         ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeal of --                                 )
                                             )
Pro-Built Construction Firm                  )      ASBCA No. 59278
                                             )
Under Contract No. W5J9JE-10-D-0016          )

APPEARANCE FOR THE APPELLANT:                       William J. Spriggs, Esq.
                                                     Spriggs Consulting Services
                                                     Lynchburg, VA

APPEARANCES FOR THE GOVERNMENT:                     Thomas H. Gourlay, Jr., Esq.
                                                     Engineer Chief Trial Attorney
                                                    Pietro 0. Mistretta, Esq.
                                                    Matthew S. Tilghman, Esq.
                                                    Michael A. Rea, Esq.
                                                     Engineer Trial Attorneys
                                                     U.S. Army Engineer District, Middle East
                                                     Winchester, VA

           OPINION BY ADMINISTRATIVE JUDGE D' ALESSANDRIS

        In July 2011, the United States Army Corps of Engineers (Corps) awarded
Contract No. W5J9JE- l O-D-0016 to appellant, Pro-Built Construction Firm (Pro-Built)
for construction of a police station in Atghar District, Zabul Province, Afghanistan. The
Corps did not issue a notice to proceed before terminating the contract for the
convenience of the government in March 2012. In March 2012 Pro-Built first submitted
a termination for convenience settlement proposal. In March 2014, following several
revisions, and a Defense Contract Audit Agency (DCAA) audit, Pro-Built submitted a
certified claim of roughly $1.1 million. In a final decision dated 4 April 2014, the Corps'
contracting officer issued a unilateral determination that Pro-Built was entitled to
$48,972. Pro-Built timely appealed that final decision to this Board. We sustain the
appeal in part.

                                 FINDINGS OF FACT

 I.    The Contract

       1. The U.S. Army Corps of Engineers Afghanistan District North issued a
Multiple Award Task Order Contract (MATOC) No. W5J9JE-10-D-0016 to Pro-Built
on 18 March 2010 (R4, tab 3). On 31July2011 the Corps awarded Task Order
No. 0009 (the contract or task order 9) in the amount of $4,976,022.32 to Pro-Built
(R4, tab 16). Pro-Built performed other task orders pursuant to the MA TOC in other
parts of Afghanistan (tr. 1144, 60).

        2. Task order 9 was a firm-fixed-price contract for the design and construction
of an Afghanistan National Police Uniformed Police District Headquarters Compound
in Atghar District, Zabul Province (R4, tabs 16-17). The contract required site
adaption and construction including an administration building, a well house, guard
shacks, guard towers, barracks buildings, women's barracks, a Criminal Investigative
Directorate/Family Response Unit building, a water tower and tank, a fuel storage
facility, a vehicle refuel point, septic tank, perimeter security wall, and primary and
secondary entry control points (R4, tab 1 at 5, tab 13 at 65). The contract required
approval of a security plan before the contractor could start work on the project site,
and submission of a quality control plan not later than five days after the notice to
proceed (R4, tab 13 at 131, 219).

        3. The contract had a performance period of 365 days from receipt of the notice
to proceed (R4, tab 17 at 14). Although the Corps informed Pro-Built that it planned
to issue the notice to proceed at the Pre-construction Conference (R4, tab 16 at 1), the
notice was never issued (R4, tab 1 at 5).

      4. Relevant to this appeal, the contract contained Federal Acquisition
Regulation (FAR) 52.211-10, COMMENCEMENT, PROSECUTION, AND COMPLETION OF
WORK (APR 1984) (R4, tab 17 at 14).

     5. The contract also contained FAR 52.249-2, TERMINATION FOR
CONVENIENCE OF THE GOVERNMENT (FIXED-PRICE) (MA y 2004) which provides that:

              (g) If the Contractor and the Contracting Officer fail to
              agree on the whole amount to be paid because of the
              termination of work, the Contracting Officer shall pay the
              Contractor the amounts determined by the Contracting
              Officer as follows ... :



              (2) The total of -

              (i) The costs incurred in the performance of the work
              terminated, including initial costs and preparatory expense
              allocable thereto, but excluding any costs attributable to




                                           2
              supplies or services paid or to be paid under subparagraph
              ( f)( 1) of this clause;

              (ii) The cost of settling and paying termination settlement
              proposals under terminated subcontracts that are properly
              chargeable to the terminated portion of the contract if not
              included in subdivision (g)(2)(i) of this clause; and

              (iii) A sum, as profit on subdivision (g)(2)(i) of this clause,
              determined by the Contracting Officer under 49.202 of the
              Federal Acquisition Regulation, in effect on the date of this
              contract, to be fair and reasonable; however, if it appears
              that the Contractor would have sustained a loss on the
              entire contract had it been completed, the Contracting
              Officer shall allow no profit under this subdivision (iii) and
              shall reduce the settlement to reflect the indicated rate of
              loss.

(R4, tab 3 at 53-55)

       6. The contract provided for liquidated damages of $1,579.00 from Pro-Built
per calendar day of delay of completion of the contract beyond the 365-day
performance period (R4, tab 17 at 14).

       7. The contract also included a provision entitled "Sequence of Design-Construction
(Fast-Track)" providing:

              After receipt of the Contract Notice to Proceed (NTP) the
              Contractor shall initiate design, comply with all design
              submission requirements and obtain Government review of
              each submission. The contractor may begin construction
              on portions of the work for which the Government has
              reviewed the final design submission and has determined
              satisfactory for purposes of beginning construction. The
              Contracting Officer will notify the Contractor when the
              design is cleared for construction.

(R4, tab 13 at 197)

       8. The contract scope of work provided in~ 3.1.1 "Design Concept
Coordination Meeting" that, shortly after the notice to proceed, the government or
contractor could suggest a meeting to review the design submittal process (R4, tab 13



                                             3
at 189). The scope of work described the design submittal process, including~ 3.8.2
"Sequence of Design-Construction (Fast-Track)" which provided that the contractor
could begin construction on portions of the project for which the government had
approved the submittals while other portions of the design were still being reviewed
(id. at 197). The scope ofwork specification also contained~ 3.8.5 "Commencement
of Construction" which provided that commencement of construction prior to the
notice to proceed would "be at the Contractor's own risk and expense" (id. at 197).

       9. The DD Form 1155 awarding Task Order No. 9 to Pro-Built provided for
the base bid proposal line items that, "THIS DOES NOT CONSTITUTE YOUR
NOTICE TO PROCEED" (R4, tab 17 at 6). The same warning was included for the
optional bid line items (id. at 7).

       10. The Notice of Award letter advised Pro-Built that it was required to
account for "all contractor personnel, to include subcontractors and vendors,
performing services under this contract in the U.S. [Central Command] Area of
Responsibility" in the Synchronized Pre-deployment Operational Tracker (SPOT) (R4,
tab 16 at 1). The letter provided that SPOT registration demanded Pro-Built's
"immediate attention in advance of the preconstruction conference" and additionally
required Pro-Built to "enter 'all' your personnel under this contract within ten ( 10)
calendar days from the date of this letter" (R4, tab 16 at 1-2).

        11. Mr. Ismail Amiri, managing consultant and acting chief executive officer
for Pro-Built testified that he was familiar with the SPOT system and that the contract
required Pro-Built to identify its employees within ten days (tr. 1/66-67). However,
Mr. Amiri testified that usually after receiving an award Pro-Built would enter three or
four names into the SPOT system and that this was acceptable to the contracting
officer (tr. 1/67). Mr. Amiri was unable to recall if any employees were entered into
the SPOT system for task order 9 (tr. 1167-68).

        12. Mr. Amiri described the site conditions in Zabul Province, Afghanistan
as dangerous, the center of activities of the insurgents and a "very non-secure area"
(tr. 1120-21 ). He further testified that it was difficult to find qualified subcontractors
and laborers in 2011 because of booming construction in Afghanistan and because of
security issues. Mr. Amiri testified that qualified subcontractors and qualified staff
would prefer to work in other areas of Afghanistan where it was more secure and there
were projects available. (Tr. 1/23) Mr. Amiri testified that, due to the labor market
conditions, Pro-Built assembled a team of workers before the notice to proceed
because, "[i]f you do not have a dedicated team concentrating on the project from the
start, you will never be able to finish it" (tr. 1149). Mr. Amiri also testified that he
anticipated receiving the notice to proceed one month after the contract award (tr. 1125).




                                            4
       13. Mr. Amiri noted that the number of employees retained at the start of a
project varied depending on the complexity of the project and location (tr. 1192-93).
Mr. Amiri additionally testified that "the construction never started" and that "if you
would start the construction we would hire maybe 150 to 200 more, you know,
laborers, you know. We did not hire them." {Tr. 1/69, 81) Mr. Amiri testified that the
timekeeper was responsible for keeping track of equipment use and not employee
hours (tr. 1180-81 ). Additionally, Mr. Amiri testified that, the security manager was
responsible for performing security analysis and to consider threats to Pro-Built's staff,
but was not the person actually carrying a rifle (tr. 1186-87).

        14. Mr. Amiri testified that the normal employment practice in Afghanistan is
to hire workers on a monthly basis, with a minimum contract of one month, and
requiring a minimum of one month notice before terminating an employee (tr. 1134 ).

       15. While waiting for the notice to proceed, Pro-Built prepared its
pre-construction submittal, quality control plan, accident prevention plan, and security
plan. It also sent staff and subcontractors to see the site, talk with the local people and
talk with the village elders, and considered elements for the design including building
codes and specifications. {Tr. 1126-27)

        16. In an email dated 24 October 2011, the government's project engineer,
Mr. Ron Rodriguez informed Pro-Built that the pre-construction meeting would take
place on 29 October 2011. He indicated that only Pro-Built's major subcontractors
needed to attend the meeting, and informed Pro-Built that he anticipated issuing the
notice to proceed after the meeting. (App. supp. R4, tab A-2)

        17. On 29 October 2011, Pro-Built attended the pre-construction meeting that,
among other things, identified the government personnel for the project, explained
their roles and responsibilities, and provided their contact information (R4, tab 22
at 8-13, 53).

        18. On 12 November 2011, Pro-Built emailed Mr. Rodriguez requesting a
meeting regarding progress of the project. Mr. Rodriquez responded the same day:
"[ u]nfortunately we have not been given direction from the Area Office on the way
forward for the [district headquarters]. We cannot schedule a mutual understanding
meeting at this time. I will notify you as soon as the Project Office receives a directive
from the Area Engineer and Project Manager." (App. supp. R4, tab A-3)

       19. On 18 December 2011, Pro-Built emailed Mr. Rodriguez, writing that it
had been more than a month since Pro-Built had submitted its pre-construction
submittals. Pro-Built referred to the 14-day response time provided for in the request




                                             5
 for proposal, and stated it was looking ahead to receive the notice to proceed. (App.
 supp. R4, tab A-5)

        20. On 19 December 2011, Mr. Rodriguez responded to the 18 December
 email, stating that "[t]he Area Office is working on a possible reduction in the scope of
 work. I will keep you informed of anticipated notice to proceed issue date." (App.
 supp. R4, tab A-5)

 II.     Termination For Convenience

         21. On 15 January 2012, the NATO Training Mission-Afghanistan,
 Combined Security Transition Command-Afghanistan, Afghanistan National Police
 Infrastructure Branch Chief asked the Corps to terminate task order 9 for convenience
 of the government due to "negative security conditions" (R4, tab 23).

       22. On 4 March 2012, the Corps' contracting officer issued Serial Letter
·No. C-0003 to Pro-Built, terminating task order 9 for the convenience of the
 government pursuant to FAR 52.249-2 (R4, tab 25).

 III.    Pro-Built's Termination For Convenience Claim

        23. On 8 March 2012, four days after the termination for convenience,
 Pro-Built submitted a termination for convenience settlement proposal 1 (R4, tab 1
 at 5). On 1 April 2012, the Corps informed Pro-Built that its settlement proposal was
 inadequate (R4, tab 26). Pro-Built subsequently submitted a revised proposal dated
 28 February 2013, in the amount of $1,133,243. By letter dated 11 March 2013, the
 Corps informed Pro-Built that its revised settlement proposal was deficient. (R4,
 tab 30) Pro-Built issued a third settlement proposal in the amount of$1,l 15,418 on
 25 March 2013, which the Corps again determined to be deficient (R4, tab 2).

        24. On 5 September 2013, DCAA issued Audit Report No. 2241-2013Al7100007
 concerning Pro-Built's 25 March 2013 termination for convenience settlement proposal
 (R4, tab 32).

       25. The DCAA audit report questioned the entire $1,115,418 proposed by
Pro-Built as unallowable pursuant to FAR 31.201-2, Determining allowability,
because Pro-Built did not comply with the FAR 52-211-10, Commencement,
Prosecution, and Completion of Work clause when it incurred costs, prior to receiving
the notice to proceed (R4, tab 32 at 7-8).



 1
     Pro-Built's 8 March 2012 settlement proposal is not included in the record.


                                              6
       26. The DCAA audit report also concluded that it was "unreasonable" for
Pro-Built to have incurred any costs, other than to meet bond, insurance, or
administrative requirements, prior to receiving the notice to proceed; that Pro-Built did
not have a formal accounting system; that Pro-Built's proposal was not an acceptable
basis for settlement; and that Pro-Built had not properly calculated its General and
Administrative (G&A) costs (R4, tab 32 at 4-8).

       27. The DCAA audit also questioned Pro-Built's direct labor and subcontractor
costs as unreasonable, in part because Pro-Built failed to submit subcontractor
settlements to the contracting officer for ratification (R4, tab 32 at 9). The audit noted
that Pro-Built's direct labor costs were based on pay slips and employment agreements,
and that the signed pay slips included the project name among other information.
DCAA did not question the direct labor costs for lack of supporting documentation. Id.
In addition, the DCAA audit questioned Pro-Built's claimed profit as unallowable
anticipatory profit (id.).

       28. By letter dated 30 January 2014, the contracting officer offered to settle the
termination for convenience claim, recognizing Pro-Built's costs "properly incurred
and supported in meeting bond, insurance and other administrative requirements" (R4,
tab 33). Pro-Built rejected the Corps' offer (R4, tab 2 at 2).

       29. By letter dated 27 February 2014, the contracting officer increased his
settlement offer to $48,972, and provided that the offer would expire on 17 March
2014 (R4, tab 34). Pro-Built did not accept the offer by the 17 March 2014 deadline
(R4, tab 2 at 2).

        30. On 31March2014 Pro-Built submitted a certified claim seeking $1,115,418
in settlement costs, and provided certain supporting documentation (R4, tab 35).

      31. On 4 April 2014, the contracting officer issued a settlement by
determination 2 in the amount of$48,972, pursuant to FAR 49.109-7(d) (R4, tab 2).

       32. On 9 April 2014, the contracting officer issued Modification No. 02 to task
order 9, definitizing the settlement by determination of $48,972 (R4, tab 19).




2   A settlement by determination is a unilateral decision by the contracting officer
         establishing a termination settlement amount when the parties are unable to
         come to a mutual agreement. This determination is a contracting officer's
         decision, subject to the contract's disputes clause. FAR 49.109-7(d).


                                             7
        33. On 23 April 2014 the Corps responded to Pro-Built's 31March2014
certified claim informing Pro-Built that the 4 April 2014 settlement determination was
the final decision of the contracting officer (R4, tab 36).

 IV.   Litigation Before the Board

       34. Pro-Built timely appealed to the Board on 28 April 2014 (R4, tab 1).

       35. Pro-Built subsequently proffered to the Board an expert report by
James L. McGovern, Certified Public Accountant/Certified in Financial Forensics,
Certified Valuation Analyst dated 25 June 2015 (app. supp. R4, tab A-9). Mr. McGovern
reviewed documentation, including staff salary slips, for the project and communicated
with Mr. Ismail Amiri and a second Pro-Built employee, Mr. Farzad Farzam (app. supp.
R4, tab A-9 at 38; tr. 11102-03). At the hearing in June 2016, Mr. McGovern was
admitted as an expert in government contract cost accounting (tr. 1/104).

       36. The expert report indicated that Pro-Built had a rudimentary accounting
system built on Excel spreadsheets similar to systems used by other small,
unsophisticated contractors. Pro-Built's practice was to track each project's costs
using spreadsheets for labor, materials, subcontractors, and equipment utilized on each
project. The accounting for each project would then be rolled up into formal financial
statements for the company. (App. supp. R4, tab A-9 at 32-33) Because the contract
did not specify the use of any particular accounting system, Mr. McGovern opined that
it was unreasonable for the DCAA audit to have expected Pro-Built to have
"conducted business and maintained records according to standards not commonly
practiced by small Afghani companies" (app. supp. R4, tab A-9 at 33).

       37. Formal financial statements for Pro-Built were prepared and audited by
Akram and Company, a chartered accounting firm in Afghanistan (app. supp. R4,
tab A-9 at 33, 372-409). The audited financial statements were initiated at the
suggestion of Mr. McGovern and are dated May and June 2014, after the
commencement of this litigation (app. supp. R4, tab A-9, ex. D; tr. 1/113).

       38. In his expert report, Mr. McGovern stated that the common practice in
Afghanistan, followed by Pro-Built, was to hire project personnel by employment
contracts specific to each project and to pay them monthly salaries without requiring
detailed time sheets. Similarly, subcontracts did not require formal documentation of
each dollar spent. (App. supp. R4, tab A-9 at 34) Mr. McGovern also provided his
expert opinion, based upon his work with other contractors in Afghanistan, that
assembling a dedicated project team for each project was common practice in
Afghanistan (id. at 36).




                                           8
       39. Mr. McGovern concluded that Pro-Built was entitled to $816,273 under the
contract (app. supp. R4, tab A-9 at 50). Mr. McGovern attached a revised settlement
proposal form SF 1436 to his expert report, detailing the $816,273 amount (id. at 52-55).

       40. The settlement proposal includes direct labor of $416,715.83. Exhibit A to
the expert report breaks out the claimed categories of direct field labor and the
monthly salaries for these positions. The categories as set forth in the proposal are:

             •       driver                       $500
             •       security manager            $3,000
             •       surveyor                    $2,500
             •       logistic officer            $2,000
             •       mechanical engineer         $5,500
             •       procurement officer         $1,200
             •       survey helper               $1,000
             •       electrical engineer         $5,000
             •       safety officer              $1,200
             •       cook                          $500
             •       construction manager        $4,500
             •       civil engineer              $5,000
             •       qc manager                  $4,500
             •       project scheduler           $5,000
             •       safety officer              $2,500
             •       admin manager               $2,300
             •       project manager             $9,000
             •       project doctor              $1,800
             •       site engineer               $3,000
             •       time keeper                 $1,200

(App. supp. R4, tab A-9 at 57)

        41. Mr. McGovern reduced Pro-Built's $741,394 direct labor claim in the
earlier settlement proposal to eliminate the costs of employees who he determined
could work on other projects and to move subcontractor costs to a separate category
(app. supp. R4, tab A-9 at 38). Notwithstanding these reductions, there remain a
number of questionable employee costs in Mr. McGovern's report as set forth
immediately, below.

       42. Pro-Built's settlement proposal claims the salary of Mr. Javed Shahab as
quality control manager from August 2011 through March 2012; however, on
9 October 2011, Pro-Built submitted its quality control plan, listing other individuals



                                            9
as the quality control manager and alternate quality control manager (app. supp. R4,
tab A-9, ex. A; R4, tab 21at25-33; tr. 1175-76).

        43. Pro-Built's settlement proposal claims the salary of Mr. Habib Rahman as
construction manager for the project from August 2011 through October 2011;
however, on 9 October 2011, Pro-Built submitted its quality control plan, listing
Rohullah Nazari as construction manager (app. supp. R4, tab A-9, ex. A; R4, tab 21
at 34).

       44. Pro-Built's settlement proposal claims the salary of Mr. Wahab Gui as
timekeeper from August 2011 through March 2012; however no records were kept of
Pro-Built employees' time working under the contract (app. supp. R4, tab A-9, ex. A;
tr. 1179-81). Mr. Amiri testified that Mr. Gul'sjob as timekeeper involved tracking the
hourly operation of machinery at the job site (tr. 1/33). However, there was no
machinery on the job site because the notice to proceed was not issued (tr. 1/80-81 ).

       45. Pro-Built's settlement proposal claims the salary of Mr. Khalid Haqjo as
project scheduler from August 2011 through October 2011; however, Mr. Haqjo was a
Pro-Built employee prior to the award of the contract and had supervisory
responsibilities on other task orders during the performance of the contract (app. supp.
R4, tab A-9 at 57; tr. 1150, 60-62; exs. DEI, DE2).

        46. Pro-Built's settlement proposal claims 70 percent of the salaries of
Mr. Bashir Mashal as mechanical engineer and Mr. Haron Jalalzada as civil engineer,
from August 2011 through March 2012, with the other 30 percent of their time
devoted to two other contracts; however, Mr. Mashal was a Pro-Built employee prior
to the award of the contract and worked on all of Pro-Built's projects (app. supp. R4,
tab A-9 at 57; tr. 1/50, 64-65).

       47. Pro-Built's settlement proposal claims the salary of Mr. Fayaq Ahmad
as electrical engineer from August 2011 through March 2012; however, Mr. Ahmad
was a Pro-Built employee prior to the award of the contract and worked on all of
Pro-Built's projects (app. supp. R4, tab A-9 at 57; tr. 1/52, 64-65).

        48. Pro-Built's settlement proposal claims the salary of Mr. Mohammad Asif
as safety officer from August 2011 through March 2012; however, Mr. Asif was a
Pro-Built employee prior to the award of the contract (app. supp. R4, tab A-9 at 57;
tr. 1/65).

      49. Pro-Built's settlement proposal also included costs for its security
subcontractor, Arya Security Company (Arya) in the amount of $40,800 for three
armed security guards at $5, 100 per month, for eight months from August 2011



                                           10
through March 2012; and costs for its construction subcontractor, Najah Tallat
Construction & Road Building Company (NTCC), in the amount of $200,000
representing eight employees at a total cost of $25,000 per month for eight months.
The claimed amount for NTCC represents almost 7% of the subcontract's agreed upon
fixed price of $2,869,700. (App. supp. R4, tab A-9 at 40, 41, 257-365)

        50. The subcontract between Pro-Built and NTCC was originally executed in
their native language. The copy of the subcontract in the record is a translation for
purposes of obtaining a customs clearance. (Tr. 1/85-86) The subcontract provides, in
a prefatory "Background Information" section, that Pro-Built "intends" to hire NTCC
(app. supp. R4, tab A-9 at 267). In addition, paragraph 1.3 provides that:

              The following shall be a condition precedent to this
              Agreement: The project consists of the Design and
              Construction of UP District Headquarter in Atghar, Zabul,
              Afghanistan, based on designs, drawings, scope of work
              and technical requirements and specifications provided by
              the Contractor and approved by Client. This Work is
              defined as the management, material, labor, and equipment
              to construct the facilities and related structures in
              accordance with the Scope of Work, the Technical
              Requirements/specifications, commercial terms,
              construction procedures, quality & safety norms & client's
              requirements - modifications- suggestions, objections, all
              back to back applicable as far as the facilities being
              constructed by the sub-contractor. Part of the work is
              provision of Spare parts as required by the Client for all
              systems described above.

(App. supp. R4, tab A-9 at 268)

       51. The settlement proposal also includes Defense Base Act (DBA) insurance
fees of$17,020, including transfer costs (app. supp. R4, tab A-9 at 41, 367-69).

       52. Mr. McGovern recalculated the G&A expense by dividing G&A expense
by total direct cost of all contracts, resulting in a rate of 8.7% and a claimed amount of
$58,533 (app. supp. R4, tab A-9 at 42, 371-409).

       53. The settlement proposal additionally applies a 10% profit rate (app. supp.
R4, tab A-9 at 42). Mr. McGovern testified that a 10% profit rate was "pretty
common" given the nature of the work, the difficulty of the type of work and the fact




                                            11
that it was being performed in a war zone where there were "significant security
issues" (tr. 11118-19).

        54. Finally, the settlement proposal asserts entitlement to settlement expenses
of $3, 777 in legal and accounting fees, and $6,098 in in-house labor for the finance
manager and administrator time (app. supp. R4, tab A-9 at 54).

                                      DECISION

        The resolution of this appeal turns upon the reasonableness of the costs incurred
by Pro-Built in preparation to perform the contract. Pro-Built argues that it was
necessary to staff portions of the contract before bidding to ensure that it would be
possible to obtain the necessary people if awarded the contract. Pro-Built cites to
Afghani business practices and labor market conditions, along with the security
situation in the Zabul province of Afghanistan as reasons for this approach. Pro-Built
also asserts that the claimed costs were permissible as the costs were incurred in
preparing to perform the contract and were not construction costs that would have
been incurred at Pro-Built's risk prior to a notice to proceed. (App. br. at 9-10)

        Conversely, the Corps alleges that it was unreasonable for Pro-Built to incur
costs prior to the notice to proceed. The Corps asserts that it was especially
unreasonable for Pro-Built to incur such costs on this contract because it was a
design-build contract where Pro-Built would not be able to begin construction until
design submittals were prepared and approved by the Corps, a process that would take
several months (gov't br. at 16-18). Additionally, the Corps cites to multiple
deficiencies in Pro-Built's termination for convenience claim, including Pro-Built's
failure to enter most or all of the workers for which it seeks reimbursement into the
SPOT system; the fact that the quality control submittal lists individuals other than
those included in the termination for convenience claim in certain key roles; the fact
that individuals identified as working full-time on the contract appear to have done
work on other Pro-Built projects; and the fact that a number of the identified
individuals were Pro-Built employees prior to award of the contract (id. at 23-26).

       The Corps terminated Pro-Built's task order for the convenience of the
government. The termination for convenience of a fixed-price contract "has the
general effect of' converting the contract into a cost-reimbursement contract. See,
e.g., New York Shipbuilding Co., A Division of Merritt-Chapman & Scott Corp.,
ASBCA No. 15443, 73-1BCAiJ9852 at 46,019. The terminated contract thus




                                           12
provides for reimbursement of allowable costs incurred in performing the terminated
portion of the contract. Id.

        Here, the contract provided that no construction work was to be performed prior
to the notice to proceed (findings 7-8 ("Any work performed by the Contractor prior to
receipt of the clearance for construction, shall be at the Contractor's own risk and
expense.")). As the notice to proceed was not issued, construction costs are not
reimbursable. However, costs incurred in preparing to perform are reimbursable.
FAR 49.201(a) ("A settlement should compensate the contractor fairly for the work
done and the preparations made for the terminated portions of the contract..."). The
FAR provides that "[ f]air compensation is a matter of judgment and cannot be
measured exactly.... The use of business judgment, as distinguished from strict
accounting principles, is the heart of a settlement." FAR 49.20l(a). Additionally, the
FAR provides that "[c]ost and accounting data may provide guides, but are not rigid
measures, for ascertaining fair compensation." FAR 49.20l(c).

        Under the proper circumstances, standby labor costs are reimbursable. See
Bennie J Meeks t/a Lawn Grooming Service, GSBCA No. 6605-REM, 85-2 BCA
ii 17,947. In Meeks, the General Services Board of Contract Appeals initially
denied the contractor recovery for most of its expenses in preparing to perform. See
Bennie J Meeks t/a Lawn Grooming Service, GSBCA No. 6605, 84-1BCAii16,937,
rev'd758 F.2d 661 (Fed. Cir. 1984). The United States Court of Appeals for the
Federal Circuit reversed in an unpublished opinion. Meeks v. United States, 758 F.2d
661 (Fed. Cir. 1984) (table). On remand, in accordance with the Federal Circuit's
direction to revisit its out of hand rejection of pre-performance costs the General
Services Board held that the contractor "reasonably concluded that he must begin
preparing to perform the contract shortly after he knew he would be committed to it"
and that, the "costs he incurred in hiring, training, and keeping a group of workmen on
a standby basis were legitimately a part of his gearing-up effort, and he would not have
incurred them except in anticipation of performing the subject contract." Meeks, 85-2
BCA ii 17,947 at 89,921, 89,923.

        In this appeal, Pro-Built provided the uncontroverted testimony of Mr. Amiri
and its expert witness, Mr. McGovern, that workers in Afghanistan are normally
employed through contracts on a monthly basis, with a minimum term of one month,
and requiring one month's notice before termination (findings 14, 38). Accordingly,
we analyze the termination for convenience proposal on that basis. In addition,
Pro-Built presented the unrefuted testimony of Mr. Amiri and Mr. McGovern's expert
opinion that it was necessary to retain key employees in advance of bidding for a
construction project due to the construction labor market and security situation, in
order to ensure the ability to complete the project. (Findings 12, 38) The Federal
Circuit has noted that the "standard for assessing reasonableness is flexible, allowing
[the Board] to consider many fact-intensive and context-specific factors." Kellogg,


                                           13
Brown & Root Services, 728 F.3d 1348, 1360 (Fed. Cir. 2013) (citing FAR 31.201-3).
Accordingly, we find that Pro-Built incurred costs in preparing to perform and that
these costs took the form of monthly employment contracts.

       Had the Corps issued the notice to proceed, Pro-Built would have been required to
build the police station, and, because it was a firm-fixed-price contract, Pro-Built would
not have been entitled to an adjustment for standby labor costs incurred prior to the notice
to proceed. Thus, Pro-Built exercised its business judgment and determined that it was in
the firm's best interest to retain these individuals in advance of the notice to proceed.
Here, the Corps is simply second guessing the business decisions made by Pro-Built.

        Having determined that Pro-Built incurred costs in preparing to perform and
that these costs took the form of monthly employment contracts, we tum to the
reasonableness of the amounts claimed. The Corps does not allege that the monthly
wages for specific employees are unreasonable, so we allow them. The Corps
questioned the employment of a timekeeper since no timesheets were kept for the
workers as they were paid monthly salaries. Mr. Amiri testified that the timekeeper
would be responsible for keeping track of equipment use once construction began
(finding 13 ). The Corps questioned the employment of security personnel because the
subcontract with NTCC also required the construction subcontractor to provide
security (gov't br. at 25). Mr. Amiri testified that the security manager was
responsible for performing security analysis and considering threats to Pro-Built's
staff, but was not the person actually carrying a rifle (finding 13). Mr. Amiri also
noted that the number of employees retained at the start of a project varied depending
on the location and complexity of the project (id.). We credit Mr. Amiri's testimony
and hold that it was reasonable for Pro-Built to retain the twenty listed employees in
preparation to perform the contract.

       Having determined that Pro-Built reasonably retained these individuals using
monthly employment contracts, the question is whether it was reasonable to retain
these individuals for the entire eight-month period from August 2011 through March
2012. We note that two employees, the construction manager and project scheduler,
were reassigned to other task orders after three months (findings 43, 45). Additionally,
Pro-Built allocated 30% of the time for the mechanical engineer and civil engineer to
other projects (finding 46). For the remaining sixteen employees, Pro-Built includes in
the settlement proposal 100% of their monthly wages for eight months. We do not
find these costs to be reasonable.

       Pro-Built is experienced in government contracting, and was performing other
task orders for the Corps on the same MATOC (finding 1). While it may have been
reasonable to line-up the key employees in preparation to perform the contract, it was
not reasonable to continue paying them for eight months without any work being



                                           14
performed. Simply put, it strains credulity to assume that a contractor would pay
individuals for no work for eight months. Here, the record demonstrates that Pro-Built
moved some individuals to other task orders after three months and had other
employees split their time with other task orders through the duration of the contract.
(Findings 43, 45-46) Moreover, the government demonstrated that some of the
employees performed work on other task orders (findings 45-47). Additionally, we
note that a number of the workers were existing Pro-Built employees prior to award of
the current task order (findings 45-48). Pro-Built, the party with the burden of proof,
does not explain why these workers could not have been moved to other task orders
during this period. Moreover, Mr. Amiri's testimony that each of the employees
worked 100% on the contract is contradicted by the Corps' demonstration that some of
the workers did work on other projects, and the fact that Pro-Built's pre-construction
submittals identify individuals other than those identified in the settlement proposal, as
responsible for certain key tasks. (Findings 42-48)

         Pro-Built alleges that it was reasonable to keep the employees included in the
settlement proposal on payroll based upon the Corps' continued representations that
the notice to proceed would be issued shortly (app. supp. br. at 10). However, the
record does not support such a conclusion. As an initial point, we note that Mr. Amiri
testified that he expected to receive the notice to proceed one month after being
awarded the contract (finding 12). The pre-construction conference was not held until
29 October, some three months after contract award (finding 17). Despite statements
that the notice to proceed would be issued after the pre-construction conference, two
weeks after that conference the Corps told Pro-Built that it had "not been given
direction from the Area Office on the way forward for the [district headquarters]" and
that it could not schedule further meetings (finding 18). In December, the Corps
informed Pro-Built that the Area Office was considering a reduction in scope of the
project (finding 20). Pro-Built was performing a fixed-price contract and a reasonable
contractor, even in Afghanistan, would separate workers or shift workers to other task
orders rather than paying workers to standby for eight months.

       Pro-Built cites to the 365-day performance period as an aggressive schedule
requiring it to be staffed-up and ready to begin construction as soon at the notice to
proceed was issued (app. br. at 9). However, as the Corps notes (gov't hr. at 21), the
liquidated damages pursuant to the contract were $1,579 per day, but Pro-Built's
payroll for standby labor was $1,680 per day for its own direct labor3 (findings 6, 40).



3   The Corps' calculation here is actually conservative in that it does not consider the
        per day cost of subcontractor labor. Adding the claimed subcontractor labor
        would add roughly $1,000 per day to the standby costs. (App. supp. R4,
        tab A-9 at 53)


                                             15
Thus, financially, Pro-Built would have been better-off risking the liquidated damages
rather than paying for standby labor.

        The Corps also alleges that Pro-Built "had outstanding submittals that were
required for [the notice to proceed] for several months after contract award" and that
this is evidence that Pro-Built failed to demonstrate that its staffing was reasonable or
that the claimed expenses were allocable to the project (gov't reply br. at 2). 4
However, the Corps' argument finds no support in the record as the security and
quality control submittals were not required prior to the notice to proceed. The
contract required approval of a security plan before the contractor could start work on
the project site, but it was not explicitly a prerequisite to receiving the notice to
proceed (finding 2). In addition, the submission of a quality control plan was required
not later than five days after the notice to proceed (id.). Regardless, Pro-Built did
submit these plans, and the Corps did not timely review the submissions (finding 19).

       The Corps additionally asserts that "Pro-Built has not met its burden to show that
these alleged employees were paid" based upon asserted "credibility problems" with
Mr. Amiri's testimony (gov't reply br. at 6). However, even ignoring Mr. Amiri's
testimony, Mr. McGovern's expert report indicated that he reviewed the staff salary
documentation (finding 35) and the salary records and employment agreements (which
we have reviewed and are extensive) that were included in Mr. McGovern's expert
report (app. supp. R4, tab A-9 at 58-255). 5

        The Board's task of determining the reasonableness of the costs incurred is
complicated by the parties' all-or-nothing litigation strategies. Pro-Built asserts that
all eight months of costs were reasonable and the Corps asserts that none of the costs
were reasonable. As neither party proposed a basis for determining a reasonable
period for Pro-Built to keep workers under contract, it is up to the Board to determine
a reasonable amount. Given the totality of the evidence, we conclude that a reasonable
contractor in Afghanistan would have reassigned workers to other contracts, or
separated the employees, not later than three months after award. In fact, Pro-Built
moved two of its workers to other projects at this time (findings 43, 45), demonstrating
that Pro-Built was concerned with incurring salary costs without any construction
work being performed. Given that Mr. Amiri expected to receive the notice to proceed
one month after award, this provides for two additional months of standby labor,
which we find to be reasonable based on the facts of this appeal. We have considered
the evidence that some workers performed work on other task orders but are charged


4
    The Corps' reply brief does not have page numbers.
5   Moreover, we note that DCAA reviewed the salary records and employment
        agreements and did not question the costs on the basis that they had not been
        paid (finding 27).


                                            16
100% to this contract, and that the names of the workers in the settlement proposal do
not match the names of individuals included in Pro-Built's contractual submissions
(findings 42-48), but this does not change our conclusion. Thus, we find that Pro-Built
is entitled to $173,965 .83 6 for its direct labor from August 2011 through October 2011.
{App. supp. R4, tab A-9 at 57)

        Having determined that Pro-Built is entitled to three months of pay for its direct
employees, we tum to Pro-Built's subcontractor costs. Pro-Built claims $40,800 in
subcontractor direct labor for its security subcontractor, Arya, and $200,000 for direct
subcontractor labor for its construction subcontractor, NTCC. Pro-Built asserts that it
was necessary to assemble a dedicated team at the start of the contract to ensure their
availability and that the settlement proposal includes only direct labor retained by the
subcontractor. (App. br. at 4, 10) As with its challenges to Pro-Built's direct labor,
the Corps again asserts that it was unreasonable for Pro-Built to retain subcontractors
before the notice to proceed (gov't br. at 24). The Corps additionally challenges the
costs because the language of the subcontract with NTCC purportedly indicated only
that the parties intended to enter into a contract, and because Pro-Built's provision of
approved plans to NTCC was a condition precedent to the contract, and that provision
was not met (gov't br. at 25-26).

        We agree with Pro-Built that the language contained in the NTCC subcontract
providing that Pro-Built "intends" to hire NTCC (finding 50) is simply a prefatory
comment providing the reason for the formal agreement that follows (app. reply at 5).
The Corps' argument that the subcontract was not effective because the condition
precedent of delivery of drawings was not met fares no better. Mr. Amiri testified that
Pro-Built initially entered into an agreement with NTCC in their native language. The
subcontract in the record is a translation of the agreement into English for the purpose
of obtaining a customs clearance. (Finding 50) While the subcontract contains the
term "condition precedent" it does not appear that the term is being used in the legal
sense. The translated clause, read as a whole, requires NTCC to build the entire
headquarters based on whatever design is ultimately submitted by Pro-Built and
approved by the Corps. (Id.) We do not read the language of the clause as setting
forth a legal condition precedent, that is, an act or event that must occur before a duty
to perform arises.

       As with Pro-Built's direct labor, we find that a reasonable contractor would
have terminated or renegotiated subcontracts after three months. Here, Arya was paid


6   This amount is based on Pro-Built's payroll records and is slightly lower than three
         times the monthly salaries in finding 40 because the monthly salaries for two
         employees were partially allocated to other contracts (finding 46) and due to
         some minor payroll differences in certain months.


                                             17
$15,300 for the first three months of security (app. supp. R4, tab A-9 at 257). NTCC
billed $25,000 per month, which would total $75,000 for the first three months. This
results in a total subcontract cost of $90,300.

       The Corps does not dispute, and has already paid Pro-Built for its DBA
insurance cost of $17,020. Pro-Built additionally claims overhead, profit and its costs
in preparing the settlement proposal.

        Pro-Built asserts entitlement to 8. 7% of its direct costs for G&A expenses. The
Corps' post-hearing brief includes a proposed fact noting that Mr. McGovern
calculated the G&A expense rate using financial reports that were prepared for the
purposes of litigation, but does not include any argument on this point (gov't br. at 50).
As the contract did not require Pro-Built to maintain such records, and because the
Corps does not present any argument that the calculations are incorrect, we find that
Pro-Built is entitled to 8.7% of G&A expenses. Similarly, the Corps does not
challenge the use of a 10% rate of profit on the contract, and we find the proposed rate
to be reasonable. However, we note that FAR 49.202(c)(3) prohibits profit on
settlements with construction subcontractors for "preparations made to complete the
work." As the notice to proceed was not issued, we find that Pro-Built is not entitled
to profit on NTCC's subcontract costs. See Singleton Enterprises v. Dept. of
Homeland Security, CBCA No. 2771, 12-2 BCA ~ 35,139 at 172,508. Accordingly,
Pro-Built is entitled to $24,471.87 in G&A expense and $23,075.77 in profit. As a
final point, the Corps argues that Pro-Built should not recover profit pursuant to the
allowance for loss provision, FAR 49.203. The burden for demonstrating that
Pro-Built would have lost money performing the contract falls on the Corps. Systems
& Computer Information, Inc., ASBCA No. 18458, 78-1BCA~12,946 at 63,131.
Here the Corps provides no analysis, other than a statement by counsel, in support of
its theory that Pro-Built would have lost money performing the contract. Accordingly,
we find that the Corps has not met its burden, and award profit to Pro-Built. Finally,
the Corps does not challenge Pro-Built's claim for settlement costs of $9,875 for legal
and accounting fees and in-house labor which we find to be reasonable. Thus
summing Pro-Built's allowable direct labor, subcontract costs, DBA insurance, G&A
and profit. Pro-Built is entitled to recover $338,708.47. After deducting the $48,972
already paid Pro-Built, it is entitled to recover $289,736.47.




                                            18
                                    CONCLUSION

        In addition to the amount already paid pursuant to the contracting officer's
settlement by determination, we sustain Pro-Built's appeal in the amount of
$289,736.47 with CDA interest to run from 31 March 2014, the date of Pro-Built's
certified claim.

       Dated: 1 June 2017



                                                  DAVID D' ALESSANDRJS
                                                  Administrative Judge
                                                  Armed Services Board
                                                  of Contract Appeals

                                                  I concur



 RJCHARDSHACKLEFORD                               J.          OUTY
 Administrative Judge                             Administrative Judge
 Acting Chairman                                  Acting 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. 59278, Appeal of
Pro-Built Construction Firm, rendered in conformance with the Board's Charter.

       Dated:



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




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