GRANTED: February 28, 2014

Agency decision

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CBCA 2245, 2345

ACM CONSTRUCTION AND MARINE GROUP, INC.,

Appellant,

DEPARTMENT OF TRANSPORTATION,

Respondent.

Lars E. Anderson and James Y. Boland of Venable LLP, Tysons Corner, VA, counsel

for Appellant.

Bernard J. McShane, Office of the Chief Counsel, Maritime Administration,

Department of Transportation, Washington, DC, counsel for Respondent.

Before Board Judges HYATT, POLLACK, and GOODMAN.

HYATT, Board Judge.

These consolidated appeals arise from a contract entered into between ACM

Construction and Marine Group, Inc. (ACM) and the Department of Transportation’s

Maritime Administration (MARAD) to replace the deck covering in the galley and cadet

mess of the training ship Empire State. ACM asserts that MARAD improperly terminated

its contract for cause in the appeal docketed as CBCA 2245. In the appeal docketed as

CBCA 2345, ACM seeks the amount of $194,320 in termination for convenience costs. For

the reasons provided below, we grant the appeal of the termination for cause and convert the

termination to one for the convenience of the Government. We award the amount of

$194,320 in termination for convenience costs.

CBCA 2245, 2345

Findings of Fact

ACM is a small business headquartered in Norfolk, Virginia. It performs

general construction and repair work primarily in the maritime industry. Its president and

owner has a degree in engineering from a maritime academy and is licensed by the state of

Virginia for contracting in the areas of building, refrigeration, elevators, motors and pumps.

He also has experience in electrical work associated with elevators, motors, and pumps.

Capitol Finishes, Inc. (Capitol Finishes), ACM’s subcontractor, is also located

in Norfolk, Virginia. It specializes in installation and replacement of deck covering systems

on ships, and is a certified Dex-O-Tex flooring installer. Capitol Finishes has installed

terrazzo deck coverings in more than one thousand ships, and in hundreds of galleys on

many types of vessels, from tug boats to destroyers and aircraft carriers. Capitol Finishes

has successfully performed deck covering contracts for the Navy for close to twenty years.

The foreman of Capitol Finishes’ crew testified that he has worked on hundreds of ship

galleys. Capitol Finishes and ACM had collaborated on maritime deck renewal projects

prior to the award of this contract.

The Empire State is a United States Government-owned training ship provided

by MARAD to the State University of New York (SUNY) Maritime Academy for the

purpose of training student cadets for a career in the maritime industry. Training exercises

include cadet cruises, typically scheduled during the late spring and summer months.

In June 2010, a MARAD port engineer (also the contracting officer’s technical

representative (COTR)), who had recently been assigned to the Empire State, was informed

that the deck covering of the Empire State’s galley and cadet mess needed to be replaced.

At that time, the deck covering consisted of quarry tile in the galley and terrazzo deck

covering in the cadet mess.

The COTR testified that he conducted market research on terrazzo marine

flooring, in particular Dex-O-Tex products, which are manufactured by the same company

that made the terrazzo materials installed in the cadet mess deck. The manufacturer of DexO-Tex referred the COTR to a commercial seller and installer for more information. After

visiting the vessel to assess the floors to be replaced, that vendor, Coast to Coast Contracting

Group, Inc. (Coast to Coast), provided the COTR with a quote for the project. The quote

contained a description of the work the company proposed to perform. Coast to Coast

quoted the amount of $252,689 to perform this work.

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The quote provided by Coast to Coast stated the following with respect to the

galley deck floor replacement:

Remove entire deck down to the steel and cove base. Approximate square

footage: 1,530 sq. ft./240 lineal ft. of 6” cove base. Remove any obstructions

(ex. appliances, cabinets, etc.) Scale and wire brush. Prime with 150 Primer.

For the cadet mess, the quote provided this description:

Remove deck complete down to the steel. Approximate square footage:

2,367 sq. ft. and 145 lineal ft. of 6” cove base. Scale and wire brush. Remove

any obstructions. Prime with 150 Primer.

The COTR used the quote from Coast to Coast almost verbatim in preparing

the statement of work (SOW) for the deck replacement solicitation. In pertinent part, the

solicitation’s, and subsequent contract’s, statement of work provided as follows:

5.2

Removal, disposal and replacement of the entire decking system in

the vessel’s cafeteria. (CLIN 0001):

5.2.1 Remove deck completely down to the steel deck. Approximate square

footage: 2,367’ sq. ft. and 145’ lineal ft. of 6” cove base. Scale, grind

and wire brush to white metal. Remove any obstructions. Prime with

150 Primer.

5.3

Removal, disposal and replacement of the entire decking system in

the vessel’s Galley (CLIN 0002)

5.3.1 Remove entire deck and cove base down to the steel deck.

Approximate square footage: 1,530’ sq. ft./240’ lineal ft. of 6” cove

base. Scale, grind and wire brush to white metal. Remove any

obstructions. Prime with 150 Primer. Remove any obstructions

(appliances, cabinets, kick pipes, etc.)

The solicitation included a provision entitled “Site Visit and Ship Check,”

advising that “[i]nterested parties are strongly urged to attend a ship check of the vessel

scheduled for 10:00 a.m. ET, Thursday, August 18, 2010.”

The COTR and the vessel’s chief engineer expected the contractor to take all

equipment out of the galley and store it elsewhere on the ship. Their intent was announced

CBCA 2245, 2345

to all prospective bidders who attended the site visit. The pre-bid site visit was not

mandatory and no notes memorializing the information conveyed therein were provided to

prospective bidders.

10.

ACM did not attend the pre-bid site visit, although its president, who had

worked on the ship previously, undertook to view the mess hall and galley space in late

August during an unrelated visit to the vessel. This occurred shortly after ACM had

submitted a bid to perform the work. There are differing accounts of the exchanges that

took place between ACM’s president and the COTR . The COTR expressed his opinion that

ACM had no idea what the SOW called for in terms of the areas to be renovated and was

trying to add work to the contract; ACM’s president testified that he was well aware of what

the contract called for in terms of the space that was intended for the new deck covering.1

This dispute is illustrative of the relationship between the COTR and ACM’s president.

11.

Following this pre-award interchange with ACM, on August 31, 2010, the

COTR prepared a document entitled “Clarification of Deck Renewal SOW,” intended by

him to be added to the solicitation, so that all the “contractors understood that the equipment

had to be removed.” The clarification document included a statement that

“As stated in the SOW, the contractor will be responsible to remove all

obstructions. This refers to all appliances located in the cafeteria and galley

(i.e. galley ovens), cabinets, tables, serving stations, etc. The contractor will

be responsible to replace all these obstructions and prove their function after

the deck renewal is complete to the satisfaction of the COTR and/or his onsite

consultant.

The COTR also stated his intent that the contractor be required to replace or repair, at his

discretion, any damaged equipment. He further stressed that no condition reports would be

accepted, seeking any additional costs associated with stripping and preparing the decks for

installation of the new flooring system.

12.

This clarification document was forwarded to the contracting officer but was

never added to the solicitation so as to disclose to prospective contractors the COTR’s

understanding of the effort to be expended by the awardee.

About six months before the solicitation for the deck renewal work was

advertised, ACM successfully completed a contract for the installation of ventilation fans

in the engine space on the Empire State.

CBCA 2245, 2345

13.

Three offers were received in response to the solicitation, including ACM’s

and an offer from Coast to Coast. ACM and the third offeror were close in price; Coast to

Coast’s price was the same as its original proposal from which the SOW had been

developed. The price disparities caused the COTR to express an opinion that the two low

offerors had “not read” or understood the SOW.

14.

On September 9, 2010, the technical evaluator for the procurement requested

that the contracting officer ask ACM to clarify its bid submission. In response to his

concern that he needed more information demonstrating ACM’s ability to perform the work,

the contracting officer advised that the solicitation’s technical capability paragraph required

only that the offeror have a certified Dex-O-Tex installer perform the work and stated that

ACM’s provision of a proper certification should suffice for that purpose. In addition, the

contracting officer informed the technical evaluator that the COTR’s clarification document

was not a part of the solicitation and, to the extent information therein was not in the

specifications, that interpretation would not be enforceable.

15.

Subsequently, on September 15, 2010, the contracting officer wrote ACM

seeking clarification of certain aspects of its offer. In particular, the contracting officer

requested a “detailed breakdown of [ACM’s] subcontractor’s labor, equipment, and

materials,” explaining that ACM’s price was “significantly lower than the other prices and

the Government estimate.”

16.

ACM provided a ten-page response on September 16, 2010, including, among

other things, documentation from Crossfield Products Corporation, the manufacturer of

Dex-O-Tex, certifying that ACM’s installer was factory-trained in the application of Dex-OTex products; a proposal from the installer describing how it intended to accomplish the

deck replacement work for ACM; and a separate statement from the installer identifying the

materials and tools intended for use to perform the job.

17.

The technical evaluator for the procurement reviewed these materials and, on

September 17, 2010, informed the contracting officer that the proposed subcontractor met

the requirement to be a Dex-O-Tex-recognized installer and observed that ACM appeared

to understand the intent of the original SOW. He concluded that he could see no

justification to find the proposal technically unacceptable.

18.

On September 20, 2010, in accordance with Federal Acquisition Regulation

(FAR) 9.104-1, 48 CFR 9-104.1 (2009), the contracting officer issued an affirmative

determination of responsibility for ACM.

CBCA 2245, 2345

Award of Contract

19.

The contract was awarded to ACM, in the amount of $188,900, on the

afternoon of September 24, 2010. The cover letter announcing the award stated that ACM’s

quote, and clarifications in response to the solicitation, received through September 22,

2010, had been accepted. The contract work was to commence on October 4, 2010 and be

completed by October 15, 2010.

20.

In addition to the statement of work in the solicitation, the contract

incorporated contract terms and conditions applicable to commercial item purchases pursuant

to FAR 52.212-4:

made only by written agreement of the parties.

(d) Disputes. This contract is subject to the Contracts Disputes Act of 1978,

as amended . . . . Failure of the parties to this contract to reach agreement on

any request for equitable adjustment, claim, appeal or action arising under or

relating to this contract shall be a dispute to be resolved in accordance with the

clause at FAR 52.233-1, Disputes, which is incorporated herein by reference.

The Contractor shall proceed diligently with performance of the contract,

pending final resolution of any dispute arising under the contract.

(l) Termination for the Government’s convenience. The Government reserves

the right to terminate this contract, or any part hereof, for its sole convenience.

In the event of such termination, the Contractor shall immediately stop all

work hereunder and shall immediately cause any and all of its suppliers and

subcontractors to cease work. Subject to the terms of this contract, the

Contractor shall be paid a percentage of the contract price reflecting the

percentage of the work performed prior to the notice of termination, plus

reasonable charges the contractor can demonstrate to the satisfaction of the

Government using its standard record keeping system, have resulted from the

termination. The Contractor shall not be required to comply with the cost

accounting standards or contract cost principles for this purpose. This

paragraph does not give the Government any right to audit the Contractor’s

records. The Contractor shall not be paid for any work performed or costs

incurred which reasonably could have been avoided.

(m) Termination for cause. The Government may terminate this contract, or

any part hereof, for cause in the event of any default by the Contractor, or if

CBCA 2245, 2345

the Contractor fails to comply with any contract terms and conditions, or fails

to provide the Government, upon request, with adequate assurances of future

performance. In the event of termination for cause, the Government shall not

be liable to the Contractor for any amount for supplies or services not

accepted, and the Contractor shall be liable to the Government for any and all

rights and remedies provided by law. If it is determined that the Government

improperly terminated this contract for default, such termination shall be

deemed a termination for convenience.

Section H.6 (Indemnity and Insurance) of the contract provides that:

The Contractor shall exercise reasonable care and use its best efforts to

prevent injury or damage to all employees, persons and property in and about

the work and to the vessel or portion thereof upon which work is done.

21.

ACM awarded a subcontract to Capitol Finishes to remove the old flooring,

prepare the surface, and install a new deck cover. Promptly after the contract was awarded,

ACM and Capitol Finishes undertook to plan and mobilize for the project. This included

ordering materials, setting up a production schedule, employing the necessary manpower,

and the like.

22.

A kick-off meeting was held on September 29, 2010. At this meeting, which

was attended by ACM’s president, a representative of Capitol Finishes, the COTR, and the

ship’s engineer, the COTR again stated his view that the contract required all galley

equipment to be moved out of the area before work began. ACM’s president stated his

understanding that the specification called only for the removal of obstructions, and not the

removal of all equipment, explaining that not all equipment would necessarily obstruct the

work.

23.

Before commencing the contract work, a Capitol Finishes employee walked

the galley and the cadet mess to ascertain what items would obstruct its ability to tear out the

existing decking and, thus, would need to be removed or raised. ACM undertook to remove

or raise the items identified by Capitol Finishes before the rip-out started.

24.

On Friday, October 1, 2010, the COTR sent a letter expressing misgivings

about the ACM contract to the contracting officer and to her immediate supervisor. He

reported that, at the kick-off meeting, he was informed by ACM’s president that, in his view,

not all “obstructions” needed to be removed to perform the job and that Capitol Finishes

would be able to work around some of the equipment. The COTR was concerned that ACM

CBCA 2245, 2345

did not understand the scope of the contract with respect to the need to remove all of the

equipment in the areas.

25.

The supervisory contracting officer (hereafter the contracting officer)2, sent

an electronic mail message to ACM’s president on the afternoon of Monday, October 4,

2010, relaying the COTR’s concerns and requesting that ACM file a conditions report to

allow the Government to respond to and clarify the contractor’s concerns.

The Start of Contract Work

26.

On Monday, October 4, 2010, crews from both ACM and Capitol Finishes

arrived at the Empire State to begin work. ACM and Capitol Finishes began the rip-out of

the existing deck covering in the cadet mess, intending to proceed to the galley. Although

ACM removed or raised all equipment that Capitol Finishes requested it to, the contractor

proceeded to tear out the old decking materials without physically removing all of the

equipment that the COTR considered should be moved.

27.

The rip-out of the cadet mess proceeded as expected, and based on the early

progress in this area, ACM predicted that the rip-out work under the contract would be

completed by October 8, 2010, the end of the first week on the job. Relying on this

preliminary assessment, and without informing ACM at the time, the COTR scheduled an

inspection to be performed by third-party American Bureau of Shipping (ABS) surveyors

on October 8.

28.

Once work was started in the galley, which was covered in quarry tile, rather

than terrazzo, ACM submits that it encountered substantial rust and deterioration and that

the steel decking was significantly pitted. The state of the galley decking caused ACM and

Capitol Finishes to require several more days than anticipated to complete the rip-out and

prepare the surface for a new covering. ACM and Capitol Finishes witnesses attributed this

largely to a defective installation performed by the previous contractor. Notably, from what

they saw, the steel had not been primed3 and the prior deck covering had not been properly

Two contracting officers participated in this project for MARAD, the original

contracting officer and her supervisor, who substituted for her during an absence and who

eventually took over the administration of the contract. They are referred to interchangeably

as the contracting officer in this decision.

ACM supports its conclusion that the galley deck had not been primed by

comparing it to the cadet mess deck, which, when uncovered, had a coat of green primer

paint.

CBCA 2245, 2345

installed, with the result that rusting of the steel was far more extensive and time-consuming

to remove than had been anticipated by ACM. Capitol Finishes had to resort to the use of

jackhammers to remove the worst of the rust, generating noise and large amounts of dust and

debris.

29.

As a consequence of the extent of the rust affecting the galley steel deck, ACM

was delayed in completing surface preparation following rip-out. This impacted the ability

of the ABS surveyors, who came on October 8, 2010, to assess the condition of the galley

deck. The surveyors determined that the cadet mess hall deck would not need an ultrasonic

test (UT) for thickness. They also observed that the galley deck was in substantially worse

condition than the mess hall deck and would require a UT survey, which they did not want

to perform until rip-out was fully completed and all the rust had been removed.

30.

Immediately after the ABS surveyors finished the inspection, the COTR sent

an email message to his supervisor and the contracting officer acknowledging the poor

condition of the galley deck, but attributing the delay in rip-out and surface preparation to

the contractor’s failure to remove all equipment from the galley so that the surveyors could

complete their testing.

31.

Following the kick-off meeting, and in response to the COTR’s concerns about

removal of “all obstructions,” on October 4, 2010, the contracting officer had sent an email

message to ACM asking that it address the concerns raised by the COTR related to the need

for clarification of the designation of obstructions in the performance area. ACM did not

reply immediately, but rather, commenced performance. Once the rip-out started and the

state of the steel underlaying the galley deck was discovered, ACM prepared a series of

Condition Found Reports, which were emailed to the contracting officer on October 11,

2011.

32.

With respect to its concerns about the deterioration of the steel galley deck, on

October 9, 2010, ACM’s president sent condition report number 7 to the COTR, advising

that while removing “the existing decking system from the galley areas ACM discovered

wasted, deteriorated and holed steel areas of the deck throughout the galley,” and that the

galley decks exhibited “heavy metal loss.” ACM also offered to perform an audio gauge

survey of the galley.

33.

In condition report number 3, ACM explained that Capitol Finishes had

determined what items in the performance area were deemed obstructions to performance

and confirmed that ACM had undertaken to either remove or raise those items to provide

Capitol Finishes with unobstructed access to the deck. ACM also provided a list of items

it deemed to obstruct access to the performance area. For the cadet mess, obstructions were

CBCA 2245, 2345

“benches, beverage cabinet and wooden furnishings attached to the deck,” and for the galley,

obstructions were “the garbage disposer, steamer, fryolators, griddle ovens, convection

ovens and ice machine.”

34.

After receiving copies of ACM’s condition reports, the COTR emailed the

contracting officer asserting that ACM had not complied with the contract requirements, in

particular the requirement to remove “all” obstructions in the galley and cadet mess areas.

He also complained that ACM had told him the decks would be ready for ABS inspection

by Thursday, October 7, and that he had scheduled the inspection for the next day. In

particular he noted that all equipment had not been moved and the decks were not stripped

to white metal.

35.

The COTR also rejected ACM’s condition reports, in particular numbers 3 and

7. He rejected report number 3 on the ground that ACM did not attend the site visit prior

to submissions of offers, was given “numerous opportunities for clarification of the SOW,”

and was told on numerous occasions that “all obstructions must be removed in the cafeteria

and galley as stated in the contract.” He also rejected ACM’s explanation for delays in the

rip-out process and asserted instead that the delays were caused by the contractor’s failure

to remove obstructions as required. Finally, he rejected ACM’s proposal to gauge the steel

decks, asserting that ACM was holding up the ABS surveyors by failing to remove all

obstructions in the performance area.

36.

ACM received no direction from the contracting officer concerning the issues

raised with respect to repair of deteriorated and holed steel plating it encountered during the

rip-out. Both MARAD and ACM agreed that the contractor could not proceed with priming

the steel and installation of the new deck covering until the damaged steel decks were

repaired.

Termination of Contract

37.

On the morning of Thursday, October 14, 2010, the COTR and the ship’s

engineer met to discuss the ACM contract. The engineer then emailed various personnel,

including the ship’s captain and the contracting officer, with concerns about ACM and

ongoing issues with respect to the intent and “verbiage” of the contract specification to

“remove all galley equipment while the decking was being removed and new deck installed

so that none of the equipment would be damaged or fouled with debris and dust.” He

further stated that “knowing we would encounter deck steel corrosion and replacement

issues the equipment needed to be removed so that we could allow access to ABS, USCG

[United States Coast Guard], and gauging contractors, could make [their respective]

inspections and we could initiate repairs.”

CBCA 2245, 2345

38.

At approximately the same time on the morning of October 14, 2010, the

COTR sent a lengthy email message to the same individuals making similar assertions to the

effect that ACM was not complying with contract requirements and that problems were

“escalating.” He added a complaint that ACM was using heavy equipment in the galley “no

doubt causing damage to equipment that has not been removed.” Finally, he pointed out that

ACM’s failure to remove all equipment in accordance with his instructions was impeding

the ABS surveyors, who would not perform gauging until this had been accomplished.

Exhibit 62.

39.

On the afternoon of October 14, the contracting officer telephoned ACM’s

president to inform him of her intent to terminate the contract for cause based on his refusal

to comply with the contract’s specification concerning the removal of obstructions. She

followed up, later that day, with an email message that stated:

After several attempts to convince you to comply with the terms

and conditions of subject contract, you have failed to progress

and comply with the stated requirements, primarily “removal of

obstructions” which has resulted in damage to the ship and its

equipment. . . . [Y]ou were verbally notified by me . . . today

via telephone of the government’s intention to TERMINATE

FOR CAUSE, in accordance with FAR 52.212-4.

As verbally directed, you are to IMMEDIATELY CEASE

AND DESIST and remove all personnel and subcontractor

personnel from the Empire State ship. You are no longer

authorized ship access.

A formal termination will be issued and remedies identified

within 30 days of the date of this email.

40.

That same day, ACM and Capitol Finishes personnel were required to stop

work and were escorted off the ship. They had no option but to leave most of their

equipment in place and were not permitted to clean up the work area prior to departure.

41.

The Capitol Finishes representative telephoned the COTR that same day and

entreated for permission to clean up. The COTR refused that request, but the two were able

to come to an arrangement to store the substantial quantities of materials (underlayment,

glue, primer and the like) remaining on board the ship in an environmentally controlled

space.

CBCA 2245, 2345

42.

The Capitol Finishes crewmen were permitted to return to the ship the next day

to retrieve their equipment, but were still not permitted to clean the dust and debris generated

by the floor preparation process. After that, ACM and Capitol Finishes personnel returned

to Norfolk.

43.

On October 18, 2010, ACM provided a letter to the contracting officer

objecting to the termination of its contract for cause. ACM’s president represented that the

company “was ready, able, and willing to return to work immediately to perform the scope

of work contracted by our firm to perform.”

44.

In a second letter dated October 21, 2010, ACM’s president explained the

company’s position that it had complied with the contract’s requirement that it move any

obstructions. ACM also pointed out that no milestone dates existed regarding removal of

obstructions or accommodation of an ABS surveyor, and added that it considered that the

poor condition of the steel had impacted its production schedule. ACM further asserted that

the condition of the workspace was attributable to the fact that all contractor and

subcontractor personnel had been ordered off the ship with no opportunity to clean.

45.

ACM, in the October 21 letter, also suggested that the parties might resolve

the dispute if all parties met in person to discuss it. ACM noted as well that it had never

been notified by MARAD of any damage to the ship and disputed that this was the case.

ACM closed the letter by pointing out that it was “ready, willing and able” to complete

contract work and repeated its request for a meeting.

46.

Following receipt of ACM’s letters, the contracting officer prepared a

memorandum to the file in which she set forth the Government’s position with respect to the

termination. She again stated the MARAD position that the contract SOW required the

removal of all obstructions in the performance areas. She also opined that the failure to

remove all equipment from the galley had resulted in damage to the equipment that

remained.

47.

On October 28, 2010, ACM’s president submitted another letter to MARAD

expressing an interest in reaching a resolution and stating that ACM was “ready, willing, and

able to complete all work within the scope of our contract.” ACM pointed out that if

MARAD’s intent had been to have all the equipment removed from the space, it should have

stated that specifically. ACM also requested an opportunity to inspect the work on the ship

to make an accurate assessment of the work necessary for completion, and reminded

MARAD that a meeting between the parties had yet to be scheduled.

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48.

On November 8, 2010, ACM’s president and Capitol Finishes’ representative

attended a meeting at MARAD’s Norfolk, Virginia office. The meeting was attended by the

original contracting officer, the main contracting officer, the COTR’s supervisor, and the

COTR, who participated by telephone.

49.

The next day, November 9, 2010, the contracting officer emailed ACM’s

president, stating her understanding that all parties had come to “a mutual understanding that

this contract will be completed as per the statement of work and original intent of the

contract.” This statement was accompanied by a lengthy description and list of work to be

accomplished, including a detailed list of equipment in the galley that was required to be

removed. She also added a detailed requirement that, following installation of the new deck

covering, the contractor would be required to replace and restore all obstructions removed

to the same condition as they were before the start of the contract, to be verified by the ship’s

engineer and captain, the COTR, and the food service contractor. She concluded the email

message with a signature line that read, “Received and agreed to by ACM.”

50.

ACM responded by letter dated November 10, 2010, pointing out that the

contracting officer’s letter “contains many errors and clearly misrepresents what was

discussed at [the] meeting.” In particular, ACM asserted that there had been no mutual

understanding and no agreements had been made. ACM’s president declined to sign the

contracting officer’s statement, which he described as a revised version of the existing

contract.

51.

In his letter, ACM’s president further explained that the additional disputed

work that MARAD was demanding as a condition to allowing ACM to return to the ship

was beyond the scope of the statement of work on which he had priced his bid. Had the

solicitation included the detailed list of items that MARAD specifically wanted performed,

he would have bid accordingly. ACM offered to price the additional work if MARAD

wanted it performed. He concluded his response with the statement that ACM was “ready,

willing and able to promptly complete work agreed to in the contract.”

52.

On November 11, 2010, the contracting officer replied to ACM’s president,

stating: “Please submit your proposal for what you perceived as additional work, but was

indeed included in the original scope of work under a performance-based contract.” She

continued: “We will evaluate your proposal and determine if [it is] in the best interest of the

government to continue given the poor performance and that other offerors submitted their

proposals with a full and complete understanding of the commercial performance-based

requirements without additional illumination.”

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53.

After considering the contracting officer’s communication asking for submittal

of a price proposal, ACM responded on November 12, 2010, that given the tone taken by

the contracting officer, the adversarial conditions it faced working on the vessel, and the

inherent risks of offering to perform the additional items to the personal satisfaction of the

COTR, the ship’s senior officers, and an unnamed third party food service contractor, it had

“reconsidered its position and offer to perform additional services for you outside of our

existing contract and statement of work on this project.” ACM’s president repeated the

company’s original offer to complete the work contained in its original contract and work

statement.

54.

After ten days with no response from MARAD, on November 22, 2010,

ACM’s president requested a status update from the contracting officer.

55.

On November 26, 2010, the contracting officer issued a formal contract

termination notice:

You are hereby notified that your right to proceed with work under Contract

DTMA2P10182 is terminated completely for cause under contract clause

52.214-4. The termination is effective immediately, confirming termination

notice issued October 14, 2010. This action is taken due to your failure to

make progress to ensure completion of the contract within the specified time,

to perform in accordance with the requirements of the contract, and damages

sustained to the ship and its equipment due to your lack of compliance with

and understanding of contract requirement[s].

The notice provided that the “effective date” of the termination was October 14, 2010.

Testimony Relevant to Failure to make Progress

56.

ACM’s president informed MARAD in an email message dated October 12,

2010, that ACM and its subcontractor had encountered deteriorating and holed steel during

the rip-out, and the conditions were “negatively impacting the end date” of the project. He

testified at the hearing that the contracting officer at no time issued a cure notice or

communicated any concerns about completing the work on time. The contracting officer

also confirmed in testimony that generally the Government will provide additional time to

complete the work so long as it can reasonably do so. The COTR also testified that

MARAD was not “in a hurry” and that when a contractor needs additional time he will

usually issue a modification to extend the performance time. He believed that it was ACM’s

responsibility to formally request the extension.

CBCA 2245, 2345

57.

The Empire State was not scheduled to embark on a cruise until May 7, 2011,

approximately five or six months from the date when ACM’s contract was terminated.

58.

The primary purpose of the two-week performance period was to ensure that

the contractor performed the contract diligently and not divert resources for other jobs and

then seek extensions of time. The COTR testified that completing performance in two

weeks was “not a big deal.”

Retrieval of Materials From Ship

59.

On December 8, 2010, following the formal termination for cause, ACM was

asked to retrieve the substantial quantity of materials that remained on the ship. ACM

responded, pointing out that it was wasteful to ask ACM to remove the materials when they

would be needed by the replacement contractor. ACM’s president offered to sell them to

the Government at cost. At the same time, ACM agreed to remove the materials as directed

by the contracting officer, but noted that there would be an impact on its claim.

60.

On December 13, 2010, ACM submitted an invoice to MARAD showing a

projected cost of $30,140 for the retrieval of the materials still on board the Empire State.

ACM calculated this amount based on the cost of labor and transportation to send four men

on a three-day trip to New York from Norfolk to remove the materials and return.

61.

On December 20, 2010, the contracting officer responded to ACM,

acknowledging ACM’s offer to sell the materials to the Government, but confirming that

MARAD wanted ACM to retrieve the materials.

62.

ACM then contacted the ship’s engineer to arrange to retrieve the materials.

The engineer decided to have the crew use cranes to off-load the equipment onto the pier,

where ACM picked them up on January 4, 2011.

Condition of Equipment and Appliances in the Galley

63.

Capitol Finishes’ witnesses testified that, although not all equipment and

appliances were removed from the galley, they took care to cover the items with plastic

sheeting and were mindful of the need to avoid hitting these items during rip-out and surface

preparation.

64.

The COTR and ship’s engineer testified that they had concerns that equipment

would be subject to damage and dust as a result of ACM’s method of performing the work.

The COTR also asserted his opinion that vibrations caused by the jack-hammering necessary

CBCA 2245, 2345

to remove the rust in the galley would inevitably damage any equipment and appliances not

completely removed from the galley.

65.

Although this was stated to be a major concern at the time of termination, no

evidence of actual damage to the equipment and appliances has been produced by MARAD.

Replacement Contractor

66.

Effective February 1, 2011, MARAD entered into an agreement with Fairfield

Maxwell Services, Ltd. (Fairfield), to assist with the procurement of all necessary repairs to

the ship in anticipation of the summer cruise scheduled for May 2011. One of the

responsibilities assigned to Fairfield under that agreement was remediation of the dust in the

galley and cadet mess, along with completion of installation of the new flooring system in

those areas. Fairfield was awarded a task order under its agreement in the amount of

$300,000 to complete that task. The task order gave Fairfield two months to achieve that

task, permitting a work schedule of twelve-hour days, seven days a week.

67.

Fairfield worked with the COTR to revise the SOW and to solicit bids for

completing the floor replacement. The new solicitation included terms that were not in

ACM’s contract, such as replacement of the flooring under the steam kettle containment area

and galley cleaning gear locker. A new CLIN 003 was added, providing for cleaning,

inspecting, and testing of all the equipment in the galley, cadet and crew messes, and

scullery, as well as the ventilation system.

68.

Fairfield awarded the contract work to Southern Services Group (Southern)

on February 10, 2011. Southern’s quote stated that it would complete the work in two

phases by moving all the galley equipment into the cadet mess while installing the new floor

system in the galley, and then, move the equipment back and proceed to the cadet mess.

Southern was given sixty days to finish the project.

CBCA 2345

65.

On December 22, 2010, ACM filed a termination for convenience proposal

with MARAD, seeking payment of $194,320 under the terminated contract. The claim

consisted of costs of $164,180 for work completed at the time of the termination and

$30,140 for the costs associated with ACM’s retrieval of the materials stored on board at the

time ACM was ordered to leave the ship after the Government declined to purchase the

materials. On March 17, 2011, at which time no decision had been rendered by the

contracting officer, ACM appealed the deemed denial of the claim.

CBCA 2245, 2345

66.

ACM’s invoice, attached to its certified claim, provides the following

information:

Original Contract Amount:

Less Supplemental Labor and Material:

Total Clin 001 and 002

Total amount this invoice:

Less Previous Invoices:

Prime contractor Labor and Material

$188,900.00

<$17,500.00>

$171,400.00

$164,180.00

$0.00

$36,700.00

Subcontractor Labor and Material:

Capitol Finishes

$102,000.00

JB Battaglia

$2,400.00

G/A, Insurance

$23,080.00

Total Amount Due:

$164,180.00

67.

ACM’s president and Capitol Finishes’ employees testified consistently that,

at the time ACM was ordered to depart the vessel, it would have taken approximately four

to five full-time days to complete the remaining work under the contract.

68.

ACM and Capitol Finishes also provided testimony that the exceptional extent

of the rust encountered on the galley deck added some four to five days to the contract work.

69.

Testimony provided by appellant and its subcontractor also establishes that

ACM had performed some fifteen full-time days of work, consisting of thirteen men

working ten hours per day on and off the ship.

70.

Testimony concerning the level of completion is consistent with ACM’s

contention that the rip-out and deck preparation process was close to completion at the time

ACM and Capitol Finishes were ordered by the Government to leave the ship. For example,

a Capitol Finishes employee attested that the rip-out work and rust removal in the galley was

CBCA 2245, 2345

ninety percent completed at that time, with another day of effort needed to be ready for

priming. The COTR similarly testified that the cadet mess decking rip out and metal

preparation was fully complete and that approximately eighty percent of the galley area rip

out and metal preparation had also been completed.

71.

ACM also attached an invoice for the work required to travel to New York and

retrieve, transport, and dispose of the materials it had purchased to perform the installation

of the replacement floors. The invoice is in the amount of $30,140, and is itemized as

follows:

Labor:

80 hours @ 50.00/hr

$4,000.00

Materials/subcontractor:

Shipping/Trucking:

$2,400.00

Fuels/tolls:

$1,100.00

Restock Fee:

$16,400.00

Total: Material/subcontractor:

$19,900.00

General and administrative expenses, Profit

$4,740.00

Travel/Per Diem to New York, NY

from Norfolk, VA and return

$1,500.00

TOTAL:

$30,140.00

Discussion

Validity of the Termination for Cause

Under Board precedent, a termination for cause is treated as the equivalent of a

termination for default. E.g., Ryll International, LLC v. Department of Transportation,

CBCA 1143, 11-2 BCA ¶ 34,809; Integrated Systems Group, Inc. v. Social Security

Administration, GSBCA 14054-SSA, 98-2 BCA ¶ 29,848, at 147,742. Termination for

CBCA 2245, 2345

default is “a drastic sanction which should be imposed (or sustained) only for good grounds

and on solid evidence.” Lisbon Contractors, Inc. v. United States, 828 F.2d 759, 765 (Fed.

Cir. 1987) (quoting J.D. Hedin Construction Co. v. United States, 408 F.2d 424, 431 (Ct.

Cl. 1969)); accord U.S.I.A. Underwater Equipment Sales Corp. v. Department of Homeland

Security, CBCA 2579, slip op. at 8 (Jan. 27, 2014); Singleton Enterprises v. Department of

Agriculture, CBCA 2136, 12-1 BCA ¶ 35,005; C-Shore International, Inc. v. Department

of Agriculture, CBCA 1697, 10-1 BCA ¶ 34,380, at 169,745. A termination for cause is a

government claim and the Government bears the burden of proof that its action was

justified. Lisbon, 828 F.2d at 764-65. If the Government presents a prima facie case that

the termination was proper, the burden shifts to the contractor to rebut the prima facie case.

CDA, Inc. v. Social Security Administration, CBCA 1558, 12-1 BCA ¶ 34,990, at 171,971;

Integrated Systems Group, 98-2 BCA, at 147,742.

The contracting officer’s decision offered three justifications for the determination

to terminate ACM’s contract for cause. First, she stated that ACM had failed to make

progress to ensure completion of the contract within the specified time. Second, the decision

asserted that ACM failed to perform in accordance with the contract’s requirements. Third,

the contracting officer alleged that ACM’s performance methods, up until the time it was

ordered to leave the vessel, had damaged the ship and its equipment. Respondent argues that

for the reasons identified by the contracting officer, the decision to terminate ACM’s

contract for default was fully justified on the facts of this case. In addition, MARAD directs

us to the language of the termination for cause article of the contract authorizing such a

termination when the contractor fails “to provide the Government, upon request, with

adequate assurances of future performance,” as further support for the contracting officer’s

decision.

Appellant argues that MARAD has not met its burden to prove any of the grounds

that it contends justified the termination for cause and that, even if it could be said that ACM

was technically in default for failure to make sufficient progress to complete the contract

timely, the decision was nonetheless an abuse of discretion under the standards enunciated

in Darwin Construction Co. v. United States, 811 F.2d 593, 596 (Fed. Cir. 1987) (“[T]he

default article of the contract does not require the Government to terminate on a finding of

default, but merely gives the procuring agency the discretion to do so, and that discretion

must be reasonably exercised.”). In short, when all of the relevant facts and circumstances

are considered, the overall decision to terminate the contract for default must have been a

reasonable exercise of discretion.

The fundamental underpinning of this dispute is the parties’ differing understandings

of what the contract required in terms of performing the work. In particular, the controversy

focuses on the varying interpretations of the parties of the statement of work’s requirement

CBCA 2245, 2345

to move “any obstructions.” MARAD, consistent with the views of the COTR and the

contracting officer, insists that the requirement meant that the contractor was obligated to

remove all equipment from the mess and galley areas in order to remove the old flooring,

prepare the underlying metal surfaces for new flooring, and install the new Dex-O-Tex

system. ACM, just as adamantly, contends that it reasonably construed the language to

require it only to move equipment that would impede removal of the old floor and

installation of the new decking materials.

Contract interpretation begins with an examination of the plain language of the

contract. LAI Services, Inc. v. Gates, 573 F.3d 1306, 1314 (Fed. Cir. 2009) (citing M.A.

Mortenson Co. v. Brownlee, 363 F.3d 1203, 1206 (Fed. Cir. 2004)). The contract must be

read as a whole, giving reasonable meaning to all its parts. Gould, Inc. v. United States, 935

F.2d 1271, 1274 (Fed. Cir. 1991). If the plain language of the contract is unambiguous on

its face, the inquiry ends, and the contract's plain language controls. Hunt Construction

Group, Inc. v. United States, 281 F.3d 1369, 1373 (Fed. Cir. 2002). But if the contractual

language at issue is susceptible of more than one reasonable interpretation, it is ambiguous,

and it is the Board’s task to determine which party’s interpretation should prevail.

Gildersleeve Electric, Inc. v. General Services Administration, GSBCA 16404, 06-2 BCA

¶ 33,320, at 165,210.

An ambiguity exists when a contract is susceptible to more than one reasonable

interpretation. See, e.g., E.L. Hamm & Associates, Inc. v. England, 379 F.3d 1334, 1341-42

(Fed. Cir. 2004); Metric Constructors, Inc. v. National Aeronautics and Space

Administration, 169 F.3d 747, 751 (Fed. Cir. 1999). When a dispute arises as to the

interpretation of a contract and the contractor’s interpretation of the contract is reasonable,

tribunals apply the rule of contra proferentem, which requires that ambiguous or unclear

terms that are subject to more than one reasonable interpretation be construed against the

party who drafted the document. Turner Construction Co. v. United States, 367 F.3d 1319,

1321 (Fed. Cir. 2004); United States v. Turner Construction Co., 819 F.2d 283, 286 (Fed.

Cir. 1987). If an ambiguity exists, the next question is whether that ambiguity is patent. An

ambiguity is patent if the ambiguity is so glaring that it is unreasonable for the contractor not

to discover and inquire about it. The doctrine of patent ambiguity is an exception to the

general rule of contra proferentem, which courts use to construe ambiguities against the

drafter. More subtle ambiguities are deemed latent, and the general rule that such language

is interpreted in favor of the nondrafting party will apply. See Triax Pacific, Inc. v. West,

130 F.3d 1469, 1474-75 (Fed. Cir. 1997); Interstate General Government Contractors, Inc.

v. Stone, 980 F.2d 1433, 1434-35 (Fed. Cir. 1992).

It is not the subjective intent of the drafter, but rather the intent that is conveyed by

the language used, that governs the contract’s interpretation. See, e.g., JAVIS Automation

CBCA 2245, 2345

& Engineering, Inc. v. Department of the Interior, CBCA 938, 09-2 BCA ¶ 34,309, at

169,480 (citing Firestone Tire & Rubber Co. v. United States, 444 F.2d 547, 551 (Ct. Cl.

1971)). In addition, “the language of [the] contract must be given the meaning that would

be derived from the contract by a reasonably intelligent person acquainted with the

contemporaneous circumstances,” Teg-Paradigm Environmental, Inc. v. United States, 465

F.3d 1329, 1338 (Fed. Cir. 2006), “unless a special or unusual meaning of a particular term

or usage was intended, and was so understood by the parties.” Lockheed Martin IR Imaging

Systems, Inc. v. West, 108 F.3d 319, 322 (Fed. Cir. 1997).

We start by reviewing the relevant contract provisions. These include the contract

terms and the language of the statement of work. Beginning with the statement of work, the

pertinent language states with respect to the cadet mess:

5.2.1 Remove deck completely down to the steel deck. Approximate square

footage: 2,367’ sq. ft. and 145’ lineal ft. of 6” cove base. Scale, grind

and wire brush to white metal. Remove any obstructions. Prime with

150 Primer.

Similarly, with respect to the galley, the contractor is to:

5.3.1 Remove entire deck and cove base down to the steel deck.

Approximate square footage: 1,530’ sq. ft./240’ lineal ft. of 6” cove

base. Scale, grind and wire brush to white metal. Remove any

obstructions. Prime with 150 Primer. Remove any obstructions

(appliances, cabinets, kick pipes, etc).

The record shows that this specification was drafted by another Dex-O-Tex supplier,

because the COTR did not himself have the experience to draft the statement of work. ACM

and its subcontractor interpreted its obligation to be limited to removal of any items that

actually impeded its performance of the work, which is how they customarily performed this

type of work. ACM balked at accepting the COTR’s more expansive view of this

requirement because that interpretation would have required a significantly more time

consuming and labor intensive undertaking to remove everything the COTR and ship’s

engineer wanted removed. ACM and Capitol Finishes are experienced contractors in marine

deck replacements. Witnesses from both companies offered convincing testimony that work

of this nature can be and often is accomplished without actually clearing the area of all

equipment and appliances so long as it is possible to access the entire floor surface. The

contractors thus understood the statement of work to require only that they remove any items

CBCA 2245, 2345

that interfered with the work, and ACM based its offer on that understanding.4 In fact, the

point was made that the Government’s interpretation of the statement of work transformed

the primary effort under the contract to equipment removal, rather than floor replacement,

because the effort required to fully remove everything from these areas would have exceeded

the effort and expense to replace the deck coverings. In addition, the testimony establishes

that the Government’s interpretation is not the usual practice in the industry.

Upon examination of the record, we conclude that the specification is not readily

susceptible to the interpretation advanced by the Government. The COTR’s subjective intent

that the areas be completely emptied was not reflected in the language of the statement of

work. Based on the plain meaning of the specification, an “obstruction” would ordinarily be

defined as something that hinders the ability to perform the work. We thus find that ACM’s

understanding of the specification was the only reasonable one. The record bears out that

it was in fact possible to perform the work as interpreted by ACM, which had completed

nearly all of the rip-out work and much of the metal preparation at the time it was ordered

to leave the ship. In addition, the written record shows that the COTR apparently

understood that the statement of work needed to be clarified, and requested that an

amendment to the solicitation expressly stating his perception of how the work must be

performed. The Government opted not to do this, but made its award on the basis of the

offers received in response to the solicitation. In reviewing the relevant provisions,

especially in the context of the experience-based testimony provided by ACM and Capitol

Finishes, we find that the wording of the contract is not ambiguous, but rather was properly

construed by ACM.5

Under the contract terms, the Government was not entitled to order a change to the

work unless mutually agreed upon. In this case, although the COTR and contracting officer

sought to impose the COTR’s interpretation of how the work should be performed, ACM

never agreed to their views. There was no bilateral modification of the contract, and, in any

event, the contracting officer never issued a written direction to proceed with the work as

defined by the Government. The situation placed ACM in an untenable dilemma. It could

perhaps have changed its performance method to appease the Government and taken the risk

Even a witness from the subsequent contractor, Southern, testified to his

understanding that the instruction to move “any obstructions” meant anything that would

prevent the contractor from achieving the work.

MARAD also asserts that any ambiguity was a patent ambiguity creating a

burden on ACM to inquire as to the meaning of the language. Although we find there is no

ambiguity, even if, for the sake of argument, there is an ambiguity, it was far from glaring

or patent, thus requiring that the ambiguity be resolved in favor of the contractor.

CBCA 2245, 2345

of prevailing on a claim for a constructive change. See Hawaii CyberSpace, ASBCA 54065,

04-2 BCA ¶ 32,744, at 161,946 n.1 (observing that FAR 52.212-4 does not include a

Changes clause authorizing unilateral changes, but not addressing whether a constructive

change or breach of contract claim might exist because the parties did not make that

argument). Given that the contracting officer never issued a written direction to ACM

instructing it to comply with the Government’s understanding of the contract, ACM should

not have been expected to assume that risk.

We turn now to respondent’s first argument offered in support of its position that the

termination for cause was justified, namely that ACM had failed to make progress such that

timely completion of the contract work was beyond the contractor’s reach. This is so, the

Government contends, because at the time that the contracting officer ordered ACM off the

ship there was only one full day left to complete the contract, and it maintains that

completion within one day would not have been possible. MARAD also contends that this

inability to complete by the close of the next business day was attributable to the fact that

the contract was undermanned by Capitol Finishes.

This position is not tenable. Although technically ACM could not have finished the

work by the next day, which was the original completion date, it has offered persuasive

evidence that the extensive rust encountered on the galley floors required significantly more

effort to remove than would ordinarily be encountered. Although the ship’s engineer and

the COTR expressed the opinion that the rust should have been anticipated because of minor

buckling in isolated areas of the galley floor, the testimony of the Capitol Finishes witnesses,

who have considerable experience in replacing maritime floors, is more convincing on this

subject. They testified that the buckling was not sufficiently pronounced as to have put them

on notice to expect the unusual degree of rust and pitting that was encountered. They also

noted that there was no primer under the galley flooring that was removed, thus explaining

the unusually extensive degree of rust and pitting. ACM has met its burden to show

excusable delay. Moreover, both the contracting officer and the COTR freely admitted that

they would customarily approve an extension of time in these circumstances. The COTR

frankly attested that his only reason for specifying a two-week performance window was to

ensure that the contractor would start and finish at a steady pace, without diverting resources

to more lucrative jobs. Thus, even if the default were justified for failure to make progress,

which it was not, under the admissions made by MARAD personnel, the exercise of the

termination for cause option was not appropriate.

Respondent also argues in its post-hearing brief that ACM had a duty to proceed as

directed by the contracting officer in her letter requesting that ACM provide a price proposal

to do the work as more specifically defined by the Government in the period after ordering

the contractor off the ship. MARAD directs our attention to Stoeckert v. United States, 391

CBCA 2245, 2345

F.2d 639 (Ct. Cl. 1968). This case concerned a contract for the installation of tile in a

powerhouse for a dam. After the contractor had installed a considerable portion of the tile

using its preferred method for obtaining a bond with the concrete slab, the Government

determined that the bond had failed over a substantial area of the floor and directed the

contractor to remove the tile and reinstall it properly. The contractor refused to comply with

this directive except at Government expense and insisted that the Government specify the

method of obtaining a satisfactory bond. The termination for default was sustained, based

on the contractor’s obligation under the Disputes clause to proceed as directed and press a

claim for equitable adjustment rather than to decline to perform.

The Government’s citation to case law that stands for the proposition that the

contractor must proceed with a contracting officer’s directive with which it disagrees and

then file for an equitable adjustment, is unpersuasive. The Stoeckert case is inapposite under

the facts of the subject appeal. The Government is equating a begrudging request for a price

proposal to an order to proceed with the work. This communication was issued following

the cease and desist order removing ACM from the ship and stating the intent to terminate

the contract for cause. The letter repeats the Government’s position that all of this work was

encompassed within the specification to remove any obstructions and seeks to obtain ACM’s

agreement to do that work without agreeing to amend the contract. The letter did not

explicitly direct ACM to proceed with the work as defined in that communication. ACM

repeatedly confirmed that it would complete the work as defined in the contract. Thus, in

contrast to Stoeckert, ACM in no way abandoned its obligations -- the Government ordered

ACM to cease and desist and never permitted it to return to the ship to proceed with the

work. It is arguable that if a unilateral order had been issued directing ACM to proceed in

accordance with the Government’s more explicit statement of what was required, ACM

would have had to do so, but this is not what happened. No such order was ever issued and,

consequently, ACM was under no obligation to proceed, nor could it, without permission

to return to the ship.

Moreover, up until the point at which MARAD issued the termination for cause, there

had been an ongoing dialogue as to what the contract required ACM to do and what the

Government wanted ACM to do. Absent a warning from the contracting officer that failure

to provide a price proposal would result in the termination of the contract for cause, the

Government was not free to terminate for the failure to proceed. See A.J.C.A. Construction

v. General Services Administration, GSBCA 11541, et al., 94-2 BCA ¶ 26,949, at 134,204

(citing Delfour, Inc., VABCA 2049, et al., 89-1 BCA ¶ 21,394, at 107,858 (1988)). Here,

the parties had been discussing means of resolving their dispute, and ACM had no means

to proceed with performance in the face of the Government’s decision to order the

contractors off the ship. Under the reasoning of Delfour and A.J.C.A., the Government was

CBCA 2245, 2345

obligated to take affirmative steps to cut off the dialogue and set forth what it expected the

contractor to do to avoid a termination for cause.

The Government also argues that the termination was proper because ACM failed in

its obligation to provide adequate assurances that it would clean and protect equipment in

the galley. To bolster this contention, it directs us to the insurance and indemnity clause of

the contract, which provides that the contractor shall exercise reasonable care and use its

best efforts to prevent injury or damage to all employees, persons, and property in and about

the work and to the vessel or portion thereof upon which work is done.

The obligation to provide a contracting officer with adequate assurances is set forth

in FAR 52.212-4(m), which states that a termination may be justified when the contractor

fails to provide the contracting officer, upon request, with adequate assurances of future

performance. Because MARAD ordered ACM to cease and desist and leave the ship

premises before the deadline to complete the work had passed, the Government could, prior

to terminating for cause, have issued a cure notice to ACM in order to seek adequate

assurances that the contract would be performed in accordance with its interpretation of the

specification. The COTR and, eventually, the contracting officer did ask ACM on various

occasions to agree to comply with the “contract requirement” to move all equipment from

the galley. The written communications came, however, during the last half of October and

the month of November, when the Government was seeking to secure ACM’s agreement to

perform the work in accordance with its interpretation of the contract’s scope. MARAD’s

tentative offer to allow ACM to resume work was predicated upon receiving a plan showing

that ACM would perform the work as defined by the COTR and would remove all of the

galley equipment from the area to protect it from potential damage occasioned by the deck

flooring replacement process, all for the original contract price. As we have held, the

contract did not require ACM to do this. ACM did cover equipment with plastic and Capitol

Finishes recognized its obligation to clean the area and equipment thoroughly once the new

floors were installed. In fact, the subcontractor’s employees requested the opportunity to

clean up before vacating the ship, but they were not allowed to do so.

Respondent also attempts to characterize the email message sent on October 4, 2010,

the first day on which ACM was permitted to work on the vessel, as a “cure” notice.

MARAD asserts that ACM never provided the “assurances” requested and thus cannot

challenge the termination for cause. Respondent’s characterization of this communication

is entirely inaccurate. The missive itself merely stated that the COTR had concerns and

asked for a conditions report from ACM. In the context of its timing, issued virtually before

any work had commenced, and its vague observations, this email message does not operate

as a cure notice within the meaning of the FAR.

CBCA 2245, 2345

Tellingly, as ACM points out, although the Government has repeatedly alleged that

ACM failed to provide adequate protection against damage from exposure to dust, debris,

and vibration for equipment in the galley, MARAD produced no evidence to back up its

claim that ACM’s method of performance actually caused any damage to any of the

equipment.

On the record developed by the parties, we find that the Government did not meet its

burden to prove the termination for cause was justified. Accordingly, we grant the appeal

in CBCA 2245 and convert the termination of ACM’s contract to one for the convenience

of the Government.

Termination for Convenience Damages

Before discussing the monetary award to which ACM is entitled under the

termination for convenience clause of its contract, we address ACM’s argument that, in

addition to compensation in accordance with the termination for convenience provision of

the contract, it should also be awarded breach of contract damages, notably anticipatory

profits on the terminated work. In support of the breach claim, ACM maintains that the

COTR acted in bad faith in attempting to achieve ACM’s removal from the project because

of personality clashes with ACM’s president and because the contract had not been awarded

to the contractor that he preferred. ACM also argues that the Government’s inability to

show the termination for cause was justified demonstrates a breach of the contract.

Although it is clear from the record that there was considerable tension existing

between the COTR and the contractor prior to and during contract performance, on balance

the record does not reflect that the Government’s actions were taken in bad faith. Rather,

the termination decision was largely a result of the COTR’s genuine, but misguided, belief

that the specification as drafted required the removal of all equipment in the galley, rather

than just those items of equipment that could not be raised, so as to permit the proper

performance of the job. The COTR was also concerned that the galley equipment had been

damaged as a result of the jackhammering required to remove the rust. Because the

Government never proved what, if any, damage to equipment was attributable to ACM’s

failure to move all equipment from the galley, and use of jackhammers in cleaning the rust

from the galley floor, the termination for cause was not justified for those reasons.

Nonetheless, this does not mean that ACM has met the arduous burden to prove bad

faith conduct on the part of MARAD’s COTR or contracting officer. As the Board has

recently observed:

CBCA 2245, 2345

Allegations of bad faith conduct on the part of agency employees are difficult

to prove, particularly in light of the well-settled precept that government

officials are presumed to act conscientiously and in good faith in the discharge

of their duties. Am-Pro Protective Agency, Inc. v. United States, 281 F.3d

1234, 1238 (Fed. Cir. 2002); T&M Distributors, Inc. v. United States, 185

F.3d 1279, 1285 (Fed. Cir. 1999); Spezzaferro v. Federal Aviation

Administration, 807 F.2d 169, 173 (Fed. Cir. 1986); Torncello v. United

States, 681 F.2d 756, 770 (Ct. Cl. 1982); Kalvar Corp. v. United States, 543

F.2d 1298, 1301 (Ct. Cl. 1976). The Court of Appeals for the Federal Circuit,

observing that ‘showing a government official acted in bad faith is intended

to be very difficult,’ has explained that:

[i]n order to overcome the presumption of good faith [on behalf

of the government], the proof must be almost irrefragable.

‘Almost irrefragable proof’ amounts to clear and convincing

evidence. In the cases where the court has considered

allegations of bad faith, the necessary ‘irrefragable proof’ has

been equated with evidence of some specific intent to injure the

plaintiff.

Galen Medical Associates, Inc. v. United States, 369 F.3d 1324, 1330 (Fed.

Cir. 2004) (citations omitted); accord AFR & Associates, Inc. v. Department

of Housing and Urban Development, CBCA 946, 09-2 BCA ¶ 34,226, at

169,170; Greenlee Construction, Inc. v. General Services Administration,

CBCA 416, 07-1 BCA ¶ 33,514, at 166,062; see also Am-Pro, 281 F.3d at

1239-40 (clear and convincing evidence is ‘evidence which produces in the

mind of the trier of fact an abiding conviction that the truth of a factual

contention is ‘highly probable’). This burden is substantially higher than the

preponderance of the evidence standard commonly applied to breach claims.

Am-Pro, 281 F.3d at 1239-40; Singleton Enterprises v. Department of

Agriculture, CBCA 1981, 12-1 BCA ¶ 34,924.

ALK Services, Inc. v. Department of Veterans Affairs, CBCA 1789, et al., 13-1 BCA

¶ 35,260, at 173,074-75. Additionally, the Court of Appeals for the Federal Circuit made

clear in Darwin that abuse of discretion is not the substantive equivalent of acting in bad

faith. 811 F.2d at 598. Accordingly, we conclude that the decision to terminate for cause

was not tantamount to an action taken in bad faith. ACM has not met its burden to show it

is entitled to anticipatory profits on the unfinished portion of the work.

CBCA 2245, 2345

Appellant prepared and presented a settlement proposal under the parameters of the

clause set forth in its contract. Appellant seeks the amount of $194,320, consisting of

$164,180 for work completed at the time of the termination for cause, and $30,140 for costs

associated with retrieval of the materials stored on board the vessel after the contracting

officer declined ACM’s offer to sell the material to MARAD at cost.

The commercial items contractor’s recovery under the termination for convenience

clause is reflected as “a percentage of the contract price reflecting the percentage of the work

performed prior to the notice of termination,” plus reasonable charges that the contractor can

demonstrate resulted from the termination. E.g., Russell Sand & Gravel Co. v. International

Boundary and Water Commission, CBCA 2235, 13-1 BCA ¶ 35,455, at 173,869; Corners

& Edges, Inc. v. Department of Health and Human Services, CBCA 693, et al., 08-2 BCA

¶ 33,961; Geo-Marine, Inc. v. General Services Administration, GSBCA 16247, 05-2 BCA

¶ 33,048. In analyzing the parameters of this provision, the courts and this board have

acknowledged that the basic principles governing the purpose of a termination for

convenience settlement apply to both commercial and non-commercial item contracts.

In terms of general guidance, the FAR provides that:

A settlement should compensate the contractor fairly for the work done and the

preparations made for the terminated portions of the contract, including a

reasonable allowance for profit. Fair compensation is a matter of judgment

and cannot be measured exactly. In a given case, various methods may be

equally appropriate for arriving at fair compensation. The use of business

judgment, as distinguished from strict accounting principles, is the heart of a

settlement.

48 CFR 49.201(a) (2009).

This Board and its predecessor boards have construed the commercial items

termination for convenience clause to achieve the broad purposes of the relevant FAR

clauses calling for fair compensation. The methodology need not, as the Government argues,

limit a contractor’s recovery to a percentage of physical work performed prior to termination,

plus settlement charges, but may, under the rubric of “reasonable charges,” and using an

appropriate measure for calculating the percentage of the work completed, consider what

other expenses should be awarded.

The clause permits payment of reasonable charges that have resulted from the

termination. The clause does not restrict charges resulting from the termination to those

incurred subsequent to the termination for convenience nor does the clause expressly limit

CBCA 2245, 2345

the term “reasonable charges” to settlement expenses.6 A contractor may have reasonably

incurred costs in anticipation of performing the entire contract, but those costs may not be

fully reflected as a percentage of the work performed. See Russell Sand & Gravel Co., 13-1

BCA at 173,869; Corners & Edges, Inc., 08-2 BCA at 168,023; Jon Winter & Associates,

AGBCA 2005-129-2 (June 20, 2005) (small claim decision).7

ACM seeks the amounts of $164,180 for work performed prior to the termination and

$30,140 for work performed after the termination, for a total amount of $194,320. ACM

states that the record reflects that at the time of termination, which was not formalized until

November 26, ACM had completed approximately eighty percent of the work. When the

contracting officer ordered ACM and its subcontractor to leave the ship, rip-out and surface

preparation was one hundred percent complete in the cadet mess and close to completion in

the galley. This was the most labor intensive part of the job. The remaining work, after

completion of the surface preparation in the galley, would require many fewer men to

oversee installation, drying, and curing of the Dex-O-Tex system. ACM built in fifteen fulltime days to complete the work. After extending these days to account for the extensive rust

removal required in the galley, the contract scope would be approximately nineteen days to

completion. Using this analysis, ACM maintains it had completed about eighty percent of

the job.

ACM also believes it is entitled to an adjustment to the contract price of $51,420, for

the “undisclosed site condition” to compensate for the increased number of days and

manpower required to perform rip-out and surface preparation. The additional four days

needed to complete the contract represent about thirty percent of the contract performance

period. Thirty percent of the contract price comes to $51,420.

Settlement expenses are defined in FAR 31.205-42 as expenses caused by the

termination, including but not limited to: accounting, legal, clerical, and similar costs

reasonably necessary to prepare and present a settlement claim to the contracting officer and

to terminate and settle subcontracts; reasonable costs for storage, transportation, protection,

and disposition of property acquired or produced for the contract; and indirect costs related

to salary and wages incurred in connection with preparing the settlement claim.

Winter was issued pursuant to the small claims procedure provided for by the

Contract Disputes Act, so it may not be cited as binding precedent. The reasoning set forth,

however, has previously been noted with approval both by this Board, Russell Sand &

Gravel Co. and Corners & Edges, Inc., as well as by a District Court reviewing the same

legal issue, Red River Holdings, LLC. v. United States, 802 F. Supp. 2d, 648, 656 (D. Md.

2011), and we adopt the reasoning as well.

CBCA 2245, 2345

ACM has cited no authority to support this last approach. The commercial items

clauses were primarily intended for use for standard purchases of off-the-shelf supplies and

hourly services. Thus, there is no term providing for an adjustment to the contract price to

compensate a contractor for this circumstance. We agree that there should be some means

by which the contract price can be adjusted to account for the increased work, but this would

traditionally be through an equitable adjustment of the contract price to compensate for the

actual cost of performing the extra work. As the Board has noted in Nu-Way Concrete Co.

v. Department of Homeland Security, CBCA 1411, 11-1 BCA ¶ 34,636, at 170,698 (2010):

An equitable adjustment encompasses the quantitative

difference between the reasonable cost of performance without

the added, deleted, or substituted work, and the reasonable costs

of performance with the addition, deletion, or substitution. J.L.

Simmons Co. v. United States, 412 F.2d 1360, 1370, (Ct. Cl.

1969) (citing Bruce Construction Corp. v. United States, 324

F.2d 516, 519 (Ct. Cl. 1963)). “When a party seeks recovery of

costs incurred, it has ‘the burden of proving the amount . . . with

sufficient certainty so that the determination of the amount . . .

will be more than mere speculation.” Benmol Corp. v.

Department of the Treasury, GSBCA 16374-TD, 05-1 BCA

¶ 32,897, at 162,979 (citing Lisbon Contractors, Inc. v. United

States, 828 F.2d 759, 767 (Fed. Cir. 1987) (quoting Willems

Industries, Inc. v. United States, 295 F.2d 822, 831 (Ct. Cl.

1961)); Advanced Materials, Inc. v. United States, 54 Fed. Cl.

207, 209 (2002); Twigg Corp. v. General Services

Administration, GSBCA 14386, et al., 00-1 BCA ¶ 30,772, at

151,975). “It is true, of course, that the proof of damages need

not be exact. A reasonable basis is enough - but some

convincing basis must be advanced.” Twigg Corp., 00-1 BCA

at 151,976.

Accord Reliable Contracting Group, LLC v. Department of Veterans Affairs, CBCA 1539,

11-2 BCA ¶ 34,882 at 171,561-62. ACM has not offered any explanation for why the price

increase would not be calculated based on evidence of actual costs to the extent possible.

Although ACM has not provided a separate calculation of its increased costs, it has provided

the calculation of costs it incurred prior to the termination action. These costs amount to

$164,180.

MARAD counters that under the termination for convenience article in this contract,

ACM’s recovery should be extremely limited. First, it suggests that the contract price must

CBCA 2245, 2345

be reduced from ACM’s fixed price bid in the amount of $188,900. The parties agree that

the price is properly reduced by the amount of $17,500, which represents work that was not

ordered. MARAD then claims that the price of materials, in the amount of $48,000, must

also be deducted from the contract price to limit ACM’s recovery to a percentage of the

adjusted amount of $123,400. The Government further proposes that the percentage of

completion be determined by referring to the number of man hours (1600) included in

supporting documents requested by MARAD for the purpose of evaluating ACM’s proposal

and comparing those hours with the hours reflected on the ship’s log for the Capitol Finishes

crews that worked aboard the vessel (approximately 445) prior to the contracting officer’s

order requiring that ACM immediately leave the ship. Based on this calculation, and using

testimony of a Capitol Finishes witness who estimated that rip-out would be about forty

percent of the work,8 respondent contends that the percentage of completion of the work is

28.8 percent. Under MARAD’s analysis, ACM would recover no more than $23,552.

ACM refutes MARAD’s approach, pointing out that the number of hours logged by

crews on board the ship is not representative of time spent for the job or of the percentage

of completion of the work. Capitol Finishes’ proposal was merely an estimate of the number

of hours it would use to complete the work. Its subcontract was firm fixed-price and it

would have made more money if it completed the job in fewer hours. ACM thus reasons

that estimates of labor hours are not an appropriate measure for determining the percentage

of completion of the work at the time of termination.

Together with Capitol Finishes, ACM invested many hours in preparation for

performance before traveling from Virginia to New York. In addition, ACM explains that

rip-out was close to completion, it was the most difficult and time-consuming aspect of the

job, and the final stage of the job required far less labor because there was no longer debris

to be hauled off the ship and much of the installation time would have been waiting for the

Tex-O-Dex materials to dry or cure.

Finally, ACM explains that the record demonstrates that ACM personnel performed

substantial work aboard the ship, such as site preparation, removal of obstructions, and

hauling of debris in buckets off the ship. The ship’s visitor logs showed that ACM and

Capitol Finishes logged upwards of 790 hours. At least 300 of these hours were expended

by ACM personnel. ACM also expended considerable time off the ship, preparing to

This testimony was given in the context of the percentage of the contract price

allocated to rip-out, surface preparation, and primer. The witness also confirmed that most

of the labor manhours are used during this process, which is the most difficult and timeconsuming aspect of the job.

CBCA 2245, 2345

mobilize and travel, and tending to other logistical matters. ACM contends that these tasks

are an integral part of the contract work and must be included in the calculation of the

percentage of work performed.

MARAD’s approach is inconsistent with both the language of the contract clause and

the purpose of the convenience termination remedy. Comparing hours from documentary

support for ACM’s proposal price to hours logged on the ship is not the appropriate measure

of completion of the work, and there is no basis, under a firm fixed-price contract, to restrict

recovery to this measure. ACM has demonstrated that many hours were spent by both

companies in preparing and performing the work that are not reflected by the ship logs.

The most convincing evidence of the level of completion of the work is that of the

ACM and Capitol Finishes witnesses whose testimony established that the rip-out and metal

surface preparation work was complete in the mess area and close to completion in the

galley. The rust was close to being completely removed in the galley. The witnesses stated

that one more day of metal preparation would have sufficed to move on to priming the

surfaces and installation of the new floor system. Their testimony establishes that another

four to five days at most would have been required to finish the job. Most of these

additional days were needed because of the extensive rust build up and pitting on the metal

flooring in the galley. The preponderance of the evidence supports ACM’s position that this

was not a condition that would be obvious from an examination of the existing floor surface.

Based on this testimony, ACM would have been entitled to additional time and

compensation for the conditions it encountered in preparing the metal surface for the new

flooring.

ACM rebuts MARAD’s contention that it must deduct the cost of materials from the

contract price, pointing out that the clause provides for payment of a percentage of the

contract price, including labor, materials, overhead, and profit. The Government did not

agree to purchase the materials for use by the follow-on contractor, so it is not entitled to

deduct this amount from the contract price.

We agree with ACM’s analysis. Thus, the adjusted contract price amount is

$171,400, plus the costs attributable to the extensive rust removal necessitated in the galley.

Although we cannot determine precisely what the contract price adjustment should be, we

are satisfied that the evidence in the record justifies ACM’s actual claimed amount. We also

find that the contract was approximately eighty percent complete by the time the cease and

desist order was issued. We therefore award ACM the amount it invoiced – $164,180 – to

represent an eighty percent completion level. In addition, ACM has provided sufficient

support for reasonable charges, in the amount of $30,140, it incurred to retrieve, transport,

and dispose of the materials purchased for installation of the new flooring system. This is

CBCA 2245, 2345

justifiable in light of the Government’s refusal to purchase the materials, which had been

selected expressly for this project, and its insistence that ACM remove the materials from

the vessel. ACM has proven that it is entitled to the amount of $194,320.

Decision

The appeals are GRANTED. The termination for cause is converted to a termination

for convenience under the terms of the contract. ACM is awarded the amount of $194,320,

with interest pursuant to the terms of the Contract Disputes Act.

_________________________________

CATHERINE B. HYATT

Board Judge

We concur:

________________________________

HOWARD A. POLLACK

Board Judge

_________________________________

ALLAN H. GOODMAN

Board Judge

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.