Government Contracts Monitor

Indefinite Quantity Contracts -- Risks and Realism

September 8, 2014

Two recent decisions by the Armed Services Board of Contract Appeals (ASBCA) reinforce the importance of understanding both the limitations and risks of indefinite quantity (IQ) or indefinite delivery/indefinite quantity (IDIQ) contracts, and not being blinded by the large dollar numbers frequently contained in the maximum order provision of such contracts.

By way of background, and as the reader may know, FAR 16.504(a) states that “[a]n indefinite-quantity contract provides for an indefinite quantity, within stated limits, of supplies or services during a fixed period,” which are ordered by the issuance of delivery orders for individual requirements. These contracts require the Government to order the stated minimum quantity of goods or services. FAR 16.504(a)(1) & (2). However, the Government is not required to order anything above the specified minimum, and may order similar items or services from others. In this regard, an IQ contract is markedly different than a requirements contract, which requires the Government to place all orders for the subject item with the requirements contractor during the specified contract term. See FAR 16.503. An IQ contract also specifies a maximum. Importantly, while the contractor may be required to furnish up to the maximum, the Government is only required to order the minimum. The imbalance in the parties’ positions is aggravated by the FAR’s stated preference for making multiple awards to two or more sources for the same or similar services. FAR 16.504(c).

Two recent cases evidence some of the problems for contractors who hold IQ and IDIQ contracts.

Thefaf Al-Rafidain Contracting Co., ASBCA No. 59014, decided April 4, 2014, involved an Army IDIQ contract for concrete protective barriers, towers, T-walls and scud bunkers. The RFP contemplated the possibility of multiple IDIQ awards. The RFP, and awarded contract, guaranteed a minimum of $10,000 per award, and stated that “[t]he combined maximum contract value for all orders issued against all contracts shall not exceed $30,000,000.00.” During the base period, the Government ordered, and Thefaf performed, one delivery order totaling $87,500. Thefaf subsequently asked the Army why no further orders were issued, and submitted a certified claim seeking to recover $1,039,800 for costs incurred expanding and provided security for its facilities and getting ready to perform the anticipated large orders. The Army denied Thefaf’s claim, and moved for summary judgment when Thefaf appealed to the ASBCA. The Board made short shrift of Thefaf’s appeal, and granted summary judgment for the Army, stating that “the legal precedents . . . are well-established.” Specifically, the Government is not required to order or pay for anything more than the specified minimum quantity. The Board rejected Thefaf’s argument that the $10,000 minimum was inadequate and meaningless compared to the $30 million maximum. The Board also rejected the argument that the “s” in the phrase “all orders” required the contractor to prepare itself to cover the full $30 million in orders, stating that such phrase merely limited “all orders” under all contracts that might be issued, not just Thefaf’s, to the $30 million limit.

Commissioning Solutions Global, LLC, ASBCA No. 59254, decided August 17, 2014, involved an IDIQ contract issued by the Navy for hydraulic/lube oil flush services on Navy vessels. The contract was for a one-year base period, plus four one-year options. The contract specified a guaranteed minimum of $3,000 “through the issuance of one or more delivery orders within five years of contract award,” and a maximum of $100,729,000. The Navy issued requests for proposals for two orders during the base year, but subsequently cancelled the first RFP, and CSG withdrew its proposal for the second RFP, the terms of which CSG stated were inconsistent with its contract and contained unrealistic performance time requirements. The Navy exercised the first option year on October 30, 2013. CSG filed a certified claim in February 2014, seeking lost profits of $3,599,668.17 on anticipated requirements during the base year, $1,000,000 to restore equipment to original functionality and $5,000,000 for emotional stress, instability and family reputation. The Contracting Officer denied this claim. CSG appealed to the ASBCA, alleging that the Navy breached the contract by assigning or directing work to others that could have been ordered under CSG’s contract, and charging bad faith in using an IQ contract with a minimum of only $3,000 over five years instead of a “retainer type of contract,” which the Board interpreted to refer to a requirements contract. The Navy moved to dismiss. As in Thefaf, the Board quickly disposed of CSG’s claims, holding that the type of contract was clear and known, and that there was nothing prohibiting the Navy from ordering the subject services from other parties.

A common element in these cases is the large maximum values – $30 million in Thefaf, and more than $100 million in CSG – suggesting that the respective contractors focused on the potential maximum, and unwisely spent a lot to get ready for work that never materialized. Companies need to understand and fully assess the risks, as well as the potential benefits, in deciding whether to bid for indefinite-quantity contract work, and particularly before putting their own money at risk in preparing to perform work that may never come. Neither the Government, nor the Boards or courts, will have any sympathy or grant any relief in these circumstances.