A contractor can become entitled to costs during a delay in performance. But when is a government contractor entitled to unabsorbed overhead costs during a government-caused suspension or delay? A recent Civilian Board of Contracts Appeals case answers that question in part.
In BCPeabody Construction Services, Inc., CBCA 5410 (Mar. 26, 2018), the CBCA considered a claim from BCPeabody for costs incurred under a firm fixed-price design build task order issued by the VA to renovate two kitchen areas for VA buildings in Florida. The work included all “structural, architectural, utilities, and equipment as needed to meet the design.”
BCPeabody received the notice to proceed on July 9, 2012. The work was supposed to be completed by September 7, 2012, but the VA did not approve the design until May 10, 2013. In addition, the electrical and mechanical design had to be altered from the original specification after it was discovered the equipment needs and HVAC systems needed more work than previously contemplated.
VA suspended work on November 3, 2013, because the kitchens were serving patients who could not be relocated to allow for the renovation to begin. The suspension lasted 179 days with work to resume on May 5, 2014.
BCPeabody shifted its tradesmen and foremen to other jobs during the suspension but claimed its project leadership did not shift, given the short duration of the suspension. It also requested $49,516.20 in “unabsorbed home office overhead costs” for the 179-day suspension.
The CBCA provided a summary of overhead costs during delay:
Suspension or delay of contract performance results in an interruption in payment for direct costs, which in turn causes an interruption in payment for overhead; however, overhead costs continue to accrue regardless of direct contract activity. This interruption in the stream of payments causes a portion of home office overhead costs to be unabsorbed.
The CBCA noted in this case that two of the three factors for award of overhead costs during a suspension were present: (1) there was a VA-caused delay and (2) the delay resulted in extended time of performance of the contract. Less clear was whether BCPeabody “was required to remain on standby during the delay.” All three factors must be present in order to be awarded overhead costs during a suspension.
The CBCA ruled that, because each of the suspension letters from the VA set a date on which work would resume, the contractor knew with certainty when work would resume. In this situation, “there is no uncertain delay period and the contractor is not on standby.” In addition, BCPeabody “ultimately had one month to remobilize,” and therefore it was not required to be ready to resume work immediately.
The CBCA ultimately found that BCPeabody was not entitled to so-called Eichleay damages (named after the leading decision) for overhead costs during suspension of work. This decision is a reminder that award of overhead costs during a suspension of work is only possible where, among other things, it is uncertain when work will resume and the contractor must remain on standby (ready to resume work at any time) during delay.