Sharp Elecs. Corp. v. McHugh

• Decision Date: 22 February 2013
• Docket Number: No. 2012–1299.,2012–1299.
• Citation: 707 F.3d 1367
• Parties: SHARP ELECTRONICS CORPORATION, Appellant, v. John McHUGH, Secretary of the Army, Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

707 F.3d 1367

SHARP ELECTRONICS CORPORATION, Appellant,

v.John McHUGH, Secretary of the Army, Appellee.

No. 2012–1299.

United States Court of Appeals,Federal Circuit.

Feb. 22, 2013.

Andrew Kenneth Wible, Cohen Mohr, LLP, of Washington, DC, argued for the appellant. Of counsel was Andrew J. Mohr.

Nicholas Jabbour, Trial Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for appellee. With him on the brief were Stuart F. Delery, Acting Assistant Attorney General, Jeanne E. Davidson, Director, and Harold D. Lester, Jr., Assistant Director.

Before DYK, PLAGER, and CLEVENGER, Circuit Judges.

Opinion for the court filed by Circuit Judge DYK. Dissenting opinion filed by Circuit Judge PLAGER.

DYK, Circuit Judge.

Sharp Electronics Corporation (“Sharp”), a federal supply contractor, submitted a termination compensation claim to the Department of the Army contracting officer (“CO”), and thereafter brought a Contracts Dispute Act (“CDA”) claim before the Armed Services Board of Contract Appeals (“ASBCA”). Sharp alleged that because the Army failed to exercise the entirety of the last option year under a delivery order, Sharp was entitled to premature discontinuance fees under its General Services Administration (“GSA”) schedule contract. The ASBCA dismissed Sharp's appeal for lack of subject-matter jurisdiction, concluding that the Federal Acquisition Regulation (“FAR”), does not permit ordering agency COs to decide disputes pertaining to schedule contracts. We agree that under FAR 8.406–6, only the GSA CO may resolve disputes that, in whole or in part, involve the interpretation of disputed schedule contract provisions. Because Sharp's claim turns on such a dispute, it must be submitted to the GSA CO, and the ASBCA has no jurisdiction. We therefore affirm.

Background

I

Historically, government agencies entered procurement contracts and purchased supplies and services on an individual basis. Contract disputes were initially directed to the agency contracting officer, and appeals went to an agency Board of Appeals under the contract's disputes clause, or, if the contract had no pertinent clause, to a district court or what is now the Court of Federal Claims. See generally 4 Report of the Commission on Government Procurement 11–28 (1972); Joel P. Shedd, Jr., Disputes and Appeals: The Armed Services Board of Contracts Appeals, 29 Law & Contemp. Probs. 39 (1964).

Over time, federal contracting became more centralized. The Federal Property and Administrative Services Act of 1949, Pub.L. No. 81–152, 63 Stat. 377, created the GSA to standardize federal procurement processes and procure, store, and distribute supplies to federal agencies. See generally James F. Nagle, A History of Government Contracting, 450–52 (2d ed.1999); 3 Report of the Commission on Government Procurement 10–11; 27–37 (1972). Under the current version of the GSA Schedules Program, also called the Federal Supply Schedule Program or Multiple Award Schedule Program, seeFAR 8.402(a), GSA “acts as the contracting agent” for the federal government, negotiating base contracts with suppliers of commercial products and services. Multiple Award Schedule Procurement, 47 Fed.Reg. 50,242–244 (Nov. 5, 1982). Each supplier publishes an Authorized Federal Supply Schedule Pricelist listing the items offered pursuant to its base contract, as well as the pricing, terms, and conditions applicable to each item. SeeFAR 8.402(b). Individual agencies issue purchase orders under the base contract as needed. SeeFAR 38.101(a); 8.405–1. The terms of the base contract, referred to as the “schedule” contract, are incorporated by reference into the order.

Schedule contracts are intended to simplify the acquisition process. However, they have generated jurisdictional uncertainty with respect to disputes, which may involve (1) the correct interpretation of the schedule contract; (2) the correct interpretation of the agency's order; (3) the facts relating to the parties' performance; or (4) some combination of these issues. Prior to 2002, the regulations established that only the schedule office CO (here, the GSA CO) could issue a final decision in a dispute pertaining to an order under a schedule contract. SeeFAR 8.405–7 (2000) ( “The ordering office shall refer all unresolved disputes under orders to the schedule contracting office for action under the Disputes clause of the contract.”).

Effective July 2002, the FAR was amended,¹ authorizing ordering COs to resolve certain “disputes arising from performance of the order.” FAR 8.405–7(a)(1)(i) (2002); see also Federal Acquisition Regulation; Federal Supply Schedule Order Disputes and Incidental Items (final rule), 67 Fed.Reg. 43,514, 43,514 (June 27, 2002). The current FAR provision is set forth below. As before, the GSA CO has sole authority over the schedule contract; the ordering CO must still refer disputes “pertaining to the terms and conditions of schedule contracts” to the schedule CO for a decision. FAR 8.406–6(b) (2012). Because the parties here dispute the interpretation of both the schedule contract and the purchase order, the question is which CO has jurisdiction under the FAR.

II

On September 18, 2001, Sharp and GSA entered into a schedule contract, Multiple Award Schedule Contract No. GS–25F–0037M (“Sharp's Schedule Contract”), which allowed agencies to lease or purchase office equipment and supplies from Sharp's Schedule Pricelist. The pricelist included Special Item Number (“SIN”) 51–58a, covering monthly lease plans for the operation and maintenance of copier equipment, and setting forth additional terms and conditions applicable to such leases, including provisions pertaining to payment, lease terms, the exercise of options, and early termination fees.

On December 1, 2005, the Army issued delivery order No. W91ZLK–06–F–0028 to Sharp “in accordance with and subject to terms and conditions” of Sharp's Schedule Contract. J.A. 18. The order provided for a four-year lease of copier equipment, including one Base Year and three Option Years, with the last Option Year ending on December 1, 2009. Sharp's Schedule Pricelist stated that with respect to delivery order leases of this type, “the Government intends to exercise the renewal options contained herein and lease the Equipment for the entire Lease Term.” Option Years One and Two were exercised in full; on November 20, 2008, the Army and Sharp executed Modification No. P00011 (“Mod 11”), which “partially exercise[d] option year three” for six months. J.A. 3. The parties subsequently executed Modification No. P00012 (“Mod 12”), which extended the lease for three more months. The lease finally ended on August 31, 2009. Mods 11 and 12 were silent as to the reservation or release of claims associated with the modifications.

Sharp viewed the Army's failure to fully exercise Option Year Three as a premature cancellation, entitling Sharp to fees under the termination provisions of its schedule contract. In January 2011, Sharp filed a formal claim with the Army CO, citing the termination fee provisions of its schedule contract, and seeking $67,928.63 in early termination fees (representing four times the base monthly charge for each unit). The Army CO did not respond, and did not refer Sharp's claim to the GSA CO responsible for Sharp's Schedule Contract. After sixty days, Sharp appealed the deemed denial of its claim to the ASBCA. SeeFAR 8.406–6(c).

The ASBCA “sua sponte[ ] raised the issue of its jurisdiction to decide th[e] appeal.” Sharp Elecs. Corp., ASBCA No. 57583, 12–1 B.C.A. ¶ 34,903, at 171,621 (“ASBCA Decision ”). The jurisdictional issue that concerned the ASBCA arose from the regulatory division of CO authority in disputes involving federal supply service contracts. Under the CDA, codified at 41 U.S.C. §§ 7101–7109, and its implementing regulations, the FAR, a contractor's claim must be submitted in writing to the appropriate federal CO for a final decision. 41 U.S.C. § 7103(a)(1); see alsoFAR 52.233–1. As discussed above, in disputes involving schedule contracts, FAR 8.406–6, as amended, allocates authority among ordering and scheduling COs. The question here is whether FAR 8.406–6 authorized the Army CO to decide Sharp's claim. If the Army CO was not authorized to decide the claim, the deemed denial was not a valid basis for ASBCA jurisdiction. Case, Inc. v. United States, 88 F.3d 1004, 1009 (Fed.Cir.1996); see also41 U.S.C. § 7105(e)(1)(A) (defining ASBCA jurisdiction). The ASBCA concluded that its jurisdiction “turn[ed] upon whether or not this dispute pertains to the contract terms and conditions of the schedule contract or arises from performance of the [delivery order],” and invited the parties to brief the issue “in light of FAR 8.406–6(b).” ASBCA Decision, at 171,622.

The parties agreed that the termination fees Sharp sought were authorized, if at all, by provisions in Sharp's Schedule Contract with GSA. Sharp invoked the “Premature Discontinuance Provisions” of its 2005 GSA-approved schedule pricelist. These provisions, set forth at Special Item Number 51–58a, ¶ 21N(2), and included in Modification No. 32 to Sharp's Schedule Contract, stated in relevant part:

If the Government terminates a FMV lease prior to its expiration ... the Government shall pay all amounts due the Contractor as of that date and a “Premature Discontinuance Fee” (“PDF”). The PDF is the monthly equipment component, for each unit/accessory being terminated times the number of months remaining in the FMV Lease.

For its part, the Army contended that because Mod 11 represented a bilateral agreement to shorten Option Year Three to six months, the lease was not terminated “prior to its expiration,” and the discontinuance provisions were inapplicable.

In their jurisdictional briefings to the ASBCA, both parties argued that the Army CO could resolve the dispute. The Army argued that the dispute pertained solely to ...