Government Not Required to Help Contractor Retain Workers at Poverty-Level Wages; Appeals of Zalzar FZE , ASBCA Nos. 59545 et al.

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Appeal of claims arising out of a contract to provide temporary workers in the Middle East is denied in part and sustained in part. The contractor claimed it was entitled to recover costs it incurred when the government stopped providing medical care and food for the temporary workers. The board denied that claim, finding that the government had never really provided and never agreed to provide medical care and food to the contractor’s workers. The contractor also sought to recover costs incurred when the government failed to intervene to keep other companies from poaching the contractor’s workers. The board found that the government had no obligation to step in an prevent poaching. Moreover, the board reasoned, the contractor’s wages were so low, it would have been unconscionable for the government to intervene and restrict the contractor’s employees from obtaining other work. Aside from these claims, the board did find that the contractor was entitled to recover increases in transpiration costs and enhanced background checks.

Zalzar FZE had a contract to provide temporary workers for the operation of Army and Air Force Exchange Services (AAFES) facilities in the Middle East. AAFES terminated Zalzar’s contract in 2014 as military forces were withdrawn from the Middle East and temporary workers for AAFES facilities were no longer required. Following termination, Zalzar submitted several claims to the contracting officer. The contracting officer denied the claims. Zalzar appealed to the ASBCA.

Zalzar’s largest claim concerned the provision of logistics, that is, medical care and food, to Zalzar’s workers. Basically, Zalzar asserted that at the beginning of the contract, the government had provided free health care and meals to Zalzar’s workers, but then changed course and required Zalzar to pay for the food and medical care. Zalzar alleged that it was owed over $4 million for these logistics fees.

The board rejected Zalzar’s argument. As an initial matter, the contract itself provided that the contractor could request a price revision if logistics services changed by providing data to support the proposed revision. Zalzar, however, never provided data to demonstrate that a change in logistics had even occurred. Instead, Zalzar believed that any change in logistics support from the government should have resulted in an automatic increase to the company’s hourly labor rates. Zalzar position was apparently base on a provision that had been removed from the solicitation before the contract was awarded.

In any event, the board found, there had not been a change in logistics services. The record showed that while the military provided some medical services to temporary workers, it always expected to be reimbursed for those services. The contracting officer had sent emails and a memo to Zalzar in 2008 stating that while the government would provide some emergency care, contractors were responsible for medical treatment of their workers. Indeed, the government had unilaterally amended the contract to make it clear that AAFES was not providing routine, primary care, or pharmaceuticals to Zalzar’s workers. The board denied any claim Zalzar had for increased logistics costs.

Zalzar also filed a claim for unfair administration of the contract. While Zalzar was performing the contract, it experienced problems with other contractors poaching its workers. Other contractors would approach Zalzar’s workers during their shift, offer them more money, and encourage them to switch companies. Zalzar contended that AAFES had an obligation to intervene and stop the poaching.

The board, however, noted that Zalzar was paying its workers as little as $2.00 per hour. The board found it unsurprising that Zalzar’s workers would want to work for another company. Zalzar had no basis to expect that the government would step into to help Zalzar retain workers at these wages. In fact, the board reasoned, it would have been unconscionable for the government to cooperate with Zalzar’s efforts to claim permanent ownership of these workers. What’s more, nothing in the contract itself obligated the government to protect Zalzar from competitors who offered better wages. Indeed, this was a fixed price contract in which Zalzar bore the responsibility of any loss. The government expected that Zalzar was competent to judge the labor rates in the market, and its bid was a representation that could perform at the rates proposed. The government was not required to artificially deflate rates by restricting the free movement of workers.

Zalzar also alleged that AAFES terminated the contract in bad faith. The board disagreed. The contract’s termination clause was extremely broad, even broader than the normal termination for convenience clause. The clause allowed either party to terminate without cause. Zalzar had not shown that the contracting officer acted in bad faith when terminating. As a matter of fact, the contracting officer had worked to extend Zalzar’s contract and to offer the company other work on another contract, which demonstrated the government’s good faith. The board found that the Zalzar’s contract was simply terminated due to “the cold math imposed by the drawdown” of troops. As troops left the Middle East, the government no longer needed Zalzar’s services.

Zalzar submitted another claim seeking to recover over $600,000 in increases to its hourly rates. The board noted that Zalzar did not have financial documents supporting the increases. Zalzar blamed the absence of documents on its own accountants and on the “Kyrgyz KGB.” Regardless, the board found that the rate increases were simply another way of trying to recover for the poaching claim that the board had already denied.

Zalzar also submitted a claim for extra costs it incurred when Western Union stopped making cash payments to it workers. Zalzar complained that it had to spend money opening bank accounts for its employees so it could pay them. The board, however, found that the government did not bear the risk of Western Union changing its payment practices.

Zalzar submitted another claim for the costs incurred as the result of the government requiring enhanced background checks of workers. The board was more receptive to this claim, finding that Zalzar was entitled to recover an additional $0.07 per hour for additional medical screenings of workers.

Finally, Zalzar submitted a claim for the increased transportation costs for some it workers. The government argued that because Zalzar had a fixed priced contract, it bore the risk of an increase in transportation costs. But the board found that Zalzar’s increased transportation costs were the result of an increase in military air prices. The contract contained a specific clause that direct Zalzar to use military air services to transport workers. The fixed price nature of the contract did not overcome this more specific clause that directed Zalzar to use military air services. Thus, Zalzar was entitled to recover the increased transportation costs.

Zalzar is represented by Gianna Puccinelli, Kristin N. Tahler, Anisha Queen, and Kevin Carroll of Quinn Emanual Urquhart & Sullivan, LLP. The government is represented by Scott N. Flesch and Lieutenant Colonel Robert B. Nelson of the Army.

ASBCA - Zalzar FZE