Practice FocusReining in War Profits — The War Profiteering Prevention Act of 2007

The issue of excessive profits received by private contractors working for the government during wartime is certainly not new.1 In December 1778, George Washington wrote: “No punishment in my opinion is too great for the man who can build his greatness upon his country’s ruin.”2 The war in Iraq, unfortunately, has again brought back this centuries-old issue. In a statement made on June 19, 2007, before the House Committee on the Judiciary Subcommittee of Crime, Terrorism, and Homeland Security, Thomas F. Gimble, the principal deputy inspector general of the Department of Defense (“DoD”), noted that since the start of the war in Iraq, the Defense Criminal Investigative Services office of the DoD Inspector General had conducted 83 investigations of government contractors performing war-supporting contracts in areas such as corrupt business practices, loss of funds through contract fraud and loss of Iraqi military equipment. It had also conducted 56 investigations related to the war effort in other areas of war profiting, contract fraud and contract corruption.3 These investigations have resulted in $9.84 million paid in restitution, plus hundreds of thousands of dollars in fines, penalties, forfeitures and seizures.4

There is now proposed legislation to discourage and punish excessive war profits that will alter the course of government contracting. The introduction of the War Profiteering Prevention Act of 2007 by Senator Patrick Leahy (D-Vermont), however, is not the first time Congress has enacted legislation to rein in war profiteers.

1 Robert Braucher, The Renegotiation Act of 1951, 66 Harv. L. Rev. 270, 272 (1952).2 13 George Washington, The Writings of George Washington from the Original Manuscript

Sources 383 (John C. Fitzpatrick ed.1944).3 Hearing on War Profiteering and other Contractor Crimes Committed Overseas Before the

House Committee on the Judiciary Subcommittee on Crime, Terrorism, and Homeland Security, 110th Cong. 9 (2007) (statement of Thomas F. Gimble, Principal Deputy Inspector General, Department of Defense).

4 Id.

gOVERNMENT CONTRACTS LAW ReviewNovember 2007

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Contents

Practice FocusReining In War Profits – The War Profiteering Prevention Act of 2007 1

Recent DevelopmentsProposed Amendments to the Federal Acquisition Regulations 6

Office of the National Ombudsman 8

Case NotesIn the Matter of: SDV Solutions, Inc. re: Four Points Technology, LLC 9

Distributed Solutions, Inc. v. United States 10

Appeal of Honeywell International, Inc. 11

Highlights 12

This advisory is published by Alston & Bird LLP to provide a summary of significant developments to our clients and friends. It is intended to be informational and does not constitute legal advice regarding any specific situation. This material may also be considered attorney advertising under court rules of certain jurisdictions.

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Excessive War Profits — A Twentieth Century Approach

In World War I, the government used excess profits taxes, price control and “cost-plus” contracts to limit excess profits.5 Cost-plus contracts set the amount of profits received by a contractor at a certain percentage of actual costs.6 This proved ineffective as contractors began increasing costs in order to increase profits, thus reducing efficiency.7 Cost-plus contracts were then replaced with “cost-plus-a-fixed-fee” contracts, which fixed the fee based on an advance estimate rather than actual costs.8

Between World War I and World War II, numerous bills and resolutions related to managing profits in future wars were introduced.9 In 1934, Congress passed the Vinson-Trammell Act, which required Navy contractors for vessels and aircraft to pay the government profits in excess of 10 percent of the contract price.10 Several years later, the Second Revenue Act of 1940 was enacted, which imposed a tax on excess profits and partially suspended the Vinson-Trammell Act.11

A major impetus for a change in the law was created by the Supreme Court’s 1942 decision in United States v. Bethlehem Steel Corp.12 In Bethlehem, the government challenged 13 contracts made with the Bethlehem Shipbuilding Corporation to build ships.13 The contracts were negotiated in 1917 and 1918 when it was “necessary for the United States to build the greatest possible number of ships in the shortest possible time.”14 The actual cost to Bethlehem of building the ships was approximately $109 million.15 The total profits claimed by Bethlehem under the contracts were approximately $24 million, slightly more than 22 percent of the estimated cost.16 As part of the suit, the government asserted that Bethlehem had a duty to “perform the contracts fairly, honestly and economically ‘in the shortest practicable time’ for no more than a ‘fair and reasonable profit’ and that any provisions in the contract for payment of more are ‘void and unenforceable.’”17 The Court denied relief to the government, affirming the judgments of the lower courts.18 Denying the government’s arguments, the Court reasoned: “If the Executive is in need of additional laws by

5 Braucher, supra note 1, at 272.6 Id.7 Id.8 Id.9 Id. at 273.10 Id.11 Id. at 274.12 315 U.S. 289 (1942).13 Id. at 292.14 Id.15 Id.16 Id. at 293-94.17 Id. at 295.18 Id. at 309.

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which to protect the nation against war profiteering, the Constitution has given to Congress, not to this Court, the power to make them.”19

In response to the Court’s decision, in 1942 Congress enacted the Renegotiation Act. Renegotiation immediately became the principal device utilized by the government throughout World War II to limit profits on war contracts.20 The 1942 act essentially gave the government unilateral power to re-price war contracts during or after performance, once better cost information was available and the government’s bargaining position was stronger.21 In Lichter v. United States, the Supreme Court, emphasizing the broad war powers of Congress, upheld the constitutionality of the Renegotiation Act of 1942.22

Congressional Attempts to Rein in War Profits — The Renegotiation Act of 1951

In March of 1951, after the invasion of the Korean Republic and the escalation of the Korean War, Congress enacted the Renegotiation Act of 1951. This act was premised on the recognition that “accurate pricing and the control on contractors’ profits cannot be achieved during a build-up of production for defense of war.”23 Thus, the purpose of the Renegotiation Act of 1951 was to “control by recapture the skyrocketing profits on goods produced for war and national emergency without impeding either the volume or efficiency of that production.”24

The Renegotiation Act of 1951 was “an elaborate recodification of the law of renegotiation,” and for the first time a renegotiation board (“Board”), independent of procuring agencies, was entrusted to examine excessive profits on government contracts.25 The act covered contracts and related subcontracts made with the Department of Defense, the Army, the Navy, the Air Force, the Department of Commerce, the General Services Administration, the Atomic Energy Commission, the Reconstruction Finance Corporation, the Canal Zone Government, the Panama Canal Company, the Housing and Home Finance Agency and “such other agencies of the government exercising functions having a direct and immediate connection with the national defense as the President shall designate.”26 The act also contained a floor, which exempted contracts from renegotiation when the aggregate of the amounts received during a fiscal year by the contractor or subcontractor fell below $250,000.27

19 Id.20 Braucher, supra note 1, at 277.21 Nicholas Parrillo, “The Government at the Mercy of its Contractors”: How the New Deal Lawyers Reshaped the

Common Law to Challenge the Defense Industry in World War II, 57 Hastings L.J. 93, 100-01 (2005).22 334 U.S. 742, 793 (1948).23 Mason & Hanger-Silas Mason Co. v. United States, 518 F.2d 1341, 1346-47 (Ct. Cl. 1975).24 Id. at 1347.25 Braucher, supra note 1, at 280.26 Renegotiation Act of 1951, ch. 15, §103(a), 65 Stat. 7.27 Id. §105(f).

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The act covered three classes of subcontracts. The first class of subcontracts covered “any purchase order or agreement…to perform all or any part of the work, or to make or furnish any materials, required for the performance of any other contract or subcontract,” except for agreements to furnish office supplies.28 The second class covered “any contract or arrangement covering the right to use any patented or secret method, formula, or device for the performance of a contract or subcontract.”29 The third class of subcontracts related mainly to contracts with brokers and manufacturers’ agents,30 and was subject to a floor of $25,000 rather than $250,000. The class included any contract or arrangement under which “(A) any amount payable is contingent upon the procurement of a contract or contracts with a Department or of a subcontract or subcontracts; or (B) any amount payable is determined with reference to the amount of a contract or contracts with a Department or of a subcontract or subcontracts; or (C) any part of the services performed or to be performed consists of the soliciting, attempting to procure, or procuring a contract or contracts with a Department or a subcontract or subcontracts.”31 This class excluded “a contract or arrangement between two contracting parties, one of whom is found by the Board to be a bona fide executive officer, partner, or full-time employee of the other contracting party.”32

The act also contained seven mandatory exemptions. Exempted were: (1) contracts with “any Territory, possession, or State, or any agency or political subdivision thereof, or with any foreign government or any agency thereof”; (2) contracts for certain agricultural commodities; (3) contracts “for the product of a mine, oil or gas well, or other mineral or natural deposit, or timber, which has not been processed, refined, or treated beyond the first form or state suitable for industrial use”; (4) certain contracts with a common carrier for transportation or with a public utility; (5) certain contracts with tax-exempt organizations; (6) “any contract which the Board determines does not have a direct and immediate connection with the national defense”; and (7) “any subcontract directly or indirectly under a contract or subcontract” that falls under one of the other six exceptions.33 In addition, the act authorized the Board to exempt five more classes of contracts in its discretion. These included (1) “any contract or subcontract to be performed outside of the territorial limits of the continental United States or in Alaska”; (2) “any contracts or subcontracts under which, in the opinion of the Board, the profits can be determined with reasonable certainty when the contract price is established”; (3) “any contract or subcontract or performance thereunder during a specified period or periods if, in the opinion of the Board, the provisions of the contract are otherwise adequate to prevent excessive profits”; (4) “any contract or subcontract the renegotiation of which would jeopardize secrecy required in the public interest”; and (5) “any subcontract or group of subcontracts not

28 Id. §103(g)(1).29 Id. §103(g)(2).30 Braucher, supra note 1, at 283.31 Renegotiation Act of 1951, ch. 15, §103(g)(3), 65 Stat. 7.32 Id. §103(g)(3).33 Id. §106(a).

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otherwise exempt from the provisions of this section, if, in the opinion of the Board, it is not administratively feasible in the case of such subcontract or in the case of such group of subcontracts to determine and segregate the profits attributable to such subcontract or group of subcontracts from the profits attributable to activities not subject to renegotiation.”34

Under the act, “excessive profits” was defined as “the portion of the profits derived from contracts with the Departments and subcontracts which is determined in accordance with this title to be excessive. In determining excessive profits favorable recognition must be given to the efficiency of the contractor or subcontractor, with particular regard to attainment of quantity and quality production, reduction of costs, and economy in the use of materials, facilities, and manpower.”35 In addition, the act stated that six factors should be taken into account: “(1) Reasonableness of costs and profits, with particular regard to volume of production, normal earnings, and comparison of war and peacetime products; (2) The net worth, with particular regard to the amount and source of public and private capital employed; (3) Extent of risk assumed, including the risk incident to reasonable pricing policies; (4) Nature and extent of contribution to the defense effort, including inventive and developmental contribution and cooperation with the government and other contractors in supplying technical assistance; (5) Character of business, including source and nature of materials, complexity of manufacturing technique, character and extent of subcontracting, and rate of turn-over; (6) Such other factors the consideration of which the public interest and fair and equitable dealing may require, which factors shall be published in the regulations of the Board from time to time as adopted.”36 “No single fact or factor is determinative. All the facts must be taken into account, all the statutory factors considered.”37

War Profiteering Act of 2007

Similar to the goals of the renegotiation acts to control excessive war profits, the War Profiteering Act of 2007 (“WPA”) seeks to amend the federal criminal code to prohibit profiteering and fraud by levying more stringent penalties on such illegal actions. The WPA provides in relevant parts that it shall be a violation of law for any person involved in the performance of a contract “in connection with a war, military action, or relief or reconstruction activities within the jurisdiction of the United States Government,” who “ knowingly and willfully” defrauds or attempts to defraud the government or “materially overvalues any good or service with the specific intent to defraud and excessively profit from the war, military action, or relief or reconstruction activities.”38 A contractor found to have overcharged the government may be fined

34 Id. §106(d).35 Id. §103(e).36 Id.37 Mason, 518 F.2d at 1348.38 S. 119, 110th Cong. (2007); see also H.R. 400 (2007).

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the greater of $100,000 or not more than twice the gross profits or other proceeds derived from the overvaluation.39 In addition, such parties may also be subject to imprisonment for up to not more than ten years.

Conclusion

As proposed, the WPA provides little guidance on what constitutes “excessive profits” or how adjudicative bodies will make such a determination. Cases interpreting the Renegotiation Act of 1951 may shed some light on the possible elements or factors that may be used to determine “excessive profits.” As such, contractors should review their calculations of profit now, in consultation with inside or outside counsel, to ensure conformity with those factors related to excessive profits in the Renegotiation Act of 1951 cases, because regardless of whether the WPA ultimately is signed into law, Congress has signaled increased scrutiny of war profits such that a preemptive response now may prevent future liability.

Recent DevelopmentsProposed Amendments to the Federal Acquisition Regulations

Proposed amendments to the Federal Acquisition Regulations (“FAR”), if adopted, will impose additional ethical burdens on companies wishing to do business with the federal government. This past February, the General Services Administration (“GSA”), the Department of Defense (“DoD”), and the National Aeronautical and Space Administration (“NASA”) issued proposed rules that amend the FAR by adding a new section to the Improper Business Practices and Personal Conflicts of Interest rules contained in FAR Part 3. See 72 Fed. Reg. 7588 (Feb. 16, 2007).

The proposed rules require contractors receiving contract awards in excess of $5 million to display the Office of Inspector General’s (“OIG”) “fraud hotline poster” at company work locations in the United States and on Web sites maintained by the company to provide information to its employees. For contracts less than $5 million, awarding agencies may, but are not required to, mandate the contractor’s posting of the OIG fraud hotline poster.

In addition, the proposed new rules would require contractors who receive contracts in excess of $5 million and with a performance period of 120 days or more, to:

Within 30 days after contract award, prepare a written code of ethics and • business conduct; and

Within 90 days after contact award, establish an employee ethics and • compliance training program and internal control system proportionate to the size of the company and extent of its business with the federal government.

39 Id.

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To satisfy the proposed rules’ requirements, the internal control system should provide for:

Periodic reviews of company business practices, procedures, policies and • internal controls for compliance with the contractor’s code of ethics and business conduct and the special requirements of government contracting;

An internal reporting mechanism, such as a hotline, by which employees • may report suspected instances of improper conduct, and instructions that encourage employees to make such reports;

Internal and/or external audits;•

Disciplinary action for improper conduct;•

Timely reporting to appropriate government officials of any suspected • violations of law in connection with government contracts or any other irregularities in connection with such contracts; and

Full cooperation with any government agencies responsible for either • investigation or correction actions.

Regardless of value, the proposed rules would not apply to contracts let for the acquisition of commercial items under FAR Part 12, or contracts performed outside of the United States.40 Noncompliance with these new requirements, if passed, could subject the contractor to: (1) withholding of contract payments; or (2) loss of award fee, consistent with the award fee plan, for the performance period in which the government determined the contractor to be non-compliant, in addition to other traditional remedies for contractor default and noncompliance.

Notably, the new proposed FAR rules makes no mention of the U.S. Sentencing Guidelines that, since 1991, have prescribed what the Sentencing Commission believes constitutes an effective ethics and compliance program. In its comments on the proposed rules, the Department of Justice has said that the Sentencing Guidelines “should serve as the baseline standard for a contractor’s code of ethics and business conduct,” and also recommended that any new FAR provisions dictating standard of business conduct should reference the guidelines to ensure that “the federal government speaks with one voice on corporate compliance.” Given the Justice Department’s prominent role in the investigation and prosecution of corporate malfeasance, it is likely that any final FAR rule will refer to the Sentencing Guidelines as the appropriate standard for business ethics programs.

40 The proposed rules also provide that the new business ethics and conduct requirements would apply to subcontracts let at the same value thresholds as prime contracts (i.e., $5 million). Like prime contracts, the new proposed rules would not apply to (1) subcontracts let for the acquisition of commercial items, and (2) subcontracts performed outside of the United States.

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The new FAR rule appears to be the latest evidence of a continuing trend toward common standards — dictated by congressional legislation or government regulations — for prudent corporate governance. Comments on the proposed rules were originally due April 17, 2007, but were subsequently extended to May 23, 2007. Several organizations submitting comments have expressed concern that the requirements will be excessive and overly burdensome for certain entities.41 A final edition of the rules has not been published, but is expected shortly.

State and local governments, which typically mirror the federal procurement model and often follow suit with their own brand of acquisition reform, can also be expected to now issue similar mandates for contractor ethics programs. All told, any company that relies on government contracts should be making plans to get its compliance house in order or risk losing an important customer. On the up side, a company that establishes a sound business ethics program, whether its business is dedicated to government or commercial enterprises, is likely to reap the benefits of this prudent investment in corporate governance.

Office of the National Ombudsman

The Small Business Administration has created the Office of the National Ombudsman and Regional Regulatory Fairness Boards as a sounding board for comments or questions from small businesses about particular compliance and enforcement decisions made by federal agencies that affect small businesses. When a request or comment is submitted to the National Ombudsman regarding compliance or enforcement actions taken by an agency, the Ombudsman requests a high-level agency review of the action to ensure such actions were fair and appropriate. The National Ombudsman also solicits testimony from small businesses through hearings and roundtable discussions, which is then used in preparation of a report to Congress concerning the issues raised by and affecting small businesses. Additional information about the SBA’s Office of the National Ombudsman can be found at http://www.sba.gov/aboutsba/sbaprograms/ombudsman/index.html.

Case NotesContractor’s Lack of Proof That Principal Possessed Experience and Qualifications Fatal to Status as Service-Disabled Veteran

In the Matter of: SDV Solutions, Inc. re: Four Points Technology, LLC, appellant SDV Solutions, Inc., (“SDV”) protested the Service-Disabled Veteran-Owned Small Business Concern (“SDVO SBC”) status of Four Points Technology, LLC, (“Four Points”) after Four Points was awarded a contract by the U.S. Department of the Treasury, Financial Management Services (“FMS”). SDV’s protest challenged the SDVO SBC statutes of Four Points on grounds that Four Points was not

41 Thomas M. Sullivan, RE: FAR Case 2006-007, Contractor Code of Ethics and Business Conduct, May 21, 2007, available at: http://www.sba.gov/ADVO/laws/comments/gsa07_0521.html; see also Michael A. Hordell, Re: FAR Case 2006-007, Contractor Code of Ethics and Business Conduct; 72 Fed. Reg. 7588 (Feb. 16, 2007), April 17, 2007, available at: http://www.abanet.org/contract/federal/regscomm/conflicts_002.pdf.

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“owned or controlled by” an eligible service-disabled veteran. The Small Business Administration (“SBA”) Director for Government Contracting (“DGC”) denied SDV’s protest and found Four Points met the SDVO SBC eligibility requirements at the time of its offer for the solicitation because a service-disabled veteran in fact owned and controlled Four Points under “the totality of the evidence” presented. SDV appealed. On appeal, the issues before the SBA’s Office of Hearings and Appeals (“OHA”) were: (1) whether the DGC’s status protest determination was based on clear error of fact or law, and (2) whether the DGC had authority to issue a size determination as part of an SDVO SBC status protest determination. The SBA OHA found that the status protest determination was based on clear error and that the DGC did not have authority to issue a size determination; accordingly, the OHA reversed the determination.

The OHA found that while Mr. Gilchrist was a service-disabled veteran and in fact owned 51% of Four Points as required for SDVO SBC status, there was no evidence in the record concerning Mr. Gilchrist’s experience or qualifications to “run” Four Points, such as a resume or curriculum vitae. The OHA found that the DGC committed clear error by failing to assess Mr. Gilchrist’s managerial experience in making its determination on Four Points’ SDVO SBC status.

The OHA’s decision was based on its interpretation of 13 C.F.R. § 125.10(b), which mandates a two-step process when a specific protest is made concerning control of an alleged SDVO SBC. Under this rule, the DGC must find: (1) the concern is controlled by the SDV; and (2) the SDV has “managerial experience of the extent and complexity needed to run the concern.” The OHA noted that the “requirement for dual or conjunctive finding contained in 13 C.F.R. 125.10(b) is understandable” because “if [the SBA] did not require SDVs to have experience sufficient to run a concern[,]” then the SBA would “have created an opportunity to establish a fiction designed to gain award of SDVO SBC set-aside contracts and that could weaken the integrity of the SDV program.” The OHA further found that only an Area Office within SBA’s Office of Government Contracting may issue a formal size determination. Accordingly, “it was clear error for the DGC to find Four Points to be a small concern under the applicable NAICS code.” Consequently, the OHA ordered that the FMS contracting officer may not count award of the contract to an SDVO SBC and Four Points cannot submit another bid as a SDVO SBC on future SDVO SBC procurement. SBA No. VET-116 (June 29, 2007).

Court of Federal Claims Denies Subcontractor Protest Claim

In Distributed Solutions, Inc. v. United States, the Court of Federal Claims reaffirmed its position that, absent proof that the prime contractor is acting as the “purchasing agent” for the federal government, subcontractors do not have a right to protest procurement decisions on federal government subcontracts.

In this matter, the General Services Administration (“GSA”) awarded indefinite delivery/ indefinite quantity Millennia Government Wide Acquisition Contracts

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(“GWAC”) to nine prime contractors, under which they would provide various IT technical services and support. Government agencies could obtain these services by issuing task orders.

In November 2003, the United States Agency for International Development (“USAID”), issued a task order to SRA International, Inc., (“SRA”) under this GWAC contract. The task order required SRA to “[s]upport USAID’s acquisition and assistance function used for contracts and grants worldwide,” among other things.

With the assistance of SRA, pursuant to the task order USAID issued an RFP “to research possible commercial off-the-shelf (“COTS”) Acquisition and Assistance (“A&A”) solutions for JAAMS” for development of a comprehensive acquisition and assistance management system. The RFP specifically noted that the solicitation was “for market research only” and that the RFP would “not result in a contract award.”

USAID received several proposals from interested vendors, but announced that the government had “decided to pursue [are] alternative course of action.” USAID determined that “based on the complex business and technical environment, SRA…would be used to integrate the four primary Acquisition and Assistance functions….” As a result, SRA, in turn, issued an RFP soliciting vendors to serve as subcontractors to it to “provide software product(s) and services to support the integration effort as requested and funded under the direction and management of SRA.”

After receiving several proposals from vendors who had responded to USAID’s RFP, SRA executed two subcontracts with two third-party vendors. The statements of work both indicated that, “the cooperative team of USAID, SRA, and the subcontractor will integrate the software. However, only SRA is authorized to direct the subcontractor with respect to the obligations, responsibilities, terms, and conditions the subcontract awarded.”

STR, L.L.C., which had submitted its response to the SRA RFP, but was not selected, protested the SRA subcontract awards to the Government Accountability Office (“GAO”). GAO dismissed the protest concluding that the “procurement here was not ‘by the government’ and that the procurement at issue was not conducted by a federal agency or a contractor acting as a procurement agent for a federal agency and thus not subject to our jurisdiction.”

STR appealed GAO’s decision to the United States Court of Federal Claims (“COFC”) . The government sought to dismiss the action for lack of jurisdiction under 28 U.S.C. § 1491(b), which grants the COFC jurisdiction to decide protests arising from procurement decisions made by federal agencies. The COFC affirmed GAO’s decision, concluding that although USAID and Department of State (“DoS”) officials participated in the evaluation of the vendors, SRA was not operating as a purchasing agent for the government in these transactions such that a “Federal agency procurement actually occurred” because, as the court reasoned, there was “no direct USAID or DoS liability to the vendors. SRA retained the sole responsibility to direct the vendors in their work under their subcontracts and payments to the subcontractors were to be made by SRA.”

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As such, the court concluded that since the “subcontracts at issue were not awarded by, or on behalf of, a Federal agency,” the court has no jurisdiction to hear this matter. [No. 06-466C (May 21, 2007)]

Contractor’s Failure to Object to Work Outside Scope of Contract “For Business Reasons” Precludes Added Recovery

In Appeal of Honeywell International, Inc., the Armed Services Board of Contract Appeals (“ASBCA”) held that the contractor was not entitled to reimbursement for services ordered by the government in excess of the specified maximum stated in the parties’ indefinite-delivery/indefinite-quantity contract. The dispute in this matter arose between the Navy Aviation Supply Office (“ASO”) and Allied Signal, Inc. (“Allied”), predecessor in interest to Honeywell International, Inc. (“Honeywell”), under a contract for maintenance and repair services for certain designated pieces of equipment. The contract incorporated by reference FAR 52.243.1, which includes a 30-day notice provision for constructive changes to the contract. The contract was later modified to include additional work associated with a subsequent solicitation issued by ASO. The modification did not change the pricing scheme, but did establish minimum and maximum quantities.

Despite these limitations, ASO placed two orders in the first year that exceeded the contract’s maximum terms. Allied made a business decision not to object to the excessive quantity ordered because it wanted to “be a good contractor and work with the government.” However, in the second year of its contract, when ASO placed another order that, together with the first year’s orders exceeded the contract’s order maximum, the contractor protested seeking to renegotiate the unit prices for the services offered under the contract. The contracting officer rejected Allied’s demand asserting that the maximum quantities applied per year, and not cumulatively, and argued that the second year’s cumulative orders had not exceeded the maximum. Allied agreed to deliver on the contract, but reserved its right to an equitable adjustment to recover the difference between the contract price and its proposed price for the excess units. Allied subsequently submitted a certified claim, which was rejected by the contracting officer.

On appeal, Allied principally argued that the contract established a maximum quantity for the two-year period of the contract, and that ASO constructively changed the contract when it required Allied to fulfill orders in excess of that maximum. ASO contended that the contract’s maximum quantity term applied to each year’s orders, not cumulatively over the life of the contract, and that maximum had not been exceeded in year two, and was waived in year one because Allied had not objected to performing work in excess of what was required under the contract.

Citing the plain language of the contract, the ASBCA rejected Allied’s argument. Significantly, the ASBCA also rejected Allied’s argument that it was entitled to equitable adjustment stemming from its protest to ASO. The ASBCA concluded that when Allied did not protest the issuance of excess orders in the first year such

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circumstances indicated volition to perform, and its decision to perform “for business reasons” precluded it from an equitable adjustment. ASBCA No. 54598, 2007 WL 1884589 (Jun. 20, 2007).

HighlightsJeff Belkin and Trinh Huynh authored an article about government databases that was published in Contract Management Magazine. Contact Jeff or Trinh for copies of this article and be on the lookout for their next article in CMM about recent changes to the Berry Amendment.

Andy Howard presented a program entitled “Far Out! Contracting Issues When Dealing with the Federal Government,” at the fall meeting of the ABA’s Construction Industry Forum held in Newport, Rhode Island.

Alston & Bird again hosted the AeA Southeast Council’s Government Procurement Seminar, which focused on homeland security issues in Georgia.

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