Petition for Writ of Certiorari — Sayco Ltd. v. Dalton
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96 88 JUL 16 1996
cece. OF THE CLERK
No. OFF
IN THE
Supreme Court of the United States
OCTOBER TERM, 1996
SAYCO LTD.,
Petitioner,
VS.
John H. Dalton,
SECRETARY OF THE NAVY,
Respondent.
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT
PETITION FOR A WRIT OF CERTIORARI
GILBERT H. WEIL
Counsel of Record
MICHAEL M. MALKIN
WEIL, GUTTMAN & MALKIN, LLP
Attorneys for Petitioner
60 East 42nd Street, Suite 4210
New York, New York 10165
(212) 687-8573
we © tole». BPOR
* lillie bat nel Pot Mapas.
le IP Cg nea Sal fame Sa
Questions Presented for Review.
Should not the decision of the United States Court of
Appeals for the Federal Circuit in Sayco Lid. v. John H.
Dalton, Secretary of the Navy, _ F.3d ___ (April 3, 1996),
be set aright for flouting stare decisis doctrine in a case
representative of every case on appeal from a decision by a
contracting officer under the Contract Disputes Act of 1978,
41 U.S.C. § 601 et seq. and where such decision
1) summarily refuses to order the Armed Services Board of
Contract Appeals (“ASBCA”) to review the decision of a
contracting officer de novo in the face of a long-standing body
of judicial law to the contrary, culminating most recently in
an in banc decision by that very circuit, and where the court
2) does so by simply characterizing arguments basically
and essentially governed by such precedents as “without
merit”
3) with no explanation for such disregard of precedent, nor
for such asserted lack of merit; with not even any reference
Whatever to the decisional precedent - nor even a
denomination of it; and where the court
4) violates its own rule that only a decision that does not
add significantly to the body of the law shall bear a legend
that it is not to be cited as precedent; and
5) summarily disregards important public policy firmly
established by Congress by baldly characterizing arguments
basically and essentially governed by such public policy as
“without merit”, with no explanation for such conclusion nor
for such asserted lack of merit, and with not even any
reference to or discussion of that public policy; and where the
court
6) does all of the foregoing covertly.
Parties to the Proceeding Below.
The parties to the proceeding below were petitioner, Sayco
Ltd. (a wholly-owned subsidiary of Herley Industries, Inc.)
(“Sayco”) and John H. Dalton, Secretary of the Navy.
No.
IN THE
Supreme Court of the United States
OCTOBER TERM, 1996
SAYCO LTD.,
Petitioner,
vs.
John H. Dalton,
SECRETARY OF THE NAVY,
Respondent.
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT
PETITION FOR A WRIT OF CERTIORARI
Reports of Opinions and Orders Below.
Appeal of Sayco Ltd., 92-1 BCA 4 24,573 (November 8.
1991) (decision by ASBCA denying cross-motions for sum-
mary judgment).
Appeal of Sayco Ltd., 94-3 BCA 4 27,284 (November 7.
1994) (final decision by ASBCA granting in part and denying
in part Sayco’s claims).
Sayco Ltd. v. John H. Dalton, Secretary of the Navy, __
F.3d, 40 CCF 976,919 (Fed. Cir., April 3, 1996) (decision
and judgment of the court below).
Sayco Lid. v. John H. Dalton, Secretary of the Navy,
__F.3d__, 40 CCF 4____ (Fed. Cir., May 8, 1996) (order
denying Sayco’s petition for rehearing and suggestion that it
be heard in banc).
Jurisdictional Statement.
The judgment sought to be reviewed was entered on April
3, 1996.
An order denying rehearing of that judgment was entered
on May 8, 1996.
The statute conferring jurisdiction on this Court to review
the judgment on a writ of certiorari is 28 U.S.C. § 1254(1).
Statute Involved.
The statute involved in this case is the Contract Disputes
Act of 1978, 41 U.S.C. § 605, providing, in pertinent part, as
follows:
§ 605. Decision by contracting officer
(a) Contractor claims
** * *
Specific findings of fact are not required, but, if
made, shall not be binding in any subsequent pro-
ceeding... .
** * *
(b) Review; performance of contract pending
appeal
The contracting officer's decision on the claim
sha!l be final and conclusive and not subject to re-
view by any forum, tribunal, or Government
3
agency, unless an appeal or suit is timely com-
menced as authorized by this chapter... .
Statement of the Case and Basis for
Federal Jurisdiction.
The basis for federal jurisdiction in the court of first in-
stance, i.e., the United States Court of Appeals for the Federal
Circuit, was the Contract Disputes Act of 1978, 41 U.S.C. §§
601 et seq.; most specifically § 607(g)(1)(A).
Reasons Relied on for Allowance of the Writ.
The United States Court of Appeals for the Federal Circuit
has, in this instance, sanctioned such a departure by ASBCA
from controlling and most important law (stare decisis as to
the scope of appellate review of contracting officers’ deci-
sions) as to call for an exercise of this Court’s supervisory
power, and the Court of Appeals’ refusal to order ASBCA to
review a contracting officer’s decision de novo as required by
stare decisis is in conflict with relevant decisions of this
Court.
Background.
Petitioner Sayco, as a supplier of certain materials to the
Navy, became entitled to supplemental payments under Value
Engineering Changes (“VEC”) regulations (Defense Acquisi-
tion Regulations 7-104.44 et seq.). The contracting officer
rejected many of Sayco’s claims for VEC payments. Appen-
dix (“A”) A-46 - A-52. Notably, he did so not for their
amounts as such, but rather upon erroneous determinations of
fact, or even of substantive law. Idem. Accordingly, Sayco
petitioned ASBCA to review the contracting officer’s deci-
sion de novo. A-53. ASBCA refused to do that, holding that it
could review the contracting officer’s decision only for arbi-
trariness and capriciousness. A-18 - A-19; A-35 - A-37.
Sayco then petitioned the court below to order ASBCA to re-
view the contracting officer’s decision de novo. A-54 - A-55.
That court did not even mention Sayco’s argument in its
decision, or the firmly established chain of authorities
supporting it - capped by the court’s own in banc decision in
Wilner v. The United States, 24 F.3d 1397 (Fed. Cir. 1994).
The plain language of the CDA and our decision
in Assurance [Co. v. United States, 813 F.2d 1202
(Fed. Cir. 1987)] make it clear that when suit is
brought following a contracting officer’s decision,
the findings of fact in that decision are not binding
upon the parties and are not entitled to any defer-
ence.
Wilner, 24 F.3d at 1401.
Instead, the court below apparently summarily disposed of
this critical issue sub silentio under a conclusory catchall
characterization , “without merit”. A-3.
The Stare Decisis Imperative.
Perhaps no doctrine short of constitutional level is as de-
manding as stare decisis.
Time and time again, this Court has recognized that
“the doctrine of stare decisis is of fundamental im-
portance to the rule of law.” [Citations.] Adherence
to precedent promotes stability, predictability, and
respect for judicial authority. Vasquez v. Hillery,
474 U.S. 254, 265-266 (1986). For all of these rea-
sons, we will not depart from the doctrine of stare
decisis without some compelling justification.
[Citation. ]
Hilton v. South Carolina Public Railways
Commission, 502 U.S. 197, 202 (1991).
Stare Decisis is usually the wise policy, because in
most matters it is more important that the applicable
rule of law be settled than that it be settled right.
Burnet v. Coronado Oil and Gas Co., 285
U.S. 393, 406 (1932) (Brandeis, J., dis-
senting). Cited with approval in Hilton,
ee Te wee TY
supra and Payne v. Tennessee, 501 U.S.
808, 827 (1991).
The stare decisis status of de novo review by ASBCA
(supra) stands beyond argument.
If, possibly, there might be some reason for the court below
to have turned its back upon the doctrine it has not offered
any explanation for doing so. No reason. Not even a mere
declaration of a reason; much less a reasoned reason, or a
“better” reason. Much less “some compelling justification”.
Hilton, supra.
“[S]tability, predictability, and respect for judicial author-
ity” are all forsaken if a United States Court of Appeals is to
be left free under a blanket of silence and unaccountability to
act in square contravention of firmly rooted stare decisis.
Hence, petitioner now seeks this Court’s exercise of its su-
pervisory power to set straight the lower court’s decision,
which stands in sharp conflict with relevant decisions of this
Court.
Dated: New York, New York
July 15, 1996
Respectfully submitted,
L\ (WAS
GILBERT H. WEIL
Counsel of Record
MICHAEL M. MALKIN
WEIL, GUTTMAN & MALKIN, LLP
Attorneys for Petitioner
60 East 42nd Street, Suite 4210
New York, New York 10165
(212) 687-8573
APPENDIX
Se
TABLE OF CONTENTS
Sayco Ltd. v. John H. Dalton, Secretary of the Navy,
_ F.3a » 40 CCF § 76,919 (Fed. Cir., April 3,
1996) (decision and judgment of the court below)... A-1
Appeal of Sayco Ltd., 94-3 BCA 4 27,284
(November 7, 1994) (final decision by ASBCA
granting in part and denying in part Sayco’s claims). A-7
Appeal of Sayco Ltd., 92-1 BCA { 24,573
(November 8, 1991) (decision by ASBCA denying
cross-motions for summary judgment). .............06...... A-25
Sayco Ltd v. John H. Dalton, Secretary of the Navy,
__F.3d___,40CCF4___ (Fed. Cir., May 8,
1996) (order denying Sayco’s petition for rehearing
and suggestion that it be heard in banc)..................... A-44
Final Decision of Thomas J. Fura, Contracting
Officer, pages 13-19, dated May 8, 1990................... A-46
Sayco’s Post-Hearing Submissions, page 17, before
ASBCA, dated February 14, 1994.00.00 ccc. A-53
Brief of Appellant Sayco, pages 15-17, in the
United States Court of Appeals for the Federal
Circuit, dated May 5, 1995. ............. \ipendediapaiclavaialesieis A-54
EEE
A-1
NOTE: Pursuant to Fed. Cir. R. 47.6, this disposi-
tion is not citable as precedent. It is a public record.
The disposition will appear in tables published peri-
odically.
UNITED STATES COURT OF APPEALS FOR
THE FEDERAi CIRCUIT
95-1226
SAYCO LTD.,
Appellant,
v.
John H. Dalton,
SECRETARY OF THE NAVY,
Appellee.
DECIDED: April 3, 1996
Before CLEVENGER, RADER, and SCHALL. Circuit
Judges.
SCHALL, Circuit Judge.
DECISION
Sayco, Ltd. (“Sayco”) appeals the decision of the Armed
Services Board of Contract Appeals (“Board”) awarding it
$151,747.19 as its share of the total cost savings under two
separate contracts between Sayco and the Department of the
Navy for submarine connector plugs. Appeal of Sayco, Ltd.,
ASBCA No. 39366, 94-3 BCA (CCH) 4 27,284 (Nov. 7,
1994) (“Sayco IT’). The Board awarded Sayco $131,109.58
under Contract Number N00104-84-C-1565 and $20,637.61
under Contract No. N00104-84-C-1504. We affirm.
A-2
DISCUSSION
I.
Sayco’s two contracts incorporated by reference the Value
Engineering clause set forth in what then was Defense Ac-
quisition Regulation 7-104.44 (Oct. 1982). Sayco II, 94-3
BCA at 135,921. Under this clause, Sayco was entitled to
share with the Navy any cost savings resulting from a value
engineering change proposal (“VECP”) which it submitted
under the contracts and which was accepted by the Navy. See
Sayco, Ltd, ASBCA No. 39366, 92-1 BCA (CCH) 4 24,573
at 122,586 (November 8, 1991) (“Sayco ot The clause rec-
ognized both “instant contract savings” (savings under the
contracts) and “collateral savings” (savings in agency costs
relating to operation of, and maintenance and logistic support
for, goods furnished under the contracts). Jd. Under the
clause, Sayco was to be compensated for such savings by re-
ceiving additional compensation under the contracts. Id.
The VECP which Sayco submitted and was accepted in-
creased the cost to the Navy of each connector plug delivered
under the contracts. Consequently, the parties were con-
fronted with what the Navy’s contract administrator called
“negative acquisition savings.” At the same time, however,
Sayco’s VECP did result in collateral savings to the Navy. In
due course, Sayco appealed to the Board under the Contract
Disputes Act of 1978, 41 U.S.C. §§ 601-13, the Navy’s de-
termination as to the additional compensation to which Sayco
was entitled under the contracts resulting from the combina-
tion of negative acquisition savings and collateral savings.
Before the Board, Sayco argued that, for purposes of comput-
ing the contractor’s share of collateral savings under each of
the contracts, the “firm fixed price” referred to in the Value
Engineering clause included the contractor's share of
' The findings the Board made in Sayco | were incorporated by reference
into the Board’s opinion in Sayco II. Sayco II, 94-3 BCA at 135,921. Be-
cause both Sayco | and Sayco I/ present the same issues, we cite to the
Board’s findings and conclusions in Sayco / where necessary.
A-3
collateral savings. Sayco also argued that the sharing period
for collateral savings should be three years, and that evidence
of what the parties meant by the offset provision contained in
Modification A00003 to each of the contracts was barred by
the parol evidence rule. Sayco II, 94-3 BCA at 135,926.
The Board determined (1) that the contract price’s “firm
fixed price” did not include collateral savings; (2) that the
sharing period for collateral Savings was only one year; and
(3) relying upon patol evidence, that the parties had agreed
that negative acquisition savings would be offset against col-
lateral savings. Jd. at 135,926-27. Having rejected Sayco’s
claims, the Board held that Sayco was entitled to the award
noted above.
ay.
We treat the decision of an agency board on any question
of fact as final and conclusive unless the decision is
“fraudulent, or arbitrary, or capricious, or so grossly errone-
ous as to necessarily imply bad faith, or if such decision is not
supported by substantial evidence.” 41 U.S.C. § 609(b)
(1994). We review the decision of an agency board on any
question of law de novo. Fruin-Colnon Corp. v. United States,
912 F.2d 1426 (Fed. Cir. 1990). We address here three of the
arguments raised by Sayco on appeal.
First, Sayco argues that the Board erred in its interpretation
of the collateral savings provisions contained in the Value
Engineering clause. The Board concluded that the “firm fixed
price” for purposes of the collateral Savings paragraph of the
Value Engineering clause was the contract price at the time a
VECP was accepted and, therefore, did not include any in-
creases or decreases in that price because of collateral sav-
ings. Sayco II, 94-3 BCA at 135,926. We agree.
2 ; ‘. ‘
~ We have considered Sayco’s other contentions and have found them all
to be without merit.
ee -
A-4
The Value Engineering clause provided that the contrac-
tor’s share of collateral savings “shall not exceed (i) the con-
tract’s firm fixed price ... at the time the VECP is accepted,
or (ii) $100,000, whichever is greater.” Jd. Sayco urges us to
interpret the clause to mean that the “firm fixed price” in-
cluded collateral savings. In rejecting this argument the Board
observed that “[t]he clause says ‘at the time the VECP is ac-
cepted’ not ‘after the VECP is accepted.’” Sayco I, 92-1 BCA
at 122,590. The Board further observed that to accept Sayco’s
interpretation would “effectively read limitation (i)... out of
the Value Engineering clause.” /d. The reason is that adding
the anticipated collateral savings to the existing contract price
means that “the total will always be greater than the collateral
savings since ... [collateral savings] is one of the amounts
making up the total.” /d. We see no error in this analysis.
We also agree with the Board that the sharing period for
collateral savings was only one year. Paragraph (g) of the
Value Engineering clause stated that “the instant contract
amount shall be increased .. . by 20 percent of the projected
net reduction in collateral costs determined to be realized in a
typical year of use. . ..” It is quite clear that the contract calls
for a sharing period for collateral savings of one year, not
three years.
Finally, the Board correctly determined that the parties
agreed that negative acquisition savings would be offset
against collateral savings. Sayco urges us to hold that the
Board erred by relying upon parol evidence to determine the
parties’ intent. We find that the Board’s reliance on parol evi-
dence was proper. Parol evidence is admissible if the terms of
a contract are ambiguous. Beta Sys., Inc. v. United States, 838
F.2d 1179, 1183 (Fed. Cir. 1988). In the present case, the
contract, as modified, provided the negative acquisition sav-
ings would be offset in accordance with FAR 52.248-1(J) [sic:
(j)|. FAR 52.248-1(j) limits that increase in the price of a
contract after acceptance of a VECP to “20 percent of any
projected collateral savings determined to be realized in a
typical year of use after subtracting any Government costs not
previously offset.” FAR 52.248-1(j). To the extent that the
+ tte at
PONT RA TGS ri wr
ON tO ne LAM Say OD Rae S
A-5
contract is ambiguous as to what government costs the parties
intended to offset against collateral savings, we do not find
erroneous the Board’s resort to parol evidence to determine
that it was the intent of the parties regarding this provision to
offset. negative acquisition savings against collateral savings.
For the foregoing reasons, we hold that the decision of the
Board is supported by substantial evidence and is free of legal
error. Accordingly, it is affirmed.
Each party shall bear its own costs.
A-6
NOTE: Pursuant to Fed. Cir. R. 47.6, this disposition is not
citable as precedent. It is a public record. The disposition will
appear in tables published periodically.
United States Court of Appeals for the Federal Circuit
95-1226
SAYCO LTD.,
Appellant,
V.
John H. Dalton,
SECRETARY OF THE NAVY,
Appellee.
Judgment
ON APPEAL from the ARMED SERVICES BOARD OF
CONTRACT APPEALS
in CASE NO(S). 39366
This CAUSE having been heard and considered it is
ORDERED and ADJUDGED: AFFIRMED
ENTERED BY ORDER OF THE COURT
/s/ Francis X. Gindhart
Francis X. Gindhart, Clerk
DATED: APR 03 1996
ISSUED AS A MANDATE: May 28, 1996
A-7
ARMED SERVICES BOARD OF
CONTRACT APPEALS
Appeal of -- )
)
Sayco Ltd. ) ASBCA No. 39366
Under Contract Nos. N00104-84-C- _)
1565 and N00104-84-C-1504 )
APPEARANCE(S) FOR THE APPELLANT:
Jacob H. Fischman, Esq.
Forest Hills, NY
Gilbert H. Weil, Esq.
Weil, Gut[t}man & Malkin
New York, NY
APPEARANCE(S) FOR THE GOVERNMENT:
Arthur H. Hildebrandt, Esq.
Navy Chief Trial Attorney
Brad L. Johnson, Esq.
Trial Attorney
OPINION BY ADMINISTRATIVE
JUDGE BURG
This appeal concerns what amount, if any, appellant should
receive from the Government for an approved Value Engi-
neering Change Proposal (VECP). The parties’ Cross-
Motions for Summary Judgment were considered in a non-
dispositive opinion, 92-1 BCA 4 24,573. We affirmed our
conclusions in that opinion on appellant’s motion for recon-
sideration of our denial of its motion for summary judgment,
92-3 BCA 4 25,124. Appellant filed an appeal with the Court
of Appeals for the Federal Circuit which was docketed as
Sayco Lid. v. ‘Navy, No. 92-1219, on 10 March 1992 and
dismissed on motion of the appellee, 12 June 1992. Thereaf-
ter, there was an oral hearing at which time the parties pre-
sented evidence on the material facts which the Board had
concluded were in dispute.
eee
A-8
FINDINGS OF FACT
1. In our opinion on the cross-motions for summary judg-
ment, we made detailed findings regarding the matters here in
dispute. They are incorporated herein by reference and will be
repeated only to the extent necessary in this opinion.
2. At some point after submittal of the VECP, appellant
began to manufacture the connector plugs as proposed by its
VECP. Since they did not comply with the then existing con-
tract requirements, the Government inspector at appellant’s
plant would not accept the plugs and sign the Form DD-250s.
Appellant could not be paid until the Form DD-250s were
executed.
3. Appellant was anxious to obtain acceptance and execu-
tion of the DD-250s so it could be paid. Several meetings oc-
curred between appellani’s president, its attorney and
Government personnel. As we found in our opinion on the
cross-motions for summary judgment:
Modification A00003 to Contract 1504 dated 28
October 1987 and Modification A00003 to Contract
1565 dated 9 November 1987 incorporated the
VECP into each contract. These bilateral modifica-
tions provided (1) that Contract 1565 [Contract No.
N00104-84-C-1565] was the “instant contract” and
Contract 1504 [Contract N00104-84-C-1504] was
the “concurrent contract”, (2) that approval of
VECP 001 resulted in “Negative Acquisition Sav-
ings” for Contract 1565 of $387,639 and for Con-
tract 1504 of $154,225 (a total of $541,864), (3) that
the definitized negative acquisition savings would
be offset in accordance with FAR 52.248.1, para (J)
[sic], (4) that collateral savings would be calculated
and determined by the procuring contracting officer
(PCO) and incorporated by contract modifications
at a later date, and (5) that the contract price for
Contract 1565 became $636,999 and for Contract
1504 became $254,405.
RE TR RRS At PAT DBS OCR M EI Nin PRISER RN
Ee APE Re TR
A-9
(92-1 BCA at 122,585-86) Modification A00003 for Contract
1565 is set forth in our prior opinion (92-1 BCA at 122,587)
and will not be repeated here.
4. The Value Engineering (VE) clause, DAR 7-104.44
(1982 OCT), incorporated by reference into appellant’s con-
tracts did not define “Negative Acquisition Savings”. The
applicable provisions of the clause are set forth in our prior
opinion (92-1 BCA at 122,586-87). Prior to issuance of
Modification A00003 for each of these contracts, the contract
administrator who prepared both modifications carefully con-
sidered the requirements of the clause. This was a unique
situation since the VECP resulted in an increase rather than a
decrease in the cost of each unit. The unit cost prior to accep-
tance of the VECP, $29.00; was increased to $101.00 per unit
after acceptance. Certain tasks were performed by the contrac-
tor at its plant rather than on the ship.
5. The contract administrator did not consider the increased
manufacturing costs were covered by the definition of
“negative instant contract savings” which were described as
the “excess of contractor’s development and implementation
costs as compared to the unit cost reduction”. Negative instant
contract savings result in an equitable adjustment increasing
the instant contract price and are not considered a Govern-
ment cost. (DAR 7-104.44(b)(7))
6. While “net acquisition Savings” were defined as
“acquisition savings” less Government costs, there was no
provision in the clause when the “net acquisition savings”
were negative rather than positive. The Government contract
administrator concluded that the increased acquisition costs
did not comply with the definition of “Government costs” in
the VE clause which defined such costs as:
(5) “Government costs” means those agency costs
that result directly from developing and implement-
ing the VECP and any net increase in the cost of
testing, operations, maintenance, and logistics sup-
port. They do not include the normal administrative
costs of processing the VECP.
A-10
(DAR 7-104.44(b)(5)) Therefore, after consultation with
Government personnel and officials involved in the Value
Engineering program and its implementation, he used the
phrase “negative acquisition savings” as distinguished from
“negative instant contract savings.” In preparing bilateral
Modification A00003 for Contract 1565 dated 9 November
1987, the language was carefully prepared by the contract
administrator and reviewed by his superiors. It provided, in
pertinent part:
1. ACQUISITION SAVINGS: The approval of
VECP-001, 12 Nov 85, has resulted in
“Negative” Acquisition Savings. Specifically,
the VECP-001 results in a unit and total con-
tract price increase on this, the instant contract
[Contract 1565]; the aforementioned concur-
rent contract [Contract 1504] and on future
contracts for the procurement of the applicable
NSN(s). Accordingly, negative acquisition
savings in the amount established below, will
be offset in accordance with FAR 52.248-1,
para (J) [sic]
NEGATIVE ACQUISITION
SAVINGS - $379,728.00 Recurring
7,911.00 Non-recurring
Total $387,639.00
2. COLLATERAL SAVINGS: Collateral savings
will be calculated and determined by the
NSPCC, PCO. The amount to be shared with
and paid to the contractor shall be approved
and incorporated into the contract at a later
time via contract modification to be issued by
the NSPCC, PCO.
3. INCREASE IN UNIT PRICE/CONTRACT
PRICE
a. Based on contract modifications A00001,
04 Sep 85 and A00002, 15 Aug 86;
A-I1
wherein the contractor paid consideration
in return for delivery schedule changes,
the total contract amount was reduced
FROM: $250,260 TO: $249,360.00. Ac-
cordingly, the unit price at the time of ne-
gotiation of this VECP-001 was
4
;
established at $29.00 per unit as follows:
($249,360.00 divided by 8600 Ea. units =
$28.995 or $29.00)
b. The following changes are hereby made
to the unit price/contract amount for the
remaining 5,274 Ea. units.
RECURRING COSTS:
Unit price for 5,274, Ea. items is in-
creased by $72.00
FROM. $29.00 TO: $101.00
NON-RECURRING COSTS: Non-recurring
development costs of $1.50 per unit for
5,274 Ea. units, or total development
costs of $7,911.00 are hereby added to the
eA Nida lA a Et ee
contract.
TOTAL CONTRACT AMOUNT is increased as
follows:
Established total amount: $249,360.00
Additional recurring costs: 379,728.00
Addition{al] Non-recurring costs: 2,911.00
New Total Contract Amount: $636,999.00
(R4, tab 1) A more complete version of Modification A00003
is set forth at 92-1 BCA at 122,587.
7. Bilateral Modification A00003 to Contract 1504 dated
28 October 1987 was similar to the one set forth above. It
recited that the Negative Acquisition Savings for Contract
1504 were $151,240 for recurring and $2,985 for non-
recurring costs, a total of $154,225. The unit price at the time
of negotiation was $50.00 and was increased by $76.00 per
unit to a unit price of $126 per unit. The total contract price at
A-12
the time of negotiation of the VECP was established to be
$100,180 and was increased to $254,405.00. (R4, tab 2)
8. The contract administrator testified that during negotia-
tions for determination of the amount appellant was to receive
for acceptance of the VECP the matter was discussed with
appellant and its counsel and that he made it quite clear that
the negative acquisition savings would be offset against any
amount determined for collateral savings. He did not consider
this a deviation from the VE clause which required advance
permission because it was outside the provisions of the clause
itself. The matter was discussed on more than one occasion
with Mr. Eli Natan, appellant’s president, who was an experi-
enced Government contractor and former Government em-
ployee. Mr. Natan testified that at that time appellant was
seeking recovery of savings as acquisition savings, not as
collateral savings, and that he thought that any offset of
“negative acquisition savings” would be offset against the ac-
quisition savings appellant was claiming. Appellant’s primary
concern was to have the units which had been manufactured
using the VECP and had been completed since May 1987 ac-
cepted so that it could get paid. When he saw the language in
Modifications A00003, it was unclear so he checked with his
counsel who indicated that the provision had no effect and
that Mr. Natan should ask that the language be crossed out.
Mr. Natan was informed that the ACO would not agree to any
change in the language. A memorandum for the record by
Paul M. Hayes, Jr., dated 1 May 1987 corroborates the fact
that the ACO would not change the language. It recites:
During the past week numerous attempts have
been made by me and Mr. Natan to permit the
shipment of 3000 ea. plug sleeves from Job 344.
DCASMA Reading (Mr. A. Vesloski [the contract
administrator] & Mr. J. Thomas) informed me that a
contract modification (bilateral agreement) incorpo-
rating the technical aspect of VECP 001 would be
required before the government would accept the
product.
- PAE ORE ta oe Sect dads Boon
A-13
I informed Mr. Vesloski that SAYCO could agree to
a bilateral modification provided the language of the
modification did not arrogate [sic] SAYCO’s rights
under the VECP.
The language proposed by the Government was re-
viewed by SAYCO counsel and found to be unac-
ceptable. SAYCO recommended to the Government
changes in the language. The Government (Mr.
Vesloski) informed me that his ACO would not
change the language. Mr. Vesloski informed me that
he was referring the issue to SPCC with the recom-
mendation that SPCC issue a unilateral change or-
der incorporating the technical aspects of VECP
001. In this way SAYCO could ship the units while
the change order was being resolved.
(R4(b), tab 4)
9. The contemporaneous Correspondence indicates that
SAYCO, having manufactured the items incorporating the
VECP, was extremely anxious to have them accepted. The
Government would not accept them without the contract
modification. There was difficulty in obtaining the requisite
cost information from appellant which was necessary to de-
termine the amount to which appellant was entitled because of
acceptance of the VECP. Finally, bilateral Modifications
A00003 for Contracts 1565 and 1504 were prepared and exe-
cuted without all the information which the contract adminis-
trator considered should be available and the collateral
Savings were deferred to later modifications.
10. Initially, appellant had submitted its cost analysis of the
VECP showing acquisition savings by including the amount
the Government would save in labor using the VECP. How-
ever, this submittal did not adequately reflect the increased
costs of the units which resulted in the increased manufactur-
ing costs of the contractor and the increased unit costs termed
“negative acquisition savings.” When, after execution of the
Modification A00003 to each contract, Mr. Natan was in-
formed that there were no acquisition savings, he transferred
A-14
some of the amounts originally claimed as acquisition savings
to collateral savings. Prior to execution of those modifications
appellant had calculated collateral savings as $240,000 and
appellant was not too concerned about them since its share
was minor, $48,000, compared with the quantity of items on
hand which it wanted to deliver so it could receive payment.
Thereafter, appellant submitted a revised cost analysis seeking
recovery of collateral savings.
11. By letter dated 2 February 1988, appellant submitted its
collateral savings analysis, seeking the following:
Savings from reduced maintenance of
government owned equipment $ 240,000.00
Savings on operational expenditure
due to the increase in service life 3,332,347.20
Savings resulting from the reduction
of government costs in maintaining
the end unit in service 5,509,082.00
Savings resulting from reduced logis-
tics costs of procurement, transporta-
tion, storage and inventory
maintenance 109,003.62
Total $9,190,432.82
20% x $9,190,432.92 = $1,838,086.56
(Exhs. 580-584) In that same document appellant indicated
that it was unable to quantify the following, but felt that they
could double the amount of collateral savings:
a. Material costs, such as solvents, containers, heat
lamps or sources which are required to fabricate
plugs were not included in the above.
b. Cost of systems checks required after plug re-
placement were not included in the above calcula-
tions.
Lae ahem PML 4 Gane ation -
A-15
c. Costs of support and technical personnel were not
included in the above calculations.
d. Costs of ancillary equipment replacements, [i.e.,
damage to transducers/hydrophones caused by wa-
ter intrusion due to failed plugs] were not used in
the above calculation.
12. By letter dated 29 February 1992, appellant quantified
the above four items, as follows:
a. Material cost savings on 3126
plugs @ $26.84 = $ 83,901.00
b. Savings on cost of System checks: 718,018.00
c. Savings on cost of technical and
support personnel 3,590,092.00
d. Savings on cost of damage to
transducers/hydrophones cause[d]
by water intrusion _4,085,199.00
TOTAL SAVINGS $8.477.210.00
(Exh. 667-670) These claimed collateral savings were in ad-
dition to the $9,190,432.82 set forth above.
13. Because of lack of data concerning savings because of
the VECP and the escalating nature of appellant’s claim, the
contracting officer was confused and had problems quantify-
ing the amount of collateral savings. On 7 June 1989 appel-
lant filed a certified claim for $11,028,519 as its share of
collateral savings from its VECP under Contract 1565 and
1504. On 16 August 1989 appellant appealed from failure of
the contracting officer to issue a decision on its claim. There-
after, on 6 May 1990 the contracting officer issued his deci-
sion concluding that the collateral Savings from the VECP
were $1,300,600 fra year.
14. Prior to issuing his decision, the contracting officer re-
peatedly reviewed the VE clause. When the contracting offi-
cer received appellant’s first proposal of collateral savings, he
A-16
referred it to the appropriate technical branch and informed
that branch of how the VE clause defines collateral savings.
Because of his concern about the methodology to use in this
instance, he consulted with the person in charge of the De-
partment of Defense VE program and with the instructor of
the VE course at Wright Patterson Air Force Base. He also
consulted with individuals involved with the VE program for
the Navy, Army and Air Force. His purpose was several fold.
He attempted to determine whether there is still a value engi-
neering change when there is a unit price increase. He also
inquired whether there was any operating procedure, instruc-
tion or computer model which could be used. He was in-
formed there was no guidance or computation instruction.
While “upper management” at the buying agency understood
the issue which the contracting officer was raising (whether
there could be collateral savings when there was a unit price
increase as a result of a VECP), they did not feel it was a
matter of concern in this instance.
15. In making the actual computations in his decision, the
contracting officer relied a great deal on the technical advice
from the technical branch. It was not possible to obtain actual
figures because there were not many units is operation which
incorporated the change, there was no model to use and it was
extremely difficult, if not impossible, to segregate the units
with the VECP from those which were not manufactured us-
ing the VECP.
16. It was possible to determine the Navy typical year us-
age of plugs by determining one third of the three year cycli-
cal data usage of the plugs. This quantity, 6,253, was the same
quantity used by appellant in its claim of 2 February 1988.
The contracting officer also accepted appellant’s manufactur-
ing savings of 5 hours per item and labor costs of $40.00 per
hour. The 5 hour savings was because of labor standards es-
tablished in a Government manual and the contracting officer
used that figure rather than the 1/2 hour savings per unit
which he was informed was the actual amount of time saved.
He concluded it was more appropriate to use the time in-
cluded in the standards manual. Extending these figures and
;
|
|
|
;
|
A-17
adding the $50,000 to which he concluded appellant was en-
titled from its original proposal, the contracting officer con-
cluded that the collateral Savings were:
6,253 x 5 x $40.00 = $1,250,600 + $50,000 = $1,300,600
(R4, tab 20)
17. After consultation with the electrical engineer in the
technical branch who analyzed appellant’s claims, the con-
tracting officer concluded that -there was no entitlement or
basis for recovery for the other items for which appellant
sought a share as collateral savings. He, therefore, calculated
the collateral Savings to which appellant was entitled under
the VE clause (20 percent of one year’s Savings) to be
$260,000. The $260,000 had to be divided between Contracts
1565 and 1504. He developed a percentage based on a ratio of
the quantity purchased under each contract over the three year
usage for the item. This calculated to:
Contract 1565 86.4% x $260,000 = $224,640.00
Contract 1504 13.6% x $260,000 = $ 35,360.00
18. The contracting officer believed that pursuant to Modi-
fication A00003, the negative acquisition savings would be
offset against the contractor’s twenty percent share of the
collateral savings. Since the negative acquisition savings,
$387,639 for Contract 1565 and $154,225 for Contract 1504,
exceeded the contractor’s twenty percent share of collateral
savings for each contract, the contracting officer concluded
that appellant’s share of collateral savings after offset was
$0.00 for each contract. (R4, tab 20)
19. Having carefully considered all of the facts present in
the record, many of which we have set forth in detail, we find
that the decision by the contracting officer as to the amount of
collateral savings was not arbitrary or capricious. To the con-
trary, because of the unique situation which existed here, an
increase rather than decrease in the unit price because of ac-
ceptance of the VECP, the contracting officer made a great
effort to determine just how the matter should be handled.
A-18
DECISION
In our decision on the cross-motions for summary judg-
ment we reached the following conclusions:
The cross-motions for summary judgment are
denied. The partial motions for summary judgment
are granted to the extent set forth above that (1) the
determination of the contracting officer is review-
able for the limited purpose of determining whether
it was arbitrary or capricious with the burden on ap-
pellant to prove such was the case and also to prove
any amounts over those recognized by the contract-
ing officer if it sustains its burden on entitlement;
(2) the firm-fixed price for purposes of the collateral
savings paragraph of the Value Engineering clause
is that price at the time the VECP is accepted and,
therefore, does not include any increases or de-
creases in that price because of such acceptance or
any amount attributable to the collateral savings; (3)
the sharing period for collateral savings is one year;
(4) that in calculating any offset of negative acqui-
sition savings which are appropriate under the col-
lateral savings clause and the contract, the offset is
subtracted from estimated yearly savings before the
20 percent to which the contractor is entitled is cal-
culated; and (5) appellant’s share of collateral sav-
ings shall not exceed $249,360 for Contract 1565 or
$100,180 for Contract 1504.
(92-1 BCA at 122,592) In that opinion, we concluded that
whether the contracting officer had abused his discretion in
determining the amount of collateral savings, what was in-
tended by the “offset” language in Modification A00003 to
each contract and whether the contracting officer had erred in
concluding that the contractor should not share in certain col-
lateral savings were material facts in dispute and were not ap-
propriate for summary judgment. On reconsideration, we
affirmed those conclusions. We reaffirm them here.
Sonie's “eit. Nas
A-19
Appellant argues eight issues. Many of the issues were ar-
gued in its various motions to the Board. They were discussed
at great length in our earlier opinions and we shall not discuss
them in detail here.
Appellant’s first argument is that the Board reviews the
contracting officer’s decision de novo. This argument was
considered in our decisions on the cross-motions for summary
judgment and on reconsideration. After detailed discussion,
we followed the precedent established in JCSD Corporation,
ASBCA No. 28028, 90-3 BCA 4 23,027; aff'd 934 F.2d 313
(Fed.Cir. 1991). We concluded that paragraph (g) of the VE
clause providing for collateral savings which states that
“... The Contracting Officer shall be the sole determiner of the
amount of collateral savings, and that amount shall not be
subject to the Disputes clause....” stil] permitted us to deter-
mine whether the decision was arbitrary or capricious so that
there was an abuse of discretion by the contracting officer.
We, further, concluded that the appellant has the burden of
establishing whether such determination was arbitrary and
capricious and, if so, the amounts which were arbitrary and
capricious. In its briefs, appellant completely ignores JCSD.
supra, and our earlier opinions on this matter. We reaffirm
our conclusions reached in those opinions. (92-1 BCA at
122,588-90; 92-3 BCA at 125,260)
_ Many of appellant’s arguments concern the amount to
which appellant is entitled over and beyond the amount de-
termined by the contracting officer. We have not made de-
tailed findings of fact as to these various amounts because we
reaffirm the conclusions reached in our previous opinions
concerning the limitations on amounts recoverable for collat-
eral savings under paragraph (g) of the VE clause in appel-
lant’s contracts. It provided:
(g) Collateral Savings. If a VECP is accepted, the
instant contract amount shall be increased . . . by 20
percent of the projected net reduction in collateral
costs determined to be realized in a typical year of
use after subtracting any Government costs not
A-20
previously offset. However, the Contractor’s share
of collateral savings shall not exceed (i) the con-
tract’s firm fixed price, target price, target cost, or
estimated costs at the time the VECP is accepted, or
(ii) $100,000, whichever is greater.
In our earlier opinions we discussed in detail the limitations
in recovery of collateral savings established by the language
of the clause. We reiterate our conclusion reached in those
opinions that the “firm fixed price” for purposes of that clause
means the contract price before determination of collateral
savings (92-1 BCA at 122,590; 92-3 BCA at 125,260).
Appellant argues that the contract price for limitation pur-
poses of the collateral savings clause should be the price set
forth in Modification A00003 for each contract after increas-
ing the unit price of the items. We do not agree. If that were to
be the proper interpretation of the clause, in most instances
the unit price is decreased, not increased, a result which
would lead to a lower contract price and less recovery in
many cases. We consider such a conclusion incorrect and that
the phrase “at the time the VECP is accepted” means the con-
tract price without considering any adjustment due to the
value engineering change itself.
This leaves for consideration the question of just what was
intended by Modification A00003 to each of the contracts
here in question insofar as the offset provision is concerned.
Appellant argues that evidence of what was meant by those
provisions is barred by the parol evidence rule. We considered
that matter in our opinion on appellant’s motion for reconsid-
eration. We concluded:
(4) Offset for “negative acquisition savings”
Appellant argues that consideration by the Board
of evidence of negotiations which resulted in Modi-
fication A0003 [sic] to each of the contracts in-
volved in this appeal would violate the parol
evidence rule and that the agreement is clear on its
face. In this instance the parties by negotiation
me ot
SE ee lle ire Ct: arte Pll i a tk a
Sen ee, tne ee
A-21
agreed that negative acquisition Savings would be
offset in accordance with a specified FAR provi-
sion. There is nothing which prohibits the parties
from resolving a matter by negotiation and, unless it
specifically constitutes a deviation from a regulation
for which a waiver would be required, it could
constitute a valid agreement. We addressed this in
Our Opinion on the motions [92-1 BCA at 122,591].
We do not agree with appellant that the regulations
necessarily preclude such an offset if the parties, by
negotiation, agree that such will be the case. Were
we to decide this issue on the record before us, as
argued by appellant, we would conclude that such
offset should be made in the manner spelled out in
these modifications. However, we were willing to
allow appellant an Opportunity to develop factually
that this was not the situation. If it does not wish to
avail itself of same and wishes to rest on the modi-
fications, we would conclude that, in addition to any
items of offset established pursuant to the collateral
Savings provision, the parties agreed that negative
acquisition savings would be offset against collat-
eral savings...
(92-3 BCA at 125,260) We reiterate the conclusions set forth
in our prior opinions.
At the hearing the testimony of the contracting officer and
contract administrator was straightforward that the question of
offset of negative acquisition savings was a matter discussed
with appellant on several occasions while the increase in unit
price under these contracts was being negotiated and that Mr.
Natan was informed that the increased costs would be offset
against any collateral savings resulting from the VECP. At the
hearing appellant’s then president, Mr. Natan, testified that
the language was unclear. At that time, appellant was seeking
recovery of savings as acquisition Savings, not as collateral
savings, and that any offset of “negative acquisition savings”
would be offset against the acquisition savings appellant was
claiming. Appellant’s primary concern was to have the units
A-22
which had been manufactured using the VECP and had been
completed since May 1987 accepted so that it could get paid.
Mr. Natan checked with his counsel who indicated that the
provision had no effect and that Mr. Natan should ask that the
language be crossed out. Mr. Natan was informed that the
ACO would not agree to any change in the language. It was
not until later, when Mr. Natan was informed that there were
no acquisition savings that he transferred some of the amounts
originally claimed as acquisition savings to collateral savings.
We find the testimony of the Government contracting offi-
cer and the contract administrator more credible than that of
appellant. While Mr. Natan might have felt the language was
“unclear” he was an experienced Government contractor and
former Government employee. Language is not put into a
contract modification if it has no effect. We have considered
appellant’s arguments why Mr. Natan’s testimony was more
credible than that of the Government witnesses and find they
have no merit. We also point to the contemporaneous memo-
randum for the record which indicated even in May 1987 the
language of the modifications was under discussion and that
the ACO would not agree to any change. Certainly, appellant
should have been aware, therefore, that the Government con-
sidered it to have some meaning and, if unaware of what was
meant, should have clarified the purpose for the language or
assume the risk it did have some effect.
Essentially what was accomplished by the VECP was to
reduce the labor by Government personnel and increase the
labor manufacturing costs of the supplier. The record, both
oral and written, shows a serious concern and effort on the
part of the Government personnel to determine the amount of
collateral savings under an unusual situation, an increase
rather than decrease in the unit price, taking into consideration
the increased cost to the Government. We do not view this as
bias on the part of the Government employees but a recogni-
tion of their obligation to protect the Government fisc.
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A-23
We, therefore, reiterate our conclusion that under the facts
of this appeal the negative acquisition savings should be off-
set against the collateral savings.
The Government argues that it was the contracting officer’s
understanding that the negative acquisition savings be offset
against appellant’s share of the collateral savings. The record
fails to support a finding that this was made clear to appellant.
We, therefore, conclude that our interpretation, namely, that
such amounts be set off against collateral savings before
computation of the contractor’s 20 percent share, is appropri-
ate. We calculate it as follows:
$1,300,600 - ($387,639 [Cont. 1565] + $154,225
[Cont. 1504]) = $758,736
Twenty percent of this amount, $151,747.20, allocated be-
tween the two contracts is as follows:
Contract 1565 $151,747.20 x 86.4% = $131,109.58
Contract 1504 $151,747.20 x 13.6% = $ 20,637.61
Appellant introduced oral and written evidence and re-
quested numerous findings concerning the $17,667,642.82 to
which it claims it is entitled. Because of our conclusions that
the contracting officer was not arbitrary or capricious in
reaching his decision on collateral savings and that the nega-
tive acquisition savings be offset against the collateral sav-
ings, we have not cluttered this opinion with such findings.
The appeal is sustained in the amount of $131,109.58 for
Contract 1565 and $20,637.61 for Contract 1504 plus interest.
The record fails to disclose when appellant’s claim of 7 June
1989 was received. We conclude that interest should be com-
puted from the date the contracting officer received the 7 June
1989 claim.
Dated: 7 November 1994
I concur
/s/ Alan M. Spector
ALAN M. SPECTOR
Administrative Judge
Acting Chairman
Armed Services Board
of Contract Appeals
A-24
/s/ Ruth C. Burg
RUTH C. BURG
Administrative Judge
Armed Services Board
of Contract Appeals
I concur
/s/ Mark. N. Stempler
MARK N. STEMPLER
Administrative Judge
Acting Vice Chairman
Armed Services Board
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. 39366, Appeal of Sayco Ltd., rendered in con-
formance with the Board’s Charter.
Dated: 10 NOV 1994
/s/ Donald D. Mills
for EDWARD S. ADAMKEWICZ
Recorder, Armed Services
Board of Contract Appeals
A-25
ARMED SERVICES BOARD OF
CONTRACT APPEALS
Appeal of -- )
‘ s )
SAYCO LTD. ) ASBCA No.
Under Contract Nos. N00104-84-C-1565__) 39366
N00104-84-C-1504 )
APPEARANCE(S) FOR THE APPELLANT:
Jacob H. Fischman, Esq.
Forest Hills, NY
Gilbert H. Weil, Esq.
Weil, Gut[t}man & Malkin
New York, NY
APPEARANCE(S) FOR THE GOVERNMENT:
C. John Turnquist, Esq.
Navy Chief Trial Attorney
Brad L. Johnson, Esq.
Trial Attorney
OPINION BY ADMINISTRATIVE JUDGE BURG
ON CROSS MOTIONS FOR SUMMARY JUDGMENT
This appeal concerns the amount, if any, to which appellant
is entitled for collateral Savings to the Government from an
approved Value Engineering Change Proposal. Appellant
filed this appeal from failure of the contracting officer to issue
a decision pursuant to the Contract Disputes Act (CDA), 41]
U.S.C. § 605(c)(5). Thereafter the contracting officer issued a
decision determining the amount to which appellant was enti-
tled for collateral savings and concluding that, because of off-
sets resulting from increased contract costs to effect the
change, the net amount to which appellant is entitled is zero.
The parties have filed cross motions for summary judgment.
FINDINGS OF FACT
These contracts for parts kit connector plugs, N00104-84-
C-1565 (Contract 1565) and N00104-84-C-1504 (Contract
1504), were awarded appellant on 15 August 1984 and 10
A-26
July 1984, respectively. Under date of 12 November 1985,
appellant submitted a Value Engineering Change Proposal
(VECP 001) for Contract 1565 concerning the items covered
by both contracts involved in this appeal. By letter dated 6
October 1986, appellant submitted its estimated costs for im-
plementation of VECP 001 in appellant’s contracts of $17.76
per unit for SAYCO and $90.15 for the Navy and its estimate
of yearly collateral savings to the Government for implemen-
tation of VECP 001 of $240,000.
Modification A00003 to Contract 1504 dated 28 October
1987 and Modification A00003 to Contract 1565 dated 9 No-
vember 1987 incorporated the VECP into each contract.
These bilateral modifications provided (1) that Contract 1565
was the “instant contract” and Contract 1504 was the
“concurrent contract”, (2) that approval of VECP 001 resulted
in “Negative Acquisition Savings” for Contract 1565 of
$387,639 and for Contract 1504 of $154,225 (a total of
$541,864), (3) that the definitized negative acquisition sav-
ings would be offset in accordance with FAR 52.248-1. para
(J) [sic], (4) that collateral savings would be calculated and
determined by the procuring contracting officer (PCO) and
incorporated by contract modifications at a later date, and (5)
that the contract price for Contract 1565 became $636,999
and for Contract 1504 became $254,405.
Applicable portions of the Value Engineering clause, DAR
7-104.44 (Oct 1982), incorporated into the contracts by refer-
ence, provide:
VALUE ENGINEERING (1982 OCT)
(b) Definitions.
(1) “Acquisition savings” means savings result-
ing from the application of VECPs to contracts
awarded by the same contracting office or its
successor for essentially the same unit. Ac-
quisition savings include:
(i) instant contract savings...:
A-27
(ii) concurrent contract Savings...;
(iii) future contract savings...
(2) “Collateral costs” means agency costs of
operation, maintenance, logistic support, or
Government-furnished property.
(3) “Collateral savings” means those measur-
able net reductions resulting from the VECP in
the agency’s overall projected collateral costs,
exclusive of acquisition savings, whether or
not the acquisition cost changes.
** *
(7) “Negative instant contract Savings” means
that the acceptance of the VECP results in:
* * *
(ii) an excess of contractor’s development
and implementation costs as compared to the
unit cost reduction multiplied by the number
of units affected; and
(ili) a consequent equitable adjustment in-
creasing the instant contract price.
These savings are not a Government cost.
(8) “Net acquisition savings” means acquisi-
tion savings less Government costs.
(9) “Sharing period” means that period that
extends to the 3 years after acceptance of the
first item incorporating the VECP, or the de-
livery schedule in effect for all affected end
items on the instant contract when the VECP is
accepted, whichever is longer.
** *
(f) Sharing.
A-28
* *
(3) Contract Adjustment and Payment. The
modification accepting the VECP shall:
* * *
(111) specify the amount of any Government
costs or negative instant contract savings to
be offset against net acquisition savings real-
ized from concurrent or future contract sav-
ings; and
(iv) provide the Contractor’s share of any
net acquisition savings under the instant
contract in accordance with the following:
(A) Fixed-price contracts--add to contract
price
* * *
(g) Collateral Savings. If a VECP is accepted, the
instant contract amount shall be increased, as
specified in (f)(3)(iv), by 20 percent of the pro-
jected net reduction in collateral costs determined
to be realized in a typical year of use after sub-
tracting any Government costs not previously
offset. However, the Contractor’s share of collat-
eral savings shall not exceed (i) the contract’s
firm fixed price, target price, target cost, or esti-
mated costs at the time the VECP is accepted, or
(ii) $100,000, whichever is greater. The Contract-
ing Officer shall be the sole determiner of the
amount of collateral savings, and that amount
shall not be subject to the Disputes clause.
Modification A00003 for Contract 1565 provided the follow-
ing:
WHEREAS: The PCO partially approved the Tech-
nical Aspects of the Contractor’s
VECP-001, via. NSPCC, Letter, 4400
POF a Sl ne To Dae Nt Mint teats
ee ee
WHEREAS:
WHEREAS:
A-29
SER 02511.1/TJF/1 10 Oct 86 and ap-
proved all technical aspects of VECP-
001, via NSPCC, Letter, 4330, SER
02511/TJF/56, 12 Feb 86, and:
The PCO has designated this contract
as the instant contract and Contract
N00104-84-C-1504 as the concurrent
contract and has delegated authority to
the ACO DCASMA Reading, to ne-
gotiate and finalize the VECP-001,
via NSPCC Letter, 4330 SER.
02511/TJF/4 dated 14 Nov 86 and;
Negotiation of the Contractor’s Cost/
Price proposal dated 19 Jun 87 was ac-
complished and completed on 13 Oct
87 through attainment of mutual
agreement of the parties.
NOW THEREFORE: The contractor’s VECP-001.
dated 12 Nov 85 is attached hereto and
hereby made to be part of the contract
and is definitized as follows:
1. ACQUISITION SAVINGS: The approval of
VECP-001, 12 Nov 85, has resulted in
“Negative” Acquisition Savings. Spe-
cifically, the VECP-001 results in a
unit and total contract price increase on
this, the instant contract; the afore-
mentioned concurrent contract and on
future contracts for the procurement of
the applicable NSN(s). Accordingly,
negative acquisition savings in the
amount established below, will be off-
set in accordance with FAR 52.248-1,
para (J) [sic]
A-30
NEGATIVE ACQUISITION SAVINGS -
$379,728.00 Recurring
7,911.00 Non-recurring
Total $387,639.00
2. COLLATERAL SAVINGS: Collateral! savings will
be calculated and determined by the NSPCC, PCO.
The amount to be shared with and paid to the con-
tractor shall be approved and incorporated into the
contract at a later time via contract modification to
be issued by the NSPCC, PCO.
* * *
The modification recited that the contract price, after certain
prior modifications, at the time of negotiation of VECP 001
was $249,360.
Modification A00003 to Contract 1504 was similar to the
one set forth above. It recited that the Negative Acquisition
Savings for Contract 1504 were $151,240 for recurring and
$2,985 for non-recurring costs, a total of $154,225, and that
the contract price at the time of negotiation of the VECP was
established to be $100,180.
While the modifications referred to the FAR Value Engi-
neering clause, 52.248-1, paragraph (j), that clause was almost
identical to the DAR 7-104.44, paragraph (g) set forth above.
The only difference was that instead of a reference to
(f)(3)(iv), the reference was to (h)(5). The text of paragraph
(h)(5) in the FAR clause was substantially identical to para-
graph (f)(3)(iv) in the DAR clause set forth above.
By submittal dated 2 February 1988 to the contracting offi-
cer, appellant noted that it still had not been notified of the
amount to which it was entitled for collateral savings and
submitted its analysis of collateral savings for a typical year
to be $9,190,432.82 resulting in its 20 percent share as
$1,838,086.56. It also indicated that this amount did not in-
clude material costs, costs of systems checks, costs of support
and technical personnel and costs of ancillary equipment
A-31
replacements since it had no means of estimating same, but
estimated that such costs would double its estimated figure.
| By letter dated 8 December 1988 to SAYCO, the Com-
mander, Naval Sea Systems Command stated:
1. Reference (a) requested Naval Sea Systems
Command (NAVSEA) to confirm SAYCO’s con-
clusion on the relative life expectancy of MIL-C-
24231 pressure proof plugs.
2. It is understood by NAVSEA that the Value En-
gineering Change Proposal (VECP) submitted by
SAYCO Ltd. would:
a) Provide each kit with the contacts molded into
; a prepot.
; b) Supply the monel plug sleeves without the
{ four fill holes.
c) Furnish the plug sleeves sandbasted [sic] and
primed.
i 3. Pressure proof connector plugs with an epoxy
. back fill of the monel plug shell is a practice used
by the U.S. Navy to enhance the life of the connec-
tor plug. This method of supplying the plug kits will
intensify the reliability and subsequently prolong
the life of the connector plug. Data from trial instal-
lations yields a life expectancy of at least twice that
of connector plugs fabricated without using this
method.
dare A diet ecnd Ae Ne eth AEA As. weet vite
4. NAVSEA concurs that plug kits submitted within
the guidelines stated above will result in a consider-
able installation time savings for the user activities
and provide a more reliable end product.
5. The contents of this correspondence do not in any
way change the terms of any understanding, agree-
ment, solicitation or contract existing with the gov-
ernment and will not be effective or binding upon
A-32
the government unless formalized by an appropriate
contractual document executed by the cognizant
Procuring or Administrative Contracts Officer
(PCO/ACO).
Appellant submitted a certified claim dated 7 June 1989 in
the amount of $11,028,519. In calculating this amount, it
doubled the computation it had submitted dated 2 February
1988 in line with its statement in the prior submittal that it felt
such doubling appropriate because of the costs for which it
had no basis to estimate. It calculated its share of total yearly
savings as $3,676,173, and multiplied this times three years as
SAYCO’s sharing period, to reach the total amount of its
claim.
When appellant failed to receive any action on its claim, it
filed this appeal which was docketed by the Board on 16
August 1989. In its answer to appellant’s complaint, the Gov-
ernment challenged the jurisdiction of the Board on the basis
that the contract provided, in paragraph (g) of the Value En-
gineering clause, supra, that the contracting officer would be
the sole determiner of collateral savings and that this determi-
nation would not be subject to the Disputes clause of the con-
tract. No Motion to Dismiss was filed. On 3 January 1990
appellant filed a “Motion for Summary Judgment as to Enti-
tlement” to which the Government filed its objection on the
grounds that appellant had failed to establish (1) that there
were no genuine issues of material fact or (2) that it was enti-
tled to judgment as a matter of law. Ruling on the motion was
deferred by the Board until discovery could determine
whether any material facts were in dispute in this appeal.
On 8 May 1990 the contracting officer issued a decision in
which he concluded that appellant’s 20 percent share in col-
lateral savings in Contract 1565 were $224,640, which after
offset against the “negative acquisition savings” of $387,639,
resulted in appellant’s share due under Contract 1565 to be
zero. The contracting officer further concluded that appel-
lant’s share in collateral savings in Contract 1504 was
$35,360 which after offset against the “negative acquisition
— ee
A-33
savings” of $154,225 also resulted in a zero amount being due
to appellant for collateral savings. This decision of the con-
tracting officer, entitled a final decision and including the
standard language on right of appeal, was filed with the Board
as Rule 4 tab 20.
Appellant objected to inclusion of the contracting officer’s
decision as Rule 4 tab 20 on the grounds that:
..-1) as of the time the contracting officer issued said
document he no longer had jurisdiction to render a
final decision, it being egregiously untimely and
such jurisdiction having been removed by appel-
lant’s long since appeal herein on August 14, 1989;
2) said document being no more than a self-serving
instrument, suitable only as a memorandum or other
form of argumentation; 3) said document being in-
admissible as part of any evidentiary record because
it is replete with hearsay materials and if, to any
extent, it is supposedly based upon the contracting
officer’s personal knowledge it is unsworn and not
amenable to confrontation and cross-examination.
By Order of the Board dated 30 May 1990, the document was
removed from the Rule 4 file, as follows:
Rule 4(e) requires removal from the Rule 4 file of
any document(s) objected to by a party. In accor-
dance with Board Rule 4(e), the referenced docu-
ments have been constructively removed from the
Rule 4 file. No evidentiary ruling will be made on
these documents at this time. The Government re-
tains the right to offer the documents in accordance
with Board Rule 13 and 20.
The parties continued voluntary discovery. On 20 Novem-
ber 1990 the Government filed a Motion for Summary Judg-
ment on the bases that no genuine issues of material fact exist
and that it is entitled to judgment in its favor as a matter of
law. In the alternative, the Government moved for partial
summary judgment on the issue of the maximum amount of
A-34
collateral savings recoverable by appellant in this matter. Ap-
pellant filed its opposition to the Government’s Motion for
Summary Judgment and its cross Motion for Summary Judg-
ment. It agrees with the Government that there are no material
facts in dispute and that the matter is ripe for summary judg-
ment. In the alternative, it also moves for partial summary
judgment and that the Board should specify those issues of
material fact it concludes must go to a hearing so that a hear-
ing can be focused and shortened.
DECISION
The issues which the parties have addressed in the cross
motions for summary judgment and which we must decide are
discussed below.
(1) Did the contracting officer's failure to issue a decision
within the time limits established by the Contract Disputes
Act on appellant's claim of the amount of collateral savings
resulting from its accepted VECP and appellant's appeal
from such failure and docketing of such appeal by the Board,
deny the contracting officer of the authority to issue such a
determination? Since the contracting officer has now issued a
determination does the Board have jurisdiction to review such
determination, and, if so, what is the extent of such review?
Appeliant argues that the failure of the contracting officer
to issue a determination concerning collateral savings prior to
docketing of this appeal deprives the contracting officer of the
jurisdiction to make such a determination. We do not agree.
The contracting officer retains his or her authority and re-
sponsibilities under a contract at least until such contract is
completed and closed. Thus, a contracting officer can and
does settle a dispute even while it is pending before this
Board or some other forum, or withdraws or modifies a deci-
sion during pendency of an appeal. Such authority is not lim-
ited to instances where a decision is issued prior to an appeal.
Section 6(c)(4) of the Contract Disputes Act specifically gives
the Board authority to order a contracting officer to issue a
decision should a contractor so request. While an appeal to
the Board is de novo, on occasion this Board has ordered a
ee ee ne oe
A-35
contracting officer to issue a decision so that the Govern-
ment’s position is clarified even after an appeal is taken, pur-
suant to Section 6(c)(5) of the Act which provides:
(5) Any failure by the contracting officer to issue a
decision on a contract claim within the period re-
quired will be deemed to be a decision by the con-
tracting officer denying the claim and will authorize
the commencement of the appeal or suit on the
claim as otherwise provided in this Act. However,
in the event an appeal or suit is so commenced in
the absence of a prior decision by the contracting
Officer, the tribunal concerned may, at its, option,
stay the proceedings to obtain a decision on the
claim by the contracting officer. [Emphasis added]
The fact that the decision was issued without a Stay does not,
in our opinion, make it any less appropriate. To the contrary,
it expedites the processing of the appeal. Nor has appellant
understood the purpose of our removing the decision from the
Rule 4 file. As our Order clearly stated, this did not constitute
a ruling on its admissability as evidence. It merely conformed
to the requirements of Board Rule 4(e) which provides:
(¢) Status of Documents in Appeal File - Docu-
ments contained in the appeal file are considered,
without further action by the parties, as part of the
record upon which the Board will render its deci-
sion. However, a party may object, for reasons
stated, to consideration of a particular document or
documents reasonably in advance of hearing or, if
there is no hearing, of settling the record. If such
objection is made the Board shall remove the
document or documents from the appeal file and
permit the party offering the document to move its
admission as evidence in accordance with Rules 13
[Settling of the Record] and 20 [Hearing].
Both parties argue that the Board should reconsider its de-
cision in JCSD Corporation, ASBCA No. 28028, 90-3 BCA §
23,027; affd (after motions in this appeal filed) 934 F2d 313
A-36
(Fed.Cir.1991). The Government argues that paragraph (g) of
the Value Engineering clause providing for collateral savings
which provides that “...The Contracting Officer shall be the
sole determiner of the amount of collateral savings, and that
amount shall not be subject to the Disputes clause...” de-
prives any forum from reviewing that determination. Appel-
lant argues that review of any determination of collateral
savings should be de novo and not a limited review.
In ICSD Corporation, supra, we carefully considered the
Government’s arguments that it could “reserve unto itself the
prerogative to make a unilateral finding on the amount of a
collateral savings award, and to keep that determination be-
yond the pale of any review.” We concluded “that appellant’s
claim seeking review of the contracting officer’s decision re-
garding the amount of collateral savings to which appellant is
entitled, is subject to limited review by this Board under the
CDA” to determine whether it was arbitrary or capricious so
that there was an abuse of discretion by the contracting offi-
cer. That opinion carefully considered the positions argued in
this appeal and we see no need to reiterate them here. Only
ICSD filed an appeal. The Government did not appeal our
conclusion that we had limited jurisdiction to review despite
the language in paragraph (g). While the Federal Circuit did
not directly address this question in affirming our decision, it
did agree that the appellant has the burden of proving abuse of
discretion and considered the issues as to amount which ap-
pellant had appealed. We, therefore, conclude that it found no
error in our interpretation of limited reviewability of the col-
lateral savings determination. Having also considered appel-
lant’s arguments that our review should not be limited as set
forth in JCSD Corporation, supra, we conclude that our
holding as set forth in that appeal is the correct one and that
the contracting officer’s decision regarding the amount of
collateral savings to which appellant is entitled is subject to
our determining whether such decision was arbitrary or ca-
pricious so that there was an abuse of discretion by the con-
tracting officer.
abe a lt ae ln Mae nied ey
:
:
A-37
Appellant has the burden of establishing that there was an
abuse of discretion in this instance. It also has the burden of
establishing the amount attributable as to those determinations
which are found to be arbitrary or capricious and, thus, an
abuse of discretion. In this regard, we note that in its claim
appellant merely doubled its calculated amount because of the
difficulty of determining or estimating the precise amount due
for various categories of savings. While we recognize that the
contract in the present appeal contained a later version of the
Value Engineering clause than was in the contract considered
in ICSD Corporation, supra, here, the clause defines
“collateral savings” in paragraph (b)(3) as “those measurable
net reductions” resulting from the VECP in the agency’s col-
lateral costs. As was affirmed by the Federal Circuit, 934 F2d
at 317, appellant must still establish the amount attributable to
these reduced costs.
Since the question of whether the contracting officer
abused his discretion in determining the amount to which ap-
pellant is entitled for collateral Savings is a material question
of fact upon which the parties do not agree, neither motion for
summary judgment is appropriate in this appeal. Having so
concluded, we must consider the issues presented by the par-
ties in their motions for partial summary judgment.
(2) Does the “firm fixed price...at the time the VECP is ac-
cepted” as used in the Value Engineering clause paragraph
(g), the collateral Savings provision, include an amount at-
tributable to the anticipated collateral Savings or is it limited
to the fixed price before determination of collateral savings?
Paragraph (g) of the Value Engineering clause provides that
“the Contractor’s share of collateral savings shall not exceed
(i) the contract’s firm fixed price...at the time the VECP is
accepted, or (ii) $100,000, whichever is greater.” Appellant
argues that in determining the limitation of the amount of
collateral savings to which it is entitled, the contract price
must be increased by the amount of collateral savings which
are determined to be due under the contract. The Government
A-38
argues that the contract price is that which exists without the
addition of the collateral savings.
We find appellant’s interpretation unreasonable. The clause
says “at the time the VECP is accepted” not “after the VECP
is accepted”. In addition, to interpret the provision as argued
by appellant would effectively read limitation (i) in the collat-
eral savings paragraph (g) out of the Value Engineering
clause. If one adds the anticipated collateral savings to the
existing contract price, the total will always be greater than
the collateral savings since, using appellant’s approach, that
figure is one of the amounts making up the total. We conclude
that for purposes of paragraph (g) the contract price does not
include any collateral savings.
(3) Is the sharing period for collateral savings one year or
three years?
Appellant argues that at best the Value Engineering clause
is ambiguous, that its interpretation is reasonable, and that
under the doctrine of contra proferentem its interpretation that
it is entitled to share in three years of collateral savings should
prevail. Appellant is certainly correct that when there are two
reasonable interpretations to a contract there is an ambiguity
which generally will be interpreted against the drafter. How-
ever, we do not find that to be the case in the present appeal.
Appellant argues that since, in the definition section, “sharing
period” is defined to mean three years that this definition
pertains to collateral savings sharing. The definition section of
the clause attempts to define terms which are used within the
clause so that the clause can be properly interpreted. The
words “sharing period” do not appear in paragraph (g) of the
clause concerning collateral savings. To the contrary, the
clause is quite specific that “the instant contract amount shall
be increased, as specified in (f)(3)(iv), by 20 percent of the
projected net reduction in collateral costs determined to be
realized in a typical year of use.” [Emphasis added] While we
concur with appellant’s argument that a contract must be read
as a whole, reading it as such would not result in the position
advocated by appellant. We recognize that paragraph
A-39
(f)(3)(iv) delineates the manner in which the contract modifi-
cation should provide for net acquisition savings. However,
we interpret paragraph (g) as referencing the entire subpara-
graph (f) and, more specifically, the provision which indicates
the administrative manner in which the contract shall provide
for any increase recognized because of collateral savings,
namely (f)(3)(iv)(A). That portion is subsequent to the lan-
guage relied on by appellant, and indicates that any collateral
savings shall be reflected in a contract modification which, in
the case of a fixed-price contract, should be added to the con-
tract price.
Therefore, reading the contract as a whole, we conclude
that recognition of collateral savings, unless precluded by
some other contract provision, will be reflected in a contract
modification increasing the contract price by 20 percent of the
projected net collateral savings determined to be realized in
one typical year of use, not the three years requested by appel-
lant.
(4) Should “negative acquisition Savings” on the instant and
concurrent contracts be offset against collateral Savings un-
der those contracts?
The Government offset the “negative acquisition savings”
resulting from the implementation of the value engineering
change in appellant’s instant contract and concurrent contract,
the contracts involved in this appeal, against appellant’s 20
percent share of the collateral Savings it calculated it would
enjoy. The contract modification incorporating the change
into each of these contracts provided that the negative acqui-
sition savings would be offset in accordance with FAR
52.248-1(J) [sic]. That clause is not the one incorporated into
the contracts by reference. We assume that the referenced
clause would be paragraph (j) of the 1984 version of the
Value Engineering clause. The text of the 1984 collateral
savings clause was almost identical to the DAR 1982 clause
set forth in our findings. Under either the FAR or DAR
clause, offset against collateral savings is limited to Govern-
ment costs. Neither clause defines “negative acquisition
A-40
savings.” The definition section of both of those clauses spe-
cifically excludes negative instant contract savings as a Gov-
ernment cost. (DAR 7-104.44(b)(7) or FAR 52.248-1(b)
“Government costs’’).
Modification A00003 to each of the contracts involved in
this appeal recites that:
Negotiation of the Contractor’s Cost/Price proposal
dated 19 Jun 1987 was accomplished and completed
on 13 Oct 87 through attainment of mutual agree-
ment of the parties.
The record in this appeal is devoid of any evidence concern-
ing such negotiations. We consider these facts material in de-
termining whether there was a meeting of the minds by the
parties concerning how the negative acquisition savings were
to be offset. In addition, “negative acquisition savings” for
Contract 1565, would appear to equate to “negative instant
contract savings” which are excluded from the definition of
“Government cost” in the definition section of both the 1982
and 1984 Value Engineering clauses. The record contains
nothing to indicate that a deviation from the clause was re-
quested if, in fact, such agreement would constitute a devia-
tion for which a waiver would be necessary. In our view, the
facts concerning the negotiations which resulted in Modifica-
tion A00003 to both Contracts 1565 and 1504 are material
facts which are necessary for deciding this issue. This ques-
tion, therefore, is not appropriate for a summary judgment
determination under the present state of the record.
We do conclude that the manner in which the Government
offset the negative acquisition savings is in error. The collat-
eral savings paragraph in both the 1982 and 1984 clauses,
provides that the contractor is entitled to 20 percent after off-
set. The only reasonable interpretation is that the offset must
occur prior to computation of the contractor’s share. The con-
tracting officer offset 100 percent of the negative acquisition
savings against 20 percent of the calculated collateral savings.
In our view, this was in error and should be corrected for any
negotiations which the parties hold to resolve the amount due
A-41
appellant for collateral savings. As previously discussed, the
contractor’s share of collateral savings is limited to the con-
tract price at the time the VECP was accepted or $100,000,
whichever is greater. Thus, appellant would be limited to re-
cover no more than $249,360 under Contract 1565 and
$100,180 under Contract 1504.
(5) Additional Issues
In addition to the issues addressed above, appellant argues
that the Government erred in its conclusion that appellant
should not share in certain collateral savings because the
Navy had already included a recommendation for a procedure
similar to that accepted here in its technical manual in August
1985 and because the release of certain equipment from Navy
use would result in no collateral savings since the equipment
had to be used for other tasks. We consider that these consti-
tute material facts in dispute since they go to the question of
whether the contracting officer’s determination of collateral
Savings was arbitrary or capricious and that they are not ap-
propriate for summary judgment.
Conclusion
The cross motions for summary judgment are denied. The
partial motions for summary judgment are granted to the ex-
tent set forth above that (1) the determination of the contract-
ing officer is reviewable for the limited purpose of
determining whether it was arbitrary or capricious with the
burden on appellant to prove such was the case and also to
prove any amounts over those recognized by the contracting
officer if it sustains its burden on entitlement; (2) the firm-
fixed price for purposes of the collateral savings paragraph of
the Value Engineering clause is that price at the time the
VECP is accepted and, therefore, does not include any in-
creases or decreases in that price because of such acceptance
or any amount attributable to the collateral savings; (3) the
sharing period for collateral Savings is one year; (4) that in
calculating any offset of negative acquisition savings which
are appropriate under the collateral savings clause and the
contract, the offset is subtracted from estimated yearly
A-42
savings before the 20 percent to which the contractor is enti-
tled is calculated; and (5) appellant’s share of collateral sav-
ings shall not exceed $249,360 for Contract 1565 or $100,180
for Contract 1504.
The parties shall establish a schedule for further proceed-
ings and submit it to the Board within 30 days of receipt of
this opinion and indicate the matters which, based upon this
opinion, still require stipulations or an oral hearing. The
schedule shall provide for serious. settlement negotiations
based on the partial summary judgment conclusions set forth
in this opinion and shall establish a time for a telephone pre-
hearing conference to discuss further scheduling in this appeal
which time will be after the parties have discussed settlement
of this appeal. In this regard, the Board notes that a number of
additional motions have been filed which have not been ad-
dressed in this decision because they have either been with-
drawn or have become moot. The parties are urged to discuss
further scheduling on a voluntary basis and avoid the time and
expense of formal motions addressing various matters.
Dated: 8 November 1991
/s/ Ruth C. Burg
RUTH C. BURG
Administrative Judge
Member of the Armed
Services Board of Contract
Appeals
I concur
/s/ Alan M. Spector
ALAN M. SPECTOR
Administrative Judge
Acting Chairman, Armed
Services Board of Contract
Appeals
I concur
/s/ William J. Rubbery
WILLIAM J. RUBBERY
Administrative Judge
Vice Chairman, Armed
Services Board of Contract
Appeals
A-43
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. 39366, Appeal of SAYCO LTD., rendered in
conformance with the Board’s Charter.
Dated: 8 NOV 199]
/s/ Edward S. Adamkewicz
EDWARD S. ADAMKEWICZ
Recorder, Armed Services
Board of Contract Appeals
A-44
United States Court of Appeals for the
Hederal Circuit
ORDER
A combined petition for rehearing and suggestion for re-
hearing in banc having been filed by the APPELLANT, and
the petition for rehearing having been referred to the panel
that heard the appeal, and thereafter the suggestion for rehear-
ing in banc having been referred to the circuit judges who are
in regular active service,
UPON CONSIDERATION THEREOF, it is
ORDERED that the petition for rehearing be, and the same
hereby is, DENIED and it is further
ORDERED that the suggestion for rehearing in banc be,
and the same hereby is, DECLINED.
The mandate of the court will issue on May 28, 1996 unless
another time becomes appropriate under Rule 41.
FOR THE COURT,
FRANCIS X. GINDHART, CLERK
Dated: May 8, 1996
By _/s/ BLD
Brian P. LeDuc
Associate Chief Deputy
Clerk —
cc: GILBERT H. WEIL U.S. COURT OF
DOMENIQUE KIRCHNER APPEALS FOR THE
FEDERAL CIRCUIT
SAYCO LTD V NAVY, 95-1226
(BCA - 39366) MAY 08 1996
FRANCIS X.
GINDHART
CLERK
A-45
Note: Pursuant to Fed. Cir. R. 47.6, this order is not cit-
able as precedent. It is a public record.
A-46
Final Decision of Thomas J. Fura, Contracting
Officer, pages 13-19, dated May 8, 1990.
Computation of Collateral Savings
Contracting Officer’s Determination and Findings.
The Value Engineering Clause is clear with respect to compu-
tation of collateral savings. Paragraph (g) of the Value Engi-
neering Clause states in full: “If a VECP is accepted, the
instant contract amount shall be increased, as specified in (f)
(3) (iv), by 20 percent of the projected net reduction in collat-
eral costs determined to be realized in a typical year of use
after subtracting any Government costs not previously offset.
However, the contractor’s share of collateral savings shall not
exceed (i) the contract’s firm fixed price, target price, target
cost, or estimated cost at the time the VECP is accepted, or
(ii) $100,000, whichever is greater. The Contracting Officer
shall be the sole determiner of the amount of collateral sav-
ings, and that amount shall not be subject to the Disputes
clause. In all cases, degradation of performance, service life
or capability shall be cc..:sidered in determining savings.”
The Contractor’s letter dated 2 February 1988 (attachment 9
of the claim) (R4 tab 19) was reviewed with respect to com-
putation of collateral savings utilizing procedures stipulated
by DAR 1-1704 and the Value Engineering Clause of the
contract.
The majority of the collateral savings claimed in the contrac-
tor’s analysis is based on an increase in the service life of the
connector by a factor of two (2), thereby reducing mainte-
nance of Government owned equipment, expenditure of Gov-
ernment material and labor, Government costs in maintaining
the end unit in service, and logistics costs of procurement,
transportation, storage and inventory maintenance.
The increase in service life is directly related to the require-
ment to provide an epoxy waterblock in the molded connec-
tor. NAVSEA incorporated this requirement in the approved
procedures via a tech manual change in August 1985. This
date precedes the original VECP submittal by three (3)
A-47
months. This requirement was implemented prior to the
VECP submittal. Therefore the Contracting Officer deter-
mines that no entitlement exists to share in collateral savings
under the contracts for this element which was implemented
as a tech manual change before the VECP submittal.
With respect to the elimination of Government equipment al-
leged in the contractor’s letter the following findings are ren-
dered:
1. Elimination of all maintenance and support costs
associated with the operation of Grit-blasting ma-
chinery: The Contracting Officer finds that this item
will be used in other operations and determines that
no collateral savings entitlement exists.
2. Eliminates the requirement to maintain local or
national stock numbers for #50 angular steel grit.
Eliminates all costs of purchase, storage and trans-
portation of same to using activities: The Contract-
ing Officer finds that this item will be used in other
operations and determines that no collateral savings
entitlement exists.
3. Eliminates the requirement to maintain local or
national stock numbers for metal primers. Elimi-
nates all costs of purchase, Storage and transporta-
tion of same to the using activities: The Contracting
Officer finds that these items will be used in other
operations and determines that no collateral savings
entitlement exists.
4. Eliminates need for alignment heads and pre-pot
rings used in molds required to fabricate SYM713
plugs by the using activities. Cost of mold mainte-
nance by using activities will be reduced by a factor
of two due to a corresponding decrease in useage
rate: The Contracting Officer determines that enti-
tlement exists for sharing of collateral savings
within this element and finds that $50,000.00 is a
fair and reasonable sharing amount.
A-48
5. A 50 percent reduction of maintenance costs on
ancillary equipment required to manufacture
SYM713 type plugs will be achieved. The equip-
ment used by the Government for this work include,
but is not limited to, the following:
Vacuum Equipment
Freezers
Ovens
The Contracting Officer finds that any anticipated savings is
due to the increase in service life which is in turn directly re-
lated to the requirement to provide an epoxy waterblock in the
molded connector; said requirement was incorporated as a
tech manual change prior to submittal of the VECP. There-
fore, the Contracting Officer determines that no collateral
savings entitlement exists.
With respect to the Contractor’s allegation of savings on op-
erational expenditures due to the increase in service life, the
Contracting Officer finds that any increase in service life of
the plugs due to the epoxy waterblock is not attributable to the
Contractor’s VECP and therefore determines that no entitle-
ment exists for the contractor to share in any such savings,
with respect to this element if so realized.
With respect to the Contractor’s allegation of savings result-
ing from the reduction of Government costs in maintaining
the end unit in service, the Contracting Officer finds that
submarines do not normally drydock for the sole purpose of
changing plugs and when plugs are replaced during drydock,
no data is available measuring the cost of such effort. Fur-
thermore, the contractor’s allegation of savings is based on
increased service life (due to the epoxy waterblock). There-
fore, the Contracting Officer determines that no entitlement
exists for the contractor to share in any such savings, within
this element, since the requirement to provide an epoxy wa-
terblock was incorporated as a tech manual change in August
1985, thereby preceeding the contractor's VECP by three
months.
tr fr
A-49
With respect to the Contractor’s allegation of savings result-
ing from reduced logistics costs of procurement, transporta-
tion, storage and inventory maintenance, the Contracting
Officer finds that this allegation of savings is based on in-
creased service life (due to the epoxy waterblock). Therefore,
the Contracting Officer determines that no entitlement exists
for the contractor to share in any such savings within this
element, since the requirement to provide an epoxy water-
block was incorporated as a tech manual change in August
1985, thereby preceeding the contractor’s VECP by three
months.
Additionally, the Contracting Officer finds that the contrac-
tor’s VECP does, however, provide the plug kit in a manner
which is more conducive to molding the plug with the epoxy
as required in that it reduces the time required for fabrication.
The Contracting Officer determines that entitlement exists for
the Contractor to share in collateral savings with regard to this
element.
In determining the Contractor’s proper share of collateral
savings pursuant to the Value Engineering Clause of the con-
tracts, the Contracting Officer utilizes the following informa-
tion which is considered to be the best information that is
currently available:
1. A typical year’s usage for Parts Kit connector,
NSN 1H 5935-00-177-2220 QA and 1H 5935-00-
177-2221 QA is established at 6253 units per year
when employing the epoxy waterblock,
2. The Government will concede that time saved per
plug is 5 hours.
3. Government hourly rate (used in Contractor’s
cost savings analysis dated 21 July 1986, R4 tab 5)
is $40.00.
4. Savings resulting from reduced logistics costs is
established at $31.87 per plug, and
A-50
5. The Contracting Officer does not take exception
to the assertion that the epoxy waterblock will yield
a doubling of the plug’s service life.
Therefore, pursuant to the Value Engineering Clause, the
Contractor’s proper share of collateral savings is computed as
follows:
6253 plugs for a typical year’s usage
X 5 hours saved per plug
X $40.00 per hour Government labor rate
+ $50,000.00 eliminates need for alignment heads
and pre-pot rings
= $1,300,600.00 subtotal
X 20% sharing rate mandated by paragraph (g) of
the VECP Clause
= $260,000.00 collateral savings before offset
agreed upon in contract Modification A00003
The parties agreed in bilateral contract modification A00003
(R4 tabs 1 & 2) of contracts “1565” and “1504” that “negative
acquisition savings. . . will be offset in accordance with FAR
52.248-1 Paragraph J.” The parties furthermore agreed that
negative acquisition savings for contracts “1565” and “1504”
were $387,639.00 and $154,225.00 respectively.
The 6253 plugs cited above are segregated as follows to arrive
at a typical year’s useage for each NSN:
Contract “1565”
NSN 1H 5935-00-177-2221 QA 5401 yearly
Contract “1504”
NSN 1H 5935-00-177-2220 QA 853 yearly
The 853 units applicable to contract “1504” constitute 13.6%
of the 6253 units cited above. The firm fixed price of this
contract (without reconsignment charges) is $99,800.00.
A-51
Pursuant to DAR 7-104.44 (g) the Contracting Officer estab-
lishes the collateral Savings under this contract portion prior
to offset at $35,360.00 and is not affected by the “cap” speci-
fied in paragraph (g) of the VECP clause. “Negative” acquisi-
tion savings offset against this figure is $154,225.00 resulting
in a negative balance of $118,865.00. Since “negative” ac-
quisition savings under this contract was not fully offset, the
Contractor’s proper share of collateral Savings under this
contract is $0.00.
The 5401 units applicable to contract “1565” constitute 86.4%
of the 6253 units cited above. The firm fixed price of the
contract (including the option excercised) is $250,260.00.
Pursuant to DAR 7-104.44 (g) the Contracting Officer estab-
lishes the collateral savings portion (under this contract) prior
to offset at $224,640.00. “Negative” acquisition savings offset
against this figure is $387,639.00 resulting in a negative bal-
ance of $162,999.00. Since “negative” acquisition savings
under this contract were not fully offset, the Contractor’s
proper share of collateral savings under this contract is $0.00.
This is the final decision of the Contracting Officer. You may
appeal this decision to the Armed Services Board of Contract
Appeals. If you decide to appeal, you must, within 90 days
from the date you receive this decision, mail or otherwise
furnish written notice to the Board of Contract Appeals and
| provide a copy to the Contracting Officer from whose deci-
| sion the appeal is taken. The notice shall indicate that an ap-
peal is intended, reference this decision, and identify the
contract by number. Instead of appealing to the Board of
Contract Appeals, you may bring an action directly in the
U.S. Claims court (except as provided in the Contract Dis-
putes Act of 1978, 41 U.S.C. 603, regarding Maritime Con-
tracts) within 12 months of the date you receive this decision.
If you appeal to the Board of Contract Appeals, you may,
solely at your election, proceed under the Board’s small
claims procedure for claims of $10,000 or less or its acceler-
ated procedure for claims of $50,000 or less.
4
| en
A-52
Sincerely,
/s/ Thomas J. Fura
Thomas J. Fura
Contracting Officer
A-53
APPELLANT’S [SAYCO’S] POST-HEARING
SUBMISSIONS, page 17
before the ASBCA
[dated February 14, 1994}
ARGUMENT
POINT I
The Board Reviews the Contracting Officer’s
Decision de novo.
In proceedings under the CDA, “the facts, as well as
the law, are decided de novo by the . . . court.” Sea-
board Lumber Co. v. United States [36 CCF q
75,900], 903 F.2d 1560, 1562 (Fed.Cir. 1990)
(citing 41 U.S.C. § 609(a)(3) (1982)), cert. denied,
_U.S._, 111 S.Ct. 1308 (1991); accord Lathan Co..
Inc. v. United States [36 CCF 4 75,842], 20 C1.Ct.
122, 125 (1990) (citing Assurance Co. v. United
States (33 CCF 4 75,181], 813 F.2d 1202, 1206
Fed.Cir. 1987)). “The court is not bound by either
the findings of fact or the conclusions [of law] of
the [contracting officer]. Lathan Co. v. United
States [36 CCF 4 75,842], 20 CLCt. 122, 125
(1990); accord 41 U.S.C. § 605(a). The administra-
tive award of time or money under the Changes
Clause is not to be treated as if it were the unap-
pealed determination of a lower court or a board of
contract appeals that might be owed some sort of
special deference on appeal. Wilner v. United States
[38 CCF § 76,517], 994 F.2d 783 (Fed.Cir.
fy ae
Mego Construction Company vy.
United States, 39 CCF 4 76,564 at
88,309, _F.2d_(Fed.Cir. 1993).
To same effect as Mego, and authorities there cited: Allen
County Builders Supply, 93-1. BCA § 25,398 at 126.491
(ASBCA 1993).
A-54
BRIEF OF APPELLANT SAYCO LTD., pages 15-17
in the United States Court of
Appeals for the Federal Circuit
[dated May 5, 1995]
ARGUMENT
Point I
The Board erred as a matter of law by refusing to
review the contracting officer’s decision de novo.
At pages 10-11 of its decision (A10-A11) the Board, rely-
ing upon its own imputation of meaning into JCSD Corpora-
tion, 90-3 BCA ¥ 23,027, aff'd, 934 F.2d 313 (Fed.Cir. 1991),
held that it could review the contracting officer’s decision
only for abuse of discretion. This critically polluted its deci-
sions on other issues involved here. E.g., “Because of our
conclusions that the contracting officer was not arbitrary or
capricious in reaching his decisions on collateral savings and
that the negative acquisition savings be offset against the col-
lateral savings, we have not cluttered this opinion with such
findings.” Decision, page 14 (A14).
The latest pertinent authority we have found is Wilner v.
The United States, 24 F.3d 1397 (Fed.Cir. May 26, 1994) (en
banc, Judges Bennett and Newman dissenting). That was
more than five months before the Board’s decision; and Wil-
ner is definitive that the Board should instead have exercised
de novo review. '
' E.g.: “The plain language of the CDA and our decision in Assurance
[Co. v. United States, 813 F.2d 1202 (Fed.Cir. 1987)] make it clear that
when suit is brought following a contracting officer’s decision, the find-
ings of fact in that decision are not binding upon the parties and are not
entitled to any deference.” 24 F.3d at 1401. “De novo review precludes
reliance upon the presumed correctness of the decision. See Renegotiation
Bd. v. Bannercrajt Clothing Co., 415 U.S. 1, 23 [parallel citations omit-
ted] (1974) (de novo proceeding is ‘unfettered by any prejudice from the
agency proceeding and free from any claim that the [prior] determination
is supported by substantial evidence’). Thus, once an action is brought
(Footnote continued)
A-55
Having so overruled Hedin, Wilner must be deemed to
have overruled the Board’s attribution of the meaning of
ICSD similarly and to the same extent.
We respectfully suggest that the Court need not incur the
judicial and administrative waste of remanding to the Board
for consideration of the contracting officer’s decisions on a de
novo basis, but should, under 41 U.S.C. § 609(c), remand
with an appropriate order for final disposition of the case. As
will be shown below, in passing, his determinations were er-
roneous wholly as a matter of law; they should, as a matter of
law, have been set aside de novo by the Board, and can be
now by this Court, without wasting further time, effort and
expense.
following a contracting officer’s decision, the parties start in court or be-
fore the board with a clean slate.” 24 F.3d at 1401-1402. And,
“Accordingly, we today expressly overrule Hedin to the extent that it
stands for the proposition that a contracting officer’s decision constitutes a
strong presumption or an evidentiary admission of the extent of the gov-
ernment’s liability, albeit subject to rebuttal.” 24 F.3d at 1402-1403.
To the same effect: “In proceedings under the CDA, ‘the facts, as well
as the law, are decided de novo by the . . . court.” Seaboard Lumber Co. vy.
United States, 903 F.2d 1560, 1562 (Fed.Cir. 1990) (citing 41 U.S.C. §
609(a)(3) (1982)), cert. denied 499 U.S. 919, 111 S.Ct. 1308, 113
L.Ed.2d 243 (1991); accord. Lathan Co., Inc. v. United States, 20 Cl.Ct.
122, 125 (1990) (citing Assurance Co. v. United States, 813 F.2d 1202,
1206 (Fed.Cir. 1987)). ‘The court is not bound by either the findings of
fact or the conclusions [of law] of the [contracting officer]. Lathan Co. v.
United States, 20 Cl.Ct. 122, 125 (1990): accord, 41 U.S.C. § 605(a). The
administrative award of time or money under the Changes clause is not to
be treated as if it were the unappealed determination of a lower court or a
board of contract appeals that might be owed some sort of special defer-
ence on appeal.[’] Wilner v. United States [38 CCF ¥ 76,517], 994 F.2d
783 (Fed.Cir. 1993)... .” Mega Construction Company v. United States,
29 Fed.Cl. 396 at 414 (1993).
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.