ARMED SERVICES BOARD OF CONTRACT APPEALS Appeal of--
SupplyCore, Inc.

Under Contract No. W52PIJ-09-C-0006

APPEARANCES FORTHE APPELLANT: ) ) ) ) )

APPEARANCES FORTHE GOVERNMENT: ASBCA No. 58676

William E. Hughes III, Esq. Emily A. Constantine, Esq.

Whyte Hirschboeck Dudek S.C. Milwaukee, WI Raymond M. Saunders, Esq.

Army ChiefTrial Attorney CPTHarry M. Parent III, JA

Trial Attorney

OPINION BYADMINISTRATIVE JUDGE WILSON ON THE GOVERNMENT'S AMENDED MOTION FOR SUMMARYJUDGMENT

The government declined to exercise the fourth option ofthe captioned contract for warehousing services in Kuwait. Appellant, SupplyCore, Inc. (SupplyCore), maintains that it
was required under Kuwaiti labor law to provide its employees 90-days notice oftermination, and seeks an additional $145,634.80 representing pay to its employees for 39 days because the government did not notify it that the government would not exercise the fourth option until 51 days priorto the expiration ofthe contract. We havejurisdictionpursuantto the Contract Disputes Act of 1978, 41 U.S.C. 

### §§ 7101-7109. The government moves for summary judgment. SupplyCore opposes the motion. Forthe reasons stated below, the motion is granted.

STATEMENT OF FACTS FORTHE PURPOSES OF THE MOTION

1. On 24 November 2008, the United States Army Contracting Command Rock Island Contracting Center (hereinafterreferred to as Army or government) awarded ContractNo. W52PIJ-09-C-0006 to SupplyCore. Under the contract, SupplyCore was to provide warehouse services at the Interceptor Body Armor Warehouse at Camp Ali Al Salem, Kuwait. The contractwas awarded as a firm fixed-price commercial items contract and incorporated FAR 52.212-4, CONTRACTTERMS AND CONDITIONS

- COMMERCIAL ITEMS (OCT 2008). (R4, tab 2 at 1, 3, 10)

2. The contract was awarded for a one-year baseperiod and contained four one-year options. The contract includedFAR 52.217-9, OPTION TO EXTEND THE TERM OFTHE CONTRACT (MAR 2000), which stated, in pertinentpart:(a) The Government may extend the term ofthis contractby written notice to the Contractorwithin 30 days; provided thatthe Government gives the Contractor a preliminary written notice ofits intentto extend at least 60 days before the contract expires. Thepreliminary notice does not committhe Governmentto an extension.
(R4, tab 2 at 3, 14)

3. The contract also incorporated DFARS 252.222-7002, COMPLIANCE WITH LOCAL LABORLAWS (OVERSEAS) (JUN 1997), whichprovided:
(a) The Contractor shall comply with all-
(1) Local laws, regulations, and laborunion agreements governing workhours; and
(2) Laborregulations including collective bargaining agreements, workers' compensation, working conditions, fringe benefits, and labor standards or labor contract matters.
(b) The Contractor indemnifies and holds harmless the United States Government from all claims arising out ofthe requirements ofthis clause. This indemnity includes the Contractor's obligation to handle and settle, without cost to the United States Government, any claims or litigation concerning allegations thatthe Contractor orthe United States Government, orboth, have not fully complied with local labor laws orregulations relating to the performance of workrequired by this contract.
(c) Notwithstanding paragraph (b) ofthis clause, consistent withparagraphs 3l.205-15(a) and 31.205-47(d) of the Federal Acquisition Regulation, the Contractorwill be reimbursed for the costs ofall fines, penalties, and reasonable litigation expenses incurred as a result ofcompliance with specific contractterms and conditions orwritten instructions from the Contracting Officer.
(R4, tab 2 at 10)

4. The government exercised the first three options, extending the term ofthe contractthrough 23 November 2012 (R4, tabs 8, 10, 13).
25. SupplyCore alleges that, at the time the contract was executed, Kuwaiti labor law required an employer to provide 15 days advanced notice oftermination to its employees (compl.**~** 4). On 21February2010, Kuwait enacted "The Law ofLabor in the Private Sector," No. 6of2010. Article 44 ofthat law provided, in pertinentpart:

In the event where the term ofthe work contract is not specified, bothparties shall have the right to terminate the
same by means ofa notice to the other party as follows:

a- Three months priorto the termination ofthe contract for workers earning a monthly remuneration.

b- One month priorto the termination ofthe contract for other workers. In the event where the party wishing to terminate the contract does not abide by the period ofnotice, he shall be obliged to pay the otherparty a compensation for the notification period equal to the remuneration ofthe worker for the sameperiod.
(Gov't am. mot., ex. 2 at KFLD-48)

6. In a 10 September 2012 email to SupplyCore, an Army contract specialist stated, "hopefully we will get the funding and approval for OY4 [option year 4] with plenty oftime to get it exercised without last minutejumping" (app. opp'n, ex. 8).

7. The record includes a 19 September 2012 email from the same contract specialist to an Army captain discussing the contract with SupplyCore. That email stated, in pertinent part:

The contract allows the Government to extend the term ofthe contract by written notice to the Contractor within 30 days; providedthat the Government gives the Contractor a preliminary written notice ofits intent to extend at least 60 days before the contract expires. This preliminary notice does not committhe Government to an extension. Basically what this means is that we need to provide [SupplyCore] with a letter ofintent to exercise the option priorto 24 Sep 12 ifwe planto exercise the option within 30 days. I'm sure [SupplyCore] would still accept the option ifit was within 30 days butthey may have additional costs associated. Lack ofreceipt ofa 60 day notice is
3SupplyCore's authorization to begin demobilizing on 24 Oct 12. They are still responsible for the final month of service but they can beginterminating housing leases, vehicle leases, notifying employees that their contract will be ending, etc. Once they do this then the Governmentwouldbe responsible for any related charges should we wish to exercise the option within that 30 day window.
(App. opp'n, ex. 2)

8. By letter dated 25 September 2012, the government notified SupplyCore ofits intentto exercise the fourth option period from 24 November 2012 to 23 November 2013. The notice further stated: "This preliminary notice does not committhe Government to an extension. Ifthe Government exercises the option, a fully executed modification will be provided to you prior to the contract[']s expiration date of 23 November 2012." (R4, tab 16 at 2)

9. On 27 September 2012, a General Officer Steering Committee (GOSC) met to discuss, inter alia, whetherto extend SupplyCore's contract (app. opp'n, Jameson dep. at 17-18). The decision made at that meeting was memorialized in a 1 October 2012 memorandum, which stated in pertinentpart:

2. The contract GOSC was presented a decision brief regarding the IBA warehouse at the Ali As [sic] Salem LSA in Kuwait on 27 September 2012 in order to determine the future ofthe current requirement.

5. Based on current use, which is less than 1500 customers per month, the elimination ofR&Rleave for units with a 270 day boots on ground (BOG), and an uncertainty regarding throughput at the gateway overthe next 12 months, the members ofthe GOSC concurred on the decision to not
renew the option year and operate the warehouse with Soldiers.
(R4, tab 17 at 3)

10. By email on 4 October 2012, the governmentprovided SupplyCore a copy of a 3 October 2012 letter from the contracting officer notifying SupplyCore that the governmentwould not be exercising the contract's fourth option (R4, tab 18).



### 411. Following receipt ofthe contracting officer's letter stating that the fourth option would not be exercised, SupplyCore provided notice oftermination to its Kuwaiti employees on 9 October 2012 (compl.**~** 15).

12. SupplyCore submitted a 15 November 2012 "Equitable Adjustment Request" seeking payment of$145,634.80 on the basis that Kuwaiti labor law required 90 days notice oftermination to employees and that the difference between the government's 3 October 2012 notice ofits intent not to exercise the fourth option "and the notice required by Kuwait law (90 days) subject[ed] SupplyCore to 39 days ofrenumeration [sic] (also know[n] in this case severance) pay" (R4, tab 19 at 1, 7, 8). The contracting officer denied SupplyCore's request by letter dated 14 January 2013 (R4, tab 20).

13. SupplyCore submitted an 11 April 2013 certified claim tothe contracting officer seeking $145,634.80 representing an "additional 39 days ofcompensation to the terminated employees" due to "the Government's failure to provide adequate notice of termination ofthe Contract." In its claim, SupplyCore asserted that following the change in Kuwaiti law regarding notice oftermination to employees, "compliance with Kuwaiti law was rendered impossible unless the Governmentprovided SupplyCore at least 90 days[] advanced notice ofits intent to not exercise its option for an extension ofthe Contract." SupplyCore alleged that it refrained from providing notice oftermination to its workers in reliance on the government's communications indicating that it intended to exercise the fourth option. SupplyCore therefore maintained that the government was "responsible for lack of90 days notice to [SupplyCore's] workers." (R4, tab 21 at 6)

14. The contracting officer denied SupplyCore's claim by final decision dated 28 May 2013 (R4, tab 23).

15. SupplyCore timely appealed by notice ofappeal dated 31May2013, which the Board docketed as ASBCANo. 58676. SupplyCore filed a complaint on 6 August 2013 asserting four grounds for relief: Count I-breach ofcontract for non-compliance with DFARS 252.222-7002(c), Compliance withLocal LaborLaws (Overseas), which provides for contract reimbursement ofcosts for compliance with local labor laws; Count II-breach ofcontract for failing to disclose superior knowledge; Count III-constructive change to the contract; and Count IV-breach ofimplied-in-fact contract ofgood faith and fair dealing (comp

### I. at 4-6).

16. In lieu offiling an answer, on 21August2013 the government filed a motion for summaryjudgment. By order dated 9 December 2014, the Board deferred ruling on the motion to allow the parties to engage in discovery.

17. Following the conclusion ofdiscovery, on 28 September 2015 the government filed an amended motion for summaryjudgmentcontending, inter alia: (1) appellant is not entitled to additional compensation under DFARS 252.222-7002(c); (2) appellant is not entitled to additional compensation based on a failure to disclose superiorknowledge;


### 5(3) there was no constructive change to the contract; and (4) the Army did notbreach its implied duty ofgood faith and fair dealing (gov'tbr.,passim). SupplyCore responded in opposition on 29 October 2015, contending that there are material facts in dispute regarding whetherthe government breached its implied duty ofgood faith and fair dealing by failing to inform appellant that it had determined that it no longerneeded the contract (app. opp'n at 11). The opposition did not address the otherthree government contentions.

DECISION
Summaryjudgmentis properly granted only where the moving party has met its burden ofproving the absence ofany genuine issue ofmaterial fact andthatitis entitled tojudgmentas a matter oflaw. Mingus Constructors, Inc. v. UnitedStates, 812 F.2d 1387, 1390 (Fed. Cir. 1987). A material fact is one which may affect the outcome ofthe decision. Anderson v. LibertyLobby, Inc., 477 U.S. 242, 248 (1986). All significant doubt over factual issues must beresolved in favor ofthe non-movingparty. Mingus at 1390 (citing UnitedStates v. Diebold, Inc., 369 U.S. 654 (1962)); SRIInternational v. Matsushita Electric Corp., 775 F.2d 1107, 1116 (Fed. Cir. 1985).

The government seeks summaryjudgment on all four theories ofrecovery raised in SupplyCore's complaint. In its opposition, SupplyCore does not address the government's arguments regarding DF ARS 252.222-7002(c), the superiorknowledge doctrine, or constructive changes (SOF**~** 17). Accordingly, we consider SupplyCore to have abandoned these issues. See States Roofing Corp., ASBCANo. 54860 etal.,**10-1BCA~34,356** at 169,664 (failure to address release ofclaims contention in its post-hearing briefequated to abandonment ofthe issue); Beyley Constr. Grp. Corp., ASBCANo. 55692, 08-2 BCA**~** 33,999 at 168,135 (brieffailed to address any issues raisedpreviously for which appellant claimed entitlement, thus the claim for performance cost deemed abandoned). Accordingly,
we grant the government summaryjudgment on Count I (Breach ofContract-DP ARS 

### § 252.222-7002(c)), Count II (Breach ofContract-Doctrine ofSuperior Knowledge), and Count III (Constructive Change).

In Count IV ofits complaint, SupplyCore argues thatthe governmentbreached its duty ofgood faith and fair dealing. Implied in every contract is a duty ofgood faith and fair dealing in its performance and enforcement. LakeshoreEng'gServs., Inc. v. United States, 748 F.3d 1341, 1349 (Fed. Cir. 2014); Metcalf Constr. Co. v. UnitedStates, 742 F.3d 984, 990 (Fed. Cir. 2014). The duty ofgood faith and fair dealing applies to the government as it does toprivateparties. Centex Corp. v. UnitedStates, 395 F.3d 1283, 1304 (Fed. Cir. 2005). A showing ofbad faith is not required to demonstrate a breach of the duty. SIA Constr., Inc., ASBCANo. 57693, 14-1 BCA**~** 35,762 at 174,986. The duty ofgood faith and fair dealing requires a party torefrain from interfering withthe other party'sperformance and from acting to destroy the reasonable expectations ofthe other party regarding the fruits ofthe contract. Bell/Heery v. UnitedStates, 739 F.3d 1324, 1334-35 (Fed. Cir. 2014); Centex, 395 F.3d at 1304. Whatthe duty entails is "keyed to the

6obligations and opportunities established in the contract,"Lakeshore, 748 F.3d at 1349, and depends on what the contract promises or disclaims, Bell/Heery, 739 F.3d at 1335. See also Metcalf, 742 F.3d at 991-92 (explaining the need to consider the contract's allocation ofrisks and benefits in considering a claim ofbreach ofthe duty ofgood faith and fair dealing). The implied duty ofgood faith and fair dealing cannot create duties inconsistent with the express provisions ofthe contract. Bell/Heery, 739 F.3d at 1335. SupplyCore does not contend that the government was required to exercise the fourth optionperiod orthat the failure to exercise the option was arbitrary, capricious, an abuse ofdiscretion, or done in bad faith. Rather, this contention turns onnotice. SupplyCore argues that the government "breached its implied duty ofgood faith and fair dealing by failing to inform SupplyCore that it had determined that it no longer needed the Contract, despite having knowledge that its failure to timely provide that information to SupplyCore would result in significant costs to SupplyCore" (app. opp'n at 11). Appellant maintains that "notonly did the Government fail to notify SupplyCore that it had decided it no longer needed the Contract, it actually informed SupplyCore that it intended to exercise the option to extend the Contract" 

### (id. at 12). SupplyCore asserts that the government was "aware that SupplyCore could not begin the demobilization process-including laying offits Kuwaiti workforce-until at least 60 days[] priorto termination ofthe Contract" 

### (id.). SupplyCore suggests that the "unfairness ofthe Government's actions" is underscored because the contract was a "fixed-price contract for which SupplyCore bore the risk ofexpense" 

### (id. at 13). SupplyCore's oppositionto the government's amended motion is, at best, confusing. The most liberal reading ofSupplyCore's argument is that the government breached the duty ofgood faith and fair dealing by failing to provide SupplyCore any notice that the fourth option would notbe exercised. The problem with the argument so framed is that the government did provide notice to SupplyCore that itwould notbe exercising the fourth option (SOF**~** 10), and SupplyCore does not dispute that it "received notice that the final option year would not be renewed on October 4, 2012" (app. opp'n at 5). We decline to read SupplyCore's opposition in such a self-defeating
manner. We instead interpret SupplyCore's opposition as arguing, consistent with its 11April2013 certified claim, that the implied duty ofgood faith and fair dealing required the government to provide earlier notice that the fourth option would notbe exercised. Nonetheless, we reject SupplyCore's argument.

The presence ofan option in a contract does not create a legal obligation upon the government to exercise the option. Mid-Eastern Industries, Inc., ASBCANo. 53015, 01-2 BCA il 31,471at155,383;DefSys. Co., ASBCA No. 50918, 00-2 BCA**~** 30,991 at 153,006. The exercise ofan option is generally within the broad discretion ofthe government. IMSEngineers-Architects, P.C., ASBCA No. 53471, 06-1BCAil33,231 at 164,674, recon. denied, 07-1BCAil33,467, aff'd, IMSEngineers-Architects, P.C. v. Geren, 274 F. App'x 898 (Fed. Cir. 2008); Plum Run, Inc., ASBCA No. 46091 et al., 97-2 BCA il 29,193 at 145,230. The option clause in SupplyCore's contract stated that
7the**gov~rnment** "may extend the term ofthis contract" (SOF**~** 2), providing the government such broad discretion here. See NortheastAir Group, Inc., ASBCA No. 46350, 95-2 BCA**~** 27,679 at 138,004-05. In light ofthe government's broad discretion in determining whether to exercise an option and the lack ofan obligation to do so, SupplyCore could only have reasonably assumed that the contract would expire on 23 November 2012. Nor could SupplyCore have reasonably relied on the government's communications indicating that it would exercise the fourth option. While the contract conditioned the exercise ofan option upon providing preliminary written notice ofthe government's intent to extend at least 60 days priorto the expiration ofthe contract, the option clause specifically stated that such notice would not committhe government to actually extend the term ofthe contract (SOF**~** 2). Because the governmenthad not yet exercised the fourth option, any expectation SupplyCore may have had that the contract would continue beyond the 23 November 2012 expiration date was patently unreasonable. SupplyCore seeks to shift responsibility onto the government, contending that the government knew that its failure to provide timely notice thatthe fourth option would not be exercised ''would result in significant costs to SupplyCore" (app. opp'n at 11). SupplyCore cites the contract specialist's 19 September 2012 email for the proposition that underthe contract, "SupplyCore was not authorized to begin the demobilization process, including laying offits workers, until 60 days[] priorto termination ofthe Contract term" (app·. opp'n at 9). Forthe purposes ofsummaryjudgment, we accept SupplyCore's characterization ofthe 19 September 2012 email. That email alone, however, is insufficient to establish that SupplyCore was prohibited from providing timely notice oftermination to its employees. SupplyCore cites no provision ofthe contract that precluded SupplyCore from giving the required notice to its employees under Kuwaiti law until the government notified it thatthe contractwould not be extended. DFARS 252.222-7002(b), on the other hand, placed the risk ofcompliance with Kuwaiti law squarely on SupplyCore. Furthermore, because the contract was firm fixed-price, SupplyCore also bore the risk that the cost ofsuch compliance would increase. Lakeshore, 748 F.3d at 1347 ("The essence ofa firm fixed-price contract is that the contractor, not the government, assumes the risk ofunexpected costs."); Raytheon Missile Sys. Co., ASBCANo. 57594, 13 BCA**~** 35,264 at 173,117 ("[T]he risk allocated to contractors by fixed-price-contracts ofunexpected increases in the costs ofmaterial and labor is very broad indeed."). The contract specialist's 19 September 2012 email, therefore, does not raise a material factual issue that would bar summaryjudgment.

Basedupon the foregoing, the government did not breach its duty ofgood faith and fair dealing.



### 8CONCLUSION

The government's amended motion for summaryjudgment is granted. The appeal is denied.

Dated: 17 February 2016

oc:wfLSON Administrative Judge Armed Services Board ofContractAppeals

I concur I concur

# ~~~Rl~CKLEFORD Administrative Judge Acting Chairman Armed Services Board ofContract Appeals Administrative Judge Vice Chairman Armed Services Board ofContract Appeals

I certify that the foregoing is a true copy ofthe Opinion and Decision ofthe Armed Services Board ofContractAppeals in ASBCANo. 58676, Appeal ofSupplyCore, Inc., rendered in conformance withthe Board's Charter.

Dated:

9 JEFFREY D. GARDIN Recorder, Armed Services Board ofContract Appeals