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Contractor’s Failure to Keep Accurate Cost Records Leads to Denial of Claims

Posted on February 1st, 2016 by

In the Appeals of Vistas Construction of Illinois, Inc. ASBCA Nos. 58479, et al., (January 12, 2016), the Armed Services Board of Contract Appeals (“Board”) denied a contractor’s claims for additional work and delays involving a project to enlarge a levee in Jefferson Parish, Louisiana. The Board denied most of the claims for lack of adequate proof. The Board gave little weight to the contractor’s attempts to recreate what had occurred during contract performance by piecing together information during litigation.

The Board noted that the contractor’s method of “segregating costs between changed and unchanged work is a matter of considerable controversy.” Unfortunately, the contractor did not contemporaneously maintain records during contract performance, which  separated costs for base contract work and costs for change order work. During litigation, the contractor tried to use its certified payrolls to prove costs for unchanged vs. changed work. The Board found this unconvincing, stating that the certified payrolls “do not describe what work, they do not identify the CLINs or the tasks performed by the worker that day, nor do they identify the equipment used.”

The contractor submitted Quality Control Reports (“QCRs”) during contract performance. The QCRs required the contractor to “to list the equipment used on the project on that day and to specify the operating and standby hours for each piece of equipment.” The contractor’s QCRs showed less equipment time than claimed by the contractor. The contractor explained this discrepancy by claiming the Government changed the manner in which the QCRs were to be provided. The Board did not buy this argument, finding that the contractor has not “identified any contemporaneous document where it protested or documented an alleged demand by the Corps to under report equipment hours.”

The Contractor sought a profit rate of 34.81% on change order work, while the Contracting Officer had only applied a 8.7% profit rate. The Contractor claimed that a 34.81% profit rate is more reasonable since it is in line with the profit rate the Contractor enjoyed on the base contract work. The Board denied the contractor’s claim, holding that the Contractor “has not demonstrated that it earned any profit on the unchanged work, and certainly has not demonstrated that it earned profit of 34.81%.”

The Contractor sought interest on borrowed money. The Board denied payment of interest on borrowed money as unallowable under FAR 31.205-20, “Interest and Other Financial Costs,” which state that “Interest on borrowings (however represented) . . . [is] unallowable.” The Board also noted that interest under the Prompt Payment Act only applies “when a payment is inadvertently late, not when the government refuses to pay or questions its underlying liability.” Since the Government had contested the Contractor’s invoices, Prompt Payment Interest did not apply either.

The Contractor sought consultant costs as allowable contract administration costs. The Board held that if the consultant costs were incurred “for the purpose of materially furthering the negotiation process, the cost normally is allowable under FAR 31.205-33 as a contract administration cost even if the negotiation ultimately fails. On the other hand, if the cost is incurred to promote the prosecution of a claim, then the costs are unallowable.” To determine whether costs are allowable as contract administrative costs or unallowable claim prosecution costs, the Board noted that FAR § 31.205-33(f) requires adequate records of the nature and scope of service furnished evidenced by:

  1. Details of all agreements (e.g., work requirements, rate of compensation, and nature and amount of other expenses, if any) with the individuals or organizations providing the services and details of actual services performed;
  2. Invoices or billings submitted by consultants, including sufficient detail as to the time expended and nature of the actual services provided;
  3. Consultants’ work products and related documents, such as trip reports indicating persons visited and subjects discussed, minutes of meetings, and collateral memoranda and reports.

Based on the above evidentiary requirements, the Board awarded consultant fees spent on responding to a Government audit, but denied other consultant fees. The Board also refused to award the cost of the contractor’s employees as “professional or consultant fees” because FAR 31.205-33(a) states that professional and consultant services do not include officers or employees of the contractor.

This case illustrates the importance of keeping accurate and current records during contract performance.

Appeals of Vistas Construction of Illinois, Inc. ASBCA Nos. 58479, et al., (January 12, 2016)


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