Appeal of a subcontractor’s pass-through claim seeking unabsorbed home office overhead is sustained. The agency conceded that it was responsible for delay of the project, but it argued that the subcontractor was not entitled to overhead costs because it had not been required to keep staff on standby during the delay. The board found that while the agency never explicitly required a standby, indirect evidence established the subcontractor was on standby. In particular, the agency’s failure to extend the contract and inability to commit to a firm start date required the subcontractor to keep staff available. The agency also argued that the subcontractor was not entitle to unabsorbed overhead because it found substitute work during the delay. But the board found that this work did not cover the subcontractor’s costs.
Alderman Building Company had a contract with the Navy to renovate a building on a Marine base. Alderman subcontracted with Big John’s Electric Co., Inc. for electrical work on the project. Shortly after award of the contract, however, the Navy delayed the project because tenants in the building were unable to move. Ultimately, the Navy ended up delaying the project 263 days.
Alderman submitted a pass-through claim to the Navy on behalf of Big John’s. The claim sought unabsorbed home office overhead caused by the Navy’s delay. The Navy denied the claim, Alderman, on behalf of Big John’s, appealed to the ASBCA.
On appeal, the Navy argued that Big John’s claim was barred by Severin v. United States, 99 Cl. Ct. 435 (1943), which precludes a prime contractor from sponsoring a subcontractor claims if the prime is not liable for the to the subcontractor for the damages in questions. The Navy reasoned that Alderman’s sponsorship agreement stated that “the Owner [i.e., the Navy] is the ultimate responsible party for the Subcontractor’s claims.” The Navy argued that by this clause, Alderman had disclaimed any liability to Big John’s.
The board was not persuaded. The Severin doctrine requires an iron-bound release provision that immunizes the prime contractor from liability. The board did not believe the clause the Navy identified in the sponsorship agreement met this iron-bound requirement. Indeed, it appeared to be an introductory clause of the agreement, not a substantive contract provision.
The Navy further argued that board lacked jurisdiction over the claim because it was not properly certified. Under the CDA, claims over $100,000 must be certified. The Navy contended that although Big John’s claim was under $100,000 when filed, it now exceeded $100,000. The board rejected this, however, noting that the Big John’s claim sought to recover the costs of an expert report, which pushed the claim over $100,000. The expert report, however, was not a component of the claim and would only be recoverable as an incidental cost.
As to the merits of the claim, the Navy argued that Big John’s could not satisfy all the elements of the Eichleay formula, which is the exclusive formula for the calculation of damages for unabsorbed overhead. Eichleay requires a claimant to prove (1) delay of certain duration, (2) that the contractor was required to be on standby during the delay, and (3) that the contractor was unable to find adequate replacement work. The Navy argued that Big John’s could not satisfy the standby element because the agency had never ordered Big John’s to stay on standby.
But the board found, through indirect evidence, that Big John’s had been on standby throughout the delay. Big John’s stayed on standby because the Navy did not extend the performance period for the contract, and the company was worried about liquidated damages. Indeed, the Navy repeatedly issued short-notice postponements without giving Alderman or Big John’s definite dates on when they could start work. Due to this uncertainty, it was necessary for Big John’s to keep worker’s on standby so they would be available whenever the delays ended.
The Navy also contended that Big John’s should not be able to recover the home office overhead because it had been able to obtain replacement work. Indeed, during the delays, Big John’s had received other government contracts worth over $3.5 million. Despite this other work, the board concluded that Big John’s was unable to obtain sufficient replacement work to cover its costs during the delay period.
Aside from the unabsorbed overhead, Alderman contended that Big John’s was entitled $21,00 in direct costs for the standby to pay electricians on standby. The board, however, found that Alderman failed to prove these costs.
Alderman is represented by Marilyn H. David. The government is represented by Craig D. Jensen and Genifer M. Tarkowski of the Navy.
