Government Contracts LOGCAP III Contractor Denied Costs of Settling Subcontractor REAs
Tuesday, January 22, 2019

LOGCAP III Contractor Denied Costs of Settling Subcontractor REAs

By Government Contracts Editorial Staff

The Armed Services Board of Contract Appeals denied a claim for the costs of settling two requests for an equitable adjustment because the contractor failed to demonstrate the costs were reasonable. The dispute arose from a LOGCAP III cost-reimbursement task order to provide accommodations for military personnel in Iraq. The prime contractor engaged a subcontractor to manufacture prefabricated trailers and deliver them to the Iraq border, and then transport them and their contents in convoys to military camps. The main supply road into Iraq was extremely dangerous, so the military imposed movement restrictions and required escorts for contractors, but the military’s resources were limited, which led to trailers backing up at the Kuwait/Iraq border waiting for escorts. Further, when the trailers arrived at the camps, permanent sites were often not ready, requiring the trailers to be “double-handled.” This involved moving the delivery truck and placing it in a laydown yard to wait. Then, when the permanent location was ready, the trailer was reloaded onto a truck, moved across the camp, and placed into its final location. The prime contractor approved and paid the subcontractor’s $24.9 million REA for delay/idle truck time and $23.8 million REA for double handling charges, but the contracting officer denied the prime’s request for reimbursement. On appeal, the prime sought to recover under the FAR 52.216-7 Allowable Cost and Payment clause.

No Failure to Perform. The board explained that FAR 31.201-2 limits allowable costs to those that are “reasonable.” In granting the delay REA, the prime concluded that the burden of idle time delay costs was on the government and the subcontract allowed an adjustment in the event of delay due to a government failure to perform its prime contract responsibilities. According to the prime, the government did not meet its task order obligation to provide convoys within sufficient time to prevent the subcontractor’s trailers and trucks from having to wait at the border, and if it could not provide immediate access to secured convoys, the government was obligated to alter the prime’s period of performance. However, a prudent person in the conduct of a competitive business would not have concluded that it owed the subcontractor monetary compensation because of the timing of the government’s convoy assignments. Nothing in the task order or the subcontract identified a specific time for placing trailers into secured convoys, so there was no right to expect the military to place trailers arriving at the staging areas into convoys the very next day, as the subcontractor’s delay model assumed.

REAs Not Cost-Based. Moreover, even if the government did not follow the contract’s convoy scheduling responsibilities and delayed the subcontractor, the prime did not show a prudent person would have incurred the payments it made to the subcontractor. The subcontractor’s delay model, which was based on general market prices, was not realistic and did not approximate the contractor’s actual delay costs. Finally, the double handling REA suffered from similar flaws. Although the double handling might have constituted changed work under the task order, the subcontractor based its REA on rates and prices for its equipment and services, not costs. As with the delay REA, the prime focused solely on the subcontractor’s price demands for its services and its own opinions about price reasonableness, and it was indifferent to the subcontractor’s costs. The prime also did not verify what additional equipment the subcontractor used to perform the changed work. (Kellogg Brown & Root Services, Inc., ASBCA, ¶95,639).

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