Mil-Spec Contractors, Inc. v. U.S.

Decision Date16 December 1987
Docket NumberMIL-SPEC,No. 87-1203,87-1203
Citation835 F.2d 865
Parties34 Cont.Cas.Fed. (CCH) 75,412 CONTRACTORS, INC., Plaintiff-Appellant, v. The UNITED STATES, Defendant-Appellee.
CourtU.S. Court of Appeals — Federal Circuit

Rachel L. Howard, Haas & Najarian, San Francisco, Cal., argued, for plaintiff-appellant.

Carolyn E. Galbreath, Commercial Litigation Branch, Dept. of Justice, Washington, D.C., argued, for defendant-appellee. With her on the brief, were Richard K. Willard, Asst. Atty. Gen., David M. Cohen, Director. Also on the brief, was Stephen E. Temmell, Trial Atty., U.S. Army Engineer Dist., Los Angeles, Cal., of counsel.

Before FRIEDMAN, SMITH, and MAYER, Circuit Judges.

FRIEDMAN, Circuit Judge.

This is an appeal from a decision of the Armed Services Board of Contract Appeals (Board), dismissing a contractor's claim for additional compensation on the ground that an oral agreement to settle the claims constituted an accord and satisfaction. Mil-Spec Contractors, Inc., 87-1 B.C.A. (CCH) p 19,391 (Sept. 23, 1986). We hold that there was not a valid accord and satisfaction, and therefore reverse and remand.

I

The government awarded to the predecessor of the appellant Mil-Spec Contractors, Inc. (Mil-Spec), a contract to insulate certain buildings on Norton Air Force Base in California. The contract was funded from an Air Force general account for energy conservation. The Air Force allocated approximately $622,000 for the work. The contract price was $581,247, and a contingency fund of $6,000 to $7,000 was available for contract modifications.

After completing the work, Mil-Spec submitted to the government a series of increasing claims for additional costs it allegedly incurred. After Mil-Spec had rejected several of the government's proposals for additional payment, Mr. Hooppaw, the resident contracting officer (who was also the resident engineer), telephoned Mr. Barnes, Mil-Spec's principal officer, in late August or early September 1983. Mr. Hooppaw explained that he could not obtain extra funds for additional payment under the contract because the money came from an appropriation that would expire on September 30, 1983, and that after that date the $6,000-$7,000 in the contingency fund would not be available. Mr. Barnes was advised that if he did not agree to a settlement, "the only other way to get funds is to go to court."

Three days before the funds would expire, Mr. Barnes and Mr. Barker, a negotiator, had several telephone conversations during which they orally agreed upon a settlement. Mr. Barker's notes state that Mr. Barnes

agreed to drop his proposal of [a] $70,956.00 increase in Contract amount and accept the Government estimate amount of $6,367.00. In doing so, the contractor requested that all remaining funds (less $100.00) be paid to him with this settlement.

Both parties agreed to accept [a] $6367.00 increase in [the] Contract amount as fair and reasonable. The Contract time was extended 87 calendar days to a final completion date of 20 June 1980. The negotiated price of $6367.00 is hereby accepted subject to approval of the Contracting Officer.

The contracting officer, Mr. Hooppaw, then prepared a contract modification (standard form 30), signed it and mailed it to Mr. Barnes for his signature. In the interval, an Internal Revenue Service (IRS) employee had told Mr. Barnes that with a legitimate claim Mr. Barnes could have obtained more than the government had offered. Mr. Barnes telephoned Mr. Hooppaw and stated that he did not accept the government's settlement offer.

On September 30, 1983, the government issued a check for $6,367 to the IRS because of a previously filed tax lien.

Mil-Spec filed with the contracting officer a claim for its alleged additional costs. When the contracting officer failed to decide the claim within a reasonable time,

Mil-Spec appealed to the Board. After a hearing, the Board held that the oral settlement agreement constituted an accord and satisfaction, and denied the appeal.

II

The Court of Claims, the decisions of which are binding precedents in this court, South Corp. v. United States, 690 F.2d 1368, 1370 (Fed.Cir.1982), has stated:

The essential elements of an effective accord and satisfaction are proper subject matter, competent parties, meeting of the minds of the parties, and consideration.

Brock & Blevins Co. v. United States, 343 F.2d 951, 955 (Ct.Cl.1965) (quoting Nevada Half Moon Mining Co. v. Combined Metals Reduction Co., 176 F.2d 73, 76 (10th Cir.1949), cert. denied, 338 U.S. 943, 70 S.Ct. 429, 94 L.Ed. 581 (1950)).

Relying on that decision, the Board held:

These essential elements are fully met in this appeal. There is no question concerning either the propriety of subject matter or the competence of the parties. Both parties agree that there was a meeting of the minds and the fact that this was an oral agreement does not change its legal effect. Consideration was shown by the check which the Government issued and which, because of a prior tax lien, was paid to IRS for appellant's account thus diminishing its outstanding delinquent taxes. Appellant agreed to accept that amount for a full settlement of all outstanding claims.

Mil-Spec Contractors, Inc., 87-1 B.C.A. (CCH) p 19,391 (Sept. 23, 1986).

The ruling of the Board has three fatal flaws: (A) There was no valid oral agreement because Mr. Barker, the negotiator, had no authority to bind the government to the settlement; (B) as the government recognized, the accord and satisfaction constituted a modification of the contract which was required to be in writing and signed by both parties; and (C) the government's "payment" to Mil-Spec of $6,367 by sending a check for that amount to the IRS did not comply with the terms of the oral agreement and therefore did not constitute consideration adequate to support the alleged accord and satisfaction.

A. "It is well established that a purported agreement with the United States is not binding unless the other party can show that the official with whom the agreement was made had authority to bind the Government." S.E.R., Jobs for Progress, Inc. v. United States, 759 F.2d 1, 4 (Fed.Cir.1985) (citations omitted). The oral agreement was a modification of the contract, since it increased the amount the government would pay for the work Mil-Spec had done. Only the contracting officer was authorized to bind the government to such a modification. Cf. 48 C.F.R. Sec. 2.101 (1986) (" 'Contracting officer' means a person with the authority to enter into, administer, and/or terminate contracts and make related determinations and findings.").

Mr. Barker, who negotiated the oral settlement with Mr. Barnes, was not the contracting officer but only a negotiator. As such, he had no authority to commit the government. As Mr. Barker himself recognized, only the contracting officer had that authority: Mr. Barker's notes of the negotiation and agreement stated that the "negotiated price of $6,367.00" was "accepted subject to approval of the Contracting Officer."

The contracting officer also recognized this fact, since he prepared and signed a form 30 contract modification document that embodied the oral settlement previously negotiated. Unless and until there was a binding modification to which both Mil-Spec and the contracting officer had agreed in writing, there could not be a binding modification of the contract. The oral agreement of September 27, 1983, could not and did not constitute a valid accord and satisfaction. The contracting officer's subsequent approval of the oral agreement, reflected in his signature of the written contract modification form he prepared, did not nunc pro tunc turn the prior oral agreement into a valid contractual commitment that bound the government.

B. The Federal Acquisition Regulations applicable to the contract in this case require "Contract" means a mutually binding legal relationship.... It includes all types of commitments that obligate the Government to an expenditure of appropriated funds and that, except as otherwise authorized, are in writing.... contracts include ... bilateral contract modifications.

that a modification of a contract be in writing and executed by both parties. Federal Acquisition Regulations System, 48 C.F.R. Sec. 2.101 (1986), the Definitions section, states in pertinent part:

Pertinent provisions of 48 C.F.R. provide as follows:

Sec. 43.101 (1986):

"Contract modification" means any written change in the terms of a contract (see 43.103).

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