Appeal of the agency’s deemed denial of a claim for additional costs is granted, where the agency did not have the authority to unilaterally modify the contract’s award-option plan or performance period. The award-option plan required the contractor to receive a very good or excellent rating to receive an award-option period, but the agency modified the plan to allow a satisfactory rating to trigger an award-option year. The board agreed that the award-option plan had a broad scope, but held the agency failed to properly exercise its contractual authority. The board found the agency would have been within its discretion to raise the contractor’s performance rating and thereby award the required performance extension.
Fluor Federal Solutions LLC moved for summary judgment on its claim arguing the Navy had no right to unilaterally change its contract’s Award-Option Plan and unilaterally exercise Award Option 3, thereby imposing a total fixed price of $40,581,639. Fluor’s certified claim sought $14,814,503 which is the difference between the $40,581,639 and Fluor’s estimated price for performance.
The Navy awarded Fluor a contract for base operation services which included a base year, four option years, and three award option years. Each year of the contract included firm-fixed-price and indefinite-delivery, indefinite-quantity line items. Award Option 3 included CLIN 0015, an FFP line item priced at $31,374,431, and CLIN 0016, an IDIQ line item priced at $9,207,208, for a total of $40,581,639.
After the conclusion of option year 2, the Navy found Fluor’s performance marginal and deleted award option year 1 from the contract, in accordance with the Award-Option Plan. After the conclusion of option year 3, the Navy found Fluor’s performance to be only satisfactory and deleted award option year 2 from the contract. During performance of the fourth and final option year of the contract, the Navy issued a solicitation for a follow-on contract to perform many of the same services. Fluor protested and the Navy withdrew the solicitation.
During performance of the fourth option year, the award option board rated Fluor’s interim performance as satisfactory and reminded the contractor that a final rating of very good or exceptional was required to earn the award option. The board also explained that it could nonetheless award an option year, even without a very good or exceptional end-of-period rating, if it concluded this decision was in the best interest of the government. The Navy later issued a contract modification granting itself the right to grant an award option based on a satisfactory performance rating.
Fluor objected to the unilateral modification but stated it was willing to negotiate a bilateral agreement to perform for another year. or, if the Navy would not negotiate a bilateral agreement, file a claim for its allowable costs and reasonable profit for its continued performance. The Navy did exercise the option and notified Fluor of its right to file a dispute. Fluor filed the claim in dispute in this case.
The Navy’s original position was that the modification was authorized by the changes clause. However, during proceedings, the Navy admitted that Fluor was correct and that it could not issue a unilateral modification to amend the Award Option Plan pursuant to the changes clause. Instead, the Navy argued the modification was issued in accordance with the discretion afforded by Award Option Plan. The Navy noted the plan authorized it to change the award option board’s final assessment and that the FAR allows a unilateral modification to allow for administrative changes or changes allowed by other clauses.
The Navy also argued that Fluor’s pre-award protest and stay request and the Navy’s market research caused it to cancel the solicitation. As a result, the Navy maintained there was no other contractor available to provide those services and that Fluor was well aware that the Navy may need to exercise Award Option 3.
In response, Fluor argued that the Award-Option Plan limited unilateral modifications to two circumstances: (1) deleting unearned options from the Contract; and (2) modifying the award option assessment criteria. Fluor argued the modification was a constructive change because the option exercise was not in accord with the original Award-Option Plan.
The board noted the matter was generally one of contract interpretation. First, the board agreed with Fluor that the FAR did not bestow any authority to issue unilateral modifications under the contract and that the Navy failed to identify an option clause in the contract that provided authority for it to issue this unilateral modification.
Next, the board examined three related provisions. First, the board noted the Navy abandoned its reliance on the changes clause. Second, the board explained that FAR 52.217-8, Option to Extend Services, limits agencies to unilaterally extending contracts for a total of six months. Because the modification extended Fluor’s contract for a year, this FAR clause could not be used to justify the modification. Finally, the board found that while the Award-Option Plan authorized unilateral changes in the assessment criteria for future performance periods, the modifications did not change assessment criteria and were not authorized by this section.
Next, the board examined the period of performance clause in relation to FAC 5252.217-9301, Option to Extend the Term of the Contract-Services. The clause provides that the government may extend the term of the contract in accordance with FAC 5252.217-9301 and the Award-Option Plan so long as the contract term does not exceed 96 months.
Standing alone, FAC 5252.217-9301, authorizes up to a 12-month extension with no conditions other than proper notice, and would authorize the Navy’s unilateral modification. However, the board held FAC 5252.217-9301 must be read in conjunction with the period of performance clause. Therefore, the authority granted by FAC 5252.217-9301 must be used in support of the Award-Option Plan.
The Navy argued the Award-Option Plan authorized it to issue the unilateral modification. The plan required that the contractor receive a very good or exceptional end-of-period performance rating to be eligible for an award-option period. It required evaluators to make the award-option determination based on the listed assessment criteria. The plan provides the agency the discretion to change the end-of-period rating as a result of: (1) extraordinary input from the activity or other sources; (2) trends in performance in all functions or any general economic or business trends which may affect performance capability; or (3) any other information the agency determines is applicable to the contractor’s performance assessment.
The board concluded that the plan allowed the agency to increase the recommended rating of Fluor’s performance. Had the agency raised the rating from satisfactory to exceptional, it could have justified the 12-month extension without resort to FAC 5252.217-9301 or the modification that altered the award-option plan. Stated another way, the Navy had a way to do what it did, and the board then turned to the question of whether the Navy’s action complied with what the contract required to raise the rating to exceptional.
The board concluded that the agency erred. The Navy modified the award option plan to allow awarding an extension of 12 months based on an end-of-period rating of satisfactory “for the convenience of the agency,” which the board held was not one of the three criteria for altering the end-of-period performance rating. The agency could have raised Fluor’s rating based on one of the three criteria, which would have granted it the authority to extend the contract. However, it opted to alter the plan for reasons not related to the contractor’s performance.
The board concluded that the Navy was correct about the broad scope of the award-option plan, but failed to properly exercise its authority. The board held the Navy had no authority to issue the unilateral modification changing the award-option exercise criteria to satisfactory. There being no other way to authorize the unilateral change, the modification was unenforceable. The board then granted Fluor’s motion for summary judgment.
Fluor Federal Solutions LLC is represented by John S. Pachter, Jennifer A. Mahar, and Kathryn T. Muldoon Griffin of Smith Pachter Mc Whorter PLC. The government is represented by Craig D. Jensen, Navy Chief Trial Attorney, and Russell A. Shultis, Trial Attorney.
