AGILITY PUBLIC WAREHOUSING COMPANY KSCP, FKA PUBLIC WAREHOUSING COMPANY K.S.C., Appellant
JAMES N. MATTIS, SECRETARY OF DEFENSE, Appellee
from the Armed Services Board of Contract Appeals in No.
56022, Administrative Judge Peter D. Ting.
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.
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.
Lourie, O'Malley, and Taranto, Circuit Judges.
O'Malley, Circuit Judge.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Conditions Leading to Modification 27
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.
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.
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
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.
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