ASBCA Provides Guidance on Establishing Contractor Standby and Replacement Work Sufficiency

In Alderman Building Co., ASBCA No. 58082, the Armed Services Board of Contract Appeals (ASBCA) addressed the standby element and the sufficient replacement work defense for unabsorbed home office overhead claims under Eichleay. The ASBCA awarded the contractor's entire unabsorbed home office overhead claim, but rejected its entire direct cost of standby claim. This opinion was rendered on the record without a hearing.

Facts

In March 2009, the Navy awarded prime contractor, Alderman Building Company, Inc., a task order contract to complete certain building renovations within a year. In April, Alderman subcontracted with Big John's Electric Co., Inc. for the electrical work. After contract performance started, but before actual work at the site commenced, the Navy sent a series of project communications suspending the work at the site without expressly requiring contractor standby during the suspension period. The suspension lasted approximately 200 days. When the project site was made available, Alderman and Big John's commenced work and completed it on time. Big John's asserted claims that Alderman sponsored on a pass through basis. The decision addressed Big John's sponsored claims.

The final claim amount of $56,548 included unabsorbed home office overhead based on the Eichleay formula and a separate amount for direct standby labor costs. The standby labor claim amount was based on an "estimated" standby labor cost of $21,753. The Board awarded $34,795, which is the difference between the final claim amount and the "estimated" standby labor cost claim (as opposed to actual payroll records).

Unabsorbed Home Office Overhead Claim Succeeds

The Navy argued that the unabsorbed home office overhead claim should have failed because the Navy never explicitly ordered Alderman to maintain its workforce ready to immediately recommence work after the suspension was lifted. The Board rejected this argument, and determined that the evidence established standby regardless of the Navy's failure to acknowledge it. At that point, the Navy unsuccessfully challenged Big John's efforts to take on sufficient replacement work and mitigate its unabsorbed home office overhead losses. The Navy's challenge failed, and the Board awarded the entire unabsorbed home office overhead claim.

The Board determined that there was enough evidence for a fact-finder to determine that Alderman-Big John's was on standby chiefly because the threat of liquidated damages during the suspension period made it "necessary and reasonable" to keep workforces ready to recommence work immediately when the suspension was lifted. The Board also noted that the Navy's series of short-notice postponements left the duration of the suspension uncertain until it was lifted. Accordingly, the Board found that Alderman was on standby during the suspension period and entitled to recover unabsorbed home office overhead costs unless the Navy established that taking on sufficient replacement work while on standby was "not impractical." The Navy failed to establish this.

The Navy did establish that Alderman took on "some" replacement work, but that it missed the mark. The Board found that the issue is not whether there was "any" replacement work. Rather, the issue is whether there was "sufficient" replacement work. The Board also noted that the Navy's practice of giving very short notice for when Alderman would be required to recommence work frustrated Alderman's replacement work efforts.

Since the Navy failed to address the sufficiency of replacement work and frustrated Alderman's efforts to take on replacement work, the Board awarded Alderman's entire unabsorbed home office overhead claim under the Eichleay formula without requiring Alderman to prove that it was "not practical" to take on sufficient replacement work.

Direct Standby Labor Claim Fails

The Navy argued that Alderman's standby labor claim should fail because Alderman's $21,753 estimate was not based on competent evidence. The Board agreed with the Navy on both counts and rejected this claim entirely for lack of evidence.

Alderman's claim amount was based on an indirect calculation rather than actual business or job cost records. There was no evidence that an electrician and a supervisor were literally standing by. It was an "estimate" by Alderman's civil engineering expert of the cost of one electrician and one supervisor standing by idly during the suspension. The Board could consider this evidence only if it recognized the opining civil engineering expert as a cost accounting expert also. But that was not the case.

Since Alderman failed (1) to establish that its civil engineering expert was also a cost accounting expert and (2) to provide direct evidence that a non-productive electrician and supervisor were actually standing by, there was no competent evidence in the record to support any award. Accordingly, the Board rejected the entire direct standby labor claim.

Takeaways

The most effective way to improve the odds of negotiating an equitable cost impact recovery without litigation is by taking control of an otherwise ambiguous project narrative, collecting contemporaneous cost and revenue projections and records, and supporting claims with actual cost records.

Make sure you understand correspondence from Government representatives as a collective whole and within the context of your contract or subcontract terms. Also, make sure you support claimed labor costs with contemporaneous cost records or the opinion of a person the Board recognizes as a subject matter expert. Here, there was a long series of Government correspondence on work site access, suspension, and time extension. The correspondence varied in terms of formality and certainty, and it must have been very difficult for the project team to see the big picture, especially early on.

If you have any questions about this opinion or the issues raised, please contact us.