J.E.T.S., Inc. v. U.S.
| Decision Date | 11 February 1988 |
| Docket Number | No. 87-1269,87-1269 |
| Citation | 838 F.2d 1196 |
| Parties | 34 Cont.Cas.Fed. (CCH) 75,439 J.E.T.S., INC., Appellant, v. The UNITED STATES, Appellee. |
| Court | U.S. Court of Appeals — Federal Circuit |
Hugo N. Gerstl, of Gerstl & Gorman, Monterey, Cal., argued for appellant.
J. Keith Burt, Commercial Litigation Branch, Dept. of Justice, argued for appellee. With him on the brief were Richard K. Willard, Asst. Atty. Gen., David M. Cohen, Director, and Mary Mitchelson, Asst. Director.
Before MARKEY, Chief Judge, FRIEDMAN, Circuit Judge, and BALDWIN, Senior Circuit Judge.
This is an appeal by a government contractor from a decision of the Armed Services Board of Contract Appeals (Board) denying the contractor's claim for an equitable adjustment in the contract price. The Board previously had held that the contractor was entitled to such an adjustment and remanded the case to the contracting officer to determine the amount thereof. After the contracting officer had denied any award and while the contractor's appeal from that ruling was pending before the Board, a corporation of which the contractor was a wholly-owned subsidiary and the two principals of that corporation were indicted and convicted of various offenses against the government. A major element of the criminal case was that they had falsely certified that the corporation was a small business, for which both the other contracts involved in the criminal case and the contract in the present case were set aside. On the basis of the convictions, the Board held that the contractor was not entitled to recover. We affirm.
A. On April 1, 1980, the United States Air Force entered into a contract with the appellant, J.E.T.S., Inc., under which J.E.T.S. would furnish all necessary personnel for full food service management at an air base. The contract was for one year. The government had the option to extend the contract for two subsequent years at the same price by giving specified notices.
At the close of the first year of performance, the government, on March 31, 1981, exercised its option to extend the contract for another year at the same price. The government's written exercise of the option stated Funds are not presently available for this procurement. The Government obligation hereunder is contingent upon the availability of appropriated funds from which payment for the contract purposes can be made. No legal liability on the part of the Government for payment of any money shall arise unless and until funds are made available to the Contracting Officer for this procurement and notice of such availability, to be confirmed in writing by the Contracting Officer, is given to the contractor.
In response to J.E.T.S.' request for an immediate ruling on whether the government properly had exercised its option, the contracting officer ruled on May 5, 1981, that the exercise was proper. J.E.T.S. performed the contract for the second year under protest, stating that it expected to be paid the reasonable value of its services. The government paid it at the contract price.
On J.E.T.S.' appeal from the contracting officer's decision, the Board held that the government's exercise of the option was invalid. The Board stated:
It is well settled that in order for the Government to properly exercise an option, its acceptance of the offer must be unconditional and in exact accord with the terms offered. (Citations omitted.) Here the purported execution of the option included the availability of funds clause and made the execution conditional upon the subsequent availability of funds for performance of the contract and written notice to appellant of such availability. It is undisputed that funds were not available for performance during the option period on or before the date for acceptance of the option, 15 April 1981, nor by the date of commencement of the second year of the contract, 1 May 1981.
....
... Appellant's continued performance constituted a constructive change under the contract for which it is entitled to an equitable adjustment. The appeal is sustained and the matter is remanded to the contracting officer to negotiate the amount of such adjustment.
J.E.T.S., Inc., 82-2 B.C.A. (CCH) p 15,986, at 79,274 (1982).
While the appeal before the Board was pending, the government exercised the option to renew the contract for a third year at the original price. J.E.T.S. responded that the government had not validly exercised the option for the first extension, that accordingly the contract was no longer in effect, and that the second option therefore could not be exercised. J.E.T.S. continued to perform the contract under protest through the third year, and the government continued to pay J.E.T.S. at the contract price.
Following the decision of the Board, J.E.T.S. filed with the contracting officer claims for an equitable adjustment for the second and third years of the contract. When the contracting officer failed to issue a decision within the time specified in the Contract Disputes Act of 1978, 41 U.S.C. Sec. 605(c)(1) (1982), J.E.T.S. filed an appeal with the Board. (The contracting officer subsequently denied J.E.T.S.' claim in its entirety.)
B. Under the Small Business Act, 15 U.S.C. Sec. 631 et seq. (1982), certain government contracts are set aside for small businesses. A small business is "one which is independently owned and operated and which is not dominant in its field of operation." Id. Sec. 632. Under regulations of the Small Business Administration explaining when a business is "small," the focus for service industries is on annual receipts, and businesses with annual receipts greater than specified amounts are not "small." 13 C.F.R. Secs. 121.1--121.13 (1986). In determining whether a service business is "small," the average annual receipts for the past three years of the company and its affiliates will be considered. Id. Sec. 121.2(a)-(c).
The food service management contract that J.E.T.S. entered into was 100 per cent set aside for small business. Before obtaining the contract, J.E.T.S. certified to the Air Force that it was a small business.
C. While the second appeal to the Board was pending, Thomas F. Gibbs, Leo J. Barnette, Allied Management Corporation (Allied), and others were indicted for conspiracy to defraud the government, making false statements to the government, and mail fraud. J.E.T.S. is a wholly-owned subsidiary of Allied. Larry Barnette was the president and principal stockholder of Allied, and Thomas Gibbs was the vice president and minority stockholder.
A major charge of the indictment was that in obtaining four other government contracts, Allied had falsely certified that it was a small business. Two of those contracts were food service contracts at other military bases and the two others were laundry service contracts at a military base and in the Federal Republic of Germany. These contracts were entered into and performed at various times between January 1, 1977 and August 1982.
The jury convicted the defendants on various charges, and the court of appeals affirmed. United States v. Barnette, 800 F.2d 1558 (11th Cir.1986), cert. denied, --- U.S. ----, 107 S.Ct. 1578, 94 L.Ed.2d 769 (1987). In a section of its opinion captioned "The Small Business Set Aside Program," the court of appeals held:
[T]he government demonstrated that Allied and its affiliates had become "large" for SBA size purposes for most types of contracts....
Notwithstanding the size of the Allied conglomerate, Allied, through Barnette and Gibbs, continued to submit bids on contracts set aside for small business concerns. From 1978 through 1981, Allied falsely certified on each bid document that it was small, and thus eligible to bid on contracts set aside for small businesses.
D. Following the court of appeals affirmance of the convictions, the government moved before the Board for summary judgment. The Board granted the motion and denied J.E.T.S.' appeal. The Board stated:
[T]here is no genuine issue of material fact concerning the question of appellant's size or whether during that period appellant was aware that it was a large corporation and knowingly certified to the contrary. The conviction resolved these questions. Therefore, appellant is estopped from now denying that it knowingly and willfully made false, fictitious and fraudulent statements by certifying appellant was a small business when it submitted its bid for this small business set aside contract in November...
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