No Overhead And Profit Unless The Contract Says So.

The MSBCA dismissed a claim appeal for a contractor's overhead and profit mark-ups as not permitted under the terms of the contract.

In December 2007, the Maryland Port Administration ("MPA") issued a Request for Proposals ("RFP") for certain services at the Baltimore World Trade Center including repair services. The RFP included a specification that all required repair costs were to be borne by the contractor at no additional cost to MPA, and that the costs of all repairs must be approved by MPA prior to payment.

The RFP also included a Force Account Work provision. Where the contractor was required to perform work for which the contract did not provide unit prices, the contractor would receive labor costs equal to "actual wages" for the labor involved in the work, "actual costs" for materials used, and no additional allowance for superintendence. The Force Account Work provision set forth that the contractor would be permitted a "reasonable amount as overhead and profit" on such work performed by its own forces and its subcontractors or suppliers.

The proposal of Meridian Management Corp., Inc. ("Meridian's") set forth hourly rates for plumbing, electrical and mechanical repair work, and these rates included Meridian's overhead and profit. Section "O" of Meridian's technical proposal set forth that the most recent edition of the "R.S. Means" construction cost catalog was to be used to determine "the cost of materials and supplies and overhead." Meridian argued that this provision of Section "O" applied to work performed by Meridian's forces, whereas work performed by specialty subcontractors would be passed on to MPA.

During discussions, MPA requested Meridian confirm that invoicing for additional work would not include a mark-up fee other than a 5% fee allowable for tenant-requested renovations. Meridian responded by stating that it would not mark up any work performed under the "Leasing Services provisions of the contract," but was silent as to repair services.

During performance of the contract, Meridian included a 20% overhead and profit mark-up on invoices to MPA for repairs performed by both Meridian and its subcontractors. MPA rejected this 20% mark-up, and Meridian filed a claim therefor.

The MSBCA determined that the prices for plumbing, electrical and mechanical repair work were set forth in Meridian's price proposal, and therefore were not subject to "a reasonable [markup] as overhead and profit" under the Force Account Work provision. The MSBCA held that the RFP provided only for mark-up of subcontractors performing emergency repair.

The MSBCA also set forth that Meridian should have notified MPA during discussions that it intended to add a mark-up on repair services when MPA requested confirmation that such a mark-up would not occur. While the MSBCA set forth that "the government has an obligation to use consistent language in its contract documents to avoid any confusion," the confusion with regard to whether mark-up would be permitted did not rise to the level of showing that Meridian was entitled to collect the mark-up from MPA by a preponderance of the evidence.

Practice Suggestion: Justice Oliver Wendell Holmes said men who do business with the federal government "must turn square corners." The same is true on Maryland State contracts.

Meridian Management Corp., Inc., MSBCA No. 2678 (Oct. 10, 2010)