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

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IN THE UNITED STATES COURTOF FEDERAL CLAIMS No. 02-1460C (Judge Block)

HERMESCONSOLIDATED,INC., Doing Business As Wyoming Refining Company, Plaintiff,
V.

THE UNITED STATES, Defendant. DEFENDANT'S SUPPLEMENTAL APPENDIX

PETER D. KEISLER Assistant Attorney General DAVIY) M. COHEN Director OF COUNSEL: STEVEN J. GILLINGHAM Senior Trial Counsel KYLE CHADWICK Trial Attorney CommercialLitigation Branch Civil Division Departmentof Justice Attn: Classification Unit 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 Telephone: (202) 616-2311 Facsimile: (202) 353-7988 Attorneys for Defendant November21, 2005

BERNARD A. DUVAL Counsel Defense Energy Support Center Fort Belvoir, VA22060 HOWARDM. KAUFER Assistant Counsel Office of General Counsel Defense Energy Support Center Fort Belvoir, VA22060

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SUPPLEMENTAL APPENDIX DECLARATION WALICER OF R. JOHN .................................................................................. Recorm~aendation ChangeBase Reference Date for EPA to References Tied to Petroleum Marlceting Monthly (PMM), 6 January ..................................................... dated 1986 DefenseLogistics Agency hater-Office Memorandum, 2 December ......................... dated 1987 Excerptfi'omdeposition Lawrence of Ervin,dated, December 2003..................................... 1, 1

5 7 14

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IN THE

UNITED

STATES

COURT

OF FEDERAL

CLAIMS

HERMES CONSOLIDATED, INC. Doing business as Wyoming Refining Company

Plaintiff,

No. 02-1460 C (Judge Block)

THE UNITED

STATES, Defendant.

DECLARATION

OF JOHN

R.

WALKER

I. officer been when DESC

My name with the

is John Defense

R. Walker Energy except Sea

and

I am a contracting Center (DESC). from I have

Support

with

DESC

since for

1983,

for a period Systems

1987-1989, been a

I worked

the Naval officer

Command.

I have

contracting 2.

since dated

1989. December 12, 2002, and 23, filed 2002, price

In a declaration in support Summary clause

with

the Court

of Defendant's Judgment,

December

Motion

for Partial (EPA)

I addressed

economic

adjustment Company of nine

claims

submitted Government

by Wyoming contractor, 1986

Refining on a series 1994 by

(Wyoming) I, a longtime contracts awarded

to Wyoming

between

and

~ The contracts were awarded to Wyoming Refining Company, Hermes Consolidated, Inc. doing business as Wyoming Refining Company, and Wyoming Refining Company, A Division of Hermes Consolidated, Inc. For purposes of this declaration, I refer to the firms as Wyoming.

DEF.SUPP.APP.1

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DESC Since

or its the

predecessor,

the

Defense

Fuel

Supply

Center has

(DFSC).

date

of my prior on three

declaration, that

Wyoming DESC

filed it between

similar 1997

claims

contracts

awarded

and 1999. 3. The three are contracts contract that numbers are the subjects of Wyoming's SP0600-98-D-

later 0509

claims

SP0600-97-D-0510, were

and SP0600-99-D-0549. contracts

The contracts for one year According excess the jet and

indefinite for the delivery the 59 were

quantity-type of large Government million for the

called

volumes paid

of fuel. Wyoming of fuel in

to our

records,

of $40

million The jet

for nearly contracts is a

gallons bulk

under

contracts. JP-8

supply

of JP-8

fuel.

fuel

kerosene airline 4. regional

based

jet fuel

compositionally

similar

to commercial

jet fuel. The EPA clauses average market in these three contracts in leading Report is were based on

prices

contained Price Platts prices

industry or Oil

publications, Price OPIS were

either

Platts

Oilgram (OPIS). Contract

(Platts)

Information is published adjusted 5. The

Service weekly.

published these

weekdays. contracts

under

weekly. contracts were awarded pursuant to competitive Regulation

negotiated (FAR) Part

solicitations 15 and FAR

under Part

Federal

Acquisition

12 (~Acquisition

of Commercial

9EF.S~JPP.APP.2

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Items"). reasonable Regulation based on

DESC

ensured

that

contracts by the

were

awarded

at fair

and

prices (FAR). adequate on

as mandated Prices price were

Federal

Acquisition and reasonable 15. made no no

determined under files,

fair

competition of the

FAR Part Wyoming

6. Based objection complaints product contract, agreed issued under price period to

my review

to the legality that it it was not submitted

of the EPA being the paid claims stated

clauses, a fair

and made price

for its For it each

until

described

below. that

Wyoming the EPA

specifically clause. Price

in its offer modifications

change

were

weekly these change

for the product contracts. notices. Wyoming It

that did

is the subject not object

of the claims of these during since the then

to any

submitted

offers to win

regularly contracts

1997-1999,

and has continued time. submitted certified

up to the present 7. contracts September principal were Wyoming

claims

under

these and Its

three

on September 6, 2005, contention citing the 12, for

2, 2003,

September $4.5

17, 2004, million.

approximately that the EPA court

was

clauses decision. decisions 7,

in its contracts

illegal, 8.

the MAPCO claims 2004, were

I denied November

in final and

dated

November

3, 2003, that the

November and

2005.

I concluded the firm

EPA clauses

legal

authorized

and that

DEF.SUPP.APP.3

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had received

fair

market

value

for its

fuel.

I declare true

under

penalty

of perjury

that

the

foregoing

is

and correct. on

Executed

Officer Contacting

DEF.SUPP.APP.4

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(5 J~nuary 1986 F~JBJECT: Re~oa~endetlon to Change Base Reference Date for ~PA References Tied to PetroleumMarke.tingMonthly TO: I)FSC-FD

The current procedure of adjusting prices on the do~estlc b~Ik progra~ has m~Jor dr~Voack. As currently worded, clause B19.33, Part A, (f) states: The term mbase reference prlce~ means the refer~~e pri~e that will be establlsbed when the P~.trol.e~.~ Marketing Honthl7 publication bee~ avallab!e for the ~nth prior ~ th~ ~nth in ~Ich ~st and Final offers are due. For ex~ple, if Best and Final offers are due in April, t~ base reference price w~Id be basad on the ~reh data of the Petrole~ ~rketin~ Monthly's s~fled Sales Prices oF Pet~i~ Prod~ts Tables ~ich 4~ld generally be publish~ In mid-J~e. 2. Since the Best and Final offers are submitted before the base reference is known, o_fferors ~st gu~_ss at the relationshipbetween their offered price and thereference. In order to c .o~nsate for this unknown factor offerors Implleltlyincrease,their price= Whether offerors would sda~it to this is an interestingquestion in light of the initial sentence in B19o33: The contractor represents that the unit prices set forth in this contract do not include any contingencyallowance to cover the possibilityof increases In the reference prlce(s) in the Contractor'sbid or proposal. 3. Yet our analysis of the =ovement of the PMM as compared to other references as used for interim price adjustments indicates that the P~ my have moves as much as one or tta) cents par gallon out of step with such interim references. 1~lls situationis not only difficultfor offerors,it provides potentially misleadingindicationsfor DFSC. ~o It is the rec~m~.endatlonof this office that the base reference date used on domestic bulk solicitationsbe changed so that offerors will know exactly the base reference price to.which their best and final price is tied. 1"nus, the best and final offer price would be tied to a known final EPA re~erence and a known interim EPA reference. For ex,~ple, if the best and final date were

DEF.SUPP.APP.5

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PaEe 2 6 J~uary 1986 Reeo~zenda~,ion t,o ChanF,e Base Reference Date for E?h References Tied tO Petrole~HarketlnK Monthly NuvemberqS~h~ the final base EPA reference wouldbe ~ for August and the interimbase reference w~Id be the ~ub!Icatlons(s) staledin B19.33P~rt as for the monthof July=

CHRISTOPHER LEE Director " Officeof Market We~eareh Analysis & ....

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DFSC-N (L.Ervin/46578/me)

2 December 1987

SUBJECT Econ0mic~ce TO: Adj

ustment in the Domestic Bulk Program

I. At the recent prenegotiationbriefing for the current East/Gulf domestic bulk procurement,discussion among DFSC-D, -P, and -N concerned the means of price escalation used in the domestic programs. OFSC'Noffered to provide 9FSC-D w~th ~ copy gf the decisionpackageon this ~s,Je ,~h~ch ,.va~ p,P~ared last spring for General Griffith. The enclosed material includes the decision paper and related back-up material. 2. The decision problem concerns the use of an administrativelycumbersome method of price adjustment which results in contractor co~plaints and problems in billing and payments by DFSC. The paper discussed four options~ including keeping the then current interior/finaladjustmentsystem, modifying it to reduce offer price uncertainties~or moving to ~inal?~nlyescalators based on prices published in trade journals. The interested directorates~OFSC-C, -G, -N, and -P, unanimouslyrecommended Option II, a modificationof the then curreE{ system. General Griffith accepted O~tion II for use beginning with last summer's Inland/West procurement.At that time~ he stated his desire that DFSC mou~ ~,,on~,~ ~ f~e .~ourna}-based esca~atiop ~nM ~ked th~.t th~ ~nt~rest~d directorates wor~ ~ng~ther ~w~rd ÷h~ 3.. The original decison package included the decision paper and the back-up material at Tabs A through C. The research paper at Tab D was produced prior to the meeting ~ith General Griffith and was discussedat that meeting.

CHR ISTOPHERLEE Director Office of Market Research and Analysis

cc: DFSC-C OFSC-G DFSC-P/PZ

PREVIOUS [OITION MAY BE USED UNTIL EXHAUSTED

~.. U . S .

G.P,O.

1986--491"133/52541

DEF.SUPP.APP.7

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Economic Price Adjustment in the Domestic Bulk Programs

Issue

Should the present two-step method of interim and final price adjustment (EPAs or escalators)for domestic bulk fuel contracts be changed to a one-step price adjustment based on current market price indications as published in trade journals? Or should the two-step method be modified to reduce bidder uncertaintywith the present system? The current system of price adjustmenthas been used since 1983. ~jl offerorsof productto DF$C are requiredto accepta.m_~_?~Ullld of ~..rice adjustmentba~d on actual monthly sales Drice avera~e~ as published by the Deoartment nf ~nergy in the petroleum Marketinq Monthly (Pfii~). Because the~ data is noi pub|ished until the tb, i~d~on-h~Iowingthe month for which the data is effective, interim billings are paid b~sed on the movment of an interim escalator. ~The interim escalator is based ~s publishedin trade.,~ournalm the end Of t~e m~pth orior ~o at ~H~liu~.y. F~i~al adjustmentsin the billings are ~de accordin~ ~if~erences between the interi~ and ~ (final) escalators . ~ the ~ is publish~. When~ ~rket Drives vary ~ro~ ~onth to month~ as they h~e over the last two yearm, h ~inal b~llino adJustment~ can be ~ub~antii'i'. Th~ two~ep billing Proc;ss is~nistpatiVel'Tcum~, and has resulted ~n a number of ~o~ c=,lai~ over the past 3 years (see Tab A). In the words of one contractor, pricing uncertainty is mos~ ~oney when su~ that.~e never kn~ if we There are n~ne cri~ by which proposed escalation syst~s can be judged, ~ 0roduct; ~) geography; ~ timid; 4)~liness; 7) ~sis in actual ~le~; B) ~rk~; and TbSP.'based syst~ and the alternative trade journal-~sed syst~s are evaluated bel~, according to the criteria. The curren~ased syst~ is preferable by three criteria: ~m ~p~ rnnfr~ct~r in~Iu~n~ ~leS ~sis~ and~market ~isk~ Th~e oth~p cpite~ia~ si~city~ ti~g~ and ~avop the ~itch to t~ade ~oupn~. By the c~itepia o~ p~oduct~ geogp~phy~ and c~onality~ th~e is no cleap p~e~e~ence b~t~e~n the alternatesystems. Product - OFSC produqt prices should escalate with the prices qf similar co~nercial fue~Is. Both the F~ and trade publicationspublish prices of the similar con~nercialproducts -mogas, jet kerosene, diesel fuels, residual fuels - which are used for bulk price escalationof JP-4, JP-5, and DFM prices. While neithert~h~PflMno~. the ~rade jD,~rnalm ~,,h1~=h ~rice data ~htha-type jet fuel (Jet B ~, ~alators~ ~uel ar~,~+~ ~ Hy us~f mo~s and keroj~t Orice~ which r~ent the alternate use-value of ~e JP-4~lendino. ~S. ~ilar principle is used in the construction o~ prices and escalators for ~vy Special Fuel Oil. Preference based on th~s criteria - none~~

Backqround

~~ ~~ ¯ ~_ . ~~~ ~~~~ ~~~~~:~ ~ ~ ~ n

'~.

Discussion

DEF.SUPP.APP.8

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Geography- ~_~SC oroduct price~ sho, ld escalatewith prices~.of ~.~Im in fh= ~=~nraq~icalarea where th~ reouire~nents are__ ocl~. ~da~a is ~ublished o~ both a ~ and~re~onal (multistate)basis. ~ ~rade_publication prices are published for ~ost large citie~ in the United States. Preference: none. Timinq - DFSC prices should escalate concurrentlywith commercial prices, not with a lead or lag. This reduces the possibility that contractorswill build a contingencypremium into their prices. PM~ prices are available on a monthly basis, while trade journal prices are published on a daily or weekly basis for most fuels. Given that actual market prices change almost continuously,it is preferable for escalators to change more frequently than on a monthly basis. Preference: trade j3urnals, with weekly or daily price adjustment. Timeliness - Escalator prices should be available to OFSC and the contractorson or immediately following their respective effective dates, f~ prices are published during the third ¯ onth following the month of effectiveness.Trade journal prices beco~ne available within a day to a week followingtheir effective dates. The long lag on Pf1~ availabilityis the reason why an interim billing system is used which employs trade journals. Preference: trade journals. Corm)qnality- Proposed escalatorsshould be acceptableto both DFSC and the contractors for use as references. The PPtl system has been used successfullyin domestic bulk for three years. DFSC has been successfulin obtaining co~nonalitybased on trade journals in ground fuels procurementsand ~n overseas bulk programs. Preference: none. Independent of Contractors - Both the P~ and trade journals are independent of control by DFSC contractors. Given their informalmethod of conductingmarket surveys,trade publi~.~.tiop prices may be influencedby the moves of large ~arket pla~P-Ps ~aJ1~.may be DF$C~. Although this has not been a general problem in ground fuels procurementswhere trade journals are routinely used for price escalat~on~there have been situations where questions have been raised regarding independence of the contractor's control° Since this may be a more serious proble~n in the bulk program, where DFSC contractors may be large market players, any proposed trade publication escalationsystem would require careful review of the system's susceptibilityto manipulationby prospectivecontractors. Basis in Actual Sales - The PItH is based on a mandatory DOE survey of actual sales by refiners and gas plant operators. This survey is subject to DOE audit, although actual audits are rarely performed. Trade journal prices are generally based on seller quotationsrather than actual sales because the latter "are not generally available to informal, private canvassers. These price series are not auditable. However trade ~iournal prices are closely reflective of~ct..ual_sal~ as these price

DEF.SUPP.APP.9

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series are closely correlated with PMM prices over time, particularlyif prices are adjusted on a weekly basis (see graphs at Tab B). Contractor complaints about the performance of trade journal escalators have been received in the ground fuels program, Although nearly all of these complaints are unfounded,several co~nplaintshave been justifiedand have required substitutionof a replacementeconomic price adjustment reference. Because trade journal data is a less direct ~easure of actual market sales, complaints concerning trade journals are more difficult to analyze and defend. Preference: F~MM, .M~_rk~ Risk.- DFSC contract prices are susceptibleto market risk if they escalate on indices which do not correlate well with actual sales prices. ~prices ar_.~eactual sales price averages. Although they generally track sales data quite well, trade journals are more variable in qualitx, and occasionally are replaced in thOSe programs in which they are used due to poor performance in reflecting market conditions. In ground fuel procurements,a poorly performing escalator can be readily replaced with a substitute from another publication for most fuels in most locations. This would be true for bulk ~ogas and diesel requirements a~ well. However, only one trade journal has published jet kerosene prices for the last several years (Platt's Oilaram_).While these jet fuel series closely correlate with actual sales, ther~c~s yet, no substitute publication available should th~Plat~/data series be discontinued or should it fail to~inue to track the market. This pot~l problem affects both JP-4 and JP-5 escalation in CO~US~,~Ol~~orn)a~e-~ce~s__~__._.~__~ recently begun to publish jet fuel prlces, out the reliabilityof this source will not be established until 12 months of historical data have been accumulated. This will occur by April 1988 in several localities. Preference: P~o Another aspect of market risk with trade journals concerns the relative speed with which their prices reflect actual market price changes. Given that the journals generally survey seller quotations~or "postings',some asymmetricalbehavior may be expected. Sellers tend to raise posti~os aui~ly ~he~ actual prices are rising, and to resist lowering postin~s w~en actuA~ ~fa"liiffg, Se~erS may also lower prices by granting hidden discounts Off of stable postings, Thus, one would expect that the use of trade journal prices for escalationwould cost DFSC money through relative "price stickiness" during periods of declining prices, An analysis of alternative bulk ~v~d~ce.of this potential probl ' "a ¯ ~ournal,_~_~ces over the 1984-86 ~(~hich included price drop), ~e analysis assumed that the choice o~ escalation syst~ had no e~ect on the level o~ the initia] o~er prices, Overpa~ent due ~o lagged declines in postings were o~set by underpa~ents due to lagged increases ~hen prices were adjusted weekly, S~e evidence o~ d~nside s~ickiness ~s ~ound in the anaIys~s o~ ~w~ce-monthly and monthly, changes, In ~hese cases~ over payments ~ouId have exceeded under pa~en~s and would have resulted in greater expense to ~he government. price changes did not su~er ~r~ this probl~ in genera].

DEF.SUPP.APP.IO

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S ny escalation sy~~rpple to e_xpla.in ~"~-~-~c~co~tracto~'s and~_imple for D~C to adm~.. The trade journal-basedsystem is clearly simpler than the PI~ system. The issue of simplicity is important when the problem of bid preparation is considered. Docnestic bulk offerors must submit best-and-finalprices which are effective for the month prior to receipt of best-and-final offers. This raises two problems: price timing and margin uncertainty.In the first case, socne offerorsmay bid based on current prices rather than prior-month prices (See study at Tab D). If current prices are l o~er than prior-monthprices (as in July 1986), the offeror's bid will l o~er than if it were properly prepared. If market and bid prices are much lower, a mistake-in-bidmay eventually be claimed by the offeror. On the other hand~ if current prices are higher than the prior-mont~ prices (as in January i~87) this offeror's bid price may be higher than it otherwise would be. It may be so high that it is not in line for award, In fact~ price reasonablenessof offers may become a serious issue i~ current prices are higher than prior-monthprices~ because bid prices will be compared to prior-month market ranges. If such offers are awarded, the government will be paying higher prices than if a simplifiedone-step escalationsystem is used. s~scalatlon based on trade journals would e~ cu~rrentpric~s rather'~_~han prior~month prices to be bid and ~aluated. and wo, ld ~r~atl~ reduce this preparationproblem. The current method of escalation ~ntroduces another element o ~ uncertainty into the bid preparation process. At the time receipt of best-and-final offers, the offer price and the relationship (margin) between the interim esc.alator~_j~ offer price is fixed. However . ~ offer ~ for s~ne two months following~'th-~receipt best-and-finals, of While the base value of the interim escalator is known~ the relationshipbetween the base values of the interim and final escalators is subject to statistical uncertainty. Because the margin between the offer price and the base final reference (Pr~_.__._~ determines the actualmargin(and,thus~the actualprice) for final billing purposes, offerors who are risk-aversemay build a contingency premium into their offer price to protect themselves against uncertaintyabout the ultimate level of their margin. To the extent that offerors perceive this as a problem, the prices that the governmentpays for fuel will be higher than under a one-step escalationsystem based on trade journals. Recent experienceand contractorcon=nent suggest that both the margin problem and the bid preparationproblem are real and sig~ificanto Another way of reducing the problem of bid preparationwould be to have offerors bid with prices effective with the most recent P~available, Offerors on the recent East and Gulf procurement would have made their bids (in January 1987) effective

~.~ ~,~

price final the escalator(~P~~~~)i~nk~o~, andrem~!ns.so

DEF.SUPP.APP.q I

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October 1986 rather than December 1986 as was done during that procurement. This would have had the effect of eliminating margin uncertainty. The process would still have been susceptibleto the generally upward market price movement over that period. In this case, however, at least one companywas able to agree to a price reduction (when requested by DFSC-P), after the December PMM became available, in part as a result of margin certainty with December pricing. On the previous Inland and West procurement,one company reduced its offered volume when the June I~ became available prior to time of award, and actual June price levels were found to have been hi~her than this company assumed when it propared its bid. In this case, the latest F~ at the time of receipt of best and final offers contained April prices. Under a modified bid process, offerors wo!~Id have made their best ~nd final pric@s effectivein April rather than in June. Several individuals and contractors have suggested that DFSC modify its current system in this manner. The experience with the recent bulk procurementsand with an analagous situation several years ago in an overseas procurement suggest that this is a feasible improvementon the current e~calationsystem. OecisionOptions. Option I Maintain current two-step method of domestic bulk price escalation. Pr___~o-This system is alreadyin use and contractorsare familiar with it. There is no market risk to continuation of its use. DFSC prices are adjusted according to the movement of actual monthly sales price averages. Co___~n - This system is complex and a3~l~]~lJ~d;r-~-i~y cum~~e, There are 12 monthly e~ca~ons plus 12 monthly corrections. The problems associated with bid preparationprobably result in a_dd~t~pnal ~xpense~to the U.$. Government,There will continue to be contractor complaints about the size of final payment adjustments. This system, by escalating on monthly averages, fails to reflect intramonthlyprice movements. Option II - Modify the current two-step escalation method so that offerors can establish thelr bid prices as effective with the month of themostrecent P~__._~. Pr_._~o- This system has the same advantagesas Option I, and r~moves margin uncertaintyfrom the offerors" bid preparation problem. Co_..~n - This system has the ~disadvantaqesas OptiorL_L, and forces the offeror to ~ocu~ on a point two months further into the past when formulatingthe bid prices, thus possibly making the process~evenmore susceptibleto market price movement over the intervening period between the most recent F~ and the date of best and final offers.

DEF.SUPP.APP.12

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Option III- Change to twice-monthlyescalation using trade journals escalating with prices effective on the Ist and 15th of the m on th. Pr___~o- This syst~n is administr&tively simpler than the current = system (with 24 =final-only escalations). There is no need for c~.~n~albillinq adJustm~ents. There is less need for contractors to build contingencypremiums into their offer prices due to margin uncertainty. Co__~n - There is market ri~k associatedwith the move away from escalationon actual sales, particularlywith respect to je_~t k~r.~ne. Twice-monthly price changes do not track actual ~ales as well as we~kly changes, so of~erors.~.y.sti]l add contingency contractor c~pia~nts each year about the short-term perfor~nce of these escalator~. 0p~on iv - Change to weekly escalation using trade journals. Pr__D.o- This system can be administered easily as th~ as identical system cupyenfly t~d in ~ound fuel~. Tb~ ~d ~or ~naLbillin ~ ad~~s~ The bid preparation problems would be virtually eliminated. Weekly price changes track actual sales better than monthly or twice-monthlyprice changes, because they better reflect the continuousnature of price movements in the marketplace. Thus there is even less need for contractorsto build in contingency premiums as offer prices can be updated to the time of receipt of best-and-final offers. Co__.~n - There is ~rket risk associatedwith the move away from escalationon actual sales, particularlywith respect to jet kerosene. There would be 5~. price escalations per year~ ~.~ I~ II~ and III, There will laints ~ach year-concerning the short term performanceof these escalator~.

~

Staff Recommen~¢tion$: Option II is favored by all of the interested directorates (DFSC-C, -G, -P, and -N}. Should the implementationof Option I! fail to alleviate the bidding difficulties,the issue can be revisited, l~~d~ j~urn~ ~p+~ ~ ~not appear to be truly viable b~fore m~-~9~n ~t the earliest.

DEF,SUPP.APP.13

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1 2 3 4

UNITED STATES COURT OF FEDERAL CLAIMS LA GLORIA OIL AND GAS COMPANY, : Plaintiff, v. : : No. 02-465C : (Judge Hewitt)

5 THE UNITED STATES, 6 7 8 9 10 11 I2 13 14 15 16 17 18 19 20 21 22 Defendant. :

: Pagesl-59

Deposition of Lawrence Ervin Ft. Belvoir, Virginia Monday, December 1, 2003

Reported by: Marian E. Cummings,Notary Public Job No.: 156783

DEF.SUPP.APP.14

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1 2 3 4 5 6 7 Deposition Lawrence of Ervin, held the offices of: 8 9 10 DefenseEnergySupport Center Road 11 8725 John J. Kingman 12 Ft. Belvoir, Virginia 22060-6217 13 14 a 15 Pursuantto notice, before MarianE. Cummings, 16 Notary Public of the CommonwealthVirginia. of 17 18 19 20 21 22 December 2003 1, 12:01p.m.

DEF.SUPP.APP.15

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1 APPEARANCES: 2 3 Mayer, Brown, Rowe& Maw 4 For the Plaintiff 5 6 7 1909K Street, Northwest Washington, D.C. 20006-1101 (202) 263-3208

8 BY:J. Keith Burr, Esq. 9 10 11 UnitedStates Department Justice of 12 For the Defendant 13 14 15 16 Room 4050 1100L Street, Northwest Washington, D.C. 20530 (202)616-23 t WilliamL. Olsen, Esq.

17 BY: Steve Gillingham, Esq. 18 19 20 21 22

DEF.SUPP.APP.16

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4

1 DefenseEnergy Support Center 2 For the Defendant 3 4 5 6 Suite 1565 8725 John J. Kingman Road Ft. Belvoir, Virginia 22060 (703) 767-5009

7 BY: Howard Kaufer, Esq. 8 9 10 DefenseSupply Center 11 Richmond, Virginia 12 (804) 279-1423

13 BY: Donald Tracy, Esq. 14 15 16 17 18 19 20 21 22

DEF.SUPP.APP.17

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1 2

CONTENTS

3 EXAMINATION OF LAWRENCE ERVIN 4 MR. BURT 5 6 7 8 EXHIBITS 6

PAGE

9 ERVIN DEPOSITION EXHIBITS: 10 1! 12 13 14 15 16 17 18 19 20 21 22 ~one)
-0-

PAGE:

DEF.SUPP.APP.18

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1 2 3

PROCEEDINGS Thereupon, LAWRENCE ERVIN

4 the Witness,called for examination counsel for by 5 the Plaintiff, and, after havingbeenswornby the 6 notary, wasexamined testified as follows: and 7 8 9 10 11 12 Q A Q A EXAMINATION COUNSEL BY FOR THE PLAINTIFF BY MR. BURT: Would state your name the record. you for Lawrence Calvin Ervin. Mr.Ervin, whatis your current position? I'm the chief of the market researchoffice at

13 the DECS. 14 Q Andhowlong approximately have you held that

15 position? 16 17 A Eight plusyears. Q Andgenerally what are the responsibilities of

18 that position? 19 A Well, overseeing an effort to -- we do

20 interscreen, analysesof supportof the procurement 2 l operationscenter, do supportfor price negotiationwork 22 in the pricing workdonein contractingdivisions.

DEF.SUPP.APP.19

Case 1:02-cv-01460-LB

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Filed 11/21/2005

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1 There'sa certain amount affiliate workwedo for of 2 contingencyfolks. 3 Weactually manage strategic petroleum the

4 program the extent we'reinvolvedwith the -- help to 5 the budgetfolks who workfor the comptrollerwith their 6 out year budget projections,price ofoil in the future, 7 forecasting, sort of stuff. I thinkthat I -that 8 probably everythingwedo falls within that general 9 description.

DEF.SUPP.APP.20

Case 1:02-cv-01460-LB

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1

A The responses is often oral. Andthe

2 document, gets generated, provided to the person who it 3 askedit. We kindof rely heavily on the contract files 4 to be the repositoryof that since it's, youknow, sort 5 of proprietary information. 6 Q The contract files meaningan office other 7 than yoursor is that a contractfile in youroffice? 8 A No, we don't maintain contract files.

9 Q So when you provide some market analysis to 10 the bulk fuels groupin connectionwith their 11 procurement whenthat analysis is in writing do you and 12 keepa copy of what yougive to the bulk fuels group? 13 A Well, I think the short answerto that is no

14 and maybe something momentarily.Again, it wouldrely 15 heavily on the contract file. 16 Q All right. Let's turn to page 6 of 17 Plaintiff's Exhibit 2, request number reads, "All 15 18 documents relating to DESC's decision to use the PMM 19 indexes,Platts, or OPIS a basis for adjusting prices as 20 in its price adjustment clauses." 21 A Recollection was that '87 study which I 22 believe you'vebeen providedand a prior '84 study.

DEF.SUPP.APP.21

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1 Q Can you generally describe 2 me? 3

those studies for

A '84, '87 I was involved in producing and we

4 looked at comparing PMM versus Platts and OPIS and the 5 issue of SC escalating on a different time frame and the 6 documentslooked at various things which are nice to 7 have in an escalator. They track -- the '87 study wound 8 up recommending making an adjustment to the PMM based 9 status quo at the time. 10 The '84 study which I did not prepare, my

11 understandingand recollection is that it's mainly, it 12 deals mostly with the move from the ELSto PMM which was 13 priorto 1985. 14 Q Where did you fired those studies?

15 A Well, I didn't, I don't think I found the 16 first one. 17 18

Q

Okay.

A The '84 one, and '87 1 had basically on my

19 shel~ 20 21 22 O Mr. Ervin, I believe that in approximately

1995 DESC switched from using Platts to using PMM an as escalator to using Platts; is that correct?

DEF.SUPP.APP.22

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4O

1 A Sometime back in there, yeah. 2 Q Do you know whether there was any sort of any 3 studies or analysis of reports preparedby your office 4 in connection with that change from using the PMM to 5 using PIatts? 6 A Well, there wasn't because I was sitting in a 7 roomwhenthe decision happenedand it was madein 8 responseto some pressure fromheadquartersto do things 9 differently. So the analysis is basedon, basically is 10 the analysis in the '87 study. Some people whohave 11 read the '87 studies that they woulddrawdifferent 12 conclusionsthan what waspresented at the end of the 13 study, certainly a close call. Analysiswouldhave 14 supported as well so it's really the '87 study that 15 whichis the basis for that move.That and some 16 pressure fromheadquartersto, you know,be doing things 17 differently anddoingthings different in a visible 18 fashion to hopefullyover the course of time produce 19 substantial cost savingsto the taxpayer.

DEF.SUPP.APP.23

Case 1:02-cv-01460-LB

Document 58-2

Filed 11/21/2005

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CERTIFICATE OF SERVICE I hereby certify that on November 2005, a copy of the foregoing document filed 21, was electronically. I understand that notice of this filing will be sent to all parties by operationof the Court's electronic filing system. Parties mayaccess this filing tba-oughthe Couffssystem. s/Steven J. Gillingham