FEDERAL CONTRACT LAW

Contract categories don't always tell the full

Joseph J. Petrillo

The tortuous history of an aborted contract for travel agent services offers useful lessons in federal contracts, including those for information technology.

A company called Travel Centre won a contract with the General Services Administration to be the preferred source for travel arrangements for federal workers in New England. Like commercial agents, the contractor would be compensated by commissions it earned for airline tickets and hotel reservations.

The solicitation had called for an indefinite-delivery, indefinite-quantity contract with a guaranteed minimum order of only $100. But the solicitation included a nonbinding estimate that, based on 1994 figures, the contractor would write 4,156 tickets and have sales of $1.8 million. Bidders were told to base their offers on this figure.

Business elsewhere

What GSA apparently knew, but didn't tell the bidders, was that the agencies that represented more than half the estimated business had already awarded separate travel agent contracts and would not use the GSA contract. Thus, the estimate was more than double what it should have been.

After Travel Centre had won the contract, its actual volume of sales fell far short of the estimates. Ultimately, it stopped performing, and GSA terminated the contract for default. Later, apparently realizing its fault in the matter, GSA converted the termination to one for the convenience of the government. This wasn't enough for Travel Centre, which filed a claim for damages. The contracting officer denied the claim, and the matter moved to the General Services Board of Contract Appeals.

In a 1997 ruling, the board held for Travel Centre in a split decision. In an opinion this year, also a split decision, the board awarded Travel Centre $42,546 in damages. Both times, the government asked the board to reconsider its ruling. Both times, the board declined to change the result, again over the objections of the dissenter.

Basically, the majority opinion held that the government had misrepresented the volume of business with faulty estimates and so had breached the contract. The dissenting opinions were by different judges but struck the same note.

The dissenters thought that the key to the case was in the type of contract awarded. They began and ended their analysis with the observation that the contracts were for an indefinite quantity, and were not requirements contracts. Because the government had ordered more than the $100 minimum quantity, its obligation to the contractor had been fulfilled, and the shortfall in business was of no consequence.

Different take

The majority opinions, however, had a more nuanced view of the deal. They were troubled that the solicitation had instructed prospective contractors to base their prices on the volume estimates presented. The government had ample evidence to show that the estimates were fictitious but didn't follow up on what it knew. Consequently, GSA ended up misleading bidders in a material way.

The majority was also troubled by the government providing estimates it knew were faulty and that those estimates would be used as the basis for contract pricing. The standard disclaimers did not provide a license to mislead. The majority also ruled that bad faith wasn't necessary under such circumstances, and if it was, issuing an estimate with knowledge that it was false, or at least a reckless disregard for the truth, was enough.

The best lesson to take from this thick sheaf of judicial opinions is that jurisprudence requires more than simply pigeonholing a contract into a category. Contracts can contain important terms and conditions beyond the basic, boilerplate clauses. Sometimes the provisos result from trade practice or a preceding course of action between the parties. The terms of a deal can be more complex than the simple description of a contract type and the basic law that comes with this label.

Without taking these other terms into account, a decision by stereotype can result in presuming that one party in a deal is a gambler or a fool. Should the board or court assume that a business would propose a hefty discount then gear up for performance for a single $100 sale?

Federal contracts are supposed to be sensible business deals, not a form of legalized gambling. Courts and boards which recognize this will have the key to a sound and just interpretation.

Joseph J. Petrillo is an attorney with the Washington law firm of Petrillo & Powell, PLLC. E-mail him at jp@petrillopowell.com.

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