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Agility Public Warehousing Co. KSCP v. Mattis

United States Court of Appeals, Federal Circuit

April 4, 2017


         Appeal from the Armed Services Board of Contract Appeals in No. 56022, Administrative Judge Peter D. Ting.

          John Patrick Elwood, Vinson & Elkins LLP, Washington, DC, argued for appellant. Also represented by Bryan Bunting, Michael Charness, Adrianne Lisbeth Goins, Joshua Stephen Johnson, Ralph Mayrell.

          Peter Anthony Gwynne, Commercial Litigation Branch, Civil Division, United States Department of Justice, argued for appellee. Also represented by Benjamin C. Mizer, Robert E. Kirschman, Jr., Claudia Burke; Daniel Karl Poling, Office of General Counsel, Defense Logistics Agency, United States Department of Defense, Fort Belvoir, VA.

          Before Lourie, O'Malley, and Taranto, Circuit Judges.

          O'Malley, Circuit Judge.

         Agility Public Warehousing Co. KSCP ("Agility") appeals from a decision of the Armed Services Board of Contract Appeals ("the Board") finding that the government did not breach the terms of a supply contract with Agility. See Pub. Warehousing Co., ASBCA No. 56022, 15-1 BCA ¶ 36, 062. In its decision, the Board stated that it "need not decide whether the government constructively changed contract performance or whether it breached its implied duty of cooperation" because "whether the government breached the contract comes down to contract interpretation." Id. at 176110. The Board then interpreted the modifications to the contract and found that the government had not breached the contract. Id. at 176110-13. We agree with the Board that the government did not breach the express terms of the contract or a later agreement to consider exceptions, but find that the Board erred when it concluded that it "need not decide" Agility's implied duty and constructive change claims. We therefore affirm-in-part, vacate-in-part, and remand for further proceedings consistent with this opinion.

         I. Background

         In May 2002, the Defense Supply Center Philadelphia ("DSCP"), a sub-agency of the Defense Logistics Agency, issued a solicitation for an Indefinite-Delivery/Indefinite-Quantity commercial item type contract to provide food and non-food products to customers, including the military, in three overseas zones. Id. at 176092. On May 30, 2003, DSCP awarded a contract to Agility under which Agility agreed to supply "Full Line Food and Non-Food Distribution" to authorized personnel in Kuwait and Qatar. Id. at 176092-93. The contract allowed the contracting officer to extend the contract up to four times in one-year increments. Id. at 176093.

         The contract's pricing structure called for a "Unit Price" that would be made up of a "Delivered Price" and a "Distribution Price" (i.e., Unit Price = Delivered Price Distribution Price). Id. This case deals with the Distribution Price component of the pricing structure. Id. The original contract defined "Distribution Price" as "a firm fixed price, offered as a dollar amount, which represents all elements of the unit price, other than the delivered price." Id. The Distribution Price consists of various costs, including administrative expenses, overhead, profit, packaging costs, transportation costs from a vendor's distribution facility to the final delivery point, and any other projected expenses associated with the distribution function. Id.

         The parties modified the contract numerous times after signing it in 2003 and before signing a new Prime Vendor Contract in 2006. For the purposes of this appeal, we provide a brief summary of the modifications and contract extensions relevant to our decision before discussing the Board's decision.

         A. Modification 1

         In June 2003, the parties agreed to Modification 1 ("Mod. 1"). Id. Mod. 1 expanded the contract's service area to the Iraq deployment zone and established requirements and procedures for making deliveries in Iraq. See id. According to Mod. 1, the supply trucks going into Iraq would "travel as part of a U.S. military escorted convoy" in order to reach their various destinations. Id. Paragraph 4 of Mod. 1 provided, inter alia, "[t]rucks will return to [Agility] upon completion of unloading, and trucks will not be used at the sites for storage purposes." Id.

         B. Modification 2

         In July 2003, the parties signed Modification 2 ("Mod. 2"), which set the pricing structure for deliveries to Iraq. Id. at 176093-94. Mod. 2 set the price for refrigerated trucks, or "reefers, " at $2, 050 per truck for a three day round trip minimum, with an additional charge of $645 per truck per day for trips lasting longer than three days. Id. at 176094. For non-refrigerated, or "dry" trucks, Mod. 2 set the price at $1, 600 per truck for a three day trip, with an additional charge of $475 per day for trips lasting longer than three days. Id. Mod. 2 also provided that the number of days for which the government would pay fees for each trip would be calculated based on the "time of reporting of loading until truck(s) return(s) to [Agility] distribution facility in Kuwait." Id. Under Mod. 2, the government did not have a limit on the maximum fees payable to Agility if trucks remained in Iraq for long periods of time. Id.

         Mod. 2 also included a provision stating that all other contract terms and conditions not changed by Mod. 2 would remain the same. J.A. 2017. Mod. 2 did not have an integration clause.

         C. Modification 19

         Agility's supply trucks delivered food in Iraq using a "hub and spoke system." Pub. Warehousing Co., 15-1 BCA ¶ 36, 062, 176094. In this system, trucks travelled under military escort from Kuwait to major hubs in Iraq. Id. Some supply trucks then travelled from the major hubs to smaller spoke sites, such as forward operating bases. Id. When the supply trucks arrived at their destination, they unloaded the food at either a dining facility ("DFAC"), which hub sites typically utilized, or a mobile kitchen trailer ("MKT"), which spoke sites typically utilized. Id. Supply trucks that traveled to spoke sites would return to the nearest hub site after unloading food at the spoke sites. Id. Unloaded supply trucks at the hub sites waited for a military convoy to return back to Kuwait. Id.

         Within this delivery process, a variety of conditions created delays that kept the supply trucks from immediately returning to Kuwait. Id. at 176094-96. The chief cause for "major delays" was the lack of cold-storage equipment at some delivery locations. Id. The MKTs generally lacked cold-storage equipment, which meant that the soldiers at forward operating bases without refrigeration had no place to store items needing refrigeration (e.g., milk, fruits, and vegetables). Id. Without anywhere else to store the items needing refrigeration, the soldiers at these forward operating bases often kept the refrigerated trucks onsite to store food. Id.

         To improve the transit time of the supply trucks, the military requested that Agility place transport liaison officers ("TLOs") at the hubs. Id. at 176096. Agility submitted a plan called "Operation Prime Mover, " which involved deploying TLOs at five hubs to facilitate the mission "by strengthening the [Agility] transport and distribution network throughout Iraq." Id. On May 10, 2004, the government unilaterally issued Modification 19 ("Mod. 19") to implement a modified version of Agility's proposed Operation Prime Mover plan. Id. Under Mod. 19, Agility would deploy up to 25 TLOs to 8 hub sites in Iraq. Id. The TLOs coordinated the logistics and provided a point of contact in order to improve truck fleet and shipment visibility and improve the round trip transit time of trucks. Id.

         D. Modification 27

         1. Conditions Leading to Modification 27

         From May 17-19, 2004, Agility, DSCP, the military, and other entities held a Subsistence Prime Vendor Summit in Kuwait to "come together and work as a team . . . to help out [Agility] . . . [to] manage[] their distribution assets." Id. at 176096-97. Agility's principle message at the Summit was "we need help . . . [in] getting our assets back." Id. at 176097.

         As shown in a presentation at the Summit, DSCP data revealed that, from November 2003 to March 2004-a time period in which Mod. 2 was in effect-the average turnaround time for supply trucks was 15 days, which was greater than the 7-day turnaround time expected by the parties when they signed the contract. Id. at 176097. Some trips, however, greatly exceeded the average and resulted in large costs for the government under Mod. 2's fee structure. See id. at 176098. For example, other DSCP data showed one refrigerated truck departed Agility's facility on January 5, 2004, and did not return until June 6, 2004; under Mod. 2's fee structure, the government paid $99, 445 for this 154-day trip. Id. Other examples resulted in the government paying $82, 030; $65, 905; and $63, 325 for similarly-situated trucks that were held in Iraq for long periods of time. Id.

         Another DSCP presentation at the Summit noted the government's average monthly detention costs, which were forecasted to increase. Id. As a potential alternative, the presentation analyzed the purchase of "adequate refrigeration storage, " which potentially would reduce the government's costs and Agility's turnaround times. Id. As a result of the Summit, Lieutenant General Thomas Metz at the Multi-National Corps-Iraq Headquarters in Baghdad drafted a policy memorandum that set out procedures for returning Agility's trucks with less than 48 hours of delays. Id. The record is unclear, however, whether the policy memorandum was ever signed or issued. Id. The army also failed to deliver the necessary storage units in a timely manner, so "the procedures set out in the policy memorandum were not always followed." Id.

         In August 2004, the parties began having discussions regarding an adjustment to the uncapped fees of Mod. 2. Linda Ford, a contracting officer representing the government in its negotiations and contacts with Agility, expressed concern about the amount of money being spent for the refrigerated trucks that were being kept in Iraq. Id. at 176098. According to Ford's testimony, the parties, when signing Mod. 2, had not anticipated that truck trips would take such a long time, resulting in the government effectively paying for the entire cost of the truck in one trip. Id.

         To address the government's concerns, as well as its own regarding the length of time its trucks were kept out of service at certain MKTs, C.T. Switzer, Agility's General Manager and representative in communications with the government, proposed a change to Mod. 19's TLO program to improve logistics for getting trucks returned to Agility's base of operations in Kuwait. Id. The proposal called for sending Squad Leaders to travel with the convoys and coordinate with the TLOs, who stayed at the hubs. Id. To implement this change, Agility proposed a blanket increase of 58% to the distribution fee to add TLOs and Squad Leaders to the fee structure. Id. Ford ...

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