Court Opinion

ID: 7866477
Source: CourtListenerOpinion
Date Created: 2022-09-08 19:00:59.459668+00
Date Added: 2024-06-11T15:49:18.111403
License: Public Domain

ARMED SERVICES BOARD OF CONTRACT APPEALS
 Appeal of -                                 )
                                             )
 Fluor Federal Solutions, Inc.               )   ASBCA No. 62343
                                             )
 Under Contract No. N69450-12-D-7582         )

 APPEARANCES FOR THE APPELLANT:                  John S. Pachter, Esq.
                                                 Jennifer A. Mahar, Esq.
                                                 Kathryn T. Muldoon Griffin, Esq.
                                                  Smith Pachter McWhorter PLC
                                                  Tysons Corner, VA

 APPEARANCES FOR THE GOVERNMENT:                 Craig D. Jensen, Esq.
                                                  Navy Chief Trial Attorney
                                                 Russell A. Shultis, Esq.
                                                 Patricia Walter, Esq.
                                                 Julie Ruggieri, Esq.
                                                 Jerry Kim, Esq.
                                                  Trial Attorneys

     OPINION BY ADMINISTRATIVE JUDGE WITWER ON THE PARTIES’
              CROSS-MOTIONS FOR SUMMARY JUDGMENT

       This appeal involves a dispute regarding the validity of the government’s
extension of services under Federal Acquisition Regulation (FAR) 52.217-8,
OPTION TO EXTEND SERVICES (NOV 1999). The government unilaterally
extended appellant’s services under this clause while appellant was performing the
final option year of the contract under protest—an option year that the Board later
adjudicated to be unenforceable. Fluor Fed. Sols., LLC, ASBCA No. 61353,
19-1 BCA ¶ 37,237. The narrow question before the Board in this appeal is whether
the government can extend a contractor’s performance under FAR 52.217-8 after an
ineffective attempt to exercise an option year. Both parties seek summary judgment
on this question. As detailed below, we grant summary judgment in favor of appellant
and sustain the appeal. The government’s motion is denied.
         STATEMENT OF FACTS FOR PURPOSES OF THE MOTIONS

         The following facts are undisputed or uncontroverted.

 The Contract

        In December 2011, the Naval Facilities Command Southeast (the Navy or
government) awarded Flour Federal Solutions, Inc. (Fluor or appellant) contract
No. N69450-12-D-7582 to provide regional base operations support at four Navy
installations in the Jacksonville, Florida area (R4, tab 17 at GOV12440, 12443,
12459). The contract contemplated a period of performance of a base year,
four option years, and three award option years, for a period of performance not
to exceed a total of 96 months (id. at GOV12450).

         Central to the dispute here, the contract incorporated FAR 52.217-8, OPTION
 TO EXTEND SERVICES (NOV 1999) (R4, tab 17 at GOV12472). This clause
 allows the government to extend a contractor’s services for a period up to six months.
 The full text of the clause incorporated in the contract at issue in this appeal provides,
 as follows:

              The Government may require continued performance of any
              services within the limits and at the rates specified in the
              contract. These rates may be adjusted only as a result of
              revisions to prevailing labor rates provided by the Secretary
              of Labor. The option provision may be exercised more than
              once, but the total extension of performance hereunder shall
              not exceed 6 months. The Contracting Officer may exercise
              the option by written notice to the Contractor within
              30 Calendar days.

 (Id.)

         The contract also incorporated, by reference, the standard disputes clause,
 FAR 52.233-1, DISPUTES (JUL 2002), as well as FAR 52.233-1, DISPUTES
 (JUL 2002)—ALTERNATE 1 (DEC 1991) (R4, tab 17 at GOV12468). Relevant
 here, the alternate disputes clause provides that, in the event of a contractual dispute,
 “[t]he Contractor shall proceed diligently with performance of this contract,
 pending final resolution of any request for relief, claim, appeal, or action arising
 under or relating to the contract, and comply with any decision of the Contracting
 Officer.” FAR 52.233-1(i).

        Performance of the contract began on July 1, 2012, and the Navy exercised all
 four of its non-award options. Fluor Fed. Sols., LLC, 19-1 BCA ¶ 37,237 at 181,249.

                                              2
Option year 4 ran from July 1, 2016 to June 30, 2017. Id. The Navy did not exercise
award option years 1 or 2, and deleted them from the contract in accordance with the
contract’s award option plan. Id.

The Navy’s Exercise of Award Option Year 3 and ASBCA No. 61353

       On June 28, 2017, mere days prior to the expiration of option year 4,
the Navy issued a unilateral modification purporting to exercise award option year 3
with a 12-month period of performance from July 1, 2017 through June 30, 2018
(R4, tab 18.193). Fluor objected to the modification, contending that the Navy’s
exercise of award option year 3 was invalid and contrary to the terms of the contract.
Fluor Fed. Sols., LLC, 19-1 BCA ¶ 37,237 at 181,249-50. (See also ASUMF ¶ 4a;
gov’t resp. to ASUMF at ¶ 4a; GSUMF ¶ 12) 1 Fluor informed the Navy that it would
perform award option year 3 under protest. (R4, tab 22; ASUMF ¶ 4a; gov’t resp. to
ASUMF ¶ 4a; GSUMF ¶ 13)

        In July 2017, Fluor submitted a claim to the contracting officer for its allowable
costs, plus a reasonable profit, for the work performed or anticipated to be performed
under award option year 3 (R4, tab 23). Fluor appealed the deemed denial of its claim
to the Board, which was docketed as ASBCA No. 61353. In January 2019, the Board
granted summary judgment in Fluor’s favor, holding that the Navy’s exercise of award
option year 3 was unenforceable. Fluor Fed. Sols., LLC, 19-1 BCA ¶ 37,237
at 181,253. Familiarity with our prior decision is presumed.

The Navy’s Exercise of the Option to Extend Services Under FAR 52.217-8

       In April 2018, while Fluor was performing award option year 3 under protest
and subject to a complete reservation of rights, the Navy informed Fluor of its intent to
extend Fluor’s services by six months under FAR 52.217-8 (R4, tab 30). On June 6,
2018, the Navy issued unilateral Modification No. P00211, which purported to extend
Fluor’s performance under FAR 52.217-8 for an additional six months through
December 31, 2018 (R4, tab 18.211 at GOV00025651). Fluor objected to the Navy’s
unilateral modification and represented that Fluor’s continued performance of the
contract was subject to protest (R4, tab 35).

       In October 2019, Fluor submitted a claim to the contracting officer for its
allowable costs, plus a reasonable profit, for the work performed during the six-month
extension. (R4, tab 19 at GOV00025820-23). Fluor’s October 2019 claim is the

1
    “ASUMF” refers to the Appellant’s Statement of Undisputed Material Facts.
        “Gov’t resp. to ASUMF” refers to the Government’s Response to Appellant’s
        Statement of Material Facts. “GSUMF” refers to the Government’s Statement
        of Undisputed Material Facts.
                                            3
subject of the dispute here. In its claim, Fluor contended that the Navy’s unilateral
extension of Fluor’s services was invalid because the Navy had failed to properly
exercise award option year 3. Fluor asserted that the Navy’s failure to properly
exercise the option year resulted in the expiration of the contract on June 30, 2017.

       In January 2020, Fluor appealed the deemed denial of its claim to the Board,
which was docketed as ASBCA No. 62343. In its complaint, Fluor advances three
theories, in the alternative, to support its claim (compl. at 8-9). In Count I, Fluor
alleges that the Navy materially breached the contract in extending the contract.
In Count II, Fluor alleges that the Navy breached its implied duty of good faith and
fair dealing in extending the contract. In Count III, Fluor alleges that the Navy
constructively changed the contract in extending the contract. Fluor moves for
summary judgment on Count I, or in the alternative, Count III (app. memo. at 6).
The Navy cross-moves for summary judgment. The matter before us has been fully
briefed, with both parties submitting opening motions, opposition briefs, replies in
support of their motions, and sur-replies. 2

                                         DECISION

I.        Standards for Summary Judgment

        As both parties state in their respective motions, summary judgment is proper
when there is no genuine dispute as to any material fact, and the moving party is
entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317,
322-23 (1986). Here, the parties have asked us to determine whether or not the
government’s extension of Fluor’s services under FAR 52.217-8 was effective.
We have not found any facts material to the resolution of this question to be in
genuine dispute. Moreover, the parties assert that the question presented involves a
matter of contract interpretation. (App. memo. at 4; gov’t cross-mot. and opp’n at 7).
Contract interpretation is a matter of law, readily resolved by summary judgment.
Kellogg Brown & Root Servs., Inc. v. Sec’y of the Army, 973 F.3d 1366, 1370 (Fed.

2
     There were six dispositive filings: (1) Fluor’s Motion for Partial Summary Judgment
          dated April 17, 2020, which included a memorandum in support of the motion
          (“app. memo.”); (2) the Navy’s Cross-Motion and Opposition dated May 18,
          2020 (“gov’t cross-mot. and opp’n”); (3) Fluor’s Reply and Opposition dated
          June 3, 2020 (“app. reply and opp’n”); (4) the Navy’s Reply dated July 2, 2020
          (“gov’t reply”); (5) Fluor’s Sur-reply dated July 13, 2020 (“app. sur-reply”);
          and (6) the Navy’s Sur-reply dated July 27, 2020 (“gov’t sur-reply”).
          With respect to the parties’ sur-replies, the Board grants Fluor’s Motion for
          Leave to File a Sur-reply dated July 13, 2020, and denies the Navy’s Motion to
          Strike Sur-reply filed July 14, 2020. In reaching the conclusions set forth in our
          decision here, we have considered the sur-replies filed by both parties.
                                               4
Cir. 2020); Gen. Dynamics – Nat’l Steel and Shipbuilding Co., ASBCA No. 61854,
21-1 BCA ¶ 37,793 at 183,477. Because the Navy seeks to enforce the terms of the
option, the Navy has the burden of proving that the option was properly exercised.
Griffin Servs., Inc., ASBCA Nos. 52280, 52281, 02-2 BCA ¶ 31,943 at 157,803.

II.    Contentions of the Parties

        Fluor argues that, because the Board found the Navy’s exercise of award option
year 3 to be unenforceable, the contract expired by operation of law on June 30, 2017
(app. memo. at 5). Once the contract ended, Fluor maintains that the Navy no longer
had an option under FAR 52.217-8 to require Flour to continue to provide services
(id. at 4-5). Accordingly, the Navy’s subsequent issuance of Modification No. P00211
on June 6, 2018—nearly 12 months after the contract ended—purporting to extend
Fluor’s services for an additional six months was invalid and unenforceable (id. at 5).

        The Navy responds that, notwithstanding its invalid exercise of the award
option year, it retained the right to extend Fluor’s performance under FAR 52.217-8.
Citing the decisions of the United States Court of Appeals for the Federal Circuit in
Arko Executive Services, Inc. v. United States, 553 F.3d 1375 (Fed. Cir. 2009), and
Alliant Techsystems, Inc. v. United States, 178 F.3d 1260 (Fed. Cir. 1999), the Navy
claims that the government may extend a contractor’s performance beyond the
expiration of the contract provided it does so while the contractor’s performance is
continuing. The Navy reasons that, because Fluor was performing at the time the
Navy issued the modification (albeit under protest and pursuant to an award option
that the Board determined to be unenforceable), the Navy possessed the authority to
extend Fluor’s services under FAR 52.217-8. As an additional matter, the Navy also
argues that, not only did it possess the authority to extend Fluor’s performance under
FAR 52.217-8, it exercised that authority properly by providing timely notice to Fluor
and exercising the option in accordance with the terms of the clause. For the reasons
below, we grant Fluor’s motion and deny the Navy’s motion.

III.   The Navy’s Extension of Services Under FAR 52.217-8 Was Invalid

       The question presented by the parties is straightforward: Whether the
government can extend a contractor’s performance under FAR 52.217-8 after an
ineffective attempt to exercise an option year. The answer is also straightforward: No.
As a result of the government’s failure to properly exercise the option year, the contract
expired. The language of FAR 52.217-8 incorporated here does not provide a
mechanism to resurrect the parties’ obligations under an expired contract.

       In Fluor Federal Solutions, LLC, 19-1 BCA ¶ 37,237, we held that the Navy’s
exercise of the award option year was unenforceable. Id. at 181,253. The effect of the
Board’s decision is that the contract expired by operation of law on June 30, 2017,

                                            5
i.e., the date before the invalid option period began. See e.g., White Sands Constr.,
Inc., ASBCA Nos. 51875, 54029, 04-1 BCA ¶ 32,598 at 161,308 (holding that, when
the government fails to properly exercise an option, the contract comes to an end the
day prior to the start of the invalid option period); Grumman Technical Servs., Inc.,
ASBCA No. 46040, 95-2 BCA ¶ 27,918 at 139,317 (same); Lear Siegler Inc., Mgmt.
Servs. Div., ASBCA No. 30224, 86-3 BCA ¶ 19,155 at 96,795 (same). See also
Alliant Techsystems, Inc. v. United States, 178 F.3d 1260, 1275 (Fed. Cir. 1999)
(“As a result of the [government’s] failure to exercise the option in accordance with
its terms[,] no bilateral contract for the purchase of property came into existence”)
(quoting United States v. T.W. Corder, Inc., 208 F.2d 411, 413 (9th Cir. 1953));
id. (citing Uniq Computer Corp. ex rel. United States Leasing Corp. v. United States,
20 Cl. Ct. 222, 231-32 (1990); 3 ERIC MILLS HOLMES, CORBIN ON CONTRACTS § 11.8
(1996)). Accordingly, contrary to the Navy’s assertion that its invalid exercise of
the award option year “did not sever the parties’ contractual relationship” (gov’t
cross-mot. and opp’n at 18), that is exactly the result. Once the contract expired,
any subsequent attempt by the Navy to extend Fluor’s services under FAR 52.217-8
was legally ineffective. 3

        We faced a similar situation in Griffin Servs., Inc., 02-2 BCA ¶ 31,943.
In Griffin, the government extended the contract three times under FAR 52.217-8,
for a total of six months. The contractor received notice of the first two extensions
before the pertinent performance period expired. With respect to the third extension,
however, the government failed to show that the contractor was timely notified of the
extension. Rather, notice of the third option was received after the contract expired.
The contractor performed the third option and filed a claim for constructive change.
In our decision, the Board concluded that the government properly exercised the first
two options. Regarding the third option, the Board found that the option was not
validly exercised because it was received by the contractor after the contract expired.
Griffin Servs., Inc., 02-2 BCA ¶ 31,943 at 157,805. We held that the government must
“deliver the written exercise of the option to the appellant before expiration of the
option period, in order for the option to be timely exercised.” Id. (emphasis added).
Like the government in Griffin, the Navy did not exercise the option to extend Fluor’s
services before the expiration of the contract period. Accordingly, like in Griffin, we
conclude that the government’s failure to exercise the option to extend services under
FAR 52.217-8 prior to the expiration of the contract renders the option ineffective.

3
    Although the Navy disagrees with the contention that the contract expired on
         June 30, 2017, contending instead that the contract did not expire until a year
         later on June 30, 2018 (gov’t resp. to ASUMF ¶¶ 5-6; gov’t cross-mot. and
         opp’n at 11), the Navy’s disagreement does not establish the existence of
         disputed facts. Rather, the effect of the government’s failure to properly
         exercise an option is a question of law, not a triable issue of fact.
                                              6
        The Board’s decisions in White Sands Constr., Inc., 04-1 BCA ¶ 32,598,
and Grumman Technical Servs., Inc., 95-2 BCA ¶ 27,918, are also instructive.
In White Sands, the contract contemplated a base year and four option years.
The government exercised all four option years under FAR 52.217-9, OPTION TO
EXTEND THE TERM OF THE CONTRACT (MAR 1989). The contractor alleged
that the government improperly exercised the second option year resulting in the
expiration of the contract and the invalidation of all subsequent option years.
The Board agreed, holding that the “exercise of Option II was therefore ineffective,
the contract came to an end . . . and there were no options to exercise in [subsequent
years].” White Sands Constr., Inc., 04-1 BCA ¶ 32,598 at 161,308. The Board
concluded that the contractor was entitled to an equitable adjustment for the invalid
option years.

        Likewise, in Grumman, the contract contemplated a base year and four options
years. The government exercised the first two option years under FAR 52.217-9.
The contractor alleged that the government improperly exercised the first option year.
The Board agreed and summarized the impact of such a finding, as follows: “Since
the [first] option exercise was invalid, the contract came to an end . . . and there
remained no option to exercise[.]” Grumman Technical Servs., Inc., 95-2 BCA
¶ 27,918 at 139,317. The Board further explained that the government’s “purported
exercise of [the second option year] was, therefore, of no effect.” Id. The Board’s
decisions in White Sands and Grumman clearly articulate the legal result of an
invalidly exercised option, namely that the contract expires and that any subsequently
exercised options are of “no effect.” 4

       In sum, when the contract here expired, the Navy’s right to exercise the option
to extend services under FAR 52.217-8 expired with it. Consequently, the Navy’s
issuance of Modification No. P00211, nearly 12 months after the expiration of the
contract, is invalid and Fluor is entitled to an equitable adjustment for the six-month
extension of its services under a theory of constructive change. 5 For the above
reasons, we grant summary judgment in Fluor’s favor on Count III of the complaint.

4
  The Navy seeks to distinguish Grumman (and presumably White Sands too) by
       noting that it involved the exercise of successive option years under
       FAR 52.217-9, not the exercise of the option to extend services under
       FAR 52.217-8. (Gov’t cross-mot. and opp’n at 9-10, 15; gov’t reply at 7-8)
       We do not find the distinction to be relevant under the circumstances presented
       here and the Navy offers no rationale for us to treat the two FAR clauses
       differently. Once a contract expires, the government’s ability to extend the
       contractor’s performance—through either FAR clause—expires as well.
5
  Where a contractor continues performance of a contract at the direction of the
       government following the government’s improper exercise of an option,
       the contractor is entitled to reimbursement of its costs and reasonable profit
                                           7
IV.    The Federal Circuit’s Decisions Cited by The Navy Do Not Support the Navy’s
       Position.

        In an attempt to bolster its position that it retained the right to extend Fluor’s
services after the expiration of the contract, the Navy cites the Federal Circuit’s
decisions in Arko Executive Services, Inc., 553 F.3d 1375, and Alliant Techsystems,
Inc., 178 F.3d 1260. The Navy’s reliance on these decisions is misplaced.

       A.     The Federal Circuit’s Decision in Arko Addresses Legal Issues Not
              Germane to This Appeal.

       The Federal Circuit’s decision in Arko involved the interplay between
FAR 52.217-8 and FAR 52.217-9. The Federal Circuit held that the government may
properly invoke FAR 52.217-8 to extend services beyond the maximum contract term
contemplated in FAR 52.217-9. Arko, 553 F.3d at 1381.

       The contract in Arko contemplated a base year and four option years,
which Arko fully performed. Id. at 1376-77. Before the end of the last option year,
the government extended Arko’s performance under FAR 52.217-8. Id. at 1377, 1379.
After completing the contract under protest, Arko submitted a claim and later sued in
the United States Court of Federal Claims, asserting that the government could not use
FAR 52.217-8 to extend performance beyond the maximum contract term specified in
FAR 52.217-9, which in this case was five years. Id.

        On appeal, the Federal Circuit affirmed the trial court’s grant of summary
judgment for the government. The Court rejected Arko’s argument that FAR 52.217-8
is limited by the language in FAR 52.217-9 identifying the maximum length of the
contract. Id. at 1381 (“We hold that the limitation of the contract duration to five years
by [FAR 52.217-9] does not preclude extensions beyond five years pursuant to FAR
52.217-8”). Instead, the contract duration established in FAR 52.217-9 applies only to
extensions of the base period by options exercised under that clause. Id. at 1380.
In short, the Court held that the government may use FAR 52.217-8 to extend
performance beyond the term of the contract.

       under a theory of constructive change. See e.g., Lockheed Martin IR Imaging
       Sys. Inc. v. West, 108 F.3d 319, 320 (Fed. Cir. 1997); Varo, Inc., ASBCA
       No. 47945, 96-1 BCA ¶ 28,161; United Food Servs., Inc., ASBCA No. 43711,
       93-1 BCA ¶ 25,462; Holly Corp., ASBCA No. 24975, 83-1 BCA ¶ 16,327;
       Gen. Dynamics Corp., ASBCA No. 20882, 77-1 BCA ¶ 12,504; TECOM, Inc.,
       IBCA No. 2970 a-1, 95-2 BCA ¶ 27,607. But see White Sands Constr., Inc.,
       04-1 BCA ¶ 32,598 (sustaining claim for breach of contract where government
       invalidly exercised option).
                                              8
       Relying upon Arko, the Navy argues, in the matter pending before us, that “had
the Navy properly exercised each option and extended the contract term for the full
96 months [permitted under the contract], the Navy could have extended Fluor’s
performance [through FAR 52.217-8] for an additional 6 months and received Fluor’s
services for 102 months, notwithstanding the undisputed 96-month limitation option
years” (gov’t cross-mot. and opp’n at 13). The hypothetical situation laid out by the
Navy, however, is not what we are presented with here.

         Clearly, as the Federal Circuit established in Arko, the government, under
FAR 52.217-8, may extend performance beyond the contract term. That, however, is
not the question presented here. 6 Fluor does not argue that the Navy’s use of FAR
52.217-8 was improper because it extended performance beyond the originally
contemplated contract term (i.e., 96 months) or beyond the expiration of the contract
(i.e., June 30, 2017) (app. reply and opp’n at 14). 7 Had Fluor raised such an argument,
the Federal Circuit’s decision in Arko would be relevant.

        Instead, as explained above, Fluor contends (and we agree) that the government
may not invoke FAR 52.217-8 after the contract has expired. The Federal Circuit in
Arko did not address this question (and did not need to) because the Court determined
that the government timely exercised its contractual right before the expiration of the
contract. Arko, 553 F.3d at 1377-79. Thus, contrary to the Navy’s contention (gov’t
cross-mot. and opp’n at 15), the Federal Circuit’s decision in Arko does not support the
premise that the government may exercise the option to extend after the expiration of
the contract.

        In this regard, the Navy seems to conflate two concepts: (1) the contractor’s
performance of the option and (2) the government’s exercise of option. Although the
government may require the contractor to continue to perform after the expiration of
the contract term, the government may not invoke that right after the expiration of the
contract term. Put another way, the performance itself may (and often does) occur
after the expiration of the contract; the government’s exercise of its contractual right to
require continued performance, however, may not occur after the expiration of the
contract. Here, the Navy’s exercise of the option to extend Fluor’s services was
ineffective because it occurred nearly 12 months after the expiration of the contract.

6
  As an aside, we also note that the facts in the Navy’s hypothetical differ from those
       presented in this case, i.e., the Navy’s hypothetical presumes that the Navy
       properly exercised each option.
7
  Indeed, Fluor acknowledges that the Navy could have extended Fluor’s services
       beyond the contract term had it elected to do so before the expiration of contract
       on June 30, 2017 (app. reply and opp’n at 14). We agree, provided, of course,
       that the Navy exercised its authority in strict compliance with the option
       provision.
                                            9
       B. The Federal Circuit’s Decision in Alliant Does Not Support the Navy’s
          Theory That Continued Performance Under Protest Preserves the
          Government’s Right to Extend Services.

        The Navy’s reliance on the Federal Circuit’s decision in Alliant Techsystems,
Inc., 178 F.3d 1260, is equally unavailing. According to the Navy, the Alliant decision
“teaches that the contract in this case continued in force notwithstanding the Navy’s
unenforceable exercise of the Award Option” (gov’t cross-mot. and opp’n at 11).
The Navy’s theory is that the government may extend a contractor’s services under
FAR 52.217-8 “provided it does while the contractor’s performance is continuing,”
even if such performance is under protest and pursuant to the disputes clause of the
contract (id. at 1). Per the Navy, the only relevant inquiry is whether the contractor is
performing at the time the government exercises the option (id. at 11).

       Applying this theory to the subject appeal, the Navy contends that, as a result of
Fluor’s continued performance of the award option year (which the Navy concedes
was required pursuant to the disputes clause), the Navy retained the authority to extend
such performance under FAR 52.217-8. (Id. 11-12, 18-19; gov’t reply at 5-6) In other
words, it was Fluor’s performance under protest that preserved the Navy’s ability to
exercise the option to extend under FAR 52.217-8. Nothing in the Federal Circuit’s
decision in Alliant supports this theory.

        The contract in Alliant involved the demilitarization of bombs, and included
an option clause that permitted the government to increase the quantity of bombs
per month to be demilitarized. Alliant Techsystems, Inc., 178 F.3d at 1263.
The government attempted to exercise the option to increase the quantity of bombs,
but did so at a different rate than specified in the contract. Id. at 1264. Alliant took
the position that it was not required to perform because (a) the attempted exercise was
untimely and (b) the attempted exercise was at a quantity not contemplated by the
option clause. Id. Alliant sought relief from the Court of Federal Claims, which held
that the government’s exercise of the option was valid and that Aliant was required to
perform, albeit at a lower rate per month than ordered by the government. Id. Alliant
refused to perform the option quantities as revised by the trial court, and the
government terminated Alliant’s contract for default. Id. at 1263.

        On appeal, the Federal Circuit reversed the Court of Federal Claims’ finding
that the exercise of the option had been valid, but held that Alliant was, nevertheless,
obliged to continue performing under the disputes clause of the contract until the
dispute was resolved. Id. at 1277. Although the Court agreed with the government
that the option was timely exercised, it agreed with Alliant that the delivery rate was
inconsistent with the option’s stated terms, thus rendering the attempted exercise of the
option invalid. Id. at 1263, 1275. The Federal Circuit explained that the “consequences
of such a deviation from the proper terms of the option exercise are that the option

                                           10
clause imposed no obligations on Alliant and that its refusal to perform the option did
not constitute a breach of the option clause.” Id. at 1275.

       Although the Federal Circuit found the government’s exercise of the option to
be invalid, the Court held that Alliant was obligated to perform under the disputes
clause of the contract. Id. at 1263. In this regard, the Court stated that a contractor’s
“obligations under the disputes clause are independent of its obligations under the
option clause.” Id. at 1277. The court concluded that the increased quantity of bombs
requested by the government was not a “drastic modification” such that it would be
construed as a cardinal change. Id. Thus, Alliant was not excused from performance.
The Federal Circuit explained, however, that, “[i]f the [trial] court had accepted
Alliant’s argument on the merits [i.e., found the option exercise invalid], it would have
held that Alliant had no obligation to perform under the option clause.” Id. at 1271.
“That ruling, unless stayed, would also have preempted any disputes clause
performance obligations.” Id.

       In sum, Alliant stands for two well-established principles. First, where the
government fails to properly exercise an option, the contractor has no contractual
obligations under the option clause beyond those of the original contract. Id. at 1275.
Second, where the government fails to properly exercise an option, the disputes clause
may obligate a contractor to continue performance “until and unless it obtain[s] a court
[or Board] order excusing it from its performance obligation.” Id. at 1277. The
Federal Circuit’s decision in Alliant, therefore, provides ample validation for our
decisions in White Sands and Grumman (discussed above), in which we concluded that
the government’s failure to properly exercise an option results in the expiration of the
contract as a matter of law and renders any subsequently exercised options invalid
notwithstanding the contractor’s continued performance under protest.

        Contrary to the Navy’s allegations, a contractor’s continued performance under
protest and pursuant to the disputes clause does not give the government carte blanche
to extend such performance. In fact, if we were to adopt the theory advanced by the
Navy, i.e., that a contractor’s performance under protest preserves the government’s
right to extend such performance, it would defeat the salutary purpose of the disputes
clause. As has been long-recognized, the disputes clause “protects an important
interest of the Government by permitting it to continue to receive needed supplies on
schedule, despite disputes which might arise during performance.” Dynamics Corp. of
Am. v. United States, 389 F.2d 424, 432-33 (1968) (footnote omitted). This important
governmental interest would be thwarted were we to rule that a contractor must refuse
to perform an option year it believes to be invalid in order to prevent the government
from further extending such performance under FAR 52.217-8.

       In conclusion, neither Arko nor Alliant supports the Navy’s arguments in this
matter.

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V.     A Final Matter: The Strict Compliance Rule

        To properly exercise an option, the government’s acceptance of that offer must
be unconditional and in exact accord with the terms of the contract being renewed.
New Eng. Tank Indus. of N.H., Inc. v. United States, 861 F.2d 685, 687 (Fed. Cir.
1988); 4737 Conner Co. v. United States, 65 F.App’x 274, 277 (Fed. Cir. 2003);
Griffin Servs., Inc., 02-2 BCA ¶ 31,943 at 157,803; Contel Page Servs., Inc., ASBCA
No. 32100, 87-1 BCA ¶ 19,540 at 98,734; Holly Corp., 83-1 BCA ¶ 16,327 at 81,164.
See also Civic Plaza Nat’l Bank v. First Nat’l Bank in Dallas, 401 F.2d 193,
198 (8th Cir. 1968). This requirement is strictly construed. Gen. Dynamics Corp.,
ASBCA No. 20881, 77-1 BCA ¶ 12,504 at 60,622 (citations omitted). Any attempt by
the government offeree to alter the conditions of the option will render the exercise
ineffective. Griffin Servs., Inc., 02-2 BCA ¶ 31,943 at 157,803 (citing Alliant
Techsystems, Inc., 178 F.3d at 1275); Grumman Technical Servs., Inc., 95-2 BCA
¶ 27,918 at 139,316 (citing Chem. Tech. Inc., 80-2 BCA ¶ 14,728); Contel Page Servs.,
Inc., 87-1 BCA ¶ 19,540 at 98,734. As the Navy recognizes (gov’t cross-mot. and
opp’n at 16), the government has the burden to prove that it exercised the option in
strict compliance with the option provision. Griffin Servs., Inc., 02-2 BCA ¶ 31,943
at 157,803.

        The Navy argues in its cross-motion for summary judgment that, not only did it
retain the authority to extend Fluor’s performance under FAR 52.217-8 after the
contract expired, but also that it exercised that authority in strict compliance with the
terms of the option clause (gov’t cross-mot. and opp’n at 15-18). Fluor counters that,
even assuming for the sake of argument that the Navy’s rights under FAR 52.217-8
did not cease when the contract expired, the Navy’s purported extension of services
was not timely exercised and was not within the limits and rates specified in the
contract (app. reply and opp’n at 2). The parties devoted a significant amount of their
briefing to these issues. In view of our disposition above, however, we need not
address these arguments.

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                                      CONCLUSION

        Appellant’s motion for partial summary judgment as to Count III of the
  complaint is granted. The government’s cross-motion for summary judgment is
  denied. The appeal is sustained and remanded to the parties to negotiate quantum in
  accordance with this decision.

            Dated: August 8, 2022

                                                   ELIZABETH WITWER
                                                   Administrative Judge
                                                   Armed Services Board
                                                   of Contract Appeals

 I concur                                            I concur

 RICHARD SHACKLEFORD                                 J. REID PROUTY
 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. 62343, Appeal of Fluor
Federal Solutions, Inc., rendered in conformance with the Board’s Charter.

      Dated: August 9, 2022

                                                  PAULLA K. GATES-LEWIS
                                                  Recorder, Armed Services
                                                  Board of Contract Appeals

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