T & M Dist.v. U.S.
| Citation | 185 F.3d 1279 |
| Parties | (Fed. Cir. 1999) T & M DISTRIBUTORS, INC., Plaintiff-Appellant, v. UNITED STATES, Defendant-Appellee. 98-5106 DECIDED: |
| Decision Date | 26 July 1999 |
| Court | United States Courts of Appeals. United States Court of Appeals for the Federal Circuit |
Joseph J. Petrillo, Petrillo & Powell, P.L.L.C., of Washington, DC, argued for plaintiff-appellant. With him on the brief was William E. Conner.
John Warshawsky, Trial Attorney, Commercial Litigation Branch, Civil Division, Department of Justice, of Washington, DC, argued for defendant-appellee. With him on the brief were David M. Cohen, Director and Sharon Y. Eubanks, Deputy Director.
Before PLAGER, Circuit Judge, SMITH, Senior Circuit Judge, and SCHALL, Circuit Judge.
T & M Distributors, Inc. (T&M) appeals from the final judgment of the United States Court of Federal Claims dismissing its claim against the United States for breach of a requirements contract. T & M Distrib. v. United States, No. 97-148C, 1998 WL 118077 (Fed. Cl. Mar. 17, 1998).
Shortly after award, the Navy terminated its contract with T&M for the convenience of the government. In due course, T&M submitted a termination settlement proposal and a breach of contract claim alleging wrongful termination. The parties reached settlement on termination costs to which T&M was entitled, but the contracting officer denied the breach of contract claim. T&M appealed the denial to the Court of Federal Claims, which granted the government's motion for summary judgment after concluding that the contracting officer had not acted improperly in invoking the contract's termination for convenience clause. We affirm.
On October 19, 1995, the Navy awarded Contract No. N00406-96-D-4026 to T&M. Under the contract, T&M was to provide the Navy with automotive and related vehicle parts and accessories to support the United States Public Works Center on the island of Guam. The contract was awarded pursuant to a competitive procurement bid solicitation. The solicitation sought bids for the operation and maintenance of a Contractor Operated Parts Store ("COPARS") on Guam for one base year and four one-year option periods. The Navy's annual requirements were estimated in a list of anticipated expenditures that was appended to the solicitation. An amendment to the solicitation included a list of questions and answers, among which was the following:
Q10. What amount, if any, of government owned parts are currently on hand? Is there a listing available? What category are those parts under?
Answer: The amount of government owned parts on hand changes rapidly from day to day. The contractor shall assume that the Government does not have a supply of parts on hand to supplement contractor inventory.
T&M was awarded the contract, with performance to begin on December 1, 1995. The value of the contract for all five years was estimated at $1,130,000. The contract contained the standard clause found at 48 C.F.R. 52.249-2, allowing for termination of the contract for the convenience of the government.
After experiencing difficulties in compiling a comprehensive parts inventory list, T&M's president, Thomas W. Daly, visited Guam in early November 1995. Upon his return from Guam, Mr. Daly wrote the contracting officer that he had discovered circumstances that suggested a diminished value of the contract and possible obstacles to contract performance:
[I]t was revealed to us that the Public Works Facility at Guam had an existing "base store" which provided them with replacement parts for their vehicles. This was troubling for two reasons; the contract clearly calls for the establishment of a COPARS to supply the [Department of Public Works (DPW)] with repair parts and this also affects our ability to put together a workable inventory if the DPW "base store" already stocks some parts.
I discovered the following: the base store maintains an inventory of approximately $700,000.00 with a total number of 4000 line items. This is a long way from no inventory as had been stated. I was also informed that the DPW was required to go to the base store as their first source of supply, to [Fleet and Industrial Supply Center] next and then to the contractor. I also learned unofficially that the DPW also had [Basic Purchase Agreements] with local parts distributors. As you can imagine this all plays a part in how we structure our inventory and our ability to do business with DPW.
Although Mr. Daly assured the contracting officer that T&M was ready, willing, and able to be operational by December 1, 1995, he requested that the date for the commencement of contract performance be postponed to January 2, 1996.
On November 28, 1995, the contracting officer instructed T&M to suspend preparations. The next day, Mr. Daly sent a letter to the contracting officer in which he proposed contract modifications to "resolve the problems [in] making the COPARS store operational." In December, a government attorney visited Guam to investigate Mr. Daly's concerns and to obtain relevant information. The contracting officer later recounted what the investigation revealed:
a. The government did have an existing inventory in the approximate amount of $700,000 and had Basic Purchase Agreement's (BPA's) with local firms. This information had not been disclosed to the Contracting Officer and this office during the solicitation process.
b. The estimated amount in the contract was grossly understated. A review of the historical usage indicated the estimated amount for the base period and option periods should have been $4,455,911 rather than the [$]595,250 as awarded by the contract.
c. There were conflicting opinions among Navy managers at the [Public Works Center], Guam as to the type of contract desired. Ultimately, however, the decision was made to utilize an indefinite requirements type of contract with performance to begin April 1, 1996.
In a letter dated December 21, 1995, the contracting officer terminated the contract for the convenience of the government. On January 17, 1996, the Navy issued a second solicitation, which took into account the existence of a temporary base store and the increased estimated value of the contract. The solicitation estimated the contract value at $5,048,590, a 450 percent increase over the estimate in the first solicitation. T&M and one other contractor submitted bids. The contract was awarded to the other contractor, who had not bid on the first solicitation.
On September 3, 1996, T&M submitted to the contracting officer a certified claim for breach of contract, seeking damages in the form of anticipated profits in the amount of $1,325,000.1 In a decision dated January 3, 1997, the contracting officer denied the claim, based on his determination that the termination of the contract was neither arbitrary nor capricious, and that T&M would be reimbursed for its costs through a termination settlement.
The contracting officer stated that mission needs could not have been met under the original contract because the Navy's estimated usage and the scope of the work had been substantially underestimated, and he pointed out differences in the requirements set forth in the original contract and the second contract. The contracting officer stated that it had been his opinion that "a cardinal change in government requirements had occurred and that the competitive environment would best be served by terminating [the] contract for the convenience of the government and resoliciting the new requirement under conditions of full and open competition." He continued that the decision to re-compete had been logical because T&M had not started to perform under the contract and that therefore any costs incurred by it were minimal. The contracting officer suggested that, if circumstances had been reversed, "i.e. that the government estimate for all five years under [the] contract had decreased from $5.0 million to $1.1 million just after award," T&M would have been justified in seeking termination. The contracting officer concluded his decision by stating that he had terminated T&M's contract after determining that the changes required in the contract to bring it into line with the Navy's needs "were out of scope and so profound that they could not be incorporated into [the] contract."
Eventually, T&M filed a complaint in the Court of Federal Claims appealing the contracting officer's decision denying the claim for breach of contract. The government moved for summary judgment, which T&M opposed on the merits and on the grounds that genuine issues of material fact existed that could only be resolved by an evidentiary hearing after appropriate discovery.
In its decision granting summary judgment in favor of the government, the Court of Federal Claims began by noting that "[i]n the absence of bad faith or a clear abuse of discretion, the contracting officer's decision to terminate a contract for the convenience of the government is conclusive." T & M Distrib., 1998 WL 118077, at *3 (quoting Krygoski Const. Co. v. United States, 94 F.3d 1537, 1543 (Fed. Cir. 1996), cert. denied, 117 S. Ct. 1691 (1997)). The court also noted that "[i]t must be presumed that the contracting officer acted in good faith in effecting the termination."
Addressing the merits, the court concluded that the substantial increase in the Navy's estimated requirements constituted a cardinal change to the contract. The court reasoned that the increased estimates could attract a different pool of bidders, thereby making it necessary for the Navy to re-solicit the contract under conditions of full and open competition pursuant to the Competition in Contracting Act (CICA), Pub. L. No. 98-369, 98 Stat. 1175 ().2 Based on its conclusion that a cardinal change had occurred, the court determined that the contracting officer had not abused his...
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