## Facts

- The Army awarded Propellex Corporation two fixed-price contracts to produce and deliver MK 45 primers (and, under one contract, MK 153 primers), which contained black powder subject to a moisture-content requirement.
- The contracts required delivery in specified lots and pre-acceptance testing of samples by the Naval Surface Warfare Center (NSWC), including moisture testing of black powder in the primers.
- NSWC rejected several lots for allegedly failing the moisture-content requirement.
- Propellex conducted an internal technical investigation, kept detailed technical records, but did not keep cost records for the investigation or related disruption; it did not find excessive moisture.
- The Army later identified defects in NSWC’s testing procedures and ultimately accepted the previously rejected samples and production lots.
- Propellex sought about $1.7 million as an equitable adjustment using a modified total cost method; the contracting officer found the claim largely unsubstantiated and awarded only a small portion.
- The Armed Services Board of Contract Appeals largely denied the appeal, finding Propellex failed the prerequisites for the modified total cost method, including failure to show it was impracticable to prove actual losses directly.

## Issues

1. Whether Propellex established the prerequisites for a modified total cost recovery, particularly that it was impracticable to prove its actual losses with reasonable accuracy.
2. Whether substantial evidence supported the Board’s findings that Propellex could have tracked its dispute-related costs and failed to prove it was not responsible for the increased costs.

## Decision

- The Federal Circuit affirmed the Board’s decision.
- Substantial evidence supported the finding that Propellex did not show it was impracticable to prove actual costs, because it could have tracked investigation-related costs but did not.
- Substantial evidence also supported the finding that Propellex failed to prove the government was solely responsible for all claimed cost increases.
- The court treated the modified total cost method as disfavored and available only in limited circumstances.

## Legal Principles

- Total cost and modified total cost methods are disfavored measures of recovery and are permitted only when strict prerequisites are met.
- A contractor seeking recovery under a total cost or modified total cost approach must show:
  - It is impracticable to prove actual costs with reasonable accuracy;
  - The bid or estimate was reasonable;
  - The actual costs were reasonable; and
  - The contractor was not responsible for the increased costs.
- A contractor’s failure to maintain cost records, when it reasonably could have segregated and documented dispute-related costs, supports denying use of total cost-type methods.
- On appeal from a board decision, factual findings are reviewed for substantial evidence.

## Conclusion

The Federal Circuit upheld the denial of Propellex’s modified total cost equitable adjustment because Propellex could have tracked and proven its actual costs but did not, and it failed to establish that the government alone caused the full amount of the claimed increased costs.


Propellex Corp. v. Brownlee, 342 F.3d 1335 (Fed. Cir. 2003)