Free Memorandum of Contentions of Fact and Law - District Court of Federal Claims - federal

Case 1:01-cv-00459-GWM

Document 57

Filed 08/23/2005

Page 1 of 17

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 MEMORANDUM OF CONTENTIONS OF FACT AND 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

August 23, 2005

Case 1:01-cv-00459-GWM

Document 57

Filed 08/23/2005

Page 2 of 17

TABLE OF CONTENTS TABLE OF AUTHORITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii CONTENTIONS OF FACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ISSUES OF FACT AND LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 CONTENTIONS OF LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 I. IDP Cannot Recover Damages For Warranty Services That It Performed Before The Contracting Officer Terminated The Desktop V Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 The Court Should Not Rely Upon The Jury Verdict Method Because IDP Could Have Reliably Measured Its Costs, But Failed To Keep Adequate Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

II.

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

i

Case 1:01-cv-00459-GWM

Document 57

Filed 08/23/2005

Page 3 of 17

TABLE OF AUTHORITIES CASES Bath Iron Works Corp. v. United States, 34 Fed. Cl. 218 (1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Bigelow v. RKO Radio Pictures, 327 U.S. 251 (1946) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Boyajian v. United States, 423 F.2d 1231 Ct. Cl. (1970) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Datalect Computer Servs., Ltd. v. United States, 41 Fed. Cl. 720 (1998), aff'd, 215 F.3d 1344 (Fed. Cir. 1999) (table) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Dawco Constr., Inc. v. United States, 930 F.2d 872 (Fed. Cir. 1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 8, 10 Hi-Shear Technology Corp. v. United States, 356 F.3d 1372 (Fed. Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 In re Int'l Data Products, SBA No. BDP-125, 1999 WL 1007639 (Aug. 31, 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 4 International Data Products v. United States, 64 Fed. Cl. 642 (2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Joseph Pickard's Sons Co. v. United States, 532 F.2d 739, 209 Ct. Cl. 643 (1976) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 9 Raytheon Corp. v. White, 305 F.3d 1354 (Fed. Cir. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Specialty Assembling & Packing Co. v. United States, 355 F.2d 554, 174 Ct. Cl. 153 (1966) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 STATUTES 15 U.S.C. § 637(a)(21) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 5, 6 15 U.S.C. § 636 note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 REGULATION 13 C.F.R. § 134.308 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 13 C.F.R. § 134.401(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 13 C.F.R. § 134.408(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ii

Case 1:01-cv-00459-GWM

Document 57

Filed 08/23/2005

Page 4 of 17

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 MEMORANDUM OF CONTENTIONS OF FACT AND LAW Pursuant to Appendix A, ¶ 14(b) of the Rules of the United States Court of Federal Claims, and this Court's June 1, 2005 Order, defendant, the United States, respectfully submits this Memorandum of Contentions of Fact and Law. CONTENTIONS OF FACT 1. The Desktop V contract was terminated for convenience on October 8, 1999,

when the contracting officer sent a written termination notice to International Data Products Corporation ("IDP"). 2. IDP's damages should be measured from the termination notice that issued on

October 8, 1999, not from August 31, 1999, the date that the United States Small Business Administration ("SBA") Office of Hearings and Appeals denied IDP's appeal from the SBA's refusal to waive the statutory requirement to terminate for convenience the Desktop V contract as a result of IDP's acquisition by a non-disadvantaged business. 3. When measured from October 8, 1999 through April 2000, IDP's alleged

costs that it paid to third-party warranty service providers ­ Accutek, Astronautics Corporation of America ("ACA"), and Federal Express ­ total $232,073.55, not the $248,279.35 that IDP claims by measuring from August 31, 1999. 4. IDP did not create any accounts to track the costs that it allegedly incurred to

perform warranty services after the Desktop V contract was terminated on October 8, 1999.

Case 1:01-cv-00459-GWM

Document 57

Filed 08/23/2005

Page 5 of 17

5.

IDP did not calculate the costs that it allegedly paid to on-site warranty

service providers by totaling the invoices that correspond to IDP service orders, but instead looked at summary reports showing the total number of service calls made by the on-site service providers, and estimated that 10 percent of the calls performed by Accutek and 85 percent of the calls performed by ACA were attributable to the Desktop V contract during August 1999 through April 2000. 6. IDP has not preserved detailed records that it received from on-site warranty

providers Accutek and ACA that would permit it to verify which charges for services calls are attributable to the Desktop V contract. 7. IDP did not receive invoices from Federal Express that corresponded to

service orders, but instead looked at the zip codes where packages were shipped to develop its estimate that 45 percent of its Federal Express costs were attributable to performing warranty and upgrade services for the Desktop V contract during August 1999 through April 2000. 8. IDP has not preserved Federal Express invoices that record where packages

were sent or any other details regarding the shipments that IDP claims are attributable to the Desktop V contract during August 1999 through April 2000. 9. There are no worksheets or other contemporaneous documents that record

IDP's estimates for what percent of the costs that it allegedly paid to Accutek, ACA, and Federal Express are attributable to the Desktop V contract during August 1999 through April 2000. 10. The audit report prepared by the Defense Contract Audit Agency ("DCAA")

states that "[w]e requested but not receive any documentation to support the claimed third party maintenance/shipping and receiving costs" for Accutek, ACA, and Federal Express. 11. The DCAA audit report states that DCAA was unable to verify the time

allocations that IDP employees allegedly spent performing warranty services "due to a lack of supporting documentation." 2

Case 1:01-cv-00459-GWM

Document 57

Filed 08/23/2005

Page 6 of 17

12.

The DCAA audit report questioned IDP's claimed warranty labor cost of

$126,900 and third-party maintenance and shipping costs of $314,000 in their entirety. ISSUES OF FACT AND LAW 1. Whether IDP can recover damages for warranty services that it allegedly

performed before the contracting officer terminated the Desktop V contract on October 8, 1999. 2. Whether the Court should rely upon the jury verdict method to estimate IDP's

claimed damages when IDP possessed but failed to use information to calculate reliably the costs that it allegedly incurred to perform warranty services after the Desktop V contract was terminated. CONTENTIONS OF LAW I. IDP Cannot Recover Damages For Warranty Services That It Performed Before The Contracting Officer Terminated The Desktop V Contract In its pre-trial brief, IDP contends that the starting date for the period during which it should recover its costs for providing warranty services is August 31, 1999. Pl. Mem.1 2-3, ¶¶ 1, 4. On that date, the SBA Office of Hearings and Appeals issued a decision denying IDP's appeal from the SBA's decision that the Air Force could not waive its statutory requirement to terminate the Desktop V contract pursuant to 15 U.S.C. § 637(a)(21)(A). In re Int'l Data Products, SBA No. BDP-125, 1999 WL 1007639 (Aug. 31, 1999). IDP interprets the requirement in 15 U.S.C. § 637(a)(21)(A) that the contract "shall be terminated for [] convenience" as taking immediate effect on the day that the SBA Office of Hearings and Appeals issued its decision, although IDP offers no evidence that it or the Air Force received immediate notice of the decision. Thus, IDP measures its damages from August 31, 1999, rather than from October 8, 1999, the date that the contracting officer

"Pl. Mem." refers to Plaintiff's Memorandum of Contentions of Fact and Law, filed August 8, 2005. 3

1

Case 1:01-cv-00459-GWM

Document 57

Filed 08/23/2005

Page 7 of 17

issued written notice that the Desktop V contract was terminated for convenience. USAF 3418. However, IDP's assertion that its damages run from August 31, 1999 is contradicted by the SBA's rules of practice and IDP's own statements. 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. The final sentence of the conclusion of the August 31, 1999 SBA Office of Hearing and Appeals 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." In re Int'l Data Products, 1999 WL 1007639 (emphasis added). IDP has repeatedly interpreted 13 C.F.R. § 134.408(c) to mean that the 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." USAF 3443. 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]. USAF 3437. The statute that required the Air Force to terminate the Desktop V contract with IDP does not specify how soon after the denial of an appeal a contract "shall be terminated." 15 U.S.C. § 637(a)(21)(A). The "Termination ­ Commercial Items" clause of the Desktop V contract provides that it may be terminated "by giving written or electronic notice to contractor." DFARS 252.211-7000 (May 1991). The Air Force contracting officer sent written notice to IDP on October 8, 1999, little more than two weeks after the appeal 4

Case 1:01-cv-00459-GWM

Document 57

Filed 08/23/2005

Page 8 of 17

decision became final. IDP offers no support in the text of the Desktop V contract for its assertion that the contract could be deemed terminated as of August 31, 1999, more than a month before the contracting officer sent written notice of termination. Even if the contract could be deemed terminated before written notice issued, the Air Force was not required to terminate the contract for convenience until, at the earliest, September 20, 1999, when the SBA Office of Hearing and Appeals decision became final at the end of the 20-day period for filing a motion for reconsideration. If the Air Force had terminated the contract before this 20-day period had run, IDP could have contended that the termination had rendered moot any motion for reconsideration by IDP, which IDP had the right to file. IDP's counsel agreed that the decision was not final until September 20, 1999. USAF 3437. Thus, the earliest date from which IDP can measure its damages is September 30, 1999. The Government contends that if the Court awards any damages, they should be measured from October 8, 1999, the date that the contracting officer sent written notice of termination. IDP also contends that its damages extend through "April 2000." Pl. Mem. 3, ¶ 5. However, IDP sent the Air Force a letter by facsimile dated April 11, 2000, that stated that "we are writing to advise you that the company will no longer be providing continued warranty and upgrade services as no contract provisions exist under which these services can be provided." USAF 3319. Plaintiff has offered no proof that any costs that it allegedly incurred after April 11, 2000 were incurred to perform warranty services for equipment sold to the Government pursuant to the Desktop V contract. II. The Court Should Not Rely Upon The Jury Verdict Method Because IDP Could Have Reliably Measured Its Costs, But Failed To Keep Adequate Records In its March 28, 2005 order granting plaintiff's motion for summary judgment in part, the Court held that the Small Business Act, 15 U.S.C. § 637(a)(21)(A), prevented the Government from requiring IDP to continue performing warranty services once the contract was terminated. International Data Products v. United States, 64 Fed. Cl. 642, 650 (2005). 5

Case 1:01-cv-00459-GWM

Document 57

Filed 08/23/2005

Page 9 of 17

The Court noted that the Business Opportunity Development Reform Act of 1988 (the "Reform Act"), which added the termination for convenience provision of the Small Business Act, stated that its purposes "were, among others, to `ensure that program benefits accrue to individuals who are both socially and economically disadvantaged.'" Id., quoting Pub. L. No. 100-656, 102 Stat. 3853, 3856 (codified at 15 U.S.C. § 636 note) (emphasis added). The Court also noted that the legislative history for the Reform Act reflected Congress's intent to prevent large non-disadvantaged businesses from reaping benefits that Section 8(a) contracts did not intend to convey to them. Id., citing H.R. Rep. No. 100-460 at 35 (1987), S. Rep. No. 100-394 at 73 (1988). We agree that the Reform Act evidences an intent to prevent non-disadvantaged businesses from receiving benefits pursuant to Section 8(a) contracts. However, we respectfully disagree with the Court's holding that the Government could not require IDP to continue to perform warranty and upgrade services, because this holding frustrates rather than serves Congress's expressed intent. Dunn Computer Corporation, the nondisadvantaged business that acquired IDP in May 1998, received until October 1999 the benefit of selling to the Government equipment whose unit prices included warranty and upgrade services. However, the Court's ruling grants Dunn a windfall by relieving IDP of its contractual duty to perform the warranty and upgrade services that the Government paid in full before the Desktop V contract was terminated. The Small Business Act, as amended by the Reform Act, only prohibits the Government from conveying any further benefits to a Section 8(a) contractor once it is acquired by a non-disadvantaged business. The statute does not prohibit the Government from requiring the contractor to deliver services that were already paid for before the contract was terminated. For this reason, IDP should receive no further compensation for the warranty services that it performed after the contracting officer issued notice of termination on October 8, 1999.

6

Case 1:01-cv-00459-GWM

Document 57

Filed 08/23/2005

Page 10 of 17

Even if the Court finds that IDP should recover payment for the performance of these services, it should deny IDP's damages claim in its entirety. Contrary to what IDP asserts, IDP does not meet the requirements for the Court to rely upon the "jury verdict" method of estimating damages. Pl. Mem. 5-6. The Federal Circuit has stated that "[t]he selection of the proper method for determining damages is a legal decision which we review nondeferentially on the basis of reasonableness." 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); In Dawco, 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. 930 F.2d at 881-82. The court of appeals 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. Id. at 880; 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). We agree with IDP's assertion that it need only prove its damages by a preponderance of evidence. Pl. Mem. 4. However, in the first instance, IDP must carry its burden to prove that the jury verdict method is the appropriate method to measure damages. 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 (emphasis in original) (citing Boyajian v. United States, 423 F.2d 1231, 1235-36, 191 Ct. Cl. 233 (1970)). The court of appeals noted that "`the amount of the recovery can only be approximated 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

7

Case 1:01-cv-00459-GWM

Document 57

Filed 08/23/2005

Page 11 of 17

proof.'" Id. (quoting Joseph Pickard's Sons Co. v. United States, 532 F.2d 739, 742, 209 Ct. Cl. 643 (1976) (emphasis added in Dawco). IDP cannot substantiate its damages claims because it did not carefully review invoices from its vendors when it prepared its certified claim, and has failed to maintain the detailed records necessary to reconstruct the costs that it allegedly incurred in performing warranty services. Pl. Mem. 4. This is not sufficient justification for relying upon the jury method. In numerous decisions, the Federal Circuit has refused to award damages to contractors who relied upon the jury verdict method when another method was available to measure reliably the contractor's damages. In Raytheon Corp. v. White, 305 F.3d 1354, 1367 (Fed. Cir. 2002), the court of appeals held that the jury verdict method was not appropriate, 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.; Dawco, 930 F.2d at 882 (precluding use of jury verdict method and remanding for recalculation of damages); Joseph Pickard's, 532 F.2d at 742 (denying any recovery by contractor); Boyajian, 423 F.2d at 1244 (denying entirety of claim that contractor based upon jury verdict method). Similarly, the auditor that prepared the DCAA audit report, Mr. Larry Tatem, will testify that IDP could have calculated its actual costs on an invoice-by-invoice basis to arrive at a reliable figure for the costs that it allegedly incurred to engage two vendors, Accutek and Astronautics Corporation of America ("ACA"), to provide on-site warranty services to the Government. However, IDP's customer service manager, Mr. David Costello, testified in his deposition that he chose not to perform the data entry necessary to make this calculation 8

Case 1:01-cv-00459-GWM

Document 57

Filed 08/23/2005

Page 12 of 17

when IDP prepared its claim. Instead, Mr. Costello simply looked at the total number of service calls recorded by Accutek and ACA, and estimated what proportion of Accutek's and ACA's service calls were performed for the Desktop V contract. Based upon Mr. Costello's review and internal discussions among its executives, IDP estimated that 10 percent of Accutek's and 85 percent of ACA's charges were attributable to the Desktop V contract. However, no spreadsheet, worksheet, or other document records any method that IDP might have used to arrive at these estimates. The unreliability of IDP's calculations is illustrated by its reduction in its claim by approximately $65,000 after Mr. Murphy admitted during his deposition that IDP had inadvertently included in its certified claim costs incurred in several months before the August 31, 1999 SBA Office of Hearings and Appeals decision. As a result, IDP has reduced its claim for third-party warranty service costs to $248,279.35 (Pl. Mem. 3, ¶¶ 5-6) from the $314,000 that was rejected in the contracting officer final decision. Complaint (No. 03-2515C), Ex. 1, ¶ 3. The jury verdict method is one means that a trial court can use to approximate damages because in "`complex contract situations, exact computation of damages may prove to be extremely difficult.'" Hi-Shear Technology Corp. v. United States, 356 F.3d 1372, 1381 (Fed. Cir. 2004) (quoting Hi-Shear, 53 Fed. Cl. 420, 437 (2003)). In Hi-Shear, 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. 356 F.3d at 1376, 1381. Similarly, the Court of Claims adopted a decision of a trial commission 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)).

9

Case 1:01-cv-00459-GWM

Document 57

Filed 08/23/2005

Page 13 of 17

In contrast, even IDP does not assert that the Government engaged in any misconduct at or before the time that the warranty services were performed that prevented IDP from reliably recording and calculating its alleged costs of performing the services. The actual costs that were allegedly incurred by IDP could be calculated reliably, but IDP failed to do so when it prepared its certified claim. IDP's failure to use a reliable method to track or calculate its costs is not a justifiable reason for the Court to rely upon the jury verdict method. IDP has also failed to maintain detailed records that would permit it to calculate reliably what it allegedly paid on-site warranty service providers. This too is not a justification for the Court to rely upon the jury verdict method. 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 substantiate its claimed costs with records precluded resort to the jury verdict method. Id. Here, the issuance of the termination notice provided similar notice to IDP that it should maintain records detailing all costs of performing the warranty services. This Court rejected a contractor's reliance upon the jury verdict method in a similar situation, and denied the contractor's claim for damages in their entirety. In Bath Iron Works Corp. v. United States, 34 Fed. Cl. 218, 243 (1995), the Court stated 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. IDP asserts that it "provided" information about its warranty service providers to the auditor who initially worked on DCAA's audit report, and that "some of the backup for the information is now largely missing," insinuating that the auditor took these records. Pl. Mem. 4, ¶ 8. However, during his deposition, IDP's chief financial officer, Mr. Kevin 10

Case 1:01-cv-00459-GWM

Document 57

Filed 08/23/2005

Page 14 of 17

Murphy, testified that the original documents were reviewed at IDP's offices by a DCAA auditor, Ms. Robin Wesnofske; that IDP's practice was not to allow original documents to be taken from its offices; that Ms. Wesnofske requested copies of other original documents that she reviewed; and that she returned all folders of original documents to IDP before she left its offices. The Government requested that IDP produce similar backup for the months earlier in 1999 preceding the period for which IDP seeks damages, on the theory that these records would not have been reviewed by Ms. Wesnofske. IDP has failed to produce any backup records from this earlier period. This omission indicates that the absence of the records is the result of IDP's failure to retain them, and not because they were removed by Ms. Wesnofske. Moreover, Ms. Wesnofske was the DCAA auditor who was initially involved in preparing the DCAA audit, but two other DCAA auditors, Larry Tatem and Sharon Parr, assumed responsibility for preparing the report of DCAA's audit. They noted in their report that they had requested from IDP information to support its claims for third-party warranty services, but that IDP failed to provide any information. IDP did not note in its response to the audit report that it was unable to provide the requested backup because it had already given its original documents to Ms. Wesnofske. The Court should reject IDP's belated attempt to blame its poor recordkeeping on DCAA. The Federal Express invoices that IDP has produced are a particularly unreliable basis for calculating the $63,300.15 in shipping costs claimed by IDP. As with the on-site warranty service providers, IDP has failed to maintain any Federal Express records that verify the particular charges that IDP claims it incurred to ship products for warranty and upgrade purposes for the Desktop V contract. Even if IDP had retained the detailed invoices that Federal Express sent, however, these invoices did not identify what shipments were made for the Desktop V contract. Instead, Mr. Murphy testified that when it reviewed Federal Express invoices to prepare its claim, IDP relied on indirect means, such as looking at the zip codes to which packages were sent, to try to determine if they were sent for 11

Case 1:01-cv-00459-GWM

Document 57

Filed 08/23/2005

Page 15 of 17

purposes of the Desktop V contract. IDP estimates that 45 percent of its Federal Express costs during August 1999 through April 2000 were incurred to perform Desktop V warranty services. As with the on-site warranty service providers, there is no worksheet or schedule that verifies how this percentage was derived. In addition to the $248,279.35 that IDP asserts it paid to Federal Express and to thirdparty warranty service providers Accutek and ACA, IDP also asserts that it incurred $126,990 in costs to pay its own employees who allegedly performed warranty services for the Desktop V contract. Pl. Mem. 3, ¶ 5. IDP inaccurately asserts that the costs of the IDP

employees who performed warranty services "are not in serious dispute." Id. 4, ¶ 7. This misstates the conclusion of DCAA in its 2002 audit report as well as the Government's position in this lawsuit. DCAA concluded that IDP had provided payroll records that verified the wages of the eight customer service employees who IDP claims spent part of their time performing warranty and upgrade services for the Desktop V contract. DCMA 00353. However, DCAA rejected as unsubstantiated IDP's estimates of the amount of time each of these employees spent on Desktop V. Id. IDP's service orders for warranty services do not verify which employees worked on a particular service order. IDP seeks to rely upon affidavits executed by four of these employees, only one of whom is still employed by IDP. However, the manager of IDP's customer services, Mr. David Costello, was unable in his deposition to explain any method that was used to derive the numbers of hours shown in the affidavits. In sum, when it prepared its certified claim, IDP failed to calculate in a reliable fashion its alleged costs of performing warranty services after the Desktop V contract was terminated, and also failed to maintain records that would permit those costs to be calculated reliably now. IDP cannot prove any plausible explanation for these alleged failures than its own ineptitude. Thus, there is no justifiable basis for the Court to rely upon the jury verdict method or any other means to approximate IDP's alleged damages. Because IDP is unable to prove any reliable method for calculating its estimated costs for performing warranty 12

Case 1:01-cv-00459-GWM

Document 57

Filed 08/23/2005

Page 16 of 17

services after the Desktop V contract was terminated, the Court should deny IDP's claim for damages. 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

August 23, 2005

13

Case 1:01-cv-00459-GWM

Document 57

Filed 08/23/2005

Page 17 of 17

CERTIFICATE OF SERVICE I certify under penalty of perjury that on this 23rd day of August, 2005, a copy of the foregoing "DEFENDANT'S MEMORANDUM OF CONTENTIONS OF LAW AND FACT" 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