Free Motion for Summary Judgment - District Court of Federal Claims - federal

Case 1:07-cv-00134-SGB

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Filed 06/04/2008

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(415-l0c) CETAC-EC-TC PRICEOBJECTWE MEMORANDUM- F'AR15.406-I

l8 September 2006

SUBJECT:Contract DACA87-91-C-0019, No. Shared Energy Savings Program, Alianranu FamilyHousing Area,Oahu, Hawaii;Change ltem No. A9l0l9-22{ "Teminationfor the Conveniencc the Government" of l) Ðçscription Acquisition of This contract actioninvolves esfablishment a modified final contract the of price and resulting fromthc teminationfor convenience (T4C)issued 12August2004with an on effectivedateof 30 September 2004. Themodifiedcontractamount will include compensation all rvorkperfonned tbr underthecontract, well asall incurredallowable, as allocable, reasonable termination post and costs resulting fromtheT4C. 2) B4ckground: a) ContractNo. DACA87-91-C-0019, Shared Energy Savings Program, Aliamanu Family Ilousing Area,Oahu,Hawaüreguired Contractor provideenergy the to saviugs (AMR) family housing equipment servjces theAliamanuMilitary Reservation and at complexin Honolulu,Hawaii,thatwould reÞult a reduction theAMR energy h to expenditure. Theequípment servicas and wereto bc providedby the Contractor, the at Contractor's expense, theonly payrnents the Contractor and that rvereto be would receive percentage theavoided based upona pre-established of and çnergy maintenance expenditures a maximum oyer tennof fifteen(15)years', with a limitationthatthe paid for rhaintenance amount paid for theenergy savingg couldnot exceed amount the savings. TheAMR familyhousing complex consisted 1,510 of townhouse units,1,090 apar,tment units,anl supporttbcilifiçs inoludinga Recreational Center with a swimming pool, a Shopette,/Gas Station" BurgerKing, a Chapel a Annex,andAthletic Fields. The energy expenditure AlvIRwasto be reduced at throughtheimplementation Contractor of developed proposed and Energy Conversation Prdects(ECP's), subject theaccçtance to of theContracting Officer. Sinceair conditioning wasthe largesterßrgy consumption s¡ætem AMR, the Conhactor requiredto developanECPto modiff or leplacethe at was existingair conditioningsystem, theConfactorwasrequiredto investigate and potential ECP'1s involving the replacernent theinterior andexteriorincandescent of bulbswith fluorescent bulbsandimprovingattic ventilation. b) TheContract awarded Co-Energy was to (see Group(CEG)on I I February 1991 Standard Form2í executed theProcurement by Conhacting Officer(PCO), James Mr. W. Reynolds). thetimeof arvard, At CEGcertified it wasa California that Corporatíon, wasnot a SmallBusiness, Tax Payer its Identification Number(TIN) was95-3930946, that its President Mr. RobertFreeman, Executive was its Vice President Mr. Thomas was Mitchell,andits Vice President Mr. George was Jones.

The cor¡l¡actclearlystateda "maximum"duration,implying thatthe contractdurationcould be lessthanthe stated maximurn. date, undersigned not beenableto locate contract To the has provision explicitlysets-forth a that a minimum duration the co¡rtract. for

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I5.406.I MEMOR.ANDUM.T,'AR PRICEOBJËCTIVE FamilyHousing.Area, Àliarnanu Program, Energy Savings Shared No. SUBJECT:Contract DACA87-91-C-0019, of IternNo. ^91019-224, tlawaii; Change "Termi¡ationfor theConvenicnce theGoven¡ment" Oalru,

based uponCEG's (18) of after¿rvard thc contract, eiglrteen months c) Approximately fromCECto Cegali,Incwâs l992the contract trovated on writtenrquest, 3 September CEGrepresented P00009.Atthe timeof thenovation, (Cegali) modification number by that represented it wasa California by thatCegali waswholly owned CEG;andCegali Freeman. was and Corporation thatits President Mr. Robert on (3) writtenrequest, 23 March later,based uponCegali's three years d) Approximately Con¡fiersation fromCegali, to theAliamanu Inc. novated 1995 conkact again was the ACP P00035.At the timeof thisnovation, number L.P. Partners (ACP)by modification in established Hawaii,with Cegali,[nc. as wasrepresented beinga LimitedPartnership (California) Partner. beingits General Contracting 2û04,theTermination P00212 number dated12August c) By modification ' of for was Oiïrcer(TCO)notifiedACP thattheconhact beingterminated theconvenience that 2004,andrequested ACP provideits effective of 30 September as theGovemment, dateof the proposal rvithinoneyearfrom theeffective settlement termination termi¡ration. referringto the requiredse$erygnt the to f) Subsequent the termination, Contractor ' as AcquisitionRegulatioa (FAR)_fgt 49.602, well as proposhformsidentifiedin Federal to thattheformsdid not appear be at contained FAR 49.206-1,:indicated theprovision the that contract, requested theTCO_waive requirement and for appiopriate thisparticular that the forms. As a resultof this request, TCO informedthe Contr¿ctor it was foi tnese information, to çurrentandaccurate importantfor the Contractor providecomplcfe, more than couldbeéstablished, usinganyparticular amount settlement sothata'termination form. settlement termination a later the in detailelsewhere thisdocument, Contractor provided g) As addressed greater in that requested theContractor proposal, although TCOrepeatedly the and settlement has facts), Contractor not the submittheieqiriredCostor PricingData(all relevant proposal Costor containing Çontractor's the settlement provided proper a termination Data. Pricíng Proposal: 3) Contractor's address) not Inc. 2005,Cegali, (rvitha Nevada California 20 a) By letterdated June ' Of For whatit calledits "CostingMethodolory TheTerninafion The submittsd Costs"in the Settlement provided "Proposed its Termination Contract''and Aliamanu to letterCegalí, refend itselfasthe lnc. amount ß9,764,0$.Within thetr¿nsmittal of for was that Partner ACP,represented theproposal beingsubmitted ACP,and of General settlement The Freeman. 20 June2005tetmination by theletterwassigned Mr. Robert in proposal summarized thefollowingtable: is
Item 1 2 3 4
t

7

DescriÞtion A¡qqunl * of Amortization fnitialCosts $1,575,767 ' Costs of Amortizatíon Operating $6,929,721 Termination Expenses fi212,117 Costs Settlement $174.696 Termination Subtotal $8,892,301 10.00% $871.760 Fee(Profit "*"ltems1 - 3) on Amount Total Termination Settlement $9,764,061

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- FAR I5.406.I PRICE OBJESIIVb,MEMORANDUM Familyl{ousingArea, Savings Program, Aliamanu Shared Energy No. SUBJECT:Conhact DACA87-91-C-0019, of for ltemNo. A9l019-224,"Termination theConvenience theGovernmentl' Harvaü; Change Oahu,

prepared had 2005proposal rcveåled theproposal not been that b) A reviewof the20 June to proposal appearetl fonns,thattheproposal settlement usingoneof thetsrmination (because contract the not primarily(items1 e, Ð of estimated åmounts received consist (during performance the of incurred ínstead actual costs of hadbeenterminated) facts). tt the Cost contract), did not include Contractor's or PricingData(all relevant and of calculations consisted thefollowing: the appeared though Contractor's as i) may that of Item I - Amortizatioq Initial Costs-It appeared theContractor have materials, all started with a totalcost-amount þresumably of its labor,equipmenÇ allegedthat it had tìnanoing, etc.)that theConhactor overheadsubcontractors, point in 1993, totalof whichtheContractorthen the unspecified incurred some to to (costof moneg anddistúbuted amount that over156months, anivc interest added (afterthecontract teminated) was 16.3 amount basedupon months at theclaimed of underthe contract because thetermination. wherctherewasno performance to app-eared amount of Costs.TheConhactor's Item2 - Amortization Operating cost, and total reflecttheContractor's Operating Maintenance fromFiscalYear1990 in was until thecontract terminated 2005.

iÐ '

that Expenses. Conhaitorcontended it incunedcost The iiÐ Item3 - Tennin¿tion Areaafterthe fromtheHousing with totalingt2.l2,ll7 associated demobilizing as bclow: effectivedateof thetennination, depicted
Amount Item DescrÌption 4 (Partner) $16,715 George 31 Days@ 67.40/HR I PayroflTax George 1Z'Qlo on $2,006 2 @ (Material to turned-over the GoVt) $40,000 3 $upplies (Hauling Trailers) 3 $10,000 4 Tränsportätlon Losson Trucks $18,000 5 $106,543 PaytoEmployees 6 Severance pay Tax $12,785 7 Payroff on Severance @12o/o employees Benefìts tennidated on Health $4,568 I of $1.500 I Transportationgarbage Total= ï212,117 10

iv) .

settlement the Costs.To prepare ten¡inatíon Settlernent Item4 - Termination as that a contended it incurred totalof 5174,696 depicted proposal, Contractor the below:
Item 1 2 3 4 Amount Description Consulting $118,000 Legal $26,458 In-House Support $30.239 Totat= $174,696

(515,529,422) be thecostthatthÊ may is this totalcostamount correct, amount If theContractor's alleged that equipmenÇ wcfl asall othercosæ theConhacfor as savings incurred purchase ofthe energy to all Contractor costthatthe is thenanyadditional phase thecontract.lf thisassumption correct, of duringtlreConstruction incurred shouldbe thecostthat the Contractor Contractor rvouldhaveincunedunderthc contractprior to the termination, phase thc conhact. of phase duringthe Maintenance Operating and incurredafterthe construction

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MEMORANDUÑ{ I"AR I5.40ó-I PRICEOBJECTIVE Program, Alianranu Familyl{ousing,{req Energy Savings No. Shared SUIIJECT:Contract DACAS?-9I-C-0019, ofthe Govemment" for lternNo. A9l0l9-224, "Termination theConvenience Oahu,I'lawaii;Change

v)

proposal included termination settlement Item6 - Fee(Profit).TheContractor's however, the profit calculated a râteof ten(10)percent thefirst threeelements; on at did any demonstrating it wasin a profrt that Contractor notprovide calculation (FAR) 49.243. position asrequired Federal by Acquisition Regulation

the c) After receipt the20 June of 2005proposal, TCOnotifiedACP thatthetermination prepared accordance FAR Tabtel5-2, andthat proposal notbeen in with settlement had 5 did ACP'sCostor PricingData. By letterdated July2005, theproposal not contain of Cegali(on behalfof ACP)provided rvhatít calledits "Certificatc'andits "Certificate that Mr" stated theproposal Curent Costor PricingData." In the "Certifi.cate," Freeman in prepared ofthe Contractor hadbeen ofaccountandrecords "ftom thebooks practices. fulr.Freeman also commercial accounting ..' accordance recognized with until after a of Costor PricingÞata"(whichis not required signed "Certificate Current price agreernent), no Costor PricingDatawasprovided. but to needed submita tennination that d) TheTCO againinformedMr. F¡eeman the Contracto¡ of proposal with therequirernents FAR Table15-2thatincluded cornpþing settlement 2005,Cegali, Inc. 31 Cost theCoutraCtor's or PricingData. By letterdated October Settlement and its Proposal" provided "Tennination whatit called "Revised its submitted for by ín of Ptoposal" fheamount ï'1,M|,772. Theletterwassigned Mr. Freeman Cegali, of Inc.astheGeneral Partner ACP. proposal revealed although that thc termination settlement A reviewof therevised the proposal different thantheinitial proposal, was methodology in therevised used not primarilyof estimated amounts received, proposal appeared consist to still revised Cost the Contractor's or incurred, still did not include required costs and irsteadof acfual proposal had still that Mr. Freeman therevised TCOpromptly notified PricingData. The set prepared accordance therequirements forth in FARTablel5-2, and in with notbeen 3l ACP'sCostg¡ PricingData. TheContractor's thattheproposal notcontain did proposal summarized thefollowing in settlement is 2t05 revised tennination October table:
Amount Itern Description Payments 1 Monthly $5,519,180 * AssetValue Unamortized $f ,329,807 2 . Terminatlon .t Expenses $335,077 Settlement Costs $186.331 4 Termination t Subtotal= $7,370,335 16.30% 9271,376 o on 2 Fee(Profit "* ltems & 3) Settlement Amount 7 TotalTermination 97,641J72

termination settlement to of lnstead complying with theTCO'srequest providea proper (primarily initiated proposal, consultants) Mr. Freeman of several representatives representativcstheTCO of and with discussions emailconespondence various different to by concomíng rvhether not Costor PricingDatawasrequired besubmitted the or repeatedly to the referred theFAR Contractor.In general, TCO's representatives and to that by requirements, insisted Costor Pricingneeded besubmitted theContraetor; incurrEd should based be uponthecostthattheContractor thatthesettlement amount representatives insistedthattheyhadprovided underthe contract; while Mr. Freeman's amount uponthevalueof Data,andthattheseftlement should based be CostandPricing (i.e.,payments made not because the underthecontract theContractor's work provided contract been had terminated).

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MEMORANDUM.FAR 15.406-I PRICEOBJECTIVE Arca, Program, Ä.liænanu FamilyHousing Energy No. Shared Savings SUBJECT:Cont¡act DACA87-91-C-0019, of for theConvenience theGovemntent" ItemNo. A9l019-224,"Terminatio¡r Oahu,Hawaii;Change

identifyits actual incuüedduringthe cost specificâlty s) Attemptsto havetheContractor (that

performance thecontract, to submitits Costor PriciflgData wouldinclude and of a 2005whentheTCO received theContractor's actual cost)continued until 20 December to whichreferred Cegali's October H. letterfromtheLarvOfficesof Tirnothy Power, to documents that and Tennination Settlcment Proposal, indicated attached theletterrvere with theproposal." Reviewof the thatsupport costandpricingdatasubmitted the extent, to lend revealed thedocu¡nents that attached thatletterdid, to a certain submission previously provided by and to some support thecostinformation thepricinginformation Cost attached thatletterstill did notrepresent or to M¡. Freeman; howsver, documents the PricingData(all relevant facts).

submitits several timesto havetheContractor h) Since TCOhadtriedunsuccessfrrlly the

would or that of Costor PrieingData,andit appeared no amount explanation, direction, all resultin the Contractor actuallyproviding of therelevantfacts(includingthe the pr'iorto the effectivedateof the tennination), TCO actualcostincurred Corrtractor's whatfactsthe records determine to suggested the TCO reviewthè Contractor's that that Mr. agreed indicated and Coitractormighthavethatcouldbesubmittsd; Freeman Nevada.As a Group'sofficein Ias Vegas, rqcords wereat Co-Energy theConhactor's Group's officein las Vegas, visitedCo-Energy the result, TÇO andtheundersigned made (6 all Nevada March2006through10March2006)andreviewed of therecords the (see documenting reviewof the available thatlocation theTCO'smemorandum at for that availablç reviewby theTCO). Dwing thatvisit, andasa documents weremade provide that the resultof the reviewof thoserecords, TCO orally requested the Contractor to to specificinformationthat appeared be readilyavailable theContractor.The of OtherthanCostor PricingData"consisted thefollorving: "Infoflnation requested that AssctValue" - theTCO requested theContrac¡or i) Regarding "Unamortized the submit: and that (l) A listìngofthe specific savings" equipment waspurchased "energy installedunderthe conkact; purchased; pieceof listedequipmentwas (2) Thespecific dateeach of and paidfor each listedpiece equipment; (3) Thespccifio amount for listedpieceof equipment. (4) Theamount depreciation already recovered each of thaf Expenses" theTCOre4uested theContractor the'"Termination ii) Regarding submit: turned-over theGoverument to (t) An explanation to why thelist of materials as proposal settlement (díre.ctly Actusknd Lease) contairìed thetennination in to turned-over; material forthe actual listsof materials wasdifferentthatthesigned and had (2) A nanativeexplaining identiryof theContractor changed how thecorporate the from ths eritity thatwasawarded contractto theentitythat wascurrently itself representing to betheContractor. specifically identified none iii) As of thedateof thisMemorandum, of theinformation provided.As a result, 20 December the 2005 andrequested theTCOhasbeen by proposal termination settlement submisiion beingused theContractor's is as revised Cost evørthough does contain Contractor's or PricingData. it not the

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MEMOR,ANDUM Fâ.R15.406-I PRICEOBJECTIVE Familyl{ousingArea, Aliamanu Program, Savings Energy Shared No. SUBJECI: Conkact DACA87-91-C-0019, of for theConvenience theCovemment" ItemNo. 49t019-224."Termination ûahu, I{awaii;Change

elements of coüsisted thesame essentially 2005proposal 20 í) TheContractor's December proposal as settlement termination 2005revised 3l asin theContractor's October in summarized thefollowingtable: Item 1 2 3 4 5 6 7 Amount DescriPtion $5'519'180 MonthlY Payments * $1'329,807 Asset Unamortized Value * ExPenses $335.077 Termination $186.331 Costs Settlement Termination Subtotal $7,370,39s 16.30% $271.376 (Profit '*' ltems & 3) on 2 Fee Amount Settlement Termination $7'641,772 Total

in j) Thc Contractor's elements brieflydescribed thefollowingparagraphs: are proposed the 80 of amount $5,519,1 represents fixed The ' Ð ltem 1 - MonthlyPaSments: proposed andthemaintenance savings (Consisting boththeenergy payments of morrthly not had wouldhavereceived the contract been that courponeits; the ContraCtor remainingon the contractwhenthe contract (ãssentially, fixed aruount the terminated that the that It wasterminâted). afpears in essence, Coltractoriscontendqrg theTCO br¡t of for the hadtheauthorityto terminate contract theconvenience the Government, (including profltt any all still receive of thefixedpayments should thartheContraitor payments) the balance thecontract eventhoughthe Contractois of for in those at is This eleme¡rt problematic. best rvastenninated" underthe contract performånõe "entitled" to any"energysavings"afterthe was iince evenif theContraÇtor somehow prqfit); it-is (whichwouldrepresent anticipatory effcctivedateof the termination to could,in anyway,bq entitled the difficult to understandhorv Contraðtor extremely and afterthecontractwasterminated for which mainienance paymentibrperforming work. did Îhé Contractor not performanymaintenancç to appeared of amount $1,329,807 Value: Theproposed Asset ii) Item2 * Unamortized ' underthe contract, equipment savings uponthecostto insfall theenergy be based and õf ãirmber mòninsin thecontract, then the across maximum distributed'equally of monthsaftet theeffegtivedateof the thatmonthlyiateinuttiplied by thenumber eitherl) thatevonif it oontcndíng that It termination. appearc theContractormaybe (Item l), it underthe contract ali wereto receive of the rønainingfixedpaylr.ents saving-s õf recovery its i*tiat costto installlheencrgy to wouldn'tbesufficient ensure (in amount as its proposal analternate in this ar equipment; Z)rbatit included eJ-ement that it event, wouldindicate the ltem t), In either t oi recover cáse^it "ouid Þroposed the sinceunder first contention is arnount excessive, settlement Contractor's proposed andJhg that be w'ould indicating it wasin a lossposition, theContr¿ctor and of theamount theprofit ($271,376); by wouldbe oveÑated amount settlement by wouldbeoverstated settlement amount the contention, proposed thesecond uuder of theamount ItemI (S5,519,180). fairly of amount 5335,0'17.was The Expenses: proposed iii) Item3 - Termination ' initial termination in element theContractor's correiponding with consistent the the reduced in proposal. rèflectsð thefollowingtable,theContractor As setttement per per from$6?.40 hourto $57.70 hour,and of hourlyrate-foíone its principals rate an páyrollÎaxes, thenadded overhead of60 percent. and the reducêd associated

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MEMORANDUM.IìAR I5.406-I PRICEOBJEC'I'TVD Area, FamilyHousing l3nergy Program. Aliarnanu Shared Savings No. SUBJECT:Contract ÐACA87-91-C-0019, of for ltem No. L9l0l9-224, "Tenninatio¡r theCouvenience theGovcmrnent" Oalru,Hawaii;Change

20Jun-05 Amount Descriptio4 ftem (Partner) George 31 Days 67.40/HR 1 $16,715 @ Tax Payroll on George 12V" $2,006 2 @ (Material turned-over Govt) to Supplies $40,000 J (Hauling Trailers) 3 Transportation $10,000 4 Loss Trucks on $18,000 Pay $106,543 Severance to Employees 6 pay Payrolf on Severance @12% Tax 812,785 7 Benefits terminated on employees Health $4,568 I a S1.500 Disposal OilandGarbage of Total= 9212,117 l0 1 1 Overhead 60% @ Revised Total= 12

20-Dec-05 Amount

$r43{Û
$1,7t7 $40,000 $10,000 $18,000 $106,543 $12,785 $4,568 $1.50"0 $20s,423 $r25,654 $335,077

rvas-fäirly of amount $18,6,331 Costs:Theproposed Settlement ív) Item4 - Termination in element theContractor's (slightlyincreased) thecorresponding with consistent proposal, consisted thefollowing: and of settlement initial termination
Description ConsultingBillLennett ExpensesTim Power Legal Or¡¡ner BobFreeman Amount $109,40Û $49'200 s27.731 $186,331

= Total

proposal included termination settlement v) Item6 - Fee(or Frofit): TheConkactor's ' the however, of profit on thesecond third elements theproposal; aild percsnt 16.3 that demonstrating ít wasin a profit stilt Contractor ¿i¿notprovideanycalculation Acquisition by was position whentheconhact terminated asrequired Federal (FAR) 49.203. Regulation 4) Costor PricinsData: of the actionrequired submission Costor Pricing this above, termination a) As discussed from requests theTCO, theContractor despite repeated however, facts); Data(all relevant of and that argued Costor PricingDatawasnot required thatthesubmission their Cost periodof time attempting_ anãPricingDatawasall that wasrequired.After anextended "facts" Dafa"andwhatrclated by "Costor Pricing to ôxplain whatwasmeant thephrase the the be theConhactor should providing; TCO,in aneffortto overcome impasse (and that agreed) theTCO couldreviewthe the suggested theContractor between parties that itemsof information the records mightbe ableto identi$ factual and Contractor's and setflement couldaffectthe to Contractor thatwasrelevant thetermination had the records, TCO_orally As negotiations. a resultof theTCO's reviewof theContractor's to infomationthatappeared bereadily specific that requested theContractorprovide the agreed provide reçested to and to avâilabte theCont¡actor; theContractor still the to "lnformation Othertharr Costor PricingData." However, date. Contractor has "Costor PricingData"rvithits termination provided andrequested eithertherequired not "lnformation provided specific Othe¡than the proposal hastheContractor nor settlemcnt Costor PricingData"thattheTCO's requested.

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MEIYÍORANDUM FAR 15.40ó-l PRICEOBJECTIVE Arca, FamilyHousing Aliamanu Program, Energy Savings Shared ColtractNo. DACA87-91-C-0019, SUBJBCT; of for "Temtination theConvenience ilte Govemment" ltemNo. 491019-224, Oahu.Hawaii;Changc

with be should conducted the that believes negotiations b) Although undersigned the that also the in an effort to resolvethetermination, undersigrred believes the Conüaðtor affectthenegotiations Cost of absence theCo¡rtractor's or PricingDatawill substantially tennination an with the hamper TCO'sabilítyto detérmine, ccrtainty, equitable andcoutcl the thatduringthenegotiations, Contractor expects settlcment amount.Theundersigned be settlement should that among otherthings, thetermination will mostlikely argue, cost upontheactual thatthe and based unonthó*vãlue"ofthè contract not based and priorto thedatethc contract terminated; thatthis "difïerence was incurred Contracìor settlement tennination a affecttheabilityto rcach negotiated of opinion"will advèrsety its "Monthly insiitingon receiving pro.posed to arnoint(asopposed theContractor refusal the Although Conhactor's Value"amounts). Asset und Paymentì" "Unamortized of affectthenegotíations the to to iubmit its Costor PricingDatais expected adversely of effecton-the:regotiationstheposthavea muchlesser pre-termination it should cost, and Expenses" proposed "Termination cost îennination (i.e.,theContractor's of Thenegotiations the"Proflt" cotnponent, Costs"arnounts). SetÌlement "Termination the aprofit ratet9 be used(because Contractor normallywould involvenegotiating which whenthe in or-not demonstratedivhether lt_was a profit position wouldhaveaÉeady of by affected theabsence the witl was coflhact tenninated), alsobeadversely (without to will the Data,since parties have first determine Cost Contractor's or Pdõing was whenthecontfact was or whether not theContractor in a profit position faots) the terminated. Data," "Costgf -P.ri9ing to that insistence theywerenotrequired provide c) TheContractor's thaf "CostandPricingData,' whichrys a]l laterinsistence theyhãdprovided *d th"ir that to to thattheywererequired provid-e seõms involvetheir insistence the tenrrination of instead theContractor's value?' uponthe"contract based shouldbe settlemánt iincurredcost,"or it couldbèbecause do not understand difference thc between the they as below: phrases, discussed two diflbrent "all in i) "Costor PricingData"asdefincd FAR Part2 means factsthat.'.prudent ' to expe,ct affectpricenegotiationssignific_antly. wouldreasonably sellãrs buyersãnd or and yeqfiable...Cost Pricing iot ..arefactual, jirdgmental; a¡.e Data. Costor Pricing data; accountírrg theyareall thefactsthatcanbe historical DataaremorJthan of of to to expected contribute the-soundness estimates futurecostsandto reasonably incurred," already of the validiil,of determinations costs unit of ii) "CostandPricingData"is a combination "CostData"(i.e.,laborrates, prices,. ' etc.),and profit rates, conditions, mârket mtes, Data"(i.e.,overhead úc.)aãã?pric¡nã a notmallyseewhenexamining . Datâ"iSwhatonemiglrt "Costang!Pricing to.be could that_someane sayneeds profosal- andit is something Conffaîiõr's etc-), for provided sömè of format(i.e.,Columns Labor,Equipment,-Material, sort in levelof detail(i.e., specific to to be andit couldeven required þe submitted some format)."Cost pronosed must tier for amounts l3tand2nd subcontractors usethesame pricingData"however is not limitedto just CostDataor l¡tt"g Data- instead ðr in defrned the that "CostorÞricingData"is a phrasdterm hasbeenspecifically facts"- whichultimately as Regulations being"all therelevant Federal Acquisltion Pricing proposed Dataandits proposed Cost for should thebasis iheContactor's be prcpgs,ed Dataor its Cost not theContractor's or of Data;butregardless whether need.to propósed upon"Costor PricingData,"thenegotiations PñcingDatais based had if facts)even theContractor upon'tost or PricingData"(all relevant Le based its factsin preparing proposal. but facts, did not usethose those

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MEMORANDUM- FÀR 15.406-I PRICEOBJECTIVE Are'.r, Program, AiamanuFamilyHousing Energy Savings Shared No. SUBJECT:Contract DACA87-91-C-0019, of for ttemNo. ^91019-224,"'Tennination theConvenience theGovemment'' Oahu Hawaii;Change

had, the it as d) In its initial 20June2005proposal, appeared though Contractor to a certain rvouldhavesubstantially whichif tbctual, tu'o to attempted identifuat least things, extent, of the in For facilitated negotiations. example, calculating first element thatproposal the of used (Amortization lnitial Costs), Contractor anamount $14,3i8,422,;whích the of and incurred to^purchase installtheenergy costthattheC,onfractor migåtreflecttheactual and phase thecontract; in calculafing of dur{ng initial Construction equrp¡nent the savmgs (Amortization-of the Operating Costs), Contractor of eiement thãtproposal these-cond thc whichmightr,eflect of provided that an infonnation sugfested amounJ $22,714,888, phase the contract, of incurredaftertheinitial Construction that the Contractor ãctualcost been phase thecontract.HadtheConkactor of and duringtheOperating Maintenance prethat it as items, wouldseem theContractor's amounts factual abletô confirmthese before, as however, discussed to fairly easy establish; cost termirration rvouldhavebeen costthatthe correct actual orprovidingthe these amounts insteåd confirming of arguing mofed awayfromthis informationandbegan Contractor incuned,-ihe Contractor value"andnot be uponthe"conhact should based settlement amount thatthetermination of duringtheperfonnance thecontract. costincurred theContractor by on theactual Analvsis: 5) Technical (TAR) Report Analysis completed Technical a a) On 9 May 2}06,theundersigned that with preparing report,tlrg this contractactión. In conjunction conceming the the modifications, as documents awarded, contract rçvicwedthecontract undersignèd (including letters email and paymenfs, itemsof correspondence various conhact that parties, well asvarious documents were as the bçtween contracting messagei) Nevada. duringthefact-findingvisit to Co-EnerryGroup'soffrcein t^as obtainõd _Vggry, by the submitted letterdated reviewed proposal iñ As discussed thetAn theundersigned various and from 20December2005, tlrel¿w Officesof TimotlryH. Power, provided In revier'/of that submission. thc TAR, the resultingfrom the undersigned's commcnts Cost the did that reported thesubmisÀion not oontain required. or Pricing undersigned in wi$.t[g proposal had Data,añdthatilresubmission not beenprepared accordance Regulation Acquisition in contained Feder¿i instructions submission FAn) Ïable 15-2, Cost theContracùor's or PricingData(all did the andthatbecause zubmission not cotrtain facts),the TAR wasqualifiedfo theextentthattheTAR mightneedto be therelevant by submitted the or revisedif factu¿linfonnationwaslateruncovered othenvise or has information beendisclosed submitted factual no To þ Contractor. date. additional fheContractor. contract the to the method establish frnalpriceof theterminated b) TheTAR outlined proper ' incurredduringtl¡e which involvedidentiffing theactualcostthat the Contractor provided the by o_f and uponsome theinformation performance thecontract, based of in may that indicatéd theConffactor havebeen a profit inítíalproposal, in Çontr¿ctor its then.a and position, was position whenthecontrãct terminated, if it wasin g.P{ofrt total to and profit ratewouldneedto be established applied theContractor's ieasonable (totalincuned costplus amount priorto thetermination. thiscombíned To costincurred Costs Settlement and E-rpørses theTermination for profit),amounts theTermination Then,to pricefor theterminated contract. inthe flrnal to resulting woulá'need beaddod, had the wasowedto theConhactor, amountthattheGovernment whatamount determine payments) to wouldneed be (including partialtermination all paídtheContractor already contract. for subtracted thefinal priceestablished thetenninated from

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PRICE OBJ8CTM MEIvIOR.ANDUMIrAR 15.406-l FamilyHousing Area, Program, Aliamanu Shared Energy SaviagB No. DACAST-91-C{019, SUBJECT:Coutract of for Hawaii;Change ItemNo. A9lû19-224."Termination theConvenienco theGovernment" Oahu,

position whenthe was whether not theConfiactor in a prof,rt or c) In anattempt estinrate to

included the in of contract terminated, was within theTAR some theinf'ormatiôn for to first, an incured amount whatthe initial proposal used estimate was Contractor's and Phase" thecontract; thenan of as appeared classifu the"Construction to Contractor and as amount whattheContractor classified beingthe"Operating incuned for the should havebeen together Phase" thecontrac|whichwhenadded of Maintenance a in cost. Thisprocess resulted generatingtotal Contractor's pre-termination total (Directand[ndirect Costof amount approximately Construction Phase of $20,206,215 (COFC) $5,887,793) a totalOperating and plus of Capital 514,318,422 Costof Facilities amount $2?,714,888 of andMaintenance Phase @irectandIndircctCost)-for an the After establishing cost total estimated incurred of approximately $42,921,103. that to pre-termination theundersigned compared totalamount the cost, cstimated and pre-tennination payrnerrts theContractor received; sincethe had that corresponding was that cost, paymørts exceeded estimated theTAR concluded theContractor most the that If whenthecontract terminated. onewereto aszume was Iikely in a profit position payments cost the thedifference betwecn pre-termination andthepre-termination that a amountof profit, thentheonly additionalpayrnent the representedreasonable cost. to wouldonlybe entitled wouldbefor its post-tetmination Contractor as proposal inadequate mostlikely couldnotbe used was and settlement termination as but â termination settlement, thatit mightbe used for basis negotiating pfopercontract Expenses Termination and cost the for a basis negotiating post-termination (Tenninatiorr of quantified; tlreanalysis the in not Settlement Cõsts).Although specifically nanative the for Experses, TAR ptovided proposed Contractor's 5335,077 Tcrmination leavingonlySl42$42,as approximately for $192,635; rationale questioning þeing Settlement forTermination and $186,331 unquestioned; of theContractorproposed approximately rationale questioning for $43,591; the narrative Costs, TAR provided only$142,740. leaving

2005 20 reported theContractor's December that d) IrrtheTAR, theundersigned

payments totaling$47,452,392 had 2005,theContractor received As of February as work for consisting 946,379,724 pre-termination and$1,072,668 partialtennínation of of that quantified, results theTAR indicated a the not payments. Although specifically in as amõunt couldbeestablished depicted thefollowingtable: termination settlement
lncunedCost TotalEstímated Phase Construction O & M Phase Subtotal= Profit Cost TotalPost-Termination Termínation Expenses Cost Settlement Total= Amount Final Contract Incuned CostplusFee PostTermination Cost Total= $20,2A6,215 $22.714.888 $42,921,1t3 $3.458.ô?1 8.06% Already Paid fi46,379,724

$142,M2 s142.740 g2gí,1gz

fi46,379,724 $285.182

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TIRICE OI]JECTIVEMEMOR.ANÐUM FAR I5.40ó.I Area, FamilyHousing Äliamanu Program, Energy Savings Shared No. SUBJECT:Cbntract DACA87-91-C-0û19, "Termination theConvenience theCovernment" of for Change ltemNo. A91019-224, Oahu,Hawaii;

= Amount Final Contract Amount OwedConFactor Amount Final Confact Payments Monthly lessPre-Termination PartialPayments lessPost-Termination = Amount OwedContractor Additional

$46,664,906

$46,664,906

($46,37s,724) ($1.072.q68) ($787,486)

Already Paid Already Paid

contained and the uponextending metho{ estimates, rationale abovqbased Ð As depicted ' would agrement settlement the Reportalone, termination Analysis ín theTechnical has and priceof approximately $46,664,906; sincetheContractor reflecta final contract wouldneedtô ropay the paida combined totalof $47,452,392: Cont¡actor been already approximately $787,486. theGovernmertt 6) DCAA Audit Report: in proposal exceeded $10O,000, accordance termination settlemeqt the a) Since Contractor's ' Audit Conffact that FAR 49.107an 17Mareh2006theTCOrequested theDefense with , settlg¡nggt terminaÍion (DCAA)perform auditof theContractor's an Þroposal. Àgency to difficultiesattempting obtainverifiablcinforrnation corniderable èncountãring Ðãspitê Audit Repo{Ng. 04141-_. on fromtheConkactor, 23 August2006,theDCAA issued to asthe"auditreport"herein).Similarto theTAR, theaudit 2006G1710002 {refêrred was the the reportconcludedth¿t Costor PricingDatasubmitted.by Cont¡actor not the of did that adequate; theproposal not complywith therequirement FAR; and.that a.fairand provideairácceptable for negotiating baiis propósaidid not Coniractór's that Theauditreportstated in order ambunt. settlement termination cdntråct reasonable to wouldneed submita the for adequate negotiations, Contractor to maketheproposal by supported Costor incurred, uponthecostit hacl baseil iettlementprôposal tennination the supporting proposed and b-o_oks cost.records PricingDatathatincluäingaccouûting (because the not uponthepayments made based a instead submitting proposal of amouñt, terminated). contract been had to the b) AlthoughtheDCAA couldhavesimplyreported above theTCO,andthenwaited ' as theìr_audit; prgposal beforeconducting sètilenient präperlypre,pared termination for a p005proposal Deggpbgr by requesæã theiCO, ttreDCAA rwiewedtheContractor's_20 (94%).of total the in 97,783,224 possible; to ihrc extent whichresulted questioning amounts. as proposed leavingoniy $458,548_unquestioned af amõunt 57,641,772 the Èssãntially, resultsof the auditreportarevery similarto theresultsof the TAR in that in theirentirety, of the theDCAÃ qucstioned first two elements theContracto¡'s-R¡opgsal postportirlns !þg Cgqtraqtor's of for rationale questioning andthenprwided nanative questioned of theContractor's the $62,8ó1 cost. In theauditreport, DCAA terminatiõn a-s-b^e-iqgleavingonly5272,216 Expense proposed for $335,077 Temrination -^ proqosed 186,33 for I anyof theConJractor's $ and ünqìestioned; did notquestion suggesting various othercomments Coits. TheDCAA provided Settlement Tennination or couldbc slightlyhigher lower proposed amounts of thatsome theContractor's by of uponanevaluation theamounts theTCO. depending

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FAR 15.406-I MË.MORANDUM. OBJEC'I]VË PRICE Area, FamilyHousing Program, Aliamanu Savings Ënergy Shared No. SUB¡ECT: Contract DACA87-91-C4019, of for ItemNo. A9l0l9-224,'"lermination theConvenience theGovemmçnt" Change Oahu,Harvaii;

just cost, wasused for theqost-tennination andtheestimated c) If theDCAA auditreport couldbe atnotrnt TAR wastsed, a terniimtionsettlement pre-tennination frornìhe in as èstablished depicted thefollowingtable: lncurred Cost Total Estirnated
Phase Construction O & M Phase Profit $20,206,215 $_22.714.888 Subtotal= $42,921,103 $3,458,621 8.06% Already Paid Total= 846,379,724 DCAA DCAA

Cost TotalPostJermination Termination Expenses Cost Settlement

Total =

9272,216 $186.331 $458,547

Amount Final Contract plusFee IncuredGost Cost PostTermination = Amount FinalContract

$46,379,724 $458:547 $46,838,271

OwedContractor Amount $46,838,271 Amount FinalContract (s46,379,7241 Payments Monthly lessPre-Termination Payments {s1.072.668) Partial lessPostJermination = ($614,J21) Amount OwedÇontractor Additional

AlreadyPaid AlreadyPaid

in contained the and method estimates uponextendilgth-e based above, d) As depicted ' amounts post-tennination then AnalysisRe,portfand usingtheunquestioned Technical wouldreflcct a final agreement settlement from theDCAÁ auditicport, ttreterminadon been has the and priceof approximatèly 846,838,,27t; since Contractor already contract the need repay to Contractorwould tôial paida eombined of $+2,452,392;the approximzltely 14, 2I $6 1 Government 7) CostAnalvsi: would 2005subrnission 20 of a a) Performing costanalysis theContractor's December ' to selected that of the mrurner the Contractor results-because provideralhermeanin[less ä'.laim"additional in As contract. described boththe from corñpensation theterminated of the and Report theDCAA Audit Report, first fwo elements the Analysis Technical Value")- not do Asset and ('MonthlyPalments" "IJnamortized submission Contractor's "claims"it that amounts theContractor reflecipayment reflectcostat all, but rather that (Breach Contract) of wãs the bècause contracf terminated a rcmedy receive should undera available but conhact it is not a r_emedy under commercial a mightbeavailable of the above, nextfwo elemenfs the as However, discussed contract. Government Feãerat Costs") Settlemørt and Expenses" '*Termination ("Termination submission Contractor's cost, post-termination canbe analyzerl, be wouldnormally a Contractor's do reflectrvhat upona cost cost for negotiations thepost-tennínation couldbebased and,at least analysis.

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FRICEOBJECI'IVI]MErvtORANDUlvfFAR 15.40ó.1 Ârea, Aliamanu FamilyHousing Energy Savings Program, Shared No. SUBJEC'I: Contract DACA87-91-C-0019, 'Tarmi¡ationfor theConvenience theGovernmcnt" of Oahu,Harvaii; Change IternNo. A9l0l9-224,

in b) The cost includedas "Tennination Expenses" the Contractor's20 December2005 submissionconsistsof the following: Ig,Enination Expçnsgì Item Description (Partner) George 31 Days@ 57.70/HR 1 Taxon George 12% 2 Payroll @ (Material turned-over Govt) to 3 Suppfies (Hauling Trailers) 3 4 Transportation Losson Trucks 5 Pay 6 Severance to Employees pay on PayrollTax Severance @12o/o 7 employees Benefits terminated Health on I of I Transportationgarbage Subtotal= 10 11 Overhead @60% Total= 12

20-Dec-05 Md $14,310 91,717 $40,000 $10,000 $18,000 ${06,543 $12,285 $4,568 $1.500 $209,423 $'125.654 $335'077

in above,some of the Contractor'sproposedcostsrverequestioned the i) As discussed ' TechnicalAnalysis Report as well asin tÌreDCAA audit report. The following table depictsthe areaswhere the proposedcost were questioned:

2o-Dec-05 ouJffi""¿ u"*ilt""¿
ttem 1 2 3 4 5 6 7 I 9 10 11 12 Description (Partner) George 3l Days 57.70/HR @ PayrolÍTax George on @12þ/" (Material turned-over Govt) to Supplies (Hauling Trailers) 3 Transportation Losson Trucks Pay Severance to Employees pay PayrallTax Severance @12% on employees on Benefits terminated Health of Transportationgarbage = Subtotal Ove¡head @600/o Total= Notes: Amount $14,310 $1,717 $40,000 $10,000 $18,000 $106,543 $12,785 $4,568 $1.500 $209,423 $125,654 $335,077 An¡oH$t $14,310 $1,717 ï21,288 $0 $18,000 $6,427 $671 $4,568 $q $66,981 $125.654 $192,635 Amount $0 $0 $21,288 $0 $18,000 $0 $0 $O $g $39,288 $23.573 $62,861 Notes A A B C D E E F G H

the A - The proposedamountsrepresented numberof hours (8 hoursper day for 3l days: 248 hours)that one of the Contractor'sOwnersexpendedsupervisingthe Contractor's both the dircct labor amountand demobilizationfrom the Housing A¡ea. Thc TAR questioned payroll taxesin thèir entirety,sincethe cost for an Owner should havc be included the associated rate and not includedas a direct cost. Although the DCAA did not in the Contractbfs overhead questionany of the proposedhours, the DCAA reportedthat only 161 hourshad bçen associated witfr supervisingthe demobilizationeffort and that r¡r rtmsining hours should havebeen classifiedas settlementexpenses.As reflectedin the next table,the Cost Analysis amountsare basedupon 161hours.
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PIUCEOBJECTIVE MEMORANDUIVI FAR 15.406-l Aliamanu Familyl{ousingArea, No. Shared Energy Savings Program, SUBJEC'I: Contract DACA87-91-C-0019, Item No. A9l0l9-224, "Termiriation theConve¡rience thc Covernment" Oahu,Hawaii;Changc for of

B - Whenthecontract terminated; Conhactor a supplyof various was had the spâe partsthattheyusedto perform theirroutinemaintcnance. Instead havingtheContractor of dispose thematerial restocking theCovernment of or it, from tlie agreed accept supplies to the and furnished materials Privafization Contractor makeit Goverrunent under newBase the that area.As a result, Contractor tlre turnedcontract wasgoingto betakingoverthehousing material it hadto thePrivatization that of overth.e Contractor rvhilerepresentativestheU.S. Army Corps Engineers theDepartment PublicWorkscounted items.At the of and the of conclusion thatprocss, of of of representativestheGovernment signed copies thelistingof with that material.Thetotalcostassociated thematerial wascounted tumed-over and was that for should haveincluded this item. Boththe $ I 8,712.05 thisis theamount theContractor TAR andtheauditreportquestioned same the reflected the on the amourtandused amount rvasdiscussed Mr. Freeman signed sheets. Thisissue in with duringthereviewof therecords Nevada, Mr. Froeman and agreed onlytheamount that fromthesigned sheets shouldhavebeen proposal. included thetermination in settlement Amountin thefollowing TheCostAnalysis tableis bascd uponthesigned sheets. with thingsin C - This itemis associated theremoval disposal thevarious and of yard the theContractor's storage andis hothallowable allocable. ancl Neither TAR nor theauclit actually the amount; theDCAA confirmed theContractor that reportquestiorred proposed and the incurred proposed amount. D - Whenthecontract terminated, Contractor some its vehicles was of at the had the to that the site;andaspartof it demobilization, Contractor decided sellthevehicles it owned is of to location.ThetrucksthattheContr¿ctor claiming instead movingthevehicles another property, rather field but Covernment weremostlikelypartof theContractor's office. werenever Thç factthattheContractor have may for less soldits ownvehicles an amount thanwhatit believes vehicles the worthdoes in anywayhansfer liability to the any mayhavebeen not in Government. Thisitemis bothunallowable unallocable wasquestioned its entirety in and and both theTAR andtheauditreport. did the E - Whenthecontract terminated, Contractor not haveanyotherwork was the of area terminated employment its onin the immediate for its workforce theConfractor and removingthepayments Kaiser site workforce. TheTAR questioned amount reflected to the and to Foundation, Gaspro, payment individuals lieu of vacatíon; in since severance amount payrolltaxes. Althoughthe auditreportdid not was thenbeingusedto estimate severance the question costs removed thc the included this havebeen in under item,thenon-payroll amount amount thefollowingtable. in CostAnalysis payment Kaíser removed to rvas from the F - As discussed above, $4,568 the (to aboveelement prevent improperly calculating percentage pay'olltaxes).Theamount a for included thefollowingtablefor CostAnalysis this to in amount includes payment Kaiserandthe othernon-payroll from theabove amounts removed itein. however, the G - Neither TAR northeauditreportquestioned amount; the this revealed theContractor incurred DCAA's reviewof theContractor's records had that $2,560 of included thefollowingtablefor CostAnalysis instead theproposed I ,500. Theamount in $ is amount based costasidentified theDCAA. by upontheContractor's actual

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PRICEOBJECTM IvftiMORANDUM FAI{ 15.406-l -C-00 9, Sharcd FanrilyHousing Area. Aliamanu Program, I Energy Savings 1 No. SUBJECT: Conh¿cÈ DACA87-9 of for theConvenieuce theGovemnrent" ttemNo. A9l0l9-224,"Temünation Oalru,Ilawaii; Change

had the because Contractor used the overhead H - TheTAR questioned proposed billings. The the its that method calculating overhead did not consider contract of an incon'ect to information fromtheContractor properly vias DCAA appârently not ableto obtainsufficient directcost. rate the rate, overlread andapplied proposed to theadjusted calculate Contractor's the although maybeconsider¿ble it ãmourìt, rate thc will Since Coutractor haveanoverhead of some in included thefollowingtlbfe for Cost rate; calculated theamount differentthantheimproperly totaldirectcost an rate amount based is uponapplying overhead of 60%to therevised Analysip amount". and Analysis, DCAA auditreport, a a above, upona Technical based ii) As described shouldbereduced proposed Expenses" "Termination CostAnalysis, Contractor's thc in asreflected the followingtable:

rermination Expenses
Item Description George (Partner) I on 2 PayrollTax George @t.12% I (Materlaltumed-over) SupBlies (Hauling Trailers) 3 Transportation 4 Losson Trucks 5 Severance PaytoEmployees Þ pay PayrollTax Severance @12a/o on 7 (etc.) Benefits Health I of Transportationgarbage I Subtotal= 10 1 1 Overhead 60% @ Total= 12

z'.Dec-'s *-,11fi,"n *"å:ïirn
Amount $14,310 91í17 $40,000 $10,000 $1S,000 $106,543 $12,7S5 $4,568 $1,59q $209,423 $125.654 S335.077 Amounl $o $0 fi18,712 $10,000 $0 $100,116 912,114 $O $1.500 8142,442 & fi142,442 Amount $14,310 61,717 $18,712 $10,000 $O $106,543 $12'785 $4,568 ${.500 $170,135 $102'081 9272,216

^"liiio
Amount $9'290 $f '115 $18,712 $10'000 $0 $100'116 $12'114 $6,427 $2'560 $160,333 $96.200 $256'534

c) The cost includedas'oTsrminationSettlementCosts"in the Contractor's20 December 2005 submissionconsistsof the following: Proposed Amount $109,400 $49,200 927.731 $186,331

Description ConsultingBillLennett LegalExpenses Tim Power Owner BobFreeman Total=

Settlcment proposed "Termination some theContraçtor's of discussed, Ð As previously ' but Report noneof theproposed Analysis in Cos-ts" werequestioned theTechnical the although DCAA did provide in amounts werequestioned theDCAA auditreport, where the the The and some relatd findings comments. followingtabledepicts areas proposed werequestioned: cost
t This issue is discussedgreaterdepth in paragraphl0 below

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t MEMORÁNDUM. IIAR I 5.406PRICEOBJECTIVE Area, Àliamanu FamilyHousing Program, EnerrySavings Shared No. DACA87-91-C-0019, SUBJßCT:Con{ract of for ltem No. ^91019-224,"Termination theConvenience tlte Government" Oalru, Hawaii;Change

Gosts Settlement Termination Description - BillLennett Consulting -Tim Power Expenses Legal - BobFreeman Owner Total= Proposed Amount $109,400 $49,200 $27.731 $186,331

TAR Questioned AmPu-nt $10,34Û $4,920 ï27.731 $43,591

Audit Questioned Am-o,unt $0 $0 $q $0

Notes A B C

Notes the associated reviewing with amount purportedly was A - The"Consulting" Cost the to records assemble Contractor's or Pricing cost Contractor's ândaccounting proposal.For the Çons-utting teffninationsettlement the Dataandto prepäre Contraclor's rvith associated amounts both billingsandprojecled the amount, príposatcontains actual a reflected ß%o amount TheTAR guastioned settlement. tire negotia¿ing [ermination (apior DCAA auditor)wasarguing ln reduction the actualhourswheretheconsultant any Theauditreportdid not question of-the thatCostor PricingDatawasnotrequired. had proposed that amounts reported asof lateMay 2006the Contractor incurred and -Consulting cost,the its to In costof $l 14,295. orderfor theContrircto.r recover incurred Consulting wouldbe both cost and allocable, rçqsonable. costmustbeallowable, with theTCOthatthesubmission hours arguing but allowable allocable, expending and settlement a and of Costor PricingDatarvasnot required thenpreparing termination of instead incunedcostis simplynot proposal not uþonpayments mado, based uponthe in included thefollowingtable,is based amount, TheCosiAnalysis ieaionable. 20 between for amountreported theDCAA; reduced thehoursrecorded increased by 2005(thedateof therevised and 2005(thedateòf the¡nitiatproposal) 20 December June the hoursto negotiate and submission ?8 hoursat $200/hour); reducingthe anticipated to 98hours 30hours. from teminationsettlement with associated reviewìngthe- . . are B - The "[.egal Expenses" purportedly Cost the to records assemble Contractor's or Pricing cost Contractor's ãndacõounting proposal. proposed. settlement termination prepare Contraclor's the Dataandto -The wíth associated negotiating amounts billingsandprojected inclùdeìbothactual amount in a reflected l0Yoreduction the amount The settlement. TAR quéstioned thetermination that the wasarguing Costor PricingDatawasnot required. hourswhere lawyer actual that and amo¡nts rgpo¡ted. asof late any Theauditreportdid notquestion of theproposed Legalcostof $41 I . ln orderfor the Contractor had May 2006tlie Contractof incurred ,43 legal and allocable, reasonable; cost,thecostmustbe allowablc, its to rêcover incurred proposal wouldbe settlement a termination with associated preparing proper expenses with theTCOthatthe hoursarguing aud but boihallowable allocable, expending a and of subrnission Costor FricingDatawasnot required thenpreparing commercial cost,is instead incurred of not uponpayments made, of claimbased breach contract with with In simplynot reasonable. accordance FAR 31.20547legalfeesassociated a and is prefaiinga claimagainst Government explicitlyunallÍ'wable; FAR places . the Part33 aqdothers). levelfor attorney's (see per as ðapof SfSO hou-=ra "reasonable" leqs increased. upon.the included thefollowingtable,is based in arnount, TIieCostfuralysis reduced thehoursrecorded for 166 the hours reported-by DCAA (approximately hours); 2005(thedate and June between-20 2005(thedatsóftheinitiatproposal) 20 December the to hours negotiate the therevised submission33 houn);andreducing anticipated of from 98hours 10hours for a tokl of 143hoursat Sl50/hour. to termination settlement

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PRICE OBJESI'IVE MEMORANDUM FAR 15.406-1 SUBJECT:Contract DACA87-91-C-0019, No. Shared Euergy Savings Program, Atiamanu Familyllousing¡\rea, Oahu,Hawaii;Change ItomNo. ^91019-224, for "Termination theÕonvenience theGovemment" of

C - The"Owner"amount purportedly is associated thetime expended oneof the wíth by Olner's of theContractor reviewing Conkactor's andaccounting itr the cost iecords to assemble Contractor's the Costor PricingDataandto prelparc Contractor's the termination proposal.Theproposed seftlement amount inòludes bothrecorded hoursand projected hoursassociated negotiating termination with the sefflement. TAR The questioned enfireamount the the since "Owner's"salaryis normallyincluded tfuc in Contractor's accounting records anindirect cost,not a directcosi,andis then as recovered through applicatiolofthe Contractor's the overhead (in thiscase rate through several differentoverhead ratesfor differentcorporate entities). [n accordance FÁR with 31.202 31.203, and oncanappropriate for allocating base indirectcosts been has agcepte-d, Confractor the shallnotfragment base removing the by individualelements. any amounts reported asof late and that tfe agditreportdid not question of theproposed May 2006Mr. Freeman (alsoa lawyer) recorded hours(at $64.62lhour had 405 including payrolltax); andthattheContraetor not included had these Owne¡ hoursin its overhead calculations.In orderfor theContractor recoverits incurredcost.the rate to costmustbeallowable, allocable, reasonable; and directcharged hours associated with preparing proper a termination proposal settlement wouldbebothallowable and allocablqbut expending hoursarguing with theTCO thatthesubmission Costor of PricingDatawasnot requiredandthenpreparing commercial a bre¿ch contract of clairn uponpayments made,instead incurred based not of cost,is simplynot re¿sonable. The CostAnalysis included thefollowingtable,is based in amount, uBon increased the hours reported theDCA,a.; by reduced hoursbetween June2005(thedateof theinitial for 20 proposal) and20December 2005(thed¿te therevised of submission80 houn);and reducing anticipated the hoursto negotiate termination the settlement from 138lioursto 10hours;plus removingtwo of theprojected threetrþs for meetings with the Govemment ftlr a totalof 335hou¡s $64.621hour $1,700 at plus (travel)-In addition, theCostAnalysis amount, refleoted below,alsoincludes costfor oneof theotherOwners (George seeparagraph for 7"b-i NoteA abovç)) attending meetingwith theTCO in the Nevada, meeting with theDCAA, andprojected hoursassociated legotiating with the termination (48 settlement at agreement hours $64.62lhour). ii) As described above, based upona Technical Analysis, DCAA auditreport, a a and CostAnalysis, Conhactor's proposed'"Termination the Settlement Costs" should be reduced reflected the followingtable: as in
Term inationSettlement Gosts Proposed Descrintion Amount - Bill Consulting Lennett $109,400 Legal ExpensesTim Power $49,200 (plus) Owner BobFreeman $27.731 Total= $186,331 TAR Remafning Amount $98,460 W,28A $0 $142,74A Audit Remalning Amount $109,400 $49,200 $27,75't $186,33r Gost Analysis Amount $BS,09S $21,450 526.449 $132,994

d) Basedupon a cost analysisof the Contractor'sproposedpost-termination cost,tlrc amountshould be reducedasreflectedin the following table: proposed

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PRICE OBJECTIVE MEMORANDUM FAR I5.406.I SUBJECT:Cont¡act DACA87-91-C-0019, No. Shared EnerrySavings Program, AliamanuFamilyHousing Area, Oahu,Harvaii; Change ItemNo, A9lÐ19-224, "Temrination theConvenience the Govemrnent" for of

Post-Termination 20-Dec-û5 Amount Termination Expenses $335,077 TerminationSetUementCosts $18-6,331 $521,408

TAR Remalning A¡noqn! $142,442 Û142,740 $285,182

Audit Remaining Amount 5272,216 $1S_6,33'1 5458,547

Cost Analysis Amgu{lt $256,534 $132.994 $389,528

e) In tle absence anyrealContractor of submitted pre-termination andby usingthe cost, method forthin theTechnical set Analysis Report, each these amount of coutdbã translated a projected into tennination settlemènt amount reflected as belorv:
20-tec-05 A$ount TAR Remaining Amount Audít Remaining Amount Cost Analysis Amount

TotalËstimated Incurr,ed 9ost Construction Phase O & M Phase (or Profit Fee)

$20,206,215 $20,206,215 $20,206,215 $20,206,215 s22,714.888 522.714,88q $æ.714,888 $22.714,885 Subtotal= $42,521,103 $42,921,103 $42,921,103 $42,921,103 8.06p/o $3.458.621 $3.458.621 $3,458.621 $3.45s.621 Totaf= Paid 946,379,724 846,379,724 546,379,724 546,375,724 $335,077 $186.331 $521,408

TotalPost-Termination Cost Termination Expenses Term ination Settlement Cost Total= FinalContract Amount CostplusFee Incurred PostTermination Cost = Final Conlract Amount Amount OwedContractor FinaÌ Contract Amount lossPre-Termination Payments Paid lessPost-Termination Payments Paid = Amount Additional OwedContractor

fi142,442 5142.740 $285,182

9272,216 $186.3s1 $458,547

$256,534 $132.994 $389,528

$46,379,724 $46,379,724 fi46,379,724 546,379,724 $521.408 $285.182 $458.547 $sS9.528 $46,901,132 $46,664,906 $46,838,271 846,765,252

$46,901,132 $46,664,906 $46,838,271 ç46,769,252 (fi46,379,724\ (946,379,7241 ($4ã,379,724)(946,379,724) l$1,072.668) ($1.072,668) t$1.072.668t ($1.072.668) ($551,260) ($787,486) ($614,121) ($683,140)

above, based uponextending tennination the settlement method explained in Ð As depicted theTechnical Analysis Report, theContraçtor's and estimated incurrcd cost duñng performance the-contraót of initial proposal); *ith the"all of lnom theContractor's "u"o 2005 thc alleged post{ermination included theContractor's December cost in 20 submission, wouldappear theContractor been it that has overpaid.However, the Contractor's proposed post-termination amount includes duplicated, unallowable, unallocable, gnd/or unreasonable amounts cannotbeaccepted. that Alter making adjustments these for unacceptable items,aswell asincreasing certain iterns reflectthe to additional information discovered theDCAA duringtheiraudit,thefrnalcontract by prìce wou!{ beapproximately and the paida $46,769,252; since Contractor already has been combined of $47,452,392; contractor total the wouldneed repay Government to the approximately I 40. $683,
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PRICE OBJECTIVE MEfuÍORANDUMFAR I5.406-I SUBJECT:Contract DACA87-91-C-0019, No. Shared Enetgy Savings Prograrn, ¡\liamanu IramilyHousing Are¡ì, Oalru,Hawaii;Change ItenrNo, A9l0l9-Z24,"Termination theConvenience theGovemmenf' for of

g) The mostsignifiçant shortcoming associated theabove lvith analysis thatit is based is upotrthe,almost tangential, infomiation cost contained theContractor's in initial proposal, nothing provided theContractor and by aftertheinitial proposal beused can to confirmtheContractor's incurred pre-termination coupled cost; with thefactthatthe DCAA wasnot ableto quantifu Conftactor's the pre-termination incurred cost. Without theContractor's submission its Costor PricingData(inoluding of relevant documentation for its actualincurrecl pre-terntination cost),it wouldseem theonly recourse that currently available theTCO wouldbeto reexaminc TAR estirnate the developed to fromthe Contractor's initial information to determine credibilitv theContractor's and the of initial proposal informationi) In theTAR, the undcrsigned two different used amounts; f-or fi20,206,215 the Constn¡ction Phase, arld522,714,888 theO&M Phase; for whichresulted in estimating totalincuredpre-termination of $42,92 03 (546,379,724 a cost 1,1 profit),asreflected theabove including in table. Howthese amounts weredetermined andwhateflectanadjustrnent these to ârnount mightcause reviewed is below: (l) Construction Phase Amount: Theestimated amount based was uponthe proposed (shown theinitialproposal, Contractor's amount $14,318,422 of in "Amortization Initial Cost"- afterinterest been under of had removed). TAR The assumed this full amount beenfinanced that had overa l3-yearperiodat 5-56% (alsostated theinitial proposal); based in and uponthatinformation, loan a schedule developed, thefìrstquarterly was with repayment amount being (on and amount 2005 beingon I January $388,581 1 April 1992) thelastquarterly (coinciding end constnrction with theapproximate of theContractor's loan)^ the detennined in orderfor the that Usingthese assumptions, undersigned Contractor repaythe entireloan,the Contractor to shouldhaveincurreda total To only two itemshavebeen costof $20,2A6,215. date, uncovered, involve that theassumptions to generate estimafe; used the however, describéd as below,one of these should affecttheestimate, theotheronecouldresultin estimating not but a smaller Conshuction Phase cost,whichin turnwouldmean establishing a smallerfinal contractamount, in-tum increasing amount the and the that Contractor to thc wouldneed repay Govemment (a) In bothtbeTAR andtheauditreporttheContractor's alleged associated cost (part with purchasing energy the savings equipment of the$14,318,422) was questioned sincetheproposed amount included itemsotherthancost associated thepurchase theencrgy with of saving equiprnent. theestimate In Phase of theConstruction cost,it wasassumed thepurchase, that installation, and_ cost supervision, indirec-t werall included the$14,3 8,472; 1 therefore, in amount oneof theofherconstruction to phase movingpartof thepurchase costcategories should haveanyeffecton thetotalconstruction not phase or estimate theContractor's phase amount theundersígned's of construction amount. (b) As discussed above, amount theconstruction the phase of estimate based was the uponfinancing full amount $14,318,422 a I3-year period; of over however, Contractor's the financing records seem indicate it mayhave to that (instead a fi¡ll loan),andthenonlywithdrew obtained line-of'-credit a of a (lessthanthefull amount) certain amount onlvwhenit needed make to

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PRICEOBJECTIVE MEIUORANDUM FAR I5.406-1 SUBJECT:Contract DACA87-91-C-0019, No. Shared EnerrySavings Program, Atiamanu FamilyHousing Areq Oahu,Hawaii;Change ltem No. A9l0t9-224, "Termination theConvenience theCovemment" for of

payrnents asthework pro$essed. thisis thecase, If thenthetotalrepayment amûunt wouldbesubstantially thantheestimated less amount 52A,206,215, of rvhichin turnwouldmean establishing smaller a final contract amount, and increasing amount Contractor the the wouldneed repay Govemment. to the For example, theundersigned's in estimate, totalconstruction the phase amount 820206,215 of included directamount $14,318,422 the the of and ($5,887,793) diffbrence representing Conkactor's of facilitiescapital. the cost But, if asrepresented theContractor's in initial proposal, costof the the Contractor financing rvorkwasactually $1,211,û00 the (instead only of then phase $5,887,793), theconstruction amount $20,206,215 of wouldbe reduced 8\5,529,422 whichwouldresultin increasing amount ta the the Contractor wouldneedto repaytheGovemment 84,676,793overthe by amountshownin theabovetable. (2) O&M Fhase funount: Theestimated amount 522,714,888 based af was uponthe Contractor's fiscalyearoperating exBense information submitted with its initial proposal, with adjustmeuts beingrnade non-allowable for amounts, assuming and (CEG's)indirectcosts thattheParent Corporationrs couldbedistributed proportionally across tlueedifferent the business centers. estimate The also included another unstated assumption, beingthatnoneof the"opcrating included ofthe Conbzctor's expenses" any phase constuction cost;andthatnone phase included of theContractors's of theContractor's construction cost any operating expenses. Provided thisassumption correct, that is thenthereshould notbc anyotherreason adjust estiqated to tlre O&Mphase costof $22,714,888; however, theContractoros werenotcompletely if cost segregated, eitherthe thor phase estimated conshuction amount,or the estirnated & M phase O amount, wouldbe overestimatedandafterths duplicated amounts wereremoved, the totalcostwoulddecrease, resulting increasing amount Contractor in the the would need repay Government. to the ii) Regarding credibility theContractor's the of information containcd within the Cont¡actor's initial proposal; needs consider on 5 July2005theContractor one to that provideda "Certificate"anda separate "Certificateof CurrentCostor PricingData" attesting the accuracy the C