Court Opinion

ID: 2676166
Source: CourtListenerOpinion
Date Created: 2014-05-29 15:00:55.795677+00
Date Added: 2024-06-11T09:29:39.942202
License: Public Domain

United States Court of Appeals
      for the Federal Circuit
                ______________________

         SUFI NETWORK SERVICES, INC.,
              Plaintiff-Cross-Appellant,

                           v.

                  UNITED STATES,
                 Defendant-Appellant.
                ______________________

                   2013-5039, -5040
                ______________________

    Appeals from the United States Court of Federal
Claims in No. 11-CV-0804, Judge Thomas C. Wheeler.
                 ______________________

                Decided: May 29, 2014
                ______________________

   FREDERICK W. CLAYBROOK, JR., Crowell & Moring
LLP, of Washington, DC, argued for plaintiff-cross-
appellant.  With him on the brief was BRIAN T.
MCLAUGHLIN.

    KIRK T. MANHARDT, Assistant Director, Commercial
Litigation Branch, Civil Division, United States Depart-
ment of Justice, of Washington, DC, argued for defendant-
appellant. With him on the brief were STUART F. DELERY,
Acting Assistant Attorney General, JEANNE E. DAVIDSON,
Director, and DOUGLAS T. HOFFMAN, Trial Attorney.
                  ______________________
2                         SUFI NETWORK SERVICES, INC.   v. US

    Before NEWMAN, LOURIE, and TARANTO, Circuit Judges.
TARANTO, Circuit Judge.
     The United States appeals from a decision of the
United States Court of Federal Claims that awarded
$118.76 million in damages, plus interest, to SUFI Net-
work Services, Inc., for breach of contract. SUFI Network
Servs., Inc. v. United States, 108 Fed. Cl. 287, 295 (2012).
SUFI cross-appeals, seeking additional damages. We
affirm in part, reverse in part, vacate in part, and re-
mand.
                       BACKGROUND
    On April 26, 1996, the Air Force Non-Appropriated
Funds Purchasing Office (“Air Force”) entered into a
contract with SUFI, under which SUFI would install and
operate telephone systems in guest lodgings on certain
Air Force bases in Europe. SUFI agreed to furnish and
install the necessary equipment, including cables and
switches, and to operate the systems once installed, at no
cost to the government; in exchange, the Air Force agreed
that “a SUFI telephone system (SUFI network) was to be
the exclusive method available to a guest for placing
telephone calls at the lodging.” Br. for Appellant U.S. at
4. Exclusivity was central to the bargain because SUFI’s
sole compensation for its up-front investments and opera-
tional costs was a portion of the revenues generated by
local and long-distance telephone charges paid by guests
when making calls to off-base locations. The contract
originally had a ten-year term but in March 2000 was
extended to fifteen years.
    Soon after SUFI began offering service in January
1997, disputes arose about the Air Force’s role in not
protecting SUFI, under the exclusivity guarantee, against
the revenue-limiting diversion of calls from SUFI’s sys-
tems. It is not disputed here that the contract permitted
SUFI to block access to other carriers’ networks (for
SUFI NETWORK SERVICES, INC.   v. US                       3

instance, by blocking access to calling cards) and required
the Air Force to remove or disable any preexisting De-
fense Switched Network (DSN) telephone lines in the
lodging hallways and lobbies. Nevertheless, DSN phones
remained in place after January 1997, and lodging guests
began engaging in “toll skipping,” often with the assis-
tance of Air Force personnel: guests avoided SUFI’s
charges by using DSN phones or, when using in-room
SUFI phones, by engaging a DSN operator (or other Air
Force agent) to patch a call through to a long-distance
destination or to the toll-free number of another long-
distance carrier. Moreover, although SUFI and the Air
Force agreed to permit soldiers on temporary duty to be
patched through to long-distance numbers for periodic
“morale” calls of limited duration and frequency, call
records showed that, with Air Force assistance, guests
often exceeded the limits, placing multiple consecutive
calls or lengthy individual calls.
    After the Air Force declined to implement adequate
controls to curb DSN and patched-call abuse, SUFI
blocked guest-room access to the DSN operator numbers
but permitted morale calls to be placed from designated
lobby phones, the latter under Air Force monitoring
through sign-in logs. But Air Force personnel failed to
require guests to sign the logs and, in addition, gave
guests new access numbers to reach the DSN operator,
thereby helping them to circumvent SUFI’s charges.
    Guest use of calling cards also presented problems
under the contract. On June 9, 1999, the parties agreed
to modify the contract with respect to charges for toll-free
calls. Modification No. 5 states:
   TOLL FREE CALLS: $1.00 CONNECTION FEE.
   (SOME INTERNATIONAL “TOLL FREE” CALLS
   MAY BE SUBJECT TO BILLING, FOR
   EXAMPLE, INTERNATIONAL TOLL FREE
   CALLS TO OTHER COUNTRIES, WHERE A
4                         SUFI NETWORK SERVICES, INC.   v. US

    HOST NATION PASSES ALONG A CHARGE,
    WILL BE SUBJECT TO CONTRACTOR’S
    STANDARD PER MINUTE CHARGE FOR THAT
    COUNTRY.)
See SUFI Network Servs., ASBCA No. 54503, 04-1 BCA
¶ 32,606 at 161,365 (Apr. 22, 2004) (SUFI I) (quoting
provision). On November 5, 2003, the Air Force cited
Modification No. 5 as authority to “open toll free calls, to
include calling cards at the $1.00 connection fee,” and
ordered SUFI to “remove all restrictions on toll free
calling.” Id. SUFI was forced to comply with the demand
for about six months in 2004.
     In response, SUFI challenged the Air Force’s interpre-
tation of Modification No. 5 and asked the contracting
officer to decide “whether Modification 5 (or any other
part of the Contract) requires SUFI to remove restrictions
on toll-free calls accessing other long-distance carriers.”
Id. SUFI also asked the officer to decide whether the Air
Force’s directive that SUFI remove such restrictions
would constitute a “material breach[] of contract that
permit[s] SUFI to cancel the Contract and stop work.” Id.
The contracting officer issued a final decision denying
SUFI’s claims on January 15, 2004. On SUFI’s appeal
pursuant to the contract’s “disputes” clause, however, the
Armed Services Board of Contract Appeals (Board) con-
cluded otherwise. The Board held that SUFI could not be
required to remove restrictions on toll-free calls, that the
government breached the contract in its order regarding
toll-free calls, that the breach was material, and that
SUFI could therefore stop performance of the contract.
SUFI Network Servs., ASBCA No. 54503, 04-2 BCA ¶
32,714 at 161,868-69 (Aug. 17, 2004) (SUFI II); SUFI
Network Servs., ASBCA No. 54503, 04-2 BCA ¶ 32,788 at
162,193-95 (Nov. 1, 2004) (SUFI III).
    On August 25, 2004, SUFI notified the contracting of-
ficer that it intended to stop work on the contract, but
SUFI NETWORK SERVICES, INC.   v. US                        5

would negotiate with the Air Force over transitional
measures to minimize inconvenience to guests. Ultimate-
ly, SUFI, while maintaining its claims for breach of
contract, sold the telephone system to the Air Force for
$2.275 million. The Air Force took over operation of the
telephone system on June 1, 2005.
     One month later, SUFI submitted twenty-eight mone-
tary claims, totaling $130.3 million, to the contracting
officer. The officer denied all of the claims, except that he
allowed SUFI $132,922 on its calling-card claim. SUFI
appealed to the Board, which granted only partial relief to
SUFI, on twenty-one of the claims, in a series of decisions
between 2006 and 2010. The Board’s final award was
approximately $7.4 million in damages, plus interest.
    SUFI challenged the Board’s decisions in the Court of
Federal Claims by filing a contract action under the
Tucker Act, 28 U.S.C. § 1491. The parties do not dispute
that the Tucker Act covers SUFI’s claims. Nor do they
dispute that judicial review of SUFI’s claims under the
Tucker Act is governed by the Wunderlich Act, 41 U.S.C.
§§ 321-322 (2006) (now repealed). See Vista Scientific
Corp. v. United States, 808 F.2d 50, 50 (Fed. Cir. 1986).
    SUFI did not challenge the Board’s ruling on some
claims, which accounted for approximately $2.8 million in
damages, plus interest. That amount became final. SUFI
challenged the Board’s ruling regarding a number of
claims, moving for judgment on the administrative record:
Count I (calling cards); Count III (hallway and lobby DSN
phones); Count V (other operator numbers and patching);
Count VI (early DSN abuse); Count VII (Delta Squadron);
Count VIII (Prime Knight lodgings); Count IX (Kapaun
line charge); Count XI (German troops housing); Count
XV (general lack of cooperation); Count XVI (post-
termination lost profits); Count XVIII (SIMS/LTS inter-
faces); and Count XXIII (change of Air Force switches).
6                          SUFI NETWORK SERVICES, INC.   v. US

    On November 8, 2012, the Court of Federal Claims
granted SUFI’s motion. The court awarded SUFI damag-
es of $118,764,081.34, plus interest, for the claims that
were appealed—mostly representing lost profits both
before termination of the contract and after termination.
SUFI Network Servs., 108 Fed. Cl. at 321-22. That award
was more than $114 million greater than the Board
award on the same claims. Id.
    The United States appeals the increased award. It
accepts that it is liable for breach of contract, appealing
only with regard to the amount of damages. SUFI cross-
appeals, seeking additional damages. We have jurisdic-
tion under 28 U.S.C. § 1295(a)(3).
                        DISCUSSION
    We review the Board decision in this case under the
Wunderlich Act, previously codified at 41 U.S.C. §§ 321-
322. Although the Act has been repealed, the repeal does
not affect this case—involving judicial review of an ad-
ministrative decision in a government-contract case that
the parties agree is within the Tucker Act and outside the
Contract Disputes Act—because SUFI initiated these
proceedings at the Board before the repeal. Pub. L. No.
111-350, 124 Stat. 3677, 3855, 3859 (Jan. 4, 2011).
    Under the Wunderlich Act, the Board’s “decision shall
be final and conclusive unless the same is fra[u]dulent or
capricious or arbitrary or so grossly erroneous as neces-
sarily to imply bad faith, or is not supported by substan-
tial evidence,” 41 U.S.C. § 321 (2006), and “[n]o
Government contract shall contain a provision making
final on a question of law the decision of any administra-
tive official, representative, or board,” id. § 322. Although
cases subject to the Act involve contract disputes, the
judicial proceeding is one of judicial review of agency
action. As relevant here, in applying the express statuto-
ry standard, we, like the Court of Federal Claims, decide
legal issues de novo, review the Board’s factual findings
SUFI NETWORK SERVICES, INC.   v. US                        7

for lack of substantial evidence, and ensure that the
Board’s reasoning was not “capricious or arbitrary.” See
Granite Const. Co. v. United States, 962 F.2d 998, 1001
(Fed. Cir. 1992).
    The corollaries for issues that involve factual findings
and record evidence are familiar. In United States v.
Carlo Bianchi & Co., 373 U.S. 709, 716-17 (1963), the
Supreme Court held that a court reviewing a Wunderlich
Act case is limited to the administrative record and may
not take new evidence. Shortly thereafter, the Court
clarified that, “[w]hen the Board fails to reach and decide
an issue because it disposes of the appeal on another
ground,” the reviewing court, if it later rejects the relied-
on ground, should generally order a remand for the Board
to address the issue it had not reached before judicial
review. United States v. Anthony Grace & Sons, Inc., 384
U.S. 424, 428-430 (1966); see Wilner v. United States, 24
F.3d 1397, 1408 (Fed. Cir. 1994) (Bennett, J., dissenting)
(stating that Bianchi “required the Court of Claims to
remand cases back to the agency board whenever addi-
tional findings of fact became necessary”). On the other
hand, a remand to the Board is sometimes unnecessary—
not only where the dispute turns only on legal issues, but
even where a factual dispute exists if no further record
development is appropriate and the fact is one “as to
which the evidence is undisputed” or “is of such a nature
that as a matter of law the Board could have made only
one finding of fact.” Maxwell Dynamometer Co. v. United
States, 386 F.2d 855, 870 (Ct. Cl. 1967) (no remand neces-
sary); see Collins Int’l Serv. Co. v. United States, 744 F.2d
812, 816 (Fed. Cir. 1984) (“[T]he Claims Court may make
findings of fact in this type of case [under the Wunderlich
Act] where the evidence on the record is uncontroverted or
undisputed.”)
    We conclude that several matters require additional
factual findings. None of those matters fall within excep-
tions to the general rule of remand to the Board on factual
8                         SUFI NETWORK SERVICES, INC.   v. US

matters. Nor is this a case in which we conclude that “the
Board will not promptly and fairly deal with the merits of
the undecided issue.” Anthony Grace, 384 U.S. at 430.
Thus, any new factual findings that are required should
be made by the Board.
                     Burden of Proof
    Before discussing the substance of particular damages
issues, we address whether the Board properly allocated
the burden of proof regarding certain issues that arose in
assessing lost-profits damages. As the non-breaching
party seeking damages for breach in the form of lost
profits, SUFI must prove, by a preponderance of the
evidence, that
    (1) the loss [it claims] was the proximate result of
    the breach; (2) the loss of profits caused by the
    breach was within the contemplation of the par-
    ties because the loss was foreseeable or because
    the defaulting party had knowledge of special cir-
    cumstances at the time of contracting; and (3) a
    sufficient basis exists for estimating the amount
    of lost profits with reasonable certainty.
Energy Capital Corp. v. United States, 302 F.3d 1314,
1325 (Fed. Cir. 2002); see Cal. Fed. Bank, FSB v. United
States, 245 F.3d 1342, 1349 (Fed. Cir. 2001). Where a
defendant argues that, even had there been no breach,
there would have been some impediment to the plaintiff’s
ability to make a profit, the defendant must point out the
alleged impediment, but “[t]he burden of proof on the
issue of causation in a lost-profits case [remains] on the
plaintiff without regard to the nature of the impediment
that the plaintiff would have had to overcome in the
nonbreach world to make a profit.” Nycal Offshore Dev.
Corp. v. United States, 743 F.3d 837, 844 (Fed. Cir. 2014).
That principle is not altered by the accommodation of
reasonable imprecision in the plaintiff’s quantification of
damages that would compensate for proven loss, see id. at
SUFI NETWORK SERVICES, INC.   v. US                       9

845, or by rules about offsets of retained benefits in cases
involving reliance-interest damages (unlike the lost-
profits damages sought here), Westfed Holdings, Inc. v.
United States, 407 F.3d 1352, 1370 (Fed. Cir. 2005);
Caroline Hunt Trust Estate v. United States, 470 F.3d
1044, 1052 (Fed. Cir. 2006).
    Here, SUFI claims as lost profits an amount that rep-
resented what it would have earned if (subject to certain
qualifications) every long-distance call that was in fact
placed on alternative networks (in the actual, breach
world) had instead been placed on SUFI’s network and
gone on for just as long (in the hypothetical, nonbreach
world). The government claims that, due to SUFI’s high
per-minute calling rates, guests would have placed fewer
and shorter calls on SUFI’s network had they been unable
to use the alternative networks. The Court of Federal
Claims mischaracterized this dispute as raising an issue
on which the government bore the burden of proof. SUFI
Network Servs., 108 Fed. Cl. at 299. Once the government
identified alleged impediments to the claimed amount of
lost profits, SUFI had the burden to show by a preponder-
ance of the evidence that its high rates would not have
prevented it from earning the profits it claims—and to
quantify the amount by a reasonably certain estimate.
    Although the Board did not err in placing the burden
on SUFI to prove its damages, in some instances, as we
will discuss, the Board erred because it rejected SUFI’s
calculations in favor of ones that were not supported by
substantial evidence. In other instances, SUFI has not
demonstrated that the Board’s decision lacked substantial
evidentiary support.
                 Count I (Calling Cards)
    SUFI claimed close to $1 million in lost-profits dam-
ages from the government’s breach in requiring SUFI to
allow guests to use calling cards from February to August
2004—which, SUFI alleged, diminished the total number
10                        SUFI NETWORK SERVICES, INC.   v. US

of call minutes guests paid SUFI for. SUFI Network
Servs., ASBCA No. 55306, 09-1 BCA ¶ 34,018 at 168,275-
76 (Nov. 21, 2008) (SUFI VIII). SUFI’s methodology was
to multiply the calling-card usage minutes by SUFI’s
weighted-average long-distance rate, and then to subtract
costs it would have incurred had the calls been made on
its network and revenues it actually received from the
calling-card minutes. Id. The Board declined to adopt
this methodology, which counted all calling-card minutes
as minutes that would have been spent on SUFI’s net-
work without this breach. Id. at 168,276. Instead, the
Board compared SUFI’s monthly revenues before Febru-
ary 2004 (i.e., before SUFI lost revenues due to the call-
ing-card breach) with revenues during the February-
August period of calling-card use and a post-August
period of transition back to calling-card blocking. Id. The
Board’s method resulted in $188,637.80 in lost revenues,
which it awarded as damages (along with a small addi-
tional amount that is not material here). Id.
    Despite the large gap between SUFI’s claimed losses
and what the Board calculated, SUFI has failed to show
that the Board’s methodology was not supported by
substantial evidence. SUFI scarcely discusses this matter
in its brief, relying entirely on the criticism of the Board
by the Court of Federal Claims, which reasoned that the
records of calls placed via calling cards were the “best
evidence” of SUFI’s losses and that, because “SUFI was
experiencing a multitude of other breaches simultaneous-
ly,” it would be “impossible to isolate the calling card
breach using the Board’s methodology.” SUFI Network
Servs., 108 Fed. Cl. at 310. But the Court of Federal
Claims did not cite any evidence to indicate that the
losses due to other breaches so changed during the com-
parison periods that it was unreasonable to use the com-
parison to estimate the losses attributable to calling-card
usage alone. Under a substantial-evidence standard,
SUFI has shown no reason that this kind of event study
SUFI NETWORK SERVICES, INC.   v. US                    11

was impermissible, especially when coupled with plausi-
ble questions, given the price differences, about whether
the calls guests placed using calling cards are the best
evidence of the revenues SUFI would have earned in the
nonbreach world.
     Because we cannot agree that the Board’s methodolo-
gy was unsupported by substantial evidence or was oth-
erwise not in accordance with the law, its damages
calculation with respect to lost revenues attributable to
calling-card usage should stand. Accordingly, we reverse
the Court of Federal Claims on this issue.
       Count III (Hallway and Lobby DSN Phones)
     In calculating lost profits resulting from the Air
Force’s failure to remove hallway and lobby DSN phones,
which siphoned calls from room phones on SUFI’s net-
work, SUFI relied on the use of “surrogate” phone records
to estimate how many calls were placed on those improp-
erly retained phones. Because of the government’s loss of
call records for most of the DSN phones in question, SUFI
had records only of the dates particular hallway/lobby
DSN phones were in service, not of the actual calls placed
on most of the phones. SUFI Network Servs., 108 Fed. Cl.
at 305; SUFI VIII at 168,242. Given the limited data
available, SUFI turned to certain phones for which com-
plete call records were available—namely, certain lobby
phones that it operated, which had worldwide direct-dial
DSN access. SUFI VIII at 168,238. SUFI then chose the
“surrogate” phone with the lowest monthly usage (in
order to be conservative) and multiplied that monthly
usage by the number of months each hallway/lobby DSN
phone was in service (when it should not have been). Id.
at 168,238-39. SUFI used that calculation to estimate the
profits it would have earned had the calls placed from the
hallway/lobby DSN phones instead been placed from
SUFI’s in-room phones (and lasted as long). SUFI ex-
cluded only an amount estimated to reflect local calls on
12                        SUFI NETWORK SERVICES, INC.   v. US

those DSN phones, for which SUFI would not have levied
a charge even if placed from in-room phones (because
SUFI provided local DSN access for free). SUFI Network
Servs., ASBCA No. 55306, 09-2 BCA ¶ 34,201 at 169,089
(July 15, 2009) (SUFI IX).
     Although SUFI’s methodology resulted in $53 million
in alleged losses, the Board found only $1.16 million in
losses. Id. The Board’s approach seemingly rested on two
premises. One was that SUFI’s “surrogate” phones “were
not hallway/lobby DSN phones and their call records were
not probative of the claimed lost revenue from non-official
calls on the hallway/lobby DSN phones.” Id. The other—
which is not entirely explicit or clear in its foundation—
was that, under its contract, SUFI could not (and there-
fore would not) have charged for guests’ in-room dialing of
the Air Force operator to obtain DSN access to make any
“official” call, even a long-distance (as opposed to local)
call. See id. at 169,088-89. On that apparent premise,
any “official”-call minutes spent on the (improper) hall-
way/lobby DSN phones did not count toward calculating
profits SUFI would have earned in the absence of those
phones, because SUFI could not have charged for those
minutes if the caller had spent them in calls made from
the in-room SUFI phones.
     Instead of adopting SUFI’s methodology, the Board
reviewed 173,000 of the 4,274,690 minutes for the hall-
way/lobby DSN phones for which call records were availa-
ble, and “determined that 13% of those minutes were
during other than normal duty hours at the locations
called, and therefore more likely than not to have been
non-official calls.” Id. at 169,089. Extrapolating from this
percentage, the Board ultimately tallied about 1.7 million
minutes as “a fair and reasonable approximation of [the
number of minutes of] the non-official calls that in the
absence of the hallway/lobby DSN phones would have
been placed over the SUFI phones.” Id. The Board mul-
tiplied that number of minutes by SUFI’s weighted-
SUFI NETWORK SERVICES, INC.   v. US                     13

average per-minute profit of about $0.67, and made
certain adjustments, to arrive at its $1.16 million damag-
es award for Count III.
    We agree with SUFI and the Court of Federal Claims
that the Board erred in determining SUFI’s lost profits for
Count III. First, the Board failed to consider whether an
adverse inference should be drawn against the govern-
ment on the issue of the missing call records, as the Air
Force failed to maintain the records even though it was on
notice of this potential contract dispute. See Bigelow v.
RKO Radio Pictures, Inc., 327 U.S. 251, 265 (1946) (“The
most elementary conceptions of justice and public policy
require that the wrongdoer shall bear the risk of the
uncertainty which his own wrong has created. . . . [In a
variety of cases], the wrongdoer may not object to the
plaintiff's reasonable estimate . . . because not based on
more accurate data which the wrongdoer’s misconduct has
rendered unavailable.”).
     Moreover, the Board did not cite to substantial evi-
dence to justify its own methodology for Count III (unlike
for Count I). Even without regard to questions about the
premise that SUFI could not charge for any “official” in-
room DSN call, whether local or (operator-assisted) long-
distance, the Board did not set forth substantial evidence
to support, or reasonably justify, the crucial premise for
its discarding 87% of the calls on hallway/lobby DSN
phones—namely, that all minutes of all calls made during
normal business hours were “official” (and thus not ones
SUFI would have been able to charge for in the absence of
the hallway/lobby DSN phones). That idea is so far from
self-evident that it cannot be adopted without substantial
record support and reasoned consideration of the perti-
nent evidence. The Board opinions are inadequate on this
crucial point in this large-dollar dispute. Among other
things, the Board has not adequately addressed SUFI’s
submission that guests could obtain Air Force reim-
bursement for legitimate official long-distance calls made
14                        SUFI NETWORK SERVICES, INC.   v. US

from their rooms, which might suggest that resort to the
hallway/lobby DSN phones was in large part for non-
official calls.
     The Board also provided inadequate support for its re-
jection of SUFI’s core contention that a reasonable esti-
mate of the number of additional minutes it would have
had on its network, but for the Air Force’s improper
maintenance of the hallway/lobby DSN phones, was the
number of non-local minutes those phones were used
(reasonably estimated). The Board adverted in passing
to, though did not rely on, the idea that “the personal cost
to the caller of using the SUFI phones” would have led to
fewer in-room minutes than hallway/lobby minutes, SUFI
IX at 169,089. The proposition that purchases fall as
prices rise certainly is true within a very wide range of
circumstances. But the particular circumstances at issue
can matter, and the Board here did not analyze the dis-
tinctive circumstances of the present case. It did not
attempt to assess the magnitude of any purchase-limiting
effect or, more basically, consider all relevant real-world
record facts that might affect whether, in this context, it
might even be the case that, on balance, fewer minutes
were spent on hallway/lobby calls than would have been
spent on calls made from guest rooms (in the absence of
hallway/lobby phones), despite the higher cost of in-room
calls. There is record evidence that, hallway/lobby DSN
phones being few in number, long lines formed for use of
some of those telephones, which might have created
pressure for callers to cut calls short; moreover, the
hallway/lobby telephones afforded little if any privacy.
The Board did not examine this and possibly other evi-
dence to set forth a sound basis for rejecting the number
of minutes of calls placed on the “surrogate” DSN phones
as a reasonable estimate of the measure of minutes lost to
SUFI.
    The Board’s rationale is deficient for the foregoing
reasons, even without regard to the soundness of the
SUFI NETWORK SERVICES, INC.   v. US                       15

Board’s apparent premise that SUFI could not charge for
in-room access to the DSN for “official” long-distance calls.
For these reasons, we agree with the Court of Federal
Claims that the Board erred in determining the damages
for Count III. Under the Wunderlich Act, this count
should be remanded to the Board for reconsideration, not
independently adjudicated in the courts. And in that
reconsideration, the Board should more squarely review
the legal and evidentiary basis of its apparent premise
about “official” long-distance DSN calls than it has yet
done. The Board’s opinions addressing that issue, and the
parties’ briefs on it, leave the matter unclear. Whether or
not we could decide this in the first instance, we think it
advisable for the Board, and the parties, to address it
more fully and clearly first, given that we order a remand
on Count III in any event. We vacate the Court of Federal
Claims’ ruling on this issue and order it remanded to the
Board for those purposes.
    The remand relating to this count should also encom-
pass several issues SUFI has raised in its cross-appeal.
Principally, SUFI contends that the Board erred in set-
ting the date from which interest should run on its dam-
ages for Count III. It is undisputed that under a partial
settlement agreement, SUFI is entitled to interest from
the date it actually incurred its damages. SUFI Network
Servs., ASBCA No. 55306, 10-1 BCA ¶ 34,327 at 169,534
(Dec. 14, 2009) (SUFI X). To simplify the required com-
putation for Count III, SUFI asked the Board to use the
“weighted” midpoint of the dates it incurred its damages,
accounting for the fact that damages on Count III were
“front-loaded”—i.e., more damages were incurred earlier
than later, because at some point during the damages
period, the Air Force removed some of the breaching
phones. SUFI Network Servs., ASBCA No. 55306, 10-1
BCA ¶ 34,415 at 169,887 (Apr. 5, 2010) (SUFI XI).
    The Board initially selected June 15, 2001, as the
starting date for interest on damages—a date the Board
16                        SUFI NETWORK SERVICES, INC.   v. US

identified as “the approximate mid-point of the DSN call
data from September 1997 through May 2005, the period
for which SUFI claimed damages,” SUFI X at 169,534.
SUFI then asked the Board to reconsider its decision,
urging that “a weighted midpoint of March 1, 2000, be set
or, at a minimum, the unweighted midpoint of March 1,
2001.” SUFI XI at 169,887. In response, the Board stated
that it was “not persuaded to calculate a ‘weighted mid-
point,’ inconsistent with the unweighted midpoints we
used in our prior decisions,” but would correct the un-
weighted midpoint from June 15, 2001, to March 1, 2001,
as SUFI alternatively requested. Id.
     When SUFI challenged the rejection of the March
2000 date in the Court of Federal Claims, that court
rejected the challenge because SUFI actually proposed
March 1, 2001, to the Board as an alternative. SUFI
Network Servs., 108 Fed. Cl. at 306. We see no sound
basis for that ruling, because SUFI preserved its argu-
ment for the weighted midpoint by making that argument
to the Board. On the merits, moreover, the Board gave
little explanation for rejecting the weighted midpoint,
citing only its desire for consistency with prior decisions.
We conclude, therefore, that when the Board reconsiders
Count III, as we require, it should also reconsider its
rejection of the weighted-midpoint starting date for inter-
est on damages. And at the same time, the Board should
address SUFI’s “evidence to correct the Ramstein Build-
ing No. 303 DSN phone start date from October 2000 to
October 1999” and evidence to “correct[] the 10,135 aver-
age monthly rate to 10,609” minutes per month. SUFI
VIII at 168,239.
     Count V (Other Operator Numbers and Patching)
    Before October 1998, SUFI agreed to carry “morale”
calls free of charge. SUFI VIII at 168,250. In October
1998, SUFI added to its switches two DSN access num-
bers for soldiers to use for these calls, which were sup-
SUFI NETWORK SERVICES, INC.   v. US                      17

posed to be limited to 15 minutes per soldier every two
weeks. Id. SUFI’s monitoring revealed calls up to three
hours long and multiple consecutive calls from the same
guest room; SUFI’s records showed that guests exceeded
morale-call limits by 3,046.5 minutes (50 hours and 46
minutes) in the first three months of 1999 alone. Id.
SUFI responded by blocking the specially established
telephone numbers, but Air Force personnel made other
local DSN numbers available to circumvent the block—
another breach of contract. Id. at 168,250-54. SUFI
identified 5 direct and 34 indirect DSN access numbers to
which 70 or more calls of at least 10 minutes were placed,
while the record showed that the average length of a DSN
call from a non-lodging location (thus, more likely to be
official in nature) was just under 2 minutes. Id. at
168,251, 168,254. In seeking damages for this breach by
the government, SUFI asked for compensation for each
minute of all calls that lasted at least 10 minutes on the
identified lines. Id. at 168,253.
     The Board rejected SUFI’s methodology because SUFI
failed to show that the calls in question were not patched
through to local numbers, rather than to long-distance
numbers. Id. at 168,254 (“To the extent any such calls,
even if non-official, were to local phone numbers, they did
not circumvent SUFI’s commercial long distance phone
network or result in any lost revenues thereby. Except for
morale calls, this evidentiary lacuna is fatal to SUFI’s
proof of liability for lost revenues.”). For that reason the
Board awarded damages only for the 3,046.5 of excess
morale-call minutes for which SUFI produced records. Id.
    We agree with SUFI that the Board’s determination
on Count V is not supported by substantial evidence.
Even if SUFI did not carry its burden to prove that all of
the calls in question were long-distance calls, there was
no basis for the Board’s conclusion that none of the calls
could be counted towards SUFI’s recovery. But the Court
of Federal Claims erred in making its own factual finding
18                        SUFI NETWORK SERVICES, INC.   v. US

on this issue. SUFI Network Servs., 108 Fed. Cl. at 308.
We vacate that ruling and order a remand to the Board
for reconsideration of whether SUFI’s evidence provided a
reasonably certain estimate—a fair and reasonable ap-
proximation—of damages from this breach. See National
Australia Bk. v. United States, 452 F.3d 1321, 1327 (Fed.
Cir. 2006); Bluebonnet Sav. Bk. v. United States, 266 F.3d
1348, 1355 (Fed. Cir. 2001).
               Count VI (Early DSN Abuse)
    In mid-1997, pursuant to its contract, SUFI provided
guests at the Ramstein military base with the ability to
use the telephone to obtain access to the DSN, including
the ability to make local calls directly over that network.
SUFI VIII at 168,233. But according to its later evidence,
SUFI soon concluded that the DSN access was being used
for long-distance calls, made through DSN (Air Force)
operators. Id. SUFI’s representative testified that he
observed a 50% reduction in long-distance calls over the
SUFI network after the Ramstein introduction of DSN
access, with a pattern of long calls (lasting up to four
hours) to the DSN information operator. Id. When it
then blocked access to the DSN operator numbers, SUFI
submitted, its call revenues returned to normal. Id.
    The Board analyzed SUFI’s long-distance revenues for
the period in question, but did not find the recollection of
SUFI’s representative to be substantiated. Id. at 168,235.
On the contrary, the Board found that SUFI’s average
monthly revenues increased, rather than decreased, after
SUFI began providing DSN service. Id. Accordingly, it
held that SUFI had “not established that alleged 1997
DSN abuse caused a reduction in its long distance call
revenues” and denied any relief on Count VI. Id.
    The Court of Federal Claims reversed the Board on
the ground that “[t]here were multiple other breach
factors affecting SUFI’s monthly revenues, and it is
incorrect to rely upon the monthly averages as if this
SUFI NETWORK SERVICES, INC.   v. US                     19

breach were the only one in play.” SUFI Network Servs.,
108 Fed. Cl. at 316. For the same reasons we have given
in discussing Count I, we do not agree that the Board’s
methodology comparing pre- and post-breach revenues
lacks substantial evidence. Accordingly, we reverse the
Court of Federal Claims on Count VI with respect to lost
profits.
    SUFI also sought damages, under Count VI, to com-
pensate it for “extra work” it had to perform, and out-of-
pocket costs it incurred, in addressing the DSN abuse
involving Air Force operators. The Board did not address
these claims. SUFI VIII at 168,235. On appeal, the
government evidently concedes liability for extra work
and costs—under at least the FAR § 52.243-1 “Changes–
Fixed–Price (AUG 1987)” clause, incorporated into the
contract, see J.A. 944B; SUFI I at 161,364. But it con-
tends that the Board should be the one to calculate the
amounts due in the first instance. We agree. Although
we do not disturb the Board’s findings with respect to lost
profits, we vacate the Court of Federal Claims’ ruling on
Count VI in this respect and order a remand for the Board
to determine SUFI’s extra-work and out-of-pocket damag-
es for Count VI.
               Count VII (Delta Squadron)
    One of the buildings covered by SUFI’s contract (a
lodging facility at Sembach Air Force Base) housed the
administrative, maintenance, and transportation person-
nel for the Delta Squadron; before SUFI began service,
five or six government-installed DSN telephones were
available in the building for all Delta Squadron personnel
to use. SUFI VIII at 168,260. SUFI requested the re-
moval of those phones, as they were inside a lodging
facility, contrary to the contract, and the phones were
eventually removed. Id. As to the last two such phones,
the Board’s findings (and the record presented to us) are
unclear, but it appears that the Air Force agreed to the
20                         SUFI NETWORK SERVICES, INC.   v. US

removal only if SUFI replaced those phones with its own.
In April 2000, SUFI installed two of its own phones in the
Delta Squadron lounge, to be used (subject to monitoring)
only for expedited access to the guest rooms of Delta
Squadron personnel and for morale calls to outside num-
bers. Id. Call records revealed, however, that much of
the use fell outside those limits. Id. When SUFI com-
plained to Air Force personnel regarding the abuse and
threatened to remove the phones, SUFI was told that, if it
did so, the Delta Squadron commander would order his
troops not to use SUFI’s room phones. Id.
    The Board awarded SUFI lost profits for the govern-
ment-installed phones, but awarded no damages for abuse
of the SUFI-installed phones, because it found that “SUFI
waited from 13 April 2000 until 12 June 2003 to threaten
to remove those phones” and found no government breach
regarding the SUFI-installed phones. Id. at 168,262. The
Board later corrected its findings to reflect that SUFI first
threatened to remove the phones on or about August 11,
2001, but did not otherwise alter its holding. SUFI IX at
169,090.
    The circumstances under which SUFI replaced the
last two government DSN phones with its own phones are
material to whether the Board’s determination was sup-
ported by substantial evidence, but the record is incom-
plete on this issue. The Board did not discuss the
evidence regarding the government’s alleged initial re-
fusal to remove the phones or eventual agreement to
removal only if SUFI replaced them with its own phones.
Although the Court of Federal Claims seems to have
concluded that the government conceded SUFI’s crucial
factual allegations, SUFI Network Servs., 108 Fed. Cl. at
309 n.13, it is not clear to us from the record that there
are government concessions sufficient to make further
factual findings unnecessary.
SUFI NETWORK SERVICES, INC.   v. US                    21

    We therefore vacate the Court of Federal Claims’ rul-
ing on this issue and order the issue remanded to the
Board for further findings. The Board should consider
what the government has conceded and make factual
findings regarding the circumstances surrounding SUFI’s
installation and maintenance of the two Delta Squadron
phones. If SUFI installed and maintained those phones
only under threats that breached the contract, the Board’s
rationale for denying recovery for losses caused by the
presence of the SUFI-installed phones cannot stand. In
singling out that scenario for comment, we do not con-
strain the otherwise-required inquiry on remand.
          Count VIII (Prime Knight Lodgings)
    Unlike the other lodgings SUFI served, the Prime
Knight lodging facilities at Ramstein had DSN phones in
the guest rooms, with worldwide service, before SUFI’s
contract with the Air Force. SUFI VIII at 168,242-43.
Although the contract provided that these phones were to
be replaced with SUFI phones once SUFI began service,
the Air Force refused to remove the phones until shortly
after September 1998, twenty months after SUFI began
service at Ramstein. Id. at 168,243-44. There is no
dispute on appeal that the Air Force breached the con-
tract by refusing to remove the phones. SUFI Network
Servs., 108 Fed. Cl. at 316.
    SUFI estimated that it lost about $18,000 per month
in revenues because of the government’s breach, then
multiplied that figure by the duration of the breach to
arrive at a total of $188,260.20 in claimed damages.
SUFI VIII at 168,243. The $18,000/month figure appar-
ently reflected a comparison of the monthly revenues from
the Prime Knight lodgings with the monthly revenues
from other lodgings (on the same base) that did not have
worldwide DSN access in the guest rooms, but the Board
found that the averages were “misleading because they
did not consider the number of rooms in each of the build-
22                        SUFI NETWORK SERVICES, INC.   v. US

ings.” Id. The Board adopted an alternative methodology
that compared the per-room revenues of the Prime Knight
lodgings to the per-room revenues of other lodgings in the
relevant time period, and found a difference of $690.58
per room. Id. at 168,245. The Board multiplied this per-
room difference by the number of Prime Knight rooms
(176) to arrive at a total-revenue difference of
$121,542.08. Id.
     Because the Board’s damages determination for
Count VIII was reasonable and supported by substantial
evidence, the Court of Federal Claims erred in displacing
it with its own damages calculation. SUFI Network
Servs., 108 Fed. Cl. at 317. The only explanation the
Court of Federal Claims gave for rejecting the Board’s
calculation was that the “revenues received per room from
other Ramstein lodging facilities were themselves re-
pressed” as a result of other breaches, such as those
involving “hallway and lobby DSN telephones.” Id. But
the Court of Federal Claims identified no reason to think
that the Prime Knight and other Ramstein lodgings were
affected differently by the other breaches—more precisely,
no basis for concluding that the Board had to find such a
difference. Indeed, building diagrams indicate that the
Prime Knight lodgings, like others, made DSN phones
available to guests other than in their rooms. J.A. 1562.
Without a difference regarding other factors, the compari-
son of buildings the Board used to estimate the effect of
the present breach is reasonable. Accordingly, we reverse
the Court of Federal Claims on Count VIII.
           Count XI (German Troops Housing)
    During the pre-contract bidding process, the Air Force
made statements to SUFI about who would be staying at
the lodgings SUFI would serve under the contract: “tran-
sient” guests “in transition between Europe and the
USA,” who would “use the long distance service to re-
establish themselves in the USA or call relatives in the
SUFI NETWORK SERVICES, INC.   v. US                    23

USA.” SUFI VIII at 168,269. The Air Force further
stated that “Americans are frequent callers and use the
long distance service.” Id. Starting in March 2003,
however, and without advance notice to SUFI, the Air
Force housed non-transient German troops in some of the
lodgings, an arrangement that lasted two years—until
May 2005. Id. At the request of their commander, the
Air Force decided generally not to give German troops
personal identification numbers that would enable them
to use SUFI’s phones, although certain soldiers individu-
ally requested and received such numbers. Id. From
March 2003 to May 2005, SUFI’s revenues in the relevant
lodgings declined to about 36% of the pre-March 2003
levels. Id.
    The Board found that the Air Force’s conduct regard-
ing the German troops constituted a change in the terms
of the contract that caused SUFI to have to undertake
extra work and that reduced its revenues, justifying an
equitable adjustment for SUFI’s extra work. Id. at
168,270. The Board did not address SUFI’s claim that the
Air Force’s actions breached implied duties of good faith
and cooperation and violated the express terms of the
contract; nor did the Board explain why it was not award-
ing damages for SUFI’s lost profits on the phones in
rooms occupied by the German troops. Id. In these
circumstances, we cannot uphold the Board’s decision
under the Wunderlich Act standard of review. But the
Court of Federal Claims erred in itself determining the
proper damages for Count XI. We vacate the Court of
Federal Claims’ ruling on Count XI and order that count
remanded to the Board for further consideration.
       Count XVI (Post-Termination Lost Profits)
    Count XVI concerns SUFI’s loss of profits for the
years in which it would have enjoyed the fruits of the
contract had there been no government breach, which led
to the justified contract termination by SUFI. The parties
24                         SUFI NETWORK SERVICES, INC.   v. US

disagree about the interpretation of two contract provi-
sions relevant to calculating SUFI’s post-termination lost
profits—concerning the term of the contract and whether
SUFI would have served new lodging facilities as they
were added to bases covered by the contract. Matters of
contract interpretation are issues of law that we review de
novo. Massachusetts Bay Transp. Auth. v. United States,
254 F.3d 1367, 1372 (Fed. Cir. 2001).
    Contract Term. Three provisions bear on determining
the contract term for purposes of SUFI’s post-termination
lost profits. As modified, section F.4 provides: “The term
of this contract will be for 180 months (15 years).” J.A.
965. As modified, sections H.27 and H.29 provide:
     27. OPTION TO BUY EQUIPMENT
     Upon completion of the performance period of each
     site (15 years), and prior to removal of any con-
     tractor owned equipment, the Government shall
     have the option to buy existing equipment at fair
     market value, which shall be negotiated between
     the contracting officer and the contractor for each
     site.
     ....
     29. PERFORMANCE PERIOD
     The performance period for each site will com-
     mence upon actual completion of installation, in-
     spection and acceptance by the ordering NAFI
     [Non-Appropriated Fund Instrumentality] for the
     system ordered for that particular site and shall
     not exceed a period of 15 years from that date.
J.A. 966 (emphases added). Relying on section F.4, the
Board interpreted the contract to provide for an across-
the-board fifteen-year term from the date the contract
was awarded, and thus set April 25, 2011, as the end date
for contract performance for all sites. SUFI IX at
SUFI NETWORK SERVICES, INC.   v. US                       25

169,092. The Board considered its reading to be con-
sistent with section H.29, which states only that the
performance period for each site “shall not exceed a period
of 15 years,” not that the performance period for each site
would last fifteen years. Id.
    The Court of Federal Claims rejected the Board’s in-
terpretation, instead reading the contract to provide for a
separate fifteen-year term for each site, running from the
date of completion of installation, inspection, and ac-
ceptance by the ordering NAFI, as specified in section
H.29. SUFI Network Servs., 108 Fed. Cl. at 318. The
court reasoned that the Board’s interpretation would
“render sections H.27 and H.29 meaningless and super-
fluous,” because “there would be no reason to have other
provisions addressing a performance period for each site.”
Id. We conclude that, although the Board’s reading may
not render sections H.27 and H.29 “meaningless and
superfluous” (H.27 adds an option to buy equipment and
H.29 specifies when SUFI must begin performing its
duties under the contract), the Court of Federal Claims’
interpretation is the more reasonable reading of the
relevant contract provisions.
    First, the Board’s interpretation is in substantial ten-
sion with section H.27, whose language—“the perfor-
mance period of each site (15 years)”—strongly indicates
that the performance period for each site shall last 15
years, rather than merely that it shall not exceed 15
years. Second, given that the contract anticipates the
addition of new sites years into the contract, with SUFI
bearing substantial up-front installation costs for each
site, it makes sense for the contract to be providing a site-
specific performance period to permit recoupment of such
investments. As the Court of Federal Claims reasoned,
contracting for a separate term for each site “reflects the
sound business principle that SUFI could not earn any
revenue on its investment at a base until the telephone
system was up and running.” SUFI Network Servs., 108
26                        SUFI NETWORK SERVICES, INC.   v. US

Fed. Cl. at 319. In the absence of a persuasive contrary
showing, the fairer reading of the contract language,
considering the economic logic of the bargain, is that the
contract provided a performance period for each site.
    Accordingly, we affirm the Court of Federal Claims’
conclusion that SUFI’s post-termination lost profits
should be calculated for a term of fifteen years from the
date of completion and acceptance of the telephone system
at each site. The Board must recalculate damages under
Count XVI on this basis.
    Serving New Facilities. As part of its claim for profits
it would have earned had the contract continued past its
2005 termination, SUFI contended that it would have
served two lodging facilities the Air Force added to SUFI-
served bases after that termination. Its sole argument, at
this stage, is that it would have served those facilities
because it had a contractual right to do so. We agree with
the Court of Federal Claims that SUFI had no such
contractual entitlement. SUFI, 108 Fed. Cl. at 319-20; see
also SUFI II at 161,868-69; SUFI III at 162,194-95.
     SUFI points to no contract provision that actually
gives it that right. There also is no language making this
contract a “requirements” contract, under which SUFI
was entitled to meet all of some defined set of the Air
Force’s needs. Moreover, the contract provision that the
parties identify as most relevant, section 3.11, points
strongly against SUFI’s argument: addressing “Expanded
Service,” it provides that SUFI is obligated to provide
“expanded services . . . as requested by the government,”
and it includes “new buildings” within that provision. See
SUFI Network Servs., 108 Fed. Cl. at 319 (quoting provi-
sion). Far from entitling SUFI to provide certain service,
including at new buildings, it merely obliges SUFI to do
so, when “requested by the government.”
   SUFI has presented no evidence sufficient to create
the asserted contractual entitlement, which is more
SUFI NETWORK SERVICES, INC.   v. US                     27

contrary to than supported by the contract language. It
identifies no clear, pertinent pre-contract representations
about new buildings. And we cannot conclude that the
economic logic of the overall contractual bargain neces-
sarily implies such an entitlement as to new buildings.
SUFI simply has not shown that its interest in earning
back its investments in particular buildings so clearly
required that SUFI have the option to serve new build-
ings on the same base (if any were built) that an implied
contractual provision of such an option must be inferred.
Finally, the asserted contractual entitlement is not im-
plied by the fact that, for many years, the Air Force
exercised its discretion to request SUFI to provide certain
“expanded service.” Accordingly, we see no error in
denying recovery for the two facilities built at SUFI-
served bases after the contract termination.
    Counts XVIII and XXII (Interfaces and Switches)
     Counts XVIII (SIMS/LTS Interfaces) and XXII
(Change of Air Force Switches) relate to SUFI’s claims for
extra work and out-of-pocket expenses arising out of
problems in making its communications systems function
well when, as required, they connected with certain of the
Air Force’s systems. The Court of Federal Claims re-
versed the Board’s finding of no liability, then calculated
damages for these counts on its own. SUFI Network
Servs., 108 Fed. Cl. at 311-12, 314-15. On appeal, the
government challenges only the Court of Federal Claims’
decision to calculate SUFI’s damages directly, rather than
remand to the Board. We agree. We vacate the Court of
Federal Claims’ ruling in this respect and order remand
for the Board to determine damages for Counts XVIII and
XXII, consistent with the Court of Federal Claims’ liabil-
ity determinations.
       Amounts of Certain Compensable Expenses
   There is no dispute here that SUFI is entitled to pay-
ment for certain expenses it incurred in performing the
28                        SUFI NETWORK SERVICES, INC.   v. US

contract or in responding to the breach, but the calcula-
tion of the payments due is in dispute. In order to calcu-
late the payments due for certain identified, compensable
work by SUFI, the Board determined the hourly rates of
SUFI’s employees who performed the work (dividing their
annual salary by 2080, i.e., 52 x 40, hours) and awarded
SUFI hourly compensation at such rates, without adding
amounts for SUFI’s overhead or profits. On reconsidera-
tion, which the government did not oppose on this issue,
the Board found that SUFI was entitled to both overhead
and profits for the work that was compensable as an
equitable adjustment under the contract’s FAR § 52.243–1
provision, 48 C.F.R. § 52.243–1, but only overhead (not
profits) for work that was compensable as damages for
breach. SUFI IX at 169,094. The Board found overhead
not proven, however, and so awarded nothing for over-
head, and it made no change to its previous award of 10%
profit on some of the contract-change work. Id.; SUFI
VIII at 168,232-33, 168,274-75. The Court of Federal
Claims, on review, held that SUFI was entitled to over-
head and profits regardless of whether it incurred the
expenses at issue because of a contract change or a
breach, and awarded SUFI a 25% supplement to the
labor-rate amount to cover both overhead and profits.
SUFI Network Servs., 108 Fed. Cl. at 300-01.
     The Court of Federal Claims did not identify, and we
do not see, any error in the Board’s first step—
determining base hourly labor rates. Nor do we see error
in the Board’s finding that SUFI’s claim for overhead
failed “for lack of proof,” because “[t]he record does not
show which costs SUFI classified as ‘overhead’ and
whether SUFI added overhead costs to overhead expense
items, to G&A [General and Administrative] costs or to
the compensation of any employee or consultant.” SUFI
IX at 169,094. Although the government did not oppose
the addition of overhead expenses, the Board found inad-
equate evidence in the record to quantify those expenses,
SUFI NETWORK SERVICES, INC.   v. US                       29

and we see no reason to disturb the Board’s finding. To
the extent the Court of Federal Claims concluded other-
wise, we reverse that ruling.
     As to profits, there is now no dispute that—as the
Court of Federal Claims held, reversing the Board—SUFI
is entitled to profits for the work and out-of-pocket ex-
penses at issue, whether they resulted from a contract
change or a breach. A dispute remains, however, about
the amount to be awarded for such profits. In this re-
spect, we see no error in the Board’s selection of a 10%
profit rate. Although section 3.11.1 of the contract speci-
fies that, for additional work not specified in the contract,
SUFI shall respond to the government’s request and
provide a “cost proposal of no more than 25% over cost,”
J.A. 938, neither that provision nor anything else in the
contract says that SUFI shall be entitled to a 25% profit.
The Board, in selecting a 10% profit rate, cited earlier
Board decisions setting profit rates between 9% and 10%.
SUFI IX at 169,095. Other than to complain that the
Board’s rate did not include overhead, SUFI does not
identify error in the Board’s selection of its profit rate.
Accordingly, we vacate the ruling of the Court of Federal
Claims and order a remand for the Board to include
profits for all work and out-of-pocket expenses, whether
incurred as a result of a contract change or breach.
                     Kapaun Line Fee
    Vogelweh Air Base and Kapaun Air Station, located
at essentially the same place, were added to the contract
by Delivery Order No. 4. SUFI’s May 31, 1996 offer to the
Air Force for Delivery Order No. 4 included the three
Kapaun dormitories for the Non-Commissioned Officer
Academy. According to SUFI, however, before it began
the installations for Delivery Order No. 4, it received word
from Donald Hall, the community lodging officer at Ka-
paun, that the Academy was closing and SUFI should
delete the Kapaun buildings from the order. Although no
30                         SUFI NETWORK SERVICES, INC.   v. US

modification was issued removing the Kapaun buildings
from the contract, SUFI performed the installation for
Vogelweh, but did not wire Kapaun. Later, after complet-
ing its installation work at the location, the Air Force
requested that SUFI serve Kapaun, but SUFI protested,
in part because the need to redeploy its installation crew
would increase its costs. SUFI negotiated with Contract-
ing Officer Technical Representative Sellers and other Air
Force personnel to install the Kapaun system in exchange
for a $1 per-day, per-room line fee. Although SUFI did
not receive a contract modification signed by the contract-
ing officer that incorporated the new line fee, it proceeded
with the installation, relying on promises by Representa-
tive Sellers and other Air Force personnel that the line fee
would be approved. After the installation was complete,
the Air Force refused to pay the line fee.
    Although SUFI acknowledges that the contract does
not provide for a line fee at Kapuan, SUFI contends that
the Air Force is estopped from denying it payment in the
amount of the line fee because Air Force personnel misled
it into completing the installation by promising the re-
quested line fee. To succeed in its claim, SUFI must show
     (1) misleading conduct, which may include not on-
     ly statements and action but silence and inaction,
     leading another to reasonably infer that rights
     will not be asserted against it; (2) reliance upon
     this conduct; and (3) due to this reliance, material
     prejudice if the delayed assertion of such rights is
     permitted.
Lincoln Logs Ltd. v. Lincoln Pre-Cut Log Homes, Inc., 971
F.2d 732, 734 (Fed. Cir. 1992). It also must show that the
government engaged in “affirmative misconduct,” Zacha-
rin v. United States, 213 F.3d 1366, 1371 (Fed. Cir. 2000),
and that the Air Force personnel in question were acting
within the scope of their authority, see New Am. Ship-
builders, Inc. v. United States, 871 F.2d 1077, 1081 (Fed.
SUFI NETWORK SERVICES, INC.   v. US                      31

Cir. 1989). The Board rejected SUFI’s claim, SUFI VIII
at 168,259; SUFI IX at 169,091-92, and the Court of
Federal Claims affirmed, SUFI Network Servs., 108 Fed.
Cl. at 314 (Fed. Cl. 2012).
    We affirm on this issue, because SUFI has not proved
the third required element, i.e., material prejudice due to
its reliance. SUFI stakes its entire case on the conduct
and presumptive authority of the Air Force representa-
tives who communicated with it regarding the line fee.
But SUFI has simply not established that Mr. Hall, the
lodging officer who SUFI says originally told it not to wire
Kapaun, and on whose statements SUFI evidently relied
in not wiring Kapaun concurrently with Vogelweh, had
any authority to modify the contract to remove Kapaun,
or that he or any other Air Force representative engaged
in any misconduct in permitting SUFI to wire Vogelweh
without concurrently wiring Kapaun. And SUFI has
made no claim that it suffered prejudice from the denial of
the line fee even if it was independently obligated by
contract to wire Kapaun.
    Because SUFI decided to complete the Vogelweh in-
stallation without concurrently wiring Kapaun, despite
the fact that there was no modification to the contract
releasing it from its obligation to serve Kapaun, the fact
that SUFI subsequently wired Kapaun only in reliance on
the Air Force’s false promises of a line fee is of no conse-
quence. SUFI may have reasonably inferred from the Air
Force’s later conduct that the Air Force would not assert
its rights to have SUFI wire Kapaun under the original
(unmodified) Delivery Order, but it has not shown any
prejudice from the government’s delayed assertion of that
right. On the contrary, Mr. Hall’s statements about
deleting Kapaun from the delivery order do not create an
estoppel or a modification, and with no modification of the
contract, SUFI was obliged to wire Kapaun. It was
SUFI’s own choice not to do so when it wired Vogelweh, a
choice not connected to the Air Force’s later alleged mis-
32                        SUFI NETWORK SERVICES, INC.   v. US

conduct. Costs it incurred in returning to the site to wire
Kapaun are its own responsibility. Accordingly, we affirm
the Court of Federal Claims on this issue.
                       CONCLUSION
    For the foregoing reasons, we affirm in part, reverse
in part, vacate in part, and remand to the Court of Feder-
al Claims, with instructions to remand to the Board for
further factual findings consistent with this opinion.
     No costs.
     AFFIRMED-IN-PART, REVERSED-IN-PART,
       VACATED-IN-PART, AND REMANDED