September 19, 1994
Appeal of
SIGMA SCIENCE ENGINEERING AND TECHNOLOGY APPLICATIONS CORP.
Under Contract No. 479984-90-B-0274
PSBCA No. 3635
APPEARANCE FOR APPELLANT:
Thomas F. Ziegler
APPEARANCE FOR RESPONDENT:
Mark E. Dennett, Esq.
OPINION OF THE BOARD
Appellant, Sigma Science Engineering and Technology Applications Corporation, appeals from the decision of the Contracting Officer denying its claim for reimbursement of costs incurred in the performance of its contract to provide technical and support personnel at facilities operated by Respondent, United States Postal Service, at Memphis, Tennessee; Dallas, Texas; Atlanta, Georgia; and Tampa, Florida. The costs claimed are for administrative services performed and insurance premiums paid in connection with the close-out of the contract, and for medical insurance "co-payments" made by Appellant on behalf of its employees during the course of the contract. This appeal is being decided on the record under the Board's Accelerated Procedure. Only entitlement is at issue in this proceeding.
FINDINGS OF FACT
1. Contract No. 479984-90-B-0274 was awarded to Appellant on June 6, 1990, for a two-year base period, commencing June 12, 1990, with three one-year option periods. Under the contract Appellant was to provide specified technical and support personnel at four facilities operated by Respondent. (Respondent's Appeal File Tab (RAF) 20). At the time performance commenced, Appellant employed approximately 20 personnel at the Postal Service facilities. All or nearly all of the personnel had been employed at the same locations by a different contractor before Appellant's contract commenced. (Id. (Solicitation Amendment A02); RAF 24 (Deposition of John D. Ferguson), p. 7).
2. Respondent was to make payments under the contract based on a fixed "multiplier" negotiated between the parties prior to contract award. The multiplier was to be applied to the actual, straight time payments made by Appellant to its employees[1] and allowed Appellant to recover the actual payments made plus a fixed percentage of those payments. The additional percentage included in the multiplier was to cover overhead costs, general and administrative expenses, all fringe benefits (including, but not limited to, health insurance premiums and vacation pay), and Appellant's profit. The multiplier offered by Appellant and incorporated into its contract was 1.279. (RAF 20).
3. In describing the fringe benefits to be provided, the solicitation and resulting contract provided, in relevant part:
"Health insurance that is equivalent in coverage to Standard Option (Enrollment Code 104) Blue Cross/Blue Shield which is available to U. S. Postal Service employees (See Attachment 9)."
"Attachment 9" to the solicitation was a United States Office of Personnel Management booklet that described the coverage of the "Service Benefit Plan" administered by Blue Cross and Blue Shield and available to all Federal and Postal Service employees. The booklet also specified the employee's share of the premium charged for coverage. For Enrollment Code 104, the booklet specified "Biweekly" and "Monthly" employee premiums of $16.92 and $36.66, respectively, and a "Postal Biweekly" premium of $4.23. (Id.).
4. The contract also contained a special provision entitled "Method of Recruiting," which provided:
"When directed by the Contracting Officer, the Contractor shall ... recruit and prescreen candidates for a joint interview with the Contracting Officer and Contractor. The basic agreement not does [sic] guarantee the contractor a minimum or maximum number of personnel to be hired under the agreement. The number of personnel under contract may be decreased or increased at any time. Concurrent recruiting will be required in FSC/FSO's cities, in order that interviews may be conducted within three weeks of the initial request.
It is anticipated that all required personnel will not be hired in a single recruiting effort. The successful Contractor will be required to give first consideration during initial recruitment to technical and support personnel that currently are working in the FSC/FSO's." (Id., special provision 5 (emphasis added)).
5. The contract also contained standard Postal Service clauses entitled "Termination for Convenience (October 1987)" and "Changes (October 1987)" (RAF 20).
6. In calculating the multiplier that was ultimately incorporated into the contract, Appellant based its costs on a health insurance plan comparable to that specified in the Blue Cross/Blue Shield booklet and planned to charge its employees the $36.66 monthly premium listed therein. (RAF 25 (Deposition of John D. Ferguson), p. 5, 11; Complaint/Answer).
7. In its best-and-final offer to the Contracting Officer, dated May 30, 1990, Appellant provided a brochure explaining the health benefits to be provided its employees. In its cover letter, Appellant stated that the health benefits would be made available to the employees "for the same employee contribution as the USPS program." (Appellant's Appeal File Tab (AAF) A). On or about June 6, 1990, Appellant was notified by telephone and letter that the contract award had been made to it and that performance was to commence on June 12, 1990 (RAF 20; Ferguson Deposition, p. 8). The record does not indicate that the Contracting Officer took issue with Appellant's statement concerning employee contributions to the cost of health benefits.
8. By letter dated June 7, 1990, addressed to its potential employees, Appellant provided some of the details concerning employment with Appellant. In the letter, Appellant informed the employees that their contribution to health insurance premiums would be $36.66 per month. (AAF B). Based on discussions with the Contracting Officer on or about June 8, 1990, Appellant revised its position and issued a new letter to its potential employees stating that Appellant would pay the entire cost for basic health insurance coverage. Based on the record, we conclude that the Contracting Officer indicated to Appellant's president and vice president that Appellant was required to pay the full premiums for the employees' health insurance. (AAF C; RAF 19, 26 (Response to request for admission no. 5); Ferguson Deposition p. 10).
9. In March 1992, the Contracting Officer decided that he would not exercise the first of the option years under Appellant's contract, but would, instead, solicit for and award a new contract. Because of the relatively short time then remaining in the original two-year contract term, the Contracting Officer requested that Appellant extend the base term of its contract from June 12, 1992, to August 31, 1992. After negotiations, the parties agreed to increase the multiplier from 1.279 to 1.33 for the extended term and modified the contract accordingly. (RAF 10-12, 20 (modification M05), 21).
10. The contract was again extended from August 31, 1992, to October 31, 1992, by modification M07, dated August 11, 1992. The multiplier remained unchanged for this extension period. (RAF 9, 20).
11. By letter dated August 31, 1992, confirming a conversation of that date, the Contracting Officer directed Appellant to inform all of the individuals employed under the contract that their services would not be needed after September 18, 1992. (RAF 8).
12. The record does not indicate the reason for Respondent's decision to direct termination of all the employees as of that date. However, before the extended October 31, 1992, contract expiration date at least some of Appellant's employees were rehired by a different contractor under another existing contract with Respondent for temporary services. Respondent did not award a new contract for the services that had been the subject of Appellant's contract. (RAF 26).
13. Under its contract with Blue Cross/Blue Shield, Appellant was required to make advance health insurance premium payments on a monthly basis. After terminating its employees, Appellant was unable to secure a partial refund of the health insurance premiums paid for the month of September 1992. (RAF 22, 25 (p.25)).
14. By letter dated December 14, 1992, Appellant submitted an invoice for $30,332.68 to recover five categories of costs allegedly incurred during the course of the contract and not recovered through billing. The claimed costs included, in relevant part, $1,311.20 for the portion of the health insurance premiums paid for September that could not be recovered because of the mid-month termination of the employees; $2,070.00 in additional overhead costs allegedly incurred because of administrative work necessary to close out the contract on an accelerated basis; and $23,389.08 for the employees' portion of health insurance premiums paid by Appellant. (RAF 7). The Contracting Officer refused to approve payment of the three items described above (RAF 6).
15. By letter dated September 28, 1993, Appellant filed a claim for the items that had been disapproved by the Contracting Officer. In a final decision dated December 14, 1993, the Contracting Officer denied the claim in its entirety. The Contracting Officer relied primarily on the contract provision allowing Respondent to increase or decrease the number of personnel under the contract, stating that he had exercised Respondent's right to reduce the number of employees to zero. Appellant filed a timely appeal. (RAF 1-5).
DECISION
Appellant argues that it is entitled to recover the administrative expenses and the premiums for the partial month of health insurance coverage on the basis that the Contracting Officer's direction to reduce the number of employees to zero was actually a termination of the contract for convenience and not a proper exercise of Respondent's right to adjust the number of employees. As to the claim for reimbursement of the employees' portion of the health insurance premiums, Appellant argues that this expense was outside the contract requirements and that it had been directed to pay the co-payment portion by the Contracting Officer.
Respondent argues that the reduction of the employee complement to zero was allowed under the contract terms, which do not provide for recovery of any expenses occasioned thereby. Respondent further contends that the reduction was not a termination for convenience and that the contract expired by its own terms on October 31, 1992.
As to the overhead expenses claimed, Respondent argues that all such expenses were to be built into the multiplier offered by a prospective contractor. Further, Respondent argues that Appellant has failed to separate the portion of its overhead claim that represents costs incurred because of the compressed time frame from those costs which would have been incurred in any event at the time of contract close-out. As to recovery of the partial month's payment of health insurance premiums, Respondent argues that this was caused by the terms of Appellant's contract with its insurance carrier and is not Respondent's responsibility.
With respect to the claim for the employee health insurance co-payments Respondent argues that the oral direction allegedly issued by the Contracting Officer did not occur. Further, Respondent argues that any such direction would have been ineffective since it was not reduced to writing at any time.
Appellant bases its claim for entitlement to administrative expenses and the partial month of health insurance premiums on its contention that the actions taken by Respondent in ending this contract constituted a termination for convenience. We agree.
Respondent relies on language in the Method of Recruiting clause (Finding 4) that provides that the number of personnel may be increased or decreased at any time. Respondent contends it could reduce the number of employees to zero and allow the contract to expire when the performance period ran out. We do not agree the cited language can be read as literally as Respondent contends.
The terms of a contract clause cannot be read in a vacuum, but must be read "in light of the nature, scope, and other provisions of the contract in which it is included." Tecon Corp. v. United States, 411 F.2d 1262, 188 Ct. Cl.15 (1969). See Wertheimer Constr. Co. v. United States, 406 F.2d 1071, 186 Ct.Cl. 836 (1969). Further, where possible, contracts must be interpreted so as not to render any portion meaningless or superfluous. Hol-Gar Manufacturing Corp. v. United States, 351 F.2d 972, 169 Ct.Cl. 384 (1965).
Respondent's position ignores the presence in the contract of the Termination for Convenience clause. In this instance, Respondent used the "Recruiting" clause language to accomplish the functional equivalent of a convenience termination without assuming the financial obligations that would otherwise be imposed on it by the Termination for Convenience clause.
Under Respondent's interpretation, it could reduce the number of employees to zero at any point during contract performance (including day one) and for any reason, yet still require the contractor to remain ready to perform, thereby causing it to incur administrative expenses without any chance of achieving sufficient earnings under the contract to pay those costs. We do not consider this a reasonable interpretation of the contract language in view of the presence of the Termination for Convenience clause. While the language relied on by Respondent permits adjustments in the number of employees, the extent of which we need not decide here, the language cannot be relied on when Respondent's purpose is to achieve an early termination of contract performance.
Under these circumstances, we conclude that Respondent's actions and its liabilities are to be governed by the provisions of the Termination for Convenience clause. The portion of the appeal related to administrative expenses and the partial month of health insurance premiums is sustained and remanded to the parties for negotiation of the amount due under that clause.
As to Appellant's claim for reimbursement of the health insurance "co-payment" costs, Respondent does not argue that the contract required Appellant to pay the full health insurance premium without contribution from its employees. The record shows that Appellant did not plan to pay the entire health insurance premium for its employees when it calculated the multiplier it offered, but planned to require its employees to pay part of the premium. We have further found that Appellant changed its position after discussions with the Contracting Officer during which Appellant was told it was required to pay the full amount of the premiums under the contract ( see Finding 8). Therefore, we do not accept Respondent's argument that no direction was given by the Contracting Officer.
We also do not accept Respondent's argument with respect to the requirement for a subsequent written memorialization. Appellant cites SCM Corp. v. United States, 595 F.2d 595, 598 (Ct. Cl. 1979), in support of its position. That case, however, related to the enforcement of the terms of an oral agreement allegedly entered into in settlement of a claim and is inapposite to this appeal.
We conclude that Appellant may recover the health insurance "co-payment" costs it has claimed. However, Appellant's recovery is not to include the period covered by the two contract extensions, to the extent that the increased multiplier negotiated for those periods included the full cost of health insurance premiums. Determination of quantum is left to negotiation between the parties.
The appeal is sustained.
David I. Brochstein
Administrative Judge
Board Member
I concur:
James A. Cohen
Administrative Judge
Chairman
[1] The range of allowable salaries for each position to be filled by Appellant was specified in the contract.