Opinion ID: 569236
Heading Depth: 2
Heading Rank: 2

Heading: FY 1985 and Mod 41

Text: 30 The requirement for certainty in contracts serves two purposes. One is the need to determine whether the parties in fact intended to contract at all, and the other relates to the ability of a court to determine when a breach has occurred and to formulate an appropriate remedy. See Restatement (Second) Contracts § 33 (1981) (hereinafter Restatement ); Neeley v. Bankers Trust Co. of Texas, 757 F.2d 621, 627 (5th Cir.1985); Brookhaven Housing Coalition v. Solomon, 583 F.2d 584, 593 (2d Cir.1978). 31 In the present case, there is no question that the first purpose is met by Mod 41. Leaving aside for now the question of CO Bullock's authority to modify the contract by entering into Mod 41, it is clear that he intended to so modify the contract. As the Board found (Finding of Fact 62): 32 [B]ased upon our review of the record as a whole, we adopt the ACE view that Mr. Bullock and Mr. Farner intended to negotiate the contract price for FY 85 without regard to the year end price for FY 84 and their intentions were fully set forth in Modification P00041. 33 However, the Board then went on to conclude that Mod 41 was an agreement merely to negotiate a price--without establishing what cost factors would be considered. Thus, the Board was apparently concerned with the second requirement; i.e., that there was no reasonable way a court could tell if Mod 41 was breached or what an appropriate remedy would be. 34 As Professor Corbin has noted, once it is determined that the parties did indeed intend to create a contract, courts should be slow to deny enforcement on the basis of indefiniteness in the contract. 1 A. Corbin, Corbin on Contracts § 97 (1963) (hereinafter Corbin ). With this principle in mind, we are convinced that under the facts of this case, Mod 41 is not so indefinite that it cannot be enforced. 35 First, while some courts have invalidated so-called agreements to agree, the emerging view is that an agreement which specifies that certain terms will be agreed on by future negotiation is sufficiently definite, because it impliedly places an obligation on the parties to negotiate in good faith. See Corbin at § 97 (1990 Supp.); Lee v. Joseph E. Seagram & Sons, Inc., 552 F.2d 447, 454 (2d Cir.1977). Such an obligation gives the contract certainty by allowing the courts to determine when a breach has occurred by determining whether the parties have negotiated in good faith. In the context of the present case, it is manifestly clear to us that the government has not negotiated in good faith, as the government has been unwilling to negotiate at all. Instead, the government in effect has repudiated Mod 41, as evidenced, for example, by the Board's Finding of Fact 60, which quotes a letter, written by CO Jennings for her supervisor's signature, addressed to officials higher in her chain of command, which stated that in view of the circumstances surrounding this contract, 36 Mrs. Jennings believes that it is in the best interest of the Government to honor the agreement and price out FY85 as a separate contract year. [Our emphasis.] 37 Furthermore, we cannot agree with the Board that there was no indication of what cost figures were to be considered under Mod 41. In fact, it is clear from the fact findings made by the Board that both parties knew reasonably well after Mod 41 what costs were to be taken into account in pricing FY 1985. Most importantly, Mod 41 itself specifically refers to an agreement to negotiate a contract price based upon, inter alia, the cost proposal submitted based on the requirements contained therein  (our emphasis). This cost proposal, which was submitted approximately 10 days before the execution of Mod 41, calculated the contract price on the basis of all cost increases. 38 Further, the Board found that CO Bullock, in a meeting two weeks before the execution of Mod 41, expressed his willingness to consider all costs in negotiating a contract price for FY 1985. In fact, notes taken during that meeting by Bullock's assistant show that the parties were not that far apart in settling on a price based on all costs. The notes indicated that: 39 Different pricing procedure this year, FY '85, th[a]n last. Major changes [in specification] plus [7-1905(b) ] changes, two to one vis a vis three to one, as bid. 30 September '84 is the starting point.... Negotiate a total performance price for FY '85. Contractor is to submit a total price to perform.... Contractor and Government are less than one million dollars apart and I see no reason why we cannot agree on a price. Now, I approve 17.3 million. Will go to 19.8 to 20.1 million.... [Our emphasis, brackets in original.] 40 Then on September 27, 1984, the day before executing Mod 41, Bullock requested an audit of ACE's FY 1985 cost proposal by the Defense Contract Audit Agency (DCAA). Bullock had made such requests before, but had always advised DCAA to limit its review to increases based on DAR 7-1905(b) and changes in the scope of work. However, Bullock's September 27 letter stated as follows: 41 Due to specification changes made in the contract operation incorporated in Modifications P00039 and P00040, and the programmed student load as stated in Modification P00035, the Contractor has been requested to furnish a complete cost proposal for the contract operation for FY 85. This would then be a different definitization of price than was used for FY 84. [Our emphasis]. 42 Thus, the circumstances surrounding the execution of Mod 41 clearly show that the parties intended that all of ACE's costs should be taken into account in pricing FY 1985. 2 This relieves the Board's concerns with respect to determining the amount of a remedy, for once the factors that are to go into determining a contract price are determined, a trial court or comparable agency Board is well suited to determine what a reasonable price would be. When a contract indicates a clear intention by both parties to be bound but leaves the price indefinite, the court can enforce the contract by determining a reasonable price. See Neeley, 757 F.2d at 627-28; Lee, 552 F.2d at 453; Corbin at § 97; Restatement at § 33, comment e.
43 The government does not deny that CO Bullock had general authority to bind the government with respect to the contract at hand. Its sole basis for arguing that Bullock was without authority to enter into Mod 41 is that the government received no consideration in return for agreeing to renegotiate the contract price on the basis of additional cost factors. Numerous decisions of one of this court's predecessors, the Court of Claims, indicate that government officers lack authority to enter into contracts under which the government receives nothing. See, e.g., Flippin Materials Co. v. United States, 312 F.2d 408, 417, 160 Ct.Cl. 357 (1963); Vulcanite Portland Cement Co. v. United States, 74 Ct.Cl. 692, 705 (1932); Burke & James, Inc. v. United States, 63 Ct.Cl. 36, 57, cert. dismissed, 274 U.S. 764, 47 S.Ct. 660, 71 L.Ed. 1328 (1927). The Board, having found Mod 41 unenforceable due to indefiniteness, did not reach the consideration issue. However, the government raises the issue before us as an alternative basis for upholding the Board's decision. 44 One treatise discusses the problem of lack of consideration in government contracts as follows: 45 In Government contracts, [lack of consideration] most often occurs when the Government modifies a contract to benefit the contractor but receives no additional or different promise or performance in return. Under Restatement, Second, Contracts § 73 (1981), such modifications are without consideration since they involve performance of a pre-existing duty which is neither doubtful nor the subject of honest dispute. [Our emphasis.] 46 J. Cibinic & R. Nash, Formation of Government Contracts 189 (2d ed. 1986). The essence of the government's argument is this: that ACE was already under an obligation to perform under the contract in the option years at a price which included adjustments based only on DAR 7-1905(b) and changes in the scope of work. Thus, the government contends, under the pre-existing duty rule, ACE gave no consideration in return for the government's agreement to adjust the contract price based on other costs. 47 The flaw in the government's argument is that it overlooks the critical requirement, contained in the last portion quoted above, that the duty be neither doubtful nor the subject of honest dispute. The whole reason why Mod 41 was entered into was to settle the ongoing dispute between the government and ACE concerning what costs should go into calculating the contract price during the option years. Although the Board's decision, as well as the present decision, have now established that the government's position in this dispute was the correct one (i.e., that the contract required price adjustments based only on DAR 7-1905(b) and changes in the scope of work), that does not mean that a settlement of that dispute at the time Mod 41 was entered into cannot constitute consideration. See Restatement at § 74(1). 48 Of course, the pre-existing duty must be the subject of honest dispute, or in other words, the parties must hold their positions in good faith. In the present case, the fact, found by the Board, that Farner was well aware of how the government intended to price the options in contracts subsequent to contract 0269, may weigh against a finding that ACE acted in good faith in negotiating Mod 41. However, the Board made no specific finding on the issue. Therefore, we must remand to the Board for a finding concerning ACE's good faith in this regard. 49 ACE also argues that consideration exists for Mod 41 because as part of Mod 41, they agreed not to bring any claims for additional compensation relative to FY 1983 and FY 1985. While such an agreement is not manifested by the language of Mod 41, there are indications both in the Board's findings and in various inter-party and intra-party communications of record that such an agreement was made. Such an agreement would constitute valid consideration for Mod 41. Again, no clear fact finding was made by the Board as to whether this agreement was, in fact, made or merely contemplated. Therefore, we also remand for such a finding.