                ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeals of --                                 )
                                              )
BAE Systems San Francisco Ship Repair         )       ASBCA Nos. 58810, 59642
                                              )
Under Contract No. W912SU-04-U-0005           )

APPEARANCE FOR THE APPELLANT:                         Peter B. Jones, Esq.
                                                       Jones & Donovan
                                                       Newport Beach, CA

APPEARANCES FOR THE GOVERNMENT:                       Raymond M. Saunders, Esq.
                                                       Army Chief Trial Attorney
                                                      CPT Tyler L. Davidson, JA
                                                      CPT Harry M. Parent, III, JA
                                                       Trial Attorneys

                  OPINION BY ADMINISTRATIVE JUDGE TING

         In 2006, the Army's Northern Region Contracting Center Mission Contracting
'Division at Fort Eustis, Virginia (the Army or the government) issued Delivery Order
 No. 2 (DO No. 2) under an existing multiple-award task order contract (MATOC) -
 Contract No. W912SU-04-U-0005 (Contract 0005)- to BAE Systems San Francisco Ship
 Repair (BAE) to overhaul an Army Logistics Support Vessel, the MG Charles P. Gross
 (LSV-5). Among other work, DO No. 2 required BAE to remove all existing potable
 water, air-conditioning and gray water drain systems and to replace them with new
 copper/nickel (90/10 CUNI) piping. During the course of performance of the delivery
 order, after the bulkheads and ceilings were removed, BAE's piping subcontractor,
 Custom Ship Interiors, Inc. (CSI) discovered that the piping systems existing on the
 vessel, which were not visible during ship check, were not as depicted on the contract
 drawings. CSI through BAE submitted 19 Condition Found Reports (CFRs) or change
 proposals for additional labor and materials required to complete the piping replacement
 work. Lacking input from her on-site Ship Surveyor, the contracting officer (CO), who
 was located in Virginia, was unable to initiate discussion to negotiate or settle any of the
 CFRs. Facing an approaching contract completion deadline, BAE and CSI proceeded to
 complete the piping replacement work with funding advanced by BAE.

       The government acknowledged that BAE discovered additional piping repair
requirements that were not anticipated at the time DO No. 2 was issued. Since
completion of the contract work in 2007, the parties were unable to settle the quantum
of equitable adjustment. In July 2011, BAE converted its piping Request for Equitable
Adjustment (REA No. 7) into a certified claim. The CO's 2013 decision partially
granted BAE's claim. BAE appealed the decision (ASBCA No. 58810). In 2014, the
CO issued an amended decision, claiming that she overpaid BAE in her 2013 decision.
BAE appealed the decision (ASBCA No. 59642).

       We have jurisdiction to decide the parties' dispute under the Contract Disputes
Act, 41 U.S.C. §§ 7101-7109.

                                  FINDINGS OF FACT

        1. In April 2004, the U.S. Army's Northern Region Contracting Center Mission
Contracting Division at Fort Eustis, Virginia, awarded an Indefinite-Delivery,
Indefinite-Quantity contract - Contract 0005 - to San Francisco Drydock, Inc. 1 (R4, tab I
at 1 of 440). 2 The contract, in the estimated amount of over $22 million, was for the
programmed and unprogrammed drydocking, cleaning, painting, repairs and
modifications of active Army Logistics Support Vessels stationed on the West Coast of
the United States or Hawaii (id. at 4 of 440). Work would be ordered as task or delivery
orders under Contract 0005 (R4, tab 13 7 at 1 of 8).

       2. The base period of Contract 0005 ran from the date of award until
30 November 2005. The contract provided for four one-year option periods ending on
30 November 2009. (R4, tab 1 at 2 of 440) The events in this appeal occurred during
Option Period Two from 1December2006 through 30 November 2007 (id. at 2 of
440). Contract 0005 provided that "[t]ask orders under this contract will be issued
only by the Contracting Officer" (id. at 2 of 440 n.6) and liquidated damages of $3,626
per day would be assessed if the contractor failed to deliver the supplies or to perform
services within the time specified in the delivery order (id.). Time, therefore, was of
the essence in completing the work specified in the delivery order.

       3. Contract 0005 contained the Department of Defense FAR Supplement
(DFARS) 252.217-7028, OVER AND ABOVE WORK (DEC 1991) clause. This clause
defined "Over and above work" to mean "work discovered during the course of
performing overhaul, maintenance, and repair efforts that is - (i) Within the general
scope of the contract; (ii) Not covered by the line item(s) for the basic work under the




1
    San Francisco Drydock, Inc. became a part of BAE Systems in 2005 and changed
         its name to BAE Systems San Francisco Ship Repair (BAE) (tr. 1/106, 3/203).
2
    In citing to the record, we use the consecutive numbers at the bottom of the page, where
         000009 is shortened to 9. A document without a consecutive number is cited to the
         typed page number on the document, for example, R4, tab 1 at 1 of 440.



                                            2
contract; and (iii) Necessary in order to satisfactorily complete the contract." The clause
provided that:

              (c) Upon discovery of the need for over and above work, the
              Contractor shall prepare and furnish to the Government a
              work request in accordance with the agreed-to-procedures.



              ( e) The Contractor shall promptly submit to the
              Contracting Officer, a proposal for the over and above
              work. The Government and Contractor will then negotiate
              a settlement for the over and above work. Contract
              modifications will be executed to definitize all over and
              above work.

              (f) Failure to agree on the price of over and above work
              shall be a dispute within the meaning of the Disputes
              clause of this contract.

(R4, tab 1 at 350-51 of 440)

        4. Contract 0005 also incorporated by reference DF ARS 252.243-7001,
PRICING OF CONTRACT MODIFICATIONS (DEC 1991 ), providing "When costs are a
factor in any price adjustment under this contract, the contract cost principles and
procedures in FAR Part 31 and D FARS Part 231, in effect on the date of this contract,
apply" (R4, tab 1 at 329 of 440).

        5. FAR 31.201-2 (2003) 3, Determining allowability, provides in part:

                    (a) The factors to be considered in determining
              whether a cost is allowable include the following:

                     ( 1) Reasonableness.

                     (2) Allocability.

                     (3) Standards promulgated by the CAS Board, if
              applicable; otherwise, generally accepted accounting
              principles and practices appropriate to the circumstances.

3
    Since Contract 0005 was awarded in April 2004, the 2003 version of the FAR was
        applicable.

                                            3
                      (4) Terms of the contract.

                      (5) Any limitations set forth in this subpart.

        6. FAR 31.201-3, Determining reasonableness, provides in part:

                        (a) A cost is reasonable if, in its nature and amount,
               it does not exceed that which would be incurred by a
               prudent person in the conduct of competitive business.
               Reasonableness of specific costs must be examined with
               particular care in connection with firms or their separate
               divisions that may not be subject to effective competitive
               restraints. No presumption of reasonableness shall be
               attached to the incurrence of costs by a contractor. If an
               initial review of the facts results in a challenge of a specific
               cost by the contracting officer or the contracting officer's
               representative, the burden of proof shall be upon the
               contractor to establish that such cost is reasonable.

       7. Contract 0005 included a provision establishing fully burdened labor, G&A,
and profit rates for various contract periods. The "OFFEROR'S FULLY BURDENED
LABOR RA TE FOR THE SECOND OPTION PERIOD" provision (fully burdened
rate provision) provided:

                       a. Changes are inherent to vessel repair contracts
               and should be expected by the Contractors. Offerors shall
               include a fully burdened labor rate to be used in
               negotiating changes. The rate must include all costs for
               negotiating changes, including but not limited to, G&A,
               overhead, profit, cost of money, etc. The offeror shall
               insert rates below that it agrees to use in negotiating
               changes for new or additional work.

(R4, tab 1 at 393 of 440) For the second option period, BAE inserted $73.50 as its
fully burdened labor rate, 8.82% as its G&A rate, and 10% as its profit rate (id.). 4 The
parties disagree whether the provision precluded BAE from charging a differential
($36.75) for any overtime labor hour worked to complete the changed work.




4
    The Contract 0005 rates were restated in DO No. 2 awarded to BAE (R4, tab 3 at 10 of 26).

                                              4
       Delivery Order Request for Proposal Requirements

        8. Section C.YY. of Amendment No. 0001 to the Request for Task Order proposal
(RFP) pertained to the replacement of the potable water, air conditioning and drain piping
systems of the LSV-5. The RFP referenced Moss Point Marine, Drawing P-3, Rev P,
"Potable and Sanitary Water Systems," and Moss Point Marine, Drawing P-13, Rev 7,
dated 1987, "Air Conditioning Drains." (App. supp. R4, tab 501, §§ C.YY.1.1.,
C.YY.1.2) The RFP required the contractor to "[r]emove all existing potable water
piping and drains throughout the entire vessel to include all air conditioning condensate
drains," and "[r]eplace entire piping system with copper nickel, 90110 (CUNI) piping and
all associated fittings as per referenced drawing" (id.,§ C.YY.2). The work included the
disassembling and removal of "all necessary deck plate grating sections, joiner
bulkheads, overhead tiles, flooring tiles, terrazzo and interferences" (id.,§ C.YY.4.2),
and after installation, the replacement of "all disturbed or damaged insulation/lagging,
joiner bulkheads and ceiling tiles, flooring tiles, terrazzo affected by the repairs" (id. at 2,
§ C.YY.5.5).

        9. Gregory Dewhurst was BAE's senior estimator (tr. 2/5). He had 19 years of
experience estimating piping work (tr. 2118-19). The LSV-5 was made available for ship
check in Honolulu, Hawaii, on 28 and 29 November 2006 (R4, tab 105 at 38). In
preparing to submit BAE's bid, Mr. Dewhurst went to Honolulu for the ship check
(tr. 11163). He testified he did not have the disc of the Moss Point drawings of the
vessel's potable water, air conditioning and drain piping systems (P/W, A/C and Drain
Piping Systems) until the CO "left it at the desk of her hotel for me" the evening before
the ship check. He testified that he printed a few drawings at a copying store and found
that the drawings had no quantity information on them. (Tr. 1/164-65) For that reason, he
considered the drawings he was given practically useless for bidding purposes (tr. 2/6).

       10. During ship check, Mr. Dewhurst could not see piping and what type of
piping was behind the overhead and the bulkheads in the housing areas of the vessel
because they were still in place (tr. 2/16). To come up with a rough estimate of footage
of piping and fittings, he "walked off' certain levels of the vessel and took into account
deck drains and showers and "what kind of services were on those levels" (tr. 216- 7).

        11. After the Honolulu ship check, BAE emailed the government and said it
would need "additional GFI [government-furnished information] to support the
development of pricing for the ... work items received with the solicitation." The email
said as a result of the site visit, it had developed "a list of questions and issues by work
item." (R4, tab 105 at 38)




                                              5
       12. BAE's email inquiry was four pages long. On the Potable Water System
referenced in the specifications at C.YY.1.1, Moss Point Marine, Drawing P-3, Rev 3,
its email said:

               1.) ... The reference drawing received during the site visit
                   contained an incomplete bill of materials where the
                   footages of piping and quantities of various fittings
                   were identified as "A/R", which was understood to
                   mean AS REQUIRED. The Drawing was a reduced
                   size of the original that was not developed in sufficient
                   detailing as to "scale" off of to determine the
                   approximate quantities of piping and fittings required
                   for the replacement of the piping system that were
                   identified as "AIR". Please provide a listing of the
                   materials for the replacement of the Potable Water
                   System throughout the entire vessel as required by the
                   work item.

Using similar language, BAE's email made inquiries on the Air Conditioning and the
Gray Water Drain Systems 5 which we omit here for brevity. (R4, tab 105 at 39)

      13. BAE's email also asked about the boundaries of the Gray Water Drain
System requiring replacement:

               5.) During the site visit the Gray Water Drain System was
                   found to tie into the Black Water system in several
                   areas. On Port and Starboard sides of the vessel, the
                   statement of work does not identify the limit of renewal
                   of the Gray water system, in fact in this case without
                   determining the extent of the renewal, the Offeror will
                   have no way of pricing the system the Govt. intends to
                   replace. Please revise specification to identify the Gray
                   Water Drain System boundaries requiring replacement.

(R4, tab 105 at 40)

        14. CO Patricia Shepherd's 11December2006 reply told all bidders that "[a] copy
of all drawings available for the LSV-5 are being forwarded under separate cover via
federal express." On the Gray Water Drain System boundaries, the CO advised that based
on the specification, "the contractor shall remove the entire existing gray water system.

5
    Gray water is water from sinks, showers, or deck drains (tr. 2/203, 3/164).



                                             6
No change is required. If there is a tie into the black water system, this is to be identified
to the ship surveyor. This item is for the gray water system." The letter enclosed a
revised list of parts and a revised specification, and extended the date for receipt of task
order proposal to 20 December 2006. (R4, tab 105 at 43-44)

       BAE's Bid Price on Item No. 2062

        15. CSI is a small privately owned company that specializes in interior work of
ships. CSI, based in Solomons Island, Maryland, was established in 1986.
(Tr. 2/147-48) Prior to doing work on the LSV-5, CSI had worked in BAE's shipyards
in San Francisco, San Diego, and Los Angeles (tr. 2/149). At the time of the LSV-5
overhaul, Andrew Brown was its co-owner and director of estimating (tr. 21145-46).

       16. Based on the Moss Point Marine drawings, CSI prepared an estimate of
materials required for the P/W, A/C and Drain Piping Systems work required for the
LSV-5 (tr. 2/155). While the Moss Point Marine drawings listed pipe sizes, they gave
no quantity information. As for quantities, the specifications merely said "AR" or "As
Required." Because the Moss Point Marine drawings were not as-builts but "flat"
drawings, CSI had to add "dropdowns," "fittings," and other parts. (Tr. 2/156)

        17. BAE initially issued Subcontractor Order No. S-75178 to CSI to "[p]rovide
labor material and equipment to accomplish requirements of specifications Item 2062" for
$172,556.00. Under the subcontractor order, BAE would provide: Staging, Ventilation,
Lights, 110 V Elec. Power, Gas Free Cert., Welding/Burning Equipment & Gases, Parking
For Company Vehicles, and Crane Services. CSI subsequently reduced its price by
$22,507 to $150,049.00. (R4, tab 105 at 9-10, tab 113 at 8-9; tr. 2/152, 245) CSI's
reduced price required a 45% deposit with bi-weekly draws to cover its overhead including
mobilization, transporting employees to the job site, hotel and initial material costs
(tr. 21157). After it began work, CSI billed BAE and was paid the deposit (tr. 2/158).

        18. According to Mr. Brown, he based his estimate on the "initial drawings,"
"gaging how wide the ship is, how long it is, counting the number of rungs ... adding
some additional footage for drops" (tr. 2/256). BAE's Mr. Dewhurst testified he did
not find the P/W, A/C and Drain Piping Systems drawings useful because "no
overheads or bulkheads [were] removed to actually see where the piping was, so you
couldn't validate the drawings at all" (tr. 1/166). To prepare BAE's estimate, he
testified:

              I figured the width of the ship and the super structure area
              where the accommodation was, and I went through each
              level figuring out what fixtures there were on each level,
              deck drains, sinks, and put piping systems together on a
              sketch that I made up. And then pretty much figured what


                                             7
             kind of piping I would need to go ahead and tie it down
             into the main system down below.

(Tr. 11165) Mr .. Dewhurst testified he used CSI's $150,049.00 proposal, added BAE's
labor and materials to assist CSI, and submitted a price of$214,913.23 to perform
Item No. 2062, "Potable Water and Air Conditioning Drain Piping Systems
Replacement for LSV-5" (tr. 2/8, 25; R4, tab 3 at 7of26). Under BAE's agreement
with CSI, CSI would buy the piping materials needed to accomplish the replacement
(tr. 2/21).

       19. Contract section C.0.1.4, Contracting Officer, provides that "Contracting
Officer is a person with the authority to enter into, administer, and/or terminate
contracts, make related determinations and findings and issue delivery/task orders.
Only the Contracting Officer has the authority to extend the performance period of the
contract and/or delivery/task orders." (R4, tab 1 at 24 of 440)

       20. CO Kathleen H. Panton awarded DO No. 2 to BAE on 27 December 2006 for
the programmed docking, cleaning, painting and repairs of the LSV-5. The DO was in
the amount of$4,889,413.73. (R4, tab 3 at 1, 7of26) It required BAE to perform
numerous "DEFINITE" and "INDEFINITE" items (id. at 3-8 of 26). Definite items
were work known to be required; Indefinite items were pre-priced items but it was not
known how much of the work would be required (see R4, tab 1 at 24 of 440, §§ C.0.1.7,
C.0.1.12). Item No. 2062 was among the Definite items awarded (R4, tab 3 at 1, 7 of
26). Modification No. 1 to DO No. 2 established a 120-calendar day performance period
running from 30 March through 27 July 2007 (R4, tab 6 at 1, 3of12).

       21. Section C.62 ofthe LSV-5 specifications pertain to "POTABLE WATER
AND AIR CONDITIONING DRAIN PIPING SYSTEMS REPLACEMENTS FOR
LSV-5 (DEFINITE)." SECTION C.62.1, referred to Moss Point Marine Drawing P-3,
Rev P, "Potable and Sanitary Water Systems," and P-13, Rev 7, "Air Conditioning
Drains." (R4, tab 3 at 20of26) Section C.62.2, Scope of Work, provided:

             Remove all existing potable water piping and drains
             throughout the entire vessel to include all air conditioning
             condensate drains. Replace entire piping system with
             copper nickel, 90/10 (CUNI) piping and all associated
             fittings as per referenced drawing. This will also include
             any overboard through hull penetrations, fill and suction
             piping in the potable water tanks, piping to and from the
             hot water heater, and pressure sets. Replacement does not
             include any copper tubing that supplies potable water to
             the water fountains, coffee makers, etc. All piping



                                           8
               supports, hangers and watertight penetrations will be
               replaced with new.

(Id.)

        22. In terms of requirements, the DO No. 2 specifications required, in part:

               C.62.3.2. Contractor shall identify and tag each valve
               location prior to removal.



               C.62.3.5. Upon removal of existing piping, the Contractor
               shall furnish to the Ship Surveyor an original and four (4)
               copies of a report listing parts and components for
               installation. Report shall include unit price, part number
               and availability.

(R4, tab 3 at 20 of 26)

        23. In terms of removals, the DO No. 2 specifications required, in part:

               C.62.4.1. Remove and reinstall all necessary interferences
               to facilitate with the removal and reinstallation process.

               C.62.4.2. Disassemble and remove all necessary deck
               plate grating sections, joiner bulkheads, overhead tiles,
               flooring tiles, terra[ zzo] and interferences to facilitate
               removal of all existing potable water and condensate drain
               piping and associated fittings for installation of new copper
               nickel 90/10 (CUNI) piping as per referenced drawing.

(R4, tab 3 at 20 of 26)

        24. In terms of installation, the DO No. 2 specifications required, in part:

               C.62.5. Installation: Refer to Moss Point Marine drawing,
               P-3, Revision 3, Potable and Sanitary Water System and
               Moss Point Marine drawing, P-13, Air Conditioning
               Drains for installation guidance.

               C.62.5.1. Replace potable water system in its entirety,
               using 90/10 CUNI piping.


                                             9
              C.62.5.2. Replace existing gray water drain system in its
              entirety, using 90/ 10 CUNI piping.

              C.62.5.3. Replace existing air-conditioning system
              condensate drains in their entirety, with 90/10 CUNI pipes.



              C.62.5.5. Replace all disturbed or damaged
              insulation/lagging, joiner bulkheads and ceiling tiles,
              flooring tiles, terra[ zzo] affected by the repairs.

(R4, tab 3 at 20-21 of 26)

       25. In terms of reinstallation, the DO No. 2 specifications required, in part:

              C.62.7.1 Reinstall all removals.

              C.62.7.2. Potable water system and air conditioning
              condensate drains shall be operationally verified during
              specification item, "Trials and Tests[,]" and left ready for
              service.

(R4, tab 3 at 21 of 26)

        26. CSI's Mr. Brown was "on the job every d[a]y," "from the beginning to the
very end" (tr. 2/160). He testified the P/W, A/C and Drain Piping Systems
replacement work as depicted on the contract drawings "looked to be straightforward"
(tr. 21159). He testified CS I's part of the overhaul was to open up the overheads and
bulkheads, trace the lines to see "what went where," identify the different systems,
remove the existing systems and replace them with new piping systems (tr. 2/159).

        27. When CSI opened up the ceilings and the bulkheads, however, it found
there was "a lot more piping involved in the systems." The piping on the LSV-5 was
found to divide into a port and a starboard system. At the lower decks, the two
systems unexpectedly "rejoined." The piping "cross-connected to each other in
several different places and went everywhere." (Tr. 2/162) Initially, CSI had planned
to install the piping itself. Once it discovered the magnitude of the work involved, it
decided it needed more pipefitters skilled in copper/nickel piping. (Tr. 21161) In
addition to using its own labor force, CSI added Worldwide Labor Support, Inc.' s
skilled labor for brazing work (tr. 2/226, 278).



                                           10
        28. Brown testified that he was there in every case where it was discovered that
the piping was not as represented on the Moss Point Marine drawings. He testified he
would discuss what he found with BAE' ship manager, Ron Bain, and he would submit
a CFR because he "wanted to be compensated for all the additional piping [CSI] was
going to have to do." (Tr. 2/165-66) Each of the CSI's CFRs would be accompanied by
(1) a spreadsheet of the additional materials (e.g. valves, elbows, couplings, sleeves,
tees, unions) and a material price quote (see, e.g., R4, tab 13 at 3of3) and (2) its
estimated labor hours needed to accomplish the unanticipated replacement work
(tr. 2/170). CSI would then submit the CFR to BAE (tr. 2/261). CSI's estimates were
based upon "[i]nspection onboard the ship and then counting what was there, where we
had to go, and what we had to do." Brown testified his estimates were based upon his
"personal observations." (Tr. 2/168) On the CFRs he estimated, Brown testified that
"[he] expected [he would] have to stand there with somebody and explain to them
exactly what [he] wrote [in the CFR], and they could see it" (tr. 2/183).

      29. Upon receipt of a CFR from CSI, BAE would check the areas CSI was
concerned about (tr. 2/266). Bain testified he would not "reestimate each one," but he
would examine some based on a general "rule of thumb" (tr. 2178) from his experience
"coming up through the pipefitting trade" (tr. 2173). Bain testified "[i]f it seemed
reasonable or look[ ed] like it was in line with what we were doing," he would submit
CSI's CFR to the government along with BAE's own Change Order Route Slip (CORS)
adding the labor and materials BAE needed to furnish on its part (tr. 2/56-61, 261 ).

        CSI's Per Diem Costs

        30. The hourly workers CSI employed were from out-of-town. Because CSI's
pipefitters were not "living in tents," CSI paid them $80.00 per day to cover their hotel
costs, "[t]wo guys to a room." Per diem costs would also cover "[r]ental cars, gas,
tolls." CSI's per diem payment was based upon man days. One man day was based
on "[t]en hours a day." (Tr. 2/276-77) We find the per diem rate paid reasonable in
covering its employees' hotel, car rental, gas, tolls and other expenses.
FAR 31.205-46(a)(l) (2004), Travel costs, provided that "Costs for transportation,
lodging, meals, and incidental expenses .. .incurred by contractor personnel on official
company business are allowable, subject to the limitations contained in this
subsection." The Federal Travel Regulation per diem rate for San Francisco during
2007 was $140.00 for lodging and $64.00 for meals and incidentals. 6




6
    See http:/www.gsa.gov/portal/content/103168 at spreadsheet "FY 07 Per Diem Rates."



                                           11
       CSI' s Material Costs

       31. The copper/nickel piping materials specified in the contract had to be
obtained from specific parts suppliers (tr. 2/176). Brown testified that the material
market in 2007 was volatile because "China was buying everything and it was just
impossible to get some stuff' (tr. 2/219). The price for the same copper/nickel item
from Tork Systems, Inc. for example, could fluctuate from purchase order to purchase
order depending upon whether the part was out of stock and had to be obtained from
another local vendor or an out-of-town vendor, or from a wholesale supplier (tr. 2/218;
R4, tab 113 at 105). According to Brown, due to the shortages and volatility of the
market in 2007, the prices of parts could change between the time they were quoted
and the time they were shipped (tr. 2/176).

       32. According to its initial calculation, CSI spent $187 ,652.02 for piping
materials on the LSV-5 overhaul (app. supp. R4, tab 507; tr. 2/220). Of this amount,
$176,564.27 was for materials from various suppliers, and $11,087.75 was for
California sales tax which Tork Systems invoiced separately (tr. 2/221 ).

      CSI's Labor Costs

       33. CSI estimated whether overtime (OT) was required by "the number of days
we thought it would take and ... whether it fell on a Saturday or a Sunday." If a
three-day job were to start on a Monday, OT was less likely to be required. (Tr. 2/276)
Because the needed parts did not always arrive when needed, CSI' s labor force "had to
go wherever ... [there was] work" (tr. 2/178). Brown testified CSI kept its piping work
separate from its other work on the LSV-5 (tr. 2/177), and since he witnessed the
performance of the piping work, he believed the actual labor hours worked by CSI
employees "commensurate[d] with" what he estimated (tr. 2/178).

       34. When CSI/BAE submitted a proposal, it went initially to the government's
Ship Surveyor Denny D. Large (Ship Surveyor Large) (tr. 4/101). If there was a
disagreement between BAE/CS I and Ship Surveyor Large on the costs of additional
work, as in the case of the cloverleaf replacement (see BAE Systems San Francisco
Ship Repair, ASBCA No. 58809, 16-1 BCA ~ 36,226), Ship Surveyor Large would
prepare a government estimate on a Specification Worksheet providing the CO with
information to negotiate a change order (tr. 4/102). Normally, Ship Surveyor Large's
Specification Worksheet would be forwarded first to his supervisor at Fort Eustis.
After his review, the supervisor would forward the Specification Worksheet with his
comments to the CO. (Tr. 4/139) There is no evidence that Ship Surveyor Large
prepared a Specification Worksheet (or government estimate) on any of the piping
CFRs. Consequently, the CO was left without meaningful information to act on the
piping CFRs when they were submitted by BAE.



                                          12
        35. No Specification Worksheet was prepared by Ship Surveyor Large on any
of the 19 CFRs in dispute. Ship Surveyor Large was regularly aboard the LSV-5. He
acknowledged he had the opportunity to look at the piping systems as they were being
removed and replaced. (Tr. 3/169) Except for the fact he did not have time, Large
acknowledged he could have measured the pipes and counted the fittings to be
removed and replaced (tr. 3/169-70). There is no evidence that Ship Surveyor Large
went out and checked CSI's and BAE's estimates (tr. 41101). When BAE submitted
CFRs to him, he would note on the CFRs they were being reviewed by the CO. He
testified he was not made aware of the results of the CO's review (tr. 3/171).

        36. We find CSI's CFR estimates, based upon Mr. Brown's actual observations
at the time (tr. 2/184) and with the expectation that the CFRs he prepared would have
to be explained or justified to both BAE and the government credible evidence on how
much additional labor and materials would have to be expended to accomplish the
P/W, A/C and Drain Piping Systems replacement work required by the specifications.

        37. After it submitted its CFRs, CSI expected BAE would "get back to us and
give us direction" (tr. 2/265). In this case, CSI nonetheless began work when formal
approval did not come because, as Brown explained, "[t]he spec. was written that what
was there had to be replaced" (tr. 2/267). He also explained that "with all the people I
had onsite, I'm not going to have them standing around waiting three or four days for
something to happen" (tr. 2/167). We find BAE knew and permitted CSI to proceed
immediately with the copper/nickel piping and deteriorated parts replacement work as
soon as the actual conditions on the vessel were discovered and the CFRs and CORS
were being provided to the government. We find the CO knew BAE/CSI was
proceeding apace to meet the vessel redelivery date. We find the CO took no action to
try to negotiate, much less to settle, the piping-related CFRs when they reached her
from mid-May until mid-July 2007.

        38. In anticipation of performing work on the LSV-5, BAE developed a
bar-chart schedule (app. supp. R4, tab 508). The schedule was used by "the
production crafts to set up their manpower" to do the work and was updated weekly
(tr. 2/71). According to BAE ship manager Mr. Bain, the additional piping work
caused disruption in preventing the new piping systems from being installed, tested,
closed up, and from vacating the spaces involved (tr. 2/67).

       CFRs Relating to Defective Drawings

              CFR No. 155 -Additional Piping on Poop Deck

        39. CSI's Report No. LSV-018 dated 14 May 2007 notified BAE that during
installation of the potable water system, it found significant differences between what
was shown on the drawings and the as found conditions on Levels 03 and 04 of the


                                           13
vessel (R4, tab 105 at 46). CSI attached a spreadsheet showing additional piping parts
and fittings were needed at an estimated cost of $1,670.60 (id. at 48). Mr. Brown
testified that the spreadsheets which accompanied his CFR to BAE was developed on
the basis of being "[p]hysically on the boat" and seeing "what was exactly there and
what we thought we would have to do to [re]place what was there" (tr. 2/272).

       40. CSI's 15 May 2007 letter to BAE proposed $16,504.60 to do the additional
work: $10,920.00 in additional straight time (ST) labor (210 hours x $52.00);
$1,742.00 in overtime (OT) differential (67 hours x $26.00); $1,600.00 in per diem
cost (20 man days x $80.00); and $2,242.60 in materials 7 (R4, tab 105 at 49).

       41. BAE's CORS (BAE's estimate) added $12,348.00 in ST labor (168 hours x
$73.50); $1,543.50 in OT differential (42 hours x $36.75); and $137.76 in materials.
With $16,504.60 in subcontractor (CSI) costs $1,467.86 in G&A (8.82%) and
$1,650.46 in profit (10%) 8 ; the CORS amount came to $33,652.18. The CORS
indicated the work would take 11 days to accomplish. (R4, tab 105 at 51)

       42. On 17 May 2007, BAE submitted to the government CFR No. 155
recommending that the government "[i]ssue C/O to provide and install additional
material" (R4, tab 105 at 45). Ship Surveyor Large acknowledged receipt of CFR
No. 155 on 17 May 2007 noting under "CUSTOMER DIRECTION": "See C.0.2.14
of the General Requirements. Further disagreements will need to be sent to the
contracting officer in writing." The CORS indicated the additional work would take
11 days. (R4, tab 105 at 45)

               CFR No. 196-Potable Water System Piping in A/C Room

       43. CSI's Report No. LSV-024 dated 29 May 2007 notified BAE that "[d]uring
the installation of the new Potable Water Piping running from the Water Heaters it was
noted that there were significant differences between the piping installed in
comparison to the Government Furnished Information (GFI)." CSI's attached
spreadsheet showed it would need to install 17 additional piping parts and 29 fittings.
(R4, tab 105 at 53, 54)

       44. CSI's 29 May 2007 letter to BAE proposed $8,123.80 to do the additional
piping work: $5,096.00 in ST labor (98 hours x $52.00); $832.00 in OT differential
(32 hours x $26.00); $800.00 in per diem cost (10 man days x $80.00); and $1,395.80
in materials (R4, tab 105 at 55).

7
    CSI's letter used $2,462.60 for material. The materials listed, however, added up to
       $2,242.60 (R4, tab 105 at 49).
8
    BAE' s G&A rate is applied to the sum of total subcontractor costs and its own
       material costs; its profit rate is applied only to total subcontractor costs.

                                            14
       45. BAE's CORS added $7,570.50 in ST labor (103 hours x $73.50); $955.50
in OT differential (26 hours x $36.75); and $84.46 in materials. With $8, 123.80 in
subcontractor (CSI) cost; $723.97 in G&A (8.82%); and $812.38 in profit (10%); the
CORS amount came to $18,270.61. The CORS indicated the work would take 7 days
to accomplish. (R4, tab 105 at 57)

       46. On 29 May 2007, BAE submitted to the government CFR No. 196
recommending that it "[i]ssue C/O to provide and install additional required
materials." Ship Surveyor Large acknowledged receipt of CFR No. 196 on 30 May
2007 noting under "CUSTOMER DIRECTION": "This issue is being reviewed by the
contracting officer, no decision has been made yet." (R4, tab 105 at 52)

              CFR No. 203 - Potable Water System Piping Located in Ship's Workshop

       47. CSI's Report No. LSV-026 dated 26 May 2007 notified BAE that "[d]uring
the installation of the new Potable Water Piping located in the Ships Workshop it was
noted that there were significant differences between the piping installed in
comparison to the Government Furnished Information (GFI)" (R4, tab 105 at 59).
CSI's attached spreadsheet showed 49 additional elbows, tees, unions and fittings
would be required (id. at 60).

        48. CSI's 30 May 2007 letter to BAE quoted a price of $8,295.31 to do the
additional work: $5,096.00 in ST labor (98 hours x $52.00); $832.00 in OT
differential (32 hours x $26.00); $800.00 in per diem (10 man hours x $80.00).
Because all of the pipe hangers were found to be in excellent condition, CSI offered
$2,449.50 (150 hangers x $16.33 each) in credit against $1,567.31 in material costs, or
a net credit of $882.19 in material costs. With a $3,900 credit in labor costs for not
removing and installing the hangers, CSI offered $6,349.50 in total credit and to
perform the work for $1,945.81 ($8,295.31 - $6,349.50). (R4, tab 105 at 62)

       49. BAE's CORS added $6,468.00 (88 hours x $73.50) in ST labor; $808.50 in
OT differential (22 hours x $36.75); $72.16 in materials; $8,295.31 in subcontractor
(CSI) costs; $738.01 in G&A (8.82%); and $829.53 in profit (10%), deducted
$6,350.00 in credit; and arrived at a total of $10,862.01 to do the additional work. The
CORS indicated the work would take 6 days to accomplish. (R4, tab 105 at 64)

       50. On 31 May 2007, BAE submitted CFR No. 203 to the government,
recommending that it "Issue C/O for labor material and equipment to install additional
material per attached list" (R4, tab 105 at 58) Ship Surveyor Large acknowledged
receipt of CFR No. 203 on 1 June 2007 noting under "CUSTOMER DIRECTION":
"Under review by contracting officer." BAE noted on 4 June 2007 "Contractor is
waiting for further direction and C/O to proceed." (Id.)



                                           15
                CFR No. 204 - Additional Piping on 03 and 04 Levels

        51. CSI's Report No. LSV-019 dated 29 May 2007 notified BAE that "[d]uring
the installation of the vessel[']s potable water system it was noted that there were
significant differences between the Government Furnished Information (GFI) and the
actual piping installed onboard the vessel" on the 03 and 04 decks (R4, tab 105 at 66).
CSI's attached spreadsheet showed an additional 95 fittings including elbows, angles,
tees, and unions were required at an estimated cost of $1,788.00 (R4, tab 105 at 68).

       52. CSI's 29 May 2007 letter to BAE proposed $19,428.40 to do the additional
work: $12,324.00 in ST labor (237 hours x $52.00); $2,054 in OT differential (79
hours x $26.00); $1,840.00 in per diem cost (23 man days x $80.00); $3, 110.409 in
materials and $100.00 in freight (R4, tab 105 at 69).

       53. BAE's CORS added $12,936.00 in ST labor (176 hours x $73.50); $1,617 in OT
differential (44 hours x $36.75); $144.32 in materials; $19,428.40 in subcontractor (CSI)
cost; $1,726.31 in G&A (8.82%); and $1,942.84 in profit (10%) for a total of $37,794.87.
The CORS indicated the work would take 12 days to accomplish. (R4, tab 105 at 71)

        54. On 1June2007, BAE submitted CFR No. 204 to the government
recommending that it "Issue C/O to provide additional labor material and equipment to
install 95 ea. S. B. bronze fittings not identified with government provided
information." Ship Surveyor Large acknowledged receipt of CFR No. 204 on 1 June
2007, noting under "CUSTOMER DIRECTION": "Under review by contracting
officer." BAE noted on 4 June 2007 "Contractor is waiting for further direction and
CIO to proceed." (R4, tab 105 at 65)

                CFR No. 209 - Potable Waterlines in Laundry/Engineer's Office

        55. CSI's Report No. LSV-029 dated 31 May 2007 notified BAE that "During
the installation of the new Potable Water Piping located in the Engineers
Office/Laundry/FM-200 Room, it was noted that there were significant differences
between the piping installed in comparison to the Government Furnished Information
(GFI)" (R4, tab 105 at 73). CSI's attached spreadsheet showed an additional 67 fittings
including elbows and tees were required at an estimated cost of $1,473.90 (Id.).

       56. CSI's 31 May 2007 letter to BAE proposed to perform the additional work
for $15,904.50: $10,452.00 in ST labor (201 hours x $52.00); $1,742.00 in OT
differential (67 hours x $26.00); $1,600.00 in per diem costs (20 man days x $80.00);
and $2,110.50 in materials (R4, tab 105 at 76).

9
    CSI's letter used $3,210.40 for materials. The materials listed, however, added up to
         $3, 110.40 (R4, tab 105 at 69).

                                             16
        57. BAE's CORS added $10,878.00 in ST labor (148 hours x $73.50);
$1,359.75 in OT differential (37 hours x $36.75); $121.36 in materials, $1[5],904.50 10
in subcontractor (CSI) cost; $1,413.48 in G&A (8.82%); and $1,590.45 in profit (10%)
for a total of$31,267.54. The CORS indicated the work would take 10 days to
accomplish. (R4, tab 105 at 77)

       58. On 4 June 2007, BAE submitted CFR No. 209 to the government
recommending that the government "Issue C/O to provide additional labor and material
to accomplish installation of P/W piping per attached list." Ship Surveyor Large
acknowledged receipt of CFR No. 209 on 5 June 2007, noting under "CUSTOMER
DIRECTION": "Issue is under review by contracting officer." (R4, tab 105 at 72)

              CFR No. 211 - Potable Water Tank Piping System

       59. CSI's Report No. LSV-023 dated 29 May 2007 notified BAE that there
were significant djfferences in the new potable water piping running from the engine
room to the potable water tanks to be installed "in comparison to the Government
Furnished Information (GFI)" (R4, tab 105 at 79). CSI's attached spreadsheet showed
additional parts (elbows, couplings, tees and sleeves), piping, and 32 additional fittings
at an estimated cost of$4,555.40 were required (id. at 80-81).

       60. CSI's 29 May 2007 letter to BAE proposed to do the work for $27,017.00:
$16,640.00 in ST labor (320 hours x $52.00); $2,756.00 in OT differential (106 hours
x $26.00); $2,560.00 in per diem cost (32 man days x $80.00); and $5,061.00 in
materials (R4, tab 105 at 82).

        61. BAE's CORS added $23,226.00 in ST labor (316 hours x $73.50);
$2,903.25 in OT differential (79 hours x $36.75); $259.12 in materials; $27,017.00 in
subcontractor (CSI) cost; $2,405.75 in G&A (8.82%) and $2,701.70 in profit (10%)
for a total of$58,512.82. The CORS indicated the work would take 10 days to
accomplish. (R4, tab 105 at 84)

      62. On 5 June 2007, BAE submitted CFR No. 211 to the government
recommending that it issue a C/O to accomplish the additional work. Ship Surveyor
Large acknowledged receipt of the CFR on 6 June 2007 noting under "CUSTOMER
DIRECTION": "Under review by contracting officer." (R4, tab 105 at 78)




10
     BAE erroneously used $16,904.50 in its CORS; the correct amount should be
       $15,904.50. The G&A, profit, and total amounts were correct.

                                            17
              CFR No. 212 -Additional A/C Drain Piping

       63. CSI's Report No. LSV-031 dated 5 June 2007 notified BAE that the A/C
drain piping installed throughout the vessel was significantly different from that shown
on the drawings (R4, tab 105 at 86). CSI's attached spreadsheet showed various
additional elbows, couplings, sleeves, tees, unions; piping and fittings were required at
an estimated cost of$15,028.74 (id. at 88).

        64. As Mr. Brown explained at the hearing, "All the air conditioning units in
each cabin had a dual drain system that tied together" and went either overboard or
into a holding tank (tr. 2/196). The A/C drawing provided showed "two drains tied
together and going down." CSI expected the drains would go down, tie into each
other, and go off somewhere, but it found individual drains "ran significant ... distances
on their own," dropped down on their own, and did not necessarily tie together.
(Tr. 2/196-97) Since the A/C drain system was located throughout the vessel, it was
an extensive system to replace (tr. 2/196).

       65. CSI's 5 June 2007 letter proposed to do the additional work for $67,876.74:
$38,584.00 in ST labor (742 hours x $52.00); $6,422.00 in OT differential (247 hours
x $26.00); $5,920.00 in per diem cost (74 man days x $80.00); $16,650.74 in
materials; and $300.00 in freight (R4, tab 105 at 89).

        66. BAE's CORS added $26,166.00 (356 hours x $73.50) in ST labor;
$3,270.75 in OT differential (89 hours x $36.75); $2,012.06 in materials and rents;
$67,876.74 in subcontractor (CSI) cost; $6,164.19 in G&A (8.82%); and $6,787.67 in
profit (10%) for a total of $112,277.42. The COR indicated the work would take
20 days to accomplish. (R4, tab 105 at 91)

       67. On 6 June 2007, BAE submitted CFR No. 212 to the government
recommending that the government issue a C/O to provide for additional labor, material
and equipment to remove and install the additional A/C drain piping materials listed
(R4, tab 105 at 85). Ship Surveyor Large acknowledged receipt of CFR No. 212 on
6 June 2007 noting under "CUSTOMER DIRECTION": "See email DTD 6 JUN 07
from Contracting Officer" (id.).

              CFR No. 213 - Additional Lines to Brominator

       68. CSI's Report No. LSV-028 dated 31 May 2007 notified BAE that the potable
water piping installed onboard the vessel that ran to and from the Brominator System
differed from what was shown on the contract drawing (R4, tab 105 at 93). CSI's
attached spreadsheet showed additional valves, elbows, couplings, sleeves, piping and
additional fittings at an estimated cost of $2,902.50 would be required (id. at 94).



                                            18
        69. Mr. Brown explained that the Brominator System was located in the back of
the engine room. Pipes from above went into it. While the drawings showed some of the
piping, "there was significantly more piping involved" (tr. 2/200). CSI's 31 May 2007
letter to BAE proposed $14,352.10 to do the additional work: $8,320.00 in ST labor
(160 hours x $52.00); $1,378.00 in OT differential (53 hours x $26.00); $1,280.00 in per
diem cost (16 man days x $80.00); and $3,374.10 in materials (R4, tab 105 at 95).

        70. BAE's CORS added $8,820.00 in ST labor (120 hours x $73.50); $1,102.50
in OT differential (30 hours x $36.75); $345.40 in materials; $14,352.10 in
subcontractor (CSI) cost; $1,296.32 in G&A (8.82%); and $1,435.21 in profit (10%)
for a total of$27,351.53. The CORS indicated the work would take 8 days to
accomplish. (R4, tab 105 at 97)

       71. BAE submitted CFR No. 213 to the government recommending that a C/O
be issued to provide additional labor, material and equipment to remove and install the
additional Brominator piping. Ship Surveyor Large acknowledged receipt of CFR
No. 213 on 6 June 2007 noting under "CUSTOMER DIRECTION": "See email DTD
6 JUN 07 from Contracting Officer." (R4, tab 105 at 92)

              CFR No. 223 - Gray Water Piping System

       72. CSI's Report No. LSV-030 dated 31 May 2007 notified BAE that the Gray
Water Piping System required to be replaced was significantly different from what was
expected (R4, tab 105 at 104). According to Brown, CSI never received any gray
water drawings (tr. 2/203-04), and it based its estimate upon observations and actual
measurements onboard the vessel (tr. 2/205).

       73. CSI's attached spreadsheets showed various additional piping, fittings and
materials in the amount of $108,020.55 would be required to replace the Gray Water
Piping System (R4, tab 105 at 106).

       74. CSI's 9 June 2007 letter to BAE proposed $364,632.55 to do the additional
work: $194,376.00 in ST labor (3,738 hours x $52.00); $32,396.00 in OT differential
(1,246 hours x $26.00); $29,840.00 in per diem (373 man days x $80.00); and
$108,020.55 in materials (R4, tab 105 at 107).

       75. Mr. Brown explained that replacing the Gray Water Piping System was more
expensive than the other piping work because: (1) CSI "didn't have any drawings,"
(2) CSI's "expectation weren't near as involved as this system ended up being"; (3) this
was not a "single-source drainage system" but "[ e]verything came down and then
cross-connected," which "made it a lot more involved ... [and] nothing you would
normally anticipate finding" (tr. 2/207-08). In addition, the Gray Water Piping System
was found "throughout the vessel" and gray water called for bigger pipes (tr. 2/208).


                                          19
Mr. Brown testified that in estimating how much materials and labor would be required
for replacement, he personally looked at the system all over the vessel (tr. 2/208).

       76. BAE's CORS added $69,384.00 in ST labor (944 hours x $73.50);
$8,673.00 in OT differential (236 hours x $36.75); $1,974.00 in materials;
$364,632.55 in subcontractor (CSI) cost; $32,334.70 in G&A (8.82%); and $36,463.26
in profit (10%) for a total of $513,461.59. The CORS indicated it would take 57 days
to do the work (R4, tab 105 at 109).

        77. BAE submitted CFR No. 223 to the government on 12 June 2007. The CFR
stated that "contractor has never received government guidance dwgs for gray water
system" and there was "significant differences from what was expected and what you
have." The CFR recommended that a C/O be issued to provide labor, material and
equipment to complete installation of the Gray Water Piping System. (R4, tab 105 at 103)

        78. After he received CFR No. 223, Ship Surveyor did look at the Gray Water
System. He did not, however, make an effort to verify the quantity of piping and
fittings on CSI's material spreadsheet. (Tr. 3/172)

               CFR No. 319 - Interferences Not Shown on the Contract Drawings

       79. By letter dated 16 July 2007, CSI forwarded to BAE a five-page outline of the
interferences it encountered that were not shown on the contract drawings or could be
seen during ship check. The outline covered "the ale drains, hot & cold potable water
and gray water drains not shown," and "vent lines and piping runs in walls which [were]
not expected along with the added runs not shown on plans." (R4, tab 105 at 126-31)

       80. The outline listed 14 areas of interferences for which CSI sought
$46,586.00 11 : (1) Bridge Deck ($2,008.00); (2) Officer SIR 03-96-B ($652.00);
(3) Officer SIR 03-96-0 ($208.00); (4) Officer SIR 03-96-14 ($652.00), (5) Sick Bay
($2,828.00); (6) Crew Mess ($1,696.00); (7) Galley ($416.00); (8) Officer Mess
($1,840.00); (9) 02 Level Passageway Starboard Side ($2,400.00); (10) 02 level
Passageway Portside ($416.00); (11) T-S 01-100-1 ($2,232.00); (12) T-S 01-100-2
($2,232.00), (13) Overhead Car deck ($11,498.00); and (14) Gray Water Piping
($20,392.00). (R4, tab 105 at 127-31)

        81. The government has not disputed that CSI ran into unexpected
interferences at various places of the vessel. No detailed fact finding is therefore



11
     Adding the 14 areas of interference as stated in Rule 4, tab 105 at 127-31, we arrive
       at $49,470.00.

                                            20
necessary. The following examples gives a flavor of CSI' s additional removal and
restoration work. In the "Sick Bay," CSI's letter stated:

             The plans show the ac unit in the wrong location. All
             piping is going down the wall where it was supposed to be.
             We had to remove 2 wall panels, trim, base, ceiling tile and
             cabinets to gain access at the new location as well as 2
             panels, ceiling tile, trim and base for the gray water line on
             the opposite wall. The pipes were separate[ d] by several
             feet requiring extras, bulkhead removal and ceiling. Once
             tested all bulkheads, trim, base ceiling and furniture had to
             be reinstalled.
             Overhead florescent lighting had to be removed and
             [temporarily] suspended during pipe installation then
             repositioned in original location in ceiling grid.

(R4, tab 105 at 128)

      82. In the "Galley," CSI's letter stated:

             We have 2 pipes next to the refrigerator not shown,
             requiring us to remove one additional wall panel, trim,
             base, and ceiling tile. Once complete we ... reinstall[ed]
             [the] panel, trim, base and ceiling.
             Overhead florescent lighting had to be removed and
             [temporarily] suspended during pipe installation then
             repositioned in original location in ceiling grid.

(R4, tab 105 at 129)

       83. BAE's CORS added $3,528.00 in ST labor (48 hours x $73.50); $39.36 in
materials; $46,586.00 in subcontractor (CSI) cost; $4,112.36 in G&A (8.82%) and
$4,658.60 in profit (10%) for a total of $58,924.32 (R4, tab 105 at 132).

        84. BAE's CFR No. 319 signed by Mr. Bain on 14 July 2007 recommended
that the government issue a C/O for labor, material and equipment to accomplish the
restoration work (R4, tab 105 at 125).




                                          21
              CFRs Relating to Defective Parts Discovered

              CFR No. 166-Replacement of Clogged A/C Room Water Heater Valves

        85. CSI's Report No. LSV-017 dated 14 May 2007 notified BAE that during
removal of the pipe and fittings for the water heaters in the A/C Room, it was
discovered that all of the valves/check valves were 80 to 95% clogged. The report
identified (1) four 1 114" Gate Valves, (2) four 3/4" Gate Valves, and (3) one 3/4" Ball
Check Valves needing to be replaced. (R4, tab 105 at 169)

       86. CSI's 15 May 2007 letter proposed to replace the valves for $3,955.00:
$832.00 in ST labor (16 hours x $52.00); $130.00 in OT differential (5 hours x
$26.00); $160.00 in per diem cost (2 man days x $80.00); and $2,833.00 in material
and shipping costs (R4, tab 105 at 170).

       87. BAE's CORS, revised 16 June 2007, added $1,176.00 in ST labor (16
hours x $73.50); $53.12 in materials; $3,955.00 in subcontractor (CSI) costs; $353.52
in G&A (8.82%); $395.50 in profit (10%) and $60.00 for shipping, and came up with
$5,993.14 to replace the valves. The CORS indicated the work would take 2 days to
accomplish. (R4, tab 105 at 172)

       88. BAE submitted CFR No. 166 to the government on 21 May 2007
recommending that it issue a C/O to provide labor, material and equipment to replace
the valves (R4, tab 105 at 168).

              CFR No. 173 - Replacement of Cutout Valves

       89. CSI's Report No. LSV-022 dated 14 May 2007 notified BAE that during
removal of the potable water system valves, it was noted that the valves were
"severely corroded and clogged" (R4, tab 105 at 174). CSI's attached spreadsheets
showed 50 valves at 18 locations needed to be replaced (R4, tab 105 at 17 5-76).

      90. CSI's 18 May 2007 letter to BAE proposed to do the work for $15,016.00:
$5,200.00 in ST labor (100 hours x $52.00); $858.00 in OT differential (33 hours x
$26.00); $800.00 in per diem (10 man days x $80.00); $8,078.00 in materials; and
$80.00 for shipping (R4, tab 105 at 177).

       91. BAE's CORS, revised 19 June 2007, added no labor costs, but added
$1,324.41 in G&A (8.82%) and $1,501.60 in profit (10%) to the subcontractor (CSI)
cost of $15,016.00 plus $80.00 in shipping to arrive at the total amount of $17,922.01 to
replace the valves. The CORS indicated the work would take 10 days to accomplish.
(R4, tab 105 at 179)



                                           22
       92. BAE's CFR No. 173 to the government recommended that the government
issue a C/O to provide for labor, material and equipment to replace the deteriorated
cutout valves found (R4, tab 105 at 173).

             CFR No. 224- Half Inch Valves in Potable Water System - Coffee
             Makers, Sinks, etc.

      93. CSI's Report No. LSV-012 dated 23 April 2007 notified BAE that when
removing the piping for the stateroom sinks, coffee makers, water fountains, etc., it
was discovered that many of the "commercial grade" valves "did not hold." CSI
recommended all 68 of the valves be replaced so that the hydro testing would not be
impacted. (R4, tab 105 at 181)

       94. CSI's 10 May 2007 letter to BAE proposed to replace the valves for
$6,028.00: $3,536.00 in ST labor (68 hours x $52.00); $572.00 in OT differential
(22 hours x $26.00); $560.00 in per diem (7 man days x $80.00); and $1,360.00 in
materials (R4, tab 105 at 182).

        95. BAE's CORS added no labor costs for its part, but added $531.67 for G&A
(8.82%) and $602.80 for profit (10%) to $6,028.00 in subcontractor (CSI) cost for a
total of $7, 162.47 to replace the fresh waterline valves. The CORS indicated the work
would take 7 days to accomplish. (R4, tab 105 at 184)

       96. BAE submitted CFR No. 224 to the government on 12 June 2007
recommending that it issue a C/O for labor, material and equipment to replace 68
valves (R4, tab 105 at 180).

             CFR No. 220 - Replacing Damaged Bulkhead Panels

       97. CSI's Report No. LSV-010 dated 23 April 2007 reported that when
removing the paneling in the port side corridor on the main deck by the main exit door,
it found several of the panels were damp or wet, and fell apart when the seam strip was
removed. The report said that the source of the water had not been determined. It
recommended that the panels be replaced. (R4, tab 105 at 100)

       98. CSI's 10 May 2007 letter provided BAE "a per panel price" because "the exact
extent of the water/moisture damage has not been determined." The per panel replacement
price was quoted at $550.00 including $270.00 in labor (6 hours x $45.00) and $280.00 in
materials. (R4, tab 105 at 101) Thus, replacing five panels would cost $2,750.00.

      99. BAE's CORS added $514.50 in ST labor (7 hours x $73.50); $147.00 in
OT differential (4 hours x $36.75); $2,750.00 in subcontractor (CSI) cost; $242.55 in



                                          23
G&A (8.82%); and $275.00 in profit (10%) for a total of $3,929.05 to replace five
bulkhead panels (R4, tab 105 at 102).

       100. BAE submitted CFR No. 220 on 11June2007 (replacing CFR No. 151
submitted earlier on 16 May 2007) recommending that the government issue a C/O
providing for labor, material and equipment to renew the damaged bulkhead panels.
CFR indicated that ship check was accomplished with port engineer and found five
panels needed to be replaced. (R4, tab 105 at 98-99)

              CFR No. 225 - Fuel Oil Tank Baffle Plate

        101. CSI's Report No. LSV-032 dated 5 June 2007 notified BAE that during
removal of piping running through the fuel tank forward of the engine room on the
starboard side, it found that the pipe/sleeve/tunnel was installed in two sections with a
baffle plate welded in the middle. The piping running through the sleeve/tunnel was
found welded to the baffle on both sides making it impossible to remove the piping.
The report said that the baffle plate was not shown on the contract drawings. CSI
recommended cutting and removing the middle section of the tunnel, and fabricating
and installing a new baffle plate. (R4, tab 105 at 111)

       102. CSI's 5 June 2007 letter to BAE proposed to do the work for $14,142.00:
$10,400.00 in ST labor (200 hours x $52.00); $1,716.00 in OT differential (66 hours x
$26.00); $1,600.00 in per diem cost (20 man days x $80.00); and $426.00 in materials
(R4, tab 105 at 112).

        103. BAE's CORS added $14,112.00 in ST labor (192 hours x $73.50);
$1,764.00 in OT differential (48 hours x $36.75); $157.44 in materials; $14,142.00 in
subcontractor (CSI) cost; $1,261.21 in G&A (8.82%); and $1,414.20 in profit (10%)
for a total of $32,850.85 to do the work. The CORS indicated the work would take 10
days to accomplish. (R4, tab 105 at 113)

       104. BAE submitted CFR No. 225 to the government on 12 June 2007
recommending that the government issue a C/O to cut out and remove the middle
section of the tunnel (R4, tab 105 at 110).

              CFR No. 226-Engine Room Potable Water System Valves

        105. CSI's Report No. LSV-033 dated 13 June 2007 notified BAE that during
removal of the potable water system valves and strainers in the engine room, it found
that the valves were severely clogged. CSI recommended replacing the clogged valves
with new ones and attached a list of sizes and quantities. (R4, tab 105 at 186-87)




                                           24
        106. CSI's 13 June 2007 letter to BAE proposed to do the work for $4,489.70:
$624.00 in ST labor (12 hours x $52.00); $104.00 in OT differential (4 hours x
$26.00); $80.00 in per diem (1 man day x $80.00); $3,541.70 in material and $140.00
in freight (R4, tab 105 at 188).

       107. BAE's CORS added $1,984.50 in ST labor (27 hours x $73.50); $147.00 in
OT differential (4 hours x $36.75); $22.14 in materials; $4,489.70 in subcontractor (CSI)
cost; $397.94 in G&A (8.82%); and $448.97 in profit (10%) for a total of $7,490.25. The
CORS indicated the work would take 2 days to accomplish. (R4, tab 105 at 190).

     108. BAE submitted CFR No. 226 to the government on 13 June 2007
recommending that a C/O be issued to replace the listed valves (R4, tab 105 at 185).

               CFR No. 231 - Replacing Deteriorated A/C Cooling Coil Evaporator Baffles

        109. CSI's Report No. LSV-035 dated 14 June 2007 notified BAE that during
installation of the new stainless steel filter housing, it found that the A/C cooling coil
evaporator baffles were severely deteriorated and would need to be replaced (R4,
tab 105 at 115).

       110. CSI's 14 June 2007 letter to BAE proposed to do the work for
$2,716.00 12 : $1,560.00 in ST labor (30 hours x $52.00); $936.00 in OT differential
(12 hours x $78.00); and $220.00 in materials (R4, tab 105 at 117).

       111. BAE's CORS added no labor or materials of its own. It added $239.55
G&A (8.82%) and $271.60 in profit (10%) to the subcontractor (CSI) cost and arrived
at $3,227.15 to do the work. The CORS indicated the work would take 4 days to
accomplish. (R4, tab 105 at 119)

        112. BAE submitted CFR No. 231 to the government on 14 June 2007
recommending that a C/O be issued to replace the A/C cooling coil evaporator baffles
(R4, tab 105 at 114 ). After the hearing, BAE in its post-hearing brief dropped this
CFR; it acknowledged that the parties had settled this CFR as a part of Modification
No. 9 (app. br. at 40, 68; R4, tab 94 at 3, at 9of13). Until this occurred however, the
parties' litigated all 19 CFRs. As a result of the settlement ofCFR No. 231, we deduct
from CSI's labor hour claim 30 ST hours and 12 OT differential hours, and we deduct
from CSI's material claim $220.00.


12
     CSI erroneously used $78.00 instead of the normal $26.00 OT differential.
        Properly calculated, CSI's proposal should be $2,092.00 ($1,560.00 + $312.00
       + $220.00). As will be seen, this error has no effect on the decision we reach
        (see Footnote 14).

                                            25
              CFR No. 238 -A/C Drain System Check Valve Replacement

        113. CSI's Report No. LSV-036 dated 15 June 2007 notified BAE that while
tying into the check valves for the A/C Drain System, it discovered that the check
valves were badly eroded and need to be replaced. The report listed three 1 1/2" check
valves and two 3/4" check valves. (R4, tab 105 at 192)

       114. CSI's 15 June 2007 letter to BAE proposed to do the work for $2,446.00:
$1,040.00 in ST labor (20 hours x $52.00); $156.00 in OT differential (6 hours x
$26.00); and $1,251.00 in materials (R4, tab 105 at 193).

       115. BAE's CORS added $1,176.00 in ST labor (16 hours x $73.50), $147.00 in OT
differential (4 hours x $36. 75); $13 .12 in materials; $2,446.00 in subcontractor (CSI) costs;
$216.69 in G&A (8.82%); $244.60 in profit (10%) for a total of $4,243.61 to do the work.
The CORS indicated the work would take 3 days to accomplish. (R4, tab 105 at 195)

       116. BAE submitted CFR No. 238 to the government on 15 June 2007
requesting a C/O for additional labor and material, and said "This item is impacting
completion." Ship Surveyor Large acknowledged receipt of the CFR on 19 June 2007
and noted under "CUSTOMER DIRECTION": "under Review." (R4, tab 105 at 191)

              CFR No. 260 - Replacement of A/C Unit Drain Hoses

       117. CSI' s Report No. LSV-03 8 dated 18 June 2007 notified BAE that during
replacement of the A/C drain piping, it found that the clear flex hoses were badly
deteriorated and clogged with debris. CSI recommended replacing the hose and
clamps for each unit before reconnection. (R4, tab 105 at 121)

      118. CSI's 18 June 2007 letter to BAE proposed to do the work for $888.00 13 :
$624.00 in ST labor (12 hours x $52.00); $104.00 in OT differential (4 hours x $26.00);
$80.00 in per diem (1 man day x $80.00); and $160.00 in materials (R4, tab 105 at 122).

        119. BAE's CORS added no labor and materials for itself. It added $78.32 in
G&A (8.82%); $88.80 in profit (10%) and $888.00 in subcontractor (CSI) cost for a
total of $1,055.12 to do the work. The CORS indicated the work would take 2 days to
accomplish. (R4, tab 105 at 124)

      120. BAE submitted CFR No. 260 to the government on 18 June 2007
recommending that a C/O be issued to replace the deteriorated hose and clamps at each
AIC unit (R4, tab 105 at 120).


13
     The correct number should be $968.00 ($624.00 + $104.00 + $80.00 + $160.00).

                                           26
         121. As summarized in the following table, between mid-May and mid-July,
2007, BAE submitted to the CO 19 CFRs. Ten of the CFR stemmed from outdated,
inaccurate, incomplete or otherwise defective drawings the government referenced in
its solicitation. The rest of the CFRs stemmed from deteriorated parts CSI found in
replacing the existing P/W, A/C and Drain Systems:

  CFRNo.       Date Submitted        Proposed Amount               Work Duration
    155         17 May 2007             $ 33,652.18                   11 days
    196         29 May 2007             $ 18,270.61                   7 days
    203         31May2007               $ 10,862.01                   6 days
    204          1June2007              $ 37,794.87                  12 days
    209          4 June 2007            $ 31,267.54                   10 days
    211          5 June 2007            $ 58,512.82                  10 days
    212          6 June 2007           $112,277.42                   20 days
    213          6 June 2007            $ 27,351.53                   8 days
    223         12 June 2007           $513,461.59                   57 days
    319         14 July 2007            $ 58,924.32                 not stated
    166         21May2007               $ 5,993.14                    2 days
    173         21May2007               $ 17,922.01                  10 days
   224          12 June 2007            $ 7,162.47                    7 days
    220         11June2007              $ 3,929.05                  not stated
    225         12 June 2007            $ 32,850.85                  10 days
    226         13 June 2007            $ 7,490.25                    2 days
   231          14 June 2007            $ 3,227.15                    4 days
   238          15 June 2007            $ 4,243.61                    3 days
   260          18 June 2007            $ 1,055.12                    2 days
                                       $986,248.54

       122. Adding the labor hours in the CFRs above, we find that CSI proposed
roughly 6,262 ST hours for additional piping work and roughly 2,081 OT differential
hours for additional piping work for all 19 CFRs. We use the word "roughly" because
a few of CSI's estimates (e.g. CFR Nos. 319, 220) provided only dollar estimates and
no labor hour estimates. We find BAE's CORS proposed 2,725 ST hours and 665 OT
differential hours for its part of the additional piping work for all 19 CFRs. For all 19
CFRs, we find CSI and BAE estimated before they began replacing the piping they
would incur roughly $604,456.25 in additional labor costs:

              (CSI) 6,262 hours x $52.00 = $325,624.00
              (CSI) 2,081 hours x $26.00 = $54, 106.00
              (BAE) 2, 725 hours x $73.50 = $200,287.50
              (BAE) 664 hours x $36.75 =     $24,438.75
                                            $604,456.25


                                           27
As the discussion which follows will show, the amounts BAE and CSI are entitled to
can be determined on an actual cost basis from the contemporaneous records such as
timesheets and material invoices kept. The calculations above nonetheless provide
some comparison to see if the actual labor hours BAE/CSI ultimately claimed for all
19 CFRs are reasonable.

       123. On the piping-related CFRs, CSI estimated $160,692.80 worth of
additional materials would be required:

                        CFRNo.       CSI's Estimated
                                       Additional
                                     Material Costs
                           155              $2,462.60
                           196              $1,395.80
                           203              ($862.19)
                           204              $3,210.40
                           209              $2, 110.50
                           211              $5,061.00
                           212            $16,650.74
                           213              $3,374.10
                           223           $108,020.55
                           319
                           166             $2,833.00
                           173             $8,078.00
                           224             $1,360.00
                           220             $2,750.00
                           225               $426.00
                           226             $3,541.70
                           231             $220.00 14
                           238             $1,251.00
                          260                $160.00
                       Total             $162,043.20

CSI's estimated material costs (not including freight or shipping (see, e.g., CFR
Nos. 173, 212) and sales tax in some cases) provide us with some measure of whether
its material costs ultimately incurred are reasonable.




14
     As the CO later discovered in 2014, this amount for material for CFR No. 231 had been
        paid as a part of Modification No. 9of25 August 2007 (R4, tab 94 at 3, at 9of13)

                                          28
       124. On 15 of the 19 CFRs above, CSI projected that 619 man days of per
diem costs or $49,520.00 (619 man days x $80.00) would be necessary to perform the
additional piping work:

                   CFRNo.          Projected Man       Projected Per
                                   Days of Per         Diem Costs
                                   Diem
                   155                     20                $1,600.00
                   196                     10                  $800.00
                   203                     10                  $800.00
                   204                     23                $1,840.00
                   209                     20                $1,600.00
                   211                     32                $2,560.00
                   212                     74                $5,920.00
                   213                     16                $1,280.00
                   223                    373               $29,840.00
                   319                   None                        0
                   166                      2                  $160.00
                   173                     10                  $800.00
                   224                      7                  $560.00
                   220                   None                        0
                   225                     20                $1,600.00
                   226                      1                   $80.00
                   231                   None                        0
                   238                   None                        0
                   260                      1                   $80.00
                   Total                  619               $49,520.00

       125. With all of the CFRs being submitted, and with her inability to visualize
what had been found from her East Coast office in Virginia, CO Panton decided she
"needed a firsthand look" (tr. 3/212). On 27 and 28 June 2007, CO Panton and her
attorney visited BAE's shipyard in San Francisco. CSI's Mr. Brown led a
walk-through with drawings in hand. He showed CO Panton all of the piping not
shown on the contract drawings so that she could see exactly what had to be done.
The walk-through took "a significant portion of the day." (Tr. 2/236-37)

       126. CO Panton testified that, as a result of the walk-through, she "got a much,
much clearer understanding of the magnitude of what they [BAE/CSI] were talking
about." She acknowledged that, before the visit, she did not have a complete
understanding of the changes in the piping system. (Tr. 3/212) She testified that after the
bulkheads were removed, BAE/CSI expected to see the piping "come straight down" but
"the piping ... would go to here to here to here to here and then down. It was ... a bit of a


                                            29
mess." (Tr. 3/213) She testified after seeing the problems BAE and CSI were having, she
realized "how poor our drawings really were" (tr. 4/83). BAE's Mr. Bain testified he
understood the CO would go back and "look at everything ... [and] would be acting on the
changes" (tr. 2/51 ).

        127. Mr. Brown testified when he discovered all of the piping not shown on the
drawings when the bulkheads and partitions were removed, he showed them to Ship
Surveyor Large who was "onboard every day" (tr. 2/235). Mr. Brown testified he was
told that the CO would "look into it and get back to us" (tr. 2/237). He testified
normally he would send a CFR through the prime contractor and negotiate an agreed
price before proceeding with the work (tr. 2/228). That did not occur on the
piping-related CFRs and BAE/CSI proceeded with the work nonetheless (tr. 2/229). It
is undisputed that CO Panton did not attempt to negotiate or settle on any of the
19 CFRs in dispute before BAE completed all of the work replacing the P/W, A/C and
Drain Piping Systems on the vessel (tr. 41135-36).

        128. During a telephone discussion held on 6 July 2007 between Mr. Bain and
CO Panton, they "agreed on a contract extension date of 8/23/07 based on additional
growth work for the PWAC and Gray water piping system" 15 (R4, tab 76 at 3 of 4).
We find that by 6 July 2007, BAE had submitted all but one of its piping-related
CFRs. We find the CO knew from the CORSs BAE submitted along with the CFRs
that it would require OT and charge OT differential to assist CSI to complete the
piping-related CFRs. We find that up to 6 July 2007, the CO knew that BAE had
worked OT. We find the CO knew that BAE did not interpret the fully burdened rate
provision to preclude it from claiming OT differentials on unsettled changed work.
We find that, with full knowledge of BAE's interpretation of that provision, the CO
did not address or object to OT charges but entered into an agreement with BAE to
extend the contract. There is no evidence that BAE agreed to the 27-day extension
(from 27 July to 23 August 2007) without charging extra for overtime.

        129. BAE advised CO Panton by letter dated 12 July 2007 that its
subcontractor CSI "will be unable to continue with additional growth work" on the
P/W, A/C and Gray Water Piping Systems without settlement of the outstanding
CFRs. The letter said the government had so far failed to negotiate and settle the
additional growth work associated with the piping systems and asked the government
to take immediate action to negotiate and settle the CFR growth work or to issue

15
     The parties' 6 July 2007 oral agreement was subsequently incorporated along with
        other additional work into Modification No. 6. Although that modification was
        issued unilaterally and the parties disagreed on the equitable adjustment relating
        to the cloverleaf replacement, there is no disagreement relating to the 27-day
        extension to complete the additional P/W, A/C and Drain Piping Systems
        replacement work.

                                            30
unilateral direction to proceed with the CFRs submitted. To expedite negotiations,
BAE provided copies of CSI's material invoices through 24 June 2007. (R4, tab 63)
CSI was running out of money because it planned to work on what it originally
estimated and not on what it actually encountered (tr. 2/51).

       130. CO Panton, who was in Japan, replied by email dated 11 July 2007, that she
was working on the invoices and "there seems to be a discrepancy between what you show
as actuals and what you have purchased." She said that she could not come up with a
bottom line offer until she had all the invoices. She then reminded BAE that, "[a]s
previously agreed, the revised completion date for redelivery of the vessel is 23 Aug 07."
She directed BAE to "proceed diligently with the work," to "complete performance," and
she was leaving "management of your subcontractor. .. to your capable hands." (R4, tab 62)

        131. Without meaningful technical input from Ship Surveyor Large and others
at Fort Eustis, we find CO Panton was simply not in a position to intelligently
negotiate any piping-related CFRs. CO Panton testified that, until she heard
Mr. Brown testify at the hearing, she was not aware that due to volatility of the market
in 2007, material prices could vary between the time they were quoted and the time
they were invoiced (tr. 3/248-49).

        132. Unable to settle the CFRs with the government, BAE issued five purchase
orders and advanced $350,000.00 to CSI so that it could continue to work to complete
installation of the P/W, A/C and Gray Water Piping Systems (tr. 2/52). The purchase
orders noted they were issued pending government settlement of the P/W, A/C and
Gray Water Piping Systems:

             PIO       Invoice No.    Invoice Date       Amount
          S-75238      98370                 713107    $100,000.00
          S-75239      98373                7/20/07     $62,500.00
          S-75240      98378                7/27 /07    $62,500.00
          S-75235      98384                 8/1/07     $62,500.00
          S-77254      98409                 915107     $62,500.00
                                                       $350,000.00

(R4, tab 105 at 17-30) We find BAE conditionally advanced the payments to enable
CSI to continue with the expectation that it would ultimately recover the additional
costs, believed to exceed the $350,000.00, from the government.

       133. On 19 July 2007, CO Panton issued unilateral Modification No. 6. The
modification required four items of additional work none of which related to the PW,
AIC and Drain Piping Systems replacement work. These additional items were funded
through the cancellation of DO No. 2 Work Items. Paragraph c. of the modification
dealt with the time extension for, but not the costs of, the additional piping work:

                                           31
                      c. The period of performance is extended
              twenty-seven (27) calendar days as agreed during our
              meeting on 28 Jun 07 and e-mail dated 6 Jul 07 due to
              additional piping repairs. All work, including trials and
              tests, shall be completed by the revised completion date.
              The revised period of performance is 30 Mar 07 through
              23 Aug 07, a period of one hundred forty-seven (147)
              calendar days.

(R4, tab 72 at 2)

        134. BAE's copper/nickel piping replacement work was "100% complete" and
accepted by the government on 25 August 2007 (tr. 2/224-25; R4, tab 139 at subtab 12).
Up through the completion of the LSV-5, BAE and CSI never received any adjustments
for the additional piping work and piping related work they performed (tr. 2/82).

        135. Two months after the completion of the overhaul, BAE by email dated
10 October 2007 to the CO sought reimbursement of $1,546,63 5.46 for outstanding
work items including: (1) Additional ABS (American Bureau of Shipping) Cost
($16,214.00); (2) Additional P/W/ A/C Ovbd Drains ($1,069,715.36); (3) Contract
Extension ($121,170.00); (4) Items Government Direction to Proceed ($339,536.15)
(R4, tab 97 at 1). BAE sought an equitable adjustment for 22 piping-related CFRs:
CFRNos. 155, 166, 193, 196,203,204,209,211,212,213, 166, 173,213,220,223,
224, 225, 226, 231, 238, 260 and 319 (id. at 3). The correct number of CFRs should
be 19. CFR No. 193 was incorrectly listed, and CFR Nos. 213 and 166 were listed
twice. In comparing BAE's request for reimbursement on the CFRs (R4, tab 97 at 3
of 5) with the CFR proposals it submitted in May, June and July, 2007 (finding 121 ),
we find BAE's piping-related CFR requests for reimbursement were based on its
initial CFR estimates.

        136. CO Panton's 29 November 2007 letter corrected the errors she found on
CFR Nos. 166, 193 and 213. She adjusted BAE's piping claims to $978,058.20. She
highlighted the discrepancies she found between the invoices CSI paid and the prices
stated on its estimate. For example, on CFR No. 166, she found CSI quoted the 1114
gate valves at $385.00 but found CSI paid an average of $342.00 for the nine valves
purchased. On the% inch gate valves, she found CSI quoted $242.00 but paid
$209.00. And, she found the Check Valve was quoted at $265.00 but CSI paid
$159.00. Contending that "materials are to be charged at cost," the CO said "this
continuing issue has slowed down the analysis." (R4, tab 98 at 2of3)

     137. BAE's 10 December 2007 response corrected the errors associated with
BAE Nos. 193, 213, 166 and 231 by deducting amounts for those CFRs. BAE added


                                          32
$3,227.15 to CFR No. 231 and arrived at its final price of$994,324.97. BAE explained
that the minor discrepancies in material prices were due to the fact that "the material
pricing provided to the Army were estimates" provided by subcontractors and vendors.
BAE also explained that "the invoices that the Army has received do not show the 8%
sales tax that CSI had to pay for all of the materials," and "[t]he material supplier totaled
this tax and a bill was provided prior to settling the final bill for all of the material
provide[ d] to CSI for the job." (R4, tab 99 at 2 of 8) The record shows Tork Systems
invoiced CSI $11,087.75 on 28 September 2007 for 8.50% sales tax not previously
included when materials CSI purchased were billed (app. supp. R4, tab 500).

        138. In July 2009, BAE and CSI entered into "AGREEMENT CONCERNING
PROSECUTION OF CLAIMS." Paragraph 2 of the agreement provided that
"[BAE's] liability to Subcontractor [CSI] on this claim is contingent on [BAE's]
recovery from the Government in respect to [CSI's] claim and shall not exceed the
amount of any such recovery." (App. supp. R4, tab 506, encl. (1)). A spreadsheet
enclosed with BAE's 29 June 2009 letter transmitting the agreement showed CSI's
claim on the 19 CFRs totaled $634,802.20. With the initial subcontract between BAE
and CSI for Item No. 2062 for $150,049.00, this meant CSI was due $784,851.20
($150,049.00 + $634,802.20). The spreadsheet also showed that, with $150,049.00
paid for Item No. 2062 and with $350,000.00 paid as "REA Total Partial Advance
Payments," CSI would be due from BAE a balance of $284,802.20 ifBAE prevailed
on all of its CFR claims:

         CSI's Claim for 19 CFRs                               $634,802.20
         BAE/CSI Subcontract Amount                            $150,049.00
         Amount Due CSI                                        $784,851.20
         Amount Paid                                         ($150,049 .00)
         Partial Total Amount Advanced & Paid                ($350,000.00)
         Amount Due CSI if Prevailed on All 19 CFRs            $284,802.20

(App. supp. R4, tab 506 at enclosure (2)) We find the agreement provided that BAE
would prosecute CSI's piping claim and BAE would be liable to CSI for the amount
BAE recovered from the government.

       139. We have compared the amount CSI estimated versus the amount claimed
for each CFR. Except for CFR No. 203 for which CSI estimated $8,295.31 but
claimed $1,945.81, or $6,349.50 less, CSl's claim was based upon what it estimated:




                                            33
              CFRNo.       As Estimated              As Claimed
                                                   (App. supp. R4,
                                                  tab 506, encl. (2))
            155               $16,504.60                  $16,504.60
            196                $8,123.80                   $8,123.80
            203                $8,295.31                   $1,945.81
            204               $19,428.40                  $19,428.40
            209               $15,904.50                  $15,904.50
            211               $27,017.00                  $27,017.00
            212               $67,876.74                  $67,876.74
            213               $14,352.10                  $14,352.10
            223              $364,632.55                $364,632.55
            319               $46,586.00                  $46,586.00
            166                $3,955.00                   $3,955.00
            173               $15,016.00                  $15,016.00
            224                $6,028.00                   $6,028.00
            220                $2,750.00                   $2,750.00
            225               $14,142.00                  $14,142.00
            226                $4,489.70                   $4,489.70
            231                $2,716.00                   $2,716.00
            238                $2,446.00                   $2,446.00
            260                  $888.00                     $888.00
            Total            $641, 151. 70              $634,802.20

      Request for Equitable Adjustment CREA) No. 7

        140. BAE's 8 July 2009 REA sought $1,684,917.00 for "additional costs
incurred in accomplishing the subject Programmed and Unprogrammed Drydocking,
Cleaning, Painting and Repairs to the LSV-5." The REA divided open issues into
five sections. Section 3 dealt with "Piping Issues, REA 007 for Piping Fittings and
Valves." (R4, tab 103 at 3)

       141. REA No.7 summarized the causes of its piping claim: During ship check
for bidding purposes, BAE was unable to determine the piping and fittings required to
replace the existing piping system because the ceilings and bulkhead panels were in
place. In addition, in spaces where the piping was exposed, the lack of markings made
it impossible to trace the piping to the specification Work Item. BAE had to rely on
the drawings provided by the government to "produce the cost estimate for its bid."
When BAE removed the panels during performance, it discovered that the government
furnished drawings were "grossly in error." BAE reported its findings to the
government by way of CFRs. (R4, tab 105 at 2)



                                             34
        142. BAE alleged that it found 3,257 feet of piping were required to
accomplish the piping replacement work when the contract drawings showed 682 feet
of piping was required. Similarly, 1,873 fittings were allegedly required when the
drawings showed 399 fittings were required. BAE contended that it had to "remove
and install an additional 2,575 feet [an increase of 478%] of piping and 1,474 fittings
[an increase of 469%] over and above the bid estimate." It contended that it
encountered numerous interferences in removing and reinstalling pipes. It contended
that the government directed it to replace all of the valves in the pipe runs when the
CFRs reported they were plugged or deteriorated. (R4, tab 105 at 2) Attached to REA
No. 7 was CSI's Invoice No. 98310 dated 21 March 2007 for $77,650.20 to BAE. CSI
billed BAE this amount as "deposit ... to order material," under its contract (Purchase
Order S-75178 LSV5) with BAE to perform the original piping work. (R4, tab 105
at 11) We find that based upon the Moss Point Marine drawings CSI estimated
$77,650.20 in materials would be required to perform Item No. 2062 piping work.

       143. BAE's REA No. 7 went on to explain that the massive increase in piping
work requiring more than a 450% increase in materials and its attempt to maintain its
schedule resulted in a variation in material prices for the same parts. Because material
demands exceeded what suppliers had in stock, they had to rush to procure the
materials from vendors and to have deliveries expedited. Also, the massive amount of
added work required CSI personnel to remain in San Francisco longer, thus incurring
overtime labor hours and additional per diem costs. (R4, tab 105 at 3)

       144. BAE's REA maintained that:

             No costs are duplicated between the base estimate and the
             new work, and the pricing method for the new work is the
             same as for the base work (i.e., based upon the material
             cost and increased labor to remove, prepare, fit, run and
             weld the increased footage of pipe, fittings and install 143
             new valves).

BAE also explained that the fire watch labor costs were for the new work only and do
not overlap the fire watch costs for the base work. (R4, tab 105 at 3)

       145. Attached to REA No. 7 were BAE's CORS for the "2062 Piping Systems"
and a spreadsheet for Item 2062. They summarized the elements of its request as follows:




                                          35
                       Cost Element                      Amount

               2,725 ST hours@ $73.50                  $200,288.00
               527 OT differential@ $36.75             $ 19,391.00 16
               Materials                               $ 5,436.00
               Subcontractor (CSI)                     $634,802.00
               G&A@8.82%                               $ 56,661.00
               Profit@ 10%                             $ 69,690.00
               TOTAL                                   $986,268.00

(R4, tab 105 at 7-8)

       146. CO Panton responded to BAE's 8 July 2009 REA by letter dated 30 March
2010. With respect to REA No. 7, "Piping, Fittings and Valves," she said "The Army
agrees with BAE that the specifications did not disclose the amount of materials needed.
Once the panels were removed, conditions found by BAE were not in accordance with the
drawings. The only issue left to be resolved is quantum." (R4, tab 109 at 4of7)

       14 7. In providing an equitable adjustment for REA No. 7, CO Panton used the
"benefit-of-the-bargain" approach: She noted in BAE's July 2009 submission, CSI
expected to spend approximately $77,650.20 of its $150,049.00 contract with BAE on
materials. Based on her finding that CSI substantiated spending $162,482.40 on
materials, or about 2.1 times the expected material amount of $77,650.20, CO Panton
allowed an equitable adjustment of $449,703.00, or roughly 2.1 times the $214,913.23
amount BAE bid for Item 2062. From this offer of $449,703.00, CO Panton said "the
Army would need to subtract any amount already paid for this line item." (R4, tab 109
at 4-5of7) Rounding up from $234,789.77, she offered BAE an equitable adjustment
of$235,000.00 ($449,703.00 - $214,913.23 = $234,789.77) for REA No. 7. Her letter
said "Other than using the material amounts, the only other way this portion of the
claim could be settled would be through an audit" (id. at 5 of 7).

       148. CO Panton gave the following reasons for resorting to her 2.1 times
material approach in providing equitable adjustment for REA No. 7:

               Based on your REA documentation, and invoices
               previously submitted from Custom Ship Interiors, your
               claim lacks substantiation. What you have not provided is
               any type of contemporaneous accounting that shows the
               hours were spent for the claimed Item. Where are the

16
     The 527 OT differential multiplied by $36.75 yields $19,367.25 not $19,391.00.
        This minor computational error does not affect the ultimate outcome of the
        appeals.

                                           36
              workload documentation and material receipts? Where are
              the time cards? The invoices from CSI are misleading as it
              appears you have submitted paid invoices along with
              speculative invoices, all intermingled. You show a
              subcontractor total of $634,802; however, the "invoices"
              totaled $500,049.00. Without substantiation, you have not
              carried the burden of proving the amount of your request
              for equitable adjustment.

(R4, tab 109 at 5 of 7)

         149. BAE's 3 June 2010 letter provided a point-by-point response to CO Panton's
30 March 2010 letter. BAE asked CO Panton to stop using "prior Piping and Valve
Fitting documents" to evaluate its REA because those documents were superseded by the
documents contained in its 8 July 2009 REA. BAE questioned the logic of the CO's
approach in analyzing its request. BAE said the government was approaching REA No. 7
as if it were a total cost claim which it was not. (R4, tab 113 at 1-2)

         150. On BAE's labor hours in support of CSI, BAE's letter said that it had
reviewed the original estimate as compared to its Job Labor Status Report. BAE stated
that it collected the labor hours in support of the added piping work CSI had to do in
two accounts: Work Item 2062 and Work Item 3000. BAE said that it determined
"Work Item 2062 incurred 520 hours and work item 3000 incurred 1,331 hours for a
total of 1,851 hours" and it was therefore reducing its labor hours claimed from 2,215
hours to 1,851 hours consisting of 1,572 regular hours and 279 overtime hours. BAE
attached its Job Labor Status Reports in support. (R4, tab 113 at 2)

        151. On its material costs in support of CSI' s additional piping work, BAE said
it had reviewed its original material estimates versus its Material Status Report. BAE
stated it collected its material costs in two internal accounts: Work Item 2062 and
Work Item No. 3000. Based on its review, BAE said Work Item 2062 collected
$430.00 in material costs and Work Item 3000 collected $2,694.00 in material costs.
Based on its review, BAE said it would reduce its material costs from its estimated
amount of$5,436.00 down to $3,124.00. BAE attached its Material Status Reports.
Albeit not organized by CFR, BAE also attached numerous material invoices from CSL
(R4, tab 113 at 2, 6-272)

       152. On subcontractor (CSI) costs, BAE's letter said it also collected the costs
in two accounts: BAE stated Work Item 2062 showed BAE incurred $150,049 for the
basic work and $287,500 for REA No. 7, and Work Item 3000 showed BAE incurred
$62,500 for REA No. 7. BAE said it incurred $350,000.00 ($287,500 + $62,500.00)
which it had advanced "for the Army's account. .. as shown in the attached MSRs,



                                          37
Purchase Orders, Invoices and Checks." BAE said that "CSI's subcontract value of
the REA still remains at $634,802." (R4, tab 113 at 2)

         153. On CSI's labor, BAE provided a summary showing CSI spent 7,202 regular
hours and 3,451.5 OT hours on REA No. 7 work. The summary included 3, 178 regular
hours and 1,217 OT hours from CSI's subcontractor, World Wide Labor, Inc. Adding
all of the hours, BAE said CSI's total labor hours consisted of 10,380 regular hours and
4,668.50 OT hours for a grand total of 15,048.5 hours. (R4, tab 113 at 2)

       154. CSI' s labor hour summary was supported by its "LSV5/Copper Nick[ el]
Piping Job Time Sheet":

        Week Ending       ST Hours     OT Differential         Total
                                          Hours
       4-13-07                    96                24                120
       4-20-07                   176                86                262
       4-27-07                   240               140                380
       5-4-07                    280               130                410
       5-10-07                   240               120                360
       5-18-07                   276               118                394
       5-25-07                   352             166.5              518.5
       6-1-07                    360               149                509
       6-8-07                    296               134                430
       6-15-07                   509               226                735
       6-22-07                   560               282                842
       6-29-07                   576               274                850
       7-6-07                    446               210                656
       7-13-07                   432               208                640
       7-20-07                   432               208                640
       7-27-07                   424               196                620
       8-3-07                    416               208               624
       8-10-07                   432               268                700
       8-17-07                   352               147               499
       8-23-07                   187                76               263
       8-31-07                   120                81               201
       Total                   7,202          3,451.50          10,653.50

(R4, tab 113 at 84-104)

       155. Since CSI did not submit the first of its piping-related CFRs stemming
from defective contract drawings until 14 May 2007 (see CFR Nos. 155, 166, 173), it
could not have been working on CFR-related work prior to that date. We therefore


                                          38
disallow 1,032 ST hours and 500 OT differential ofCSI's labor hours claimed. We
also disallow 120 ST hours and 81 OT differential claimed for the week ending
31 August 2007 because the work on the vessel was completed on 25 August 2007:

        Week Ending      ST Hours       OT Differential       Total
                                           Hours
       4-13-07                   96                  24              120
       4-20-07                  176                   86             262
       4-27-07                  240                 140              380
       5-4-07                   280                 130              410
       5-10-07                  240                 120              360
       8-31-07                  120                   81             201
       Total                  1,152                 581            1,733

In other words, we find that CSI incurred 6,050 ST hours (7,202 hours - 1,032 hours -
120 hours) and 2,870.50 OT differential hours (3,451.50 hours - 500 hours - 81 hours)
performing additional piping work.

       156. At the CO's request, BAE by email on 13 July 2010 provided World
Wide Labor's time sheets (R4, tab 114 at 1-16of19). BAE did not submit World
Wide Labor's timesheet for the week ending 8 July 2007 at the time (see R4, tab 114
at 4-16 of 19). Apparently, DCAA saw the time sheet during its audit and found
World Wide Labor charged 240 ST and 80 OT differential that week. This would
increase the labor hours BAE claimed for World Wide Labor from 3, 178 to 3,418 ST
hours and OT hours from 1,217 to 1,297 hours. DCAA' s worksheet (R4, tab 140,
subtab D5 at 1) shows World Wide Labor was paid $194,454.45 for its labor:

          Week Ending      ST Hours      OT Differential     Labor Cost
                                            Hours
          5-13-07                 140                  30        $6,716.70
          5-20-07                 123                 40         $6,587.24
          6-3-07                  190                  50        $9,420.21
          6-10-07                 440                100        $21,533.10
          6-17-07                 400                170        $23,458.90
          6-24-07                 366                176        $22,411.60
          7-1-07                  235                  54       $11,455.62
          7-8-07                  240                 80        $12,935.20
          7-15-07                 330                160        $20,709.80
          7-22-07                 280                137        $17,883.59
          7-29-07                 370                130        $20,770.21
          8-5-07                  295                170        $20,236.40
          8-19-07                   9                   0          $335.88


                                          39
         I Total                 3,418 I              1,297 I    $194,454.45 I

In reviewing World Wide Labor's labor costs, DCAA auditor's work papers
commented "The claimed hours reconcile to the claim. WWL appears to be internally
consistent. Claimed costs appear to be reasonable." (R4, tab 140, subtab DlO) We
disallow 140 ST and 30 OT differential hours worked during the week ending 13 May
2007 because World Wide Labor could not have been performing additional
piping-related CFR work before 14 May 2007. We allow $187,737.75 ($194,454.45 -
$6,716.70) as a part of CSI's labor cost paid to the second tier contractor World Wide
Labor, in performing some of the additional piping work.

       157. On CSI materials, BAE provided a summary with back up documents
consisting of invoices of "actual cost to CSI with no overhead or profit added" totaling
$159,781.74 (R4, tab 113 at 105-272).

        158. Lastly, BAE's 3 June 2010 response (finding 149) explained that it
entered into a subcontract with CSI to perform the basic Work Item 2062 P/W, A/C
and Drain Piping replacement work for $172,556.00, and CSI subsequently agreed to
reduce the amount by $22,507.00 to $150,049.00. BAE explained that as work
progressed and as the nature and extent of the piping work emerged, it acted quickly
on behalf of the government and paid CSI $100,000.00 and four $62,500.00 payments
totaling $350,000.00 to enable CSI to "make payroll and remain solvent" while
performing a massive amount of additional piping work. BAE stated it "has not
received any payment for this REA from the Army even though we have already
incurred and paid CSI $350,000 against their total costs of $634,802." (R4, tab 113
at 3)

       159. As of its 3 June 2010 response, BAE sought $903,973.00 for REA No. 7:

              1,851 hours@ $73.50                       $136,049.00
              279 hours at OT differential@ $36.75      $ 10,253.00
              Materials                                 $ 3,124.00
              Subcontractor (CSI)                       $634,802.00
              G&A@8.82%                                 $ 56,265.00
              Profit on Subcontract @ 10%               $ 63,480.00
                     Total                              $903,973.00

(R4, tab 113 at 3)

        160. Almost four years after completion of the LSV-5 overhaul, BAE's general
manager, Hugh Vanderspek, by letter dated 6 July 2011, converted REA No. 7 into a
certified claim for $903,973.00. The letter demanded payment or the CO's decision.
(R4, tab 120) The letter summarized the bases of the claim: The Moss Point Marine


                                           40
Drawings P-3 and P-13 issued as Item C.YY. and awarded as Item C.62 for replacing
LSV-5's P/W, A/C and Drain Piping Systems were "essentially schematics." The
drawings provided no dimensions for the piping and material requirements were stated as
"AIR" (as required). From the drawings, BAE's piping subcontractor CSI understood it
needed to replace 682 feet of piping and 399 fittings. As it turned out, CSI was required
to replace 3,257 feet of piping and 1,873 fittings. During the course of performance in
May, June, and July 2007, CSI submitted 19 CFRs providing detailed schedules which
compared "the quantities anticipated based on the drawings and the actual installed
quantities." BAE promptly submitted CSI's CFR estimates for additional labor and
materials along with BAE's CORS for additional (BAE) labor, materials, G&A and profit
to the government. And, although the government "acknowledged that additional piping
work was done," it never compensated BAE even though the REA supplement provided
"labor hour records of both CSI and BAESFSR as well as voluminous CSI material cost
records." BAE's letter reiterated that its claimed amount for REA No. 7 was $903,973.
(Id. at 1-2 of 8)

       BAE's Accounting System

        161. For management and recordkeeping purposes, BAE maintains what it refers
to as a "job cost accounting system" (tr. 1/90). This accounting system applies to every
job on the shipyard, whether commercial or government work (tr. 1/91). Fundamentally,
BAE's job order accounting system has two sides: On the labor side, the system
"collect[ s] hours that are worked by the employees that are charged to various projects and
items." On the material side, purchase orders are filled out and approved, and "material
costs to be charged to various projects and items" are collected. (Tr. 1190)

        162. Under BAE's accounting system, a time sheet was filled out daily by
supervisors for each hourly employee and was submitted daily to the payroll
department for entry into BAE's computer system (tr. 1192, 94). The time sheets
served two purposes: (1) "for the employees [to] get paid"; and (2) "for the hours to
be allocated to the correct project and item number that [the employees were] working
on" (tr. 1/92). The supervisors entered the hours on the timesheets; they also
determined the job and the item "to which each employee's time [was] attributable"
(tr. 1193). Timesheet information was entered into BAE's computer system by BAE's
payroll supervisor (tr. 1194). Because BAE's employee time sheets were filled out
daily by supervisors who reported to management and not by the hourly employees
themselves, we find BAE's Job Labor Status Reports - based on the timesheet data
entered daily into BAE' s computer system - an accurate record of the labor hours
BAE employees spent on any work item.

        163. BAE's Job Order Accounting System produced Job Order Status Reports
(see, e.g., R4, tab 112 at 4). A Job Order Status Report showed "the number of hours
on a particular project" (tr. 1195). The Job Order Status Report for the piping-related


                                           41
CFRs was assigned account number 43631.3002 (Account 3002). The first number -
43631 - designated the vessel involved. The second number - 3002 - designated the
"subproject," in this case the additional work on the P/W, A/C and Drain Piping
Systems replacement. The Job Order Status Reports were the products of the same
computer system in which BAE employee time sheets were entered. (Tr. 1/68, 95-96)
The base contract Item No. 2062, "Potable Water and Air Conditioning Drain Piping
Systems Replacement for LSV-5" was assigned Account 2062 (R4, tab 169 at 4).
BAE's work to "ASSIST CSI W/ITEM 2062" was charged to Account 3000 (id.).

        164. BAE's Job Cost Accounting System was capable of producing Labor
Distribution Reports. The Labor Distribution Report BAE submitted in support of its
claim summarized by labor category, by trade and by date, the ST and OT hours each
BAE hourly employee worked and charged to specific accounts such as Account 3000
established for the additional piping work. (R4, tab 139, subtab 56 at 1-43) Subject to
judgmental errors such as charging labor hours after the vessel was completed, we find
BAE's Labor Distribution Report the most reliable source, by far, for determining the
additional labor hours BAE incurred in assisting CSI in accomplishing the CFR work.

      165. Account 3000 was established to collect the ST and OT labor hours
BAE's trades incurred in assisting CSI in accomplishing the additional CFR work.
Account 3000 showed:

 Labor Category          Trade              ST/OT Hours      After 8/25/07 Hours
 405              SHIPFITTERS                      89.00               8 (8/27/07)
 411              WHSE/TOOLROOM                   188.00
 404              RIGGERS                          88.50                8 (8/27 /07)
 412              CARPENTERS                       32.00
 414              CRANE                            70.00                4 (8/27/07)
 402              PAINT                            56.00
 407              ELECTRICAL                       99.00                4 (8/27/07)
 415              SHEETMETAL                       28.00
 418              LAGGERS                         282.50
 460              PURCHASING                       11.00            4 (8/28-30/07)
 406              PIPEFITTER                      112.00          6 (8/28-9/12/07)
 401              TRANSPORTATION                   20.00            8 (8/27-28/07)
 409              FACILITIES                        6.00            4 (8/27-28/07)
 405-0T           SHIPFITTERS                      29.50
 411-0T           WHSE/TOOLROOM                    32.75
 402-0T           PAINT                             5.00
 418-0T           LAGGERS                         112.00
 406-0T           PIPEFITTERS                      34.00
 407-0T           ELECTRICAL                       19.00               18 (8/26/07)


                                          42
 414-0T            CRANE                              13.00             8 (8/26/07)
 404-0T            RIGGERS                             4.00             4 (8/26/07)
                        TOTAL                   1,331.25          46 ST+ 30 OT

(R4, tab 139, subtab 56 at 1-12) From the table above, we find that BAE charged
1,331.25 hours to Account 3000 assisting CSI in removing the existing P/W, A/C and
Drain Water Systems and replacing them with the new copper/nickel piping systems
and other piping-related work. Of the 1,331.25 hours, 1,082 were ST hours and
249 .25 were OT differential hours.

        166. Of the 1,082 ST hours, we find 46 ST hours not chargeable to Account 3000
because they were incurred after the vessel was 100% compete on 25 August 2007. For
the same reason, we find 30 OT differential hours not chargeable to Account 3000. This
left 1,036 ST hours and 219.25 OT differential hours chargeable to Account 3000.

         167. Even though the trades involved encompassed more than the seven trades
(rigging, crane services, staging, electrical, ventilation, fire watches and cleaners) BAE
initially agreed to furnish to assist CSI (see R4, tab 105 at 56), we find other BAE
trades were required based upon the conditions of the pipes actually found and the new
pipes needed to be installed. We find Ship Surveyor Large and the CO knew what
trades BAE had to furnish based upon the CORS it provided with each CFR.

       168. Account 2062 ofBAE's Labor Distribution Report showed the following
labor categories were used and the following ST and OT labor hours were incurred for
the base contract piping work:

              Labor Category            Trade                 ST/OT Hours
              460                 PURCHASING                          1.00
              401                 TRANSPORTATION                      3.00
              407                 ELECTRICAL                         12.00
              411                 WHSE/TOOLROOM                       5.00
              412                 CARPENTERS                         64.50
              409                 FACILITIES                          1.00
              410                 LABORERS                          320.00
              415                 SHEETMETAL                         25.00
              402                 PAINT                              58.50
              402-0T              PAINT                              29.00
              410-0T              LABORERS                            0.50
                                       TOTAL                        519.50

(R4, tab 139, subtab 56 at 13-16) We find BAE charged to Account 2062 519.50
hours of which 29.50 hours were OT hours. Having established Account 3000


                                           43
specifically to collect hours to assist CSI in performing the additional piping-related
work, any such work should not have been charged to Account 2062. We find to the
extent BAE performed base contract Item No. 2062 work, it collected hours in that
account. We find the 519.50 ST/OT hours were charged to Account 2062 as a part of
the original DO No. 2 work, and therefore are not recoverable.

       169. To purchase material, a purchase order was also filled out by a supervisor.
The project/item description number (e.g., Accounts 2062, 3000) was entered in the
description box (see R4, tab 112 at 37; tr. 11103). The PO was then entered into
BAE's computer system by a purchasing employee (tr. 11103). The material
procurement would then be entered into BAE's Material Status Report (R4, tab 112
at 5). BAE's Material Status Report for Account 3000 showed that it incurred
$2,694.39 (R4, tab 113 at 46-48). We allow this amount.

       170. We find that BAE had a structured and reliable cost accounting system in
place for collecting and allocating actual incurred labor and material costs for changed
work. BAE did not, however, charge labor and materials to each individual CFR.
Although it would have been easier for all concerned if BAE had established a separate
charge account for each CFR, we find it was not unreasonable for BAE to establish
one separate account - Account 3000 - to collect all the hours relating to the additional
piping-related CFR work since the work all stemmed from one contract line item -
Item No. 2062.

       Defense Contract Audit Agency (DCAA) Audit

         171. The DCAA conducted an audit and issued a report - Audit Report
No. 4281-2012Wl 7200001 - on 31August2012 (the DCAA audit) as requested by
the CO on 28 October 2011 (R4, tab 129). The audit examined BAE's price
adjustment proposals under REA No. 6 (cloverleaf replacement) and REA No. 7 (P/W,
AIC and Drain Piping Systems replacement). The audit report made clear that DCAA
examined BAE's equitable adjustment claims "to determine ifthe proposed costs are
acceptable for settlement" assuming that BAE "can demonstrate legal entitlement"
(id. at 3 of 16). Applying the requirements of Federal Acquisition Regulation (FAR)
and Defense FAR Supplement (DF ARS), DCAA concluded that BAE had "submitted
adequate data to support its claim" and the claims were "acceptable ... for negotiation
of fair and reasonable settlements" (id. at 4 of 16).

             Labor Hours

       172. Of the $903,407 BAE claimed for REA No. 7, $136,049 was for ST labor
(R4, tab 129 at 5of16). The DCAA took "no exception to the proposed labor cost,
labor hours and labor rate" for REA No. 7 (id. at 6 of 16). DCAA said it was able to
reconcile "the proposed labor hours from the claim to the labor distribution report for


                                           44
each REA." The report explained "Employee labor charges were selectively traced to
the labor distribution report for each REA." (Id. at 6-7 of 16).

               Materials

        173. Of the $903,407 BAE claimed for REA No. 7, $3, 124 was for materials it
provided in support of CSI's work (R4, tab 129 at 5of16). The audit report said it did
not review BAE' s proposed $3, 124 claimed for materials "[ d]ue to materiality" since
"it represented less than 4 percent of total cost[ s]." The DCAA report said it took "no
exception to the ... REA No. 7 material costs proposed by BAE." (Id. at 7of16)

               Overtime

       174. Overtime was claimed at a differential of $36.75, half of the straight time
(ST) rate of $73.50. During the audit, William P. Bernacchi ofDCAA by email on
11 June 2012 asked Rick Brandt, BAE's controller, whether there was any
documentation authorizing overtime. The email stated: "If not, the contracting
authority may have to issue one retroactively." 17 (R4, tab 139, subtab 29 at 2)

        175. Mr. Brandt's 12 June 2012 email replied:

               As far as I know, there is no requirement in the LSV-5
               contract for Government authorization of overtime .... We
               believe that if O/T was necessary to complete the work
               within schedule, that it is recoverable.

(R4, tab 139, subtab 29 at 2) Mr. Bernacchi testified that he did not receive from CO Panton
anything indicating that overtime hours were not appropriate or unallowable (tr. 1/35).

        176. DCAA took no exception to the overtime labor hours claimed for REA
No. 7 (R4, tab 129 at 10of16). Although BAE acknowledged that overtime had not
been specifically authorized by the contract, it contended that the government set the
delivery schedule for REA No. 7 and overtime was required to meet that schedule.
The audit report said that DCAA was able to reconcile the overtime hours from BAE's
labor distribution reports to its claim, and BAE subcontractor overtime was included in
its reconciliation of the CFR. The audit report pointed out that FAR 22-103-4(a-i)


17
     FAR 22.103-4(a) (Jan 2003), Approvals, authorizes overtime to "(I) Meet essential
       delivery or performance schedules"; and (2) "Make up for delays beyond the
       control and without the fault or negligence of the contractor." FAR 22.103-4(i)
       provides "Approvals for using overtime shall ordinarily be prospective, but, if
       justified by emergency circumstances, approvals may be retroactive."

                                           45
provided the contracting activities with "alternatives" to "how 'overtime' should be
settled" (id. at 11 of 16).

              Subcontract Costs

        177. Of the $903,407 BAE claimed for REA No. 7, $634,282 was for
subcontractor (CSI) costs (R4, tab 129 at 5of16). Of the $634,282, $159,782 was for
subcontractor material costs, and the rest, $474,500 ($634,282 - $159,782) was for its
labor (id. at 8 of 16).

        178. With respect to the REA No. 7 subcontractor material costs, the DCAA
report said:

                    We reviewed and computed a total amount for
             materials for all CFRs. We also selectively reviewed
             vendor invoices, provided by CSI, to determine [if] the
             material costs were actually incurred and/or paid. The
             vendor invoices and records of payment totaled more than
             the proposed amount of $159,782.

(R4, tab 129 at 8of16) (Emphasis added)

       179. With respect to CSI's labor, the DCAA report said it was able to reconcile
the "proposed labor hours to individual employee's timecards." The DCAA however,
found "twenty hours of overtime proposed that were not recorded." The DCAA
applied the $26 OT differential rate and questioned $520 (20 hours x $26) of CSI
subcontractor labor costs claimed. (R4, tab 129 at 8 of 16) BAE chose not to dispute
the $520 questioned (app. br. at 67). We deduct this amount, together with $46.00 in
G&A, and $52.00 in profit on this amount (finding 182) from CSI's final recovery.

        180. For CSI's second tier subcontractor, World Wide Labor, the DCAA report
said it was able to reconcile "total labor hours to employee's timecards completed
during the period of performance" (R4, tab 129 at 8of16).

             Per Diem Costs

       181. At the hearing, in response to appellant counsel's question whether he
actually saw support that CSI paid per diem, DCAA auditor Mr. Bernacchi testified "I
believe so, yes" (tr. 1/65). His audit work papers showed that he computed CSI's per
diem cost. In comparing Mr. Bernacchi's computation with CSI's original estimates,
we find the auditor's computation was derived from CSI's CFRs and not from to
actual payment records:



                                          46
                CFRNo.     LSV No. (CSI        Per Diem
                             Estimate)         Amount
               155         LSV-018              $1,600.00
               196         LSV-024                $800.00
               203         LSV-025                $800.00
               204         LSV-019              $1,840.00
               209         LSV-029              $1,600.00
               211         LSV-023              $2,560.00
               212         LSV-031              $5,920.00
               213         LSV-028              $1,280.00
               223         LSV-030             $29,840.00
               319
               166         LSV-017                $160.00
               173         LSV-022                $800.00
               224         LSV-012                $560.00
               220         LSV-101
               225         LSV-032              $1,800.00
               226         LSV-033                 $80.00
               231         LSV-035
               238         LSV-036                 $80.00
               260         LSV-038                 $80.00
                           LSV-5                $5,680.00
                           Total               $55,480.00

(R4, tab 140, subtab D5 at 2) CSI has failed to show to which CFR the $5,680 for LSV-5
pertained. Based on the testimonial and documentary evidence in the record, we find that
CSI did incur a reasonable number of man days and per diem costs in performing
additional piping-related CFR work. The evidence does not allow us to determine with
precision exactly how much was paid. We therefore award $49,800 ($55,480 - $5,680)
based on CSI's CFR estimate.



         182. Of the $903,407 claimed for REA No. 7, $56,265 was for G&A (R4, tab 129
at 5 of 16). DCAA verified that the contractually negotiated rate of 8.82% was applied to
''the materials and subcontract costs." Because DCAA questioned $520 in subcontractor
cost, it applied 8.82% to $520 and questioned $46 claimed for G&A (id. at 9of16).
BAE chose not to dispute the $520 in CSI OT labor cost questioned (app. br. at 67). We
therefore deduct the $46 in G&A and $52 in profit for a total of $98 on that amount from
CSI's final recovery.




                                          47
       183. Of the $903,407 BAE claimed for REA No. 7, $63,480 was for profit (R4,
tab 129 at 5 of 16). The DCAA applied the 10% negotiated profit rate to the
subcontracts and took no exception (id. at 10 of 16).

        184. CO Panton faulted DCAA for not getting "technical advice" in auditing
REA No. 7. When asked from whom DCAA should have obtained technical advice,
CO Panton answered "Mr. Large." (Tr. 3/256) Ship Surveyor Large was on the vessel
daily during the LSV-5 overhaul. He was given notice and had the opportunity to see
firsthand when the CFRs and the CORSs were estimated. He could have verified the
pipes, elbows, tees, couples, and other parts required to be purchased and installed. He
did not. He could have provided the CO his estimates on Specification Worksheets for
the various piping installations as in the case of the cloverleaf replacement. He did
not. Moreover, knowing the nature ofBAE's claim in REA No. 7, CO Panton could
and should have offered DCAA her Ship Surveyor's technical help when she requested
the audit in October 2011. There is no evidence she did.

        185. Because CSI's material supplier invoices were not segregated by CFR,
tracing which parts belong to which CFR became impossible. Foreseeing this
difficulty, the Board by email on 3 1 December 2014 directed the CO to annotate her
decision to provide Rule 4 references to the material costs claimed with material
invoices paid. The government provided the CO' s annotation at the hearing. In going
through several examples at the hearing, it became clear that some of the government's
assertions of material overcharging in the CO decision were incorrect (tr. 4/125-29).
As it now stands, the completed DCAA's audit did not question the material costs
claimed as having been incurred. CO Panton acknowledged she was unware of the
sales tax issue until she heard it at the hearing (tr. 41130). The material prices could
vary from the time they were quoted to the time they were shipped (finding 3 1) which
also explained some of the variations the CO found.

       CSI's Material Costs

        186. BAE submitted hundreds of invoices in support of CSI's claim for
materials (see R4, tab 113 ). Unable to reconcile what BAE claimed and what the
government was able to verify before and at the hearing, the Board's 27 January 2015
letter provided the parties the following briefing instructions:

                    Excluding the $11,087.75 in sales tax, there is a
             discrepancy ($14,081.87) between the amount appellant
             claimed as material costs incurred over and above the
             original piping work ($176,564.27) (app. R4. supp., tab
             507) and the amount the government claimed as material


                                          48
             costs incurred over and above the original piping work
             ($162,482.40) (ex. B-1at12). To isolate where the
             differences lie, each party is to run a calculator tape and
             annotate the tape with document references in the Rule 4
             file. Each party is to submit its tape as an appendix to the
             brief. Each party may then address the other party's tape
             in its reply brief. To the extent possible, the parties are
             encouraged to stipulate to those additional material costs
             that are not in dispute.

       187. BAE's 27 January 2015 email forwarded to the Board 16 pages of CSI credit
card records which were not included in the Rule 4 file, tab 113. The parties agreed that
the 16 pages should be added to tab 113 as pages 229-A through 229-P. In addition to
material purchases, CSI's credit card records show payments made for car rental, food
and lodging. We find CSI charged some of its per diem costs to its credit cards. CSI,
however, has not provided a separate accounting of the per diem costs paid.

        188. BAE's opening brief provided a summary of the material costs claimed by
CSL The summary was supported by a calculator tape for each vendor. Each amount
on the calculator tape cross-referenced a supporting document under tab 113. (App.
br., app'x B) The government did not provide a calculator tape with its opening brief;
it provided a typed listing of amounts with cross-references to vendor invoices in its
reply brief (gov't reply br., ex. 1 at 1-4 ).

       189. Comparing the parties' numbers, we find only minor differences, highlighted
in bold, with respect to two vendors: ( 1) McMaster-Carr and (2) Center Hardware:

         Vendor/Record             CSI Invoiced         Gov't Verification
                                     Amount                 Amount
     Tork Systems                      $144,755.58             $144,755.58
     Tork Systems Sale Tax              $11,087.75              Undisputed
     Master Card                          $3,215.16              $3,215.16
     McMaster-Carr                        $5,274.51              $4,399.73
     Grainger                                $45.39                  $45.39
     Air Gas                                $599.77                $599.77
     Ferguson                               $761.62                $761.61
     Praxair                                $336.82                $336.82
     Center Hardware                        $501.61                $550.13
     Am.Ex.                             $13,130.67              $13,130.67
     Bearing Engineering                      $5.82                   $5.82
     BAE Store                           $7,672.14               $7,672.14
     Home Depot                              $56.19                  $56.19


                                          49
     Lowes                                   $159.50               $159.50
     Grainger                                  $49.74               $49.74
                Total                     $187,652.27          $175,738.25

(App. br., app'x B; gov't reply br., ex. 1)

        190. The parties' difference of $874.78 ($5,274.51 - $4,399.73) for materials
purchased from McMaster-Carr came about because the government failed to include
the following payments:

                            Invoice No.        Amount
                           69989121              $50.59
                           69227393             $168.46
                           69108466              $36.25
                           68855182             $251.54
                           6970943-02           $216.72
                           68263999              $35.40
                           68122206             $115.82
                               Total            $874.78

(R4, tab 113 at 121, 123-25, 127-29)

       191. The parties' difference of$48.52 ($550.13 - $501.61) with respect to
materials purchased from Center Hardware came about because the government
included Invoice 77755 for $24.26 (R4, tab 113 at 142) for which BAE did not claim
and thus gave the government a $24.26 credit (app. br., app'x Bat 8).

       192. Referring to its material invoice summary, CSI's Brown testified that
CSI's total cost for materials on the "entire copper nickel job" was $187,652 including
$11,087.75 in Tork Systems sales tax (app. supp. R4, tab 507; tr. 2/299). Unlike BAE,
CSI did not establish a separate account to collect CFR material costs as distinguished
from material costs it originally estimated it would have to buy in performing the
unchanged work. Some of the material invoices from Tork Systems were dated 14
May 2007 or shortly thereafter (see Invoice Nos. 8054, 8055, 8085, 8123, 8124, 8125)
(R4, tab 113 at 196-202). This indicates those materials were ordered before CSI
discovered CFR work was required (finding 39). Documentary evidence shows that
CSI originally expected to spend $77,650.20 on materials to perform the unchanged
Item No. 2062 work (finding 142). So that CSI does not end up with a windfall, we
find once the piping conditions behind the bulkheads and above the ceilings were
exposed, CSI should have spent all of the $77,650.20 it originally allotted for piping
materials and claimed only the additional materials ultimately needed to accomplish
the piping replacement work. Based upon findings 189, 190 and 191 above, we find


                                              50
CSI incurred $187,652.27 in material costs. We find the government is entitled to a
$77,650.20 credit. Thus, we find CSI is entitled to $110,002.07 ($187,652.27 -
$77,650.20) in additional material costs. The government has not disputed the
$11,087.75 of California sale tax which Tork Systems separately invoiced CSI
(finding 32). Taking into consideration the parties have settled CFR No. 231, we
deduct $220.00 in material cost. We therefore allow a total $120,869.82 ($110,002.07
+ $11,087.75 - $220.00) in CSI material costs.

       The Government's Post-Audit Equitable Adjustment Approach

        193. After she reviewed the audit report, CO Panton by letter dated 28 May
2013 made a final offer to settle the cloverleaf and piping claims. CO Panton did not
find DCAA's audit helpful. Her letter said "Unfortunately, the DCAA audit did not
clarify if the hours or amounts were actually incurred, but seemed to only provide a
[superficial] affirmation that the arithmetic in your claim was correct." She offered to
settle REA No. 7 for $630,467.00. (R4, tab 131 at 4 of 4)

        194. The $630,467.00 equitable adjustment offer was based on BAE's recent
bid price on the same work item for the LSV-3. When BAE bid on the LSV-5
overhaul, it bid $214,913.00 for Item No. 2062, "Potable Water and Air Conditioning
Drain Piping System Replacement." On the LSV-3, BAE bid $845,380.00 for the
same item. The difference between BAE's bid on the LSV-3 and the LSV-5 for the
same work item was $630,467.00 ($845,380.00 - $214,913.00). (R4, tab 131 at 4 of 4)

        195. As explained at the hearing, the LSV-3 was LSV-5's sister ship (tr. 4/105)
and LSV-3 's solicitation for maintenance followed closely "on the heels" of the
completion of the LSV-5 (tr. 4/103, 110). For the LSV-3 specifications, the
government used "the volumes of pipe and fittings that were submitted on [BAE' s
LSV-5] invoices" in addition to the Moss Point Marine Drawings because the
government knew the drawings "were wrong" (tr. 4/104-6; R4, tab 105 at 210). We
find that the government must have considered that the piping runs and fittings
ultimately installed on the LSV-5 were reasonable and would not mislead LSV-3
bidders. CO Panton acknowledged that, in the case of the LSV-5, "there was [not]
much dispute on the material," rather, "[i]t was more the labor" (tr. 4/108).

      CO Decision

      196. CO Panton issued her decision by letter dated 1August2013 (R4, tab 138).
The decision granted $351,244.12 of the $903,973.00 claimed, and denied $552,728.88.
The decision dismissed DCAA's audit findings for the following reasons:

             All DCAA did, unfortunately, was verify the addition of the
             claim without verifying any of the underlying facts. DCAA


                                           51
               did not have any of the original time cards or any other
               information beyond the summary you provided. DCAA
               took no exception to the proposed material costs. DCAA
               specifically did not examine entitlement, but only looked at
               quantum. DCAA had no knowledge of the actual facts and
               did not look beyond the information offered by BAE.

(Id. at 11 of 13)

       197. In rendering her decision, CO Panton divided the CFRs into two groups:
The first group of 10 CFRs all involved contract drawings that the government conceded
were incomplete and misleading for pricing labor and material costs for the P/W, A/C
and Drain Systems replacement work on the vessel. This group included CFR Nos. 155,
196, 203, 204, 209, 211, 212, 213, 223 and 319. (R4, tab 138 at 12of13)

       198. For this group, CO Panton granted equitable adjustment using what she
described as "the benefit of the bargain" approach. Based on the information
submitted, CO Panton found that CSI originally anticipated spending $77,650.20 for
materials for Item No. 2062, but ultimately spent what she found to be a substantiated
amount of $162,482.40, or 2.1 times the original amount. Applying 2.1 times to the
bid amount of $214,913.23 for Item No. 2062, CO Panton arrived at $494,703.00 18
which she believed would equitably compensate BAE/CSI for the 10 CFRs. For the
10 CFRs in this group, the CO decided BAE was entitled to an equitable adjustment of
$279,790.00 ($494,703.00 - $214,913.00). (R4, tab 138 at 12of13)

       199. On the remaining nine CFRs, CO Panton applied a 33% decrease on the
labor and 43% decrease on the materials based on BAE's 3 June 2010 REA which
reduced its labor hours claimed by 33% from 2,215 to 1,851 hours, and material costs
by 43% from $5,436.00 to $3,124.00 (see findings 150, 151). She also disallowed all
OT differential 19 and what she believed to be unsubstantiated per diem costs. On these
nine CFRs, she allowed a total of$71,454.12:

               CFR No. 166                        $ 5,150.00
               CFRNo. 173                         $16,920.00

18
     The CO erroneously determined 2.1 times $162,482.40 was $494, 703 .00. The
        correct multiplication should yield $451,317. 78. The CO corrected this error in
        her amended decision issued on 3 October 2014. That decision was timely
        appealed and docketed as ASBCA No. 59642.
19
     When asked why she disallowed overtime, CO Panton testified that BAE agreed to
        a fully burdened rate of $73 .50 per hour to perform changes, and its contract
        was a "Calendar day" not a "Monday through Friday" contract and "[i]t's up to
        the contractor. .. to plan their time" (tr. 4/45-46).

                                           52
               CFRNo. 220                         $ 3,635.00
               CFR No. 224                        $ 6,602.47
               CFRNo. 225                         $24,600.00
               CFRNo. 226                         $ 6,616.00
               CFR No. 231                        $ 3,227.15
               CFR No. 238                        $ 3,728.50
               CFR No. 260                        $ 975.00
                    Total                         $71,454.12

(R4, tab 138 at 12-13of13) Thus, the CO granted a total equitable adjustment of
$351,244.12 ($279,790.00 + $71,454.12) (R4, tab 138 at 1 of 13). BAE acknowledged
it has been paid $351,244.12 20 ($279,790.00 + $71,454.12) (app. br. at 68).

        200. On a number of CFRs, the CO questioned the parts prices claimed. On
CFR No. 166, for example, the CO observed that the 1 1/4" gate valves for which CSI
quoted a price of $385 each were purchased by CSI for $345 (Tork Systems Invoice
8124). And, CSI claimed $242 each for the 3/4" gate valves which it purchased for
$209 (Tork Systems Invoice 8124). (R4, tab 138 at 4of13, tab 113 at 200, 201)
Since CSI's material claim is determined on invoiced prices, what the CFR quoted are
inconsequential. Moreover, the minor differences in prices has been explained:
( 1) Parts prices could change between the time they were quoted and the time they
were delivered due to market volatility in 2007 (finding 31); and (2) Tork Systems
invoiced CSI for parts sales tax separately (finding 137).

      201. BAE timely appealed the CO decision by notice dated 2 August 2013.
The Board docketed the appeal on 7 August 2013 as ASBCA No. 58810. The appeal
was heard together with ASBCA No. 58809 (the cloverleaf replacement case) and
ASBCA No. 59642 (government's overpayment case).

        ASBCA No. 59642- CO's 3 October 2014 Amended Decision

       202. CO Panton amended her I August 2013 decision by her 3 October 2014
decision. The new decision was issued to (1) disallow $3,227.15 BAE already received
through bilateral Modification No. 9 and (2) correct a calculation error in her prior
decision. (R4, tab 167 at I of 3) The CO's 2014 decision reiterated that she had to
"create a way to compensate BAE for the additional work it performed" because BAE's
substantiating documentation "rolled up all CFRs into one single piping claim" making
it impossible to make "a determination for each individual CFR" (id. at 1-2 of 3 ).



20
     BAE mistakenly used $351,144.12, $100.00 off, in its brief (app. br. at 68). The
       CO's I August 2013 decision used $351,244.12 (R4, tab 138 at I of 13).

                                           53
        203. Following the same approach used previously, CO Panton found that BAE
in bidding Item No. 2062 for $214,913.23 originally planned to spend $77,650.20 for
materials. She found that CSI's material costs ultimately increased 2.1 times to
$162,482.40. Applying the same multiple (2.1 times) across each category ofBAE's
claim, including subcontractor and BAE's costs, CO Panton found that $450,734.96 21
(2.1 x $214,913.23) above BAE's original bid price or $235,821.73 ($450,734.96 -
$214, 913 .23) would be a fair and reasonable equitable adjustment. Since her 1 August
2013 decision erroneously computed $279,790.00 as equitable adjustment, CO Panton
decided that for the 10 defective drawing related CFRs the amount allowed should be
$43,968.27 less ($279,790.00 - $235,821.73). CO Panton also found that her 1 August
2013 decision erroneously allowed payment of $3,227.15 for REA No. 231, Coil
Baffle repair, because "BAE was already paid the entirety of that $3 ,227 .15 through
bilateral modification 09." (R4, tab 167 at 2 of 3)

         204. Since her 1 August 2013 decision allowed and paid $351,244.12 as
equitable adjustment, her 3 October 2014 amended decision found that BAE was over
paid $47,195.42 ($43,968.27 + $3,227.15). Her amended decision allowed
$304,048.70 ($351,244.12 - $47,195.42) instead. (R4, tab 167 at 2-3 of3) In its brief,
BAE now acknowledges that it has been paid $3,277.15 for CFR No. 231 as a part of
Modification No. 9, effective 18 September 2007 (R4, tab 94 at 3, at 9of13; app. hr.
at 40, 68). Since we reject the government's benefit-of-the-bargain as an appropriate
approach for equitable adjustment, we need not address whether the government's
1August2013 CO decision overpaid BAE $43,968.27 ($47,195.42 - $3,227.15). The
$3 ,22 7 .15 paid will be deducted from BAE' s total recovery. As a result of deducting
$3,227.15 from the $903,407.00 claimed, the net amount ofBAE's claim is reduced to
$900,179.85 (app. hr. at 68).

        205. Recalculating the interest ($19,075.34) paid on the $351,244.12, CO Panton
found the government owed $16,506.68 on $304,048.70. Adding $16,506.68 in interest
to the $304,048.70, the CO determined the amount of equitable adjustment allowed
should be $320,555.38 ($304,048.70 + $16,506.68), with "the net result ... BAE now
owes the Government $30,688.74" ($351,244.12 - $320,555.38). (R4, tab 167 at 3of3)

      206. BAE appealed the decision by notice dated 23 October 2014. The Board
docketed the appeal as ASBCA No. 59642 on 24 October 2014.




21
     Multiplying $214,913.23 by 2.1 is $451,317.78 not $450,734.96.

                                          54
                                       DECISION

                                   ASBCA No. 58810

Limitation of Government Liability to Amounts Already Paid

       The government acknowledges that BAE "discovered additional piping repair
requirements that were not originally anticipated at the time the task order was issued"
(gov't br. at 87). Of the $634,802 BAE claims for CSI, the government contends that
BAE "at most. . .incurred an additional $350,000 in subcontractor costs" based on the
five purchase orders BAE issued to CSI (id. at 88). It argues "when BAE submitted its
claim to the CO four years after the LSV-5 work was completed, it still had only
incurred $350,000 in additional subcontractor costs .... There is no evidence to suggest
that over the four year period any additional payments to CSI were made, or were
required to be made, by appellant." (Id. at 88-89)

        Although the government does not directly say so, it appears to invoke what is
commonly referred to as the Severin doctrine. As explained in United States v.
Johnson Controls, Inc., 713 F.2d 1541, 1552 & n.8 (Fed. Cir. 1983), the Severin
doctrine, first articulated in Severin v. United States, 99 Ct. Cl. 435 (1943), cert.
denied, 322 U.S. 733 (1944 ), held that "a prime contractor cannot recover on behalf of
a subcontractor unless the prime contractor has reimbursed the subcontractor or is
liable to make such reimbursement." In Severin, the contract between the prime
contractor and the subcontractor included an exculpatory clause holding the prime
contractor harmless from any claim caused by the actions of the government. The
court held that it had no jurisdiction to hear any claim caused by actions of the
government.

        Application of the Severin doctrine, however, has been narrowly construed.
See, e.g., Blount Bros. Construction Co. v. United States, 346 F.2d 962, 964-65 (Ct.
Cl. 1965). If the prime contractor proves it has paid the subcontractor or is liable to
the subcontractor for damages sustained by it, then the prime contractor has shown
injury to itself from government action. This showing would overcome the lack of
privity between the government and the subcontractor. E.R. Mitchell Constr. Co. v.
Danzig, 175 F.3d 1369, 1370 (Fed. Cir. 1999). Indeed, "an iron-bound release or
contract provision immunizing the prime contractor completely from any liability to
the sub" would be necessary to preclude a prime contractor's claim for its
subcontractor. "If the contract is silent as to the prime's ultimate liability to the sub,
suit by the former will generally be permitted." Cross Construction Co. v. United
States, 225 Ct. Cl. 616, 618 (1980). Moreover, the government has the burden to
prove that the prime contractor is not responsible for the costs incurred by the
subcontractor that are at issue in the pass-through suit. E.R. Mitchell, 175 F.3d at 1370



                                            55
(citing Blount Bros., 346 F.2d at 964-65; John McShain, Inc. v. United States, 412
F.2d 1281, 1283 (Ct. Cl. 1969)).

       In this case, between mid-May and mid-July 2007, CSI through BAE submitted
19 CFRs with material and labor estimates proposing over $986,000 worth of
additional piping-related work (finding 121). The CO's inability to settle these CFRs
and her direction for BAE to "proceed diligently with the work" (finding 130) forced
BAE to advance CSI $350,000.00 so that it could "make payroll and remain solvent"
to continue to finish the massive amount of additional piping work uncovered (finding
158). The five purchase orders BAE issued to CSI made clear they were issued
pending government settlement of the additional piping replacement work. We found
BAE conditionally advanced the payments to enable CSI to continue with the
expectation that it would ultimately recover from the government the additional costs,
known at the time to exceed $350,000.00. (Finding 132)

        In July 2009, BAE entered into an agreement with CSI on prosecuting CSI's
piping claim against the government. The agreement provided that BAE would be
liable to CSI for the amount it recovered from the government over and above what
CSI had been paid (the original purchase order price of$150,049 plus the $350,000
advanced). (Finding 138)

       Because BAE advanced CSI $350,000.00 so that it would be able to continue to
perform the unexpected and additional piping work to complete the contract, and
because BAE acknowledged it would be liable to CSI for the additional piping-related
costs over and above the amount ($150,049 + $350,000) it already paid CSI, we
conclude that BAE is not barred from recovery under the Severin doctrine.

Equitable Adjustment Based Upon Actual Costs Incurred

       The government contends that BAE's and CSI's claimed costs for labor and
materials "were entirely based upon estimates" and they never revised their estimates
(gov't hr. at 89). The government also contends the estimates were "inaccurate"
because they "were based on drawings that did not contain comprehensive
information," and "were overstatements of the actual work required, and the CFR
estimates are inaccurate" (id.).

       The "preferred" method of proving a claim is by "actual cost method." This
method is preferred because "it provides the court, or contracting officer, with
documented underlying expenses, ensuring that the final amount of the equitable
adjustment will be just that - equitable - and not a windfall for either the government
or the contractor." Propel/ex Corp. v. Brownlee, 342 F.3d 1335, 1338 (Fed. Cir.
2003); Advanced Engineering & Planning Corp., ASBCA Nos. 53366, 54044, 05-1
BCA ~ 32,806 at 162,336. Estimates are a preferred method of pricing equitable


                                           56
adjustment only where actual costs are not available. Bregman Construction Corp.,
ASBCA No. 15020, 72-1BCA~9411at43,716 (rejecting both contractor and
government estimates where estimates did not conform to available actual cost data).

       Although BAE's 10 October 2007 request for reimbursement was based upon
estimates (finding 135), BAE's 3 June 2010 letter submitted documentary proof from
which the actual costs incurred by itself, CSI, and its subcontractor, World Wide Labor,
can be determined. The evidence shows during the course of the LSV-5 overhaul, BAE
maintained a Job Cost Accounting System. This system reported labor and material costs
incurred for a project down to the item level. Labor hours incurred were reported in
BAE's Job Order Status Reports, and within that report, a specific account, such as
Account 3000, was established to collect the labor hours for the additional P/C, AIC and
Drain Water Piping Systems replacement work (finding 163 ). Additionally, BAE' s Job
Order Accounting System was capable of producing Labor Distribution Reports which
summarized by labor category, by trade, and by date, the ST and OT hours each BAE
hourly employee worked and charged to specific accounts such as Account 3000
(finding 164). Under BAE's Job Order Accounting System, material procurements were
reported in the Material Status Reports and specific accounts, such as Account 3000,
were established to collect material costs of changed items (finding 169).

       BAE's 3 June 2010 letter which supplemented REA No. 7 provided
documentary proof based upon actual costs (finding 149): For its labor hours in
support of CS I's piping-related CFR work, BAE provided its Job Labor Status Reports
(finding 150). For its material costs in support of CSI's CFR piping work, BAE
provided its Material Status Report. Albeit not organized by CFRs, BAE also
provided numerous material invoices from CSL (Finding 151) For CSI's labor, BAE
furnished CSI's "LSV5/Copper Nick[ el] Piping Job Time Sheet" (findings 153, 154).
At the CO's request, BAE by email on 13 July 2010 provided World Wide Labor's
time sheets (finding 156).

        The government argues that BAE's Job Labor Status Report included labor
hours of its own employees "starting as early as 2 April 2007, despite the fact that CSI
did not discover a need for additional piping work until 14 April 2007" (gov't br. at
90). It also argues "CSI's timesheets included labor hours for after the piping work
was finished" (gov't br. at 91 ). These charging errors, however, should not prevent
BAE from using its Job Order Status Report, and its Labor Distribution Report (for
Account 3000), from proving its labor costs. Nor should they prevent CSI and World
Wide Labor from using their time sheets in proving their labor costs. It is true that
BAE submitted its first piping-related CFR (LSV-018) on 14 May 2007 (finding 39)
and its work on the vessel was 100% complete on 25 August 2007 (finding 166). If
labor hours were charged by BAE, CSI or World Wide Labor before 14 May 2007 or
after 25 August 2007, they can be disallowed and deducted.



                                           57
       The government does not dispute that BAE is entitled to charge $73 .50 per hour
for ST labor and CSI is entitled to charge $52.00 per hour for ST labor. To the extent
BAE is entitled to charge an OT differential, which we will address next, the
government has not disputed BAE's $36.75 OT differential. The government has not
challenged the OT differential rate of $26.00 charged by CSL Hence, the actual labor
costs BAE and CSI incurred in performing the piping-related CFRs can be determined
by multiplying the allowable labor hours by the undisputed hourly rates. The actual
material costs BAE and CSI incurred in performing the piping-related CFRs can be
determined from the invoices provided.

Payment of OT Differential

       The government contends that "[t]he Contract never authorized overtime."
Relying upon the contract's fully burdened rate provision (finding 7), the government
argues that BAE is not entitled, "as a matter of law, to $110.25 per hour for
unauthorized overtime work" (gov't hr. at 84).

        The fully burdened rate provision provides that "Offerors shall include a fully
burdened labor rate to be used in negotiating changes. The rate must include all costs
for negotiating changes .... The offeror shall insert rates below that it agrees to use in
negotiating changes for new or additional work." (Finding 7) We disagree with the
CO's interpretation that the $73.50 per hour fully burdened rate is applicable to the OT
hours BAE worked. First, the fully burdened rate provision does not mention overtime
at all. Second, the provision requires that the $73.50 per hour rate to be used "in
negotiating changes." In this case, between 17 May and 14 July 2007, BAE submitted
19 CFRs (finding 121). In all but six CFRs (319, 166, 173, 224, 231and260), BAE's
CORS indicated OT would be required in assisting CSL Not once did the CO object
to the inclusion of OT or offer to negotiate a change order to settle any of the CFRs.

         To impose the $73.50 fully burdened rate on OT work when there was no
negotiation would be inconsistent with the plain meaning of the fully burdened rate
provision of the contract. In interpreting contract provisions, we must "begin with the
plain language," and we must "interpret the contract in a manner that gives meaning to
all of its provisions and makes sense." McAbee Construction, Inc. v. United States, 97
F.3d 1431, 1435 (Fed. Cir. 1996).

        Moreover, "[a] party who willingly and without protest enters into a contract
with know ledge of the other party's interpretation of it is bound by such interpretation
and cannot later claim that it thought something else was meant." Perry and Wallis,
Inc. v. United States, 427 F.2d 722, 725 (Ct. Cl. 1970); Cresswell v. United States, 146
Ct. Cl. 119, 127 (1959) ("If one party to a contract knows the meaning that the other
intended to convey by his words, then he is bound by that meaning."); United
Technologies Corp., Pratt & Whitney Group, Government Engines and Space


                                           58
Propulsion, ASBCA Nos. 46880, 46881, 97-1BCAii28,818 at 143,800; The Public
Warehousing Company, ASBCA No. 56022, 15-1 BCA ii 36,062 at 176, 111.

       On 6 July 2007, BAE and the CO orally agreed to a 27-day time extension to
the contract completion date so that BAE could finish the additional P/W, A/C and
Drain Water Piping Systems replacement work on the vessel (finding 128). By 6 July
2007, BAE had submitted all but one (the catchall CFR No. 319 relating to the
removal of interferences and subsequent restoration) of the piping-related CFRs. We
found the CO knew from the CORSs BAE submitted along with the CFRs that it
would require OT and charge OT differential to assist CSI to complete the
piping-related CFRs. We found that up to 6 July 2007, the CO knew that BAE had
worked OT. We found the CO knew that BAE did not interpret the fully-burdened
rate provision to preclude it from claiming OT differentials on unsettled changed
work. We found that wi~h full knowledge of BAE's interpretation of that provision,
the CO did not address or object to OT charges but entered into an agreement with
BAE to extend the contract. There is no evidence that BAE agreed to the 27-day
extension (from 27 July to 23 August 2007) without charging extra for overtime. (Id.)

       The parties' 6 July 2007 oral agreement to extend the contract completion date
was subsequently incorporated into Modification No. 6. Although Modification No. 6
was issued by the CO unilaterally and the parties disagree on some parts of it, such as the
equitable adjustment relating to the cloverleaf replacement work, the parties do not
disagree that the 27-day extension was binding. Under these circumstances, we conclude
the government is bound by BAE's interpretation that payment of OT differential, to the
extent incurred and met the requirements of FAR 31.201, is allowable.

The CO 's Benefit-of-the-Bargain Approach in Granting Equitable Adjustment

       The CO's I August 2013 decision granted an equitable adjustment of
$351,244.12 for the 19 CFRs (finding 199). The decision divided the 19 CFRs into two
groups: The first group of 10 CFRs all involved contract drawings that the government
conceded were incomplete and misleading for pricing labor and material costs for the
P/W, A/C and Drain Water Piping Systems replacement work on the vessel. This group
included CFR Nos. 155, 196, 203, 204, 209, 211, 212, 213, 223, and 319. (Finding 197)
For this group, the CO granted equitable adjustment using "the benefit of the bargain"
approach: Based on her finding that CSI originally anticipated spending $77,650.20 for
materials for Item No. 2062, but ultimately spent what she found to be a substantiated
amount of$162,482.40 or 2.1 times the original amount, the CO granted 2.1 times the
amount BAE bid for Item No. 2062 and arrived at $494,703.00. Deducting the original
bid amount, the CO found that BAE was entitled to $279,790.00 ($494,703.00 -
$214,913.00) for the 10 CFRs. (Finding 198) On the remaining nine CFRs involving
deteriorated parts replacements, the CO applied a 33% reduction to the labor costs
claimed and a 43% reduction to the materials costs claimed based upon BAE's 3 June


                                           59
2010 reduction. And, disallowing all OT differential and what the CO believed to be
unsubstantiated per diem costs, the CO allowed $71,454.12 for these nine CFRs (CFR
Nos. 166, 173, 220, 224, 225, 226, 231, 238 and 260). (Finding 199)

       One way fora remedy a breach of contract is to award damages based on the
non-breaching party's expectation interest or the interest in having the benefit of his
bargain by being put in "as good a position as he would have been in had the contract
been performed." RESTATEMENT (SECOND) OF CONTRACTS,§ 344 cmt. a (1981).
Glendale Federal Bank, FSB v. United States, 239 F.3d 1374, 1380 (Fed. Cir. 2001).
"Expectation damages are recoverable provided they are actually foreseen or reasonably
foreseeable, are caused by the breach of the promisor, and are proved with reasonable
certainty." Bluebonnet Sav. Bank, F.S.B. v. United States, 266 F.3d 1348, 1355 (Fed.
Cir. 2001); RESTATEMENT(SECOND)OFCONTRACTS §§ 347, 351, 352 (1981).

        In this case, because the Moss Point Marine drawings the government provided
for bidding purposes were admittedly misleading, and because the ceilings and
bulkheads were in place when the vessel was made available for ship check, neither
the government nor any bidder could have "actually or reasonably foreseen" the
amount of piping, fittings and interferences that ultimately had to be removed and
installed in order to accomplish Item No. 2062. Based on our determination that the
actual cost method can be used to determine an equitable adjustment, we conclude
resorting to the benefit-of-the-bargain approach in the first instance is unnecessary and
inappropriate. The fact that CSI ultimately had to spend 2.1 times the amount
originally estimated for materials bore no relationship to the labor hours ultimately
required to accomplish the copper/nickel piping replacement work.

Computation ofEquitable Adjustment

      Having decided the overarching issues above, we address next the details of the
quantum of adjustment. BAE's certified claim was based upon the following
formulation:

       1,851 hours@ $73.50 (BAE)                         $136,049.00
       279 hours@ OT differential at $36.75 (BAE)        $ 10,253.00
       Materials (BAE)                                   $ 3,124.00
       Subcontractor (CSI)                               $634,802.00
       G&A@8.82%                                         $ 56,265.00
       Profit on Subcontract @ 10%                       $ 63,480.00
       Total                                             $903,973.00

(Finding 159) In its post-hearing brief, BAE acknowledged that it had been paid
$3,277.15 for CFR No. 231 as a part of Modification No. 9 {app. br. at 67-68). As a
result of deducting $3,277.15 from $903,407.00, the net amount of BAE's claim is


                                           60
reduced to $900,129.85 ($903,407.00 - $3,277.15). This acknowledgement also
reduced the CFRs in dispute from 19 to 18. Since the subcontractor's claim
constitutes about 70% of BAE's overall claim, we address CSI's claim first.

        The determination of equitable adjustment is not an exact science; where
responsibility for damage is clear, it is not essential that the damage amount be ascertainable
with absolute or mathematical precision. Electronic & Missile Facilities, Inc. v. United
States, 416 F.2d 1345, 1358 (Ct. Cl. 1969). In Wunderlich Contracting Co. v. United
States, 351 F .2d 956, 968 (Ct. Cl. 1965) (citations omitted), the Court of Claims stated:

              A claimant need not prove his damages with absolute
              certainty or mathematical exactitude. It is sufficient if he
              furnishes the court with a reasonable basis for
              computation, even though the result is only approximate.
              Yet this leniency as to the actual mechanics of computation
              does not relieve the contractor of his essential burden of
              establishing the fundamental facts of liability, causation,
              and resultant injury.

See also Specialty Assembling & Packing Co. v. United States, 355 F.2d 554, 572 (Ct.
Cl. 1966) ("It is enough if the evidence adduced is sufficient to enable a court or jury
to make a fair and reasonable approximation.").

              CSI's Labor Costs

        In support of its claim, CSI submitted its time sheets which show that it charged
7,202 ST hours and 3,451.50 OT differential hours for additional piping work
(finding 154). We disallow 1,032 ST hours and 500 OT differential hours because CSI
did not submit the first of its piping-related CFRs stemming from defective drawings
until 14 May 2007 (findings 39, 155) and could not therefore have been working on
CPR-related work before that date. We also disallow 120 ST hours and 81 OT
differential hours CSI claimed for the week ending 31 August 2007 because work on the
vessel was completed on 25 August 2007 (finding 155). To account for the labor hours
attributable to CFR No. 231 which was settled through Modification No. 9, we deduct
30 ST hours and 12 OT differential hours which CSI included as a part of the overall
$3,227.15 proposal which the government accepted (findings 110, 112). Based upon the
foregoing deductions, we conclude that CSI incurred 6,020 ST hours (7 ,202 hours -
1,032 hours - 120 hours - 30 hours) and 2,858.50 OT differential hours (3,451.5 - 500
hours - 81 hours - 12 hours) performing additional piping-related CFR work.

      There is no dispute that CSI paid its hourly employees $52.00 per ST hour and
$26.00 per OT differential hour. We conclude that CSI is entitled to an additional
$387,361.00 in additional labor costs:


                                           61
                        Hours x Rate                    Amount
            6,020 ST hours x $52.00                   $313,040.00
            2,858.5 OT differential hours x $26.00    $ 74,321.00
            Total                                     $387,361.00

             Labor Costs Incurred by CSI's Second Tier Subcontractor World Wide Labor

         At the CO's request, BAE also submitted World Wide Labor's time sheets showing
that it incurred 3,418 ST hours and 1,297 OT differential hours "in support of REA No. 7."
DCAA's audit worksheet shows that CSI paid World Wide Labor $194,454.45 for work in
support of REA No. 7. We disallow 140 ST hours and 30 OT differential hours World
Wide Labor worked during the week ending 13 May 2007 because it could not have been
working on additional piping-related CFR work before the first CFR was submitted (CFR
No. 155) on 14 May 2007. We therefore disallow $6,716.70 World Wide labor charged
before 14 May 2007 and allow $187,737.75 ($194,454.45 - $6,716.70). (Finding 156)

             CSI's Material Costs

        In support of its claim for the cost of materials purchased to complete the
additional piping-related CFRs, CSI submitted hundreds of invoices from its material
suppliers (finding 186). The CO in her decision stated that CSI's was able to
substantiate $162,482.40 (finding 198). At the Board's request, each party ran a
calculator tape adding all of the vendor invoices submitted (findings 186-88). As a
result of this exercise, the Board was able to reconcile the parties' differences and
found CSI incurred $187,652.27 in material costs (findings 189-92). Of the
$187,652.27 verified, we deduct $220.00 for materials CSI estimated for CFR No. 231
which was settled through Modification No. 9 (findings 110, 204). Based upon the
Moss Point Marine drawings, CSI estimated $77,650.20 in materials would be
required to perform the original Item No. 2062 work. Because CSI was already
obligated to furnish $77 ,650.20 worth of materials and had been paid that amount by
BAE (finding 142), we conclude that CSI must credit the government $77,650.20 on
the $187,652.27 material costs it proved as having been incurred to complete the
copper/nickel piping replacement work (finding 192). Except for CFR No. 231, we
allow $120,869.82 in CSI material costs required to perform the additional
piping-related CFR work:

             Material Costs Invoiced                  $187 ,652.27
             Deduct CFR No. 231 Material                 ($220.00)
             Deduct Original Material Proposed        ($77,650.20)
             Tork Systems Sales Tax                     $11,087.75
             Total                                    $120,869.82



                                          62
              CSI's Per Diem Costs

       The hourly workers CSI employed at the shipyard were from out of the
San Francisco area (finding 30). In 15 of the 19 CFRs CSI submitted, it advised the
CO there would be per diem costs associated with its employees in performing the
additional piping-related work (finding 124). FAR 31.205-46 (a)(l ), Travel costs,
provided that "Costs for transportation, lodging, meals and incidental
expenses .. .incurred by contractor personnel on official company business are
allowable, subject to the limitations contained in this subsection." CSI paid $80.00 per
diem for each employee. We consider the amount reasonable when compared with the
Federal Travel Regulation 2007 per diem rates for San Francisco at $140.00 for
lodging and $64.00 for meals and incidentals. (Finding 30)

       Although CSI has not provided a detailed listing of the per diem costs paid, there is
evidence that CSI charged some of its per diem costs to its credit cards (finding 187). At
the hearing, the DCAA auditor testified that he saw support that CSI paid per diem costs
(finding 181 ). Based upon the testimonial and documentary evidence in the record, we
conclude that CSI has shown, by a preponderance of the evidence, that per diem costs
were incurred in the course of performing the piping-related CFRs.

       Based on its CFR estimates, the DCAA audit work papers listed $55,480 in CSI
per diem costs. CSI did not show to which CFR the $5,680 for LSV-5 pertained. The
testimonial and documentary evidence in the record, however, is sufficient for us to
conclude CSI did incur per diem costs in performing additional piping-related CFR
work. Except for the $5,680 which CSI did not account for as pertaining to any of the
CFRs, we allow $49,800 ($55,480 - $5,680) in CSI per diem costs. (Finding 181)

              Total Subcontractor Costs

        In claiming subcontractor costs of $634,802.00, BAE did not provide a
breakdown. In reviewing the documentary and testimonial evidence in the record, we
find BAE is entitled to $745,768.57 in subcontractor costs. The difference is mainly
attributable to additional evidence provided during the course of litigation on ( 1)
World Wide Labor's costs; (2) CSI's material costs; and (3) CSI's per diem costs:

               Subcontract Cost Elements                Amount
         6,020 ST hours x $52.00                       $313,040.00
         2,858.5 OT differential hours x $26.00        $ 74,321.00
         World Wide Labor Costs                        $187,737.75
         CSI Material Costs                            $120,869.82
         CSI Per Diem Costs                            $ 49,800.00
         Total                                         $745,768.57

                                           63
             BAE' s Labor Costs

       We determine next the equitable adjustment due BAE in its role assisting CSI
in accomplishing the piping-related CFRs. BAE seeks 1,851 ST hours at $73 .50 per
hour and 279 OT differential hours at $36.75 per hour plus $3,124.00 in materials
(finding 159). BAE's Labor Distribution Report which summarized by labor category,
by trade, and by date, the ST and OT hours each of its hourly employees charged to
Account 3000 established to "ASSIST CSI W/ITEM 2062" shows BAE charged a
total of 1,331.25 labor hours. Of the 1,331.25 hours, 1,082 were ST hours and 249.5
were OT differential hours. (Findings 163-65)

       Of the 1,082 ST hours, we found 46 ST hours not chargeable to Account 3000
because they were charged after the vessel was 100% complete on 25 August 2007.
For the same reason, we found 30 OT differential hours not chargeable to Account
3000. This left 1,036 ST hours and 219.25 OT differential hours chargeable to
Account 3000. (Finding 166) We do not deduct any BAE ST and OT differential
hours for CFR No. 231 which was settled as a part of Modification No. 9. As
indicated in its CORS, BAE saw no need and did not assist CSI in accomplishing the
work in CFR No. 231. (Findings 112, 204)

      We conclude that BAE is entitled to the following piping-related CFR labor costs:

                               Hours                  Amount
            1,036 ST hours x $76.50                  $79,254.00
            219.25 OT differential hours x $36.75    $ 8,057.44
            Total                                    $87,311.44

             BAE' s Material Costs

       BAE seeks $3, 124.00 for material used to assist CSI (finding 159). The DCAA
did not review BAE's claim for materials "[d]ue to materiality" because "it
represented less than 4 percent of total cost[ s]." The DCAA report said it took "no
exception to the ... REA No. 7 material costs proposed by BAE." (Finding 173)
BAE's Job Order Accounting System collected material costs for changed work
(finding 161). We found BAE's Material Status Report for Account 3000 showed
BAE collected $2,694.39 in material costs. We allow this amount. (Finding 169)




                                         64
               Claimed Versus Allowed Cost Summary

       We summarize below the amounts BAE claimed versus the amounts we
allowed based upon the parties' Rule 4 submissions and the documentary and
testimonial evidence admitted during the hearing:

         Claimed                  Amount              Allowed                  Amount
 1,851 ST x $73.50 (BAE)       $136,049.00 1,036 ST x $73.50                  $79,254.00
                                             (finding 166)
 279 OT diff. x $36.75.00        $10,253.00 219.25 OT diff. x $36.75          $ 8,057.44
 (BAE)                                       (finding 166)
 Materials (BAE)                  $3,124.00 Materials (finding 169)            $2,694.39
 Subcontractor (CSI)           $634,802.00 Subcontractor (CSI)
                                             6,020 ST£221x $52.00            $313,040.00
                                             (findings 110-11, 155)
                                             2,858.5 OT diff.l 23 l x        $ 74,321.00
                                             $26.00 (findings 110-11,
                                             155)
                                             • World Wide Labor              $187,737.75
                                             (finding 156)
                                             • CSI MateriaJC2 4 l(findings   $120,869.82
                                             110-11, 142, 192)
                                             • CSI Per Diem (finding         $ 49,800.00
                                             181)
                                             • Questioned CSI OT               ($618.00)
                                             (findings 179, 182)
 G&A (a!, 8.82%                  $56,265.00 G&A (a!, 8.82%                   $ 65,964.51
 Profit on Sub. (a!, 10%         $63,480.00 Profit on Sub. @J 10%            $ 74,520.26
 Subtotal                      $903,973.00
 Deduct for CFR No. 231         ($3,227 .15)
 Total                         $900, 179. 85                                 $975,641.17

Reasonableness ofBAE 's Costs

         The government contends that the costs BAE claimed are unreasonable because
it ( 1) "has provided no evidence that it imposed any competitive restraints on its
subcontractor, CSI" (gov't hr. at 94); (2) "has not shown that the original estimate was
reasonable or well thought out, so any growth from its initial proposed price, plus the

22
     Thirty (30) ST estimated deducted as a result of settlement of CFR No. 231.
23
     Twelve ( 12) OT differential deducted as a result of settlement of CFR No. 231.
24
     $220.00 in material cost deducted as a result of settlement of CFR No. 231.

                                            65
piping amounts allowed by Ms. Panton, could be due to poor planning"; and (3) "the
staggering increase in BAE SFSR's alleged costs associated with the piping work
indicates it either incorrectly billed those hours and materials, or operated with an
unreasonable level of inefficiency" (gov't br. at 96).

       To be allowable, Contract 0005 requires application of FAR Part 31 (finding 4).
Under FAR 31.201-2, whether a cost is allowable depends, among other factors, upon
whether the cost is reasonable, allocable, and compliant with the contract terms and the
FAR limitations (finding 5). In determining reasonableness, FAR 31.201-3(a) provides
"A cost is reasonable if, in its nature and amount, it does not exceed that which would be
incurred by a prudent person in the conduct of competitive business." The same FAR
provision says "No presumption of reasonableness shall be attached to the incurrence of
costs by a contractor." Interpreting this FAR provision, the Federal Circuit has
confirmed that the contractor has the burden of proof, unaided by a presumption of
reasonableness, to establish the costs it incurred were reasonable. Kellogg Brown &
Root Services, Inc. v. United States, 728 F.3d 1348, 1363 (Fed. Cir. 2013).

        The standard of proof in demonstrating quantum entitlement is a preponderance
of the evidence, not beyond a reasonable doubt. Teledyne McCormick-Selph v. United
States, 588 F .2d 808, 810 (Ct. Cl. 1978). Once a contractor makes a prima facie
showing of quantum recovery, the government is required to come forward to contest
the prima facie case. If the government fails to do so, the prima facie case stands
uncontroverted and the contractor, with the burden of proof, will have established its
case by a preponderance of the evidence. Environmental Safety Consultants, Inc.,
ASBCA No. 53485, 05-1BCAii32,903 at 163,019.

              ( 1) Competitive Restraints

       FAR 31.201-3 cautioned that "Reasonableness of specific costs must be examined
with particular care in connection with firms or their separate divisions that may not be
subject to effective competitive restraints" (finding 6). The government has not explained
why this FAR provision is relevant in this appeal. As far as the evidence shows, CSI was
not a division of BAE. There is no proof of any business arrangements between BAE and
CSI that would call into question any competitive restraint issues. Being in the ship repair
business, we expect BAE and CSI to know where to buy its parts and materials. There is no
evidence that BAE and CSI bought parts and materials at excessive prices. Given the
urgency of the work involved, it would not have been prudent for BAE and CSI to seek
competitive bids each time a piping change surfaced. Other than disputing whether OT
differential is allowable, the government has not taken the position that the labor rates BAE
and CSI paid are unreasonable.




                                            66
              (2) BAE and CSI Have Established a Prima Facie Case of Cost Reasonableness

        BAE's and CSI's CFRs were estimated by experienced estimators: CSI's
Mr. Brown was the director of estimating of his firm where he was co-owner
(finding 15). BAE's Mr. Bain who reviewed CSI's CFRs and added BAE's labor and
materials came up "through the pipefitting trade" (finding 29). Moreover, BAE's and
CSI's CFRs were based upon on site personal observations of what needed to be done:
Mr. Brown was on the vessel and at the location in every case where it was discovered
that the piping was not as represented on the contract drawings. His material estimates
were upon "[i]nspection onboard the ship and then counting what was there, where we
had to go, and what we had to do." He testified that he estimated with the expectation
that others could see what were found and he would have to account for his estimates.
(Finding 28) Although Mr. Bain did not redo CSI's estimates, he did check the areas
CSI was concerned about and reviewed CS I's estimates based on his "rule of thumb"
derived from his experience "coming up.through the pipefitting trade" (finding 29).

       Following procedures outlined in the contract (finding 3), BAE and CSI
submitted 19 CFRs with a total estimated price of $986,248.54 (finding 121).
Excluding CFR No. 231 which CSI estimated and settled for $3,227 .15 (finding 111 ),
CSI estimated it would cost $983,021.39 ($986,248.54 - $3,227.15) for the remaining
18 CFRs. After deducting the materials ($220.00) and labor hours (30 ST and 12 OT)
for CFR No. 231, and the labor hours we found unallowable (findings 155, 166, 168),
we found BAE, through documents kept in the ordinary course of business, such as
time sheets, Job Labor Status Reports, Labor Distribution Reports, Material Status
Reports and material invoices, was able to establish that $975,641.17, or 99.24% of the
$983,021.39 it estimated to accomplish the copper/nickel piping replacement work
was incurred. 25

       In terms of labor hours, CSI and BAE estimated they would need roughly
$604,456.25 in ST and OT to accomplish the additional work called for by the 19
CFRs (finding 122). CSI and BAE proved that they incurred $662,410.19 ($79,254.00
+ $8,057.44 + $313,040.00 + $74,321.00 + $187,737.75) in ST and OT costs, just
9 .6% more, in performing the CFRs.

       In terms of materials, CSI's CFR estimated an additional $160,692.80 worth of
piping parts, not including freight and sales tax in some cases, would be needed
(finding 123). Based on the invoices CSI submitted, the CO found substantiation of
$162,482.40 (finding 198). Excluding the sales tax Tork Systems separately billed,


25
     We recognize we have made a number ofunallowable deductions (findings 155
       (CSI labor), 166, 168 (BAE labor), 169 (BAE material). Their impact on the
       total costs incurred was insignificant.

                                          67
CSI proved that it incurred $176,564.52 ($187,652.27 - $11,087.75), 9.8% more than
estimated.

       With minor exceptions such as CSI's unrecorded 20 OT hours (findings 179, 182),
DCAA, in auditing BAE's and CSI's time sheets and material invoices, was able to verify and
reconcile the labor and material costs recorded with the costs claimed (findings 171-83 ).

       Moreover, the maintenance on the LSV-3, LSV-5's sister ship, followed closely
"on the heels" of the LSV-5. The government used "the volumes of pipe and fittings that
were submitted on [BAE's LSV-5] invoices" in soliciting proposals for the LSV-3. We
found that the government must have considered that the piping runs and fittings
ultimately installed on the LSV-5 were reasonable and would not mislead LSV-3 bidders.
(Finding 195)

       We conclude that BAE has established a prima facie case that the costs it
incurred are reasonable.

       The government, on the other hand, has failed to contest or rebut the
reasonableness of the costs shown to have been incurred: The government's Ship
Surveyor was regularly aboard the vessel and had the opportunity to look at the piping
systems as they were being removed and installed. There is no evidence Ship Surveyor
Large went out and checked CSI's and BAE's estimates. (Finding 35) As the CO's eyes
and ears at the shipyard and one charged with the responsibility to advise the CO on
technical issues, Ship Surveyor Large prepared no Specification Worksheet (government
estimate) on any of the CFRs (finding 34). Without estimates, the CO granted an
equitable adjustment based on the benefit-of-the-bargain approach which we rejected.
The CO took no exceptions to the audit findings but complained that DCAA did not
obtain "technical advice" in reaching its conclusions. The CO had it backwards. She and
her technical team, not DCAA, were in the better position to assess the claim from a
technical standpoint (finding 184 ).

             (3) Labor Hours Unrelated to the Piping CFRs have been Disallowed
and there was No Proof of Operation Inefficiency

       To the extent CSI and BAE erroneously charged labor hours unrelated to the
piping CFR work, they have been disallowed (findings 155-56, 165-66, 168). There is
no evidence BAE and CSI "operated with an unreasonable level of inefficiency."
When CFR work was discovered, CSI and BAE promptly submitted CFRs. Despite
the CO's inaction, CSI and BAE proceeded with the work nonetheless because the
specification required "what was there had to be replaced," and CSI did not want its
workers "standing around waiting ... for something to happen" (findings 37, 127).




                                          68
                                    CONCLUSION

       Because BAE has proven, by a preponderance of the evidence, that it incurred
additional labor, material, and subcontractor costs in accomplishing the unanticipated
and additional work in replacing LSV-5's Potable Water, Air Conditioning, and Drain
Piping Systems, we hold that it is entitled to $97 5,641.17.

       Because the CO granted and paid $351,244.12 in her decision, we hold that
BAE is entitled to $624,397.05 ($975,641.17 - $351,244.12) with interest pursuant to
41 U.S.C. § 7109 running from 11 July 2011, the putative date on which the CO
received BAE's 6 July 2011 letter (finding 160) converting REA No. 7 into a certified
claim.

                                  ASBCA No. 59642

       The CO's 3 October 2014 decision amended her 1August2013 decision by asserting
that BAE was over paid $47,195.42. Of this amount, (1) $43,968.27 was due to a
calculation error when she computed equitable adjustment of the piping claim using the
benefit-of-the-bargain approach, and (2) $3,227 .15 was due to her discovery that the parties
had actually settled CFR No. 231 in 2007 through Modification No. 9. (Findings 203, 204)
Recalculating the CDA interest ($19,075.34) paid on the $351,244.12, CO Panton found the
government owed $16,506.68 on $304,048.70. Adding $16,506.68 in interest to the
$304,048.70, the CO determined the equitable adjustment allowed should be $320,555.38
($304,048.70 + $16,506.68), with the net result that BAE now owes the government
$30,688.74 ($351,244.12 - $320,555.38) (finding 205).

                                    CONCLUSION

      Because we rejected the benefit-of-the bargain approach as a way of
determining equitable adjustment for the piping CFRs, the CO's calculation error
based on that approach is inconsequential, and BAE' s appeal is granted to the extent
determined in ASBCA No. 58810.

      Because BAE has acknowledged that the parties settled CFR No. 231, and the
government has paid the agreed amount through Modification No. 9, ASBCA




                                          69
No. 59642 is dismissed as moot. In the Board's overall determination of the quantum
of adjustment in ASBCA No. 58810, we have taken the settlement into account.

      Dated: 13 June 2016

                                                ..
                                                     PETER D. TING
                                                     Administrative Judge
                                                     Armed Services Board
                                                     of Contract Appeals

 I concur                                            I concur



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     / ; / _ /

                     <')   .-   . - -   -
                                            -




 MJ\RK. N. STEMPLER                                  RICHARD SHACKLEFORD
 Administrative Judge                                Administrative Judge
 Acting Chairman                                     Vice Chairman
 Armed Services Board                                Armed Services Board
 of Contract Appeals                                 of Contract Appeals




       I certify that the foregoing is a true copy of the Opinion and Decision of the
Armed Services Board of Contract Appeals in ASBCA Nos. 58810, 59642, Appeals of
BAE Systems, San Francisco Ship Repair, rendered in conformance with the Board's
Charter.

      Dated:



                                                     JEFFREY D. GARDIN
                                                     Recorder, Armed Services
                                                     Board of Contract Appeals




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