GEORGE HYMAN CONST. v. WASH. METRO. AREA TRANSIT

• Decision Date: 06 November 1985
• Docket Number: Civ. A. No. 85-0550.
• Citation: 621 F. Supp. 898
• Parties: The GEORGE HYMAN CONSTRUCTION COMPANY, Plaintiff, v. WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY, et al., Defendants.
• Court: U.S. District Court — District of Columbia

621 F. Supp. 898

The GEORGE HYMAN CONSTRUCTION COMPANY, Plaintiff, v. WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY, et al., Defendants.

Civ. A. No. 85-0550.

United States District Court, District of Columbia.

October 11, 1985.

Order November 6, 1985.

William W. Goodrich, Jr., Richard J. Webber, Arent, Fox, Kintner, Plotkin & Kahn, Washington, D.C., for plaintiff.

Sara E. Lister, Gen. Counsel, Robert L. Polk, Associate Gen. Counsel, Thomas B. Dorrier, Asst. Gen. Counsel, Washington, D.C., for defendants WMATA and Carmen Turner.

MEMORANDUM

OBERDORFER, District Judge.

The matter is before the Court on plaintiff's request for damages and related relief against defendant Washington Metropolitan Area Transit Authority ("WMATA"). By this action plaintiff challenges WMATA's General Manager's "Final Decision" resolving a contract dispute between the parties. Currently pending are plaintiff's motion for partial summary judgment and defendants' cross motion for summary judgment. This memorandum addresses those motions.

I.

The plaintiff, George Hyman Construction Company ("Hyman"), in 1974 contracted with WMATA for the "finish work"¹ on the Metro's Pentagon Station. After commencing work under the contract, Hyman was, for various reasons, on a number of occasions denied access to some parts of the site. Although Hyman was never completely foreclosed from the site as a result of the partial and intermittent interruptions, the project required 941 days to complete rather than the 480 days originally estimated by Hyman. See generally id. at 89,337-41.

Construction began in 1974. Between 1975 and 1978, Hyman submitted claims to WMATA based on additional costs allegedly incurred because of WMATA's failure to provide timely access to the site. The parties negotiated unsuccessfully from 1978 to 1980 with respect to these claims. See Plaintiff's Statement of Material Facts as to Which There Is No Genuine Issue at ¶¶ 4-6. Hyman then resorted to the "Disputes" clause in the contract.² In 1981, WMATA's Contracting Officer denied the relief sought by Hyman and assessed liquidated damages. The dispute was then submitted to the United States Army Corps of Engineers Board of Contract Appeals ("Board"),³ which decided the dispute in plaintiff's favor after an extensive trial-type proceeding conducted January 25— February 12, 1982. The Board's lengthy decision was rendered January 10, 1985, and addressed Hyman's claim and the claims of its subcontractors.

In its decision, the Board reached two conclusions that constitute the central issues in this action. First, the Board applied the so-called Eichleay⁴ formula to calculate Hyman's claim for extended home office overhead. See Board Decision at 89,353-54. Second, the Board decided that Hyman was entitled to recover interest on equity capital used to finance the increased costs occasioned by the delay. See Board Decision at 89,355.

After the Board issued its decision, the General Counsel of WMATA prepared a staff memorandum for WMATA's General Manager, who is empowered to make the final decision under the disputes clause of the contract. This memorandum recommended that the General Manager ratify most of the Board's decision, but concluded that "the recommendation for allowance of `Eichleay' overhead and interest are erroneous as a matter of law." Notice of Administrative Record Submittal, "Counsel's Memos" at 2. On May 1, 1985, the General Manager issued a five-page decision which denied Hyman's Eichleay and cost-of-capital claims. The General Manager noted that she had considered the Board's opinion, the General Counsel's memorandum, and a reply letter from Hyman's attorney. Notice of Administrative Record Submittal, Final Decision at 1.

Under the terms of the disputes clause,⁵ the General Manager's Final Decision is "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 matter is now before the Court on plaintiff's motion for partial summary judgment and defendants' dispositive summary judgment motion. Plaintiff's statement of material undisputed facts is not contradicted by defendants.

The question before the Court is a legal one: whether the General Manager erred as a matter of law by refusing to apply the Eichleay formula and by disallowing the cost of equity capital. The plaintiff's pending motion for summary judgment is partial in that the plaintiff asks only for a ruling on these disputed issues of law. The question of damages is to be addressed in further proceedings. The defendants' cross-motion, which would simply uphold the General Manager's decision, is dispositive.

II.

A.

Plaintiff contends that the Board properly relied on the "Eichleay method" in reaching its decision on Hyman's claims for certain costs attributable to overhead. The Eichleay method requires that the total overhead pool of the contractor be multiplied by a percentage derived by dividing the billings on a particular contract by the contractor's total billings for the contract period. The resulting "allocable" overhead is divided by the total days of performance to determine the daily overhead rate. The daily overhead rate is then multiplied by the number of days in the delay period to determine the overhead allocable to that period. The Eichleay method has been endorsed as a rule of thumb for attributing overhead costs to a delay period—it serves as an approximation that substitutes for a line-by-line determination of how much of the home office overhead was actually devoted to the delayed project during the period of delay. See, e.g. Capital Electric Co. v. United States, 729 F.2d 743 (Fed.Cir. 1984).

WMATA's General Manager concluded, however, that

the main problem with the Board's decision is that it simply assumes that Hyman and its subcontractors are entitled to an "Eichleay" type recovery without any showing of damage. The Board failed to analyze the period of delay to determine whether Hyman or its subcontractors were precluded from obtaining other work to absorb their overhead. ... Further, and more importantly, the Board failed to analyze the extended period to determine if the fact that this work was pushed to a later period by WMATA caused delay and somehow precluded these contractors from obtaining what would have been their regular work during this period, resulting in a net loss of total work to absorb the overhead.

Final Decision at 2. The General Manager went on to hold that "for the reason that there is no showing of impact or damage, I am rejecting the Eichleay type award for Hyman and the other subcontractors...." Id. at 3.

B.

Our Court of Appeals has held that a contractor seeking to recover overhead costs in a breach of contract action⁶ "must show, at the minimum, that the delay somehow affected its operations so that it was not practical to undertake the performance of other work even had it been available." W. G. Cornell Co. of Washington, D.C. v. Ceramic Coating Co. Inc., 626 F.2d 990, 994 (D.C.Cir.1980). If this view is applied to an equitable adjustment case like this one, plaintiff may recover damages attributable to home office overhead costs and calculated by the Eichleay method only if the General Manager wrongly concluded that the Board failed to make a determination that Hyman had actually been damaged by the delay. Under the disputes clause, the General Manager's decision on this issue is "final and conclusive" unless, inter alia, it is determined to be "not supported by substantial evidence." Conversely, if substantial evidence in the record indicates that the Board did make findings on this point, the General Manager was wrong when she concluded that the Board's decision was unsupportable because it "simply assumes that Hyman and its subcontractors are entitled to `Eichleay' type recovery without any showing of damages."

Hyman contends that the Board scrutinized the effect of the delays on Hyman and the individual subcontractors and awarded costs only where there was a causal relationship between delay and damages. The Board's decision does, in fact, draw a distinction between those subcontractors that were able to show a harm attributable to WMATA's delay and those that were not. In the case of Potomac Iron Works (one of Hyman's subcontractors), for example, the Board noted:

We find no sufficient causal relationship between delayed performance of the Hyman construction contract on site and the increase of Potomac's overhead rates in later years to support an equitable adjustment on that basis.

The Board therefore disallowed Potomac's claim for increased overhead. Board Decision at 89,361.

The Board's treatment of subcontractor Fischbach & Moore ("F&M") similarly demonstrated the Board's intention to link its award to damages actually occasioned by delay. The Board stated in reference to F & M:

To think that its home office devoted any energies to this project during the lengthy period it had left the job and was performing no work whatsoever, would be illogical. Back-up from the home office would be needed and could be expected while work was being performed and, to some degree, in a ratio proportionate to the amount of work being performed.

The subcontractor's entitlement to extended home office (overhead) expenses is not necessarily coterminous with that of the prime contractor. In this instance we think they are not. Considering the time and level of actual work on the project by F&M as compared to those anticipated at time of proposal (bid) and award, we conclude that F & M is entitled to extended home office overhead for an additional 270 days at the agreed daily rule of $79.04 or $21,340.80.

Board Decision at 89,357. In yet another example, C & H Contracting (another Hyman subcontractor) was held to be entitled to overhead costs for a period of 440...