              ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeal of--                                   )
                                              )
Nexagen Networks, Inc.                        )      ASBCA No. 60641
                                              )
Under Contract No. Wl5P7T-13-D-E077           )

APPEARANCE FOR THE APPELLANT:                        David A. Rose, Esq.
                                                      Rose Consulting LLC
                                                      Valdosta, GA

APPEARANCES FOR THE GOVERNMENT:                      Raymond M. Saunders, Esq.
                                                      Army Chief Trial Attorney
                                                     MAJ Stephen P. Smith, JA
                                                      Trial Attorney

        OPINION BY ADMINISTRATIVE JUDGE O'CONNELL ON
   THE GOVERNMENT'S MOTION FOR PARTIAL SUMMARY JUDGMENT

       Appellant, Nexagen Networks, Inc. (Nexagen) has appealed the contracting
officer's (CO's) denial of its certified claim. The Army has moved for partial
summary judgment on a portion of the claim in which Nexagen seeks $37,597,526.94
in "compensatory consequential damages." We grant the motion in part.

           STATEMENT OF FACTS FOR PURPOSES OF THE MOTION

       The following facts are undisputed.

        On May 31, 2013, the Army awarded Nexagen Contract No. Wl5P7T-13-D-E077
(the contract) a multiple award indefinite-delivery/indefinite-quantity contract to provide
software and systems engineering services (app. resp. at 3; R4, tab 1). The contract
contains various clauses, including Federal Acquisition Regulation (FAR) 52.249-6,
TERMINATION (COST-REIMBURSEMENT) (MAY 2004 ), ALTERNATE IV (SEP 1996) (R4,
tab 1 at 133).

       On February 13, 2015, the Army awarded Nexagen task order KXOl for "Data
Strategy Service and Software Support" (the task order). The task order had a one-year
base period with a one-year option. (App. resp. at 4; R4, tab 2)
         With respect to its value, the task order provided:

                BASE PERIOD
                     Estimated Labor Cost          $ 18,170,944.36
                     Fixed Fee                     $    908,547.22
                     Estimated Travel & ODC        $ 3,881,775.40
                     Total                         $22,961,266.98

                OPTION PERIOD
                     Estimated Labor Cost          $ 18,534,362.29
                     Fixed Fee                     $    926,718.11
                     Estimated Travel & ODC        $ 3,887,296.90
                     Total                         $ 23,348,377.30

               Grand Total                         $ 46,309,644.28

(App. resp. at 5; R4, tab 2 at 2)

       During the less than three-month period that Nexagen performed the task order, the
Army sent Nexagen deficiency notices and a cure notice (app. resp. at 6-7; R4, tabs 5, 8-9).
On May 4, 2015, the CO notified Nexagen that he was terminating the task order for default
due to Nexagen's failure to perform (app. resp. at 7; R4, tab 13). The CO quickly changed
course, however, and on May 15, 2018, notified Nexagen that he was changing the
termination to a "no-cost termination for convenience" (app. resp. at 7; R4, tabs 14-15).

       On December 22, 2015, Nexagen submitted a certified claim to the CO. It sought
$37,597,526.94 for "Compensatory Consequential Damages: Breach of implied covenant
of good faith and fair dealing," and $2,646,853 for "Compensatory Expectation
Damages: Breach of contract based upon wrongful termination." (App. resp. at 8-9; R4,
tab 20 at 9) For ease of reference, we will refer to the former as the "consequential
damages claim" and the latter as the "expectation damages claim."

        Nexagen's certified claim is 304 pages long. Pages 1-9 consist of a cover, table
of contents, narrative, and certification (R4, tab 20). Pages 10-304 consist of various
spreadsheets and other documents that purport to document the $2.6 million in
expectation damages. The biggest single component of the expectation damages claim
is the fixed fee (or lost profits) of $1,835,265.33 for the base and option years of the
contract (id. at 11 ). 1




1
    $908,547.22 (base year)+ $926,718.11 (option year)= $1,835,265.33.
                                             2
       By contrast, there is nothing in the claim that itemizes the $3 7 .6 million
consequential damages claim. 2 The claim does allege, however, that Nexagen
suffered:

      •   Partnership cancellation by CACI due to Loss of Confidence with
          Nexagen on an $SOM acquisition on which CACI is the
          incumbent

      •   Emboldened industry concerns about Nexagen ability to
          effectively perform and partner as a result of the
          government's actions

      •   Potential for biased TOR submission evaluations by ACC
          acquisition and legal team on future solicitations

      •   Loss of $35M+ in revenue and Technical Expertise related to
          Predictive Analytics, Cloud Computing and Messaging
          Technologies

      •   $48M in gross revenue Good Will Lost Due to Breach of Contract

      •   $1 OM in OH, G&A and Profit

(R4, tab 20 at 8)

        The CO issued a final decision denying the claim on May 6, 2016 (app. resp. at 10;
R4, tab 22). With respect to the fixed fee Nexagen sought in the expectation damages
claim, the CO denied it for the option year because "there is no entitlement to unexercised
options." For the base year fee of $908,547.22, she granted a prorated $151,424.54 to
reflect Nexagen's actual performance period, and denied the remainder. (R4, tab 22 at 2)
As for the consequential damages claim, the CO stated "Nexagen's claim for damages for
breach of contract in the amount of$37,597,526.94 are denied in full as they are
unsupported and not provided for under FAR 49 .3" (id.).

       Nexagen has submitted as exhibit 3 to its response to the government's motion
a spreadsheet that for the first time itemizes its consequential damages claim:


2
    Nexagen disputes the Army's assertion that the claim failed to itemize the
        consequential damages claim. Its only basis for the denial is that the CO did
        not seek clarification. (App. resp. at 9) We find that Nexagen has failed to
        properly address the government's assertion of fact and we consider it
        undisputed for purposes of the motion. FED. R. CIV. P. 56(e)(2).
                                             3
                                        Nexagen Pro Forma for Termination of SSESR-2031
 Description
                 I I Year I          I I Year 2          I I Year 3 I I Year 4 I I Year 5 I I Total                            Remarks
 Count II Breach of Contract (SSESR-2031 DS4 Award)
 Lost Fee            $    908,547        $     926,718                                                      $     1,835,265    Two years of
 Lost G&A            $   1,886,284       $   1,924,009                                                      $     3,810,293    Lost •Gross
 Lost OH             $    873,120        $     890,582                                                      $     1,763,702    Profit (16%)
                                                                                                                               on the DS4
                                                                                                                               Contract.
                                                                                            Subtotal    I$        7,409,260

 Count I Breach of implied Covenant of 200d faith dealin2
 Loss on             $5,451,283.32       $5,560,308.66                                                      $ 11,011,592       Six times Fee
 Corporate                                                                                                                     for each year
 Market Value
                                                                                           Subtotal     I $11,011,592
 Count I Breach of implied Covenant of good faith dealing
 "No Bid"                                $1,874,444         $1,874,444    $1,874,444   $1,874,444           $     7,497,776     16% of
 Technology                                                                                                                    Revenue
 Opportunities                                                                                                                 Generating
 Gross Profit                                                                                                                  Con tracts that
                                                                                                                               we can not
                                                                                                                               bid on
                                                                                                                               without the
                                                                                                                               talent pool
                                                                                                                               we had hired
                                                                                                                               to perform
                                                                                                                               DS4. These
                                                                                                                               areas include
                                                                                                                               opportunities
                                                                                                                               in: Predictive
                                                                                                                               Analytics,
                                                                                                                               Cloud
                                                                                                                               Computing
                                                                                                                               and
                                                                                                                               Messaging;
                                                                                                                               Calculation
                                                                                                                               based on
                                                                                                                               those
                                                                                                                               opportunities
                                                                                                                               no bid and
                                                                                                                               our historical
                                                                                                                               bid to win
                                                                                                                               ratio of 25°/o
                                                                                                                               of all
                                                                                                                               opportunities
                                                                                                                               bid.
                                                                                             Subtotal   IS         7,497,776

 Also Count II: Recompete of DS4
 Lost Fee                                                   $   945,252   $ 964,158    $     983,441        $ 2,892,851        DS4: Year 3.
                                                                                                                               4 and 5 Gross
 LostG&A                                                    $ 1,962,489   $2,001,739   $   2,041,774        $ 6,006,002
                                                                                                                               Profits ( 16%)
 Lost OH                                                    $   908,393   $ 926,561    $     945,092        $ 2,780,047        withPWIN of
                                                                                                                               60%
                                                                                             Subtotal   I       $ 11,678,899
                                                                                             TOTAL      I S 37,597,527

       Exhibit 3 clarifies that the consequential damages claim is based on lost profits,
loss of corporate market value (calculated by multiplying by six the lost profits on the
base and option years), along with general and administrative costs (G&A), and
overhead. Exhibit 3 indicates that Nexagen seeks its fixed fee for not only the base
and option years but also for three additional years for which it contends it would have
been the awardee after a recompetition. For the five years, Nexagen seeks a total of
$19,088,159 in lost profits, G&A, and overhead. On top of this it seeks $11,011,592


                                                                4
for the alleged loss of corporate market value, and nearly $7 .5 million in lost profits on
other contracts due to its loss of the "talent pool" it hired to perform this contract.

        Exhibit 3 illustrates that the damage calculations for the two claims overlap. As
stated above, the major component of the expectation damages claim is the $1,835,265
in lost profits for the base and option year. Nexagen also included these in the
consequential damages claim. (Compare app. resp., ex. 3, and R4, tab 20 at 11)

                                       DECISION

Jurisdiction

        After reviewing Nexagen's claim, the Board raised the issue of our jurisdiction
to consider the consequential damages claim because, while the claim has an
abundance of detail for the much smaller expectation damages claim, it makes only
relatively vague assertions with respect to consequential damages. We have held, for
example, that if a claim is so lacking in specificity that the CO would "have to be
omniscient to decipher appellant's intent," we do not possess jurisdiction. Sermor,
Inc., ASBCA No. 46755, 95-1 BCA i127,500 at 137,043. We requested that the
parties address the issue in their briefs.

       FAR 2.101 provides that a "claim" is: "a written demand or written assertion
by one of the contracting parties seeking, as a matter of right, the payment of money in
a sum certain, the adjustment or interpretation of contract terms, or other relief arising
under or relating to the contract." The Court of Appeals for the Federal Circuit has
held that the claim must provide the CO adequate notice of the basis and amount of the
claim. Contract Cleaning Maintenance, Inc. v. United States, 811 F.2d 586, 592 (Fed.
Cir. 1987).

        Shortly after our decision in Sermor, the Court of Appeals clarified the minimal
amount of information required in H.L. Smith, Inc. v. Dalton, 49 F .3d 1563 (Fed. Cir. 1995).
In H.L. Smith, the contractor submitted nine letters requesting equitable adjustments that did
not explain how it calculated the amounts due, and did not submit any documentation, even
after repeated requests from the CO asking for a more detailed explanation so that he could
evaluate the claim. (Id. at 1564 ). The Board dismissed the appeals, finding that the "claim
letters consist merely of broad allegations of Government caused delay and disruption
without linking a specific assertion of delay or disruption to the actual dollar amounts
requested." H.L. Smith, Inc., ASBCA No. 45111 et al., 94-2 BCA i126,723 at 132,933. The
Board held that it lacked jurisdiction because the contractor failed to present enough
information to the CO for him to meaningfully evaluate the claims. Id.

      The Federal Circuit reversed, holding that neither the Contract Disputes Act nor
the FAR required the contractor to account for each cost component of the claim.

                                            5
H.L. Smith, 49 F.3d at 1565. The Court held that, while our decision accurately
described the claim letters, providing the CO adequate notice of the basis and amount
does not require the contractor to submit a detailed breakdown of costs or financial
documentation. Id. at 1564-65. Thus, the Court held that allegations of government
delay, along with a sum certain, are sufficient for jurisdiction, even if there is no
explanation as to how the delay resulted in the damages or how the damages were
calculated. In applying this standard, we have thus characterized the amount of
information required to provide adequate notice of the basis and amount of the claim
as "quite low.'· L-3 Communications Integrated Systems, L.P., ASBCA Nos. 60713,
60716, 17-1BCAi136,865 at 179,626.

        In its supplemental brief, Nexagen implicitly acknowledges that it did not provide
the CO all of the information contained in Exhibit 3. But it states that after submission of
the claim, "the Contracting Officer should have been on notice that the claim of
$37,597,526.94 reflected the loss of value, loss of goodwill, loss of profit, overhead and
G&A resulting from the termination." (App. supp. br. at 5)

        We agree with N exagen that it submitted enough information, if just barely so, to
pass the low jurisdictional bar. Without doubt, administrative review of the claim
would have been difficult unless the CO were omniscient or telepathic. Otherwise,
there is no way for her to have known, for example, that Nexagen seeks an $11 million
reduction in corporate value equal to the base and option year fees multiplied by six.
But the claim does cite a "loss of $35M+ in revenue ... related to Predictive Analytics,
[and] Cloud Computing" and "$48M in gross revenue Good Will Lost," conveying by
virtue of numbers larger than the value of the task order that Nexagen must be basing
the claim on the loss of other contracts. Further, the reference in the claim to losing a
partnership on an $80 million contract, and "emboldened industry concerns" about its
ability to effectively perform and partner, and the loss of "Technical Expertise," at least
suggest the notion of a company that has been weakened and is less valuable due to the
government's alleged actions. Further the claim specifically cites the loss of $10
million in overhead, G&A and lost profit. Thus, we agree with Nexagen that the CO
would have been on notice that the $37+ million claimed reflected the loss of value,
loss of goodwill, loss of profit, overhead and G&A resulting from the termination, even
if she had no idea how Nexagen calculated its alleged losses.

       Accordingly, we conclude that we possess jurisdiction to consider the
consequential damages claim and now consider whether Nexagen is entitled as a
matter of law to recover the types of damages it seeks.

Summary Judgment Standard of Review

       Summary judgment is appropriate when there is no genuine issue of material fact
and the moving party is entitled to judgment as a matter of law. Anderson v. Liberty

                                            6
Lobby, Inc., 477 U.S. 242, 247-48 (1986). When considering a motion for summary
judgment, the Board must determine whether there is a genuine issue for trial. Id. at 249.

Claims for Lost Profits after a Termination/or Convenience

        Because so much ofNexagen's consequential damages claim is based on lost
profits after a convenience termination, we begin with the termination for convenience
clause. FAR 52.249-6 provides in relevant part that:

              (a) The Government may terminate performance of work
              under this contract in whole or, from time to time, in part,
              if -

                  (I) The Contracting Officer determines that a
                  termination is in the Government's interest.. ..

        Such clauses allow the government to terminate a contract and avoid the
payment of common law damages such as anticipatory profits for which it could be
liable if it terminated a contract lacking such a clause. SWR, Inc., ASBCA No. 56708,
15-1 BCA ,i 35,832 at 175,222. The Court of Claims explained that "[t]his exclusion
from relief of unearned profits [in a termination for convenience] is a settled policy
which has long been accepted and enforced." William Green Constr. Co. v. United
States, 477 F.2d 930,936 (Ct. Cl. 1973).

        The CO's election to terminate for the government's convenience is conclusive
unless the contractor can show a clear abuse of discretion or that the government acted
in bad faith. T&M Distributors, Inc. v. United States, 185 F.3d 1279, 1283 (Fed. Cir.
1999). A termination tainted by bad faith or abuse of discretion opens the door to
breach damages such as anticipatory profits. Krygoski Constr. Co. v. United States, 94
F.3d 1537, 1541 (Fed. Cir. 1996). To prove bad faith, there must be clear and
convincing (or "well-nigh irrefragable") evidence of some specific intent to harm the
contractor. Am-Pro Protective Agency, Inc. v. United States, 281 F.3d 1234, 1239-40
(Fed. Cir. 2002). Due to the heavy burden of proof, contractors have rarely been
successful in demonstrating the government's bad faith. Krygoski, 94 F .3d at 1541.
But, if Nexagen meets this elevated standard, it may be entitled to lost profits on the
base year of the contract. (We address the option year at the end of this opinion.)




                                            7
    Anticipatory Profits on other Contracts and Loss of Business Value

        Even if a contractor succeeds in showing bad faith, it is not entitled to
consequential damages 3 , such as lost profits on other contracts. William Green
Cons tr, 4 77 F .2d at 936. Such damages, whether in a termination for convenience or
in the event of some other kind of breach, are not recoverable because the award of
future contracts is too remote and speculative. The Court of Claims explained that: "if
[the damages] are such as would have been realized by the party from other
independent and collateral undertakings, although entered into in consequence and on
the faith of the principal contract, then they are too uncertain and remote to be taken
into consideration as a part of the damages occasioned by the breach of the contract in
suit." Ramsey v. United States, 121 Ct. Cl. 426, 435 (1951) ( quoting Myerle v. United
States, 33 Ct. Cl. 1, 26 (1897) ( quoting Fox v. Harding, 61 Mass. 516, 522 (1851 )).
The Court of Claims and the Federal Circuit have followed this rule in numerous
cases. Rumsfeld v. Freedom NY, Inc., 329 F.3d 1320, 1333 (Fed. Cir. 2003) (after
default termination converted to one for convenience, denying. as too remote and
uncertain profits and overhead on contracts appellant contended it would have been
awarded but for the government's breach); Olin Jones Sand Co. v. United States, 225
Ct. Cl. 741, 744 (1980) ("The speculative alleged loss of future contracts and work in
this case comes within the losses of outside business, outside contracts, and general
company worth referred to in [ William Green Cons tr.].... [T]here is no assurance that
plaintiff would have received any additional contracts or work."); William Green
Constr., 477 F.2d at 936 ("even in a common-law suit there would be no recovery for
general loss of business, the claimed loss of the entire Green net worth, and losses on
the non-federal work-such damages are all deemed too remote and consequential");
Ramsey, 121 Ct. Cl. at 433-35 (denying costs of bankruptcy reorganization and profits
lost on corporation's overall business activities).

         In this appeal, Nexagen seeks $11,011,592 in lost corporate value, $7,497,776 in
lost business opportunities in predictive analytics and other fields, and $11,678,899 for
what it refers to as "gross profits" on the successor contract to the one at issue (app. resp.,
ex. 3). Raj Parikh, Nexagen's Chief Operating Officer, states in a declaration that
Nexagen has a historical success rate of 25% when it bids on contracts and that Nexagen
would have been bidding on the successor contract as the incumbent (app. resp., ex. 12).
Even if we accept these assertions, the claim remains speculative. The contract at issue
did not entitle appellant to these contracts and there is no assurance that it would have
received any additional contracts, e.g., Olin Jones, 225 Ct. Cl. at 744, and, to the extent
that it received them, there is no assurance that it would have made a profit.


3
    Consequential damages are "[l]osses that do not flow directly and immediately from
        an injurious act but that result indirectly from the act." BLACK'S LAW
        DICTIONARY (10th ed. 2014).

                                             8
       Thus, we grant the government summary judgment with respect to Nexagen's
claims for $11,011,592 in lost corporate value, $7,497,776 in lost business opportunities
in predictive analytics and other fields, and $11,678,899 in lost profits, G&A and
overhead on the successor contract.

The Option Year

        This opinion does not address the portion of Nexagen's claim in which it seeks
lost profits, G&A, and overhead totaling more than $3.7 million on the option year of the
task order (app. resp., ex. 3). In an option contract, the government has bargained for the
right to exercise or not exercise the option at its discretion and a contractor cannot
compel the government to exercise the option. Government Systems Advisors, Inc. v.
United States, 847 F.2d 811, 813 (Fed. Cir. 1988). The Board has recognized a limited
exception to this rule if the contractor can prove bad faith, an abuse of discretion or that
the CO acted in an arbitrary or capricious manner. IMS Engineers-Architects, P. C.,
ASBCA No. 53471, 06-1 BCA ,J 33,231 at 164,674, recon. denied, 07-1 BCA ,J 33,467,
ajf'd, IMS Engineers-Architects, P.C. v. Geren, 274 F. App'x 898 (Fed. Cir. 2008).

       At the time of termination in this appeal, roughly seven months remained
before the government had to issue a preliminary notice if it wished to exercise the
option (see R4, tab I at 140, tab 2 at 2). The parties have not addressed in their briefs
whether we should treat the exercise of an option so far in the future as similar to a
future contract and thus barred as too remote and speculative by William Green
Construction and the other cases cited above, or whether a finding of bad faith in the
base year termination for convenience could somehow extend to the option year as
well. We decline to rule on this issue sua sponte.

                                    CONCLUSION

       We grant the government's motion for partial summary judgment as set forth in
this opinion.

       Dated: January 29, 2019


                                                 '-~\~1()             o·~
                                                   MICHAEL N. O'CONNELL
                                                   Administrative Judge
                                                   Armed Services Board
                                                   of Contract Appeals

(Signatures continued)


                                            9
 I concur                                       I concur



                                                J. REii5PROUTY
 Administrative Judge                           Administrative Judge
 Acting Chairman                                Vice Chairman
 Armed Services Board                           Armed Services Board
 of Contract Appeals                            of Contract Appeals


      I certify that the foregoing is a true copy of the Opinion and Decision of the
Armed Services Board of Contract Appeals in ASBCA No. 60641, Appeal of Nexagen
Networks, Inc., rendered in conformance with the Board's Charter.

      Dated:



                                               JEFFREY D. GARDIN
                                               Recorder, Armed Services
                                               Board of Contract Appeals




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