Government Pays $3.3 Million to Settle Termination of Shared Energy Savings Contract On Contractor's Claim for Future Energy and Maintenance Savings

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The government agreed to pay $3.3 million to settle the termination for convenience of a shared energy savings contract. The government originally alleged that the termination should be settled on a total cost basis. Settlement was based upon the contractor's allegation that it was entitled to be paid for future energy and maintenance savings.

Government pays $3.3 million to settle termination of shared energy savings contract on contractor's claim for future energy and maintenance savings.

When the Army privatized 1,600 housing units at the Aliamanu Military Reservation in Hawaii in 2004, it terminated the remaining 16 months of performance on a shared energy and maintenance savings contact performed by Aliamanu Conservation Partners (ACP), a long term client of Power Law Office. The contractor claimed it was entitled to the remaining $5.5 million payments on the contract less maintenance performance costs saved by the early termination. The government denied the government was liable for future payments and claimed it overpaid the contractor based on a cost/revenue analysis. Timothy Power of represented ACP in the Court of Federal Claims, Aliamanu Conservation Partners v. United States; Docket No. 07-134C.

Although not admitting liability for future payments or that the cost/revenue approach was improper, the government agreed to settle the case with a payment of $3.3 million net to ACP without any credit for the $1 million post termination payments the government made to the insurance company that financed the project.

The contract was awarded in 1991 and was scheduled to expire in 2006. ACP spent the first two years of the contract on construction; removing the existing HVAC equipment and installing new energy saving equipment. All the equipment was installed at ACP's expense. The cost was approximately $19 million not including finance charges. In return for the installation of the energy savings equipment ACP was to receive a portion of the government's avoided energy and maintenance costs for the term of the contract.

ACP claimed entitlement to the remaining 16 months of payments for energy and maintenance savings it would have received but for the termination. This amounted to $5.5 million based upon the amount of the future savings payments. ACP filed an inventory proposal alleging it was entitled to the future energy and maintenance payments as the contract price for completed work.

The government rejected the contractor's position and alleged that future payments were unallowable as anticipatory profits. The government asserted that settlement should be based upon a total cost basis and that the contractor's recovery should be its costs less the amount paid by the government. Based upon the government's total cost analysis, it found ACP had incurred costs of approximately $41 million and been paid $47 million. Using this cost/revenue approach, the government counterclaimed for $6 million it allegedly "overpaid."

One of the issues that prevented settlement was the parties' significant disagreement on ACP's obligation to provide cost or pricing data to support its settlement proposal. The Termination Contracting Officer requested detailed cost data for the entire period of performance, over 13 years, going back to 1991. ACP alleged that it was not obligated to provide this cost data.

When the parties were unable to agree, the TCO issued a decision denying the contractor's claim and asserted a government counterclaim of over $6 million. ACP filed suit on its claim in the United States Court of Federal Claims, Aliamanu Conservation Partners v. United States. The government agreed to pay ACP $3.3 million but did not agree that its revenue/cost position was incorrect.


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