GRANTED IN PART: March 25, 1994 GSBCA 10627-NHI, 11411-NHI MICHAEL WELLER, INC., Appellant, v. OFFICE OF NAVAJO AND HOPI INDIAN RELOCATION, Respondent. Paul M. Meador, Las Vegas, NV, counsel for Appellant. Margaret Lee Baskette and Edward E. Risha, Civil Division, Department of Justice, Washington, DC, counsel for Respondent. Before Board Judges BORWICK, VERGILIO, and GOODMAN. BORWICK, Board Judge. This case involves two time and materials contracts issued by the Navajo and Hopi Indian Relocation Commission, the predecessor to the Office of Navajo and Hopi Indian Relocation (ONHIR), for repair or renovation of thirty-one houses on the Navajo/Hopi Indian Reservation in Arizona. The ONHIR is an independent entity in the executive branch authorized to provide housing for members of the Navajo Tribe relocated from lands partitioned to the Hopi Tribe. 25 U.S.C.A. 640d-11, 640d- 14(d)(3) (West Supp. 1993). These time and materials contracts contained the standard Payments Under Time and Materials and Labor Hour Contracts clause and were subject to ceiling cost limitations. The total ceiling price of the contracts started at $250,000, was unilaterally raised twice, once in mid-performance to $450,000 and again near the end of contract administration to $676,679.13. The total contract payments amounted to $659,408.09. Appellant, Michael Weller, Inc. (Weller), filed a claim for $1,157,622.86, seeking $498,214.77 as the difference between the claim and the contract payments as finally determined (i.e. $1,157,622.86 - $659,408.09). The contracting officer denied the claim because Weller had not provided the proper notice of an anticipated overrun, and, with one immaterial exception, was not entitled to payment over and above the ceiling prices of the contracts. Weller concedes that it did not provide the required notice, but argues that ONHIR is estopped from relying on the ceiling limitations. Weller has not made a case for estoppel. We conclude that the contracting officer properly relied on the ceiling limitations in the contracts in denying Weller's claim. We grant, however, one part of its claim that was within the ceiling limitations of the contracts. Appellant has established that it is entitled under the contract to $17,271.04, which is the difference between the ceiling price and the contract payments. Up to the ceiling limitations, the contracting officer erroneously disallowed appellant's costs for (1) exterior paint amounting to $5,311.93, and (2) subcontractor overhead and profit amounting to $81,486.49. Findings of Fact The Solicitation 1. The solicitation contemplated an indefinite quantity, time and materials contract. Appeal File, Exhibit 2, I at 4, 52.216-1 at 12. The solicitation provided in pertinent part: SCOPE OF WORK: The Contractor shall furnish all supervision, labor, equipment, materials (on a cost basis), transportation and other necessary incidentals to repair the houses in one, some or all of the Location Packages, as specified in the attached bid schedule. The work shall be performed in accordance with the terms, conditions, provisions, specifications and standards which are incorporated in this Solicitation for Proposals. Id., Exhibit 2 at 1 of 53. Time was stated to be of the essence. Id., I at 4. The contract completion date was October 1, 1987. Id. 2. The solicitation provided a non-exclusive list of twenty- five examples of the types of work respondent anticipated to be performed: 1. Grading away from the house to provide drainage. 2. Repair and/or replace footing and foundation. 3. Repair and/or replace piers, pier pads, and under floor supports. 4. Repair and/or replace insulation under floor and securing of same. 5. Structural releveling of house. 6. Refastening marriage beams of modular homes. 7. Repair and/or replace subflooring. 8. Repair and/or replace carpet or vinyl floor covering. 9. Wrapping of underfloor plumbing. 10. Repair and/or replace plumbing system, including faucets. 11. Repair and/or replace electrical wiring, services and other related fixtures. 12. Repair and/or replace sheetrock. 13. Interior and exterior painting. 14. Stuccoing exterior of house with new material or equal. 15. Repair and/or replace roof shingles. 16. Roof leak repair. 17. Repair and/or replace attic insulation. 18. Minor flat concrete work and repair and replace porches. 19. Concrete work including floors, sidewalks, driveway, etc. 20. Replacement of woodburning stove to include repair and replacement of hearth, flues, chimneys and spark arrestors. 21. Install gutters, down spouts and splash blocks, gutter material to be seamless metal or welded plastic. 22. Install retaining wall. 23. Replace doors, windows, thresholds and jams as needed including security locks. 24. Replace dual pane windows and doors. 25. Miscellaneous carpentry work including shelving, attic access door porch railing, steps etc. Appeal File, Exhibit 2, I at 4-5. The solicitation listed the number of houses to be repaired (called location packages) from minimum to maximum at various locations in Arizona. Id., II at 5. Separate awards were to be made for each package. Packages two and four were: B. Package 2 Page, two to three houses Tuba City, seven to eight houses Shonto, one to six houses . . . . D. Package 4 Teestoh, one to two houses White Cone, five to six houses Ganado, one house Jeddito, one to five houses. Id. Thus, package two consisted of a minimum of ten houses and a maximum of seventeen houses. Package four consisted of a minimum of eight houses and a maximum of fourteen houses. Id. 3. Offerors were required to propose labor costs: III. BID ITEM SCHEDULE: The proposal for each package for which an offer is submitted shall contain the following elements: 1) Proposed labor costs, including fringe benefits, at or above Davis-Bacon rates; 2) Administrative expenses, including overhead, materials handling costs, travel expenses and other indirect costs; 3) Profit. A. Direct Labor for Each Job Class: The attached Davis- Bacon rates show the minimum hourly wage rates which shall be paid: 1) If you propose to pay in excess of the Davis-Bacon rates, enter those rates below. 2) If you propose to pay exactly the Davis-Bacon rates, enter "Davis-Bacon Rates" beside the number of each package for which you are submitting a proposal. Appeal File, Exhibit 2, III at 6. The offeror was to express its overhead, including indirect costs, general administrative expenses and material handling costs as a percentage of direct labor costs. By amendment one to the solicitation, travel expenses and equipment rental were to be included in the administrative overhead rate. Id., III B at 6 and Exhibit 5, 2-3 at 4. 4. The payments clause, entitled Payments Under Time and Materials and Labor Hour Contracts, provided in pertinent part: The Government shall pay the Contractor as follows upon the submission of invoices or vouchers approved by the Contracting Officer: (a) HOURLY RATE. (1) The amounts shall be computed by multiplying the appropriate hourly rates prescribed in the Schedule by the number of direct labor hours performed. The rates shall include wages, indirect costs, general and administrative expenses, and profit. . . . . (b) MATERIALS AND SUBCONTRACTS. (1) Allowable costs of direct materials shall be determined by the Contracting Officer in accordance with Subpart 31.2 of the Federal Acquisition Regulation (FAR) in effect on the date of this contract. Reasonable and allocable material handling costs may be included in the charge for material to the extent they are clearly excluded from the hourly rate. Material handling costs are comprised of indirect costs, including, when appropriate, general and administrative expenses allocated to direct materials in accordance with the Contractor's usual accounting practices consistent with Subpart 31.2 of the FAR. (2) The Cost of subcontracts that are authorized under the subcontracts clause of this contract shall be reimbursable costs under this clause, PROVIDED, that the costs are consistent with subparagraph (3) below. Reimbursable costs in connection with subcontracts shall be limited to the amount paid to the subcontractor in the same manner as for items and services paid directly for the contract under subparagraph (1) above; however, this requirement shall not apply to a Contractor that is a small business concern. Reimbursable costs shall not include any costs arising from the letting, administration or supervision of performance of the subcontract. (3) To the extent able the Contractor shall-- (i) Obtain materials at the most advantageous prices available with due regard to securing prompt delivery of satisfactory materials; and (ii) Take all case and trade discounts, rebates, allowances, credits, salvage, commissions, and other benefits. When unable to take advantage of the benefits, the Contractor shall promptly notify the Contracting Officer and give the reasons. . . . (c) TOTAL COST. It is estimated that the total cost to the Government for the performance of this contract shall not exceed the ceiling price set forth in the Schedule and the Contractor agrees to use its best efforts to perform the work specified in the Schedule and all obligations under this contract within such ceiling price. If at any time the Contractor has reason to believe that the hourly rate payments and materials costs that will accrue in performing this contract in the next succeeding 30 days, if added to all other payments and costs previously accrued, will exceed 85 percent of the ceiling price in the Schedule, the Contractor shall notify the Contracting Officer giving a revised estimate of the total price to the Government or performing the contract with supporting reasons and documentation. If at any time the Contractor has reason to believe that the total price to the Government for performing this contract will be substantially greater . . . than the then stated ceiling price, the Contractor shall so notify the Contracting Officer, giving a revised estimate of the total price for performing this contract, with supporting reasons and documentation. If at any time during performing [sic] the contract, the Government has reason to believe that the work to be required in performing this contract will be substantially greater or less than the stated ceiling price, the Contracting Officer will so advise the Contractor, giving the then revised estimate of the total amount of effort to be required under the contract. (d) CEILING PRICE. The Government shall not be obligated to pay the Contractor any amount in excess of the ceiling price in the Schedule, and the Contractor shall not be obliged to continue performance if to do so would exceed the ceiling price set forth in the Schedule, unless and until the Contracting Officer shall have notified the contractor in writing that the ceiling price has been increased and shall have specified in the notice a revised ceiling that shall constitute the ceiling price for performance under this contract. When and to the extent that the ceiling price set forth in the Schedule has been increased, any hours expended and material costs incurred by the Contractor in excess of the ceiling price before the increase shall be allowable to the same extent as if the hours expended and material costs had been incurred after the increase in the ceiling price. Appeal File, Exhibit 2 at 38-40. 5. The Changes clause provided in pertinent part: (a) The Contracting Officer may at any time, by written order, and without notice to the sureties, if any, make changes within the general scope of this contract in any one or more of the following: (1) Drawing, designs, or specifications. (2) Method of shipment or packing. (3) Place of delivery. (4) Amount of Government-furnished property. (b) If any changes causes an increase or decrease in any hourly rate, the ceiling price, or the time required for the performance of any part of the work under this contract, whether or not changed by the order, or otherwise affects any other terms and conditions of this contract, the Contracting Officer shall make an equitable adjustment in the (1) ceiling price, (2) hourly rates, (3) delivery schedule, (4) other affected terms, and shall modify the contract accordingly. Appeal File, Exhibit 2 at 45-46. 6. The Inspection clause, 52.246-12, Inspection of Construction, added by amendment one to the solicitation, provided in pertinent part: (b) The Contractor shall maintain an adequate inspection system and perform such inspections as will insure that the work called for by this contract conforms to contract requirements. . . . . (f) The Contractor shall, without charge, replace or correct work found by the Government not to conform to contract requirements, unless in the public interest the Government consents to accept the work with an appropriate adjustment in contract price. . . . . (i) Unless otherwise specified in the contract, the Government shall accept, as promptly as practicable after completion and inspection, all work required by the contract or that portion of the work the Contracting Officer determines can be accepted separately. Acceptance shall be final and conclusive except for latent defects, fraud, gross mistakes amounting to fraud, or the Government's rights under any warranty or guarantee. Appeal File, Exhibit 5. 7. The performance of the work was subject to the technical direction of the contracting officer's technical representative (COTR), who was authorized to issue directions for the performance of the work consistent with the contract's scope of work. Appeal File, Exhibit 5, VII. The COTR was authorized to issue directions to the contractor for the performance of the work, but the contractor was not authorized thereby to exceed the ceiling price of the contracts. Id. During contract performance, the COTR gave such direction in the form of a Notice of Intent to Repair (NOIR), which listed the house to be repaired and the tasks to be performed. Id., Exhibit 25. 8. The paragraph entitled Contracting Officer Authority provided in pertinent part: Only the Contracting Officer can legally . . . commit the Government to the expenditure of funds. . . . The performance of work required under this contract shall be subject to the supervision of the COTR shown in Article VI. Neither this individual nor any other technical representative of the Government can authorize a change in the scope of work or the incurrence of cost in excess of the amount of funds allotted to this contract. Appeal File, Exhibit 2, IX at 6. 9. The solicitation provided that "design and construction will be performed in accordance with:" the Uniform Building Code (UBC)1; the National Electrical Code; the Uniform Mechanical Code; the ICBO Plumbing Code; the Mobile Home Construction and Safety Standards (24 CFR Part 280); and the DOE Energy Performance Standards for New Buildings (10 CFR Part 435)." Appeal File, Exhibit 2, VI at 8. These codes set detailed standards for performing specific tasks. See generally id., Exhibit 192. For example, the Department of Housing and Urban Development (HUD) Minimum Property Standards 4900.1 for One and Two Family Dwellings, set the standard for a minimum slope for grading, relevant to "[g]rading away from the house to provide drainage," at six inches over per ten foot run or as limited by property lines. Id. at 3-18. As another example, for footings (relevant to items two and three in the non-exclusive list concerning repair and replacement of footings, see Finding 2) the HUD property standards call for excavation of footings extending at least six inches into natural undisturbed soil which will provide adequate bearing. Exterior wall footings shall extend a minimum of six inches below the finished grade and, where applicable, the prevailing frost line. Id. at 6-14, 6-15. 10. The HUD Minimum Property Standards contain standards for roofing and reroofing of houses. The standards, among other things, specified: use of corrosion resistant nails, methods of eave protection depending on slope of roof, minimum roof slope and underlay for asphalt shingles, nails of heads not less than three-eighths of an inch in diameter. Appeal File, Exhibit 192, 609-3 at 6-82 to 6-84. The CABO, footnote 1, specified high and low slope standards for application of asphalt shingles, and standards for nails. The specification required two layers of type 15 felt, applied shingle fashion. In cold weather climates, the specification required two layers of felt to be cemented together from the eaves of the roof to overlie a point twenty- four inches inside the interior wall line of the building. Id., Exhibit 197, R-803, R-803.1-.2 at 94. CABO specified the type of nails: at least twelve gauge with heads not less than ____________________ 1 Section 1202 of the UBC provides that "Group R Division 3 Occupancies (housing) shall be designed and constructed to comply with the requirements of the One and Two Family Dwelling Code, 1983 Edition, promulgated by the International Conference of Building Officials (CABO)." Appeal File, Exhibit 190, 1202 at 743. three-eighths of an inch in diameter, sufficient to penetrate into the sheathing at least three-quarters of an inch or through the thickness of the sheeting, whichever is less. Id. at R- 803.2.1 at 94. 11. It was Weller's responsibility to maintain and submit to the Government detailed and precise records on labor and material costs, including supporting documentation such as invoices and time cards. Appeal File, Exhibit 2, XIV at 10. Pre-Proposal Conference 12. On May 28, 1987, ONHIR held a preproposal conference, attended by Mr. Weller. Appeal File, Exhibit 17. The ONHIR contract specialist advised vendors that subcontractors would have to pay at least Davis-Bacon wage rates. Id. at 2; Transcript at 1426. The contract specialist said that some jobs would require licensed subcontractors and some would not. Appeal File, Exhibit 17 at 3. He advised that a percentage for overhead and profit would not apply to materials, i.e., that vendors were to be reimbursed at cost for materials. Id., Exhibit 156 at 6. The COTR advised that when the job called for a complete teardown, a licensed subcontractor would be required. Id., Exhibit 17 at 3. The COTR also advised that all cost savings on materials must be passed on to ONHIR. Id. at 2. The Appellant 13. Appellant had eighteen years experience as a Government contractor, which was limited to contracts of the fixed-price type. Transcript at 1377. Appellant was the contractor for rehabilitation of a school at Kaibeto, between Shonto, Page, and Tuba City. Id. at 1407. Appellant was also the rehabilitation contractor in the Hopi Indian reservation for sixty buildings, including residential houses, at a point fifty miles from the site of the ONHIR contract. That contract was performed in 1984 or 1985. Id. at 1408-09. Weller was a small business. Id. at 1377, 1388. Appellant's Offers 14. Appellant submitted an offer for package two proposing a superintendent and job foreman at $25 per hour and $16.50 per hour, respectively. For other positions, appellant stated: "ALL TRADES -DAVIS-BACON RATES." Appellant offered an overhead rate of forty-four percent and a nine percent rate for profit. For package four, appellant offered its superintendent at $26 per hour and its foreman at $17.50 per hour. In addition, for package four, appellant stated: "ALL TRADES - DAVIS-BACON RATES." Again, appellant offered an overhead rate of forty-four percent and a nine percent rate for profit. Appeal File, Exhibit 7, III A-B at 8-9. 15. On June 15, 1987, appellant was awarded contract number 4295-70582 for location package two, at a ceiling price of $100,000 with repairs to be made no later than October 1, 1987. That same day, appellant was awarded contract number 4295-70581 for location package four, at a ceiling price of $150,000. Repairs were to be completed no later than October 1, 1987. Appeal File, Exhibit 7. 16. The location package two contract originally consisted of nine houses: Lillie Tachine in Page; Jeffrey Bahe in Shonto; Tom Max, Lorraine Williams, Raymond Begay, Raymond N. Begay, Leonard Begay, John Billie, and Sam Max in Tuba City. Appeal File, Exhibits 7, 164, Tab L. The location package four contract originally consisted of eleven houses: Marilyn Mahkewa and Audrey Navasie in Jeddito; Dean Yazzie in Steamboat; Helen Yazzie near Route 68 northwest of White Cone; Louis Begay and Sharon Begay in White Cone; and Ruth Begay off of Route 24 in Tolani Lake. Id., Exhibits 4, 7, 164, L. 17. On June 23, 1987, ONHIR added four houses, Appeal File, Exhibits 18, 44, 47, 49, 50; and in late July and early August ONHIR added seven houses. Id., Exhibits 21, 41, 150, 152. Site Visits 18. On June 23, appellant's project superintendent, appellant's president, and the COTR met at White Cone and inspected the houses of Louis Begay, Angela Sangster, Sharon Begay, Laura Nez, and Nelson Nez. Transcript at 47. During the inspection, the COTR issued NOIRs for those houses. Id. at 48. They also visited the houses of Chee Greyhair and Delia Kanuho in Teesto. Id. at 1387, 1505. Architecture of Modular Houses 19. Twenty of the houses repaired under the contracts were modular houses. Transcript at 776. A modular home is constructed by joining together two prefabricated longitudinal halves. Appellant's Hearing Exhibit 5; Transcript at 835. The bottom connection is made by a marriage beam running the length of the house. Appellant's Hearing Exhibit 5; Transcript at 835- 36. The top of the house is stabilized by trusses, running the width of the house, spaced two feet apart. The trusses are formed by pieces of plywood supporting the roof at the midpoint of the house, connected to a horizontal block at ceiling level. The block, twenty-two inches long, spans to the other half of the house. At the end of the block sit plywood supports for the roof of the other half, also connected to the spanning block at the opposite end. Appellant's Exhibit 5; Transcript at 856-57, 932- 36. 20. Marriage joint work was necessary to repair modular homes sagging in the middle. Transcript at 846. To make that repair, one crawls underneath the house, jacks the house in the middle using a twenty-five ton hydraulic jack, and bolts the marriage joint together. Id. at 839-40, 848. Beams are then inserted in the middle under the marriage joint, and the houses are lowered onto the inserted beams. The object of this work is to cause the middle of the houses to be level with the sides, which are supported by the foundation. Id. at 848-51. The jacking causes movement of the top portion the house, resulting in cracks in the walls, and an alteration of the position of the floors. Id. at 846-47. Contract Performance Appellant's Initial Hiring 21. Appellant's superintendent estimated that he would need thirty construction workers to perform the scope of work. On his first day in Tuba City, the superintendent went to the reservation job service office with a list of trades he would need. The superintendent interviewed construction workers in his hotel room at night and hired carpenters and laborers. Transcript at 61-62. Work Performance 22. One of the first houses on which appellant worked was the Leonard Begay house. Work started on July 6. Transcript at 114. Appellant performed the twenty-eight items in the NOIR. Task number five of the NOIR required the contractor to: "Install adequate pads and piers for center girders. Add additional pads, piers and girders to support each half of the house. Re-attach the center marriage joint." The NOIR also required repair of all plumbing and sewer leaks, repair of the roof where needed, replacement of broken windows, rebuilding of the foundation access above grade, construction of a retaining wall on the north and west side to run twelve inches above grade, and replacement of wood stove, fireplace, and flue. Appeal File, Exhibit 31. Appellant performed that work and maintains that it also performed work not contemplated by the NOIR, i.e., digging of footings in the house, jacking up the center of the house to level the floor, and repair and replacement of areas with extensive water leaks. Transcript at 107-12. The work on this house was completed on December 9, 1987. Appeal File, Exhibit L. 23. On July 6, appellant started work on the house of Raymond N. Begay in Tuba City. The NOIR required appellant to perform ten tasks including removal of the fireplace and installation of a wood stove, installation of a door stop and repair of the front wall, service of the gas furnace and water heater, and repair of the wall in the shower compartment and of the faucets. Appeal File, Exhibit 23. Appellant performed that work and performed work it alleged went beyond the scope of the NOIR, including framing of the drywall and painting in the fireplace area, removal of carpet throughout the house, replacing tiles in the bathroom walls, extensive drywall replacement in the bathroom, removal of kitchen cabinets, removal of siding, and painting and stuccoing of the house. This house was completed on November 10, 1987. Id., Exhibit L. 24. Work on the Lorraine Williams house commenced July 6. The NOIR had twenty-seven items. The major items included moving the house, repairing plumbing leaks, releveling and adequately supporting the home on piers, resecuring siding, repairing roof leaks and replacing ceiling damage where the roof leaked, providing and installing rain gutters, installing the wood stove, and providing porches for exterior doors. Appeal File, Exhibit 24. Appellant performed work which it considered outside the scope of the NOIR including replacing rather than repairing the roof, putting in a hearth and back wall for the new stove, installing plumbing back to the original septic system, and constructing a 160-square foot porch with gable entry system. Transcript at 137-62. Work on this house was completed on December 18, 1987. Appeal File, Exhibit L. 25. On July 6, appellant worked on the Jeffrey Bahe house in Shonto. Transcript at 163. The NOIR for this house required appellant to support the house adequately according to ONHIR standards, provide drainage away from the house, construct a retaining wall at rear of home to protect against soil erosion, replace the wood stove, and stucco the house. Appeal File, Exhibit 25. 26. Appellant maintains that it performed extra work including digging footing supports by hand and changing the direction of the retaining wall. Appellant also renailed the roof to the house. Transcript at 164-91. Appellant finished this house on December 15, 1987. Appeal File, Exhibit L. 27. The NOIR for the house of John Billie required appellant to perform ten tasks. The major tasks were re-grading of the exterior, furnishing gutters, sealing the pipes, and repairing or replacing all sliding glass windows. Appeal File, Exhibit 27. Work on the house, located at Tuba City, commenced on or about July 6. In addition to the work on the NOIR, appellant replaced carpet and the rear fascia of the house and fixed two walls and kitchen cabinets. Transcript at 196-99. This was completed on December 9, 1987. Appeal File, Exhibit L. 28. Appellant commenced work on the Raymond Begay house in Tuba City on or about July 7. Appeal File, Exhibit L. The NOIR had twenty-two items, the major items being replacement of roof shingles as needed, installation of rain gutters and downspouts, realignment of exterior doors and windows, repair of plumbing leaks in kitchen and bath, installation of a wood stove, installation of gutters and downspouts, construction of a retaining wall on the left side of the property, and repair and replacement of electrical fixtures as needed. Id., Exhibit 22. Appellant, in addition to those tasks, completely replaced the wiring, leveled the house, and painted the exterior. Appellant claims to have replaced exterior doors and removed casings and reset jambs. Id. Appellant also claims the house was occupied, reducing his efficiency. Transcript at 224. 29. On June 25, 1987, appellant received the NOIR for the Sam Max house in Tuba City. The NOIR required appellant to remove the fireplace and install a wood stove, install pier and pier pads, repair or replace ceiling panels, replace water lines with copper, replace a gas water heater, install gutters, downspouts and splash-blocks, replace fascia and soffit with wood material, and re-do the gas attachment. Appeal File, Exhibit 37. Work commenced on July 9. Id., Exhibit L. In addition to the tasks listed on the NOIR, appellant reframed the front porch, added handrails, replaced carpet in living room and hallway, installed screen doors, and added a skirt to the back screen porch. The work was not completed until December 8. Transcript at 226-37. 30. The NOIR for the Lillie Tacheenie house required appellant to provide hot water to a tub, provide a cold water valve at the heater, provide combustion to the furnace and water heater, install a sewer line clean-out, and extend the pressure relief valve discharge outside of the house. Appeal File, Exhibit 30. In addition to performing these tasks, appellant replaced a fixture. Transcript at 239. 31. The Raymond Tallsalt house was added due to a request from ONHIR headquarters in Washington, D.C., for quick repairs on the house. Transcript at 1657-58. The Tallsalt house was fifteen miles from Dinnebito. Respondent's Exhibit 164. The COTR asked appellant's president if appellant was capable of performing the repairs; appellant said yes. The COTR drew up a list of repairs, which in effect called for complete renovation of the interior of the house. Transcript at 1659. The repairs were so extensive that the occupants had to be moved from their house for a month. Appeal File, Exhibit 51. Appellant did not seek a change order before performing the job, nor did respondent issue a change order request. Transcript at 1662-63. 32. The NOIR for the Sharon Begay house was received on June 23, 1987. Transcript at 293. The contractor did not begin work on the house until July 29, 1987. Id. at 295. The NOIR contained twenty-three repair items. The major items required appellant to stucco the exterior; remove the thin wall fireplace and flue chase; install a tagged wood stove and flue; repair the wall at the end of the house after the flue chase was removed; install gutters, downspouts, and splash blocks; relevel the house; repair sheetrock cracks; construct a masonry wall eight inches above grade; replace carport concrete slab; relevel and attach kitchen cabinets; provide an electric refrigerator; and regrade the area adjacent to the home. Appeal File, Exhibit 28. 33. In addition to the NOIR work, appellant performed work which it considered outside the scope of the NOIR, including removing siding and renailing the sheer panel on the outside walls prior to applying the stucco called for in the NOIR, replacing two solid core outside doors and an additional screen door not on the NOIR list, paying the tenant's utility bills to get electric and gas service to the house for repairs, examining and replacing a faulty gas valve, performing extensive jacking to level the house, repairing sheetrock damage caused by jacking up the house, painting the interior and exterior of the house, installing a new hearth and brick hearth area, installing a new roof, renailing the roof sheeting, installing new carpet, and checking the plumbing for leaks. Transcript at 299-310. 34. The NOIR for the Louis Begay house was received on June 23, 1987. Appeal File, Exhibit 32. The NOIR contained twenty-four repair items. The major items included repairing the marriage joint and resupporting all beams and girders, repairing all cracks in the interior and exterior, replacing the basement floor, providing an electric refrigerator, constructing a wall between the water heater and washer, installing gutters, downspouts, and splash blocks, repairing roof leaks, and regrading the exterior. Id. 35. In addition to the NOIR work, appellant also performed work which it considered outside the scope of the NOIR, including removal of the concrete slab supporting the house, installing a new concrete floor, jacking the carport, renailing the floor, replacing the roof, and recarpeting and drywalling the entry. 36. The NOIR for the Tolie Begay house was received on July 29, 1987. The NOIR contained twenty-three repair items. The major items in the NOIR included insulating the underflooring, providing concrete stoops and steps for the front and the rear, checking all electrical and GFI circuits, raising the utility room floor, and regrading the exterior. Appeal File, Exhibit 42. 37. In addition to the NOIR work, appellant also performed work which it considered outside the scope of the NOIR, including building an A-frame cover over the rear stoop, replacing the hallway carpet, removing the siding and renailing the sheer panels in preparation for stucco, replacing the roof, removing the bedroom doorway, repairing the bedroom drywall and carpet, replacing the window rollers, cleaning window tracks, and painting the exterior of the house. Appeal File, Exhibits 155, X; Transcript at 374-79. 38. The NOIR for the Rosita Begay house was received and work commenced on July 29, 1987. The NOIR contained nineteen repair items. The major items in the NOIR included stuccoing the exterior, installing insulation in the flooring and ceiling, providing stoops and steps for the front and rear, providing a coal/wood stove, and regrading the exterior of the house. Appeal File, Exhibit 43. 39. In addition to the NOIR work, appellant also performed work which it considered outside the scope of the NOIR, including removing the siding and renailing the sheer panel, replacing the roof after renailing, framing and installing a sliding glass door, installing a larger-than-expected stoop, installing sheetrock, stuccoing a doorway, resetting doors, removing cabinets, reconnecting the plumbing, and replacing a door. Transcript at 380-88. 40. The NOIR for the Angela Sangster house was signed on July 15, 1987. Work commenced on August 3, 1987. The NOIR contained sixteen repair items. The major items in the NOIR included resupporting the marriage joint, releveling the house, anchoring the foundation, insulating the underfloor, installing stoops with steps at the front and rear, and regrading the exterior of the house. Appeal File, Exhibit 49. 41. In addition to the NOIR work, appellant also performed work which it considered outside the scope of the NOIR, including removing the siding and renailing the underneath panels, repairing the drywall, painting the interior, renailing the floor, installing new vinyl on the living room, kitchen, and hallway floors, renailing the roof, placing tin over the marriage joint, and installing screen doors. Transcript at 402-05. 42. The NOIR for the Polly Benally house was received and work commenced on July 29, 1987. The NOIR contained thirteen repair items. The major items in the NOIR included stuccoing the exterior, insulating the attic, replacing the wood stove and regrading the exterior of the house. Appeal File, Exhibit 45. 43. In addition to the NOIR work, appellant also performed work which it considered outside the scope of the NOIR, some of which included removing the siding and renailing the sheer panels prior to stuccoing, installing two screen doors, replacing the carpet in the hall and living room, repairing and repainting the drywall, replacing a sliding glass door, and repairing an overhang. Transcript at 393-97. 44. The NOIR for the Laura Nez house contained twenty-eight repair items. Work commenced on August 4, 1987. The major items in the NOIR included releveling the house, insulating the underfloor and attic, installing a wood stove, rebuilding the hearth, repairing ceiling leaks, stuccoing the exterior, providing proper foundation venting, and constructing a stoop in the front and rear. Appeal File, Exhibit 29. 45. In addition to the NOIR work, appellant also performed work which it considered outside the scope of the NOIR, some of which included removing the siding and renailing the underneath panels, installing a handrail on the front stoop, renailing the floor, installing new carpet in the living room and hallway and vinyl in the kitchen and dining room, repairing sheetrock cracks caused by jacking and leveling the house, constructing a stem wall, and blocking up the house. Transcript at 409-16. 46. The NOIR for the Helen Yazzie house contained thirteen repair items. Work commenced on August 5, 1987. The major items in the NOIR included installing a ground wire and rod, stuccoing the exterior, insulating the underfloor and attic, enlarging the foundation access hole, relocating the attic access to a hallway, and rebuilding the stove hearth. Appeal File, Exhibit 40. 47. In addition to the NOIR work, appellant also performed work which it considered outside the scope of the NOIR, including installing masonite and screen doors, removing and replacing the roof with fascia installed, removing siding underneath the renailed panel, replacing the kitchen vinyl and the living room and hallway carpets, renailing the floor sheet, installing a new stove, repairing plumbing leaks, separating the marriage joint, repairing the stove hearth, and painting the exterior and fascia. Transcript at 420-25, 430. 48. The NOIR for the Nelson Nez house was dated July 15, 1987, and contained twenty-seven repair items. Work commenced on August 4, 1987. Appeal File, Tab L. The major items in the NOIR included stuccoing the exterior, installing screen doors in the front and rear, insulating the underfloor, releveling the house and marriage beams, repairing damage to the building's structure, and reroofing the house. Id., Exhibit 47. 49. In addition to the NOIR work, appellant also performed work which it considered outside the scope of the NOIR, including removing the panels and renailing them, replacing the front and rear doors, repairing extensive damage caused by jacking and leveling the house, renailing the floor, replacing the carpet, removing the storage unit and the carport slab and replacing them with a newly constructed storage room and new footings, installing a front porch handrail, replacing windows, replacing plywood under the roof, redoing tile in the bathrooms, replacing copper joints in the utility room, installing a stem wall, and, after freezing pipes caused a flood in the house, replacing the carpet. Transcript at 432-46. 50. The NOIR for the Lavina McNeil house was dated July 15, 1987, and contained twenty repair items. Work commenced on August 10, 1987. The major items in the NOIR included insulating the underfloor, regrading the exterior of the house, repairing the hearth, repairing drywall damaged by water, and constructing a concrete stoop in the front and in the rear. Appeal File, Exhibit 46. 51. In addition to the NOIR work, appellant also performed work which it considered outside the scope of the NOIR, some of which included installing an extra concrete stoop, installing a wood stove, repairing the roof, and replacing the sliding glass door. Transcript at 448-57. 52. The NOIR for the Dean Yazzie house contained sixteen repair items. Work commenced on August 12, 1987. The major items in the NOIR included enlarging the underfloor access hole, stuccoing the house, constructing front and rear stoops, and installing a wood stove. Appeal File, Exhibit 26. 53. In addition to the NOIR work, appellant also performed work which it considered outside the scope of the NOIR, some of which included removing siding and renailing panels, repainting the exterior and interior, installing a hearth, reroofing the house, and blocking the front of the house. Transcript at 465-70, 476- 78, 492-502. 54. The NOIR for the Oriel Namoki house was received in August 1987. The contractor did not begin work on the house until August 12, 1987. The NOIR contained thirty-three repair items. The major items in the NOIR included grading the area of the house, providing support piers and joists, securing the marriage joint, stuccoing the exterior, constructing a concrete platform or stoop at exterior exits, replacing the bathtub, and extending the flue pipe. Appeal File, Exhibit 33. 55. In addition to the NOIR work, appellant also performed work which it considered outside the scope of the NOIR, some of which included renailing the floor, installing carpeting in the living room and hallway, installing vinyl in the kitchen and dining room, installing a kitchen stove and cover, and installing a sidewalk. Transcript at 518, 525. 56. The NOIR for the Audrey Navasie house was received in August 1987. The contractor did not begin work on the house until August 12, 1987. The NOIR contained twenty repair items. The major items in the NOIR included grading the area of the house, repairing the marriage joint, stuccoing the exterior, extending the flue pipe, and repairing or replacing the house's electrical wiring. Appeal File, Exhibit 34. 57. In addition to the NOIR work, appellant also performed work which it considered outside the scope of the NOIR, some of which included removing the siding and renailing the sheer panels, replacing the roof, washing walls to remove grease, painting the walls, laying vinyl in the entry and family room, installing front and back screen doors, and replacing the front and back concrete stoops. Appeal File, Exhibit L; Transcript at 529-31. 58. The NOIR for the Marilyn Mahkewa house was received in August 1987. The contractor did not begin work on the house until August 12, 1987. The NOIR contained twenty-two repair items. The major items in the NOIR included grading the area around the house, removing the piers and installing new piers under the center marriage joint, stuccoing the exterior, repairing the roof, and reattaching the kitchen cabinets. Appeal File, Exhibit 35. 59. In addition to the NOIR work, appellant also performed work which it considered outside the scope of the NOIR, including removing the siding and renailing the sheer panels, replacing the cooler, and repairing cracks in the drywall. Transcript at 534- 35. 60. The NOIR for the Gloria Begay house was received in August 1987. The contractor did not begin work on the house until August 12, 1987. The NOIR contained twenty repair items. The major items in the NOIR included grading the area around the house, installing the gutter and downspouts, stuccoing the exterior, installing the underfloor venting, supporting the house at the marriage joints, reattaching the joints, and repairing the hearth. Appeal File, Exhibit 39. 61. In addition to the NOIR work, appellant also performed work which it considered outside the scope of the NOIR, including installing two extra doors, removing the siding and renailing the sheer panels, installing a brick wall, realigning the doors not in the NOIR, adding ceiling and floor insulation, installing gable vents, and replacing the shingles. Transcript at 347-57. 62. Work commenced on the NOIR for the Yulanda Silver house in August 12, 1987. The NOIR contained fourteen repair items, which included grading the area around the house, installing the gutters, downspouts, and splash blocks, stuccoing the exterior, replacing fascia with lumber, and installing a cooler and heater metal duct. Appeal File, Exhibit 48. 63. In addition to the NOIR work, appellant also performed work which it considered outside the scope of the NOIR, including removing the siding and renailing the panels underneath, changing the location of the chimney exit, and installing a new carpet and pad. Transcript at 568-69, 572-73. 64. The NOIR for the Chee Greyhair house was received on June 23, 1987. Work commenced on September 10, 1987. The NOIR contained twenty-six repair items. The major items in the NOIR included grading the area around the house, installing the gutters, downspouts and splash blocks, stuccoing the exterior, leveling the house, reattaching the marriage joints, installing a rear stoop, and replacing the carpet and vinyl floor coverings. Appeal File, Exhibit 44. 65. In addition to the NOIR work, appellant also performed work which it considered outside the scope of the NOIR, some of which included replacing two extra doors, installing a front stoop, repairing drywall and then painting it, installing a new toilet and cabinets, and renailing the roof and the floor. Transcript at 576-86. 66. Work commenced on the Delia Kanuho house on September 17, 1987. The NOIR contained twenty-seven repair items. The major items in the NOIR included grading the area around the house installing the gutters, downspouts, and splash blocks, stuccoing the exterior of the house, reattaching the marriage joint, constructing a concrete porch, and repairing damage resulting from structural sagging. Appeal File, Exhibit 36. 67. In addition to the NOIR work, appellant also performed work which it considered outside the scope of the NOIR, some of which included installing a pair of solid core doors, repairing and painting drywall due to jacking of the house, replacing the front and rear doors, replacing the refrigerator, and renailing the floor. Transcript at 589-94. 68. The NOIR for the Ruth Begay house was received on October 20, 1987. The NOIR contained fourteen repair items. The major items in the NOIR included installing a wood stove, repairing roof leaks, repairing a hole in a wall, and replacing window screens. Appeal File, Exhibit 38. Appellant also cleared clogged drains and sewer lines, which it considered outside the scope of the NOIR. Transcript at 602-03. 69. Weller received the NOIR for the Leonard Kanuho house in late July or early August of 1987. Transcript at 1645-46. In November, Weller made a site visit to the house only after being asked to do so many times by the COTR. Id. at 1549, 1645-46. Work commenced on the Leonard Kanuho house on November 17, 1987. The NOIR contained nineteen repair items. The major items in the NOIR included repairing roof leaks, rebuilding the hearth, installing gutters, downspouts, and splash blocks, replacing the rear concrete porch, and releveling the underfloor structural material. Appeal File, Exhibit 41. 70. In addition to the NOIR work, appellant also performed work which it considered outside the scope of the NOIR, including replacing the kitchen window, replacing carpeting in the hallway and living room, and moving a woodburning stove. Transcript at 604-13. 71. Appellant first saw the Beatrice Skacy house on June 25, 1987, during a walk-through with the COTR. Transcript at 616. Weller was advised that the house had not been accepted into the repair program, but that when it was, the work would require releveling the house, fixing the carport, and unspecified interior work. Id. at 617. The COTR authorized Weller to begin work on September 15, 1987, id. at 623-24, and Weller completed the work in early October. Id. 620-21. The NOIR, provided on November 18, 1987, contained twenty-nine repair items, including regrading the exterior, replacing the wood stove, hearth, and flue, insulating the attic, repairing or replacing the roof, reanchoring and releveling the kitchen base, replacing the concrete slab in the carport, and rebuilding the roof and ceiling in the carport. Appeal File, Exhibit 50. The work, however, was performed by the mutual agreement of the parties, with some of the work suggested in the first instance by Weller's superintendent and approved by the Government. Transcript at 1667-69. 72. In addition to the NOIR work, appellant also performed work which it considered outside the scope of the NOIR, including painting the interior, repairing drywall cracked due to jacking up the house, installing a roof and renailing the sheeting underneath, reframing the entry, renailing the floor, repainting the family room, painting the outside front of the house, replacing the crawl space access door, replacing the carport beam, and rebuilding the carport area. Transcript at 623-33. 73. The NOIR for the Larry Ahasteen house was provided in late July or early August, Transcript at 1549, and contained seven repair items, including grading the exterior of the house, installing gutters, downspouts, and splash blocks, constructing porch steps and anchoring mobile home sections together along the frame joint. Appeal File, Exhibit 21. Weller made a site visit in November, only after persistent prodding by the COTR. Transcript at 1549. Weller commenced work on that house on December 4, 1987. 74. In addition to the NOIR work, appellant also performed work it considered outside the scope of the NOIR, including constructing a larger-than-specified porch with handrails, painting the stoops and porch, installing gutters, and installing a second porch with handrails. Transcript at 642-45. Efficiency of Work Force 75. Appellant's project manager never prepared a schedule or plan for the performance of the work. Transcript at 713. He did not keep a log of work in progress. Id. The first NOIRs were provided to the contractor on June 23, 1987. While appellant's project manager described the initial work on the houses as intense, id. at 725, the payroll reports indicate twenty hours of work by laborers on the Leonard Begay house and eleven hours by appellant's project manager. Laborers did not work on other houses that week. The COTR spent thirteen hours visiting and inspecting five other houses. Appeal File, Exhibit T. 76. We have reviewed the payroll records, Appeal File, Exhibit T, and calculated for all houses the hours worked for each pay period in a given month and the average hours worked per pay period in a given month. In spreadsheet form, the figures are: MONTH HOURS WORKED BY PAY PERIOD Pay Pay Pay Pay Pay Pay Period 1 Period 2 Period 3 Period 4 Period 5 Period Average Jul-87 44 710 655 826 558.75 Aug-87 988 962 751.5 864.5 891.50 Sep-87 952 1155 2291.5 2664.5 2473.5 1907.30 Oct-87 2110 1776 1520.5 1394 1700.12 Nov-87 1320 1355 1332 1794 1450.25 Dec-87 976 1336.5 675 877.5 506 874.20 Jan-88 463 882 112 485.67 Id. 77. Several conclusions can be drawn from the payroll records: Despite having received NOIRs for five houses during its site visit of June 23, Finding 18, appellant worked its labor force a total of forty-four hours the first pay period work began. Appeal File, Exhibit T. There was an expansion of the labor force the last pay period in July, which corresponded to the receipt of additional NOIRs in mid and late July. Id.; Findings 22, 36, 42. The most work occurred in the last three pay periods of September and the first pay period of October 1987. Appellant's work effort gradually declined thereafter into the late fall and winter months. Appeal File, Exhibit T. 78. The payroll records also reveal that week-by-week, appellant would have a heavy labor force at one house, but other laborers working a small number of hours on other houses. For example, in the fourth pay period of August, appellant expended 591 of the 864.5 labor hours worked on the Sangster house. The remainder of the time was spent working on twenty-seven other houses. Id. 79. Respondent's expert testified that while a contractor could not bring to the project the efficiencies of scale available in a tract development, many of the houses had similar work such as refastening the marriage joints, stuccoing the houses, and roof repair. Appellant should have taken advantage of the learning curve in establishing an efficient method of accomplishing the work. Transcript at 2049. After one or two houses, appellant should have had a good idea of the materials it was going to require to complete the other houses. Id. at 2055. The expert testified that tradesmen such as plumbers carry items that they need with them, to accomplish unanticipated work. Id. at 2053. 80. Rather than have sufficient materials on hand at the beginning of performance, appellant had to return repeatedly to suppliers during the course of construction to obtain needed supplies to complete work on particular houses. Transcript at 504-06, 525, 645, 795. Ceiling Price and Contract Payment 81. Every month, the contracting officer would receive reports on the progress of the work from his field staff. Transcript at 1780. On September 30, 1987, as a result of a year-end review, respondent's procurement staff increased the ceiling price on contract number 70581 to $250,000, and increased the ceiling price on contract number 70582 to $200,000. Appeal File, Exhibits 8, 12; Transcript at 1782. The stated reason was that "original estimate was too low." Appeal File, Exhibit 10. At that time, the contracting officer thought that construction was between eighty-five and ninety-five percent complete, but that there might not be enough money in the original ceiling price to cover costs. Transcript at 1783. Weller's principal concurred in the modifications, having been "assured that if the price went up or down from -- the start, that it would be modified accordingly." Id. at 1456. 82. On or about October 22, appellant submitted an invoice seeking a progress payment of $212,331.02 for contract 70581 and an invoice for a payment of $316,385.18 for contract 70582. Appeal File, Exhibit 55; Transcript at 1391. Appellant never advised respondent that it had exceeded, or was about to exceed, the ceiling price. Transcript at 1829-30. 83. On November 10, 1987, respondent paid appellant $438,049.71 for work under the contracts. Appeal File, Exhibit P. This represented payment of $182,389.29 for contract 70581 and $255,660.42 for contract 70582. Appellant's Complaint at 14. At the time respondent paid the invoices, appellant was already over the ceiling price on contract 70582. Transcript at 1825. Respondent's contract administrators expressed no concern about payments possibly exceeding the ceiling price on contract 70582, because the contract administrators treated the two contracts as a joint contract, and were guided by the total ceiling price of $450,000 for the two contracts. Id. at 1790. By late October, respondent thought the percentage of completion was ninety percent. Id. at 1828. Inspection and Acceptance 84. On October 26, 1987, Mr. Whitsel, ONHIR's procurement specialist, met with appellant's crew to discuss the progress of the job. There were complaints from reservation residents about theft of personal possessions by appellant's laborers; unfinished work causing inconvenience and hazard; and workmen partying in or near clients' homes. Appeal File, Exhibit 60. Nevertheless, the procurement specialist described appellant's performance as "laudable under difficult circumstances. The quality of workmanship has never been questioned by anybody." Mr. Whitsel noted that appellant demonstrated its determination to finish the entire job as quickly as possible. Id. 85. On November 6, in a cure letter, the contracting officer warned appellant that progress and workmanship had declined to an unacceptable level. He demanded that the problems "be corrected immediately" and requested a meeting on November 10. The contracting officer there stated that the issues raised in the cure letter did not relate to appellant's request for overhead and profit reimbursement on Weller's subcontractors. Appeal File, Exhibit 63. On November 9, the COTR advised the procurement specialist that appellant would complete twenty-eight homes by November 24, 1987, with inspections conducted the same day. The COTR reported that the remaining construction to be performed by appellant was "eighty percent minor in nature." Id., Exhibit 64. On November 10, 1987, appellant signed modification two to contract 70581, agreeing to complete seventeen houses by November 24, or suffer liquidated damages of $100 per day. Id., Exhibit 9. Appellant signed a similar modification for contract 70582 covering eleven houses. Id., Exhibit 13. The modifications provided that: The Contractor further agrees to correct any work which does not meet construction standards as stipulated in the contract and as interpreted by NHIRC inspectors. The Contractor shall replace, at his expense, any failed work, due to his negligence or poor workmanship, without delay as ordered by NHIRC inspectors. In no event shall the Contractor submit billings or claims to the NHIRC for work which the Contractor has to replace as ordered by the NHIRC inspectors. Id., Exhibits 11, 13, Attachment A. 86. Appellant did not complete the houses by November 24. The houses were inspected on or about January 8, 1988, and twenty- nine of the houses were accepted on or about January 12. Appeal File, Exhibits 153, 179. Between November 6, 1987, and May 9, 1988, ONHIR received complaints from homeowners concerning the quality of the repairs. Id., Exhibits 132-45. On June 24, 1988, the contracting officer sent appellant the final inspection reports and a list of repairs of allegedly deficient work on twenty-five homes, and requested to be informed of the completion date of repairs. The contracting officer reminded appellant that if repairs were not performed satisfactorily, ONHIR had the right to reprocure the services, the cost of which would be deducted from the final payment. Id., Exhibit 94. 87. On August 3, the contracting officer sent appellant a final list of deficiencies which were the non-negotiable final repair requirements. Appeal File, Exhibit 103. The contracting officer expected that repairs would be completed in two to three weeks. Id. Respondent agreed to pay the contract balance, which was then determined to be $216,181.89, upon satisfactory completion of the repairs. Id. On August 23, 1988, appellant agreed to perform the repairs, reserving the right to file a claim for an equitable adjustment. Id., Exhibit 106. Request for Final Payment, Inspection, Claim, and Prelude to "Should-Cost" Study 88. On February 22, 1988, appellant submitted its second set of invoices for payment, seeking $491,628.66 for contract 70581 and $103,568.07 for contract 70582. Appeal File, Exhibits 21-51. 89. After receipt of the invoices, respondent's contract administrators determined that the documentation was insufficient for payment, and objected particularly to the request for payment of subcontractors' overhead and profit. Transcript at 1792-97. The Administrative Contracting Officer noted that appellant had (1) submitted incomplete labor reports; (2) charged for overtime hours without prior approval of the contracting officer as required by the contract; (3) billed profit and overhead on materials rather than a percentage of direct labor costs as required by the contract; (4) billed travel and per diem of subcontractors as a direct cost, when the contract required travel and per diem to be expressed as an indirect cost; (5) charged sales tax on materials when the contract included all applicable taxes; (6) charged interest on unpaid amounts; (7) billed for unreasonable costs; and (8) charged for subcontractor labor rates in excess of the Davis-Bacon wage rates and had added overhead and profit on subcontractor invoices as a direct cost. Appeal File, Exhibit 71. 90. The administrative contracting officer also noted that: (9) the work contained latent defects; (10) the completion time was October 1, later extended to November 24 for twenty-eight specific houses, and appellant had not completed repairs until January 7; and (11) the total contract price billed exceeded the ceiling price. Appeal File, Exhibit 71. 91. On March 21, 1988, ONHIR advised Weller that it could not pay Weller's invoices until Weller supplied it with adequate documentation. 92. On May 2, 1988, ONHIR procured an analysis from Mr. Bruce Hutchins, a construction claims consultant, of "areas of contention" between ONHIR and appellant and questions as to the sufficiency of ONHIR's inspections procedures, specifications, change order procedures and file documentation. Appeal File, Exhibit 83. 93. Mr. Hutchins' preliminary conclusions, as expressed in the report, were that appellant had billed in excess of the ceiling price; subcontracted the majority of the work without competition; failed to submit detailed and precise records of labor costs to support its invoices; billed apparently excessive man hours (for example, billing for fourteen hours on a job that required installing one sheet of 4' X 8' drywall); billed for excess overtime not allowed by the contract; and billed for subcontractor travel and per diem, both not allowed by the contract terms. Additionally, Mr. Hutchins found appellant's work defective and that ONHIR had not enforced contractual provisions available to it, such as site inspections, surveillance of work, and estimating of costs. Mr. Hutchins' report recommended a should-cost study of the reasonable costs of construction. Id., Exhibit 87. 94. Mr. Hutchins initially examined appellant's work on six houses. For the roofing on these six houses, he found that appellant had failed to put thirty-pound felt over plywood, but had placed shingles directly over the plywood. Transcript at 1935-36.2 Additionally, appellant had not placed sufficient cement between the shingles and the plywood to allow the shingles to adhere to the plywood in inclement weather. Transcript at 1934-35. Consequently, when Mr. Hutchins visited the house of Louis Begay, he found the yard was covered with roof shingles. Transcript at 1934. When some of the gutters where installed, they were placed away from the fascia, rather than flush with the roof, and thus unable to catch water dripping from the roof. Transcript at 1936-37.3 95. On November 8, 1988, appellant notified the contracting officer that it had completed the work and requested payment of the $216,181.89, but reserved the right to file a claim under the contract. Appeal File, Exhibit 111. On November 16, the contracting officer issued a check in that amount to appellant. Id., Exhibit 112. 96. On September 1, 1989, Weller filed a claim for direct costs (changes and suspension of work) on the two contracts amounting to $461,983.19, overhead of $587,308.35, and miscellaneous expenses of $108,331.37, for a total quantum of $1,157,622.91. Appeal File, Exhibit 117. 97. On January 5, 1990, the Defense Contract Audit Agency (DCAA) issued an audit of appellant's claims questioning $663,822 of the claim amount, but expressing no view as to entitlement. Appeal File, Exhibit 122. On March 12, 1990, the contracting officer rendered his decision on the claim. The decision stated in pertinent part: ____________________ 2 The CABO required felt for asphalt shingles for these houses. Finding 10. 3 Additionally, when the work called for new gutters, appellant used gutters three inches in width rather than the standard size five and one-half inch gutters. Transcript at 1936-37. Weller, Inc. failed in its affirmative duty to notify the Government that [it] would exceed the ceiling price, and further, the Government and the contracting officer had no reason to expect that this would occur until such time as the final bills were received. Therefore, given that the amount stated in the ceiling price has been paid, no further liability exists on behalf of the Government, except as noted immediately below. Id., Exhibit 128. The contracting officer concluded that work performed in September and October 1988 did constitute additional work ordered after ONHIR had knowledge that the ceiling price had been exceeded, and that appellant was entitled to reimbursement for the work. Weller had billed $30,242 for that work, but the contracting officer agreed to pay only those amounts allowable under the time and materials inspection clause at FAR 52.246-6, i.e., direct labor, overhead at forty-four percent of direct labor, and materials at cost. Appeal File, Exhibit 128.4 Should-Cost Study 98. Mr. Hutchins reviewed all NOIRs and invoices received from appellant. Appeal File, Exhibit 169. The methodology of the study is explained here. He accepted Weller's material invoices as billed. Id. Where subcontractor labor was broken out on the invoices or could be determined, the Davis-Bacon rates were used to determine the labor costs. He disallowed subcontractor travel and per diem because the cost should have been included in the overhead rate. He disallowed invoiced amounts for subcontractor overhead and profit. He analyzed how long each task should have taken by analysis of the tasks as contained in the NOIRs, and by visits to each of the houses. Id. In determining reasonable labor hours to perform each task in the NOIRs, he relied on the following publications: R.S. Means, Building Construction Cost Data (1988) and Repair & Remodeling Cost Data (1988), and Dodge, Construction Pricing and Schedule Manual. Id. He concluded that Weller claimed an excessive number of labor hours based on the estimating guides. Transcript at 1931. Overtime labor hours were treated as regular time. Id. HOUSE AMOUNT BILLED SHOULD-COST LARRY AHASTEEN $4,919.45 $2,055.89 RAYMOND BEGAY $36,823.42 $22,929.22 RAYMOND N. BEGAY $9,114.14 $6,319.77 LORRAINE WILLIAMS $46,382.82 $25,798.97 ____________________ 4 In November 1989, the claim was reduced to $26,772.94. Supplemental Appeal File, Exhibit G. JEFFREY BAHE $41,925.34 $25,918.93 DEAN YAZZIE $77,369.28 $43,608.58 JOHN BILLIE $9,711.69 $5,291.58 SHARON BEGAY $29,126.99 $23,846.19 LAURA NEZ $29,846.81 $16,719.28 LEONARD BEGAY $60,782.26 $36,733.96 LOUIS BEGAY $78,419.46 $40,890.58 ORIEL NAKOMI $37,479.78 $19,965.38 AUDREY NAVASIE $42,759.67 $28,488.51 MARILYN MAHKEWA $26,686.15 $16,919.88 DELIA KANUHO $36,766.43 $22,610.93 SAM MAX $33,819.81 $20,998.62 RUTH BEGAY $2,595.54 $1,910.69 GLORIA BEGAY $29,446.93 $17,702.62 HELEN YAZZIE $20,678.12 $15,366.53 LEONARD KANUHO $22,983.76 $13,983.15 TOLIE BEGAY $35,804.69 $20,973.79 ROSITA B. BROWN $27,628.27 $16,292.04 CHEE GREYHAIR $66,213.98 $36,524.01 POLLY BENALLY $25,286.69 $15,452.34 LAVINA MCNEIL $38,204.23 $20,819.75 NELSON NEZ $46,178.51 $26,985.87 YULANDA SILVER $21,208.95 $13,516.06 ANGELA SANGSTER $25,796.69 $15,496.95 BEATRICE SKACY $33,258.24 $26,089.91 RAYMOND TALLSALT $109,312.88 $58,888.05 LILLIE TACHEENIE $538.88 NOT DONE TOTAL $1,107,070.76 $659,098.03 Appeal File, Exhibit 169. The total amount owed on a "should- cost" basis was $659,636.91, taking into account the $538.88 for the Lillie Tachinie house that was paid and not the subject of the should-cost study. Id. On November 16, 1988, respondent paid appellant $216,181.89 for work under contract 70582 as determined by the should-cost study. On December 28, 1988, respondent paid appellant $5,176.49 Id., Exhibits 10, 14, P. Thus, the contract payments totalled $659,408.09 for the contract work. Finding 83; Appeal File, Exhibits 10, 14, P. To accommodate the additional payments, ONHIR raised the ceiling price by $219,345.40 for contract 70581 and by $7,333.73 for contract 70582, for a total combined ceiling price of $676,679.13. 99. The following table shows the amount of subcontractor's overhead and profit per house that appellant invoiced to the Government, which was disallowed. HOUSE AMOUNT LARRY AHASTEEN $198.79 RAYMOND BEGAY $7,366.03 RAYMOND N. BEGAY $2,161.29 LORRAINE WILLIAMS $7,479.16 JEFFREY BAHE $5,080.30 DEAN YAZZIE $9,378.14 JOHN BILLIE $1,340.38 SHARON BEGAY $2,921.13 LAURA NEZ $2,573.01 LILLIE TACHEENIE $181.11 LEONARD BEGAY $8,564.81 LOUIS BEGAY $1,621.03 ORIEL NAMOKI $1,226.17 AUDREY NAVASIE $634.73 MARILYN MAHKEWA $2,073.15 DELIA KANUKA $179.36 SAM MAX $4,405.63 GLORIA LABAN BEGAY $507.15 HELEN YAZZIE $1,800.88 TOLIE BEGAY $4,140.83 CHEE GRAYHAIR $516.19 POLLY BENALLY $3,393.35 LAVINA MCNEIL $4,054.83 NELSON NEZ $4,124.40 YULANDA SILVER $2,749.17 ANGELA SANGSTER $2,411.54 BEATRICE SKACY $403.93 TOTAL $81,486.49 Appeal File, Exhibits 21-50. Paint 100. Mr. Hutchins made an extensive analysis of paint that should have been used during the performance of the work. His paint analysis assumed a coverage of 300 square feet per gallon using two coats of paint. Appeal File, Exhibit 161; Transcript at 2021. He measured the interior and exterior space of the houses painted and arrived at the number of gallons that should have been used by dividing the interior and exterior square footage by 300. Id. The paint analysis found that 361 gallons would be sufficient for exterior coverage, at an average cost of $8.02 per gallon. Appeal File, Exhibits 161, 169 at 18. 101. Appellant's expert testified that the coverage rate for interior painting was 300-400 square feet per gallon, but that the coverage rate for exterior stucco could be 75 square feet per gallon for the first coat and 125-150 square feet per gallon for the second coat. Transcript at 1302. 102. Kelly Moore Paint supplied the paint for this contract. Mr. Tate, of Kelly Moore Paint, possessed sixteen years of experience as a store manager. Respondent's Exhibit 198; Deposition of Gene Tate at 6 (Tate Deposition). Mr. Tate stated that over an exterior stucco surface, the rate of coverage of one gallon of paint might be as low as 150 square feet. Tate Deposition at 36. Mr. Tate testified that on an extremely rough surface, the rate of coverage could be as low as 100 square feet per gallon. Id. at 75. The testimony of appellant's expert and the representative of Kelly Moore Paint credibly suggests that paint coverage is well below the figures used in the should-cost study. We agree with appellant's expert and find as a matter of fact that a reasonable rate of paint coverage for an exterior stucco surface is 75 square feet per gallon for the first coat and 125 square feet per gallon for the second coat. Transcript at 1302. 103. Appellant painted a total of 104,201 square feet of exterior stucco. Appeal File, Exhibit 161 at 7. Of the 104,201 square feet, 52,100.5 square feet was first coat painting and 52,100.5 square feet was second coat painting. Id. at Note A. At a rate of 75 square feet per gallon, the first coat would require 694.67 gallons of paint.5 At a rate of 125 square feet per gallon, the second coat would require 416.80 gallons of paint.6 The total gallons of paint that would be required to paint the entire exterior is 1111.47.7 These calculations presume worst conditions and therefore reflect maximum gallons of paint which could be used. Appellant invoiced for 895 gallons of paint for the exterior of the houses. Appeal File, Exhibit 161.8 104. Material invoices for this contract show that each gallon of Oyster White, Dusty Ivory, and Oxford Brown exterior paint cost Weller $9.17. A gallon of Sequoia Redwood cost Weller $9.15. Respondent's Exhibit 198, Material Invoices 25780 and 23609. 105. On June 12, 1991, the contracting officer issued a second final decision on Weller's claim of $26,772.94 for extra work, not covered by the ceiling price limitation, performed in September and October of 1988. The contracting officer determined that Weller was owed an additional $4,053.59. He arrived at this figure by reducing Weller's claim by the cost of repairing latent defects in the roof, relying on the terms of the Inspection clause. The claim was reduced to reflect Davis-Bacon rates bid for each category, and further reduced because a worker who was charged at superintendent labor rates actually performed work as a laborer. The contracting officer subtracted labor costs not documented by time cards. There was a further reduction for items billed as direct costs, such as general administrative expenses and travel, which should have been included in Weller's overhead rate. Appeal File, Exhibit 174. Appellant's Tracking of Labor Hours and Cost Verification 106. Weller's contract supervisors did not estimate the labor hours necessary to perform contract tasks prior to award. Transcript at 733. To track labor hours, each laborer on the contract filled out a time card which contained the employee's ____________________ 5 The 694.67 gallon figure is calculated by dividing 52,100.5 sq. ft. by 75 sq. ft. per gallon and rounding to the nearest hundredth of a gallon. 6 The 416.80 gallon figure is calculated by dividing 52,100.5 sq. ft. by 125 sq. ft. per gallon and rounding to the nearest hundredth of a gallon. 7 The 1111.47 figure is a calculated by adding 694.67 and 416.80 gallons and rounding to the nearest hundredth. 8 This figure was tabulated from the "Weller Invoiced Gallons" column. All of the "EXT" (exterior) invoices were compiled to arrive at the total. name, classification, type of work, hours, and total time. Respondent's Exhibit 189; Transcript at 728. Weller's contract superintendent and his assistants did not verify the hours worked; they took the number of hours on the time cards on faith unless there was something to arouse their suspicions. Transcript at 732-35. Many of the time cards failed to indicate the breakdown of hours for the tasks performed, or the number of hours worked on particular tasks. Transcript at 1351-61. 107. Weller submitted expert testimony and a cost verification to refute respondent's should-cost study and to verify the labor hours and material costs claimed by Weller. Appeal File, Exhibit K. The expert, however, did not seek to verify the labor hours worked against any identifiable standard; rather he took the number of labor hours stated in the time cards on faith. Transcript at 1341. Appellant's expert recognized that hours Weller billed for labor did not match up with the hours spent on a particular task, but concluded that the total number of hours billed was "close." Id. at 1343-44. When the workers combined tasks on time cards, the expert allocated total hours between tasks on an equal basis. Id. at 1356. Appellant's expert agreed with respondent's expert on the allowance for materials. Id. at 1270. Discussion Weller has presented a complaint in six counts summarizing its claims. We consider each count as presented in the complaint. Count I In count I, Weller claims unpaid amounts of $297,133.73 on contract 70581 and $164,849.46 on contract 70582, interest under the Contract Disputes Act, Weller's costs in prosecution of the appeals, and attorney fees as may be allowable under the Equal Access to Justice Act. Complaint, GSBCA 10627-NHI, at 15. In this count Weller alleges that, without benefit of formal modification, houses were added and deleted from the scope of work and that the houses were in remote locations. Weller submits that the addition and deletion of the houses were compensable changes to the contracts. Complaint 11. Weller alleges that most of the houses remained occupied during construction and that the scope of work for each house was changed. Complaint 12. Weller alleges that the Government wrongfully invoked the Inspections clause to cause extra work between "final inspection" in January 7, 1988, and September and October of 1988, when the houses were finally accepted. Weller claims that the work was not the result of fraud, gross mistakes or mistakes amounting to fraud, or latent defects allegedly required by that clause. Complaint 13, 14. Weller also claims that the Government waived the ceiling price limitation. The total maximum number of houses was not changed; the contract specified a total of thirty-one houses and Weller worked on that number. Findings 2, 98. It maintains that "the Contractor reasonably anticipated, prior to award, a 'minor' repair effort for houses at specified locations. On the job sites[,] however, a gigantic change in [the] scope of the work became immediately evident." Appellant's Brief at 79. Weller simply did not anticipate the scope of repairs that would have to be made during the contract performance. In order to prevail on its claims of a constructive change, however, Weller must show that the contracting officer or authorized representative (1) ordered the contractor to perform work (2) that was a change in the work required by the contract. Fan Inc., GSBCA 7836, et al., 91-1 BCA 23,364, at 117,186. The contract provided that Weller was to perform "all work" to repair the listed houses. Finding 1. The non-exclusive list of twenty-five examples of the type of work to be performed specified "repair and/or replace" major components of the houses, i.e., footings and foundations, underfloor insulation, piers, pads and underfloor support, plumbing systems, and electrical flooring. Finding 2. The repairs (or replacement, as the case may be) had to be performed in accordance with stringent requirements of various building codes. Findings 9-10. The contract, therefore, put Weller on notice that major renovation on these houses might have to be undertaken. There is no relevant difference between the non-exclusive list of twenty-five items in the solicitation and the work to be done as stated in the NOIRs. Compare Finding 2 with major tasks in the NOIRs in Findings 22-74. Weller also claims that it performed work not specified in the NOIRs. The record shows Weller did perform such work for some of the houses. For the house of Lorraine Williams, Weller had to replace the roof, rather than repair leaks on the roof. Finding 24. The repair of the house of Raymond Tallsalt was an addition to the contract. Finding 31. On the other hand, much of what Weller considered "changes" was work that would have had to have been performed to accomplish the task in the NOIR. For example, Weller claims as a change extensive jacking of Sharon Begay's house. The NOIR for that house, however, required Weller to relevel the house. Finding 32. To accomplish the task necessarily meant jacking the house. Finding 20. The Government maintains there were no changes to the contracts. There were, however, changes in the number of houses Weller was required to repair, although the maximum of thirty-one houses for both location packages, Finding 2, was never exceeded. Location packages two and four started with a total of twenty houses on June 15, 1987. Finding 16. By September 30, 1987--the date of modification one--eleven houses had been added. Finding 17. Modification one was issued to increase the ceiling price of the contracts due to these changes in the scope of work. Finding 81. Appellant has not shown that the changes caused a delay. We have found delay when the Government delayed the contractor's intended schedule. See generally Jordan & Nobles Construction Co., GSBCA 8349, et al., 91-1 BCA 23,659. But here, Weller never developed an as-planned schedule, either on a house-by- house or a gross basis. Finding 75. While there were some changes from the work specified in the NOIRs, there were not as many as Weller suggests. Weller's difficulties with timely completion of the contract work were principally of its own making, i.e., its poor scheduling of its work force, and failure to have the necessary materials at the job-site. Findings 77-80. Respondent argues that appellant is not entitled to recover overhead and profit on subcontractor invoices, which amounts to $81,486.49. Finding 99. Respondent relies on the limitation in the Payments clause providing that reimbursable costs in connection with subcontracts shall be limited to "the amount paid to the subcontractor in the same manner as for items and services paid directly for the contract." Finding 4. Respondent ignores the next phrase of the clause, which states, "this requirement shall not apply to a Contractor that is a small business concern." Id. Weller is a small business concern. Finding 13. Absent ceiling price considerations, appellant would be entitled to an additional $81,486.49. Finding 99. Respondent argues that allowing recovery for subcontractor overhead and profit would be violative of the prescription against cost-plus-a-percentage-of- cost contracts. Respondent relies upon Urban Data Systems, Inc. v. United States, 699 F.2d 1147 (Fed. Cir. 1983). Urban Data Systems is inapposite. That case involved a payments clause which allowed profit as a fixed percentage of costs. Id. at 1150-51. Here, the payments clause authorizes reimbursement for the "cost of subcontracts." Appellant invoiced the Government for subcontractor overhead and profit that was passed on to it by the subcontractor. Because this is a time and materials contract, we do not regard appellant as improperly seeking its costs plus profit as a percentage of costs. Appellant questions the reasonableness of the should-cost study. We agree with appellant that the should-cost study did not reasonably assess appellant's paint costs. The should-cost study granted paint costs on the basis of a coverage rate of three hundred square feet per gallon for the exterior of the houses, i.e., an estimated material usage of 361 gallons of paint at an average cost of $8.02 per gallon. Finding 100. The record, however, establishes that respondent's should-cost expert overestimated the coverage rate, thereby underestimating the number of gallons of paint required for exterior coverage. We found that 903.79 gallons would be required for total estimated exterior coverage. Finding 103. Since Weller invoiced for 895 gallons for exterior paint, we grant appellant its material costs for that amount, at the invoice price of $9.17 per gallon. Findings 101-104. The difference between what appellant received for paint pursuant to the should-cost study ($2,895.22) and what appellant billed ($8,207.15), totals $5,311.93. This amount is within the ceiling limitation of the contracts. Appellant has not met its burden of establishing its entitlement to other recovery. In determining the reasonableness of the other contract billings, we are presented with Weller's cost verification and the Government's should-cost study. Material costs are not at issue, as the Government accepted appellant's material costs (paint excepted). Finding 98. With regard to the labor hours that should have been spent on the job, Weller's cost verification is of no help. Weller's cost verification merely concludes that Weller billed the Government for the total number of labor hours reflected on the time cards. Finding 107. The verification did not seek to establish the reasonableness of the labor hours. Id. Respondent's should-cost study determined the reasonable number of labor hours from recognized and well-known estimating guides, adjusting for local conditions. Finding 98. We and other Boards have relied on estimates as a preferred method of determining reasonableness of costs as opposed to the total cost approach urged here by appellant. Purvis, GSBCA 905, 74-2 BCA 10,959; Robert McMullan & Sons, Inc., ASBCA 19129, 76-2 BCA 12,072, at 57,962. We have accepted estimating manuals such as those published by R.S. Means as a useful guides in making such determinations. J.S. Alberici Construction Co., GSBCA 10306, 91- 2 BCA 23,846, at 119,492. Save for the disallowances for contractor overhead, profit, and paint, OHNIR's should-cost study is reasonable. Respondent maintains that Weller's failure to provide notice to ONHIR that it would exceed the ceiling price bars recovery beyond the ceiling price. Respondent's Posthearing Memorandum at 83. Appellant argues that ONHIR had reason to believe that appellant was exceeding the ceiling price and that ONHIR is thereby estopped from using the ceiling price limitation of the Payments clause as a bar to recovery because it had reason to know of the cost overrun and because ONHIR failed in its reciprocal obligation of notice under the Limitation of Cost clause. Appellant's Posthearing Memorandum at 83-84. ONHIR has the better of the arguments. The Payments clause is the standard clause found at FAR 52.232-7, entitled Payments under Time and Materials and Labor- Hour Contracts. Finding 4. Subparagraph c of that clause is entitled "Total Cost," requiring appellant to notify ONHIR of a possible overrun, and placing a reciprocal obligation on ONHIR to notify appellant of a potential overrun. Finding 4. Subparagraph d, entitled "Ceiling Price," provided that ONHIR "shall not be obligated to pay the Contractor any amount in excess of the ceiling price in the Schedule, and the Contractor shall not be obliged to continue performance if to do so would exceed the ceiling price set forth in the Schedule" until the Contracting Officer has notified the contractor of an increase in the ceiling price and specified in the notice a revised ceiling price. Id. These provisions are similar to the Limitation of Cost clause found in cost reimbursement contracts and the Limitation of Funds clause found in incrementally funded contracts. Cf. Software Research Assoc., ASBCA 33578, 88-3 BCA 21,046, at 106,311 (construing 1972 version of Payments Under Time and Materials and Labor Hour Contracts clause). We have observed before that these clauses are strictly construed. Automated Management Systems, GSBCA 7394-COM, 85-1 BCA 17,891, at 89,600. These clauses are included in cost-reimbursement contracts "to limit the Government's legal obligation to the estimated costs of the contract and insure compliance with the Anti-Deficiency Act . . . which prohibits expenditures or obligations in excess of amounts available in existing appropriations." Hughes Aircraft Corp., ASBCA 24601, 83-1 BCA 16,396, at 81,518. Contractors which, during contract performance, fail to give the notice specified by those clauses of reasonably foreseeable cost overruns are not entitled to funding of the overrun. RMI Inc. v. United States, 800 F.2d 246, 248 (Fed. Cir. 1986). At no time before appellant signed modification two to the contracts did Weller give the contracting officer notice under the ceiling clause that it was approaching an overrun condition under its contracts. Finding 82. Weller, moreover, between October 22 and November 11, 1987, had every reason to believe that it had or was approaching the overrun ceiling on the contracts. Appellant's invoice of October 22 to the Government for contract 70582 was well over the ceiling price of $200,000. Findings 81, 82. Appellant's invoice of $212,331.02 was almost eighty-five percent of the ceiling price of $250,000. Id. These invoices should have triggered Weller's notice of an overrun (or impending overrun) as work on the houses covered by both contracts averaged between eighty-five to ninety percent complete. Findings 82. Weller maintains that ONHIR is estopped from using the ceiling price subparagraph as a bar to recovery its claim. Weller claims that the facts show the four elements of estoppel.9 Weller argues that (1) ONHIR had reason to know that the ceilings "had been or were about to be exceeded" (Appellant's Brief at 63); (2) notwithstanding that knowledge, the contracting officer demanded continued performance by the cure letter of November 6 (id. at 64); (3) the contractor was not aware of the true facts, i.e., that no implied funding of the overrun was intended (id. at 83); and, (4) the contractor relied on ONHIR's action to its detriment by completing the "last half" of the contract (id.). ____________________ 9 American Electronic Laboratories v. United States, 774 F.2d ----------- FOOTNOTE BEGINS --------- 1110 (Fed. Cir. 1985). ----------- FOOTNOTE ENDS ----------- Weller's argument that ONHIR had reason to believe that appellant was approaching an overrun condition in the fall of 1987 is persuasive. ONHIR was guided by the combined ceiling price of $450,000 for both contracts. Finding 83. When ONHIR paid $438,000, it must have known that the figure was ninety- seven percent of the combined ceiling price of $450,000. It knew that ten percent of the work needed to be completed. Findings 82, 83. ONHIR could have anticipated that there would be an overrun on the ceiling price of at least seven percent. The first element of estoppel is met. Weller maintains that ONHIR's cure notice was a demand for continued performance with implied funding of an overrun. We disagree. First, directions by technical personnel, including the contracting officer, concerning the specific work to be performed, and the manner of performance, even if amounting to a change in the contract work, will not constitute a waiver of the Limitation of Cost clause. Hughes Aircraft, ASBCA 24601, 83-1 BCA 16,396, at 81,517. Second, ONHIR's cure notice related to completion of alleged faulty and slow work. ONHIR was merely seeking to protect its existing rights under the contract. Finding 85. Third, the cure letter resulted in modifications to the contract, in which Weller agreed to complete repairs by November 24 at its expense, with no expense to ONHIR. Id. ONHIR never implied that it would fund the overrun either by issuance of the cure notice or the modifications. To the contrary, the modifications show ONHIR's expectation that appellant would bear the cost of the repairs. Weller has not established the second and third elements of estoppel. Therefore, the contracting officer acted correctly in refusing to fund Weller's overrun for alleged labor inefficiency, overhead, and profit. 3C Systems Inc., ASBCA 41463, 91-2 BCA 23,916, at 119,817. Weller argued that there were changes to the contract in the form of addition of houses to contract work which relieve appellant of its responsibility to give notice that it was over (or about to exceed) the ceiling price. We disagree. Early cases held that Limitation of Cost clauses did not apply to changes in the contract work. Clevite Ordnance, ASBCA 5859, 1962 BCA 3330, at 17,155; see Falcon Research & Development Co., ASBCA 26853, 87-1 BCA 19,458, at 98,339, aff'd, 831 F.2d 1056 (Fed. Cir. 1987). In the face of this exception, Limitation of Cost clauses have incorporated language explicitly stating that change orders shall not be considered authorization to exceed the ceiling price. See e.g., Southwest Marine, ASBCA 33404, 89-1 BCA 21,425, at 107,967. There is similar language in this contract. The COTR could not, by issuing NOIRs, authorize a change in the ceiling price. Finding 7. Neither change orders nor constructive change orders constitute a waiver of the ceiling price limitation. Hughes Aircraft, 83-1 BCA at 81,517. The one exception to rule stated immediately above is that an out-of-scope modification, i.e. a cardinal change, may constitute a waiver of the Limitation of Cost clause. Recon Systems, Inc., IBCA 1214-9-78, 79-2 BCA 14,058, at 69,095. Weller comes close to alleging a cardinal change when it argues "the Contractor reasonably anticipated, prior to award, a 'minor' repair effort for houses at specified locations. On the job sites however, a gigantic change in [the] scope of the work became immediately evident." Appellant's Brief at 79. Appellant refers to the alleged change from a job of minor repairs on the houses to rehabilitation. We have concluded, however, that the contract documents put Weller on notice that it might have to perform major renovations. As noted above, when houses were added to the original list of twenty, the Government issued modification one to increase the ceiling price. The increase in the ceiling price did not relieve Weller of its responsibility in providing the required formal written notification when it was approaching, or at, the ceiling prices. Cf. Software Research Assoc., 88-3 BCA at 106,311 (ceiling limitation not waived by contracting officer's approval of expenditure of funds below ceiling price). The Payments Under Time and Materials and Labor Hour Contracts clause provided relief for Weller's underestimation of the scope of the effort to perform the contract. Weller could have (1) kept accurate records and (2) notified the contracting officer that it would exceed eighty-five percent of the ceiling price within thirty days. Having given such notification, Weller could have stopped work when it reached the ceiling price and awaited the contracting officer's decision to increase the ceiling price. Finding 4.10 In the absence of written notice of overruns to the contracting officer, contractors take the risk of non-reimbursement should they incur overruns. Southwest Marine, 89-1 BCA at 107,982. The dissent notes that we are strictly construing the ceiling price clause. That is what the law requires. The dissent also maintains that ONHIR furnished NOIRs to appellant after ONHIR knew that Weller had exceeded the ceiling price on one contract. The dissent undoubtedly refers to the houses of Leonard Kanuho, Beatrice Skacy and Larry Ahasteen. But two of those NOIRs--the houses of Leonard Kanuho and Larry Ahasteen--were simply written confirmation of work that had been verbally assigned well before. Findings 69, 73. The third item- -additional work on the Beatrice Skacy house--was performed by mutual agreement of the parties. Finding 71. When appellant agreed to perform the work, it still had not given notice that it was close to or had exceeded the ceiling price; it could have ____________________ 10 The dissent says the lack of notice is inconsequential in light of whatever ceiling prices were then in existence. The dissent ignores the operation of the notice provisions. Weller could have avoided the overruns it now says it incurred by giving notice and stopping the work early in contract performance. given the required notice and stopped work. Southwest Marine. Count II In Count II, Weller claims that the contracting officer delayed payment from January 7, 1988, when the work was accepted, until October 27, 1988. This period, alleges appellant, served as a suspension of work, during which no work could be done and thus no direct costs were incurred. Complaint 35-39. Weller seeks $79,754.96 for Contract 70581 and $63,553.06 for contract 70582 calculated according to the Eichleay formula. The delay in payment, however, related to Weller's submitting inadequate documentation for payment of the invoices, Findings 88-91, and was not the result of Government ordered or constructive delay. Count III Weller, in Count III, seeks $61,081.44 for contract 70581 and $48,866 for contract 70582 for damages calculated according to the Eichleay formula. Weller alleges that the contracting officer's refusal to pay incurred costs and contract amounts since October 27, 1988, forced Weller to incur indirect costs without work or ability to bill any indirect costs. Weller also alleges that its bonding capacity was exhausted and impaired by the Government's actions. Complaint 44-49. This claim is denied for the same reason as we denied Count II--the delay in payment was due to Weller's submission of incomplete invoices, not Government ordered or constructive delay. Findings 92-97. Count IV Weller claims that the contracting officer ordered inspections six months after contract completion, erroneously relying on the Inspection clause of FAR 52.246-6, which was deleted in Modification 1 to the contract. Weller claims that the Inspection clause added by Modification 1 does not provide for inspections or for further repairs after acceptance, unless to remedy defective work caused by fraud, gross mistakes amounting to fraud, or latent defects. This claim is based upon the Government's requiring additional repairs to houses throughout the spring, summer, and fall of 1988 after its initial acceptance of twenty-nine of those houses in January of 1988. Finding 84. Weller also alleges that the houses had been occupied continuously since January 7, 1988, and that insufficient safeguards were instituted to insure that the alleged defects were not induced by the occupants. Complaint 50-53. Weller seeks $20,679.81 for inspection costs, overhead, and profit for July of 1988 and $26,772.94 for work in September and October of 1988. Complaint at 19, Prayer for Relief A-B. This claim is barred by the doctrine of accord and satisfaction. The elements are familiar: proper subject matter, competent parties, meeting of the minds, and consideration. Jordan & Nobles Construction Co., GSBCA 8349, et al., 90-1 BCA 22,471, at 112,801. Here, Weller agreed with respondent to "correct any work which does not meet construction standards as stipulated in the contract and as interpreted by NHIRC inspectors" and to "replace, at his expense, any failed work, due to his negligence or poor workmanship, without delay as ordered by NHIRC inspectors." Finding 85. Weller also agreed that "in no event shall the Contractor submit billings or claims to the NHIRC for work which the Contractor has to replace as ordered by the NHIRC inspectors." Id. Weller agreed to make the corrections in exchange for rescission of the cure letter and an extension in the date of contract completion from October 1, 1987 to November 24. Id. Because Weller agreed to correct any work which the inspectors found was defective, it gave up whatever rights it had under the latents defects provision of the Inspections clause in exchange for rescission of the cure letter. We thus do not consider it necessary, as does the dissent, to make findings on whether the defects were latent. Counts V and VI Weller has withdrawn its claims for "duplications" and for interest under the Prompt Payment Act and implementing regulations. Appellant's Brief at 73. GSBCA 11141-NHI Appellant also contests ONHIR's refusal to pay the $26,772.94 allegedly owing for work performed in September and October of 1988. ONHIR decided Weller was entitled only to what it had bid: direct labor at the Davis-Bacon rates, overhead at forty-four percent of direct labor, and materials at cost. Finding 97. We conclude that ONHIR is correct. For the direct labor, Weller chose to bid Davis-Bacon labor rates for "all trades." Finding 14. Contracts are to be enforced according to their terms. Madigan v. Hobin Lumber Co., 986 F.2d 1401, 1403 (Fed. Cir. 1993). Furthermore, Weller has not shown that the deductions made by the contracting officer in his final decision of June 1991 were erroneous. Roof shingles, after the supposed repairs or replacement, were blown off houses by the wind. Finding 94. Therefore, the contracting officer made a deduction for roof defects. Finding 105. He also reduced the labor portion of the claim to reflect the Davis-Bacon rates bid by Weller and labor costs not documented by time cards. Id. These deductions were reasonable. Decision The appeals are GRANTED IN PART. Appellant is awarded $17,271.04, plus interest as allowed by the Contract Disputes Act of 1978. _________________________ ANTHONY S. BORWICK Board Judge I concur: ____________________ ALLAN H. GOODMAN Board Judge VERGILIO, Board Judge, concurring in part. I concur with the majority that, under GSBCA 10627-NHI, claims II and III must be denied. With respect to the majority's decisions regarding claims I and IV under that appeal, and the claim in GSBCA 11411-NHI, I am unable to concur. I conclude that the majority is improperly applying the ceiling limitation clause, and that the majority's factual and legal analysis is inadequate to support a determination that the contractor is entitled to additional money under the payment provisions. The Board is required to make a de novo review of the facts and law surrounding a case; the conclusions of the contracting officer are not determinative. 41 U.S.C. 605(a) (1988); Assurance Co. v. United States, 813 F.2d 1202 (Fed. Cir. 1987) ("We hold that the Board had the authority to reduce or nullify these awards of the contracting officer."). Many findings of the majority, although consistent with representations of the contractor and/or the agency in their briefs, are not supported by the record in this case. Further factual and legal determinations must be made in order to determine the amount, if any, to which this contractor or the agency is entitled. The decision of the majority would not be altered by my making specific determinations at this time; I offer the following to illustrate some of my concerns regarding the facts and legal conclusions. Background During performance the contractor and agency each failed to appreciate the terms and conditions of the underlying contracts. These were not open-ended cost-reimbursement contracts. They were time-and-materials contracts with ceiling limitations. The parties proceeded generally unaware of the obligations explicit and inherent in the ceiling limitations and with no regard to the subcontractor provisions and the provisions for altering work required under the contract. The solicitation required offers to contain three elements. First, proposed labor costs, including fringe benefits, at or above Davis-Bacon rates. Second, administrative expenses-- including overhead, materials handling costs, travel expenses and other direct costs--to be expressed as a percentage, with reimbursement to be made as a percentage of direct labor costs. Third, profit expressed as a percentage of direct labor costs and overhead. Appeal File, Exhibit 2 at 6-7. The solicitation specified that award of each location package contract would be made to the lowest responsive and responsible offeror. A "comprehensive evaluation of a combination of factors," including the amount "of costs to the Government including labor and administrative costs and profit," was to be part of the determination. Appeal File, Exhibit 7 at 10. For package two, the contractor proposed hourly rates of $25 and $16.50, respectively, for the superintendent and foreman, each with zero additional fringe benefits. For all trades, Davis-Bacon rates were proposed. The proposed overhead was 44%, profit was 9%. Appeal File, Exhibit 7 at 8-9. For package four, the contractor proposed hourly rates of $26 and $17.50, respectively, for the superintendent and foreman, each with zero additional fringe benefits. For all trades, Davis-Bacon rates were proposed. The proposed overhead was 44%, profit was 9%. Id. at 9. The solicitation and contracts contain the Federal Acquisition Regulation clause, 52.244-3 Subcontracts under Time- and-Materials and Labor-Hour Contracts (APR 1984), which dictates: "The Contractor shall obtain the Contracting Officer's written consent before placing any subcontract for furnishing any of the work called for in this contract, except for purchase of raw material or commercial stock items." Appeal File, Exhibit 7 at 19. The clause also specifies: "No subcontract placed under this contract shall provide for payment on a cost-plus-a- percentage-of-cost basis." Id. The contractor here proposed no use of subcontractors, and did not seek or obtain written consent from the agency for use of subcontractors. Appeal File, Exhibit 7; Appellant's Brief (Apr. 5, 1993) at 65 ( 162). A "Special Condition" of each contract provides, "No changes are to be executed without the approval of the [agency's] Contracting Officer. Exceptions are the following:" a. If there are any changes to the original repair list, and time is not a factor, the Contractor shall request the change in writing and not proceed until approval from the Contracting Officer has been received and a modification to the agreement specifying therein the additional items and the estimated cost. b. In the event that time will not permit and the [commission] and/or the Contractor would be harmed by a delay, the COTR may obtain the verbal approval from the Contracting Officer for any amount of additional repair cost. In the absence of the Contracting Officer, such approvals may [b]e granted by the Administrative Contracting Officer for additional amounts not exceeding $25,000. c. In the event "b" above is utilized in order for the verbal approval to be valid it must be documented in writing with all the specifics identified in or [sic] "a" above within 5 working days. Appeal File, Exhibit 7 at 13 ( VIII.1). The parties have pointed to no written documentation indicating compliance with these provisions for alterations to the NOIRs or the addition of houses. The contractor was required to do work on houses at locations remote from those listed in the contracts. Appeal File, Exhibits 7, 164, L. The agency did not require work at the minimum number of houses in some of areas. Id. During performance (prior to its claim), the contractor did not suggest to the agency that houses or work on houses added under the contracts constituted changes or should have affected the rates for overhead or profit in the contracts. By letter dated October 22, 1987, to the contracting officer, the contractor requested a modification to the two contracts "to allow for payment of overhead and profit on subcontracts." Appeal File, Exhibit 57. The contractor explained: "In submitting our bid for overhead and profit we considered that we would be allowed the same percentages (44% overhead, 9% profit) on subcontracts. If we had anticipated that it would not be allowed our bid for overhead and profit would have been much higher." Id. The contractor submitted three initial invoices to the agency, on approximately October 22, requesting payment for some of the work performed (labor was included as of September 29). One invoice identifies the 81 contract and lists an amount to be paid for each of fifteen houses. Another invoice identifies the 82 contract and lists an amount to be paid for each of twelve houses. A third invoice identifies no contract but lists the amount to be paid for one house. Appeal File, Exhibit 55. Although the agency treated one of the houses listed under the 81 contract invoice and the house on the third invoice as part of the 82 contract, and treated the Tallsalt house (listed on the 81 contract invoice) as under neither contract, it is not clear that such a treatment was conveyed to the contractor. The agency did not submit to the contractor checks for each contract; rather it submitted checks by house. The checks, dated November 10, generally identify an amount for overhead and profit which has been disallowed. Id., Exhibit P. The amount disallowed appears to reflect the contractor's mark-up on the subcontractors' billings. E.g., compare Appeal File, Exhibit P, with Exhibit 50; Appeal File, Exhibit 61. In November 1987, the agency knowingly paid the contractor in excess of the ceiling price of the 82 contract. The agency failed to establish a new ceiling and failed to inform the contractor of the basis for the payment or the impact on future performance under either the 81 or 82 contract. Thereafter, the agency required the contractor to perform work under the 82 contract by issuing new NOIRs or directions for performance. The majority insufficiently distinguishes between orders issued and costs incurred prior and subsequent to November. The should-cost study relied upon various publications. However, the record does not support the reasonableness of portions of the analysis. For example, the study states that prices of materials furnished by a subcontractor "were far from the best prices available. Prices were checked in local supply houses and in national retail outlets for material furnished and it was determined prices invoiced were more than 10% higher than the same or suitable substitute items." Appeal File, Exhibit 169 at 10. It is not clear when the price comparisons were performed in comparison to the actual purchases, or if the 10% discount was reasonably available in the area in which purchases were made. Although the publications relied upon in the study provide general guidance, the record does not suggest that information was properly extrapolated to fit the situation in the area and on the reservation where performance occurred. Further, I agree with the majority that the should-cost analysis incorrectly determined the number of gallons of paint which should have been used. The number of gallons of paint used directly affects the reasonable direct labor hours of the painters. The majority fails to make any correction to the should-cost analysis which predicated painter hours on the reduced paint usage. In Finding 99, the majority represents $81,486.49 as being "the amount of subcontractor's overhead and profit per house that appellant invoiced to the Government, which was disallowed." The finding is erroneous in two respects. First, the figure fails to sum all of the disallowed costs--multiple billings for any particular house within an exhibit are ignored. Second, the amount disallowed appears to be the contractor's mark-up of overhead and profit on the subcontractors' billing, see Appeal File, Exhibit 61, although the mark-up is 56.9595% not 53% (44% overhead plus 9% profit) limited to labor hours. Finally, the burdened hourly rates billed for the superintendent and the foreman were $40.81 and $25.90, respectively, regardless of the contract. This represents overbilling for the superintendent, and over and under billing for the foreman. In awarding this contractor money, the majority attempts to make no adjustment for these discrepancies. GSBCA 10627-NHI In its first appeal, 10627-NHI, the contractor pursues four claims, which I address seriatim. Claim I Under a theory of equitable adjustment, the contractor seeks to recover $461,983.19 as reasonable costs, given alleged changes and Government-caused delays, inefficiencies, and accelerations. This figure is composed of $164,849.46 under the 81 contract and $297,133.73 under the 82 contract. The contractor maintains that the contracting officer failed to act in accordance with the requirements of the Payments and the Changes clauses. I part company with the majority's analysis and its final interpretation and application of the Payments Under Time and Materials and Labor Hour Contracts clause. For each contract, the ceiling price represents an important figure, because the "Government shall not be obligated to pay the Contractor any amount in excess of the ceiling price in the Schedule." Finding 4. Without an increase in a ceiling price, the contractor expends costs in excess at the risk of not being reimbursed. Thus, even if, as the contractor alleges, one views the NOIRs as changing the scope of work under the contract, the change by itself would not constitute a basis for the contractor to recover in excess of the ceiling price--the agency obligated itself to reimburse the contractor only up to the ceiling price regardless of the number of houses and scope of performance requested within the contracts. Similarly, the Tallsalt house was not listed in the solicitations and was not part of either contract as originally signed or as expressly amended. Although the contractor viewed the Tallsalt house as coming under the 81 contract, the contractor has not established how the addition of that house would have required the agency to alter the ceiling limitation.1 Regarding this claim, the contractor has not demonstrated how the alleged changes in the scope of the performance--whether formal or implied--"caused" a change in the ceiling price. Finding 5. Under the terms of the contracts, the agency was not obligated to pay more than the ceiling prices, and the contractor ____________________ 1 Whether the addition of houses at locations remote from those cities identified in the contracts constitutes a change requiring a redetermination of the appropriate overhead and profit rates is a matter apart from the ceiling limitations. could cease performance at any time if continued performance would result in exceeding a ceiling price. Finding 4. The majority faults the contractor for failing to provide notice that its performance costs would exceed the total ceiling price. The majority does not explain the significance of the lack of notice--the lack of notice appears to be inconsequential in light of whatever ceiling prices were in existence. (Had notice been given and the ceiling price remained unchanged, the contractor would appear to be in no better position to recover under the majority's rationale.) Moreover, in late October or early November 1987, the agency had actual knowledge that the contractor had exceeded the ceiling limitation in the 82 contract. Finding 83. Two contracts are here at issue, each with its own ceiling price. Both the agency and the majority fail to distinguish between the two contracts, as they consider only a total ceiling price. As of approximately October 22, 1987, the agency received invoices broken down by house. With houses placed under the proper contract, the contractor sought $185,394.16 under the 81 contract, plus $26,216.87 for the Tallsalt house, for a total of $211,611.03 (with its ceiling price of $250,000) and $316,385.18 under the 82 contract (with its ceiling price of $200,000. Appeal File, Exhibits 55, 61; Transcript at 1391. Although invoices may not, in and of themselves, typically constitute sufficient notice of exceeding a contract ceiling, here the contract administrators were aware of the requests for payments and the ceiling limitations. The agency mistakenly did not deem binding the ceiling limitation of each contract, and instead viewed the payment as falling below the sum of the two ceiling prices. Finding 83. Under the 82 contract, the agency paid in excess of the ceiling limitation. The agency did not contemporaneously establish a new ceiling price. The agency was aware that the contractor was continuing to perform work, and incur costs, on houses under each contract. Additionally, with the knowledge that the contractor was approaching or had exceeded the ceiling limitations, the agency issued additional NOIRs or directions for work. No findings have been made as to when all such NOIRs or additional directions were issued. The findings and the majority's analysis are devoid of an explanation as to the feasibility of performing in accordance with those additional NOIRs or directions and within the ceiling limitations. It appears that the agency's actions in ignoring the specific ceiling limitation, without notifying the contractor of the reasons behind its actions and without establishing a new ceiling, may have constituted a waiver of the ceiling limitation, thereby entitling the contractor to recover its reasonable costs under that contract thereafter. Further factual findings are necessary to determine the extent of recoverable costs, if any, to which the contractor is entitled. Further, the majority determines that the ceiling limitations are to be strictly construed against a contractor who is denied reimbursement during the course of performance--here for what the majority characterizes as subcontractor overhead and profit2--and later prevails on entitlement before the Board. The agency denied reimbursement of requested costs (e.g., the agency disallowed payment of the burdened subcontractor costs). Thereafter, the contractor further performed, incurring other reimbursable costs up to (and beyond) the ceiling limitations. Now, this Board determines that the contractor is entitled to those earlier-disallowed costs. The rationale and holding of the majority suggest that the ceiling limitations act as an absolute bar to recovery in excess of the ceiling amount. Such an interpretation is unreasonable; the strict construction fails to give meaning to the reference in the Changes clause to the adjusting the ceiling price. If the contractor were to cease performance at the time its incurred costs (adding those costs denied to those the agency deemed to be allowable) equalled the ceiling price, the contractor would risk both stopping short of performing for the full amount of reimbursable costs and being terminated for default for failing to perform up to the ceiling price. Claim II The contractor seeks to recover "as allowable extended overhead" a total of $143,308.02 under the two contracts. The period for which recovery is sought relates to what the contractor characterizes as the agency's inappropriate refusal "to finally accept the work and 'close out' the contracts until approximately October 27, 1988." Complaint at 15. I concur with the majority that this claim must be denied. The contractor has ____________________ 2 The majority concludes that the respondent is obligated to reimburse the contractor for subcontractor overhead and profit billed to the contractor. The majority imposes the obligation without reference to the prohibition against subcontracting absent written approval. Further, I am unconvinced that this arrangement, whereby a subcontractor is reimbursed for all of its costs plus a percentage of those costs, does not amount to a cost-plus-a-percentage-of-cost arrangement prohibited by statute, these contracts, and Urban Data Systems, Inc. v. United States, ___________________________________________ 699 F.2d 1147 (Fed. Cir. 1983). The majority allows a contractor to circumvent the prohibition. Further, the majority's interpretation is inconsistent with the underlying bases of competition--the awards may well have not been made to this contractor had the potential subcontractor rates and burdens been disclosed during the procurement process. failed to show entitlement to any amount under its theory of recovery.3 Claim III The contractor seeks to recover a total of $109,947.44 which it attributes to lost business and profits (indirect costs incurred from October 28, 1988, to September 1, 1989) and extended overhead costs (for the same period). The contractor has failed to meet its burden of proof to demonstrate either a factual (e.g., reasonably foreseeable) or a legal basis for recovery of any of this amount. In particular, the contractor was performing under time and materials contracts which included allowances for administrative costs and overhead. The contractor has not demonstrated that separate, additional payments would be appropriate. I concur with the determination of the majority that this claim must be denied. Claim IV The contractor seeks a total of $47,452.73. This figure represents costs associated with what the contractor characterizes either as improper agency inspections (contrary to 48 CFR 52.246-12) or as repairing what the agency improperly found to be deficient and unsatisfactory work. Using a theory of accord and satisfaction, the majority sweepingly denies the claim. The majority's application of that theory to the entirety of the claim is erroneous given the facts found. The record suggests that some of the contractor's efforts were devoted to performing work which had not previously been performed or ordered. Appeal File, Exhibit 177. Other efforts were expended in redoing work previously accepted by the agency. It is not clear that all such further contractor efforts were required because of "latent defects, fraud, gross mistakes amounting to fraud, or the Government's rights under any warranty or guarantee." Appeal File, Exhibit 5 at 3 (FAR 52.246-12(i), Inspection of Construction (APR 1984)). Without the requisite factual findings, I can neither concur with nor dissent from the majority. My factual findings and discussion alone would not affect the resolution of this specific claim which the majority sweepingly denies. GSBCA 11411-NHI The contractor seeks to recover a total of $26,772.94 as payment for work performed in September and October 1988 ____________________ 3 In concurring with the denial of this claim, I do not preclude the contractor from recovering for appropriate overhead under counts I or IV. repairing what the agency deemed to be deficient and unsatisfactory work. Departing from the view of the majority on the effect of the ceiling limitations, I would consider separately whether any claimed costs are reasonable and reimbursable. Further, to the extent that acceptance had occurred on the houses, the agency bears the burden of demonstrating that the acceptance should not be treated as final (e.g., a latent defect was involved). _________________________ JOSEPH A. VERGILIO Board Judge