Whenever there is a scope change on fixed price contract, there are several steps that take place. First, is preparing a proposal for the amount of the scope change and negotiating that change with the contracting officer. If the contracting officer issues a final decision (unilateral contract modification) that does not result in a satisfactory amount of recovery, the next step is to submit a request for equitable adjustment (REA). If again, the final decision does not provide adequate recompense, the next step is often appealing the decision to the Armed Services Board of Contract Appeals (ASBCA). This is not an option to be taken lightly, as a recent decision proved.
On January 12, 2016, the ASBCA issued decisions on a group of cases related to Vistas Construction of Illinois, Inc. Vistas had filed eight separate cases related to General and Administrative (G&A) expenses, profit, interest, costs to respond to the DCAA audit, bonding costs and REA preparation costs. In total, these claims amounted to over $17 million. The contracting officer had decided Vistas was entitled to $1.15 million. The ASBCA awarded an additional $85,000. All other appeals were denied or dismissed. To get this $85,000, Vistas attended a four-day hearing and submitted an REA of over 44 volumes and less we forget, once a contractor files an action under the CDA (Contract Disputes Act), the costs to pursue the claim are unallowable (FAR 31.205-47(f)(1)).
So, What can be Learned From this Case?
First and Foremost: be Consistent.
Vistas’ case was fraught with inconsistencies.
- The proposed G&A rate ranged from 7.7% to 13.7% in various documents.
- The proposed G&A base changed from total cost input to value-added and back to total cost input several different times.
- The expert witness submitted a letter that stated value-added G&A base was appropriate. At the hearing, he stated Vistas had used total cost input as their base for G&A, which was appropriate.
- In calculating equipment costs, Vistas stated that operators always used the same piece of equipment, so this allowed him to use labor hours to identify equipment used. However, Vistas had written DCAA a letter saying that it allowed its operators to "float" between multiple pieces of equipment.
- Originally labor hours and equipment hours were proposed based on certified payrolls, with the payrolls being annotated with the equipment used by each employee. Vistas kept daily reports that showed the cumulative total of equipment operating hours totaling 8,043.5 hours. In the REA, Vistas claimed 16,125 operating hours. At the hearing, Vistas stated that labor hours were based primarily on time sheets, which they failed to produce.
- Vistas general ledger reflected $13,267.86 for the cost of four of its employees working on the REA. An entry was made to “Adjustments and Reclassifications” for $295, 448.92 without explanation. This methodology was also used to add approximately $24,000 to the consultant’s travel expenses and almost $80,000 to the consultant’s pay.
Second: be Accurate.
- Vistas’ final calculation of G&A included several obvious errors.
- Vistas asked for interest purportedly under the Prompt Payment Act (PPA) even though there was no dispute that the government paid all invoices within the 14 days required by the PPA.
- Vistas stated they had been paid $12.7M for the unchanged work, even though that included payments of $2.5 M that were designated as being related to a change (P00001).
- The government, as part of its brief, 12 pages describing the errors in Vistas’ calculation of labor and equipment hours. Vistas did not dispute any of the errors and dismissed the analysis as finding “a few alleged errors.”
Finally, Read and Follow Federal Acquisition Regulations (FAR), Part 31.205.
- A related company borrowed money for Vistas due to the delays in payment caused by the changes. Vistas then claimed the interest cost as a reimbursable expense. This is contrary to FAR 31.205-20, which prohibits reimbursement of interest.
- FAR 31.205-33(f), requires consultant fees to be supported by evidence of the nature and scope of the services furnished. This should include details of all agreements. Vistas had a consultant agreement that capped the consultant’s time at 400 hours and his fees at $35,000. Yet Vistas claimed more than 2,300 hours and $339, 875 for this consultant. Vistas had no written agreement with the other consultants/attorneys for which it claimed costs.
These are just examples of the contradictions and errors contained in Vistas’ REA. There were many more. Before proceeding with long and costly litigation:
- Evaluate the strength of your position and
- Ensure you have a consistent, well-supported and FAR compliant REA.
Ultimately a successful REA involves contractor support for both entitlement and quantum; one without the other is analogous to winning the battle, but losing the war.
