MOTIONS FOR
SUMMARY RELIEF DENIED: October 26, 2009
CBCA
1598
V.I.C.
ENTERPRISES, INC.,
Appellant,
v.
DEPARTMENT
OF VETERANS AFFAIRS,
Respondent.
Victor
S. Carlson, President of V.I.C. Enterprises, Inc., Willow, AK, appearing for
Appellant.
Glen
Woodworth, Office of Regional Counsel, Department of Veterans Affairs,
Anchorage, AK; and Anna Maddan, Office of the General Counsel, Department of
Veterans Affairs, Palm Desert, CA, counsel for Respondent.
Before Board Judges
STERN, VERGILIO, and SHERIDAN.
Opinion for the
Board by Board Judge SHERIDAN.
Board Judge VERGILIO concurs.
SHERIDAN, Board Judge.
This
is an appeal from a Department of Veterans Affairs (VA) contracting officer=s final
decision denying a certified claim filed by V.I.C. Enterprises, Inc. (VIC)
seeking $546,000 in termination for convenience settlement costs.
In
issuing this decision, the Board considered the record consisting of the
pleadings, the appeal file (Exhibits 1 through 10); the appeal file supplement
(Exhibits 1 through 27); appellant=s
schedule of costs submission; respondent=s motion
for summary relief; appellant=s response to respondent=s motion
for summary relief; appellant=s motion for summary relief; and respondent=s response to appellant=s motion
for summary relief.
Respondent
moves for summary relief, asserting that the contracting officer reasonably
considered the termination to be in the best interests of the Government, that
there is no evidence she acted in bad faith in terminating the contract, and
that the costs appellant seeks are breach damages, not recoverable under the
contract=s termination for convenience clause. Respondent=s motion
for summary relief is denied because the record fails to provide with any
degree of reliability the reason(s) the contract was terminated and why the
contracting officer considered the termination to be in the best interests of
the Government. The existence of these,
and other outstanding unresolved material facts, make this matter inappropriate
for summary relief in favor of respondent.
Appellant
moves for summary relief, arguing that bad faith conduct on the part of the VA
and the timing of the convenience termination resulted in its incurring
termination for convenience settlement costs totaling $546,000. Appellant contends that the contracting
officer acted improperly in terminating the contract and turning the work over
to another contractor simply because the VA feared VIC would be unable to
perform. While we see no evidence that
the contracting officer acted in bad faith, the facts are not sufficiently
developed to determine whether the contracting officer abused her discretion in
terminating the contract. Until we are
able assess more fully the contract type and the facts surrounding the
termination we cannot determine whether the termination was proper or
improper. Notwithstanding these
outstanding questions, we note that, based on the summary record, the damages
appellant seeks appear to be speculative and without a sufficient nexus to the
termination, whether it is determined to be a proper termination for
convenience or an improper termination representing a government breach. Appellant=s motion
for summary relief is denied.
Background
On
May 26, 2000, VIC was awarded contract V910P-0103-00 to provide interment and
headstone services at the Fort Richardson National Cemetery, Fort Richardson,
Alaska. Appeal File, Exhibit 2. The contract document stated Athis is a performance-based contract,@ set forth data on work performed during fiscal year
1999, and contained VIC=s unit pricing for each of the services to be
provided. The term of the contract was
from April 1, 2000, to March 31, 2001, with four additional option years. Id., Exhibit 3.
On
February 27, 2004, the contracting officer, Sandra Magers, issued amendment 2
extending the term of the contract from April 1, 2004, through March 31, 2005,
at the unit pricing for the final option year.
Appeal File, Exhibit 4.
VIC=s owner, Victor Carlson, personally performed much of
the on-site work. Appeal File
Supplement, Exhibit 7a at 9. VIC had
been providing interment and headstone services at the cemetery since 1992,
during which time Mr. Carlson had undergone six back surgeries. Appeal File Supplement, Exhibit 1. During previous periods when Mr. Carlson was
incapacitated, Mr. Carlson=s wife and son helped perform the contract work. Appeal File, Exhibit 6 at 3. The VA accommodated VIC by scheduling the
burials during certain times as requested by VIC. Appeal File Supplement, Exhibits 6, 7a at 9,
12-13. While Mr. Carlson was undergoing
a seventh back surgery on July 19, 2004, Virginia Walker, who was both the
cemetery director and the contracting officer=s
technical representative (COTR), approached his wife to talk about Aending the contract early with a settlement.@ Appeal File,
Exhibit 7 at 3. Mr. Carlson spoke to Ms.
Walker on July 21, 2004, and then called the contracting officer to discuss
terminating the contract and Awhat would be good for the cemetery and [VIC].@ Id.,
Exhibits 7 at 3, 6 at 3. No settlement proposal costs were discussed
at that time. Id., Exhibit 6 at
3-4.
On
August 23, 2004, the contracting officer terminated VIC=s contract for the convenience of the Government,
effective August 31, 2004. Appeal File,
Exhibit 5. The termination letter noted:
AThe requirements for the National Cemetery have
changed to the extent that interment [and] headstone services are no longer needed
as a separately contracted function. The
National Cemetery has determined that interment [and] headstone services can be
performed with in-house capabilities.@ Id.
The notice went on to inform VIC that it should remove any materials and
equipment from the cemetery by no later than September 10, 2004, and it had the
right to request reasonable charges that resulted from the Government=s termination for convenience. Id.
Section
B.12 of the contract contained a Termination for Convenience clause which
stated in pertinent part:
(l) Termination for the Government=s convenience.
The Government reserves the right to terminate this contract, or any
part hereof, for its sole convenience.
In the event of such termination, the Contractor shall immediately stop
all work hereunder and shall immediately cause any and all of its suppliers and
subcontractors to cease work. Subject to
the terms of this contract, the contractor shall be paid a percentage of the
contract price reflecting the percentage of the work performed prior to the
notice of termination, plus reasonable charges the contractor can demonstrate
to the satisfaction of the Government using its standard record keeping system
have resulted from the termination.
Appeal File,
Exhibit 3 at 22-23.
At
the time the termination notice was issued, the contracting officer planned to
use in-house comprehensive work therapy [CWT] workers and VA-owned equipment to
perform the interments until the VA was able to award a single full-service
contract that covered all the services required for the cemetery. Appeal File, Exhibit 6 at 5-6; Appeal File
Supplement, Exhibit 7a at 8. The record
is not clear as to the extent to which the contracting officer=s plan was realized.
However, post-termination, the contracting officer used a credit card to
purchase at least some, if not all, of the cemetery=s needed interment and headstone services from another
contractor. Appeal File Supplement,
Exhibit 7a at 8.
On
September 4, 2004, Mr. Carlson wrote the contracting officer asking to meet
with her Aabout the VA purchasing the remaining [seven] months
of the VIC contract@ saying that the termination letter Adid not address my situation and the hardship this
will place on myself and family - without an income.@ Appeal File,
Exhibit 6 at 1. Mr. Carlson wrote the
contracting officer again on September 16, 2004, stating, AAfter reviewing billings, a good average . . . would
be $65,000.00. I would settle this
matter of the contract buy-out for the amount of $55,000.00, and the remaining
balance due from past billings.@ Id.,
Exhibit 6 at 2.
A
meeting was held on September 29, 2004, among the contracting officer, the
COTR, and Mr. Carlson, to discuss settlement.
Appeal File, Exhibits 6 at 16, 7 at 3.
A transcript of the meeting indicates that at the meeting the
contracting officer was prepared to justify a settlement in the range of
$17,000 to $20,000 for the work performed on the contract. However, at that time, VIC was unwilling to
accept a settlement in that range and continued to demand at least
$55,000. Appeal File Supplement, Exhibit
7a at 10.
During
January 2005, Mr. Carlson and the contracting officer worked together to
ascertain all the work VIC had performed under the contract. The parties reached an agreement for the
amount owed on performed work. On
January 24, 2005, the VA paid VIC $26,347.40 for the completed work. Exhibit 6 at 9-20.
On
March 1, 2009, VIC submitted a certified claim to the contracting officer
seeking $546,000, consisting of:
1) Loss of
equipment (dump truck impounded) - $10,000.00;
2) Loss of
maintenance facility - $96,000.00 (to date);
3) Loss of personal
residence - $240,000.00; and
4) Loss of income
due to loss of bonding capacity - $200,000.00
Appeal File,
Exhibit 9.
The
contracting officer=s final decision was issued on March 10, 2009, denying
the claim in its entirety. Appeal File,
Exhibit 10. The parties agree VIC has
been paid for all the work it performed under the contract, and that the only
issue that remains is VIC=s claim for its termination costs. Id., Exhibit 6 at 14-15.
Discussion
Each
party has asked the Board to resolve this appeal by granting its own motion for
summary relief and denying the opposing party=s motion. Resolving a dispute on a motion for summary
relief is appropriate when the moving party is entitled to judgment as a matter
of law, based on undisputed material facts.
The moving party bears the burden of demonstrating the absence of
genuine issues of material fact. All
justifiable inferences must be drawn in favor of the nonmovant. Celotex Corp. v. Catrett, 477 U.S. 317
(1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986). A fact is considered to be material if it
will affect the Board=s decision, and an issue is genuine if enough evidence
exists such that the fact could reasonably be decided in favor of the
non-movant after a hearing. Charles
Engineering Co. v. Department of Veterans Affairs, CBCA 582, et al., 08‑2
BCA & 33,975, at 168,055‑56 (citing Fred M. Lyda
v. General Services Administration, CBCA 493, 07‑2 BCA & 33,631).
When
both parties move for summary relief, each party=s motion
must be evaluated on its own merits and all reasonable inferences must be
resolved against the party whose motion is under consideration. First Commerce Corp. v. United States,
335 F.3d 1373, 1379 (Fed. Cir. 2003); DeMarini Sports, Inc. v. Worth, Inc.,
239 F.3d 1314, 1322 (Fed. Cir. 2001).
The mere fact that both parties have moved for summary relief does not
impel a grant of one of the motions. California
v. United States, 271 F.3d 1377, 1380 (Fed. Cir. 2001).
The
termination for convenience clause grants a contracting officer exceptional
authority, and A[i]n no other area of contract law has one party been
given such complete authority to escape from contractual obligations. This clause gives the Government the broad
right to terminate without cause.@ Greenlee Construction, Inc. v. General
Services Administration, CBCA 415, et al., 07‑2 BCA & 33,619, at 166,510 (citations omitted). AIn the
absence of bad faith or clear abuse of discretion the contracting officer=s election to terminate is conclusive.@ John Reiner
& Co. v. United States, 325 F.2d 438, 442 (Ct. Cl. 1963); see also
Salsbury Industries v. United States, 905 F.2d 1518, 1521 (Fed. Cir. 1990).
The
Federal Circuit has determined that the Government=s right to terminate a contract for its convenience is
very broad, but may be improper if the termination was motivated by bad faith,
if the contracting officer clearly abused his or her discretion, or if the
Government entered into the contract with no intention of allowing it to be
completed. T & M Distributors,
Inc. v. United States, 185 F.3d 1279, 1283 (Fed. Cir. 1999); Krygoski
Construction Co. v. United States, 94 F.3d 1537, 1541, 1543‑44 (Fed.
Cir. 1996); Caldwell & Santmyer, Inc. v. Glickman, 55 F.3d 1578,
1581 (Fed. Cir. 1995); see also Oregon Woods, Inc. v. Department of the
Interior, CBCA 1072, 09-1 BCA &
34,014, at 168,202 (2008), appeal docketed, No. 2009-1271 (Fed. Cir.
Mar. 25, 2009); Greenlee Construction, 07‑2 BCA at 166,510. If a termination for convenience is issued
under one of the aforementioned circumstances, the termination can constitute a
breach of contract, which would give rise to a right to damages outside the termination
for convenience clause. Krygoski,
94 F.3d at 1541-44.
The
Federal Circuit has also stated that:
[T]he government
breaches a requirements contract when it has requirements for contract items or
services, but diverts business from the contractor and does not use the
contractor to satisfy those requirements.
In that case, the contractor is entitled to recover damages in the form
of lost profits, provided it is able to meet the requirements for lost profits
recovery.
Rumsfeld v.
Applied Cos., 325 F.3d 1328, 1339
(Fed. Cir. 2003). The Government is
entitled to reduce or otherwise change its requirements for legitimate business
reasons. A termination for the
Government=s convenience is one way to do this, but to withstand
scrutiny, the termination must be in the best interest of the Government.
VIC
urges us to find that the termination for convenience here was issued in bad
faith because of Mr. Carlson=s back problems and the damages VIC seeks are
reasonable. In alleging bad faith,
appellant posits that the work was terminated because VA officials believed VIC
would be unable to perform the contract.
VIC also points to the fact that the VA did not execute its plan to use
in-house CWT workers to perform the services VIC was providing under the contract. Instead, for the seven months remaining in
what would have been VIC=s contract, the VA purchased the services it needed
from another contractor.
In
granting summary relief and dismissing a bad faith claim, we recently
reiterated well-established case law:
A contractor who
asserts that a government official was motivated by bad faith in the conduct of
his duties bears the burden of proving its assertion by clear and convincing
evidence -- Aevidence which produces in the mind of the trier of
fact an abiding conviction that the truth of a factual contention is highly
probable.@
AFR &
Associates, Inc. v. Department of Housing and Urban Development, CBCA 946, 09-2 BCA &
34,226 at 169,170 (citing Greenlee Construction, 07‑1 BCA at
166,062). To prove bad faith, appellant
must provide facts to show by clear and convincing evidence that VA officials
had something akin to a Aspecific intent to injure@ appellant, engaged in a Aproven conspiracy to get rid of@ appellant, or were Amotivated
alone by malice@ against appellant.
Am‑Pro Protective Agency, Inc. v. United States, 281 F.3d
1234, 1240 (Fed. Cir. 2002).
Viewed
in their context, the facts reveal that the parties had a long history of
working together, with the VA making certain accommodations when Mr. Carlson
was incapacitated due to back problems.
At the time the contract was terminated, the contracting officer
believed that a convenience termination would be in the interests of both the
VA and VIC. The record is not clear
whether Mr. Carlson agreed, but it appears that a disagreement as to the
termination was realized only after the termination was issued - when it came
time to negotiate how much compensation VIC was due for the termination
settlement. In viewing the existing
record for summary relief, we see no compelling evidence that the contracting
officer acted in bad faith in terminating the contract. However, the record is not sufficiently
developed to determine the reason the contract was terminated or whether the
contracting officer abused her discretion.
The
document respondent proffers as the contract vehicle is also problematic as to
contract type. It does not state that the VA would order all
its requirements from the contractor, contain minimum or maximum quantities, or
include clauses indicating the type of contract contemplated by the parties. It is unclear from the current record whether
the document proffered as the contract is a requirements contract, or an
indefinite delivery/indefinite quantity (ID/IQ) type contract, or is more in
the nature of a basic ordering agreement.
For
the Board to discern whether there was an enforceable contract and if so, what
type of contract it was, the record must be more fully developed as to the
facts leading to and following the termination.
Until then, we are reluctant to find the contracting officer=s termination of the contract was proper or
improper. The existence of outstanding
unresolved material facts makes this matter inappropriate for summary relief in
favor of respondent.
As
to appellant=s motion, the record does not contain undisputed facts
that the costs appellant seeks were a direct result of the termination. VIC has not demonstrated that its alleged
losses represent actual, reasonable, recoverable costs. The bare record, viewed for the purpose of
summary relief, lacks support. The
contractor must provide reliable proof of the factual basis of the claimed
amounts. As the record currently stands,
the Board cannot conclude that the alleged losses were in fact incurred and
reasonable and resulted from the termination.
At this stage, the losses appear to be speculative and without a
sufficient nexus to the termination, whether the Board determines this was a proper
termination for convenience or an improper termination representing a
government breach.
Decision
The
Board DENIES each motion for summary relief.
_____________________________
PATRICIA
J. SHERIDAN
Board
Judge
I concur:
JAMES L. STERN
Board Judge
VERGILIO, Board Judge, concurring.
As
explained below, I concur with the conclusion of the panel to deny each motion
for summary relief.
Contractor=s motion for summary relief
In
seeking summary relief and immediate payment of the entirety of its claim, the
contractor contends that the Amanner and timing in which this termination was
executed directly caused the financial injury to VIC Enterprises.@ Further, the
contractor asserts that the correspondence contained in the appeal file, as
supplemented, demonstrates that the contracting officer terminated the contract
so as to knowingly cause maximum hardship and harm to it. Contractor=s Motion
at 1.
When
reviewed for purposes of resolving the contractor=s motion
for summary relief, the record does not contain undisputed facts that establish
that the contracting officer terminated the contract so as to knowingly cause
hardship or that the termination directly caused financial hardship. Apart from not establishing that the termination
for convenience was improper for the stated reasons, the contractor has not
demonstrated that its alleged losses represent actual, reasonable, recoverable
costs. The limited record, viewed for
summary relief, lacks support, such that the Board cannot conclude that the
alleged losses were in fact incurred, reasonable, and resulted from the
termination. That is, at this stage, the
losses appear to be speculative without a sufficient nexus to the termination
(whether a proper termination for convenience or an improper termination
constituting a Government breach).
Because
the existing record does not adequately support the contractor=s motion, I concur in the conclusion to deny the
contractor=s motion for summary relief.
Government=s motion for summary relief
In
seeking summary relief, the Government references the Termination for
Convenience clause and notes that the contractor has been paid for all work
performed. It concludes that the
contractor is entitled only to charges it can demonstrate directly resulted
from the termination of the contract.
The
Government=s motion is premised on the assumption that the termination
for convenience was valid. That
conclusion is not borne out by the party moving for summary relief. Although not addressed by the parties, the
contract appears to be a requirements contract, obligating the Government to
order from the contractor the services required at the cemetery, and obligating
the contractor to perform the services.
Appeal File, Exhibit 3 at 2 (& A.1),
8-9 (& A.3(c), (f), (g)). For the post-termination, remainder of the
option year, the Government had a continuing need for interment/headstone
services; it fulfilled those requirements using other than the contractor. To resolve the Government=s motion, the guidance of the Federal Circuit here is
applicable:
The
combined teaching of Locke, Torncello, and Ace-Federal is
that the government breaches a requirements contract when it has requirements
for contract items or services, but diverts business from the contractor and
does not use the contractor to satisfy those requirements. In that case, the contractor is entitled to
recover damages in the form of lost profits, provided it is able to meet the
requirements for lost profits recovery noted in California Federal Bank. The critical point is that the government=s breach of its obligation Ato fill all its actual requirements . . . by
purchasing from the awardee,@ Medart, 967 F.2d at 581, has the effect of
taking away from the contractor the opportunity to earn a profit.
Rumsfeld v.
Applied Cos., 325 F.3d 1328, 1339
(Fed. Cir. 2003). The Government has not
established that the contractor=s relief must be limited to that described in the
Termination for Convenience clause. The
contractor is not precluded from attempting to demonstrate the substance of its
claim that the termination for convenience was improper. Nor, under the Government=s assumptions in its motion for summary relief, is the
contractor precluded from attempting to demonstrate its costs that have
resulted from the termination.
The
Government has not demonstrated that it is entitled to summary relief. Accordingly, I concur in the conclusion to
deny the Government=s motion.
____________________________
JOSEPH
A. VERGILIO
Board
Judge
Mr. Carlson
represented in later correspondence that this discussion occurred on August 12,
2004. Appeal File, Exhibit 6 at 3. The discrepancy in these dates is not
considered relevant to this decision.
It appears
from the record that post-termination the VA paid its lawn maintenance
contractor, Yard Chief Yard Care, Inc., to provide interment and headstone
services. Appeal File Supplement,
Exhibit 7a at 8. From September 1, 2004,
through March 31, 2005, the VA paid for forty-six interments of in-ground
casket remains, two second interments of in-ground casket remains, twenty-one
first interments of in-ground cremated remains, receipt and inspection of
seventy-seven headstones, and installation and replacement of forty-nine
headstones. Id., Exhibit 24. As of April 2006, the VA still did not have a
full-service contract in place and continued to pay for the interment and
headstone services it needed with a credit card. Id.
When a
contractor alleges that the Government breached the contract by reducing its
requirements, the contractor bears the burden of proving that the Government
acted in bad faith, for example, by reducing its requirements solely to avoid
its contractual obligations. In the
absence of a showing that the Government acted in bad faith, it will be
presumed to have reduced its requirements for valid business reasons. Technical Assistance International, Inc.
v. United States, 150 F.3d 1369, 1373 (Fed. Cir. 1998) (Government did not
breach or constructively change a requirements contract for vehicle maintenance
and repairs when it increased the rate of vehicle replacement, thereby
decreasing its repair and maintenance requirements).
The
determination of a contract type is a matter of law. Maintenance Engineers v. United States,
749 F.2d 724, 726 n.3 (Fed. Cir. 1984).
The Board is not bound either by what the contract is called or by the
label attached to it by the parties. Mason
v. United States, 615 F.2d 1343, 1346 (Ct. Cl. 1980).
