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Tuesday, May 10, 2011

Court of Federal Claims Rules on Requirements Contract

CoFC In Horn v. United States, the plaintiff is a dental hygienist who claims that the U.S. Federal Bureau of Prisons (the BoP) breached a contract for the provision of dental hygiene services that it entered into in 2005 with her.  According to the complaint, Horn was to perform such services at a federal prison in Marion, Illinois.  Horn alleges that the BoP breached the contract by failing to utilize her in accordance with the contract's estimated quantity schedule and that it was negligent in estimating its needs when it issued the contract solicitation.  She sued for lost wages.  The government moved for summary judgment, arguing that it was not bound by its estimate of services needed, and on May 3, 2011, the Court of Federal Claims granted the government's motion to dismiss.

The contract provided that Horn would provide up to a maximum of 1,560 one-hour dental hygiene sessions over the term of the contract.  Horn was thus entitled to a fixed price of $49.920.  However, the contract was specifically designated a requirements contract and contained the following provision:

(a) This is a requirements contract for the supplies or services specified, and effective for the period stated, in the Schedule. The quantities of supplies or services specified in the Schedule are estimates only and are not purchased by this contract. Except as this contract may otherwise provide, if the Government’s requirements do not result in orders in the quantities described as “estimated” or “maximum” in the Schedule, that fact shall not constitute the basis for an equitable price adjustment.

The contract further specified that the purpose of the contract's schedule was simply to estimate the BoP's requirements in excess of the services it furnished itself with its own in-house hygienist.

One month after Horn was awarded the contract, the BoP informed her that it was hiring an in-house hygienist and would not longer need her services.  She had provided only 130 sessions.  While Horn regarded this as a breach of contract, the BoP believed otherwise since it was not bound by the estimates provided in the contract.  Horn pointed to deposition testimony and argued that the BoP was in the process of hiring an in-house hygienist before it awarded the contract to her.  She argued that the BoP had breached a duty of good faith in contracting by failing to provide a reasonable estimate of the services for which it was contracting.

The Court first determined that, despite the unambiguous boilerplate provision q Dental_flossing uoted above, the contract in question was not a requirements contract because a requirements contract demands exclusivity and here the BoP committed itself only to use Horn for dental hygiene services beyond those that it could furnish itself.  According to the Court, the parties intended to form a requirements contract but failed to do so.  

The Court next considered whether the contract was enforceable as an indefinite quantities contract.  However, because the contract failed to specify a minimum quantity of services to be provided, it could not qualify as an indefinite quantities contract.  The Court thus concluded that the contract, being neither a requirements contract nor an indefinite quantities contract, was unenforceable for lack of mutuality and consideration.  The good news?  Horn gets to keep what she was paid for the 130 sessions she did perform. 

The Court then proceeds to lament the governments practice of continuing to use a standard form that appears to innocent third parties to be a contract when it is not.  According to the Court, the government has been on notice since 1929 that this kind of form contract is unenforceable.  

Oh, come on!!  Do justice, sir, do justice!  Cardozo would have no difficulty implying any terms necessary to render the contract enforceable.  It makes no sense to permit the government to use a form contract that will mislead people into thinking they are due a set wage -- the contract specified $49,920 -- and let it escape paying them that wage on the basis of legal doctrine so complex that the government's lawyers either cannot grasp it or are willfully exploiting it to take unfair advantage of their contracting partners. 

[JT]

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Comments

Now I ain't no lawyer, but if the contract was awarded at the "fixed price" of $49,920, then the BOP purchased, for a fixed sum, the availability of the hygienist to deliver a range of service not to exceed a certain quantity. "Mow my lawn, when directed, at least ten times and no more than fifty and I'll pay you a thousand dollars, fixed."

While apparently the agreement provided that Ms. Horn was "only entitled Ms. Horn to compensation for actual work performed", it seems like *her availability* was contemplated as "the actual work", for a "fixed price".

Otherwise, the agreement would have had a 'ceiling' or 'not to exceed' value, rather than a fixed price.

But otherwise, isn't the ambiguity being construed against the hygienist here? That's all the more surprising given the court's lengthy admonishment of the BOP at the end.

Posted by: Matt | May 10, 2011 6:25:48 AM

I hear you Matt. The difference here is that the contract provided no fixed minimum as in your hypothetical lawn-mowing contract. And the contract was ambiguous in that it provided a contract price but also specified that she was to be paid per dental cleaning.

Still, I am with you all the way on the argument that the ambiguity in the contract should be construed against the government in this case. Courts are supposed to construe ambiguous contracts against the drafter. However, the court in this case found that the contract was not ambiguous. The court's position is that the contract unambiguously could not mean what it was clearly intended to mean because courts have previously found form contracts like the one at issue here unenforceable. Still, I think it should have awarded Horn the damages she sought because the government breached the duty of good faith and fair dealing if it in fact entered into a contract that it had no intention of honoring. I haven't read the briefs or the deposition transcripts, but the opinion itself suggests a disputed issue of fact sufficient to survive the government's motion on that issue.

Posted by: Jeremy Telman | May 10, 2011 9:13:09 AM

For me, the author's conclusion, and subsequent comment, misses the mark in analyzing this Opinion.

It is difficult for me to see how one could claim the two terms of the contract analyzed by the Court are ambiguous. Rather, the two provisions are actually quite simple to interpret when using everyday, plain language. Once more, the contract term "fixed price" simply sets the contract's highest bound limit and is not expressly "purchased by this contract." (Compare against a cost reimbursement contract). Thus, calling for the application of contra proferentem is incorrect.

Once more, I am blown away by the author's position that "Cardozo would have no difficulty implying any terms necessary to render the contract enforceable." Do I detect a call for judicial activism? Or am I just being sensitive?

"Do justice, sir, do justice!" - This comment, a fair attempt at wit, is simply misplaced. I certainly agree the equities of this case dictate a different outcome. But, such is the case in the world of Government Contracts. This is not an issue that can be resolved in the judiciary ---- this is an issue that must be addressed by Congress. It is Congress who promulgates the Federal Acquisition Regulations - not the Courts, contracting officers, or agency attorneys.

In any event, the merits of this case are really quite simple. As the Judge is bound by precedent, the Federal Circuit quote on pg. 7 just about sums it up. I suggest reading more literature on Government Contracts before making bold proclamations regarding the merits of a Judge's Opinion. Perhaps, then, the blame will be placed on the proper shoulders....

Posted by: Matthew | May 10, 2011 4:27:38 PM

There is ambiguity in claiming that this is a requirements contract while it is not, and treating it as an IDIQ which it is not.

The BOP reserves for itself the benefits of both types of contracts and does so knowingly. Further, it avoids even a nominal stated minimum, likely with the foreknowledge that it is hiring additional staff in order to avoid the use of its chosen supplier. Talk about bad faith.

So while the opinion may be defensible, it seems we all agree that it is not just or equitable. It seems debatable to me, though, that judge used the avenues available to him to see that justice was done. 'Cuz it weren't.

Posted by: Matt | May 11, 2011 6:59:42 AM

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