Agility Defense & Government Services, Inc. v. United States , 134 Fed. Cl. 723 ( 2017 )

In the United States Court of Federal Claims
Nos. 13-55C, 13-97C (Consolidated)
(Filed: October 18, 2017)
**************************************** *
*
AGILITY DEFENSE & GOVERNMENT *
SERVICES, INC., * Contract Claim for Disposal of
* Surplus Property in Middle East;
Plaintiff, * Requirements Contract; Use of
* Historical Data; Negligent
v. * Estimate; Mandate Rule; Equitable
* Adjustment; Actual Cost Method;
THE UNITED STATES, * Damages.
*
Defendant. *
*
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W. Brad English, with whom were J. Andrew Watson, III, Jon D. Levin, Brian J. Chapuran,
and Emily J. Chancey, Maynard Cooper & Gale, P.C., Huntsville, Alabama, for Plaintiff.
Michael D. Austin, with whom were Chad A. Readler, Acting Assistant Attorney General,
Robert E. Kirschman, Jr., Director, and Kenneth M. Dintzer, Deputy Director, Commercial
Litigation Branch, Civil Division, U.S. Department of Justice, Washington, D.C., as well
as James Hewitt, Defense Logistics Agency, Of Counsel, for Defendant.
OPINION AND ORDER
WHEELER, Judge.
This case is before the Court on remand from the United States Court of Appeals
for the Federal Circuit to determine the proper amount of damages due Plaintiff Agility
Defense & Government Services, Inc. (“Agility”). The Federal Circuit instructed this
Court to calculate Agility’s equitable adjustment arising from damages Agility incurred
from performing in excess of its contract with Defense Reutilization Management Services
(“DRMS”) to dispose of surplus property received from the military services as troops were
departing from areas of operation in Iraq, Afghanistan and Kuwait. Agility Def. & Gov’t
Servs., Inc. v. United States, 847 F.3d 1345, 1354 (Fed. Cir. 2017).
For the reasons explained below, the Court finds that Agility is entitled to a total
equitable adjustment of $6,906,339.20, plus interest. The Court bases this conclusion on a
finding that this calculation accurately captures the cost of additional, unanticipated work
Agility had to perform on the contract as a result of DRMS’ negligent estimates.
A detailed factual history of this case can be found in the Court’s previous opinion
in this matter. See Agility Def. & Gov’t Servs., Inc. v. United States, 122 Fed. Cl. 677
(2015). The Court will provide a brief overview of the facts relevant to the issues currently
on remand.
Findings of Fact1
The Defense Logistics Agency (“DLA”) provides supplies to the military services
and supports Department of Defense acquisition activities. Stip. ¶ 1. DRMS is a primary
field activity of DLA. Id. DRMS is responsible for the disposal of all excess personal
property generated by the military services worldwide. Stip. ¶ 2. To accomplish its
mission, DRMS has established Defense Reutilization and Marketing Offices (“DRMOs”)
at locations throughout the world. Id. Each DRMO is a receiving and processing facility
for surplus property. Stip. ¶ 3; Mohr, Tr. 156.
Prior to 2007, the Government performed in-house all of the work relating to the
receipt and processing of surplus property. Stip. ¶ 4. In December 2006, the Director of
DRMS determined that the agency could not adequately support the surplus property
functions in the future. Washington, Tr. 416–17. Agency management was concerned that
the “planned movement of U.S. Military forces” would create more work than the agency
could handle. JX 20 at 2. At that point, the agency decided to solicit and award an outside
contract for this work. Stip. ¶ 4; Washington, Tr. 416–17.
On January 18, 2007, DRMS issued Solicitation No. SP4410-07-R-007 seeking a
contractor to perform all surplus property disposition services at six locations in Southwest
and Central Asia. Stip. ¶ 5; JX 2. The six locations were at Bagram, Afghanistan; Camp
Arifjan, Kuwait; and Camps Anaconda, Victory, Al Asad, and Speicher, Iraq. JX 2. In
Block 7 of the coversheet to the Solicitation, the Government explained:
All potential firms should understand that this [Request
for Proposal] is accompanied by a Statement of Objective
(attachment 1). The goal is for firms to develop and submit a
Performance Work Statement that will outline in detail how it
1
The Findings of Fact are based upon the evidentiary record created at trial. Citations to the record in this
opinion are as follows: (1) January 14, 2015 Joint Stipulations of Fact (Stip. ¶ __); (2) Trial testimony
(Witness name, Tr. ___); (3) Joint Exhibits, JX __; (4) Plaintiff’s Exhibits, PX __; and (5) Defendant’s
Exhibits, DX __.
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proposes to fulfill the mission requirements of DLA/DRMS.
Firms are encouraged to where practical offer efficient
commercial solutions that will enhance the mission while at the
same time reduce cost.
Id. at 1. The Solicitation as amended contemplated the award of a single contract for a
base year and four one-year options. Id. at 48; JX 4 at 6.2 The Government planned to
award a combined firm-fixed-price, time and materials, and cost reimbursement contract.
JX 4 at 6. The firm-fixed-price portion covered the first six contract line items, one for
each of the six designated locations, and the time and materials portion covered other
locations within Iraq, Afghanistan, or Kuwait where work might be required. Id. at 7–12.
However, the contract is predominantly for a firm-fixed-price, and only the firm-fixed-
price line items are at issue in this case. Section M of the Solicitation as amended stated
that award would be made on a best value basis, considering past performance, price and
the other evaluation factors listed. Id. at 57.
Amendment 004 to the Solicitation contained a listing of the questions and answers
between the agency and the offerors prior to the Preproposal Conference. Id. at 131–58.
Question 122 asked the Government to provide the workload history and projection by
category and location. The Government responded by stating “[w]orkload history and
current inventory levels can be found at http://www.drms.dla.mil/newproc/index and link
to ‘DRMS information for Southwest/Central Asia.’ The Government does not have
workload projections.” JX 21 at 201–02.
The agency’s website contained historical workload information for each of the six
DRMO locations covered by the contract. Washington, Tr. 421–22; Baker, Tr. 43. The
agency updated the website’s workload data on a regular basis. Washington, Tr. 422. The
workload was measured by the weight of scrap processed and by the number of line items.
Baker, Tr. 43, 47, 48. The website also showed the number of direct and contract staff
members employed by DRMS at each location. Baker, Tr. 48; JX 50 at 3; JX 59 at 4; JX
66 at 4; JX 73 at 3; JX 76 at 4; JX 80 at 4. DRMS used the workload data for August 4,
2007 as the baseline when issuing delivery orders under the contract. JX 80 at 4.
Prior to 2007, Agility acquired Taos Industries, Inc., a small firm based in
Huntsville, Alabama. Taos specialized in performing logistics contracts for the U.S.
Government, but it had not previously operated a DRMO. Baker, Tr. 38. Agility hired
three former DLA employees to provide expertise in preparing its proposal in response to
the Solicitation, including the development of a Performance Work Statement (“PWS”).
Baker, Tr. 39.
2
There were at least nine amendments to the Solicitation, although not all of them are included in the
evidentiary record. See JX 2 – JX 8.
3
Agility was one of three offerors to submit a proposal in response to the Solicitation.
Stip. ¶ 14. The agency’s Source Selection Authority determined that Agility’s proposal
provided the best overall value to the Government. Agility’s final price was
$45,233,914.92. Baker, Tr. 68; JX 16 at 8. The final price reflected a $20,342,608.00
offset for revenues expected from scrap. JX 10 at 17. Agility’s proposal was based upon
a staffing plan of 174 persons. Baker, Tr. 40; JX 10 at 35–38.
DRMS notified Agility on November 29, 2007 that its proposal had been accepted
for award. Stip. ¶ 16. The parties executed Contract No. SP4410-08-D-2000 (“the
Contract”) on the same day. JX 21. The Contract contained six line items, one for each of
the DRMO locations, and each line item had a firm-fixed-price to be paid on a monthly
basis. Id. at 51. The Contract also contained clause H.19, “DRMO Workload Changes,”
which stated the following:
During operation of the DRMO locations, the contractor may
experience significant workload increases or decreases. When
workload increases at any DRMO location by more than 150%
above the average workload at the DRMO location for the
preceding three (3) consecutive months and a determination is
made jointly by the [Contracting Officer’s Representative] and
On-site contractor representative that the increase will continue
for more than two (2) months and contractor staff at the DRMO
is insufficient to manage the workload increase, the contractor
may submit a proposal to add labor and materials to handle the
increase under the Time and Material CLINs. When there is a
significant workload decrease in excess of 50% or more at a
DRMO that has not experienced a significant workload
increase, and the decrease extends to four (4) consecutive
months, the Government shall have the right to terminate the
CLIN that covers the DRMO and renegotiate the price paid the
contractor to operate the DRMO. When the Government
notifies the contractor in writing of its intent to terminate the
CLIN for the purpose of renegotiation, the contractor will be
required to submit a proposal to continue operating the DRMO
based upon the average workload at the location for the
previous six (6) months excluding surges or significant
workload increases.
Id. at 71–72. The Government designated this clause as “DRMS (JUL 2007).”
The agency ordered work under the Contract by placing Delivery Orders for each
DRMO site. Washington, Tr. 453. The initial Delivery Orders were issued in January and
February 2008. The Delivery Orders incorporated the “workload baseline” for each
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DRMO site as reflected by the historical data in the website update for August 4, 2007.
The agency calculated the monthly baseline from the August 4, 2007 website update by
adding together the two figures for “Received Line Items,” each for a one-week period,
and then doubling the total to obtain the monthly line items. The baselines were as follows:
DRMO Monthly Baseline Annualized Baseline
Speicher 1,064 12,768
Victory 1,166 13,992
Al Asad 1,218 14,616
Anaconda 1,662 19,994
Arifjan 9,130 109,560
Bagram 540 6,480
JX 50 at 3; JX 59 at 4; JX 66 at 4; JX 73 at 3; JX 76 at 4; JX 80 at 4; PX 114 at 2. The
annualized baselines are derived simply by multiplying the monthly baseline by twelve.
From the beginning of performance, the actual workload experienced at each of the
six DRMO locations, with the exception of Camp Speicher, Iraq, was much greater than
the workload baselines established in the August 4, 2007 Historical Data. Mohr, Tr. 172;
PX 114 at 1–3, JX 186 at 1–2. The actual annual workloads experienced from March 2008
to March 2009, by number of line items, were as follows:
DRMO Actual Workload % of Annualized Baseline
Speicher 9,561 74.9%
Victory 21,899 156.5%
Al Asad 24,392 166.9%
Anaconda 71,653 358.4%
Arifjan 242,401 221.3%
Bagram 15,364 237.1%
In total, the pre-March 2009 workload for all six locations was 217.2 percent of the
annualized workload derived from the single-month baseline provided in the Delivery
Orders.
Agility began contract performance at Camp Arifjan, Kuwait, where more than 60
percent of the contract work would be performed. At Arifjan, Agility inherited a backlog
of approximately 70,000 line items. Mohr, Tr. 168, 271; Burns, Tr. 556–57. In addition
to the backlog, the volume of property received at Arifjan was greater than anticipated from
the very beginning. Mohr, Tr. 172. Agility did not have the necessary staff in place to
process both the backlog work and the higher than expected level of new work. Baker, Tr.
82-83; Mohr, Tr. 167.
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In May 2008, Agility began performance at the other five DRMO locations. JX
166. Agility encountered backlogs at these locations as well, but not to the same extent as
the Arifjan backlog. Burns, Tr. 559–60. To help with the additional workload, Agility
hired 105 extra personnel, 66 of which were assigned to Camp Arifjan. Mohr, Tr. 180–81;
JX 167. Agility also dispatched fifteen additional employees from its headquarters to
improve Agility’s performance. Mohr, Tr. 182. Agility understood that the initial number
of staff assigned to the Contract was insufficient and that more employees would be
needed. Mohr, Tr. 167, 224. Agility also noted that these increases in staffing would come
“at no additional cost to the [G]overnment.” JX 167 (email transmission).
Despite Agility’s assertion that there would be no additional cost to the Government,
Agility attempted to obtain the Government’s consent to fund its additional personnel.
Mohr, Tr. 174–75, 186, 314–17. The Government was aware that Agility had added extra
staff and was processing work in excess of the Delivery Order baselines, but insisted that
the requirements of clause H.19 had not been met. Mohr, Tr. 314–17. In order to warrant
a funding adjustment, clause H.19 required an increase above 150 percent of the workload
for the previous three months. Since the workload from the beginning of performance was
high, there never was a time that the increase was above 150 percent. Agility did not submit
a formal proposal to increase staff under clause H.19. Mohr, Tr. 296.
On November 13, 2008, the Government exercised the first option year. JX 31. In
March 2009, after months of dialogue, the parties entered into a bilateral modification
amending clause H.19 so it would apply whenever the workload was more than 25 percent
above the fiscal year 2008 average for a given DRMO location. JX 35 at 2–3.
In the fall of 2009, Public Warehouse Company (“PWC”), the parent company of
Agility, was accused of fraud against the United States, and PWC and its affiliates,
including Agility, were barred from contracting with the Government. On June 30, 2010,
the Government terminated the Contract for convenience. Stip. ¶ 23. On June 29, 2011,
Agility submitted a claim for termination settlement costs in the amount of $2,194,509.56.
JX 48 at 2. On December 20, 2012, the parties negotiated a settlement of this claim for
$757,972.63. Id.
Procedural History
Agility submitted two certified claims to the contracting officer, the first on January
31, 2012 for $4,359,071.79 covering the period April 1, 2008 through March 26, 2009, PX
114 at 1, and the second on February 6, 2012 for $1,602,148.67 covering the period March
27, 2009 through June 30, 2010, for the additional costs it incurred as a result of DRMS’
negligent estimates. Dkt. No. 1, at Ex. 1 (13-97C). In addressing Agility’s certified claims,
the contracting officer issued two final decisions on June 14, 2012, finding that Agility was
entitled to $236,363.93 on the first claim, but zero on the second claim. Agility timely
appealed these final decisions to this Court on January 23, 2013 and February 5, 2013
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respectively, and they were docketed as case numbers 13-55C and 13-97C. By order dated
April 2, 2013, the Court consolidated these two actions for all purposes.
After conducting a three-day trial and hearing closing arguments, this Court held
that DRMS’ estimates were not negligent because they were based on accurate historical
data and thus, Agility was not entitled to any damages. Agility Def. & Gov’t Servs., 122
Fed. Cl. at 681. On appeal, the Federal Circuit held that DRMS’ estimates were indeed
negligent and that Agility relied on these estimates to its detriment, remanding the case to
this Court for a calculation of Agility’s equitable adjustment. Agility Def. & Gov’t Servs.,
847 F.3d at 1354. This Court ordered briefing on the issue of damages on April 18, 2017.
Briefing concluded on August 30, 2017, and the Court held oral arguments on October 4,
2017.
Discussion
Cases before this Court on remand are governed by the mandate rule. Carolina
Power & Light Co. v. United States, 98 Fed. Cl. 785, 794 (2011). “[E]very appellate court
judgment vests jurisdiction in the trial court to carry out some further proceedings.” Exxon
Chem. Patents, Inc. v. Lubrizol Corp., 137 F.3d 1475, 1483 (Fed. Cir. 1998). The district
court’s actions on remand “should not be inconsistent with either the letter or the spirit of
the mandate.” Laitrim Corp. v. NEC Corp., 115 F.3d 947, 950-51 (Fed. Cir. 1997).
Mandates should be interpreted by looking at the language of the judgment in combination
with the accompanying opinion. Exxon Chem., 137 F.3d at 1483 (citing, inter alia, In re
Sanford Fork & Tool Co., 160 U.S. 247, 256 (1895)).
Here, the Federal Circuit’s mandate instructs this Court to calculate Agility’s
equitable adjustment resulting from damages it incurred from performing in excess of
DRMS’ negligent estimates. Agility Def. & Gov’t Servs., 847 F.3d at 1354. In its briefings
on the issue of damages, the Government argues that Agility has not shown it is entitled to
an equitable adjustment because it “cannot demonstrate that it incurred any compensable
damages.” Def.’s Br. at 1. Agility counters that the Government is attempting to re-litigate
issues foreclosed by the Federal Circuit’s decision and mandate, Pl.’s Rep. at 1, and that it
is entitled to a total equitable adjustment of $6,906,339.20, plus interest. Pl’s Br. at 1. This
Court finds the Federal Circuit’s mandate to be clear: Agility is entitled to an equitable
adjustment, which the Court must now calculate. See Agility Def. & Gov’t Servs., 847
F.3d at 1354. The Court’s undertaking of this task follows.
A. This Court Cannot Re-litigate Issues Foreclosed by the Federal Circuit’s
Mandate.
As a preliminary matter, the Court will address the Government’s argument that
Agility is not entitled to an equitable adjustment. The Government primarily argues that
Agility cannot prove it incurred compensable damages because Agility has failed to show
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that it relied on the information DRMS provided, Def.’s Br. at 13–14, and has failed to
show that DRMS’ negligence was the cause of its damages. Id. at 7–15. As a result, the
Government requests that the Court deny Agility any relief. Id. at 21. However, the
Federal Circuit’s decision makes clear that Agility has proven reliance on DRMS’
negligent estimates and that DRMS’ negligence caused Agility to suffer damages. See
Agility Def. & Gov’t Servs., 847 F.3d at 1353. Thus, these issues are foreclosed and cannot
be re-litigated when calculating Agility’s equitable adjustment.
The Government also argues that the Federal Circuit’s interpretation of clause H.19
limits any of Agility’s damages to the first month of performance. See Def.’s Br. at 15–
16. However, the Federal Circuit’s decision holds that “clause H.19 bears no relevance”
to the merits of Agility’s damages claim. Agility Def. & Gov’t Servs., 847 F.3d at 1353.
As such, the Court will not consider clause H.19 in calculating Agility’s equitable
adjustment, to which the Court now turns.
B. Agility is Entitled to a Total Equitable Adjustment of $6,906,339.20, Plus
Interest, Using the Actual Cost Method.
1. Standard of Review
When the Government provides a negligent estimate and a contractor reasonably
relies on that estimate to its financial detriment, an equitable adjustment is the proper
remedy. See Rumsfeld v. Applied Companies, Inc., 325 F.3d 1328, 1341 (Fed. Cir. 2002).
The purpose of an equitable adjustment is to pay a contractor the reasonable value of the
work performed, which may involve increasing the overall contract price. Crown Laundry
& Dry Cleaners, Inc. v. United States, 29 Fed. Cl. 506, 524 (1993). While there are many
recognized methods for calculating damages in an equitable adjustment claim, the “actual
cost” method is the preferred method. See Spodek v. United States, 73 Fed. Cl. 1, 28–29
(2006); see also Hi-Shear Tech. Corp. v. United States, 356 F.3d 1372, 1381–82 (2004).
To prove damages under the actual cost method, the contractor must provide the
court with specific, segregated documentation of the expenses caused by the Government’s
change. Doninger Metal Prods., Corp. v. United States, 50 Fed. Cl. 110, 125 (2001). While
the computation of damages can be difficult and is not an exact science, the contractor will
meet its burden of proving damages so long as it provides the court with a “reasonable
basis for computation.” CEMS, Inc. v. United States, 59 Fed. Cl. 168, 227 (2003).
2. Agility Satisfies the Actual Cost Method.
Here, Agility has furnished the Court with ample evidence to satisfy the actual cost
method. For its pre-March 2009 claim, Agility provides the Court with the following
breakdown of costs for the additional labor needed to complete performance of the
Contract:
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Area of Operation Direct Labor Cost Subcontractor Cost Total
Iraq $1,099,284.52 $75,815.72 $1,175,100.24
Kuwait $1,127,994.83 $2,419,599.85 $3,547,594.68
Afghanistan $209,423.97 $0.00 $209,423.97
Total: $4,932,118.89
Pl.’s Br. at 9. Agility likewise provides the Court with a similar breakdown for its post-
March 2009 claim, after both parties bilaterally agreed to modify the Contract:
Area of Operation Labor Amount Materials Amount Total
Iraq $352,746.48 $0.00 $352,746.48
Kuwait $816,091.65 $373,467.37 $1,189,559.02
Afghanistan $431,914.81 $0.00 $431,914.81
Total: $1,974,220.31
Id. at 11. These additional costs have been segregated from Agility’s original staffing
model and are supported by staff rosters, employee offer letters, employee timesheets,
subcontractor timesheets and subcontractor invoices, all of which were submitted into the
evidentiary record at trial. See PX 113 at 1190–614; PX 114 at 69–105, 153–573, 590–
670, 676–1027; Pl.’s Br. at 13–15. Such support is sufficient to satisfy the actual cost
method. See UMC Elecs. Co. v. United States, 43 Fed. Cl. 776, 817–18 (1999). The above
computations are also reasonable, as the pre-March 2009 costs reflect relatively low rates
for additional labor, see PX 114 at 678–709, and the post-March 2009 costs reflect the
“time and material” rates agreed to by the parties after modifying the Contract. See PX
113 at 1031–43; Frady, Tr. 386.
These additional costs accurately reflect the excess work Agility performed on the
Contract as a result of DRMS’ negligent estimates. As such, the Court finds that Agility
has met its burden of proving reasonable damages using the actual cost method and is
therefore entitled to a total equitable adjustment of $6,906,339.20, plus interest.
Conclusion
For the foregoing reasons, the Court finds that Agility is entitled to an equitable
adjustment of $4,932,118.89 for its pre-March 2009 claim and $1,974,220.31 for its post-
March 2009 claim, for a total damages award of $6,906,339.20, plus interest. The Court
awards Agility interest from January 31, 2012 for its pre-March 2009 claim and from
February 6, 2012 for its post-March 2009 claim.3 The interest computation shall be based
3
Interest for the post-March 2009 claim should run from the filing of Agility’s certified claim with the
contracting officer on February 6, 2012, not from its July 7, 2011 request for an equitable adjustment.
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on the applicable method under the Contract Disputes Act (“CDA”), 41 U.S.C. § 7109.
The Court directs the Clerk to enter judgment for Agility in the amount of $6,906,339.20,
plus the appropriate interest.
IT IS SO ORDERED.
s/ Thomas C. Wheeler
THOMAS C. WHEELER
Judge
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