APPELLANT'S MOTION FOR PARTIAL SUMMARY RELIEF DENIED; RESPONDENT'S MOTION FOR PARTIAL SUMMARY RELIEF GRANTED IN PART; RESPONDENT'S SECOND MOTION FOR SUMMARY RELIEF DENIED: November 8, 1994 GSBCA 12189 SPECTRUM LEASING CORPORATION, Appellant, v. GENERAL SERVICES ADMINISTRATION, Respondent. William M. Weisberg and William T. Welch of Barton, Mountain & Tolle, McLean, VA, counsel for Appellant. John E. Cornell and Michael D. Tully, Office of General Counsel, General Services Administration, Washington, DC, counsel for Respondent. Before Judges BORWICK, NEILL, and WILLIAMS. NEILL, Board Judge. This case involves a disputed termination for convenience settlement proposal submitted by Spectrum Leasing Corporation (Spectrum). The contract in question was awarded to Spectrum on April 15, 1982, by the General Services Administration (GSA). The contract was for the supply and maintenance of terminal systems and related software that would constitute one portion of a data communications network to be used by the Veterans Administration (VA). In September 1983, the software portion of the contract was terminated for default. In December of the same year, the hardware and maintenance portions of the contract were also terminated for default. Spectrum challenged the terminations and eventually obtained a favorable decision from the Board directing that the termination of Spectrum's contract for default be converted to a termination for the convenience of the Government. Spectrum Leasing Corp., GSBCA 7347, et al., 90-3 BCA 22,984. Efforts of the parties to reach agreement on costs claimed in Spectrum's termination for convenience settlement proposal have proven unsuccessful. On May 21, 1992, the contracting officer rendered a decision regarding the claim. By notice dated August 17, 1992, Spectrum appealed this decision. With this notice, Spectrum filed a detailed complaint and a certification of its claim pursuant to provisions in the Contract Disputes Act (CDA). This appeal was docketed as GSBCA 11977. On November 5, 1992, GSA moved that Spectrum's appeal be dismissed on the grounds that the claim was not a claim in the proper legal sense of the term and that, even if it were a claim, it was not properly certified by the claimant. On November 20, 1992, as a protective measure, Spectrum appealed from a deemed denial of the certified claim filed with its August 17 notice of appeal. This notice of appeal incorporates by reference the complaint filed with Spectrum's notice of appeal filed on August 17, 1992. This second appeal was docketed as GSBCA 12189. GSA subsequently moved that the Board dismiss both the first and second appeal of Spectrum on the ground that neither appeal involved a claim for a sum certain. By decision dated June 23, 1993, the Board granted GSA's motion to dismiss Spectrum's first appeal (GSBCA 11977). The motion to dismiss this appeal (GSBCA 12189) for lack of a sum certain was, however, denied. Spectrum Leasing Corp. v. General Services Administration, GSBCA 11977, et al., 93-3 BCA 26,202. Although this appeal was originally based on a deemed denial, the contracting officer has, by letter dated August 6, 1993, rendered a detailed decision on the termination settlement proposal which is the subject of this dispute. By order dated July 27, 1994, and in the absence of any objection from either party, the Board redesignated the appeal file submitted in conjunction with GSBCA 11977 as the appeal file for this case (GSBCA 12189). Since the Board's decision in June 1993 denying GSA's motion to dismiss GSBCA 12189, the parties have engaged in pretrial discovery and submitted various dispositive motions. On July 30, 1993, Spectrum filed a "Motion for Partial Summary Judgment Under GSBCA Rule 8(g) and Legal Guidance to the Parties on Quantum Calculation" (Spectrum's Motion for Partial Summary Relief). After filing an opposition to Spectrum's motion, GSA, on October 29, 1993, filed a cross motion for summary relief. Owing to a change in counsel, appellant did not file an opposition to GSA's motion until March 17, 1994. Shortly thereafter, on April 12, GSA filed a second motion for summary relief. In late May, appellant filed its opposition to this motion as well. Since that time, both parties have been given leave to supplement the record with background and comments on the issue of facilities capital cost of money. The purpose of this decision is to rule on the pending motions for summary relief. Factual Background For purposes of ruling on the various motions for summary relief filed by the parties, we find that there are numerous background facts, particularly relating to provisions of Spectrum's contract, elements of Spectrum's termination claim and GSA's position regarding these elements, which are undisputed. Some of the principal facts are as follows: Spectrum's Claim 1. Spectrum submitted its initial termination settlement proposal on January 30, 1991. Supplemental Appeal File, Exhibit A-10. In July 1991, Spectrum submitted two revised settlement proposals. The amended proposal dated July 18, 1991, requested payment in the amount of $25,278,881, which included CDA interest. Appeal File, Exhibit 5 at 587. Specifically, Spectrum claims that the total amount of costs incurred up to the date of termination was $6,723,911. The costs incurred after termination are said to total $10,580,881. The amount claimed as CDA interest totals $7,974,089. Id. at 492, 587. 2. A second revised proposal dated July 30, 1991, requested $22,433,374. This represented a reduction of $2,845,507 from the July 18 version.[foot #] 1 Supplemental Appeal File, Exhibit A-12 at 220. The Contracting Officer's Decision 3. The contracting officer's decision of August 6, 1993, expressly states that it is based on (1) Spectrum's proposal of July 18, 1991, (2) Spectrum's amended proposal of July 30, 1991, and (3) Spectrum's complaint filed in GSBCA 11977.[foot #] 2 The decision also provided that it accepts and incorporates the findings of the Office of the GSA Inspector General Audit Report No. A11983/K/Z/X92187 (the "Audit Report"), dated February 28, 1992, except as noted in the decision itself. Contracting Officer's Decision of August 6, 1993 (Contracting Officer's Decision) at 1, 3. ----------- FOOTNOTE BEGINS --------- [foot #] 1 In describing the elements of Spectrum's settlement proposal, we have drawn on the contents of this revision dated July 30. It is to this version that we refer when we write herein regarding "Spectrum's revised proposal." Since the filing of the motions which are the subject of this opinion, appellant has submitted to GSA yet another revised settlement proposal. It is not a part of the record, however, and review of it has been suspended pending the issuance of this decision. [foot #] 2 This complaint, incorporated by reference in appellant's notice of appeal dated November 20, 1992, is the complaint in this appeal as well. ----------- FOOTNOTE ENDS ----------- 4. In his decision, the contracting officer has expressly allowed $4,288,803 out of a proposed $4,404,184 for equipment purchase. Contracting Officer's Decision at 1 (spreadsheet). Credit for Liquidation of Hardware 5. Spectrum in its amended termination proposal allowed a credit of $760,380 for disposal of equipment. Supplemental Appeal File, Exhibit A-12 at 124. In its Motion for Partial Summary Relief, Spectrum provides a corrected figure (but without explanation) of $963,380. Spectrum's Motion for Partial Summary Relief at 12. 6. In his decision, the contracting officer rejected this figure. He noted that Spectrum failed to demonstrate that it made a reasonable attempt to mitigate its damages and exercise best efforts with respect to the liquidation of equipment. He explained that GSA auditors were told by Spectrum that the liquidation was handled exclusively by a creditor. Although served with a subpoena, this creditor, according to the contracting officer, has been unable to produce documentation indicating how the sale of the equipment was managed. In addition, correspondence regarding missing and damaged equipment provides what the contracting officer considers to be substantial evidence that Spectrum did not exercise due care in the liquidation of the equipment. For reasons explained in some detail in his decision, the contracting officer concluded that the credit for the equipment sold should be set at $1,865,200. This is approximately midway between the credit recommended by the GSA auditors and that claimed by Spectrum. Contracting Officer's Decision at 27-30. Recovery of Settlement with Former Subcontractor 7. As part of its claim for software costs incurred prior to termination, Spectrum has included $271,365 paid to TiSoft Inc. (TiSoft), the original software subcontractor for the contract. Supplemental Appeal File, Exhibit A-12 at 137.[foot #] 3 8. In early June 1982, less than two months after contract award on April 15, 1982, Spectrum initiated discussions with GSA concerning possible alternate equipment to be provided under the contract. As a result of these discussions, Spectrum submitted a ----------- FOOTNOTE BEGINS --------- [foot #] 3 In its Motion for Partial Summary Relief, Spectrum states that this claim amounts to $281,820. Spectrum's Motion for Partial Summary Relief at "5 & 6." We assume the difference represents interest accrued between the time the termination settlement proposal was submitted and the time the motion was filed. ----------- FOOTNOTE ENDS ----------- proposal requesting a modification to the contract, in exchange for which GSA was to receive consideration amounting to $100,000. A joint GSA/VA modification program evaluation team evaluated Spectrum's proposal. Members of the evaluation team also witnessed a live test demonstration of the proposed configuration put on by Spectrum. The evaluation team concluded that the proposal met all contract technical requirements and was otherwise advantageous to the Government. Spectrum Leasing Corp., 90-3 BCA at 115,410 (Finding 15). 9. During late June and early July 1982, Spectrum also changed subcontractors for the software portion of its contract. It negotiated a new subcontract for the software with Radix II, Inc., to replace its subcontract with TiSoft. Spectrum Leasing Corp., 90-3 BCA at 115,411 (Finding 22). 10. On June 30, 1982, GSA accepted Spectrum's proposed contract change. It became contract modification number two. As part of the modification, initial deliveries to the VA were rescheduled to begin on August 15 rather than July 15. Spectrum Leasing Corp., 90-3 BCA at 115,410 (Finding 17). 11. Contract modification number two makes no mention of any reservations or objections concerning claims or rights Spectrum might consider that it still had against the Government at that time based on the contract change. Appeal File, Exhibit 1, at 4-163. 12. On June 30, Spectrum served notice on TiSoft that its subcontract was canceled for cause, effective immediately. In this notice, Spectrum accused TiSoft of perpetrating a fraud on the Government. The fraud allegedly consisted in TiSoft's presenting earlier in June, for the Government's consideration, a proposal to expand memory capacity from 32K bytes to 64K bytes with a corresponding increase in contract price. Spectrum deemed this to be fraudulent based on the fact that even before negotiations of its subcontract with Spectrum, TiSoft had placed a purchase order with its supplier for the larger memory capacity. Supplemental Appeal File, Exhibit 26 at 5252. 13. In his decision, the contracting officer states that after Spectrum terminated its contract with TiSoft, TiSoft initiated legal action against Spectrum. Contracting Officer's Decision at 12. 14. The record currently contains few details regarding this litigation between Spectrum and TiSoft. Spectrum has provided a copy of the agreement settling the dispute. The agreement is dated July 30, 1982. Under its terms, Spectrum agreed to pay TiSoft $250,000 in return for an agreement from TiSoft to withdraw a Freedom of Information Act request it had submitted seeking information regarding activities of the GSA and Spectrum relating to their contract. TiSoft also agreed not to disturb, interfere, or involve itself with that contract. Supplemental Appeal File, Exhibit 26 at 5256, 5269. 15. Although Spectrum contends that the cost of settling its litigation with TiSoft is a legitimate pre-termination contract cost, the contracting officer has denied the claim. Several reasons are given. First, the amount claimed is said not to be allowable under the governing Federal Procurement Regulation (FPR 1-15.204(b)). Second, the contracting officer states that the cost is not allocable to the contract since the breach of contract issue between Spectrum and TiSoft represents a private legal matter between the two companies. Third, even if the cost is allocable to the contract, the contracting officer has denied it on the ground that Spectrum has failed to demonstrate that the amount claimed is reasonable -- particularly because TiSoft's contract was terminated at an early stage of contract performance. Finally, the claim is said to be barred by the fact that in agreeing to contract modification number two, Spectrum did not reserve the right to make any claim for liabilities it might subsequently incur as a result of the proposed substitution of alternate equipment under the contract. Contracting Officer's Decision at 12-14. Brokerage Costs 16. Spectrum also included in its termination claim under "other direct costs" fees paid to investment bankers hired to locate financing for Spectrum. Appeal File, Exhibit 7 at 667. 17. The GSA auditors disallowed this portion of Spectrum's claim on the ground that it was not allowable under FPR 1-15.205- 17. Appeal File, Exhibit 7 at 667. 18. In his decision, the contracting officer concludes that this part of the termination claim has been withdrawn based on an alleged concession made by appellant that the amount in question represented costs applicable to a different contract. Contracting Officer's Decision at 15. C-25 Interest 19. Section C of Spectrum's contract contains the following provision regarding interest on contractors' claims. 25 PAYMENT OF INTEREST ON CONTRACTORS' CLAIMS (a) If an appeal is filed by the Contractor from a final decision of the Contracting Officer under the Disputes clause of this contract, denying a claim arising under the contract, simple interest on the amount of the claim finally determined owed by the Government shall be payable to the Contractor. Such interest shall be at the rate determined by the Secretary of the Treasury pursuant to Public Law 92-41, 35 Stat. 97, from the date the Contractor furnishes to the Contracting Officer his written appeal under the Disputes clause of this contract to the date of (1) a final judgment by a court of competent jurisdiction, or (2) mailing to the Contractor of a supplemental agreement for execution either confirming completed negotiations between the parties or carrying out a decision of a board of contract appeals. (b) Notwithstanding (a) above, (1) interest shall be applied only from the date payment was due, if such date is later than the filing of appeal, and (2) interest shall not be paid for any period of time that the Contracting Officer determines the Contractor has unduly delayed in pursuing his remedies before a board of contract appeals or a court of competent jurisdiction. Appeal File, Exhibit 3 at 254. 20. In Spectrum's contract, the Payment of Interest on Contractors' Claims clause and the pre-CDA Disputes clause both appear on a pre-printed 1975 version of GSA's Standard Form 32 (SF 32) which was included in the contract. This form contains general provisions for supply contracts. The pre-CDA Disputes clause in the SF 32, however, has been crossed out and expressly replaced with the CDA disputes clause which reads as follows: C.31. DISPUTES CLAUSE 1. Section 7-103.12 of the Defense Acquisition Regulation [DAR] and Section 1-7.102.12 of the Federal Procurement Regulation are amended to provide as follows: The Contracting Officer shall insert the following clause in all contracts unless exempted by the head of the agency under 41 U.S.C. 603(c): Disputes (a) This contract is subject to the Contract Disputes Act of 1978 (41 U.S.C. 601, et. seq.). If a dispute arises relating to the contract, the contractor may submit a claim to the contracting officer who shall issue a written decision on the disput[e] in the manner specified in DAR 1-314 (FPR 1-1.318). . . . . (c) In the case of disputed requests or amendments to such requests for payment exceeding $50,000, or with any amendment causing the total request in dispute to exceed $50,000, the Contractor shall certify, at the time of submission as a claim, as follows: I certify that the claim is made in good faith, that the supporting data are accurate and complete to the best of my knowledge and belief; and that the amount requested accurately reflects the contract adjustment for which the contractor believes the Government is liable. (Contractor's Name) (Title) (d) The Government shall pay the contractor interest (1) on the amount found due on claims submitted under this clause; (2) at the rates fixed by the Secretary of the Treasury, under the Renegotiation Act, Public Law 92-41; (3) from the date the Contracting Officer receives the claim, until the Government makes payment. Appeal File, Exhibit 3 at 265-66. 21. In Part III of its termination settlement proposal, appellant seeks $7,974,089 for what it refers to as "Contract Disputes Act [CDA] Interest." The basis for this claim, however, is said to be the contract clause regarding dealing with the payment of interest on contractors' claims (Finding 19). Supplemental Appeal File, Exhibit A-12 at 224-25. 22. The contracting officer rejected appellant's CDA interest claim because Spectrum is in the position of owing money to the Government. Contracting Officer's Decision at 4. Rent 23. As part of costs continuing after termination, Spectrum is claiming the amount due on a confessed judgment against Spectrum and in favor of the California Public Employees Retirement System (CALPERS), the successor in interest to Spectrum's original landlord. Spectrum also claims the interest due on this judgment. The termination claim explains that the judgment and interest fall into the category of "unpaid facilities capital cost of money (FCCOM)." Supplemental Appeal File, Exhibit A-12 at 188, 212. 24. In his decision, the contracting officer provides the following comment regarding the meaning of FCCOM and the costs claimed by Spectrum as FCCOM: FPR 1-14.205-51 defines FCCOM as an imputed cost determined by applying a cost of money rate to facilities capital employed in support of contract performance. The resulting cost of money is imputed cost and is not a form of interest on borrowings. The FCCOM costs proposed by [Spectrum] in its July 1991 proposal do not fit this definition; quite the contrary, the costs are clearly interest paid on borrowings and legal judgments. Consequently, it is the recommendation of the auditors that these costs not be allowed in accordance with FPR 1-15.205-17. I concur in this recommendation. Contracting Officer's Decision at 11. 25. The CALPERS judgment, by its terms, covers: $102,173.36 for base rent from September 1987 through April 1988, $5,543.26 for Spectrum's share of operating expenses from 1986 through April 1988, $4,572.72 for late fees from October 1987 through April 1988, $5,375 for stipulated attorneys' fees; and $83 in court costs. Supplemental Appeal File, Exhibit A-12 at 213. 26. The lease which Spectrum originally signed with its landlord was executed on October 3, 1982, and ran for a five-year term. Supplemental Appeal File, Exhibit A-31 at 6667. Spectrum's contract with GSA, however, was for a term of less than three and a half years. Appeal File, Exhibit 3 at 303. On January 9, 1987, over three years after the termination of Spectrum's contract for default, Spectrum agreed to an extension of its lease for an additional two years. Id. at 6625. 27. In denying Spectrum's claim for payment of the confessed judgment in favor of CALPERS and of the interest which has accrued on the judgment, the contracting officer concludes that these costs do not fit the definition of FCCOM. Contracting Officer's Decision at 11. The same conclusion was reached in the Audit Report on Spectrum's settlement proposal. Appeal File, Exhibit 7 at 665. Bank Judgment and Settlement after Suit for Termination of Rental Stream 28. Also included in Spectrum's claim under "costs continuing after termination" are amounts said to be due to two financing institutions, Fidelity Bank and Northeastern Bank. Like the amounts said to be due for rent, these amounts are described as falling into the category of "unpaid" FCCOM. Interest already paid to Fidelity Bank is said to fall instead into the category of "paid" FCCOM.[foot #] 4 Supplemental Appeal File, Exhibit A-12 at 188. When these amounts listed on the claim summary sheet (format 802-1) are added, they come to a total of $3,488,101.[foot #] 5 Id. at 182. 29. Backup documentation provided with this claim for amounts due or paid to the two banks includes a letter from Fidelity Bank. The letter provides the following details regarding Spectrum's dealings with Fidelity. On May 27, 1983, Spectrum borrowed $4,928,775.75 from Southeast National Bank (Fidelity's predecessor in interest). Spectrum's note to the bank for this amount was collateralized by an assignment of moneys to be paid to the bank under its contract with GSA. The bank also claims that on the same date, a lien and security interest were obtained in certain assets belonging to appellant. When Spectrum defaulted on its obligations, Fidelity commenced an action against it and eventually reduced its claim to judgment. In September 1986, Spectrum entered into an agreement with ----------- FOOTNOTE BEGINS --------- [foot #] 4 Backup documentation submitted with Spectrum's amended settlement proposal indicates that $94,969.63 in interest has also been paid to Northeastern Bank. No explanation is offered, however, of why this sum is not also included under "paid" FCCOM. See Supplemental Appeal File, Exhibit A-12 at 204. ___ [foot #] 5 This is our best estimate of what appellant seeks as "paid" and "unpaid FCCOM" relating to the Fidelity and Northeastern Banks. We find the figures provided by appellant on its summary sheet, as amended, to be far from clear and not in agreement with backup documentation provided with the amended claim. The figure we provide here represents the total of $7,581,019 of FCCOM claimed after subtraction of contingency and consulting fees and the judgment and interest said to be due CALPERS. ----------- FOOTNOTE ENDS ----------- Fidelity under the terms of which it was to make certain periodic payments. Eventually, however, Spectrum is said to have defaulted on those payments as well. Supplemental Appeal File, Exhibit A-12 at 191-92. 30. The contracting officer has rejected Spectrum's claims on its debts to Fidelity and Northeastern Banks for the same reason given with regard to the confessed judgment and interest said to be owed on the renewed CALPERS lease. It was his conclusion that these costs do not fit the definition of FCCOM. Contracting Officer's Decision at 5, 11. The same conclusion was reached in the Audit Report on Spectrum's settlement proposal. Appeal File, Exhibit 7 at 665. Facilities Capital Cost of Money 31. In Part I of its amended settlement proposal, which sets out a series of pre-termination costs, Spectrum has claimed $637,594 as "Facilities Capital Cost of Money." Supplemental Appeal File, Exhibit A-12 at 123, 126. Backup documentation submitted in support of this claim indicates that this claim represents interest paid to various commercial entities for moneys they advanced to Spectrum. The summary backup sheets list "principal" provided and "interest" paid to them. Id. at 134-36. 32. The contracting officer has denied this claim for the same reason used in denying post-termination costs which were also styled as FCCOM. These costs are denied simply on the ground that they do not fit the regulatory definition of FCCOM. Contracting Officer's Decision at 11. This is also the conclusion reached by the auditors who examined appellant's termination settlement proposal. Appeal File, Exhibit 7 at 665. Direct Labor 33. In its settlement proposal, Spectrum included a claim for $2,025,890 in indirect costs. Supplemental Appeal File, Exhibit A-12 at 123. Included in this figure was a claim for labor costs. Spectrum, in submitting its amended claim, explained that because there was a firm, fixed-price contract, it kept no records of direct labor costs. All payroll expenses were computed as indirect costs only. Spectrum did, however, invite the GSA auditors to seek whatever data they might need to make a determination regarding labor costs. Id. at 113. 34. Recognizing that Spectrum must have incurred direct labor costs in connection with its contract with GSA, the contracting officer made allowances for certain direct and indirect labor costs based on information provided in affidavits furnished by various employees of Spectrum. For purposes of settlement, the contracting officer proposed direct and indirect labor adjustments totaling $346,896. Contracting Officer's Decision at 17. Travel 35. Spectrum's amended settlement proposal contains a total claim for $19,095.86 as a direct cost for travel. Supplemental Appeal File, Exhibit A-12 at 148. Nothing in the backup for this claim expressly refers to airline travel. Id. at 150. 36. In his decision, the contracting officer observes that appellant did not account for its travel expenses consistently. He writes: In some cases, travel costs were allocated to a specific direct contract job code. In other cases, expenses, which were easily identifiable to a specific contract, were not charged to that contract. Based on employee affidavits and other information provided by [Spectrum], the auditors reclassified these direct travel costs from the indirect cost pool to the direct cost base. When expenses could be identified to the GSA/VA contract, and were properly supported, they were included in Other Direct Costs. Contracting Officer's Decision at 17. In his decision, the contracting officer allowed a total of $9,900 for travel costs. Id. at Summary Sheet 1. Contingent Attorney Fees 37. In its listing of post-termination costs, Spectrum has included a claim of $3,938,091 as a contingent fee for its attorney. The amended settlement proposal explains: Spectrum hired our attorney to handle the overall Government appeals on 20% contingency fee on all recoveries as a result of the appeals. Therefore the contingency fee is included as part of the overall cost to the company in the costs continuing after termination and the CDA interest portion of the proposal. Supplemental Appeal File, Exhibit A-12 at 187. 38. On June 25, 1985, appellant entered into a legal services agreement with the law firm of Roeder, Durrette & Davenport. The agreement provided, inter alia, for counsel to represent Spectrum in the appeals before the GSBCA relating to the termination of its contract for default and the withholding of liquidated damages. The services rendered with regard to these matters were to be paid for through a flat fee of $25,000 and a 20% share in "all amounts collected as a result of these matters, whether by settlement, hearing, judgment or otherwise." Appeal File, Exhibit 5 at 583. 39. The contracting officer has denied Spectrum's claim for contingent attorney fees on the ground that such contingency fees are specifically disallowed by regulation, namely, FPR 1- 15.205-31(a) and (d). Contracting Officer's Decision at 5. Discussion Credit for Sale of Spectrum's Equipment In its Motion for Summary Relief, Spectrum takes issue with the contracting officer's calculation of the credit due for liquidation of hardware.[foot #] 6 It argues: "Spectrum is entitled to use a liquidation figure based upon the amounts actually received, not some speculative, desired amount asserted by the contracting officer." Spectrum's Motion for Partial Summary Relief at 12. In its motion, Spectrum contends that this figure is $963,380 -- not $760,380 as alleged in the amended settlement proposal. Id. In arguing that a contractor is entitled, as a matter of law, to actual moneys received for the liquidation of hardware, Spectrum itself acknowledges that this principle is subject to the condition that all reasonable efforts have been made to mitigate losses. Id. It is precisely on this issue that there is a need to develop the record further. The contract's termination for convenience clause requires the contractor to use its best efforts to sell materials acquired in connection with the performance of contract work. The circumstances referred to by the contracting officer in his decision raise what we consider to be legitimate concerns regarding the sale(s) of Spectrum's equipment. See Finding 6. Indeed, from a factual standpoint, there is even a conflict in the representations made by appellant on the amount actually received for the equipment. See Finding 5. It is well established that summary relief will not be granted if the moving party fails to establish the absence of any genuine issue of material fact. Copeland's Enterprises, Inc. v. CNV, Inc., 945 F.2d 1563, 1565-66 (Fed. Cir. 1991); Armco, Inc. ----------- FOOTNOTE BEGINS --------- [foot #] 6 In this regard, Spectrum mistakenly identifies the credit of $2,678,072 recommended by the GSA auditors as the credit which the contracting officer found to be warranted. Spectrum's Motion for Partial Summary Relief at 12. As already noted, the figure used by the contracting officer was $1,865,200. Finding 6. ----------- FOOTNOTE ENDS ----------- v. Cyclops Corp., 791 F.2d 147, 149 (Fed. Cir. 1986); Federal Computer Corp. v. Department of the Treasury, GSBCA 12754, 94-2 BCA 26,844, at 133,568, 1994 BPD 77, at 2; Information Systems & Networks Corp. v. Department of Commerce, GSBCA 12361- COM, 94-2 BCA 26,677, at 132,697; Integrated Systems Group, Inc., GSBCA 11494-P, 92-1 BCA 24,621, at 122,807 n.2, 1991 BPD 335, at 2 n.2; Griffin Services, Inc., GSBCA 11171, 91-3 BCA 24,156, at 120,872. We are convinced that on the issue of the proper credit to be given to Spectrum for liquidation of hardware there are significant material issues of fact which are far from resolved. We, therefore, deny Spectrum's motion for summary relief on this matter. Interest In Part III of its termination settlement proposal, appellant seeks $7,974,089 for what it refers to as "Contract Disputes Act Interest." The basis for this claim, however, is said to be a specific contract provision which allows for the payment of interest on contractors' claims. GSA contends that the interest clause of the CDA supersedes the interest clause in the contract. Respondent's Reply to Appellant's Motion for Partial Summary Judgment at 11. Appellant disagrees. In arguing that it is entitled to this interest as a matter of law, Spectrum, in its Motion for Partial Summary Relief, states: These CDA claim issues are not pertinent to this case because the contract contains a Payment of Interest clause. The government contractually agreed with Spectrum to pay it interest as defined by the clause. The fact that later statutes not directed at this contractual clause provide for additional procedures under which interest may be recovered are simply that: additional procedures. They do not change or affect the clause in the contract which gives Spectrum the right to collect interest from the date it appeals the default termination . . . . Spectrum's Motion for Partial Summary Relief at 23. We disagree with appellant. It is true that the contract contains the Interest on Contractors' Claims clause. Finding 19. Such a provision, however cannot be used for determining interest on a disputed claim relating to a contract subject to the Contract Disputes Act. Our appellate authority had occasion to rule on that issue a few years after the CDA became effective. It held: The Contract Disputes Act also includes an interest provision which supersedes the interest clauses in the contracts litigated under the act. Essex Electro Engineers, Inc. v. United States, 702 F.2d 998, 1003 (Fed. Cir. 1983). Given the position taken by the Court of Appeals in Essex, we conclude that the Interest on Contractors' Claims clause in Spectrum's contract has been superseded by the CDA.[foot #] 7 Nevertheless, to the extent that the clause might still be a viable contract provision, it would have to be read in conjunction with the contract as a whole. When this is done, one is inevitably led to the conclusion that even a claim brought under the Payment of Interest on Contractors' Claims clause must be certified in accordance with the CDA. The Payment of Interest on Contractor's Claims clause specifically references the contract's Disputes clause. In Spectrum's contract, the Disputes clause is the CDA Disputes clause which is called for in amendments to the Federal Procurement Regulation which reflected enactment of the CDA. This clause expressly states that the contract is subject to the CDA and that disputed requests for payment exceeding $50,000 shall be certified at the time of submission of a claim. Finding 20. Inasmuch as the contract's Disputes clause expressly subjects Spectrum's contract to the CDA, the contractor must comply with the act and CDA claim issues are, therefore, pertinent to this case -- appellant's argument to the contrary notwithstanding. Indeed, in arguing that CDA claim issues are not pertinent, appellant overlooks the fact that its original appeal of the contracting officer's denial of its termination proposal was dismissed for failure to comply with CDA claim requirements. One additional argument raised by Spectrum in support of its claim for interest is that Government counsel is said to have represented to the Board in the past that delays in this case on the Government's part should be of no concern because Spectrum would be recovering interest. The documentation cited in support of this contention is a letter dated April 21, 1986, in which GSA counsel sought from the hearing judge a delay until July 18, 1986, to file their posthearing brief. Among the various arguments mustered in support of the requested extension is that ----------- FOOTNOTE BEGINS --------- [foot #] 7 We note that the Armed Services Board of Contract Appeals has arrived at a similar conclusion with regard to the same Payment of Interest on Contractors' Claim clause. Kahn Communications Inc., ASBCA 35768, 88-2 BCA 20,706, at _________________________ 104,630. ----------- FOOTNOTE ENDS ----------- Spectrum would not be prejudiced by the enlargement of time since, if Spectrum succeeds on any of its claims, the Government will be liable for interest. See Supplemental Appeal File, Exhibit A-52. We do not consider that this statement or others made in a similar context are adequate to support a case for reasonable reliance on the part of Spectrum in a matter as significant as this. Spectrum, as an experienced Government contractor, surely is aware of the controversy concerning certified claims and allowable interest which has followed in the wake of the Contract Disputes Act of 1978. In such a climate, a pro forma argument offered in support of a request for an enlargement of time to submit a posthearing brief certainly cannot reasonably be considered adequate assurance that appellant need not be concerned with the validity of its interest claim. In short, we deny appellant's motion for summary relief on its claim for interest under the contract. We find that both case law and the contract, when read as a whole, preclude the recovery of interest under the Payment of Interest on Contractors' Claims clause in the absence of the certification as called for in the Contract's Disputes clause. TiSoft Claim In its motion for partial summary relief, Spectrum takes the position that the TiSoft settlement represents a cost associated with a change in software contractors during contract performance and is, therefore, a legitimate pre-termination contract cost. We are told: There is no dispute here that costs were expended on a subcontract with TiSoft for the work to be delivered under Spectrum's prime contract. Spectrum is entitled to be paid these actual costs incurred, as a matter of law. Spectrum's Motion for Partial Summary Relief at 16. Spectrum hangs its claim for payment of the TiSoft settlement on current regulatory guidance in the Federal Acquisition Regulation (FAR) which deals with the allowability of judgments and arbitration awards. That regulation states in part: (a) When a subcontractor obtains a final judgment against a prime contractor, the TCO shall, for the purposes of settling the prime contract, treat the amount of the judgment as a cost of settling with the contractor . . . . 48 CFR 49.108-5 (1993) (FAR 49.108-5). An almost identical provision is found under the Federal Procurement Regulations in effect at the time Spectrum's contract was awarded on April 15, 1982. 41 CFR 1-8.208-5 (1981) (FPR 1-8.208). There are, however, conditions mentioned in the FPR regulation. Among them are the conditions that the contractor made reasonable efforts to settle the claim of the subcontractor and that the contractor diligently defended the suit.[foot #] 8 Id. Even if we assume that the cost principle relied on here by appellant is applicable not only to actual judgments or arbitration awards, but also to settlements such as that reached by Spectrum and TiSoft, we still would have to determine whether these and related conditions have been met. The facts in the record regarding Spectrum's litigation with TiSoft, however, are sketchy at best. Whether Spectrum fulfilled these conditions is an open factual issue which presently precludes us from concluding that Spectrum is entitled to the relief it seeks. An even more fundamental factual issue is whether it is true, as Spectrum alleges, that the TiSoft settlement costs represent costs "expended on a subcontract with TiSoft for the work to be delivered under Spectrum's prime contract." The record as it currently stands indicates that the payment was made to TiSoft for entirely different reasons, namely to get it to withdraw a pending Freedom of Information Act request regarding, among other things, the negotiation of modification number two and to exact a promise not to disturb, interfere or involve itself with Spectrum's contract with GSA. Finding 14. Indeed, Spectrum itself, in opposing a cross motion for summary relief on the TiSoft claim issue appears to have walked away from its initial contention that there was no dispute that the costs expended for the TiSoft settlement were for work to be delivered under Spectrum's contract. In its opposition Spectrum writes: In any event, the nature of the payment to TiSOFT and its place in the wrongful termination for default by Respondent are all factual matters which are clearly in dispute. Spectrum's Opposition to Respondent's Motion for Partial Summary Relief at 4 (unnumbered). Given the various factual issues which even appellant at this juncture recognizes as unresolved, we have no choice but to deny Spectrum's request for summary relief on its claim that the ----------- FOOTNOTE BEGINS --------- [foot #] 8 These same conditions are likewise present in the current FAR guidance -- although appellant fails to note them in its brief. See FAR 49.108-5. ___ ----------- FOOTNOTE ENDS ----------- TiSoft settlement cost is, as a matter of law, a recoverable cost under the contract's termination for convenience clause. In addition to Spectrum's motion for summary relief on the issue of the TiSoft settlement cost, we have before us a cross motion filed by GSA on the same issue. GSA points out that the termination of the Spectrum/TiSoft contract was a consequence of modification number two, which took place well over a year before Spectrum's contract with GSA was terminated for default. Respondent's argument is that a unilateral modification, such as modification number two, which was without any reservation of rights, acted as an accord and satisfaction and thus, as a matter of law, bars Spectrum from including the cost of the TiSoft settlement in its settlement proposal. Respondent's Motion for Partial Summary Relief at 15. We do not agree with respondent that the principle of accord and satisfaction applies to the TiSoft settlement and contract modification number two. Accord and satisfaction is the discharge of a claim by rendering performance different from that which was claimed as due, and the acceptance of the substituted performance as satisfaction of its claim. Chesapeake & Potomac Telephone Co. v. United States, 228 Ct. Cl. 101, 654 F.2d 711 (1981). While the TiSoft settlement may have come as a consequence of contract modification number two, it was in fact non-existent on July 30, 1982, the date on which contract modification number two was signed. The contract modification, therefore, can hardly qualify as "satisfaction" of a claim to pay the cost of that settlement. Nevertheless, we do agree with respondent that the TiSoft settlement claim is now barred from assertion as a result of contract modification number two. Although, as noted, many of the facts relating to the TiSoft matter are, as yet, unclear, Spectrum itself confirms that TiSoft "was paid as a direct result of the contract modification issued by Respondent, which changed the hardware procured under the contract, and which, under the technology in use at the time, necessitated changing the software." Spectrum's Opposition to Respondent's Motion for Partial Summary Relief at 4 (unnumbered). Based on Spectrum's own admissions, we conclude that Spectrum, at the time it agreed to modification number two, could and should have anticipated the possibility that a claim might arise in conjunction with the termination of TiSoft's contract. Nevertheless, there is no mention in the modification of any such potential claim from TiSoft. Rather, Spectrum and GSA agreed in modification number two to a substitution of hardware and a change in delivery schedule in exchange for a $100,000 credit on maintenance to be charged on the contract. Findings 8, 10. The consideration for the change which was the subject of contract modification number two was clearly spelled out. The negotiated package contained no reservation of any right on the part of Spectrum to recover other costs which it might incur from its previous software supplier as a result of the contract change. Finding 11. In such situations, it is well established that the contractor is thereafter barred from asserting a subsequent claim for costs associated with the transaction but not included at the time in the negotiated agreement. Centennial Leasing v. General Services Administration, GSBCA 11451, 93-1 BCA 25,350, at 126,266. We, therefore, grant respondent's cross motion for summary relief on this issue and hold that, as a matter of law, appellant is not entitled to payment of the TiSoft settlement as part of its termination costs. Brokerage Cost Spectrum asks that we find that it is entitled, as a matter of law, to payment of $109,071 in brokerage costs paid to reputable companies to locate the financing required to permit contract performance. Spectrum's Motion for Partial Summary Relief at 20-21. In a cross motion, respondent asks that we rule, as a matter of law, that Spectrum is not entitled to these costs. Respondent's Motion for Partial Summary Relief at 15-16. Neither party has asked us to address quantum in its respective motion. Nevertheless, we have attempted to identify in appellant's revised proposal the $109,071 claimed as brokerage costs. In the process of doing so, we have encountered information which strongly suggests that this claim has in effect been withdrawn. In his decision, the contracting officer refers to $57,231 representing brokerage fees. In the contracting officer's decision of May 21, 1992 (which gave rise to GSBCA 11977), this same figure is mentioned and a further explanation is given that it represents the total of $55,000 paid to the Entrepo firm and $2,231 paid to Baker Watts & Co. for their help in locating financial institutions willing to lend money to appellant. Appeal File, Exhibit 7 at 637. These figures do in fact appear in the revised settlement proposal. Supplemental Appeal File, Exhibit 12 at 147-48. The contracting officer's decision of August 6, 1993, rendered in connection with this appeal, refers to this same $57,231 figure and notes that, in its complaint, appellant conceded that these costs were applicable to a different contract. These costs, therefore, are no longer part of Spectrum's settlement proposal. Contracting Officer's Decision at 15; see also Complaint 67. What, however, of the difference between the $57,231 in brokerage fees treated in the contracting officer's decision and the $109,071 mentioned by appellant and respondent in their respective motions for relief on the issue of brokerage fees? It would appear that much, if not all, of this is represented in an entry under equipment cost listed in appellant's revised proposal. There we find $51,647 in invoices from Baker Watts & Co. Supplemental Appeal File, Exhibit 12 at 128. In its complaint, appellant acknowledges that these are brokerage fees but concedes that respondent is not liable for them. Complaint 63(a). In his final decision, the contracting officer accepted the concession. Contracting Officer's Decision at 9. Thus the alleged claim of $109,071 for brokerage fees appears to have been reduced, through appellant's own concessions, to no more than $193. One wonders if this vestige of the original claim is not the result of mathematical imprecision rather than the remains of a bona fide claim. Assuming, however, that appellant's claim for brokerage fees persists, we turn to the arguments raised by both sides in support of their respective requests for summary relief. Appellant contends that case law and regulation support award of these fees and that it would be clearly unfair to deny recovery of them. Spectrum's Motion for Partial Summary Relief at 20-21. We have reviewed the decisions cited by appellant but do not find them supportive of appellant's position. Respondent, on the other hand, argues that the brokerage fees are unallowable under the FPR in effect at the time of Spectrum's contract award. The specific regulation cited deals with interest and other financial costs. It states: Interest on borrowings (however represented), bond discounts, costs of financing and refinancing capital (net worth plus long-term liabilities), legal and professional fees paid in connection with the preparation of prospectuses, costs of preparation and issuance of stock rights, and costs related thereto, are unallowable except for interest assessed by State or local taxing authorities under the conditions set forth in 1-15.205-41. (But see 1-15.205- 24[[foot #] 9].) 41CFR1-15.205-17(1981)(FPR1-15.205-17)(emphasisadded).[foot #] 10 We find this cost principle germane and are prepared, as we have in the past, to apply it to situations such as the one before us where appellant seeks to recover financial costs through a termination for convenience claim. E.g., Centennial Leasing v. General Services Administration, GSBCA 11284, 93-1 BCA 25,350. Appellant reminds us of the need to practice fairness and refers us to a provision in the FAR which offers general guidance regarding the settlement of termination for convenience claims. It provides, inter alia, that "[t]he use of business judgment, as distinguished from strict accounting principles, is the heart of a settlement." FAR 49.201. We do not view this guidance as a bidding to ignore or disregard traditional cost principles. Indeed, FAR 49.113 expressly states that, subject to the general principles set out in FAR 49.201, the traditional cost principles now found in the FAR should be used "in asserting, negotiating, or determining costs relevant to termination settlements . . . ." Furthermore, the contract's termination for convenience clause expressly provides that termination costs agreed to or determined by the contracting officer "shall be in accordance with the applicable contract cost principles and procedures in Part 1-15 of the Federal Procurement Regulations (41 CFR 1-15) in effect on the ----------- FOOTNOTE BEGINS --------- [foot #] 9 This regulation relates to "Other Business Expenses" and deals with recurring expenses such as registry and transfer charges, cost of shareholders' meetings, normal proxy solicitations, preparation and publication of reports to shareholders, reports to taxing and other regulatory bodies, incidental costs of directors and committee meetings and similar costs. [foot #] 10 While it is our intention in reviewing Spectrum's claims to look primarily at regulations in effect at the time the contract was executed, we will not ignore subsequent regulations in pari materia to the extent they may clarify, __ ____ _______ confirm, or remedy these regulations. Coast Indian Community v. _________________________ United States, 550 F.2d 639 (Ct. Cl. 1977); Bethlehem Steel Corp. _____________ _____________________ v. United States, 511 F.2d 529, 531 (Ct. Cl.), cert. denied, 423 ________________ ____________ U.S. 840 (1975); Victory Construction Co. v. United States, 510 __________________________________________ F.2d 1379 (Ct. Cl. 1975); Hills Transportation Co. v. United ____________________________________ States, 492 F.2d 1394, 1396 (Ct. Cl. 1974). With regard to the ______ FPR provision on interest and other financial costs, we note that an almost identical regulation can be found among the cost principles set out in the current version of the FAR. See FAR ___ 31.205-20. ----------- FOOTNOTE ENDS ----------- date of this contract." Appeal File, Exhibit 3 at 272 (incorporating by reference the clause set forth in 41 CFR 1- 8.701 (1981)). We expect, therefore, that in negotiating termination costs, parties will attempt to respect the substance of applicable cost principles even if particular circumstances sometimes make absolute or literal compliance impossible. In the case of Spectrum's claim for brokerage costs, we agree with respondent that it is in substantive conflict with the FPR cost principle regarding interest and other financial costs and, therefore, not allowable as a matter of law.[foot #] 11 Accordingly, we deny appellant's motion for summary relief on this point and, instead, grant the cross motion of respondent. Rent In its motion for partial summary relief, appellant states: Spectrum is entitled to the $165,978 in continuing lease costs in the judgment by CALPERS. Lease costs are routinely allowed in Termination for Convenience settlements. The contracting officer simply refused to consider this issue. Appellant's Motion for Partial Summary Relief at 29. Appellant's belief that it is entitled to payment of the CALPERS judgment is unrealistic in the extreme. It is true that lease costs are allowed in termination for convenience settlements. A necessary precondition to this, however, is that the contractor take all reasonable steps to reduce the continuing cost to the maximum extent practicable. Spectrum would have respondent accept as a given that the negotiations with CALPERS in 1988 represented the best Spectrum could do under the circumstances to mitigate costs associated with its original lease. Obviously respondent is not prepared to do so -- and understandably so. The facts regarding Spectrum's lease of office space, as developed thus far in the record, hardly give the impression that Spectrum did its best to contain costs on its leased office space ----------- FOOTNOTE BEGINS --------- [foot #] 11 We also note that disallowance of a cost based on an applicable cost principle does not mean that it cannot be recovered through the negotiation of a reasonable profit. As the FAR explains, profit does not necessarily represent net income to contractors, but rather that element of the potential total remuneration that contractors may receive for contract performance over and above allowable costs. See FAR 15.901, ___ 49.202. ----------- FOOTNOTE ENDS ----------- after termination of its contract. Indeed, respondent argues that the uncontroverted facts are enough to support a cross motion for summary relief on the issue of Spectrum's claim for rent. Respondent points out that the lease as originally negotiated was for a term which exceeded the expected life of the contract itself by two years. Furthermore, the judgment in question is for costs incurred over four years after termination of Spectrum's contract and pursuant to an extension of the original lease which Spectrum agreed to over three years after termination of its contract. See Findings 23, 25-26. Given these facts, respondent argues that there simply is no causal connection between the CALPERS judgment against Spectrum rendered in 1988 and Spectrum's contract with GSA, which was terminated for default in its entirety in 1983. Even if there were such a connection, respondent argues, the judgment would be an unallowable consequential damage altogether too remote to be allowed. Respondent's Motion for Partial Summary Relief at 20- 22. We find merit in respondent's position. Both the regulations in effect at the time Spectrum's contract was awarded and current regulations provide that in settling termination claims, consequential damages shall not be allowed. 41 CFR 1-8.303(a) (1981) (FPR 1-8.303(a)); FAR 49.202(a). Such damages are said to be those which do not "flow directly and immediately from the act of the party but only from some of the consequences or results of such act." Black's Law Dictionary at 352 (5th ed. 1979). If by some stretch of the imagination a causal link could be established between the CALPERS judgment and appellant's terminated contract, we would still be dealing with a consequential damage which is not allowable either under applicable regulation or case law. See Tele-Sentry Security, Inc. v. General Services Administration, GSBCA 8950, 92-3 BCA 25,088; Aerdco, Inc., GSBCA 3776, 77-2 BCA 12,775. We, therefore, grant respondent's cross motion for summary relief on this issue.[foot #] 12 Bank Judgment and Settlement after Suit for Termination of Rental Stream It is not altogether clear just what Spectrum really is seeking in this part of its settlement proposal. The motion for partial summary relief lists a claim for $4,638,530. The settlement proposal suggests a lower figure. See Finding 28. ----------- FOOTNOTE BEGINS --------- [foot #] 12 This ruling should not be understood as precluding appellant from claiming some portion of the cost of its lease as an allowable continuing expense. Our decision here simply rules out the CALPERS judgment as such a cost. ----------- FOOTNOTE ENDS ----------- For purposes of our discussion here, we assume, given the argument in support of its motion, that Spectrum believes it is entitled to payment for any judgments which the two banks may have against it for: (i) money advanced but not repaid, (ii) interest due on those funds, and (iii) interest due on any judgment obtained by either of the banks against Spectrum. We hold that such costs are not allowable and, for the most part, inappropriate for recovery even through a reasonable rate of profit. A threshold problem with such a claim is that of allocability. The facts relating to the manner in which Spectrum raised and distributed working capital among its various contractual efforts are far from clear to us. Appellant would have us view matters simply. It explains that the working capital provided by Spectrum's many lenders went for the sole purpose of purchasing equipment to be used in the performance of the terminated contract. The picture is undoubtedly more complicated than this. In resolving Spectrum's motion, we cannot assume that there are no problems with the allocability of many of the financial costs which Spectrum would charge to the terminated contract.[foot #] 13 Giving Spectrum the benefit of the doubt on this issue, however, another, more immediate problem promptly arises. If, as Spectrum alleges, the working capital advanced by its lenders was used solely to defray costs associated with the terminated contract, then a serious question emerges regarding the prospect of double recovery. In its settlement proposal, Spectrum is seeking to recover the cost of its equipment.[foot #] 14 If we are to take Spectrum at its word, however, the principal which Spectrum's lenders are attempting to recover in these judgments was expended to purchase this same equipment. It makes no sense for the Government to compensate appellant for the capital used to purchase this equipment as well as for the cost of the equipment itself. ----------- FOOTNOTE BEGINS --------- [foot #] 13 The record provides little information regarding Spectrum's other Government contracts. There may have been many. A district court decision refers to a contract Spectrum had with the General Accounting Office which was terminated for default in April 1985, approximately a year and a half after the termination of Spectrum's contract with GSA. At approximately the same time, Spectrum is said to have lost through default thirty-one other contracts with various Government agencies. Commonwealth Bank & Trust Co. v. Spectrum __________________________________________ Leasing Corporation, 719 F. Supp. 346, 348, 351-52 (M.D.Pa. ____________________ 1989). [foot #] 14 We note, for example, in this regard that the contracting officer has approved $4,288,803 out of a proposed $4,404,184 for hardware costs. Finding 4. ----------- FOOTNOTE ENDS ----------- Problems of allocability and double recovery, then, preclude us from granting Spectrum's motion for summary relief. Quite apart from these problems, however, is the fundamental issue of allowability of the costs claimed by Spectrum. As we have already noted, the facts relating to the manner in which Spectrum raised and distributed working capital among its various contractual efforts are far from clear. Nevertheless, from an examination of Spectrum's settlement proposal and the briefing of this aspect of its motion for summary relief, we find that it is unmistakably clear and beyond any real controversy that we are dealing here with financial costs in one or another shape or form. Respondent argues that under the regulations in effect at the time Spectrum's contract was awarded, such costs are not allowable. As already noted, the applicable regulation states: Interest on borrowings (however represented), bond discounts, costs of financing and refinancing capital (net worth plus long-term liabilities), legal and professional fees paid in connection with the preparation of prospectuses, costs of preparation and issuance of stock rights, and costs related thereto, are unallowable except for interest assessed by State or local taxing authorities under the conditions set forth in 1-15.205-41. (But see 1-15.205-24 [see footnote 9].) FPR 1-15.205-17. We agree with respondent. The costs claimed here by Spectrum were unallowable under the FPR in effect at the time the contract was awarded and are still unallowable under the currently applicable FAR provision. FAR 31.205-20. Accordingly, Spectrum's request for relief on this issue is denied and respondent's cross motion for relief is granted. Facilities Capital Cost of Money Appellant asks us to rule that, as a matter of law, Spectrum is entitled to recover facilities capital cost of money (FCCOM) as part of its termination settlement. Spectrum's Motion for Partial Summary Relief at 35. We deny the motion. The FCCOM claim, as it appears in the record for this appeal, is a moving target. The amended settlement proposal contains pre-termination and post-termination FCCOM. The post- termination FCCOM is said to fall into two categories, namely, "paid" and "unpaid" FCCOM. The amounts sought under the rubric of "FCCOM" are in excess of $8,000,000. In its complaint, however, Spectrum acknowledges that, after review of the audit report and applicable regulations, it is prepared to concede that the rate at which it sought FCCOM is not required to be paid by GSA. Nevertheless the complaint still insists that Spectrum is entitled to its "capital" as FCCOM. See Complaint 64. Finally, in the motion now before us, Spectrum claims it is entitled to total FCCOM (stopping at month forty-three) in the amount of $711,408. Spectrum's Motion for Partial Summary Relief at 5-6. We agree with the conclusion of the auditors and the contracting officer that the costs sought as "FCCOM" by Spectrum in its settlement proposal simply do not fit the regulatory definition of FCCOM. Under the Federal Procurement Regulations in effect at the time Spectrum's contract was awarded -- on April 15, 1982 -- FCCOM was defined as: [A]n imputed cost determined by applying a cost-of- money rate to facilities capital employed in contract performance. A cost-of-money rate is uniformly imputed to all contracts . . . . Capital employed is determined without regard to whether its source is equity or borrowed capital. The resulting cost of money is not a form of interest on borrowings. 41 CFR Appendix, Chapter 1 at 473 (1981).[foot #] 15 Spectrum's pre-termination FCCOM claim is for interest on borrowings. Finding 31. Its post-termination claims for FCCOM are based on judgments obtained against it by its lenders and landlord. Finding 23, 25, 28-29. None of these claims fits the regulatory definition of FCCOM. Neither does the bold claim for the recovery of "capital" in Spectrum's complaint. As to the $711,408 now described in Spectrum's Motion for Partial Summary Relief, we are certainly not in a position to comment on that figure, seeing it as we do for the first time in appellant's motion and having nothing more than the assurance that "[d]etail[ed] support for calculation [is] available for audit at Spectrum Facility." Spectrum's Motion for Partial Summary Relief at 35. The fundamental problem posed by the FCCOM claims contained in Spectrum's termination proposal, complaint, and motion is one of definition. Notwithstanding this problem, we are asked to rule that FCCOM costs "are recoverable in accordance with the regulations and case law so that the parties may move forward to make the detailed individual calculations." Id. This is not a question which can be answered based on the record currently before us. There are what we consider substantial problems standing in the way of Spectrum being able to recover legitimate FCCOM. Without more definite knowledge of just what precisely is included in Spectrum's financial records, we cannot tell if Spectrum may eventually surmount these problems ----------- FOOTNOTE BEGINS --------- [foot #] 15 The definition given in the current version of the FAR remains essentially the same as that in effect at the time Spectrum's contract was awarded. See FAR 31.205-10(a). ___ ----------- FOOTNOTE ENDS ----------- and prove in a satisfactory manner that it is entitled to FCCOM. The first problem posed by a claim for FCCOM from a party, such as Spectrum, to whom a fixed-price contract has been awarded is whether the FCCOM is not already included in the contractor's profit. In this regard, regulatory guidance in effect at the time Spectrum's contract was executed warned: Agencies shall ensure that contractors are not compensated for facilities capital cost of money both as a direct or indirect cost and in profit or fee. 41 CFR Appendix, Chapter 1, at 471 (1981). To ensure that this does not occur, the regulations provide the following instruction: When a prospective contractor does not propose or identify facilities capital cost of money in a proposal for a contract under which this cost could be allowed, it is presumed that consideration for facilities capital to be employed in contract performance is included, but not identified, in the contractor's profit or fee objective. Accordingly, the contractor may not later claim this cost as allowable . . . . Id. Spectrum's first task in qualifying for legitimate FCCOM, therefore, would be to overcome with credible evidence this regulatory presumption that any legitimate facilities capital cost of money it is claiming was not included in its profit. Another significant problem which arises in conjunction with any effort on Spectrum's part to recover legitimate FCCOM through the FCCOM cost principle rather than through its profit rate are the three conditions attendant to recovery under that cost principle. The regulatory guidance regarding FCCOM which was in effect at the time of contract award provided: Allowability (a) Whether or not the contract is otherwise subject to the cost accounting standards, . . . facilities capital cost of money is allowable if -- (1) The contractor's capital investment is measured and allocated in accordance with Cost Accounting Standard [CAS] 414; (2) The contractor maintains adequate records to demonstrate compliance with this standard; and (3) The estimated facilities capital cost of money is specifically identified or proposed in cost proposals relating to the contract under which this cost is to be claimed. 41 CFR Appendix, Chapter 1, at 473 (1981).[foot #] 16 We have no way of knowing at this point whether Spectrum's capital investment in the terminated contract can be measured and allocated in accordance with CAS 414 or whether it possesses records which adequately demonstrate compliance with this standard. Again, however, what is important at this juncture is that appellant realize that before we would consider the allowability of legitimate FCCOM costs pursuant to the FCCOM cost principle, Spectrum would have to prove with credible evidence that it is in substantive compliance with the standard. From the audit report and the contracting officer's decision, it is clear that allocability is a matter of genuine concern to GSA. Given this concern, we see no justification for not requiring substantive compliance with CAS 414. On the third condition for allowability of legitimate FCCOM, we are disposed to be somewhat more lenient. We recognize that Spectrum's fixed price contract was not negotiated on the basis of cost analysis. It is only now, as a result of contract termination, that the contract is being "priced" on the basis of incurred costs. If Spectrum were able to overcome the presumption that its FCCOM is not covered by profit and if it were able to show from its financial records or otherwise that it is in substantive compliance with CAS 414, we would not rule out the allowability of bona fide FCCOM under the FCCOM cost principle solely because Spectrum failed specifically to identify or propose FCCOM in its original cost proposal. Failure to meet the first two conditions would expose the Government to the risk of paying twice or compensating appellant for costs not allocable to the terminated contract. We do not see any similar risk to the Government's interest, however, in waiving this third or last condition. Respondent has brought a cross motion for summary relief urging us to rule as a matter of law that Spectrum is not entitled to recovery of FCCOM under the FCCOM cost principle. Respondent's Motion for Partial Summary Relief at 19-20. We deny the motion. As already pointed out, Spectrum has much to demonstrate in order to recover legitimate FCCOM under the FCCOM cost principle. We consider it much more appropriate and logical that recovery of such costs be pursued through the negotiation of a reasonable profit rate. Nevertheless, on the record before us, we do not know whether Spectrum can or cannot demonstrate to us, as a matter of fact, that any legitimate FCCOM it might claim is not ----------- FOOTNOTE BEGINS --------- [foot #] 16 These same conditions are likewise applicable under today's regulatory guidance. See FAR 31.205-10(a)(2). ___ ----------- FOOTNOTE ENDS ----------- included in its profit rate. Neither do we know whether Spectrum can or cannot demonstrate substantive compliance with CAS 414. In the absence of such information, we must recognize that there is still at least a theoretical possibility that Spectrum could successfully claim legitimate FCCOM under the FCCOM cost principle. For this reason, respondent's cross motion for summary relief on this issue is denied. Direct Labor In its motion for summary relief, Spectrum also contends that it is entitled, as a matter of law, to recover its direct labor costs of performance, which it claims to be $702,523. Spectrum states: There is absolutely no basis for the contracting officer's summary refusal to pay for most direct labor costs obviously incurred on the contract, simply because the GSA auditors did not care for the way the contractor kept its books. Spectrum is entitled to summary judgment on the issue that it is entitled to recover its direct labor costs of performance. Spectrum's Motion for Partial Summary Relief at 38. We are hard pressed to find a controversy between the parties on the basic issue of whether Spectrum is entitled to recover direct labor costs. Spectrum suggests that its claim has been dealt with in a summary fashion merely because its direct labor costs happened to be lumped into indirect costs. Spectrum argues that boards of contract appeals have often recharacterized costs from indirect cost pools to direct costs attributable to the terminated contract. Granite Groves (JV), ENGBCA 5674, 93-1 BCA 25,475, at 126,922; General Electric Co., ASBCA 24111, 82-1 BCA 15,725, at 77,801; Agrinautics, ASBCA 21512, et al., 79-2 BCA 14,149, at 69,650. We fail to understand appellant's concern over this point. From the contracting officer's decision, it is clear that respondent recognizes that Spectrum must have incurred direct labor costs in connection with its contract. Furthermore, it is clear that GSA is prepared to give credit for these costs by both direct and indirect labor cost adjustments. Findings 33-34. The dispute regarding direct labor does not revolve around the theoretical issue of entitlement, but rather, provable quantum. In its settlement proposal, Spectrum included its claim for direct labor in its overall claim for $2,025,890 in indirect costs and then simply invited the GSA auditors to seek whatever data they might need to make a determination regarding labor costs. Finding 33. Rather than dismiss this claim for direct labor cost in a summary fashion, respondent has attempted to establish through information sought in affidavits a rationale for allowing specific direct labor costs. Spectrum is unsatisfied with the amount allowed and insists that it is entitled to a total of $702,523. No evidence is provided, however, in support of a claim for the difference between this figure and that which the contracting officer is willing to allow. In asserting its claim for direct labor costs, Spectrum has relied too much on the good will of respondent. A contractor seeking costs after termination of its contract for convenience is expected to come forward with some credible demonstration and support of its claim for costs incurred. A claim against the Government is not allowed on the basis of a mere allegation. Tera Advanced Services Corp., GSBCA 6713-NRC, 85-2 BCA 17,940, at 89,883-84; Roberts International Corp., ASBCA 15118, 71-1 BCA 8869, at 41,223. Where actual, standard or average costs are not available, the contractor may use estimates to establish these costs if the method used in arriving at these estimates is approved by the contracting officer. 41 CFR 1-8.307-1 (1981) (FPR 1-8.307-1). Nevertheless, in such cases, the contractor still retains its burden and cannot recover on the basis of allegations alone. Clary Corp., ASBCA 19274, 74-2 BCA 10,947, at 52,103. In this case, Spectrum has done nothing more than allege that it is entitled to the difference between $702,523 in direct labor costs and those actually allowed by the contracting officer. Its motion for summary relief on this issue is, therefore, denied. Travel In its motion for partial summary relief, Spectrum asks that we order respondent "to accept reasonable proof of commercial trips for overhead in lieu of charges for corporate aircraft, as is the accepted practice in . . . cited case law." Spectrum's Motion for Partial Summary Relief at 39. GSA points out that Spectrum's proposal did not include any airline travel cost. On examining the proposal we have found that this is true. Finding 35. GSA further states that costs for operation and maintenance of aircraft were included in the settlement proposal, but that no justification was offered to show that use of the aircraft was necessary for conduct of business and that any increase in expense vis-a-vis commercial transportation was commensurate to the advantages gained by use of the private aircraft. See FPR 1-15.205-46(g)(1) (1981). This issue is obviously not ripe for summary relief. As in the case of its claim for direct labor costs, Spectrum expects the contracting officer not only to rule on the claim, but also to tailor and package it, as appropriate, for consideration. This is the responsibility not of the contracting officer, but of the claimant itself. A Limitation on Recovery In its motion for partial summary relief, GSA calls our attention to the provision in the contract termination for convenience provision which states: [T]he contractor and the Contracting Officer may agree upon the whole or any part of the amount or amounts to be paid to the Contractor by reason of the total or partial termination of work pursuant to this clause, which amount or amounts may include a reasonable allowance for profit on work done: Provided, That such agreed amount or amounts, exclusive of settlement costs, shall not exceed the total contract price as reduced by the amount of payments otherwise made and as further reduced by the contract price of work not terminated. Appeal File, Exhibit 3 at 272 (incorporating by reference the clause set forth in 41 CFR 1-8.701 (1981)). Based on this provision of the contract, GSA states: Accordingly, Respondent moves for partial summary relief in the nature of declaratory relief, namely that the Board is without jurisdiction to consider any equitable adjustment matters, and is accordingly unable to grant any relief, exclusive of settlement costs, in excess of $4,642,705. Respondent's Motion for Partial Summary Relief at 11. We decline to grant the motion as worded by respondent. We readily acknowledge that we currently have before us no claim for equitable adjustment presented to or ruled upon by the contracting officer.[foot #] 17 We are not prepared to subscribe, however, to the broad proposition that "the Board is without jurisdiction to consider any equitable adjustment matters." ----------- FOOTNOTE BEGINS --------- [foot #] 17 Appellant frankly admits that it has not separately claimed any equitable adjustments in its contract price. It has, however, reserved the right to do so if GSA takes positions in this termination for convenience litigation which require Spectrum to file such a claim in order to protect its right to recover all performance costs. Spectrum anticipates that this may occur in the profit recovery area. Spectrum's Motion for Partial Summary Relief at 9-10. ----------- FOOTNOTE ENDS ----------- As to relief in excess of the contract price[foot #] 18, we view this not as a matter of jurisdiction, but simply as one of contract enforcement. On entering the contract, the parties agreed to this limitation. This provision has been enforced by other boards of contract appeals. E.g., 3M Contractors, AGBCA 87-402-1, 91-2 BCA 23,672. We are aware of nothing in the record at this point which would indicate that the provision should not be given its full force and effect. Contingent Attorney Fees In its motion for partial summary relief, respondent moves that we disallow Spectrum's claim for contingent attorney fees. Respondent's Motion for Partial Summary Relief at 11-14. Two reasons are given. First, respondent contends that the claim represents an effort to recover fees associated with Spectrum's challenge to the termination of its contract for default. Respondent argues that these costs, to the extent they are allowable, have been awarded pursuant to the Equal Access to Justice Act (EAJA). The second reason given in opposition to the claim for contingent fees is that under the applicable FPR provision in effect when the contract was awarded, contingent fees such as those being sought by Spectrum are simply not allowed. Section 1-15.205-31 of the FPR sets forth the cost principle covering legal services. It provides: (a) Costs of professional and consultant services rendered by persons who are members of a particular profession or possess a special skill and who are not officers or employees of the contractor are allowable, subject to paragraphs (b), (c), (d), and (e) of the 1-15.205-31, when reasonable in relation to the services rendered and when not contingent upon recovery of the costs from the Government . . . . . . . . (d) Cost of legal, accounting, and consulting services, and related costs, incurred in connection with organization and reorganization, defense of antitrust suits, and the prosecution of claims against the Government, are unallowable. ----------- FOOTNOTE BEGINS --------- [foot #] 18 In view of the apparent disagreement between the parties as to what the precise contract price is, we make no finding at this time on that issue. ----------- FOOTNOTE ENDS ----------- 41 CFR 1-15.205-31 (1981) (FPR 1-15.205- 31).[foot #] 19 We find respondent's arguments persuasive. Respondent is correct that a decision was issued by this Board granting in part Spectrum's petition for costs under EAJA. On July 27, 1992, the Board issued a decision on this claim which covered fees and expenses incurred during Spectrum's appeals of the contracting officer's termination of its contract with GSA for default. Spectrum Leasing Corp. v. General Services Administration, GSBCA 10902-C(7347), et al., 93-1 BCA 25,317. Certainly it would be inappropriate for these costs, as awarded under EAJA, to be included in the claim which Spectrum now brings for attorney fees. Apart, however, from any problem regarding double recovery is the more fundamental issue of the claim being for "contingent" fees. In its revised proposal, Spectrum expressly acknowledges that what it seeks to recover is a contingency fee. Finding 37. Furthermore, under the terms of Spectrum's legal services agreement with counsel (which does not appear to be in controversy here) the contingent fee in question is a 20% share in "all amounts collected . . . whether by settlement, hearing, judgment or otherwise." Finding 38. We conclude that this fee, as described by Spectrum in its claim and as further described in Spectrum's legal service agreement with counsel is "contingent upon recovery of the costs from the Government" and, therefore, not allowable under FPR 1-15.205-31. Spectrum, itself, appears to have recognized the merit of respondent's arguments. In its opposition to Respondent's Motion for Partial Summary Relief on the issue of contingent attorney fees it has stated: To the extent that attorney's fees for claims against the Government were included in Appellant's settlement proposal, those fees are being removed from Appellant's modified termination for convenience settlement proposal. However, to the extent that fees currently characterized as "contingent fees" are in fact more properly claim preparation expenses, those fees remain. Appellant's Opposition to Respondent's Motion for Partial Summary Relief at 3-4 (unnumbered). Under FPR 1-15.205-31, the claim preparation expenses described by Spectrum would be allowable. As we have already pointed out with regard to Spectrum's claim for direct labor costs and travel costs, however, it is the responsibility of Spectrum to prepare, document, and present these costs for review ----------- FOOTNOTE BEGINS --------- [foot #] 19 A similar provision exists in the current version of the FAR. See FAR 31.205-33 and 205-47(f)(1). ___ ----------- FOOTNOTE ENDS ----------- by the contracting officer. We, therefore, grant respondent's motion for summary relief on the issue of contingent attorney fees. We do so, however, without prejudice to appellant's right to seek bona fide costs of professional and consultant services, rendered by persons who are not officers or employees of Spectrum, relating to the preparation and negotiation of its termination for convenience settlement proposal. Respondent's Renewed Motion for Full Summary Relief In filing its opposition to Respondent's Motion for Partial Summary Relief, Spectrum argued that on each of the items raised by respondent, issues of material fact remain in dispute. Appellant's Opposition to Respondent's Motion for Partial Summary Relief at 3 (unnumbered). As part of this opposition, Spectrum also filed a separate Statement of Genuine Issues. In concluding the statement counsel wrote: This motion rests upon significantly divergent characterizations as to the nature of what are admittedly undisputed factual matters. Appellant's Separately Filed Statement of Genuine Issues at 2. Spectrum's seeming ambivalence regarding the presence of controversy on the material facts in this dispute has prompted counsel for respondent to file a second motion for summary relief. In this motion respondent has requested that the Board deny in its entirety Spectrum's pending Motion for Partial Summary Relief and grant instead the entire Motion for Partial Summary Relief filed by respondent. What obviously concerns counsel for respondent is Spectrum's alleged failure to comply with the Board's requirement, based on well established case law precedent, that where summary relief motions are involved, a moving party demonstrate the absence of controversy regarding material facts and an opposing party challenge factual assertions with something more than mere denials. See Rule 8(g). Respondent believes that these requirements have not been met either in Spectrum's own Motion for Partial Summary Relief or in Spectrum's opposition to a similar motion filed by respondent. This is not the first time this issue has arisen in connection with Spectrum's own motion for summary relief. Shortly after Spectrum filed its motion, respondent in a Motion for a More Definite Statement/Motion to Strike argued that Spectrum's motion was procedurally and substantively deficient because it was not supported by an adequate statement of uncontroverted material facts. Recognizing that Spectrum had not provided exactly what the Board normally requires under its rules for a motion for summary relief, the Board nevertheless denied respondent's motion. Given the unique circumstances of this case, the Board concluded that additional detail was not necessary. The dispute was seen as arising from a disagreement over the contracting officer's denial of certain elements in appellant's settlement proposal. The principal material facts, at least for the Motion for Partial Summary Relief, were seen as the elements actually contained in appellant's proposal and the contracting officer's rulings on them -- all matters easily documented from the record. While Spectrum's proposal and the contracting officer's rulings may have generated controversy, there did not appear to be a controversy as to what the proposal and rulings actually said. The issues posed in the motion for summary relief were presumably whether, as a matter of law, the contracting officer's rulings were permissible. We view the statements made by counsel for Spectrum in his opposition to respondent's Motion for Partial Summary Relief as reflecting a rationale similar to that used by the Board in denying respondent's earlier Motion for a More Definite Statement/Motion to Strike. There is no basic controversy regarding what appellant actually wrote in its settlement proposal or what the contracting officer held regarding specific portions of appellant's proposal. Rather the controversy revolves around the characterization or significance of their respective statements. We find the statements made by counsel for Spectrum to be understandable when read in this context. Spectrum may not be in absolute compliance with all the requirements of the Board's rule regarding summary relief. Nevertheless, even with Spectrum's admission as to the absence of controversy regarding basic factual matters, there remain various questions of law, some perhaps mixed with additional questions of fact. We, therefore, deem Spectrum to be in substantive compliance with the basic requirements of summary judgment practice both with regard to its own motion for partial summary relief as well as with regard to respondent's Motion for Partial Summary Relief. Accordingly, we reject the arguments advanced by respondent in support of its second Motion for Summary Relief. The motion is denied. A Formula for Resolution of this Dispute It is axiomatic that, in settling termination claims such as those before us, one must strike a balance between the need for technical compliance with regulatory requirements and the need for basic fairness. The current regulatory guidance regarding settlement of termination claims confirms this well established principle of Government contract administration: A settlement should compensate the contractor fairly for the work done and the preparations made for the terminated portions of the contract, including a reasonable allowance for profit.... The use of business judgment, as distinguished from strict accounting principles, is the heart of a settlement. FAR 49.201(a). The same principle has been expressly recognized by the United States Court of Claims and various boards of contract appeals. Codex Corp. v. United States, 226 Ct. Cl. 693 at 698 (1971) (explaining that the proper reconciliation of the strict standard of allowable costs and the fairness concept is a matter primarily within the discretion of a board of contract appeals); Fiesta Leasing and Sales Inc., ASBCA 29311, 87-1 BCA 19,622 (stating that in deciding termination claims, it is within the a board's discretion to balance the "fairness concept" with the strict standards of allowable costs); Tagarelli Brothers Construction Co., ASBCA 34793, 88-1 BCA 10,363, aff'd on reconsideration, 88-2 BCA 20,546; Arctic Corner, Inc., VABCA 2392, 86-3 BCA 19,278; TERA Advanced Services Corp., GSBCA 6713-NRC, 85-2 BCA 17,940. This said, appellant should not assume that it is not required to formulate and document its claim with the utmost care. Respondent obviously cannot pay a claim whose documentation is so inadequate that the contracting officer cannot divine a justification for payment of a specific amount. This is so notwithstanding the improper termination of appellant's contract or the frustration associated with litigation relating to that termination. A basic formula for resolving appellant's termination cost claims is found in current FAR guidance which provides: The amount of record keeping, reporting, and accounting related to the settlement of terminated contracts should be kept to a minimum compatible with the reasonable protection of the public interest. FAR 49.201(c) (emphasis added). In resolving these termination claims, it is essential that appellant recognize that the Board will and must insist on documentation and/or credible assurances sufficient to demonstrate payment of the claim poses no reasonable threat to the public interest. There is no escaping this requirement. On the other hand, as litigation and settlement discussions continue concurrently, Government officials should bear in mind that the task before them is one of settlement -- for which they have considerable latitude under applicable regulations. Having ruled on the motions before us, we return this case to the parties with the hope that negotiations will now resume and lead to a satisfactory settlement. Within thirty days of the date of this decision, counsel are directed to provide the Board with a proposed schedule for further proceedings. Decision Appellant's Motion for Partial Summary Relief is DENIED. Respondent's Motion for Partial Summary Relief is GRANTED IN PART. Respondent's second Motion for Summary Relief is DENIED. _______________________ EDWIN B. NEILL Board Judge We concur: __________________________ __________________________ ANTHONY S. BORWICK MARY ELLEN COSTER WILLIAMS Board Judge Board Judge