Heart & Core LLC

ARMED SERVICES BOARD OF CONTRACT APPEALS
Appeal of - )
)
Heart & Core LLC ) ASBCA No. 63403)
Under Contract No. FA7000-18-D-0004 )
APPEARANCE FOR THE APPELLANT: Ms. Jen Swendseid
President
APPEARANCES FOR THE GOVERNMENT: Jeffrey P. Hildebrant, Esq.
Air Force Chief Trial Attorney
Isabelle P. Cutting, Esq.
Maj Alissa J. Schrider, USAF
Trial Attorney
OPINION BY ADMINISTRATIVE JUDGE MELNICK
Appellant, Heart & Core LLC, elected to pursue this appeal under the Board’s
Rule 12.2, Small Claims (Expedited) procedure. Accordingly, this decision shall have
no precedential value, and in the absence of fraud shall be final and conclusive and
may not be appealed or set aside. See 41 U.S.C. § 7106(b)(4)-(5).
On December 5, 2017, the 10th Contracting Squadron at the United States
Air Force Academy (“government”) awarded Heart & Core a requirements contract to
supply comforters, blankets, sweatshirts, and sweatpants, each of which was for a
firm-fixed price. The base year commenced in 2017 with four additional option years
containing escalating prices. The comforter prices ranged from $55.00 per item in the
base year to $58.00 in the last option year. (R4, tab 2) The government exercised all
four options (R4, tabs 7, 8, 10, 14). Separately, on August 10, 2020, the same
component awarded to Heart & Core a firm-fixed price indefinite quantity contract for
bathrobes over four ordering periods commencing in 2020 and running through 2023.
The prices escalated from $53.25 per item in the first ordering period to $58.50 in the
last. (R4, tab 9)
On April 4, 2022, Heart & Core’s CEO/Co-owner emailed a Request for
Equitable Adjustment (REA) to the contracting officer, seeking a 30% price increase
for the comforters and a 20% increase for the bathrobes. She based her request upon
increased shipping, labor, and fabric costs. (R4, tab 22) In an amended request dated
April 29, 2022, she contended that the new prices were justified given the COVID-19
pandemic (R4, tab 24). On June 23, 2022, the contracting officer denied the request
(R4, tab 27). Heart & Core has appealed. Its notice of appeal seeks $69.60 per
comforter and $71.50 per bathrobe. It says the total it seeks is $36,030. The parties
have elected to proceed with briefing only under Board Rule 11.
The government does not challenge our jurisdiction to consider this appeal
stemming from the denial of Heart & Core’s REA. We agree we possess jurisdiction.
See Zafer Constr. Co. v. United States, 40 F.4th 1365 (Fed. Cir. 2022).
Heart & Core’s Rule 11 submittal consists of an email presenting links to internet
search engine queries for bathrobes and comforters available for sale online by other
vendors at retail prices higher than its contract prices. It implies these listings prove that
its prices are below the market for these items. It has not offered evidence that the
online merchandise is identical to the items it contracted to provide to the government.
Moreover, that other vendors charge a higher price for their products does not
demonstrate that Heart & Core encountered increased costs for its materials, labor, and
transportation above what it expected, or the amount of any increases. Heart & Core’s
REA and amended REA also provide links to various media accounts it claims support
its claim. Among those we could review were articles from January of 2022 generally
describing higher costs and delays encountered by businesses ordering materials and
shipping goods. There were also some previous invoices but nothing to clearly prove
cost escalations. (R4, tabs 22, 24) Consequently, though we can accept that
Heart & Core has experienced inflationary cost increases, it has not proven the specific
amounts.
Even if Heart & Core proved that its costs substantially increased beyond
expectations, we cannot grant its appeal. We are constrained by the contracts which are
for firm-fixed prices. Heart & Core bore the risk of cost increases and the government is
not obligated to adjust the prices to account for them. Ace Elecs. Def. Sys., ASBCA
No. 63224, 22-1 BCA ¶ 38,213 at 185,568. “Under a firm-fixed price arrangement,
[Heart & Core] assumed ‘maximum risk and full responsibility for all costs and resulting
profit or loss.’” Parsons Gov’t Servs., Inc., ASBCA No. 61630, 20-1 BCA ¶ 37,655at 182,815 (quoting FAR 16.202-1). Accordingly, “[t]he price was ‘not subject to any
adjustment on the basis of [Heart & Core’s] cost experience.’” Id.; see also Zafer
Taahhut Insaat ve Ticaret A.S. v. United States, 833 F.3d 1356, 1361 (Fed. Cir. 2016).
Heart & Core’s reply contends its costs have become commercially senseless, implying
that performance is commercially impracticable. However, it has neither alleged nor
proven cost increases of a magnitude that could come within that doctrine. See Ace
Elecs. Def. Sys., 22-1 BCA ¶ 38,213 at 185,568 n.2.
Heart & Core also cites as a basis for recovery the contracts’ recital of acts of
God, epidemics, and quarantines as grounds to excuse a contractor’s default (R4, tab 2
at 29, tab 9 at 16 (incorporating FAR 52.212-4, CONTRACT TERMS AND
CONDITIONS-COMMERCIAL ITEMS (JAN 2017 & OCT 2018)). It contends that
when it signed the contracts it could not predict the increase in prices that the economy
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has experienced. Assuming the COVID-19 pandemic has caused Heart & Core to face
higher costs, neither the contracts’ provisions excusing default, nor any of their other
terms, shift the risk of performance cost increases generated by an unforeseen
pandemic to the government. See Ace Electronics Def. Sys., 22-1 BCA ¶ 38,213at 185,568 (citing Pernix Serka JV v. Dept. of State, CBCA No. 5683, 20-1 BCA
¶ 37,589 at 182,522-23). Presumably, Heart & Core recognized when bidding on the
contracts that costs could increase over time because it escalated its prices for the
various options and ordering periods. The risk of a fixed price contract is that the
market will change. Heart & Core took the chance that the costs of its materials, labor,
and shipping would not fluctuate far above what it planned, while the government
protected itself from the consequences if they did. See Seaboard Lumber Co. v.
United States, 308 F.3d 1283, 1295 (Fed. Cir. 2002). We must enforce the agreements
made by the parties. 1
CONCLUSION
The appeal is denied.
Dated: January 11, 2023
MARK A. MELNICK
Administrative Judge
Armed Services Board
of Contract Appeals
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Heart & Core has indicated that the increased costs have jeopardized this small
business. Its reply brief suggests it should receive relief under Public Law
No. 85-804 as implemented by FAR Part 50. We lack jurisdiction to grant such
a remedy. Am. Gen. Trading & Contracting, WLL, ASBCA No. 56758,
12-1 BCA ¶ 34,905 at 171,638-39. Nevertheless, the undersigned fails to see
where it serves the government’s interest to push toward failure small
government contractors recently experiencing unusual inflationary pressures.
While we cannot compel the government to pay increased amounts to Heart
& Core it is encouraged to explore an equitable accommodation.
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I certify that the foregoing is a true copy of the Opinion and Decision of the
Armed Services Board of Contract Appeals in ASBCA No. 63403, Appeal of Heart
& Core LLC, rendered in conformance with the Board’s Charter.
Dated: January 11, 2023
PAULLA K. GATES-LEWIS
Recorder, Armed Services
Board of Contract Appeals
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