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Eagle Maintenance Services, Inc. v. Dist. of Columbia Contract Appeals Board

March 2, 2006

EAGLE MAINTENANCE SERVICES, INC., APPELLANT
v.
DISTRICT OF COLUMBIA CONTRACT APPEALS BOARD, APPELLEE



Appeal from the Superior Court of the District of Columbia (CA-9353-01) (Hon. Stephanie Duncan-Peters, Trial Judge).

The opinion of the court was delivered by: Terry, Senior Judge

Argued February 23, 2005

Before FARRELL, Associate Judge, and KERN and TERRY, Senior Judges.*fn1

Eagle Maintenance Services, Inc. ("Eagle"), appeals from an order of the Superior Court denying review of a decision by the District of Columbia Contract Appeals Board ("CAB").*fn2 The CAB had ruled that the District of Columbia overpaid Eagle by $959,963 under a recycling contract between Eagle and the Department of Public Works ("DPW")*fn3 which had been declared void ab initio under D.C. Code § 2-302.05 (d)(1) (2001) (formerly codified as D.C. Code § 1-1182.5 (d)(1) (1999)).*fn4 We affirm the trial court's order in part, reverse that order in part, and remand the case for further proceedings before the CAB.

I. FACTUAL BACKGROUND

A. The Contract and the CAB Proceedings

On February 1, 1993, Eagle entered into a contract with DPW to receive, process, and market recyclable materials collected by the District. The contract required Eagle to "have a fully operational processing facility within the District" by the first day of the second year of the contract,*fn5 and included a "bilateral modification" stating that the District recycling facility would be "the sole responsibility of the contractor." Eagle began its performance of the contract on March 22, 1993. In June 1993 Recycling Solutions, Inc. ("RSI"), filed a bid protest with the CAB, challenging DPW's decision to award the contract to Eagle. On April 15, 1994, the CAB sustained RSI's protest and declared the contract between Eagle and DPW void ab initio pursuant to D.C. Code § 2-302.05 (d)(1), supra note 3.*fn6 See Recycling Solutions, Inc., CAB No. P-337, 42 D.C. Register 4550 (August 18, 1995). The CAB determined that the contract award was arbitrary and did not meet other requirements of a procurement contract.*fn7 Accordingly, the CAB ordered DPW to cancel the contract on that ground. Instead, however, DPW sent a letter to Eagle on April 24, 1995, purporting to cancel the contract on the ground that DPW had insufficient funding to continue performance (i.e., a "termination for convenience"), pursuant to the contract's Article 6. On April 28, 1995, upon receipt of this letter, Eagle submitted a demand to DPW for a termination payment of $6,644,777.05.*fn8 Eagle continued its recycling work for the District until approximately April 30, 1995.

The CAB later learned that DPW had violated its order of April 15, 1994, by canceling the contract for "insufficient funds." On June 6, 1995, the CAB again ordered DPW to inform Eagle that the contract had been declared void ab initio and was therefore canceled for that reason.*fn9 The CAB also stated that Eagle was entitled to actual costs reasonably incurred, but not profit, under D.C. Code § 2-302.05 (d)(2).*fn10 The CAB then directed DPW to make a determination under the statute of the appropriate compensation for costs actually incurred by Eagle.

Between the signing of the contract in February 1993 and the termination of the contract at the end of April 1995, Eagle submitted invoices for payments and received payments from DPW in the amount of $2,070,056. DPW did not, as the CAB had directed it to do, make a statutory determination of Eagle's costs. It did, however, award Eagle an "emergency" contract for recycling services in June of 1995, under which Eagle performed essentially the same functions as it had under the 1993 contract.*fn11

On January 2, 1996, DPW sent Eagle a check for $1,071,966 in an apparent attempt to settle the matter, although it still had not made the required determination under D.C. Code § 2-302.05 (d)(2) with respect to compensation for Eagle's performance costs. Thus, as of January 1996, the District had paid Eagle a total of $3,142,022.*fn12 In March 1996 the CAB asked Eagle and DPW to prepare and submit detailed schedules of Eagle's actual costs and revenue associated with its recycling work. The Office of the Corporation Counsel (now known as the Office of the Attorney General) then requested the Office of the Inspector General ("OIG") to conduct an audit of Eagle's costs and revenue.

The OIG completed its initial audit on August 10, 1996, and the CAB reviewed it with the parties on September 17, 1996. The following day, the CAB ordered Eagle to produce additional documentation to support findings of allowability and allocability of claimed costs,*fn13 and directed the OIG to prepare a supplemental audit report based on this additional information. After several more CAB orders directing Eagle to produce documentation and other information, Eagle provided the requested material on December 18, 1996. The OIG issued its final audit report on March 5, 1997, concluding that, because Eagle's actual costs were $3,688,075 and the District made $3,142,022 in payments, the District owed Eagle an additional $546,053. The CAB then held a series of evidentiary hearings in March, April, and May 1997 and requested yet more documentation from Eagle.

B. The CAB Decision

In its final decision, issued on December 29, 2000, the CAB concluded that, while Eagle had entered into the contract in good faith and had not contributed to the violations, the costs actually incurred*fn14 by Eagle in performing the contract were $2,182,059, and that Eagle therefore owed the District $959,963 for payment in excess of those costs. In arriving at that figure, the CAB analyzed each of Eagle's claims for costs, including direct labor costs, fringe benefit costs, other direct costs, subcontractor costs, general and administrative costs, and District-based processing facility costs.

Most significantly for purposes of this appeal, the CAB found, on the basis of hearing testimony and documentary evidence, that at least five percent of Eagle's costs were attributable not to work performed under the contract with the District, but to Eagle's other janitorial and recycling jobs. It therefore applied a five percent reduction to the costs claimed by Eagle in connection with its recycling operations, including direct labor costs, fringe benefit costs, other direct costs, and subcontractor costs. It also disallowed ten percent of Eagle's costs associated with "fuel, maintenance and transportation" because it found that Eagle had operated inefficiently in conducting hauling operations between its own Capitol Heights facility and the CWI facility to process recyclables from the District. Finally, it rejected Eagle's claim for $5,548,367 associated with constructing the new District-based facility. This decision was based on (1) the contract's bilateral modification, which stated that the facility would be Eagle's "sole responsibility";*fn15 (2) the fact that the facility retained commercial value even after the District recycling job had ended; and (3) the fact that, because the facility was not completed before the contract was declared void, it did not benefit the District.

C. Proceedings in the Superior Court

Eagle petitioned the Superior Court for review of the CAB's decision. After extensive pleadings and other documents were filed, the court affirmed the CAB's rulings and denied Eagle's petition.

The court agreed with the CAB that "actual costs" under section 2-302.05 (d)(2) must be reasonable costs.*fn16 It therefore held that the CAB did not err when it refused to award Eagle start-up and construction costs for the District facility because the facility was not completed when the contract was declared void ab initio in April of 1995, so that no benefit was ever conferred upon the District which would make those costs recoverable. The court also ruled that the contract's bilateral modification precluded recovery of those costs because it established that the facility was Eagle's "sole responsibility." It concluded that the facility retained commercial value after the cancellation of the contract and that Eagle therefore obtained a benefit from its construction. Finally, the court held that the CAB's factual determinations regarding Eagle's other costs, including the five and ten percent reductions, were supported by substantial evidence. Eagle filed a timely notice of appeal.

II. "COSTS ACTUALLY INCURRED"

We must decide whether the CAB's determinations of the "costs actually incurred" by Eagle under the void contract with DPW were based on substantial evidence in the record, and whether the CAB erred in holding that the District was entitled to a refund of its excess payment. For the most part, we affirm the trial court's decision, but in two respects we must reverse and remand for further proceedings.

We review the CAB's factual findings deferentially. As this court said in Belcon, Inc. v. District of Columbia Water and Sewer ...


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