______________________________________________ GRANTED IN PART: March 8, 1995 _____________________________________________ GSBCA 12215 P. J. DICK, INCORPORATED, Appellant, v. GENERAL SERVICES ADMINISTRATION, Respondent. John T. Flynn and Thomas J. Kelleher, Jr., of Smith, Currie & Hancock, Atlanta, GA, counsel for Appellant. Sharon A. Roach, Gerald L. Schrader, Martin A. Hom, Robert C. Smith, and M. Leah Wright, Office of General Counsel, General Services Administration, Washington, DC, counsel for Respondent. Before Board Judges DANIELS (Chairman), BORWICK, and NEILL. BORWICK, Board Judge. Background This appeal involves a contract for the renovation of certain floors of the United States Courthouse and Post Office, Pittsburgh, PA, a thirteen-story building. The contractor and appellant is P. J. Dick, Incorporated (P. J. Dick). The respondent is the General Services Administration (GSA). During the renovation, GSA partially terminated for convenience work on the fourth floor. Although GSA proceeded under the Termination for Convenience clause, the parties treated the resulting price adjustment as a deductive change. The parties dispute the proper credit for the deleted work. We conclude that GSA is entitled to a credit of $1,220,315.50. Findings of Fact The termination for convenience 1. On August 6, 1990, the director of GSA's Design and Construc- tion Division (D & C) advised the contracting officer that the tenant agencies requested a redesign and survey of approximately fifty percent of the space on the fourth floor. D & C recommend- ed that a portion of the fourth floor work be terminated for convenience. Appeal File, GSBCA 12130, Exhibit 320.1 D & C forwarded a list of work not to be performed on the fourth floor: (1) marble work (2) terrazzo repair (3) toilet partitions and supports (4) wood blocking except where necessary for installa- tion of new storm windows (5) architectural woodworking materials (6) finish paint for woodworking (7) wood molding installed in courtrooms (8) wood trim installed at jury boxes (9) woodworking at judges' benches, courtrooms 1-4 (10) installation of bathroom vanity tops (11) installation of laminated window sills (12) installation of hollow metal frames with exception of work associated with electrical and telephone clos- ets (13) installation of hollow metal doors and hardware on the fourth floor with the exception of work associated with the installation of electrical and telephone closets (1) installation of wood doors and hardware (14) lath (15) drywall board, with the exception of installation of electrical and telephone closets (16) drywall taping, with the exception of installation of electrical and telephone closets (17) metal studs, with the exception of installation of electrical and telephone closets (18) plaster work (19) ceramic tile (20) acoustical ceiling grid (21) acoustical ceiling tile (22) wood ceiling (23) resilient flooring (24) carpet (25) paint and wall covering (26) toilet partitions ____________________ 1 The Board consolidated all dockets related to this contract for hearing purposes; we thus reference appeal files in other dockets involving this contract. (27) directories (28) fire extinguisher cabinets (29) bulletproof materials (30) balance HVAC [heating, ventilating and air condi- tioning] at fourth floor (31) sheet metal duct fabrication, with exception of temporary HVAC area for Judge Mansmen's area and the kitchen exhaust (32) install fin tube enclosure with the exception of Judge Mansmen's area. (33) insulate HVAC pipe and duct with exception of portions of work not deleted under the modification (34) ATC rough-in tubing and controls with exception of run main up fourth floor slab, and installation of controls for temporary HVAC unit for Judge Mansmen (35) fin tube element and back plate at fourth floor with the exception of Judge Mansmen's area (36) HVAC grilles, regulators and diffusers (37) complete ATC with the exception of work associated with temporary HVAC in Judge Mansmen's area; and with the exception of risers to be installed through the fourth floor (38) sheet metal and equipment installation at fourth floor fan rooms with the exception of the work associ- ated with the temporary HVAC unit for Judge Mansmen's area (39) sheet metal and equipment installation on section A (40) equipment start-up and test (41) sheet metal and equipment for section B with the exception of work associated with temporary HVAC for Judge Mansmen's area (42) natural gas, Section A (43) natural gas, Section B (44) plumbing fixtures Section A (45) plumbing fixtures Section B (46) plumbing carriers (47) waste and vent runouts at Section A with the exception of installation of floor drains (48) waste and vent runouts at Section B (49) plumbing accessories (50) domestic runouts at Section A (51) domestic runouts at Section B (52) sprinkler design and survey at Section A (53) sprinkler design and survey at Section B (54) sprinkler pipe fabrication and delivery (55) sprinkler system rough in at Section A, with exception of riser installation (56) sprinkler system rough in at Section B, with exception of riser installation (57) sprinkler heads and testing (58) fire cabinets (59) electrical rough in (60) electrical finish (61) fire alarm installation (62) HVAC coordination and preparation (63) plumbing coordination and preparation (64) fire protection coordination and preparation (65) electrical coordination and preparation (66) general contractor coordination and preparation (67) all trades coordinate changes Id. 2. D & C stated that demolition of the elevator lobby walls should be deleted and that the existing fire alarm system on the fourth floor was to remain active. New sprinkler risers were to be tied into the existing lines per contract requirements. P. J. Dick was to provide for future sprinkler installation by install- ing tap-offs from risers and capping for future tie-ins. Piping risers for the HVAC which were existing or to serve mechanical rooms on the fourth floor were to be capped off for future tie- ins. Plumbing work was limited to installation of risers and tie-ins at the fourth floor ceiling to maintain building systems. Appeal File, GSBCA 12130, Exhibit 320. Based on this list, for the terminated work, D & C estimated $1,092,900 as the credit due GSA. Respondent's Supplemental Appeal File, GSBCA 12130, Exhibit 6. 3. On August 14, 1990, the contracting officer issued to P. J. Dick Modification AOD3, which--incorporating the list of fourth floor work developed by D & C--terminated for convenience those portions of the work on the list. Appeal File, GSBCA 12130, Exhibit 321, Modification AOD3. The termination for convenience clause 4. The termination for convenience clause in this contract provided in pertinent part: 88. FAR 52.249-2 TERMINATION FOR CONVENIENCE OF THE GOVERNMENT (FIXED PRICE) (APR 1984) (ALTERNATE 1) (a) The Government may terminate performance of work under this contract in whole, or, from time to time, in part if the Contracting Officer determines that a termination is in the Government's interest. The Contracting Officer shall terminate by delivering to the Contractor a Notice of Termination specifying the extent of the termination and the effective date. . . . . (e) Subject to paragraph (d) above, the Contractor and the Contracting Officer may agree upon the whole or any part of the amount to be paid because of the termina- tion. The amount may include a reasonable allowance for profit on work done. However, the agreed amount, whether under this paragraph (e) or paragraph (f) below, exclusive of costs shown in subparagraph (f)(3) below, may not exceed the total contract price as reduced by (1) the amount of payments previously made and (2) the contract price of work not terminated. . . . . (f) If the Contractor and Contracting Officer fail to agree on the amount to be paid the Contractor because of the termination of work, the Contracting Officer shall pay the Contractor the amounts determined as fol- lows. . . . (1) For contract work performed before the effective date of the termination, the total (without duplication of any items) of-- (i) The cost of this work; (ii) The cost of settling and paying termination settlement proposals under terminated subcontracts that are properly chargeable to the terminated portion of the contract if not included in subdivision (i) above; and (iii) A sum, as profit on (i) above determined by the Contracting Officer under 49.202 of the Federal Acquisition Regulation in effect on the date of this contract, to be fair and reasonable; however, if it appears that the Contractor would have sustained a loss on the entire contract had it been completed, the Contracting Officer shall allow no profit under this subdivision (iii) and shall reduce the settlement to reflect the indicated rate of loss. (2) The reasonable costs of settlement of the work terminated including-- (i) Accounting, legal, clerical and other expenses reasonably necessary for the preparation of termination settlement proposals and supporting data; (ii) The termination and settlement of subcontracts (excluding the amounts of such settlements); and (iii) Storage, transportation and other costs incurred, reasonably necessary for the preservation, protection, or disposition of the termination inventory. . . . . (h) The cost principles and procedures of Part 31 of the Federal Acquisition Regulation, in effect on the date of this contract, shall govern all costs claimed, agreed to, or determined under this clause. . . . . (k) If the termination is partial, the Contractor may file a proposal with the Contracting Officer for an equitable adjustment of the price(s) of the continued portion of the contract. Appeal File, GSBCA 11676, Exhibit 1, 1 at 35-36. P. J. Dick's estimate 5. On September 10, 1990, P. J. Dick forwarded a list of ques- tions seeking clarification of the scope of the termination. Appeal File, GSBCA 12130, Exhibit 324 (P. J. Dick's Letter to GSA of September 10, 1990). One of the questions (question 12) asked "Explain specifically, going through each section of the specifi- cations, what work is deleted." Id. There followed a coordina- tion meeting between P. J. Dick and GSA. Id. (GSA's Letter to P. J. Dick of October 15, 1990). At the coordination meeting, attempting to obtain an answer to its question twelve, P. J. Dick offered to work with GSA's representative in reviewing the contract specifications to better define the scope of the termi- nated work. Id. (P. J. Dick's Letter to GSA of September 19, 1990). The contracting officer refused the offer, stating that it was P. J. Dick's responsibility to coordinate the project, not GSA's; that GSA would give P. J. Dick the information GSA wanted P. J. Dick to have and that it was up to P. J. Dick to determine what work was to be deleted. Id. 6. At the coordination meeting, however, the following clarifi- cations were made to the scope of the termination: (1) Storm windows that were delivered were to be turned over to GSA. (2) P. J. Dick was to compile a complete list of mate- rials on site and GSA would determine if the GSA would take possession of the materials listed. (3) P. J. Dick would install new partitions for tele- phone/electrical closets and elevator lobby renovation as outlined in RFP 95a. (4) Demolition of existing HVAC was limited to removal of diffusers and ductwork utilized in drops to the dif- fusers. (5) Ferry Electric, P. J. Dick s electrical subcontrac- tor, would perform branch wiring only to feed existing equipment to remain under the new work; no other branch wiring would be performed. (6) Other coordination items relating to patching and night work were discussed. (7) P. J. Dick was responsible for maintaining the existing fire alarm system; P. J. Dick was to remove and relocate existing fire alarm components to allow for demolition. (8) P. J. Dick was to identify locations for future fire alarm equipment to be installed on the floor and was to install flow switch monitoring devices in con- junction with sprinkler work. (9) The planned move of a transformer from the third to fourth floor was not deleted by the termination. (10) Existing doors to the mechanical room were to remain. (11) Wall demolition at column lines Q to S and 3 to 4, terrazzo floor restoration, and installation of perimeter wall furring, new window sills and new storm sashes were all deleted from the contract. (12) P. J. Dick was expected to install all plumbing piping, and cap the pipe for future use; installation of plumbing fixtures was deleted. (13) P. J. Dick was to leave existing lighting ener- gized in stairways and elevator lobbies. (14) P. J. Dick was to remove all perimeter steam radiation per contract. (15) P. J. Dick was to install drains for future fan rooms. (16) P. J. Dick was to bring all perimeter heat runouts through the third floor ceiling through the fourth floor and cap. (17) Cast iron radiators were to be removed. (18) Except for Judge Mansmen's area, new fin tube perimeter heat elements were not to be installed. (19) P. J. Dick was to throttle back on the pump for perimeter heat to balance the system without installa- tion of fourth floor elements. (20) P. J. Dick was also to secure existing thermostats to remaining structure following demolition of existing walls. (21) P. J. Dick was to install new standpipe risers, hose valves, tap-offs to accommodate connection of future sprinklers, new flow switches, shut off valves. (22) Installation of sprinkler branches, heads, and hose valve cabinets was deleted. (23) P. J. Dick was to install stairs and elevators, as contemplated by the contract. (24) P. J. Dick was to leave the existing lighting and circuits serving the computer room, Judge Mansmen's chambers, and the elevator lobbies. (25) P. J. Dick was to patch following demolition if patching was required by building codes, and run plumb- ing risers as close as possible to present locations indicated. Appeal File, GSBCA 12130, Exhibit 324 (GSA's Letter to P. J. Dick of October 15, 1990). 7. P. J. Dick submitted a termination proposal for $997,677.72 as a reduction in the contract price for the terminated portion of the work. Appeal File, GSBCA 12130, Exhibit 324. This proposal deducted 1.58 percent for profit and included no reduc- tion for overhead. Id. The major categories and credits for the categories were: Description P. J. Dick Proposal Plumbing ($27,419.38) HVAC (130,035.72) Sprinkler ( 42,715.79) Architectural (718,847.10) Electrical ( 90,387.47) Settlement Costs 11,727.73 Respondent's Supplemental Appeal File, GSBCA 12209, 12215, Exhibit 6.[foot #] 2 P. J. Dick's proposal was sup- ported by detailed backup from its subcontractors. Appeal File, GSBCA 12130, Exhibit 324. 8. P. J. Dick's president testified that P. J. Dick would have anticipated a profit of between seven and eight percent on the original contract. Transcript at 2298. For change order propos- als, P. J. Dick charged an overhead rate of fifteen percent and profit and commission of ten percent. Appeal File, GSBCA 11678, Exhibit 389. Defense Contract Audit Agency's opinion of P. J. Dick's estimate 9. The Defense Contract Audit Agency (DCAA) examined P. J. Dick's proposal, rearranging the proposal into P. J. Dick's direct materials, direct labor costs, and subcontracted costs. Appeal File, GSBCA 12130, Exhibit 325. DCAA concluded that P. J. Dick had understated the reduction in the contract price by $10,408, and that the reduction should have been $1,008,086, as explained in this and the following paragraph. Id. at 5. DCAA concluded that P. J. Dick had understated its direct material costs by $3,645, and that the direct material cost reduction should have been $14,330, not $10,685 proposed by P. J. Dick.[foot #] 3 DCAA decided that P. J. Dick had ----------- FOOTNOTE BEGINS --------- 2[foot #] P.J. Dick's proposal included $24,700 for unperformed marble work. Since the parties have since settled the marble claim for $30,000, Transcript at 1240, the proposal should be adjusted by subtracting $24,700 and adding $30,000, resulting in a termination for convenience proposal of $1,002,978. 3[foot #] DCAA observed that P. J. Dick understated by $2,073 its material costs for woodwork for judges benches. P. J. Dick had deducted $691 for the cost of woodwork in one courtroom, when it should have deducted $2,764 for the cost of woodwork in four (continued...) ----------- FOOTNOTE ENDS ----------- overstated its subcontract cost reduction by $3,138; the cost reduction for subcontracted costs should have been $908,698, not $911,836 proposed by P. J. Dick. Id. DCAA recognized P. J. Dick's entitlement to $10,748 of settlement expenses, and accept- ed P. J. Dick's credit of $45,955 for direct labor. DCAA esti- mated a total of $968,983 for direct materials and labor and subcontractor costs. Subtracting the recognized settlement amount from the subtotal of $968,983 resulted in a cost reduction of $958,235 for direct materials, direct labor, and settlement expenses. Id. DCAA did not question P. J. Dick's claim of $24,700 for the marble work. Id. DCAA's audit included audits of the major subcontractors. Id. 10. DCAA found P. J. Dick's profit rate on the contract to be 3.172 percent. DCAA obtained that rate by dividing P. J. Dick's total contract price ($13,466,000) by P. J. Dick's total contract cost estimate ($13,032,548) prepared at the time of bid, result- ing in a profit of $413,452. Appeal File, Exhibit 325, at 9. DCAA separated the implicit 3.172 percent profit rate into two components, applying 1.586 percent to general and administrative overhead (G & A) and 1.586 percent to profit, even though G & A was not proposed as a contract reduction. Id. Applying the percentage of 3.172 percent to the total contract costs of $968,983 resulted in profit and G & A of $30,736, which, when added to $958,235 resulted in a subtotal of $988,971. A markup of 1.933 percent for business and occupation tax resulted in a total contract reduction of $1,008,086. Id. at 5. GSA's consulting architect's opinion of P. J. Dick's estimate 11. On February 25, 1991, GSA's consulting architect, H2L2/RWL, advised GSA that for the architectural portion of the work, "P. J. Dick's estimate to delete work on the fourth floor indicates credits that are in line with expected costs, with one exception - AG Mauro did not credit [overhead and profit] on doors deleted and therefore credit for that item should be about $10,683 not $8,192." Appellant's Supplemental Appeal File, GSBCA 12130, Exhibit 30. 12. On May 7, 1991, H2L2/RWL submitted to the contracting officer its estimate of the fourth floor termination costs. ----------- FOOTNOTE BEGINS --------- 3[foot #] (...continued) courtrooms. DCAA also questioned P. J. Dick's material cost reduction of $1,572 for hollow metal doors. P. J. Dick's supplier of hollow metal doors, A. G. Mauro, added a cancellation fee of $1,430 to P. J. Dick's cost of supplies, which P. J. Dick has passed on to the Government as material cost reduction. DCAA noted that A. G. Mauro had added unallowable profit on settlement charges, which DCAA subtracted from material costs and reclassified in a separate section of the audit as a cancellation charge of $1,430 due to P. J. Dick. Appeal File, GSBCA 12130, Exhibit 325. ----------- FOOTNOTE ENDS ----------- H2L2/RWL estimated the value of the deleted work at $1,222,- 619.13. Respondent's Supplemental Appeal File, Exhibits 2, 6. This evaluation did not provide a cost for settlement expenses and assumed a rate of ten percent for both overhead and profit. Respondent's Supplemental Appeal File, Exhibit 6. H2L2/RWL estimated the following credits: for the architectural portion of the work, $997,677.72; for the electrical work, $87,307; for plumbing, $144,755.15; for architectural work related to plumb- ing, $7,963.10; for the sprinkler system, $136,430; and for mechanical work, $129,709. Respondent's Exhibit 2. GSA's estimates 13. On November 20, 1992, the contracting officer issued his decision, pricing the credit due GSA at $1,824,641. The break- down of costs was: Description Cost Plumbing ($57,595) HVAC (565,143) Sprinkler (79,600) Architectural (951,419) Electrical (181,632) Settlement Costs 10,748 Total (1,824,641) Supplemental Appeal File, GSBCA 12130, Exhibit 10. Inaccuracies in the estimate of May 1993 14. On May 13, 1993, respondent revised its estimate for the cost of the fourth floor work to $2,683,088, which was based upon the analysis of GSA's claims consultant, Mr. Robert Herr. Respondent's Exhibit 78. In preparing to perform his estimate of May 1993, Mr. Herr walked through the building, Transcript at 1868, and used fourth floor architectural drawings to gauge the extent of the fourth floor work. Transcript at 1870; Respon- dent's Exhibit 77. Mr. Herr admitted that the estimate was not based on a detailed take-off[foot #] 4; he simply measured- the running feet of materials, as shown on drawings, and multi- plied the distance by what he thought was the applicable cost of materials. Transcript at 1948-49; Respondent's Exhibit 78. 15. In performing the estimate, Mr. Herr consistently overesti- mated the amount of work to be deleted as a result of the termi- nation for convenience. Mr. Herr assumed that to perform the drywall work, P. J. Dick would have had to place drywall along 72,400 square feet on the floor. Respondent's Exhibit 78. The ----------- FOOTNOTE BEGINS --------- 4[foot #] A detailed take-off involves bidding the job consid- ering all the plans and specifications of the contract. Tran- script at 2136. ----------- FOOTNOTE ENDS ----------- actual square footage on the third floor was 77,000 square feet, while the fourth floor, including where no work was to be done, was about 63,951 square feet, because of the architectural design of the building. Transcript at 2329; Respondent's Exhibit 81 (GSA's pre-bid estimate). On the fourth floor, P. J. Dick was not required to perform work on the main corridor or an existing secondary corridor or in Judge Mansmen's suite. Transcript at 2328. 16. The contract contemplated a lesser renovation effort on the fourth floor than on the third floor. On the third floor, the rooms were smaller and more numerous, as they were mostly o- ffices; the fourth floor had larger spaces, such as waiting rooms, judges chambers, and courtrooms. Transcript at 2330. 17. Mr. Herr overestimated the extent of the fourth floor work. Mr. Herr assumed that P. J. Dick would have had to install 65,900 square feet of flooring. Respondent's Exhibit 78. However, the fan rooms, the elevator areas, the corridors, and Judge Mansmen's suite did not require floor covering, and should have been subtracted from the estimate. Transcript at 2176-77. Mr. Herr also assumed that ceiling work would have to be placed in 65,900 square feet of space. Respondent's Exhibit 78; Transcript at 2178. Again, Mr. Herr did not subtract areas on the fourth floor that were not slated for ceiling renovations: the fan rooms, the elevator areas, Judge Mansmen's suite, and certain areas in the lobby. Transcript at 2178-79. In contrast to Mr. Herr's assump- tions, the pre-bid estimate and the termination estimate of H2L2/RWL assumed 47,755 and 47,646 square feet of floor covering, respectively. Appellant's Exhibit 88; Transcript at 2176. The pre-bid estimate assumed 53,265 square feet of ceiling work; H2L2/RWL estimated 49,841 square feet of ceiling work. Appel- lant's Exhibit 89; Transcript at 2178. 18. Other inaccuracies occurred in Mr. Herr's estimate of subcontractor material and labor costs. Mr. Herr assumed that P. J. Dick would have had to pay $400,000 for custom court millwork and $68,000 for labor to install the millwork. Respondent's Exhibit 78. Some subcontractors, however, provided firm pricing on some items in respondent's estimate. P. J. Dick had a con- tract for the millwork with Harmon Lumber and Supply for $196,- 000; P. J. Dick was to install the material with its own forces. Appellant's Exhibit 86; Transcript at 2206-07. 19. Mr. Herr estimated that P. J. Dick would spend $135,272 on "wall finishes" (painting) for the fourth floor. Respondent's Exhibit 78. P. J. Dick, however, entered into a subcontract for $235,000 with Patrinos Painting to paint the entire project. Transcript at 2218. The fourth floor work was approximately fourteen percent of the total job. Transcript at 2219; Respondent's Exhibit 81. The value of the Patrinos subcontract for the fourth floor painting would be fourteen percent of $235,000, or $32,900. GSA's final claim 20. Respondent asserted at the hearing that appellant owed it $2,683,088 as the value of the deleted work. Respondent's Exhibit 78. Later, respondent amended its claim to seek $2,- 376,240 as a credit, to account for the subcontractor pricing referenced at the hearing on the merits. Respondent's Post- Hearing Brief at 32. Discussion This is an unusual case. Sections (e) and (f) of the termination for convenience clause in this contract contemplated adjustment of the contract price on the basis of the cost of the completed work; in the case of partial terminations, section (k) of the termination for convenience clause contemplated a contrac- tor proposal for equitable adjustment of the continued portion of the contract. Finding 4. Pricing terminations on the basis of the completed work is in contrast to pricing of deductive change orders, where the focus of the inquiry is the cost of the deleted work. Ralph C. Nash., Jr., Changes 431 (Figure 17-4) (1981). Here, the contracting officer purported to terminate portions of the fourth floor work for convenience, Finding 3; nevertheless, the whole matter was treated by both GSA and P. J. Dick as a deductive change. P. J. Dick's proposal was based on the pricing of the deleted work. Finding 7. The Government's analysis was also based on the cost of the deleted work; GSA's architect, H2L2/RWL, DCAA, GSA, and GSA's claims analyst at the trial of this case all analyzed the cost of the deleted work. Findings 10-15. In a similar termination for convenience case, where the parties used deductive change pricing, the Armed Services Board of Contract Appeals concluded: The question of whether work should be deleted under the Changes or the Termination clause is best left to the circumstances of each case and where the parties proceeded by means of a deductive change we will not alter that treatment absent a compelling reason. [Cita- tion omitted] Here we see no reason whatever, and none is provided to us by the parties, to disturb the par- ties' treatment of the termination of identifiable items of work through a deductive change. Goetz Demolition Co., ASBCA 39129, 90-3 BCA 23,241, at 116,618. Thus we will consider the respective positions of the parties as to the cost of the deleted work. When the Government deletes work, it is entitled to impose a deductive change decreasing the contract price to reflect the reduced cost to perform the work. Plaza Maya Ltd. Partnership, GSBCA 9086, 91-1 BCA 23,425, at 117,500 (1990). The sole issue in this appeal is the proper amount of the termination credit due GSA. GSA bears the burden of proof in establishing the amount of the credit. Nager Electric Co. v. United States, 194 Ct. Cl. 835, 853, 442 F.2d 936, 946 (1971). GSA is entitled to a credit that reflects the cost of the deleted work the contractor would have performed, taking into account the circumstances of the contractor. Nager Electric, 194 Ct. Cl. at 852, 442 F.2d at 945-46. That credit includes the overhead cost the contractor would have incurred and profit (or commission) the contractor would have earned. Singleton Con- tracting Corp., GSBCA 9614, et al., 90-3 BCA 23,125, at 116,- 109; Algernon Blair, Inc., ASBCA 10738, 65-2 BCA 5127, at 24,141. P. J. Dick argues that overhead should not be included in calculating the credit. That is not the law. In determining the proper rates for overhead and profit on a deductive change, boards have often used the rates for additive change order work. See Santa Fe Engineers Inc., ASBCA 31762, 91- 1 BCA 23,571, at 118,187-88. Here, P. J. Dick's change order markups were fifteen percent for overhead and ten percent for profit (or commission), Finding 8. We recognize that in its audit, DCAA found that overhead and profit rate in P. J. Dick's bid was 1.586 percent. Finding 10. That profit rate is unrea- sonable; reasonable businessmen would not work on a job like this one for a profit of 1.586 percent. Here, P. J. Dick's president anticipated a profit of between seven and eight percent on this contract. Finding 8. The rates P. J. Dick charged in its change orders for profit and overhead better reflect both the profit P. J. Dick expected from the contract, Finding 8, and the overhead P. J. Dick actually incurred. The parties are in sharp dispute as to the credit for labor and materials due GSA. GSA relies on Mr. Herr's analysis for the credit claimed of $2,376,240. Mr. Herr's analysis was faulty in many respects. He overestimated the extent of the work that was terminated on the fourth floor. Findings 15, 17. He failed to recognize P. J. Dick's binding contracts with its subcontractors for materials and services such as court room millwork or paint- ing. Findings 18, 19. We have considered the totality of Mr. Herr's testimony and conclude that we cannot rely on his analy- sis. We are left with the independent government estimate of $1,824,641 as the credit, or an amount based on the DCAA audit amount of $968,983 for direct labor, material, and subcontractor costs and settlement expenses of $10,748. There is little in the record to support the former. We conclude that the DCAA audit is the reasonable measure of the credit for the labor and materials due GSA. DCAA carefully examined P. J. Dick's proposal, and made appropriate adjustments for questionable items, based on audits of P. J. Dick's major subcontractors. Finding 9. GSA urges us, by implication at least, not to rely on the DCAA audit. As a starting point, DCAA used P. J. Dick's esti- mate, and, for the most part, verified the accuracy of P. J. Dick's estimate. Compare Finding 7 with Finding 9. GSA argues that P. J. Dick's proposal grossly understates the extent of the terminated work on the fourth floor. GSA maintains that appel- lant's proposal is less than one-fifteenth of the contract price, while the terminated work consists of the majority of the work on the fourth floor. Respondent's Post-Hearing Brief at 10-13. We are not persuaded to disregard DCAA's estimate by GSA's last argument. First, GSA was given the opportunity to work with P. J. Dick in defining the scope of the terminated work, but refused. GSA advised P. J. Dick that it had the job of determin- ing the extent of the terminated work. Finding 5. Thus, GSA can rely only on hindsight and speculate what the "proper" scope of the terminated work should have been. Second, we conclude that P. J. Dick's proposal did not understate the scope of the termi- nated work. GSA ignores that despite the termination, P. J. Dick still had to perform a significant amount of work on the fourth floor: installation of stairways, elevators, plumbing risers, and tie-ins on the fourth floor ceiling to maintain the existing systems; installation of drains through the fan room; installa- tion of new stand-pipe and plumbing risers, to accommodate a new design; and installation of branch electrical wiring to feed existing equipment to remain under the new work. Finding 6. GSA argues that the fourth floor remodeling work would have been extensive because of the numerous small offices planned for installation. Respondent's Post-Hearing Brief at 11. We disagree. The third floor work was more extensive than the fourth floor work. Finding 16. GSA's position is also belied by the analysis of its own consulting architect, H2L2/RWL, whose estimates were close to those of P. J. Dick's and DCAA's. Findings 10, 11. GSA is entitled, therefore, to a credit of $968,983 for the direct material, labor, and subcontractor costs, plus the appro- priate markups to account for P. J. Dick's overhead and profit or commission. Overhead at fifteen percent is $145,347.45 for a subtotal of $1,114,330.45. Profit (or commission) of ten percent on that amount is $111,433.05. The total is $1,225,763.50. P. J. Dick incurred settlement expenses of $10,748. We thus sub- tract that amount from the credit due GSA. That results in a credit of $1,215,015.50 due GSA. We add $30,000 to reflect the value of the settlement of the Government's marble claim, note 1, but we have to subtract $24,700 included in P. J. Dick's original estimate and incorporated into DCAA's estimate. Finding 9. The total to which GSA is entitled is $1,220,315.50. Decision The appeal is GRANTED IN PART. GSA is entitled to a credit of $1,220,315.50 for the termination of the fourth floor work. _________________________ ANTHONY S. BORWICK Board Judge We concur: _________________________ _________________________ STEPHEN M. DANIELS EDWIN B. NEILL Board Judge Board Judge