Aviation Contractor Employees, Inc. v. U.S.

• Decision Date: 04 October 1991
• Docket Number: No. 91-1012,91-1012
• Parties: 37 Cont.Cas.Fed. (CCH) P 76,184 AVIATION CONTRACTOR EMPLOYEES, INC., Appellant, v. The UNITED STATES, Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1568

945 F.2d 1568

37 Cont.Cas.Fed. (CCH) P 76,184

AVIATION CONTRACTOR EMPLOYEES, INC., Appellant, v. The UNITED STATES, Appellee.

No. 91-1012.

United States Court of Appeals Federal Circuit.

Oct. 4, 1991.

James N. Walter, Jr., Capell, Howard, Knabe & Cobbs, P.A., Montgomery, Ala., argued for appellant; Herman H. Hamilton, Jr., on the brief.

J. Peter Mulhern, Atty., Commercial Litigation Branch, Dept. of Justice, Washington, D.C., argued, for appellee; Stuart M. Gerson, Asst. Atty. Gen., David M. Cohen, Director and James M. Kinsella, Asst. Director; Major Raymond M. Saunders, Trial Atty., Arlington, Va., of counsel, on the brief.

Before RICH and NEWMAN, Circuit Judges, and SMITH, Senior Circuit Judge.

RICH, Circuit Judge.

Aviation Contractor Employees, Inc. (ACE) appeals from the May 16, 1990 decision of the Armed Services Board of Contract Appeals (Board) in Appeal Nos. 30154 and 33054, denying in part ACE's request for an equitable cost adjustment. We affirm-in-part, vacate-in-part, and remand.

BACKGROUND

ACE was awarded Contract No. DABT01-82-C-0300 (the contract) to provide flight training for student pilots at Fort Rucker, Alabama. The contract required ACE to provide those services during fiscal year (FY) 1983, and also contained an option clause giving the government the right to renew the contract, on an annual basis, for up to a total of five years. The government chose to exercise its option for FY 1984 and 1985, and ACE performed satisfactorily under the contract for all three years.

The contract price for FY 1983 was set at $16,089,034. However, the contract contained no detailed pricing for any period other than FY 1983. At issue here is how the contract price should be calculated for option years 1984 and 1985.

The FY 1984 Extension

The contract contains several standard clauses which are relevant to how the contract should be priced during the option years. One of these is the standard Changes Clause (Defense Acquisition Regulation (DAR) 7-1902.2), which provides for adjustment of the contract price upon changes in the scope of work required of the contractor. The second is the Fair Labor Standards Act and Service Contract Act--Price Adjustment Clause (DAR 7-1905(b)), which provides for adjustment of the contract price based on changes in the cost of wages and benefits to certain employees. In the context of this case, DAR 7-1905(b) provides that ACE is entitled to an adjustment in contract price to reflect increased wages and benefits to those employees covered by the union Collective Bargaining Agreement (CBA). ACE's managerial and supervisory personnel are not covered by the CBA.

Shortly after the government exercised its option for FY 1984, ACE submitted cost proposals for performance that year. The proposals included increased costs not only for the items covered by DAR 7-1902.2 and 7-1905(b), but also for wage and benefit increases for supervisory employees not covered by a collective bargaining agreement, increases for aircraft liability insurance, increases in rates for state unemployment insurance and workers' compensation, and additional profit. The government contracting officer (CO) rejected ACE's proposals, taking the position that cost increases in the contract awards for the option years should be limited to wage and benefit increases pursuant to DAR 7-1905(b) and changes in the scope of work under the contract. ACE eventually filed a certified claim for $1,093,137, representing ACE's calculation of the increased cost of items other than those based on changes in the scope of work and those based on DAR 7-1905(b).

While conceding that the contract did not explicitly require adjustment of the contract price based on these additional items, ACE reasoned that the items should be paid for by the government due to the government's failure to adequately clarify the method of pricing the option years. ACE pointed to "evasive" answers the government had previously given to pricing-related questions of prospective contract bidders at a pre-bid conference held in 1982, and argued that any dispute arising from the lack of clarity in the government's answers should be resolved against the government. Notably, the bidders' questions and the government's answers thereto were incorporated into the contract solicitation as follows:

Q: At the pre-bid conference you stated that page 128 of the IFB (Fair Labor Standards Act and Service Contract Act) would be used to price extensions of the basic contract, yet this includes no provisions for wage or fringe benefits increases for any personnel other than those included in the then current wage determination. Since the Solicitation contains no provision for bidders to price the option years, what method may be used to provide salary increases to other than wage determination personnel that would be acceptable to the Army?

A. The prospective bidders are again urged to contact the Department of Labor concerning any interpretation and definition of the Wage Determination.

Q. In the event that any options are exercised, will they:

a. Be as IFB's or RFP's?

b. If RFP's will they be negotiated or be a declaration by the CO?

A. The answers to both parts of the question are that any exercise of an option will be handled in accordance with contract provision H1., page 120 of 141 and DAR Section I, Part 15, OPTIONS.

In response to ACE's claim, the CO disallowed the additional cost increases. ACE appealed to the Board, which affirmed the CO's position that "the price escalations for the option years were limited to that set forth in DAR 7-1905(b) and due to increases in the work." Underlying the Board's conclusion was the fact finding that

Mr. Farner [for ACE] was well aware of how the Government intended to price options in contracts subsequent to contract 0269, ¹ notwithstanding his protestations to the contrary, based upon the credible testimony on that subject by Mr. Bullock and Mr. Cunningham.

The FY 1985 Extension

The issue with respect to the pricing of the contract for FY 1985 focuses on the meaning and enforceability of bilateral contract modification P00041 (Mod 41) thereto. When the government indicated its desire to exercise its option for FY 1985, the dispute was still ongoing concerning which factors should go into determining adjustments WHEREAS, the Contractor was directed by Modification P00035 to extend performance of contract DABT01-82-C-0300 for the period 84 OCT 01 through 85 Sep 30 (FY 85); and,

                of the contract price.   A meeting was held between CO Bullock and Farner in September, 1984, at which both parties demonstrated a desire to preclude further claims.   Bullock expressed his willingness to consider "all FY 85 costs" and not solely those related to DAR 7-1905(b).   On or about September 18, 1984, ACE submitted a cost proposal for FY 1985 which included all of its increased costs, resulting in a proposed contract price of $20,454,502.   About 10 days thereafter, on September 28, 1984, Bullock and Farner executed Mod 41 which states in part
                

WHEREAS, both parties have agreed to negotiate a contract price based upon Modifications P00035, P00039 and P00040 and the cost proposal submitted based on the requirements contained therein; and

WHEREAS, both parties agree to treat FY 84 as an entity with outstanding unresolved claims, with the Contractor reserving all rights to these claims; and

WHEREAS, both parties agree to treat FY 85 as an entity with commencement of the contract to be by mutual agreement and the contract price to be definitized at a later date by negotiation;

NOW THEREFORE, the contract price is established at $19,000,000, subject to increase or decrease based upon completion of the aforementioned negotiations.

However, when Bullock was thereafter replaced by a new CO, Jennings, no such negotiations for FY 1985 took place. Instead, the government said that it would not honor Mod 41 because its execution was beyond Bullock's authority. Jennings later "definitized" the contract price at $18.954 million, which was less than ACE would have gotten under Mod 41.

ACE sought to enforce Mod 41 before the Board. The Board disagreed with ACE, although not on the "lack of authority" argument put forward by the government, finding instead that Mod 41 was

an agreement merely to negotiate a price--without establishing what cost factors would be considered. Thus, to the extent the modification refers to costs which will be recognized, it is legally unenforceable due to uncertainty. [Citations omitted.]

This appeal followed.

OPINION

A. FY 1984

Under this court's scope of review, the Board's conclusions of law are not final and thus are freely reviewable, while with respect to the Board's findings of fact, our review is limited to a determination of whether those findings are arbitrary, capricious, based on less than substantial evidence, or rendered in bad faith. 41 U.S.C. § 609(b) (1988); American Elec. Labs., Inc. v. United States, 774 F.2d 1110, 1112 (Fed.Cir.1985).

ACE argues that the Board erred in its interpretation of the contract as restricting option year price adjustments solely to (1) labor cost increases required by DAR 7-1905(b) and (2) increases in the scope of work. ACE contends that the language of the contract is unclear and ambiguous with respect to pricing of option years, and that the contract should therefore be construed against the drafter, in this case the government. ACE also contends that once the uncertainties concerning option year pricing was raised by the bidders, the burden shifted to the government to adequately clarify those uncertainties.

However, in the present case, the Board found that while the government's answers to the questions posed by the bidders were "somewhat evasive," those questions and answers (quoted above), "clearly put bidders on notice that the government intended to restrict option pricing to the increases allowed by DAR 7-1905(b) and by reason of...