Posted on Monday, Jul 23, 2012
The Court of Federal Claims (CFC) recently confirmed that it does not use a crystal ball to divine what a contract means. Instead, it looks to the contract’s plain language when determining whether a party breached its terms.
In 1993, System Planning Corporation (SPC) signed a contract to provide security software for several Air Force bases. In March 2000, the USAF inked a contract with Mosler–SPC’s subcontractor. In April 2000, the USAF advised SPC that Mosler was making modifications to the SPC software. Should the USAF be able to modify SPC’s software without SPC’s permission? It seems like SPC should have some rights. SPC thought so too. And SPC’s response was to file a certified claim in October 2000. But SPC filed that claim under the option clause of the contract. The contract included an option clause that stated in part: “Should the contractor be in danger of default, in a nonperformance posture under this contract, or discontinue the…software line after the system is installed at one or more bases, the Government may exercise the contract option to buy limited software data rights….The computer software may be modified or adapted by the Government to support the system over its life cycle provided that the additional, negotiated fee is paid for the software code.” Thus, SPC demanded that the Government pay the $7 million negotiated fee stated in the contract for altering its software.
But apparently the Contracting Officer was not in a hurry to decide the claim. And SPC was not in a hurry to pursue the claim. After waiting almost seven years without receiving a final decision of the Contracting Officer, in September 2007, SPC regarded the failure to respond to the claim as a deemed denial and filed suit at the CFC. On June 20, 2012, the CFC heard oral argument on the parties’ cross-motions for summary judgment.
You know where this is going. The contractor was not in danger of default. The contractor was not in a non-performance posture. The contractor had not discontinued the software line. Result? The conditions for exercising the option had not taken place so there could be no exercise of the option. Twelve years after it had submitted its claim, SPC had its answer. You lose.
That doesn’t seem like a fair result. But technically the USAF never exercised the option. Was there another way to achieve justice? Maybe. Courts have applied contract clauses before when the exact letter of the clause has not been met. Think constructive change and constructive termination. How about a constructive exercise of the option? The case is System Planning Corporation v. United States. The decision can be be found at http://www.uscfc.uscourts.gov/sites/default/files/HEWITT.SYSTEM071112.pdf
*Lara Jensen, a law clerk, also contributed to this blog. Blogs