Torncello v. United States

Decision Date16 June 1982
Docket NumberNo. 486-80C,486-80C
PartiesRONALD A. TORNCELLO AND SOLEDAD ENTERPRISES, INC. v. THE UNITED STATES
CourtU.S. Claims Court

COUNSEL: Robert L. Purvin, Jr., for plaintiffs. Lawrence W. Campbell, attorney of record.

Richard W. Oehler, with whom was Assistant Attorney General J. Paul McGrath, for defendant.

OPINION BY: BENNETT

OPINION

Before FRIEDMAN, Chief Judge, DAVIS, NICHOLS, KASHIWA, BENNETT and SMITH, Judges, en banc. *

DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND PLAINTIFFS' CROSS-MOTION FOR SUMMARY JUDGMENT

BENNETT, Judge, delivered the opinion of the court:

This is a government contract case, before us on motions for summary judgment. At issue is the government's diversion of business away from a party, with whom it had executed a requirements contract, to a competing bidder on the original solicitation. The government defends that this division was justified by the constructive application to its actions of the standard "termination for the convenience of the government" clause in federal procurement. For several simple and compelling reasons, involving basic tenets of contract law, we hold that the termination for convenience clause does not apply in the situation here and find the government in breach.

Plaintiff was the president of Soledad Enterprises, Inc. (Soledad), a California corporation that is now bankrupt. Plaintiff has succeeded to all of the rights and entitlements of Soledad with respect to the claim in this suit.

On May 31, 1973, Soledad bid for a grounds maintenance and refuse removal contract to service six Navy family housing projects in the San Diego, California area. The bid solicitation listed 12 types of work to be done under the contract, some of which were to be performed routinely and others only on a "call" basis, and the solicitation specifically provided that "Bids are solicited and award will be made on an all or none basis."

Soledad was awarded this 12-item contract, N62474-73-C-3195, on June 6, 1973. The contract term was one year, running from July 1, and it was extended in June of the next year for another year.

The present dispute concerns item 8 of the original bid, paragraph 4A.17 of the contract. This was a call item:

PLANT DISEASE, INSECT AND RODENT CONTROL. The work shall include the control of agricultural pests, including rodents, weed control, and plant diseases which attack shrubbery, trees and turf grasses. Work authorizations for rodent and pest control will be issued by the Housing Project Managers in accordance with Paragraph 3A.7. The Contractor shall comply with the current code and rules and regulations of the San Diego County Agricultural Department.

Soledad's bid itemization, accepted by the government, specified a per call charge of $500 for any call under the pest control item. This was a high price for common pest control work but was warranted in Soledad's view by the open-ended phrasing of the item, that Soledad could be called in for potentially expensive tasks.

It turned out, however, that the Navy only needed gopher control at the housing projects, work that was customarily much cheaper than $500 per call. For this reason, the Navy did not call Soledad under item 8. Soledad realized by August 1973 that it was receiving no item 8 requests and, when it discovered the Navy's reason therefor, Soledad offered in writing to do special gopher control calls for only $35 per call. The Navy still did not request such work from Soledad, however, but called the Department of Navy Public Works, a competing bidder on the original solicitation which had submitted an item 8 figure that was less than Soledad's.

By letter of April 9, 1975, plaintiff took back its offer of $35 per call:

Please be advised that the offer * * * is hereby rescinded. This action is being taken as there was no "Amendment of Solicitation/Modification of Contract" prepared and signed by the government or Soledad Enterprises, Inc. Furthermore, we have reason to believe that the services contracted for in item 8 has [sic ] been given to the public works department.

Soledad's bankruptcy followed soon thereafter.

It is stipulated that Soledad never received pest control work under item 8, either under the original contract or under its renewal, at $500 per call or at $35 per call, and it is further stipulated that the Navy did have such work which it gave to Public Works. Soledad's claim is that its agreement with the Navy was for all of the Navy's requirements under the contract and that the Navy breached the contract when it diverted the work under item 8. Soledad claims that it was entitled to service all of the Navy's pest control needs and protests the fact that it got none.

I

Soledad lost its claim before the contracting officer and lost its appeal to the Armed Services Board of Contract Appeals (ASBCA). Although the ASBCA cursorily accepted that the government may have committed a breach, it viewed that issue as unimportant because of the overriding availability to the government of constructive termination for convenience. In full, the ASBCA's argument reads:

It is the appellant's position that this contract was a requirements contract under which the Government was obligated to procure all of the services it required of the type covered by the contract, from the contractor. The appellant claims that the Government failed to order all of those services and that as a result the appellant suffered substantial financial difficulty which led to the eventual default of this and other contracts.

In a similar situation the Court of Claims found it unnecessary to resolve the question of whether or not the contract was a requirements contract. Charles R. Nesbitt v. United States, 170 Ct. Cl. 666 (1965), cert. denied 383 U.S. 926 (1966). In order to reach our decision, we assume, without finding, that the representations made by the appellant with regard to its interpretation of the bidding provisions and the subsequent contract were correct.

When the Government fails to comply with its contractual obligations under the type of circumstance present here, the contractor is entitled to recover as if the contract had been terminated pursuant to the termination for the convenience provisions of the contract. Charles R. Nesbitt v. United States, supra; G.C. Casebolt Company v. United States, 190 Ct. Cl. 783 (1970). This contract included what is commonly referred to as a short form termination for he convenience clause which provided that to the extent the contract was for services, the Government was liable only for payment of those services rendered prior to the effective date of termination. In this instance the appellant has established that the Government ordered no services in connection with pest control. Since no pest control services were ordered, under the contract's termination for convenience of the Government provisions, the appellant is not entitled to any additional compensation.

Appeal of Soledad Enterprises, Inc., ASBCA Nos. 20376, 20423 to 20426, 77-2 BCA P12,552 at No. 20425 (April 29, 1977).

We must digress for a moment to explain termination for convenience and its constructive application. Direct convenience termination is provided for in the clause in plaintiff's contract referred to by the ASBCA, and it is a standard term in federal procurement:

TERMINATION FOR CONVENIENCE OF THE GOVERNMENT

The Contracting Officer, by written notice, may terminate this contract, in whole or in part, when it is in the best interest of the Government. If this contract is for supplies and is so terminated, the Contractor shall be compensated in accordance with ASPR Section VIII, in effect on this contract's date. To the extent that this contract is for services and is so terminated, the Government shall be liable only for payment in accordance with the payment provisions of this contract for services rendered prior to the effective date of termination.

The clause is intended to enable the contracting officer to stop or curtail a contractor's performance without involving the government in a breach that would render it liable for the contractor's anticipatory profits. Constructive resort to the clause, as was had by the ASBCA in this case, occurs in situations in which he government has stopped or curtailed a contractor's performance for reasons that turn out to be questionable or invalid. Constructively, the clause can justify the government's actions, avoid breach and limit liability. This springs from a decision of the Supreme Court that actions by a contracting party may be supported at a later date by any reason that could have been advanced at the time of the actions, even though the party was not then aware of it. College Point Boat Corp. v. United States, 267 U.S. 12 (1925).

Returning to the case before us, the ASBCA's implicit conclusion that the Navy could, by invoking the clause, have had a convenience termination of plaintiff's pest control services at the time that it diverted that work to Public Works, allowed the ASBCA to justify the Navy's diversion constructively, at the time of litigation. And since the Navy had never turned to Soledad for such services, there were no incurred charges to pay off.

On appeal to this court, plaintiff's basic complaint is that the practical effect of this decision of the ASBCA is to exculpate the government completely. The government was allowed to walk away from plaintiff's contract with impunity. Plaintiff contends: (1) that the requirements aspect of its contract required that it receive 100 percent of defendant's pest control business, not 0 percent as it happened, and (2) that the doctrine of constructive termination for convenience should not be allowed to render this requirement meaningless. Defendant responds: (1) that the contract actually was of the indefinite quantities type, allowing the Navy to order a null amount, and (2) even if the contract was...

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