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Tip Top Construction, Inc v. Patrick R. Donahoe

September 19, 2012


Appeal from the Postal Service Board of Contract Appeals in no. 6351, Administrative Judge Norman D. Menegat.

The opinion of the court was delivered by: Schall, Circuit Judge.

Before RADER, Chief Judge, MAYER, and SCHALL, Circuit Judges.

Tip Top Construction, Inc. ("Tip Top") appeals the final decision of the Postal Service Board of Contract Appeals ("PSBCA" or "Board") granting-in-part and denying-in-part Tip Top's appeal under the Contract Disputes Act of 1978, as amended ("CDA"), 41 U.S.C. §§ 7101--7109. Tip Top Constr., Inc., PSBCA No. 6351, 11-1 B.C.A. ¶ 34,726, 2011 WL 1226107 (Apr. 1, 2011) ("Board Decision"). In its decision, the PSBCA ruled that Tip Top was entitled to recover $2,565 of the $12,400 it claimed as an equitable adjustment resulting from a change order under its indefinite quantity job order contract with the Postal Service for renovation and alteration of postal facilities in the U.S. Virgin Islands (the "contract"). Id., slip op. at 16. The Board ruled that Tip Top was not entitled to recover the balance of the amount claimed, $9,835, because it had failed to demonstrate that the costs at issue were incurred as a result of the change order. Id., slip op. at 17. Because we conclude that this latter ruling by the Board was based upon an error of law and not supported by substantial evidence, we reverse and remand the case to the Board with the instruction that it grant Tip Top's appeal in its entirety.



The Postal Service awarded the contract to Tip Top on July 26, 2007. Id., slip op. at 2, ¶ 1. The contract contemplated that from time to time the Postal Service would assign Tip Top individual projects by issuing work orders. Id.

The contract specified a procedure for the issuance of a work order. Id., slip op. at 2--3, ¶ 3. First, the Postal Service and Tip Top would hold a Joint Scope Meeting, at which the Postal Service would explain to Tip Top the work it wished to have done and Tip Top could provide input. Next, the Postal Service would prepare a "Detailed Scope of Work," on which Tip Top would base its proposal for the work. The proposal would be a lump-sum fixed-price proposal which would be contained in a "Price Proposal Package" which Tip Top would present to the Postal Service. If the Postal Service accepted Tip Top's Price Proposal Package, it would issue a work order for the project. Id., slip op. at 3--4, ¶ 5. Contract Clause B.309 stated, "The contractor shall not recover any costs arising out of or related to the development of the work order including but not limited to the costs to review the Detailed Scope of Work or prepare a Price Proposal Package . . . ." Contract Clause B.309, Work Order (Clause F-302) (March 2006), subsection I. The contract also contained a changes clause. See Contract Clause B.1006, Changes (Construction) (Clause B-37) (March 2006) Modified, subsections a,c.

On May 26, 2009, the Postal Service issued Tip Top a work order to replace the air conditioning system at the Main Post Office in Christiansted, Virgin Islands, for the price of $229,736.92. Subsequently, on July 26, 2009, Tip Top sent the Postal Service's construction manager, Victor Morales, its mechanical subcontractor's submittals. The subcontractor planned to install Carrier Air Cooled Condensers Model 09DK020 and a Carrier Air Cooled Indoor Unit Air Handler Model 05BV024. The proposed condensers could be used with refrigerants R-12, R-22, R-500, and R-134a; the proposed air handler could be used with refrigerants R-22 and R-410a. The equipment submittals did not identify the refrigerant Tip Top planned to use.

The Postal Service's construction manager approved the submittals, and based on that approval, Tip Top's mechanical subcontractor ordered the listed equipment and associated fittings and piping.

In September of 2009, Tip Top sent its submittal for the system refrigerant to Mr. Morales. In the submittal Tip Top stated that it planned to use R-22 refrigerant. On September 18, 2009, Mr. Morales returned the submittal to Tip Top marked "Reviewed, no exceptions taken." Later that same day, however, Mr. Morales emailed Tip Top stating that Tip Top should ignore the previous approval and that R-410a refrigerant should be used in the system. A week later, Ivan Diaz, Tip Top's consultant for the project, responded that the equipment previously ordered from Carrier Corp. ("Carrier") was only available with R-22 refrigerant and that a change in equipment would involve additional cost and penalties estimated at $20,000. Mr. Diaz asked how Tip Top should proceed. Mr. Morales responded on September 28, 2009, asking Tip Top to submit a proposal to furnish and install air conditioning equipment that used R-410a refrigerant.

During the period September 18 through October 13, 2009, Mr. Diaz assisted Tip Top in negotiating the required change with its mechanical subcontractor and Carrier. On October 13th, Tip Top submitted to the Postal Service specifications for air conditioning equipment that used R-410a refrigerant.

The submittal was approved by the Postal Service on October 15, 2009. Shortly thereafter, on October 19, 2009, Tip Top, through Mr. Diaz, submitted a proposal in the amount of $28,838.43 for additional costs associated with changing the air conditioning system from one using R-22 refrigerant to one using R-410a refrigerant.

In early November 2009, Robert Manka, the Postal Service's contracting officer, orally instructed Tip Top to proceed with the change in refrigerant. Subsequently, on January 12, 2010, Mr. Manka directed Tip Top in writing to proceed with the change in equipment from a system using R-22 refrigerant to one using R-410a refrigerant. Mr. Manka's letter stated in pertinent part as follows:

Tip Top Construction is hereby directed to proceed with the equipment refrigerant change from R22 to R410a as detailed in the scope-of-work provided by Mr. Ivan Diaz in his letter dated October 19, 2009 to . . . Project Manager Victor Morales for a price to be determined later but not to exceed $28,838.43.

During the period between September of 2009 and June of 2010, Tip Top and the Postal Service discussed pricing of the changed work. Until March 8, 2010, Mr. Diaz conducted the negotiations on behalf of Tip Top. From that point on, Percy Hollins, Tip Top's president, conducted the negotiations.

The critical issue in the negotiations was whether Tip Top was entitled to recover the costs it incurred in preparing the $28,838.43 estimate that Mr. Diaz submitted to Mr. Morales on October 18, 2009. On April 8, 2010, Mr. Manka sought guidance within the Postal Service on this issue, writing "If one of our JOC Contractor firms hires a firm to do their cost estimating for proposals and modifications is the cost . . . considered an overhead charge or does it become a direct or indirect billable cost?" After receiving an answer to his inquiry, Mr. Manka sent an email to Mr. Hollins on April 16, 2010, quoting to Mr. Hollins the advice which he had been given: "The cost is an overhead charge and is not a billable cost. We recommend you review contract clause F-302 titled Work Order subparagraph I, in the associated contract which provides specific discussion on processing work orders." Notably, the advice Mr. Manka received and which he passed on to Mr. Hollins only addressed Mr. Manka's question insofar as it related to cost estimating for ...

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