ABCD _________________________ DENIED: July 2, 1992 _________________________ GSBCA 10828-ED T. HEAD & COMPANY, INC., Appellant, v. DEPARTMENT OF EDUCATION, Respondent. Anthony D. Head of T. Head & Company, Inc., Herndon, VA, appearing for Appellant. Jeffrey C. Morhardt, Office of General Counsel, Department of Education, Washington, DC, counsel for Respondent. Before Board Judges LaBELLA, DANIELS, and VERGILIO. VERGILIO, Board Judge. As an 8(a) subcontractor, T. Head & Company, Inc., appellant, organized student loan files for the Department of Education, respondent. Before that subcontract expired, appellant submitted an unsolicited proposal to the agency to perform file maintenance. The agency did not enter into a written file maintenance contract with appellant. After the expiration of its file organization subcontract, appellant performed file maintenance for approximately seven months before being told to vacate the premises. On September 13, 1990, the Board received from appellant a notice of appeal. For maintenance services rendered after the expiration of the file organization subcontract, appellant seeks to recover $169,158.84 (the amount of its certified claim) plus interest and expenses for non-payment, for a total request of $230,000. Appellant predicates its recovery on theories of constructive change, and of implied-in-fact contract coupled with ratification by authorized agency officials. Appellant performed the file maintenance services knowing that it lacked a written contract to perform such services. It performed, despite its unsuccessful attempt to secure that contract on a sole-source basis, while aware of the agency's position that it lacked, but was seeking, funds for such a contract. Moreover, the record demonstrates that appellant elected to perform the services with the expectation of obtaining a contract, although it lacked assurance by any agency official that it would be compensated for the services rendered. The Board determines that appellant has failed to establish either a constructive change to its subcontract or the existence of an implied-in-fact contract. Accordingly, the Board denies the appeal. Findings of Fact File organization subcontract 1. With an effective date of September 20, 1987, appellant, under the program authorized by section 8(a) of the Small Business Act, 15 U.S.C. 637(a), became a subcontractor to the agency to organize defaulted student loan files in three regional collection centers. Appeal File, Exhibit M, Statement of Work at 2. 2. The period of performance of the subcontract was September 30, 1987, to August 31, 1988. Appeal File, Exhibit M at 7 ( F.1). However, the subcontract contemplated completion of work in one region not later than five months after award. Id., Statement of Work at 5. 3. The subcontract specifically addresses the agency personnel with and without authority to change the subcontract: The COTR [Contracting Officer's Technical Representative] is not authorized to make any commitments or otherwise obligate the Government or authorize any changes which affect the contract price, terms or conditions. Any contractor requests for changes shall be submitted in writing directly to the Contracting Officer or through the COTR. No such changes shall be made without the written authorization of the Contracting Officer. Appeal File, Exhibit M at 8 ( G.1(b)). The subcontract incorporates by reference the Changes - Fixed Price - Alternate V (APR 1984) clause, 48 CFR 52.243-1 (1987). Appeal File, Exhibit M at 23 ( I.2.I.38). 4. The subcontract was one for the "total fixed price" of $1,031,220, that amount to be disbursed in partial payments-- appellant would be paid a fixed amount per thousand files. Appeal File, Exhibit M at 4 ( B.1). The subcontract also contains a paragraph captioned "contract amount increase": 3 The Government shall have the right to unilaterally increase the amount of this Contract at any time in order to provide sufficient funds to cover the anticipated quantity of services and supplies for the remainder of the contract term. Additional funds will be obligated through appropriate contract modifications signed by the Contracting Officer. Such funding modifications shall state the existing current fiscal year funding ceiling and total contract amount, the amount of increased funding, the new fiscal year funding ceiling, and the total contract amount. Appeal File, Exhibit M at 5 ( B.4). Unsolicited file maintenance proposal 5. While performing file organization as a subcontractor, under a cover letter dated February 26, 1988, appellant sent to the agency an unsolicited proposal to provide file maintenance at the three regions: "This document describes [appellant's] proposal to address the continuing requirement to maintain the system in its August 31 turnover condition, for the indefinite working life of the [agency] debt collection program." Appeal File, Exhibit E at 1-1. 6. By letter dated March 28, 1988, appellant submitted to the agency's contract specialist a cost proposal for file maintenance. The letter indicates that the unsolicited proposal is for work at each of the three regions to commence at each region when the file organization is completed at that region. Appeal File, Exhibit F. 7. With letters dated June 15, 1988, appellant submitted to the contract specialist a revised technical and cost proposal. The revisions make adjustments in the potential start and completion dates at the regions, reduce the estimated number of files to be processed, and alter the proposed staff positions and projected hours of work. Appeal File, Exhibits G, H. Appellant proposed a cost for each of the three regions of $176,585, $161,188, and $152,157, respectively. Id., Exhibit G. After February and before October, appellant and the contract specialist engaged in discussions regarding both the technical and cost aspects of the proposal. Id., Exhibit H; Transcript at 198; Answer ( 2-3). Funding for file organization and maintenance 8. In a memorandum to the file dated August 19, 1988, the contract specialist notes that the file organization subcontract would not be completed at the subcontract price: 4 [At a meeting of agency personnel] it was suggested . . . that the $56,000 which had been earmarked for the impending Library Management addendum to the current contract be applied towards the completion of the filing contract instead. By doing so, this would require suspending the Library Management Addendum until new funds become available in FY 1989. DCMAS [Debt Collection and Management Assistance Service] agreed to this solution. . . . . . . The Contractor was notified verbally of these circumstances on August 5, 1988, and again in a conference on August 10, 1988, which included [agency personnel, appellant's president, and the contract specialist]. Again, [appellant's president] was strongly urged to closely monitor the work of his employees so as not to exceed the current available balance. Appeal File, Exhibit 36. 9. In August 1988, amendment one to the subcontract was signed and effective. Appeal File, Exhibit L. The amendment altered the subcontract from one for a "fixed price" of $1,031,220, paragraph B.1, Finding 4, to one for a "not-to-exceed amount" of $1,087,220. Id. at 2 ( 2). In addition, the amendment altered the period of performance provision of the subcontract, paragraph F.1, Finding 2, to read: "The period of performance shall be from September 30, 1987 to September 30, 1988, inclusive of all specified deliverables and/or task work." Id. ( 4). With an effective date of September 22, 1988, amendment two to the subcontract increased the price by $110,000 "to cover the cost overrun necessary to complete over 40,000 debtor files remaining to be merged and filed" in one region. Id., Exhibit 37.[foot #] 1 ----------- FOOTNOTE BEGINS --------- [foot #] 1 Curiously, but not explained in the record, amendment two states: "Payment for services during the first option year shall remain at the prices set forth" in the subcontractor's proposal. Appeal File, Exhibit 37 at 2 ( 1(c)). However, the underlying subcontract contains no option period and is expressly for a fixed period of performance. Id., ___ Exhibit M; Finding 2. An agency memorandum of negotiations with appellant for the underlying subcontract twice explicitly states that there are no option provisions. Appeal File, Exhibit N at 1, 5 ( A, N). ----------- FOOTNOTE ENDS ----------- 5 September 30, 1988, and thereafter 10. On September 30, 1988, the period of performance of the file organization subcontract expired. Finding 9. Although the agency had engaged in discussions with appellant in an attempt to finalize a file maintenance contract, the agency had not formally accepted appellant's unsolicited proposal, or otherwise entered into a written contract with appellant to provide file maintenance services. As of the end of September and early October, in the midst of continuing budget resolutions, the agency allocated for maintenance of these files zero resources of its fiscal year 1989 budget. Transcript at 122-24; Agency's Exhibits 5, 6. 11. In September 1988, appellant's president was aware of the agency's position that funding did not exist for a file maintenance contract; he understood that money had been requested and would be forthcoming. Transcript at 29-32, 47-49. Conversations with the contract specialist[foot #] 2 and other agency personnel between September 1988 and February 1989 did not alter his understanding. Id. Without a formal contract, and having understood the agency position that it lacked funding for a file maintenance contract, appellant provided file maintenance services under the belief that money would come. Appellant's president concluded that the agency would come up with the funding. This conclusion was based upon (1) his experience with the agency, (2) his understanding that file maintenance was important, and (3) his view that the agency must have resources to fund a $200,000 project when the benefits of collected defaulted loans would far outweigh the expenditure. Id. at 53-54. 12. No agency personnel directed appellant to provide file maintenance services after September 30, 1988. Transcript at 49- 50. Agency personnel, including the COTR and contract specialist, were aware that appellant remained on site, performing file maintenance, after September 30. Id. at 104-06 136-37, 171-72. Notwithstanding the testimony of appellant's president that the COTR never informed him either that the agency lacked funds and could not guarantee funding for a contract, or that appellant was at great risk by leaving his employees on site, id. at 50-52--testimony which contravenes the testimony of the COTR, id. at 174, 184-86, 192--the record amply reveals that the agency had informed appellant's president both that funding ----------- FOOTNOTE BEGINS --------- [foot #] 2 Although no formal contract existed, the titles of personnel reflect their positions under the file organization subcontract. The record contains no specific evidence addressing the actual authority of any agency individual. ----------- FOOTNOTE ENDS ----------- 6 was not guaranteed, and that appellant was subjecting itself to a risk by continuing performance without a contract; agency personnel understood that appellant's president was knowingly assuming those risks by proceeding in what he believed to be his best interests. Id. at 53-54, 104-06, 115; Appeal File, Exhibits 16 ( 2-4), 35; Findings 8, 11. 13. As reflected in an internal agency memorandum dated January 10, 1989, the agency was aware of the need for file maintenance services--without file maintenance, the agency projected that collections would decrease for fiscal years 1989 and 1990 by greater than $10 and $27 million, respectively. Appeal File, Exhibit 43. 14. In February 1989, the agency budgeted $150,000 for a file maintenance contract; the chief of the post-secondary program in the budget execution branch did not seek that amount for a retroactive payment for services already performed. Transcript at 127-30. Also in February, the contract specialist informed appellant's president that funds had been received, and encouraged him to submit a cost proposal to enable the agency to determine the amount of funds needed for services through the end of the year. Id. at 32-33. Appellant's president recognized that the estimated cost would be greatly reduced; he submitted a new proposal which reflects reduced staffing and a shortened contract period (October 1, 1988, through September 30, 1989). Id. at 33-34; Appeal File, Exhibit 42. The agency did not accept the proposal. 15. In a memorandum dated March 3, 1989, the Director, Division of Credit Management and Debt Collection, informed the Executive Officer, Office of Postsecondary Education: [Appellant] is a reliable contractor. They have done a very good job for us. If there is a legal way to pay for some of the costs this company has incurred we should try to do it. However, if we can't pay then that's the end of it. [Appellant's president] was advised that he would have to bear the cost of the skeleton staff. It was also made clear to him that the Department made no commitment after the end of contract #300-87- 0160 [the file organization subcontract]. Appeal File, Exhibit 21. 16. In March 1989, the agency began a process which continued over subsequent months, to determine if it could ratify or had ratified a contract with appellant. Transcript at 144-45, 148, 153-54, 176-80; Appeal File, Exhibits 18, 19. 7 17. In a letter dated April 20, 1989, appellant's president informed the contract specialist: We are aware that the above referenced contract expired, but we have maintained the orderliness and integrity of the files in the belief that the benefits to cost is so obvious that the funds to provide this service would soon be forthcoming. We were informed that the funds had been requested and we would not have continued our work without some indications that we would be reimbursed. I have discussed the funding of this project with many officials . . . . Each time I was told that funding had been requested and was expected. As a small company, we can no longer continue to support this project out of pocket. . . . Further, the company is unable to continue our current support without immediate payment. Accordingly, if we do not receive formal confirmation from [the agency] expressing a willingness to support this project, we will terminate our current support on May 5, 1989. Appeal File, Exhibit K. 18. "Pursuant to the terms of the" underlying subcontract, by letter dated April 21, 1989, appellant requested from the contract specialist payment for services rendered from October 1, 1988, to April 7, 1989. Appeal File, Exhibit G. After October 1, 1988, the agency did not request monthly reports from appellant's project manager. Transcript at 88. The record does not support a conclusion that appellant had submitted to the agency monthly reports of appellant's file maintenance activities before May 1989, or that appellant submitted a request for payment for its services prior to this letter. Transcript at 40- 45; Agency's Exhibits 1-3. 19. On May 11, the COTR directed appellant to cease file maintenance efforts and vacate the premises. Appellant ceased performance and vacated the premises in the three regions later that day. Transcript at 36. 20. By an invoice dated May 12, 1989, appellant requested from the contract specialist payment for file maintenance services rendered from October 1, 1988, to May 11, 1989. Appeal File, Exhibit J. 21. In May 1989, the contracting officer continued to pursue ratification as a means to compensate appellant. No one in the program office would acknowledge having authorized appellant to perform the file maintenance services. The 8 contracting officer understood that no funding was available to pay the claim. The contracting officer concluded that he was unable to effectuate ratification as a means of compensating appellant. Transcript at 179-81; Appeal File, Exhibits 15, 22. 22. By letter dated October 25, 1989, the contracting officer, as the authorized certifying officer, wrote to the General Accounting Office, seeking a determination on whether or not the agency could pay the request for payment submitted by appellant, Finding 18. Appeal File, Exhibit D. The GAO determined that an implied-in-fact contract did not exist; it advised that the agency may not pay the claim. Id., Exhibit B (T. Head & Co., B-238112 (July 30, 1990)). 23. Subsequent to the Board's receipt of its "notice of appeal" on September 13, 1990, appellant submitted a properly certified claim to the agency requesting $169,158.84 for its file maintenance work performed from October 1, 1988, through May 11, 1989. By letter dated November 13, 1990, denoted a "final decision," an agency contracting officer informed appellant that the agency had denied appellant's claim. Appeal File, Exhibit 49. Discussion Appellant seeks recovery for its efforts in file maintenance under two alternative theories: constructive change and an implied-in-fact contract. The agency contends that the appeal should be dismissed. Agency motion to dismiss The agency has requested that the Board summarily dismiss with prejudice the appeal, because the claim has been fully adjudicated before the GAO. Although the GAO has concluded that an implied-in-fact contract did not exist, Finding 22, appellant is entitled under the Contract Disputes Act (CDA), 41 U.S.C. 606-09 (1988), to have a board of contract appeals (or the Claims Court) resolve contract disputes. Appellant here asserts two contractual bases for relief (constructive change and implied-in-fact contract) over which the Board has jurisdiction. In light of the CDA, the GAO's determination is not entitled to dispositive weight. Constructive change Appellant maintains that it is entitled to relief under the theory of constructive change. Appellant contends that the agency "accepted the benefits of file maintenance performed by Appellant and negotiated both the terms and costs of future file maintenance prior to the expiration of the basic [sub]contract. 9 It cannot now argue that Appellant 'volunteered' the work." Appellant's Post-hearing Brief at 10. Although appellant does not elaborate on its entitlement under this theory, appellant has the burden of demonstrating both a "change" and an "order" element. Industrial Research Associates, Inc., DCAB WB-5, 68-1 BCA 7069 at 32,685-86 ("To find the change element we must examine the actual performance to see whether it went beyond the minimum standards demanded by the terms of the contract." "To be compensable under the changes clause, the change must be one that the Government ordered the contractor to make."); see also J. Cibinic & R. Nash, Administration of Government Contracts (2d ed. 1985), 304-08. The subcontract which appellant claims was constructively changed was for file organization, not file maintenance; it expired on September 30, 1988. The "change" appellant wants the Board to recognize is outside the scope of the subcontract--in terms of both the work required and the period of performance. Appellant implicitly recognized this when it submitted an unsolicited proposal to the agency to obtain a contract. Appellant also has not demonstrated that the agency "ordered" the file maintenance services. To the contrary, the agency expressly did not contract with appellant for file maintenance services. The record demonstrates that appellant was aware of the agency's position that it lacked funds to award a contract for the services here at issue. Further, appellant provided file maintenance services after having been informed that there existed a risk that it might not be paid for such services. Although the agency enjoyed the benefits of appellant's file maintenance services, it did not directly or indirectly order appellant to perform file maintenance. Moreover, the agency did not commit itself to reimburse appellant for any maintenance services rendered prior to the award of any contract. Appellant has failed to demonstrate the requisite elements to recover under a theory of constructive change. Implied-in-fact contract Appellant contends that there existed an implied-in-fact contract which obligates the agency to pay for the file maintenance services which directly benefitted the agency. Appellant bases its conclusion on its view that "the parties had agreed upon the scope of file maintenance to be performed and the price for the work. All terms and conditions were negotiated up to the point of award." Appellant's Post-hearing Brief at 11 (citing Transcript at 198). 10 In order to grant relief under this theory, the Board must make particular findings: An implied-in-fact contract requires findings of: 1) mutuality of intent to contract; 2) consideration; and, 3) lack of ambiguity in offer and acceptance. When the United States is a party, a fourth requirement is added: the Government representative "whose conduct is relied upon must have actual authority to bind the government in contract." City of El Centro v. United States, 922 F.2d 816, 820 (Fed. Cir. 1990) (citations omitted), cert. denied, 111 S. Ct. 2851 (1991). As much as appellant may have desired to enter into a file maintenance contract, appellant was aware of the agency's expressed inability to so contract because it lacked funding. Findings 10-12, 17. Although certain agency (and non-agency) personnel may have desired to enter into a file maintenance contract because of its beneficial nature, until February 1989 the agency never indicated that it had funds to effectuate payment for file maintenance services. Findings 13-16. In February and thereafter, the agency did not accept appellant's revised proposal, as agency personnel were unable to arrive at a contractual basis for paying appellant. Findings 14, 21. Thus, mutuality of intent to contract is lacking. The agency received consideration in the form of file maintenance services. However, the agency did not receive a bill from appellant throughout the period prior to a letter dated April 21. Finding 18. Appellant's expectations of payment in the future, and awareness of the risks of performing without a contract, Findings 11, 15, 17, support the agency view that appellant would not be seeking specific consideration for the work in question. Although appellant provided various offers for file maintenance services, the record demonstrates a lack of ambiguity in the agency's non-acceptance of an offer. Agency personnel had informed appellant that a lack of funding prohibited the award of a contract. Findings 10-12, 15, 17. Even after requesting and receiving a revised proposal in February, the agency did not enter into a written contract. Moreover, the record does not suggest that the agency informed appellant that funding would be used to fund file maintenance services for any period prior to the existence of a new contract. Finding 14. Appellant's actions indicate that it believed acceptance had not occurred. After the expiration of its subcontract, appellant provided file maintenance services believing continuous service to be in its best interests, while it awaited an award. Findings 11-12. The submission of a revised proposal in February suggests that 11 appellant believed that acceptance had not yet occurred. In April 1989, appellant was still seeking "formal confirmation" from the agency of its willingness to support a file maintenance contract. Finding 17. That assurance was not forthcoming. In another respect, appellant has also failed to establish this element. The scope of the alleged file maintenance contract was never definitized; as the scope and cost of maintenance services were reduced with the passage of time there was no "offer" which was accepted. From September 1988 through February 1989, appellant was informed that the agency lacked funding to award any file maintenance contract. From February through May, the agency did not accept the revised proposal of appellant. For this entire period, from September through May, appellant performed file maintenance services at a level reduced from what was included within its various proposals. Findings 7, 14, 23. Regarding the fourth element, the record does not reveal conduct of any authorized agency personnel upon which appellant could rely for payment for the file maintenance services in question. Findings 12, 14-15, 17. As noted above, the agency informed appellant of an apparent lack of funds; appellant decided that it was in its best interests to provide file maintenance services while awaiting a contract. The conduct of the agency personnel--in expressing a lack of funding and in not formalizing a contract--should have caused appellant to realize that reimbursement for continued performance was by no means assured. Even assuming that appellant is correct that the agency could not reasonably do without the file maintenance services, it was up to the agency officials to enter into an appropriate contract to obtain such services. A potential contractor may not force a contract upon the Government at a time when an agency may desire to allocate its funds to other endeavors. This appellant must bear the very risks it assumed by its business decision to proceed without a contract despite the warnings of various agency officials. Decision Appellant has failed to establish either basis of recovery which it proffered. Accordingly, the Board DENIES the appeal. ____________________________ JOSEPH A. VERGILIO Board Judge We concur: 12 _____________________________ _____________________________ VINCENT A. LaBELLA STEPHEN M. DANIELS Board Judge Board Judge