Government’s motion for summary judgment in case alleging breach of contract is denied. A municipality sued the government alleging that it had breached partnership agreements executed as part of a port renovation project. The government moved for summary judgment, arguing, in various ways, that the agreements were unenforceable. First the government claimed the agreements lacked consideration. The court, however, found that the government had received significant monetary and nonmonetary consideration. The government also argued that its obligations had been created by law and thus could not be enforced in a contract action. But the court found that while Congress had appropriated funds for the project, the appropriation had not created any legal obligations; rather, the government’s obligation had been created by the contract.
The City of Anchorage determined that its port needed to be updated. In 2011, Anchorage began pursuing federal funding and agencies to help with the renovation of the port. Anchorage ended up partnering with the Department of Transportation’s Maritime Administration (MARAD). Congress enacted legislation authorizing federal funds for the project.
To formalize their partnership, Anchorage and MARAD signed a memorandum of understanding in 2003. Under that memorandum, MARAD agreed to provide technical expertise and to obligate and disburse funding for the engineering, design and construction of the port. Under the 2003 memorandum, MARAD was entitled to administrative costs at 3% of funding received. In furtherance of this partnership . MARAD entered an IDIQ contract with Integrated Concepts and Research for design and construction of the new port.
In 2011, the parties renegotiated the arrangement, which resulted in a new memorandum of agreement. The 2011 memo redefined the parties’ roles and responsibilities and created a project oversight organization to ensure accountability. The 2011 memo continued to provide that Anchorage would transfer 3% of funding to MARAD to cover administrative costs.
By the end of project over $306 million had been transferred to MARAD for construction of the port. Of this amount, $139 million were federal funds while Anchorage provided a little over $163 million.
In 2014, Anchorage sued the government alleging breach of the 2003 and 2011 memos. Anchorage alleged the government had breached by settling claims filed by the prime contractor, Integrated Concepts. The government moved for summary judgment alleging that 2003 and 2011 memos did not create any binding obligations.
The government contended the memos were unenforceable due to a lack of consideration. The government claimed that Anchorage could not prove that it had paid the 3% administrative fee to cover administrative costs. Rather, the government argued that MARAD had spent the money received from Anchorage on the contractor’s construction costs. The government claimed ts administrative costs had been paid with federal money. Essentially, the government asserted, Anchorage had not really paid the government to do anything as part of the partnership, so there was no binding contract.
The court rejected this argument. There was no dispute that Anchorage transferred $163 million to MARAD. That transfers were made in exchange for services that MARAD provided to the project. The government’s own reports showed that it had used at least $14 million of the Anchorage money to cover administrative costs—e.g., legal fees, settlement of claims, audits, salaries. The court found that the contracts were supported by monetary consideration.
Indeed, the court found that the agreements were supported by nonmonetary consideration. As part of the project, the government received a new direct access road between the port and an Air Force base and new staging areas for military deployment.
Next, the government contended that the obligations that were allegedly breached had been created by law—that is, by Congressional directive—rather than through the execution of agreements. Because these legal obligation created by Congress, the government argued, Anchorage could not enforce them through a contract action.
The court examined the authorizing and appropriate legislation that Congress enacted to for the port project. The court found the legislation simply granted MARAD general authority to administer the project. The appropriation statute was silent as to how MARAD was supposed to administer the funds. The court opined that appropriations legislation in fact permitted MARAD to incur an obligation—i.e., to enter contracts. The statute did not create an obligation. Thus, it was clear that MARAD’s obligations were created by contract not by the law.
Finally, the government asserted in various ways that the 2003 and 2011 memos were not binding because government was not entitled under federal law charge or retain a fee. The government argued the fee violated a clause under the U.S. Constitution that prohibits the withdrawal of Treasury money — Anchorage paid MARAD through the Treasury Department) — without an appropriations statute. But in this case, Congress had passed an appropriation. That statute did not prohibit the charging of 3% fee.
The government claimed that the MARAD was precluded from accepting a fee under the Miscellaneous Receipts statute, 31 U.S.C. § 3302. But that statute merely provides that government officials must promptly deposit money they receive into the Treasury. The statute does not prohibit a 3% fee.
Citing GAO’s rule against augmentation, the government argued that agencies may not transfer funds between appropriations without specific authority and thus it MARAD lacked the authority to retain any federally appropriated funds for agency use. The court simply found that this was not an issue. Nothing in the GAO’s augmentation rule prohibited MARAD from accepting a fee.
