Court Opinion

ID: 3201651
Source: CourtListenerOpinion
Date Created: 2016-05-09 18:01:10.467224+00
Date Added: 2024-06-11T14:45:38.768213
License: Public Domain

ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeal of--                                 )
                                            )
SupplyCore, Inc.                            )      ASBCA No. 58676
                                            )
Under Contract No. W52PIJ-09-C-0006         )

APPEARANCES FOR THE APPELLANT:                     William E. Hughes III, Esq.
                                                   Emily A. Constantine, Esq.
                                                    Whyte Hirschboeck Dudek S.C.
                                                    Milwaukee, WI

APPEARANCES FOR THE GOVERNMENT:                    Raymond M. Saunders, Esq.
                                                    Army Chief Trial Attorney
                                                   CPT Harry M. Parent III, JA
                                                    Trial Attorney

            OPINION BY ADMINISTRATIVE JUDGE WILSON
  ON THE GOVERNMENT'S AMENDED MOTION FOR SUMMARY JUDGMENT

       The government declined to exercise the fourth option of the 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 of termination,
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 prior to the expiration of the contract. We have jurisdiction pursuant to the Contract
Disputes Act of 1978, 41 U.S.C. §§ 7101-7109. The government moves for summary
judgment. SupplyCore opposes the motion. For the reasons stated below, the motion is
granted.

         STATEMENT OF FACTS FOR THE PURPOSES OF THE MOTION

       1. On 24 November 2008, the United States Army Contracting Command Rock
Island Contracting Center (hereinafter referred to as Army or government) awarded
Contract No. 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 contract was awarded as a firm fixed-price commercial items contract
and incorporated FAR 52.212-4, CONTRACT TERMS AND CONDITIONS - COMMERCIAL
ITEMS (OCT 2008). (R4, tab 2 at 1, 3, 10)

      2. The contract was awarded for a one-year base period and contained four
one-year options. The contract included FAR 52.217-9, OPTION TO EXTEND THE TERM
OF THE CONTRACT (MAR 2000), which stated, in pertinent part:
                     (a) The Government may extend the term of this
              contract by written notice to the Contractor within 30 days;
              provided that the Government gives the Contractor a
              preliminary written notice of its intent to extend at least
              60 days before the contract expires. The preliminary notice
              does not commit the Government to an extension.

(R4, tab 2 at 3, 14)

     3. The contract also incorporated DFARS 252.222-7002, COMPLIANCE WITH
LOCAL LABOR LAWS (OVERSEAS) (JUN 1997), which provided:

                       (a) The Contractor shall comply with all-

                    ( 1) Local laws, regulations, and labor union
              agreements governing work hours; and

                     (2) Labor regulations 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 of the
              requirements of this 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 that the Contractor or the United
              States Government, or both, have not fully complied with
              local labor laws or regulations relating to the performance of
              work required by this contract.

                      (c) Notwithstanding paragraph (b) of this clause,
              consistent with paragraphs 3 l.205-15(a) and 31.205-47(d) of
              the Federal Acquisition Regulation, the Contractor will be
              reimbursed for the costs of all fines, penalties, and reasonable
              litigation expenses incurred as a result of compliance with
              specific contract terms and conditions or written instructions
              from the Contracting Officer.

(R4, tab 2 at 10)

       4. The government exercised the first three options, extending the term of the
contract through 23 November 2012 (R4, tabs 8, 10, 13).

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       5. SupplyCore alleges that, at the time the contract was executed, Kuwaiti labor
law required an employer to provide 15 days advanced notice of termination to its
employees (compl. ~ 4). On 21February2010, Kuwait enacted "The Law of Labor in the
Private Sector," No. 6of2010. Article 44 of that law provided, in pertinent part:

             In the event where the term of the work contract is not
             specified, both parties shall have the right to terminate the
             same by means of a notice to the other party as follows:

                   a- Three months prior to the termination of the contract
                      for workers earning a monthly remuneration.

                   b- One month prior to the termination of the contract
                      for other workers. In the event where the party
                      wishing to terminate the contract does not abide by
                      the period of notice, he shall be obliged to pay the
                      other party a compensation for the notification
                      period equal to the remuneration of the worker for
                      the same period.

(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 of time to get it exercised without last minute jumping" (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 of the
             contract by written notice to the Contractor within 30 days;
             provided that the Government gives the Contractor a
             preliminary written notice of its intent to extend at least
             60 days before the contract expires. This preliminary notice
             does not commit the Government to an extension.

             Basically what this means is that we need to provide
             [SupplyCore] with a letter of intent to exercise the option
             prior to 24 Sep 12 if we plan to exercise the option within
             30 days. I'm sure [SupplyCore] would still accept the option
             if it was within 30 days but they may have additional costs
             associated. Lack of receipt of a 60 day notice is

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              SupplyCore's authorization to begin demobilizing on
              24 Oct 12. They are still responsible for the final month of
              service but they can begin terminating housing leases, vehicle
              leases, notifying employees that their contract will be ending,
              etc. Once they do this then the Government would be
              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 of its
intent to exercise the fourth option period from 24 November 2012 to 23 November
2013. The notice further stated: "This preliminary notice does not commit the
Government to an extension. If the 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, whether to 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 pertinent part:

              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 of the current requirement.

              5. Based on current use, which is less than 1500 customers
              per month, the elimination of R&R leave for units with a
              270 day boots on ground (BOG), and an uncertainty
              regarding throughput at the gateway over the next 12 months,
              the members of the 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 government provided SupplyCore a copy of
a 3 October 2012 letter from the contracting officer notifying SupplyCore that the
government would not be exercising the contract's fourth option (R4, tab 18).

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       11. Following receipt of the contracting officer's letter stating that the fourth
option would not be exercised, SupplyCore provided notice of termination 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 of termination to employees and that the difference between the government's
3 October 2012 notice of its intent not to exercise the fourth option "and the notice
required by Kuwait law (90 days) subject[ed] SupplyCore to 39 days of renumeration
[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 to the contracting
officer seeking $145,634.80 representing an "additional 39 days of compensation to the
terminated employees" due to "the Government's failure to provide adequate notice of
termination of the Contract." In its claim, SupplyCore asserted that following the change
in Kuwaiti law regarding notice of termination to employees, "compliance with Kuwaiti
law was rendered impossible unless the Government provided SupplyCore at least
90 days[] advanced notice of its intent to not exercise its option for an extension of the
Contract." SupplyCore alleged that it refrained from providing notice of termination 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 of 90 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 of appeal dated 31May2013, which
the Board docketed as ASBCA No. 58676. SupplyCore filed a complaint on 6 August
2013 asserting four grounds for relief: Count I-breach of contract for non-compliance
with DFARS 252.222-7002(c), Compliance with Local Labor Laws (Overseas), which
provides for contract reimbursement of costs for compliance with local labor laws; Count
II-breach of contract for failing to disclose superior knowledge; Count III-constructive
change to the contract; and Count IV-breach of implied-in-fact contract of good faith and
fair dealing (compI. at 4-6).

       16. In lieu of filing an answer, on 21August2013 the government filed a motion
for summary judgment. 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 of discovery, on 28 September 2015 the government
filed an amended motion for summary judgment contending, 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 superior knowledge;

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(3) there was no constructive change to the contract; and (4) the Army did not breach its
implied duty of good faith and fair dealing (gov't br., passim). SupplyCore responded in
opposition on 29 October 2015, contending that there are material facts in dispute
regarding whether the government breached its implied duty of good faith and fair
dealing by failing to inform appellant that it had determined that it no longer needed the
contract (app. opp'n at 11). The opposition did not address the other three government
contentions.

                                        DECISION

       Summary judgment is properly granted only where the moving party has met its
burden of proving the absence of any genuine issue of material fact and that it is entitled
to judgment as a matter oflaw. Mingus Constructors, Inc. v. United States, 812 F.2d
1387, 1390 (Fed. Cir. 1987). A material fact is one which may affect the outcome of the
decision. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). All significant
doubt over factual issues must be resolved in favor of the non-moving party. Mingus at
1390 (citing United States v. Diebold, Inc., 369 U.S. 654 (1962)); SRI International v.
Matsushita Electric Corp., 775 F.2d 1107, 1116 (Fed. Cir. 1985).

       The government seeks summary judgment on all four theories of recovery raised in
SupplyCore's complaint. In its opposition, SupplyCore does not address the government's
arguments regarding DFARS 252.222-7002( c), the superior knowledge doctrine, or
constructive changes (SOF ~ 17). Accordingly, we consider SupplyCore to have abandoned
these issues. See States Roofing Corp., ASBCA No. 54860 et al., 10-1BCA~34,356 at
169,664 (failure to address release of claims contention in its post-hearing brief equated to
abandonment of the issue); Beyley Constr. Grp. Corp., ASBCA No. 55692, 08-2 BCA
~ 33,999 at 168,135 (brief failed to address any issues raised previously for which appellant
claimed entitlement, thus the claim for performance cost deemed abandoned). Accordingly,
we grant the government summary judgment on Count I (Breach of Contract-DPARS
§ 252.222-7002(c)), Count II (Breach of Contract-Doctrine of Superior Knowledge), and
Count III (Constructive Change).

        In Count IV of its complaint, SupplyCore argues that the government breached its
duty of good faith and fair dealing. Implied in every contract is a duty of good faith and
fair dealing in its performance and enforcement. Lakeshore Eng 'g Servs., Inc. v. United
States, 748 F.3d 1341, 1349 (Fed. Cir. 2014); Metcalf Constr. Co. v. United States, 742
F.3d 984, 990 (Fed. Cir. 2014). The duty of good faith and fair dealing applies to the
government as it does to private parties. Centex Corp. v. United States, 395 F.3d 1283,
1304 (Fed. Cir. 2005). A showing of bad faith is not required to demonstrate a breach of
the duty. SIA Constr., Inc., ASBCA No. 57693, 14-1 BCA ~ 35,762 at 174,986. The duty
of good faith and fair dealing requires a party to refrain from interfering with the other
party's performance and from acting to destroy the reasonable expectations of the other
party regarding the fruits of the contract. Bell/Heery v. United States, 739 F.3d 1324,
1334-35 (Fed. Cir. 2014); Centex, 395 F.3d at 1304. What the duty entails is "keyed to the

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obligations 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
of risks and benefits in considering a claim of breach of the duty of good faith and fair
dealing). The implied duty of good faith and fair dealing cannot create duties inconsistent
with the express provisions of the contract. Bell/Heery, 739 F.3d at 1335.

        SupplyCore does not contend that the government was required to exercise the
fourth option period or that the failure to exercise the option was arbitrary, capricious, an
abuse of discretion, or done in bad faith. Rather, this contention turns on notice.
SupplyCore argues that the government "breached its implied duty of good 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 "not only 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 off its Kuwaiti workforce-until at least 60 days[] prior to
termination of the Contract" (id.). SupplyCore suggests that the "unfairness of the
Government's actions" is underscored because the contract was a "fixed-price contract
for which SupplyCore bore the risk of expense" (id. at 13).

       SupplyCore's opposition to the government's amended motion is, at best,
confusing. The most liberal reading of SupplyCore's argument is that the government
breached the duty of good faith and fair dealing by failing to provide SupplyCore any
notice that the fourth option would not be exercised. The problem with the argument so
framed is that the government did provide notice to SupplyCore that it would not be
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 of good faith and fair dealing required
the government to provide earlier notice that the fourth option would not be exercised.
Nonetheless, we reject SupplyCore's argument.

      The presence of an option in a contract does not create a legal obligation upon the
government to exercise the option. Mid-Eastern Industries, Inc., ASBCA No. 53015,
01-2 BCA il 31,471at155,383; Def Sys. Co., ASBCA No. 50918, 00-2 BCA ~ 30,991 at
153,006. The exercise of an option is generally within the broad discretion of the
government. IMS Engineers-Architects, P.C., ASBCA No. 53471, 06-1BCAil33,231 at
164,674, recon. denied, 07-1BCAil33,467, aff'd, IMS Engineers-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

                                              7
the gov~rnment "may extend the term of this contract" (SOF ~ 2), providing the
government such broad discretion here. See Northeast Air Group, Inc., ASBCA
No. 46350, 95-2 BCA ~ 27,679 at 138,004-05. In light of the government's broad
discretion in determining whether to exercise an option and the lack of an 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 of an option upon providing preliminary written notice of the
government's intent to extend at least 60 days prior to the expiration of the contract, the
option clause specifically stated that such notice would not commit the government to
actually extend the term of the contract (SOF ~ 2). Because the government had 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 that the 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 under the contract, "SupplyCore was not authorized to begin the demobilization
process, including laying off its workers, until 60 days[] prior to termination of the
Contract term" (app·. opp'n at 9). For the purposes of summary judgment, we accept
SupplyCore's characterization of the 19 September 2012 email. That email alone,
however, is insufficient to establish that SupplyCore was prohibited from providing
timely notice of termination to its employees. SupplyCore cites no provision of the
contract that precluded SupplyCore from giving the required notice to its employees
under Kuwaiti law until the government notified it that the contract would not be
extended. DFARS 252.222-7002(b ), on the other hand, placed the risk of compliance
with Kuwaiti law squarely on SupplyCore. Furthermore, because the contract was firm
fixed-price, SupplyCore also bore the risk that the cost of such compliance would
increase. Lakeshore, 748 F .3d at 1347 ("The essence of a firm fixed-price contract is that
the contractor, not the government, assumes the risk of unexpected costs."); Raytheon
Missile Sys. Co., ASBCA No. 57594, 13 BCA ~ 35,264 at 173, 117 ("[T]he risk allocated
to contractors by fixed-price-contracts of unexpected increases in the costs of material
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 summary judgment.

       Based upon the foregoing, the government did not breach its duty of good faith
and fair dealing.

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                                     CONCLUSION

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

       Dated: 17 February 2016

                                                  oc:wfLSON
                                                  Administrative Judge
                                                  Armed Services Board
                                                  of Contract Appeals

 I concur                                         I concur

~~~Rl~CKLEFORD
 Administrative Judge                             Administrative Judge
 Acting Chairman                                  Vice Chairman
 Armed Services Board                             Armed Services Board
 of Contract Appeals                              of Contract Appeals

       I certify that the foregoing is a true copy of the Opinion and Decision of the Armed
Services Board of Contract Appeals in ASBCA No. 58676, Appeal of SupplyCore, Inc.,
rendered in conformance with the Board's Charter.

      Dated:

                                                 JEFFREY D. GARDIN
                                                 Recorder, Armed Services
                                                 Board of Contract Appeals

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