CBCA 5642

DENIED: November 5, 2018 CBCA 5642 ADAMS AND ASSOCIATES, INC., Appellant, v. DEPARTMENT OF LABOR, Respondent. Tiffinay Barker Pagni, General Counsel of Adams and Associates, Inc., Reno, NV, counsel for Appellant. Dennis A. Adelson and Peter J. Dickson, Office of the Solicitor, Department of Labor, Washington, DC, counsel for Respondent. Before Board Judges HYATT, VERGILIO, and RUSSELL. VERGILIO, Board Judge. Adams and Associates, Inc. (contractor) had a cost reimbursement contract with the respondent, the Department of Labor (agency). A contracting officer determined that reimbursable rental costs are limited to the costs of ownership because of the connection between the contractor and lessor of the building, previously owned by the contractor. The contractor seeks more than the agency has allowed, contending a sale and leaseback did not occur and that there was no common control to impose limitations. Further, the contractor seeks an adjustment for facilities capital cost of money within the amount in dispute. The agency recognizes that such facilities costs could be allowable, but contends that the amount CBCA 5642 2 is not allowable here because the contractor failed to specifically identify the amount in its cost proposal. The Board concludes that a sale and leaseback occurred, and that the entities involved in the lease are under common control. Each of these factors separately limits the allowable reimbursement under applicable regulations. The contractor has not proven its facilities capital cost of money or that an adjustment is appropriate. The Board denies the appeal. Findings of Fact Under a cost plus incentive fee contract, the contractor operated a Jobs Corps Center. The base period was December 1, 2013, through May 31, 2014, with two three-month option periods. The contract dictated that the agency would reimburse the contractor in accordance with the Federal Acquisition Regulation (FAR) Allowable Cost and Payment (Dec 2002) clause, 48 CFR 52.216-7 (2012) (FAR 52.216-7) (although the parties stipulate to the 2013 version of the clause; here without a material difference). The clause specifies that payments will be made in accordance with FAR part 31.2 in effect on the date of the contract and the terms of the contract. Rental costs under operating leases are allowable, subject to various conditions, with express limitations for rental costs either under a sale and leaseback arrangement or when charges are made between organizations under common control. FAR 31.205-36. The parties have stipulated to the following facts for this case: 1. Appellant, Adams and Associates, Inc. (AAI), is a Nevada Corporation, duly organized in the State of Nevada on September 25, 1990, with its principal place of business the Headquarters Building in Reno, Nevada. 2. AAI is a 100% employee-owned company with the sole purpose of operating Job Corps Centers through contract with the United States Department of Labor (DOL). AAI currently employs approximately 2500 employees at 19 locations across the United States. 3. AAI became a 100% employee-owned company through implementation of an Employee Stock Ownership Plan (ESOP) in 2012. Prior to becoming a 100% employee- owned company, AAI was owned by shareholders Roy Adams, Leslie Adams, and the Daniel B. Norem Revocable Trust. 4. The ESOP was adopted by AAI’s Board of Directors on October 24, 2012, with an effective date of January 1, 2012. The Board of Directors and officers for AAI at this time CBCA 5642 3 included: Roy Adams, CEO/President; Leslie Adams, Secretary; and Daniel B. Norem, Vice-President/Treasurer. 5. AAI owned the Headquarters Building prior to implementation of the ESOP in 2012, under which AAI employees acquired ownership of the company from former shareholders Roy Adams, Leslie Adams, and the Daniel B. Norem Revocable Trust. Depreciation and other building expenses were included in AAI’s allowable general and administrative costs. 6. During the ESOP negotiations in 2012, certain conditions were imposed, requirements that had to be met in order for the ESOP to go forward.