Lulus Ostrich Ranch ( 2019 )

ARMED SERVICES BOARD OF CONTRACT APPEALS
Appeals of -- )
)
Lulus Ostrich Ranch ) ASBCA Nos. 59252, 59450, 59598
) 59814,59815
)
Under Contract Nos. 48695391, 48695490 )
48695290,48695390)
APPEARANCE FOR THE APPELLANT: Mr. William R. Hayward
Owner
APPEARANCES FOR THE GOVERNMENT: Daniel K. Poling, Esq.
DLA Chief Trial Attorney
Robin Walters, Esq.
Michael P. Thiefels, Esq.
Trial Attorneys
DLA Disposition Services
Battle Creek, MI
OPINION BY ADMINISTRATIVE WDGE MCILMAIL
FINDINGS OF FACT
In January 2014, appellant, after submitting a sealed bid in response to an
Invitation For Bid (IFB), contracted to buy and remove four different types of metallic
and non-metallic scrap from government locations in Afghanistan (R4, tabs 1-2, 8).
The government awarded the contract only after appellant protested the government's
earlier, initial decision not to award a contract to appellant out of concern that appellant
could not perform at its bid prices (R4, tabs 5, 7). The contract states "Refer to IFB for
complete item description" (R4, tab 8 at block 10), and for each type of scrap, the IFB
includes a "SALES CONTRACT/BIDDING" provision that states:
This contract is a sales contract. The bidder will be
purchasing scrap property from the United States
Government. At no time will there be. a payment by the
USG to the bidder for services within this contract. The
property removed by the bidder will be scrap property and
in poor condition. The bidder will be required to remove
all property in this item description regardless of condition.
There will be absolutely no changes, modifications,
adjustments, or negotiations concerning bid price after
mvard
(R4, tab 1 at 6-9 (emphasis added))
After the award of the contract appellant told the government that it had made a
bid mistake, then went ahead and removed scrap, despite the contracting officer warning
that "[t]he bid price will not be adjusted in any way to reflect other bidders [sic] prices'';
appellant hasn't paid the government anything for any of that scrap (see R4, tabs 10-12;
tr. 1/219, 2/139-42; app. br. at 15). In August 2014, the contracting officer terminated
the contract for default, for non-payment (according to the government) of $1,303,218
(R4, tab 21 ).
DECISION
ASBCA No. 59252: Price Reformation
Appellant requests reformation of its contract prices, saying that after it was awarded
the contract it discovered that it had made an arithmetical mistake in its bid that made the
prices it offered to pay for the government's scrap too high (see app. br. at 10). The
government opposes, relying upon the IFB provisions that state there will be "absolutely no
changes, modification, adjustments, or negotiations concerning bid price after award" (gov't
br. at 2,113, 16) (emphasis added). Appellant counters (app. reply br. at 1) with Federal
Acquisition Regulation (FAR) 14.407-4, "Mistakes after award," which, under certain
circumstances, authorizes the government to rescind or reform a contract if "a contractor's
discovery and request for correction of a mistake in bid is not made until after the award."
Appellant points to no authority in which FAR 14.407-4 trumped an "absolutely no
changes" provision in an IFB and required reformation of a contract price. Based upon the
"absolutely no changes" provisions, appellant's post-award request for reformation of its
contract prices is rejected. The appeal is denied.
ASBCA No. 59./.50: Request to Stay Payments
Appellant requests that it be allowed not to have to pay the government for the
scrap it removed until after ASBCA No. 59252 is adjudicated (July 25, 2014, letter).
With the denial of ASBCA No. 59252, that request is moot, and the appeal is denied.
ASBCA No. 59598: Contract Termination
Appellant challenges the termination of its contract for default (app. br. at 13).
The government says the termination is justified because appellant never paid anything
for the scrap it removed from government locations (gov't br. at 21 ). Appellant is
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silent on whether its non-payment is a default (see app. br. at 13). In not paying for
scrap it removed, appellant defaulted, justifying the termination.
Now it's up to appellant to demonstrate that the default is excused. See Joseph
Sottolano, ASBCA Nos. 59081, 60043, 16-1BCAi136,315 at 177,065-67. Appellant
provides no good reason for failing to pay anything for the scrap it removed. Even
given the parties' dispute over .price, that dispute did not prevent appellant from paying
at least the amount it believed it owed under what it believes the contract prices should
be. The appeal is denied.
ASBCA Nos. 59814 & 59815: Bad Faith Contract Administration
Appellant seeks $1,252,543 for allegedly fraudulent contract administration; in
other words, bad faith (app. br. at 10-12; Feb. 23, 2015 compls.; app. reply br. at 8-9).
See Dan's Janitorial Service, Inc., ASBCA No. 27837, 85-1 BCA i-117,924 at 89,749.
However, appellant points to no clear and convincing evidence that the government
administered the contract with the specific intent to injure appellant. See Puget Sound
Environmental Corp., ASBCA No. 58828, 16-1 BCA i136,435 at 177,597 (citing Road
and Highway Builders, LLC v. United States, 702 F.3d 1365, 1368 (Fed. Cir. 2012);
referencing Am-Pro Protective Agency v. United States, 281 F.3d 1234, 1240 (Fed. Cir.
2002); and reciting test for proving bad faith). The appeals are denied.
CONCLUSION
The appeals are denied. Accordingly, appellant's recent request that its
"debt...be moved back to DFAS - Defense Finance and Accounting until [the Board]
has made a decision" is denied as moot.
Dated: February 6, 2019
Administrative Judge
Armed Services Board
of Contract Appeals
(Signatures continued)
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I concur in result (see separate opinion) I concur in result (see separate opinion)
J. REID PROUTY RICHARD SHACKLEFORD
Administrative Judge Administrative Judge
Vice Chairman Acting Chairman
Armed Services Board Armed Services Board
of Contract Appeals of Contract Appeals
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OPINION BY ruDGE PROUTY AND ruDGE SHACKLEFORD
CONCURRING IN RESULT
We concur in the result in these appeals, because we agree with the ultimate
outcome but not in the brief analysis which leads to that outcome with respect to the
issues of contract reformation and bad faith contract administration. Thus, the legal
analysis that follows constitutes the precedential decision of the Board on those subjects.
With respect to Judge Mcllmail' s denial of appellant's request for contract
reformation, his opinion provides that appellant is not entitled to reformation because:
Appellant points to no authority in which the FAR 14.407-4
trumped an "absolutely no changes" provision in an IFB
and required reformation of a contract price. Based upon
the "absolutely no changes" provisions, appellant's
post-award request for reformation of its contract prices is
rejected.
Yet, he does precisely what he accuses appellant of doing - he points to no
authority in which an "absolutely no changes" provision trumps FAR 14.407. In our
view, it does not and cannot.
The sale of federal personal property is governed by Part 102-38 of the Federal
Management Regulation (FMR). FMR § 102-38.260 instructs that the administrative
procedures for handling mistakes in bids are contained in FAR 14.407. That section of
the FAR sets forth the procedures for processing mistakes in bids both discovered
before and after award, and since Lulus alleges it discovered a mistake after award
FAR 14.407-4 applies. That section of the FAR states in part:
If a contractor's discovery and request for
correction of a mistake in bid is not made until after the
award, it shall be processed under the procedures of
Subpart 33.2 [Disputes and Appeals] and the following:
(a) When a mistake in a contractor's bid is not
discovered until after award, the mistake may be corrected
by contract modification if correcting the mistake would be
favorable to the Government without changing the
essential requirements of the specifications.
(b) In addition to ... paragraph (a) above ... agencies
are authorized to make a determination --
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( 1) To rescind a contract;
(2) To reform a contract (i) to delete the items
involved in the mistake; or (ii) to increase the price if the
contract price, as corrected, does not exceed that of the
next lowest acceptable bid under the original invitation for
bids; or
(3) That no change shall be made in the contract as
awarded, if the evidence does not warrant a determination
under subparagraphs ( 1) or (2) above.
In addition to the regulatory requirement, the right to assert a mistake in bid is
based upon pure contract law. In Wender Presses, Inc. v. United States, 343 F.2d 961
(Ct. Cl. 1965), a mistake in bid after award case involving the sale of surplus government
property, the plaintiff sought rescission of the portion of the contract upon which a
mistake in bid was alleged and recovery of its bid deposit. There the Court stated:
It is plain that plaintiff may recover only if
defendant's responsible officials knew or should have
known of the mistake at the time the bid was accepted.
Since plaintiff did not directly apprise defendant of
the mistake prior to the acceptance of plaintiffs bid ... so that
there is no showing of any actual knowledge, the only
question is whether defendant's officials should have
known of the mistake. Included in this problem is the
question of whether, even though they could not have
known with certainty from the bid data that a mistake had
been made, there nevertheless was enough to have
reasonably cast upon defendant's officials the duty to make
inquiry, which inquiry would have led to the requisite
knowledge. For although an award normally results in a
binding contract fixing the parties' rights and obligations so
that "Ordinarily no relief will be granted to a party to an
executory contract in the case of a unilateral mistake,"
Saligman v. United States, 56 F. Supp. 505, 507 (E.D. Pa.,
1944 ), nevertheless an acceptance of a bid containing a
palpable, inadvertent, error cannot result in an enforceable
contract. An "offeree will not be permitted to snap up an
offer that is too good to be true; no agreement based on such
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an offer can then be enforced by the acceptor." 1 Williston,
Contracts (3d ed. 1957) § 94. [Citations omitted]
343 F.2d at 962-63.
Perforce, a so-called "absolutely no changes" provision in a contract cannot
permit a contracting officer to accept a bid, knowing it was in error, since in that
circumstance no enforceable contract could come into existence and such an agreement
would be unenforceable. Thus, the proper way to initially analyze this case is to
determine if the contracting officer knew or should have known a mistake was made at
the time of the award. As the Wender Court pointed out, the test as to whether the
contracting officer knew or should have known of the mistake is one of reasonableness,
"i.e., whether under the facts and circumstances of 'the particular case there were any
factors which reasonably should have raised the presumption of error in the mind of the
contracting officer."' Wender, 343 F .2d at 963.
We have reviewed the parties' briefing on this issue, including facts and analyses
and find that based upon this record, appellant has not demonstrated that the contracting
officer either knew or should have known that a mistake was made in its bid. More
particularly, we are persuaded by the arguments made by the government in its brief
(gov't br. 6-7) as follows:
The [CO] did not know the Appellant had made a
mistake in its bid price, nor did he have reason to know.
The bid sheet submitted by the Appellant contained no
obvious errors, no errant marks, no improper payment or
weight classification. Instead it demonstrated four line
item prices clearly marked in pounds with the prices
expressed in dollars as required by the IFB. There was no
evidence on the face of the bid that suggested a clerical or
mathematical error. In determining whether the
contracting officer should have known of the mistake, a
"reasonable person standard is used." The Kato Corp.,
ASBCA No. 47601, 1997 ASBCA LEXIS 127, 97-2, BCA
,r 29,130 at 144,932.
In this case [Lulu's] price was not so far off from
other bidders as to suggest anything other than different
judgments about the cost of doing business in Afghanistan
or the revenues to be derived from scrap sales in
Afghanistan, especially since the Appellant's plan
appeared to rely on exports. Appellant's bid was lower
than those of several other bidders. [Lulu's] bid was only
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slightly higher than the next highest bidder and there was a
group of 3 bidders with prices within 20% of the
Appellant's.
For these reasons, we conclude that under the particular circumstances of this
case, there were no factors which reasonably should have raised the presumption of
error in the mind of the contracting officer. Thus we concur in the result reached by
Judge Mcllmail regarding Lulu's contract reformation claim, though not his analysis.
We similarly diverge from Judge Mclmail's analysis regarding the set of issues
that he characterizes as "Bad Faith Contract Administration" or ·'fraudulent contract
administration," though we come to the same ultimate conclusion. These issues
include allegations in Lulu's brief of "alleged contract interference, improper billing,
improper contract termination, issuing more contracts than there was available scrap
metal, and awarding contracts with the intention of 'giv[ing] only minimum amount of
scrap material' [and allegations that] the government lied to appellant's subcontractor
and [that on occasion, the government] delivered only dirt.'' Although we agree with
Judge Mcllmail's general determination that these bases for Lulus' appeal should be
denied, we also believe that, for the most part, he applied the incorrect standard to
obtain this result.
In large part, these allegations fit within the category of breaches of the duty of
good faith and fair dealing. This doctrine is based upon the notion that every contract
"imposes upon each party a duty of good faith and fair dealing in its performance and
enforcement." Metcalf Constr. Co. v. United States, 742 F.3d 984, 990 (Fed. Cir. 2014)
(quoting RESTATEMENT (SECOND) OF CONTRACTS§ 205 (1981)); see also Kelly-Ryan,
Inc., ASBCA No. 57168, 18-1 BCA ~ 36,944 at 180,030; Relyant, LLC, ASBCA
No. 59809, 18-1 BCA ~ 37,085 at 180,539. Pursuant to this implicit duty, each party's
obligations "include the duty not to interfere with the other party's performance and not
to act so as to destroy the reasonable expectations of the other party regarding the fruits
of the contract." Metcalf, 742 F.3d at 991 (quoting Centex Corp. v. United States, 395
F.3d 1283, 1304 (Fed. Cir. 2005)). The government need not, however, act in bad faith
or with intent to injure the contractor to be found liable for a breach of the duty. To be
sure, the Federal Circuit's opinion in Precision Pine & Timber, Inc. v. United States,
596 F.3d 817, 831 (Fed. Cir. 2010), seemed to imply such a requirement, but the
Federal Circuit's subsequent opinion in Metcalf made clear that there was no such
intent to injure necessary. See 742 F.3d at 992-93 (rejecting requirement to
"specifically target" contractor).
Thus, we part ways with Judge Mcllmail's opinion on the law applied to this issue.
Judge Mcllmail' s opinion requires that Lulus' point to "clear and convincing evidence
that the government administered the contract with the specific intent to injure appellant,"
and cites the appeal of Puget Sound Environmental Corp., ASBCA No. 58828, 16-1 BCA
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~ 36,435 at 177,597. This would be inconsistent with the binding law of Metcalf and is
not supported by our ruling in the cited case of Puget Sound. The issue before us in the
cited portion of Puget Sound was a challenge to the government's failure to exercise
options, which is generally not reviewable unless the government acts in bad faith. Puget
Sound, 16-1 BCA ~ 36,435 at 177,596. Similar requirements are applied in challenges to
the government's decision to terminate contracts for convenience. Id. If there were an
allegation here that the government wrong fully terminated Lulus' contracts for
convenience, the Puget Sound formulation might be proper, but the terminations here
were for default, and the portion of Judge Mcllmail's opinion that we join already
dispatches this argument. Thus, the remaining issues before us here are of contract
administration and are not subject to Puget Sound's "specific intent to injure" standard,
but are instead governed by Metcalf.
Applying the proper standard, we still reach the same result, primarily for lack
of record evidence supporting Lulus' allegations. Judge Mcllmail directed the parties
to reference all factual support for their arguments in their briefs (see tr. 2/168-69);
Lulus did not do so. Nevertheless, we performed a review of the Rule 4 documents
and the transcript of the hearing, and, on these subject areas, the only evidence
presented was about delays or problems in allowing Lulus' subcontractor onto the
military bases in Afghanistan (e.g., tr. 1/65-66, 211-12), and that the government
allegedly provided "dirt" as opposed to scrap metal, as expected (tr. 1/215, 229). This
evidence was all based on hearsay, and allegations of the government's bad motives
were admittedly speculation (tr. 2/39).
The government, by contrast, presented evidence that access to bases in
Afghanistan was properly limited for security reasons (tr. 2/88-90). The government
also presented evidence that the scrap provided to all contractors, in accordance with
the contract, was not limited to metal, but also included many other things like canvas,
glass, wood, PVC pipe, and shredded electronic scrap (tr. 2/78-79). We read this as
consistent with the "dirt" of which Lulus complained. The contracting officer also
explained that there were multiple scrap metal contract awards made because
oftentimes, during the course of contract performance, contractors drop out and there
is a need to "surge" for the work (tr. 2/83).
Thus, Lulus presented weak to nonexistent evidence to support its allegations of
a violation of the duty of good faith and fair dealing. The government presented
evidence that its actions were reasonable undertakings in the war zone in which the
contract was performed and where Lulus knew it would be operating. Lulus has not
met its burden of proof that government action "interfere[d] with [its] performance" or
acted "so as to destroy [Lulus'] reasonable expectations ... regarding thefmits of the
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contract." Metcalf, 742 F.3d at 991. Accordingly, we agree with Judge Mcllmail's
decision to deny this portion of the appeals.
Dated: February 6, 2019
RICHARD SHACKLEFORD
Administrative Judge Administrative Judge
Acting Chairman Vice Chairman
Armed Services Board Armed Services Board
of Contract Appeals of Contract Appeals
I certify that the foregoing is a true copy of the Opinion and Decision of the Armed
Services Board of Contract Appeals in ASBCA Nos. 59252, 59450, 59598, 59814, 59815,
Appeals ofLulus Ostrich Ranch, rendered in conformance with the Board's Charter.
Dated:
JEFFREY D. GARDIN
Recorder, Armed Services
Board of Contract Appeals
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