Military

CECA prepares claims and proposals for contractors working on Naval and Air Force Bases throughout the country.

Nicon, Inc. obtained the services of CECA to prepare its termination settlement proposal for a contract it was awarded at MacDill Air Force Base in Florida.

The U.S. Army Corps of Engineers, Mobile District, awarded a contract in the amount of $1,423,674 to Nicon to repair Dorm 371 at MacDill Air Force Base in Florida.  A bid protest was filed by an unsuccessful bidder on April 3, 1998.   The bid protest was dismissed on July 15, 1998, however, the Corps did not issue the Notice to Proceed (NTP).   After the resolution of the protest, lead based paint was discovered at the project site and Nicon and the Corps were attempting to quantify the differing site condition and determine the extent to which it affected the project.  Notwithstanding Nicon’s repeated requests for the government to issue the NTP, the government terminated the contract for convenience on January 12, 1999 – 291 days after the contract was awarded.  The original contract duration was 270 days.  This delay lasted longer than the time allowed to complete the project.

Although Nicon was never issued its Notice to Proceed, it incurred costs associated with the terminated contract.  Nicon hired CECA to prepare its termination settlement proposal.  During the course of CECA’s analysis of Nicon’s costs, CECA concluded that Nicon had incurred delay costs associated with the government’s delay in issuing the NTP and calculated the delay costs using a modified Eichleay formula.  The costs Nicon incurred were the result of the protest after the award and for costs associated with the differing site condition. Nicon had no billings to the project prior to the termination, thus there were no contract billings to include in that element of the Eichleay formula, therefore, an estimated amount was included for the contract billings.

CECA prepared Nicon’s termination settlement proposal for its direct costs incurred, plus G&A and profit, as well as for the delay costs incurred during and after the protest.  CECA assisted Nicon during the DCAA audit.  The DCAA auditor opined that the use of a modified Eichleay was inappropriate since there were no case law precedent where a modified Eichleay had been used.  After the audit, CECA participated in the negotiation meetings with Nicon and the Corps and a final settlement was negotiated.  However, the Corps agreed with DCAA on the issue of the calculation of the delay damages using a modified Eichleay formula.  The final settlement agreement specifically excluded the delay costs and reserved Nicon’s rights to appeal or to file a lawsuit.

Nicon received payment for its direct costs, plus G&A, profit and settlement expenses.  Nicon filed a lawsuit in the U.S. Court of Federal Claims.  The judge in that case agreed with the Corps that Nicon could not recover damages for unabsorbed overhead because the formula could not be modified to fit a situation where the contractor has not yet begun to perform.  (Nicon, Inc. v. United States, No. 99-982C (Fed. Cl. Dec. 21, 2001)

Nicon appealed to the United States Court of Appeals for the Federal Circuit.  The Federal Circuit Court vacated the Federal Claims Court’s summary judgment in favor of the government and remanded it for further proceedings to determine if Nicon may recover its unabsorbed overhead by another means of allocation.  This ruling was construed by the Court as a narrow ruling, however, it provides hope for contractors in situations similar to Nicon’s where the government delays the notice to proceed for an unreasonable duration and the contractor incurs unabsorbed overhead costs due to that delay.  See CECA’s News Page for details of Nicon’s appeal.

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