE GOVERNMENT. SIMILARLY, DURING THE MAJOR STRIKE KELLY WAS NOT ABLE TO KEEP HIS FULL CREW ON THE JOB. THE MAN -DAYS OF WORK LOST DUE TO THIS CAUSE MUST ALSO BE DEDUCTED FROM MAN-DAYS OF DELAY ATTRIBUTABLE TO THE GOVERNMENT.

ONE METHOD OF DETERMINING THE MAN-DAYS RELATED TO CHANGE ORDERS AND STRIKES IS TO DETERMINE THE AVERAGE WORK FORCE USED BY KELLY DURING THE NORMAL CONTRACT PERFORMANCE PERIOD, AND USE THIS AVERAGE TO COMPUTE TOTAL MAN-DAYS RELATED TO SEVEN WEEKS OF DELAY. OUR COMPUTATIONS USING THIS METHOD ARE AS FOLLOWS:

MAN-DAYS OF ORIGINAL CONTRACT WORK COMPLETED

DURING CONTRACT PERFORMANCE PERIOD 8700

DAYS IN CONTRACT PERFORMANCE PERIOD

(65 WEEKS X 5 DAYS PER WEEK) 325

8700 MAN-DAYS DIVIDED BY 325 DAYS 26.7 MEN AVERAGE

NUMBER OF DAYS OF DELAY DUE TO CHANGE ORDERS

AND STRIKES (7 WEEKS X 5 DAYS PER WEEK 35) 35

MAN-DAYS RELATED TO CHANGE ORDERS AND STRIKES

35 DAYS X 26.7 MEN PER DAY 935 935

WHILE THIS IS NOT THE ONLY METHOD OF COMPUTING MAN-DAYS OF DELAY, IT DOES PROVIDE A FIGURE WHICH IS CONSISTENT WITH THE NUMBER OF WEEKS OF DELAY. THIS METHOD ALSO USES THE AVERAGE WORKFORCE LEVEL EMPLOYED DURING THE CONTRACT PERFORMANCE PERIOD, WHEN THE DELAYS WERE ENCOUNTERED. FROM THE ABOVE WE CONCLUDED THAT THERE WERE 4865 MAN-DAYS OF DELAY RELATED TO THE 28 WEEKS OF DELAY, COMPUTED AS FOLLOWS:

MAN-DAYS OF DELAY RELATED TO 40 PERCENT

OF ORIGINAL ESTIMATE 5800

LESS MAN-DAYS RELATED TO CHANGE ORDERS

AND STRIKES 935

4865

OUR COMPUTATION OF THE DAMAGE ESTIMATE IS PRESENTED AS FOLLOWS:

WAGE INCREASES

4865 DAYS X 8 HOURS/DAY 38,920 HOURS

WAGE INCREASE 38,920 HOURS X $.52/HOUR

(THE $.52 IS AN AVERAGE FOR BRICKLAYERS

AND LABORERS) $20,238

TIME COSTS

FOREMEN

3 BRICKLAYER FOREMEN X $275 PER WEEK X 28

WEEKS 23,100

2 LABORER FOREMEN X $175 PER WEEK 9,800

HOIST ENGINEER

1 ENGINEER X $253 PER WEEK X 28 WEEKS 7,084

TOTAL LABOR $60,222

EQUIPMENT

$595 PER WEEK X 28 WEEKS 16,660

TOTAL LABOR AND EQUIPMENT $76,882

OVERHEAD

10% OF LABOR AND EQUIPMENT TOTAL 7,688

OVERALL TOTAL $84,570

FICA & FUTA (7.9% OF TOTAL LABOR) 4,758

TOTAL $89,328

PRODUCTION DECLINE

10% OF DELAY HOURS

38,920 HOURS X .1 3892 HOURS

3892 HOURS X $5.66 PER HOUR $22,029

(THE $5.66 IS AN AVERAGE FOR

BRICKLAYERS AND LABORERS)

TOTAL $111,357

WE ALSO NOTED THAT THE PROPOSED SETTLEMENT WAS PREPARED ON THE BASIS OF AN ASSUMED $1.00 PER HOUR WAGE INCREASE, SINCE WAGE SETTLEMENTS WERE NOT FIRM. WHILE WE APPRECIATE THE REASONS FOR USING AN ASSUMED FIGURE IN THE INTEREST OF EXPEDITING THIS CLAIM, WE BELIEVE THAT PROVISIONS SHOULD HAVE BEEN INCLUDED IN THE PROPOSED SETTLEMENT FOR ADJUSTMENT WHEN THE WAGE INCREASES WERE SETTLED. DURING THE FIRST NEGOTIATION MEETING KELLY ADVISED THAT HE RESERVED THE RIGHT TO INCREASE HIS CLAIM AT A LATER DATE IF THERE WERE FURTHER WAGE INCREASES. WE BELIEVE THAT THIS ALONE SHOULD HAVE PROMPTED THE GOVERNMENT TO INCLUDE A PROVISION FOR ADJUSTMENT OF THE CLAIM IF THE WAGE SETTLEMENTS WERE SIGNIFICANTLY DIFFERENT THAN ORIGINALLY ASSUMED. FURTHERMORE, WE BELIEVE THAT THE METHOD OF DISPENSING WITH THIS MATTER, AS SET FORTH IN MR. MANKIN'S LETTER OF AUGUST 21, IS TOTALLY INCONSISTENT WITH THE TYPE OF CLAIM INVOLVED. THAT METHOD IS QUOTED:

"WHILE THE CONTRACTING OFFICER'S DESIGNATED REPRESENTATIVE (AGAIN WITH THE BENEFIT OF CURRENT KNOWLEDGE) HAS NOTED THAT WAGE RATE AND FRINGE BENEFIT INCREASES ACTUALLY WERE LESS THAN HAD BEEN ANTICIPATED DURING THE ORIGINAL CLAIM REVIEW MEETINGS, BUT THE OVER-ESTIMATE RESULTING THEREFROM HAS BEEN OFFSET BY THE FACT THAT THE SUBCONTRACTOR HAS HAD AN AVERAGE WORK FORCE ON THE JOB OF ALMOST TWICE THE NUMBER PROJECTED DURING THOSE MEETINGS."

AS DISCUSSED ABOVE, ACTUAL MAN-DAYS OR WEEKS ARE NOT RELEVANT TO THIS CLAIM AS KELLY IS ENTITLED TO THOSE ADDITIONAL COSTS WHICH HE COULD NOT ANTICIPATE WHEN HE BID AND WHICH WERE CAUSED BY THE GOVERNMENT'S UNREASONABLE DELAY. THE FACT THAT KELLY HAD AN AVERAGE WORKFORCE ON THE JOB TWICE THE SIZE PROJECTED DURING CLAIM NEGOTIATIONS WOULD ONLY HAVE A BEARING ON THIS CLAIM IF THIS WERE CAUSED BY FURTHER GOVERNMENT DELAY.

WITH RESPECT TO THE COMPUTATION OF THE PRODUCTION DECLINE LOSS, OUR REVIEW INDICATED THAT THE GOVERNMENT HAD USED AN AGREED UPON PRODUCTION EFFICIENCY LOSS FIGURE OF 10 PERCENT. ALTHOUGH ANALYTICAL DATA WAS SUBSEQUENTLY PROVIDED TO SUPPORT THIS FIGURE AS BEING REASONABLE, THE APPLICATION OF THE PERCENTAGE WAS ERRONEOUS. THIS FIGURE REPRESENTS THOSE MAN-HOURS LOST DURING THE DELAY PERIOD DUE TO WORKMEN'S INTERFERENCE WITH EACH OTHER, LIMITED WORK AREAS AVAILABLE AND OTHER SUCH FACTORS. THIS PRODUCTION EFFICIENCY LOSS FIGURE (10 PERCENT) SHOULD THEN BE APPLIED TO THE MAN-HOURS OF DELAY DURING THE DELAY PERIOD AS SHOWN IN OUR ESTIMATE. THE GOVERNMENT ESTIMATE MERELY MULTIPLIED THE HOURLY WAGE INCREASE FOR 6975 MAN-DAYS BY 10 PERCENT.

IN VIEW OF THE FACT THAT THERE ARE OTHER SUBCONTRACTOR CLAIMS PENDING ON THIS PROJECT, AND SOME OF THEM HAVE NOT BEEN NEGOTIATED, WE BELIEVE CONSIDERATION OF THE FOLLOWING SUGGESTIONS WOULD AID YOUR ADMINISTRATION IN NEGOTIATING AND ESTIMATING DAMAGES DUE THOSE SUBCONTRACTORS:

1. CLAIMS SHOULD BE ANALYZED IN LIGHT OF THE TYPE OF CONTRACT INVOLVED, WHICH SHOULD AID IN DEFINING ALLOWABLE COST ELEMENTS.

2. DOCUMENTATION IN SUPPORT OF SUBCONTRACTOR ORIGINAL ESTIMATES SHOULD BE REQUESTED AND RECEIVED PRIOR TO NEGOTIATION MEETINGS.

3. ANALYSIS OF THESE DATA SHOULD BE PERFORMED IN ADVANCE OF ANY NEGOTIATION MEETINGS. SUCH AN ANALYSIS SHOULD INCLUDE A COST PER WEEK FIGURE TO ENABLE NEGOTIATORS TO PERFORM RAPID, SUPPORTABLE COMPUTATIONS DURING NEGOTIATION MEETINGS. ANY SUCH COST PER WEEK FIGURE SHOULD RECOGNIZE THE RELATIONSHIP BETWEEN MAN-DAYS AND TIME IF THIS IS PERTINENT.

4. CHANGE ORDERS, STRIKES, AND OTHER NON-GOVERNMENT CAUSES OF DELAY SHOULD BE IDENTIFIED AND ANALYZED PRIOR TO ANY NEGOTIATION MEETINGS. PROVISIONS FOR ADJUSTMENT SHOULD BE INCLUDED IN ANY PROPOSED SETTLEMENT AMOUNT BASED ON WAGE SETTLEMENTS WHICH ARE NOT FIRM AT TIME OF NEGOTIATIONS.

6. ESTIMATORS' MATHEMATICAL SHORT-CUTS SHOULD BE FULLY SUPPORTED BY DESCRIPTIVE DATA.

7. IF PRODUCTION EFFICIENCY LOSSES ARE EXPECTED TO BE A CLAIM ELEMENT SOME PRELIMINARY ANALYSIS SHOULD BE USED TO ESTABLISH A REASONABLE RATE.

8. A DETAILED LEGAL ANALYSIS CONCERNING THE ACTS, OR FAILURES TO ACT, WHICH RENDER THE GOVERNMENT LIABLE FOR BREACH OF CONTRACT SHOULD BE PERFORMED AND MADE A PART OF THE RECORD WITH RESPECT TO EACH CLAIM PRIOR TO ANY NEGOTIATION MEETINGS.