Free Proposed Findings of Fact and Conclusions of Law - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS ____________________________________ ) INTERNATIONAL DATA PRODUCTS ) CORP., ) ) Plaintiff, ) ) v. ) No. 01-459C ) (Judge George W. Miller) THE UNITED STATES, ) ) Defendant. ) ____________________________________)

DEFENDANT'S PROPOSED CONCLUSIONS OF LAW

PETER D. KEISLER Assistant Attorney General DAVID M. COHEN Director OF COUNSEL: E. MICHAEL CHIAPARAS Acting Director Contract Disputes Resolution Center Defense Contract Management Agency 10500 Battleview Parkway, Suite 105 Manassas, VA 20109 JOHN T. LAURO Trial Attorney Commercial Litigation Division Air Force Legal Services Agency 1501 Wilson Boulevard Arlington, VA 22209 DEBORAH A. BYNUM Assistant Director

JOHN H. WILLIAMSON Trial Attorney Commercial Litigation Branch Civil Division Department of Justice Attn: Classification Unit, 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 Tele: (202) 307-0277 Fax: (202) 307-0972 E-mail: [email protected] Attorneys for Defendant

December 12, 2005

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TABLE OF CONTENTS TABLE OF AUTHORITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii PROPOSED CONCLUSIONS OF LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 I. II. IDP Cannot Recover Damages For Warranty Services That It Performed Before The Contracting Officer Terminated The Desktop V Contract . . . . . . . . . . . . 1 IDP Cannot Recover Any Damages For Warranty Services Performed After October 8, 1999, Because IDP Cannot Reliably Measure Its Alleged Costs . . . . . . . 4 A. B. C. IDP Cannot Substantiate How Much Time Its Employees Allegedly Spent Performing Warranty Services For Desktop V Users . . . . . . 6 IDP Failed To Record The Amount Of Federal Express Charges Incurred For The Desktop V Contract As Packages Were Shipped . . . . . . . 13 IDP Failed To Review Or Retain Detailed Records That Identified What Services Astronautics and Accutek Provided For The Desktop V Contract . 14

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

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TABLE OF AUTHORITIES CASES Bath Iron Works Corp. v. United States, 34 Fed. Cl. 218 (1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 16 Bigelow v. RKO Radio Pictures, 327 U.S. 251 (1946) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Boyajian v. United States, 423 F.2d 1231 Ct. Cl. (1970) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5, 6 Datalect Computer Servs., Ltd. v. United States, 41 Fed. Cl. 720 (1998), aff'd, 215 F.3d 1344 (Fed. Cir. 1999) (table) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Dawco Constr., Inc. v. United States, 930 F.2d 872 (Fed. Cir. 1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Hi-Shear Technology Corp. v. United States, 356 F.3d 1372 (Fed. Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 In re Int'l Data Products Corp., SBA No. BDP-125, 1999 WL 1007639 (Aug. 31, 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Joseph Pickard's Sons Co. v. United States, 532 F.2d at 742, 209 Ct. Cl. (1976) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 7 Leonardo v. United States, 63 Fed. Cl. 552 (2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Raytheon Corp. v. White, 305 F.3d 1354 (Fed. Cir. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 15, 16 Reflectone, Inc. v. Dalton, 60 F.3d 1572 (Fed. Cir. 1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Specialty Assembling & Packing Co. v. United States, 355 F.2d 554, 174 Ct. Cl. (1966) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

STATUTES 15 U.S.C. § 637(a)(21)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 2

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REGULATIONS 13 C.F.R. § 134.308 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 13 C.F.R. § 134.401(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 13 C.F.R. § 134.408(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 3

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS ____________________________________ ) INTERNATIONAL DATA PRODUCTS ) CORP., ) ) Plaintiff, ) ) v. ) No. 01-459C ) (Judge George W. Miller) THE UNITED STATES, ) ) Defendant. ) ____________________________________) DEFENDANT'S PROPOSED CONCLUSIONS OF LAW Pursuant to the Court's October 12, 2005 Order, defendant, the United States, respectfully submits these Proposed Conclusions of Law. I. IDP Cannot Recover Damages For Warranty Services That It Performed Before The Contracting Officer Terminated The Desktop V Contract The Desktop V contract required IDP to provide warranty services to the Air Force and other Federal agencies at no additional cost beyond the unit prices paid by the Government for the products sold by IDP. DPFUF1 ¶¶ 9-11. At no time did the Government ever relieve IDP of its contractual duty to provide warranty services. On October 8, 1999, when the contracting officer sent IDP written notice that the contract was terminated, the contracting officer specifically directed IDP to continue to provide warranty services. PX 33; DPFF2 ¶¶ 12-14. IDP asserts that it should be compensated for all costs that it allegedly incurred to perform warranty services after August 31, 1999. PX 2, PX 7. On that date, the Office of Hearings and Appeals of the United States Small Business Administration ("SBA") sustained

"DPFUF ¶ ____" refers to defendant's Proposed Findings of Uncontroverted Facts, filed July 21, 2004 in support of defendant's motion for summary judgment. Plaintiff stated in its own Proposed Findings of Uncontroverted Facts ("PPFUF") filed in support of its crossmotion for summary judgment that it did not contest defendant's Proposed Findings of Uncontroverted Facts. PPFUF 1 n.1.
2

1

"DPFF ¶ ____" refers to defendant's post-trial proposed findings of fact, filed

herewith.

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the SBA's refusal to waive the statutory requirement that the Air Force terminate the Desktop V contract pursuant to 15 U.S.C. § 637(a)(21)(A). DPFF ¶ 7; PX 14-1, In re Int'l Data Products Corp., SBA No. BDP-125, 1999 WL 1007639 (Aug. 31, 1999). IDP appears to interpret the SBA decision as effecting the requirement in 15 U.S.C. § 637(a)(21)(A) that the contract "shall be terminated for [] convenience." In IDP's opening statement, its counsel compared the decision to a judgment from a court. Tr. 21:18-22. However, the decision did not order the Air Force to terminate the contract, but merely ruled that the SBA's decision was not arbitrary or capricious. PX 14-19. There is no legal or contractual support for IDP's contention that the SBA decision acted as a self-executing termination of the Desktop V contract on August 31, 1999. The statute that required the Air Force to terminate the Desktop V contract with IDP provides that the contract "shall be terminated," but does not identify who shall terminate the contract, nor does it set any timetable for termination. 15 U.S.C. § 637(a)(21)(A). The "Termination ­ Commercial Items" clause of the Desktop V contract provides that the contract may be terminated "by giving written or electronic notice to contractor." DFARS 252.211-7000 (May 1991). Only the Air Force contracting officer or her authorized representative could give this notice, which the contracting officer sent to IDP on October 8, 1999. Moreover, IDP's assertion that the issuance of the SBA decision terminated the Desktop V contract with immediate effect on August 31, 1999 is contradicted by the SBA's rules of practice and IDP's own admissions. The rules of practice that govern all appeals to the SBA Office of Hearing and Appeals for terminations of Section 8(a) contracts are found in 13 C.F.R. Part 134, Subpart D. 13 C.F.R. § 134.401(c) (1999 ed.). The rules state that once an appeal decision issues, "[t]he Administrative Law Judge may reconsider an appeal decision within 20 days of the decision if there is a clear showing of an error of fact or law material to the decision." 13 C.F.R. § 134.408(c). Thus, an appeal decision is not a final agency action until 20 days after its issuance. In accord with the SBA rules of practice, the final sentence of the conclusion of the August 31, 1999 SBA Office of Hearing and Appeals -2-

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decision states: "Subject to 13 C.F.R. § 134.408(c) (1999), this is the final decision of the Small Business Administration and is binding on the parties." PX 14-19 (emphasis added). If the SBA decision had terminated the Desktop V contract with immediate effect on August 31, 1999, this would have rendered moot any opportunity for IDP to exercise its right to pursue a motion for reconsideration, or for the Air Force to seek judicial review of the decision. A September 14, 1999 document prepared by contracting officer Kay Walker indicates under the heading "Available Options" that one option the Air Force was considering was to "[a]ppeal the OHA SBA decision." DX 12. At trial, IDP's counsel contended in his opening statement that the SBA decision was "effective as of August 31," apparently meaning that the decision effected a termination of the Desktop V contract on that date. Tr.3 21:24 (emphasis added). However, this contention was contradicted by Mr. Kevin Murphy, IDP's Chief Financial Officer, who testified that he understood that "once the SBA decision became final, that a termination would be immediately effective," indicating that the termination would not become effective until September 20, 1999. DPFF ¶ 8; Tr. 36:2-3 (emphasis added). IDP has repeatedly stated that it interprets 13 C.F.R. § 134.408(c) to mean that the SBA decision was not final until 20 days after its issuance. IDP's Director of Contracts sent an email to the contracting officer on September 16, 1999, stating "[i]t is our understanding that the Administrative Law Judge (ALJ) decision becomes final within 20 days of the ruling, i.e., 9/20/99." DPFF ¶ 9; PX 35-1. In a letter sent one week later, on September 23, 1999, IDP's counsel stated in a letter to the contracting officer that the SBA Office of Hearings and Appeals decision "is now final, 20 days having passed since its issuance. See 13 C.F.R. § 134.308" [sic]. DPFF ¶ 10; PX 17-1. IDP cannot now disavow these admissions that the

earliest date that the Desktop V contract could be deemed terminated was the date that the SBA decision became final, September 20, 1999.

3

"Tr. ___:___" cites the trial transcript as "page:line." -3-

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If the Court awards IDP any damages, they should be measured from October 8, 1999, the date that the contracting officer terminated the Desktop V contract. The Court should deny IDP any recovery for costs that IDP allegedly incurred to perform warranty services between August 31 and October 8, 1999. DPFF ¶¶ 44, 53, 60, 72. These costs total more than $100,000: · · · · IDP's labor costs (approximate): Astronautics: Federal Express: Accutek: $19,500.00 $69,407.60 $13,421.70 $193.60 $102,522.90

TOTAL:

Finally, even if the Court were to agree with IDP's contention that it is entitled to recover its costs for warranty services that it provided between August 31 and October 8, 1999, the Court should disallow the Astronautics charges that IDP included in its claim that were incurred for warranty services performed before August 31, 1999. IDP does not seek to recover any costs for warranty services performed before August 31, 1999. DPFF ¶ 54. IDP's counsel acknowledged at trial that IDP should not be compensated for the Astronautics invoices for services performed during the months of July and August, which total $31,192.00. DPFF ¶¶ 55-57. II. IDP Cannot Recover Any Damages For Warranty Services Performed After October 8, 1999, Because IDP Cannot Reliably Measure Its Alleged Costs The Court should deny in its entirety IDP's claim for costs that it allegedly incurred to perform warranty services for the Desktop V contract after the contract was terminated on October 8, 1999. At trial, IDP was unable to present anything more than unreliable estimates of the costs it incurred after the contract was terminated. IDP's witnesses admitted that IDP failed to use timesheets or tracking codes to create contemporaneous records that identified accurately the costs that it claims to have incurred after October 8, 1999 to continue providing warranty services for the Desktop V contract. DPFF ¶¶ 18-20, 45, 62. -4-

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IDP's witnesses also admitted that they failed to review carefully, or to retain until trial, the detailed invoices from Astronautics and Federal Express that might have permitted an accurate reconstruction of the post-termination charges by these warranty service providers that IDP allocated to the Desktop V contract. DPFF ¶¶ 50-51, 68. In addition, IDP's witnesses were unable to explain how IDP arrived at the percentages that it used to allocate what amount of its post-termination labor costs and third-party warranty service costs were supposedly attributable to the Desktop V contract. DPFF ¶¶ 26-27, 35-43. In these circumstances, IDP does not meet the requirements for the Court to rely upon the "jury verdict" method of estimating damages. The Federal Circuit has stated that the jury verdict method "is not favored and may be used only when other, more exact, methods cannot be applied" to calculate damages using actual figures.4 Dawco Constr., Inc. v. United States, 930 F.2d 872, 880 (Fed. Cir. 1991) (citing Specialty Assembling & Packing Co. v. United States, 355 F.2d 554, 572, 174 Ct. Cl. 153 (1966)), overruled on other grounds, 60 F.3d 1572 (Fed. Cir. 1995) (en banc); Datalect Computer Servs., Ltd. v. United States, 41 Fed. Cl. 720, 728 (1998) (jury verdict is "highly disfavored" and a "method of last resort"), aff'd, 215 F.3d 1344 (Fed. Cir. 1999) (table). In Dawco, the Federal Circuit stated that "the contractor bears the burden of establishing that no more reliable method is available than the `guesstimate' of the `jury verdict' method, i.e., a method that would more precisely calculate the cost for the extra work." 930 F.2d at 881 (italics in original) (citing Boyajian v. United States, 423 F.2d 1231, 1235-36, 191 Ct. Cl. 233 (1970)). The Federal Circuit held that the trial court should not have relied upon the jury verdict method, and reversed and remanded the case for recalculation of damages, noting that "`the amount of the recovery can only be approximated

The Federal Circuit has stated that "[t]he selection of the proper method for determining damages is a legal decision which we review non-deferentially on the basis of reasonableness." Dawco, 930 F.2d at 880 (citing Specialty Assembling & Packing Co. v. United States, 355 F.2d 554, 572, 174 Ct. Cl. 153 (1966)), overruled on other grounds, Reflectone, Inc. v. Dalton, 60 F.3d 1572 (Fed. Cir. 1995) (en banc). -5-

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in the format of a `jury verdict' where the claimant can demonstrate a justifiable inability to substantiate the amount of his resultant injury by direct and specific proof.'" Dawco, 930 F.2d at 881 (quoting Joseph Pickard's Sons Co. v. United States, 532 F.2d 739, 742, 209 Ct. Cl. 643 (1976)) (italics added in Dawco); accord Raytheon Corp. v. White, 305 F.3d 1354, 1367 (Fed. Cir. 2002) (denying claim based on jury verdict method because contractor failed to use most reliable cost accounting records that showed actual material costs); Joseph Pickard's, 532 F.2d at 742 (denying any recovery by contractor based upon jury verdict method); Boyajian, 423 F.2d at 1244 (same). At trial, IDP failed to carry its burden to prove that there was no more reliable method of measuring its damages than the jury verdict method. We have addressed below the specific reasons why the Court should not grant IDP any damages for the three categories of costs that it seeks to recover: (1) the labor costs of IDP's own employees; (2) IDP's Federal Express shipping costs; and (3) warranty services performed by Astronautics and Accutek. A. IDP Cannot Substantiate How Much Time Its Employees Allegedly Spent Performing Warranty Services For Desktop V Users

IDP asserts that because none of IDP's contracts required it to maintain time records that identified how much time each employee spent working on that contract, IDP is entitled to rely upon estimates of how much time its employees spent performing warranty services for Desktop V users, Tr. 58:3-17. However, IDP cannot justify its reliance upon the jury verdict method to measure its alleged damages, when IDP has admitted that it failed to adopt measures to record how much time its employees spent performing warranty services after the contracting officer notified IDP on October 8, 1999 that the Desktop V contract was terminated. DPFF ¶¶ 19-20. In Dawco, the Federal Circuit stated that "[t]he issuance of a change order request should signal to the prudent contractor that it must maintain records detailing any additional work." 930 F.2d at 881 (emphasis in original). The court held that Dawco's failure to -6-

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substantiate its claimed costs with records precluded resort to the jury verdict method. Id. Similarly, in Bath Iron Works Corp. v. United States, 34 Fed. Cl. 218, 243 (1995), this Court ruled that once the contractor was on notice that it was incurring additional costs, it "could have, and should have, commenced keeping contemporaneous records," and rejected the contractor's assertion that the alleged $1 million cost of conducting a record-by-record analysis of its damages was insufficient justification for failing to conduct the analysis. Here, the issuance of the termination notice on October 8, 1999 provided unequivocal notice to IDP that it should begin to record all costs that it intended to try to recover from the Government. IDP admits that it clearly understood from the termination notice and from meeting with the contracting officer soon after the termination notice issued that the Government expected IDP to continue providing the warranty services specified in the Desktop V contract, which included the warranties in the unit prices of the products sold by IDP. DPFF ¶¶ 11-14; DPFUF ¶¶ 9-11. The facts of this case are distinguishable from cases in which courts have permitted contractors to use the jury verdict method to approximate damages because the Government prevented the contractor from more accurately measuring damages. In Hi-Shear Technology Corp. v. United States, 356 F.3d 1372, 1381 (Fed. Cir. 2004), the Federal Circuit affirmed this Court's approximation of fixed overhead and general and administrative costs for a requirements contract, which the Court ruled could not be reliably calculated because the Government had prepared inaccurate estimates of its requirements. Similarly, the Court of Claims adopted a decision of a trial commissioner that held that a court could only rely upon the jury verdict method if "for reasons beyond its control, typically the conduct of the defendant, the claimant was prevented from specifically proving its damages." Joseph Pickard, 532 F.2d at 744 (citing Bigelow v. RKO Radio Pictures, 327 U.S. 251, 263-66 (1946)). Here, there is no basis for IDP to assert that the Government prevented IDP from specifically proving its damages. Mr. Murphy testified that in September 1999, IDP -7-

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proposed numerous alternative arrangements to continuing to provide the warranty services specified in the Desktop V contract, such as depot (versus on-site) maintenance, a blanket purchase agreement ("BPA"), or providing IDP's inventory to a subcontractor who would provide the warranty services. Tr. 39:9-40:7; PX 15, PX 17. Mr. Murphy testified that when IDP's CEO and counsel met with contracting officer Kay Walker soon after the October 8, 1999 termination notice issued, she rejected IDP's proposed alternatives, and told it to continue providing the warranty services. Tr. 44:7-22. The contracting officer gave no indication in October 1999 or at any time thereafter that she was prepared to bargain over IDP's alternatives. Tr. 47:3-23. In light of the Government's unwavering insistence that IDP fulfill its warranty obligations, IDP could not have reasonably believed that the "eventually the Air Force would come around and attempt to resolve this and reach a final conclusion" and that "either another contract or us subcontracting the work, some other resolution be reached that we could recoup some of those costs," as Mr. Murphy now contends. Tr. 47:21-23, 49:8-10. It was abundantly clear from October 8, 1999 onwards that the only way that IDP could hope to recover the costs of continuing to perform the warranty services was to record carefully the costs, and then file a certified claim with the contracting officer. The Government did not impede IDP in any way from recording how much time its employees allegedly spent performing warranty services. DCAA Branch Manager Larry Tatem, who was the lead auditor for the DCAA audit of IDP, testified that his role in auditing IDP's claim was to provide an opinion about whether IDP had provided sufficient documentation to support its claimed costs, and then to determine whether the costs were "reasonable, allowable, and allocable." DPFF ¶¶ 73, 76. Mr. Tatem testified that once IDP was notified that the Desktop V contract was terminated, it should have set up an accounting system to charge all labor and third-party warranty costs to the contract "as they were incurred," because it is "very difficult to go back six months to a year to try to reconstruct[] those costs." DPFF ¶ 79-80. -8-

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Because it failed to record its labor costs contemporaneously in 1999-2000, IDP now seeks to rely upon estimates that it developed in 2001 of how much time its employees allegedly spent performing warranty services for Desktop V users. DPFF ¶¶ 21, 25. IDP has estimated that eight of its employees spent between 50 and 100 percent of their time performing warranty services for the Desktop V contract, totaling $126,990.00 in labor costs. PX 1-1. At trial, IDP's manager of warranty services, Mr. David Costello, testified about the percent of time that he and the other seven employees allegedly spent performing warranty services for the Desktop V contract. DPFF ¶¶ 29-30, 35-43. However, Mr. Costello's testimony is unreliable for at least three reasons. First, Mr. Costello agreed on cross-examination with the accuracy of his deposition testimony that, at the time of his deposition, his only basis for testifying regarding the proportion of time that IDP employees spent performing warranty services for the Desktop V contract was the April 2001 affidavits that he and three of the other employees signed (PX 2). DPFF ¶ 36-37, 39-40. The specific deposition testimony that he was asked to confirm on cross-examination at trial was not limited to whether he knew the specific number of hours claimed for each employee in the affidavits (Id. ¶ 32), but addressed whether he knew "how much of their time" IDP employees spent performing warranty services. DPFF ¶¶ 36, 39-40. During his re-direct examination, Mr. Costello agreed with his counsel's leading question about whether he had a "present recollection" (DPFF ¶ 37) about the work he and other IDP employees performed. Testimony elicited through leading questions during direct examination is entitled to little weight. See Leonardo v. United States, 63 Fed. Cl. 552, 567 (2005). Moreover, the question sought an opinion about a legal term of art from Mr. Costello, who is a fact witness and not a lawyer. Even if he were qualified to respond to the question, Mr. Costello testified on re-direct examination that at the time of his deposition, he did not have any information "in my head or anywhere" about how much time the IDP employees had spent performing warranty services. DPFF ¶ 37 (emphasis added). Thus, any "present recollection" that Mr. Costello had at the time of trial about how the employees -9-

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spent their time must have been gained by studying the affidavits after his deposition. The Court excluded from evidence the affidavits of three former IDP employees who did not testify at trial ­ Vicki Hiers, Paul Seyfrits, and Brian Anderson ­ because their affidavits were not more probative on the point for which they were offered than any other evidence which IDP could have procured through reasonable efforts. Tr. 239:14-17; PX 2-3 to 2-5; DPFF ¶ 24. Thus, the Court should give no weight to Mr. Costello's testimony about the amount of time spent by those employees providing warranty services for the Desktop V contract, because his testimony was based entirely on those affidavits. DPFF ¶¶ 39-40. In addition, his own affidavit simply stated the number of hours that those three employees worked, but contains none of the explanation of what the employees did that is contained in their affidavits. Cf. PX 2-1 with PX 2-3 to 2-5. The significance of Mr. Costello's complete reliance upon the affidavits is that they were not prepared until April 2001, one year after IDP finished performing any warranty services for the Desktop V contract. Because the affidavits were not based upon any time records created while the services were performed, they are unreliable, and thus so, too, is Mr. Costello's testimony. The DCAA audit report that reviewed IDP's termination proposal rejected the affidavits as inadequate verification of how much time IDP employees spent performing warranty services. PX 10-10. DCAA Branch Manager Larry Tatem, who was the lead auditor for the audit of IDP, testified that the affidavits were inadequate because they were not contemporaneously created documents that recorded weekly or at the end of each two-week pay period the number of hours that IDP employees performed warranty services for purposes of the Desktop V contract. DPFF ¶¶ 83-84. Mr. Tatem testified that the affidavits were unreliable because they were dated April 2001, a year after the services were allegedly performed. DPFF ¶ 85. Second, even if Mr. Costello did have a truly independent recollection about how much time he estimated that each employee spent performing warranty services for the Desktop V contract, his trial testimony demonstrates the inaccurate nature of IDP's time -10-

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allocations of 100, 75, or 50 percent for each employee. Mr. Costello said uncertainly "50 percent?" when he was asked on direct examination "approximately" how much time he had spent performing warranty services for the Desktop V contract during the period September 1999 through April 2000. DPFF ¶ 29. On cross-examination, Mr. Costello agreed that during his deposition testimony, he accurately approximated that he spent one-third to onehalf of his time performing warranty services. DPFF ¶ 30. In response to leading questions from his counsel on re-direct examination, Mr. Costello testified that he spent "85-90 percent" of his time on the Desktop V contract "right when we stopped the warranty work," i.e., during the three-week period April 11-30, 2000. DPFF ¶ 31. Even if this testimony could be reconciled with his testimony on crossexamination, spending even 100 percent of his time on the Desktop V contract for only three weeks during an eight-month period could not "skew" the overall proportion of his time from 33 percent to 50 percent, as he agreed in response to another leading question from his counsel, because three weeks is less than ten percent of the eight-month period. Id. Third, and perhaps most significantly, neither Mr. Costello nor Mr. Murphy explained in any way how the 75 and 50 percent time allocation estimates for seven of the eight employees were determined. DPFF ¶¶ 27-28, 32-35, 38-43. Both Mr. Murphy and Mr. Costello testified that Julio Manyari was devoted full-time to performing warranty services for the Desktop V contract, although there are no records that verify this testimony. Id. ¶ 27; Tr. 201:23-202:6. Mr. Murphy testified that he was not involved in developing the percentages of time that IDP employees allegedly performed warranty services for the Desktop V contract, but relied upon Mr. Costello to develop the percentages. DPFF ¶ 28. In turn, Mr. Costello offered no explanation of how he developed the percentages. For each employee, he simply stated the time allocation percentage, and recited some variation of the mantra that he knew the amount of time that each employee spent on the Desktop V contract because he "supervised and worked with" the employees. DPFF ¶¶ 35, 38, 41-43. He did not state that he had reviewed any time records or other documents to -11-

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arrive at the percentages, nor did he identify any worksheets or other contemporaneous documents that record any calculations that he performed to arrive at the time allocation percentages. DPFF ¶ 26. Mr. Costello testified that he was no longer able to explain how he determined that he had worked the 780 hours that, according to his affidavit, he devoted to performing warranty services, nor could he identify any records that were the basis of the 780-hour figure. DPFF ¶¶32-33. The Southware service order management system did not track which IDP employees worked on performing warranty services for the Desktop V contract. Id. ¶ 27. However, the Southware printouts produced by IDP record that the number of service orders opened and closed during the period September 1999 through April 2000 was 33.3 and 26.77 percent, respectively, which suggests that the 50 and 75 percent estimates developed by Mr. Costello may be too high. DPFF ¶ 17. This is especially true with respect to Vicki Hiers. Mr. Costello testified that Ms. Hiers "ran" IDP's help desk, which supported 13 contracts. DPFF ¶¶ 16, 42. Nonetheless, Mr. Costello estimated that Ms. Hiers spent 75 percent of her time on the Desktop V contract, even though the number of service orders for Desktop V was less than half that amount, between 26.77 and 33.3 percent. The percentage time allocations that Mr. Costello testified about are no more than "guesstimates." Dawco, 930 F.2d at 881. The Federal Circuit has ruled that this Court must reject use of such approximations unless IDP can demonstrate a "justifiable inability to substantiate" its damages through more reliable measures that were reasonably available. Id. IDP could have contemporaneously recorded the time that its employees spent performing warranty services. Instead, it waited until a year after the services were allegedly performed to prepare affidavits, which are now the only basis for Mr. Costello's testimony about the percentage of time the employees allegedly spent on the Desktop V contract. For these reasons, IDP has failed to carry the burden imposed by the Federal Circuit in Dawco to prove that it was unable to substantiate its labor costs through more reliable means.

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B.

IDP Failed To Record The Amount Of Federal Express Charges Incurred For The Desktop V Contract As Packages Were Shipped

IDP also has failed to demonstrate that there is any reliable basis for its claim that 45 percent of its Federal Express shipping costs from September 1999 through April 2000 were incurred for the Desktop V contract. It is undisputed that after the contract was terminated in October 1999, IDP never set up any tracking system to identify the Desktop V shipping costs. DPFF ¶ 45. IDP has not identified any worksheets or other contemporaneous documents that record how IDP determined the 45 percent estimate. Id. ¶ 52. Although IDP did not provide any documents regarding its shipping charges to DCAA during its audit, Mr. Tatem reviewed the Federal Express invoices that IDP produced during discovery, and could not identify any documents that supported how the 45 percent estimate was calculated. Tr. 256:21-257:25. At trial, Mr. Murphy offered contradictory explanations about how IDP had determined the 45 percent estimate. Initially during his direct examination, he testified that IDP used "a list of all the service orders that had a Federal Express tracking number associated with it, and it was about 45 percent of the volume during that period." Tr. 116:23117:1; DPFF ¶ 46. The only list of service orders produced by IDP during discovery that shows 12-digit Federal Express tracking numbers contains a total of 3,263 service orders with Federal Express numbers. DPFF ¶ 47. Only 755 Desktop V service orders, or approximately 23 percent of the total number of service orders, have Federal Express tracking numbers. PX 12-10 to 12-33. The list itself contradicts Mr. Murphy's testimony that the list served as the basis for IDP's 45 percent estimate. Moreover, the list does not contain any information about the cost of the shipment associated with each Federal Express tracking number. Thus, IDP has simply applied the 45 percent estimate to the total amount of all its Federal Express invoices dated between August 31, 1999 and April 30, 2000, $140,667.00, to arrive at the $63,300.15 IDP seeks to recover from the Government for shipping costs. PX 6-7; PX 7. -13-

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Mr. Murphy offered a different explanation about how IDP developed the 45 percent estimate when he was questioned by the Court. Despite having testified that IDP based the calculation of its Federal Express expenses on a list of service orders, Mr. Murphy stated, "Correct," in response to the following question by the Court: "you pulled all of the invoices that had a Federal Express tracking report; is that correct? That's where you started?" Tr. 117:2-6 (emphasis added). The Federal Express invoices produced by IDP do not show any twelve-digit Federal Express tracking numbers like those shown on the list of service orders. Cf. PX 6 with PX 12; DPFF ¶ 50. As Mr. Murphy agreed on crossexamination, the Federal Express invoices do not show any other information about the weight or destination of the packages shipped. Tr. 156:13-157:10; PX 6; DPFF ¶ 51. The invoices only show the total amount charged by Federal Express for shipping services. PX 6. Neither the Federal Express invoices (PX 6) nor IDP's list of service orders (PX 12) provide a reasonable basis for calculating accurately the dollar amount of IDP's shipping costs that is allocable to the Desktop V contract. IDP could have, and should have, contemporaneously tracked its Federal Express shipping costs for the Desktop V contract as it incurred them, so that it could accurately calculate the costs it seeks from the Government. The summary nature of the Federal Express invoices made it imperative that IDP establish its own system to record the charge for each package when it was sent, rather than waiting until after IDP received an invoice from Federal Express. The invoices provide a vivid illustration of why it is so difficult to reconstruct costs, as Mr. Tatem testified. DPFF ¶ 80. Because IDP has failed to demonstrate any reason that it was unable to track its shipping costs contemporaneously, it has not carried its burden to prove that it should be allowed to rely upon "guesstimates" to support its damages claims. Dawco, 930 F.2d at 881. C. IDP Failed To Review Or Retain Detailed Records That Identified What Services Astronautics and Accutek Provided For The Desktop V Contract

As with its labor costs and shipping costs, IDP never set up any tracking system to identify costs charged by Astronautics or Accutek to perform warranty services for the -14-

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Desktop V contract after it was terminated on October 8, 1999. DPFF ¶ 62. Nor has IDP produced any worksheets or other contemporaneous documents that record any calculations that IDP used to arrive at the 85 percent and 10 percent estimates that it claims reflect the proportion of Astronautics and Accutek post-termination charges, respectively, that are attributable to the Desktop V contract. DPFF ¶¶ 63-64. After IDP produced the Astronautics and Accutek invoices in discovery, Mr. Tatem reviewed the documents, and could not identify any documents that supported how the 85 and 10 percent estimates, respectively, were calculated. DPFF ¶ 92. At trial, Mr. Costello agreed with his counsel's empty characterization of the 85 percent estimate as a "fair number," but did not explain whether they had been calculated in a reliably accurate manner. Id. ¶¶ 64-65. On cross-examination, Mr. Costello testified that he developed the 85 percent estimate by dividing what he thought were the number of Astronautics service calls for the Desktop V contract into the total number of service calls that Astronautics performed for IDP. DPFF ¶ 66. He admitted that despite having detailed invoices showing how many of the Astronautics services calls were performed for the Desktop V contract at the time he developed his estimate, he did not total the detailed invoices, even though this would have yielded a more precise figure than the 85 percent estimate. DPFF ¶68. He agreed that the same method would have yielded more accurate results for the Accutek invoices, too. Id. ¶ 71. IDP produced (on the last business day before the trial) the detailed records that accompanied the Astronautics invoice for services performed within the continental United States ("CONUS") during February 2000. PX 37. Attached to the invoice is a manifest that summarizes the service orders as well as maintenance record forms for each service orders, which contain information identifying whether the computer serviced was a Desktop V model. Id.; Tr. 130:2-140:22. Instead of reviewing this information to develop an accurate total of the Astronautics charges performed for the Desktop V contract, IDP developed its 85 percent estimate, then applied that figure to the total shown on each summary invoice, which -15-

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for February 2000 (CONUS) was $2,880.00. PX 37-1. Because IDP failed to use information that would have allowed it to calculate accurately Astronautic's charges for the Desktop V contract, IDP cannot now rely upon estimates of those charges. In Raytheon Corp. v. White, 305 F.3d 1354, 1367 (Fed. Cir. 2002), the Federal Circuit held that the contractor could not rely upon the jury verdict method to prove its damages, because a more reliable method for calculating damages was shown in the contractor's discrete events claim. Raytheon's discrete events claim rested in part on engineering reports, which a DCAA auditor testified were less accurate than cost accounting records that showed actual material costs. Id. at 1366. The court found that "there was substantial evidence to support the finding that it would not have been impracticable for Raytheon to calculate the actual costs" from the cost accounting records rather than from the engineering reports. Id. The court denied any recovery for the damages on this claim. Id.. Similarly, in Bath Iron Works, this Court rejected the contractor's assertion that the alleged $1 million cost of conducting a record-byrecord analysis of its damages was insufficient justification for failing to conduct the analysis. 34 Fed. Cl. at 243. During his direct examination, Mr. Murphy testified that the detailed records that were disregarded by Mr. Costello when he developed his 85 and 10 percent estimates in 2001 have now "gone missing." Tr. 94:2-10. Mr. Murphy testified that the records vanished sometime after they were provided to DCAA auditor Robin Wesnofske, suggesting that Ms. Wesnofske took the records. Id. 94:7-22. Even if this were true, it does not explain why Mr. Costello failed to use the records before the DCAA audit to calculate accurately how much of the services performed by Astronautics and Accutek were attributable to the Desktop V contract. Unlike the contractors in Raytheon and Bath Iron Works, IDP was not prevented by the Government from accurately calculating its alleged damages. Moreover, there is no support for Mr. Murphy's insinuation that Ms. Wesnofske took the records. Mr. Murphy has not consulted any records of what documents IDP provided to -16-

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the DCAA auditors, nor has IDP retained any records that verify whether the detailed invoices were ever even provided to DCAA, even though Mr. Murphy, as a CPA, is well acquainted with the need to maintain financial records. Id. ¶¶ 93, 95, 104. On crossexamination, Mr. Murphy testified that Ms. Wesnofske and the other DCAA auditors were only provided original documents, which they inspected at IDP's offices, and that Ms. Wesnofske returned all folders that she reviewed. DPFF ¶¶ 96, 98, 100. Mr. Murphy admitted that he has no reason to think that Ms. Wesnofske removed any original documents from IDP's offices. Id. ¶ 99. Mr. Costello testified that many of the detailed invoices were "four to six inches thick," so it seems highly likely that IDP representatives would have noticed if Ms. Wesnofske had tried to remove them from IDP's offices. Tr. 233:17-18. Mr. Tatem testified that he recalled requesting but not receiving any documents from IDP that supported IDP's claim for third-party warranty costs, and stated that he would have included those documents with the audit report for review by the contracting officer. DPFF ¶¶ 86, 88. The DCAA report records that no invoices of any kind (such as PX 4, PX 5, and PX 6), let alone the detailed invoices, were provided by IDP during the audit that supported IDP's claims for the costs that it allegedly incurred from Accutek, Astronautics, and Federal Express. DPFF ¶ 91. No invoices of any kind were included in the working papers to the DCAA audit. Id. ¶¶ 89-90. Mr. Murphy agreed that because the detailed records that accompanied the February 2000 Astronautics invoice were only found one week before trial while IDP was "cleaning up," that it was possible that IDP had misplaced similar detailed records that accompanied other invoices. DPFF ¶ 101. Mr. Murphy testified that in 2005, IDP moved from one location in Dulles, Virginia to two locations in Herndon, Virginia, and agreed with his counsel's description that the move was a "massive undertaking." Id. ¶ 102. Because IDP never provided even the summary invoices to the Government (PX 4, PX 5, and PX 6) until discovery in this case in April 2005, there is a significant possibility that the detailed records were lost in the move. -17-

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Finally, if DCAA had really removed from IDP's offices the detailed invoices for Astronautics for the period September 1999 through April 2000, then IDP should still be able to locate similar documents in its off-site storage for August 1999 and preceding months, because IDP retains records for seven years. DPFF ¶ 103. However, IDP has searched for and been unable to locate those detailed invoices, which is convincing evidence that the absence of the similar records for September 1999 through April 2000 is the fault of IDP, not DCAA. CONCLUSION For the foregoing reasons, defendant respectfully requests that the Court deny IDP any damages or other relief. Respectfully submitted, PETER D. KEISLER Assistant Attorney General DAVID M. COHEN Director OF COUNSEL: E. MICHAEL CHIAPARAS Acting Director Contract Disputes Resolution Center Defense Contract Management Agency 10500 Battleview Parkway, Suite 105 Manassas, VA 20109 JOHN T. LAURO Trial Attorney Commercial Litigation Division Air Force Legal Services Agency 1501 Wilson Boulevard Arlington, VA 22209 s/ Deborah A. Bynum DEBORAH A. BYNUM Assistant Director

s/ John H. Williamson JOHN H. WILLIAMSON Trial Attorney Commercial Litigation Branch Civil Division Department of Justice Attn: Classification Unit, 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 Tele: (202) 307-0277 Fax: (202) 307-0972 E-mail: [email protected] Attorneys for Defendant -18-

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CERTIFICATE OF SERVICE I certify under penalty of perjury that on this 12th day of December, 2005, a copy of the foregoing "DEFENDANT'S PROPOSED CONCLUSIONS OF LAW" was filed electronically. I understand that notice of this filing will be sent to all parties by operation of the Court's electronic filing system. Parties may access this filing through the Court's system.

/s John H. Williamson

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS ____________________________________ ) INTERNATIONAL DATA PRODUCTS ) CORP., ) ) Plaintiff, ) ) v. ) No. 01-459C ) (Judge George W. Miller) THE UNITED STATES, ) ) Defendant. ) ____________________________________)

DEFENDANT'S PROPOSED FINDINGS OF FACT

PETER D. KEISLER Assistant Attorney General DAVID M. COHEN Director OF COUNSEL: E. MICHAEL CHIAPARAS Acting Director Contract Disputes Resolution Center Defense Contract Management Agency 10500 Battleview Parkway, Suite 105 Manassas, VA 20109 JOHN T. LAURO Trial Attorney Commercial Litigation Division Air Force Legal Services Agency 1501 Wilson Boulevard Arlington, VA 22209 DEBORAH A. BYNUM Assistant Director

JOHN H. WILLIAMSON Trial Attorney Commercial Litigation Branch Civil Division Department of Justice Attn: Classification Unit, 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 Tele: (202) 307-0277 Fax: (202) 307-0972 E-mail: [email protected] Attorneys for Defendant

December 12, 2005

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS ____________________________________ ) INTERNATIONAL DATA PRODUCTS ) CORP., ) ) Plaintiff, ) ) v. ) No. 01-459-GWM ) (Judge George W. Miller) THE UNITED STATES, ) ) Defendant. ) ____________________________________) DEFENDANT'S PROPOSED FINDINGS OF FACT Pursuant to the Court's October 12, 2005 order, defendant, the United States, respectfully submits these proposed findings of fact. I. Background 1. On May 5, 1997, the Air Force awarded Contract F01620-97-D-001

("Desktop V") to plaintiff International Data Products Corporation ("IDP"). Compl.1 ¶5; International Data Products Corp. v. United States, 64 Fed. Cl. 642, 643 (2005) ("IDP I"). 2. IDP was a small minority-owned business and participant in the United States

Small Business Administration's ("SBA") 8(a) program. Compl. ¶ 4; IDP I, 64 Fed. Cl. at 643. 3. The Desktop V contract was a fixed-price, indefinite-delivery, indefinite-

quantity ("IDIQ") contract to provide computer systems, computer and warranty services, and software products and upgrades to the Air Force and other Federal agencies. Compl. ¶ 5; IDP I, 64 Fed. Cl. at 643. 4. The Desktop V contract consisted of one base year and four one-year options.

Compl. ¶ 5; IDP I, 64 Fed. Cl. at 644.

"Compl. ¶ ____" refers to paragraphs in the complaint that plaintiff filed in its second suit, No. 03-2515.

1

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II.

Termination of Desktop V Contract 5. On February 5, 1998, IDP informed the SBA of IDP's owner's intention to sell

their IDP stock to Dunn Computer Corporation, a non-8(a) concern. Compl. ¶ 6; IDP I, 64 Fed. Cl. at 644. As a result, Section 8 of the Small Business Act, 15 U.S.C. § 637(a)(21)(A), required the Government to terminate for convenience the Desktop V contract. Compl. ¶ 7; IDP I, 64 Fed. Cl. at 644. 6. On February 20, 1998, the Air Force requested a waiver pursuant to 15 U.S.C.

§ 637(a)(21)(B) of the statutory requirement that the Government terminate the Desktop V contract with IDP. Compl. ¶ 8; IDP I, 64 Fed. Cl. at 644. 7. The SBA denied the waiver request, and on August 31, 1999, the denial was

sustained by the SBA's Office of Hearings and Appeal. Compl. ¶ 10; PX2 14-1, In re International Data Products Corp., SBA No. BDPW-125, 1999 WL 1007639 (Aug. 31, 1999). 8. Mr. Kevin Murphy, IDP's Chief Financial Officer, who joined IDP in May

1999, testified at trial that he understood that "once the SBA decision became final, that a termination would be immediately effective." Tr.3 36:2-3 (emphasis added). 9. In an email dated September 17, 1999, Mr. James Crowther, whose title was

IDP's "Director, Contractor," wrote to Kay Walker, the Air Force contracting officer, regarding the SBA decision that "[i]t is our understanding that the Administrative Law Judge (ALJ) decision becomes final within 20 days of the ruling, i.e., 9/20/99." PX 35-1. 10. In a letter dated September 23, 1999, IDP's trial counsel, Mr. Edward

Tolchin, wrote to contracting officer Kay Walker "[t]he Small Business Administration Office of Hearings and Appeals decision in International Data Products, Inc., Dt. No. BDPW-98-10-14-05 is now final, 20 days having passed since its issuance. Accordingly,
2 3

"PX ____" refers to plaintiff's trial exhibits. "Tr. ___:___" cites the trial transcript as "page:line." 2

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Contract No. F0162-097-D-0001 must be terminated for convenience as a matter of law." PX 17-1 (emphasis added). 11. On October 8, 1999, contracting officer Kay Walker sent a written notice to

IDP that terminated for convenience the Desktop V contract. PX 33-1; IDP I, 64 Fed. Cl. at 644. 12. Mr. Murphy testified that the following passage in the October 8, 1999

termination notice told IDP that it was required to continue to perform warranty services: "This termination will not affect the rights and liabilities of the parties, arising under the contract or otherwise, concerning defects, guarantees or warranties relating to any articles or component parts furnished to the Government by the Contractor under the contract or this agreement, nor the rights and liabilities of the parties concerning software upgrades as required by Section C of the contract." Tr. 41:11-42:6 (quoting PX 33-1). 13. IDP's position at the time it received the termination notice was that IDP was

not required to continue performing warranty services. Tr. 159:7-16. 14. After IDP received the termination notice, its CEO and counsel met with

contracting officer Kay Walker, who told IDP to continue performing the warranty services. Tr. 42:7-20. 15. On April 11, 2000, IDP sent contracting officer Kay Walker a letter informing

her that IDP would no longer perform warranty services for the Desktop V contract. Tr. 49:21-50:3; PX 32. III. Labor Costs 16. The Desktop V contract was one of thirteen contracts for which IDP

performed warranty services. Tr. 195:6-21; PX 11-1. 17. Only one-third (33.3 percent) of the service calls opened during the period

August 1999 through April 2000 were for the Desktop V contract. Tr. 229:19-230:4; PX 111. The list of closed service calls for the same period recorded that 26.77 percent of the 3

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closed service calls for the same period were for the Desktop V contract. PX 12-1. 18. The Southware service order management system did not track which IDP

employees worked on performing warranty services for the Desktop V contract. Tr. 229:811. 19. After the Desktop V contract was terminated on October 8, 1999, IDP never

set up any tracking system to identify labor costs that IDP incurred to perform warranty services for the Desktop V contract. Tr. 187:4-7, 228:5-17. 20. Between October 8, 1999 and April 11, 2000, IDP did not maintain timesheets

that recorded the amount of time that IDP employees spent performing warranty services for the Desktop V contract. Tr. 58:3-17, 228:18-22. 21. In April 2001, one year after IDP ceased performing warranty services for the

Desktop V contract, it prepared affidavits that stated the number of hours purportedly spent by eight IDP employees to perform warranty services for the Desktop V contract after October 8, 1999. Tr. 65:5-22, 69:8-12; PX 2. 22. At the time IDP prepared the affidavits in April 2001, only four of the eight

employees who allegedly had performed warranty services for the Desktop V contract ­ David Costello, Vicki Hiers, Paul Seyfrit, and Brian Anderson ­ were still employed by IDP because the other four employees ­ Dario Uruburo, Sean Mahoney, Julio Manyari, and Jesse Harris ­ were laid off once IDP ceased performing the warranty services. Tr. 65:23-66:18; PX 2. 23. In April 2001, IDP attempted unsuccessfully to contact the four laid-off

employees ­ Dario Uruburo, Sean Mahoney, Julio Manyari, and Jesse Harris ­ at their last known telephone number and address, and also tried searching for them using the Internet. Tr. 69:16-25. 24. Three of the IDP warranty services employees who were still employed by

IDP in April 2001 ­ Vicki Hiers, Paul Seyfrit, and Brian Anderson ­ were also no longer 4

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employed by IDP at the time of trial. Tr. 66:12-18. In September 2005, IDP attempted unsuccessfully to contact them at their last known telephone number and address, and also tried searching for them using the Internet. Tr. 68:11-21. 25. Kevin Murphy testified that, in the absence of timesheets, senior IDP staff

prepared its claim for warranty costs by developing percentages to allocate the amount of time the eight employees spent performing warranty services for the Desktop V contract. Tr. 57:23-58:2, 74:13-22, 85:10-14; PX 1-1. 26. IDP has not identified any worksheets or other contemporaneous documents

that record any calculations used by IDP to arrive at the percentages (100 percent, 75 percent, or 50 percent) claimed for the amount of time that eight IDP employees allegedly spent performing services for the Desktop V contract. PX 1; DX 3/13. 27. Kevin Murphy did not explain any calculations used by IDP to arrive at the

percentages, other than the 100 percent claimed for Julio Manyari, who was the only employee hired exclusively to work on the Desktop V contract. Tr. 74:13-22, 81:2-15, 85:814. 28. Mr. Murphy testified that he relied on David Costello, who supervised

warranty services, to develop the percentages of time that IDP employees allegedly spent performing warranty services for the Desktop V contract, and that Mr. Murphy did not get involved in that subject. Tr. 181:2-11. 29. During Mr. Costello's direct examination, he testified "50 percent?" in

response to the question, "how much time did you personally spend on that, approximately, on the Desktop V aspect of your work?" Tr. 194:6- 9 (emphasis added). 30. On cross-examination, Mr. Costello agreed with the accuracy of his

deposition testimony in which he approximated that he spent about one-third to one-half of his time performing warranty services during the period August 1999 to April 2000. Tr. 226:19-227:17. 5

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31.

On re-direct examination, Mr. Costello testified as follows in response to

questions from his counsel: Q: Okay. Now, can you explain how ­ was there a peak during this time period that actually threw the total percentage during the September `99 through April 2000 period to the 50 percent as opposed to the lower number? Was there a peak that was occurring during this time period? Right when we stopped the warranty work, then it became close to, you know, 85-90 percent of my time was spent supporting and getting all the logistics worked out so my customer service people weren't getting beat up. Okay. And that skews the number back to 50 percent overall? Yes, it does.

A:

Q: A:

Tr. 237:14-238:2 (emphasis added). 32. During cross-examination, Mr. Costello agreed with the accuracy of the

following deposition testimony about the 780 hours that, according to his affidavit (PX 2), he devoted to performing warranty services for the Desktop V contract: Q: A: Q: A: Do you have any recollection about how that number 780 was calculated. Today, no. At the time I obviously did. But at this time you can't tell us how you went about determining that you had worked 780 hours? No, I can't.

Tr. 225:7-18 (emphasis added). 33. During further cross-examination, Mr. Costello also testified as follows: Q: There are no records that you're aware of, you don't know of any records that are the basis of that 780-hour calculation other than this affidavit (PX 2), correct? That's correct.

A: Tr. 226:14-18.

6

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34.

During re-direct examination, Mr. Costello testified as follows in response to

his counsel's questions: Q: Just to clarify, when you were being asked about the number of hours, you don't have any idea how these hours were calculated because you weren't participating in the calculation of hours in Exhibit No. 2; is that right? No. I was involved in the calculation of hours. Okay. With respect to giving percentages, correct? That's correct.

A: Q: A:

Tr. 235:22-236:6 (emphasis added). 35. During direct examination, Mr. Costello testified that he knew that Dario

Uruburo spent 75 percent of his time on the Desktop V contract because "I supervised him and was with him day by day," but Mr. Costello did not explain any calculations he used to arrive at the 75 percent figure for Mr. Uruburo. Tr. 193:21-5. 36. During his deposition, Mr. Costello testified as follows with respect to the

proportion of Mr. Uruburo's time that was spent on the Desktop V contract: Q: A: What is your basis for thinking that most of his time was being spent on Desktop V contract service orders? Just based on these documents [referring to PX 2].

Tr. 221:4-7 (emphasis added). 37. On re-direct examination, Mr. Costello testified as follows in response to his

counsel's questions: Q: Now, when you were testifying at your deposition that you didn't have any information outside of this document, were you referring to other documents or to your own information in your head? I was referring to did I have any other in my head or anywhere. Okay. So do you have a present recollection of the work that you did and the work that these people did? 7

A: Q:

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A:

Yes, I do.

Tr. 236:17-237:1 (emphasis added). 38. Mr. Costello testified that he knew that Paul Seyfrit and Sean Mahoney each

spent 75 percent of his time on the Desktop V contract because "I managed the both of them, as well as working with them on calls," but Mr. Costello did not explain any calculations he used to arrive at the 75 percent figure for either Mr. Seyfrit or Mr. Mahoney. Tr. 201:3-22. 39. During his deposition, Mr. Costello testified as follows regarding the

proportion of time that Mr. Seyfrit spent on the Desktop V contract: Q: A: What's your recollection about how much of Mr. Seyfrit's time was spent on the Desktop V contract? That amount, it's difficult to remember to say, you know, so I have to go by the numbers that we did at the time.

Tr. 221:22-222:2 (emphasis added). 40. On cross-examination, Mr. Costello agreed with the accuracy of the following

testimony from page 21 of his deposition transcript: Q: How about any of the other employees [besides Dario Uruburo and Paul Seyfrits] who are listed on the front page of [PX 2], do you have any recollection about how much of their time they were spending on service orders for the Desktop V contract? Not outside of this document.

A:

Tr. 224:5-15 (emphasis added). 41. On direct examination, Mr. Costello testified that he knew that Jesse Harris

spent "half his time" on the Desktop V contract, but Mr. Costello did not explain any calculations he used to arrive at the 50 percent figure for Mr. Harris. Tr. 202:16-203:2. 42. On direct examination, Mr. Costello testified that he knew that Vicki Hiers,

who "ran the help desk," spent 75 percent of her time on the Desktop V contract because "I worked with her as well as managing her," but Mr. Costello did not explain any calculations he used to arrive at the 75 percent figure for Ms. Hiers. Tr. 203:20-204:13.-203:2. 8

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43.

On direct examination, Mr. Costello testified that he knew that Brian

Anderson spent 75 percent of his time on the Desktop V contract because "I worked with him as well as managing him," but Mr. Costello did not explain any calculations he used to arrive at the 75 percent figure for Mr. Anderson. Tr. 202:16-203:2. 44. The labor costs that IDP allegedly incurred to perform warranty services for

the Desktop V contract during the eight months from September 1, 1999 through April 30, 2000 are $126,990.00. PX 1-1. Thus, the labor costs that IDP allegedly incurred during the month of September 1999 and October 1-7, 1999 are approximately $19,500.00. IV. Third-Party Warranty Costs A. 45. Federal Express After the Desktop V contract was terminated on October 8, 1999, IDP never

set up any tracking system to identify the shipping costs that were incurred for purposes of performing warranty services for the Desktop V contract. Tr. 159:1-6. 46. Kevin Murphy testified during his direct examination that "I believe it's an

exhibit . . . . we were able to pull a list of all the service orders that had a Federal Express tracking number associated with it, and it was about 45 percent of the volume during that period." Tr. 116:11, 116:23-117:1 (emphasis added); PX 12-2. 47. The only IDP list of service orders that shows Federal Express tracking

numbers, the list of closed service orders, contains a total of 3,263 service orders with Federal Express numbers. PX 12. Only 755 Desktop V service orders, or approximately 23 percent of the total number of closed service orders, have Federal Express tracking numbers. PX 12-10 to 12-33. 48. Mr. Murphy testified that PX 12 was the basis for developing the 45 percent

estimate. Tr. 121:7-20; PX 12-1, 12-18. 49. Despite his testimony that IDP based the calculation of its Federal Express

expenses on a list of service orders, Mr. Murphy stated, "Correct," in response to the 9

Case 1:01-cv-00459-GWM

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following question by the Court: "you pulled all of the invoices that had a Federal Express tracking report; is that correct? That's where you started?" Tr. 117:2-6 (emphasis added). 50. The Federal Express invoices produced by IDP do not show any twelve-digit

Federal Express tracking numbers like those on PX 12, nor any other information about the weight or destination of the packages shipped, but only show the total amount charged by Federal Express for shipping services. PX 6. 51. Mr. Murphy agreed on cross-examination that none of the Federal Express

invoices produced by IDP show any information regarding particular shipments, such as how many packages were sent to a particular destination, or where were the destinations. Tr. 156:13-157:10; PX 6. 52. IDP has not identified any worksheets or other contemporaneous documents

that record any calculations that IDP used to arrive at the 45 percent figure shown for the costs that IDP allegedly paid to Federal Express for shipping charges allegedly attributable to the Desktop V contract during August 1999 through April 2000. PX 7. 53. The Federal Expense invoices that IDP received that are dated August 31,

1999 through October 7, 1999 total $29,826. PX 6-1 to 6-2. Applying the 45 percent figure used by IDP to this total yields $13,421.70. B. Astronautics Corporation of America 1. 54. Work Performed Before October 8, 1999

Mr. Murphy testified that IDP did not seek to recover any costs for warranty

services performed before August 31, 1999. Tr. 143:12-19. 55. The September 1 and 2, 1999 invoices for warranty services allegedly

performed by Astronautics Corporation of America ("America") for the Desktop V contract, which total $2,712.00,