              ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeal of--                                  )
                                             )
Raytheon Missile Systems Company             )      ASBCA No. 59258
                                             )
Under Contract No. NOOO 19-04-C-0569         )

APPEARANCES FOR THE APPELLANT:                      Robert M. Moore, Esq.
                                                    Robert D. Windus, Esq.
                                                    Jason C. Constantine, Esq.
                                                     Moore & Lee, LLP
                                                     McLean, VA

                                                    Sharon S. Jones, Esq.
                                                     Counsel

APPEARANCES FOR THE GOVERNMENT:                     Ronald J. Borro, Esq.
                                                     Navy Chief Trial Attorney
                                                    James T. DeLanoy, Esq.
                                                     Senior Trial Attorney
                                                    Taylor Ferrell, Esq.
                                                     Trial Attorney

                OPINION BY ADMINISTRATIVE JUDGE CLARKE

       This is the quantum phase of Raytheon Missile Systems Company,
ASBCA No. 57594, 13 BCA ~ 35,264, recon. denied, 13 BCA ~ 35,321, wherein the
Board sustained Raytheon's appeal in part. We have jurisdiction pursuant to the
Contract Disputes Act of 1978 (CDA), 41 U.S.C. §§ 7101-7109. Raytheon is entitled
to $2,390,784 plus CDA interest.                                          ·

Objections

       The parties elected to submit the quantum case under Board Rule 11 on the record.
Both parties filed objections to various affidavits/declarations and documents. The Navy
objects to affidavits from Mr. Blume and Mr. Torres arguing that the affidavits violate the
best evidence rule. With respect to Mr. Blume the Navy seems to fault his testimony
because he did not observe the fueling of each missile (Bd. corr. file, gov't obj. dtd.
21August2014 at 1). With respect to Mr. Torres the Navy complains that Raytheon is
improperly presenting "expert testimony under the guise oflay testimony" (id. at 5). We
have considered these and the other arguments made by the Navy and reject them.
Raytheon presents a list of objections to Ms. Caccivio's and Mr. Grams' declarations. We
considered each basis presented for the objections and deny the objections.

       Board Rule 11 specifically provides that "[a]ffidavits, declarations, depositions,
admissions, answers to interrogatories, and stipulations may be employed in addition
to the Rule 4 file if moved and accepted into evidence ... to be made part of the record."
By agreeing to a Board Rule 11 submission, each party is entitled to submit
affidavits/declarations in place of the live testimony that would have been available
had the parties elected a hearing. In a Board Rule 11 submission each party has the
opportunity to deal with aspects of these substitutes for live testimony by taking
depositions and submitting transcripts or through rebutting affidavits/declarations or
documents. The parties' objections to each other's affidavits/declarations are denied.

       The Navy objects to "annotated" DESC invoices for JP-I 0 at Rule 4, tab 17, 1
and appellant's supplemental Rule 4, tabs 166 and 169. 2 We will deal with the Navy's
objection to appellant's supplemental Rule 4, tabs 166 and 169 later in this decision.
Raytheon objects to an extensive variety of documents. We considered Raytheon's
objections and deny them.

                                       DISCUSSION

The Entitlement Decision

         Familiarity with our entitlement decision is assumed. Generally, the case
involved the government's $11.00/gallon increase in JP-10 cruise missile jet fuel to
finance building a storage facility (Defense Fuel Support Point or DFSP), stocking it
with JP-10, and covering losses on other commodities. We concluded that Raytheon
had not assumed the risk of an increase in fuel cost for financing the DFSP and
stocking it. In our entitlement decision we sustained Raytheon's appeal as it related to
that part of the $11.00 increased price that was allocated to building the DFSP and
purchasing fuel to stock it. We denied the appeal as it related to that part of the price
increase used to offset losses on other Defense Energy Support Center (DESC)
commodities. Raytheon, 13 BCA ~ 35,264 at 173,117-18. Therefore, it is Raytheon's
burden to prove its damages by proving how many gallons of fuel it purchased at the
$25.00 rate and loaded into Contract No. N00019-04-C-0569 (Contract 0569) missiles.
It is also Raytheon's burden to prove how much of the $11.00 increase was allocable
to the causes we sustained in the entitlement appeal.




1
    This document was in the entitlement Rule 4 file and is already in the record.
2
    Rule 4, tabs 163 to 170, were not part of the evidence in the entitlement phase.
DFSP and JP-10 Stock

       From our entitlement decision we know that DESC contracted with Dixie to
build the DFSP for $1,199,940 and that the DFSP was completed in FY09. We also
know that the DFSP would have a capacity of 130,000 gallons and that DESC
purchased at least 100,000 gallons of JP-10 to stock the DFSP. Raytheon, 13 BCA
~ 35,264 at 173,109-10, finding 23. We also know that surplus money resulting from
sales of the $25.00 JP-10 covered losses from the previous year on JP-10 and other
aerospace energy commodities. Raytheon, 13 BCA ~ 3 5,264 at 173, 110, finding 25.

        Raytheon supplements what we know from our entitlement decision with evidence
from a DESC budget preparation sheet that indicates DESC's reserve inventory was
projected to increase from 162 gallons in FY09 to 129,818 in FYl 1 or a purchase of
129,656 gallons of JP-10 (app. supp. R4, tab 134). During this time the price DESC paid
Dixie for JP-10 ranged from $14.99 to $15.90 3 (R4, tab 54 at 4). Using the $14.99 price,
the 129,656 reserve inventory would cost DESC $1,943,543. We need not be more
precise because the total amount for building the DESC and paying for the JP-10 to stock
it ($1,199,940 + $1,943,543 = $3,143,483) is well above the $2,390,784 damage to
Raytheon we calculate below as a result of the $11.00 price increase to $25.00/gallon.

Order on Proof of Costs

        The Board issued an Order on Proof of Costs on 11 April 2014. Raytheon filed
its Statement of Costs (SOC) on 23 May 2014. The Navy responded to the SOC on
23 June 2014. Raytheon replied to the Navy's response on 3 July 2014. The parties
then chose to file Board Rule 11 briefs and reply briefs that supplemented the facts
with additional Rule 4 documents and arguments.

        According to Raytheon, the Navy did not audit its SOC (app. br. at 2), and we find
no evidence of an audit of the SOC in the record. While we draw no inference from this
fact, the result is that the Navy's defense to Raytheon's SOC data is largely rhetorical.

Total Cost Claim

        The Navy characterizes Raytheon's quantum analysis as a "total cost" claim and
structures much of its quantum briefs argument around the elements of proof required
to sustain a total cost claim (gov't br. at 27-36). We agree with Raytheon, this is not a
total cost claim. See, e.g., Raytheon Co. v. White 305 F.3d 1354, 1365 (Fed. Cir. 2002)
("Under the total cost method, the measure of damages is the difference between the
actual cost of the contract and the contractor's bid."); WRB Corp. v. United States, 183
Ct. Cl. 409, 426 (1968) (total cost claim is difference between actual and estimated

3   During this time period Raytheon was paying DESC $25.00/gallon.




                                                                                             I
                                           3
expenses). Rather, Raytheon's approach to quantum identifies the number of gallons of
fuel priced at $25.00 that it loaded into Contract 0569 missiles and, with certain other
adjustments, simply calculates quantum based on the $11.00 difference between
$14.00/gallon Raytheon bid and the $25.00/gallon charged. This approach is a direct
quantification of the damage caused by the Navy's breach.

The Amount of Fuel Per Missile

         It is undisputed that the missiles are delivered to the Navy fully fueled. The parties
could not agree on the number of gallons of fuel in each missile. Raytheon contends that
each missile holds approximately 141 gallons of fuel, 13 of which are provided by the
engine manufacturer and not Raytheon (app. hr. at 6-7). Therefore, Raytheon contends
that it loads approximately 128 gallons of fuel in each missile (app. hr. at 6).

       The Navy objects to the last 13 pages of the documents at appellant's
supplemental Rule 4, tab 166, that purport to list the weight of fuel in missiles by tail
number. We agree with the Navy as to these pages because they do not appear to be
attached or related to the email string in the first 6 pages of tab 166. The last 13 pages
will not be considered by the Board. However, the emails in the first 6 pages appear
regular on their face and contain relevant information that we rely upon. Appellant's
supplemental Rule 4, tab 166, includes a copy of Drawing 1492526, sheet 14, which is
an excerpt from a test document. The document indicates the following:

              Usable Fuel Volume:
              Verify calculated quantity of useable fuel loaded 990 lbs
              minimum for PAV and 920 lbs minimum for RSS
              equipped missile.

(App. supp. R4, tab 166 at 2) In a 23 August 2010 letter to the Defense Contract Audit
Agency, Mr. Blume referred to drawing 1492526, sheet 14, and explained that a gallon
of JP-10 weighs approximately 7. 72 pounds and that 990 pounds of fuel equated to
approximately 128 gallons (app. supp. R4, tab 167). The Navy contests the
128 gallons but its own calculations using specific gravity result in a mean of
126.3036 gallons of fuel in each missile (gov't hr. at 14, ii 54). We do not consider
this a significant variance and we adopt 128 gallons as the number of gallons in each
missile provided by Raytheon for the computation of quantum.

The Navy's Quantum Arguments

        In its initial Board Rule 11 brief the Navy spent most of its argument on the
elements of a total cost claim (gov't hr. at 26-35). Since we do not consider a total
cost claim, this argument is unpersuasive. However, the Navy also appears to argue
that since the DFSP was not built until FY09 that the additional amounts paid by


                                             4
Raytheon when the price was $25.00 in FY07 and FY08 must have gone to offset
losses and could not have been used to pay for the DFSP or the JP-10 to stock it
(gov't. br. at 36-37; gov't reply br. at 16). The Navy argues, "Raytheon has obviously
failed to meet its burden on demonstrating any amount of $25 JP-10 sold to it for the
contract at issue was used to finance the DFSP" (gov't br. at 37). The record is replete
with evidence that the $25.00 price was designed to finance the DFSP and pay for the
JP-10 to stock it. 4 The Navy's argument is unpersuasive.

       The Navy also argues that it was Raytheon's fault that it incurred the additional
costs associated with the increase to $25.00/gallon because of "delays or inefficiencies"
(gov't reply br. at 22-24). The theory seems to be that Raytheon should have delivered
more missiles with the cheaper fuel before the price increased to $25.00 and therefore it
should not recover for those missiles. There is no evidence that the Navy took any
adverse action against Raytheon for these alleged inefficiencies or delays. Additionally,
some of this occurred before Raytheon learned of the Navy's coming price increase in
July 2006. After Raytheon first learned of the price increase it made a variety of attempts
to mitigate the damage to no avail. Raytheon, 13 BCA ,-i 3 5,264 at 173, 110-11,
findings 26, 28-31. The Navy's delays or inefficiencies argument is unpersuasive.

Quantum Calculations

       Raytheon relies on three things to calculate its quantum amount: (1) 128 gallons
per missile; (2) invoices at $25/gallon (R4, tab 17; app. supp. R4, tab 122); and (3) a list
of missiles and DD 250 acceptance dates (app. supp. R4, tab 169). We accepted the
128 gallon figure above. We accept the invoices as evidence of the total number of
gallons of fuel purchased at the $25.00 rate. We discuss the list of missiles and DD 250
acceptance dates below. Raytheon must now establish how many of those gallons of
$25.00 fuel were loaded into Contract 0569 missiles.

       Raytheon relies on the affidavit testimony of Mr. Thomas Blume to identify
invoices associated with the gallons of $25.00 fuel loaded into Contract 0569 missiles.
Mr. Blume testified as follows:

                In preparing Raytheon's Certified Claim and the
                Revised/Certified Claim, I reviewed, in detail, every gallon
                of JP-10 fuel that was delivered to Raytheon and where
                those gallons were utilized. I reviewed each Raytheon
                invoice from the Defense Energy Support Center
                ("DESC") through December 31, 2009 to determine the
                number of gallons of JP-10 Raytheon purchased at
                $25/gallon instead of $14/gallon under the FRP Contract.

4
    See entitlement decision, Raytheon 13 BCA ,-i 35,264, findings 21-32.

                                             5
              I annotated the DESC invoices to denote the particular
              Tomahawk contract that was using the fuel in each invoice.
              I then compared these invoices to Raytheon's canceled
              checks and screenshots from Raytheon's accounting
              system to determine the total impact of the Government's
              decision to increase the price of JP-10 during Raytheon's
              performance of the FRP Contract. I included copies of the
              annotated invoices, canceled checks, and screenshots with
              Raytheon's Revised/Certified Claim. These items were
              part of the record in the entitlement proceedings (Rule 4(a)
              Tab 17) and were attached to Raytheon's Statement of
              Costs.

(Blume aff. at 4, ii 13) Mr. Blume also included projected fuel costs and gave a credit
for fuel purchased for less than $14.00/gallon (id.).

        Mr. Blume relied on the listing at appellant's supplemental Rule 4, tab 169, to
document the total number of missiles delivered under Contract 0569 (Blume aff.
at 4). The Navy objects to this document (Bd. corr. file, gov't obj. dtd. 21 August
2014 at 6). The document at appellant's supplemental Rule 4, tab 169, is a tabular
listing of 1,762 missiles, by tail number, delivered between 1 October 2006 and
29 September 2010 (FY07 to FYlO). While Mr. Blume could have elaborated more
on the origins of this document, we conclude that his sworn testimony is sufficient for
us to consider it. This is particularly true in view of the fact there is no evidence that
the Navy made any attempt to audit this listing. We fail to understand the basis for the
Navy's objection and reject its argument that the "DD 250 date does not represent the
date of missile fueling" (Bd. corr. file, gov't obj. dtd. 21 August 2014 at 7). It is
obvious that the DD 250 date accepting each fully loaded missile will not be the date
of fueling. We deny the Navy's objection to appellant's supplemental Rule 4, tab 169.

      Using the listing at appellant's supplemental Rule 4, tab 169, Mr. Blume
determined that Raytheon delivered 1,762 missiles between FY07 and FYlO
(Blume aff. at 4). Mr. Blume testified:

              Raytheon delivered 1,762 Tomahawk missiles to the
              Government between FY07-FY10 when the price of JP-10
              was $25/gallon. See Rule 4(b) Tab 169. After reviewing
              all of Raytheon's invoices from DESC for the purchase of
              JP-10 and determining the number of gallons of JP-10
              purchased at $25/gallon, I determined that Raytheon fueled
              1,749 missiles under the FRP Contract using 223,879
              gallons of JP-10 purchased at $25/gallon. Notably,
              Raytheon actually purchased 303,875 gallons of JP-10 at


                                            6
                $25/gallon between FY07-FY10, but only 223,879 gallons
                were for missiles under the FRP Contract.

(Blume aff. at 4-5, ii 15) Mr. Blume does not elaborate on how he made his
determination that 1,749 missiles were delivered under Contract 0569 with $25.00
fuel. However, it is obvious that Mr. Blume relied upon the following calculation for
total gallons: 128 gallons/missile x 1,749 missiles= 223,879 gallons. It is the 1,749
missiles that we question.

        We cannot square Mr. Blume's 1,749 missiles with the records he relied upon.
Without his explanation we are left to sort the number out as best we can. There is a 13
missile difference between 1,762 and 1,749. That means that, according to Mr. Blume,
the first missile loaded with $25 .00 fuel was the fourteenth missile that was accepted by
DD 250 dated 3 November 2006 (app. supp. R4, tab 169 at 1). We do not know how
much time elapsed between the loading of the fuel and signing of the DD 250 but we
know that the fuel was loaded before the DD 250 was signed because the missile was
tendered for acceptance fully loaded with fuel. The first purchase of $25.00 fuel is
shown on invoice number P-611-078 dated 29 November 2006 (R4, tab 17 at 16). We
do not know when that fuel was delivered to Raytheon. We conclude, however, absent
any explanation from Mr. Blume, that the $25.00 fuel, invoiced on 29 November 2006,
likely was not loaded into the fourteenth missile accepted weeks earlier on 3 November
2006. Therefore we cannot accept Mr. Blume's 1,749 missiles as a basis for calculating
quantum. The only firm dates we have to work with are the fuel invoice dates and the
missile acceptance, DD 250, dates. The first $25.00 fuel invoice is dated 29 November
2006. The first missile accepted after that date is number 19 accepted on 1 December
2006, only two days after the invoice (app. supp. R4, tab 169 at 1). Our problem is that
we do not know when the first of the $25.00 fuel was loaded into the first missile.
Given the record we have, there is no precise way to determine which missile number
was the first to be loaded with $25.00 fuel. Therefore, we select one month, the month
of December 2006, as the period of time to account for the uncertainty associated with
the only firm dates we have to rely on. We find it is reasonable to conclude that missiles
delivered in January 2007 and thereafter were loaded with $25 .00 fuel. If it was an
earlier date, Raytheon failed to prove that. The first missile accepted in January 2007
was number 65 accepted on 4 January 2007 (id.). Therefore, a reasonable approximation
is 1,698 (1,762 minus 64) as the number of Contract 0569 missiles loaded with $25.00
fuel. We calculate the number of gallons in those missiles that Raytheon loaded as
128 x 1,698 = 217,344. Therefore the value ofthe fuel loaded into the missiles is $11 x
217,344 = $2,390,784. 5 It is Raytheon's burden to reduce this number to account for
losses from other commodities, the portion of the entitlement decision that denied
Raytheon's appeal.

5
    Having found for Raytheon in this regard, we need not address its various other
         arguments in its initial quantum brief. (app. br. at 15-24).

                                             7
                                                                                              I
Losses from Other Commodities

        In its Rule 11 quantum brief Raytheon argues that it "specifically requested that
the Government produce documents indicating how much, if any, of the increased
profits from JP-10 sales was used to offset losses on other commodities, Rule 4(b)
Tab 165" and that the "Government never produced any such documentation" (app. br.
at 22). The document at Rule 4, tab 165 is a subpoena issued by the Board to the
Government with a list of documents requested by Raytheon. While the document
requests do not include a specific request for "losses on other commodities," the
requests are broad enough to require production of this information. In its reply brief,
the Navy quotes hearing testimony (on entitlement) by Ms. Murphy, DESC Director,
where she agreed that after the price increase to $25 .00 the increase offset losses from
other commodities (gov't reply br. at 16). The Navy argues:

              Raytheon suggests (AB 22) that it received no documents
              about DESC losses. That is refuted by the budget
              preparation sheets showing FY 2006 JP-10 losses that had
              to be recovered in the next two fiscal years and Rule 4(b ),
              Tab 61, on which Raytheon relies and cites. Raytheon also
              received other DESC documents that it chose whether or
              not to add to the record. Those added include: Rule 4(a)
              Tabs 82, 83, 85, 88; Rule 4(b) Tabs 45, 104, 134. In short,
              DESC produced everything that it had in its custody.
              Those portions that Raytheon chose to use out of that
              collection of documents represents the record evidence in
              the case as to DESC losses.

(Gov't reply br. at 17) Nowhere in its reply brief or anywhere else does the Navy
                                                                                              f
identify where in the documents it produced is the evidence of losses attributable only to
commodities other than JP-10.

       What we confront is Raytheon with the burden of proof to establish how much it
should reduce its recovery for losses from other commodities stating that it did not
receive documents that identify losses for other commodities. The Navy responds saying
"yes we did provide the information." In its reply brief the Navy identified eight Rule 4
tabs (see quote in previous paragraph) containing documents it contends provide
Raytheon the evidence necessary to calculate the amount to be deducted. We reviewed
these documents and saw nothing that obviously identified the dollar amounts of losses
from other commodities that would enable Raytheon or the Board to make the
calculation. Therefore, we conclude that Raytheon's evidence on this point is sufficient
to carry its burden of persuasion that there is no reduction in its recovery to account for
losses on other commodities.


                                            8

                                                                                              I
Material Burden, G&A and Profit

         Raytheon makes several arguments in support of its request for markup. It argues
that it included markup on the $14.00 JP-10 it included in its price of the missiles sold to
the Navy. It states that if it had known it would have to pay $25.00 for JP-10 it would
have included markup on the $25.00. (App. br. at 27) This fundamentally misses the
point that nothing in this transaction was "sold to the Navy." The fuel was sold to
Raytheon. The $11.00 increase did not include Raytheon's markup and the refund of the
$11.00 should not include markup. To do so would refund more to Raytheon than was
taken by the Navy. This would be an unjustified windfall to Raytheon.

        The cases cited by Raytheon all stand for the proposition that changes that
increase the cost of performance are entitled to markup. We agree with that as a
general proposition. However, this is not the case. We decide that the Navy had no
right to impose the increase on Raytheon in the first place and we refund the $11.00
cost of the increase to Raytheon. There is no change that increases the cost of
performance justifying applying burden to the refund.

                                    CONCLUSION

       Raytheon is entitled to $2,390,784 plus CDA interest from the date of receipt of
the certified claim.




                                                     ~tv~ CP~[u__
       Dated: 3 September 2015



                                                  Administrati~
                                                  CRAIG S. C ARKE
                                                                 Judge
                                                  Armed Services Board
                                                  of Contract Appeals


I concur                                          I concur



d~~ ,//f:zi----
7MARK ~ER~                                       _RI_C_HARD
                                                       _ _S_HA_C_KL_E_F_O_RD
                                                                         _ _ _ __
Administrative Judge                              Administrative Judge
Acting Chairman                                   Vice Chairman
Armed Services Board
of Contract Appeals
                                                  Armed Services Board
                                                  of Contract Appeals
                                                                                               t
                                            9
       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. 59258, Appeal of
Raytheon Missile Systems Company, rendered in conformance with the Board's
Charter.

       Dated:



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




                                           10
