Board of Contract Appeals General Services Administration Washington, D.C. 20405 ______________________________________________________ RESPONDENT'S MOTION FOR PARTIAL SUMMARY RELIEF GRANTED IN PART: October 29, 1998 ______________________________________________________ GSBCA 14558 THERMAL MANAGEMENT, INC., Appellant, v. GENERAL SERVICES ADMINISTRATION, Respondent. Richard S. Reizen and Ellen Chapelle of Kubasiak, Cremieux, Fylstra, Reizen & Rotunno, Chicago, IL, counsel for Appellant. Jeremy Becker-Welts, Office of General Counsel, General Services Administration, Washington, DC; and Joel D. Malkin, Office of Regional Counsel, General Services Administration, Chicago, IL, counsel for Respondent. Before Board Judges DANIELS (Chairman), NEILL, and VERGILIO. NEILL, Board Judge. The Government has moved for partial summary relief regarding two counts in this appeal. The dispute concerns a contract awarded to appellant, Thermal Management, Inc. (TMI), by the General Services Administration (GSA) in August 1995. Under the contract, TMI was to replace certain automatic temperature control systems with direct digital control in the E. M. Dirksen Federal Building in Chicago, Illinois. TMI's contract was eventually terminated for the convenience of the Government. TMI contends that the termination was in bad faith (Count I), that it is entitled to additional compensation for work completed under the contract (Count II), that it is also entitled to certain equitable adjustments for additional work called for by the Government (Count III), and that it is entitled to various termination costs (Count IV). This motion for summary relief concerns Counts II and IV. GSA asks that we find appellant's recovery, if any, under these two counts cannot exceed in the aggregate the contract price reduced by the amount of payments previously made. For the reasons set out below, we grant the motion in part. Background The Two Counts in Question In Count II of its complaint, TMI notes that it was to receive $747,000 under the terms of its contract. Prior to contract termination, GSA had paid TMI $525,654.44. TMI argues, however, that, at the time of contract termination, only $83,520 worth of work remained to be completed. Accordingly, TMI contends that it is entitled to the balance of $137,835.56 for work already completed prior to contract termination. TMI lists the following termination costs in Count IV of its complaint: Supplies retained by GSA $ 5,000.00 Vendor return costs $ 10,348.00 Loss of key employees $189,750.00 Idle plant and equipment $ 89,333.25 Legal Fees $ 64,000.00 Administrative and Clerical Costs $ 85,202.50 Total $443,633.75 The Alleged Limiting Language The Government's motion is based upon language contained in the contract clause entitled: "TERMINATION FOR CONVENIENCE OF THE GOVERNMENT (FIXED-PRICE) (Alternate I) (APR 1984)." The clause can be found in Section 52.249 of the Federal Acquisition Regulation (FAR), 48 CFR 52.249-2 (1994). The clause reads in part as follows: (a) The Government may 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 Contracting Officer shall terminate by delivering to the Contractor a Notice of Termination specifying the extent of termination and the effective date. . . . . (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 c o s t s s h o w n i n s u b p a r a g r a p h (f)(3)[[foot #] 1] below, may not exceed the total contract price as reduced by (1) the amount of payments previously made and (2) the contract price of work not terminated. The contract shall be amended, and the Contractor paid the agreed amount. Paragraph (f) below shall not limit, restrict, or affect the amount that may be agreed upon to be paid under this paragraph. (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, including - ----------- FOOTNOTE BEGINS --------- [foot #] 1 The Alternate I version of the FAR Termination for Convenience clause (which is used in TMI's contract) has a substitute version of subparagraph (f). In this Alternate I version, the provision said here to be in (f)(3), which describes various settlement costs, is found instead in (f)(2). See Airo ___ ____ Services, Inc. v. General Services Administration, GSBCA 14301, ----------- FOOTNOTE BEGINS --------- slip op. at 3 n.1 (July 23, 1998). ----------- FOOTNOTE ENDS ----------- (i) Accounting, legal, clerical, and other expenses reasonably necessary for the preparation of termination settlement proposals and supporting data; (ii) The termination and settlement of subcontracts (excluding the amounts of such settlements); and (iii) Storage, transportation, and other costs incurred, reasonably necessary for the preservation, protection, or disposition of the termination inventory. Appeal File, Exhibit 70 at 68-69. Discussion GSA's motion is, of course, based upon the provision in subparagraph (e) of the contract's Termination for Convenience clause which explicitly states that the amount paid to a contractor in reply to the contractor's termination for convenience settlement proposal may not exceed the total contract price as reduced by (1) the amount of payments previously made and (2) the contract price of work not terminated. In bringing the motion, however, the Government makes no reference to the exception to this ceiling limitation which is also set out in subparagraph (e) of the same clause, namely, the phrase "exclusive of costs shown in subparagraph (f)(3)" -- which, as already noted, are to be found in (f)(2) of the contract version of this clause. TMI does not challenge the applicability of the ceiling limitation so far as claims for work done under the contract (Count II) are concerned. Not surprisingly, however, TMI mounts a vigorous defense of the settlement claims in Count IV based upon the exception set out in (f)(2) of the contract clause.[foot #] 2 In reviewing the types of costs set out in Count IV of TMI's complaint, we note that some of these appear to qualify as the type of costs described in subparagraph (f)(2). We would include in this group the claims for: (1) vendor return costs, (2) legal fees, and (3) administrative and clerical costs. Since the exact nature of these costs and their reasonableness has yet to be proven, we obviously can make no determination at this time as to ----------- FOOTNOTE BEGINS --------- [foot #] 2 In briefing this issue, counsel for appellant does not cite to the Termination for Convenience clause in the contract but rather to a current FAR version of the clause. Because of recent changes in the clause, appellant's subparagraph citations do not always correspond to those in the contract clause. Nevertheless, because the provisions cited by appellant also appear in the contract clause, albeit under different subparagraphs, we consider appellant's argument. ----------- FOOTNOTE ENDS ----------- their ultimate allowability. Nevertheless, this being a motion for summary relief, we draw all factual inferences in favor of TMI, the party opposing the motion. Dairyland Power Cooperative v. United States, 16 F.3d 1197, 1202 (Fed. Cir. 1994); Armco, Inc. v. Cyclops Corp., 791 F.2d 147, 149 (Fed. Cir. 1986). Accordingly we will assume, for purposes of this decision, that these costs are, in fact, as stated and consequently qualify as exempt costs pursuant to subparagraph (f)(2). The Government's motion, as it applies to these three classes of costs, therefore, is denied. Three other claims in Count IV, however, as described in TMI's complaint, obviously, by their very terms, cannot qualify as exempt costs under subparagraph (f)(2). The first is TMI's claim of $5000 for supplies retained by GSA. While (f)(2) exempts costs associated with the storage, transportation, preservation, protection or disposal of termination inventory, it does not exempt the cost of the inventory itself. The other two claims total $279,083.25 and relate to costs associated with TMI's key employees, plant and equipment which allegedly remained idle for several months following the abrupt termination of TMI's contract. TMI attempts to justify these claims as exempt settlement costs based upon a provision of FAR 31.205-42 which states: Contract terminations generally give rise to the incurrence of costs or the need for special treatment of costs that would not have arisen had the contract not been terminated. Appellant is correct in noting that, under the contract Termination for Convenience clause, the cost principles and procedures of Part 31 of the FAR, in effect on the date of the contract, shall govern all costs claimed, agreed to, or determined under the clause. While the language in FAR 31.205- 52 may justify consideration of claims for termination inventory or idle personnel, plant, and equipment as termination claims, it clearly is insufficient to shift these alleged termination costs to the exempt category of termination settlement costs as those costs are described in subparagraph (f)(2). As stated, these costs are specifically identified as : (i) Accounting, legal, clerical, and other expenses reasonably necessary for the preparation of termination settlement proposals and supporting data; (ii) The termination and settlement of subcontracts (excluding the amounts of such settlements); and (iii) Storage, transportation, and other costs incurred, reasonably necessary for the preservation, protection, or disposition of the termination inventory. The costs of termination inventory or alleged costs associated with idle key employees, plant and equipment are clearly of a different ilk than those listed in (f)(2). We, therefore, grant the Government's motion for summary relief in part and conclude that appellant's recovery, if any, for the claims set out in Count II and for the claims concerning retained supplies, idle key personnel, an idle plant, and idle equipment set out in Count IV cannot exceed, in the aggregate, the contract price reduced by the amount of payments previously made. Decision The Government's motion for partial summary relief is GRANTED IN PART. ______________________ EDWIN B. NEILL Board Judge We concur: ______________________ ______________________ STEPHEN M. DANIELS JOSEPH A. VERGILIO Board Judge Board Judge