September 15, 1995
Appeals of
ALTA CONSTRUCTION COMPANY
Under Contract No. 239952-85-V-0073
PSBCA Nos. 1463 & 2920
APPEARANCE FOR APPELLANT:
Thomas M. Rhule, Jr.
APPEARANCE FOR RESPONDENT:
D. D. Anna, Esq.
OPINION OF THE BOARD
Appellant, Alta Construction
Company, seeks to recover legal fees incurred following the termination for
default of its term construction contract, which termination was later
converted by the Contracting Officer to a termination for convenience of the
Postal Service.
Background
These appeals have been the
subject of four previous Opinions: Alta
Construction Company, PSBCA No. 1463, 90-1 BCA ¶ 22,527 and 90‑3
BCA ¶ 22,966; and PSBCA Nos. 1463 & 2920, 92-2 BCA ¶ 24,824 (recon.
denied 92-3 BCA ¶ 25,128) and 94-3 BCA ¶ 27,053.
The background of these appeals
was set out in some detail in the latest of our Opinions, Alta Construction
Company, 94-3 BCA ¶ 27,053, and will not be repeated here. The parties opted against a hearing and
elected to have the remaining issue in these appeals considered on the
record. Appellant submitted supplemental
evidence and both parties submitted briefs.
FINDINGS OF FACT
1. The "Termination for Convenience of the
Postal Service," clause of Appellant's contract provided that as to work
performed, the contractor was to be paid the cost of such work, the cost of
settling claims arising out of the termination of subcontracts, and a
reasonable profit. Under the clause,
allowability of such costs was to be governed by the principles set out in
Section 15 of the Postal Contracting Manual (PCM). The clause also provided that the amount of
such payments could not exceed the "total contract price...." Excepted from this maximum payment limitation
was:
"The reasonable cost of the preservation and protection
of property incurred pursuant to [paragraph (b)(9); and any other reasonable
cost incidental to][1]
termination of work under this contract, including expense incidental to the
determination of the amount due to the Contractor as the result of the
termination [of]1 work under this contract." (Respondent's Appeal File Tab (RAF) 1, PS
Form 7391, "GENERAL PROVISIONS FOR FIXED-PRICE CONSTRUCTION
CONTRACTS" (July 1984)).
2. PCM section 15-205.42, "Termination
Costs," provided, in part,
"Contract terminations generally give rise to the
incurrence of costs, or the need for special treatment of costs, which would
not have arisen had the contract not been terminated. Cost principles covering these items are set
forth below. They are to be used in
conjunction with the remainder of this part in termination situations.
***
"Settlement
Expenses. Settlement expenses,
including the following are generally allowable:
(1) Accounting, legal, clerical, and similar costs
reasonably necessary for:
(I) The preparation and presentation to contracting officers
of settlement claims and supporting data with respect to the terminated portion
of the contract..., and
(ii) The termination
and settlement of subcontracts...."
(RAF 38).
3. PCM section 15-205.31, dealing with
"Professional and Consultant Service Costs," provides, in part:
"Cost of legal ... services ..., incurred in connection
with ... the prosecution of claims against the Postal Service, are unallowable
...." (Id.).
4. The Contracting Officer terminated
Appellant's contract for default on August 20, 1985. Appellant filed its first notice of appeal on
November 14, 1985. In June 1990, the
Contracting Officer issued a letter converting the default termination to one
for the convenience of the government.
(RAF 14, 17).
5. The legal services at issue here were
rendered between September 12 and October 14, 1985, as follows:
"9/12/85 Telephone
conference w/Tom Rhule re. procurement; meeting w/co-counsel re. same 1.85
9/18/85 Meeting w/Tom
Rhule, Jr. re. overview and letter to bond company 3.25
9/23/85 Conference w/
client .6
9/23/85 Preparation
of letter to bonding company re. procurement against bond 2.0
9/24/85 Telephone
conference w/Dennis Wills re. procurement; telephone conference w/Robert Coven;
meeting w/T. Rhule 3.25
9/25/85 Conference
w/co-counsel 1.0
9/26/85 Conferences
w/ co-counsel re response to letter 1.6
10/1/85 Telephone
conferences w/client re. status of situation w/bonding company .75
10/11/85 Telephone
conferences w/Erie Insurance re. Alta Construction bond .55
10/14/85 Meeting
w/client re. necessity of suit.. 3.0
17.85
Professional Services:
17.85 hours at $85 per hour
$1,517.25"
(RAF 30(Statement of charges prepared by Appellant's
attorney))
6. Appellant believed it had been unfairly
treated under a prior term construction contract. Under that contract, Appellant believed that
the Postal Service managers had assigned it, as second low bidder, only
difficult construction jobs at remote locations -- jobs which were difficult or
impossible for it to perform at a profit.
Appellant believed, further, that the Postal Service managers had been
specifically biased in favor of the other term construction contractor in the
assignment of projects. As a result,
Appellant had unsuccessfully attempted to avoid the award of a contract to it
in this instance when it became aware that it was again the second low
bidder. Following the default
termination of this contract, Appellant sought legal advice in its dealings
with both its bonding company and with the Postal Service office administering
the contract. Appellant was apparently
under the impression that Respondent could and would continue to attempt to
assign the bonding company only the most costly and difficult assignments under
the terminated contract, to Appellant's detriment[2]
and, therefore, Mr. Rhule discussed with the attorney strategies Appellant
might use if this occurred. At Mr.
Rhule's October 14 meeting with the attorney, the conversation centered on
accomplishing these strategies while avoiding litigation against either the
Postal Service or the bonding company.
Appellant's attorney was also specifically asked to try to help persuade
the Contracting Officer to convert the default termination to one for
convenience. ((Appellant's Appeal File,
Tab 31) Affidavit of Thomas M. Rhule, Jr., pages 18‑19).
DECISION
As we stated in our previous
Opinion, Alta Construction Company, 94-3 BCA ¶ 27,053 at 134,816, in
order to recover, Appellant must show that the legal fees at issue here qualify
for exclusion from the maximum payment limitation set out in the Termination
for Convenience clause -- i.e., that the legal fees are recoverable
above the contract price, which otherwise would be the ceiling for recoveries
under the convenience termination.
Specifically, Appellant must show that the fees were "reasonable
cost[s] incidental to termination of work under this contract, including
expense[s] incidental to the determination of the amount due to the Contractor
as the result of the termination of work under this contract." Further, Appellant must show that the claimed
fees were not incurred in connection with the prosecution of claims against the
Postal Service.
Appellant's primary argument is
that it resorted to hiring an attorney after the termination because it feared
that Respondent, having asked the bonding company to take over the contract,
would continue to assign the bonding company the most costly and burdensome
projects. Appellant wanted the attorney
to help develop a strategy to prevent that from happening and to deal with the
bonding company on Appellant's behalf.
Appellant argues that it also asked the attorney to help persuade the
Contracting Officer that the contract had been improperly terminated for
default and that the termination should be converted to one for convenience.
Respondent cites a number of
statements, which it refers to as admissions, in one of Appellant's earlier
submittals and argues that these statements and the remainder of the record
demonstrate that Appellant is not claiming the kinds of attorney fees allowable
under the termination for convenience clause.
The exact basis for Respondent's arguments is not stated and is not
otherwise made clear in its brief.
Having considered the record, we
conclude that Appellant may recover a portion of the legal fees it has claimed.[3] The remaining legal fees were not incurred in
connection with the prosecution of a claim against the Postal Service. In this case, Appellant's attorney was not
engaged to conduct litigation. Further,
the largest percentage of the attorney's time apparently was spent in dealing
with Appellant's bonding company.
Although he was also asked to help persuade the Contracting Officer to
convert the default termination to one for convenience, there is no indication
those efforts involved any resort to or preparation for litigation. While not dispositive of the issue, we note
that the notice of appeal was not filed until a month after the attorney ceased
rendering the services for which the claim was made. Further, Thomas Rhule, Jr., a principal in
Appellant, has represented Appellant in all its litigation -- both in its
protests before award and in the appeals before this Board. Therefore, we conclude that the fees
identified in the record as related to dealings with the bonding company or the
Contracting Officer do not represent costs of prosecuting a claim against
Respondent, and Appellant is not, on that basis, barred from recovering these
fees. See e.g., Acme
Process Equipment Co. v. United States, 347 F.2d. 538, 545 (Ct. Cl. 1965); E.W.
Eldridge, Inc., ENGBCA No. 4879, 93-1 BCA ¶ 25,355 at 126,293; Paul
E. McCollum, Sr., ASBCA No. 23269, 81-2 BCA ¶ 15,311; A.C.E.S.,
Inc., ASBCA No. 21417, 79-1 BCA ¶ 13,809; Baifield Industries,
Division of A-T-O, Inc., ASBCA No. 20006, 76-2 BCA ¶ 12,096, aff'd
on recon. 76-2 BCA ¶ 12,203.
We are then left with the
question of whether the remaining legal fees constituted "any ...
reasonable cost[s] incidental to the termination of work under this contract,
including expense incidental to the determination of the amount due to the
Contractor as the result of the termination of work under this
contract." If so, Appellant may
recover the fees over and above the maximum payment limitation set out in the
termination for convenience clause.
We conclude that the fees
represent "reasonable costs incidental to the termination of work"
under the contract. These costs were
incurred as a direct result of the default termination. Given that Appellant believed that its surety
would be required by Respondent to assume the burden of performing only
unprofitable work under the contract,[4]
it was not unreasonable for Appellant to have sought legal help in connection
with the termination, particularly in its dealings with the surety. Since, as we have found, the legal fees
incurred in dealing with the surety and the Contracting Officer were not
incurred in the prosecution of a claim against the Postal Service, Appellant
may recover those fees above the maximum payment limitation that would
otherwise apply.
The appeal is sustained in
part. Appellant may recover the fees
incurred, other than those excluded in note 3, above, plus Contract Disputes
Act interest.
David I. Brochstein
Administrative Judge
Board Member
I concur:
James A. Cohen
Administrative Judge
Chairman
[1] The termination for
convenience clause will be read to include the bracketed language (although
that language does not appear in the July 1984 version of PS Form 7391
incorporated into the contract), since that language was included at §18‑541.7
of the Postal Contracting Manual, which contained the termination for
convenience clause that was required to be used at the time this contract was
awarded. See PCM Transmittal
Letters 33-35; PCM Circulars 84-4 through 85-4.
See also Enclosure A to RE&B Bulletin No. DC-84-1,
dated January 6, 1984 (which provides for use of the October 1979 version of PS
Form 7391 in term construction contracts); G.L. Christian & Associates
v. United States, 160 Ct. Cl. 1, 312 F.2d 418, reh. den. 320
F.2d 345, cert. den. 375 U.S. 954 (1963). In our earlier Opinion, at 94-3 BCA
¶ 27,053, we reached the same conclusion for the purposes of deciding the
motion for summary judgment. As neither
party has objected to this determination, we adopt it in connection with this
Opinion.
[2] The Postal Service
had asked the bonding company to take over the contract and perform work at
Fayetteville, West Virginia (RAF 33).
Appellant apparently believed that Respondent could and would continue
to assign the bonding company unprofitable jobs during the remaining term of
the terminated contract -- for which Appellant might ultimately be financially
responsible.
[3] Notwithstanding the Board's repeated
reminders to Appellant that recovery would hinge on providing a description of
the services actually rendered, information concerning the nature of the legal
services is found only in the brief billing statement prepared by Appellant's
attorney (Finding 5) and, to a very limited extent, in Appellant's affidavit
(Finding 6). Appellant has failed to
offer any evidence describing the services rendered on September 12, 23, 25,
and 26. Therefore, costs incurred for
those services are not recoverable.