UNITED STATES CLAIMS COURT
AT&T TECHNOLOGIES, INC.
Plaintiff
v.
THE UNITED STATES,
Defendant
No. 186-87C
18 Cl. Ct. 315
Arthur Lazarus, Jr., Washington, D.C., attorney for the
plaintiff. Melvin Riche, Howard J. Stanislawski and Richard D.
Lieberman, of counsel.
Helene M. Goldberg, Washington, D.C., with whom was Assistant
Attorney General John R. Bolton, for the defendant.
OPINION
MARGOLIS, Judge.
This proposal preparation costs case is before the court on the
defendant's motion for partial summary judgment and plaintiff's
cross motion for partial summary judgment on the issue of
damages. On September 19, 1988, the court granted the
plaintiff's unopposed motion for partial summary judgment, ruling
that the government was liable for the breach of its implied duty
to fairly and honestly consider the plaintiff's offer. After a
thorough review of the entire record, and after hearing oral
argument, the court has concluded that the plaintiff may recover
the proposal preparation costs incurred at its Guilford Center
and Reynolda Road facilities, along with general and
administrative expense and cost of facilities capital, if any, on
those amounts. Plaintiff may not recover its pre-contract costs,
selling costs, legal fees or costs of facilities capital on these
amounts. Accordingly, the defendant's motion for partial
summary judgment is granted in part and denied in part, and the
plaintiff's cross motion for partial summary judgment is granted
in part and denied in part.
FACTS
On December 4, 1984, the defendant, United States, acting through
the Government Printing Office (GPO) issued a request for
proposals (RFP) soliciting offers to provide its Program 600-S
integrated publishing system. The system specified was designed
to encompass the creation, revision, storage and printing of
publications for the Department of the Army. Plaintiff was among
several offerors that responded to the solicitation. On April 1,
1985, the plaintiff submitted its initial proposal to GPO. On
October 14, 1985, plaintiff submitted its second, or intermediate
cost proposal and its technical and management update to the GPO.
On November 12, 1985, GPO amended the RFP, setting forth
additional proposal requirements and calling for best and final
offers (BAFOs) to be submitted by December 16, 1985.
Prior to the submission of BAFOs, the government required all
offerors to perform a benchmark test. The plaintiff conducted
its benchmark test at its Reynolda Road facility in Winston-
Salem, North Carolina, on December 2-6, 1985. On December 16,
1985, the plaintiff submitted its BAFO. On January 10, 1986, the
government notified the plaintiff that on January 9, 1986, it
awarded the Program 600-S contract to Electronic Data Systems
Corporation (EDS).
On June 19, 1986, GPO terminated its contract with EDS and
reported contemporaneously to Congress, which conducted hearings
on allegations of impropriety in the procurement, that this
action was taken because "a serious technical error occurred in
the procurement process leading up to award." Although initial
indications were provided by the government that negotiations on
Program 600-S would be reopened, the government informed the
plaintiff on November 17, 1986, that the RFP was cancelled.
The plaintiff's complaint seeks to recover a total of $ 7,439,446
in damages. Plaintiff's alleged proposal preparation cost damages
include: $ 668,474 incurred at the AT&T Federal Systems facility
at Guildford Center in Greensboro, North Carolina; $ 1,153,245
incurred at the AT&T Network Systems facility at Reynolda Road,
in Winston-Salem, North Carolina; and $ 598,123 incurred in load
and local general and administrative (G&A) expenses applied to
the Reynolda Road costs. On November 2, 1987, the Defense
Contract Audit Agency's (DCAA) North Carolina Branch Office
conducted an audit of the costs claimed in the plaintiff's
complaint. The DCAA auditors questioned all the plaintiff's
claimed proposal preparation costs except the $ 668,474 in
expenses incurred at the AT&T facility at Guilford Center.
In addition, the plaintiff seeks to recover other non-proposal
preparation costs allegedly incurred in reliance on the RFP.
These other reliance costs include: $ 3,060,859 incurred in
purchasing equipment from Xyvison Incorporated, and in related
labor costs; $ 309,224 incurred in AT&T's "selling expenses"
account to cover a team of individuals who worked with the
proposal team primarily to prepare for the the pre-BAFO benchmark
test; $ 180,647 in legal fees expended in protests before the
General Accounting Office (GAO) and General Services Board of
Contract Appeals (GSBCA); $ 720,441 in G&A on the purchase of
equipment from Xyvision and $ 46,697 in G&A on the legal fees
associated with those costs; and $ 701,736 for the cost of money
utilized in the proposal efforts. The DCAA questioned all of
these other non-proposal related reliance interest costs in the
November 2, 1987 audit.
The defendant adopted the conclusions of the DCAA auditors in
challenging the plaintiff's costs. In particular, the the
defendant contends that the items questioned by the DCAA are
specifically not recoverable as proposal preparation costs under
applicable Federal Acquisition Regulations (FAR) and Cost
Accounting Standards (CAS). The plaintiff argues that the FAR
and CAS rules governing the allowability of costs have no
application to the implied-in-fact contract that arises from an
offeror's submission of a conforming proposal in response to a
government solicitation. The plaintiff maintains that the
standard of recovery is much broader and includes all costs
reasonably incurred in reliance on the government's solicitation.
Accordingly, the plaintiff claims entitlement to recover all the
costs reasonably incurred in reliance on the Program 600-S RFP.
DISCUSSION
I. Standards Governing Proposal Costs Awards
The fundamental disagreement between the parties concerns the
standards applicable to the plaintiff's recovery. Once the
applicable standards are clarified, a determination of the items
recoverable will logically follow.1 The plaintiff asserts that
the terms of the RFP and the applicable rules provided by the FAR
and CAS do not limit recovery on the breach of an implied
contract to fairly and honestly consider an offeror's proposal.
In particular, the plaintiff urges that because "the implied
contract for fair and honest consideration of all offers is a
different contract from that which would have been in place had
AT&T been awarded the Program 600-S contract, . . ." plaintiff's
recovery should be "determined by breach of contract principles,
and not the FAR and the CAS." Plaintiff's Cross Motion for
Partial Summary Judgment at 7 (emphasis in original).
The defendant contends that the plaintiff, in arguing that the
FAR, the CAS and the solicitation have no application, is
attempting to expand its recovery far beyond proposal preparation
costs, the established measure of damages, to include its
reliance interest, a category consisting of all amounts expended
that relate in any way to the procurement. The defendant points
out that the solicitation expressly incorporates the cost
principles contained in the FAR and that the solicitation
constitutes the offer which, when accepted by a contractor, forms
the implied-in-fact contract. The terms of the
solicitation/offer include the government's obligation to
consider proposals fairly, i.e., in accordance with the terms of
the solicitation. Therefore, the defendant argues, the
solicitation defines the scope of the implied-in-fact contract.
In addition, the defendant emphasizes that once a government
contractor, such as the plaintiff here, has contracts covered by
CAS, all its contracts must be covered by CAS. The defendant
states that none of the authorities cited by the plaintiff
support its position that the FAR and CAS do not apply to the
recovery of proposal preparation costs nor do they establish the
broad standard urged as the law of this circuit. Moreover, the
defendant contends that even if the court were to find that there
is no legal requirement to adhere to the FAR and CAS, the court
should nonetheless be guided by the principles contained therein
because these carefully crafted well-established rules provide
sound guidance for determining the plaintiff's recovery.
The court concludes that the cost principles contained in the FAR
and CAS, and the applicable terms of the solicitation do apply to
the recovery of proposal preparation costs. The plaintiff's
arguments that these rules do not apply misperceive the whole
theory underlying an award of proposal preparation costs for the
breach of an implied-in-fact contract. It is well established
that in order for a contractor to demonstrate that it has
standing to recover bid and proposal (B&P) preparation costs it
must show that it was injured by the government's illegal
conduct. Morgan Business Associates v. United States, 223 Ct.
Cl. 325, 332, 619 F.2d 892, 896 (1980). Because all offerors
could not have received the contract, not all offerors are
injured and have standing to seek B&P preparation costs as a
result of an illegally conducted procurement. Thus, contractors
are required to establish that they had a "substantial chance" of
being awarded the contract and that their proposal was within
"the zone of active consideration" by the government. Id. The
nature of the injury a contractor suffers from the breach of the
implied contract to fairly and honestly consider proposals is the
wrongful denial of the award of the contract. As the Court of
Claims stated, "[b]id preparation expenses are a cost of doing
business that are 'lost' whenever the bidder fails to receive a
contract." Id. 223 Ct. Cl. at 331, 619 F.2d at 895 (emphasis
added).
Once a contractor establishes that it was so injured, it is
entitled to recover the incurred B&P costs it would have
recovered had it been awarded the contract. As this court
recently stated in Vulcan Engineering Co. v. United States, 16
Cl. Ct. 84 (1988), "[t]he theory underlying the award of bid
preparation costs is that the recipient was injured by the unjust
denial of recovery of such costs, which recovery presumably would
have occurred had it obtained the contract." Id. at 88 (emphasis
added) (citing Caddell Construction Co. v. United States, 9 Cl.
Ct. 610, 612-13 (1986)). Thus, the very injury for which the
court compensates a contractor is the contractor's inability to
recover its B&P costs as it rightfully would have, had it not
been wrongfully denied the contract. The court must, therefore,
apply the same principles to the recovery of proposal costs here
as would be applied had the plaintiff actually received the
contract. These principles, of course, include the rules
contained in the FAR and CAS and the relevant provisions of the
solicitation. It would be wholly inconsistent with the theory
underlying the recovery of proposal preparation costs to rule
otherwise.
Plaintiff's theory essentially urges that AT&T should be put in
the position it would have been in had it never even submitted a
proposal for the contract. This is not the standard of recovery.
As the Vulcan Engineering court recognized, costs incurred in
responding to government solicitations are "part of the ordinary
costs of doing business with the government." 16 Cl. Ct. at 88. A
plaintiff may not recover any and every cost related to a
procurement where the government breached its implied obligation
to fairly and honestly consider proposals. The contractor may
only recover the B&P costs it would have recovered had it
actually received the contract. Moreover, the same cost and
accounting principles that would have applied to the B&P costs
under the goods or services contract also apply to a B&P costs
recovery for the breach of the implied contract.
The regulations make sufficient reference to the recovery of B&P
costs by disappointed offerors to indicate their applicability to
such awards. For instance, part 33 of the FAR, relating to
protests, disputes and appeals, specifically identifies that FAR
principles may be applied to an "implied contract." FAR § 33.203,
48 C.F.R. § 33.203. Part 31 of the FAR, relating to contract
cost principles and procedures, acknowledges applicability of the
cost principles to "various types of contracts," FAR § 31.100, 48
C.F.R. § 31.100, and provides a definition of allowable B&P
costs. FAR § 31.205-18, 48 C.F.R. § 31.205-18.
There are other compelling reasons for adhering to the rules of
the FAR and CAS and provisions of the solicitation. The stated
objective of the cost principles, "[t]o achieve . . . uniformity"
in the application of cost principles and procedures, will best
be served by holding that the FAR and CAS govern the recovery of
B&P costs by disappointed offerors. FAR § 31.101, 48 C.F.R. §
31.101. Also, once a government contractor has contracts that
are covered by CAS, all its contracts must be so covered. FAR §§
30.301, 30.302, 48 C.F.R. §§ 30.301, 30.302. In addition, the
FAR and CAS are carefully crafted and well-established rules
which provide sound guidance for judging costs in government
procurement cases. As the Court of Claims stated in Lockheed
Aircraft Corporation v. United States, 179 Ct. Cl. 545, 557, 375
F.2d 786, 793 (1967), these cost principles are "a composite of
sound accounting rules."
Finally, the solicitation itself, which incorporates by reference
the FAR and CAS, is the very genesis of the implied contract for
fair and honest consideration of proposals. The plaintiff
asserts that the solicitation should have no bearing on its
recovery under the implied-in-fact contract. If the court were
to accept this assertion, the question would still remain: What
are the terms of the implied-in-fact contract, and from where are
they derived? The plaintiff provides no answer. Clearly, the
terms of the implied-in-fact contract must be derived from the
solicitation. Only by reference to the terms of the solicitation
may the government's duty to fairly and honestly deal with
offerors be fully defined. A determination of whether this duty
was breached must necessarily be made with reference to these
terms. As the Federal Circuit Court of Appeals stated, the
implied contract arising from a solicitation "defines the way the
government must deal with bids in the process of selecting a
contractor." Coastal Corporation v. United States, 713 F.2d 728,
730 (Fed. Cir. 1983).
All of the terms of the solicitation, however, are not also terms
of the implied-in-fact contract. Only those terms governing the
activities of contractors prior to award form the implied-in-fact
contract. Other terms governing later stages of the contractual
relationship, such as those specifying performance requirements,
are for the most part irrelevant during the pre-award period, and
thus cannot be said to be a part of the implied-in-fact contract.
This is not to say that the concept of fair and honest dealing,
as it is normally understood in contractual matters, does not
also form an independent basis for judging the government's
conduct. Nor is holding that certain relevant terms of the
solicitation apply to a recovery under the implied-in-fact
contract irreconcilable, as plaintiff asserts, with the notion
that the implied-in-fact contract is "preliminary and ancillary"
to the goods or services contract. Id. Thus, the solicitation is
the foundation of the implied-in-fact contract upon which the
plaintiff seeks to recover, and it cannot be ignored.
II. Recovery of Proposal Costs
Damages for the breach of the implied contract to consider offers
fully and fairly are limited exclusively to bid and proposal
preparation costs. As the Court of Claims explained in Keco
Industries, Inc. v. United States, 192 Ct. Cl. 773, 785, 428 F.2d
1233, 1240 (1970), the "plaintiff should be allowed to recover
only those costs incurred in preparing its technical proposals
and bids." (Emphasis added). The court later reaffirmed this
view in Keco II, ruling that the plaintiff's right to be
compensated was limited to "the expense of undertaking the
bidding process." Keco Industries, Inc. v. United States, 203 Ct.
Cl. 566, 573, 492 F.2d 1200, 1203 (1974)). The "only remedy
available to an unsuccessful bidder recognized by this court and
its predecessor is bid preparation costs." Contract Custom
Drapery Service, Inc. v. United States, 6 Cl. Ct. 811, 819
(1984). Thus, damages for an improper rejection of an offeror's
proposal "cannot exceed bid preparation costs." Excavation
Construction, Inc. v. United States, 204 Ct. Cl. 299, 301, 494
F.2d 1289, 1290 (1974).
The FAR cost principles define B&P costs as "the costs incurred
in preparing, submitting, and supporting bids and proposals
(whether or not solicited) on potential Government . . .
contracts." FAR § 31.205-18(a), 48 C.F.R. § 31.205-18(a). In T &
H Company, 54 Comp. Gen. 1021, 1027-1028 (1975), the Comptroller
General specified the costs that are recoverable as B&P costs for
the breach of an implied contract to fairly and honestly consider
a claimant's bid. The Comptroller General ruled that expenses
incurred in researching specifications, reviewing bid forms,
examining cost factors, and preparing draft and actual bids are
compensable B&P costs. However, expenses "incurred long after
the preparation of the bid, the bid opening and the initial
erroneous actions of the agency" are not recoverable as B&P
costs. Id. at 1027. Such costs were categorized as protest
costs.
A. Pre-Contract Costs
The plaintiff claims $ 3,781,300, including G&A expenses, in pre-
contract costs. These costs include the purchase of equipment
from Xyvision and various labor costs incurred in order to meet
the requirements of the anticipated contract. In response to the
defendant's interrogatories, the plaintiff conceded that none of
costs were incurred for purposes of preparing the plaintiff's
proposal but rather to place the plaintiff in a position to
perform the contract had it received the award.
The defendant contends that these costs are not recoverable as
proposal preparation costs because they were not incurred in
preparing the proposal. In addition, the solicitation explicitly
provided that "[t]he Government will not be liable for any costs
or other liabilities incurred by a contractor until award is made
and the contractor so notified." Also, the defendant argues that
FAR section 31.109, 48 C.F.R § 31.109, incorporated by reference
in the solicitation, provides that pre-contract costs may not be
recovered in the absence of an advance agreement with the
government authorizing such costs.
In response, the plaintiff argues that the court should not be
guided by the solicitation, or the FAR or CAS provisions on which
the defendant relies. The costs plaintiff expended in purchasing
equipment from Xyvision were reasonable, were induced by the
government's insistence on a strict delivery schedule, and had
they not been incurred, may have jeopardized award to the
plaintiff for being nonresponsive. The plaintiff also argues
that because all B&P costs are inherently pre-contract costs,
rules limiting recovery to B&P costs should not prevent recovery
of other pre-contract costs. The plaintiff points out, with
respect to the government's argument concerning the need for an
advance agreement, that FAR section 31.109(a) states that "an
advance agreement is not an absolute requirement and the absence
of an advance agreement on any cost will not, in itself, affect
the reasonableness or allocability of that cost." 48 C.F.R. §
31.109(a).
The court concludes that the pre-contract costs incurred in
purchasing equipment from Xyvision, and related expenses, are not
recoverable proposal preparation costs. Plaintiff, by its own
admission, states that these costs were not incurred for the
purpose of preparing its proposal, but rather in anticipation of
performing the contract had it received the award. As previously
discussed, the court concludes that applicable terms of the
solicitation and the FAR and CAS do apply in determining which
costs plaintiff may recover. The solicitation explicitly
provides that the government will not be liable for pre-contract
costs.
Regarding the plaintiff's argument that B&P costs are inherently
pre-contract costs, the court agrees. However, B&P costs are a
more specific and narrow category of pre-contract costs, and they
are the only pre-contract costs recoverable for the government's
breach of its implied duty to fairly and honestly consider
proposals. The plaintiff also argues that it needed to purchase
the equipment at issue so that its proposal would be responsive
or technically acceptable. The defendant is correct in observing
that the solicitation at issue here was a negotiated procurement
where responsiveness is not a criterion for denying award. See
DeMat Air, Inc. v. United States, 2 Cl. Ct. 197, 202 (1983).
Finally, the plaintiff states that had the competitive
environment been fair, it would have been prepared to absorb its
pre-contract costs because it was aware of the risk that the
contract might be awarded to another company. The plaintiff fails
to provide a logical connection establishing why this distinction
should somehow entitle it to an award in excess of the legally
recognized standard -- proposal preparation costs. Although the
government's conduct was admittedly egregious, and the plaintiff
was unmistakenly injured thereby, an award of B&P costs does not
serve any punitive function that would entitle a plaintiff to an
expanded recovery. Thus the plaintiff's distinction between its
willingness to absorb pre-contract costs in the event another
offeror was awarded the contract from the situation where the
government acts illegally has no meaningful impact on the measure
of its recovery.
B. Costs Incurred at the AT&T Reynolda Road Facility
The plaintiff seeks to recover $ 1,153,245 in proposal
preparation costs incurred at its Reynolda Road facility, plus $
598,123 in load and G&A expenses which it claims are allocable to
these proposal preparation costs. In its November 1987 audit,
the DCAA questioned these costs because the accounting methods
employed by the plaintiff were found to violate CAS 402.40, 4
C.F.R. § 402.40 and FAR section 31.202(a), 48 C.F.R. § 31.202(a),
both of which state the following: "No final cost objective shall
have allocated to it as a direct cost any cost, if other costs
incurred for the same purpose in like circumstances have been
included in any indirect cost pool to be allocated to that or any
other final cost objective." The DCAA auditors found that AT&T
charged B&P costs both as direct labor charges for Reynolda Road
and as indirect charges to the G&A pool for the Federal Systems
facility in Guilford.
The defendant contends that the plaintiff may not recover these
costs because, as a government contractor obligated to operate
under the accounting methods provided in the CAS, the plaintiff
must employ uniform accounting practices. Because the plaintiff
accounted for B&P costs differently at its two facilities and
violated CAS 402, the defendant states that the plaintiff should
be denied recovery of these costs. Neither the defendant nor the
DCAA auditors, however, appear to contend that these costs are
not otherwise recoverable proposal preparation costs or that they
were not in fact incurred. The sole basis for denial of the
recovery seems to be the plaintiff's departure from strict
adherence to the CAS.
The plaintiff once again contends that the cost principles of the
FAR and CAS should not govern. But as previously stated, the
court rejects this argument. The plaintiff also contends,
however, that even assuming that the FAR and the CAS do apply,
these amounts may nonetheless be recovered. The plaintiff argues
that the CAS 402 requirement that costs incurred under "like
circumstances" be treated similarly is not applicable. Normally,
when B&P costs are incurred, the government does not violate its
duty of fair dealing. However, when, as here, it does violate
this duty, then these "unlike circumstances" allow a contractor
to treat its incurred B&P costs differently. The plaintiff finds
support in Interpretation No. 1 of CAS 402, 4 C.F.R. § 402,
Appendix, which allows different cost treatment of "costs
incurred in preparing, submitting, and supporting proposals
pursuant to a specific requirement of an existing contract,"
because such costs "are considered to have been incurred in
different circumstances."
Finally, the plaintiff analogizes the deviations from the cost
principles allowed in termination for convenience cases to the
present situation where the government fails to fairly and
honestly consider proposals. The Armed Services Board of
Contract Appeals (ASBCA) recognizes in termination for
convenience cases that costs otherwise treated as indirect
charges, pursuant to the terms of the contract, that can be
identified with recoverable effort, may be treated as direct
costs to produce a more equitable result. The plaintiff contends
that the same principle should apply equally to B&P cost claims
in connection with a disappointed offeror's action where the
contract never even matured. Moreover, the plaintiff maintains
that none of the costs incurred at Reynolda Road were transferred
in any way, directly or indirectly, to charges at the Federal
Systems facility, thus excluding the possibility of double
charging.
The court agrees with the plaintiff that these proposal
preparation costs may be recovered. The relevant inquiry here is
not how such expenditures may have been previously classified,
but, whether the costs in question are truly proposal preparation
costs, and if so, whether they were actually incurred in
connection with the procurement at issue. The court concludes
that these requirements are satisfied. Although the court will
without hesitation demand adherence to the principles of the FAR
and CAS by contractors, it can allow departures in very limited
situations where justice so requires. The plaintiff convincingly
demonstrated that this is such a case.
The court concludes that contractors who normally charge B&P
costs indirectly to G&A and load pools should be allowed in
limited cases to convert those charges to direct labor costs, if
the underlying base to which those costs were normally to be
charged is no longer present, such as when a contract is
terminated for convenience, or when as here, the contractor is
dealt with unfairly before the contract even comes into
existence. In Amplitronics, Inc., ASBCA No. 20545, 76-1 B.C.A.
P11,760 at 56,122, the Board applied this principle and stated:
"It is appropriate to convert costs normally charged indirectly
to direct costs in a termination situation where the absence of a
normal base for allocating indirect costs otherwise prevents
charging a fair share of such costs to the contract." Likewise,
in Esprey Manufacturing Company, Inc., ASBCA No. 3635, 59-1
B.C.A. P2169 at 9,461, the Board stated:
It is illogical to talk about leaving this cost in a pool when,
under the facts of this case, there will be no allocation of that
pool to the contract since there are no direct costs with which
to allocate it. We allow Engineering Salary in its entirety. We
likewise allow Overhead on above in its entirely. It is apparent
that appellant did incur some overhead expense in its performance
of the letter order and we find it reasonable in this case to let
them follow [the engineer's] cost.
The court concludes that these principles have application here.
Moreover, the purpose of CAS 402 and FAR section 31.202 is to
maintain integrity in government contract accounting by
preventing double charging for the same costs in both direct and
indirect accounts. CAS 402.20 states: "Adherence to these cost
accounting concepts is necessary to guard against the
overcharging of some cost objectives and to prevent double
counting." 4 C.F.R. § 402.20. The regulations accomplish this
result by requiring contractors to employ uniform accounting
methods and to ensure like accounting treatment for like costs
incurred under like circumstances. Aside from the perfunctory
cautions of the DCAA auditors, there are no real indications that
a danger of double charging exists here.2
There is every indication that plaintiff's Reynolda Road proposal
costs were actually incurred and were reasonably expended
preparing for the submission of plaintiff's proposal. The
plaintiff explained that B&P efforts are not normally conducted
at its Reynolda Road facility, and that this fact explains its
departure from standard accounting methods. The court is
satisfied with this explanation. Although without question,
deviations from the FAR and CAS may prejudice a contractor's
claim, it appears that this very narrow and specific departure
should be allowed here to avoid injustice and to fully compensate
the plaintiff for its injury in accordance with the legally
accepted measure. Thus, the plaintiff may recover the proposal
costs incurred at its Reynolda Road facility, plus appropriately
calculated load and G&A expenses.
C. Selling Costs
Plaintiff also seeks to recover $ 309,224 in selling costs.
These expenses were incurred in connection with the performance
of the benchmark test at Reynolda Road prior to the BAFO
submission. Robert R. Wyatt, a manager at AT&T's Guilford center
facility, stated in an affidavit that this effort consisted of
reviewing activities from "the Government's perspective" where
individuals "generally played the role of the customer."
Plaintiff's Cross Motion for Partial Summary Judgment, App. at 7.
The defendant contends that plaintiff's selling costs are not
proposal preparation costs and are therefore not recoverable.
Plaintiff essentially admits that the selling costs it seeks to
recover are not proposal preparation costs, but asserts that they
may be recovered as part of its reliance interest.
The defendant is correct that the plaintiff may not recover
selling costs in this action. As previously stated, the sole
measure of the plaintiff's recovery is proposal preparation
costs. Under FAR section 31.205-38, 48 C.F.R. § 31.205-38,
selling costs are defined as costs directly attributable to
marketing the contractor's products and services. Selling
activity can include such "broad categories" as sales,
promotions, negotiations, liaison with Government personnel, as
well as bid and proposal costs. The Court of Claims in General
Dynamics Corporation v. United States, 202 Ct. Cl. 347 (1973),
distinguished between selling costs, which are those costs
"directly attributable to marketing efforts," id. at 360 (quoting
General Dynamics Corporation, ASBCA Nos. 12814 & 12890, (1968)
(emphasis in original)), from B&P costs which are incurred in
"preparing bids or proposals." Id. at 358 (quoting Armed Services
Procurement Regulation (ASPR) § 15.205.3). Because the selling
costs at issue here are specifically distinguishable from B&P
costs, and B&P costs are the only damages that may be recovered
for the breach of the government's duty of fair and honest
dealing, the plaintiff here may not recover its selling costs.
D. Legal Fees
The plaintiff seeks to recover $ 180,647 in legal fees in
connection with its protest of the award of the Program 600-S
contract before the GAO and GSBCA, plus $ 46,697 in G&A expense
on these fees. Plaintiff contends that it is entitled to recover
these fees because they were incurred as a result of the
government's illegal conduct in the procurement and because they
may be considered direct costs that would have been recoverable
on the contract had it prevailed in the other forums. The
defendant argues that legal fees cannot in any way be considered
B&P costs and therefore may not be recovered. The defendant also
states that in the absence of a law specifically waiving the
sovereign immunity of the government for the award of these fees,
the court has no jurisdiction to make such an award.
The plaintiff may not recover legal fees. Such fees, incurred
well after contract award, are not B&P costs but are rather
protest costs. T & H Company, 54 Comp. Gen. at 1027. Plaintiff
may recover only proposal preparation costs in this action. The
defendant is correct in pointing out that, although the plaintiff
could have recovered these costs before the GAO or the GSBCA had
plaintiff prevailed in those forums, plaintiff did not prevail.
Nor is there a specific waiver of sovereign immunity to provide
for such recovery in the Claims Court. United States v.
Mitchell, 445 U.S. 535, 538 (1980). The plaintiff's arguments to
recover these costs are simply without merit.
E. Cost of Money
Finally, plaintiff seeks to recover $ 701,736 as damages for the
"cost of money." The defendant contends that plaintiff may not
recover these costs because they are no more than a disguised
claim for prejudgment interest, which is specifically
unallowable. The defendant also argues that the plaintiff failed
to adhere to the only legitimate formula for calculating such
costs, the formula for cost of facilities capital set forth in
CAS 414, 4 C.F.R. § 414, FAR § 31.205-10, 48 C.F.R. § 31.205-10.
The plaintiff responds that the cost of money is part of its
reliance interest and may be fully recovered. In the
alternative, the plaintiff argues that if the court were to rule
that the CAS and FAR apply to its recovery, it would nonetheless
be entitled to recover some as yet undetermined amount as the
costs of facilities capital on the base costs to which it is
otherwise entitled.
The plaintiff's claim for cost of money as presented is not
acceptable. To the extent that the plaintiff seeks to recover
these funds under the theory that they represent its reliance
interest, the court rejects that broad standard as inappropriate
for this proposal preparation action. The plaintiff may recover
the cost of facilities capital as an indirect cost item, if and
only if, it calculates such costs in strict compliance with CAS
414 and FAR § 31.205-10. Moreover, plaintiff may recover cost of
facilities capital, if any, only on those base costs which the
court concluded it may recover. Thus, plaintiff may recover cost
of facilities capital only for the proposal preparation costs
incurred at its facilities in Guilford Center and Reynolda Road.
It may not recover costs of facilities capital on its pre-
contract costs, its selling costs or legal fees.
CONCLUSION
The court concludes that the plaintiff may recover only its
proposal preparation costs, and that such recovery is governed by
the rules set forth in the FAR and CAS and by the applicable
terms of the solicitation. Accordingly, the plaintiff may
recover the proposal preparation costs incurred at its Guilford
Center and Reynolda Road facilities, along with G&A and
facilities capital costs, if any, on those amounts. The
plaintiff may not recover its pre-contract costs, selling costs
or legal fees. Accordingly, the defendant's motion for partial
summary judgment is granted in part and denied in part, and the
plaintiff's cross motion for partial summary judgment is granted
in part and denied in part. The parties shall file a joint
report with the Clerk's Office stipulating to the plaintiff's
damages within 30 days from the date of this opinion.
OCTOBER 11, 1989
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1 Counsel for the plaintiff conceded at oral argument that if the
court were to determine that the rules contained in the FAR and
CAS and the relevant terms of the solicitation applied to its
recovery, and that the definition of bid and proposal (B&P) costs
in the FAR is the limit of its damages, then AT&T would not be
entitled to recover any costs other than the proposal preparation
costs incurred at Guilford Center and Reynolda Road. Tr. at
20-21.
2 In response to the court's questions, counsel for the defendant
stated at oral argument that in the defendant's view, there
existed no danger of double charging for the proposal costs
incurred by the plaintiff at its Reynolda Road facility. Tr. at
11. Counsel for the plaintiff represented that in the event the
court should award these costs, load and G&A costs will be
calculated to prevent a double recovery on overhead. Tr. at 34.