CBCA Holds COVID-19 Does Not Alter Interpretation of or Create Basis to Reform Contract; MLB Transportation, Inc. v. Department of Veterans Affairs, CBCA 7019

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Appeal seeking to recover indirect costs is dismissed. The contractor provided transportation services. As a result of the COVID-19 pandemic, revenue dropped, and the contractor could not cover the costs associated with it vehicles. The contractor submitted a claim seeking reimbursement of the vehicle costs. But the board noted that the contract did not contain a minimum guarantee of services to be ordered. The pandemic did not create a basis for the board to read a minimum guarantee clause into the contract. The contractor was only entitled to recover the costs of the services provided not indirect costs associated with those services. Because the appeal only sought to recover indirect costs, it failed to state a claim.

MLB Transportation, Inc. had a contract with the Department of Veterans Affairs to transport patients from a VA hospital to their homes. The contract did not contain language indicating that it was an IDIQ contract. Nevertheless, it appeared the parties treated it as an IDIQ contract. The contract’s line items listed a quantity of trips. MLB sought payment by invoicing the VA for quantities smaller than those listed in the contract.

Up until the Spring of 2020, MLB had been invoicing the VA between $60,000 and $80,000 per month. But once the COVID-19 pandemic hit, MLB’s invoices dropped to $11,000 to $20,000 per month. Due to this loss of revenue, MLB no longer had income to cover the insurance premium and financing costs for its vehicles. MLB submitted a claim to the VA seeking the insurance and finance costs. The VA denied the claim. MLB appealed to the CBCA.

The parties both acknowledged that the contract was intended to be an IDIQ contract but that it lacked a guaranteed minimum clause. The board noted that an IDIQ contract that lacks a guaranteed minimum is illusory and unenforceable because the government had not made a binding promise regarding the minimum amount it will purchase. Nevertheless, MLB contended that it should be able to recover costs based on expectations of past dealings.

But the board reasoned that MLB’s expectation based up on the parties’ past dealings do not address the illusory nature of the contract. Moreover, even though neither party foresaw the impact of COVID-19, the pandemic did not alter the interpretation or create a basis to reform an agreement entered into before the pandemic.

The board opined that while the contract was not enforceable at its inception, it became valid and binding to the extent it was performed. Thus, the VA was obligated to compensate MLB for the services actually provided, but MLB was not entitled to additional costs or profits. MLB had not alleged in its claim that it not been paid for services rendered. Rather, its claim was for indirect costs that it could not recover because the VA ordered fewer rides than expected due to the pandemic. Since MLB had not alleged a claim for the cost of services it provided, it failed to state claim.

MLB is represented by James L. Hughes and Les A. Schneider of Wimberly, Lawson, Steckel, Schneider & Stine, P.C. The government is represented by Laetitia C. Coleman and Neil S. Deol of the Department of Veterans Affairs.

CBCA - MLB Transportation