                ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeals of --                                )
                                             )
Ikhana, LLC                                  )      ASBCA Nos. 60462, 60463, 60464
                                             )                 60465,60466,61102
                                             )
Under Contract No. W912DR-13-C-0051          )

APPEARANCE FOR THE APPELLANT:                       William A. Scott, Esq.
                                                     Pedersen & Scott, P.C.
                                                     Charleston, SC

APPEARANCES FOR THE GOVERNMENT:                     Thomas H. Gourlay, Jr., Esq.
                                                     Engineer Chief Trial Attorney
                                                    Michael T. Shields, Esq.
                                                    David B. Jerger, Esq.
                                                     Engineer Trial Attorneys
                                                     U.S. Army Engineer District, Baltimore

 OPINION BY ADMINISTRATIVE JUDGE SWEET ON THE GOVERNMENT'S
MOTION TO DISMISS, OR IN THE ALTERNATIVE FOR SUMMARY JUDGMENT
          AND SURETY'S MOTION TO INTERVENE AND TO
      WITHDRAW THE APPEALS, OR FOR SUMMARY JUDGMENT

        Appellant Il<hana, LLC brings these actions seeking ( 1) to convert a termination
for default to a termination for convenience (ASBCA No. 61102); and (2) damages for
breach of contract (ASBCA Nos. 60462-60466). The government has moved to dismiss,
or in the alternative for summary judgment, arguing that Ikhana lacks standing because a
surety-The Guarantee Company of North America, USA (the surety)-is the real party
in interest. The surety also has moved to intervene. Further, the surety has moved to
withdraw the appeals, or in the alternative for summary judgment. The surety raises the
same basic argument as the government. The motions are denied.

       STATEMENT OF FACT (SOF) FOR PURPOSES OF THE MOTIONS

       1. The government awarded Contract No. W912DR-13-C-0051 (0051 contract)
to Ikhana to construct secured access lanes and remote screening facilities at the
Pentagon (R4, tab 2).

     2. In connection with the 0051 contract, Ikhana executed performance and
payment bonds with the surety (R4, tab 14 ).
        3. Part of the consideration Ilrnana offered for the bonds was to execute an
indemnity agreement with the surety (gov't mot., ex. B). Under the indemnity
agreement, an "EVENT OF DEFAULT" occurred when, inter alia, (I) Ilrnana was
declared to be in default; (2) Ilrnana breached any terms of the indemnity agreement;
or (3) there was "a payment by SURETY on any BOND" (id.~ 13). Ilrnana agreed
that, in the event of such a default, it would assign to the surety a possessory right to
collateral-which included "contract rights" (id.~~ IO(a)(i), 12). Moreover, upon an
event of default, the surety may:

              [A ]ssert and prosecute any right or claim hereby assigned,
              transferred or otherwise conveyed in the name of [Ilrnana]
              and to compromise and settle any such right or claim on
              such terms as it considers reasonable under the
              circumstances in its sole and absolute discretion, subject
              only to the requirement that it act in good faith, which shall
              be defined as the absence of deliberate or willful
              malfeasance.

(Gov't mot., ex. B,   ~   14(c)) The indemnity agreement also stated that Ilrnana:

              [H]ereby irrevocably constitute and appoint SURETY as
              their true and lawful attorney with the right, but not the
              obligation, to exercise all of the rights of [Ilrnana]
              assigned, transferred and conveyed to SURETY in this
              Agreement, hereby giving and granting to SURETY full
              power and authority to make, execute, endorse and deliver
              any agreements for the full protection intended to be given
              to SURETY hereunder as [Ikhana] might or could do.

(Id.~   18)

       4. After performance began, Ikhana encountered problems. In October 2015,
Ikhana filed four claims (affirmative claims) with the contracting officer (CO). In the
affirmative claims, Ikhana asserted that defective plans and specifications, unforeseen
conditions, and government-caused delays caused increased costs and delays. (R4,
tabs 129, 135, 137-38) The CO did not issue a final decision on the affirmative claims.

       5. On 17 December 2015, the government terminated the contract for default
(R4, tab 142).

       6. On 25 February, 2016, Ikhana appealed the termination for default, as well
as the deemed denial of its affirmative claims (collectively, appeals).



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      7. Thereafter, the government made a claim with the surety against the
performance bond (gov't mot., ex. A, , 7).

       8. Between November 2015 and June 2016, seven oflkhana's subcontractors
asserted claims against the payment bond (gov't mot., ex. A,, 8). In 2016, the surety paid
three subcontractors under the payment bonds (id. , 9). Two other subcontractors sued the
surety (id.,, 8, 10).

        9. On 15 June 2016, the surety made a demand for collateral from Ikhana under the
indemnity agreement (gov't mot., ex. E). Ikhana responded to the demand letter by stating
that it was premature and the amount sought was unreasonable (app. resp., ex. 9 at 1).

       10. The surety and the government then began negotiating a settlement of the
government's bond claim (app. resp., ex. 12). The government proposed that the
settlement include a clause pursuant to which the surety agreed to cause Ikhana to dismiss
these appeals and release the government from all claims (id. at 4).

       11. Jeffrey Jubera, the surety's vice president for claims, responded that "[t]his
was not the proposal that you and I discussed in Baltimore. I cannot take the steps to
waive Ikhana's rights to their claim ifthe $1.7 [million] is not going to be applied to
the existing contract work." (App. resp., ex. 13 at 2)

       12. On 25 September 2016, a government attorney sent an email to Ikhana's
Patrick Pike, stating that:

              [T]here may have been a miscommunication regarding
              your positon after our initial offer of $950,000 from the
              Government in exchange for a full settlement. [The CO]
              received the attached email from Jeff Jubera indicating that
              he could not agree to work to waive Ikhana's rights ifthe
              entire $1. 7M of Government funds would not be applied to
              the completion contract. Afterwards, you and I discussed
              on the phone that in the interest of mitigating damages, you
              and Jeffhad discussed proceeding with the Government
              paying $950,000, but with the parties reserving their rights.
              I then sent over another draft of the settlement agreement,
              with all three parties reserving rights. You have since
              responded that [the surety] would be willing to pay $1.2M
              toward the completion contract in exchange for full
              settlement, meaning the Government would pay
              approximately $ l .5M toward the completion contract. I
              left a voicemail for you responding that we weren't able to
              accept that offer.



                                            3
                I may have misunderstood your position regarding
                reservation of rights. If you were just reiterating Jeffs
                email, which appeared to be that if the Government paid
                $950,000, the settlement could not include settlement with
                Umana, but would still include settlement with [the surety],
                that is something we are willing to consider, and would
                like to speak with you about on Monday.

(App. resp., ex. 14 at 2)

       13. Negotiations continued, and on 30 September, 2016, the government and
the surety executed a settlement agreement (gov't mot., ex. F). Under the settlement
agreement, there was no take-over agreement. Rather, the surety tendered a
completion contractor (id. ~ 1). The surety agreed to pay the completion contractor
$1,455,000, and the government would pay the remainder of the completion contract
(id.~ 3). Further, the surety agreed that it would cause the dismissal of these appeals
and release the government from any claims regarding the contract (id.~ 4). In
exchange, the government agreed to release the surety from all liability under the
performance and payment bonds, including liquidated damages and additional excess
reprocurement costs (id. ~ 6).

                                        DECISION

       The fundamental issues underlying the pending motions to dismiss, to intervene
and withdraw, and for summary judgment are whether Ikhana assigned the claims
subject to these appeals to the surety, and if so, whether that assignment precludes
Ikhana from bringing these appeals (gov't mot. at 11; surety mot. to intervene, ~~ 10-11;
surety mot. to withdraw at 11, 13). We need not decide the first issue. Even assuming,
without deciding, that there was an assignment, 1 that assignment would not preclude
Ikhana from bringing these appeals.

       Congress enacted the Contract Disputes Act, 41 U.S.C. §§ 7101-7109 (CDA),
to equalize the parties' bargaining power by guaranteeing at least one impartial review
of CO decisions. Minesen Co. v. McHugh, 671 F.3d 1332, 1340-41 (Fed. Cir. 2012);
Burnside-Ott Aviation Training Ctr. v. Dalton, 107 F.3d 854, 859 (Fed. Cir. 1997).
"Permitting parties to contract away Board review entirely would subvert this
purpose." Burnside-Ott, 107 F.3d at 859. Thus:

                [A]ny attempt to deprive the Board of power to hear a
                contract dispute that otherwise falls under the CDA

1
    For purposes of this opinion, we also assume, without deciding, that the Anti-Assignment
         Act, 31 U.S.C. § 3727, 41 U.S.C. § 6305 does not prohibit any assignment.

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                conflicts with the normal de novo review mandated by the
                CDA and subverts the purpose of the CDA .... Congress
                commanded that the CO's decision on any matter cannot
                be denied Board review.

Id. at 858 (holding that a contractor cannot waive its right to appeal a CO's decision to
the Board). 2

       Here, the indemnity and settlement agreements impermissibly attempt to
deprive us of our power to hear these appeals, which otherwise fall under the CDA.
Admittedly, that attempted deprivation is less direct than was the attempted
deprivation in Burnside-Ott. In Burnside-Ott, the contractor directly waived its right
to appeal to the Board in its contract with the government. 107 F .3d at 856. In this
case, Umana indirectly waived its right to appeal to the Board by assigning the claims
subject to these appeals to the surety, which then agreed with the government to
withdraw these appeals. (SOF iii! 3, 13) However, that is a distinction without a
difference. Regardless of the particular manner in which the contractor waived its
CDA right to Board review, the end result is the same-the contractor impermissibly
has contracted away its unwaivable CDA right to impartial review of the CO's
decisions. Burnside-Ott, 107 F.3d at 859.

        The government argues that the surety had to be able to settle Ikhana's claims
because otherwise it had no incentive to devote any resources to project completion
prior to resolution of the appeals, which would defeat the purpose of a bond.
However, the government provides no authority in support of that argument. (Gov't
mot. at 11) On the contrary, that argument is belied by the facts of this case. During
their settlement negotiations, both the surety and the government expressed their
willingness to fund project completion without settling Ikhana's claims (SOF iii! 11,
12). In any event, the government's equitable argument cannot override Ikhana's
unwaivable CDA right to Board review of the CO's decision and deemed denials.

      Also misplaced is the surety's reliance upon Safeco Insurance Company of
America, ASBCA No. 52107, 03-2 BCA if 32,341 (surety mot. to withdraw at 14).
Unlike in the present case, it was the government-not the contractor-that was
seeking to nullify the assignment of the contractor's claim to the surety in Safeco.
03-2 BCA if 32,341 at 160,013-14. That distinction makes a difference because it



2
    Minesen declined to extend Burnside-Ott to cases where the parties waive their rights
        to appeal from the Board to the United States Court of Appeals for the Federal
        Circuit. 671 F.3d at 1340-41. Burnside-Ott-instead of Minesen-applies to
        this appeal because the issue here is a contractor's access to the Board, not its
        right to appeal Board decisions to the Federal Circuit.

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means that, unlike in the present case, there was no assertion by the contractor that it
had been compelled to waive its CDA right to Board review in Safeco. ld. 3

       In sum, any assignment of the claims Ikhana appeals was invalid under Burnside-Ott.
As a result, Ikhana has standing to bring these appeals, the surety does not have standing,
and the surety therefore cannot withdraw the appeals.

                                     CONCLUSION

       The government's motion to dismiss, or in the alternative for summary
judgment is denied. The surety's motion to intervene is denied. The surety's motion
to withdraw the appeals or, in the alternative, motion for summary judgment is denied.

         Dated: 18 October 2017




                                                   JAMES R. SWEET
                                                   Administrative Judge
                                                   Armed Services Board
                                                   of Contract Appeals


    I concur                                       I concur



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




3
    Maharaj Construction Inc., LBCA 2001-BCA-3, 2005 WL 166315-which the
        government and the surety cite (gov't mot. at 13-14; surety mot. to withdraw at
        14)-is not binding upon us. Nor do we find it persuasive because it does not
        address Burnside-Ott, which is binding precedent.

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       I certify that the foregoing is a true copy of the Opinion and Decision of the Armed
Services Board of Contract Appeals in ASBCA Nos. 60462, 60463, 60464, 60465, 60466,
61102, Appeals of Ikhana LLC, rendered in conformance with the Board's Charter.

      Dated:



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




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