Government Contracts Monitor

Note to Self: Make Sure You Actually Have a Contract Before You File a Claim

September 30, 2013

By: Eric Whytsell

A recent Armed Services Board of Contract Appeals (ASBCA) case serves as a reminder of the central role that contract performance can play in determining – or undermining – entitlement under a contractor’s claim. It also presents a laundry list of ill-advised actions that contractors should avoid.

TTF, L.L.C., ASBCA Nos. 58495, 58516 (Sept. 3, 2013), involved a total HUBZone set-aside for aircraft fuselage fairings by Defense Supply Center Richmond (DSCR), an element of DLA. In addition to the HUBZone set-aside, the RFQ required the fairings being acquired to be subjected to both (i) first article testing (FAT) by the contractor, with a report sent to the Defense Supply Center in Richmond, Virginia (DSCR); and (ii) Government-performed fit verification testing, to be scheduled based on contractor notice to the Government 14 days before the anticipated completion date. In November of 2008, TTF, L.L.C. (TTF) submitted a responsive quote representing its status as a HUBZone business, claiming it would be the manufacturer, and proposing pricing. As TTF’s quote was the only one DLA received, the agency negotiated the price downward and issued a unilateral purchase order (PO) on December 8, 2008.

Less than two weeks later, despite having claimed it would be the manufacturer of the fairings delivered under the PO, TTF subcontracted that task to ElteeTool & Die Co., which is not a HUBZone business concern. (Don’t Do That #1 – Instead, strictly adhere to set-aside requirements.) Eltee manufactured one fuselage fairing for TTF, which conducted first article testing and prepared a FAT report. However, instead of sending the report to DSCR as required by the PO, TTF sent the FAT report (and the first article) to Hunter Army Airfield in Savannah, Georgia, the site identified in the PO as the location of the Government fit test. (Don’t Do That #2 – Instead, follow the contract requirements to the letter.) This failure to follow the PO requirements prevented DSCR from receiving and beginning its evaluation of the report.

Over the next several months, TTF notified the contracting officer (CO) on the PO that its contract was being delayed because it was still waiting on the results of the agency’s evaluation of the FAT report. But because TTF never mentioned where it had sent the FAT report, it took over a year for the government to discover the report in Georgia and send it to DSCR for evaluation. (Don’t Do That #3 – Instead, provide relevant information to and cooperate with your customer to resolve problems.) Finally, on August 24, 2010, DSCR notified TTF that the FAT report had been conditionally approved, pending the outcome of the fit verification testing. A week later, the CO informed TTF that the first article had passed fit verification testing.

The CO then authorized TTF to proceed with the manufacture of the production quantity (37) of fuselage fairings in accordance with the delivery schedule, which required delivery within 150 days after fit test approval. In this case, the delivery due date was January 29, 2011.

Despite the requirement that notice of inability to perform due to Government delay be provided within 10 days, TTF waited until 2 weeks before the due date to request a 120-day extension of the delivery schedule “due to vendor delays.” (Don’t Do That #4 – Instead, provide timely notice of problems and submit requests in accordance with contract requirements.) When the CO issued a show cause notice in response, TTF did not reply. (Don’t Do That #5 – Instead, respond to Government correspondence and actively engage to resolve problems.) Seven months later in August 2011, however, TTF did finally ship some fuselage fairings, but only 14 of the required 37. (Don’t Do That #6 – Instead, meet the contract’s delivery requirements.)

Several weeks later in September 2011, TTF had still not delivered the remainder of the required fairings when it filed a “Complaint” with the CO asserting $66,326.65 of delay damages for 335 days of delay. Upon receipt of the Complaint, the CO realized that TTF had still not delivered the full quantity of 37 required under the PO and issued a modification cancelling the remaining quantity of fairings. Two months later, TTF submitted a claim to the CO asserting that the remaining quantity had been wrongly cancelled and that the Government should have extended the delivery date or terminated for convenience and paid TTF $46,557.06.

In 2013, the CO issued a final decision denying TTF’s wrongful cancellation claim and revoking acceptance of the 14 delivered fairings due to fraud, gross mistake amounting to fraud and/or latent defect because the PO was a HUBZone set-aside and TTF had subcontracted all manufacturing to a non-HUBZone business. Noting that TTF is already debarred, the CO also noted that the Government is exploring its options and the costs incurred as a result of TTF’s actions and will likely issue an affirmative Government claim based on those misleading actions.

The ASBCA denied TTF’s appeals. After recounting TTF’s multiple missteps in detail, the opinion by Judge Hartman notes that a unilateral PO that has not been executed by the contractor (like the one here) constitutes merely an offer to enter into a unilateral contract. As the ASBCA explained, such an offer involves a promise to buy certain items at a stated price if the offer is accepted by the act of delivering the goods in questions on or before the date specified in the offer. Where, as here, complete performance in accordance with the offer’s terms does not occur, the offer lapses by its own terms. Because TTF cited no evidence of any affirmative act on the part of DSCR that would serve to revive or extend the PO and the Board knew of none, the PO lapsed by its own terms.

TTF’s attempt to rely on its delivery of 14 fuselage fairings proved to be similarly misplaced. As the Board notes, TTF’s obtaining the PO was based in part on TTF’s represented that it would manufacture the fairings under this HUBZone set-aside, but TTF actually subcontracted the manufacturing to a non-HUBZone business. Thus, TTF knowingly delivered fairings not in accordance with the terms and conditions of the PO. By law, such a delivery cannot be considered a valid delivery.

Judge Hartman concludes, "In summary, the fairings PO lapsed by its own terms. When the CO issued a modification to the PO decreasing its amount to zero and cancelling the fairings production line item, TTF did not possess any contract with DSCR and the CO's amendment of the fairings PO simply constituted an administrative recognition of the fact the PO had lapsed by its terms. Because TTF did not timely deliver in accordance with the terms and conditions of the fairings PO, it has no 'contract' with DSCR pursuant to which it can pursue a claim for delay damages associated with first article approval.”

As highlighted above, TTF did many things wrong here. And while the Board’s decision focuses on two mistakes in particular that undercut its claims (failing to deliver on time and subcontracting the manufacturing to a non-HUBZone business), it is hard not to come away from this case thinking that TTF missed many opportunities to avoid this outcome.

Eric Whytsell is the attorney responsible for the content of this article.

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