Board of Contract Appeals General Services Administration Washington, D.C. 20405 RESPONDENT'S MOTION FOR SUMMARY RELIEF DENIED: July 23, 1998 GSBCA 14301 AIRO SERVICES, INC., Appellant, v. GENERAL SERVICES ADMINISTRATION, Respondent. Michael H. Ferring of Ferring Nelson LLP, Seattle, WA, counsel for Appellant. M. Leah Wright, Office of General Counsel, General Services Administration, Washington, DC, counsel for Respondent. Before Board Judges DANIELS (Chairman), VERGILIO, and DeGRAFF. DANIELS, Board Judge. The General Services Administration (GSA), respondent, moves for summary relief of an appeal of a contracting officer's deemed denial of a claim by the contractor, Airo Services, Inc. (Airo), for termination for convenience costs. For the reasons explained below, we deny the motion. Uncontested Facts On August 23, 1996, GSA awarded to Airo a contract for removal and replacement of underground storage tanks. The invitation for bids to which Airo had responded had asked for one bid on work at Danville and Curlew, Washington, and Porthill and Eastport, Idaho, and separate bids for six options involving work at other, specified locations. The awarded contract was for the work at Danville, Curlew, Porthill, and Eastport, in the amount of $123,896, and for the work encompassed by option 3, in the amount of $19,825. The total amount was $143,721. Respondent's Statement of Undisputed Facts (Facts) 1; Appellant's Reply to Motion (Reply) at 1 and 1; Appeal File, Exhibits 1, 3. On September 4, 1996, a GSA contracting officer issued to Airo a notice to proceed with contract work. Facts 2; Reply 2; Appeal File, Exhibit 4. Also on September 4, the contracting officer asked Airo for a proposal to perform work at a facility in Moses Lake, Washington. Facts 3; Reply 3; Appeal File, Exhibit 5 at 4. Airo submitted such a proposal on September 17, and the parties met on September 18 to negotiate a contract modification regarding this work. Facts 4; Reply 4-5; Appeal File, Exhibit 5 at 4-5. During the negotiations, the parties disagreed as to the extent of soil removal which would be necessary to accomplish the job. They agreed that if more soil had to be removed than GSA assumed, additional costs would be covered by a change order. Facts 5; Reply 6; Appeal File, Exhibit 5 at 5- 6. On September 20, the parties entered into a contract modification, number PS01, for the Moses Lake work. This modification increased the contract price by $96,144. The modification provided that performance of the initial contract work would be delayed until after the Moses Lake work had been completed. Facts 6; Reply 7; Appeal File, Exhibit 5 at 1-3. Also on September 20, the contracting officer exercised options 1 and 4 under the contract, thereby increasing the contract price by $121,947. She did not issue a notice to proceed with the work covered by these options, however. Reply 8; Appeal File, Exhibit 6. Airo encountered more contaminated soil at Moses Lake than was reflected in the price contained in the contract modification covering the work at this site. Facts 8; Reply 9; Appeal File, Exhibits 9, 17. The parties attempted to negotiate a price for the resultant additional work, but these negotiations were unsuccessful. Facts 9; Reply 11. On February 14, 1997, the contracting officer unilaterally modified the contract to direct Airo to remove the additional contaminated soil and replace it with backfill, at an increase of $34,280 to the previously- established price. Facts 9; Reply 12; Appeal File, Exhibit 12 (contract modification PC05). The contract contains Federal Acquisition Regulation clause 52.249-2 (alternate 1) (April 1984). This clause permits the Government to "terminate performance of work under this contract in whole or, from time to time, in part if the Contracting Officer determines that a termination is in the Government's interest." The clause also directs the contractor, after termination, to submit a final termination settlement proposal to the contracting officer. Paragraphs of the clause state: (e) . . . [T]he contractor and the contracting officer may agree upon the whole or any part of the amount to be paid because of the termination. The amount may include a reasonable allowance for profit on work done. However, the agreed amount, whether under this paragraph (e) or paragraph (f) below, exclusive of costs shown in subparagraph (f)(3)[1] below, may not exceed the total contract price as reduced by (1)[2] the amount of payments previously made and (2) the contract price of work not terminated. . . . (f) If the Contractor and Contracting Officer fail to agree on the whole amount to be paid the Contractor because of the termination of work, the Contracting Officer shall pay the Contractor the amounts determined as follows, but without duplication of any amounts agreed upon under paragraph (e) above: (1) For contract work performed before the effective date of termination, the total (without duplication of any items) of -- (i) The cost of this work; (ii) The cost of settling and paying termination settlement proposals under terminated subcontracts that are properly chargeable to the terminated portion of the contract if not included in subdivision (i) above; and (iii) A sum, as profit on (i) above, determined by the Contracting Officer under 49.202 of the Federal Acquisition Regulation, in effect on the date of this contract, to be fair and reasonable; however, if it appears that the Contractor would have sustained a loss on the entire contract had it been completed, the Contracting Officer shall allow no profit under this subdivision (iii) and shall reduce the settlement to reflect the indicated rate of loss. (2) The reasonable costs of settlement of the work terminated . . . . . . . . (h) The cost principles and procedures of Part 31 of the Federal Acquisition Regulation, in effect on the ____________________ 1The clause does not contain a subparagraph (f)(3). Alternate I's subparagraph (f)(2) is identical to subparagraph (f)(3) in the standard version of the clause, and alternate I differs from the standard clause only in the contents of paragraph (f). 48 CFR 52.249-2 (1995). Evidently, the reference should be to subparagraph (f)(2) in the alternate I version. 2As printed in the contract, the clause has an "(a)" here, instead of the "(1)" prescribed by the regulation. date of this contract, shall govern all costs claimed, agreed to, or determined under this clause. Appeal File, Exhibit 1 at 102-03. On March 25, 1997, the contracting officer terminated the contract for the convenience of the Government. Facts 11; Reply 13; Appeal File, Exhibit 18. On May 2, 1997, Airo submitted a termination for convenience settlement proposal. The proposal requested payment of $80,031 -- $210,555.74 in costs, profit, and settlement expenses, less $130,524.74 in advance, progress and partial payments already received. Facts 12; Reply 14; Appeal File, Exhibit 20. Airo later asked the contracting officer to consider this proposal to be a claim and issue a decision on it. Facts 13; Appeal File, Exhibit 21. Airo appealed from a deemed denial of the claim. Facts 15; Appeal File, Exhibit 23. Discussion The Board has summarized the law regarding convenience terminations as follows: Under applicable Federal Acquisition Regulations (FAR), the objective of a termination for convenience settlement is to provide the contractor with "fair compensation" both for the work that has been completed prior to termination and for preparations made for terminated portions of the contract, including a reasonable allowance for profit. It has been recognized that the Government's decision to terminate a contract for convenience essentially acts to convert a fixed-price contract into a cost reimbursement contract, subject to the properly adjusted contract price as a ceiling. To this end, the cost standards of the FAR, in part 31, are applied in accordance with principles of business judgment and fairness, with the ultimate objective of making the contractor "whole." Richerson Construction, Inc. v. General Services Administration, GSBCA 11161, et al., 93-1 BCA 25,239, at 125,704 (1992) (citations omitted). We consider this case with these principles in mind. According to GSA, because Airo had permission to expend money only on the work encompassed by contract modifications PS01 (Moses Lake work) and PC05 (relating to additional contaminated soil at Moses Lake), and the agency has already paid the contractor in full for these items, no further recovery may be had consequent to the termination for convenience. GSA does acknowledge that Airo may believe the amount contained in modification PC05 does not provide full compensation for the additional work, but the agency maintains that no claim for a greater amount has been presented. Thus, GSA concludes, the appeal of the contracting officer's decision should be denied. In our view, this analysis fails to take into consideration established legal principles. First, as Richerson suggests, 93-1 BCA at 125,704, the amount of the termination settlement generally cannot be determined before the contractor's claims for equitable adjustments on changed work are resolved. Although the claim Airo presented to the contracting officer may not have set out explicitly a demand for greater payment than already received under PC05 for the additional work at Moses Lake, it clearly encompassed such a demand. All facts relevant to the equitable adjustment are incorporated within the set of facts relevant to the termination claim; only the legal theory is different. Airo correctly states that this matter remains in dispute. Because it comes within the scope of the claim, and has not yet been resolved, we have jurisdiction to consider it within the context of this case. Earl C. Wilson v. General Services Administration, GSBCA 13152, 96-1 BCA 28,266, at 141,139 (citing Placeway Construction Corp. v. United States, 920 F.2d 903 (Fed. Cir. 1990); Santa Fe Engineers, Inc. v. United States, 818 F.2d 856 (Fed. Cir. 1987)); Spectrum Leasing Corp. v. General Services Administration, GSBCA 12189, 95-1 BCA 27,317, at 136,183 (1994). Airo is entitled to the reasonable costs of this additional work, and it bears the burden of proving such costs. Herman B. Taylor Construction Co. v. General Services Administration, GSBCA 12915, 96-2 BCA 28,547, at 142,529-30; Plaza Maya Limited Partnership, GSBCA 9086, 91-1 BCA 23,425, at 117,501 (1990). Second, the maximum amount the contractor may receive in a termination for convenience settlement, exclusive of settlement costs, is not the amount provided in contract modifications PS01 and PC05 for work at Moses Lake, but rather, under the relevant contract clause, "the total contract price as reduced by (1) the amount of payments previously made and (2) the contract price of work not terminated." This cap turns out to have no relevance to our resolution of this case. The total contract price has yet to be determined. It includes the amounts in the original contract ($143,721), options 1 and 4 ($121,947), PS01 ($96,144), and an equitable adjustment for the additional work at Moses Lake (which may or may not be the amount determined unilaterally by the contracting officer in PC05). However great that equitable adjustment may be, the total contract price, less the amount of payments previously made ($130,524.74) and the contract price of work not terminated (zero), will be considerably in excess of Airo's claim. Having said this, however, we add some caveats regarding the claim. The burden of proof is on the contractor to demonstrate its entitlement to such convenience termination payments as are appropriate under the relevant contract clause. Maitland Bros. Co., ASBCA 43088, 93-3 BCA 26,007 (citing Lisbon Contractors, Inc. v. United States, 828 F.2d 759 (Fed. Cir. 1987)). As explained in FAR part 31, which is applicable to such payments under this contract, costs are allowable only if they are reasonable, allocable, and in accordance with prescribed standards. 48 CFR 31.201-2 (1995). "A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business." Id. 31.201-3(a). "What is reasonable depends upon a variety of considerations and circumstances, including . . . arm's length bargaining." Id. 31.201-3(b). A convenience termination settlement does not meet its objective if it puts the contractor in a better position than where he would have been had the termination not occurred. Whether or not GSA is correct in asserting (Respondent's Motion at 4 n.1) that Airo did not spend any money under this contract other than for work performed at Moses Lake, we will ultimately have to assess the reasonableness of whatever money the contractor spent on that work. The part of the Moses Lake work which was covered by contract modification PS01 was mutually agreed by the parties, after negotiations, to be worth $96,144. The additional portion of the work at that site appears to have consisted, at least in part, of items similar to those which were priced in the original contract for work at Danville and Curlew, Washington, and Porthill and Eastport, Idaho. We expect the parties to address the legal and factual reasons why each of these prices should or should not be used as the measure of reasonableness for the costs incurred at Moses Lake. The reasonableness of costs incurred at Moses Lake will also be relevant to any contention (as to which the Government would bear the burden of proof) that the contractor would have lost money had it completed all contract work. We also comment on Airo's contention that the contracting officer's concession in deposition testimony, that the contractor is entitled to some money under its termination convenience proposal, is significant. The contracting officer's current stance on matters raised in the appeal is something for us to consider in resolving the case, but it is hardly controlling. "[O]nce an action is brought following a contracting officer's decision, the parties start in court or before the board with a clean slate." Wilner v. United States, 24 F.3d 1397, 1402 (Fed. Cir. 1994) (en banc). A contracting officer's decision is not entitled to any presumption of correctness and is not to be treated as an evidentiary admission of the extent of the Government's liability. Id. at 1403; see also Assurance Co. v. United States, 813 F.2d 1202, 1206 (Fed. Cir. 1987); 7 World Trade Co. v. Securities & Exchange Commission, GSBCA 13294-SEC, 96-1 BCA 28,240, at 141,010; Strand Hunt Construction v. General Services Administration, GSBCA 12860, 96-1 BCA 28,185, at 140,689. If this is true as to a decision of a contracting officer, it must surely be so as to statements of lesser importance, such as those given at deposition. Decision GSA's motion for summary relief is DENIED. Within two weeks of the date of this decision, the parties shall jointly propose a schedule for further proceedings in the case. _________________________ STEPHEN M. DANIELS Board Judge We concur: _________________________ _________________________ JOSEPH A. VERGILIO MARTHA H. DeGRAFF Board Judge Board Judge