ASBCA Awards Costs Incurred Before Notice to Proceed

Your newly awarded government contract requires you to move significant amounts of equipment prior to receiving a Notice to Proceed (NTP). You spend thousands of dollars moving equipment and people into place so you are ready to perform once the NTP is issued. But what if instead of issuing the NTP the agency cancels your contract? Are you out all of the costs incurred to prepare for the NTP?

Not necessarily. The Armed Services Board of Contract Appeals recently reviewed just this situation and awarded a significant amount to the contractor.

In 4H Constr. Corp., ASBCA No. 59977, (Apr. 17, 2019) the Board was asked to determine what settlement costs 4H was entitled to. To understand 4H’s protest, a quick synopsis of the award, prep-work, NTP, and cancellation timeline is helpful.

4H was awarded dredging work on the Arkansas River for the Corps of Engineers. The day after being awarded the work, 4H received four task orders under the contract. The task orders instructed 4H to begin mobilization efforts “upon receipt of Notice to Proceed[.]” However, the contract instructed 4H to “commence work within ten calendar days of receiving the [NTP].” Ten days after receiving the task orders, a protest was filed against the contract. Forty-one days after the protest, and fifty-one days after receiving the task orders, the Corps terminated 4H’s contract.

Unfortunately for 4H, by the time the Corps terminated the contract, 4H had already begun preparing for the NTPs to be issued. Because of the quick ten-day turnaround from NTP to performance, 4H had already moved equipment and personnel into the area. 4H and the Corps went through the settlement process, but 4H and the Corps were hundreds of thousands of dollars apart in their settlement discussions for pre-performance costs, which is the issue addressed by the Board.

The main cost differences came from 4H’s extensive prep-work in anticipation of the NTPs. For one thing, 4H had to repair its dredging equipment, which often was put off until the next job was identified in case job-specific repairs were required. It also had to tow its dredging equipment 600 miles from Louisiana to the White River in Arkansas. The towing work itself was estimated to “require at least 10 days depending upon weather and water conditions.” 4H also needed subcontractors specialized in towing operations on the Mississippi River.

All of this work was done because 4H understood it had to be on site and ready to start work within 10 days of receiving the NTP. The Corps contended, however, that it “did not require 4H to be at the mobilization point, much less ready to commence dredging, at a specific date.” But this was never communicated to 4H. Additional communication missteps led 4H to continue work through the protest until it received a termination for convenience from the Corps almost two months after contract award date.

Where a company disputes settlement amounts, the “contractor has the burden to show by a preponderance of the evidence” that it is entitled to more. Here, a number of things worked against the Corps.

First, the Board said 4H “established that they understood it was necessary to reach the mobilization point set in the contract prior to the notice to proceed.” Because no one at the Corps informed 4H otherwise, and there was no evidence to the contrary, it was reasonable for 4H to assume it “had to be ready to mobilize when the notice to proceed [was] issued.”

Second, the Board recognized that “[n]umerous tasks were necessary to prepare the dredge to be moved” and ready for the awarded work. The Corps did not challenge any of 4H’s testimony on this matter.

Third, the contract incorporated FAR 52.249-2, Termination for Convenience of the Government, which ASBCA said “requires the contracting officer to pay the contractor for the cost of the contract work performed before the date of termination.” This includes “contractor profit” and “accounting, legal, clerical and other expenses reasonably necessary for the preparation of the termination settlement proposal and supporting data.”

In determining the settlement amount, the Board recognized “4H was diligent in recording its expenses.” The combination of diligent accounting, the amount of prep work all parties knew was required for performance, and the lack of clear communication from the Corps led the Board to rule for 4H. Instead of the Corps’ initial determination of $58,500 in settlement costs, the Board found that “4H recovers $654,093 plus interest[.]”

The government may stop contract performance for any number of reasons. The lesson to learn from 4H is that even if your company has pre-NTP costs, you may be able to still recover those costs so long as you can factually support your argument, you are acting based on a reasonable interpretation of the contract, and the agency has not communicated anything opposing your interpretation of the contract.