K-Con, Inc. v. Secretary of the Army

United States Court of Appeals
for the Federal Circuit
______________________
K-CON, INC.,
Appellant
v.
SECRETARY OF THE ARMY,
Appellee
______________________
2017-2254
______________________
Appeal from the Armed Services Board of Contract
Appeals in Nos. 60686, 60687, Administrative Judge
Kenneth David Woodrow, Administrative Judge Mark N.
Stempler, Administrative Judge Richard Shackleford.
______________________
Decided: November 5, 2018
______________________
ROBERT J. SYMON, Bradley Arant Boult Cummings
LLP, Washington, DC, argued for appellant. Also repre-
sented by ARON C. BEEZLEY.
JESSICA R. TOPLIN, Commercial Litigation Branch,
Civil Division, United States Department of Justice,
Washington, DC, argued for appellee. Also represented
by JOSEPH H. HUNT, ROBERT E. KIRSCHMAN, JR., STEVEN J.
GILLINGHAM.
______________________
2 K-CON, INC. v. SECRETARY OF THE ARMY
Before REYNA, BRYSON, and STOLL, Circuit Judges.
STOLL, Circuit Judge.
K-Con, Inc. and the Army entered into two contracts
for pre-engineered metal buildings. The Armed Services
Board of Contract Appeals (“Board”) held that bonding
requirements were included in the contracts by operation
of law at the time they were awarded, pursuant to the
Christian doctrine. 1 See G. L. Christian & Assocs. v.
United States (Christian I). K-Con appeals. We conclude
that the two contracts are construction contracts and that,
under the Christian doctrine, the standard bond require-
ments in construction contracts were incorporated into
K-Con’s contracts by operation of law. Accordingly, we
affirm.
I
K-Con claims that, after the Army awarded two con-
tracts for pre-engineered metal buildings, the Army
delayed issuance of a notice to proceed for two years,
resulting in $116,336.56 in increases in costs and labor.
According to K-Con, this delay was due solely to the
government’s decision to add to each contract the perfor-
mance and payment bonds set forth in Federal Acquisi-
tion Regulation (“FAR”) 52.228-15, Performance and
Payment Bonds—Construction.
In September 2013, the government awarded to
K-Con task orders for the design and construction of a
laundry facility and the construction of a communications
equipment shelter at Camp Edwards, Massachusetts.
The contracting officer issued both solicitations using the
1 K-Con, Inc., ASBCA Nos. 60686, 60687, 17-1 BCA
¶ 36,632, 2017 WL 372992 (Jan. 12, 2017 Board decision);
¶ 36,756, 2017 WL 2267005 (May 8, 2017 Board decision
on appellant’s motion for reconsideration).
K-CON, INC. v. SECRETARY OF THE ARMY 3
General Services Administration eBuy system using
Standard Form 1449, Solicitation/Contract/Order for
Commercial Items. Neither solicitation included an
express requirement that K-Con provide performance and
payment bonds. Nor did the solicitations include FAR
clause 52.228-15, Performance and Payment Bonds—
Construction, the standard language for performance and
payment bonds included in government construction
contracts, mirroring the requirements in FAR 28.102-2(b).
In October 2013, the Army instructed K-Con to pro-
vide performance and payment bonds in accordance with
FAR 28.102-2(b) before the Army could issue its notice to
proceed with the contracts. Nearly two years later, in
September 2015, K-Con provided the required bonds and
the parties modified each contract to compensate K-Con
for the cost of the bonding fees. In January 2016, K-Con
submitted a request for equitable adjustment (“REA”) for
each contract, requesting a total of $116.336.56 2 for
increases in costs and labor over the two-year period.
Subsequently, the contracting officer issued Final Deci-
sions for each contract. The contracting officer deter-
mined that the contracts were for construction, and
therefore the performance and payment bond require-
ments were mandatory. The contracting officer further
denied both requests on the basis that the bond require-
ments set forth in FAR 58.228-15 were incorporated into
the contracts at the time they were awarded, under the
Christian doctrine. On appeal, the Board agreed with the
contracting officer. K-Con filed a motion for reconsidera-
tion, which the Board denied.
K-Con appeals, seeking reversal of the Board’s deter-
mination. K-Con argues that the contracts were not
construction contracts and, alternatively, that the bond
2 $62,929.02 for the Telecom Hut-D contract and
$53,407.54 for the laundry facility contract.
4 K-CON, INC. v. SECRETARY OF THE ARMY
requirements were not incorporated into the contracts by
way of the Christian doctrine. Based on these arguments,
K-Con requests a remand to the Board to determine the
amount to be awarded for K-Con’s claims. We have
jurisdiction under 28 U.S.C. § 1295(a)(10).
II
A
K-Con first argues that the Board erred in holding
that the contracts at issue are construction contracts.
K-Con asserts that they are contracts for commercial
items, which do not carry mandatory bonding require-
ments. The government responds that both contracts are
patently ambiguous as to whether they are construction
contracts and, thus, it was incumbent on K-Con to inquire
as to whether the contracts were for construction or
commercial items. Because it did not do so, the govern-
ment contends that K-Con is precluded from now arguing
that the contracts are for commercial items. We agree.
“A patent ambiguity is present when the contract con-
tains facially inconsistent provisions that would place a
reasonable contractor on notice and prompt the contractor
to rectify the inconsistency by inquiring of the appropriate
parties.” Stratos Mobile Networks USA, LLC v. United
States, 213 F.3d 1375, 1381 (Fed. Cir. 2000). This is
distinct from a latent ambiguity, which exists when the
ambiguity is “neither glaring nor substantial nor patently
obvious.” Cmty. Heating & Plumbing Co. v. Kelso,
987 F.2d 1575, 1579 (Fed. Cir. 1993) (citing Mountain
Home Contractors v. United States, 425 F.2d 1260, 1264
(Ct. Cl. 1970)). We review de novo both the existence of
an ambiguity and whether any ambiguity is patent or
latent because they are both issues of law. Stratos,
213 F.3d at 1380 (citing Grumman Data Sys. Corp. v.
Dalton, 88 F.3d 990, 997 (Fed. Cir. 1996)).
K-CON, INC. v. SECRETARY OF THE ARMY 5
We conclude that the contracts were patently ambigu-
ous. On the one hand, as the Army admits, if the con-
tracts had been issued using the standard construction
contract form, they would have been construction con-
tracts without any ambiguity. But that is not what
happened here. Instead, these contracts issued using the
standard commercial items contract form. The line item
descriptions even included the phrase “FOB: Destination,”
which is typically used for commercial items contracts.
J.A. 31, 53.
On the other hand, there were many indications that
the contracts were for construction, not commercial items.
For example, the contract line item descriptions for both
contracts, which “identify the supplies or services to be
acquired,” were for construction activities. See generally
FAR part 4.10 (establishing uniform use of line items).
The communications shelter contract required the con-
tractor to “[c]onstruct Telecom Hut D.” J.A. 57. Similar-
ly, in the laundry facility contract, the contract line item
number called for “[c]onstruction of a new pre-fabricated
metal building.” J.A. 31. According to the statement of
work in the laundry facility contract, the project scope
included “design and construction.” J.A. 32. Indeed, the
statement of work included many construction-related
tasks, including developing and submitting construction
plans, obtaining construction permits, and cleaning up
construction areas. The statement of work also required
compliance with FAR regulations relevant only to con-
struction contracts as well as Davis-Bacon wages, 3 which
3 Enacted in 1931, the Davis-Bacon Act is intended
to protect communities and workers from the economic
disruption caused by competition from non-local contrac-
tors coming into an area and obtaining federal construc-
tion contracts by underbidding local wage levels. The
Davis-Bacon Act, as amended, requires that each gov-
6 K-CON, INC. v. SECRETARY OF THE ARMY
are likewise only applicable to construction contracts.
The use of the commercial items solicitations form and
the construction-related terms of the contracts themselves
were facially inconsistent indications that would have
placed a reasonable contractor on notice that the con-
tracts are patently ambiguous.
Because the solicitations contained contract language
that was patently ambiguous, K-Con cannot argue that its
interpretation was proper unless K-Con contemporane-
ously sought clarification of the language from the Army.
See Grumman, 88 F.3d at 998 (addressing the issue in the
context of a bid protest). K-Con did not seek such clarifi-
cation and therefore cannot now argue that the contracts
should be for commercial items.
B
We now turn to K-Con’s second argument. According
to K-Con, even if the contracts were properly considered
construction contracts, the Board erred in holding that
the contracts included bond requirements under the
Christian doctrine.
Here, the relevant regulation is FAR 52.228-15, which
requires the offeror in construction contracts valued at
over $150,000 to furnish performance and payment bonds:
As prescribed in 28.102-3(a), insert a clause sub-
stantially as follows:
Performance and Payment Bonds — Con-
struction (OCT 2010)
ernment contract over $2,000 for the construction, altera-
tion, or repair of public buildings or public works shall
contain a clause with the minimum wages to be paid to
certain laborers and mechanics employed under the
contract. See 40 U.S.C. § 3142.
K-CON, INC. v. SECRETARY OF THE ARMY 7
...
(b) Amount of required bonds. Unless the re-
sulting contract price is $150,000 or less, the
successful offeror shall furnish performance
and payment bonds to the Contracting Officer
as follows:
(1) Performance bonds (Standard Form 25).
The penal amount of performance bonds
at the time of contract award shall be
100 percent of the original contract price.
(2) Payment Bonds (Standard Form 25-A).
The penal amount of payment bonds at
the time of contract award shall be
100 percent of the original contract price.
FAR 52.228-15 (emphasis added); see also 40 U.S.C.
§ 3131(b); FAR 28.102-1(a).
Neither contract expressly incorporated this required
clause. However, under the Christian doctrine, a court
may insert a clause into a government contract by opera-
tion of law if that clause is required under applicable
federal administrative regulations. See Gen. Eng’g &
Mach. Works v. O’Keefe, 991 F.2d 775, 779 (Fed. Cir. 1993)
(citing Christian I, 312 F.2d at 424, 427). In Christian,
the Court of Claims concluded that the standard termina-
tion clause required by the Armed Service Procurement
Regulations must be read into the contract, even though
the contract lacked a termination clause. Christian I,
312 F.2d at 424–26. Accordingly, the court denied the
contractor’s breach-of-contract claim when the govern-
ment terminated the construction contract for its own
convenience. Id. at 427. For a court to incorporate a
clause into a contract under the Christian doctrine, it
generally must find (1) that the clause is mandatory; and
(2) that it expresses a significant or deeply ingrained
8 K-CON, INC. v. SECRETARY OF THE ARMY
strand of public procurement policy. See Gen. Eng’g &
Mach. Works, 991 F.2d at 779.
We review the Board’s determinations on the applica-
bility of the Christian doctrine de novo. Id. at 779–80
(applying de novo review to determine whether the Chris-
tian doctrine incorporated a contract clause regarding
material handling costs by operation of law). In applying
a de novo review, however, we give “careful consideration
and great respect” to the Board’s legal interpretations in
light of its considerable experience in the field of govern-
ment contracts, including its experience in interpreting
the FAR. Fruin–Colnon Corp. v. United States, 912 F.2d
1426, 1429 (Fed. Cir. 1990); see Titan Corp. v. West,
129 F.3d 1479, 1481 (Fed. Cir. 1997). We turn now to the
two prongs of the Christian doctrine analysis.
1
Under the first prong of the Christian doctrine, we
examine whether the bonding requirements are “manda-
tory” in government construction contracts. See Gen.
Eng’g & Mach. Works, 991 F.2d at 779–80. We conclude
that they are because they are required by statute.
The statute, 40 U.S.C. §§ 3131–34, formerly known as
the Miller Act, requires that “[b]efore any contract of more
than $100,000 is awarded for the construction, alteration,
or repair of any public building or public work of the
Federal Government, a person must furnish to the Gov-
ernment [performance and payment] bonds, which become
binding when the contract is awarded.” 40 U.S.C.
§§ 3131(b) (emphasis added). The statute is implement-
ed 4 at FAR 28.102-1: “40 U.S.C. chapter 31, subchapter
4 The regulatory threshold ($150,000) is higher
than the statutory threshold ($100,000), because the
former was adjusted for inflation. Federal Acquisition
Regulation; Inflation Adjustment of Acquisition-Related
K-CON, INC. v. SECRETARY OF THE ARMY 9
III, Bonds (formerly known as the Miller Act), requires
performance and payment bonds for any construction
contract exceeding $150,000.” FAR 28.102-1 (emphasis
added). In such a circumstance, FAR 28.102-3(a), Con-
tract Clauses, specifies that the clause at FAR 52.228-15,
Performance and Payment Bonds—Construction, which is
at issue in this appeal, should be inserted in the solicita-
tions and contracts for construction. FAR 28.102-3.
Accordingly, because the statute explicitly states that the
bonds “must” be furnished and the FAR both requires the
bonds and directs insertion of the relevant clause, we
conclude that the bond requirements are mandatory.
K-Con argues that FAR 52.228-15 is not mandatory
for construction contracts because FAR 28.102-3(a), which
requires incorporation of FAR 52.228-15 into construction
contracts, purportedly indicates that it is not a mandatory
clause. To support its argument, K-Con points to lan-
guage in FAR 28.102-3(a) stating: “[t]he contracting
officer may revise [the performance and payment bonds
sections] of the clause to establish a lower percentage.”
FAR 28.102-3(a). Thus, K-Con argues, the application is
based on the exercise of judgment or discretion of the
contracting officer, who can waive the bonding require-
ments. We are not persuaded. That the contracting
officer could revise the bond requirements does not
change the fact that the bonding requirements are man-
datory for construction contracts over $150,000, like the
contracts here. Instead, the words “must” and “shall” in
the statutory and regulatory language establish that the
requirement to furnish performance and payment bonds
is mandatory. Kingdomware Techs., Inc. v. United States,
136 S. Ct. 1969, 1977 (2016) (stating that “the word ‘shall’
usually connotes a requirement” and equating “shall”
Thresholds, 75 Fed. Reg. 53,129-01, 2010 WL 3382923
(Aug. 30, 2010).
10 K-CON, INC. v. SECRETARY OF THE ARMY
with “must”). Accordingly, we affirm the Board’s conclu-
sion that the bonding requirements are mandatory and
satisfy the first prong of the Christian doctrine.
2
Under the second prong of the Christian doctrine, we
examine whether the payment and performance bond
requirements “express a significant or deeply ingrained
strand of public procurement policy.” See Gen. Eng’g &
Mach. Works, 991 F.2d at 779–80 (discussing Christian I,
312 F.2d at 426; G. L. Christian & Assocs. v. United
States (Christian II), 320 F.2d 345, 350–51 (Ct. Cl. 1963)).
We conclude that they do.
Payment bonds are intended to provide security for
those who furnish labor and materials in the performance
of government contracts. F.D. Rich Co. v. United States
ex rel. Indus. Lumber Co., 417 U.S. 116, 121 (1974). For
private contracts, subcontractors and suppliers can obtain
a mechanic’s lien against the improved property to ensure
that they are paid. Id. at 122. Government property,
however, cannot be subject to subcontractors’ and suppli-
ers’ liens. Thus, the payment bonds requirement was
created to provide, in government contracts, an alterna-
tive remedy to protect those who supply labor or materials
to a contractor on a federal project. See id. Performance
bonds protect the government by ensuring that a contract
will be completed with no further cost to the government
even if the contractor defaults. Ins. Co. of the W. v. Unit-
ed States, 243 F.3d 1367, 1370 (Fed. Cir. 2001).
The Miller Act was enacted in 1935 and re-codified in
2002. See Miller Act, 49 Stat. 793 (1935); Revision of
Title 40, United States Code, “Public Buildings, Property,
and Works,” Pub. L. No. 107-217, § 3131, 116 Stat 1062
(2002). Since its enactment, the statute has consistently
required performance and payment bonds, even though
the contract threshold value for the requirement has
increased. Compare 49 Stat. 793 (1935) ($2000), with
K-CON, INC. v. SECRETARY OF THE ARMY 11
116 Stat. 1062 § 3131 (2002) ($100,000), with 40 U.S.C.
§ 3131 (2006) ($100,000). Indeed, the legislative history
reflects that Congress has long sought to protect subcon-
tractors and suppliers and to ensure that the Government
receives full performance at the agreed-upon cost, dating
back to the 1894 enactment of the Heard Act, which
preceded the Miller Act. See Miller Act, 49 Stat. at 794
(repealing the Heard Act, 28 Stat. 278 (1894), which was
codified at 40 U.S.C. § 270). Based on this long-standing
statute and its legislative history, we conclude that the
payment and performance bond requirements are “deeply
ingrained” in procurement policy. Citing Grade-Way
Construction v. United States, 7 Cl. Ct. 263, 265 (1985),
K-Con nonetheless asserts that, if the bonding require-
ments were deeply ingrained into procurement policies,
the government should have rejected K-Con’s bond-less
contract bids as nonresponsive. We are not persuaded by
K-Con’s argument. As an initial matter, we note that
Grade-Way, a decision from the Claims Court, is not
binding authority on this court. Furthermore, Grade-Way
applies the Christian doctrine to minimum wage require-
ments, not bond requirements. Thus, it has little persua-
sive force when considering whether the payment and
performance bond requirements are “deeply ingrained” in
procurement policy.
Moreover, Grade-Way is distinguishable on its facts.
The issue in Grade-Way was whether the lowest bidder’s
bid was nonresponsive for failing to include a statutorily-
required minimum wage provision. The Davis-Bacon Act
required the bid to “contain a provision stating the mini-
mum wages to be paid various classes of laborers and
mechanics.” 40 U.S.C. § 3142. The bid solicitation, by
amendment, also specified that solicitations should in-
clude a minimum wage provision. The lowest bidder
failed to include the statutorily required specific wage
schedules in its bid or otherwise acknowledge the
amendment containing the modified wage schedules and
12 K-CON, INC. v. SECRETARY OF THE ARMY
rates. The bidder asserted that the missing wage sched-
ules should be read into its bid by operation of the Chris-
tian doctrine and therefore its bid would still be
responsive. The Claims Court concluded that because the
solicitation’s amendment explicitly included a specific
wage requirement, the awardee was required to
acknowledge the obligation to pay that specific wage.
Because it had not done so, the court found the bid nonre-
sponsive. Grade-Way, 7 Cl. Ct. at 271–73. Here, the
solicitation did not explicitly require payment or perfor-
mance bonds, whereas in Grade-Way, the bid amendment
explicitly set forth the required wage determinations.
Accordingly, the situation is not analogous and Grade-
Way is not on point.
K-Con similarly relies on Grade-Way to assert that
the Christian doctrine is inapplicable because applying it
would require K-Con to provide a service that it did not
offer. In Grade-Way, the Claims Court noted that “appli-
cation of a doctrine of contract construction developed by
the courts, such as the Christian Doctrine with respect to
incorporation by operation of law, cannot be applied in
direct conflict with the clear terms of the statute (and
regulations) requiring physical incorporation.” Grade-
Way, 7 Cl. Ct. at 271. But Grade-Way is again inapposite.
There, the Claims Court declined to apply the Christian
doctrine because doing so would directly conflict with the
clear terms of the statute and regulations. Grade-Way,
7 Cl. Ct. at 271. The Federal Circuit, however, rejected
this narrow approach in S.J. Amoroso Construction Co. v.
United States, 12 F.3d 1072, 1075–76 (Fed. Cir. 1993).
S.J. Amoroso involved the Buy American Act, which
required in express terms that every construction contract
for public buildings and works “shall contain a provision
that in the performance of the work” only American
materials would be used. 41 U.S.C. § 8303 (formerly
41 U.S.C. § 10b); S.J. Amoroso, 12 F.3d at 1075. Instead
of using the corresponding FAR clause for construction
K-CON, INC. v. SECRETARY OF THE ARMY 13
contracts, however, the contract included the FAR clause
applicable to a different type of contract. Despite the fact
that clear terms of the statute (and regulations) required
physical incorporation, we held that the Christian doc-
trine applied and the clause was properly incorporated by
operation of law. S.J. Amoroso, 12 F.3d at 1077. Here,
we follow our precedent in S.J. Amoroso and conclude
that the payment and performance bond requirements are
properly incorporated by operation of law despite the fact
that the clear terms of the statute and regulations require
physical incorporation.
Finally, K-Con characterizes other Christian doctrine
cases as applying only to “contract administration-type
provision[s].” Appellant Br. at 27. In Grade-Way, the
court noted:
The Christian doctrine has been applied essential-
ly to clauses involving the government’s admin-
istration of a contract (such as terminations,
changes, and the like), but not to specific terms
and specifications. Moreover, the clauses custom-
arily encompassed by that doctrine have con-
tained provision for compensation to the
contractor for any increased costs (if not, in all
cases, including profits or consequential damag-
es). We know of no authority which would apply
the Christian doctrine to a situation of this type or
which would permit the reading into a solicitation
of higher wage determinations (with no [concomi-
tant] increase in the bid price).
Grade-Way, 7 Cl. Ct. at 271; see Gen. Eng’g & Mach.
Works, 991 F.2d at 780 (incorporating payments clause
that required separate cost pools); Chris Berg, Inc. v.
United States, 426 F.2d 314, 317–18 (Ct. Cl. 1970) (hold-
ing that missing “mistake in bids” clause required under
the Armed Services Procurement Regulation be incorpo-
rated into the contract because the clause was written for
14 K-CON, INC. v. SECRETARY OF THE ARMY
the protection of contract bidders); Appellant Br. at 27
(citing Christian II, 320 F.2d at 349 (incorporating termi-
nation for convenience provision)). Even if we were to
accept K-Con’s premise that the provisions in other Chris-
tian doctrine cases are “administration-type provision[s],”
we are aware of no case that limits the Christian doctrine
to such “administration-type” provisions. Indeed, we have
applied the Christian doctrine to substantive provisions
like the one in this case. For example, in S.J. Amoroso,
we applied the Christian doctrine to require, under the
Buy American Act, that the contract at issue “contain a
provision that in the performance of the work” only Amer-
ican materials will be used. 12 F.3d at 1075–76. Ulti-
mately, we do not find K-Con’s arguments persuasive, and
we agree with the Board’s conclusion that the
FAR 52.228-15 bonding requirements express “a signifi-
cant or deeply ingrained strand of public procurement
policy.”
III
We conclude that K-Con is barred from arguing that
the contracts at issue are not construction contracts and
that, under the Christian doctrine, the standard payment
and performance bond requirements in construction
contracts were incorporated into K-Con’s contracts by
operation of law at the time the contracts were awarded.
We have considered the parties’ remaining arguments
and find them unpersuasive. We affirm the Board’s
decision.
AFFIRMED
COSTS
No costs.