Board of Contract Appeals General Services Administration Washington, D.C. 20405 ______________________________________________ APPLICATION FOR COSTS DENIED: August 3, 1998 ______________________________________________ GSBCA 14218-C(13784, 14056) TRAVEL CENTRE, Applicant, v. GENERAL SERVICES ADMINISTRATION, Respondent. Fred Morahan, President of Travel Centre, Danvers, MA, appearing for Applicant. Michael D. Tully, Office of General Counsel, General Services Administration, Washington, DC, counsel for Respondent. Before Board Judges PARKER (presiding), HYATT, and VERGILIO. VERGILIO, Board Judge. In this application, Travel Centre seeks an award under the Equal Access to Justice Act (EAJA), 5 U.S.C. 504 (Supp. II 1996), of its attorney fees and other expenses incurred in pursuing two appeals dismissed by this Board. Travel Centre v. General Services Administration, GSBCA 13784, 14056 (May 7, 1997). The Board concludes that in each case the position of the Government was "substantially justified" both factually and legally. Therefore, under EAJA, the Board must deny the application. Discussion[foot #] 1 ----------- FOOTNOTE BEGINS --------- [foot #] 1 The Board relies upon information in the background section found below in the dissenting opinion of the presiding judge and on statements by the parties. One may better understand the chronology of events by reviewing the opinions in a case consolidated for a time with the two appeals underlying this application, Travel Centre v. General Services __________________________________________ Administration, GSBCA 14057, 98-1 BCA 29,536, motion for ______________ ___________ (continued...) ----------- FOOTNOTE ENDS ----------- 2 The agency maintains that its position was substantially justified in each of the underlying appeals, which involved a Government claim. GSBCA 13784 was a termination for default; GSBCA 14056 was a claim for money due under the contract. In order to avoid liability for costs under EAJA, 5 U.S.C. 504(a)(1), the Government bears the burden of establishing that its position was substantially justified both prelitigation and during litigation or that special circumstances make an award unjust. Doty v. United States, 71 F.3d 384, 385-86 (Fed. Cir. 1995). GSBCA 13784 In support of its conclusion that its position was substantially justified, the agency refers to the following. Travel Centre obtained business in an amount far in excess of the contract's guaranteed minimum, closed its office (and ceased performance), failed to provide free travel insurance (although required by the contract), failed to furnish proper sales reports (although required by the contract), and failed to pay required rebates (although required by the contract). In support of converting the termination for default to one for convenience, the agency notes that there was a litigation risk given the bad estimate in the solicitation for Maine. It maintains that one should not infer from the conversion that the default was not substantially justified. At the time the agency issued the termination for default and prior to the litigation, the agency was faced with a contractor not performing under an indefinite delivery, indefinite quantity (IDIQ) contract whose minimum guarantee had been satisfied. On its face, a contractor's failure to perform constitutes a valid basis to default terminate the contract; however, if, after the default, it is determined that the failure to perform was excusable or that the contractor was not in default, the rights and obligations of the parties are the same as if a termination for the convenience of the Government had issued. Given the facts and then existing law (prior to the decision in GSBCA 14057), the agency was justified in concluding that the failure to perform under an IDIQ contract was not excusable and that the contractor was in default. Through discovery in the consolidated cases, while the contractor was asserting a breach by the Government, the agency became aware of shortcomings in the establishment of estimates. Thereafter, it converted the termination for default to one for ----------- FOOTNOTE BEGINS --------- [foot #] 1 (...continued) reconsideration denied, 14057-R, 98-1 BCA 29,541, motion for ______________________ ___________ full Board consideration denied (June 30, 1998). _______________________________ ----------- FOOTNOTE ENDS ----------- 3 convenience. The agency did not act irresponsibly in this matter. In KMS Fusion, Inc. v. United States, 39 Fed. Cl. 593 (1997), the agency made concessions after obtaining information through a retained expert. The court noted that the agency's decision to abandon certain claims as it developed its case does not constitute a lack of substantial justification. Rather, defendant's willingness to settle these issues serves as an example of the proper use of the fruits of discovery. The court finds that, as to the issues settled, defendant's pretrial position was substantially justified. Id. at 598-99. Throughout the process the agency was substantially justified in its position that the termination for default was valid. At the time, the decision in GSBCA 14057 had not issued. Thus, assuming an impropriety in the development of the estimates, as ultimately found by the Board, no case law (from the Board or elsewhere) demonstrated that flawed estimates in a solicitation for an IDIQ contract could constitute bad faith or a Government breach in the formation of the contract or would impact the validity of the contract when the guaranteed minimums were satisfied. GSBCA 14056 In this case, the agency demanded rebate payments of $10,995.34 said to be due under the contract. Travel Centre did not dispute that it owed an amount to the agency; rather, it asserted that the agency had miscalculated the amount due. The agency contends that Travel Centre recognized, in its breach claim, that $9,400 were due in rebates. The agency concludes that its claim to recover the amount for rebates due under the contract was substantially justified. In response, Travel Centre contends that the agency: conveniently ignores Travel Centre's letter . . . wherein Travel Centre stated that "the rebates owed by Appellant should be deducted from the much larger amount of money that Respondent owes Appellant due to Respondent's breach and improper termination for default." Travel Centre Reply at 9. While the agency asserted and pursued its claim for rebates, there was no determination of agency breach or impropriety in the formation of the contract as later determined in GSBCA 14057. Consistent with the terms of the contract, the agency sought to 4 recover what it maintains it was due. While the agency could have delayed seeking to recover under the contract, the decision to move forward with the claim was responsible and substantially justified. Decision Having concluded that the position of the GSA was substantially justified in each appeal underlying this application, the Board DENIES the application of Travel Centre. ______________________ JOSEPH A. VERGILIO Board Judge I concur: ______________________ CATHERINE B. HYATT Board Judge PARKER, Board Judge, dissenting. The majority has decided to prolong Travel Centre's suffering at the hands of the Government by holding that GSA's positions in these matters were substantially justified. If I could have garnered another vote, the majority opinion would have looked something like the following. Travel Centre has applied for an award of attorney fees pursuant to the Equal Access to Justice Act (EAJA), 5 U.S.C. 504 (Supp. II 1996), in connection with two cases which were before the Board. For the reasons discussed below, we grant in part Travel Centre's application. Background In August 1996, Travel Centre appealed to the Board the decision of the General Services Administration (GSA) terminating for default Travel Centre's contract to supply travel management services to federal agencies in the New England area. The Board docketed the appeal as GSBCA 13784. In October 1996, GSA issued a decision demanding that Travel Centre pay $10,995.34 in allegedly unpaid rebates under the contract. (The contract required Travel Centre to rebate to the Government a portion of the commissions earned from airlines, 5 etc., for booking Government employees' travel). Travel Centre's appeal of that decision was docketed as GSBCA 14056. In addition to appealing these two GSA decisions, Travel Centre filed a claim of its own -- one alleging that GSA had breached the contract. The Board docketed Travel Centre's October 1996 appeal in connection with the breach claim as GSBCA 14057. The Board consolidated the three appeals in March 1997. On April 30, 1997, after substantial discovery had been undertaken by the parties, GSA issued contract modification no. 1, which rescinded the default termination and changed it to a termination for the convenience of the Government. Also on April 30, GSA notified Travel Centre that GSA's demand for the allegedly unpaid rebates was rescinded. By order dated May 7, 1997, the Board dismissed both GSBCA 13784 and GSBCA 14056. In June 1997, Travel Centre filed the instant application for $31,042.50 in attorney fees and costs incurred in connection with the appeal of the termination for default (GSBCA 13784) and the demand for unpaid rebates (GSBCA 14056). While all of this was occurring, Travel Centre's claim for breach continued working its way through the Board and, ultimately, was granted as to entitlement on November 26, 1997. The Board found that GSA had breached the contract when it awarded the contract to Travel Centre knowing that the estimates of potential business upon which the offerors had to base their proposals were vastly overstated. The Board also found that GSA's decision to terminate the contract for the convenience of the Government was unreasonable, given the circumstances under which the contract was awarded. Travel Centre v. General Services Administration, GSBCA 14057, 98-1 BCA 29,536 (1997), reconsideration denied, 98-1 BCA 29,541, motion for full Board consideration denied (June 30, 1998). Discussion The Equal Access to Justice Act provides that an eligible, prevailing party under an adjudication conducted by the Government is entitled to an award of attorney fees and expenses unless the Government's position was substantially justified or special circumstances make an award unjust. 5 U.S.C. 504(a)(1). It is the Government's burden to prove both that its litigation posture and the administrative actions or omissions forming the basis of the adversary adjudication were substantially justified. Schuenemeyer v. United States, 776 F.2d 329, 330 (Fed. Cir. 1985); Richerson Construction, Inc. v. General Services Administration, GSBCA 11051-C(10653), 94-1 BCA 26,278. We explained further in Richerson Construction: 6 The term "substantially justified" has been construed to connote "justified in substance or in the main -- that is, justified to a degree that could satisfy a reasonable person." In assessing whether the Government's position was substantially justified, it is not dispositive that the Government lost (or chose to settle) the case. Nor is the Government required to establish that its decision to litigate was based on a substantial probability of prevailing. Rather, the test is whether the Government's actions had a reasonable basis in fact and law. [T]he Board should evaluate the Government's justification in light of all relevant information in the record, including the degree of relief obtained by appellant. In Building Services[[foot #] 1], the Armed Services Board observed that "[t]he complete relinquishment of the Government's position in the settlement of the dispute reinforces the conclusion that the Government's position that led to the contracting officer's [action] and the ensuing litigation was not substantially justified." 94-1 BCA 26,278, at 130,740 (citations omitted). GSA has stated that it does not take issue with Travel Centre's eligibility for costs as far as EAJA's size and net worth requirements or with Travel Centre's contention that it should be deemed a prevailing party in the underlying appeals. GSA maintains, however, that its positions in both appeals were substantially justified. In addition, GSA objects to certain charges which, GSA maintains, should not be recoverable under EAJA. Substantial justification -- GSBCA 13784 In GSBCA 13784, Travel Centre was required to defend itself against a termination for default. Eight months later, after substantial discovery, GSA withdrew the termination, changing it to one for the convenience of the Government. As Travel Centre's related breach claim worked its way through the Board, it became obvious why the initial termination, and GSA's defense of it, had not been justified: GSA had breached the contract by withholding crucial information from Travel Centre that the winning contractor would have no possibility of attaining the potential business upon which offerors were required to base their ----------- FOOTNOTE BEGINS --------- [foot #] 1 Building Services Unlimited, Inc., ASBCA 33283, __________________________________ 88-2 BCA 20,611. ----------- FOOTNOTE ENDS ----------- 7 proposals. Travel Centre, 98-1 BCA at 146,431. In the breach case, GSA acknowledged that its actions had been less than stellar but argued that a termination for convenience, rather than a breach of contract, was the proper remedy under the circumstances. GSA never tried to justify the original termination for default. GSA's argument here, that its pursuit of the termination for default in GSBCA 13784 was substantially justified because Travel Centre experienced performance problems and failed to comply with various terms of the contract, is not convincing. As GSA must have recognized when it finally withdrew the termination for default, Travel Centre's problems in performing the contract were not surprising under the circumstances and were caused in large part by GSA's own misrepresentations during contract formation. GSA's decision to withdraw the termination, although not dispositive of the question of substantial justification, certainly reinforces the conclusions reached independently by the Board in connection with Travel Centre's claim for breach. We find that GSA's position in GSBCA 13784 was not substantially justified. Substantial justification -- GSBCA 14056 In GSBCA 14056, GSA demanded that Travel Centre pay $10,995.34 in allegedly unpaid rebates due under the contract. After substantial discovery in connection with this and the other appeals, GSA withdrew its demand. GSA maintains that its position in the litigation was substantially justified because Travel Centre never disputed the fact that there were unpaid rebates. Travel Centre maintained in response to GSA's claim that the amounts of the rebates had been miscalculated and that, in any event, whatever amounts were due GSA "should be deducted from the much larger amount of money that Respondent owes Appellant due to Respondent's breach and improper termination for default." Applicant's Reply to Respondent's Opposition to Application at 9. At first blush, GSA's argument for substantial justification seems reasonable -- after all, there were some unpaid rebates outstanding. The problem with GSA's argument, however, is that the way GSA went about attempting to collect the rebates was unreasonable under the circumstances. In the face of mounting evidence that GSA, rather than Travel Centre, had been responsible for the breakdown of the contract, GSA nevertheless decided to terminate the contract for default and demand payment of unpaid rebates in an amount which paled in comparison to the amount GSA would ultimately owe to Travel Centre. This put Travel Centre in the position of having to litigate in order to avoid paying an amount that would only serve to reduce the amount which GSA would owe to Travel Centre. By the time GSA decided to do the right thing (or something closer to the right 8 thing) by changing the termination for default to one for the convenience of the Government and handling the outstanding rebates as part of a termination settlement, Travel Centre had already expended substantial funds unnecessarily. Accordingly, we find that GSA's position in GSBCA 14056 was not substantially justified. Objections to specific charges GSA questioned whether certain costs charged by Travel Centre's attorneys were properly attributable to the cases in question. In response, Travel Centre filed a detailed explanation of the charges which had been questioned by GSA. Our review of all of the charges has led us to make the following adjustments: Travel Centre's attorneys billed for 1.6 hours in July 1996 for preparing a response to a letter from a GSA official concerning certain Congressional inquiries that had been initiated on Travel Centre's behalf. It is not clear from appellant's explanation how this matter relates to either of the appeals for which costs are being claimed. There is a series of entries in Travel Centre's attorneys' billing logs which includes charges for preparing and reviewing a press release. It is not clear from the entries to what extent these services relate to the appeals for which costs are being claimed. We estimate that Travel Centre's counsel spent five hours on these matters. In October 1996, Travel Centre's attorneys billed at total of 3.4 hours for research and conducting a telephone conference with a General Accounting Office (GAO) official concerning a protest which had been filed by a losing vendor in connection with the award to Travel Centre. Travel Centre's explanation that this protest became an issue in Travel Centre's breach claim fails to explain why such work was necessary in connection with the two appeals for which the contractor is claiming costs. An entry of October 21, 1996 in Travel Centre's attorneys' log seems to describe work relating to a claim to be filed by Travel Centre, rather than work related to the appeals for which costs are being claimed. The attorneys billed 4.3 hours for such services. Travel Centre's attorneys billed for .1 hours in December 1996 for reviewing an article and letter 9 forwarded by Travel Centre, but counsel is not certain what the article pertained to. In January 1997, a paralegal spent one hour researching GAO decisions in connection with the protest described above. It is not clear how this research benefitted the cases for which costs are being claimed. With the exceptions described above, our examination of the claimed fees and expenses reveals them to be reasonable, well- supported and in accordance with EAJA.[foot #] 2 Subtracting a total of $1,800 from Travel Centre's claimed attorney fees (14.4 hours times EAJA rate of $125 per hour) and $55 in unallowed paralegal charges (1 hour at the rate of $55 per hour) yields a total award of $29,187.50. ____________________ ROBERT W. PARKER Board Judge ----------- FOOTNOTE BEGINS --------- [foot #] 2 With exceptions not relevant here, EAJA authorizes reimbursement of attorney fees at a rate not to exceed $125 per hour. 5 U.S.C. 504(b)(1)(A). Travel Centre's attorneys' actual billing rates were substantially higher.