Modern Systems Technology Corp. v. U.S.

• Decision Date: 27 October 1992
• Docket Number: No. 92-5037,92-5037
• Citation: 979 F.2d 200
• Parties: 38 Cont.Cas.Fed. (CCH) P 76,397 MODERN SYSTEMS TECHNOLOGY CORPORATION, Plaintiff-Appellant, v. The UNITED STATES, Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

Page 200

979 F.2d 200

38 Cont.Cas.Fed. (CCH) P 76,397

MODERN SYSTEMS TECHNOLOGY CORPORATION, Plaintiff-Appellant, v. The UNITED STATES, Defendant-Appellee.

No. 92-5037.

United States Court of Appeals Federal Circuit.

Oct. 27, 1992.

Thomas R. Nedrich, Thomas R. Nedrich & Associates, Falls Church, Va., argued for plaintiff-appellant; Sheldon I. Matzkin, of counsel.

Mark E. Dennett, Atty., Office of Contracts and Property Law, U.S. Postal Service, Washington, D.C., argued for defendant-appellee.

Before NIES, Chief Judge, MAYER and SCHALL, Circuit Judges.

MAYER, Circuit Judge.

Modern Systems Technology Corporation appeals the judgment of the United States Claims Court that the Basic Pricing Agreement between the United States Postal Service and Modern Systems Technology Corporation creates no contractual obligations. 24 Cl.Ct. 360 (1991). We affirm on the basis of the trial court's opinion set out in the appendix which we adopt.

AFFIRMED.

APPENDIX

Adopted portion of the United States Claims Court opinion:

BRUGGINK, Judge.

Plaintiff, Modern Systems Technology Corporation ("MSTC"), alleges that defendant, the United States Postal Service ("Postal Service"), is in breach of a contract with MSTC and seeks an award for the alleged contract price, plus interest, costs and attorney's fees. Defendant moves for summary judgment, alleging that there is no genuine issue as to any material fact and that MSTC is precluded from recovery as a matter of law.

BACKGROUND

On October 1, 1987, the Postal Service entered into a Basic Pricing Agreement ("BPA") with Rolm Mid-Atlantic. Under the BPA, Rolm Mid-Atlantic was "to provide moves, adds and changes to the telephone system as required for the [Postal Service] Management Academy" from October 5, 1987 through October 4, 1989 at a price not to exceed $27,500.00. The need for such work arises whenever the telephone system has to be modified to accommodate new employees or the internal relocation of existing personnel. The BPA provided that "[t]he Postal Service is obligated only to the extent of authorized orders actually placed against this funded Basic Pricing Agreement."

A year and a half later, while the Rolm Mid-Atlantic BPA was still in effect, the Postal Service entered into a BPA with plaintiff MSTC for essentially the same services. This BPA, which is the subject of this litigation, was dated March 10, 1989, and covered the period from March 10, 1989, through March 9, 1991. MSTC was to "[p]rovide moves, adds and changes (MAC's) and additional/replacement instruments and non-PBX maintenance" at the Management Academy. The total amount billed to the Postal Service under the BPA was not to exceed $25,000.

Similar to the Rolm BPA, the MSTC BPA provided that "[t]he Postal Service is obligated only to the extent of individual authorized orders actually placed under this agreement. Each order that the Postal Service places and the contractor accepts becomes an individual contract." No orders have ever been issued to MSTC under this document.

On or about March 13, 1989, the Postal Service and MSTC entered into a one year Full Service Maintenance ("FSM") Agreement for other work to be performed at the Postal Service Management Academy. MSTC alleges that on March 30, 1989, the Postal Service orally communicated its intention to terminate the FSM agreement for convenience. MSTC has contested the termination of the FSM in a separate suit in this court. In the present case, MSTC contends that the Postal Service, in retaliation for MSTC's refusal to agree to the termination of the FSM agreement, has diverted its MAC work to another contractor and away from MSTC.

MSTC claims that the BPA between MSTC and the Postal Service is a requirements contract, and that the Postal Service has breached that contract by ordering its MAC work from another contractor, namely Data Communications Systems Corporation ("Data Communications"). ¹ Thus, MSTC seeks damages in the amount of $25,000.00, which is the maximum amount MSTC could have received from the Postal Service for work ordered under the BPA.

The Postal Service seeks summary judgment on the basis that the BPA does not reflect an intent by the parties to enter into contractual obligations, and that even if it did, such a contract would fail for lack of a quantity term. As to the latter point, the Postal Service contends that the BPA is not a requirements contract. MSTC opposes defendant's motion for summary judgment on the ground that there are material facts in dispute with respect to terms of the contract and the parties' intentions.

The issue before the court is whether the March 10, 1989, BPA constitutes a binding contract, and if so, whether the failure of the Postal Service to make orders under the agreement constitutes a breach. For the reasons set forth below, the court finds that the BPA did not create any contractual obligations. Because there are no relevant facts in dispute, defendant's motion for summary judgment must be granted. ²

DISCUSSION

Two issues of contract formation are raised by the Postal Service's motion. First, whether the parties intended to create binding obligations, and second, whether the terms of the contract are sufficiently definite to permit determination of breach and remedies. See Aviation Contractor Employees, Inc. v. United States, 945 F.2d 1568, 1572 (Fed.Cir.1991). In the absence of contractual intent or sufficiently definite terms, no contractual obligations arise. For the following reasons, the court holds that the BPA at issue does not create binding rights and obligations.

Our inquiry into the existence of contractual intent begins with an examination of the BPA itself. Paragraph 2 provides that the "[c]ontractor will furnish the following when requested by the contracting officer or designated representatives: Provide moves, adds and changes (MAC's) and additional/replacement instruments and non-PBX maintenance." Paragraph 4 of the BPA provides: "Prices to the Postal Service must be as low or lower than those charged the contractor's most favored customer for comparable quantities under similar terms and conditions, in addition to any discounts for prompt payment." From these paragraphs, MSTC argues that:

MSTC must furnish MAC services whenever the Postal Service requests them, and MSTC must provide those services at the lowest prices charged by MSTC. In other words, MSTC has no option with respect to whether or not it will provide the MAC services when called upon by the Postal Service.

Plaintiff's Opposition to Defendant's Motion for Summary Judgment at 14 (emphasis in original). The difficulty with this conclusion is that the BPA also recites at paragraph 3 that "[t]he Postal Service is obligated only to the extent of individual authorized orders actually placed under this agreement. Each order that the Postal Service places and the contractor accepts becomes an individual contract." It is clear from this language that the Postal Service is not obligated to place any orders, and that the contractor is not bound unless it accepts an order. The effect of this paragraph is that the BPA itself does not create any enforceable obligations between either party. Only accepted orders would create any obligations. To the extent that an inference of an obligation arises from paragraphs 2 and 4, it is negated by the explicit language of paragraph 3. The plain language of the BPA, thus, appears to be contemplative of future contracts. There is no language indicating any present intent that either party be bound.

This construction is consonant with the rules governing BPAs set out in the Postal Service Procurement Manual. The Procurement Manual was promulgated by the Postal Service under authority granted it by the Postal Reorganization Act ³ and the Code of Federal Regulations. 39 C.F.R. §§ 601.100-601.105 (1988); see Peoples Gas, Light & Coke Co. v. United States Postal Serv., 658 F.2d 1182, 1189 (7th Cir.1981) (code provisions granting general powers to Postal Service authorize it to promulgate procurement regulations). Because of its incorporation by reference in regulations issued pursuant to statutory authority, the Manual has the force and effect of law. See De Matteo Constr. Co v. United States, 220 Ct.Cl. 579, 591, 600 F.2d 1384, 1391 (1979) (Postal Contracting Manual, which was superseded by Procurement Manual, 39 C.F.R. § 601.102(b) (1988), has force and effect of law).

According to the Procurement Manual and its companion publication, the Procurement Handbook, a basic pricing agreement is similar to an ordering agreement, the difference being that "ordering agreements are used for large dollar amounts and basic pricing agreements are used for simplified purchases. The similarity is that they both set up terms and conditions prior to the need for supplies and services so that when the need arises, delivery time can be shortened." United States Postal Service Procurement Handbook 5.1-4 (June 1988). ⁴ The Procurement Manual states that "[a]n ordering agreement is not itself a contract. It is a written agreement negotiated between a purchasing activity and a contractor that contains terms and conditions applying to future contracts (orders) between the parties." United States Procurement Manual 5-10 (Oct.1987).

This view of the BPA is echoed in other federal regulations applicable to basic agreements. The Government commonly uses basic agreements, such as the BPA in this case, to facilitate procurement of various products and services. The Federal Acquisitions Regulations (FAR) System "prescribes policies and procedures for establishing and using basic agreements and basic ordering agreements." 48 C.F.R. § 16.701 (1988). Both "basic agreements" and "basic ordering agreements" contain "contract clauses applying to future contracts between the parties during [the] term [of the contract]." 48 C.F.R. §§ 16.702(a), 16.703(a) (1988). The principal difference between the two is...