George Hyman Const. Co. v. Washington Metropolitan Area Transit Authority

• Decision Date: 21 April 1987
• Docket Number: Nos. 85-6145,85-6180,s. 85-6145
• Citation: 816 F.2d 753,259 U.S. App. D.C. 449
• Parties: , 34 Cont.Cas.Fed. (CCH) 75,261 GEORGE HYMAN CONSTRUCTION COMPANY, Appellant, v. WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY, et al. GEORGE HYMAN CONSTRUCTION COMPANY v. WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY, et al., Appellants.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 753

816 F.2d 753

259 U.S.App.D.C. 449, 34 Cont.Cas.Fed. (CCH) 75,261

GEORGE HYMAN CONSTRUCTION COMPANY, Appellant, v. WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY, et al.

GEORGE HYMAN CONSTRUCTION COMPANY v. WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY, et al., Appellants.

Nos. 85-6145, 85-6180.

United States Court of Appeals, District of Columbia Circuit.

Argued Nov. 25, 1986.

Decided April 21, 1987.

Appeals from the United States District Court for the District of Columbia (Civil Action No. 85-00550).

Richard J. Webber, Washington, D.C., for appellant/cross-appellee.

Thomas B. Dorrier, Atty., Washington Metropolitan Area Transit Authority, with whom Sara E. Lister and Robert L. Polk, Attys., Washington Metropolitan Area Transit Authority, Washington, D.C., were on the brief for appellees/cross-appellants.

Before MIKVA, RUTH B. GINSBURG and SILBERMAN, Circuit Judges.

Opinion for the Court filed by Circuit Judge MIKVA.

MIKVA, Circuit Judge:

This case arises from a contractual dispute between the George Hyman Construction Co. (Hyman) and the Washington Metropolitan Area Transit Authority (WMATA). Officials of WMATA issued a decision on the controversy pursuant to the contract's "Disputes" clause. Hyman then brought suit in district court to challenge WMATA's decision. On cross-motions for summary judgment, the court denied Hyman's claim for "cost of capital," but granted Hyman's claim for "home office overhead costs." 621 F.Supp. 898. Both parties appealed from the district court's decision. We reject the parties' contentions and affirm the district court in all respects.

I. BACKGROUND

In 1974, WMATA awarded a contract to Hyman for the "finish work" on the Metro's Pentagon Station. The contract provided that WMATA would grant Hyman access to several areas of the site on December 1, 1974 and to the remaining areas of the site on February 1, 1975. The contract further provided that Hyman would complete all work by January 24, 1976.

From the beginning of the contract period, WMATA delayed Hyman's performance of the work. WMATA gave Hyman access to one area of the site on December 2, 1974, but barred Hyman from entering other areas until various dates between June 1975 and May 1976. After Hyman had received access to the entire site, a number of events for which WMATA was contractually liable, such as floods and stop-work orders, further disrupted Hyman's work. These delays prevented Hyman from completing the project until April 29, 1977--approximately 460 days after the date prescribed in the contract.

In 1978, Hyman submitted to WMATA a claim arising from the delays. Hyman alleged that it had incurred additional costs as a result of the delays and demanded an award covering (1) additional labor costs, (2) additional material costs, (3) additional on-site overhead costs, (4) additional home office overhead costs, (5) a profit based on the additional costs, and (6) the cost of the equity capital that Hyman had used to finance the additional costs. The parties entered into negotiation on the claim, but proved unable to reach agreement. Hyman then invoked the Disputes clause of the contract.

The Disputes clause states that WMATA's Contracting Officer will make the initial decision on a contract claim. A party to the contract may appeal this decision to WMATA's Board of Directors, which may appoint a representative to decide the appeal. The Board of Directors, by formal resolution, has designated the United States Army Corps of Engineers Board of Contract Appeals (BCA) to hold evidentiary hearings and issue advisory opinions and has appointed WMATA's General Manager to review these opinions and decide the appeals. Under the Disputes clause, a decision of the General Manager, as the "duly authorized representative" of the Board of Directors, "shall be final and conclusive unless determined by a court of competent jurisdiction to have been fraudulent, or capricious, or arbitrary, or so grossly erroneous as necessarily to imply bad faith, or is not supported by substantial evidence." The Disputes clause goes on to provide that "[n]othing in this contract ... shall be construed as making final the decisions of the Board of Directors or its representative on a question of law."

In 1981, WMATA's Contracting Officer denied Hyman's claim for relief. Hyman appealed this decision, and the BCA took up the claim. The BCA conducted a lengthy evidentiary hearing in January and February of 1982. Several years later, the BCA issued a detailed opinion addressing each aspect of Hyman's claim. See George Hyman Construction Co., 85-1 B.C.A. (CCH) p 17,847 (1985).

The BCA found that the contract's "Suspension of Work" clause entitled Hyman to receive almost all of the relief it had requested. The Suspension of Work clause stipulates that "an adjustment shall be made for any increase in the cost of performance of this contract (excluding profit) necessarily caused by [an] unreasonable suspension, delay, or interruption" of work by WMATA. The BCA proposed denying Hyman's demand for lost profits on the basis of the clause's explicit exclusion. See id. at 89,355. The BCA recommended sustaining all other aspects of Hyman's claim. Two of the BCA's conclusions set the stage for this appeal. First, the BCA found that Hyman had a right to receive home office overhead costs as calculated by the formula established in Eichleay Corp., 60-2 B.C.A. (CCH) p 2688 (1960), aff'd on reconsideration, 61-1 B.C.A. (CCH) p 2894 (1961). See George Hyman Construction Co., 85-1 B.C.A. at 89,353-54. Second, the BCA determined that Hyman was entitled to recover the cost of--i.e., the interest forgone on--the equity capital Hyman had used to finance the costs arising directly from the delays. See id. at 89,355.

After reviewing the BCA's opinion, WMATA's General Manager issued her decision. See Item 5 of Record Excerpts (R.E.). The decision adopted most of the BCA's conclusions, but rejected the recommendations concerning home office overhead costs and cost of capital. The General Manager held that Hyman was not entitled to recover home office overhead costs because it had failed to show that the delays had caused it to suffer any additional costs of this kind. See id. at 2-3. The General Manager also rejected use of the Eichleay formula to calculate the exact amount of recovery in cases in which a contractor had shown that some recovery of home office overhead costs was proper. See id. With respect to Hyman's claim for interest, the General Manager held that as an "interstate agency," WMATA was immune from liability for prejudgment interest in the absence of either "a statute specifically authorizing the award of interest against the state or its agencies" or a contract provision prescribing the payment of interest. Id. at 3. The General Manager found no such statute and held that the Suspension of Work clause of the contract did not prescribe the payment of interest in this case because interest on equity capital--unlike interest on borrowed capital--is not a "cost of performance." See id. at 4.

Hyman brought suit in district court, challenging the General Manager's refusal to award home office overhead costs and cost of capital. Using the standard of review prescribed in the contract's Disputes clause, the district judge reversed the General Manager's determination regarding home office overhead costs, but affirmed her decision concerning cost of capital. See Item 4 of R.E. In discussing home office overhead costs, the district judge wrote that the "record belies the General Manager's conclusion" that Hyman was not entitled to recover home office overhead costs. Id. at 10. With regard to cost of capital, the district judge adopted in toto the General Manager's rationale. See id. at 15-17.

II. DISCUSSION

A. Home Office Overhead Costs

We begin by stating the extant law regarding recovery of home office overhead costs following a delay or suspension of a contract. The law proceeds from the premise that only some delays and suspensions impose unavoidable loss related to home office overhead on a contractor. If the delay is such that the contractor can neither reduce home office overhead costs (for example, by firing staff) nor take on new work to absorb these costs, he will inevitably suffer a loss of this kind. But if the delay is such that the contractor can either cut home office overhead costs or assume new work to absorb them, he can (and probably will) avoid any damage. Courts therefore have determined that a contractual delay will not automatically entitle a contractor to recover home office overhead costs. See Massman Construction Co. v. Tennessee Valley Authority, 769 F.2d 1114, 1125 (6th Cir.1985), cert. denied, --- U.S. ----, 106 S.Ct. 1947, 90 L.Ed.2d 357 (1986); W.G. Cornell Co. v. Ceramic Coating Co., 626 F.2d 990, 994 (D.C.Cir.1980) (per curiam). In order to recover, the contractor must show that he necessarily suffered actual damage because the nature of the delay made it impractical for him either "to undertake the performance of other work," Cornell, 626 F.2d at 994, or "to [cut back on] Home Office personnel or facilities," Eichleay Corp., 61-1 B.C.A. at 15,117. A contractor generally meets this requirement by demonstrating that the delay was sudden and of unpredictable duration. See Capital Electric Co. v. United States, 729 F.2d 743, 745-46 & 746 nn. 4-5 (Fed.Cir.1984); Eichleay Corp., 61-1 B.C.A. at 15,117.

When a contractor has shown that he is entitled to recover home office overhead costs resulting from a particular contractual delay, the adjudicator of the contractual dispute must determine the exact amount of those costs. Because most contractors simultaneously engage in a wide variety of projects of different magnitude and duration, all of which contribute to the contractor's aggregate home office overhead, this calculation is no simple task. The Armed Services Board of Contract Appeals in Eichleay Corp....