Appeal seeking reformation of a contract is sustained where the government provided the contractor with inaccurate data during the bidding process. The ASBCA found that both the government and the contractor had a mistaken belief about the data, that belief was a basic assumption of the contract, and it resulted in a serious price imbalance that materially impacted the bargain.
The government issued a solicitation for maintenance of T-6 Texan II aircraft at various military bases. The solicitation required offerors to propose a fixed Cost Per Flight Hour rate for each base. To calculate this rate, offerors needed historic parts usage data from the bases. Accordingly, the government provided offerors with historic usage reports that had been prepared by an incumbent subcontractor. But the usage report contained an error—it switched a data set from one base with date from another.
Unaware of this error, offerors relied on the usage reports in bidding on the maintenance contract. The government awarded the contract to DynCorp International LLC. A couple years into performance, DynCorp noticed that it was losing money under the contract. After an investigation, DynCorp discovered the error in the usage reports. DynCorp submitted a claim. The government denied the claim, and DynCorp appealed to the ASBCA seeking reformation of the contract.
The board noted that a party is entitled to reformation of a contract if they can show by clear and convincing evidence that (1) both contracting parties were mistaken in their belief about a fact, (2) that mistaken belief was a basic assumption of the contract, (3) the mistake materially impacted the bargain, and (4) the contract did not place the risk of the mistake on the party seeking reformation.
The government argued that DynCorp had not satisfied the first element because it had not shown by clear and convincing evidence that the parties were mistaken about the accuracy of the usage reports. The government primarily challenged the credibility of testimony from employees of the incumbent subcontractor that had prepared the usage reports. The government contended, among other things, that the employees were not credible because they did not testify as a corporate representatives, did not personally create the usage report, and had speculated as to the report’s errors.
The board rejected all of these arguments. No authority required a designated corporate representative to present a company’s beliefs. Additionally, the fact that one of the testifying employees did not create the usage report was irrelevant. His testimony was based on a comparison of the underlying data with the usage report. Moreover, the government’s concerns about speculation were unfounded. While one of the employees speculated about the reasons the errors occurred, he did not speculate about the existence of the errors.
Having determined that the first element was satisfied, the government addressed the second element: was the mistaken usage report a basic assumption of the underlying contract? The board found that the usage report was a basic assumption because the usage data played a significant role in the calculation of DynCorp’s price. The government attempted to argue that other factors played a significant role in the price calculation. But the board reasoned that multiple factors played a role in calculating price. This did not negate the significant role of the usage report.
The board further found that the usage report had a material effect on the bargain. The error in the usage report related to high cost aircraft parts and resulted in a pricing imbalance so severe that DynCorp could not be expected to perform at that price.
Finally, the board found that DynCorp had not assumed the risk of an error in the usage report. The report contained no disclaimer as to its accuracy, and nothing in the contract indicated that DynCorp had assumed such a risk. Faced with a situation where neither party knew of a latent error, the board allocated risk to the party best able to bear it, i.e., the government.
DynCorp is represented by Gregory S. Jacobs and Erin L. Felix of Polsinelli PC. The government is represented by Jeffrey P. Hildebrant, Jason R. Smith, and Lt. Col. Byron G. Shibata of the U.S. Air Force.ASBCA – DynCorp