Free Supplemental Brief - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS INFORMATION SYSTEMS & NETWORKS CORPORATION, Plaintiff, v. THE UNITED STATES, Defendant. ) ) ) ) ) ) ) ) ) )

No. 02-796C (Judge Allegra)

SUPPLEMENTAL MEMORANDUM OF THE GOVERNMENT By order dated November 3, 2004, the Court requested supplemental briefing regarding the application of Trauma Service Group v. Unites States, 104 F.3d 1321 (Fed. Cir. 1997), to count I of plaintiff's complaint, which alleges the breach of an implied-in-fact agreement. The written contract between ISN and the Government required ISN to "upgrade all manual technical control facilities with Automated Technical controls" for those control facilities at several locations providing tactical and strategic communications support for the Department of Defense. See Def. App. 9 (emphasis added). The contract contained specific provisions relating to engineering change proposals and change proposals. See attachment A (excerpts from contract). The engineering change proposal ("ECP") submitted by ISN, which sets forth the terms of the alleged implied agreement, proposes to install additional equipment and to upgrade other equipment otherwise required by the contract. It also proposed a revised schedule for the Hampton Roads site. See Pl. App. 58-66. Thus, the express agreement covers the same subject matter contained in ISN's alleged implied-in-fact contract, and, therefore, the latter cannot exist. See Trauma Service Group v. United States, 104 F.3d 1321, 1326 (Fed. Cir. 1997) ("an

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implied-in-fact contract cannot exist if an express contract already covers the same subject matter"); Atlas Corp. v. United States, 895 F.2d 745, 754-55 (Fed. Cir. 1990) ("The existence of an express contract precludes the existence of an implied contract dealing with the same subject, unless the implied contract is entirely unrelated to the express contract"). In Trauma Service Group, the plaintiff had a contract which included the provision of certain health care providers. 104 F.3d at 1324. Following termination of the contract, plaintiff sought reimbursement for the services of an x-ray technician. Concluding that the contract covered support personnel, which included x-ray technicians, the court rejected the plaintiff's claim of an implied-in-fact contract. Like Trauma Services Group, the contract at issue here expressly addresses engineering change proposals for the modification of equipment necessary to an automated technical control system. Accordingly, there can be no implied-in-fact contracts arising from ISN's ECP. The decision in Atlas Corp., also supports this position. In Atlas Corp., plaintiffs entered into contracts to produce uranium and thorium for the Government. 895 F.2d at 747. The contracts contained pricing provisions designed to allow each contractor to recover its costs plus a reasonable profit. Id. Many years later, the parties began to recognize the health hazards associated with the residues of the uranium and thorium milling operations, known as "tailings." In response to those dangers, the Government enacted legislation addressing these hazards. Id. at 748. After several years of complying with the increased safety standards, at increased costs to the contractors, the contractors sued the Government to recover these costs. Id. at 748-49. Although the existence of the hazards was not knowable when the contracts were negotiated, id. at 752, the contractors argued that the Government agreed to compensate the contractors for all 2

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production costs, including the costs related to the tailings, under an implied-in-fact contract theory. Id. at 754. The Federal Circuit disagreed. The court observed that prices were set by the contracts, taking into consideration the contractors' costs. Additionally, the court found that "the stabilization costs are not 'entirely unrelated' to the costs included in the contract price." Therefore, as a matter of law, there could be no implied agreement to pay costs over and above the contract prices. Id. at 755. Other cases support the conclusion that ISN's written contract precludes the existence of an implied-in-fact contract. In Starflight Boats v. United States, 48 Fed. Cl. 592 (2001), the plaintiff had a firm, fixed price contract to manufacture runway edge marker systems. Shortly after the commencement of performance, the contracting officer's representative ("COR") attempted to induce the contractor into a scheme to defraud the Government. The contractor reported this conduct to the Deputy of Contracting for the Air Force, who purportedly told the contractor to comply with the unlawful demands of the COR, and, in return, the Government would compensate him for his costs. The contractor thereafter sought to recover costs arising from the delay that was caused by his cooperation with the criminal case against the COR, based upon an alleged implied-in-fact contract. 48 Fed. Cl. at 594-95. In rejecting this claim, the Court noted that the plaintiff had not "identif[ied] anything that the government promised under an implied-in-fact contract that was beyond the scope of the express contract." Id. at 599. Indeed, the alleged agreement "altered the terms of the express contract." Id. at 601. Accordingly, the Court found that the alleged implied contract was "inextricably connected to the subject matter of the express contract," and, as a matter of law, no implied contract existed. As in Starflight, ISN's

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ECP proposed to alter the terms of the contract; nothing in the ECP was beyond the scope of the written contract. Finally, in W.M. Schlosser, Inc. v. United States, 50 Fed. Cl. 147 (2001), the written contract at issue contemplated the pricing of field overhead on change orders as a percentage of cost, rather than as an extended cost per day, yet three change orders had included field overhead on a per diem basis. Subsequently, the contractor sought the same per diem rate for other change orders that extended the contract duration. Because the contract's changes clause explicitly provided for compensation for overhead, this explicit provision precluded an implied agreement on the same subject. 50 Fed. Cl. at 151. In this case, the contract explicitly provided that no "order, statement, or conduct of Government personnel" constituted a change of the contract unless it was "issued in writing and signed by the Contracting Officer." Def. App. 33; see also Def. App. 23. This explicit provision precludes the existence of an implied agreement to change any requirement of the contract. These cases all demonstrate that an implied agreement to implement the changes set forth in ISN's ECP does not exist. Respectfully submitted, PETER D. KEISLER Assistant Attorney General DAVID M. COHEN Director s/ Brian M. Simkin/ by Robert Kirschman BRIAN M. SIMKIN Assistant Director 4

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s/ Doris S. Finnerman DORIS S. FINNERMAN Trial Attorney Commercial Litigation Branch Civil Division Department of Justice Attn: Classification Unit 8th Floor 1100 L Street, N.W. Washington, D.C. 20005 Phone:(202) 307-0300 Fax: (202) 305-7643 Attorneys for Defendant

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ATTACHMENT A

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%225 P,007/008F-]84 Page 7 of 10

NAyhL REGIONAL CONTR~CT!NG CENTER,,

WAS~GTON

52.232-18 52.232-23 52.232-25 252.232-7004 252.232-7006 52.233-1

AV~R-ITY OF FUNDS
ASSIGNMENT OF CLAIMS DOD PROGRESS PAYMENT ~~ ~UC~ON OR SUSP~SION OF CO~CT PA~S ~N ~~G OF ~~ SEP 1992 DEC 1991 AUG 1992

DEC
DEC 1991 AUG 1989 FOR DEC 1991 APR 1984 DEC 1991 APR 1991 DEC 1991 DEC 1991 AUG 1987 APR 1994 DEC 1991 APR 1991 DEC 1989 AUG 19~

A~teraa~ I 52.233-3 ~OT~T 252.233-700~ C~~CA~ON 52.237-2 ~O~C~ON

A~

AW~ OF C~ OF ~~

~

~~~

B~~GS,

AGA~ST CO~O~~G 252.239-700~ PgO~CTION ~A~ONS 52.242-13 CO~CE 252.242-7000 ~STAW~ ~AG~ ~ ACCO~G 252.242-7004 ~~L SYS~ 52.243-1 C~G~~ P~CE 52.243-6 C~GE O~~ ACCO~G 252.243-7001 P~C~G OF CO~CT MOD~CA~ONS 52.244-1 S~CO~C~ ~~CE CO~CTS) 52.245-2 CON~CTS) 52.245-19 SPEC~ ~T ~~ 52.246-23 52.246-24 ~TATION OF ~~ MGH-VAL~

~ 1984 APR 1984 APR 1984 ~~L 252.24%7023 252.247-7024 ~S~~ON ~ ~~G S~ OF DEC 1991 DEC 1991

~S~RTA~ON NOT~CA~ON S~P~ BY VAL~ ~ATIO~

OF S~P~ BY OF ~S~RTA~ON S~ ~R CO~~C~

OF

~

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NAVA_L RF..G!ONAL

CONTRA~~_

C~R WASHINGTON

N __(D600,9~C~389

(b) Risk of Loss or Damage- Purchased Equipment (I) The Government relieved of all risk of loss or damageto the equipment, up to and is including the day prior to the ftrst day of a successful performanceperiod, except for

0)

loss or damagecaused by nuclear reaction, nuclear radiation, radioactive contamination, war, insurrection, civil strife, r~on, weaponsof war;
or

negligence on the part of the Government or its agents, provided, however, that the Govemmem shall be relieved of the liability for such risks of loss-or damagedue to negligence if any commercialcustomer of the Contractor is relieved of such liability under like cixcumsmnce.s. (2) If the Government liable for loss or damageof a machine, the Contractor shall is have the option to restore the machine to its previous condition, h~ which event the Govemmen~ shall pay the Contractor to perform such restoration at the Contractor's then-current prices, terms and conditions. If the Contractor elects not to re, tore the machine, the Government may, at its ownexpense, restore the machineto its previous condition. If, however, the machine is lost or damagedbeyond repair, the Government shall pay the Contractor the same price for the machine as the Government would have paid if it had purchased the machineon the day prior to the loss or damageunder the provisions of this contract. This clause shall govern risk of loss or damage, notwithstanding any other provisions of this contract relating to title, payment, or ownership. 1.45 PREPARATION OF VALUE ENGINEERING DFARS252.24~-7000 fDF~ 1991) ~GE PROPOSAI~,

Prepare Value Engineering change proposals, for submission pursuant m the value engineerhg clause of this contract, in the format prescribed by the version of MIL-STD-973 effect on the in date of contract award. 1.4~ ~GE PROPOSA.I~

(a) After conWac~ award, r.he Governmentmayml.icit, and the Contractor ~s encomaged i~dependently propose, changesto the equipment, software specifications, or or.her requirements of this conn-aCto These changes maybe proposed to save money, to improve performance, u~ save energy~ or ~ satisfy increas~ cla~ processLng requirements. However~~f proposed

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N(X)600-__ ~9 _4--C-0~8~ changesrelating to improvedperformance necessary to meet increased data proce.ssing are requirements the user, those requirements of shall not exce.ad the contract requirements more by than 25 %. If the proposed changesare acceptableto both parties, the Contractorshall submit a price proposalto the Government evaluation. Thoseproposedchangesthat are acceptable for to the Government be processed as modifications to the conwact. ~ O) This clause applies orfly to those proposedchangesidentified by the Contractor under proposal submk-wA pursuant to the provisions of this clause. At a minimum, following the informationshall be submittedby the Contractorwith each proposal: (I) A description of the difference(s) between existing contract requirement the and proposedchange(s), and the comparativeadvantagesand disadvantagesof each; (2) Itemiz~ requirementsof the contract wttich must be changedif flae proposal adopw.d, the proposed and revision to the contract for each such change; (3) Anestimate of the changesin performance cost, if any, that will result from and adoptionof the proposa/; (4) Anevaluation of the effects the proposed changewouldhave on collateral costs the Government, such as Govemment-furrtished property costs, costs of relar~ items, and costs of maintenance operation; and and (5) A statement of the time by whichthe changeorder adopting the proposal must issued so as to obtain the maximum benefits of the changesduring the remainder this of contract. Also, any effect on the conuact completion time or dehveryschedule shall be identified. (c) Change proposals subrnitte~ to the Connacting Officer shall be processed expeditiously. TheGovernment shall not be liable for proposal preparation costs or any delay in a~ting upon any proposal submittedpursuant to this clause. The Contractor has the right to withdraw,in whole or in part, any change proposal not accepted by the Government within the period specified in the changeproposal. Thedecision of the ContractingOfficer as to the acceptance of anysuchproposalunderthis contract shall be final andshall no~be subject r~ the "Disputes" clause of~scontract. (d) TheContractingOfficer mayac, cept any changeproposalsubmittedpursuanzto this clause by giving the Contractor wriuennotice thereof. This writmnnotice maybe giver~ by issuance of a modificationto this contract. Unlessand un~a modificationis executedu~ incorporate ~

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L$I AUTHORIZED DEVOTiOnS~ CLAUSE,S,