Contract Administration

Contractors performing work under a government contract all too frequently fail to pay adequate attention to their internal accounting and record-keeping, or they hire poorly trained project managers who perform their tasks inadequately. This inadequate administration and management of their government contracts can be a penny-wise and pound-foolish¹ management decision. Contractors who ignore the administrative requirements of their contract do so at their own peril. Similarly, lax or poor management of their projects can be very expensive. Most commentators fail to focus on these non-regulatory obligations for good, sound administration of their contracts and management of their projects.

The Armed Service Board of Contract Appeals (“ASBCA” or the “Board”) released an Opinion in the Appeal of States Roofing Corporation (“SRC”), No. ASBCA 55504, on January 19, 2010. SRC was awarded a contract by the Navy for repairs and related work on the roof cells at Building W-143, Naval Operating Base, Norfolk, VA. During performance of the work, SRC submitted 117 cost proposals to the Navy for numerous changes, of which 67 were converted and certified under the Contract Disputes Act (“CDA”).² SRC also submitted a cost proposal for proposal preparation costs in the amount of $44,848. SRC petitioned for the in-house legal, accounting and labor costs it incurred for preparation of the cost proposals as contract administration costs.³ The Navy countered that they were unallowable costs related to legal and other proceedings in connection with preparing a claim.

Under the Bell Strong decision, contract administration costs are “presumptively allowable if they are also reasonable and allocable.” The Board decided that the claimed legal and accounting fees and in-house labor were contract administration costs but not all the costs were reasonable or allocable or supported by the record.

The ASBCA pointed out that (1) SRC could not support the legal and accounting fees; (2) SRC failed to explain the bases for the prorated allocations; (3) SRC treated these costs inconsistently as direct costs rather than as G&A costs; (4) consistent with a DCAA report, SRC failed to transfer such costs from G&A to a direct charge hence seeking double recovery.

In addition, SRC was unable to support the claimed in-house labor costs from “summary” time sheets because they were only estimates – not detailed costs. Hence, the Board awarded only $5,000 of costs.

The Civilian Board of Contract Appeals (“CBCA” or the “Board”) issued a decision in Nu-Way Concrete Company, Inc. v. Department of Homeland Security, No. CBCA 1411, on December 16, 2010. During performance of the work, Nu-Way received a contract for maintenance and deactivation of travel trailers and mobile homes for FEMA in Florida. The contract was firm fixed price for $750 per unit. After award Nu-Way’s President called the COTR and asked him what the contract required Nu-Way to do. Nu-Way complained of overzealous inspections and being forced to perform extra work to satisfy the inspectors. Nu-Way filed two claims for a total of $819,000 but were rejected because they were unsubstantiated based on conflicting information and lack of documentation, and the Navy claimed only a 3% rejection. An appeal was filed with the CBCA but rejected because it was not certified. Nu-Way filed an amended claim for $2,353,443.58, but it was denied by the Contracting Officer because Nu-Way failed to provide evidence to support the claim.

At a hearing before the Board, Nu-Way could not provide evidence that inconsistent enforcement prevented them from doing the work or required additional work, and Nu-Way could not establish proof of its claimed costs. Nu-Way’s records were inadequate to support the claimed costs. Nu-Way could not provide receipts.

Nu-Way asserted a constructive change because inspectors required it to perform additional work. A constructive change occurs when additional work is performed without a formal change order either through an informal order or fault of the government.⁴ The government has the right to insist on performance in strict compliance with the specifications.⁵ The CBCA stated the contract detailed what Nu-Way must do to properly deactivate a unit. Only 20 out of 2,675 units were rejected by FEMA. Nu-Way claimed a substantial number of additional rejections, but was unable to produce "any persuasive or sufficient evidence that the government compelled it to perform additional work beyond what the contract required." Nu-Way ignored the advice of the Contracting Officer not to do extra work, and could not provide evidence to support a claim that it was instructed to perform such extra work.

The CBCA also denied an implied ratification claim. In order for a "representatives unauthorized actions…be subsequently ratified by those with authority to bind the government, the ratifying government official has actual or constructive knowledge of a representative's unauthorized act and expressly or impliedly adopt the act."⁶ Here, Nu-Way failed to prove the Contracting Officer had actual or constructive knowledge of all the facts upon which the unauthorized actions were taken and failed to take affirmative actions to investigate or stop such actions.

Nu-Way's appeal was denied.

In both cases cited here, the contractor failed to develop and maintain adequate documentation to support their claims. They both should have known that comprehensive file documentation is absolutely necessary. Furthermore, a well-defined job cost accounting system is essential in government contracts. This job cost system must be accompanied by extensive and detailed support documentation. This detailed file documentation and contract administration is essential to support any equitable adjustment or claims under a contract. Good contract administration procedures do not bring in sales or revenue, but it can prevent a loss of receivables.

Tom Petruska
Contracts Unlimited, Incorporated

The foregoing discussion is not intended to be legal advice or a legal opinion. Please see your attorney for legal support.

Footnotes:

1. Sir Robert Burton, 1577-1640, Oxford University, Brasenose College, writing in "The Anatomy of Melancholy"
2. FAR52.233-1; 41 U.S.C. 605-613
3. Bell Strong Enterprises, Inc. v. Shannon, 49F.3d 1541-1550 Fed. Cir. 1995
4. Ets-Hokin Corp. v. United States, 420 F.2d 716,720 (CT. CL. 1970)
5. S.S. Silbeblatt, Inc. v. United States, 443 F.2d 1314,1323 (CT. CL. 1970)
6. Parking Co. of America, GSBCA 7654, 1987

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