U.S. v. Amdahl Corp., 85-2760

• Decision Date: 06 March 1986
• Docket Number: No. 85-2760,85-2760
• Citation: 786 F.2d 387
• Parties: 33 Cont.Cas.Fed. (CCH) 74,266 The UNITED STATES, Appellant, v. AMDAHL CORPORATION, Appellee. Appeal
• Court: U.S. Court of Appeals — Federal Circuit

Page 387

786 F.2d 387

33 Cont.Cas.Fed. (CCH) 74,266

The UNITED STATES, Appellant, v. AMDAHL CORPORATION, Appellee.

Appeal No. 85-2760.

United States Court of Appeals, Federal Circuit.

March 6, 1986.

Michael T. Paul, of Commercial Litigation Branch, Dept. of Justice, Washington, D.C., for appellant. With him on brief were Richard K. Willard, Acting Asst. Atty. Gen., David M. Cohen, Director and Ronald A. Schechter. David Ingold, of Dept. of Treasury, Washington, D.C., of counsel.

Charlene Bofinger, Asst. Regional Counsel, Amdahl Corp., Washington, D.C., for appellee.

Before RICH, Circuit Judge, SKELTON, Senior Circuit Judge, and NIES, Circuit Judge.

NIES, Circuit Judge.

DECISION

This appeal is from the decision of the General Services Administration Board of Contract Appeals (GSBCA or board) in a bid protest proceeding, No. 7859-P-R, brought under 40 U.S.C. Sec. 759 (1982) as amended by the Competition in Contracting Act of 1984 (CICA), Pub.L. No. 98-369, Sec. 2713, 98 Stat. 494, 1182 (1984) (to be codified at 40 U.S.C. Sec. 759(h)). ¹ The Department of Treasury purchased a used mainframe computer and certain related equipment from the Federal Home Loan Mortgage Corporation (Freddie Mac) on a sole source basis. Amdahl Corporation successfully protested the award to Freddie Mac. GSBCA held, inter alia, that the award was contrary to statute and regulation and revoked Treasury's DPA. On appeal, Treasury does not seek to overturn the merits of the protest. Rather, Treasury argues that the remedy which GSBCA granted in these proceedings is contrary to 40 U.S.C. Sec. 759(h)(6)(B) of the statute. We reverse GSBCA's holding that Sec. 759(h)(6)(B) does not apply, vacate a portion of its decision on the effect of the remedy, and remand for further proceedings consistent herewith.

Statutes

The Brooks Act, Pub.L. No. 89-306, 79 Stat. 1127 (1965) (codified as amended at 40 U.S.C. Sec. 759 (1982)), grants the administrator of the General Services Administration (GSA) centralized authority over the government's acquisition of automatic data processing (ADP) equipment. The administrator may exercise this authority himself, by actually acquiring ADP equipment for another federal agency, or may delegate his procurement authority to that agency, so that the agency can acquire ADP equipment on its own, consistent with the terms of the delegation. 40 U.S.C. Secs. 759(b)(1), (2). By this centralized system, Congress sought to encourage the efficient, cost-effective purchase of ADP equipment. S.Rep. No. 938, 89th Cong., 1st Sess. 1, reprinted in 1965 U.S.Code Cong. & Ad.News 3859.

In 1984, the Brooks Act was amended by CICA, supra, which added a new section, Sec. 759(h). The new section provides, inter alia, for GSBCA to determine protests with respect to the procurement of computer equipment. ² In particular, the board shall, upon request of an interested party, "review any decision [regarding computer procurement] by a contracting officer alleged to violate a statute or regulation." Id.

Specific authority to remedy violations is granted to the board by Sec. 759(h)(5)(B) (hereinafter Sec. 5(B)) ³:

If the board determines that a challenged agency action violates a statute or regulation or the conditions of any delegation of procurement authority issued pursuant to this section, the board may suspend, revoke, or revise the procurement authority of the Administrator or the Administrator's delegation of procurement authority applicable to the challenged procurement.

The statute further provides in Sec. 759(h)(6)(B) (hereinafter Sec. (6)(B)):

If the board revokes, suspends, or revises the procurement authority of the Administrator or the Administrator's delegation of procurement authority after the contract award, the affected contract shall be presumed valid as to all goods or services delivered and accepted under the contract before the suspension, revocation, or revision of such procurement authority or delegation. [Emphasis added.]

The provisions of Sec. (6)(B) are the focus of this appeal.

Background

On December 27, 1984, GSA granted the Department of Treasury, Financial Management Service, a delegation of procurement authority (DPA) to acquire a used IBM 3081-K32 main frame computer from the Federal Home Loan Mortgage Corporation (Freddie Mac) on a sole source basis. GSA, however, did not specifically approve or disapprove the acquisition as outlined by Treasury. The DPA stated that Treasury was required to "achieve maximum practicable competition in satisfying this automatic data processing (ADP) requirement" and to comply "with all applicable regulations governing the acquisition, management and utilization of ADP resources."

On December 31, 1984, Treasury and Freddie Mac entered into a sales agreement. The agreement provided that upon execution, Treasury "shall have acquired" the equipment in question, which would be stored at the Freddie Mac facilities until March 31, 1985. Treasury did not at that time have a location for the equipment. The agreement also required that within 30 days Freddie Mac was to provide an IBM certificate of maintainability, that is, the manufacturer had to certify that the equipment was in proper working order. Treasury was also required "to accept the equipment and move the equipment to its facilities no later than March 31, 1985." The total purchase price was $4,189,000 with $1.2 million due when the agreement was signed and the balance due in fiscal year 1986. Freddie Mac was to retain title to the equipment until the final payment was made. The initial payment of $1.2 million was designated as liquidated damages in the event Treasury failed to make payment in full.

Freddie Mac provided the certificate of maintainability in a timely fashion. On March 29, 1985, Treasury contracted to have the computer equipment moved to Freddie Mac's Reston, Virginia, facility because Treasury's new computer space was still not ready. The equipment was moved at a cost to Treasury of approximately $60,000 and occupies space leased by Treasury from Freddie Mac.

On March 15, 1985, Amdahl Corporation filed a protest with the GSBCA challenging the sale as a violation of the Brooks Act. ⁴ While the protest had not been filed within ten days after award of the contract, as required by GSBCA regulation (to be codified at 48 C.F.R. Sec. 6101.5(b)(3)(ii)), the GSBCA held that it was, nevertheless, timely because it was promptly filed after Amdahl learned of the sale.

With respect to the merits of the protest, the board held that Treasury's agreement with Freddie Mac violated both statute and regulation and, thus, the conditions of the delegation of the ADP procurement authority which Treasury had been given by GSA. In particular, the board held that the $1.2 million payment for the equipment upon signing of the contract but before actual physical delivery was a violation of 31 U.S.C. Sec. 3324(a) which provides that contract payments "may not be more than the value of the ... article already delivered." It also held that Treasury had made no attempt to determine whether suitable equipment was available from other sources and had not properly determined the acquisition costs in accordance with regulations. By a decision dated May 16, 1985, the board granted the protest and revoked the Treasury's DPA in accordance with the statutory remedy in Sec. (5)(B) noted above.

Upon consideration of that decision, Treasury filed a motion asking the board to clarify its ruling regarding relief. ⁵ Treasury asked GSBCA to rule that because the computer equipment had been "delivered and accepted" within the meaning of Sec. (6)(B) before the board revoked the DPA, Treasury's agreement with Freddie Mac was valid with respect to those goods, that the agreement was unaffected by the revocation and that Treasury could make the final payment when due. In response, Amdahl argued that the equipment had not been delivered and accepted because Freddie Mac retained title and possession and that rescission of the contract was appropriate.

The board ruled that Sec. (6)(B) did not apply and held the contract void ab initio. The following quotation is the portion of the board's supplemental opinion dated June 27, 1985 (not reported), which discusses the issues before us:

We agree with the protestor that the statutory presumption of validity contained in the CICA [Sec. 6(B) ] is inapplicable to respondent's agreement with Freddie Mac. The payment provisions of this agreement so clearly and substantially violate the statutory prohibition against advance payments, 31 U.S.C. Sec. 3324(a) (1982), 41 U.S.C. Sec. 255(c) (1982), that the agreement is plainly illegal and void ab initio. We have a duty to strike down such illegal contracts, and we must exercise that duty here. Toyo Menka Kaisha, Ltd. v. United States, 220 Ct.Cl. 210, 217-20, 597 F.2d 1371, 1376-77 (1979); Alabama Rural Fire Insurance Co. v. United States, 215 Ct.Cl. 442, 452-60, 572 F.2d 727, 734-36 (1978); Schoenbrod v. United States, 187 Ct.Cl. 627, 634-35, 410 F.2d 400, 404 (1969). While we are not unsympathetic with the plight of Freddie Mac, we cannot bind the respondent to an unauthorized agreement even though rescission might be inequitable. Just as any other Government contractor, Freddie Mac assumed the risk that the respondent had actual authority to enter into the bargain to which the parties had agreed. Yosemite Park and Curry Co. v. United States, 217 Ct.Cl. 360, 370, 582 F.2d 552, 558 (1978). We point out that Freddie Mac is not entirely without a remedy. It is entitled to recover on a quantum valebant basis for the reasonable value in the market place of the use that respondent has so far made of the equipment. Urban Data Systems, Inc. v. United States, 699 F.2d 1147, 1154 (1983) (citing Cities Service Gas Co. v. United States, 205 Ct.Cl. 16, 32, 500 F.2d 448, 457 (1974)).

It may also be (although we need not decide), that the other violations of statute,...