Contract types

CAFC Revises the "Delta" That IDIQ Contractor Is Entitled to When Government Fails to Order the Minimum

Last year's Year in Review (1) commented on Delta Construction International, Inc. (Delta), (2) the first board decision to endorse the view that a contractor may receive more than just anticipated profits when the government breaches an Indefinite-Delivery, Indefinite-Quantity (IDIQ) contract (3) In Delta, the Armed Services Board of Contract Appeals (ASBCA) found that the minimum guarantee served as the government's consideration for the contractor's promise to maintain a minimum daily workload capability level. Consequently, the board held that the contractor was entitled to the difference between that guaranteed minimum and the amount the government had ordered. (4)

Over the past year, several decisions have followed the precedent established in Delta (5) The government, recognizing that these decisions could represent the tip of an iceberg, appealed the ASBCA's Delta decision to the Court of Appeals for the Federal Circuit (CAFC). The CAFC reversed, noting that "the general rule is that damages for breach of contract shall place the wronged party in as good a position as it would have been in, had the breaching party fully performed its obligation." (6) The CAFC found that the board's decision violated this rule; paying Delta the entire difference would overcompensate it because Delta would have incurred additional costs if it had actually been ordered to perform the additional work. (7)

Before the CAFC, Delta argued that the court's decision in Maxima Corp. v. United States (8) had established an exception to the general rule regarding the calculation of damages, at least when the contract required a minimum capability. The CAFC disagreed, noting that

   the result of the court's decision in Maxima
   was that the contractor would retain the
   amount the government had paid it, representing
   the difference between the guaranteed
   minimum and the amount of work the
   government had ordered. That resulted,
   however, not because the court approved the
   basis of payment (it did not address that
   issue), but because the court found improper
   the method the government used to recapture
   the payment (retroactive termination for convenience). (9)

Exactly what amount of damages would put Delta in as good a position as it would have been in, had the United States fully performed its obligation, remains unanswered. (10)

I've Heard of Avoiding Lawn Mowing, But ...

One case that followed the ASBCA's Delta ruling was Howell v. United States. (11) Howell involved ten separate Farmers Home Administration (FmHA) IDIQ contracts for lawn mowing and grounds maintenance at various FmHA properties in Florida. (12) Each of the contracts incorporated the "Indefinite Quantity" clause found at FAR section 52.216-22, (13) as well as a special clause in Section I, both of which required the government to order "at least the quantity of ... services designated in the Schedule as the 'minimum.'" (14) Unfortunately, nothing in any of the contracts' schedules expressly established this minimum quantity of services. The statements of work found in Section C of the contracts, however, provided that "[a]dditional mowing of the farm acreage will be decided by the [contracting officer's representative] but shall not be less than twice during the [twelve]-month contract period." (15)

When the government failed to order any services under seven of these ten contracts, Howell, the contractor, submitted an invoice for $93,288 for services which it believed these contracts required the government to order. (16) Howell calculated this amount by concluding that it was entitled to cut each property twice and perform an initial service on each; according to Howell, the statements of work required it to perform additional mowing at least twice after the initial service call. (17) The contracting officer refused payment on these invoices, but acknowledged that the government had committed to ordering a minimum quantity. The contracting officer unilaterally established these required minimums at between $200 and $2000 for each of the seven contracts in which the government had not ordered any services, a total of $5100. The contractor filed suit to recover the difference between its own computations for the minimums and the $5100 it received from the government. (18)

At trial, the government argued that each contract was invalid and 'unenforceable because each failed to contain a guaranteed minimum. (19) The Court of Federal Claims (COFC) disagreed, observing the common law principle which indicates that "[w]hen the parties to a bargain sufficiently defined to be a contract have not agreed with respect to a term which is essential to a determination of their rights and duties, a term which is reasonable in the circumstances is supplied by the court." (20) The court then determined that the parties had intended to form a binding agreement that did include some guaranteed minimum. (21)