_________________________________ APPELLANT S MOTION FOR SUMMARY RELIEF GRANTED: June 25, 1996 _________________________________ GSBCA 13223 PULSAR DATA SYSTEMS, INC., Appellant, v. GENERAL SERVICES ADMINISTRATION, Respondent. John P. Callan, Sr., of Pulsar Data Systems, Inc., Lanham, MD; Christopher R. Locke of Froelich, Healy & Locke, Newark, Del; James A. Hughes, Jr., of King & Spalding, Washington, DC; and Andrew J. Morris of Mayer, Brown & Platt, Washington, DC, counsel for Appellant. Renn C. Fowler, Michael J. Noble, and Sharon J. Pomeranz, Office of General Counsel, General Services Administration, Washington, DC, counsel for Respondent. Before Board Judges PARKER, DEVINE, and GOODMAN. PARKER, Board Judge. This matter is before the Board on cross motions for summary relief. The contract which is the subject of this appeal has been terminated for the convenience of the Government, and the parties have been unable to agree on a termination settlement. The primary disagreement concerns the term of the terminated contract: the contractor believes that the Government terminated a five-year lease, while the Government believes that it terminated a one-year lease without exercising options for four additional years. The parties have asked the Board to resolve this fundamental issue on motion so that they can resume settlement discussions as to the proper amount due appellant. As discussed below, we think appellant is correct. Findings of Fact On December 16, 1991, the General Services Administration (GSA) entered into a contract with Pulsar Data Systems, Inc.[foot #] 1 under which GSA leased various items of computer hardware, software and services necessary to implement automated printing systems at various GSA locations throughout the United States. Appeal File, Exhibit 1. Pulsar financed the purchase of the equipment which it was to provide by assigning to investors the expected lease payments due from GSA. Appellant's Exhibit C. The Lease Term The contract contains several statements as to its term. Section B.1, entitled Scope of Contract, states: The contract shall be a negotiated operating lease with a term of 5 fiscal years commencing on the initiation of this contract. Appeal File, Exhibit 1 at 3. Similarly, section C of the contract, the Statement of Work, begins by stating: The General Services Administration wishes to initiate a five year lease . . . . Id. at 6. Consistent with these statements, the Monthly Lease Rate ( B.3.1) and the Software License Fee ( B.3.2) are calculated based on a lease period of "60 months." Id. at 5. Both parties consider section H.5 of the contract to be important to this dispute. The relevant portions provide as follows: H.5.4 CANCELLATION OF THE OLP [Operating Lease Plan]. (b) It is understood by all parties that this is an optional transfer of ownership arrangement whereby the Government reserves the right to decide on ownership at the end of the OLP term. In that regard, the Government contemplates making all of the OLP monthly lease payments throughout the entire ----------- FOOTNOTE BEGINS --------- [foot #] 1 The contract was actually a tripartite agreement among GSA, Pulsar and the Small Business Administration, under the authority of section 8(a) of the Small Business Act. This arrangement is not relevant to the issues before us. ----------- FOOTNOTE ENDS ----------- lease term as specified on the Government Order and has no preconceived intention of exercising any of their termination rights prior to completion of the full term. Furthermore, the government shall not terminate for nonavailability of funds if funds are available during the term to pay for functionally equivalent tasks for which the Equipment has been acquired. H.5.5 TERM: (b) The OLP is a multi-year firm fixed price type contract as defined by the Federal Acquisition Regulations [sic] (FAR) Subpart 16.2, "Fixed Price Contracts." It is the intent of the Government to renew for the full multi-year term subject only to annual appropriations. (c) The Government's right to terminate the OLP is regulated by Part 49, of the FAR, "Termination of Contracts." Since funding is annual, this OLP Contract must be modified each year to reflect the fund cite for each succeeding fiscal year. . . . The Government Contracting Officer shall give written notice of renewal to the Prime Contractor on the first day of each fiscal year or as soon as practicable but not more than forty-five (45) days after the date the Government renews. The Contracting Officer for the Government shall provide written notice of the Government's intention to renew at least sixty (60) days prior to the expiration of each fiscal year. Orders under this plan shall not be deemed to obligate succeeding fiscal years['] funds or otherwise commit the Government to renewal if funds are not available. Appeal File, Exhibit 1 at 31. Section F.1 of the contract told the contractor that the contract was funded for the first fiscal year and that "[a]dditional funding subject to availability will be added to the contract by modifications for each option period." Id. at 25. The contracting officer (CO) believes that the contract was a five-year contract, subject to annual appropriations. Appellant's Exhibit D (Deposition of Donald T. Jodrie (Jan. 3, 1996)). The Termination Things went along smoothly until fiscal year 1993, the second year of the contract. Although GSA had notified Pulsar that funds were available for the contract for fiscal year 1993, in July of that year, GSA terminated the contract due to a "funding-out situation." In its notification of the termination, GSA told Pulsar that Presently, the WCF [Working Capital Fund], which is a revolving fund required to operate at a breakeven level or better, is operating at a deficit of $1,150,000 for fiscal year 1993. Current projections indicate that the WCF will continue operating in a deficit position for the remainder of this fiscal year. Appeal File, Exhibit 11. The letter went on to invite Pulsar to file a termination claim. Contract Funding The contract was funded through GSA's working capital fund, a revolving fund created by statute. 40 U.S.C. 293 (1994). The fund, maintained by GSA, covers expenses necessary to the operation of central printing and duplicating services. Agencies which order services through GSA reimburse the fund at rates set by GSA. Id. Although the working capital fund had been losing money for the last two years, the fund had a positive balance of $2,270,859.77 in cash and $6,608,972 in net assets at the end of fiscal year 1993. Respondent's Exhibit 10. Discussion Appellant maintains that it entered into a five-year contract to lease to GSA various items of computer hardware and software for automated printing systems. Relying on the terms of the contract, appellant purchased equipment for the five-year period, financing the purchase by assigning to investors what appellant believed would be five years of lease payments. According to appellant, GSA's termination of the contract entitles it to termination for convenience costs based on the five-year term of the contract. Respondent maintains that the contract is a one-year contract, with four options which can be exercised by the Government. Thus, GSA argues, when it decided to terminate the contract because the working capital fund was losing money, it terminated only the one-year contract for fiscal year 1993. GSA argues that it owes appellant no money for the option years because no contract was in effect for those years. We think appellant has the better argument. First, the contract clearly states in several places that it has a five year term. Consistent with this language, the Monthly Lease Rate and the Software License Fee are calculated based on a lease period of "60 months." Although the contract is subject to "renewal" each year based on the availability of appropriations, there are no "options" for the Government to exercise. The contract does, as GSA points out, use the term "option periods" in one place, section F.1. That provision, however, describes the process by which GSA would "modify" the contract to add funding. The contract contains no language whatsoever which could be construed as creating true "options" for the Government to exercise. Even the contracting officer recognizes this; he believes that the contract was a five-year lease, subject to annual appropriations. The whole arrangement makes no sense unless the contract has a five year term. What contractor would agree to purchase expensive special-purpose equipment to lease to the Government, and then give the Government the "option" of not continuing the lease after the first year? The same applies to Pulsar's investors, who gave money to Pulsar in return for an assignment of the lease payments. GSA's argument that the contract was a one-year contract, with four one-year options, is just plain wrong. GSA also points out that, under the terms of the contract, GSA incurs no liability for fiscal years in which appropriations are not available to fund the contract. Thus, according to GSA, since the working capital fund, the entity through which the contract was funded, was losing money, GSA was entitled to terminate the contract with no liability beyond the current year. The problem with this argument, however, is that funds were available to fund the contract. Even though the working capital fund was losing money, it still contained more than enough to fund the contract -- over two million dollars in cash and a net asset balance of more than six and one-half million dollars. Moreover, there is nothing in the record to show that the agencies which would order the printing services lacked appropriated funds to purchase those services. Under these circumstances, GSA's decision to terminate the contract was a business decision, not a necessity based on a lack of appropriated funds. Decision Pulsar's motion for summary relief is GRANTED. GSA terminated a five year contract and should base its termination settlement with Pulsar accordingly. The parties are directed to confer and to inform the Board by July 15, 1996 as to how they wish to proceed. _______________________ ROBERT W. PARKER Board Judge We concur: __________________________ DONALD W. DEVINE Board Judge __________________________ ALLAN H. GOODMAN Board Judge