Wickham Contracting Co., Inc. v. Fischer, 93-1146

• Decision Date: 06 January 1994
• Docket Number: No. 93-1146,93-1146
• Citation: 12 F.3d 1574
• Parties: 39 Cont.Cas.Fed. (CCH) P 76,608 WICKHAM CONTRACTING CO., INC., Appellant, v. Dennis J. FISCHER, Acting Administrator, General Services Administration, Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1574

12 F.3d 1574

39 Cont.Cas.Fed. (CCH) P 76,608

WICKHAM CONTRACTING CO., INC., Appellant, v. Dennis J. FISCHER, Acting Administrator, General Services

Administration, Appellee.

No. 93-1146.

United States Court of Appeals, Federal Circuit.

Jan. 6, 1994.

Peter L. Agovino, Goldberg & Connolly, Rockville Centre, NY, argued, for appellant. With him on the brief was Henry L. Goldberg.

Lauren S. Moore, Atty., Commercial Litigation Branch, Dept. of Justice, of Washington, DC, argued, for appellee. With her on the brief were Stuart E. Schiffer, Acting Asst. Atty. Gen., David M. Cohen, Director and Thomas W. Petersen, Asst. Director.

Before RICH, MICHEL and CLEVENGER, Circuit Judges.

MICHEL, Circuit Judge.

Wickham Contracting Company appeals from a decision of the General Services Administration Board of Contract Appeals (Board), denying Wickham's claim for an equitable adjustment for overhead expenses incurred under a contract with the General Services Administration (GSA) as a result of GSA-imposed delays. Wickham Contracting Co., GSBCA No. 8675, 92-3 BCA p 25,040, 1992 WL 88326 (Apr. 29, 1992). First, the Board held that the Eichleay formula is the proper method for calculating unabsorbed home office overhead when a contractor otherwise satisfies the Eichleay requirements. ¹ Second, the Board would not allow Wickham to expand the overhead pool by including direct costs. Third, the Board rejected Wickham's claim to an increased delay period because the contractor had not shown that it would have finished by the projected early date. Fourth, the Board held that Wickham is not entitled to interest for use of its equity capital or borrowed funds. We affirm the decision of the Board, upholding its ruling on each of these four issues, again presented here. Regarding the Eichleay formula, we hold it is the only proper method of calculating unabsorbed home office overhead. No other formula may be used.

I. BACKGROUND

On July 28, 1977, Wickham entered into a contract with GSA to renovate the Federal Post Office and Courthouse in Albany, New York, for the sum of $2,968,000. The contract allowed 365 days from the notice to proceed to perform the work which was due to be completed on August 15, 1978. Early in the renovation process, GSA became concerned about structural problems with the building and ordered many delays in the work. The parties agree that, due to GSA-imposed delays, the work was not substantially complete until April 10, 1981, 969 days after the contracted date. Many of Wickham's claims against the government for additional costs due to such delays have been settled. However, certain costs associated with home office overhead have not.

Wickham's home office staff during the renovation work consisted of the president, a construction engineer, the project manager, and three secretaries. In addition to the Albany project, Wickham performed only two other major contracts during the same time frame--the West Point project and the Foley Square project. Both of these projects were managed mainly on site while the Albany project was managed mainly from the home office.

In June 1986, the contracting officer awarded Wickham an additional $333,084 on its claim for unabsorbed home office overhead due to the delay, based on the Eichleay formula. ² Before the Board, Wickham argued that, for three reasons, it was due a larger amount for the unabsorbed home office overhead. Wickham complained that the percentage of the home office overhead pool allocated to the Albany contract based on the Eichleay formula, approximately 34%, was too low and did not fairly compensate Wickham for its overhead expenses. The contractor argued that it was entitled to be reimbursed for 80% of its overhead expenses incurred during the delay period because 80% of its home office activity and, therefore, 80% of its home office overhead expense was devoted to the Albany contract during that time frame. Wickham made the argument first to the contracting officer, then to the Board.

On appeal to us, Wickham repeatedly states that the 80% figure is undisputed. However, the government points out that Wickham did not keep current books or records which could document the 80% figure and that Wickham did not develop that figure until January 1985. The record supports the government's assertions. Therefore, we conclude the figure is disputed.

The Board did not make a clear finding as to whether Wickham actually proved that 80% of its home office activity was devoted to the Albany contract. Instead, the Board rejected Wickham's theory of recovery on the basis that unabsorbed overhead is always calculated according to the Eichleay formula when a contractor meets the Eichleay requirements after government-imposed delay. The Board applied the Eichleay formula based on the notion that it is a theoretical construct of the amount of unabsorbed overhead caused by the contract delay and, therefore, the actual amount of overhead allegedly caused by the contract was not relevant.

The parties agree on many of the components of the overhead pool. The components of the overhead pool to which the Board applied the Eichleay formula are general and administrative salaries, rent, insurance, depreciation, hospitalization and medical costs, dues and subscriptions, office expenses, auto and truck maintenance, utilities, plans and specifications, cleaning, protection, taxes and licenses, and officer's salaries. 92-3 BCA p 25,040 at 124,818-19.

Before the Board, however, Wickham also argued that the contracting officer wrongly excluded several specific field costs from the overhead pool. The field costs are for travel and business meetings, telephones, professional fees, union welfare benefits, payroll taxes and equipment rental. Their inclusion would increase the amount paid to Wickham under either the Eichleay formula or Wickham's allocation figure of 80%. The Board, however, found that as direct, not overhead costs, they may not be included in the overhead pool.

In addition, Wickham argued that the compensable delay period was actually 1029 days rather than the 969 days admitted by GSA. The longer delay would entitle Wickham to a larger payment under either the Eichleay formula or its preferred figure of 80%. Wickham measures the delay from its projected early finish date of June 15, 1978, suggested by the critical path method schedule, rather than the finish date of August 15, 1978, set by the contract. The Board found that Wickham was not entitled to reimbursement based on the longer delay period because it did not prove that it would have finished by the earlier date.

Finally, Wickham sought reimbursement for the cost of use of its equity capital and alleged use of borrowed funds during the delay. The Board rejected this claim also, the former as unallowable and the latter as unproven.

Wickham appealed to this court pursuant to the Contract Disputes Act of 1978 (CDA), 41 U.S.C. Sec. 607(g)(1) (1988). Our jurisdiction rests on that Act and 28 U.S.C. Sec. 1295(a)(10) (1988).

II. STANDARD OF REVIEW

The CDA dictates the standard this court applies in reviewing decisions of agency contract appeal boards. 41 U.S.C. Sec. 609(b). To the extent that Wickham challenges the Board's factual findings, it must show that those findings were either: (1) fraudulent, (2) arbitrary or capricious, (3) so grossly erroneous as to necessarily imply bad faith, or (4) not supported by substantial evidence. Id. Even though the record may contain evidence which supports a contrary finding, we will not overturn a board's finding if substantial evidence supports it. Erickson Air Crane, Inc. v. United States, 731 F.2d 810, 814 (Fed.Cir.1984). Substantial evidence "means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." United States v. General Elec. Corp., 727 F.2d 1567, 1572 (Fed.Cir.1984). A board's determination on a question of law is reviewed de novo, although it is accorded careful consideration due to the board's considerable experience in construing government contracts. United States v. Lockheed Corp., 817 F.2d 1565, 1567 (Fed.Cir.1987).

III. ANALYSIS

A. The Eichleay Formula is Exclusive

1. Federal Circuit Law on Eichleay

The Board used the Eichleay formula ³ to calculate the amount of home office overhead costs for which Wickham would be reimbursed due to the GSA-imposed delay. Application of the Eichleay formula requires "that compensable delay occurred, and that the contractor could not have taken on any other jobs during the contract period." ⁴ C.B.C. Enters., Inc. v. United States, 978 F.2d 669, 673-74 (Fed.Cir.1992). Government contractors may use the Eichleay formula to calculate unabsorbed home office overhead when disruption, delay or suspension caused by the government has made uncertain the length of the performance period of the contract. Id. 978 F.2d at 672. The uncertainty often precludes additional jobs.

Suspension or delay of contract performance results in interruption or reduction of the contractor's stream of income from payments for direct costs incurred. This in turn causes an interruption or reduction in payments for overhead, derived as a percentage of direct costs, which is set by the contract. Home office overhead costs continue to accrue during such periods, however, regardless of direct contract activity. Consequently, this decrease in payments for direct costs creates unabsorbed overhead, unless home office workers are laid off or given additional work during such suspension or delay periods. When the period of delay is uncertain and the contractor is required by the government to remain ready to resume performance on short notice (referred to as "standby"), the contractor is effectively prohibited from making reductions in home office staff or facilities or by taking on additional work. See Capital Elec. Co. v. United States, 729 F.2d 743, 748 (Fed.Cir.1984) (Friedman, J., concurring) ("[I]t...