Oasis Int'l Waters, Inc. v. United States

• Decision Date: 07 April 2017
• Docket Number: No. 10-707C,10-707C
• Parties: OASIS INTERNATIONAL WATERS, INC., Plaintiff, v. UNITED STATES, Defendant.
• Court: U.S. Claims Court

OASIS INTERNATIONAL WATERS, INC., Plaintiff,
v.
UNITED STATES, Defendant.

No. 10-707C

United States Court of Federal Claims

Reissued: December 1, 2017¹
April 7, 2017

Trial; Contract Interpretation; Duress; Fraud; Special Plea in Fraud; False Claims Act; Anti-Fraud Provision of the Contract Disputes Act.

OPINION

Laurence Schor, Asmar, Schor & McKenna, PLLC, Washington, D.C., for plaintiff. With him were Susan L. Schor, Dennis C. Ehlers, David A. Edelstein, Robert D. Pratt, and Allison G. Geewax, Asmar, Schor & McKenna, PLLC, Washington, D.C.

James P. Connor, Senior Trial Counsel, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, D.C., for defendant. With him were Tanya B. Koenig, Trial Attorney, Commercial Litigation Branch, Stephen C. Tosini, Senior Trial Counsel, Douglas K. Mickle, Assistant Director, Commercial Litigation Branch, Robert E. Kirschman, Jr., Director, Commercial Litigation Branch, and Chad A. Readler, Acting Assistant Attorney General, Civil Division, Department of Justice.

HORN, J.

Plaintiff, Oasis International Waters, Inc. (Oasis), is a contractor that performed a bottled water contract with the United States military in Iraq during the Iraq War. Oasis is a Nevada corporation for which the principal place of business is in Utah. After the end of contract performance, plaintiff filed a certified claim with the contracting officer, which was denied in its entirety. Plaintiff thereafter filed a complaint in the United States Court of Federal Claims, and, subsequently, defendant filed fraud counterclaims against plaintiff.

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A trial was held regarding plaintiff's breach of contract claims, as well as defendant's fraud counterclaims. As indicated below, in an earlier opinion in the case, the court, with the exception of one claim which the court deferred, and which is addressed below, denied defendant's counterclaims for the Special Plea in Fraud, False Claims Act, and the anti-fraud provision of the Contract Disputes Act.

FINDINGS OF FACT

As stipulated by the parties, "[a]fter the start of the Iraq War but prior to the award of the contract at issue in this case, the Army procured all of its Iraq bottled water requirements from Turkey, Kuwait, and Jordan and shipped it by truck into Iraq and to the various U.S. military bases in Iraq." United States Air Force Colonel Renee M. Richardson, who served as one of the contracting officers on the contract at issue in this case from May 2006 until October 2006,² explained at trial that "[t]he previous approach was bringing bottled water in from Turkey, Jordan, and Kuwait, of course, which put soldiers on the road for the transportation." As noted in the Statement of Work for the solicitation at issue in this case, Solicitation No. W27P4A-05-R-0002 (the solicitation):

Up to the present time bottled water has been purchased from sources outside of Iraq. This practice necessitates large numbers of convoys and escorts to transport the bottled water from Kuwait, Jordan, and Turkey. Producing bottled water locally would significantly reduce the number of convoys required to transport water as well as reduce the likelihood of battle related injuries.

The parties also stipulated that:

On or about March 2, 2005, Maj. Vazquez, a contracting officer with Joint Contracting Command-Iraq (JCC-I, later Joint Contracting Command-Iraq Afghanistan - JCC-I/A), serving at Camp Victory, issued a Request for Information (RFI) "to get information on contractors capable of providing the following capabilities for construction of re-locatable water purifying and bottling facilities for distribution at several locations in Iraq. Locations will be identified at a later date and time. These facilities are to produce clean drinkable bottled water per all USDA and FDA standards and requirements."

The RFI generated interest from 71 vendors, and, on April 3, 2005, the government posted Solicitation No. W27P4A-05-R-0002.³ Proposals were due by May 3, 2005, and the government received 22 bids in response to the solicitation, and answered 145 questions. A sample of the questions and answers reveals that the bidders had questions about the pricing, capabilities, the land to be provided in Iraq and the obligations of the government. For example, one part of question 33 stated: "Is our offer to give the cost per

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liter with the personnel built in, seperate [sic] to the cost of the plant and equipment?" The government replied: "All Costs per liter are to be included." Likewise, question 40 asked: "Start up Cost: Since the bid is predicated upon the deliverables per litre bottle of water, can we assume that all costs(inc personnel and equipment deployment to site) incurred between contract award and water production will fall upon the successful bidder?" The government replied: "Yes. It is up to you how you determine the cost per litre taking into account all costs associated with this endeavor."

There were a number of questions regarding the obligations of the government. Question 2 asked, "[i]f projected demand falls short, what are the minimum volume requirements? Is there a required minimum quantity the Government will procure?" The government responded: "There are no minimums. The minimum is zero." Additionally, question 35, referring to question and answer 2, asked:

The answer to Question #2 states that there are no minimum purchase quantities. This decision places an unreasonable amount of financial risk on the contractor, and will likely severely limit the competition for this RFP [Request for Proposals]. Request that the Government guarantee minimum purchase quantities base [sic] on the estimated quantities that appear in the RFP.

The government responded:

The levels of liters required are in the range. This is roughly the production per day. You might have a day where your levels are lower, however, the Government contract is a Firm Fixed Price not Indefinite Delivery / Indefinite Quantity. The Government is entering into a one year contract with three option years. The only thing that could prevent the basic year from occurring is a Government decision to Terminate for Convenience or default of the contractor to perform to the requirements and the Government would then Terminate for Default.

One bidder questioned the potential for installment payments, asking: "Would the Government authorize progress or installment payments recognizing 1) the significant capital investment with establishing new capability and, 2) the ability to credit progress payments with actual deliveries?" to which the government responded that: "The first payment will be made once the contractor has the first plant operational and has had an approved first article test accepted without conditions."

In response to question 44, the government indicated "[t]he Government will provide as flat land as possible," and regarding site conditions, the government indicated in the answer to question 89, the government stated that "[s]ite prep should be minimal. The water source has been identified and deemed to have sufficient amounts by the government to support the operation." The government also noted in answer to question 89, however, "[i]t is up to you what you do in order to meet the Government's requirements and timeframe for delivery."

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One of the 22 bids was submitted by American AquaSource, Inc. (American AquaSource), and signed by Max Wyeth, President of American AquaSource. Attached to the American AquaSource proposal was a spreadsheet showing the volumes of production and an estimate for when each site would begin water production. American AquaSource's bid assumed a price of $3.50 per case of water, or a total of $50,225,000.00, based on the production of 14,350,000 cases.⁴ At trial, Max Wyeth explained that he calculated the $50.225 million figure "using our average forecast of demand, we came up with a case number that would be produced per year, and multiplied that by the case cost."⁵

Major Mauricio Vazquez, who issued the RFI and answered the questions posed by the potential offerors, contacted Max Wyeth to clarify the proposal and to submit a "total cost per year for all four years and the Grand total." Max Wyeth provided Major Vazquez with a base year price of $50,225,000.00 and three option year prices of $186,000,000.00, totaling $608,225,000.00. Max Wyeth confirmed in his correspondence "that the 3.50 price is the only price, regardless of the winter/summer/surge period, for all years within the contract." After negotiations between Max Wyeth and Major Vazquez, in which Major Vazquez asked Max Wyeth to reconsider the option year prices, on May 11, 2005, Max Wyeth submitted an amendment to the American AquaSource proposal, which included a revised "Summary of Pricing Schedule" with a proposed base year price of $50,225,000.00 and three option year prices of $112,000,000.00, for a total contract price of $386,225,000.00. The parties have stipulated that, "[o]ther than AquaSource's proposed price, all other offerors whose proposals were found technically acceptable offered prices in excess of $1 Billion."⁶ Major Vazquez awarded contract no. W27P4A-

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05-C-0002 (the contract) to American AquaSource on May 25, 2005. The contract called for base year price of $50,225,000.00 and three option year prices of $112,000,000.00 each, for a total contract price of $386,225,000.00.⁷ Major Vazquez signed the contract on behalf of the government and Max Wyeth signed on behalf of American AquaSource.

After the contract was awarded to American AquaSource, Paul Morrell contacted Max Wyeth, and subsequently, in June 2005, Max Wyeth exchanged several emails with Phil Morrell and Dan Petsche, then the Vice President for Contracts and Compliance for Al-Morrell Development discussing the bottled water project.⁸ Paul Morrell testified that "[o]ur original intent with American AquaSource was to sell our assets to him, as it appeared that he didn't have the...