               ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeal of --                                   )
                                               )
Magwood Services, Inc.                         )        ASBCA No. 59293
                                               )
Under Contract No. W912PQ-13-C-0016            )

APPEARANCE FOR THE APPELLANT:                           Mr. Heyward R. Manigault
                                                         President

APPEARANCES FOR THE GOVERNMENT:                         Raymond M. Saunders, Esq.
                                                         Army Chief Trial Attorney
                                                        Erica S. Beardsley, Esq.
                                                        MAJ Ildiko Szentkiralyi, JA
                                                         Trial Attorneys

                  OPINION BY ADMINISTRATIVE JUDGE JAMES

        This appeal arises from the contracting officer's (CO's) 24 April 2014 decision
that denied the $72,283.00 termination settlement proposal of Magwood Services, Inc.,
(Magwood) under the captioned contract. The Board has jurisdiction of the appeal
under the Contract Disputes Act of 1978 (CDA), 41 U.S.C. §§ 7101-7109. Magwood
elected an expedited disposition of the appeal and to submit its case upon the record
under Board Rules 12.2 and 11. The government elected a hearing, which was held
on 6 August 2014 in West Point, New York. The parties have submitted post-hearing
briefs. The Board is to decide both entitlement and quantum (tr. 1110).

                           SUMMARY FINDINGS OF FACT

        1. Contract No. W912PQ-13-C-0016 (contract 16) was awarded to
Construction Solutions Group, LLC, on 17 July 2013 and was cancelled (Bd. corr. file,
app. 21July2014 filing; tr. 1/27). Contract 16 was awarded to Magwood effective
12 September 2013 (R4, tab 1 at 1-2 of 42, tab 3, ex. B). Contract 16 required
Magwood to replace two diversion holding tanks at Stratton Air National Guard Base,
Scotia, New York, for the fixed-price of $66,496.00 (R4, tab 1 at 1, 3 of 42).




1
    The Contract Disputes Act, implemented by Board Rule 12.2, provides that this
        decision shall have no value as precedent, and in the absence of fraud shall be
        final and conclusive and may not be appealed or set aside.
       2. Contract 16 included the Federal Acquisition Regulation (FAR) 52.249-2,
TERMINATION FOR THE CONVENIENCE OF THE GOVERNMENT (FIXED PRICE) (APR
2012) clause, which provided in pertinent part:

             (e) After termination, the Contractor shall submit a final
             termination settlement proposal to the (CO] in the form
             and with the certification prescribed by the [CO]. ...

             (f) Subject to paragraph (e) of this clause, the Contractor
             and the [CO] may agree upon the whole or any part of the
             amount to be paid ... because of the termination. The
             amount may include a reasonable allowance for profit on
             work done. However, the agreed amount, whether under
             this paragraph [(f)] or paragraph (g) of this clause,
             exclusive of costs shown in subparagraph (g)(3) of this
             clause, may not exceed the total contract price ....

             (g) If the Contractor and the [CO] fail to agree on the
             whole amount to be paid because of the termination of
             work, the [CO] shall pay the Contractor the amounts
             determined by the [CO] as follows, but without duplication
             of any amounts agreed on under paragraph (f) of this
             clause:

              ( 1) The contract price for completed supplies or services
            · accepted by the Government ... not previously paid for,
              adjusted for any saving of freight or other charges.

             (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
             supplies or services paid or to be paid ... ;



             (iii) A sum, as profit on subdivision (g)(2)(i) of this
             clause, determined by the [CO] under 49.202 of the [FAR],
             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 [CO] shall allow no profit under this

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              subdivision (iii) and shall reduce the settlement to reflect
              the indicated rate of loss.

              (3) The reasonable costs of settlement of the work
              terminated, including-

              (i) Accounting, legal, clerical, and other expenses
              reasonably necessary for the preparation of termination
              settlement proposals and supporting data;



              (i) The cost principles and procedures of Part 31 of the
              [FAR], in effect on the date of this contract, shall govern
              all costs claimed, agreed to, or determined under this
              clause.

              G) The Contractor shall have the right of appeal, under the
              Disputes clause, from any determination made by the [CO]
              under paragraph (e), (g), or (1) of this clause ....

(R4, tab 1 at 36-38 of 42)

       3. From mid-September to 16 October 2013 the parties disagreed whether
Magwood could submit a "Tripartite Escrow Agreement" (TEA) instead of a payment
bond required by the government (R4, tabs 3, 7). From 26 September to
13 December 2013 Magwood submitted contract progress schedules and submittals for
the holding tanks and components (R4, tabs 4-6, tab 11 at 3, tab 21 at 1-2).

       4. Contract 16 had no FAR 52.249-10, DEFAULT (FIXED-PRICE CONSTRUCTION)
(APR 1984) clause (R4, tab 1). On 16 October 2013 CO MSgt Wanda Yarbor issued a
decision to terminate contract 16 for default (R4, tab 13). Magwood appealed from that
default termination decision on 17 October 2013, which appeal was docketed as ASBCA
No. 58968 (R4, tab 9 at 1).

       5. On 6 December 2013 the parties entered into a Settlement Agreement with
respect to ASBCA No. 58968 (R4, tab 9 at 1-2, 5). On 23 December 2013 the parties
agreed that the settlement was null and void (app. supp. R4, tab 4 at 4-24, 4-28). The
Board dismissed ASBCA No. 5 8968 on 24 March 2014.

      6. On 24 February 2014 CO Yarbor issued unilateral Modification No. P00003
"terminating the Contract for the convenience of the Government" (R4, tab 13).


                                            3
      7. On 11 March 2014 Magwood submitted a termination settlement proposal
(TSP) for the amount of $72,283.00 to CO Yarbor on Standard Form 1436 (SF 1436).
The SF 1436 listed 19 items, some correlated to "Schedules" A through H, on which
Magwood provided the following cost elements as summarized below:

        Other Costs (from Schedule B)                                  $20,398.00
        General and Administrative Expenses (from Schedule C)          $40,504.00
                Total Costs (Items 1 thru 6)                           $60,902.00
        Profit (Explain in Schedule D)                                 $ 9,136.00
                Total Costs (Items 7 and 8)                            $70,038.00
        Settlement Expenses (from Schedule E)                          $ 2,245.00
                Net Payment Requested                                  $72,283.00

                                Schedule B - Other Costs

        Item                               Explanation                    Amount

        Tripartite Escrow Agreement        $997.44 TEA fee, $997     $2,662.00
                                           execution fee, Paperwork
                                           prep: $667 (1 hr. Pres. @
                                           $35/hr., 30.75 hrs. O.A.@
                                           $20/hr., lhr. Clerk@
                                           $16.50/hr.)

        Appeal costs                       Supplies/mail: $25,       $17,736.00
                                           Paperwork prep: $17,711
                                           (217 hrs. Pres.@ $35/hr.
                                           302 hrs. O.A. @ $20/hr.,
                                           247 hrs. Clerk@ $16.50/hr.)

                  Schedule C - General and Administrative Expenses

        Detail of Expenses           Method of Allocation                Amount

        Daily Rate, Proj. start to   37[2J days@ $244/day                $9,028.00
        Term. for Default

        Daily Rate, Term. for     129[21 days@ $244/day                 $31,476.00
        Default to issue of Term.
        for Convenience of Gov't


2
    The actual time periods are not 3 7 + 129 = 166 days; they are 34 + 131   =   165 days.
                                             4
       * Gen Cond. = 13 % of contract + 1% of line items 1, 4, 5, 6, 7, 8, 10 = 7% +
       1/2% of line items 3, 9, 11, 12 = 2%. Total of 22% of contract price=
       14,630/60 days= 244/day*

                                  Schedule D - Profit

       Explanation                                                        Amount

       15% ($60,902 x 15%)                                               $9,136.00

                          Schedule E - Settlement Expenses

       Item                                     Explanation              Amount

       President settlement prep.            27 hrs.@ $35/hr.              $945.00
       Office Administrator settlement prep. 32 hrs.@ $20/hr.              $640.00
       Clerk settlement prep.                40 hrs.@ $16.50/hr.           $660.00

(R4, tab 14 at 2-4)

        8. Mr. Manigault explained the foregoing terms in the TSP: he is "Pres."; his
wife Shirley Manigault is "Office Administrator" ("O.A."); and Magwood employee
Anastasia Austin is "clerk" (tr. 1/71, 85, 118; R4, tab 25 at 2 of 8). These three
persons were Magwood's only employees who performed office work on contract 16
(tr. 11119). Magwood did not perform any field or physical work on contract 16
(tr. 1/66).

        9. On 31 March and 16 April 2014 Magwood sought CO Yarbor's advice on
the status of its TSP (R4, tabs 16, 17). On 24 April 2014 CO Yarbor denied in its
entirety Magwood's TSP for $72,283 and advised Magwood of its appeal rights (R4,
tab 18). On 6 May 2014 Magwood appealed that decision to the Board, which was
docketed as ASBCA No. 59293 (R4, tab 19).

       10. TEA Costs - Schedule B. Regarding the TEA, from 24 September through
16 October 2013 Magwood received 22 emails from the CO and others, and sent 16
emails in reply, totaling 200 lines in 50 paragraphs (R4, tab 25 at 3 of 8, ~~ 9-11; app.
supp. R4, tab 2). The record substantiates Magwood's payment of the $997.44 and
$997 TEA fees (app. supp. R4, tab 2 at 2-7, 2-8). Mr. Manigault testified that he spent
30.75 hours, and Mrs. Manigault spent 1 hour, discussing TEA terms with the CO and
TEA participants (tr. 1/74-75). Mr. Manigault stated that his $35/hr. rate "is the
estimate time that it takes to do a job" (tr. 1/80). Mrs. Manigault said her $20/hr. rate
was "fair ... for what I do" (tr. 1/139).


                                            5
       11. Appeal Costs - Schedule B. Magwood identified these "Appeal Costs" as
spent "on the Appeal (Docket #58968)" (R4, tab 25 at 3-4of8, iii! 12-14).

       12. G&A Expenses- Schedule C. Magwood described the work encompassed
in the G&A costs claimed from award to default termination of contract 16 as follows:

              G&A time ... may include ... correspondence, production
              planning, creating a project schedule, talking with
              suppliers, contract management, organizing and/or filling
              out project paperwork, personnel organization, time spent
              working with supplier to create submittals, and any other
              time spent preparing for the contract work to begin.. . . The
              daily rate also includes costs for office supplies related to
              the management of the project, such as paper and ink for
              the printer, binders, pens, writing pads, etc.

Magwood described the work encompassed in the claimed G&A costs from default
termination to convenience termination of contract 16 as "keeping the project open,
filing any paperwork associated with the contract and keeping current with what was
happening with the contract ... as well as office supplies needed to do so." (R4, tab 25
at 5-6 of 8, iii! 22, 23) During the 14-month period May 2013 through June 2014,
Magwood performed nine commercial and federal agency contracts other than contract
16 (R4, tab 25 at 7 of 8). The record contains no Defense Contract Audit Agency
audit report on Magwood's TSP, nor any evidence on how Magwood allocated its
G&A expenses to the 10 contracts performed in 2013-2014.

       13. Settlement Expenses - Schedule E. Magwood described discussions about
identifying employee hours, rates, supplies and mail costs, and preparing and
proofreading the TSP (R4, tab 25 at 4 of 8, iii! 15-17).

         14. During the period of contract 16 performance from September 2013 through
March 2014, Anastasia Austin worked 164.36 hours and was paid $1,685.28, an average
hourly rate of $10.25 (app. supp. R4, tab 1 at L-1, 1-2, tab 3 at 3-1 - 3-3, tab 5 at 5-1,
5-2). Mr. and Mrs. Manigault own Magwood and are salaried employees who do
not receive regular paychecks or keep regular hourly timesheets (R4, tab 25 at 5 of 8,
iii! 20-21; tr. 1/120-21). Magwood's 2012 Corporation Income Tax Return, line 12,
"Compensation of officers," stated $4,694 (R4, tab 23 at 2). That $4,694 divided by
2,080 annual working hours yields $2.26 per hour for both Mr. and Mrs. Manigault in
2012. No tax returns or other records of Magwood officer compensation in 2013 and
2014 are in the record.




                                            6
                                      DECISION

           Magwood argues that CO Y arbor's 24 April 2014 decision violated
FAR 49.103, "When possible, the TCO should negotiate" and FAR 49.109-7(b)
requirement to give it 15 days notice to substantiate its TSP before unilaterally
determining the settlement amount; thus, that decision "should not stand" (app. hr.
at 3, 4). FAR 49.103 is hortatory, not mandatory. Magwood cites no authority, and
none is known to the Board, that noncompliance with the FAR 49.109-7(b) 15-day
notice requirement invalidates a CO's final decision. Magwood disputes the reasons
to deny the TSP stated in the CO's 24 April 2014 decision (app. hr. at 8-15). "De nova
review [by the Board] precludes reliance upon the presumed correctness of the [CO's]
decision. Thus, once an action is brought following a [CO's] decision, the parties
start ... before the board with a clean slate." Wilner v. United States, 24 F.3d 1397,
1401-02 (Fed. Cir. 1994) (citations omitted).

       With respect to TSP Schedule B TEA costs, the $997.44 TEA fee and the $997
execution fee Magwood paid were proven (finding 10). The 31.75 hours claimed for
Mr. and Mrs. Manigault's efforts do not appear to be excessive for the 38 emails and
related discussions on the TEA issue. The record supports no more than 3 $2.26/hr. for
their hours, or $1.13 for each of Mr. and Mrs. Manigault (finding 14 ). The Board
concludes that TEA costs are allowable to the extent of $2,066.20 ($997.44 + $997;00
+ $71.76).

         With respect to TSP Schedule B "Appeal costs," contract 16's FAR 52.249-2
TERMINATION FOR THE CONVENIENCE OF THE GOVERNMENT clause, ,-r (i), provides
that the FAR 31 cost principles shall govern all costs claimed under that clause
(finding 2). FAR 31.205-47(f)(l) expressly disallows "Costs .. .incurred in connection
with ... claims or appeals ... against the Federal Government." Accordingly,
Magwood's "Appeal costs" in the amount of $17,736.00 for its efforts in connection
with ASBCA No. 58968 (findings 4-5, 7, 11) are unallowable.

       With respect to TSP Schedule C, G&A expenses, the work Magwood described
as production planning, project scheduling, talking with suppliers, project paperwork,
creating submittals, project preparation for work, keeping the project open, keeping
current on contract happenings (finding 12) is directly allocable to contract 16. See
FAR 31.201-4(a). Office supplies such as paper, printer ink, binders, pens, writing
pads, appear to be necessary to the overall operation of Magwood' s business. See
FAR 31.20 l-4( c), 31.203(b). However, indirect costs including G&A costs are to be
allocated to "final cost objectives" (FAR 31.203(b) ), which include contracts
(FAR 31.001). Hence Magwood was required to allocate its G&A costs to its 10

3
    The qualifier "no more than" is used because, lacking Magwood's 2013-2014 cost
        data, its 2012 costs are used rather than disallowing such cost items.
                                           7
commercial and government contracts performed in 2013-2014 (finding12). But the
record contains no evidence of how Magwood allotted its G&A expenses to those 10
contracts (id.). Therefore, no G&A costs may be allowed.

       With respect to TSP Schedule D, Profit, we accept Magwood's 15% rate
(finding 7). The amount allowed for Schedule Bis $2,066.20. Profit at 15% of
$2,066.20 is $309.93.

       With respect to TSP Schedule E, settlement expenses, the hours Magwood
claimed for its employees' settlement preparation work are reasonable. The hourly
rates Magwood claimed are not supported by the record. Applying the hourly rates in
finding 14, the following amounts for settlement preparation are allowed:

             Employee            Hours         Rate/hr.     Amount

             President           27            $ 1.13       $ 30.51
             Office Adm'r        32            $ 1.13       $ 36.16
             Clerk               40            $10.25       $410.00
                    Total:                                  $476.67

      In summary, the costs allowed in this decision are:

             Schedule B           $2,066.20
             Schedule D           $ 309.93
             Schedule E           $ 476.67
             Total Allowed:       $2,852.80

       A TSP does not become a CDA claim until the parties are at an impasse. See
James M Ellett Construction Co. v. United States, 93 F.3d 1537, 1544 (Fed. Cir.
1996). When the CO's 24 April 2014 decision denied in its entirety Magwood's
$72,283 TSP (finding 9), which amount required no CDA certification, the parties
plainly were at an impasse, and Magwood's TSP became a CDA claim. See
Ensign-Bickford Aerospace & Defense Co., ASBCA No. 58671, 14-1BCA~35,599 at
174,407-08 (impasse can occur when one party evidences a desire to begin the
disputes process or a unilateral determination by the CO) (dicta).




                                          8
                                   CONCLUSION

        The appeal is sustained in the amount of $2,852.80 with CDA interest thereon
starting 24 April 2014. The balance of the costs claimed is denied.

       Dated: 16 September 2014




                                                Administrati e J ge
                                                Armed Servi      oard
                                                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. 59293, Appeal of
Magwood Services, Inc., rendered in conformance with the Board's Charter.

      Dated:



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




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