ASBCA Allows Limited Recovery of Costs Resulting From Termination for Convenience

December 18, 2014 – In The News
Bloomberg BNA Federal Contracts Report

Reggie Jones was quoted in Bloomberg BNA Federal Contracts Report article, “ASBCA Allows Limited Recovery of Costs Resulting From Termination for Convenience.” Full text can be found in the December 18, 2014, issue, but a synopsis is below.

The Armed Services Board of Contract Appeals recently ruled that SWR Inc., an Army contractor that stores privately-owned vehicles, is entitled to a sum of $123,489.

While Administrative Judge Terrence S. Hartman ruled that the contractor could recover reasonable charges from the termination under the Federal Acquisition Regulation (FAR) 52.212-4, the contractor is not entitled to recover costs under the first prong of FAR.
Reggie Jones comments that contractors should expect this type of limited recovery in similar cases.

“A contractor whose contract has been terminated for convenience by the government is entitled to fair and just compensation from the government, but that compensation does not include anticipated but unearned profit for contracts terminated before performance began,” he explains.

Documentation Critical

To ease such difficult situations, Lars Anderson of Venerable LLP states that contractors must document and support claimed expenditures to recover costs in these situations.

Jones agrees with Anderson’s statement, adding that the limited award “resulted largely from the contractor’s complete inability to show that it incurred the costs” sought in the original termination for convenience settlement proposal or in this appeal.

Jones continues on to explain that although FAR 52.212-4(I) does not require compliance with the Cost Accounting Standards, a contractor must “prove its charges for costs incurred beyond the percentage of work performed before termination to the satisfaction of the government using the contractor’s standard record keeping system.”

Dissenting/Concurring Opinion

Judge Mark A. Melnick issued an opinion in which he agreed that SWR should receive limited recovery, however did not condone the $15,000 lease and $75,000 tent deposit payments that were also in question.

Jones comments that Judge Melnick’s opinion “makes what amounts to a housekeeping case into an even more decision. [He] argues that there is nothing about the commercial items termination for convenience clause that prevents contractos from using evidence other than their standard record keeping to prove their costs.”

He concludes by stating Judge Melnick established a tough stance regarding the award of profit by “categorically rejecting the idea that FAR 52.212-4(I) permits a contractor to recover profit at all.”