GRANTED IN PART : March 16, 1993 GSBCA 11672-COM QUALITY DIESEL ENGINES, INC., Appellant, v. DEPARTMENT OF COMMERCE, Respondent. Kent E. Hanson, Boulder, CO, counsel for Appellant. Neil B. Moeller, Office of General Counsel, Department of Commerce, Seattle, WA, counsel for Respondent. Before Board Judges LaBELLA, PARKER, and WILLIAMS. LaBELLA, Board Judge. This appeal concerns Contract No. 50ABNC800025 between the Department of Commerce, National Oceanic and Atmospheric Administration (NOAA), respondent, and Quality Diesel Engines, Inc. (QDE), appellant. The Government's requirements for certain repair services on ships' engines which should have been awarded to QDE was performed by other contractors. QDE seeks compensation for damage occasioned by these breaches of contract. NOAA admits the contract was breached on several occasions, but contends that QDE has been fully compensated for those breaches by final decision of the contracting officer on QDE's claim. For the reasons stated below, the appeal is granted in part. Findings of Fact 1. This contract, awarded January 4, 1988, is a requirements contract for materials and labor to perform "repair services on engines on the PMC [pacific marine center] based ships of NOAA. The scope of work required will range from routine inspections to complete engine overhaul." Appeal File, Exhibit 1, C.1. 2. Under this contract QDE was to be paid $31.50 per man- hour for straight time labor, and was to be paid on a cost plus twelve percent basis for any materials supplied. The twelve percent mark up is labeled a material handling charge in the contract. Appeal File, Exhibit 7 at 6. 3. While the parties agree on the hours which other contractors expended on NOAA ships giving rise to the claims of breach, the parties disagree on the rate at which QDE should be compensated for the man-hours performed by other contractors due to NOAA's breach of this contract and whether all services performed by other contractors constitute a breach of this contract. QDE proposes a rate of $31.50, the full contract rate, for all hours which QDE could have supplied its personnel to do work during the time frame the work constituting a breach was performed, and $18.74 for those hours QDE would have had to hire extra labor to perform the work. NOAA proposes a rate of $17.87 for all hours to which QDE proves entitlement. Joint Exhibit 1. The lower rates both factor out direct labor from the contract rate, but use different methods for doing so. 4. There are five hourly rates applicable to the collective bargaining agreement under which QDE pays its employees. Three of these relate to newly hired mechanics after zero, thirty, and sixty days on the job, one is applicable only to "grandfathered" employees, and the other applies to a position which is basically an apprentice/helper. In determining the rate to apply to QDE's claim, the contracting officer averaged the rates for the new- hire mechanics and then averaged this number with the "grandfathered" rate. Transcript at 143-44. He did not consider the rate of the helper at all. Id. at 145. This resulted in a rate which the Board finds placed too much weight on the "grandfathered" employees, of which QDE had only one. Id. 5. The rate proposed by QDE for direct labor was prepared by adding the three new hire rates and the "grandfathered" rate, and dividing by four. The Board finds this rate more closely approximates the costs incurred by QDE for labor because only one employee was "grandfathered," and apprentice/helper labor effectively was factored in at a lower rate. While it might be appropriate to average in the apprentice rate, neither party has proffered such a calculation. Averaging in this wage rate would serve to lower the direct labor cost and increase appellant's award. Because appellant has not proposed such an action and the respondent has not had the opportunity to address the propriety of the result, the Board will not take the action on its own. Accordingly, the Board finds the calculation proposed by QDE most closely approximates the cost to QDE of direct labor, and QDE is entitled to be compensated at the $18.74 hourly rate where the Board determines the direct labor component must be factored out of the contract rate. 6. QDE alleges that it either had enough workers on non- chargeable time, or on chargeable jobs which had flexible or distant completion dates, to allow QDE to timely complete the work for which QDE requests full compensation. QDE has indicated that it would have been unable to complete ninety-six of the hours claimed with its core personnel and would have had to hire workers to complete those hours during the time frame they were performed by another contractor. Transcript at 58-69. 7. While QDE's former financial officer has estimated that as much as eighty percent of the hours needed to do the labor in question was available from non-chargeable time, QDE has not introduced any evidence documenting the hours of non-chargeable time attributable to NOAA breaches of contract. The contracting officer issued three written requests for such documentation, but no documentation was ever submitted. Transcript at 112. 8. In 1990, the second option year of this contract, NOAA allowed another contractor to perform work on the NOAA ship DISCOVERER. NOAA has admitted that some of that work fell within the scope of QDE's requirements contract. Appeal File, Exhibit 83. 9. Ninety-four and one-half man-hours were expended working on the heat exchangers of the DISCOVERER's engines. Joint Exhibit 1. NOAA admits this work would fall under QDE's contract during the course of a complete engine overhaul, but contends it does not when ordered separately. Respondent's Post Hearing Brief at 17-19; Transcript at 118-19, 125-30. 10. Twenty-four man-hours were expended by the ship's crew to clean an oil sump. Joint Exhibit 1. NOAA contends this work is beyond the scope of QDE's contract because of the contract provisions in Finding 11, below. 11. The contract incorporates 48 CFR 52.216-21, Alternate 1, (1984) which states: (c) The estimated quantities are not the total requirements of the Government activity specified in the Schedule, but are estimates o[f] requirements in excess of the quantities that the activity may itself furnish within its own capabilities. Except as this contract otherwise provides, the Government shall order from the Contractor all of that activity's requirements for supplies and services specified in the Schedule that exceed the quantities that the activity may itself furnish within its own capabilities. Appeal File, Exhibit 1, Part II at 41, I.5(c). 12. In mid 1990, Coltec Industries performed repairs on the DISCOVERER's number two main engine. NOAA admits that this work was within the scope of QDE's requirements contract. After eighty hours of work had been done, NOAA offered QDE the opportunity to complete the work. Because the engine was torn down into parts, and QDE's entrance onto the job would have entailed forty hours of transition time by the Government's estimate, would have resulted in warranty problems for the Government, QDE, and Coltec, and would most likely have delayed the sailing date of the DISCOVERER by three or more days, QDE refused to assume the repair in mid- performance. Transcript at 150-58. Coltec finished the repairs and invoiced NOAA for an additional ninety-five hours. Id. at 97. QDE claims it is entitled to be compensated for those hours despite its having declined to assume the repair work in progress. 13. Testimony at hearing established that each day the DISCOVERER's sailing schedule was delayed would have cost the Government $20,000. Transcript at 156. 14. QDE claims $531.07 in lost "handling fees" on the material it would have ordered under the contract absent the various breaches. This amount represents the difference between the price QDE would have been allowed to charge the Government for the materials under the contract, and the price QDE would have paid for the material. NOAA does not dispute the amount of the claim, but contends QDE is not entitled to this element of damages as a matter of law. 15. Eighteen man-hours were expended in repairs to the pyrometers on the NOAA ship RANIER. Joint Exhibit 1. NOAA no longer contests liability for those hours. Respondent's Post Hearing Brief at 6 n.3. 16. By final decision of the contracting officer dated November 8, 1991, QDE was awarded 424 hours for repairs to the DISCOVERER performed by Coltec Industries, 148 hours for work done by Maritime Contractors, Inc., and an additional 40 hours as the estimate of the transition time it would have taken QDE to takeover the repair of the number two main engine. These 612 hours were all awarded at the rate of $17.87 calculated by the contracting officer. Appeal File, Exhibit 83. This award amounted to $10,936.44 in damages and $206.57 in interest which was disbursed by amendment 9 to the contract but was paid over to the IRS in partial satisfaction of a tax debt, pursuant to an IRS Notice of Levy. Appeal File, Exhibits 83, 85. Discussion HOURLY RATE Taking the issues presented in turn, we first address entitlement to compensation at the full contract rate, and the rate at which QDE should be compensated for the hours involved in the various breaches of the contract for those hours it is not entitled to the full contract rate. QDE claims that it is entitled to the entire $31.50 contract rate for all of the breaches of the contract except for ninety-six hours of repairs performed by Coltec Industries to the DISCOVERER. The Government insists that the direct labor component of this rate must be subtracted where QDE has not proven its work force was engaged in nonchargeable activity due to the Government's breach, a predicate to entitlement to this element of its claim. The Government's position is supported by case law which dictates that a contractor may only recover breach of contract damages which place it in as good a position as it would have occupied absent the breach. Northern Helex Co. v. United States, 207 Ct. Cl. 862, 524 F.2d 707 (1975), cert. denied, 429 U.S. 866 (1976). In order for QDE to recover a direct labor component for the hours in question, it must prove that it actually paid employees for hours for which those employees did no chargeable work. QDE would have paid its workers an amount equivalent to the direct labor portion of its claim had it been allowed to do the NOAA work in question. QDE must show that it incurred that direct labor cost, unreimbursed, to be eligible to claim direct labor as an item of damage. To hold otherwise would allow QDE to recover money in excess of its proven damages. The financial officer for QDE during the time covered by this contract testified that QDE personnel were available to work on the NOAA contract at the times in question, and were either doing "non-chargeable" work or working on other projects which could have been shifted around the NOAA work. Finding 7. He provided no documentation of these "non-chargeable" hours, despite the fact that the contracting officer made three written requests for such documentation. Finding 8. He also failed to document his assertion that the contract work being performed on other jobs at the time the breaches occurred could have been shifted to nonchargable hours if the NOAA jobs had been performed by QDE. In order for QDE to recover the full contract rate for man-hours, it must prove not only that its employees could have performed the work in question, but that QDE incurred unrecovered direct labor costs which are attributable to the Government's breach. Had the NOAA work been done by QDE, the direct labor cost would have been paid to the employees that performed the work, not retained by QDE. Therefore QDE can only recover a direct labor component of the man-hour rate to the extent it demonstrates that it incurred that cost itself because of NOAA's breach of contract. Proof that this cost was passed on to some other party for other work done is insufficient. As the appellant in this action, QDE bears the burden of proving its damages. Willems Industries, Inc. v. United States, 155 Ct. Cl. 360, 295 F.2d 822 (1961). As it has failed to document any hours of nonchargeable time directly attributable to NOAA's breaches of this contract, QDE's request that damages include a direct labor component in the labor rate is denied. This conclusion brings us to the question of the appropriate amount to deduct from the contract rate for the direct labor component of the claim. There are five hourly rates applicable to the collective bargaining agreement under which QDE pays its employees. Three of the rates apply to new hire mechanics after zero, thirty, and sixty days on the job, one is applicable only to "grandfathered" employees, and the other applies to a position which is basically an apprentice/helper. In determining the rate to apply to QDE's claim, the contracting officer first averaged the rates for the three new hire mechanic positions, and then averaged this number with the "grandfathered" rate. Finding 5. He did not consider the rate of the helper at all. Id. This resulted in a rate which the Board finds placed too much weight on the "grandfathered" employees, of which QDE had only one. Id. The rate proposed by QDE for direct labor was prepared by adding the three new hire rates and the "grandfathered" rate, and dividing by four. While this rate does not consider the helper rate, the Board finds this rate more closely approximates the costs incurred by QDE for labor because only one employee was "grandfathered." Since neither party proposed including the rates of helpers in this calculation, the propriety of that action has not been sufficiently addressed in the record. Accordingly, the Board finds the rate proposed by QDE is the best representation of the actual contract rate minus direct labor, and QDE is entitled to be compensated at the $18.74 hourly rate of reimbursement on all its proven claims in which we deduct the cost of direct labor. Of course, the total award will be offset by the amount which the Government has previously awarded QDE. HEAT EXCHANGERS The contract clearly indicates that this is a requirements contract for all engine work from "routine inspection to complete engine overhaul." Finding 1. Testimony at hearing established that 94.5 hours expended by a rival contractor to open, inspect, seal, and test the heat exchangers on the DISCOVERER's engine would be done in a complete engine overhaul, but the Government contends this work is not covered under the contract because it was done outside the framework of a complete overhaul. Finding 10. This crabbed interpretation cannot be supported by a rational reading of the contract, nor has the Government shown that it is consistent with the Government's purchase orders under the contract. QDE's contract is not limited to performing complete overhauls, but covers a "range" of engine work from inspection to complete overhaul, a significant range. The work performed by MCI on the heat exchangers falls within the scope of the contract inside or outside the context of a complete overhaul. QDE is awarded 94.5 hours at $18.74 per hour as compensation for this breach. WORK PERFORMED BY SHIP'S CREW Twenty-four man-hours were expended by the ship's crew to do work on an oil sump which would normally be contracted out. QDE alleges this work constituted a breach of contract giving rise to a damage claim. QDE's contract with NOAA, however, incorporates 48 CFR 52.216-21, Alternate 1 (1984). Finding 11. While it is clear from the transcript that the attorneys were confused by the meaning of the word "activity" in this clause, Transcript at 177, 232, it is clear to the Board that the "activity" referenced is the agency entering the contract, in this case NOAA. The clause unquestionably acts to allow the procuring agency to provide any covered service in house. Accordingly, appellant's claim for twenty-four man-hours expended by the ship's crew is denied. QDE'S REFUSAL TO FINISH HALF COMPLETE REPAIR In mid 1990, NOAA allowed Coltec Industries to begin repairs to the number two main engine on board the DISCOVERER. NOAA discovered its error after Coltec had expended eighty hours of repair time on the engine. At this point QDE was contacted and offered the opportunity to complete the work. Because the engine was torn down into parts QDE's entrance onto the job would have entailed forty hours of transition time by the Government's estimate. QDE's takeover of the work would also have resulted in warranty problems for the Government, QDE, and Coltec, and would most likely have delayed the sailing date of the DISCOVERER by three or more days at a cost to the taxpayers of $20,000 per day. Due to these factors, QDE refused to assume the repair in mid- performance. Finding 12. Coltec then completed the work, billing NOAA for an additional ninety-five hours. Id. We find it was entirely reasonable for QDE to refuse to complete a repair half completed by another contractor under these circumstances. The warranty problems alone make such a request impractical at best. Accordingly, QDE is entitled to be compensated for the total amount of lost hours flowing from the Government's breach of the contract. QDE has already been compensated for the eighty hours worked by Coltec prior to discovery of the breach, plus an additional forty hours awarded by the contracting officer as transition time, leaving only fifty-five hours unaccounted. This we award at the rate $18.74 per hour. The undercompensation caused by the award of a lower hourly rate for those hours previously awarded has already been addressed. MARK UP ON MATERIALS According to QDE's contract, QDE was entitled to a twelve percent handling charge on the materials ordered for NOAA under its contract. Finding 2. While respondent's attorney was able to confuse appellant's witness, its financial officer, into saying that the twelve percent figure was a profit or fee, Transcript at 73, the witness previously stated that he did not know what the charge was for, only that QDE had contracted for a twelve percent charge on materials ordered under the contract. Transcript at 72. While the witness may be confused as to the nature of the charge, his confusion is insufficient to allow Government counsel's legal arguments asserting that no profit may be charged under the material handling charge component of the contract to prevent QDE's recovery. The Federal Acquisition Regulations (FAR) allow the material handling charge to include "indirect costs, including, when appropriate, general and administrative expense allocated to direct materials. . . ." 48 CFR 52.232-7(b) (1984) (FAR 52.232-7(b)). Despite the financial officer's confusion about the components of the charge, we will presume that the Government and QDE contracted for an allowable overhead type handling charge. Absent the Government's breach of this contract, the materials in question would have been ordered through QDE, and QDE would have received that twelve percent mark up. In order to put QDE in the same position it would have occupied absent the breach, it is necessary to award the twelve percent mark up on the materials ordered under the breach transactions. This amount is analogous to the overhead portion on the labor rate, with the actual cost of the material corresponding to the direct labor charge. The parties agree the amount of $531.07 is the appropriate sum, and we award appellant that amount. RAINIER PYROMETERS As stated earlier, NOAA, in its post hearing brief, has acquiesced in QDE's demand for eighteen man-hours related to this issue. Those hours are awarded at the hourly rate of $18.74. Conclusion QDE is entitled to the following damages: Labor Rate $532.44 612 hours at $0.87 per hour ($18.74 per hour awarded by the Board minus the $17.87 per hour already paid pursuant to amendment 9 to the contract) Heat Exchangers $1,770.93 94.5 hours at $18.74 per hour Refused Work $1,030.70 55 hours at $18.74 per hour 12% Material mark up $531.07 stipulated RANIER Pyrometers $337.32 18 hours at $18.74 per hour ----------- FOOTNOTE BEGINS --------- Total $4,202.46 Decision ----------- FOOTNOTE ENDS ----------- This appeal is GRANTED IN PART. Respondent is directed to pay QDE $4,202.46, together with interest pursuant to the Contract Disputes Act, 41 U.S.C. 611 (1988). VINCENT A. LaBELLA Board Judge We concur: ROBERT W. PARKER Board Judge MARY ELLEN COSTER WILLIAMS Board Judge