This is a situation only a government contracts law geek could love. Where does an aggrieved contractor file a claim for improper termination and associated damages and fees involving supplies/services offered on the General Services Administration Supply Schedule? A divided U.S. Court of Appeals for the Federal Circuit attempted to answer this pithy legal issue in Sharp Electronics Corporation v. John McHugh, Secretary of the Army, No. 2012-1299 (Fed. Cir. Feb. 22, 2013). Despite the Court’s articulation of a “bright line rule,” there is no “one size fits all.” Instead, the answer depends on whether the case turns on an interpretation of the schedule contract or the ordering contract – an incredibly nebulous legal issue given the interplay between schedule contracts and ordering contracts.
Sharp Electronics Corporation (“Sharp”) entered into a Multiple Award Schedule Contract with the General Services Administration (“GSA”) for the provision of leasing certain office equipment. The Army issued a delivery order to Sharp, providing for a lease of a Base Year and three Option Years. The Army fully exercised Option Years One and Two, but only exercised a portion of Option Year Three. Sharp claims that the Army’s failure to fully exercise Option Year Three was a premature cancellation, entitling Sharp to termination fees under its schedule contract.
Sharp filed its $64,928.63 claim with the Army Contracting Officer (“CO”). The Army CO did nothing with Sharp’s claim. Viewing the Army CO’s action as a deemed denial of the claim, Sharp appealed to the Armed Services Board of Contract Appeals (“ASBCA”). On appeal, the ASBCA questioned whether it had jurisdiction to hear the case and asked whether the claim should have been initially submitted to the GSA CO, instead of the Army CO. Both Sharp and the Army argued that the ASBCA had jurisdiction because the Army CO was the proper CO to hear the claim. The ASBCA disagreed, however, holding that the GSA CO was the appropriate CO to hear the claim. Finding the Army CO lacked authority to resolve the dispute, the ASBCA dismissed Sharp’s appeal. Sharp appealed to the Federal Circuit.
A divided Federal Circuit upheld the ASBCA’s determination of its own jurisdiction and attempted to articulate when and under what circumstances claims must be submitted to the GSA CO or the ordering agency CO. The majority noted that the issue turned on FAR 8.406-6 and ruled that
the FAR creates a bright-line rule — all disputes requiring interpretation of the schedule contract go to the schedule CO, even if those disputes also require interpretation of the order, or involve issues of performance under the order. . . . Requiring that all schedule contracts must be construed by the GSA CO maintains a clear, predictable allocation of jurisdiction between agency contracting offices and GSA.
Slip Op. at 11. The majority also held that “the ordering CO [had] authority to decide contract disputes, so long as the disputes do not require interpretation of the schedule contract.” Id. at 14.
Judge Plager, in dissent, faults the majority’s new “bright line rule” for being too rigid and lacking common sense. Judge Plager notes that FAR 8.406-6 “does little to solve the conundrum of which contract – or contracting officer – to give priority when the terms and conditions of the order contract and the schedule contract are in para materia, literally as well as legally, and when the one may expressly incorporate the other.” Slip Op. Dissent at 10. So, instead of the majority’s bright line rule, Judge Plager prefers a “rule that gives the agency CO initial responsibility to decide the case presented to it unless it is necessary to invoke the special expertise of the schedule CO to construe the schedule contract provisions. . . . On the other hand, if the dispute directly raises the terms and conditions of the schedule contract and cannot be decided without a determination of the meaning of those terms and conditions, then the agency CO should refer the dispute to the appropriate schedule CO.” Id. at 15 (emphasis in original).
The majority’s bright line rule is likely to cause some confusion in the near future, as additional and subsequent caselaw is developed clearly defining when a claim is, in any way, based on the schedule contract versus the ordering contract. Only the world of federal government contracting could be so confusing and full of traps for the unwary (and even the educated law geek). Absent some clearly needed change to the FAR, we have not heard the last word on this issue – so be very wary whenever filing claims involving services/supplies on the GSA Schedule.
Michael J. Schrier is the attorney responsible for the content of this article.