Glopak Corp. v. U.S.

• Decision Date: 21 June 1988
• Docket Number: No. 87-1607,87-1607
• Citation: 851 F.2d 334
• Parties: 34 Cont.Cas.Fed. (CCH) 75,509, 6 UCC Rep.Serv.2d 1402 GLOPAK CORPORATION, Plaintiff-Appellant, v. The UNITED STATES, Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

Page 334

851 F.2d 334

34 Cont.Cas.Fed. (CCH) 75,509, 6 UCC

Rep.Serv.2d 1402

GLOPAK CORPORATION, Plaintiff-Appellant, v. The UNITED STATES, Defendant-Appellee.

No. 87-1607.

United States Court of Appeals Federal Circuit.

June 21, 1988.

James J. McCullough, Fried, Frank, Harris, Shriver & Jacobson, Washington, D.C., argued for plaintiff-appellant. With him on the brief was Carl Peckinpaugh.

Sharon Y. Eubanks, 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. and David M. Cohen, Director.

Before MARKEY, Chief Judge, FRIEDMAN, Circuit Judge, and SKELTON, Senior Circuit Judge.

FRIEDMAN, Circuit Judge.

This is an appeal from a judgment of the United States Claims Court that awarded to the government the amount by which the government had reduced the contract price pursuant to an economic price adjustment clause, and denied the appellant's claim for the additional raw material costs it allegedly incurred in performing the contract. Glopak Corp. v. United States, 12 Cl.Ct. 96 (1987). We affirm.

I

In May 1982, the government awarded the appellant Glopak Corporation (Glopak) a contract to manufacture and supply the government with polyethylene plastic bags at a fixed price of approximately $6,456,000. The contract had been set aside for economically and socially disadvantaged small businesses, pursuant to section The contract, as had the solicitation for bids, contained an economic price adjustment clause (adjustment clause) which provided for increase or decrease in the contract price in the event of changes in the price of certain commodities used in manufacturing bags. With respect to the issue before us, the adjustment clause made the price changes dependent upon changes in the Producer's Price Index (PPI or Price Index) for polyethylene resin, a product which constituted approximately 75 percent of the raw material in the plastic bag. The Price Index is prepared by the United States Department of Labor. A similar clause had been used in a prior procurement of polyethylene plastic bags in which Glopak was involved. Glopak was, therefore, familiar with both the adjustment clause and the Price Index.

2(a) of the Small Business Act of 1953, as amended, 15 U.S.C. Sec. 637(a) (1982). As frequently is the case with such arrangements, the prime contract was between the Small Business Administration (SBA), which administers the section 2(a) program, and the General Services Administration (GSA), which was the ultimate purchaser of the bags. The Small Business Administration in turn entered into a subcontract with Glopak, which agreed to supply the bags.

The adjustment clause provided that prices under the contract were "subject to price adjustment, upward or downward," in accordance with a specified formula on the basis of changes in the Price Index. The adjustment clause stated that the contractor was required to make a written request for a price increase, and that

[i]n the event of a decrease, the Government has the right to unilaterally adjust the contract price(s).

* * *

* * *

(f) The aggregate of the increase in any contract unit price made under this clause shall not exceed 30 percent of the original unit price. There is no percentage limitation of the amount of decrease made under this clause.

During the negotiation of the contract, Glopak attempted to eliminate the adjustment clause or to tie the price adjustment to Glopak's own cost of raw material rather than to the price of the material in the Price Index. "According to Glopak, this request was based upon its previous experience with GSA contracts involving such a clause, leading it to conclude that the clauses were irrational and likely to cause serious economic injury. Glopak asserts that notwithstanding its objections, GSA officials stated the EPA clause was mandatory and could not operate to the detriment of Glopak." 12 Cl.Ct. at 99.

The government refused to eliminate the clause. Two months after the contract was awarded, Glopak again requested that the adjustment clause be eliminated, but the government again refused to do so.

During the performance of the contract, the Price Index decreased 17.9 percent. As a result, the contracting officer modified the contract and reduced the contract price to reflect the drop in the Price Index. By letter, "Glopak challenged the downward price adjustment, contending that it would result in a windfall profit for the government and a substantial loss for the contractor. Glopak provided an analysis showing that while the PPI dropped almost 18 percent between April and July 1982, Glopak's raw material cost for polyethylene resin actually increased by more than 5 percent during the same period." Id. (emphasis in original).

There were further communications in which "Glopak once again asked GSA to defer implementing the modification because of severe financial consequences to the company. The modification was again delayed and Glopak completed contract performance in April and was paid at the original base contract price." Id. at 100.

Subsequently Glopak submitted to the contracting officer a claim for $34,165.48 for additional raw material costs Glopak asserted it had incurred in performing the contract. In her final decision the contracting officer awarded the government "$638,266.64, the net price decrease under the EPA clause. This decision also denied Glopak's claim of $34,165.48, on the grounds Glopak then filed the present complaint in the Claims Court. In the first three counts, Glopak asserted different theories for challenging the assessment of damages against it. Count III, which is the only one before us, alleged that "[i]t is unconscionable and against public policy to permit the government to recover any sums under its EPA claim against Glopak because such recovery would give the government a wholly undeserved windfall while resulting in a forfeiture for Glopak." Id. The complaint also sought recovery of $34,165.48 "on a theory of quantum meruit and/or quantum valebant." Id. (footnote omitted).

                that there was no provision in the contract for adjustment of price based upon such costs."    Id
                

The government filed a counterclaim for the $638,266.64 the contracting officer had awarded against Glopak.

The government moved for summary judgment, and Glopak cross-moved for partial summary judgment on a count not before us. The Claims Court denied Glopak's cross-motion for partial summary judgment, granted the government's motion for summary judgment, dismissed Glopak's complaint, and entered judgment for the government for $638,266.64 on its counterclaim.

The court rejected Glopak's contention that enforcement of the adjustment clause would be "unconscionable." It ruled that there was "no indication that the clause could be considered unconscionable or oppressive at the time the contract was entered into" and that Glopak could not

claim surprise or lack of consent. Glopak had encountered a similar EPA clause in a previous contract with the GSA and SBA, and requested that the clause be removed from the present contract because of Glopak's concern that the index did not accurately mirror the resin market. Glopak was neither ignorant of the use of the EPA clause, nor unexposed to the vagaries of the petrochemical market. Moreover, the language of the clause itself was explicit that "[i]n the event of a decrease, the Government has the right to unilaterally adjust the contract price[s]." ... Although there is no doubt that Glopak did not like the terms of the contract, it has failed to point to some type of oppression, surprise or vitiated consent necessary for this court to deny enforcement.

Id. at 102-03.

The court rejected Glopak's contention that the government "should be estopped from seeking enforcement of the clause because representatives of SBA and GSA stated that it was for the contractor's benefit and could not operate to the detriment of Glopak. Glopak asserts that it entered into the contract as a result of these representations." Id. at 103. The court stated that this claim failed because Glopak had not established one of the elements of an estoppel, namely, that Glopak was "ignorant of the true facts," and...