BAE Systems Southeast Shipyards Mayport LLC, ASBCA No. 59876

Background

Contract N00024-10-C-4406 (cost-plus-award-fee) awarded to BAE for maintenance/repair of CG‑47 and DDG‑51 ships; award and incentive fees are determined in Phase I and then adjusted in Phase II based on small business (SB) subcontracting performance.
Contract required averaging 40% of direct production costs subcontracted to small businesses during each fee evaluation period; contract included a formula defining numerator and denominator and permitted meeting the 40% at any subcontracting tier.
Solicitation Amendment No. 0001 answered bidder questions and stated offerors "will be allowed to exclude the use of the AMF dry‑docking facility from the 40% small business subcontracting requirement." AMF is a large business owning the local dry‑dock facility.
For Award Fee Evaluation Period (AFEP) 6, BAE initially reported a composite SB utilization of ~44.68%; the government recalculated it at ~25.96% after finding calculation errors and disputed treatment of AMF costs; BAE’s Phase II fee was reduced by $1,061,494.
BAE appealed, moved for summary judgment seeking full Phase I fee ($1,895,525.70) based on its composite rating, and moved to stay; government opposed, asserting factual disputes about which costs belong in numerator and denominator and how AMF amounts should be treated.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Amendment No. 0001 (Q&A) excluding AMF dry‑dock use from the 40% requirement is incorporated into the contract	Amendment No. 0001 was part of the solicitation and thus incorporated into the contract; BAE relied on it in its subcontracting plan	Solicitation amendments are not necessarily part of the final contract; the plan does not explicitly reference exclusion	Court: Amendment No. 0001 is part of the contract as a matter of law and its statement permitting exclusion was reasonably relied upon by BAE (incorporation affirmed)
If BAE elects to exclude AMF dry‑dock costs, must those costs be removed from numerator, denominator, or both?	BAE excluded AMF costs only from denominator in its AFEP‑6 calculation, leaving related SB subcontractor costs in numerator	Government: exclusion should apply to the entire requirement (both numerator and denominator); if denominator excludes AMF, numerator must likewise exclude second‑tier SB costs tied to AMF	Court: If contractor elects exclusion, AMF dry‑dock costs must be excluded from both numerator and denominator (percentage must be internally consistent)
Whether the specific AMF cost items and amounts used by BAE are correct such that summary judgment can be entered	BAE relied on its spreadsheet and invoices; seeks judgment that its composite percentage entitles it to full fee	Government contends factual disputes remain about what portions of AMF payments relate to dry‑dock use versus other work and which SB second‑tier costs correspond	Court: Genuine issues of material fact remain about precise figures to include/exclude; summary judgment precluded on quantitative calculation; parties directed to present evidence of appropriate figures
Motion for stay pending summary judgment	BAE requested stay pending resolution	Government opposed stay	Court: Motion for stay denied as moot (because summary judgment denied in part and further factual development ordered)

Key Cases Cited

LAI Servs., Inc. v. Gates, 573 F.3d 1306 (Fed. Cir.) (plain‑meaning rule for contract interpretation)
Coast Fed. Bank, FSB v. United States, 323 F.3d 1035 (Fed. Cir.) (extrinsic evidence of contemporaneous interpretation not considered when contract language is unambiguous)
NVT Techs., Inc. v. United States, 370 F.3d 1153 (Fed. Cir.) (interpret contract as a whole; give reasonable meaning to all parts)
Shell Oil Co. v. United States, 751 F.3d 1282 (Fed. Cir.) (avoid absurd results in contract construction)