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Abadie v. Organization for Environmental Growth

September 26, 2002

JACQUES ABADIE, III, CHIEF PROCUREMENT OFFICER, PETITIONER,
v.
ORGANIZATION FOR ENVIRONMENTAL GROWTH, INC., RESPONDENT.



On Petition for Review of a Decision of the District of Columbia Contract Appeals Board

Before Steadman and Washington, Associate Judges, and Nebeker, Senior Judge.

The opinion of the court was delivered by: Steadman, Associate Judge

Argued May 21, 2002

We have before us a second appeal arising from a dispute between the Organization for Environmental Growth ("OFEGRO") and the District of Columbia following the District's termination for convenience of a contract relating to downtown traffic planning. The dispute concerns the award of termination costs to OFEGRO. The Contract Appeals Board ("CAB" or "the Board") originally awarded OFEGRO $575,223.18 in net termination costs. *fn1 On appeal, we reversed this award and remanded the case to the Board with instructions to recalculate the amount of awardable termination costs pursuant to our opinion. District of Columbia v. Organization for Envtl. Growth, Inc., 700 A.2d 185 (D.C. 1997) ("OFEGRO I"). *fn2 On remand, the Board awarded net termination costs of $193,211.77. *fn3

The District again appeals. It argues that the CAB award was not supported by substantial evidence because OFEGRO did not prove that its claimed termination costs were reasonable or allocable to the contract and that the CAB erred in refusing to apply the loss adjustment provision. We agree that the testimony explicitly relied upon by the CAB does not constitute substantial evidence of reasonableness or allocability. We must again reverse the Board's decision and remand the case for further proceedings.

I.

In the prior appeal of this case, we set forth the applicable standard of review as well as the sources of law on which we rely when reviewing decisions of the CAB:

`[T]he decision of the Board on questions of fact shall be final and conclusive' unless it is arbitrary, capricious, or not supported by substantial evidence. D.C. Code § 1-1189.7 (1992) [now codified at D.C. Code § 2-309.07 (2001)]. On questions of law, although the Board's decision is not final or conclusive, `we give careful consideration to [its] interpretation because legal interpretations by tribunals having expertise are helpful even if not compelling.' Fruin-Colnon Corp. v. United States, 912 F.2d 1426, 1429 (Fed. Cir. 1990), cited in Dano Resource Recovery, supra, 620 A.2d at 1352.[ *fn4 ] We also look not only to the case law on which the Board relied but to other decisions of the United States Court of Appeals for the Federal Circuit, the former United States Court of Claims and its successors, and the various federal boards of contract appeals, `all of which have particular expertise in this area.' Id. at 1351 (citation omitted; emphasis added). 700 A.2d at 198 (footnote omitted).

It does not appear disputed that termination costs are allowed only if they are reasonable, allocable to the contract, consistent with cost accounting standards and generally acceptable accounting principles and practices, and consistent with any limitations in the contract or regulations with respect to the type or amounts of costs. *fn5 See 48 C.F.R. § 31.201-2 (2002); see, e.g., Hydrothermal Energy Corp. v. United States, 26 Cl. Ct. 1091, 1104 (1992) (costs must not only be incurred they must also be reasonable and allocable to the contract). In determining reasonableness, the applicable portion of the Federal Acquisition Regulation (FAR) provides:

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. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer's representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. 48 C.F.R. § 31.201-3 (2002).

The CAB recognized that OFEGRO's termination costs had to satisfy the standard of reasonableness. In determining reasonableness the CAB noted that the "District did not introduce evidence questioning the reasonableness of the costs shown by OFEGRO." *fn6 However, since the burden is on OFEGRO to prove that their costs were reasonable, without the aid of any presumption, the failure of the District to disprove the reasonableness of OFEGRO'S costs is not determinative. See Corban Industries, Inc. v. United States, 24 Cl. Ct. 284, 286 (1991) ("[t]he claimant bears the burden of proving" termination costs) and cases cited; see also J. CIBINIC & R. NASH, ADMINISTRATION OF GOVERNMENT CONTRACTS 1099 (3d ed. 1995) ("[t]he contractor has the burden of establishing the amount of incurred costs, and, in the absence of evidence to the contrary, the contracting officer's termination allowance will be accepted"). *fn7

We turn then to the proof of reasonableness explicitly relied on by the CAB. In its opinion on remand dealing with that issue, the CAB stated: "Prior to the award of this contract, the Federal Highway Administration ("FHwA") estimated the cost of the work contracted to OFEGRO to be approximately $500,000. Finding of Fact 14 *fn8 . . . The Board found total `Costs of Performance' of $383,357.66. This amount was well within the estimate of the total cost of the work by FHwA. On the basis of the Federal estimate, we hold that the standard of reasonableness was satisfied." The testimony referred to *fn9 was that of Arthur J. Hill and Patricia (Fairbairn) Nicoson, *fn10 who testified before the Board about the FHwA estimate. What the CAB essentially did, as we read the opinion, was to take OFEGRO's costs of performance to the time of termination, which amounted to $383,357.66, and hold that this amount was reasonable because it fell within the federal estimate of $500,000. We are unable to follow this reasoning as constituting substantial evidence.

First of all, the testimony of Mr. Hill and Ms. Nicoson does not by itself appear to provide substantial evidence that OFEGRO's costs were reasonable. Upon careful examination of Ms. Nicoson's testimony, it seems clear that her $500,000 estimate was in fact a "total estimate" which included what she called an "enormous contribution of other staff time in addition to the consultant" in connection with the considerable costs associated with overseeing the contract, producing traffic data, and doing other kinds of studies, costs for which OFEGRO would not have been responsible. The record simply does not indicate what portion of Ms. Nicoson's $500,000 estimate was allocable to OFEGRO and it, therefore, could not form the basis of a reasonableness finding. Mr. Hill's testimony *fn11 reveals that his $500,000 quote was merely a general estimate based on his experience in the field, which provided him a "sixth sense" about such matters, rather than precise considerations or calculations. While Mr. Hill's experience in the field is of course relevant, Mr. Hill's general estimate, unsupported by any data or calculations, would not satisfy the substantial evidence standard.

In addition, the $500,000 FHA estimate was based on the total cost of the completed project. OFEGRO, however, never completed the project. Therefore, even if the $500,000 estimate somehow provided a starting point for holding that the standard of reasonableness was satisfied, this estimate presumably would need ...


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