Appeal of the agency’s denial of a claim seeking reimbursement of unexpected security costs is dismissed, where the contract required the appellant to comply with all host nation laws and to pay for any security costs related to performance. The board noted that the Afghan government, not the agency, directed the use of the Afghan Public Protection Force for security purpose, and therefore the additional costs incurred were not the result of a constructive change to the fixed-price contract.
Parwan Group Company appealed from a contracting officer's final decision denying its claim for unanticipated security costs arising out of a fuel delivery contract in Afghanistan. The Defense Logistics Agency-Energy moved for partial dismissal for lack of jurisdiction, alleging that portions of Parwan's complaint raised claims that were not presented to the contracting officer for final decision prior to the filing of Parwan's appeal. DLA also moves to dismiss the entire appeal for failure to state a claim upon which relief can be granted.
DLA awarded Pawan a contract for the transportation of government-owned fuel products in Afghanistan. In response to security questions, the government advised that there would be no US government-provided escorts for the services and that vendors considering the use of armed private security services would not be considered for award.
Parwan interpreted those responses to mean that the use of security for any particular convoy would be left to the contractor's discretion, and that if the contractor did not provide security, it would bear the risk of non-performance for each unsuccessful shipment. Accordingly, when Parwan submitted its proposal, it did not include costs for convoy security.
The contract included two clauses requiring Parwan to comply with all host nation laws and holding Parwan responsible for all logistical and security support required for personnel supporting the contract. The PWS reiterated these obligations.
After Parwan began making deliveries, the Afghan government issued a decree stating that all convoys delivering fuel for the U.S. government using "southern routes" would henceforth be required to use security escorts. The decree further stated that private companies were no longer authorized to provide security escorts, and that Parwan would be required to use the security services of the Afghan Public Protection Force, a state-owned enterprise of the Afghan Ministry of the Interior.
Soon after, Parwan informed DLA that the new requirement to use security escorts had caused security costs for all companies transporting fuel for the government to skyrocket, and that for Parwan in particular, the increased costs had become almost prohibitive. In response, DLA advised Parwan that it was working to find a payment solution.
After the parties met to discuss a solution, DLA advised Parwan to submit a request for equitable adjustment for the change to the method of shipping and the attendant increase in costs incurred by Parwan. Around this time, Parwan notified DLA that it was experiencing delays in delivery that it attributed to the security escorts. The parties thereafter exchanged additional emails discussing the delays, with DLA twice requesting information from Parwan concerning its issues with APPF, and asking Parwan to advise of what actions could be taken to alleviate the delays in delivery. In response to one inquiry, Parwan advised DLA that it could not always determine why convoys were canceled, but generally APPF blamed security issues.
Parwan submitted three REAs, including the one subject to this appeal. In this REA, Parwan sought reimbursement for increased costs associated with the security escorts. Parwan later amended this REA to include additional costs. In March 2014, DLA denied the request for reimbursement, stating that the increased security costs were not reimbursable under the contract. Parwan filed a certified claim seeking $1.022 million and requesting a final decision on its claims. In its claim, Parwan noted that under the original contract, it was not obligated to provide any armed security, and therefore the requirement to use APPF security forces represented a material change to the contract which had raised its costs. Parwan also sought a contract modification to reflect the new security obligation, which it argued was a reasonable request because the additional expenditure was not contemplated in the award costs, is required by Afghan law and indirectly by the contract, and may result in financial ruin for the company. With respect to the increased security costs, Parwan's claim made no mention of the impact of delivery delays.
DLA denied the portion of Parwan's claim seeking reimbursement for the increased security costs. DLA denied changing the contract requirements, citing the contract provisions that required Parwan to comply with host nation law and that assigned responsibility for security to Parwan. DLA also pointed out that a fixed-price contract such as Parwan's places upon the contractor maximum risk and full responsibility for all costs, meaning that the use of APPF and any costs incurred were not reimbursable under the contract. This appeal followed.
In its appeal, Parwan asserted four grounds for relief. Counts I and II alleged that DLA changed the contract requirements, with Count II specifically alleging that the new security escort requirement constituted a constructive change. In Count III, Parwan alleged that a 15 percent increase in its overhead costs and severe delivery delays rendered its contract with DLA commercially impracticable. Count IV alleged that Parwan detrimentally relied upon DLA's repeated assurances that the increased costs ''would be taken care of," and that based upon those assurances, Parwan continued performance with the understanding that it would be "made whole" through an equitable adjustment.
DLA moved to dismiss Counts III and IV of the complaint, arguing that the board lacked jurisdiction to entertain these allegations because they were never presented to the contracting officer.
In Count III, Parwan specifically alleged that at the time of contract formation, both parties assumed transportation security was neither needed nor required to ship products along certain routes in Afghanistan, and for this reason, the solicitation did not include a requirement mandating the use of APPF escorts. As a result, Parwan did not include security costs in its bid price and argued on appeal that the increase in overhead costs and severe delivery delays made the contract impracticable to perform. DLA argued Count III was based on materially different facts than those alleged in the original claims, which did not mention commercial impracticability. Parwan disagreed, asserting this count merely presented a new legal theory rather than a new claim.
The board agreed with DLA, finding the claim did not address what the parties believed with respect to the need for security escorts, nor mention a reason the solicitation did not require security escorts. Although Parwan submitted invoices for the security escort costs with its claim, the claim document itself only minimally addresses the impact of those costs, and it is silent with respect to the impact of delivery delays. Even examining the totality of the correspondence between the parties, ASBCA did not find a claim asserting commercial impracticability within the scope of Parwan's original claim. Further, the references to financial hardship in the record were vague and conclusory. Overall, the board found the record contained no evidence Parwan ever communicated to DLA that it believed the impact of the delays was so severe that it rendered the contract commercially senseless.
In Count IV, Parwan alleged that shortly after the Afghan government imposed the new security requirement, DLA provided assurances that a "payment solution" would be found. According to Parwan, it relied to its detriment upon those assurances, and continued to perform and absorb the additional costs. Parwan again argued that this represented a new legal theory, rather than a new claim.
ASBCA disagreed. Parwan argued that the estoppel claim arose from two facts referenced in its claim—that the Afghan government required it to use APPF as security and that this change to the requirements was reinforced by DLA employees. However, ASBCA found these statements could not be reasonably interpreted as informing DLA that Parwan was asserting an estoppel claim. The board explained that equitable estoppel requires: 1) some form of misleading conduct, which may consist of silence or inaction as well as affirmative action, leading another to reasonably infer that rights will not be asserted against it; 2) reliance upon the misleading conduct; and 3) material prejudice due to the reliance.
The board found no evidence in Parwan’s claim asserting that DLA assured Parwan it would be paid, either falsely or otherwise, or that Parwan was relying upon any such assurances in continuing to incur the additional costs. Rather, Count IV introduced a new set of facts that are wholly unrelated to the claim and that materially alter the claim's essential nature. The board therefore concluded that Count IV was also a new claim.
Next, ASBCA considered Counts I and II, which DLA argued should be dismissed for failure to state a claim upon which relief could be granted. First, the board dismissed Count I. While Count I appeared to assert entitlement under the Changes clause itself, the board found no allegation of the existence of a written change order, which the clause requires.
In Count II, Parwan sought relief under a theory of constructive change, which occurs when a contractor performs work beyond the requirements without a formal order under the changes clause, due to express or implied order of the government. However, while Parwan styled the Afghan law requiring it to use APPF security services as a government demand, the board disagreed with this characterization. The contract explicitly allocated to Parwan responsibility for all security support required for contractor personnel, and further required Parwan to comply with all host nation laws. Moreover, as the complaint itself conceded, it was the Afghan government, not DLA, that mandated the use of security escorts. Accordingly, the board found that DLA’s “orders” did not effect a change to the contract but were intended to enforce the contract terms.
Parwan Group Company is represented by Eric S. Montalvo and Lauren R. Brier of The Federal Practice Group Worldwide Service. The government is represented by Daniel K. Poling, DLA Chief Trial Attorney, and Matthew Vasquez, Trial Attorney, DLA Energy.