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Interstate General Government Contractors Inc. v. Stone

Decided: June 11, 1993.


Before Michel, Rader, Circuit Judges, and Cohn, District Judge.*fn*



Interstate General Government Contractors, Inc. (IGGC) appeals from a decision of the Armed Services Board of Contract Appeals (Board), denying IGGC's claim for alleged unabsorbed overhead costs purportedly caused by the government's delay in issuing a notice to proceed (NTP). Interstate General Government Contractors, Inc., ASBCA No. 43369, 92-2 BCA P 24,956 (March 17, 1992). First, the Board held that IGGC was not entitled to recover pursuant to the Eichleay*fn1 formula, its sole theory of recovery, because IGGC failed, as required under Eichleay, to show that its work force was "standing by" awaiting issuance of the NTP. Although the Board applied the wrong legal test in determining that IGGC was not standing by, the Board's ultimate decision denying recovery is supportable on its second holding, that IGGC completely failed to prove that it incurred any unabsorbed overhead. We therefore affirm.



As IGGC argues on appeal, a contractor is entitled to recover proven unabsorbed overhead costs pursuant to the Eichleay formula if it can show that it could not have taken on any new jobs during the period of government delay because of the uncertainty of the duration of the government's delay, during which it was required to stand by to begin performance, or because of limitations on the contractor's bonding capacity. Capital Elec. Co. v. United States, 729 F.2d 743, 745-46 (Fed. Cir. 1984); see C.B.C. Enter., Inc. v. United States, 978 F.2d 669, 673-74 (Fed. Cir. 1992).

In this case, the Board focussed on whether IGGC's work force assigned to this contract was standing by. The Board found that it was not. However, even the government agrees that under Capital Electric and C.B.C. Enterprises the proper test is whether the contractor's organization as a whole is on standby.*fn2 Capital Elec., 729 F.2d at 745-46; C.B.C. Enter., 978 F.2d at 673-74. Thus, the Board applied an improper legal test in concluding that IGGC was not on standby.

Applying the correct legal test, the Board's findings could support a Conclusion that IGGC as an organization was on standby. The Board found that during the delay period prior to issuance of the NTP, IGGC was expected by the contracting officer to remain ready to commence performance within a "reasonable time." Interstate General, 92-2 BCA P 24,956 at 124,365. The Board further found that IGGC's insurance agent indicated to the contracting officer that IGGC had reached its bonding capacity which precluded it from bidding on any additional bonded contracts during the delay. Id. Arguably, these findings could satisfy both elements required to show that IGGC as an organization was on standby. Therefore, the error described above could not be disregarded as harmless. It does not, however, provide a ground for reversal in this case.


Even assuming for the sake of argument that, using the correct legal test, the Board would have found that IGGC was on standby does not in and of itself entitle IGGC to prevail, however. IGGC must still prove that despite finishing early it actually incurred unabsorbed overhead costs. Capital Elec., 729 F.2d at 746; C.B.C. Enter., 978 P.2d at 673. In the case where, as here, a contractor is able to meet the original contract deadline despite a government caused delay, unabsorbed overhead costs, potentially recoverable pursuant to Eichleay, are established only if the contractor can show that from the start it: (1) intended to complete the contract early; (2) had the capability to do so; and (3) actually would have completed early, but for the government's actions. See Elrich Contracting, Inc., GSBCA No. 10936, 93-1 BCA P 25,316 at 126,142 (July 27, 1992); Frazier-Fleming Co., ASBCA No. 34537, 91-1 BCA P 23,378 at 117,287-88 (Sept. 18, 1990). Here, the Board held that "the record does not support IGGC's contention [that] it was incurring unabsorbed overhead during the period of the [delay] and [therefore] the Eichleay formula is not applicable." Interstate General, 92-2 BCA P 24,956 at 124,367.

IGGC argues, on appeal, that the Board's decision must be reversed because the record shows that IGGC did prove that it incurred unabsorbed overhead. According to IGGC, the fact that it actually completed the contract thirteen days early proves that all along it had had the intention to complete early as well as the capability to do so. IGGC also asserts that it necessarily would have completed the contract early but for the government caused delay in issuing the NTP. IGGC cites no record evidence whatsoever to support this last contention, however, relying solely on attorney argument.

Even accepting all of IGGC's evidence at face value, it is legally insufficient to meet IGGC's burden of proof. The evidence of record cannot establish that IGGC had the intent or capability to complete early when it entered into the contract, or that but for the government delay IGGC would have completed the contract early.

There is insufficient evidence in the record to establish IGGC's intent to complete early. Indeed, there is no direct evidence whatsoever. The fact that IGGC actually completed the contract thirteen days early is not probative of the assertion that at the outset of the contract IGGC planned to complete performance prior to the 472 day performance period stated in the contract. In fact, IGGC's vice-president and general manager, Mr. Christiansen, testified before the Board to the contrary. He said that following the delay in issuance of the NTP, "we also put additional staff of [sic] personnel on site, more than I anticipated when I first estimated the job, and using this new work schedule we accomplished this job at a much faster rate than the government thought possible."*fn3 (Emphasis added.) Instead of indicating that IGGC intended to complete the contract early, this testimony establishes that IGGC invoked significant acceleration methods not contemplated at the time of the contract to merely complete on time. Moreover, the record contains no evidence, such as internal or external documentation referencing an intended early completion date, reflecting that even before the government delay IGGC had intended to complete the contract at an earlier date than the specified performance period. Nor does Christiansen assert that he informed the government of such an intent. Therefore, there is no record evidence that would be legally sufficient to support a finding that IGGC planned from the outset to complete early. In any event, the Board made no such finding, nor could it have.

Regarding the second element, IGGC's capability to complete early, the record is similarly devoid of any factual support. Nowhere in the record is there any evidence that IGGC had a viable completion schedule at the outset of the contract that would have given it the capability to complete performance earlier than the full performance period. In fact, the record contains no initial performance schedule whatsoever. The only schedule even mentioned in the record is the accelerated work schedule proposed at the pre-construction conference after the government issued the NTP. This cannot establish ...

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