June 13, 1997
Appeal of
AFTT, INC.
Under Contract No. 059984-92-B-0028
PSBCA No. 3717
APPEARANCE FOR APPELLANT:
Dr. Jalil Ahmad
APPEARANCE FOR RESPONDENT:
Mark Brent Ezersky, Esq.
OPINION OF THE BOARD
Appellant, AFTT, Inc., has appealed from the partial denial of its claim for costs incurred in connection with an indefinite quantity contract to paint Neighborhood Delivery and Collection Box Units (NDCBU) and Parcel Lockers. Respondent placed no orders under the contract.
FINDINGS OF FACT
1. On May 20, 1992, Appellant was awarded Contract No. 059984-92-B-0028. The contract was an indefinite quantity contract for painting and maintenance of NDCBUs and parcel lockers, with a two-year term. The solicitation, which was issued by Respondent's Facilities Service Center in San Bruno, California, requested unit and extended prices for work on specific quantities of three different types of NDCBUs and one type of parcel locker. Appellant's unit prices ranged from $20 to $25 and its total extended price was $190,090. (Appeal File Tab (AF) 5; Supplemental Appeal File Tab (SAF) 6). In bidding, Appellant used 10 percent as its estimate of profit and 12 percent for overhead (Transcript pages (Tr.) 38).
2. Paragraph B.3 of the contract, "Quantity of Work (Indefinite-Quantity)," provided, in part,
"a. The contract value is for nor [sic] more than $285,000.00 where the total quantity of work ordered during the term of this contract will not be less than $10,000 nor more than one million dollars ($1,000,000)." (SAF 6).
3. Paragraph C.13 of the contract, "Work Orders (Indefinite-Quantity)," provided, in part,
"a. No work will be performed until a written work order has been signed by the contractor and the contracting officer and written Notice to Proceed with the work under the work order has been issued by the contracting officer and received by the contractor. . . ." (SAF 6).
4. As required by the solicitation, Appellant submitted payment and performance bonds in the amounts of $190,090 and $95,045, respectively (Respondent's Exhibit (RExh.) 2). Appellant paid $6,653 in premiums for the bonds and would have incurred the same premiums had Respondent ordered the minimum amount of work under the contract (Tr. 34, 37).
5. Indefinite quantity contracts are normally funded on a "per work order" basis -- i.e., funds are allotted to the contract as each work order is issued. In accordance with that practice, no funds were allotted to this contract at the time of award. (Tr. 54, 56, 67).
6. Respondent's Sacramento District was authorized to issue work orders under the contract. By memo dated May 24, 1993, approximately one year into the contract term, the Manager, Administrative Services, for the Sacramento District asked the San Bruno Facility Services Office to:
"Please cancel Afit [sic] Inc. IQC Contract #059984-92-B-0028. We have not initiated any work orders nor do we plan to use this contractor in the future. . . ." (SAF 4).
7. In a reply dated June 2, 1993, the contracting officer wrote, in part:
"The contract requires that work orders in a minimum amount of $10,000 be issued to the contractor. In lieu of that, we may pay the contractor the 10% profit and 10% overhead he would have received if we had issued a $10,000 work order -- in other words, we may pay him $2,000.00."
The Contracting Officer requested that the Sacramento Office forward "a 4209" (presumably a funding document of some sort) in the amount of $2,000 and stated that, upon receipt, the contract would be terminated for convenience. The record does not show that any further action was taken on the request to "cancel" the contract. (SAF 3).
8. During the course of the contract period, Appellant's vice president made several telephone calls to Respondent's offices in Sacramento and San Bruno, asking about the issuance of work orders or, in the alternative, the release of his bonds so he could pursue other work. The record does not identify which of Respondent's personnel he spoke to. Appellant did not make any written requests that his bonds be released. (Tr. 24, 25, 36).
9. The contract expired in May 1994, at the end of the two-year term. Respondent did not issue any work orders under the contract. In a claim filed in June 1994, Appellant demanded the payment of $48,473 -- consisting of $41,820 in overhead and profit charges (calculated on the basis of 22 percent of the total $190,090 price), and $6,653 for the premium on Appellant's bonds. (SAF 5).
10. In a final decision dated August 15, 1994, the Contracting Officer denied Appellant's claim. He stated that Appellant was entitled to recover "a reasonable profit on the minimum order and probable standby costs" and offered to pay Appellant $1,000 as the profit on the minimum $10,000 stated in the contract. (AF 4). This appeal followed.
DECISION
Appellant argues[1] that Respondent's personnel were aware at the time of award that there was no funding available for work orders under this contract but that they nevertheless improperly required it to provide bonds in the full amount of the contract. Appellant argues that bonds of this size represented a sizeable percentage of its available bonding capacity and, therefore, having Respondent hold those bonds prevented it from securing other work. Appellant particularly faults Respondent for failing to release Appellant's bonds, even after Respondent knew that it would not issue any work orders under the contract.
Respondent admits that it is liable for damages to Appellant for failing to place orders under the contract, but argues that the measure of such damages is governed by the Board's decision in Golden West Builders, PSBCA No. 3378, 93-3 BCA ¶ 26,195. In that opinion, the Board decided that where the Postal Service had failed to place any orders under an indefinite quantity contract containing similar language, the contractor was entitled to damages sufficient to place it in as good a position as it would have been had the Postal Service not breached the contract. Under the facts of that appeal, the Board concluded that the contractor was entitled to recover the profits it would have earned on the required minimum amount of work, plus any other costs incurred because of the failure of the Postal Service to order the minimum amount of work.
Having considered the record, we agree with Respondent that this appeal is controlled by the Board's decision in Golden West Builders, above. Under the contract, Respondent was obligated to place orders totaling at least $10,000 with Appellant during the term of the contract. By failing to do so, Respondent breached the contract and thereby became obligated to pay damages to Appellant. As in Golden West, however, Appellant is entitled only to be put in as good a position as it would have been had Respondent performed the contract by ordering the minimum work required.
In this instance, Appellant based its bid on an assumption of a 10 percent profit. In his final decision, the Contracting Officer used the same profit rate. Absent any evidence calling that rate into question, we accept it and award Appellant $1,000 for lost profits -- the amount conceded by Respondent as owed to Appellant. We do not accept Appellant's argument that it is entitled to receive profits on the entire amount of its bid, inasmuch as the contract did not require Respondent to order the full amount of work.
We also do not accept Appellant's position that it should be paid a flat 12 percent overhead. To recover overhead expenses, Appellant must show that they were actually incurred, and that they would have been recovered but for Respondent's failure to order the minimum amount under the contract. Appellant has failed to identify in any way the overhead expenses it is claiming. However, we consider the bond premium incurred by Appellant to represent an expense properly categorized as overhead. Accordingly, in the absence of any better evidence, Appellant may recover a proportional share of its bond premium as overhead -- $6,653 x ($10,000/$190,090) = $350.
We do not accept Appellant's arguments that it is somehow entitled to compensation because of the size of the bond required and because of Respondent's failure to release the bonds. The solicitation to which Appellant responded made it clear that bonds reflecting the full amount of the bid would be required. The solicitation also made it clear that Respondent was only obligated to award the successful bidder $10,000 worth of work. Accordingly, by submitting a bid, Appellant assumed the risk that it might not be able to cover the cost of its bonds with income from the amount of work awarded and it also assumed the risk associated with having part of its bonding capacity tied up.
As to Respondent's failure to release the bonds, Appellant argues that it would have been able to secure other work had Respondent released the bonds. However, we need not decide whether Respondent was obligated to release the bonds before expiration of the contract term, since damages of the type alleged by Appellant are in the nature of consequential damages and are too remote and speculative to be awarded under the circumstances of this contract. Appellant has not even offered any evidence to show that there were particular jobs it would have received but for the fact that part of its bonding capacity was tied up by the Postal Service contract. See, e.g., Ramsey et al. v. United States, 121 Ct. Cl. 426, 101 F.Supp. 353 (1951), cert. den. 343 U.S. 977 (1952); Southern General Const. Co., ASBCA No. 43676, 96-2 BCA ¶ 28,524; J.W. Cook & Sons, Inc., ASBCA No. 39691, 92-3 BCA ¶ 25,053; Cox & Palmer, ASBCA Nos. 38328 et al., 89-3 BCA ¶ 22,197.
Appellant may recover $1,350 plus Contract Disputes Act interest. The appeal is otherwise denied.
David I. Brochstein
Administrative Judge
Vice Chairman
I concur:
James A. Cohen
Administrative Judge
Chairman
I concur:
Norman D. Menegat
Administrative Judge
Board Member
[1] Appellant did not file a brief. The gist of its arguments has been gathered from other documents filed in the appeal and from arguments made at the hearing.