Board of Contract Appeals General Services Administration Washington, D.C. 20405 CROSS-MOTIONS FOR SUMMARY RELIEF DENIED: August 25, 1998 GSBCA 14257-COM DIGICON CORPORATION, Appellant, v. DEPARTMENT OF COMMERCE, Respondent. Edward J. Tolchin of Fettman, Tolchin & Majors, P.C., Fairfax, VA, counsel for Appellant. Jerry A. Walz and Kenneth A. Lechter, Office of the Assistant General Counsel for Finance and Litigation, Contract Law Division, Department of Commerce, Washington, DC, counsel for Respondent. Before Board Judges DANIELS (Chairman), VERGILIO, and DeGRAFF. DANIELS, Board Judge. This case arises under a contract which required Digicon Corporation (Digicon) to provide to the Department of Commerce (Commerce) services and equipment to support the efforts of a Commerce bureau, the National Technical Information Services (NTIS), to enhance the NTIS FEDWORLD electronic dissemination system. The relationship between the parties came about through the Small Business Administration's 8(a) program. The contract was a cost-plus-fixed-fee agreement. The present dispute concerns the amount of fee (if any) Digicon should be paid with regard to costs incurred in addition to those initially anticipated by the parties. Each party has moved for summary relief. Because key facts are in dispute, we deny both motions. Background 1. The contract, as awarded, had a total value of approximately $2.3 million. Appellant's Statement of Uncontested Facts 3.[foot #] 1 On the same page that sets out this figure, the contract references Federal Acquisition Regulation (FAR) clause 52.216-8, "Fixed Fee," and shows a fee of 6.6% of costs. Appeal File, Exhibit 8 at 5. 2. Pursuant to the contract, the Government was required to issue task orders to Digicon under a "task order implementation" process set forth in the contract. This process included the following steps: (a) the contracting officer would prepare a statement of requirements or objectives for the proposed task order; (b) on the basis of the contracting officer's statement, the contractor would submit a work plan containing technical and cost proposals; (c) the parties would negotiate the final terms of the task order; and (d) the negotiated work plan would be issued as a fully executed task order. Appellant's Statement of Uncontested Facts 2. 3. Task order 1 was incorporated into the contract at a cost of approximately $55,000 and a fee of 6.6% of this amount. Appellant's Statement of Uncontested Facts 3. Task order 2 was issued pursuant to the process described in the preceding paragraph. This task order consisted of subtasks 1, 2, 4, and 5. The total costs of these subtasks were identified as approximately $1,570,000, and the fee for each of them was 6.6% of the cost figure. Id. 4-5, 7. 4. The contract was awarded in September 1995, and task order 2 was issued in October of that year. Appellant's Statement of Uncontested Facts 1, 5.[foot #] 2 Task order 2 incorporated Digicon's proposed work plan for each of the subtasks involved. Id. 5. Contemporaneously with the issuance of this task order, the contracting officer authorized Digicon "to begin work on the GO-ELF project, and take the project to the point of the scheduled presentation of the system concept to the IRS [Internal Revenue Service]." Id. 5. By November 1995, it became clear to Commerce that "due to the greater than anticipated need for Technical support services to support the GO-ELF project," Digicon required an ----------- FOOTNOTE BEGINS --------- [foot #] 1 All cited paragraphs in Appellant's Statement of Uncontested Facts have been accepted by the agency. See ___ Respondent's Answer to Appellant's Statement of Uncontested Facts; Respondent's Statement of Material Facts Not in Dispute. [foot #] 2 As originally issued, task order 2 did not include subtask 5. This subtask, which had a total value of nearly $400,000, was added in February 1996. Appellant's Statement of Uncontested Facts 7. ----------- FOOTNOTE ENDS ----------- increase in contract funding of $2 million to approximately $4.2 million. Accordingly, the agency issued modification 1 to the contract to accomplish this increase. However, while the Government increased the contract amount in modification 1, the Government failed to modify formally task order 2 to account for this increase. Appellant's Statement of Uncontested Facts 6. 6. In March 1996, Digicon asked Commerce to add approximately $1.4 million in funding to task order 2. Appeal File, Exhibit 23. Commerce did not respond to this request. On April 17, the contractor notified the agency that the contract dollar ceiling would soon be reached. On April 26, the contractor advised the agency that the ceiling had in fact been reached. Appellant's Statement of Uncontested Facts 10. 7. On May 14, 1996, Commerce asked Digicon for "detailed supporting documentation for all incurred costs associated with all Task Orders and Subtasks 1, 2, 4, and 5, as well as detailed cost and pricing information including all cost elements and fee in support of your request for additional funds for each task and subtask." Appeal File, Exhibit 31 at 1. Digicon responded on July 11 with a claim for payment for services rendered under the contract. Id., Exhibit 34. Digicon later reduced its claim by a small amount. The claim ultimately consisted of $3,388,641.95 in costs and a fee of 6.6% of this amount ($223,650.37), for a total of $3,612,292.32. Digicon acknowledged that it had already received $1,954,012.20 in payments under the contract; thus, it sought an additional payment of $1,658,280.12. Appellant's Appeal File Supplement, Exhibit 2. 8. On June 2, 1997, the contracting officer issued a decision on the claim. She determined that "Digicon's total claimed costs of $3,388,641.95 are allowable." She refused to increase the amount of the fee above the $103,718.91 already fixed as fees for subtasks 1, 2, 4, and 5 of task order 2, however. In disallowing the additional $119,931.46 sought, the contracting officer maintained that paying Digicon a fee of 6.6% of costs incurred would violate the FAR's proscription against cost-plus-a-percentage-of-cost contracts (see 48 CFR 16.102(c) (1996)). Appeal File, Exhibit 40. Discussion Why did the costs Digicon incurred in performing work under this contract soar to much greater amounts than those set forth in task order 2? According to the contractor, the subtasks were revised by Commerce to include much more work than encompassed in the original statements of work. Digicon supports its position with reference to two pieces of evidence. First is a comparison of the original statements of work (Appeal File, Exhibit 7) with revised statements of work prepared by the agency in April 1996 (id., Exhibit 31). Second is a March 1996 memorandum from the agency's project manager to the contracting officer which states, in part, "There have been several functions and tasks undertaken by DIGICON and [one of its subcontractors] which were not specifically delineated in the original . . . Task 2 . . . Statement of Work. . . . The level of effort in these areas has increased beyond original expectations to ensure full compliance with Department of Treasury directives and concerns." Id., Exhibit 25. Digicon also contends that the obvious purpose of increasing the contract's funding ceiling was to allow payment to the contractor for the performance of more work than was anticipated when task order 2 was issued. Commerce, on the other hand, asserts that "[t]he additional work performed and costs incurred . . . represent a cost overrun of the subject task, and not an actual or constructive change." Respondent's Statement of Material Facts Not in Dispute 2. The agency points to a sentence in the project manager's memorandum not quoted above -- "These functions [undertaken by Digicon and the subcontractor] are a normal part of [an] information system development project and are critical tasks necessary to initiate a fully operational CyberFile System at the [Department of Agriculture] site." Commerce has also provided an affidavit in which the project manager explains that he anticipated from the start that Digicon would provide the work it contends is additional, as well as an internal Digicon memorandum, written shortly after task order 2 was issued, discussing the necessity of hiring many new employees to perform work under the task order. Respondent's Memorandum in Support of the Cross-Motion for Summary Relief, Exhibit 1 & attachment thereto. Commerce says that the increase in the funding ceiling did not have any necessary connection to task order 2 work.[foot #] 3 Under a cost plus fixed fee contract, the amount of the fee cannot be adjusted unless the scope or nature of work to be performed by the contractor is changed. Ralph L. Jones Co. v. United States, 33 Fed. Cl. 327, 331-32 (1995); Program Resources, Inc., ASBCA 21656, 78-1 BCA 12,867, at 62,608-10 (1977). The parties are clearly in conflict as to whether the costs Digicon incurred, above those contemplated when task order 2 was issued (and amended to include subtask 5), were caused by changes in the scope and/or nature of the work. Digicon maintains that the conflict between the parties' positions as to a Government-directed change has been manufactured by Commerce out of immaterial statements. We ----------- FOOTNOTE BEGINS --------- [foot #] 3 Commerce makes the additional argument that even if the work Digicon performed was different in scope or nature ___ from what was described in the original statements of work, that additional work was not directed by the agency. Commerce maintains that if direction occurred at all, it was by the agency's project officer (who was also the contracting officer's technical representative), rather than a contracting officer. In light of the way in which we resolve the cross-motions, we need not reach this issue. ----------- FOOTNOTE ENDS ----------- acknowledge that the statements of work prepared by the agency after the work was performed look different from the original statements of work, and the project manager's memorandum, on balance, appears as well to indicate that the scope and nature of the work were changed by Commerce. Nevertheless, in resolving a motion for summary relief, we must view evidence in the light most favorable to the nonmoving party, drawing all reasonable factual inferences in favor of that party. Grunley Construction Co. v. General Services Administration, GSBCA 13476, slip op. at 4-5 (Aug. 20, 1998); Twigg Corp. v. General Services Administration, GSBCA 14387, slip op. at 6 (June 4, 1998). The evidence advanced by Commerce is sufficient to serve to defeat Digicon's motion on this point -- especially because the contents of the two sets of statements of work are not clear enough that, without the benefit of explanatory testimony, we can be certain of their meaning. There is no possibility of granting Commerce's motion, since the agency has neither explained what it means by "cost overrun" in this context nor presented any evidence in support of the theory that this was the cause of the contractor's incurring additional costs. Even if we were to find for Digicon on its motion, this would not resolve the case. The fact that in both the contract itself and all task orders cited by the parties, a fee was fixed at 6.6% of costs does not require that the fee for any additional work must inevitably be 6.6% of costs as well. When a fee must be set after the completion of work, rather than properly negotiated in advance, applying the same percentage of costs as was used during contract performance is common. Like the inclusion of a standard profit markup on an equitable adjustment to a fixed-price contract, the application of a usual percentage fee on an equitable adjustment to a cost-plus-a-fixed-fee contract does not violate the proscription against cost-plus-a- percentage-of-costs contracts (which is statutory, 41 U.S.C. 254(b) (1996), as well as regulatory), as long as a connection is demonstrated between the additional costs and the extra work required by the Government. Jones, 33 Fed. Cl. at 337. Commerce has suggested that if Digicon proves the agency changed the scope or nature of contract work, a fee in an amount other than 6.6% of costs should be applied. The parties may present whatever evidence they have in support of their positions on this matter. Decision Both motions for summary relief are DENIED. The parties are directed to provide to the Board, within two weeks of the date of this decision, a joint proposal for further proceedings in this case. _________________________ STEPHEN M. DANIELS Board Judge We concur: _________________________ _________________________ JOSEPH A. VERGILIO MARTHA H. DeGRAFF Board Judge Board Judge