RULES OF CONTRACT INTERPRETATION

It's time we got back to the basics.  Many, if not most, contract disputes involve questions of contract interpretation.  Judge David James of the Armed Services Board of Contract Appeals (ASBCA) recently has reminded us of these rules, citing precedent from the Court of Appeals for the Federal Circuit (CAFC).  The language Judge James was asked to interpret is the following:

This chart depicts by size what the Government anticipates ordering under the resultant contract.  Each delivery order issued will stipulate exactly what sizes and quantifies the Government will require for delivery.

The contractor argued that if the quantities ordered varied from what was anticipated, there would be an upward or downward price adjustment.  Applying the rules of contract interpretation, Judge James disagreed with the contractor and held that the size tariff chart did not guarantee that the percentage of each size to be ordered would conform to the size tariff percentage for each such size.  So what are the rules of interpretation he applied?

The following rules have been stated over and over again in CAFC and ASBCA opinions:

1. "In resolving disputes involving contract interpretation, we begin by examining the plain language of the contract."
2. We construe a contract "to effectuate its spirit and purpose giving reasonable meaning to all parts of the contract."
3. The threshold question is whether the plain language of the contract "supports only one reading or supports more than one reading and is ambiguous."
4. If a contract is susceptible of more than one reasonable interpretation, it is ambiguous.  But both interpretations must fall within a "zone of reasonableness."
5. In choosing between competing reasonable interpretations of an ambiguous contract provision, the general rule of contra proferentem requires the ambiguity to be resolved against the drafter
6. An exception to the rule of contra proferentem arises when an ambiguity is to "patent and glaring" that it is unreasonable for a contractor not to discover it and inquire.

After stating these rules, Judge James examined dictionary definitions of the word "anticipate" and determined the word does not denote or connote exactitude.  Therefore, the contractor's interpretation was not within the zone of reasonableness.

Keep these rules of contract interpretation close.  They have been repeated over and over again by the judicial tribunals dealing with government contracts.  Both sides to a contract interpretation dispute should be guided by these principles.  Perhaps by paying more attention to the law announced by these tribunals, we can resolve more disputes short of full blown litigation.

bill@spriggslawgroup.com   Other posts at http://scs.mymediaroom.com/blog/.

USE OF TAX RETURNS IN SIZE PROTESTS

On April 18, 2012, the SBA's Office of Hearings and Appeals (OHA) denied an appeal and affirmed a size determination that a business was not small based on its tax returns, the most recent of which had not been filed at the time the business self-certified its size. 

The issue was whether the SBA Area Office erred in considering a 2010 federal tax return which had not yet been filed as of the date of self-certification on May 26, 2011, but which had been filed when the SBA size determination was made as a result of a protest.

The rule, of course, requires that annual receipts be calculated by adding the last three completed fiscal years and dividing by three.  Since the self-certification was on May 26, 2011, that meant 2008, 2009 and 2010 should be used.  In response to the protest, the contractor argued that since its 2010 return was not available on the date of self-certification the years 2007 through 2009 should be used.  Not so, says OHA.

The OHA pointed out that the SBA regulations provide that if the tax return is not available, calculations of the contractors receipts will be made from the contractor's regular books of account, audited financial statements or other information contained in an affidavit by a person with personal knowledge of the facts. 

Moreover, OHA observed that the 2010 tax return was available at the time of the size determination by SBA in January 2012 (as a result of the protest).  For these, reasons, it was proper to use the 2010 tax return to make the size determination.  In any event, the tax return was "other available information" SBA could use under the regulation.

The Administrative Judge also ruled that the contractor need not be given an opportunity to submit other evidence of its 2010 receipts.  Tax returns are recognized as an inherently reliable source of information due to the severe penalties for filing false tax returns.  This, even if other information were permitted, it probably could not be used to contradict the tax return.

bill@spriggslawgroup.com

RADIO INTERVIEW: BEST VALUE

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PROTEST OF RFP WAIVED BY DELAY

Chief Judge of the Court of Federal Claims (COFC) Emily C. Hewitt has just bounced a protest because the protester waived its protest by delay in raising a complaint about language in the RFP.  The protester complained that the RFP requirement that offerors had to be on the SBA's list of qualified HUBZone  contractors at the time of proposal submission and at the time of award was illegal and that certification is only needed at the time of award.  The court disagrees but in any event holds that any alleged defect in the RFP must be raised prior to the time for submission of proposals or be deemed to have been waived.

In this post award protest, the Army set aside a logistical support services contract for exclusive HUBZone contractor participation.  The protester was the incumbent whose certification lapsed and was not reinstated until after proposals were due, but before award.  The RFP required certification at the time proposals were submitted.  The Army refused to consider protester's proposal because it was not on the list of certified HUBZone firms.  FAR, Army regulations and the RFP all required offerors to represent whether on the date of the representation they were HUBZone certified and no material changes had occurred since certification.

Although challenged as lacking standing to sue, protester, said the court, was an actual bidder possessing a direct economic interest in the award of the contract and thus is an interested party having standing to bring the protest in court.

Chief Judge Hewitt determined the protester had waived its right to challenge the RFP requirement and she dismissed the protest as untimely.

The government argued successfully that rather than making a timely objection to the solicitation's requirement that an offeror's proposal, when submitted, contain a representation that the offeror then appears on the list of qualified HUBZone contractors, protester "elected to roll the dice and submit its proposal anyway."  How many times have we seen this happen?  The contractor elects to roll the dice hoping against hope that a miracle may occur.  Yet, the only prudent course of action is to raise the issue with the contracting officer and protest solicitation language if it is necessary.  Otherwise, don't bid.

An important practical lesson Chief Judge Hewitt teaches us is that it is not enough to casually mention the RFP problem to the contract specialist.  One must raise the issue with the contracting officer and make a record of the complaint.  More importantly, one must formally protest improper RFP language prior to proposal submission or waive forever the opportunity.

bill@spriggslawgroup.com

RFP UNCLEAR; PROTEST INJUNCTION GRANTED

Judge Bush of the Court of Federal Claims (COFC) has just granted another bid protest injunction, this time against the United States Air Forces in Europe. (See our blog at http://spriggslawgroup.blogspot.com/2012/03/best-book-on-best-value-you-will-ever.html regarding other Judge Bush opinions). A critical provision in the RFP was unclear and rendered legally ambiguous by the contracting officer's answer to a bidder's question.  The case stands for the proposition that although not all answers to bidders' questions amend or modify a solicitation provision, some in fact do, depending on the circumstances of the procurement.  Here, the fact that the agency issued a revised and radically different response to the question on a separate date, when all of its other responses remained the same, gave the revised answer special prominence and therefore functioned as a confusing amendment to an otherwise unclear solicitation requirement.

Defending the protest, the government argued the protester had no standing since its proposal did not conform to the unclear requirement at issue in the protest.  "Defendant thus asks the court to decide the merits of this protest in order to determine whether or not [the protester] has standing to bring this suit."  Nonsense, says the court.  The government cannot require a plaintiff to prove the merits of its case in order to demonstrate standing.  The plaintiff must show that there is a substantial chance it would have received the award but for the alleged error in the procurement process.

The court then recited the contract interpretation rules applicable to the consideration of the meaning of solicitation language.  When a contract is susceptible to more than one reasonable interpretation, it contains an ambiguity.  Different interpretations are not enough.  Both must be within the "zone of reasonableness".  Next, the court determines whether the ambiguity is patent or obvious.  An ambiguity is patent if it is so glaring as to raise a duty to inquire as to its meaning.  If the ambiguity is not patent but latent, the court then enforces the general rule that construes the ambiguity against the drafter, the government.

To determine if a permanent injunction is warranted, the court must consider whether (1) the plaintiff has succeeded on the merits, (2) the plaintiff will suffer irreparable harm if the court withholds injunctive relief, (3) the balance of hardships to the respective parties favors the grant of injunctive relief, and (4) the public interest is served by a grant of injunctive relief.  Judge Bush finds in favor or the plaintiff on each test and grants a permanent injunction, prohibiting award to the winning contractor and requiring a re-evaluation of proposals consistent with the court's opinion.

So answers to questions may become solicitation amendments and clarifications had better be clear.  Otherwise, the resulting ambiguity may be resolved against the government.

bill@spriggslawgroup.com