Nonappropriated Funds contracting

Army Lawyer, Jan-Feb, 2003

Pizza! Pizza!

In Pacrim Pizza Co. v. Secretary of the Navy, (1) a Marine Corps Morale, Welfare, and Recreation (MWR) non-appropriated fund instrumentality (NAFI) awarded a fast food services contract to the plaintiff, Pacrim. After the contracting officer terminated the contract for default, Pacrim appealed the decision to the Armed Services Board of Contract Appeals (ASBCA). The ASBCA sustained the termination, and Pacrim appealed to the U.S. Court of Appeals for the Federal Circuit (CAFC), pursuant to a clause in the contract declaring that the CAFC had jurisdiction under the Contract Disputes Act (CDA). (2) The CAFC acknowledged that it had jurisdiction over appeals from agency boards of contract appeals when the Contract Disputes Act (CDA) applied. (3) The CDA itself, however, limits the court's jurisdiction to covered NAFI contracts of the armed forces exchanges; therefore, the CAFC held that the nonappropriated funds doctrine deprived it of jurisdiction. (4) As the court stated, "A NAFI may be a covered contracting entity under the Contract Disputes Act if it is closely affiliated with a post exchange and meets a three part test." (5) The court held that the contract failed to meet the "threshold requirement that the NAFI be closely affiliated with a post exchange." (6) The contract's declaration of jurisdiction was not controlling. The CAFC found that "only Congress can grant waivers of sovereign immunity; parties may not by contract bestow jurisdiction on a court." (7) The CAFC dismissed the appeal, holding that the enumerated exchange exceptions excluded the MWR entity. (8)

AAFES, Yes; Other-Than-Contract Claims, No.

The CAFC recently affirmed the U.S. Court of Federal Claims (COFC) in Taylor v. United States, (9) holding that the court lacked jurisdiction over a suit by former employees of the Army and Air Force Exchange Services (AAFES). In Taylor, the plaintiffs retired early from AAFES during the 1990 military drawdown. The plaintiffs argued that a statute authorized the use of appropriated funds for NAFI separation pay. At the time, 5 U.S.C. [section] 5597 authorized the Secretary of Defense to pay a voluntary separation incentive of up to $25,000 "to encourage eligible employees to separate from the service voluntarily." (10) AAFES refused to pay the separation pay. The plaintiffs sued, alleging that 5 U.S.C. [section] 5597 waived sovereign immunity. (11)

While "Congress amended the Tucker Act (12) to authorize contract claims against AAFES and certain other NAFIs, the plaintiffs acknowledged their claim was not based in contract." (13) Absent an express statute waiving sovereign immunity, the CAFC affirmed the COFC's holding that it lacked jurisdiction. (14) The CAFC held that "[section] 5597 did not expressly extend to the NAFI employees." (15) The court also stated that although a Department of Defense (DOD) memo later authorized "NAFI separation payments from appropriated funds, ... without express congressional authorization, the DOD memo was irrelevant to the jurisdictional issue because only an express statute may waive the sovereign immunity of the United States." (16) The CAFC affirmed the COFC's dismissal. (17)

UNICOR Is a NAFI

Last year, the CAFC affirmed a COFC holding that it lacked jurisdiction over a self-funding government agency. (18) This year, in Aaron v. United States, (19) the COFC held that Federal Prison Industries, Inc. (UNICOR) is a NAFI, and that the court therefore lacked jurisdiction over claims against UNICOR. In Taylor, UNICOR employees alleged that UNICOR violated the Federal Employees Pay Act (20) (FEPA) by failing to pay overtime for pre-shift and post-shift activities. (21) The COFC held that UNICOR is a NAFI and that the "[c]ourt's jurisdiction under the Tucker Act (22) must be confined to cases in which appropriated funds can be obligated." (23) The COFC found that Congress clearly intended to keep the financial obligations of UNICOR separate from the general treasury.

The COFC concluded it that lacked jurisdiction under the Tucker Act because the non-appropriated fund exception applied. (24) The court dismissed the plaintiffs' appeal because no express language in the FEPA waived the bar of sovereign immunity. (25)

The COFC reiterated that UNICOR is a NAFI in Core Concepts of Florida, Inc. v. United States. (26) In Core Concepts, UNICOR terminated the plaintiff's requirements contract. (27) The government moved to dismiss the plaintiff's claim, based on the ruling in Aaron. (28) The COFC reviewed the relevant statutes and their legislative history, and concluded that Congress "decreed that UNICOR's operation employs funds derived from the sale of products or byproducts by UNICOR or services of federal prisoners." (29) The COFC held that it lacked jurisdiction and granted the government's motion to dismiss. (30)

Federal Retirement Thrift Investment Board Is Not a NAFI

In American Management Systems, Inc. v. United States, (31) the COFC held that the Federal Retirement Thrift Investment Board (Thrift Board) is not a NAFI. (32) In 1997, the Thrift Board awarded a $30 million contract to American Management Systems (AMS) to design, develop, and implement an automated record-keeping system. The Thrift Board terminated the contract after numerous delays and substantial cost increases. When AMS challenged the termination, the Thrift Board moved to dismiss. (33) The Thrift Board asserted that it was a NAFI, arguing that it does not receive any appropriations, and that it pays its expenses from private funds. The COFC disagreed, finding that the Thrift Board receives appropriated funds and therefore is not a NAFI. (34)