Court Opinion

ID: 2673333
Source: CourtListenerOpinion
Date Created: 2014-05-10 03:13:54.017999+00
Date Added: 2024-06-11T09:19:59.325438
License: Public Domain

In the United States Court of Federal Claims
                                      No. 13-380C

                                (Filed: March 19, 2014)

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                                    *
AGILITY DEFENSE & GOVERNMENT *
SERVICES, INC.,                     *
                                    *
                                                IDIQ Delivery Orders; Assumption of
                    Plaintiff,      *
                                                Risk under Firm Fixed-Price Contracts;
                                    *
                                                Constructive Changes and Express
v.                                  *
                                                Changes; Doctrines of Impossibility and
                                    *
                                                Commercial Impracticability.
THE UNITED STATES,                  *
                                    *
                    Defendant.      *
                                    *
*************************************

Jon D. Levin, with whom were Gary L. Rigney and W. Brad English, Maynard, Cooper &
Gale, P.C., Huntsville, Alabama, for Plaintiff.

Phyllis Jo Baunach, Senior Trial Counsel, with whom were Stuart F. Delery, Assistant
Deputy Attorney General, Bryant G. Snee, Acting Director, and Martin F. Hockey,
Assistant Director, Commercial Litigation Branch, Civil Division, U.S. Department of
Justice, Washington, D.C., Nathan J. Bankson, U.S. Army, Of Counsel, for Defendant.

                               OPINION AND ORDER

WHEELER, Judge.

       In this contract dispute, Plaintiff Agility Defense & Government Services, Inc.
(“DGS”), formerly Taos Industries, Inc. (“Taos”), seeks an equitable adjustment in the
amount of $1,369,377.47 for costs incurred in its completion of a delivery order issued
pursuant to its contract with the U.S. Army. The contract at issue is a firm fixed-price,
indefinite-delivery, indefinite-quantity (“IDIQ”) contract for the purchase of various
Soviet-style weapons in support of the U.S. Army’s security assistance mission in
Afghanistan. DGS’s claim is related to its delivery of one of those weapons, the 73 mm
SPG-9 recoilless gun. Although DGS originally promised to provide 225 SPG-9s at a
fixed total price of $1,319,400.00, it claims that subsequent actions by foreign
governments and contract modifications by the U.S. Government increased its costs to
$2,688,777.47. DGS now seeks reimbursement of the difference between the contract
price and its actual costs.

       As set forth below, the Court reaffirms the well-settled rule that in a fixed-price
contract, the contractor bears the risk that its actual cost of performance might exceed the
contract price. Accordingly, the Court denies Plaintiff’s motion for summary judgment
and grants the Government’s cross-motion for summary judgment. 1

                                             Background

        On July 12, 2004, DGS entered into an IDIQ contract with the U.S. Army for the
procurement of Soviet-style weapons to support the Army’s security assistance program
in Afghanistan. (Pl.’s Mot. Attach. 1.) The contract provided for the issuance of
individual delivery orders on a firm fixed-price basis, and obligated the Government to
place orders totaling at least $30,000 in supplies, up to a maximum of $50 million. (Id.)
In return, DGS agreed to provide certain Soviet-style weapons, including 73 mm SPG-9
recoilless guns. (Id.) The contract stated that DGS would be provided a “fair opportunity
to propose pricing and delivery for each delivery order,” and the proposed equipment
could be “new, new surplus, used, overhauled, or refurbished,” as long as it was in
“serviceable, operable condition.” (Id.) The contract incorporated various FAR
provisions, including FAR 52.216-22, as follows:

                Any order issued during the effective period of this contract
                and not completed within that period shall be completed by
                the Contractor within the time specified in the order. The
                contract shall govern the Contractor’s and Government’s
                rights and obligations with respect to that order to the same
                extent as if the order were completed during the contract’s
                effective period; provided, that the Contractor shall not be
                required to make any deliveries under this contract after 2
                years after original delivery date.

(Id.) Another provision, FAR 52.243-1, was incorporated as the “Changes” clause,
providing for an equitable adjustment in the event of certain changes to the contract made

1
  The Government styles its brief as a “Motion to Dismiss, or, in the Alternative, Motion for Summary
Judgment.” Since both parties rely on evidence outside the pleadings, the Court treats the Government’s
motion as one for summary judgment. See Brubaker Amusement Co. v. United States, 304 F.3d 1349,
1355-56 (Fed. Cir. 2002) (“Pursuant to RCFC 12(c), the trial court may convert a motion to dismiss into a
motion for summary judgment under RCFC 56 if it relies on evidence outside the pleadings.”).

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by the contracting officer. (Id.) Finally, it incorporated FAR 52.249-8 as the default
clause, providing the conditions justifying termination of the contract for default. (Id.)

       On December 7, 2007, the Army issued Delivery Order 6, which incorporated the
general contract provisions and provided specific order details, such as quantity, price,
and delivery dates. (Pl.’s Mot. Attach. 2.) According to those details, DGS agreed to
provide 225 SPG-9s at a fixed unit price of $5,864.00, for a total price of $1,319,400.00,
on a delivery date of April 7, 2008. (Id.) DGS subsequently sought to obtain the SPG-9s
from two different subcontractors, one Hungarian company and one Bulgarian company.
(Pl.’s Mot. Attachs. 3-4.) The first attempt failed when the Hungarian government
refused to release its weapons, and the second failed when the Bulgarian government did
the same. (Id.) Consequently, DGS did not provide the SPG-9s by the April 7, 2008
delivery date, and two years later, it still had not provided the weapons. (Id.)

       The two-year mark was significant because, under the terms of the contract, the
Army could terminate the contract for default if DGS failed to deliver the weapons, but it
could not require DGS to make any deliveries more than two years after the originally
scheduled date. (See id.) Consequently, effective April 1, 2010, both parties signed
Bilateral Modification 4, agreeing that DGS would “not meet the current delivery date,”
but instead would “provide 20,000 YAK-B Links as consideration for late delivery.”
(Def.’s Mot. A34-A36.) The modification further stated that “[t]he revised delivery date
is not yet known,” and “[a]nother modification will need to be executed when the
delivery date is determined.” (Id.) From April 1, 2010 to March 10, 2011, DGS was still
unable to deliver the SPG-9s, though the parties continued to correspond regarding
DGS’s performance of the contract. (Pl.’s Mot. Attachs. 3-6.)

        Their correspondence culminated on March 10, 2011 with the signing of Bilateral
Modification 7, which contained three significant details. (Pl.’s Mot. Attach. 7.) First,
because DGS had been unable to acquire “new surplus” SPG-9s, it instead promised to
deliver “new production” SPG-9 variants. (Id.) Second, the modification set “firm
[delivery] dates subject only to the requirements for actions by the [Government].” (Id.)
Third, DGS explicitly agreed to “waive its rights arising from clause 52.216-22,
regarding the restriction on not requiring the contractor to make delivery after 2 years
after the original delivery [date].” (Id.) However, one detail that is conspicuously absent
from Bilateral Modification 7 is an increase in the contract price. (See id.)

       On December 24, 2011, DGS completed delivery of the 225 SPG-9s. (Pl.’s Mot.
Attach. 8.) On April 25, 2012, it sent a Request for Equitable Adjustment (“REA”) to the
contracting officer in the amount of $1,369,377.47. (Pl.’s Mot. Attach. 9.) This amount
represented the increase in costs DGS incurred to acquire the SPG-9 variants specified in
Bilateral Modification 7, rather than the SPG-9s described in the original delivery order.

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(Id.) DGS argued that it had “incurred significant additional costs as a result of actions/
non-actions by foreign sovereign governments outside of [its] control,” and “the ONLY
costs included in [the] REA [were] the actual costs incurred to procure the SPG-9s less
the awarded base unit price of $5,864.00 each for 225 units plus [its] 2011 actual General
& Administrative rate.” (Id.) The contracting officer rejected the REA. (Pl.’s Mot.
Attach. 10.) DGS then submitted a certified claim, but on January 16, 2013, the
contracting officer issued a final decision denying DGS’s certified claim as well. (Pl.’s
Mot. Attach. 11.)

       On June 7, 2013, DGS filed its complaint in this Court. The parties have filed
cross-motions for summary judgment, as well as response and reply briefs. The Court
heard oral argument on February 18, 2014, and the case is now ready for decision.

                                         Analysis

       A. Standard for Decision

       Summary judgment is appropriate where the evidence demonstrates that there is
“no genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” RCFC 56(a). A “genuine” dispute is one that “may reasonably be
resolved in favor of either party,” and a “material” fact is one that “might affect the
outcome of the suit under the governing law.” Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 248-50 (1986). Where the parties have filed cross-motions for summary judgment,
the court evaluates each motion on its own merits and makes all reasonable inferences
against the party whose motion is under consideration. Marriott Int’l Resorts, L.P. v.
United States, 586 F.3d 962, 968–69 (Fed. Cir. 2009).

       B. Discussion

        Where, as here, a contractor seeks an equitable adjustment from the Government
for additional costs incurred during performance of a firm fixed-price contract, one
overarching principle guides the Court’s analysis. This principle states that “[a] firm-
fixed-price contract provides for a price that is not subject to any adjustment on the basis
of the contractor’s cost experience in performing the contract. This contract type places
upon the contractor maximum risk and full responsibility for all costs and resulting profit
or loss.” FAR 16.202-1. Although DGS’s legal reasoning is largely opaque and not well
articulated, DGS appears to argue for an exception to this principle on three separate
bases: (1) DGS’s performance after April 7, 2010 was caused by the Government’s
constructive change to the contract; (2) its delivery of more expensive goods was
required by the Government’s express change to the contract; and (3) its failure to deliver

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the original, less expensive goods is excused by the doctrine of impossibility.      As
explained below, none of those arguments has merit.

          1. Constructive Change

       “A constructive change occurs where a contractor performs work beyond the
contract requirements without a formal order, either by an informal order or due to the
fault of the Government.” Int’l Data Products Corp. v. United States, 492 F.3d 1317,
1325 (Fed. Cir. 2007). When the Government compels work “above and beyond that in
the contract,” it must compensate the contractor for the costs of the additional work
through an equitable adjustment. Id. However, when the Government merely insists on
performance in compliance with the contract specifications, no adjustment is warranted.
NavCom Def. Elecs., Inc. v. England, 53 F. App’x 897, 900 (Fed. Cir. 2002) (citing S.S.
Silberblatt, Inc. v. U. S., 433 F.2d 1314, 1323 (Ct. Cl. 1970)).

       DGS asserts that the contracting officer’s “insistence on DGS’s continued
performance [after April 7, 2010], despite its having no obligation to do so pursuant to
FAR 52.216-22, constituted a constructive change.” (Compl. ¶ 22.) However, this
argument blatantly disregards the uncontroverted facts. Effective April 1, 2010, the
parties signed Bilateral Modification 4 and waived the original April 7, 2010 delivery
deadline. (Def.’s Mot. A34-36.) The description of the parties’ agreement stated:

             This no cost modification is being issued to reflect the 20,000
             YAK-B Links that TAOS is providing as consideration for
             late delivery. The current delivery date is 7 April 2010.
             TAOS will not meet the current delivery date. . . . The
             revised delivery date is not yet known. Another modification
             will need to be executed when the delivery date is
             determined.

(Id. at A36.) That determination was made on March 10, 2011 with the execution of
Bilateral Modification 7. That modification stated:

             Any failure by Taos Industries, Inc. to meet the delivery
             schedule means that the [Government] may terminate the
             contract for default without further notice, and re-procure
             with excess costs at the contractor’s expense. Taos agrees to
             waive its rights arising from clause 52.216-22, regarding the
             restriction on not requiring the contractor to make delivery
             after 2 years after the original delivery.

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(Pl.’s Mot. Attach. 7.)

       Thus, DGS’s obligation to perform after April 7, 2010 was not the result of the
Government’s unilateral insistence, but rather the parties’ agreement. Indeed, DGS’s
motivation for extending the delivery schedule is not difficult to perceive. FAR 52.249-8
allows the Government to terminate a contract for default if the contractor fails to deliver
supplies in the time specified, and makes the contractor “liable to the Government for any
excess costs” incurred by acquiring the supplies from other sources. In this case, DGS
not only failed to deliver by the scheduled date, it failed to deliver two years after the
scheduled date. It was then that the parties signed Bilateral Modification 4, thereby
allowing DGS to perform after April 7, 2010 and avoid default. No constructive change
occurred, and thus no reimbursement for a constructive change can be justified.

       2. Express Change

        Nonetheless, DGS cites FAR 52.243-1 to support its claim for additional costs
resulting from the Government’s “changed design specifications,” meaning the change
between the SPG-9s that DGS promised to deliver under the original order and the SPG-9
variants that it eventually did deliver under Bilateral Modification 7. (Compl. ¶¶ 20, 24.)
In other words, DGS asserts that it is entitled to an equitable adjustment because it was
required to provide “differing and more expensive goods.” (Pl.’s Mot. 3.) As above,
however, this argument distorts the facts in an attempt to hold the Government solely
responsible for an agreement reached by both parties.

       Under FAR 52.243-1, when a contracting officer makes certain unilateral changes
to a contract that cause an increase in the cost of performance, the contracting officer is
required to make an equitable adjustment. In this case, that clause is simply inapplicable.
DGS concedes that because it was “unable to procure” the SPG-9s it had originally
promised to deliver, it instead “offered to obtain . . . SPG-9 variants.” (Compl ¶ 18.) The
Government accepted that offer, and the parties subsequently memorialized their
agreement in Bilateral Modification 7. Therefore, no change occurred pursuant to FAR
52.243-1, and no reimbursement is warranted.

       3. Impossibility

       Finally, DGS argues that it deserves an equitable adjustment because procuring the
weapons at their original price was impossible, both before April 7, 2010 and after. Over
time, the doctrine of impossibility has evolved such that it no longer requires literal
impossibility of performance, but merely “a showing of commercial impracticability.”
Seaboard Lumber Co. v. United States, 308 F.3d 1283, 1294 (Fed. Cir. 2002). A contract
becomes commercially impracticable “when, because of unforeseen events, it can be

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performed only at an excessive and unreasonable cost, or when all means of performance
are commercially senseless.” Raytheon Co. v. White, 305 F.3d 1354, 1367 (Fed. Cir.
2002) (citations and internal quotation marks omitted). In such cases, a contractor is
entitled to receive an equitable adjustment. Id.

        However, there are several limits to the application of the impossibility doctrine.
In this case, the most basic limitation is that the doctrine is not available to a party that
assumed the risk of occurrence of the supervening event. See Seaboard Lumber, 308
F.3d at 1294 (citing United States v. Winstar Corp., 518 U.S. 839, 904-10 (1996)). DGS
complains of increased costs and scarcity of goods, but such market changes are precisely
the type of “normal risk” that it assumed when it voluntarily entered into a firm fixed-
price contract. Id. at 1295. Indeed, “[b]ecause fixed price contracts do not contain a
method for varying the price of the contract in even unforeseen circumstances, they
assign the risk to the contractor that the actual cost of performance will be higher than the
price of the contract.” Allegheny Teledyne Inc. v. United States, 316 F.3d 1366, 1376
n.7 (Fed. Cir. 2003) (quoting Dalton v. Cessna Aircraft Co., 98 F.3d 1298, 1305 (Fed.
Cir. 1996)). DGS assumed that risk, and now seeks to avoid its consequences, but there
is simply no justification for allowing it to do so.

                                        Conclusion

       For the reasons set forth above, Plaintiff’s motion for summary judgment is
DENIED, and the Government’s motion for summary judgment is GRANTED. The
Court directs the Clerk to enter judgment in favor of Defendant. Pursuant to Rule 54(d)
of the Court, reasonable costs are awarded to the Government.

       IT IS SO ORDERED.

                                                         s/ Thomas C. Wheeler
                                                         THOMAS C. WHEELER
                                                         Judge

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