Federal Contract Law: If you make a contract mandatory, you better use it

If you make a contract mandatory, you better use it

Karen Powell

Imagine an agency plans to award multiple indefinite-delivery, indefinite-quantity contracts to provide IT for field offices. The typical contract minimum of $1,000 won't even cover the costs of a proposal. But the agency's multi-million-dollar annual IT budget looks very attractive. Several companies will decide to compete, and some will receive awards.

Now imagine that after award the agency orders the equipment from a General Services Administration schedule contract instead of the IDIQ. Can it do so without breaching the IDIQ awards?

Decisions by the Federal Court of Appeals and other venues say, 'Maybe, maybe not.'

One such decision is Ace-Federal Reporters Inc. v. Barram. GSA had established a mandatory schedule for court reporting services. It awarded IDIQ contracts to ten companies. When some agencies ordered reporting services elsewhere, several of the contractors brought claims. The GSA Board of Contract Appeals held the diversion of requirements away from the schedule was not a breach.

But the Court of Appeals reversed the GSBCA, finding that the government's promise to order only from the schedule had 'substantial business value.' The court also held the amount of each contractor's damages could be calculated based on known factors such as the value of the off-schedule orders and each contractor's market share.

However, the court's next decision involving multiple awards seemed to say no damages could be claimed.

Travel Centre v. Barram also involved an appeal from the GSBCA. In this case, GSA had established a nonmandatory schedule for travel reservation services. It issued a request for proposals with estimates of the volume of business it expected from various regions.

Before any task orders were made, two agencies responsible for fifty percent of the volume in the Northeast region notified GSA that they would be issuing their own IDIQ contracts, yet GSA did not revise the estimates. Travel Centre received a contract for the affected area and filed a claim when the anticipated volume failed to materialize. The board found that GSA had breached the contract by inducing the contractor to bid based on the faulty estimates.

The Court of Appeals reversed. It found that since the deal was not a requirements contract, Travel Centre could not reasonably assume receiving any orders above the $1,000 minimum. The court made no reference to its earlier decision in Ace-Federal.

These contradictory decisions might be reconciled by observing that one case involved requirements-type contracts and the other concerned IDIQ contracts. But that easy answer would be wrong. The court itself observed in Ace-Federal it did not consider the contract type determinative.

The key to the court's reasoning in both cases is the contract terms alone. The individual contracts in Ace-Federal each incorporated a term stating that GSA's court reporting schedule was mandatory. The court noted this language in finding that the government had breached the contracts when agencies ordered off-schedule. In Travel Centre, the court ignored the volume estimates given by GSA, since the contract specified that GSA made no guarantees as to volume.

In short, whether the agency can legally shift its orders to a schedule depends on the specific terms in the IDIQ contracts. If the agency commits to ordering for its field offices through the multiple awards, then it may be in breach if it uses the schedule. On the other hand, if the agency reserves the right to use the schedule, the contractor may have no claim. The only way to know is to craft the contract carefully.

Karen Powell is an attorney with the Washington law firm of Petrillo and Powell PLLC. E-mail her at kdp@petrillopowell.com.

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