## United States Court of Appeals for the Federal Circuit

04-5064 TESORO HAWAII CORPORATION, T ESORO ALASKA COMPANY and HERMES CONSOLIDATED, INC., d/b/a Wy oming Refining Company, Plaintiffs-Appellants,

v. UNITED STATES, Defendant-Appellee. J. Keith Burt , Mayer, Brown, Rowe & Maw, LLP , of Washington, DC, argued for plaintiffs-appellants. With him on the brief were Michael E. Lackey, Jr. , Gary A. Winters , and Monica A. Aquino

. Steven J. Gillingham , Senior Trial Counsel, Commercial Litigation Branch, Civil Division, United States D epartment of Justice, of Washington, DC, argued for defendant-appellee. With hi m on the brief were Peter D. Keisler , Assistant Attorney General; David M. Cohen , Director; and Kyle Chadwick , Trial Attorney. Of counsel on the brief were Bernard A. Duval , Counsel; and Howard M. Kaufer and Donald S. Tracy , Assistant Counsel, Office of Counsel, Defense Energy Support Center, of Ft. Belvoir, Virginia. Ralph C. Nash, Jr. , of Washington, DC, for amicus curiae Chamber of Commerce of the United States. Of counsel on the brief was Robin S. Conrad , National Chamber Litigation Center , Inc., of Washington, DC. Carolyn F. Corwin , Covington & Burling, of Washington, DC, for amicus curiae American Petroleum Inst itute. With her on the brief were Robert A. Long, Jr. and James R. Dean, Jr. Of counsel on the brief was Douglas W. Morris , American Petroleum Institute, of Washington, DC. Roy T. Englert, Jr. , Robbins, Russell, Englert, Or seck & Untereiner LLP, of Washington, DC, for amicus curiae National Petrochemical & Refiners Association. With him on the brief were Donald J. Russell and Max Huffman . Of counsel on the brief was Robert G. Slaughter , National Petrochemical & Refiners Association, of Washington, DC. Appealed from: United States Court of Federal Claims Senior Judge Eric G. Bruggink Judge Lawrence J. Block

## United States Court of Appeals for the Federal Circuit

04-5064

TESORO HAWAII CORPORATION, TESORO ALASKA COMPANY and HERMES CONSOLIDATED, INC., d/b/a Wyoming Refining Company, Plaintiffs-Appellants,

v. UNITED STATES, Defendant-Appellee.

_______________________

DECIDED: April 26, 2005

_______________________

Before RADER, BRYSON, and GAJARSA, Circuit Judges

. GAJARSA, Circuit Judge

. Tesoro Hawaii Corporation and Tesoro Al aska Company (collectively "Tesoro") and Hermes Consolidated, Inc. ("Hermes") join tly petitioned this court for permission to appeal certified orders of the Un ited States Court of Federal Claims in the separate proceedings, Tesoro Hawaii Corp. v. United States , 58 Fed. Cl. 65 (2003), and Hermes Consol., Inc. v. United States , No. 02-1460 C, 2003 U.S. Claims LEXIS 312 (Nov. 3, 2003). We granted Tesoro and Hermes permi ssion to pursue interlocutory appeal of issues relating to the legality of contract price determinations made by the Defense Energy Support Center ("DESC"). Tesoro Hawaii Corp. v. United States , 89 Fed. Appx. 732 (Fed. Cir. 2004). Because DESC's price setting mechanism was consistent withthe applic able regulations, we reverse the dec isions of the trial court holding that DESC's practice was illegal. I. BACKGROUND DESC is the principa l purchaser of milit ary fuel for the Unit ed States Department of Defense. Between 1983 and 1999, T e soro entered into th irty-six con t racts with DESC to supply the government with milita ry jet fuel. Herme s entered into nine comparable contracts with DESC between 1988 and 1994. Each of the DESC military fuel contra cts contained a clause that adjusted on a monthly basis the pric es paid for the fuel supplied. T he Economic Price Adjustment ("EPA") cla u se provid ed that "[t]he prices pay able un der this contract for listed items shall be the base [bid] price for the listed item increased or decreased by the same number of cents, or fraction t hereof, that the reference price increases or decreases per like unit of measure from the base reference price." T he reference prices to whic h the price adjus tments were tied were drawn from market public ations. Until June 23, 1994, DESC drew its EPA reference prices fr om the market public ation known as the Petroleum Marketing M onthly (" PMM"). The PMM, which is publish ed by the Department of Ener gy ("DOE"), is a report compiling the monthly average sales figures for specified fuels for five regions known as Petroleum Administration for Defense Districts ("PADDs"). All refiners, including Tesoro and Hermes, are required by law to submit m onthly sales data to the DOE, which then compiles the data to report the monthly average sales prices per PADD for various products. The compilation and c o mputation process takes approximately three months, which means that the PMM report for April' s sa les figures is typically pu blis hed in mid04-5064 2July. In order to accommodate this lag ti me, the DESC contracts tied to the PMM provided for an interim reference price tabul ation subject to fi nal adjustment upon publication of the appropr iate PMM. In 1992, the Court of Federal Claims issu ed a decision holding that DESC' s use of a PMM-based EPA clause was not authorized by the Federal Acqui s i tion Regulation s ("FAR"). MAPCO Ala. Petroleum, Inc. v. United States , 27 Fed. Cl. 405 (Fed. Cl. 1992). Following the MAPCO decision, DESC rec e ived p e rmission to deviate from the FAR's provisions by obtaining indi vidual and class deviations author izing it to continue using EPA cla u s e s identica l or sim ilar to the one struck down in MAPCO . According to the regulations applicable at the time, an indiv i dual deviat ion affects only one "contracting action," 48 C.F.R. § 1.403 ( 1995), whereas a class deviati on affects "more than one contracting action," Id. § 1.404. Two of Tesoro's cont racts were awarded pursuant to indiv i dual deviations and three were aw arded pursuant to class deviations. Tesoro and Hermes filed suit in the Court of Federal Claims alleg i ng that DESC breached their fuel supply contracts by using unlawful EPA cla u s e s that resulted in their receipt of under-pay ments for the fuel provi ded. The complaints in both s u its inc l uded among their claims the charge that DESC' s actions were per se illeg a l b e cause the PMM-based EPA cla u se was in consistent wit h the applic able s e ction of the FAR, Id. § 16.203. Tesoro als o alleg ed that the deviations obt ained by DESC were procedurally deficient and therefore ineffective to permit t he use of such claus es. The parties in both suits filed cross moti ons for summary judgment on the claim of per se ille gality. In its motions, the govern m ent asserted that DESC 's us e of the EPA cla u se was leg a lly authorized and raised the equita ble defense of waiver.

04-5064 3In Tesoro , the court resolved all issues in fa vor of the plaint iff holding that DES C 's init ial use of its EPA clause was not authorized by the FAR; DESC's efforts to obtain individual and class dev ia tions were legally deficient and waiver could not apply to Tesoro's claims as a matter of law. 58 F e d. Cl. at 69-75. In conjunction wit h its grant of partial summary judgment, th e court certified three questions for interlocutory appeal: (1) Did DESC esta blish the price of fuel in v i olat ion of law by employing economic price adjustment cl auses indexed to PMM? (2) Were DESC's individu al or class deviations obtai ned in violation of law? (3) Can DESC asser t the defense of waiver to bar Tesoro fr om pursuing a remedy for DESC's illegal fuel pric es? Tesoro Ha waii Corp. v. United States , No. O2-704C (Fed. Cl. Oct. 30, 2003) (order certifying questions for interlocutory appeal)

. In Hermes , the trial court also found that DESC's PMM-based EPA clause was not authorized by the FAR, Her m es Cons ol., Inc. v. United States , 58 Fed. Cl. 3, 9-12 (2003), but determined that Hermes had waived its right to recover by completing performance of the contracts wit h presumed knowledge of the illega lity of t heir terms, 2003 U.S. Claims LEXIS 312, at * 27-28. In conjunction with it s grant of partial summary judgment, the trial court in Hermes certified two questio n s for resolution on int e rlocutory appeal: "(1) Was DESC's pr omulgation of the economic price adjustment clause s indexed to the PMM unauthor ized?" and "(2) May defendant assert the defense of waiver to bar [Hermes] from pursuing a rem edy for DESC's un authorized fuel prices?" Hermes , 2003 U.S. Claims LEXI S 312, at *35. Be cause both sets of certified question s involv e "controllin g questions of law as to which there is substantial ground for difference of opinion and for which an im m ediate appeal may materially advance the ultimate termination of the litigation," this court granted Tesoro and Hermes (collectiv ely

04-5064 4"Appellants " ) permission to file their interlocutory appeal. 1 Tesoro Hawaii Corp. v. United Stat es , 89 Fed. Appx. 732, 732 (Fed. Cir. 2004) (citing 28 U.S.C. § 1292(d)). We have jurisdiction pursuant to 28 U.S.C. § 1292(c)(1). II. DISCUSSI ON This court reviews de novo the grant of a partial summary judgment by the C o urt of Federal Claims. Allegheny Teledyne v. United States , 316 F.3d 1366, 1373 (Fed. Cir. 2003). Likewis e , we review certifie d questions of law without deference to the decisions of the Court of Federal Claims. Vereda, Ltda. v. United States , 271 F.3d 1367, 1374 (Fed. Cir. 2001).
A. Governing Regulations Specific guidelines governing the use by federal agencies of fixed-price contracts with economic price adjustment s appear in § 16.203 of the FA R. 48 C.F.R. § 16.203 (1994). 2 F A R § 16.203-1 descr ibes suc h cont racts as providing "for upward and downward revision of the stated contract price upon the oc currence of specified contingenc ies." 48 C

. F.R. § 16.203-1 (1994). The regulation authorizes the use of three types of EPAs: (a) Adjustments based on established pric es. These price adjustments are based on increases or decreases from an agreed-upon level in publis hed or otherwise established pric es of specific items or the contract end items.

1 Resolution of the issues presented in the certified questions may also impact the twenty-two other case s filed by plaintiffs simila rly s i tuated to Tesoro and Hermes that are currently pending before t he Court of Federal Cla ims. Hermes , 2003 U.S. Claim s LEXIS 312, at *34. 2 The guid e lines govern i ng use of fixed- price contracts with EPAs a ppear at § 16.203 of the current FAR, but provisions not relev ant to this case have been ad ded to those regulations with conc omitant renumbering of the relevant portions. F o r ease o f reference, we refer to the codi fications in ef fect at the ti me the contracts were entered into.

04-5064 5(b) Adjustments based on actual costs of labor or material. These price adjustments are based on increases or decreases in spec ified costs of labor or m a terial that the contractor actually experiences durin g contract performance. (c) Adjustments based on cost indexes of labor or material. These price adjustments are based on incr eases or decr eases in labor or material cost standards or indexes that are specif ically identified in the contract. Id . The government asserts that the DESC 's EPA clause is properly considered an adjustment based on establis hed prices as conte m plated by section (a) of the regulation. Use of the clauses described in FAR § 16.203-1 is limited by F A R § 16.2 03-3, which provides that: A fixed-price contract with economic price adjus tment shall not be used unless the contracting officer determines that it is necessary either to protect the contractor and the Governm ent against s i gnificant fluc tuations in labor or material costs or to prov ide for contract price adjustment in the event of changes in the cont ractor's established prices. 48 C.F.R. § 16.203-3 (1994). The interplay of § 16.203-1 and § 16.203-3 forms the basis for Appellants' argument that the EPA clause used by the DESC is not authorized by the FAR.
B. Parties' Arguments Appellants assert that the term "established prices" in F A R § 16.203-1 should be read as "contractor's establishe d prices" in order to be consis tent with the ter m found in FAR § 16. 203-3. Under this reading of the two sections, prices could on ly be adjusted based on changes in the indiv i dual contrac t or's prices and not based on c hanges in overall market prices. Appel lants justify reading the regulations in this manner by pointing to changes made in the regulator y scheme w hen the FAR was adopted in
1984.

04-5064 6Prior to 1984, the Def ense Ac quisition Regulation ("DAR") governed Department of Defense procurements. The text of both FAR § 16.203-1 and FAR § 16.203-3 appeared in the DAR, but wi th the limit ations of FA R § 16.203-3 preceding the descriptive provisions of FA R § 16.203-1. Althoug h the order of the DAR provision s was changed when t hey were converted into the FAR, no subs tantive change in the meaning of the provis ions was int ended. Se e 46 F ed. Reg. 42,30 3 (1981). Appellants argue that based on t he order in which the limitations and description sections appeared in the DAR, the use of the te rm "contractor's establis h ed pric es" in the limitation section means that the word "contractor's" shoul d be implied before the term "established prices" in the description secti on. Believ i ng it appr opriate to imply the term "contractor's established prices" into the description sect ion of the DAR, Appe llants argue that the implication must be carried ov er to FAR § 16. 203-1 in order t o maintain the original substance of the regulations. The gover nment asserts that Appellants' argument is inconsist ent with the plain meaning of the regulatory language. First, it challenges Appellants' attempt to insert the word "contractor's" into sections of the r egulations where it does not otherwise appear as contrary to the presum ption that the drafters' se lective use of the phrases "established price" and "contractor's establis hed price" indicated t hat when " e stablished price" was used the word "contractor 's" was intentio nally omitt ed. Ad Hoc Comm. of AZ-NM-TX-FL Produc ers of Gray Po rtland Cement v. United Stat es , 13 F.3d 398, 401 (Fed. Cir. 1994) (stating that it is well es tablished that where specific language is included in one section of a statute but omitted from anot her, related section of the same Act, it is generally presumed that the omission was intentional). The government

04-5064 7also points to other sections of FAR § 16. 203 that are inconsis tent with Appellant s ' reading of § 16.203-1. As an indication that the term "establis hed prices" in FAR § 16. 203-1 inc l u d es market pri c es, the government first fo cuses on FAR § 16.203-4. FAR § 16.203-4 specifies the condition s under which each type of EPA clause outlin ed by FAR § 16.203-1 may be used. 48 C.F. R. § 16.203-4 (1994). The four types of EPA clause s addressed are: (1) "A djustment based on est ablished prices – standard supplies" (FAR § 16.203-4(a)); (2) "Adjustment based on established prices – semistandard supplies" (FAR § 16. 203-4(b)); (3) "Adjustments bas ed on ac tual cost of labor or material" (F AR § 16.203-4(c)); and (4) "Adjustment s based on cost indexes of labor or material" (FAR § 16.203-4(d)). As the government notes , the headings used in FAR § 16.203-4, consistent with the language of FAR § 16. 203-1, address two types of adjustments based on "established prices," and none based on "contractor's establis hed prices." The subs ections addr essing adjustments bas ed on " e stablished prices" for standard and semis t andard supplies include the require ment that the supplies "have a n established catalog or market price, verified using the criter ia in 15.804-3." 48 C.F.R. § 16.203-4(a)(ii) & (b)(ii) (1994). FAR § 15.804-3 gover ns pric e negotiations and pr ohibits contracting officers from requiring s ubmission of cost or pricing dat a if "the c ontra cting officer determines that prices are . . . [b]ased on establis hed catalog or market prices of c o mmercial items sold in substant ial quantities to the general pub lic." 48 C.F.R. § 15.804-3(a)(2) (1994). According to the regulation, [e]stablished catalog prices must be recorded in a form regularly maintained by the manufacturer or vendor. This form may be a catalog,

04-5064 8price list, schedule or other verifiable and establishe d record. The record must (i) be published or otherwise available for customer inspection and (ii) state current or la st sales price to a signi fic ant number of buyers constituting the general public. 48 C.F.R. § 15.804-3(c)(1). "E stablished market prices" ar e defined as "current prices that (i) are established in the course of ordinary and usual tr ade between buyers and sellers free to bargain and (ii) can be substant iated by data from s ources ind e pendent of the offeror." 48 C.F.R. § 15. 804-3(c)(2). The gov ernment argues that the regulator y cross-references mean that the term "est ablished prices" used in FAR § 16.203-4 should be understood to encompa ss both "established catalog prices" and " e stablished market pri c es" as defined by FAR § 15.8 04-3(c). Thus, adjus tments based on an established price should not be limited only to fl uctuations in the pric es of the individual contractor, but may also incl ude market fluctuations. As further support for its expansive interpretation of FAR § 16.203- 1, the government relies on FAR § 16. 203-2, which es tablis hes the conditions under which a fixed-pric e contract with an EPA c l ause may be used. FAR § 16.20 3-2 provide s that: A fixed-price contract with economic price adjus tment may be used when (i) there is serious doubt concerning the stability of market or labor conditions that will exist during an extended peri od of contract performance, and (ii) contingenc ies t hat would otherwise be included in the contract price can be identified and c o vered separ ately in the c o ntract. Price adjustments based on established prices s hould nor mally be restricted to industry-wide contingenc ies. Price adjustments based on labor and material costs should be limit ed to contingencies bey o nd the contractor's control. 48 C.F.R. § 16.203-2 (1994) . Noting that this section also uses the phrase " e stablished prices," but not "contractor's established prices," the government argues that FAR § 16.203-2 indicates a preference that EPA cl auses not be used to address contractorspecific cost issues, but rather "industry- wide contingencies" and "contingen cies bey ond

04-5064 9the contractor's control." Id. Accordingly, the gover nment argues, FAR § 16.203-2 further undermines Appellants' reading of FA R § 16.20 3-1 to prohibit EPA cla u ses usin g market-based references. C. Prior Litigation in t he Court of Federal Claims Although this is the first time this cour t has directly considered the issue of DESC's lia bility for its use of a market-based EPA cla u se, 3 the Court of Federal Claims has addres sed the parties' argum ents in nine cases prior to the two that serve as t he basis of this appeal. 4 In the first such case, MAPCO , 27 Fed. Cl. at 409-10, the court adopted Appellants' argum ents and held that the meaning of "established prices" in FAR § 16. 203-1(a) is limited to "contractor's establis hed prices " by reference to the language of FAR § 16.203- 3. In addition to the cited re gulatory history of the FAR and its connection to the DAR, t he court based its decision on sections of the FAR that provide standard lang uage for EPA clauses

. Id. at 410. The cour t cited the followin g language from FAR § 52.216-2 as evidence t hat the terms "established price" and "contractor's established price" are used interchangeably in those clauses:

3 This court has previous ly addressed the appropriate valuation methodology for assessing a damages award to a fuel supplier stemming from DESC' s use of the market-based EPA cla u se. Barrett Refining Corp. v. U n ited States , 242 F.3d 1055 (Fed. Cir. 2001). However, in Barrett , the government did not contest liability either before the Court of F ederal Claims or on appeal. Barrett , 242 F.3d at 1064; Barrett Refi ning Corp. v. United States , 42 Fed. Cl. 128, 130 (1998). 4 Sunoco, Inc. v. United States , 59 Fed. Cl. 390 (2004) ; Navajo Ref. Co., L.P. v. United States , 58 Fed. Cl. 200 (2003); Williams Ala. Petroleum, Inc. v. Unite d States , 57 Fed. Cl. 789 (2003); Calcasieu Ref. Co. v. U n ited States , 2003 WL 22049528 (Fed. Cl. July 31, 2003); Berry Petroleum Co. v. United States , No. 02-1462 (Fed. Cl. June 10, 2003) (benc h ruling); Phoenix Pet r oleum Co

. v. United States , No. 97-315C (Fed. Cl. April 30, 2003); La Gloria Oil & Gas Co. v. United St ates , 56 Fed. Cl. 211 (2003); Gold Line Ref., Lt d. v. United States , 54 Fed. Cl. 285 (2002); MAPCO Ala. Petroleum, Inc. v. United States , 27 Fed. Cl. 405 (1992).

04-5064 10(a) The Contractor warrants t hat the unit price stated in the Schedule for [ offeror insert Schedul e line item number ] is not in exces s of the Contractor's applicable established price in effect on the contract date for like quantities of the same item. . . . The term " establis hed price " means a price that (1) is an es tablished c a ta log or market price for a commercial item sold in substantial quantities to the general public, (2) meets the criteria of subsection 15.804- 3 of the Federal Acquisition Regulation (FAR), and (3) is the net price afte r applying any standard trade discounts offered by the Contractor.

Id. (emphases added). Of the ten cases after MAPCO where the Court of Federal Cla ims has reached the issue of the lega lity of DESC's EPA claus e, nine, inc l uding the two instant cases, applied the reasoning of MAPCO an d concluded that DESC's use of a market-based EPA was not authorized by the FAR. 5 Additionally, in Barrett Refining Corp. v. United State s , 242 F.3d 1055, 1064 (Fed. Cir. 2001), this court presumed without dec iding that the holding of MAPCO was correct. One decision of the Cour t of Federal Claims has held differently. In Williams Alaska Petroleum, In c. v. United States , 57 Fed. Cl. 789 (2003), the court rejected Appellants' argument and the reasoning in MAPCO as contradictory to the plain meaning of the words used in the regulation. Id. at 796. The court in Williams dismissed Appellant's interpretation of the FA R in light of the DA R on the grounds that "[t]here is no more reason to say that the DAR contains an implicit term than to make that claim about the FAR." Id. Applying the caveat t hat "price adjustments based on established prices . . . be restricted to indu stry-wide contingenc i es" as articulated in FAR § 16. 203-2, the court held that "FAR § 16.203 not only permits adjustments to a

5 Sunoco , 59 Fed. Cl. at 394-95; Hermes , 58 Fed. Cl. 3, 11-12; Tes o ro , 58 Fed. Cl. at 68-70; Nav a jo Ref. , 58 Fed. Cl. at 205; Ca lcasie u Ref

. 2003 WL 22049528 at *5; Berry Petroleu m , No. 02-1462 (Fed. Cl. June 10, 2003) ( bench ruling); Phoeni x Petroleum Co. v. United States , No. 97-315C, slip op. at 4 (Fed. Cl. April 30, 2003); La Gloria , 56 Fed. Cl. at 214-15; Gold Line , 54 Fed. Cl. at 295.

04-5064 11contractor's established prices to be based on market indexes, but in fact requires it." Id. at 797. D. Analys is We agree with the c ourt in Williams that the plain m eaning of the regulat ory language c ontradicts Appellants' arguments and the holding of MAPCO and its progeny. We construe a regulation in the s a me manner as we construe a statute, by ascertaining its plain meaning. Bowles v. Seminole Rock & Sand Co. , 325 U.S. 410, 414-15 (1945) (focusing on the "plain words of the regul ation" to ascertain the meaning of the regulation); Lockheed Corp. v. Widnall , 113 F.3d 1225, 1227 (F ed. Cir. 1997) ("To interpret a regulation we must look at it s plain language and cons ider the terms in accordanc e with their common meaning."); Whelan v. United States , 529 F.2d 1000, 1002-03 (Ct. Cl. 1976) ("The 'plain meaning' rules of statutory construction apply to the interpretation of administrative regulations."). If we conclude t hat the terms of the regulation are unambiguous, no further inquiry is usually required. Cox v. West , 149 F.3d 1360, 1363 (Fed Cir. 1998); Lockheed , 113 F.3d at 1227. When there is no ambiguity in the meaning of the regulation, "i t is the duty of the c ourts to enforce it according to its obvious terms and not to in sert words and phrases so as to i n corporate therein a new and dist inct prov ision." Gibson v. United States , 194 U.S. 182, 185 (1904); see also Unite d States v. Temple , 105 U.S. 97, 98 (1881). The meaning of the regulations governing th e use of EPA clauses is plain an d we reject Appellants' inv i tation to insert words into the regulation t o alter that meaning. Although the term "established price" is not express l y def ined in FAR § 16.203, the definition of the term in FA R § 15.804-3 is incorporated by reference. FAR § 15.804-3

04-5064 12defines "es t ablished prices" to include contra ctor-specific prices, namely "es t ablished catalog prices," and industry-based prices, namely "established market prices." As indic a ted by FAR § 16.203-2 and FAR § 15. 804-3, the policy behi nd requiring use of "established prices" is to avoid c ontracts s ubject to the operationa l whims of indiv i dual
contractors. Appellants' arguments that the addition of the te rm "contractor's" before "established prices" in FAR § 16.203-3 r equires that adjustment s be based only on changes in the pric es charge d by individual contractors eviscerates the regulator y meaning of the term "established prices" and the policy reas ons for using it. The combination of the term "contractor's" wit h "establis hed prices " in FAR § 16.203-3 indic a tes which "established pric es" are relev ant to a contracting action, but does not

exc l ude the subcategory of "established market prices." A ccording to the interplay of all four sections of FAR § 16.203, a "contractor's established price" may be establis hed by reference to either a catalog or market sources independent of the manufacturer or vendor. See Vectra Fitness, In c. v. TNWK Corp. , 162 F.3d 1379, 1383-84 (Fed. Cir. 1998) ("statutory interpretation is a 'holisti c endeavor' t hat requires consideration of a statutory scheme in it s entirety" (quoting United Sav. Ass'n v. Ti m bers of Inwood Forest Assoc. , 484 U.S. 365, 371 (1988))). Appellants' arguments that t he term "contractor's established price" is periodic a lly used interchangeably with the defined term "e stablished price" does not change this conclus i on. The usage of the terms "contra ctor's applic able esta blished price" an d "establish e d price" in the langu age of the standard EPA claus e in FAR § 52.216-2 explic itly r e inforces the det ermination that "contractor's applicable established pric e"

04-5064 13includes both forms of establis hed prices provided for in FAR § 15.804-3. Even wer e we to credit Appellants' interpretation of t he regulatory history of the FAR and the DAR and read the term "contractor's established pr ice" into the language of FAR § 16.203-1, there is still no reason to conc lude that the regulations ex c l ude the use of market-based references to identify "established prices." The regulations permit use of contra cts that include adjustments based on established prices, but do not limit those adj ustments to changes only in the specific prices offered by an individual contractor . Thus, DESC's use of market-based references to determine adjustments to es tablis hed pr ices was authorized under the law. Appellants also assert that DESC's use of an EPA clause tied particularly to the PMM does not comport with the express r equirements of FAR § 16.203-3. This assertion is based on t he legal pr emise that FAR § 16.203-3 limit s price adjustments to accommodations for one of two contingencies: "significant fluctuations in labor or material costs" or "changes in the contractor 's established prices." 48 U.S.C. § 16.203- 3. Relying on the language of MAPCO , Appellants claim that a PMM-based EPA clause fails to address either of the "mischiefs" specified in F A R § 16.203-3, becaus e the PMM is an "amalgamation" of petro leum sales that does not reflect the product, the market, or the price for the milit ary fuel Tesoro and Hermes supplied. The Court of Federal Claims in MAPCO concluded that DESC 's use of the PMM did not comport with the requi rements of FAR § 16.203-3, because the PM M was not a catalog, did not reflect any established catalog prices, and did not reflect any established market. MAPCO , 27 Fed. Cl. at 410. The det ermination that PMM did not

04-5064 14reflect any establis hed market price was ex plained as follows: "The index is an amalgamation of the previous month's petroleum sales data. It is not, as § 15.804- 3(c)(2) contemplates, determinative of any par ticular corporation's current prices." MAPCO , 27 Fed. Cl. at 410. The court went on to apply dictionary definitions of the term "establish" to conclude that: [f]or a price to be 'establis hed' therefore, a purchas er would have to have assurance that he could go t o a particular vendor and insist on an advertised price. An average of mont h-old sales in no sense creates an established price. The index itself does not refl ect any specific vendor's current price. In sum, the index at iss u e is neither the contractor's, nor does it reflect an established pric e. MAPCO , 27 Fed. Cl. at 410. In both Tesoro and Hermes , the court a d opted the reasoning of MAPCO and concluded that DESC's adjustment of fuel prices by reference to the PMM did not comport with the FAR bec ause s u ch a practice was not designed t o meet the purpose ident ified in FAR § 16.203-3, namel y accommodating significant fluctuations in labor or material costs or ch anges in the contractor's established prices. Tesoro , 58 Fed. Cl. at 69; Hermes , 58 Fed. Cl. at 10-11. The conclusion that DESC's use of th e PMM-ba s ed EPA clause was not design ed to protect against the ills ident ifie d in FAR § 16.203- 3 was premised on a misinterpretation of the meaning of the term "contractor's established prices." As we have explained herein, contrary to the conc lus i on of the Court of Federal Claims, market-based EPA cla u ses are permitted under the FAR. As discussed abov e, FAR § 16.203-3 does not require that adjustments be tied solely to chan ges in the prices charged by a particular contractor. Becaus e the FAR does not impos e the restrictions articulated by the Court of F ederal Claim s , it was legal e rror for the court to reject

04-5064 15DESC's us e of the P MM on the grounds that it "does not reflect any specific vendor's current price." Because we conclude that DESC's use of a market-bas ed EPA clause tied to the PMM was authorized under the FAR, we do not reac h the other issues raised in th e certified questions. See Eurodif S.A. v. United States , No. 04-1209, __ F.3d __, 2005 U.S. App. LEXIS 3567 at * 29 (Fed. Cir. Mar. 3, 2005) (declining to reach issue presented by certified question when resolution of related certified questions obviated the applicability of the issue to the case at hand). The iss ue regar ding the legality of the procedures used to obtain the i ndividual and class d e viations is moot in light of our determination that the clause that DESC sought permission to us e was auth o rized by the FAR. Likewise, t he gov er nment's argument that Appell ants waived thei r breach of contract claims was based on the presumption that A ppellants acquiesc ed in the incorporation of the illega l EPA clauses an d then fully per formed the contract before bringing suit. Hermes , 58 Fed. C l . at 12; Tesoro , 58 Fed. Cl. at 73. Our holding that the use of the PMM-based EPA c l au se was aut horiz ed un der the statute moots the issue as to whether Appellants had waiv ed their right to challenge t he legality of that clause. III. CONCLUS ION For the foregoing reasons, we hold that the Court of Federal Cla ims erred in hold i ng tha t DESC's use of a PMM-based EPA clau se was not authorized under the FAR. Ac cordingly, we reverse the decis i ons of the Court of Federal Claims. Our holding moots the other issues r a ised in the certified questi ons and therefore we do not reach the remaining issues related to the individual and c l ass deviations and the applicabilit y of the doc trine of waiver.

04-5064 16IV. COSTS No costs.

R E VER SED

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