Having Implicitly Ratified a Contract Modification, Agency Could Not, Through an Express Ratification, Change Modification’s Terms; Crowley Logistics, Inc. v. Department of Homeland Security, CBCA 6188, 6312

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Contractor’s motion for summary judgment in an appeal of a denied claim is granted. The contractor argued that the agency had implicitly ratified the pricing terms in an otherwise unenforceable contract modification. The agency, however, argued that there was no implicit ratification because (1) the agency had expressly ratified the modification; and (2) at the time of that express ratification, the agency had changed the pricing terms. The board, however, found that a subsequent express ratification cannot eradicate a prior implicit ratification. The agency, through constructive knowledge of the unauthorized modification, had implicitly ratified the modification and was bound—regardless of a later express ratification—by what it implicitly ratified.

Crowley Logistics, Inc. had an IDIQ contract with the Federal Emergency Management Agency to provide shipping containers and transportation services between Puerto Rico and the U.S. Virgin Islands. That contract had a $4 million ceiling.

In September 2017, Hurricanes Irma and Maria hit Puerto Rico and the U.S. Virgin Islands, causing significant damage that required immediate action by FEMA. At the time, however, the only contract FEMA had to transport materials to Puerto Rico and the USVI was Corwley’s. Over the next few weeks, the contracting officer for Crowley’s contract issued notices to proceed and signed multiple contract modifications so Crowley could provide emergency transportation services. Crowley’s work quickly exceeded the contract’s $4 million ceiling.

By October 2017, the contracting officer determined that the scope of Crowley’s work exceeded the purpose and intent of the contract. The contracting officer issued a modification to the contract that (1) expanded the scope to include a full suite of transportation services, (2) increased the contract ceiling from $4 million to $100 million, and (3) added several new CLINs. The contracting officer’s contract authority, however, was limited to $25 million. Nevertheless, she sent the contract modification to her supervisor, who authorized her to increase the contract ceiling to $100 million.

Crowley continued to provide transportation serviced to FEMA over the next few months. But a question arose—given the contracting officer’s limited contracting authority—as to whether the modification was valid. In March 2018, FEMA decided to formerly ratify the modification under FAR 1.602-3 to pay Crowley for the services it had performed in response to the hurricanes. As part of that ratification, however, FEMA decided to modify the modification. Specifically, FEMA abolished the pricing terms for several CLINs that the contracting officer had added to the modification. Instead of paying the price set forth in the contract, FEMA paid only what it found to be a fair and reasonable price for the CLINs.

Crowley submitted claims to FEMA seeking for the contract price for the added CLINs. FEMA denied the claims, arguing that because the modification exceeded the scope of the contracting officer’s authority, the whole modification had been unenforceable. It only become enforceable when FEMA ratified it. And in ratifying it, FEMA had changed the pricing of the added CLINs. Crowley was thus bound by the amended CLINs, not the CLINs in the previously unenforceable modification. Crowley appealed the denial of its claims to the CBCA and moved for summary judgment.

Crowley first argued that because the contracting officer had changed the scope of the contract under the supervision of one of her superiors, she had actual authority to bind the government with the modification. But FEMA argued that the contracting officer’s superior had only authorized an increase in the contract ceiling, not the additional CLINs, so the contracting officer had no actual authority to add CLINs to the modification. The board found that factual issues precluded it from deciding on summary judgment whether the contracting officer had actual authority to add the CLINs.

But the board found Crowley’s alternative theory, implied ratification, more compelling. The board reasoned that an unauthorized contract can be implicitly ratified by one or more individuals who possess actual authority to contract. The person ratifying must have full knowledge of the all the facts on which the unauthorized contract was based. This knowledge, however, may be constructive rather than actual. Constructive knowledge can be found where it is fair to impute a subordinate’s knowledge to a superior.

FEMA attempted to argue that any implied ratification of the modification had been obviated by the agency’s express ratification. FEMA claimed that implied modification is judicial remedy that tribunals use to pay contractors when there is no other viable remedy. Because FEMA had expressly ratified the modification, the agency contended, the board did not need to invoke the remedy of implied ratification.

The board rejected FEMA’s argument. Implied ratification is not a judicial remedy imposed by a tribunal. Rather, it is a fact-based action that occurs when those in authority to ratify gain actual or constructive knowledge of an unauthorized contract commitment and then act in manner that implicitly approves of that contract. Perhaps an agency later refuses to recognize the effect of an implicit ratification, but this does not mean that the board then ratifies an unauthorized contract. FEMA could not use it express ratification to eradicate a previous implied ratification.

Here, the board found that FEMA officials implicitly ratified the contract modification. The contracting officer’s direct supervisor knew that the modification had been executed without sufficient authority. Despite that knowledge, he did not make any effort to notify Crowley that there was a problem with the contract. To the contrary, he told Crowley to continue to perform. By (1) insisting for months that Crowley continue work that had no contractual basis other than the modification, and (2) not providing Crowley any notice of a problem with the modification, FEMA ratified the modification.

FEMA attempted to argue that it could not be bound by the price structure of the modification because those who implicitly ratified it did not know what the pricing structure was. The board was not persuaded by this argument, essentially finding that the agency waived any complaint it had about price. The individuals who ratified the modification told Crowley to continue performing without looking at the price terms. They could not tell Crowley to perform and later complain about the price.

The board determined that Crowley was entitled to the contract price for the disputed CLINs.

Crowley is represented by James Y. Boland, Dismas N. Locari, and Christopher G. Griesdieck of Venable, LLP. The government is represented by Matthew G. Lane and Samantha Ahrendt of the Federal Emergency Management Agency.

CBCA - Crowley Logistics