Herman JCG Co. JV¹

ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeal of - )

)

Herman JCG Co. JV 1 ) ASBCA No. 63235

)

Under Contract No. N62473-18-D-5822 )

APPEARANCES FOR THE APPELLANT: Jon G. Lycett, Esq.

General Counsel

Escondido, CA

Steven J. Stuart, Esq.

Smith, Currie, & Hancock LLP

Atlanta, GA

APPEARANCES FOR THE GOVERNMENT: Craig D. Jensen, Esq.

Navy Chief Trial Attorney

Michael W.S. Hayes, Esq.

Trial Attorney

OPINION BY ADMINISTRATIVE JUDGE ARNETT

This appeal arises from a design-build contract awarded by the Department of

the Navy (the government or Navy) to appellant Herman JCG Co. JV (Herman) and

turns on whether Herman is entitled to share in savings resulting from a proposal that

was initially submitted as a change and subsequently submitted as a Value Engineering

Change Proposal (VECP). Herman asserts that its proposal was always a VECP and

seeks to share the contract savings consistent with a VECP (app. br. at 10-15). The

Navy denies that the proposal satisfies the requirements for a VECP and contends that

it conditionally accepted the change proposal prior to its disclosure as a VECP (gov’t

br. at 21-24; gov’t reply at 7). The Navy denies that it constructively accepted the

VECP by allowing Herman to construct the project using its phased approach (gov’t

br. at 2, 26-27).

1

Although this matter was originally filed and docketed under the name of Herman

Construction Group, Inc., we construe this appeal as filed under the name of Herman

JCG Co. JV because the joint venture (JV) is a party to the contract at issue, and

appellant’s filings consistently reflect that this matter was brought on behalf of the JV.

The case caption has been corrected.

The Board has jurisdiction over this appeal pursuant to the Contract Disputes

Act of 1978 (CDA), 41 U.S.C. §§ 7101-7109. The parties elected to submit this

appeal on the record pursuant to Rule 11 and requested that the Board decide

entitlement only.

Because we conclude that the government constructively accepted Herman’s

VECP, the appeal is sustained.

FINDINGS OF FACT

Background:

1. On October 25, 2017, the Navy awarded an Indefinite Delivery Indefinite

Quantity Multiple Award Construction Contract (the Contract) to Herman for new

construction, renovation, and repair of general building construction at various

installations in the Southwest (see generally R4, tab 1). On September 18, 2019, the

Navy awarded a firm-fixed price task order against the Contract for Design-Build

Repair MCCES Operation Building 1737, Marine Corps Air Ground Combat Center,

Twentynine Palms, California (R4, tab 9 at 113-14). 2 Design and construction of the

renovation were to be completed by July 5, 2021 (id. at 115). During construction, the

27,340 SF building was to be “non-operational and vacated,” and the work was not

required to be phased (R4, tab 67 at 1823, 405). Thus, the occupants of the

administrative/office space (approximately 5,785 SF) and classrooms (approximately

12,633 SF) in Building 1737 would have to relocate to swing space for more than a

year while construction was completed (id., R4, tab 47 at 2402).

2. For swing space, the task order required Herman to provide “temporary

modular office facilities for the duration of the renovation” and included floor plans

for two groups of trailers totaling 7,200 SF (R4, tabs 67 at 556, 135 at 2282-91). The

trailers were intended to serve as “admin space and storage only” because the

government was “consolidating down” its classrooms (R4, tab 76 at 1950). Floor

plans for the trailers indicated the required configuration and furniture for offices,

cubicles, work areas, conference rooms, and restrooms (R4, tab 135 at 2283-84).

Based upon the size and configuration of the temporary trailers depicted in the floor

plans, the trailers do not appear to be sufficient or intended to serve as swing space for

the entire building (R4, tab 135 at 2283-84).

2

Documents in the Rule 4 file are numbered using a letter prefix and leading zeros. For ease,

we have dropped the prefix and leading zeros in this decision.

2

Herman’s proposal:

3. On October 21, 2019, Herman verbally proposed “eliminating the trailers

and their related cost by phasing the project” (R4, tab 137 ¶ 8). On October 23, 2019,

Herman submitted a plan which proposed “phasing the project rather than utilizing

temporary trailers to house the administration staff” (R4, tabs 41 at 1334-35, 19

at 252-53). As proposed, Phase 1 would include renovation of the classroom side of

the building allowing the administration staff to remain in place throughout Phase 1

(R4, tab 19 at 252). Upon completion of Phase 1, the administration staff would

temporarily occupy the newly renovated classroom side during renovation of the

administration/office space in Phase 2 (id.). The phasing plan included a color-coded

drawing depicting the portions of the building associated with Phases 1 and 2 (id.).

Herman’s proposal identified benefits to the government arising from phasing

including allowing the administration staff to “occupy their current space for a longer

period of time” (id. at 253). Contemporaneous internal government emails noted that

the Navy could request a credit and stated concurrence with the plan subject to a few

conditions (R4, tab 41 at 1332-34). We find that Herman’s phasing plan proposed a

change to the contract.

4. On November 4, 2019, the Navy responded that it would “consider” phasing

subject to three conditions: 1) provision of 1,000 SF of climate-controlled storage

with shelving; 2) responses to several Requests for Information (RFIs); and 3) a credit

to the government for “all of the trailers and setup that are not going to now be done

for this project” (R4, tab 41 at 1331-32). Indicating that it would be a “negotiated

credit,” the Navy closed by stating, “If you are going to pursue this please submit an

RFI with ROM solution / proposals for all of this and we can proceed forward” (id.).

5. On November 18, 2019, Herman provided an itemized list of anticipated

costs and savings and estimated a potential net savings of $151,400 for phasing in lieu

of temporary trailers (R4, tab 38 at 7). Government comments from the 45% design

review on November 21, 2019 state, “Temporary Trailer issue needs resolution.

Reasonable deduct and no extension to contract time line” (R4, tab 47 at 2446). Notes

from a December 3, 2019 design meeting indicated, “HCG proposed a $150k credit to

GOV to eliminate trailers. Under consideration by GOV . . . Customer prefers the

phased program. GOV Asset mgr concerned about big-picture value to GOV. Some

discussion needed between GOV team members” (R4, tab 43 at 1419).

6. On December 11, 2019, Herman submitted RFI 008 requesting approval to

delete the temporary trailers and proceed with its phasing plan (R4, tab 20 at 254). On

the RFI, Herman marked three separate boxes indicating “High” priority, potential

time/cost impact, and “Critical Path” (id.). Six weeks elapsed before the Navy

responded on January 23, 2020 and acknowledged a need to “negotiate this asap:”

3

The government agrees with the position of ONLY 1000

S.F. climate controlled trailers for storage and the

remainder would be a credit to the government. Phasing is

acceptable for this project with credit to the government.

Until that is negotiated it cannot be said a definitive yes,

but IF all parties can agree upon a settlement it is the way

forward preferred.

(R4, tabs 41 at 1329, 20 at 254)

7. On April 1, 2020, the Navy issued a proposed change/request for proposal

under the task order to Herman to reduce the required trailers to approximately

1,000 SF of climate-controlled storage with shelving and sought pricing for a credit for

the trailers, utilities, setup/teardown, and computer workstations that were no longer

needed (R4, tab 21 at 257). Herman submitted proposals in April and May 2020 (R4,

tabs 45 at 2332-54, 46 at 2355-95). Each submission proposed costs savings for

eliminating the modular trailers as well as additional costs associated with phasing

such as utilities, providing the 1,000 SF climate-controlled storage, and building out

the classrooms for temporary occupancy during Phase 2 (id.).

8. Both Herman’s 100% and Issued for Construction (IFC) designs provided

for phased construction and the IFC design reduced the trailers to only 1,000 SF of

climate-controlled storage (R4, tab 43 at 1352, 1461, 1579; tab 47 at 2401, 2546). On

June 2, 2020, Herman followed up, “This needs to be confirmed before we are able to

begin.” (R4, tab 48 at 3393). After mobilizing on June 8, 2020, Herman emailed the

Navy stressing the urgency to negotiate the change because demolition was scheduled

to begin within a few days (R4, tab 51 at 3457-58; gov’t br. at 11). On June 10, 2020,

the Navy Senior Construction Manager (CM) responded and copied the contracting

officer: 3

If we, the government, receive your IFC drawings and the

beginnings of a Baseline schedule (received and we

schedule areview (sic) to accept), we have no restrictions

for actual Demo / Construction work to begin next week –

June 15, 2020. The government like HCG want to very

much get the negotiations of the trailers completed as soon

as we can, but it is not a government contract restriction,

3

We note that the contracting officer copied on this email is the same contracting officer who

denied Herman’s claim. In the final decision, she denies that the government accepted

the phasing plan. Rather, she states that it was conditionally accepted but the

condition precedent (negotiation of an acceptable credit) was never fulfilled. (R4,

tab 31 at 322)

4

nor delay, if it is not completed by that date. RFI 008

commits the government to that position for construction

execution of Phasing and (sic) is our desire to make this

happen.

(R4, tab 53 at 3464)

9. There is no evidence that the Navy Senior CM was a warranted contracting

officer (gov’t reply at 12). Thus, we find that he lacked authority to approve a change

to the contract and, accordingly the government did not constructively accept

Herman’s phasing plan through its response to RFI 008.

10. On June 15, 2020, Herman began demolition, and government personnel

actively cooperated with the phased approach (gov’t br. at 13). Despite several

exchanges in June and July 2020, the parties were unable to reach agreement on a

credit for phasing and deletion of the trailers (see generally R4, tabs 101-02).

Herman identifies its proposal as a VECP.

11. On August 7, 2020, Herman submitted a “Notice of Value Engineering

Change Proposal – FAR 52.248-3” which stated that its phasing proposal “is now and

has always been properly viewed as a Value Engineering Change Proposal (‘VECP’)

pursuant to FAR 52.248-3” (R4, tab 23 at 261). Herman asserted that it previously had

provided the information required by Federal Acquisition Regulation (FAR) 52.248-3,

its proposal met the criteria for a VECP, and that the government only had to have

notice that the request was a VECP prior to issuance of a modification (id.). Herman

requested that the government identify any required form or additional information

needed and stated, “[P]lease consider this letter notice that Herman is seeking to have

its proposal accepted as a VECP . . .” (id.). We find that the government was on

notice, as of August 7, 2020, that Herman considered its phasing plan to be a VECP.

We also find that no government representative with authority to change the contract

had accepted the phasing proposal or incorporated it into the contract prior to its

identification as a VECP on August 7, 2020.

12. The Contract included FAR 52.248-3 VALUE ENGINEERING –

CONSTRUCTION (OCT 2015) and FAR 52.248-3 Alt I, VALUE ENGINEERING –

CONSTRUCTION (OCT 2015) – Alternate I (APR 1984) (R4, tab 1 at 28). The

clauses define a VECP as a proposal that

(1) Requires a change to this, the instant contract, to implement; and

5

(2) Results in reducing the contract price or estimated cost without impairing

essential functions or characteristics; provided, that it does not involve a

change

(i) In deliverable end item quantities only; or

(ii) To the contract type only.

FAR 52.248-3(b). Pursuant to the clause, A VECP must include (1) a description of

the difference between the existing contract requirement and that proposed,

(advantages/ disadvantages); (2) an analysis of the contract requirements that must be

changed if the VECP is accepted, including any suggested specification revisions;

(3) a separate, detailed cost estimate for the affected portions of the existing

requirement and the VECP; (4) a description and estimate of costs the government

may incur in implementing the VECP (e.g. test and evaluation and operating and

support costs); (5) a prediction of any effects the proposed change would have on

collateral costs to the agency; (6) a statement of the time by which a contract

modification accepting the VECP must be issued in order to achieve the maximum

cost reduction, noting any effect on the contract completion time or delivery schedule;

and (7) identification of any previous submissions of the VECP. Id.

13. As of August 7, 2020, Herman was seven weeks into construction with

eleven months remaining to complete the project (R4, tab 9 at 115). According to the

approved baseline schedule, 4 Herman should have been finished with Phase 1

demolition and abatement and began framing and rough-in (R4, tab 58 at 3519). The

baseline schedule included a 30-day activity between Phases 1 and 2 to move

occupants to the swing space (id. at 3520). Throughout construction, Herman

remained 2-4 weeks ahead of schedule (R4, tab 116 at 2223). Upon notification on

August 7, 2020 that Herman intended its phasing plan to be a VECP, the contracting

officer could have required Herman to adhere to the original contract terms by

providing temporary trailers, moving building occupants to the trailers, and completing

the balance of the renovation with Building 1737 unoccupied.

14. On September 8, 2020, the contracting officer rejected Herman’s August 7,

2020 VECP stating that while “it appears that this proposal would require a change in

contract terms,” the credit to the government did not qualify for VECP consideration

because the change would impair government function due to “non-availability of

space in the temporary trailers” 5 (R4, tab 24 at 263-64). The contracting officer

4

Because the record includes very little as-built information, the Board relies upon the

approved baseline schedule and its projected status of the project for August 2020.

5

We note that, at the time of this assertion regarding impairment of government function and

displaced personnel, the project was still in Phase 1 (R4, tab 109 at 2204-05). Thus,

6

deemed the proposed savings as “a straight credit back to the Government” (id.). We

find no evidence in the record of any government demand or direction, after rejection

of the VECP, that Herman provide the temporary modular trailers required in the

original contract or abandon its phased approach to the project.

15. On September 9, 2020, the contracting officer unilaterally executed

Modification No. P00002 which incorporated Herman’s Final Design Drawings and

Specifications into the contract (R4, tab 11 at 224-25). Herman’s Final Design 6

included phasing and reduced the trailer requirement to only 1,000 SF of climate-

controlled storage (R4, tab 47 at 2401, 2546). It specifically stated,

The scope of work will be performed in two phases,

utilizing the existing north/south area separations of the

building. The north phase work will occur first, followed

by the south end . . . The classroom function will be

relocated by the GOV to another area and administrative

functions will maintain operation in this building,

operating in the area of the building not under

construction.”

(id.). We find that the contracting officer, with full knowledge that Herman

considered its phasing plan to be a VECP, accepted the phasing plan as part of the

Final Design and incorporated it into the contract through Modification No. P00002.

16. On November 12, 2020, Herman requested reconsideration of its VECP

arguing that the government had constructively accepted and received the benefit of

the VECP (R4, tab 25 at 265). Herman indicated that it would continue to negotiate a

credit while reserving its right to share savings from its VECP (id. at 267).

17. By November 20, 2020, the parties agreed that the cost savings associated

with phasing in lieu of trailers was a net credit of $284,997 (R4, tab 116 at 2221-23).

The net negotiated credit included cost savings for deleting the trailers as well as

additional HVAC, electrical, and comm/data/fire alarm costs associated with phasing

as well as an allowance to build out the classrooms for temporary occupancy during

Phase 2 (id.; R4, tab 26 at 287). Herman declined to sign a modification without

apportionment of the credit consistent with a VECP (app. proposed finding of fact ¶

42; R4, tabs 114 at 2215-17, 116 at 2221). To date, no modification has been executed

the administrative/office personnel originally slated to use the temporary trailers as

swing space remained in their offices in Building 1737 throughout Phase I.

6

We understand and use the term, “Final Design,” to refer to Herman’s IFC design at R4,

tab 47.

7

to capture the cost savings associated with this change (R4, tab 31 at 322; gov’t br.

at 16).

18. After the government was on notice that Herman considered its phasing

plan to be a VECP, the government continued to approve submittals implementing the

phasing plan (R4, tabs 61 at 3556, 66 at 3807). On November 30, 2020, the

contracting officer accepted completion of the Phase 1 work (R4, tab 109 at 2204-05).

19. We find that, through execution of Modification No. P00002, the

government constructively accepted Herman’s phasing plan as a VECP. Further, we

find that the amount of the credit was unknown at the time of acceptance, and

monetary costs were not the deciding factor in the government’s acceptance (R4,

tab 125 at 2241, gov’t br. at 7-8 7).

The Claim:

20. On October 20, 2021, Herman resubmitted its November 12, 2020 request

for reconsideration of its phasing proposal as a VECP which the Navy promptly

denied (R4, tab 119 at 2227-28). On November 3, 2021, Herman submitted a Request

for a Contracting Officer’s Final Decision (the claim) for $156,748 asserting that its

phasing proposal was a VECP and entitlement to 55% of the negotiated credit of

$248,997 (R4, tab 30 at 1-2).

21. In a final decision dated January 3, 2022, the contracting officer denied

Herman’s claim (R4, tab 31 at 323). Accusing Herman of a “bait and switch,” the

contracting officer asserted that Herman did not submit all required information for a

VECP and that no authorized representative accepted Herman’s phasing plan so

Herman should have performed in accordance with its contract (id. at 322-23). The

contracting officer stated that she had sole discretion to accept or reject the VECP and

could only accept the VECP through issuance of a notice to proceed or execution of a

modification, neither of which occurred (id. at 321-22). On March 22, 2022, Herman

filed an appeal with the Board which was docketed as ASBCA No. 63235.

7

The government admits that it did not know the amount of the credit when considering

Herman’s phased approach and that monetary costs were not the deciding factor in

acceptance of the approach (gov’t br. at 7-8); however, the government argues that the

credit was the “primary reason” that it “was willing to consider” phasing (id. at 27).

8

DECISION

The Parties’ Contentions:

Herman asserts that it is entitled to share in the cost savings arising from its

proposed phasing plan because the plan satisfied the requirements for a VECP

pursuant to FAR 52.248-3 (app. br. at 10-15). It argues that the government

authorized implementation of the phasing plan thereby waiving the requirements of

FAR 52.248-3(c) (id. at 15-18). Alternatively, Herman contends that the government

constructively accepted the VECP and should be estopped from denying such

acceptance and its obligation to share the cost savings (id. at 19).

The government asserts that the Board is “not empowered to substitute its

judgment” for that of the contracting officer and our review is limited to whether

rejection of the VECP was arbitrary, capricious, or an abuse of discretion (gov’t br.

at 19-21). The government argues that Herman’s phasing proposal did not meet the

requirements for a VECP and was not identified as such until months after the change

had been implemented (id. at 21-24). The government contends that Herman induced

it to accept the phasing plan through the promise of full credit which was the “primary

reason” the government was willing to accept the phasing plan (id. at 27). The

government alleges that Herman breached the duty of good faith and fair dealing by

denying the government the full credit arising from the change (id.). The government

denies that it constructively accepted the VECP by allowing Herman to construct the

project using its phased approach (id. at 2, 26-27).

Standard of Review under Board Rule 11:

Under Board Rule 11, the parties may waive a hearing and instead have the

Board issue a decision based on the record. “Unlike a motion for summary judgment,

which must be adjudicated on the basis of a set of undisputed facts, pursuant to Board

Rule 11, the Board ‘may make findings of fact on disputed facts.’” U.S. Coating

Specialties & Supplies, LLC, ASBCA No. 58245, 20-1 BCA ¶ 37,702 at 183,031

(quoting Grumman Aerospace Corp., ASBCA No. 35185, 92-3 BCA ¶ 25,059

at 124,866 n.13).

Burden of Proof:

As with any contractor claim, Herman bears the burden of proving its monetary

VECP claim against the government. Sentara Health Sys., ASBCA No. 51540, 00-2

BCA ¶ 31,122 at 153,723. The Value Engineering clause “clearly sets forth specific

requirements which a proposal must meet in order to qualify as a VECP.” Schnider’s

of OKC, ASBCA No. 54327, 04-2 BCA ¶ 32,776 at 162,075. At a minimum, Herman

“must show that it submitted a valid VECP and that the government accepted the

9

VECP.” Id. at 162,076. “Mere allegations [of VECP savings] without added

explanatory facts or outside substantiation or corroborative evidence supporting the

statement are not sufficient to carry the necessary burden of proof.” C Constr. Co.,

ASBCA No. 47928, 96-2 BCA ¶ 28,499 at 142,313.

The Board has consistently recognized the discretion afforded a contracting

officer to accept or reject a VECP. See Schnider’s of OKC, 04-2 BCA ¶ 32,776

at 162,074. We may not substitute our judgment for the contracting officer’s

regarding whether to accept the VECP. See Empire Energy Mgmt Sys., Inc., ASBCA

No. 46741, 03-1 BCA ¶ 32,079 at 158,553. Our review of such discretionary actions

is limited to consideration of whether the contracting officer’s decision was arbitrary,

capricious, or an abuse of discretion. Id.

However, whether a VECP, within the meaning of the clause, was submitted by

the contractor and whether it was in fact accepted are proper questions for decisions by

the Board. Gulf Apparel Corp., ASBCA No. 27784, 89-2 BCA ¶ 21,735 at 109,267.

We may consider complaints that a VECP “rejected in form was accepted in fact.” Id.,

(citing Covington Indus., Inc., ASBCA No. 12426, 68–2 BCA ¶ 7286 at 45,702-03).

Here, we consider Herman’s claim that its VECP was rejected in form but accepted in

fact.

What qualifies as a compensable VECP?

While the government urges us to require strict compliance 8 with the language

of FAR 52.248-3 (gov’t br. at 21-23), such a standard is inconsistent with Board

precedent. See Airmotive Engineering Corp., ASBCA No. 17139, 74-2 BCA ¶ 10,696

at 50,871-72; Gulf Apparel Corp., 89-2 BCA ¶ 21,735 at 109,266. In Airmotive Eng’g

Corp., 74-1 BCA ¶ 10,517 at 49,838, the Board stated,

If any underlying philosophy may be said to run through

the various decisions of this Board and the Court of Claims

in the field of value engineering rewards, it is that the

provisions of the Value Engineering Incentive Clause are

to be liberally interpreted in favor of the contractor. As

frequently explained in other opinions, this attitude

represents merely a practical approach to derive maximum

benefit for the Government from the value engineering

program generally. If the sharing provisions were to be

interpreted and administered strictly with an eye to holding

8

The government relies heavily upon a decision from the Court of Federal Claims in C.A.

Rasmussen, Inc. v. United States, 52 Fed. Cl. 345, 349 (Fed. Cl. 2002), which is

informative but not binding precedent for this Board.

10

down rewards, the incentive to propose or urge adoption of

money-saving devices and procedures would, for practical

purposes, be eliminated, the flow of suggestions would dry

up, and the program would die.

Liberal construction is “the cornerstone of the application of an ‘enlightened’ approach

to value engineering proposals.” Northeastern Mfg. & Sales, Inc., ASBCA No. 38307,

90-1 BCA ¶ 22,562 at 113,229.

Since our decision in Airmotive Eng’g Corp., the Board has continued its liberal

approach to value engineering while honoring the two essential elements of a

compensable VECP. First, a VECP must contain a proposed change to contract

requirements for implementation. WEDJ/Three C’s, Inc., ASBCA No. 56672,

10- 1 BCA ¶ 34,315 at 169,499; ICSD Corp., ASBCA No. 28028, 90-3 BCA ¶ 23,027

at 115,629, aff’d, 934 F.2d 313 (Fed. Cir. 1991) (a valid VECP presents “something

different from what the Government has already required by the design

specifications”). The Board has declined to recognize a VECP where the proposed

change had been incorporated by modification prior to submission of a VECP.

Schnider’s of OKC, 04-2 BCA ¶ 32,776 at 162,077 (The contractor’s change proposal

was not a VECP where the change had been incorporated into the contract as an

engineering change and subsequently identified as a VECP.); NI Indus., Inc., ASBCA

No. 29535, 87-2 BCA ¶ 19,688 at 99,658 (“After a cost reduction [proposal] is made a

part of the contract it can no longer qualify as a VECP because there is no longer a

required change.”).

Second, a VECP must reduce the cost of work required under the contract.

Sentara Health Sys., ASBCA No. 51540, 99-1 BCA ¶ 30,323 at 149,957 (citing B.F.

Goodrich v. United States, 398 F.2d 843, 847 (Ct. Cl. 1968) (the Value Engineering

clause “does not apply to proposals or suggestions in general, but to proposals ‘for

variation from contractual requirements.’” (emphasis in original)). A VECP must

result in “savings” as defined by the Value Engineering clause. See Dunn Constr. Co.,

ASBCA No. 48145, 97-2 BCA ¶ 29,103 at 144,841 (“[N]ot only must the VECP be

accepted, but the instant contract savings must also be realized.”); Vemo, ASBCA

No. 31911, 88-3 BCA ¶ 20,977 at 105,999, aff’d, 878 F.2d 1446 (Fed. Cir. 1989) (Even

assuming that the VECP had been constructively accepted, the appeal was denied

because there was no reduction in the contractor’s cost of performance.).

Did Herman submit a compensable VECP?

Here, we hold that Herman’s phasing plan, on its face, meets the definition of a

VECP. Eliminating nearly all temporary trailers and implementing phasing were

changes to the contract (finding 3). Throughout the project, the parties consistently

treated reduction of the temporary trailers and implementation of the phasing plan as a

11

change as demonstrated by the government’s issuance of a proposed change/request

for proposal under the task order and subsequent negotiations (findings 3-7). After

submission of the VECP, the government unilaterally incorporated Herman’s phasing

plan into the contract through Modification No. P00002; however, the cost savings

have never been incorporated into the contract through modification (findings 15, 17).

Additionally, we determine that the change resulted in a reduction to the

contract price without impairing essential functions or characteristics. While the

government’s initial rejection of the VECP alleged some impairment to essential

functions (finding 14), this assertion is not supported by the record because it is

contradicted by the government’s contemporaneous acceptance of phasing as part of

the Final Design. 9 As awarded, Building 1737 was to be unoccupied during

construction with all occupants moved to swing space somewhere else (findings 1-2).

Herman’s phasing plan allowed the administration staff to remain in place throughout

Phase 1 and move temporarily into the newly renovated classroom space during

Phase 2 (finding 3). Not only did the contracting officer accept phasing the next day

through issuance of Modification No. P0002, but also none of the administration

personnel would have been displaced in September 2020 since they were able to

remain in place throughout Phase 1 which concluded November 30, 2020 (findings 3,

15, 18). The only personnel who should have been displaced as of September 2020

might have been personnel related to the classrooms since the temporary trailers were

insufficient to serve as swing space for the entirety of Building 1737 and were only

intended for “admin space” (finding 2). Ultimately, the project was completed using

the phased approach, and the parties negotiated contract cost savings arising from this

change (findings 15, 17-18).

Next, we consider whether Herman’s proposal satisfies the requirements for a

VECP under FAR 52.248-3. Herman’s October 21, 2019 proposal described the

proposed change to the contract requirements and identified some advantages to the

government (finding 3). During design of the project, Herman provided greater detail

regarding changes to the specifications and drawings associated with its proposal (see

generally R4, tabs 40, 43, 47). Herman provided a detailed cost estimate on

November 18, 2019, and several revised proposals during negotiations (findings 5, 7).

Each proposal included estimates of costs associated with implementing phasing

(finding 7). We note that the government was in a better position than Herman to

identify any collateral or extra-contractual costs that it might incur associated with

phasing. Notes from the November 21, 2019 design review meeting and Herman’s

December 11, 2019 RFI 008 both indicated that the phasing proposal was time

sensitive (findings 6-7). Having incorporated the proposed phasing into its project

9

The government does not seem to account for the fact that government personnel would be

displaced either for the duration of the project in temporary trailers or for one phase of

the project in the same building.

12

design, Herman reiterated the urgency of formal approval in June 2020 before

proceeding with construction (finding 8).

Through its Notice of VECP on August 7, 2020, Herman effectively

resubmitted its phasing plan as a VECP. At this point, Herman had submitted not only

its October 23, 2019 phasing plan but also multiple design documents and cost

proposals associated with the proposed phasing change (findings 3-7). While all

VECP requirements were not captured in a single package but were provided

piecemeal, we have “refused to undermine the enlightened objectives of the

Government’s value engineering policy by technicalities over the form of the value

engineering submission” so long as the government is aware that it is evaluating a

VECP prior to acceptance. McDonnell Douglas Astronautics, Co., ASBCA

No. 19971, 76-2 BCA ¶ 12,117 at 58,209 (citations omitted); see NI Indus., 87-2 BCA

¶ 19,688 at 99,658. Here, the government was on notice August 7, 2020 that

Herman’s phasing plan was a VECP prior to accepting phasing on September 9, 2020

(findings 11, 15). Accordingly, we conclude that Herman’s phasing plan satisfied the

FAR 52.248-3 elements for a VECP.

Finally, we evaluate whether Herman’s VECP satisfied the two essential

elements of a compensable VECP. We have found that the VECP contained a

proposed change to the contract for implementation. At the time Herman identified its

phasing plan as a VECP in August 2020, no modification had been issued to reduce

the trailers or incorporate phasing (finding 17). This fact renders Herman’s VECP

distinguishable from those rejected by the Board in Schnider’s of OKC, 04-2 BCA ¶

32,776 at 162,077, and NI Indus., Inc., 87-2 BCA ¶ 19,688 at 99,658, which were

submitted after modifications had already incorporated the changes. We discuss below

the effect, if any, of the government’s conditional acceptance of Herman’s phasing

plan.

We also conclude that Herman’s VECP reduced the cost of the contract work.

The cost savings negotiated by the parties demonstrates that the VECP reduced the

cost of work required under the contract and resulted in savings as defined by the

Value Engineering clause (finding 17).

Did the government accept Herman’s VECP? If so, when did acceptance occur?

Herman argues that the government constructively accepted its VECP as a

phasing plan and prior to its identification as a VECP (app. br. at 18-19). As support,

Herman cites the government’s response to RFI 008 and its approval of Herman’s

design and submittals implementing phasing throughout performance of the contract

(id. at 17-18). The government asserts that, prior to notice of the VECP, it

conditionally accepted Herman’s phasing plan contingent upon receipt of the full

credit associated with the change and argues that such acceptance of the phasing plan

13

precludes Herman’s recovery for a VECP (gov’t reply at 1, 6-7, 11). The government

also contends that it did not have timely notice of Herman’s VECP and could not

accept a VECP of which it was unaware (id. at 6, 8-9). Finally, the government argues

that only the contracting officer could accept the VECP through issuance of a notice to

proceed or execution of a modification, not by simply allowing Herman to commence

construction with a phased approach (id. at 6). We find the timing of the

government’s acceptance to be determinative.

First, we must address whether the government accepted Herman’s phasing

plan as a change prior to its identification as a VECP. We found that the government

did not constructively accept Herman’s phasing plan through its response to RFI 008

because the Senior CM lacked authority to change the contract (finding 9). We also

reject the government’s “conditional acceptance” of Herman’s phasing proposal

(finding 4) prior to notice that it was a VECP. “A reply to an offer which purports to

accept it but is conditional on the offeror’s assent to terms additional to or different

from those offered is not an acceptance but is a counter-offer.” First Com. Corp. v.

United States, 335 F.3d 1373, 1381 (Fed. Cir. 2003) (quoting RESTATEMENT

(SECOND) OF CONTRACTS § 59 (1979)). Thus, we conclude that the government’s

response was a counter-offer and did not bind either party. The government’s

conditional acceptance of the phasing plan does not preclude Herman’s identification

of the phasing plan as a VECP.

To enjoy the benefits provided by the VE clause, it is not necessary that the

contractor’s cost-reduction proposal be submitted initially as a VECP under that

clause. B.F. Goodrich Co. v. United States, 398 F.2d at 846-48. However, the

government must be on notice that it is evaluating a VECP. In Erickson Air Crane Co.

of Washington, Inc. v. U.S., 731 F.2d 810 (Fed. Cir. 1984), the Court of Appeals for

the Federal Circuit established what is required to put the government on notice that it

is evaluating a VECP:

[T]he contractor must initiate the proposal, develop the

proposal, and submit the proposal in writing. The proposal

also is required to “contain a description of the difference

between the existing contract requirement and the

proposed modification, an itemized and detailed estimate

of the anticipated reduction in the contractor’s costs, the

time within which a decision must be made by the

Government and other appropriate information.”

This required information, if properly presented, gives the

government notice that it is evaluating a VE proposal. The

government requires such notice so that it can make an

intelligent and informed decision as to the nature and

14

impact of a contractor’s proposal before ruling upon it. If

unaware that a contractor is submitting a VE proposal, the

government is unable fully to consider and balance the

effect of any decision it may reach.

Id. at 815-16 (emphasis in original). We have found that Herman initiated and

developed the VECP in a series of documents that it submitted starting in

October 2019 and that the government was on notice as of August 7, 2020, that

Herman was submitting a VECP (findings 3-11).

Next, we consider the government’s conduct once it was on notice that

Herman’s phasing plan was offered as a VECP. As of submission of the VECP in

August 2020, the government had neither fully nor formally accepted Herman’s

phasing plan as a change to the contract. As previously discussed, the government’s

conditional acceptance was a counter-offer, and no modification had been executed to

incorporate the change. Thus, Herman’s submission of its phasing plan as a VECP in

August 2020 was a new offer which the government could accept or reject.

When the government learned on August 7, 2020 that Herman’s phasing plan

was a VECP, renovation work was just under way and eleven months remained for

Herman to complete the contract (findings 2, 13). At that point, the government could

have rejected the phasing and demanded that Herman provide the trailers (finding 13)

since Herman had proceeded with phasing, at its own risk. However, the

government’s response to Herman’s VECP was contradictory as it rejected the VECP

on September 8, 2020, in form only, but accepted the phasing plan and reduction of

trailers on September 9, 2020, when the contracting officer executed Modification

No. P00002 incorporating phasing into the contract as part of the Final Design

(findings 14-15). While the government declined to recognize Herman’s phasing plan

as a VECP, the government officially adopted the phasing plan (id.).

Contrary to the government’s assertion that the contracting officer may only

accept a VECP through issuance of NTP or a modification, the Court of the Appeals

for the Federal Circuit recognized constructive acceptance of a VECP “when the

government, after rejecting a VECP, later implements substantially identical changes

in the same contract.” John J. Kirlin, Inc. v. U.S., 827 F.2d 1538, 1541 (Fed. Cir.

1987). Similarly, we have also recognized constructive acceptance of a VECP. See

Gulf Apparel Corp., 89-2 BCA ¶ 21,735 at 109,269. In two prior cases, we have

addressed facts similar to those presented by Herman. In Sentara Health Sys.,

00- 2 BCA ¶ 31,122 at 153,724, we recognized a valid VECP where the government,

just days after rejecting a VECP, executed a modification incorporating the substance

of the VECP as a change, instead of as a VECP. In N. Am. Rockwell Corp., ASBCA

No. 14485, 71-1 BCA ¶ 8773 at 40,737-38, we found that the government

constructively accepted a contractor’s VECP when it incorporated the substance of a

15

VECP through change order but rejected the VECP. In B.F. Goodrich Co. v. U.S.,

398 F.2d at 848, the Court of Claims held that the Value Engineering clause, when

applicable, takes precedence over the Changes clause. If the government accepts and

incorporates the contractor’s proposal into the contract, the contractor becomes

entitled to its share of the savings, and the government “cannot deprive the contractor

of that benefit by issuance of a change order to any other effect.” Id.

Here, the government made Herman’s phasing plan part of the contract when

the contracting officer unilaterally modified the contract to incorporate the Final

Design (finding 15). This modification adopted the substance of Herman’s VECP—its

phasing plan and trailer reduction (id.). When the contracting officer executed

Modification No. P00002 just one day after rejecting the VECP, she did so with full

knowledge that Herman considered its phasing plan to be a VECP (findings 14-15).

Through this action, the government constructively accepted Herman’s VECP. Thus,

we conclude that the government rejected Herman’s VECP, in form, but accepted it, in

fact.

While Herman’s constructive acceptance argument focuses on government

acquiescence and informal adoption of the phasing plan (app. br. at 15-18) rather than

the effect of Modification No. P00002, the Board is not restricted to considering only

the evidence or legal theories presented to a contracting officer because our

proceedings under the Contract Disputes Act are wholly de novo. See J.S. Alberici

Constr. Co. & Martin K. Eby Constr. Co., JV, ENGBCA No. 6178, 98-2 BCA

¶ 29,875 at 147,916 (quoting Laidlaw Environmental Services (GS), Inc., ASBCA

No. 45365, 93-3 BCA ¶ 26,128 at 129,884. As stated supra, Modification No. P00002

which embodies the government’s constructive acceptance of Herman’s VECP was

included in the record.

Based on the foregoing, the government’s remaining arguments are unavailing.

CONCLUSION

For the reasons stated herein, the appeal is sustained. Accordingly, the matter is

returned to the parties for resolution of quantum.

Dated: May 9, 2024

LAURA J. ARNETT

Administrative Judge

Armed Services Board

(Signatures continued) of Contract Appeals

16

I concur I concur

OWEN C. WILSON MICHAEL N. O’CONNELL

Administrative Judge Administrative Judge

Acting Chairman Vice Chairman

Armed Services Board Armed Services Board

of Contract Appeals of Contract Appeals

I certify that the foregoing is a true copy of the Opinion and Decision of the

Armed Services Board of Contract Appeals in ASBCA No. 63235, Appeal of Herman

JCG Co. JV., rendered in conformance with the Board’s Charter.

Dated: May 9, 2024

PAULLA K. GATES-LEWIS

Recorder, Armed Services

Board of Contract Appeals

17