               ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeal of --                                )
                                            )
Aero Tech Services Associates, Inc.         )      ASBCA No. 61682
                                            )
Under Contract No. FA8106-17-D-0009         )

APPEARANCE FOR THE APPELLANT:                      Deborah Appel, Esq.
                                                    Law Office of Deborah Appel
                                                    Bronx, NY

APPEARANCES FOR THE GOVERNMENT:                    Jeffrey P. Hildebrandt, Esq.
                                                    Air Force Deputy Chief Trial Attorney
                                                   Isabelle P. Cutting, Esq.
                                                   Capt Jacquelyn C. Fiorello, USAF
                                                    Trial Attorneys

               OPINION BY ADMINISTRATIVE JUDGE THRASHER

       Aero Tech Services Associates, Inc. (ATSA) seeks reimbursement for labor costs
incurred under Contract No. FA8106-l7-D-0009 (“0009 Contract”) in logistical
support of two E-9A aircraft at Tyndall Air Force Base, Florida. ATSA’s claim is
that the fixed hourly labor rate to repair or replace aircraft parts, which applies to
“subcontractors” under “Over & Above” (O & A) contract line item numbers (CLIN)
X007AA, does not apply to “vendors”. Rather, ATSA’s position is that any labor hourly
charges are part of the “material cost” for which ATSA is entitled to full reimbursement
under CLIN 007AC. We deny the appeal.

                                 FINDINGS OF FACT

Background

       1. The 82nd Aerial Targets Squadron at Tyndall Air Force Base, Florida
employs two E-9A aircraft whose primary mission is to act as a surveillance
platform to ensure the Gulf of Mexico waters are clear of civilian boaters and
aircraft during live missile launches and other hazardous military activities within
the test range (R4, tab 6 at 53-54). These aircraft are maintained by contractor-
provided logistics. Relevant to this appeal, the contractor-provided logistics
support for these aircrafts, which includes over and above (O & A) tasks,
engineering services including development, test and FAA certification of modifications,
and installation of modifications and depot maintenance support (id. at 53). “O & A
Charges are Government directed tasks within [the] scope of the contract but not
specifically forecasted such as; [sic] bird strikes, lightning strikes, FOD [(foreign
object damage)], dropped or damaged components,” and other government
directed actions (R4, tab 6 at 14). ATSA currently provides this support under the
0009 contract.

       2. This dispute arises out of a specific O & A situation when the appellant
cannot repair or replace an item in-house and must remove the item and send it to
an outside contractor for repair or replacement. Upon return of the item to
appellant, the outside contractor will invoice appellant either charging a fixed labor
rate or a total price encompassing both labor and material with no visibility or
breakout of the amount or time or labor involved (tr. 22-23). Appellant refers to the
outside contractor in these situations as a “vendor”, not a subcontractor, insisting
that a “vendor” is distinguishable from a subcontractor and vendor charges are
reimbursable as part of “material costs” under CLIN X007AC (app br. at 2). The
end result being, appellant would be fully reimbursed for all labor costs.

       3. In contrast, the government argues there is no separate “vendor” category
under the contract because the term vendor is defined within the definition of
subcontractor (gov’t br. at 8). Therefore in these situations, the contract’s hourly
rate, whether disclosed or not, is capped by CLIN X007 at the hourly labor rate in
the contract (id. at 6). Likewise, the government argues that material costs
proposed by the contractor may not include labor costs (id. at 7).

Comparison between the Previous Contract and the 0009 Contract Follow-on
Solicitation

       4. ATSA performed these logistics services for six years under the
 previous contract, Contract No. FA8106-11-C-0004 (0004 contract) (R4, tab 1).
 On August 4, 2016, the Air Force issued a request for proposals (RFP) for a
 follow-on contract under Solicitation No. FA8106-16-R-0008 (R4, tab 6 at 1).
 Relevant here, the government substantially changed the acquisition strategy
 related to the O & A pricing, converting the 0004 contract prime and
 subcontract O & A CLINs from cost to fixed price CLINs. Major Toyama, the
 lead contracting officer on the source selection, testified that the O & A 0004
 contract prime and subcontractor costs for CLIN 0007 was converted into a firm
 fixed price CLIN in the 0009 contract based upon historical data from the previous
 six year contract. (Tr. 59-60)

       5. By way of comparison, the 0004 contract included an O & A
 subcontracting mark-up rate. This fixed subcontract pass-through mark-up factor
 represented the administrative costs of obtaining the subcontract effort, including
 all indirect costs plus fee associated with obtaining the subcontract effort. The fixed
 subcontract pass-through mark-up factor was then added to the price paid by the

                                           2
 contractor to the outside contractor to determine a fixed price amount for the
 subcontract effort. (R4, tab 1 at 12) The net effect of this clause was to fully
 reimburse the contractor for subcontractor services: the amount charged to the
 contractor for the subcontract service, plus an administrative fee (fixed subcontract
 pass-through mark-up factor) for obtaining the subcontractor effort. In contrast, the
 follow-on contract solicitation established a single fixed O & A labor rate,
 proposed by the offerors that applied to the prime contractor and all subcontractors,
 eliminating the subcontracting mark-up rate found in the 0004 contract (R4, tab 6
 at 15, 140-41). This effectively converted what had been a cost reimbursable
 clause for the complete cost paid the subcontractor for its services to a fixed price
 clause based upon the proposed fixed labor rates.

       6. The follow-on solicitation required all proposed pricing to be submitted in
a Pricing Matrix that would be incorporated into the contract (R4, tab 57 at 12). The
10 different O & A labor rates found in the 0004 contract were reduced to only
two: a single labor rate for work hours and a single O & A labor rate for
overtime (R4, tab 1 at 198, tab 6 at 140).

       7. Additionally, the follow-on solicitation flagged the change in pricing
 strategy warning the offerors of the additional cost risk from subcontractors and
 vendors [emphasis added] in out years, stating:

             Offerors are strongly advised to seriously note risk for
             firm fixed pricing in contract out-years. Such risk is
             considered contractor risk and not risk to the Government.
             Proposed pricing shall be sufficient to cover such
             contractor risk of future unknowns, such as subcontractor
             rate increases in contract out-years, as well as material cost
             increases in out-years or potential changes in teaming with
             specific subcontractors/vendors. This also includes
             unanticipated changes in subcontractors’ or vendors’
             [emphasis added] pricing in the out-years. For example,
             as out-year performance periods are reached over time,
             subcontractor pricing (on which these originally proposed
             fixed wrap rates are based) could change. As a result,
             future subcontractor pricing may not correspond with the
             original proposed FFP rates. Revision of proposed firm
             fixed pricing will not be accepted by the Government to
             cover any additional costs in the future out-years. Offerors
             shall be held to their originally proposed pricing, i.e., FFP
             rates for all CLINs.

(R4, tab 57 at 17) (emphasis added)


                                           3
ATSA’s Follow-on Contract Proposal

       8. ATSA submitted its final proposal revision on May 8, 2017 (R4, tab 5 at 1).
Mr. Christopher Bloomer, Vice President of Operations for ATSA testified he
helped prepare the proposal on this contract and has been working on the contract
since September 2017 (tr. 23). He also testified he read the language in CLIN 0007
of the solicitation that states all rates apply to prime contractors and all
subcontractors but noted the proposal did not include subcontractors performing
work on this contract because of the distinction the industry makes between
subcontractors and vendors (tr. 25-28).

        9. ATSA’s proposal reflects the distinction ATSA makes between
“subcontractors” and “vendors”. Both the technical volume and pricing volume
of ATSA’s proposal state that 100% of all work will be done by ATSA i.e., not
subcontractors, but then provided a list of twelve key “vendors” (R4, tab 5 at 2,
77). For example, section 2 of the pricing volume is entitled SUBCONTRACTOR
AND VENDOR PRICING” (id. at 78). That section explains why ATSA decided not to
use, what they consider, subcontractors on this contract but clearly states when it is
required to go out to a vendor for completion of a specific task it will enter into a
subcontract relationship to accomplish the work, stating, “Each of the key vendors
identified will be subcontracted to support the identified tasks as required.” (R4, tab 5
at 100-01)

       10. The government awarded the 0009 contract to ATSA on May 31, 2017 (R4,
tab 6 at 1). Shortly thereafter, ATSA entered into a contract agreement with Pratt
& Whitney (P & W), effective September 1, 2017. The contract agreement refers
to the contract relationship between the parties as a “SUBCONTRACT
AGREEMENT” (R4 tab 53 at 5). Accordingly, we find that P & W was a
subcontractor to ATSA under its contract with the government.

Relevant 0009 Contract Provisions

      11. Three of the contract’s O & A provisions are relevant to this appeal:

            CLIN X007-OVER AND ABOVE WORK PROCEDURES

             (a) Over and Above Labor Rates (Fixed Hourly): The price
             negotiated by the PCO/ACO shall be based on “hands on”
             labor hours multiplied by the contract fixed hourly rate. The
             number of “hands on” labor hours required shall be
             negotiated between the contractor and the PCO/ACO.
             “Hands on” labor hours to be used in negotiated fixed hourly
             rate items are restricted to those defined below. The fixed


                                            4
             hourly rate includes charges for: “hands on” labor cost; any
             labor cost not included in the definition of “hands on” labor
             for which the contractor accounts as direct labor; burdens;
             general and administrative expenses; and other allowable
             costs and profit. The fixed hourly rate does not include direct
             parts and materials.

             For the purposes of negotiating prices for the fixed hourly
             rate items, the “hands on” labor hours to which the fixed
             hourly rate is applied, are limited to only that labor performed
             by personnel actually engaged in the direct performance of
             work required. “Hands on” labor shall not include any labor
             performed by support of supervisory type personnel, such as,
             but not limited to: timekeepers, payroll clerks, purchasing,
             material handling, quality control, storing and issuing
             personnel. Quality control personnel are considered as those
             personnel who apply standards to finished work/products to
             determine that finish production work is serviceable in all
             respects.

             (b) Material Handling Rate Items: The price negotiated by
             the PCO/ACO shall be based on material proposed multiplied
             by the contract fixed material handling rate. The material
             required shall be negotiated between the contractor and the
             PCO/ACO. “Materials” are those parts or materials
             purchased, supplied, manufactured, or fabricated by the
             Contractor for the sole purpose of incorporating them into or
             making them a part of the end products or components
             thereof covered by this contract. The Material Handling Rate
             includes charges for: burdens; general and administrative
             expenses; and other allowable costs and profit.

                                           ...

             The anticipated or negotiated hours, when multiplied by the
             fixed hourly rate plus any material costs multiplied by the
             material handling rate, constitute the firm fixed price for the
             over and above work.

(R4, tab 6 at 12-14) (emphasis added)




                                            5
       12. CLIN X007AA, OVER AND ABOVE-LABOR RATE.

            OVER AND ABOVE - FIXED HOURLY RATE FIRM
            FIXED PRICE AS DIRECTED BY THE ACO/PCO. ***ALL
            RATES APPLY TO PRIME CONTRACTOR AND ALL
            SUBCONTRACTORS***

                                               ...

            This SubCLIN uses the fixed hourly rates in Attachment 2,
            Pricing Matrix. These rates shall be used in negotiating a price
            when direct labor is involved for Over and Above
            requirements. Overtime hours will be used only at the direction
            of the ACO/PCO.

(Id. at 14-15)

    13. CLIN X007AC, OVER AND ABOVE-PARTS AND MATERIALS
AND MATERIAL HANDLING.

                 FIRM FIXED PRICE AS DIRECTED BY THE ACO/PCO.
                 The work called for under this item shall be accomplished
                 when and as directed by the PCO/ACO in accordance with
                 DFARS 252.217-7028 and the Over and Above Work
                 Procedures stated in CLIN X007. The work under this sub-
                 CLIN includes parts and materials for repairs beyond fair
                 wear and tear (BFWT) including replacement of GFE support
                 equipment and those parts using the material handling rate in
                 Attachment 2, Pricing Matrix. The material handling rate
                 shall represent the administrative costs of obtaining parts and
                 materials for Over and Above requirements not included in
                 the flying hour rate. The Material Handling Rate shall
                 include all indirect costs plus fee associated with obtaining
                 materials for the prime and all subcontractors. The Material
                 Handling Rate shall be added to the negotiated material price
                 to determine a fixed price amount for the materials. All costs
                 included within the fixed hourly rates, or fixed price CLINs
                 elsewhere in this contract must be excluded from calculations
                 used by the Contractor to arrive at its Material Handling Rate.

                                               ...




                                                6
             DEFINITION OF MATERIALS: “Materials” are those parts
             or materials purchased, supplied, manufactured, or
             fabricated by the Contractor for the sole purpose of
             incorporating them into or making them a part of the end
             products or components thereof covered by this contract.

(Id. at 16) (emphasis added)

       14. On December 15, 2017, ATSA submitted Work Request No. 17-015
seeking contracting officer (CO) approval for work valued at an estimated $4,409.68.
ATSA sought a Mobile Repair Team from P & W to come to Tyndall Air Force Base
to evaluate the severity of magnesium corrosion in the intake air inlet case in one of
its engines. The evaluation was required to determine the depth of repair necessary
to allow the engine to remain in service. (R4, tab 9 at 1, 3) The use of P & W for
this work was founded on the subcontract agreement between ATSA and P&W
entered into shortly after the 0009 contract award, effective September 1, 2017 (R4,
tab 53 at 5). ATSA recommended that the work be charged under CLIN X007AC,
O & A Parts, Materials, and Material Handling. (R4, tab 9 at 3)

       15. On December 20, 2017, the Defense Contract Management Agency
(DCMA) requested that ATSA break down its costs in greater detail, explaining that the
government would only pay for O & A labor at $55.12 an hour (R4, tab 9 at 24-25).
ATSA resubmitted its revised Work Request No. 17-015 on February 15, 2018 (R4,
tab 9 at 8-9). Of the total $4,409.68 proposed, ATSA anticipated that labor would cost
$2,938.50 (id. at 8). On May 14, 2018, the CO approved the work request (R4, tab 9
at 17). On May 15, 2018, ATSA submitted an invoice seeking $2,938.50 in labor costs
(R4, tab 9 at 29). DCMA agreed to pay no more than $1,543.36 because ATSA had not
used the $55.12 O & A labor rate in attachment 2 of the contract. Negotiations between
the parties reached an impasse on May 21, 2018. (R4, tab 9 at 27)

       16. On May 30, 2018, ATSA filed a claim with the CO for the $1,395.14
 difference between the $2,938.5 requested and the $1,543.36 received (R4, tab 22
 at 1). The stated basis for the claim was described as:

             The amount claims (sic) and items at issue arise out of
             CLINS X007XX- Over and Above. CLIN X007AA is
             “Over & Above- Labor Rate” which specifically states that
             it applies to the prime contractor and all subcontractors.
             CLIN X007AC applies to “Over & Above - Material and
             Material Handling”.

                                         ...


                                          7
            It is ATSA’s position that any labor hour charge
            (whether shown as a separate charge or incorporated into
            the bill as a flat charge) is part of the “material cost” for
            which ATSA is entitled to full reimbursement for under
            CLIN 007AC. It seems that the government’s position
            is that this vendor labor rate is capped at the $55.12
            hourly rate.

                                         ...

            ATSA was the prior contractor on the previous contract
            (FA8 l 06-11-C- 0004) and performed the same repair
            and maintenance for six (6) years. The standard process
            for those years was that any outside vendor costs
            (including labor) under the Over and Above CLIN was
            reimbursed at the full rate by the government with the
            appropriate negotiated burdens. In this contract [the]
            government is trying to hold ATSA to the $55.12 hour
            rate for any labor charged by those outside vendors
            regardless of . . . how much the vendor charges for its
            labor.

                                         ...

            A subcontractor is a company with which there is a
            contractual relationship to perform work under the contract
            that is negotiated in advance, that sets rates, terms and
            conditions. If a prime can’t negotiate a contract then it is
            free to go to another subcontractor that is offering the same
            services and attempt to enter into a subcontract with them.
            A vendor is a supplier of parts/labor that is based on an “as
            needed” relationship and that does not rise to the level of a
            subcontractor as a vendor is free to offer its services to any
            company that requires same. This was the definition that
            applied to the prior contract that ATSA performed on for
            six years. There was nothing in the solicitation (that
            resulted in this contract) that indicated that the government
            was taking a different position from the prior contract.

(Id. at 1-3) On June 18, 2018, the CO denied ATSA’s claim (R4, tab 27 at 1).
ATSA appealed the decision to the Board on July 2, 2018, which was docketed as
ASBCA No. 61682.

                                          8
                                        DECISION

       This appeal turns upon our interpretation of three of the contract’s O & A
provisions - CLIN X007-OVER AND ABOVE WORK PROCEDURES, CLIN
X007AA, OVER AND ABOVE-LABOR RATE, and CLIN X007AC, OVER AND
ABOVE-PARTS AND MATERIALS AND MATERIAL HANDLING. (Findings
11-13) The government argues that the plain language of the contract, CLIN X007,
unambiguously establishes that appellant must propose labor charges at any
subcontractor tier for O & A work under the contract’s fixed hourly labor rates and
the contract defines the term “vendor” in the definition of subcontractor. (Gov’t br.
at 6) In contrast, appellant’s position is that “[t]his disagreement sets up a classic
case of a latent ambiguity in which there is a reasonable interpretation by both
parties as to the meaning of a term.” (App. br. at 3) Appellant summarized the
parties’ disagreement as:

             Here, the Government believes by inserting the word
             “subcontractor” under CLIN X007AA it gave the contractor
             sufficient notice that the labor rate would apply to all vendors as
             well. ATSA, based on its reading and prior conduct and
             performance between the parties and industry standards, had
             no inkling that the term “subcontractor” would encompass
             their vendors.

(Id. at 4)

       Our threshold issue is whether the plain language of the contract “supports
 only one reading or supports more than one reading and is ambiguous.” James G.
 Davis Construction Corporation, ASBCA Nos. 58000, 58002, 15-1 BCA ¶ 35,818
 at 175,154 (citing NVT Technologies, Inc. v. United States, 370 F.3d 1153, 1159
 (Fed. Cir. 2004)). The mere fact that the parties differ in their respective
 interpretations of the contract language is not enough, both interpretations must fall
 within a “‘zone of reasonableness.’” Metric-Constructors, Inc. v. NASA, 169 F.3d
 747, 751 (Fed. Cir. 1999) (citations omitted). Such a determination begins with
 the plain language of the contract to discern the objective intent of the parties.
 James G. Davis 15-1 BCA ¶ 35,818 at 175,154 (citations omitted).

        We agree with the government’s position that the plain language of the
contract, as applied to this dispute, is unambiguous. It is our understanding that the
dispute before us only involves charges for an outside contractor to evaluate the
severity of magnesium corrosion in the intake air inlet case in one of its engines to
determine the depth of repairs necessary to allow the engine to remain in service,
i.e. only services not parts. (Finding 14) Consequently, a reading of the plain

                                              9
language of the contract does not support appellant’s argument that the services
provided by P & W in this dispute would be reimbursed under the O & A material
clauses, CLIN X007(b) and CLIN X007AC, because the services at issue do not
meet the definition of “material costs” in those clauses. (See findings 11, 13) The
reimbursement would only involve the fixed–price O &A Labor Rate
CLIN X007AA. (Finding 12) Even assuming this were a situation where
materials/parts were involved and replaced, a plain reading of the two clauses is
clear that the only reimbursable costs are, “[t]he anticipated or negotiated hours, when
multiplied by the fixed hourly rate plus any material costs multiplied by the material
handling rate . . . .” (finding 11).

May We Consider Extrinsic Evidence of Trade Practice and Industry Standards?

        When the language of a contract is unambiguous, it must be given its “plain and
ordinary” meaning and the Board may not look to extrinsic evidence to interpret its
provisions. McAbee Constr., Inc. v. United States, 97 F.3d 1431, 1435
(Fed. Cir. 1996) (citation omitted). However, even when a contract is unambiguous, we
have found it appropriate to turn to one form of extrinsic evidence—evidence of trade
practice and custom. DynCorp International LLC, ASBCA No. 59244, 17-1 BCA ¶
36,653 at 178,494 (citing TEG-Paradigm Environmental, Inc. v. United States, 465 F.3d
1329, 1338 (Fed. Cir. 2006)). Such extrinsic evidence may be considered to confirm
that the parties intended the term to have its plain and ordinary meaning. (Id.)

Extrinsic Evidence

       Appellant argues that under prior practice on the 0004 contract “vendors” is
an industry term related to the O & A requirements and that ATSA’s position is that
“vendors” in these situations are not a “subcontractor” subject to a subcontract
agreement holding them to the negotiated rates in the 0009 contract O & A CLINs
XX007 and X007AA. (App. br. at 3) Our findings establish that the contract
language of both the 0004 and 0009 contracts do not include the word “vendor”.
However, both parties use these terms within the follow-on solicitation and ATSA’s
proposal in response. This indicates this term is recognized and used within this
industry as appellant asserts. (Findings 7-9)

      That being said, logically reimbursement under the contract CLINs at issue
only apply to work for which the contractor, ATSA, has either performed in house,
or more likely as in this appeal, contracted for with an outside contractor, a
“vendor”. The evidence also establishes that when ATSA actually contracts with
the vendor, ATSA considers the vendor to become a “subcontractor” (finding 10).
Although ATSA’s proposal on the current contract clearly recognizes a distinction
between the two terms, the proposal states, “[E]ach of the key vendors identified


                                           10
will be subcontracted to support the identified tasks as required.” (Finding 9) This
reality is further reinforced by the facts of the specific dispute before us. ATSA
entered into a subcontract agreement with P&W shortly after award of the 0009
contract. So, under the specific facts of this dispute, the work was given to a
contractor that was never a “vendor” under appellant’s definition but instead was in
fact a subcontractor (finding 10). Consequently, the extrinsic evidence of trade
practice confirms our unambiguous interpretation of the contract language. *

       In summary, after consideration of all the evidence, we hold that appellant is
bound by the fixed labor rate it bid for CLIN X007AA and the materials and materials
handling CLIN X007AC is inapplicable. The extrinsic evidence confirms this
interpretation. We have considered trade practice evidence but we conclude that trade
practice does not support appellant’s position.




*
    ATSA’s primary argument is that the contract language is ambiguous and a
       consideration of the extrinsic evidence supports ATSA’s reading of the contract
       language that trade practice in this business recognizes a distinction between the
       terms “subcontractor” and vendor”. This, ATSA argues, creates a latent ambiguity
       triggering the application of the principle of contra proferentum, construing the
       contract language against the drafter, in this case the government (app. br. at 9).
       Since our examination of the extrinsic evidence of trade practice supports a
       finding that the contract language is unambiguous, we need not address ATSA’s
       contra proferentum argument.

                                             11
                                   CONCLUSION

     For the forgoing reasons, this appeal is denied.

     Dated: March 30, 2020




                                                JOHN J. THRASHER
                                                Administrative Judge
                                                Chairman
                                                Armed Services Board
                                                of Contract Appeals


I concur                                        I concur




RICHARD SHACKLEFORD                             OWEN C. WILSON
Administrative Judge                            Administrative Judge
Vice Chairman                                   Vice Chairman
Armed Services Board                            Armed Services Board
of Contract Appeals                             of Contract Appeals




                                          12
       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. 61682, Appeal of Aero Tech
Services Associates, Inc., rendered in conformance with the Board’s Charter.

      Dated: March 30, 2020



                                               PAULLA K. GATES-LEWIS
                                               Recorder, Armed Services
                                               Board of Contract Appeals




                                         13
