ARMED SERVICES BOARD OF CONTRACTAPPEALS Appeal of

-- ) ) Optex Systems, Inc. ) ) Under ContractNo. W52H09-06-D-0229 )

APPEARANCES FORTHE APPELLANT:

APPEARANCES FORTHE GOVERNMENT: ASBCANo. 58220

Albert B. Krachman, Esq. Harrison R. Kang, Esq.

BlankRome LLP Washington, DC Raymond M. Saunders, Esq.

Army ChiefTrial Attorney MAJ Cameron Edlefsen, JA

Trial Attorney
OPINION BYADMINISTRATIVE JUDGE O'SULLIVAN ONTHE GOVERNMENT'S AFFIRMATIVE DEFENSES Optex Systems, Inc. (Optex) appeals from a Contracting Officer's (CO's) final decision denying its claim for increased costs incurred in producingprecision optical sighting instruments, known as M2A2 Aiming Circles, used by the U.S. military to aim howitzers. The governmenthas asserted as affirmative defenses that appellant's claim is barred by release andby accord and satisfaction. Theparties have submitted the issues ofrelease and accord and satisfaction for decision on the written record pursuant to Board Rule 11. The Boardhasjurisdiction underthe Contract Disputes Act, 41 U.S.C. §§ 7101-7109. We find that appellant's claim is not barredby release
orby accord and satisfaction.

FINDINGS OF FACT

1. On 23 January 2006, the Rock Island Arsenal, Rock Island, Illinois, (government) issued a solicitation for offers for award ofa five-year Indefinite Delivery/Indefinite Quantity, firm-fixed-price contract for the production and delivery ofthe Aiming Circles (R4, tab 16). The solicitationreserved the rightto make multiple awards. (R4, tab 15 at 2)
2. On 7 July 2006, the government awarded ContractNo. W52H09-06-D-0229 (hereinafterthe contract) to Optex (R4, tab 1). Delivery Order (DO) No. 0001, for 310 Aiming Circles in the total amount of$1,283,260.20, was also issued to Optex on

### 7July 2006 (R4, tab 39). Costs to prepare for and undergo First Article Test (FAT)
were included in the unit prices (id.).



### 3. The government also awarded a contract and a first delivery order for Aiming Circles to Radian Corp., a small business later acquired by DRS Technologies, Inc. (amended compl. and**answer~** 

### 34).

4. The contractrequired Optexto manufacture the Aiming Circles in accordance with specifications contained in Technical DataPackage (TDP) No. 11785090 (R4, tab 15 at 11-12). Prior to the award to Optex and Radian, the Army was the sole manufacturer ofAiming Circles (Appellant's Rule 11 Cross Motion for Judgment on the Release Issue and Memorandum in Support, ex. B, decl. of Danny Schoening (Schoening decl.)**~** 

### 13). The majority ofdrawings in the TDP are dated from 1955-1960, and some from even earlier (gov'tbr., ex. 4, decl. of Anthony Corcella**~** 

### 10).
5. On 29 June 2007, the parties executed bilateral Modification No. P00002 to the contract (R4, tab 221). This modification incorporated four Engineering Change Proposals (ECPs) making changes to the TDP (id. 

### at 2). All other terms and conditions remained unchanged (id.)



### 6. The first ECP, No. H06A2077 (ECP #1), updated the TDP to make the Aiming Circle easierto produce, using alternate materials for castings, new set screws, and different sealing compounds (Joint Stipulation ofMaterial Facts (J. Stip.)**~** 

### 6.a). ECP # 1also corrected drawing callouts and added distribution statements (id.; 

### R4, tab 65 at 2-3).

7. The secondECP, No. H06A2093 (ECP #2), updated the TDP to add alternate materials, add or correct missing or incorrect dimensions and tolerances, correct callouts, update finishes, add distribution statements, update cancelled standards, and add a new "QAP" (J. Stip.**~** 

### 7.a). ECP #2 stated: "Numerous issues withthe TDP were found during preparations for initial production. These issues have been addressed in this ECP so that the M2A2 Aiming Circle TDP will be correct, up to date, andproducible." (Id.; 

### R4, tab 110 at 3)
8. The third ECP, No. H07A2004 (ECP #3), made more changes to the TDP "to address issues found during initial productionplanning" (R4, tab 156 at 1-2, 5).
9. The fourth ECP, Appellant's Request for Deviation No. H07A7006 (ECP #4), changed the brass alloy specified for a set screw at appellant's request (J. 

### Stip.**~** 

### 9.a).

210. Appellant's Request for Equitable Adjustment (REA) dated 7 October 2010 calculatedthatthese 4 ECPs encompassed 119 changesto the TDP (R4, tab 590 at 1 ). SubsequentECPs broughtthe claimedtotal changesto the TDP to 254 (id.).

11. Beginning atthe post-award orientation conference in September2006, Optexrequested thatthe government modify the limitation onprogress payments to allow Optexto bereimbursed for the purchase oflong lead items (R4, tab 43 at 4). The contract as awarded contained a special clause H-3, 52.232-4506,PROGRESS PAYMENTLIMITATION (MAR 1988), which provided:

Priorto first article approval, only costs incurred for the first article are allowable for progress payments; however, suchpayments shall not exceed 10 percent (10 %) ofthe initial award value ofthe contract. (R4, tab 15 at 22) The contract also contained the standard progress payments clause, Federal Acquisition Regulation (FAR) 52.232-16 (APR 2003) (id. at 27-30).

12. On 29 May 2007, following the approval ofECPs##1-4, Optex submitted a list ofparts thatit consideredto be long lead items andrequested funding in the amount of$736,402 to coverthe cost oforderingthe parts (R4, tab 194). On 18 June 2007, the government responded that the submission was being reviewed, and requested that Optex add partnumbers to its listing (R4, tab 208). Also on 18 June, Optexresponded that it wouldprovide a more detailed list, and inquired whether it would be possible to remove special clause H-3 (R4, tab 219 at 1). By letter dated 28 June 2007, the CO declinedto remove the clause, statingthat the government "does not want to risk an amount greaterthan the 10% ofthe contract value

...becausethere is no evidence of progress ofcompletedparts and/or parts thathave beentested" (id. at 4).

13. On 2 July 2007, the contract specialistreminded Optexthat the government was still awaiting the more detailed list oflong lead items, and explainedthat although the governmentwas unwilling to remove the H-3 clause, it was still willing to consider funding for long lead items (R4, tab 224).

14. By letter dated 10 July 2007, Optexprovided the detailed list oflong lead items and expressed its hope that the governmentwould modify the contractto allow for theprocurement ofproduction material (R4, tab 228). On 31 July the government responded, requesting the delivery schedule for the listed items (R4, tab 237).

15. Following some clarifying communications, on 20 October 2007 Optex submitted a revised long lead itemproposal detailing the parts, costs, and on-order dates neededto meet the contract's production delivery requirements (R4, tab 304). Funding was requested in a total amount of$490,799.89 (id.). The contract specialist

3obtained internal government concurrence that the listed items met the definition of long lead items (R4, tabs 317, 319). She also obtainedthe concurrence ofthe administrative contracting officer to allow progress payments for those items (R4, tab 324). Forreasons that do not appear in the record, however, the contractwas not modified to allow for long lead item funding.

16. FAT commenced on 4 May 2009 (R4, tabs 510, 511).

17. On 5 May 2009 Optexresumed its request for funding oflong lead items (R4, tab 512). In the interim, Optexhadpurchasedparts needed for production at its
own risk in orderto expediteproduction after first article approval (id.). The total of Optex's at-risk expenditure was $1,352,563.60 (id.)

18. By 7 May 2009, two ofthree first article assemblies had passed all tests with the exception ofpressure testing. One assembly had displayed an issue with plumb travel, and the government gave Optexthe option ofsubmitting a waiverrequest to allow for the problem to be fixed and tested withoutrepeating all tests. (R4, tab 513)
19. On 7 May 2009, the government's item manager authorized payment for the long lead items purchasedby Optex, stating: "Approved. We don'thave much choice." (R4, tab 516)

20. On 18 May 2009, the government sent Optex Modification No. 02 to DO 0001 (Mod 2 to D0-1) (Version 1) authorizing long lead items in the amount of $982,437.60 (app. supp. R4, tab 1). Ofthis amount, $884,193.84 was eligible for paymentpursuant to the 90 percent limitation ofthe progress payments clause, FAR52.232-16 (id.).
21. Optex signed Version 1ofMod 2 and returned itto the government on 19 May 2009 (app. supp. R4, tab 2).

22. Between 19 May and 22 May 2009, the parties realized that Mod 2 was missing a revised delivery schedule (Schoening decl. 

### ii40). On 21 May 2009 the contracting officer'srepresentative (COR) emailed Optex with the revised schedule that had been discussed and asked that Optex confirmthat it agreed with the new schedule (R4, tab 526). Optex's Mr. Schoening responded on 22 May:

(Id.) Matthew, this schedule is acceptable. We are still working through the details offitting the gearto the main housing with the supplier, butthis schedule allows for a reasonable amount oftime for them to perform this operation.

423. On 22 May 2009, the government emailed Optexthe contract modification containing both the long lead item funding authorization and the new schedule (Mod 2 to D0-1, Version 2) (app. supp. R4, tab 3). In addition to the long lead funding and the new schedule, Version 2 added the stipulations that there wouldbe no costto eitherparty and that earlier delivery was authorized ifat no additional cost to the government (id.).

24. On 26 May 2009, at 2:30 pm, the CORemailed Optexwith Version 3 of Mod 2, stating that his CO hadreviewed the modification and asked him to make an additiontopage 2 (app. supp. R4, tab 4). The addition, paragraph 6, consisted ofthe following: "The contractorhereby waives all rights and claims for equitable adjustments attributable to such facts and circumstances giving rise to the above changes and documentation, including any delays" (id.).

25. This version caused some concern within Optex. Renita Rutherford, Optex's contract administrator, calledthe COR, Matthew Kopel, to ask him why the government added that language and to inform him that Optex could not agree to that language and that she would need to speakto Optex leadership (gov'tbr., ex. 3, dep. ofRenitaRutherford (Rutherford dep.) at 41-42). Ms. Rutherford then talked to Mr. Schoening, and they discussed whatpossible connection the added language might have to the two purposes ofMod 2, long lead funding and revised delivery schedule (gov'tbr., ex. 2, dep. ofDanny Schoening (Schoening dep.) at 53-54).

26. Mr. Schoening expressedthe view that Optex could waive claims for issues experienced up to 26 May 2009 (Rutherford dep. at 42, 47).

27. Ms. Rutherford called Mr. Kopel back and told him that Optex was willing to agree to waive claims for "anythingbeforethis day," butneeded to carve out from the scope ofthe release emerging assembly issues, including the mating ofthe gear to the housing (Rutherford dep. at 42). Mr. Kopel agreed to capture thatreservation in a revised modification (id.).

28. At 4:15 pm on 26 May 2009, the government sent Optex Version 4 of Mod 2 (app. supp. R4, tab 5 at 1). Version 4 added the following language, replacing paragraph 6 in Version 3:
The parties intend this modification to address all ofthe past issues onthis contract as of26 May 2009. Therefore, this modification represents a complete and full settlement ofall claims, demands, and causes ofaction that Optex may raise for any incidents, directed/constructive changes, and any other matters, occurring on or before 26 May 2009, including any claims for delay, and any other causes

5 

# I(Id. at 3) ofaction, known or unknown to Optex, whether asserted at this time or not, arising under this contract. This Modification will not affect any claims orcauses ofaction pertaining to incidents, directed/constructive changes, or other matters which occur after 26 May 2009.

29. Ms. Rutherford testified that upon receiving this version, she wentback to Mr. Schoening "andtold him they still didn't do what we asked them to do" (Rutherford dep. at 44). She further stated:

(Id.) And I told him that I would draft up language for him to take a look at for us to go backto Mattwith, but ifhe agreed with the-the language that they came back with, the delivery schedule andthe long lead time items, then we could craftthis language to further explain what we were saying in the conversation and sendthat backto him.

30. At 4:47 pm, Ms. Rutherford emailed a signed modification (Version 4) backto the government with the following note:
Matt,

Please find attached the signed modification. Although it is understood that this modification encompasses all issues thru today, there is still one issue outstanding that we are working andhas not beenresolved regarding the mating of the gear to the housing. Whenthis issue is resolved and if it involves changes to the TDP which may require Optexto incur additional costs we will at that time pursue a modification and/or equitable adjustment to the contractto encompass the change and additional costs. (App. supp. R4, tab 5 at 1)

31. Ms. Rutherford testified that she did not ask the government to add the language in her email to the modification because by: [S]pelling it out in my e-mail and letting them know that, you know, wehad this-this issue, and it needed to be

6

### carved out. And that we are going to, you know, request an equitable adjustment at thattime, ifit shouldbe an issue, would have been enough. (Rutherford dep. at 48)
32. Mr. 

### Schoening testified that Optex's view ofthe release language in Version 4 ofMod 2 was that:

It

### appeared to relieve the Government of--of liability on issues prior to May 26, 2009. But it seemed to have too much breadth in the statement. So we-we wanted to communicate our outstanding issue with the assembly issues, so we captured the assembly issues in the
cover letter e-mail, which is Government Exhibit Number 11. Q [Government Counsel] Okay. So did Optex disagree with item number 6 as-inthe final version? A We didn't agree with it, and we didn't disagree with it. It 

### seemedtoo broad. We didn'tunderstandthe breadth and how it was focused on the two problems at hand: The long lead time material and the schedule. (Schoening Dep. at 62)
33. The government executed Version 4 ofMod 2 on 28 May 2009 (R4, tab 529). The CO testified that she reviewed the language in Ms. Rutherford's email and considered it to be further clarification ofand consistentwith the intent of paragraph 6 ofthe modification:

A I didn'treview it as a problem because they stipulated here that they had an issue that's still not resolved and that ifthere's changes to the TDP, which may require Optexto incur additional costs, they had more than
a rightto submit an REA or a request for equitable adjustment. Butthe mod stipulates up until May 26, 2009, all the issues are covered. And, remember, there's only three units for first article. 

### Q Sure. A So this is not production. This is not, you know, for the quantity that was to be delivered, ifthey're still having problems making these items, they haven't finished

7with first article, they haven't finished withproduction. We're not there yet. Q Got it. A All the mod did was-themodification that we hadrevised the schedule with the long lead item provision in andthat's all it was doing and it was saying, okay, any ofthe past issues are done, so
... 

### Q So it was your understanding that Ms. Rutherford-Drake's language wasn't a problem because it wasn't-thatwasn'twhatthe waiver language in the mod covered? A The waiver language coveredthrough 26 May 2009. Anything afterthat they have the right to submit an REA. Ifthey can support it, fine. That'stheirprerogative. Q So there was no issue with her sayingthat they had this outstanding issue relating to the mating ofthe gear to the housing, as far as you were concerned, that was a future issue? A As far as what this says, this wasjustbasically further clarification to whatMatt and Ms. Drake worked out in that language, that, you know, ifsomething comes up in the future, then they have a rightto submit a claim. I don'thave an issue with that. Itjustprovides further clarificationto whatthe language was in the mod. (Gov'tbr., ex. 1, dep. ofJoyce Klein at 100-02)

34. Followingthe execution ofMod 2, Optex submitted an invoice for the cost oflong lead items for the Aiming Circle production quantities and received payment (Schoening Dep. at 76).

35. On 28 August 2009, Optexreceived notice from the government that its FAT report had been approved and that it was clearedto beginproduction ofthe M2A2 Aiming Circle (R4, tab 574).
36. On 7 October 2010, after successful delivery ofapproximately 60 percent ofthe quantity called for under DO 1, Optex submitted a request for equitable adjustment in the amount of$966,735 (R4, tab 590). Optex cited the cost ofmaking 254 changes to the TDP, the cost ofcommunicating those changes to its supply chain, the assembly time required to produce the Aiming Circles in excess ofwhat could reasonably have been expected, material losses, and delay and disruption resulting from the totality ofthe issues cited (id.).

837. Afterreview, on 10 November 2010, the government requested further information from Optex:

(R4, tab 599) TACOM Contracting Center needs further information in the area ofyour letter, paragraph 1page 2
as to the tasks and how the specific costs incurred relate to items 1through 6. Please provide a breakdown ofthis information into specific costs by action: labor hours and rates, vendor quotes, etc. to support specific extra material expenses, indirect rates, etc. incurred. The breakdown of costs mustrelate to items 1-6 and support the REA cost proposal as shown in attachment A.

38 On 17 November 2010, Optex responded withthe requested detail (R4, tab 600).
39. On 6 January 2011, Optex wrote to the CO in response to a letter from the CO dated 27 December 2010 which does not appear in the record1(R4, tab 604). Optex summarized the CO's letter as follows:

Peryour letter dated 27 December, 2010 you stated that Modification 02 ofDelivery Order 000I was signed by Optex and the Government on or around 26 May, 2009. Further, you've stated that Optex needs to specify the costs associatedpriorto this date and subsequentto that date. And finally, you've asked that Optexreview and submit claims according to FAR33.207. Please see belowwhere
we have described these claims in detail...and we are submittingthis claimperFAR33.207 for only those costs occurring after 26 May, 2009.
(Id.) Optex's claim in the amount of$879,169.05 was certifiedby Mr. Danny Schoening, Optex's General Manager and ChiefOperating Officer, and Karen Hawkins, Optex's Vice President ofFinance and Controller 

### (id.).

1An undated draft ofthe CO's letter is appended as exhibit G to appellant's Memorandum in Support ofAppellant's Cross-Motion for Judgment on the Release Issue.

940. On 6 May 2011, the contract was modified to transfer contract administration authority from the TACOM Contracting Center at Rock Island, Illinois to the TACOM Contracting Center at Warren, Michigan (R4, tab 605).

41. The record indicates that Optexbegan communicating with the new CO, Mr. Howard Lewis, in December of2011 regarding its outstanding claim (R4, tabs 606, 607). Optex was responding to the new CO's requests for information (id.).

42. On 9 January 2012 the new CO wrote to Optex acknowledging receipt ofa copy ofOptex's 6 January 2011 certified claim. He requested further information regarding (1) the "additional costs associated with all the changes done to the contract priorto 26 May 2009," (2) "costs you claim that you could nothave anticipated after 26 May 2009 because ofan alleged defective TDP," and (3) a "detailed assessment" "concerning whether a prudent manufacturer ofdevices similarto the Aiming Circle could have and/or shouldhave anticipated any additional costs for producing the Aiming Circle on 26 May 2009

...." (R4, tab 611)

43. Optexresponded on 11 January 1012 (R4, tab 612 at 4). As tothe first item, Optex incorporated cost information previously submitted in 2010 showing pre-26 May 2009 costs of$189,684.51. As to the second item, Optex updated its previously submitted claimed amount ($879,169) by omittingFATcosts and updating incurred costs, for a total of$903,262 (id at 5).

44. As to the third item, Optexresponded:

In July of2005, Optex and Radian (soon thereafter purchased by DRS Technologies) were given almost identical contracts, each for the same quantity and almost exact sameprices. Overthe next 4 years both companies worked withthe Governmentto make 254 changes to 141 different documents

.... Some ofthese changes were recommended by DRS, some by the Government, and
some by Optex. The intent ofthis complete overhaul of the TDP wasto end up with a reasonable TDP which a prudent contractor skilled inthe field ofFire Control products wouldbe able to reliably and repeatedly produce.

We all failed.
While the TDP is in much better condition, the dimensions and tolerances captured in the drawings do not allow a prudent contractor to assemble the device with a reasonable process in a reasonable amount oftime. The

10evidence ofthis is that DRS failed their FAT Testing 6 times! A company with the knowledge ofFire Control and the vastresources ofa large corporation and even after 254 changes to the TDP the parts that they submittedwould not meet the upper level print requirements

.... Given this background, and the fact that Optex has completed the contract andthat Optexhas completed multiple contracts in Fire Control (Ml87 Mounts, Ml37 Pantels, Abrams CWSS, Bradley BackUp Weapon Sights, ASM M36 Weapon Sights, etc.), we believe that Optexhas repeatedly shown the capability to produce Fire Control Products which have exceptional Quality, Field Performance, and Field Reliability. (R4, tab 612 at 5-6) Optexwent on to explain that it could not in May 2009 anticipate the additional costs ofassembly because, due to the extremely long period oftime between contract award and FAT taken up with TDP changes, Optexhad already ordered and received most ofthe production material and was under pressure from the government to complete FAT and beginproduction. Both contractors were late, and the customers were "furious." As a consequence, Optex'spriority was to get three units into FATwithout taking the time first to reengineerthe manufacturingprocess or to modify material already ordered. The three first article units were produced and the "general" assembly processes were documentedbutthere was no time to develop the most efficientway to make the assemblies in the future due to government driven urgency. While they understood theprocess of"mixing and matching" piece parts underthe applicable MIL STD and had done so under other contracts, the complexity ofthis particularrequirement and the need to also "mix and match" subassemblies was not known in May 2009. (Id. at 6)

45. The government's views upon review ofOptex's submission were mixed. One engineerthoughtthat a prudent contractor who was "familiarwith the production and assembly ofcirca 1950 military optical fire control" would be able to produce an Aiming Circle with the original TDP (R4, tab 614 at 1 ).

46. The government's quality assurance specialist did not believe that a prudent manufacturer ofsimilar devices could have anticipated the additional cost and production problems to be encountered after 26 May 2009 (R4, tab 614 at 3). He stated: [T]he uniqueness ofthis item is such that I have not encountered any other device utilized andpurchased by the government for fire control that is similar to the aiming

11(Id.) 

### circle quadrant. This item is unique to the interaction of optics and mechanical gears to produce the accuracy that is required. With that I do not believe the additional problems and cost could be foreseen. To this contractors [sic] credit they did achieve success where the other contractor did not. OPTEX continued to improve where the other contractor would not. Atthis date I cannot with all honesty say that the government has supplied this contractor (OPTEX) with a fully functional up to date tech data package and that future problems or cost could not be encountered.

47. A third engineerwas ofthe opinion that:
The pertinent question is, once all the parts are made to print will they fit together in an assembly line fashion to make a working aiming circle. Apparently not. That being the case, would a thorough review ofthe TDP, and the experience leading up to First Article provide enough information for a contractor to know what it will take to produce working aiming circles

....[O]nce you've gone through the TDP thoroughly enough to make the FAT units, and assembled them, you should know what it will take to make the remaining units. (R4, tab 615)
48. In mid-February 2012, at the CO'srequest, Optex provided further detail in support ofits assertion that it could anticipate mixing and matching piece parts but not the added complexity ofmixing and matching subassemblies (R4, tabs 617, 618). A meeting to discuss Optex's claim was held on 19 April 2012 (R4, tabs 619-23).
49. By letter dated 31May2012,the CO denied Optex's claim (R4, tab 626). His final decision does not find that Optex released its claims to costs incurred after 26 May 2009 in Mod 2. To the contrary, the final decision refers to 26 May 2009 as "the date Optexwaived all claims for past costs." (Id. 

### at 3) The CO denied the claim because "Optex should have known when it signed the contract that extensive hand fitting ofthe parts ofthe Aiming Circle was possible" (id.).



### 1250. Optex appealed to this Board on 9 July 2012 (R4, tab 628). Via its second amended answer filed on 1November 2013, the governmentraised for the first time the affirmative defenses ofrelease and accord and satisfaction.

51. On 3 January 2014, the partiesjointly moved for "Bifurcated Determination on Respondent's Affirmative Defenses Related to Release," requesting thatthese issues be decided on the record pursuantto Board Rule 11 without a hearing. The Board granted the parties' motion and set a briefing schedule. Briefingwas completed on 18 July 2014.

DISCUSSION

Release and accord and satisfaction are separate affirmative defenses. 

### Holland
v. UnitedStates, 621F.3d1366, 1377 (Fed. Cir. 2010). "Arelease is a contract whereby a party abandons a claim orrelinquishes a rightthat couldbe asserted against another." 

### Id. An accord and satisfaction occurs when "aclaim is discharged because
someperformance otherthan that which was claimed to be due is accepted as full satisfaction ofthe claim." 

### Id. (citing 

### 0 'Connor v. UnitedStates, 308 F.3d 1233, 1240 (Fed. Cir. 2002). Although the defenses are distinct, "an agreement may constitute both a release and an accord and satisfaction, either ofwhich may barfuture claims." 

### Holland, 621 F.3d at 1377; 

### Colorado RiverMaterials, Inc., ASBCANo. 57751, 13 BCA

### ii 35,233 at 172,991.

The party asserting the affirmative defense ofaccord and satisfaction has the burden ofproving all four elements ofthe defense. 

### Troy Eagle Group, ASBCA No. 56447, 13 BCA

### ii 35,258 at 173,060. The four elements are: (1) proper subject matter; (2) competentparties; (3) a meeting ofthe minds ofthe parties; and (4) consideration. 

### Holland, 621 F.3d at 1382. The government must show mutual agreement in satisfaction ofa claim which is a 

### bona fide dispute. 

### WrightAssocs., Inc., ASBCANo. 33721, 87-3 BCA

### ii 20,056 at 101,535.

In interpreting a release, general principles ofcontract interpretation apply. 

### Information Systems & 

### Networks Corp. v. UnitedStates, 68 Fed. Cl. 336, 341 (2005). "[T]he inquiry regarding releases should focus on the intent ofthe parties at the time the release is executed, and this intent shouldbe sought from the whole and everypart ofthe instrument

...." 

### Futuronics Corp., ASBCANo. 29324, 85-2 BCA 

### ii 18,137 at 91,045. Ifthe provisions ofa release are "clear and unambiguous, they mustbe given their plain and ordinary meaning." 

### BellBC!Co. v. UnitedStates, 570 F.3d 1337, 1341 (Fed. Cir. 2009). Conversely, ifthe words defining the scope ofthe release are ambiguous intheir application to a contractor's claim, courts and boards will ascertain the parties' intentby examining the parties' conduct leading up to the modification. 

### R.P. Richards Constr. Co. v. UnitedStates, 51 Fed. Cl. 116, 122 (2001) (additional evidence canbe consideredwhenthere is ambiguity in the terms ofthe

13agreement); Chantilly Constr. Corp., ASBCA No. 24138, 81-1BCA,14,863 at 73,397 (modifications' scope didnot include contractor's claims for delay and impact costs where such costs were not considered by the parties during negotiations leading up to the modifications); see also HanleyIndustries, Inc., ASBCANo. 54315, 05-2 BCA,33,032 at 163,711. Where a contract contains terms that are susceptible of
more than one meaning, and extrinsic evidence does not clearly establish the parties' intent, the document will be given that meaning that is more favorable to the party that did not draft it. Peter Kiewit Sons' Co. v. UnitedStates, 109 Ct. Cl. 390, 418 (1947); Information Systems & Networks, 68 Fed. Cl. at 342.
The government asserts that Mod 2 to D0-1 operated both as a release of Optex's increased assembly cost claim and as an accord and satisfaction discharging Optex's claim for increased assembly costs. In order to sustain its burden ofproofon either defense, it must show that bothparties intendedMod 2 to release and/or discharge the claim thatis the subject ofthis appeal.

In ascertaining the intent ofthe parties, we first lookto the four comers ofthe documentto determine iftherelease containedtherein is "clear and unambiguous." Version 4 ofMod 2 is the version signedby bothparties. The executed modification states that its purpose is to: (1) "Allowthe purchase oflong lead items prior to First Article approval to facilitate on-time delivery"; (2) authorize payment requests ofno more than 90 percent ofthe approved amount for long lead items; (3) supersede the Progress PaymentLimitation clause; (4) formally incorporate a revised delivery schedule; (5) do this at no cost to eitherparty; (6) incorporate the waiver language at issue (discussed below); and (7) authorize early delivery ifat no additional cost to the government. (App. supp. R4, tab 5 at 2 of4) Paragraph 6 contains the waiver language inserted following Optex's expression ofits concerns that the waiver language in Version 3 ofMod 2 was too broad. Itbegins: "Theparties intend this modification to address all ofthepast issues
on this contract as of26 May 2009." (Finding 28) (Emphasis added) Itgoes on: Therefore, this modification represents a complete and full settlement ofall claims, demands, and causes ofactionthat Optex may raise for any incidents, directed/constructive changes, and any other matters, occurring on orbefore 26 May 2009, including any claims for delay, and any other causes ofaction, known orunknown to Optex, whether asserted atthis time or not, arising under this contract.

14Finally, paragraph 6 concludes with the following sentence: "This Modification will not affect any claims or causes ofaction pertainingto incidents, directed/constructive changes, or other matters which occur after 26 May 2009." (Id.)

We find that the language ofparagraph 6 ofMod 2 is not clear and unambiguous. While the language used in the second sentence, particularly the words "known or unknown," is very broad and could be argued to encompass all claims whose operative facts occurred prior to 26 May 2009, even though unknown to Optex at thattime, such a reading would conflictwith the first sentence, restricting the scope ofthe release to "past issues." An unknown claim could not be a "past issue on this contract." Theterm "pastissue" necessarily implies that the parties have had a dispute, or disagreement, or at least a discussion ofdiffering views onthe matter.
When interpreting the language ofa contract, the Board must give reasonable meaning to all parts ofthe contract and not render portions ofthe contract meaningless. Gould, Inc. v. UnitedStates, 935 F.2d 1271, 1274 (Fed. Cir. 1991); Chamac, Inc., ASBCANo. 44905, 94-1BCAif26,482 at 131,817. The first sentence clearly states the parties' intent "to address all ofthe past issues onthis contract as of 26 May 2009." To give effect to this intent, and to read the paragraph as a harmonious whole, requires that the scope ofthe second sentence be restricted to "causes ofaction, known orunknown to Optex," pertainingto known "past issues onthis contract." Alternatively, a broader reading ofthe second sentence (as urged by the government) would introduce an internal inconsistency, and therefore an ambiguity, the resolution ofwhich wouldrequire extrinsic evidence ofthe parties' understanding ofthe scope of the release. R.P. Richards Constr., 51 Fed. Cl. at 122; Information Systems & Networks, 68 Fed. Cl. at 342; Chantilly Constr., 81-1BCAif14,863 at 73,397.
The record contains evidence, from boththe government and the contractor, indicating thatbothparties understood at the time they entered into Mod2, and subsequently, that issues and additional costs encountered by Optexwithrespect to assembly ofAiming Circles up to and including 26 May 2009 were includedwithin the scope ofthe release, while issues and costs pertainingto assembly ofAiming Circles post-26 May 2009 were not. Thus, the CO at the time Mod 2 was entered into, Ms. Klein, testified that she understood that Optex had an issue that was notresolved, but in herview the modification covered only up to 26 May 2009, and "[a]nything afterthatthey have the right to submit an REA." She testified that all Mod 2 did was revise the delivery schedule with the provision for long lead items. Indeed, she specifically stated that up to 26 May 2009, "there's only three units for first article," "[s]o this is notproduction. This is not, you know, for the quantity that was to be delivered, ifthey're still having problems making these items, they haven't finished with first article, they haven't finished withproduction. We 're not thereyet." (Finding 33) (Emphasis added)

15The witnesses for appellant testified to a view consistent with the CO's. Ms. Rutherford, appellant's contract administrator, and Mr. Schoening, Optex's General Manager and COO, stated that Optexbecame concerned when the government began adding waiver language to the modification because they did notunderstand what connection the language had to the purpose ofthe modification, whichwas to resolve the past issues pertaining to long lead item funding and revise the delivery schedule. (Finding 25) Ms. Rutherford specifically informed the government's COR, Mr. Kopel, that Optex could agree to waive claims for "anything before this day," but neededto carve out from the scope ofthe release any assembly issues going forward (finding 27). Mr. Kopel agreedto effectuate this limitation in revised language (id.). Shortly thereafter, he sent Optexthe language that is in the executed modification, limiting the scope ofthe waiver to "past issues on this contract as of26 May 2009" and specifically excluding claims or causes ofaction pertaining to matters occurring after 26 May 2009 (finding 28). Optex was not satisfiedwith the final language but signed the modification and sent it back with an email specifying thatthe issue they were currently working with regard to the mating ofthe gearto the housing "has notbeenresolved" and was outside the scope ofthe waiver (finding 30). The CO, Ms. Klein, viewed this statement as consistent withthe intended scope ofthe release, and not as an exception to that scope (finding 33).
The testimony ofthese witnesses is also consistentwith the totality ofthe record in this case, in thatthe record is replete with communications pertaining to the issue oflong lead item funding, beginning in September of2006, 32 months prior to the execution ofMod 2, and continuing up to its execution in May of2009 (findings 11-15, 17, 19-23). Thus, there is no doubt that long lead item funding belongs to the category of"pastissues on this contract," in the words ofMod 2, paragraph 6. In stark contrast, the record is devoid ofany communications whatsoever pertaining to a potential claim for assembly issues until the government's insertion ofwaiver language into Version 3 ofthe modification prompted Optexto seek clarification of the scope ofthe release. Additionally, the conduct ofthe parties after a contract modification has been signed is relevant evidence oftheir intentions withrespectto the scope ofa release contained inthat modification. Englandv. Sherman R. Smoot Corp., 388 F.3d 844, 849-50 (Fed. Cir. 2004) (citing CommunityHeating & Plumbing Co. v. Kelso, 987 F.2d 1575, 1581 (Fed. Cir. 1993)).
The conduct ofthe government after Optex submitted its REA in October of 2010, up to the issuance ofthe CO's final decision denying Optex's claim on 31 May 2012, evidenced its continuing agreementthat a claim for assembly issues after

1626 May 2009 was not foreclosed by Mod 2. Thus, the governmentrequestedthat Optex segregate its claimed costs into those incurredbefore and after 26 May 2009. (Finding 39) Optexrespondedby eliminatingpre-Mod 2 costs and resubmitting a certified claim only for costs incurred after 26 May 2009 (id.). After contract administrationwas transferred to a new CO, he requested further information about costs incurredbefore 26 May 2009 and why Optex could not or should nothave anticipated, on or before 26 May 2009, the additional costs occurring after 26 May 2009 (finding 42).

Not even in the final decision denying Optex's claim in its entirety does the government take the positionthat the claim was released in Mod 2. Indeed, the final decision refers to 26 May 2009 as "the date Optexwaived all claims forpast costs" (emphasis added). Rather, the final decision is based onthe CO'sview that the TDP
was not defective and that Optex was on notice when the contract was awarded that extensive hand fitting ofpiece parts might be required. (Finding 49)

CONCLUSION

We conclude, based on the preponderance ofevidence in the record, that Mod 2
was neither a release nor an accord and satisfaction ofthe claimpresentedby Optex in this appeal. We base this conclusion on the ample evidence, including the language of Mod 2, that neither party intended for Mod2 to encompass claims for post-26 May 2009 matters, as they were not "pastissues onthis contract." Because wereach this conclusionbased onthe mutual intent ofthe parties, it is unnecessary for us to address the otherelements ofthe affirmative defenses advancedbythe government. We note, however, that had we reached a different conclusion about the parties' intent, there wouldremain an issue whether Optexreceived any consideration.

This decision under Rule 11 goes only to the issue ofwhether appellant's claim is barredby eitherrelease or accord and satisfaction. We conclude it is not, for the
reasons expressed above. We express no opinion on the merits ofappellant's claim.

Bothparties have made a number ofarguments that we find no need to address given the scope ofand the basis for our decision.

Dated: 6 November 2014

(Signatures continued)

17 

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# t"iLu.

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# vNbtt.**O'SUL~** Administrative Judge Armed Services Board ofContractAppealsI concur

Administrative Judge Acting Chairman Armed Services Board ofContract Appeals I concur

RICHARD SHACKLEFORD Administrative Judge Vice Chairman Armed Services Board ofContractAppeals

I certify that the foregoing is a true copy ofthe Opinion and Decision ofthe Armed Services Board ofContract Appeals in ASBCA No. 58220, Appeal ofOptex Systems, Inc., rendered in conformance withthe Board's Charter.

Dated:

18 JEFFREY D. GARDIN Recorder, Armed Services Board ofContractAppeals