United States Court of Appeals for the Federal Circuit 

2006-5083, -5094 

INTERNATIONAL DATA PRODUCTS CORP., 

Plaintiff-Appellant, 

v. 

UNITED STATES, 

 Defendant-Cross Appellant. 

Edward J. Tolchin, Fettmann, Tolchin & Majors, P.C., of Fairfax, Virginia, argued for 

plaintiff-appellant. 

Allison Kidd-Miller, Trial Attorney, Commercial Litigation Branch, Civil Division, 

United States Department of Justice, of Washington, DC, argued for defendant-cross 

appellant. With her on the brief were Peter D. Keisler, Assistant Attorney General, and 

Deborah A. Bynum, Assistant Director. Of counsel on the brief were E. Michael 

Chiaparas, Director, Contract Disputes Resolution Center, Defense Contract Management 

Agency, of Manassas, Virginia, and John T. Lauro, Trial Attorney, Commercial Litigation 

Division, Air Force Legal Services Agency, of Arlington, Virginia. 

Appealed from: United States Court of Federal Claims 

Judge George W. Miller 
United States Court of Appeals for the Federal Circuit

 

2006-5083, -5094 

INTERNATIONAL DATA PRODUCTS CORP., 

 Plaintiff-Appellant, 

v. 

UNITED STATES, 

 Defendant-Cross Appellant. 

___________________________ 

 DECIDED: June 27, 2007 

___________________________ 

Before LOURIE, RADER, and PROST, Circuit Judges. 

RADER, Circuit Judge. 

The Air Force terminated for convenience its Desktop V contract with 

International Data Products Corporation (IDP) because IDP lost its status as a small 

entity favored under section 8(a) of the Small Business Act. Small Business Act, Pub. 

L. No. 85-536, 72 Stat. 384 (codified as amended in scattered sections of 15 U.S.C.). 

The Air Force, however, required IDP to continue to perform warranty and upgrade 

services under the contract. IDP sued for the costs of performing those services. The 

Court of Federal Claims determined that the termination for convenience also 

terminated IDP's obligation to continue to provide warranty and upgrade services. Int'l 

Data Prods. Corp. v. United States, 70 Fed. Cl. 387, 394 (2006) (citing Int'l Data Prods.

Corp. v. United States, 64 Fed. Cl. 642, 650-51 (2005)). The Court of Federal Claims, 

however, also denied IDP's claim for termination costs. Id. at 390. IDP appeals the 
denial of termination costs while the government cross-appeals the termination of IDP's 

obligation to provide services for which it already received payment. Because 15 

U.S.C. § 637(a)(21)(A) does not terminate IDP's warranty and upgrade services 

obligations, this court reverses the trial court's holding that the termination for 

convenience terminated IDP's warranty and upgrade obligations. This court otherwise 

affirms the trial court's rulings. 

I 

IDP manufactures and sells computers and computer equipment. In 1995, IDP 

won award of a Small Business Administration § 8(a) contract to provide computers to 

the Air Force under the Desktop V contract. This contract was an indefinite-delivery, 

indefinite-quantity (ID/IQ) agreement. The contract consisted of a single base year with 

a minimum purchase requirement of $100,000 and four one-year options having no 

minimum purchase requirement. Under the contract terms, the Air Force needed only 

to buy a minimum of $100,000 in products and services from IDP and could purchase 

from other contractors after meeting the minimum purchase amount. 

 IDP's contract originally included a purchase maximum of $1.685 Billion. 

However, Dynamic Decisions, Inc. (DDI), a competitor of IDP, sued to enjoin the original 

contract. In the resulting settlement, both IDP and DDI received Desktop V contracts. 

Both contracts retained the $100,000 minimum purchase obligation. Both contracts 

also included a maximum at $729 million (a little less than half the maximum in IDP's 

original contract). The settlement agreement also amended the contracts to include an 

additional term, a "total estimated quantity" of $100 million. 

2006-5083, -5094 2
In 1998, Dunn Computer Corporation (Dunn), a non-section 8(a) company, 

purchased IDP. Under § 637(a)(21)(A) of the Small Business Act, this acquisition 

required the Air Force to terminate IDP's contract because IDP would no longer qualify 

under section 8(a). 15 U.S.C. § 637(a)(21)(A) (2006). By this time, the Air Force had 

purchased a total of $35 million of equipment from IDP. The Air Force requested a 

waiver per § 637(a)(21)(B) from the Small Business Administration. The Administration, 

however, denied the request. On October 8, 1999, the Air Force officially notified IDP of 

the termination of its contract. 

The termination letter stated: 

This termination will not affect the rights and liabilities of the parties, 

arising under the contract or otherwise, concerning defects, guarantees or 

warranties relating to any articles or component parts furnished to the 

Government by the Contractor under the contract or this agreement, nor 

the rights and liabilities of the parties concerning software upgrades as 

required by Section C of the contract. 

After the termination date, the Air Force continued to demand that IDP provide warranty 

and upgrade services. IDP attempted to convince the Air Force to abandon these 

services or negotiate an additional contract to cover their cost. The Air Force refused 

and threatened to default and debar IDP and its parent corporation if lDP did not 

perform as requested. 

In mid-April 2000, IDP decided the warranty costs were threatening its survival 

and the survival of its parent company. IDP therefore stopped all warranty and upgrade 

work. IDP seeks damages to cover the cost to repair and replace components, 

shipping, labor, and fees paid to third party service firms. 

2006-5083, -5094 3
II 

In reviewing judgments of the Court of Federal Claims, this court reviews 

conclusions of law, such as contract or statutory interpretation, without deference. 

Mass. Bay Transp. Auth. v. United States, 254 F.3d 1367, 1372 (Fed. Cir. 2001); Kane 

v. United States, 43 F.3d 1446, 1448 (Fed. Cir. 1994). Findings of facts receive review 

under the "clearly erroneous" standard. City of El Centro v. United States, 922 F.2d 

816, 819 (Fed. Cir. 1990); Hankins Constr. Co. v. United States, 838 F.2d 1194, 1195 

(Fed. Cir. 1988). 

A 

The trial court held that when IDP entered into an agreement with Dunn 

Corporation, a non-section 8(a) entity, to purchase IDP, IDP was no longer required to 

continue to provide warranty and upgrade services under the Desktop V contract. Int'l 

Data Prods. 64 Fed. Cl. at 649. In particular, the trial court held that "the Government 

was required by the Small Business Act to terminate the Desktop V contract for 

convenience or seek a waiver allowing contract performance to continue as provided by 

15 U.S.C. § 637(a)(21)(B)." Id. In the circumstances of this case, 15 U.S.C. § 

637(a)(21)(A) requires the government to terminate the contract for the convenience of 

the government: 

Subject to the provisions of subparagraph (B), a contract (including 

options) awarded pursuant to this subsection shall be performed by the 

concern that initially received such contract. Notwithstanding the 

provisions of the preceding sentence, if the owner or owners upon whom 

eligibility was based relinquish ownership or control of such concern, or 

enter into any agreement to relinquish such ownership or control, such 

contract or option shall be terminated for the convenience of the 

Government, except that no repurchase costs or other damages may be 

assessed against such concerns due solely to the provisions of this 

subparagraph. 

2006-5083, -5094 4
15 U.S.C. § 637(a)(21)(A) (emphases added). Section 637(a)(21)(B) authorizes the 

Small Business Administration to grant a waiver under specific enumerated conditions, 

none of which apply here. In its opinion, the trial court read § 637(a)(21)(A) to put an 

end to all work under the contract because the provision "does not allow partial 

termination of the contract." Id. at 650. The trial court explained that the requirements 

of § 637(a)(21)(A) would not always further the best interests of the agency. Id. 

 On appeal, the Air Force argues that the warranty attaches to the goods and 

does not terminate with the contract. In other words, the mandatory language of 

§ 637(a)(21)(A) only requires termination of work under the contract, not warranties 

associated with the goods. The Air Force further argues that the original purchase price 

of the computer equipment included the cost of the warranty and upgrade services, 

which thus are already fully paid. 

IDP's contract includes the following warranty clause: 

The Contractor shall provide users with a minimum 3 year, on-site, full 

parts and labor warranty for all offered products (excluding software) 

which includes CLINS 0001-0005. The Contractor shall provide users with 

a minimum 5 year (4 years on-site, 5th year return to IDP) full parts and 

labor warranty for all offered products (excluding software), for SLINS 

0007AA through 0007CE. For SLINS 0007AA though 0007CE, [the] 

contractor shall provide a three year on site, 24 hour fix or replace on 

hardware warranty, and a two year upgrade warranty on software. 

Computer system, printers, and peripheral shall be user expandable and 

maintainable without voiding the Contractor provided warranty. The 

warranty coverage shall be worldwide and provide for no charge problem 

reporting 24 hours per day, 7 days per week. The warranty shall provide 

for repairing or replacing products (excluding software) and prompt return 

to customer service after problem notification. 

This warranty explicitly warrants parts and labor for a minimum of 3-5 years and 

provides a two-year warranty on software upgrades. This clause does not require the 

2006-5083, -5094 5
Air Force to pay extra or separately for warranty or upgrade services. Indeed, the only 

reference to charges is the proviso that the "warranty coverage shall be worldwide and 

provide for no charge problem reporting 24 hours per day, 7 days per week." Thus, the 

terms of the contract show that the Air Force has already paid for the contested 

services. 

The record supports in other ways as well the Air Force's contention that the cost 

of the warranty and upgrade services were incorporated into the cost of the equipment. 

The Air Force identifies several documents showing that the purchased equipment 

included express extended warranties and other bundled support services. IDP, in 

contrast, does not identify any evidence to support a claim that the warranty and 

upgrade services require additional payment beyond the purchase price. 

Further, the Air Force's termination notice to IDP closely tracks the language in 

the federal procurement regulations. These regulations provide for contract termination 

without terminating the contractor's responsibility to honor its warranties. The 

termination notice letter specified: 

This termination will not affect the rights and liabilities of the parties, 

arising under the contract or otherwise, concerning defects, guarantees or 

warranties relating to any articles or component parts furnished to the 

Government by the Contractor under the contract or this agreement, nor 

the rights and liabilities of the parties concerning software upgrades as 

required by Section C of the contract. 

Section 49.603-1(b)(7) of the Federal Acquisition Regulations (FAR) for "fixed-price 

contracts-complete termination" enumerates several rights and liabilities that are 

reserved (I.e., survive termination) including: 

(v) All rights and liabilities of the parties, arising under the contract or 

otherwise, and concerning defects, guarantees, or warranties relating to 

any articles or component parts furnished to the Government by the 

Contractor under the contract or this agreement. 

2006-5083, -5094 6
48 C.F.R. § 49.603-1(b)(7)(v) (2007). 

In light of this support in the regulations as well as the contract, this court 

determines that the termination for convenience did not extinguish IDP's obligations to 

provide warranty and upgrade services. Further, this court finds the trial court's holding 

inconsistent with 48 C.F.R. § 49.603-1(b)(7)(v). Thus, this court reverses the trial court 

and holds the termination for convenience of the Desktop V contract did not terminate 

the warranties and upgrade services. 

B 

Although the Air Force is entitled to the warranty and upgrade services under the 

contract, IDP presents several theories of recovery based on termination costs. Costs 

recoverable after a termination for convenience are governed by FAR 49.2 and 49.3. 

48 C.F.R. §§ 49.201 et seq.; 48 C.F.R. §§ 49.301 et seq. Typical costs encompass, 

inter alia, the cost of preparations made, work done, and reasonable profit on these. 

IDP's theories include: expectation damages, warranty services under an express 

contract, warranty services under an implied in fact contract, warranty work under a 

theory of constructive change or equitable adjustment or cardinal change, and quantum 

meruit based on an implied in fact contract. 

1. Expectation Damages

The termination clause in the contract specifies: 

(b)(4) The Government shall pay: 

(i) The reasonable, allowable and allocable costs, determined in 

accordance with FAR Part 31, incurred by the contactor, prior to the date 

of termination for completed work that has not previously been paid for; for 

work in process and materials directly related to the terminated portion of 

the contract .... 

2006-5083, -5094 7
(ii) A reasonable profit on the terminated portion of the work. 

(5) In no event shall the sum of the termination amounts payable and any 

amounts for items delivered under the contract exceed the total contract 

price. 

(Emphasis added). IDP's original contract included a term for the contract maximum. 

After the suit with DDI, however, section B2 of the contract was amended, per the 

settlement agreement, to include an additional term, the "total estimate quantities:" 

In accordance with the terms and conditions of the Settlement Agreement 

dated 8 September 1997, the total estimated quantities are hereby 

modified to reflect a value of $100M. The Contractor shall immediately 

notify the Air Force, in writing, when 80% of this estimate is reached. The 

Contractor shall not accept any orders which exceed the estimated 

quantities valued at $100M unless authorized by the Contracting Officer to 

do so. 

(Emphases added). 

The parties dispute the total contract price referenced in the contract's 

termination clause. IDP argues that the "total estimated quantities" language reflects 

the "needs" of the government and converts an ID/IQ contract into a requirements 

contract. IDP further argues that it was led to believe that it would receive a minimum of 

$100 million in orders. The government responds that IDP cannot recover expectation 

damages because the Desktop V contract provided that the unit prices for equipment 

included three-year warranties on parts and labor, and therefore, IDP could not have 

reasonably expected upon contract entry to receive any additional payment for warranty 

services. 

 Citing this court's decisions in Varilease and Travel Centre, the trial court held the 

"total contract price" of a ID/IQ contract is the minimum quantity stated in the contract. 

Varilease Tech. Group, Inc. v. United States, 289 F.3d 795 (Fed. Cir. 2002); Travel 

2006-5083, -5094 8
Centre v. Barram, 236 F.3d 1316 (Fed. Cir. 2001). The trial court then noted the Air 

Force had ordered and paid for approximately $35 million worth of products and 

services under IDP's Desktop V contract. The trial court held that "because the 

termination clause provides that '[i]n no event shall the sum of the termination amounts 

payable and any amounts paid for items delivered under the contract exceed the total 

contract price,' IDP is not entitled to termination costs." Int'l Data Prods. 64 Fed. Cl. at 

647. 

 This court finds IDP's reading of amended section B2 to be strained at best. 

Standing alone, the quoted language cannot convert an ID/IQ contract into a 

requirements contract. Further, the record does not show that the Air Force misled IDP 

into believing it would receive orders of $100 million. Indeed, the evidence of record 

weighs against IDP. The parties did not amend the option terms. Thus, the contract 

always consisted of one base year with a minimum purchase requirement and four oneyear options. At the time of termination, the parties were 2.5 years into the contract. 

Thus, even though the Air Force had estimated it would eventually need $100 million 

worth of equipment, IDP never could have expected to automatically receive all of those 

orders. 

2. Warranty Services under an Express Contract

Because the trial court held the termination for convenience completely 

terminated the contract, including IDP's warranty liability, it held IDP could not collect 

termination costs under a theory of express contract. Under the express contract 

theory, IDP argues the contract never actually terminated because the Air Force still 

demanded performance. Although this court holds IDP's warranty liability survives 

2006-5083, -5094 9
termination of the contract, the contract terminated on notice to IDP. Because 

terminated, the contract cannot have survived to create an express performance 

obligation for the Air Force. 

3. Warranty Services under an Implied-in-Fact Contract

As noted by the trial court, "a contract implied in fact is one 'founded upon a 

meeting of the minds, which, although not embodied in an express contract, is inferred, 

as a fact, from the conduct of the parties showing, in light of the surrounding 

circumstances, their tacit understanding.'" Int'l Data Prods. 70 Fed. Cl. at 400. In the 

present case, the record does not show a meeting of the minds. Indeed, IDP sent 

several communications to the Air Force disputing the continued existence of contract 

and its obligation to perform. IDP points to no circumstances to show that the parties 

had reached a firm and enforceable bargain. Therefore, this theory also fails. 

4. Warranty Work Under a Theory of Constructive Change, Equitable Adjustment, or 

Cardinal Change

 These theories require record evidence that the Air Force demanded work above 

and beyond that in the contract. Equitable adjustments are corrective measures that 

make a contractor whole when the Government modifies a contract. Ets-Hokin Corp. v. 

United States, 420 F.2d 716, 720 (Ct. Cl. 1970). A constructive change occurs where a 

contractor performs work beyond the contract requirements without a formal order, 

either by an informal order or due to the fault of the Government. Miller Elevator Co. v. 

United States, 30 Fed. Cl. 662, 678 (1994). A cardinal change is a breach that occurs 

when the Government effects a change in the work so drastic that it effectively requires 

the contractor to perform duties materially different from those in the original bargain. 

Krygoski Constr. Co., Inc. v. United States, 94 F.3d 1537, 1543 (Fed.Cir.1996) The 

2006-5083, -5094 10
2006-5083, -5094 11

Desktop V contract no longer existed at the time that IDP performed post-termination 

warranty and upgrade services. Therefore, this work (not really even fairly 

characterized as "additional" to the contract) would not constitute a constructive, 

equitable, or cardinal change to the contract. Rather, IDP's warranty and upgrade work 

fell under express warranty and upgrade clauses of the contract. Thus, this court 

affirms the trial court's denial of recovery under each of these theories. 

5. Quantum Meruit Based on an Implied-in-Fact Contract

 A recovery in quantum meruit is based on an implied-in-law contract. That is, a 

contract in which there is no actual agreement between the parties, but the law imposes 

a duty in order to prevent injustice. The Court of Federal Claims, however, lacks 

jurisdiction over contracts implied in law. 28 U.S.C. § 1491(a)(I) (2000). On the other 

hand, "[w]here a benefit has been conferred by the contractor on the government in the 

form of goods or services, which it accepted, a contractor may recover at least on a 

quantum valebant or quantum meruit basis for the value of the conforming goods or 

services received by the government prior to the rescission of the contract for invalidity. 

The contractor is not compensated under the contract, but rather under an implied-infact contract." United Pac. Ins. Co. v. United States, 464 F.3d 1325, 1329-30 (Fed. Cir. 

2006). The Desktop V contract, however, is neither invalid nor unenforceable. Thus, 

this exception does not apply. 

Accordingly, 

IT IS ORDERED THAT the trial court decision is AFFIRMED-IN-PART and

REVERSED-IN-PART.