                   ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeal of --                                 )
                                             )
Honeywell International, Inc.                )      ASBCA No. 57779
                                             )
Under Contract No. W911Sl-08-F-013 l         )

APPEARANCES FOR THE APPELLANT:                      Terry L. Albertson, Esq.
                                                    Robert J. Sneckenberg, Esq.
                                                     Crowell & Moring, LLP
                                                     Washington, DC

APPEARANCES FOR THE GOVERNMENT:                     Jeffrey P. Hildebrant, Esq.
                                                     Air Force Deputy Chief Trial Attorney
                                                    Marvin Kent Gibbs, Esq.
                                                     Senior Trial Attorney

                 OPINION BY ADMINISTRATIVE JUDGE MELNICK

         This is the quantum phase of this appeal involving a delivery order (DO) issued to
Honeywell International, Inc. (Honeywell) under an Energy Savings Performance Contract
(ESPC). Among other things, the DO required the delivery of two solar arrays. In prior
summary judgment decisions the Board invalidated the portions of the DO that had
recognized the value of Solar Renewable Energy Certificates (SRECs) associated with the
arrays' generation. SRECs could not be included among government cost savings that would
justify payment under the contract. Honeywell Int'!, Inc., ASBCA No. 57779, 13 BCA
,-i 35,380. Nevertheless, because Honeywell delivered the arrays to the government, the
Board recognized Honeywell was entitled to a quantum valebant or quantum meruit recovery
 for the goods and services received by the government. Honeywell Int'!, Inc., ASBCA
No. 57779, 15-1BCA~36,121.

        The Board has since held a hearing to address quantum and awards it as discussed
in the following decision.

                      BACKGROUND AND FINDINGS OF FACT 1

      1. On 9 July 2008 the United States Army issued the DO identified above under
ESPC No. DE-AM01-99EE73683 (later renumbered DE-AM36-99EE73683) (the Super
ESPC) awarded by the Department of Energy to Honeywell. 15-1 BCA i-1 36, 121 at
176,338; 13 BCA ,-i 35,380 at 173,607. Through ESPCs, contractors provide the

1   Some of the citations are to the portions of prior summary judgment decisions finding
       that the matter is not in dispute.
government with energy conservation measures (ECMs) in exchange for a share of the
government's energy savings. 42 U.S.C. § 8287. ESPCs guarantee savings to agencies
and dictate payment schedules based upon them. 42 U.S.C. § 8287(a). ESPCs may last
for a period of up to 25 years, and a multiyear ESPC is governed by FAR Part 17 .1.
42 U.S.C. § 8287(a)(l ), (a)(2)(D)(iii).

        2. This DO acquired services for Fort Dix, New Jersey, with payments eventually
scheduled over 21 years (app. supp. R4, tab 2 at 9, tab 10 at 9.) 2 13 BCA ~ 35,380 at 173,607.
Relevant here are two solar arrays. The original DO's requirements have been designated
Phase I and included a roof mounted unit. The second solar array, Phase II, was added
through a modification. 15-1 BCA ~ 36, 121 at 176,338. Phase II was approximately the same
size as the Phase I unit and was to be ground mounted adjacent to a controlled humidity
warehouse building (R4, tab 16 at 4; tr. 177). Each array would produce 700 kW DC peak
production (R4, tab 16 at 3-4). All of the electricity was to be used by Fort Dix, eliminating
any need for net metering in support of its sale outside that grid (id. at 4 ).

       3. The DO calculated the annual energy savings to the government resulting from
the arrays by adding the value of the electricity produced by them to the sales value of the
SRECs they generated. SRECs are transferable certificates (here issued by New Jersey)
representing the environmental benefits or attributes of one megawatt-hour of solar
energy produced by a generator connected to the state's electrical grid. Using
contractually specified values for electricity and SRECs over time, Honeywell guaranteed
certain annual savings from the ECMs. The DO then scheduled annual payments to
Honeywell from the government based upon those savings. The DO provided that
Honeywell could sell the SRECs for the government. 15-1BCA~36,121at176,338.
Honeywell understood that if the government's savings in any years were lower than
Honeywell's guarantee, Honeywell would bear the cost (tr. 30-31).

        4. The Super ESPC required five previously formatted schedules to be submitted by
Honeywell for inclusion in the DO, identified as D0-1 through D0-5 (ex. B-1, tab 12
at 80-82). D0-1 lists Honeywell's Estimated Annual Cost Savings for each year, followed
by its Proposed Guaranteed Annual Cost Savings for each year and Annual Contractor
Payments. For example, as ultimately amended after modification for Phase II, D0-1
estimates $3,293,434 in government cost savings for Year 2, guarantees the lower amount
of $3,196,924 in government savings that year, which would then provide Honeywell with a
slightly lower $3, 196,923 payment. D0-1 lists escalation rates used to determine cost
savings, including a 2.8 percent rate for electricity. (App. supp. R4, tab 10 at 7) This is
confirmed elsewhere in the DO, which states that the current blended electric rate is
$0.1406/kWh, escalating at 2.8 percent (R4, tab 4 at 5). The DO explains that this rate was
determined from a review of cost escalations as far back as 1970 (id. at 48-49). After

2   The original schedules included in appellant's supplemental Rule 4, tab 2, contained
        pages that were cut off. Appellant provided complete pages in its supplemental
        Rule 4, tab 10.
                                             2
addition of Phase II, the DO provides that expected savings from SRECs would be valued at
$0.405/kWh for the first five years, and $0.2025/kWh for years six though ten (R4, tab 16).

        5. Schedule D0-2 lists each of the ECMs and provides financial data regarding
them. Thus, for the first solar array (Phase I), the schedule states that Honeywell's direct
costs, called Total Implementation Expense, are $5,188,721. That figure is $4,248,275
for the Phase II modification. Schedule D0-2 provides a 25 percent markup for each
phase (broken into an 18 percent overhead rate and 7 percent profit rate) leading to an
Implementation Price of $6,485,90 l for the Phase I array and $5,304,278 for Phase II.
(App. supp. R4, tab 10 at 8; tr. 35)

        6. Schedule D0-3 contains a cash flow worksheet identifying a 6.19 percent
interest rate for the financing of the initial DO, and an 8.95 percent rate for Phase II. It
also breaks into components each year's government payment identified on D0-2. D0-3
also identifies other performance expenses included within each year's payment. (App.
supp. R4, tab 10 at 9)

      7. Schedule D0-4 provides the first year energy and cost savings expected from
each ECM (app. supp. R4, tab 10 at 10).

       8. Schedule D0-5 is titled "'Annual Cancellation Ceiling Schedule." It presents two
columns of figures for years one through twenty. The first column is titled "Outstanding
Capital Investment." The second is titled "Total Cancellation Ceiling." Note 2 of the
schedule states that "Cancellation Ceilings for each time period specified ... establish the
maximum termination liability for that time period." It continues that "[a]ctual total
termination costs will be negotiated." Note 1 of the schedule provides that "Outstanding
Capital Investment" is a "fixed subset of Total Cancellation Ceiling [which] [c]onstitutes the
remaining unamortized principal on total Amount Financed for each time period specified
above plus any prepayment charges, as negotiated for the delivery order award." Note 3
permits the contractor to "attach a monthly Financing Termination Liability Schedule which
must correspond to the annual amounts submitted .. .in each year for Outstanding Capital
Investment." (App. supp. R4, tab 10 at 11) This latter document was just a monthly version
ofD0-5 (tr. 74). Honeywell included such a document which identified a Financing
Termination Fee for both phases of 106.5 percent (app. supp. R4, tab 10 at 12).

        9. New Jersey has a net metering program. It provides full retail credit for solar power
generated behind a main electric meter through a net metering agreement. (Tr. 198-99)
Notwithstanding the fact that the DO stated that all of the power generated by the arrays
would be used on base and that no net metering agreement was required, New Jersey required
one anyway because its utility owned the power lines on base (tr. 198; R4, tab 16 at 4).
Accordingly, New Jersey's utility executed a net metering agreement for Phase I. However,
the utility changed its mind for Phase II. (Tr. 199) Honeywell attempted to address the
matter with the New Jersey Board of Public Utilities, and had included the Governor's energy


                                             3
advisor in the discussions, when the government asked it to stop those communications
(tr. 200).

        10. Honeywell completed the Phase I array and it was accepted by the government
sometime between 8 June and 25 September 2009. 15-1BCA~36,121at176,338. After
the Army transferred authority over the DO to the United States Air Force in October 2009,
Honeywell provided the Phase II array on time in April 2010. Though it is designed and
installed as required, the government has not connected it to the base grid, tested or
accepted it. Id.

         11. On 22 March 2011, Honeywell submitted a certified claim to the contracting
officer, contending the government breached the DO by refusing to accept Phase II,
failing to pay interest owed for late payments, and failing to pay an invoice for
$2,741,963.06 (R4, tab 50). The contracting officer's final decision rejected the claim,
declaring the DO's solar array portions were "voidable" (due to a failure of consideration
as the "payment stream required by the task order violates federal property disposition
and miscellaneous receipt statutes") and cancelled (R4, tab 53). Honeywell appealed to
this Board, seeking a ruling that it was entitled to the payment it sought, or a declaration
that it should be compensated for the value of the benefits it provided to the government.

       12. The Board has since issued two summary judgment decisions. The first
decision, dated 7 August 2013, partially granted summary judgment to the government,
agreeing that revenues from SREC sales were not cognizable energy savings under the
ESPC statute and that the relevant contracting officers lacked authority to permit
Honeywell to sell the government's SRECs. Accordingly, the Board invalidated the
DO's inclusion of SREC sales revenues among the savings generated by the solar arrays.
13 BCA ~ 35,380. The second decision, dated 24 September 2015, acknowledged that
Honeywell is entitled to quantum valebant and quantum meruit damages for the
reasonable value of the goods and services it provided under the invalidated portions of
the DO. 15-1BCA~36,121.

      13. The government paid Honeywell $122,258 for Phase I invoices on 1 August
2014 and 1 February 2015. It paid Honeywell $125,653 for a Phase I invoice on 1 May
2016. (Gov't br. at 4; app. reply br. at 5)

       14. The government presented unrefuted evidence that the SRECs associated with
Phase II had a market value of$2,553,728 (tr. 185). Given that the Phase I array is
roughly the same size it should generate SRECs with roughly the same value.




                                             4
                                       DECISION

       Previously, the Board held that Honeywell may recover under quantum valebant or
quantum meruit remedies for "the fair market value of the goods and services delivered to the
government pursuant to [the] invalid contract." Honeywell, 15-1 BCA ~ 36, 121 at 176,340.
Compensation is limited to the value of the benefits to the government. United States v.
Amdahl Corp., 786 F.2d 387, 393 (Fed. Cir. 1986). Here, Honeywell provided both goods
and services to the government. First, Honeywell delivered the solar arrays (finding 10).
Second, Honeywell financed the arrays for a period of time (findings 2, 6).

       Honeywell contends that the DO's schedules dictate their value. It maintains that
Schedule D0-2 specifies the agreed prices for the arrays based upon direct costs, overhead,
and profit markups. Honeywell then adds its price for a monitoring panel and assigns a
portion of "Feasibility & Design Costs" to propose a value for the arrays. Honeywell observes
that Schedule D0-3 provides for Honeywell's financing services, establishing agreed upon
interest rates Honeywell would charge the government for each solar array and fixing payments
to be made over time. Honeywell then contends that D0-5 dictates a 6.5 percent financing
termination fee. It says its total recovery should be the value of the arrays, plus continually
accruing interest, plus the financing termination fee (minus any government payments). It
contends this figure totals $23,240,844 as of9 May 2017. (App. reply br., revised ex. A)

        The government mainly ignores the DO, providing testimony from an engineer who
assessed only the Phase II array's electrical production. First, he stated that the arrays'
product literature suggest they would degrade 0.8 percent per year. Next, he suggested that
Phase II's location required the government to sell its electricity to the local utility at
unidentified wholesale rates instead of retail rates. He also excluded any valuation of the
financing services Honeywell provided. He escalated future electrical rates by 1.01 percent,
rather than 2.8 percent, citing information he said came from National Institutes of Standards
(NIST) sources. Based upon this testimony, the government claims Phase II's market value is
$700,962, and suggests Honeywell recover nothing for the Phase I array.

       Honeywell's position that the contract price dictates the market value of the goods
and services it provided traces back to Pacific Maritime Association v. United States, 108
F. Supp. 603, 607 (Ct. Cl. 1952) (cited in Urban Data Systems, Inc. v. United States, 699
F.2d 1147, 1155-56 (Fed. Cir. 1983)). There, government officials attempted to execute
an express contract with an association providing longshoreman for 1. 7 cents per
man-hour. Though no express contract was approved by the government, it received the
benefit of the services sought and was therefore required to pay their value. The court
declared that "[ n]o better answer to this can be given than what the parties agreed upon,
to wit, 1.7 cents per man-hour." Pacific Maritime Ass 'n, 108 F. Supp. at 607.

       Here, the DO promised that Honeywell would deliver 2 solar arrays to the
government at an agreed upon price financed over 21 years at the established interest rates,
with 2 additional elements. First, Honeywell was statutorily required to guarantee that the

                                             5
government would experience annual savings from the DO. 42 U.S.C. § 8287(a)(2)(B).
Accordingly, D0-1 guarantees government savings for each of its years that are higher than
its payments (finding 4 ). Honeywell understood that if actual government savings in any
year were lower than its guarantee then Honeywell would bear that loss (finding 3). Because
the solar array portions of the DO have been invalidated, they are no longer within the scope
of that guarantee. Second, the arrays were expected to generate SRECs that added to the
government's energy savings. The differences between what the DO promised and what the
government received distinguishes this appeal from Pacific Maritime Association.

         Nevertheless, though the DO price should not be summarily accepted, it guides the
determination. According to Schedule D0-2, the implementation price for Phase I was
$6,485,901 and the implementation price for Phase II was $5,304,278, totaling $11,790,179.
Included in the prices was a 25 percent markup composed of 18 percent overhead and
7 percent profit. (Finding 5) By consenting to these prices, the government demonstrated
that it initially valued the arrays for at least this amount of money. We find that a reasonable
determination of quantum valebant is to subtract the value of the SRECs and the savings
guarantee from the implementation price.

       Unrefuted testimony established that the SRECs associated with Phase II were worth
$2,553,728. Subtracting that figure from the Phase II Implementation Price ($5,304,278)
leaves $2,750,550. Given that the Phase I array is roughly equal in size and production, the
SRECs associated with it should have the same value. (Finding 14) Subtracting $2,553,728
from the Phase I Implementation Price ($6,485,901) results in $3,932, 173. The most likely
component of Honeywell's price reflecting the value of its savings guarantee is its seven
percent profit. Accordingly, that value is subtracted from the figures as well. The value of
Phase I therefore becomes $3,656,921 and Phase II is $2,558,011.

       The government seeks departure from several of the premises and inputs in the DO
to support its lower valuation of $700,962. First, without citation to the record, the
government suggests that Phase I has no value because between 2014 and 2016 Honeywell
issued invoices for it that were paid by the government. Nothing about the fact the
government has made some payments toward Phase I relieves it of its responsibility to pay
quantum meruit and quantum valebant for the full value of the benefits it has received.
At most, the government's payments present offsets to be applied later in this analysis.

        Second, the government engineer vaguely testified that he applied a 0.8 percent annual
degradation rate to the arrays' performance that he said he obtained from the manufacturer's
"literature" (tr. 177-78). However, he did not specifically identify that material and the
government did not produce it. Additionally, if such a recognized degradation rate was
known to significantly reduce the arrays' performance over time, then it is likely the parties
would have accounted for it in the implementation prices and payment calculations,
especially given Honeywell's guarantee of savings. There is no such evidence.



                                             6
       Next, the engineer applied an unidentified electrical rate to the determination of
Phase H's value that he described as "wholesale." He thought this unspecified rate was
more applicable than the retail rate applied to Phase I because Phase II was not adjacent
to any buildings to which it could be connected and only powered private distribution
lines. Though admitting he did not really know, the engineer speculated that
New Jersey's utility would only purchase the electricity produced by Phase II at a
wholesale rate (tr. 179). Similarly, the engineer applied a 1.01 percent electrical rate
escalation that he obtained from unidentified and unproduced "NIST tables. " 3

        Contrary to the beliefs of the government's engineer, the DO states that both phases
were intended to produce electricity for Fort Dix and that Phase II was to be located
adjacent to the controlled humidity warehouse (finding 2). The DO stipulated to a
"blended" electrical rate of $0.1406/kWh. Additionally, the DO stipulated to a 2.8 percent
escalation rate, which it explained resulted from a review of cost escalation in the state
since 1970. (Finding 4) Although the evidence indicates that, like Phase I, a net metering
agreement with New Jersey's utility became necessary to connect Phase II to the base
power lines, the government asked Honeywell to cease pursuing that agreement. From
that, the government's engineer merely guesses now that New Jersey's utility never would
have agreed to an arrangement to permit Phase II to be used as intended. Given the
record, the government fails to demonstrate that Phase II could not have been used as
contemplated and that the DO's agreed upon electrical and escalation rates are invalid.

        Honeywell seeks amounts for other line items on Schedule D0-2. First, it seeks
$25,667 for a "Solar Photovoltaic-monitoring panel" (R4, tab 10 at 8). Honeywell has not
previously sought payment for this item and the Board lacks jurisdiction over any claim not
presented to the contracting officer. See Taj Al Safa Co., ASBCA No. 58394, 13 BCA
~ 35,278. To remain within the scope of a claim, an action must arise from the same
operative facts as those presented to the contracting officer. See Am. Gen. Trading &
Contracting, WLL, ASBCA No. 56758, 12-1BCA~34,905 at 171,639-40. Honeywell's
certified claim refers to its completion and delivery of the Phase I and II arrays, and seeks
payment for them (R4, tab 50). Honeywell does not mention delivering a monitoring panel
for which it was not paid. Such a contention involves different operative facts than its
allegations about the arrays. Accordingly, the Board lacks jurisdiction to entertain
Honeywell's request to recover for the value of a monitoring panel. Additionally,
Honeywell's complaint does not seek payment for a monitoring panel, its motion for
summary judgment claiming entitlement for quantum valebant recovery does not include a
monitoring panel among the benefits it contends were provided to the government, and the
Board never held that Honeywell delivered a monitoring panel to the government.



3
    The contracting officer vaguely repeated the engineer's methodology, also advocating
        for the application of an unidentified wholesale rate and escalation factor (tr. 114).
        However, her testimony was influenced by the engineer (tr. 115).
                                               7
        Another line item from Schedule D0-2 is $701,141 that the document calls "Feasibility
& Design Costs" (R4, tab 10 at 8). Honeywell has characterized this as "engineering" costs
(tr. 82). Honeywell seeks to prorate a total of $323,445 of these costs to the solar arrays,
saying their value was increased by that amount. Honeywell has not proven what this line
item actually paid for, or that any prorated portion of it increased the value of the arrays.

       Having established the value of the goods Honeywell delivered, or quantum
valebant, it is also necessary to determine the value of the services it delivered, or quantum
meruit. As observed, the DO also financed the solar arrays for Honeywell, relieving the
government from making full payment upon delivery and establishing a payment schedule
over 21 years. This financing service provided a benefit beyond the mere value of the
arrays. In Schedule D0-3, the government agreed to a 6.19 percent interest rate for Phase I
and an 8.95 percent rate for Phase II (finding 6). Again, having consented to the application
of these rates, the government must have perceived the financing to provide at least that
much value. Honeywell's damages calculation seeks interest for the Phase I array
commencing in August 2008, the first month after the DO was awarded, and for it to start
accruing in November of 2009 for Phase II, prior to delivery (app. reply hr., ex. A).

       Honeywell's compensation is limited to the value of the services the government
received from it. Amdahl Corp., 786 F.2d at 393. Honeywell has failed to show its
financing benefitted the government prior to the arrays' delivery. The undisputed facts
are imprecise for Phase I, stating only that the array was completed and accepted
sometime between 8 June and 25 September 2009. A rough midpoint is 31 July 2009.
Phase II's undisputed facts are also somewhat vague, stating that the array was supplied
and installed in April 2010, so a midpoint is 15 April. (Finding 10) This benefit
continued until the government rescinded the solar portion of the DO in its 21June2011
final decision purporting to cancel "the voidable portions of the task order" (finding 11 ).
See Amdahl, 786 F.2d at 393 (noting that quantum valebant and quantum meruit
remedies apply to benefits received by the government prior to a contract's rescission for
invalidity). Accordingly, interest accrued on the Phase I array's $3,656,921 value at 6.19
percent from 31 July 2009 until 21 June 2011, and it accrued on Phase II's $2,558,012 at
8.95 percent from 15 April 2010 until 21June2011.

        Honeywell maintains that any quantum valebant or quantum meruit recovery should
include a 6.5 percent early termination premium in accordance with Schedule DO-S's
Annual Cancellation Ceiling Schedule (finding 8). Honeywell has not proven this
contention. In accordance with 42 U.S.C. § 8287(a)(2)(D)(iii), the DO is governed by FAR
Part 17, which requires the contracting officer to establish cancellation ceilings for each
program year after the first. FAR 17 .106-1 ( c ). Schedule D0-5 provides those annual
ceilings, which both it and the Super ESPC stress "establish the maximum termination
liability," while "[a]ctual total termination costs will be negotiated" (ex. B-1, tab 12 at 82;
app. supp. R4, tab 10 at 11 n.2).



                                              8
        Honeywell relies upon the fact that D0-5 permitted it to attach a monthly Financing
Termination Liability Schedule, which breaks the schedule into monthly amounts and
identifies 106.50 percent as a "Financing Termination Fee" (finding 8). Taken together, these
materials dictate the maximum amounts that the government could pay Honeywell in the event
of termination for convenience or cancellation of the DO, while stressing that actual costs
would be negotiated. However, the Board has not ruled that Honeywell is entitled to either
cancellation charges or termination for convenience costs. Here, Honeywell is seeking
quantum meruit and quantum valebant resulting from the Board's ruling that "the provisions
of the DO including the sales value of SRECs among the government's energy savings, and
the associated payment calculations premised upon those sales, are invalid" and that "the DO's
provision permitting Honeywell to sell SRECs" are invalid. Honeywell, 13 BCA ~ 35,380 at
173.613. That recovery is limited to the value of the benefits received by the government.

                                     CONCLUSION

       Honeywell is entitled to $3,656,921 for Phase I, with interest accruing at the agreed
financing rate for Phase I of 6.19 percent (finding 6) from 31 July 2009 until 21 June 2011.
CDA interest also accrues from 22 March 2011 until payment. However, Honeywell
received a payment of $122.258 on 1August2014, $122,258 on 1February2015, and
$125,653 on 1 May 2016 (finding 13), reducing the government's debt accordingly.

      Honeywell is entitled to $2,558,011 for Phase II, with interest accruing at the
agreed financing rate for Phase II of 8.95 percent (finding 6) from 15 April 2010 until
21 June 2011. CDA interest also accrues from 22 March 2011 until payment.

      Dated: 1 August 2017


                                                  MARK A. MELNICK
                                                  Administrative Judge
                                                  Armed Services Board
                                                  of Contract Appeals

                                                  I concur




 RICHARD SHACKLEFORD                              ow
 Administrative Judge                             Administrative Judge
 Acting Chairman                                  Acting Vice Chairman
 Armed Services Board                             Armed Services Board
 of Contract Appeals                              of Contract Appeals


                                             9
       I certify that the foregoing is a true copy of the Opinion and Decision of the
Armed Services Board of Contract Appeals in ASBCA No. 57779, Appeal of Honeywell
International, Inc., rendered in conformance with the Board's Charter.

      Dated:



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




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