_______________________________ DENIED: November 20, 1992 _______________________________ GSBCA 11284 CENTENNIAL LEASING, Appellant, v. GENERAL SERVICES ADMINISTRATION, Respondent. Peter DeVito, President, Centennial Leasing, Wall, NJ, appearing for Appellant. Wendy Nevett Bazil, Office of General Counsel, General Services Administration, Washington, DC, counsel for Respondent. Before Board Judges BORWICK, PARKER, and HYATT. BORWICK, Board Judge. On June 7, 1991, appellant, Centennial Leasing Corporation (Centennial), filed this timely appeal against the respondent, General Services Administration. The contract was for lease of cars and trucks, and the dispute which resulted in the appeal stemmed from a delivery order for five Chevrolet Blazers issued to Centennial by the Department of the Army (Army). The Army terminated the delivery order for the convenience some seven months before the end of the purchase order's term. Appellant seeks recovery of his financing costs, damages for "untimely remarketing" and auction expenses resulting from the convenience termination. The contracting officer denied the claim. We sustain the decision of the contracting officer, as the costs and expenses claimed are not recoverable under the termination for convenience clause in appellant's contract. Findings of Fact 1. On August 31, 1984, respondent awarded appellant Contract No. GSOOF-65295, a Federal Supply Schedule contract for the lease of automobiles and light trucks for the period October 1, 1984, through September 30, 1985, with two one-year option periods. The contract included the standard form termination for convenience clause for supply contracts. Appeal File, Exhibit 1. 2. On August 15, 1987, during the second option year of the contract, the Army issued delivery order No. DAKFO6-87-F-7507 (order) under the contract for the lease of five utility trucks from August 15, 1987 through August 14, 1988. Appeal File, Exhibits 3, 4, 6. The order was for $15,480.00. Id. 3. Centennial had financed all the vehicles it leased to the Army for an amount equal to the monthly rentals it expected from the Army, with a large lump sum due to Princeton Bank at the end of the twelve month term. GSBCA No. 11409 - Respondent's Exhibits 3, 7; Transcript at 48-9.[Foot 1] On October 5, 1987, Centennial refinanced the used vehicles and paid off the original financing to Princeton Bank. Respondent's Exhibit 4. 4. On or about December 24, 1987, the Army verbally terminated the order to appellant for convenience of the Government, with an effective termination date of January 25, 1988. Appeal File, Exhibits 7, 12; Transcript at 7. On January 25, 1988, the Army returned the five trucks leased pursuant to the order. Id. The Army paid Centennial a total of $6,923.00 for the period August 15, 1987, through January 25, 1988 for the lease of the five trucks. Appeal File, Exhibits 7, 12. By letter dated August 9, 1989, the Army formally notified appellant in writing that the order was terminated for convenience of the Government for the period from January 25, 1988 through August 14, 1988. Id., Exhibit 8. 5. Thereafter, by letter dated August 29, 1989, appellant submitted a "formal invoice" in the amount of $22,613.14 for damages allegedly suffered due to the termination for convenience. Appeal File, Exhibit 9. Included were the costs associated with the selling the vehicles upon termination. These costs break down into two components: auction fees and loss on "untimely marketing" of the vehicles due to selling them earlier than expected. Transcript at 17. As a result of the refinancing agreement with Princeton, the eventual sale of the vehicles was crucial to Centennial making a profit on the rentals to the government. Transcript at 18. 6. A comparison of the sale price of the vehicles and the appraised value of the vehicles when sold shows that, as a group, appellant sold the vehicles for more than the appraised value. The resale schedule for the vehicles is as follows: ----------- FOOTNOTE BEGINS --------- 1. The parties entered into a stipulation during the hearing on the instant appeal that the financing scheme used for the leased vehicles in this case was identical to that used for the vehicles in GSBCA 11409. Therefore, citations to the financing scheme used for the leased vehicles in the instant appeal are to the record of GSBCA 11409. ----------- FOOTNOTE ENDS ----------- VIN[Foot 2] appraisal date sale net no. at sale sold price gain 201914 $7,400 5/12/88 $7,905 +$505 201910 $4,900 3/11/91 $4,000 -$900 201898 $7,400 6/2/88 $7,805 +$405 201907 $4,300 not sold yet $4,0003 -$300 201441 $6,800 5/5/89 $7,100 +$300 Totals: $30,800 $30,810 +$10 Compare Appellant's Answer to Respondent's Interrogatory 27 with Transcript at 20. 7. Appellant also submitted a claim for $1,660.06 in excess damages over and above normal wear and tear to the vehicles. Respondent's Exhibits IV & V. On March 8, 1990, the Army paid appellant $1,660.06 as full and final settlement of appellant's excess damage claims. Appeal File, Exhibit 11; Respondent's Exhibit V. 8. By letter dated May 11, 1990, appellant adjusted its earlier demand of $22,613.14 to reflect the Army's payment of $1,660.06. After negotiations between appellant and the Army concluded, appellant's final offer of settlement was $16,000.00, the Army's $5,000.00. On May 10, 1991, the GSA Contracting Officer issued a final decision denying appellant's $16,000.00 claim due to lack of supporting documentation. Appeal File, Exhibit 23. Appellant filed a timely appeal. Discussion Refinancing and Interest Expenses The standard form Termination for Convenience clause for supply contracts provides that in the absence of agreement by the contractor and the contracting officer, the contracting officer shall pay the contractor amounts as determined by the contracting officer. Federal Acquisition Regulation (FAR) 52.249-2(f) (1988). The cost principles and procedures of part 31 of the Federal Acquisition Regulation in effect on the date of the contract, govern all costs that may be determined to be recoverable under the clause. FAR 52.249-2(h) (1988). ----------- FOOTNOTE BEGINS --------- 2 VIN is the acronym for Vehicle Identification Number ----------- FOOTNOTE ENDS ----------- 3. The $4,000 is the amount the appellant expects to receive on the sale of this vehicle, based upon the market value of the vehicle. Appellant states, "And I project that the vehicle I have remaining . . . will bring me at least $4,000, although my offers for that vehicle have been less. Transcript at 20. Centennial claims it was damaged when the purchase order was terminated seven months earlier than the one year renewal term appellant expected. Centennial claims that it refinanced the residual value of the cars with another loan, expecting the renewal to last one year. Centennial claims that is entitled to the interest (14%) on the loan it took out from Princeton, because it had to pay the loan off early. Finding 3. Centennial's claim for interest is barred by FAR 31.205-20 (1988), which states that, "interest on borrowings (however represented) . . . are unallowable. . . ." The case of DePriest Farm Equipment, AGBCA No. 82-133-1, 84-1 BCA 16,692, involved a delivery order for rental trucks where the purchase order was terminated for convenience. In DePriest, the contractor claimed two elements of cost: principal and interest payments relative to refinancing of a vehicle rented to the government. Id. The court, citing FPR 1-15-205-17, (recodified as FAR 31-205-20), disallowed the claim of interest on the financing by the contractor. See also MBI Business Centers, Inc. GSBCA No. 8427- P, 87-2 BCA 19,702, at 99,751 (citing FAR 31.205-20, 48 CFR, Ch. 1 (1985) for proposition that financing expense is not a cost recognized in the determination of profit or loss from operation; financing expense is entrepreneurial expense to be distributed to the shareholders.) In addition to the FAR, appellant's post-hearing brief sheds light on the nature of the refinancing arrangement with Princeton bank, stating, "The refinanced amount was a total of $46,167.45. The note amount included Appellant guaranteeing to the Bank that all twelve rentals would be made." (Posthearing Brief at 1). Appellant states that it is guaranteeing to the bank that the vehicles would be rented for the full twelve month term, knowing that in the contract the government has the right to terminate for convenience. Now that the Government has terminated the contract for convenience, appellant is attempting to shift the costs of its guarantee to the bank to the Government, by having the Government pay the interest accrued on the note. Appellant's claim is insupportable. Anticipatory Profits Centennial claims $3,271.90 for what it would have realized if the Army delivery order had run to completion. This claim is merely a claim for anticipatory profits beyond the date of termination for convenience of the government. FAR 49.202 states that "anticipatory profits and consequential damages shall not be allowed" in the settlement of a termination for convenience proposal. Old Hickory Engineering & Machine Company, Inc., ASBCA 28,663, Jan. 31, 1984, 84-1 BCA 17,193. Centennial's claim for $3,271.90 in anticipatory profits is without merit. Untimely Marketing Expenses and Auction Costs Appellant's claims for untimely remarketing and auction costs and are insupportable. Appellant would have sold the vehicles regardless of whether or not the contract term expired at the end of its term, or as a result of a termination for convenience. Appellant claims loss on the sale of the vehicles as a result of the "untimely marketing" of the vehicles due to selling them earlier than expected. We have found, however, that appellant made $10.00 over the appraisal value of the vehicles and, therefore, did not lose anything on those sales. See Finding 6. Appellant's contention that the vehicles would have been sold for even more had the delivery order gone to full term, as opposed to their becoming available for sale on January 25, 1988, is not realistic. An average utility vehicle is not going to appreciate as it gets older; it will depreciate. Therefore, appellant would receive more in the sale of the vehicles by the early termination. As for the auction costs, appellant would have incurred some form of selling expense, whether or not the purchase order was terminated for convenience. Decision The appeal is DENIED. _________________________ ANTHONY S. BORWICK Board Judge We concur: _________________________ ROBERT W. PARKER Board Judge _________________________ CATHERINE B. HYATT Board Judge