October 2006
From
the editors of CCH's government contracts products, here are summaries
of the important recent developments in this practice area for the past
month. Complete coverage of these issues, and many more, appear
in the Government Contracts Reporter and related products.
If you have comments or suggestions concerning the information provided
or the format used, please feel free to contact me directly at aaron.broaddus@wolterskluwer.com.
Legal News
Failure to Prove Reliance on Defective Data Barred Price Reduction
A board of contract appeals' denial of a claim for a contract price reduction
was affirmed by the Court of Appeals for the Federal Circuit because the
government did not establish it detrimentally relied on defective cost
or pricing data. The government sought a $300 million price reduction
on a six-year contract to manufacture military aircraft engines, alleging
the contractor provided defective cost or pricing data. The Truth in Negotiations
Act requires a price adjustment if inaccurate, incomplete, or noncurrent
cost or pricing data increased the contract price. On reconsideration,
the Armed Services Board of Contract Appeals found the base-year contract
price was based on the contractor's best and final offer, but the government
did not review the BAFO cost or pricing data prior to award and relied
on "competitive forces" for subsequent awards and options. All
of the government's TINA claims were denied because it failed to establish
reliance on the allegedly defective BAFO cost or pricing data and thus
failed to show defective data caused an increase in the contract price
(05-1 BCA ¶32,860).
On appeal, the government argued its entitlement to a price adjustment hinged on showing the contract price was based on defective data, not that it actually relied on the data to its detriment. The court agreed the government was entitled to a presumption any defective cost or pricing data affected its agreement to the contract price and thus actually caused a price increase. However, precedent held this presumption was rebuttable, not conclusive. Once the contractor rebutted the presumption of causation, the government was required to establish detrimental reliance on the defective data (33 CCF ¶74,555). Moreover, the reliance requirement was consistent with Congressional intent, as demonstrated by the subsequent codification of the requirement as a defense to a TINA claim (10 USC 2306a(e)(2)). (Wynne, Sec'y of the Air Force v. United Technologies Corp., CA-FC, 50 CCF ¶78,603; Government Contracts Report Letter No. 1878, October 4, 2006)
30-Day Delay in Terminating for Default Did Not Constitute Waiver
The government did not waive its right to terminate a contract for default,
according to the Armed Services Board of Contract Appeals, because it
terminated within a reasonable time after the default and did not encourage
continued performance. The dispute arose from a contract for an anti-aircraft
missile defense system, which the contractor planned to obtain from a
foreign government. Numerous delivery issues arose after contract execution,
and after seven time extensions, the government terminated the contract
for default based on the failure to deliver the system. On appeal, the
contractor sought to convert the default termination into a termination
for convenience, arguing the government waived its right to terminate
for default.
The board explained that to establish a waiver of the right to terminate
for default, a contractor must show: "(1) [t]he government failed
to terminate within a reasonable time after the default under circumstances
indicating forbearance; and (2) [the contractor] relied upon the failure
to terminate and continued performance with the government's knowledge
and implied or express consent." Here, the contracting officer issued
a show cause notice on the amended delivery date and gave the contractor
16 days to reply. The CO told the contractor 12 days later he was considering
a termination and requested justifications for the nonperformance. On
the 15th day following non-delivery, the contractor suggested a meeting
with the foreign government supplier and the CO responded the contract
was going to be terminated. Four days later, when the contractor advised
the supplier was ready to deliver, it was told to take no further actions
on behalf of the government. The contract was terminated four days later,
on the 30th day following non-delivery. The short delay in terminating
was not unreasonable under the circumstances, and none of the government's
communications could be interpreted as encouraging performance after the
delivery date. There was also no evidence the contractor justifiably relied
on the government's failure to terminate immediately or continued performance
with the government's knowledge and implied or express consent. (Range
Technology Corp., ASBCA, 06-2 BCA ¶33,371; Government Contracts
Report Letter No. 1875, September 13, 2006)
Government Ordered to Compensate For Terminated Permit
The government was ordered to compensate the owner of a lodge operated
under a term special use permit because it closed road access to the property,
effectively terminating the permit and giving rise to relief. The lodge
owner sought to recover damages stemming from the government's decision
to close two deteriorating bridges linking the only access road to the
lodge and not to fund replacements. The special use permit governing the
property restricted activity on the site to the operation of a "public
lodge." Therefore, the bridge closures effectively closed the lodge,
as the property could only be viably operated if the public had vehicular
access to the lodge. The permit provided for relief to the lodge owner
if the government terminated the permit in the public interest by obligating
the government to pay "equitable consideration for the improvements."
Although the government did not terminate the permit by issuing a formal
document, the actions it took to eliminate access to the lodge effectively
terminated the permit and entitled the lodge owner to compensation.
The government challenged the owner's right to compensation, arguing that
before the bridge closings the owner did not operate the site as a public
resort and failed to notify the government about the potential sale of
the limited liability company operating the facility. However, during
the period of inactivity the government did not require the lodge to operate
due to a major road construction project in the area. Moreover, the government
never provided the requisite notice of a proposed revocation of the permit.
Also, the permit required notice to the government if the owner contemplated
a sale of its interest in the permit, but did not require notice of the
sale of the ownership interest in the company operating the lodge. Accordingly,
the government was ordered to compensate the lodge owner for the value
of the improvements located on the permit site, as well as post-termination
expenditures. Because the permit did not directly benefit the government,
the lodge owner was denied Contract Disputes Act interest on the award.
(The Sweetwater, A Wilderness Lodge LLC v. U.S., FedCl, 50 CCF
¶78,601; Government Contracts Report Letter No. 1877, September
27, 2006)
Contractor Was Entitled to Costs Incurred Outside Scope of Orders
According to the Department of Transportation Board of Contract Appeals,
the government was estopped from denying costs for services performed
outside the period specified by task orders because the government knew
of the overrun, induced continued performance and represented it would
fund the performance, and the contractor relied on the government's conduct
to its detriment. The dispute arose out of an indefinite quantity/indefinite
delivery contract for technical support services where performance was
to be based on the issuance of term and completion task orders. The contract
stated "[t]he contractor shall not perform work hereunder nor incur
any costs hereunder until it receives a specific task order signed by
the contracting officer." The contract also provided "[c]osts
incurred prior to the beginning date or after the ending date [of a task
order] shall not be directly allowable without the written consent of
the [CO]." A Limitation on Funds clause required the contractor to
notify the government in the event it believed its costs would exceed
75 percent of the total amount of funds allocated to any particular task
order. On several occasions the contractor incurred costs and performed
work prior to the commencement or after the expiration of a task order.
Despite directing the contractor's attention to the contract provisions
and advising it that costs incurred without authorized task orders may
be disallowed, the government established a pattern of retroactively extending
performance periods and funding the work. The government later denied
costs incurred under similar circumstances, stating performance had not
been authorized because no task order had been in effect during the disputed
period and notification of the overruns had not been provided.
In general, "the government is not obligated to reimburse a contractor
for any amount beyond the funds allotted to the contract," and retroactive
funding of overruns "neither waive[s] the notification requirements
for subsequent overruns nor bind[s] the government to fund later overruns."
However, the government may be obligated to fund an overrun if it has
knowledge of the overrun and promotes continued performance by representing
additional funding will be provided. Here, the record showed the government
knew at all relevant times the contractor was performing work during the
periods in dispute. In addition to the government's pattern of retroactively
authorizing task orders, the urgency of the work gave the contractor reason
to believe it would be compensated despite the absence of written authorization.
As most of the task orders contained clauses stating the services were
"critical" work requiring "daily technical support,"
it was unlikely the government desired the contractor to cease performance
during the disputed periods. The contractor therefore justifiably relied
on the government's conduct in continuing performance and was entitled
to reimbursement of its incurred costs. (Base Technologies, Inc. v.
U.S. Dept. of Transportation, DOT BCA, 06-2 BCA ¶33,380; Government
Contracts Report Letter No. 1877, September 27, 2006)
Legislative and Regulatory Activity
Congress Approves FY 2007 DoD Appropriations Bill
The House and Senate approved a conference report to HR 5631, legislation
funding the Department of Defense in fiscal year 2007. The House passed
the report by a 394-22 vote on September 26 while the Senate approved
it 100-0 on September 29. The conference report reconciled competing FY
2007 DoD budgets passed by each chamber. The House version, which passed
on June 20, allocated $427.6 billion, including $81.8 billion for procurement.
The Senate voted September 7 for a $469.7 billion budget with $81 billion
for procurement. In its final version, the bill will allocate $447.6 billion
for the DoD's FY 2007 budget, including $80.9 billion for procurement.
[President Bush signed the bill into law on September 29.] (Government
Contracts Report Letter No. 1878, October 4, 2006)
New Website Will Inform Public About Federal Grants, Contracts
President George W. Bush signed the Federal Funding Accountability and
Transparency Act (S. 2590) on September 26. The bipartisan legislation,
calls on the Office of Management and Budget to establish a new website
that will provide information about government grants and contracts greater
than $25,000, except those that must remain classified for national security
reasons. The legislation requires OMB by January 1, 2008, to establish
a single, searchable website where citizens will be able to access information
for each federal grant or contract within 30 days of its award, including:
(1) the name and location of the corporation, association, state or locality
or other entity receiving the award; (2) the name of the agency funding
the award; (3) the amount of the award; and (4) the purpose of the award.
The website is in addition to "ExpectMore.gov," established
earlier this year to allow the public to see how well Federal programs
are performing, and "Results.gov," established in 2002 to provide
information on the President's agenda for improving federal agency management.
(Government Contracts Report Letter No. 1878, October 4, 2006)
House Passes Bill Making Prison Industries Compete
The House of Representatives on September 14 approved the Federal Prison
Industries Competition in Contracting Bill of 2006 (HR 2965), a bill allowing
more private competition for contracts performed by Federal Prison Industries
(FPI). The Senate must still pass the measure for it to become law. HR
2965 would establish governmentwide procurement policies for FPI based
on competition. FPI currently produce goods and services for the federal
government, such as electronic products and furniture, on a noncompetitive
basis. The bill would phase out noncompetitive contracts by October 1,
2011. Until then, federal agencies would still be required to contract
with FPI for goods and services it offered. However, the items cannot
exceed a fair and reasonable price, as determined by the Federal Acquisition
Regulation. The contracts would also have to meet procurement and time
requirements. Contracts for products or services not currently offered
by FPI would require FPI's chief operating officer to study and report
the impact that offering them would have on the private sector. (Government
Contracts Report Letter No. 1876, September 20, 2006)
Major Contract Awards
Lear - $1.9 Billion. Lear Siegler Logistics International
Inc., Gaithersburg, MD, is being awarded a $1,900,000,000 indefinite delivery/indefinite
quantity with fixed-price contract. This contract supports numerous aircraft
and weapons systems including the C-47, T-33, T-37, C-130, F-111, F-4,
F-5, F-16, and various commercial aircraft. This is a Foreign Military
Sales (FMS) contract that will support numerous FMS countries. These countries
purchase nonstandard and hard to support standard supply items, maintenance/repair
support, and task orders via this contract. Task orders will be issued
to cover more complex maintenance tasks, studies, analysis or technical
assistance that will require technicians to travel to the country requiring
support. This work will be complete September 2016. Headquarters Air Force
Security Assistance Center, Wright-Patterson Air Force Base, OH, is the
contracting activity. (Government Contracts Report Letter No. 1875,
September 13, 2006)
SAIC - $1.5 Billion. Science Applications International
Corp. (SAIC), Fairfield, NJ, is being awarded a maximum of $1,050,000,000
fixed price with economic price adjustment contract for maintenance, repair,
and operations (MRO) supplies for Southeast Region, zone 1. Using services
are Army, Navy, Air Force, Marine Corps, and federal civilian agencies.
This is an indefinite delivery/quantity type contract exercising 2nd option.
Date of performance completion is Sept. 17, 2007. Contracting activity
is Defense Supply Center Philadelphia (DSCP), Philadelphia, PA. (Government
Contracts Report Letter No. 1877, September 27, 2006)
CSC - $628 Million. Computer Sciences Corporation, El
Segundo, CA, won a task order to provide technical and business transformation
services for the U.S. Air Force Expeditionary Combat Support System (ECSS).
CSC estimates the value of the award, which has a 21-month base period
with options for an additional 57 months, to be $628 million if all options
are exercised. The ECSS contract was awarded under the Enterprise Software
Initiative blanket purchase agreement, which CSC originally announced
in June 2004, with an estimated value of $250 million. Under the task
order, CSC will be the prime systems integrator and provide a full range
of services to help the Air Force transform its global supply chain. Services
include logistics business process redesign and commercial off-the-shelf
enterprise resource planning. (Government Contracts Report Letter
No. 1876, September 20, 2006)
Lockheed - $590. Lockheed Martin Corp., Lockheed Martin
Mission Systems, Colorado Springs, CO, is being awarded a $589,591,938
firm-fixed-price, indefinite delivery/indefinite quantity, cost-plus-fixed
fee, and cost-plus-award fee contract to provide for Air and Space Operations
Center Weapon System Integrator to include fielding, sustainment, system
engineering, integration, modernization, maintenance, management, and
contingency support for Air and Space Operations Center. The Air Force
can issue delivery orders totaling up to the maximum amount indicated
above, although the actual requirements may be less than the amount above.
This work will be complete August 2010. Headquarters Electronic Systems
Center, Hanscom Air Force Base, MA, is the contracting activity. (Government
Contracts Report Letter No. 1876, September 20, 2006)
Northrop - $500 Million. New York City's Department of
Information Technology and Telecommunications has awarded Northrop Grumman
Corporation, Los Angeles, CA, a five-year $500 million contract to provide
the city's broadband public-safety wireless network, the most comprehensive
network of its kind. This effort will enhance the city's existing mobile
wireless communications network with high-speed data and video capabilities,
and deploy several new, advanced wireless applications to support first
responders and transportation personnel. Northrop Grumman's New York City
solution uses standards-based mobile broadband wireless technology, known
as the Universal Mobile Telecommunications System, provided by IPWireless
of San Bruno, CA. (Government Contracts Report Letter No. 1876,
September 20, 2006)
Harper Construction, Stronghold Engineering, Solpac, Douglas E.
Barnhart, RQ Construction - $500 Million. Harper Construction
Company, Inc., San Diego, CA; Stronghold Engineering, Inc., Riverside,
CA; Solpac, Inc. dba Soltek Pacific, San Diego, CA; Douglas E. Barnhart,
Inc., San Diego, CA; RQ Construction, Inc., Bonsall, CA, are each being
awarded a firm-fixed-price, indefinite-delivery/indefinite-quantity multiple
award construction contract for new construction, renovation/revitalization/alteration,
and repair by design-build or design-bid-build of various bachelor enlisted
quarters, bachelor officer quarters (BEQ), and lodges of various roofing
systems at various locations within the Naval Facilities Engineering Command
(NAVFAC) Southwest area of responsibility (AOR). The total amount per
contract is not to exceed $100,000,000 (base period and four option years)
with a guaranteed minimum of $25,000, bringing the cumulative total for
all five contracts to $500,000,000. Harper Construction Company, Inc.
is being awarded the $19,897,265 initial task order for the design and
construction of a BEQ at Horno 53 Area at the Marine Corps Base, Camp
Pendleton, Oceanside, CA. Work for this task order is expected to be completed
by July 2008. The remaining four contractors are being awarded the minimum
guarantee of $25,000. The term of the contract is not to exceed 60 months,
with an expected completion date of September 2007 (September 2011 with
options). These five contractors may compete for task orders under the
terms and conditions of the awarded contract. The Naval Facilities Engineering
Command Southwest, San Diego, CA, is the contracting activity. (Government
Contracts Report Letter No. 1877, September 27, 2006)
United Technologies - $455 Million. United Technologies
Corp., Hartford, CT, is being awarded a $455,103,253 firm-fixed-price
& cost-plus-fixed fee contract modification. This action provides
for F-22/F119 engine (48) Lot 6 production and CY06 field support and
training. At this time, $53,610,547 have been obligated. This work will
be complete December 2006. Headquarters Aeronautical Systems Center, Wright-Patterson
Air Force Base, OH, is the contracting activity. (Government Contracts
Report Letter No. 1877, September 27, 2006)
Raytheon - $369 Million. Raytheon Co., Tucson, AZ, is being awarded
a $369,059,572 firm-fixed-price modification under previously awarded
contract (N00024-04-C-5460) for Phalanx Close-In Weapons Systems and associated
spares for FY06 Navy (51 percent), Army (35 percent), and the Governments
of Pakistan (12.8 percent) and Australia (1.2 percent) under the foreign
military sales requirements. Phalanx close-in Weapon System (CIWS) is
a fast reaction terminal defense against low and high flying, high-speed
maneuvering anti-ship missile threats that have penetrated all other ships'
defenses. The CIWS is an integral element of the Fleet Defense In-Depth
concept and the Ship Self-Defense Program. Operating either autonomously
or integrated with a combat system, it is an automatic terminal defense
weapon system designed to detect, track, engage, and destroy anti-ship
missile threats penetrating other defense envelopes. Phalanx CIWS is currently
installed on approximately 187 Navy ships and is in use in 20 foreign
navies. Work is expected to be completed December 2009. The Naval Sea
Systems Command, Washington, D.C., is the contracting activity. (Government
Contracts Report Letter No. 1876, September 20, 2006)
Valero - $289 Million. Valero Marketing and Supply Co., San Antonio, TX, is being awarded a maximum $288,789,146 fixed price with economic price adjustment for jet fuel for Defense Energy Support Center (DESC). Other location of performance is Benicia, CA. This is a 12-month indefinite delivery, indefinite quantity type contract. Date of performance completion is Oct. 30, 2007. Contracting activity is DESC, Fort Belvoir, VA. (Government Contracts Report Letter No. 1875, September 13, 2006)
Boeing - $279 Million. NASA announced that it has extended
its Checkout, Assembly and Payload Processing Services (CAPPS) contract
with Boeing, Chicago, IL, for three additional years. Valued at $278.5
million, the contract extension and modification covers Oct. 1, 2006,
through Sept. 30, 2009. The total contract value including exercised and
unexercised options is approximately $846 million. Under the contract,
Boeing provides management and technical support of payload processing
for the space shuttle, ISS and expendable launch vehicle programs. Services
and support include the planning for and receiving of payloads, maintenance
of associated ground support systems, integration of payloads with the
space shuttle, launch support and space shuttle post-landing payload activities.
(Government Contracts Report Letter No. 1877, September 27, 2006)
Shell Oil- $254 Million. Shell Oil Products U.S., Houston, TX,
is being awarded a maximum of $254,184,476 fixed price with economic price
adjustment contract for JP8 turbine fuel for DESC. This is a 12 - month,
indefinite delivery/quantity type contract. Date of performance completion
is October 30, 2007. Contracting activity is DESC, Fort Belvoir, VA.
Tesoro - $253 Million. Tesoro Refining and Marketing
Co., San Antonio, TX, is being awarded a maximum of $253,455,069 fixed
price with economic price adjustment contract for JP-8 jet fuel for Defense
Energy Support Center (DESC). Other location of performance is Kapolei,
HI. This is a 12 month, indefinite delivery/ quantity type contract. Date
of performance completion is Oct. 30, 2007. Contracting activity is DESC,
Fort Belvoir, VA. (Government Contracts Report Letter No. 1877,
September 27, 2006)
Donley-Kirlin, FEMCO, Grunley/Goel, Allen & Shariff - $250
Million. Donley-Kirlin JV, Rockville, MD; FEMCO, Inc., Washington,
D.C.; Grunley/Goel JV, Landover, MD, and Allen & Shariff/GDI JV, Bladensburg,
MD, will be awarded a firm-fixed price, indefinite-quantity multiple award
construction contract for stand alone construction and/or design/build
projects at various Navy and federal government installations in the Washington
metropolitan area. The total contract amount is not to exceed $250,000,000
(base period and four option years). Work is expected to be completed
September 2011. The multiple contractors (four in number) may compete
for task orders under the terms and conditions of the existing contract.
The Naval Facilities Engineering Command Washington, Washington, D.C.,
is the contracting activity. (Government Contracts Report Letter No.
1876, September 20, 2006)
Petro Star - $152 Million. Petro Star, Inc., Anchorage,
AK, is being awarded a maximum of $152,321,965 fixed price with economic
price adjustment contract for JP-8 and JP-5 turbine fuel. Using services
are Army and Air Force. This is a 12 month, indefinite delivery/ quantity
type contract. Other locations of performance are Valdez and North Pole,
AK. Date of performance completion is Oct. 30, 2007. Contracting activity
is DESC, Fort Belvoir, VA. (Government Contracts Report Letter No.
1877, September 27, 2006)
Northrop - $143 Million. Northrop Grumman Newport News
Corp., Newport News, VA, is being awarded a $142,812,292 fixed-price-incentive
delivery order modification to previously awarded indefinite-delivery/indefinite-quantity
contract (N00024-04-D-4409) for accomplishment of the Depot Modernization
Period (DMP) for USS Toledo (SSN 769). The DMP allows necessary maintenance
and equipment upgrades to enable SSN 769 to continue to be mission capable.
Work is expected to be completed by February 2008. The Supervisor of Shipbuilding,
Conversion and Repair, USN, Newport News, VA, is the contracting activity.
(Government Contracts Report Letter No. 1876, September 20, 2006)
Phoenix International, Inc. - $125 Million. Phoenix International,
Inc., Landover, MD, is being awarded a potential $125,000,000 indefinite-delivery/indefinite-quantity,
cost-plus-award fee contract, for engineering and technical services,
equipment, material, ships/vessels and/or systems to assist the director
of Ocean Engineering, supervisor of Salvage and Diving, in the conduct
of worldwide rapid response undersea search, salvage, recovery and rescue
operations. The primary purpose of this contract is to provide for the
operation and maintenance of Navy-owned undersea search and recovery equipment.
Work is expected to be completed by September 2011. The contract was competitively
procured and advertised on the Internet, with one proposal received. The
Naval Sea Systems Command, Washington, D.C., is the contracting activity.
(Government Contracts Report Letter No. 1877, September 27, 2006)
Raytheon - $113 Million. Raytheon Co., Tucson, AZ, is being awarded
a $112,878,214 firm-fixed-price contract modification to provide for 12
AIM-120D AMRAAM Air Vehicles Instrumented (AAVIs), 50 AIM-120D Captive
Air Training Missile, 104 AIM-120C7 AMRAAM Air Vehicles, 112 Non-Developmental
Item, Airborne Instrumentation Units (NDI-AIUs), proposal preparation,
L3 Communications Pulse Code Modulation, Encoder Qualification Non-Recurring
Expense, NDI-AIU Test Equipment Upgrade and option for AIM-120 D production
transition. Headquarters Medium Range Missile Systems Group, Eglin Air
Force Base, FL, is the contracting activity. (Government Contracts
Report Letter No. 1876, September 20, 2006)
Northrop - $110 Million. Northrop Grumman, Los Angeles,
CA, has been awarded a five-year, $110 million contract to continue its
support of the U.S. Army's Battle Command Training Branch (BCTB) program.
The award was made by Naval Air Warfare Training Systems Division in Orlando,
FL. The company has supported the program since its inception in 2001.
The BCTB program provides world-class training and battle simulation services
to the Army's III Corps at Fort Hood and Fort Bliss in Texas; Fort Sill
in Oklahoma; Fort Carson in Colorado; and Fort Riley in Kansas. Northrop
Grumman teammates include General Dynamics, Falls Church, VA; Lockheed
Martin, Bethesda, MD; Raytheon, Waltham, MA; Blackhawk Management, Houston,
TX; and Huckstep Holding Corporation, Colorado Springs, CO. (Government
Contracts Report Letter No. 1876, September 20, 2006)