559 F.2d 1 | Ct. Cl. | 1977
Lead Opinion
delivered the opinion of the court:
The primary issue in this case is one of contract interpretation. The point in controversy is whether the United States was contractually obligated to purchase from the plaintiff, Coastal States Petrochemical Company ("Coastal States”), the requirements for JP-4 fuel
The case comes before the court on defendant’s exceptions to the recommended decision of Trial Judge Harry E.
After having carefully considered the trial judge’s recommended decision and findings of fact, the defendant’s exceptions thereto, and the parties’ briefs, after oral argument, we agree with the defendant that the contract in issue is an indefinite quantity type contract and that the Government in good faith has met all obligations which it had to plaintiff under the contract. Accordingly, the trial judge’s findings of fact,
I
Conventional Government Procurement Patterns: The Defense Fuels Supply Center ("DFSC”), Defense Supply Agency, Department of Defense ("DOD”), has the mission of procuring, among other things, JP-4 jet fuel for the military services and federal civil agencies on a worldwide basis.
To some time in 1967, the Domestic Fuels Division, DFSC, solicited domestic suppliers of JP-4 jet fuel for use in the United States, including Alaska and Hawaii. In so doing, the Domestic Fuels Division utilized the DOD import
During that same period, DFSC’s Overseas Division procured the anticipated needs of United States forces in Europe and in the Western Pacific by contracts, negotiated with foreign refiners located outside the United States, its territories, and possessions, for delivery of JP-4 jet fuel to Europe and to the Western Pacific.
As military operations in the Western Pacific and in Southeast Asia steadily increased, however, defendant found not only that supplies of JP-4 jet fuel normally imported for domestic use were required for shipment to Europe and Southeast Asia but also that it was necessary to procure additional quantities of such fuel from United States domestic sources, at higher prices, for shipment to Southeast Asia and Europe. Thus, by late 1967, a departure from the traditional patterns of procurement of JP-4 jet fuel described above occurred, in that quantities of JP-4 jet fuel needed for use in Europe and in the Western Pacific were included in domestic solicitations, with such "overseas”. quantities designated for statistical purposes as "restricted to U. S. refined product,” in order to return to this country as many procurement dollars as possible.
The Solicitation: On February 5, 1969, DFSC issued bid solicitation DSA 600-69-B-0161 (also "IFB”), involving a 6-month purchase program of a portion of defendant’s projected JP-4 jet fuel needs for the period July 1 to December 31, 1969.
The IFB, issued to 168 firms,
The IFB contained a 41-page schedule of anticipated fuel needs for the period July 1 to December 31, 1969, listing the more than 300 separate military and civilian using activities both within and outside the United States and setting forth an estimate, in gallons, of each such activity’s JP-4 jet fuel needs for that 6-month period.
The schedule also grouped the using activities into four geographic areas (East Coast, Gulf Coast, Inland, and West Coast). Bidders were invited to bid on all or any portion of the anticipated fuel needs included in the IFB and were advised of defendant’s preference for bids on an origin basis but were also advised that, with the exception of one item, bids could be submitted on either an origin or a destination basis.
The exception referred to was Item 365, designated "West Coast Offshore.” As to Item 365, the ultimate destinations of the 189 million gallons of JP-4 jet fuel involved were impossible to predict; so the solicitation indicated that only offers on an origin basis would be considered. With respect to this bid item, the IFB provided that:
Item 365 is a one time procurement in support of Southeast Asia and in implementation of the Balance of Payments Program. The requirements represented by the above are needed at various Pacific bases. The*527 requirements at individual bases are not certain. Accordingly offers are desired on an origin basis only and destination offers for this item will not be considered. For evaluation purposes only, the destination will be considered to be Guam. * * * [Emphasis in original.]
The IFB also contained a "Balance of Payments Restrictions” clause providing that only products refined in the United States were to be considered for those offshore items. However, the balance of payments clause in the domestic IFB did not preclude suppliers which were covered by both an offshore IFB and the domestic IFB from furnishing foreign-refined JP-4 fuel to the offshore using activities; it merely precluded suppliers bidding under the domestic IFB from furnishing foreign-refined JP-4 fuel for the offshore quantitites listed therein.
The IFB also stated that DOD did not at that time intend to use any of its finished products import quota for purchases under the contract.
The offshore portion of the IFB, or 371,960,000 gallons, represented only a fractional part of defendant’s total projected overseas needs for JP-4 jet fuel during the second half of 1969. In February and March 1969, five other solicitations for bids calling for delivery, during that same period, of JP-4 jet fuel to defendant for overseas needs were issued.
These five parallel solicitations ("offshore IFBs”) were not subject to any balance of payments restrictions, and fuel supplied to defendant pursuant to them was not limited to "U. S. refined only” product. They invited offers for delivery of JP-4 jet fuel for use in Vietnam, Thailand, the Philippines, Okinawa, Japan, Korea, Taiwan, Turkey, Italy, Libya, the United Kingdom, and Germany. As a result of the offshore IFBs, contracts covering 1,396,304,000 gallons of JP-4 jet fuel were awarded to some 31 foreign suppliers. At the time here relevant, foreign refiners could, and did, underbid domestic refiners subject to balance of payments restrictions.
While most of the overseas points of use, or delivery, specified in the offshore IFB differed from the overseas delivery points specified in the domestic IFB, the offshore IFBs and the domestic IFB did overlap, to a certain degree,
The Contract Awarded to Coastal States: Plaintiff responded to the IFB on March 14, 1969, and on May 28, 1969, plaintiff was awarded a contract to supply to defendant an estimated 182,516,000 gallons of JP-4 jet fuel for a total contract price of $19,017,842.40. Of this total gallonage amount, 151,200,000 gallons were destined for overseas locations;
The contract thus committed plaintiff to supply to defendant an estimated 30 million gallons of JP-4 jet fuel per month, if ordered, over a 6-month period. However, the contract also contained "final order” option provisions giving defendant a right to add to that obligation on the final order placed under any item of the Schedule and a "Scope of Contract” clause providing in part as follows:
IVBla SCOPE OF CONTRACT (DFSC 1968 JUN)
(a) The Contractor shall furnish and deliver * * * the supplies and perform the services set forth in the Contract Schedule, for the prices payable according to the terms thereof, in such quantities as may be ordered by the Ordering Officer during the ordering period specified in the Schedule; in consideration therefor, the Government shall order, accept and pay for, on the terms and subject to the conditions set forth herein, supplies or services having an aggregate value at the prices payable under this contract of not less than $100.00 * * *.
Also, the "Termination for Convenience of the Government” clause in plaintiffs contract expressly provided that it "shall apply only to orders placed under this contract.” (Emphasis supplied.)
The Contract Cutback: On July 28, 1969, shortly after these contracts became effective, DFSC was notified that worldwide Air Force usage of JP-4 jet fuel during the
On August 29, 1969, the Chief, Domestic Fuels Division, DFSC, wrote to plaintiff in part as follows:
* * * the demand for JP-4 to be supplied under your Contract * * * to the Air Force will be reduced from 182,516,000 gallons to 78,728,950 gallons. The Department of the Air Force is being instructed not to place orders in excess of the revised quantity through 31 December 1969 without prior approval of this Center.
Over the remaining term of plaintiffs contract, the actual reduction from the estimated requirements stated therein amounted to 105,666,968 gallons, or some 57 percent of the initial contract amount.
The Basis Upon Which the Cutback was Implemented: The manner in which defendant decided to, and did, make the cutback in plaintiffs estimated contract amounts just described (and a cutback in the estimated amounts of JP-4 jet fuel set forth in the contracts of 14 other domestic suppliers as well) is at the center of the dispute between the parties.
Upon establishing that the maximum quantities of JP-4 jet fuel under contract to defendant for the period ending December 31, 1969, pursuant to all six of the solicitations described above, were approximately 399 million gallons in excess of the estimated reduced needs of the DOD for that period, DFSC weighed the alternative courses of action available to it. The decision ultimately approved by the Deputy Assistant Secretary of Defense (Supply and Services) was to reduce orders under all existing contracts on a most economical basis.
The reduction was carried out on a worldwide basis; fuel needs that remained open under all existing JP-4 jet fuel
In the re-evaluation, United States suppliers such as Coastal States were accorded no economic concession for the fact that they were contractually obligated to deliver, in accordance with the balance of payment restrictions in the contract and the foreign product import restrictions, fuel that had been domestically refined and which was higher priced than foreign-refined fuel. In other words, this competitive re-evaluation and re-allocation of remaining fuel demands was carried out notwithstanding the balance of payments and import quota restrictions that originally applied in the JP-4 contract that had been awarded to plaintiff.
Following the re-evaluation, anticipated reductions in orderings of JP-4 jet fuel under all existing contracts were made and formally announced to plaintiff and to the 14 other affected companies by letters from DFSC dated August 29, 1969. The total reduction in orderings so announced amounted to 396,744,612 gallons.
Among these 15 suppliers, plaintiff absorbed the greatest share of the total cutback. Its original contract to supply a maximum 182,516,000 gallons was cut to 78,728,950 gallons, approximately a 57 percent reduction of the initial ’ award. This difference of 103,787,050 gallons represented 26 percent of the total cutback that was effected.
Plaintiff contends that the language of the contract, the conduct of the parties, and the commercial setting in which the contract was formed all confirm that defendant was contractually obligated to purchase from plaintiff the requirements for JP-4 jet fuel that existed during the contract term and that, given such an obligation, defendant plainly breached it. To plaintiff the breach occurred during the implementation of the cutback when defendant competitively evaluated both domestic and foreign suppliers on the basis of price alone; the inevitable result of that evaluation was that the reduction would fall entirely upon domestic rather than upon foreign refiners. Plaintiff adds, alternatively, that defendant also failed to live up to the high degree of good faith demanded of it when it failed to warn plaintiff at the outset that cutbacks would be carried out on the basis of price alone.
In defense of this action, defendant contends that the contract language, defendant’s need for flexibility, and the conduct of the parties require the conclusion that defendant’s only obligation under that contract was to purchase from plaintiff a minimum of $100 worth of JP-4 jet fuel during the contract period; that under plaintiffs contract plaintiff was not to supply all the needs of any of the using activities listed in the IFB; and that when defendant’s anticipated needs did not materialize, plaintiff was simply supplanted by lower-priced domestic suppliers who had been awarded contracts under the same bid items. In short, defendant contends that its contract with plaintiff was an indefinite quantity, open-end contract and that the only obligation it owed to plaintiff was to satisfy in good faith a minimum purchase requirement, which it did.
II
A. We agree with the trial judge’s reasoning that:
*532 * * * [b]ecause of the very nature of the procurement (and the product) involved, plaintiffs contract was clearly not such a "requirements” contract in any customary sense. See Albano Cleaners, Inc. v. United States, 197 Ct. Cl. 450, 455 F. 2d 556 (1972); Franklin Co. v. United States, * * * [180 Ct. Cl. 666, 381 F. 2d 416 (1967)]; E. H. Sales, Inc. v. United States, 169 Ct. Cl. 269, 340 F. 2d 358 (1965); Goldwasser v. United States, 163 Ct. Cl. 450, 325 F. 2d 722 (1963). [T.J. op. at 21-22.]
Plaintiff, either alone or in conjunction with others, did not have an absolute, unconditionally vested contract right to supply JP-4 jet fuel to meet the needs of any particular destination. Rather, the parties were cognizant that the procurement would result in a considerable number of separate, incremental contract awards to suppliers on a least-cost, basis to defendant. While, in theory, each gallon of JP-4 jet fuel for which defendant awarded plaintiff a contract was, at the time of award, destined for a particular terminal, either within or without the United States, defendant’s patent need for flexibility arising from ullage problems, changes in missions of using activities, increases or decreases in contemplated usage at particular using activities, availability of transportation, and changes in priorities of need meant that in actuality any fuel defendant purchased from anyone during the contract term might go anywhere.
An indefinite quantity, open-end contract is used in a situation where the United States cannot estimate its needs except in terms of minimums and máximums;
Plaintiff focuses on these definitions and argues that "the specificity of estimates set out in the subject contract completely undercuts the idea that an indefinite quantities contract was contemplated”; plaintiff also contends that the same conclusion was reached by this court in E. H. Sales, Inc. v. United States, 169 Ct. Cl. 269, 340 F. 2d 358 (1965), and in Goldwasser v. United States, 163 Ct. Cl. 450, 325 F. 2d 722 (1963). We do not agree with plaintiffs arguments.
The regulations which define an indefinite quantity contract provide that such a contract should state both a minimum quantity and a maximum quantity and that the maximum "should be as realistic as possible,” and further, the regulations provide that "the maximum may be obtained from the records of previous requirements and consumption.” We feel that the degree of specificity present in a few of the estimated maximum quantities in the IFB is owing to the precise Knowledge of past consumption, not to the precise knowledge of future needs, and therefore provides no basis for determining whether the contract is a requirements or an indefinite quantity type contract. Moreover, the E. H. Sales, Inc. and Gold-wasser cases lend no support to the plaintiffs position.
The contract involved in the Sales case listed 183 particular pieces of equipment, each specifically described by purpose, size, and manufacturer, which were to be repaired and overhauled by the contractor. Because only 38 of the listed machines were actually delivered for repair and overhaul, the contractor suffered an increase in unit costs and therefore initiated a claim for equitable adjustment under the "Changes” clause in the contract. The Government defended its action by claiming the contract was an indefinite quantity contract and that its obligations were restricted to the minimum dollar amount that had
In the instant case, we do not have the specificity that was involved in Sales. As previously mentioned, the Government, at the time of contracting for the JP-4 jet fuel, was not describing needs which had already arisen — it was estimating future needs based on past experience. The actual demand would depend upon the vagaries of weather, level of combat engagement, pace of general military operations, transfer of aircraft from one base to another, and loss of aircraft in battle; none of which could be accurately predicted at the time of contracting. Therefore, as we stated in Sales:
This * * * [indefinite quantities] provision is applicable and entirely proper ip a contract where the Government does not know what its requirements will be * * *.14
Likewise, the Goldwasser case does not lend support to the plaintiffs argument. The contract in Goldwasser called for the printing and delivery of a weekly newspaper over a 50-week period in sufficient quantities to supply each employee of the New York Naval Shipyard with a copy. The contract provided for a minimum number of copies per issue, with the Government reserving the right to add increments. When the contracting officer had terminated the contract, the contractor sued. The Government defended the action on the basis of the indefinite quantities clause and the termination for convenience clause.
Although the court rejected the Government’s theory that the contract involved in Goldwasser was an indefinite quantity type contract, Goldwasser does not support Coastal State’s argument in the instant case.
* * * In such a situation, the indefinite-quantities clause fits the situation; it enables the Government to procure needed supplies but does not commit it to buy too much or at the wrong time.15
Nevertheless, plaintiff does not rest its arguments only on the detail with which projected needs were specified. In addition to that, plaintiff focuses on the conduct of the parties and on the express language in the solicitation and award documents, which plaintiff argues reinforce the conclusion that the United States negotiated a requirements type contract.
With relation to the conduct of the parties, plaintiff contends that the formal contract modification which the parties entered into on July 3, 1969,
We have analyzed the Sales case and find it inapposite to the instant case. The modification in Sales was contradictory to the indefinite quantity contract concept because it increased the obligations of the parties. The modification which Coastal States and the Government entered into on July 3, 1969, did not call for the sale of any additional product; it merely changed the place and method of delivery within the same service; it in no way altered the total maximum quantity which plaintiff was obligated to deliver, if ordered, or the minimum quantity which the Government was obligated to order. Consequently, we view the modification in this case as completely consistent with the contract between the parties being an indefinite quantity contract.
We have also examined the express language in the solicitation and award documents, upon which plaintiff relies to reinforce its conclusion that the United States negotiated a requirements type contract.
*536 The following items being purchased hereunder are in implementation of the Balance of Payments Program. With regard to those items, the Contractor shall deliver only product which has been refined in the United States: [Following this paragraph is a per-item breakdown of the fuel that was awarded to Coastal States.]
B. Since we interpret the contract as an indefinite quantity, open-end contract, we do not view the minimum obligation clause to be disharmonious with the contract as a whole.
Plaintiff points to two clauses in the solicitation: first, the Import Quota clause, wherein the DOD had stated that it "does not presently intend to utilize any of its 'finished products’ import quota for purchases under this solicita
We are not sympathetic with plaintiffs position for two reasons: first, we do not believe that the Import Quota clause and the Balance of Payments Restrictions clause support the inference which plaintiff made; and second, we believe that plaintiff assumed the risk of not receiving a contract for all or part of the estimated quantities on which it bid when it bid prices so close to the cut-off point (i.e., the highest price defendant had to agree to pay for the jet fuel it ordered).
On the basis of the Import Quota and the Balance of Payment provisions, we do not believe that plaintiff could have reasonably concluded that it would be in competition on the solicitation quantities with domestic suppliers only. The balance of payments provision applied only to 14 percent of the JP-4 fuel to be procured under the IFB; therefore, foreign-refined products could have been offered under the vast majority of the contract items. Consequently, plaintiff could not reasonably infer from the balance of payment provision that it would not be competing with foreign-refined fuel.
With relation to plaintiffs bidding practices, plaintiff was well aware that a significant portion of the estimated quantity of JP-4 jet fuel to be procured under the instant solicitation was incremental to the normal needs of the Government and was due to the greatly increased demand caused by the military activity in Southeast Asia. Plaintiff also realized that when the military activity receded, the quantities of fuel needed would also decline. Therefore, to maximize its profits while the military campaign lasted, plaintiff bid prices that were very close to the cut-off point. Plaintiffs judgment was that contract awards pursuant to the solicitation would place an additional demand on domestic refineries without any corresponding, significant increase in domestic supply capability. In bidding prices so close to the cut-off point in order to maximize its profits, plaintiff necessarily assumed the risk of misjudging the market and not receiving a contract for all or part of the estimated quantities on which it bid. When the Government learned that its actual demand for JP-4 jet fuel would be significantly lower than the original estimated quantities, the Government returned to its historical patterns of supply and returned to the channels of distribution existing prior to the instant solicitation. However, there is no evidence in the record of any foreign supplier, after the announced cutback, supplying the needs of any of the using activities identified for plaintiffs items which that foreign supplier was not already supplying before the cutback.
Although we find no evidence that the Government lacked good faith when it dealt with the plaintiff, we must, nevertheless, address plaintiffs charge.
Plaintiff cites Gemsco, Inc. v. United States
In Gemsco a contractor had been awarded a contract in December 1943 to manufacture metal insignias for Naval uniforms. Notwithstanding that the Government knew that the contractor had begun to manufacture the insignias, the Government redesigned the insignia in April 1944, without notifying the contractor of the change in design. The contractor did not learn of the change until late June 1944, after already having manufactured a considerable quantity of the insignias. This court held that the contracting officer’s failure to promptly notify the contractor of the design change was a breach of the "Changes” clause and a violation of the standard of good faith ordinarily required of the Government acting through its agents.
Unlike the Gemsco case, the Government here did not stand mute while plaintiff proceeded to perform the contract to its detriment for lack of information known only to the defendant. Plaintiff and the other contractors were informed of the anticipated reduction in JP-4 fuel usage within two days after the DFSC received the information. The DFSC then determined the effect of the reduction on each individual contractor by repeating the contract award evaluation process, this time using the
JP-4 fuel is a volatile mixture of kerosene, raffinate grade gasoline (82 octane), and naphtha. Although the fuel, in the United States, is limited in use to military applications, its components can be utilized commercially.
The trial judge’s findings of fact, copies of which have been distributed to the parties, are not printed because those essential to the decision appear in this opinion.
Anticipated needs of JP-4 jet fuel for use outside the United States, its territories, and possessions are traditionally obtained by contracts negotiated by the Overseas Division of the DFSC, under the authority of 10 U.S.C. § 2304(a)(6) (1970), with foreign refiners located outside the United States, its territories, and possessions.
Import quotas are allocations granted by the Department of the Interior to historical importers (including DFSC) to import a maximum quantity of a certain number of barrels per day of foreign-finished petroleum products into the United States. The use of DOD’s import quota in procuring JP-4 jet fuel was suspended late in 1967.
As will appear, defendant issued five other solicitations for bids calling for delivery during that same period of vast amounts of JP-4 jet fuel for overseas needs.
In response to the IFB, defendant received 77 bids on one or more of the more than 300 items contained therein; and 71 domestic suppliers (including plaintiff) were awarded contracts.
A bid, on either an origin or a destination basis, was evaluated by defendant on a least-cost approach, i.e., the lowest laid-down price (cost plus delivery expense) to a particular destination.
Of the total "offshore” gallonage, a total of 100,961,100 gallons were required by the contract to be "refined in the United States”; accordingly, 50,238,900 gallons were not subject to such a restriction.
The result of that return to historical patterns was that U. S. Gulf Coast fuel would again cease to be used so extensively in the Pacific, and Caribbean fuel would again be used to meet anticipated needs in Europe and the continental United States.
In fact, considerable amounts of plaintiffs origin delivery JP-4 fuel, theoretically designated for overseas use, were delivered to, inter alia, Alaska, Florida, Georgia, and South Carolina.
32 C.F.R. § 3-409.3 (1975) describes indefinite quantity contracts, in pertinent part, as follows:
"3-409.3. Indefinite Quantity Contracts.
"(a) Description. This type of contract provides for the furnishing of an indefinite quantity, within stated limits, of specific supplies or services, during a specified contract period, with deliveries to be scheduled by the timely placement of orders upon the contractor by activities designated either specifically or by dass. The contract shall provide that during the contract period the Government shall order a stated minimum quantity of the supplies or services and that the contractor shall furnish such stated minimum and, if and as ordered, any additional quantities not*533 exceeding a stated maximum which should be as realistic as possible. The maximum may be obtained from the records of previous requirements and consumption, or by other means.” * * *
32 C.F.R. § 3-409.2 (1975).
169 Ct. Cl. at 274, 340 F. 2d at 361.
Id.
163 C. Ct. at 455, 325 F. 2d at 724.
The modification is designated as Amendment/Modification No. P001.
169 Ct. Cl. at 274, 340 F. 2d at 361.
The opening paragraph of the schedule of estimates that formed part of the solicitation documents stated:
SUPPLIES
SUPPLIES TO BE FURNISHED (DFSC MAY 68)
(a) The supplies to be furnished hereunder, F.O.B. delivery points, methods of delivery and estimated quantities are as follows: [Immediately after the above-quoted language there followed the specific breakdown of the award, in terms of items and gallons, that had been given to plaintiff.]
The plaintiff also focuses on language in the "Balance of Payments Restrictions” of the contract, which provides:
See, Tennessee Soap Co. v. United States, 130 Ct. Cl. 154, 126 F. Supp. 439 (1954).
It should be noted that such diversions, especially those made by reason of insufficient ullage at the original destination, would be contract breaches if the contracts awarded were interpreted to be requirements contracts. Namely, if the instant contract were interpreted to be a requirements contract, so must all the other contracts awarded pursuant to the solicitation be requirements contracts. In that event, if there was insufficient ullage at the original destination, then a diversion to another destination would be a breach of the requirements contract of the supplier who had the contract to supply the alternative destination.
Unlike Albano Cleaners, Inc. v. United States, 197 Ct. Cl. 450, 455 F. 2d 556 (1972), the contract in this case did not contain a convenience-termination clause which applied to the entire contract; rather, the termination clause in the subject contract permitted termination only of orders actually placed with the supplier. Consequently, we find no provision in the subject contract which conflicts with the indefinite quantities clause.
Clause IE1, Import Quota (DFSC 1968 September).
Clause IE9, Balance of Payments Restrictions (DFSC 1968 September).
There was no strict demarcation between the area supplied under the domestic IFB and the areas supplied under the offshore IFBs. Under IFB Item 365, plaintiff was in competition with the suppliers under the offshore IFBs, who were supplying Southeast Asia. Although the record does not explicitly indicate how much of plaintiffs contract involved an award under Item 365, it appears that the amount is approximately 100 million gallons.
See, Air Terminal Services, Inc. v. United States, 165 Ct. Cl. 525, 532-33, 330 F. 2d 974, 977-78, cert. denied, 379 U. S. 829 (1964).
Furthermore, there is no evidence in the record that the requirements which had been awarded to Coastal States remained after the cutback.
Plaintiffs prices were higher than 61 of the 65 non-exempt domestic refiners.
115 Ct. Cl. 209 (1950).
Dissenting Opinion
dissenting:
With all respect, I find myself unable to concur in the panel opinion, able as its analysis is in many respects.
The reader needs to know that (a) the trial judge did not adopt the plaintiffs contention that it had a requirements type contract obliging defendant to purchase from plaintiff its requirements for JP-4 jet fuel that existed during the contract term at the locations comprehended in the contract, and (b) the plaintiff has abandoned its original position, since before us it did not except to the trial judge’s opinion and findings but rather, urged that we adopt them without change. In the absence of any quantum figures, it is impossible to say how much of a reduction in the claim this concession effected, but it has to be substantial. Defendant, to a large extent, prevailed before the trial judge, but it is unwilling to pay anything to settle for the losses it is alleged to have caused the plaintiff, and, therefore, it was the excepting party.
I would have adopted the opinion of the trial judge and his conclusion of law in toto. It struck me as an able and fair handling of a novel and sticky situation. His theory may be capsuled as follows. Defendant told plaintiff in the IFB that much of the fuel it supplied had to come from domestic refineries for balance of payment reasons. Moreover, defendant did not intend to make its import quota or any part thereof available. Plaintiff knew that large quantities of foreign made fuel would be obtained under other IFB’s for offshore use, and would inevitably be cheaper. Obviously, therefore, the domestic, more costly
Under this theory, plaintiff would not recover anything for disproportionate reductions in procurement from it, whenever and to the extent that the remaining requirements were satisfied by other domestic suppliers working under similar restrictions who had bid lower prices.
The narrow literalism of the decision, and its insensitive insistence on deciding whether the contract was for an indefinite quantity or for requirements as established and mutually exclusive categories, will no doubt cause bidders to scrutinize IFB small print with more care, and insist that what they see as implied should be made express. Also, like so much else in Government contract law it says, in every bid you make, scrutinize your cost allowance for unforeseen contingencies. It is probably far too low.
I am attaching, to clarify my views, the trial judge’s analysis of the positions of the parties and of his own intermediate position, which I would adopt.
In its main brief, plaintiff broadly contends that the language of plaintiffs contract, the conduct of the parties, and the commercial setting in which the contract was formed, all confirm that defendant was contractually obligated to purchase from plaintiff the requirements for JP-4 jet fuel that existed during the contract term at the locations comprehended in the contract awarded to plaintiff, and that, given such an obligation, defendant plainly breached it. Plaintiff adds, alternatively, that defendant
In equally broad terms, defendant contends that the contract language, defendant’s need for flexibility, and the conduct of the parties require the conclusion that defendant’s only obligation under that contract was to purchase from plaintiff a minimum of $100 worth of JP-4 jet fuel during the contract period; that under plaintiffs contract plaintiff was not to supply all the needs of any of the using activities listed in the IFB;
In its reply brief, plaintiff alters, and somewhat narrows, its principal line of argument, urging that defendant was contractually obligated to fill all the needs of all the destinations listed in the IFB by purchases of JP-4 jet fuel from plaintiff and other domestic suppliers awarded contracts pursuant to that IFB, and with domestically refined fuel, and that plaintiff had, but was denied, the right to supply such needs of the relevant destinations "as was appropriate under its contract” for the entire contract period.
There are inherent in plaintiffs broad position, or positions, ambiguities and undiscussed problems. For one thing, plaintiff largely ignores serious questions respecting plaintiffs right, vis-a-vis those other domestic suppliers awarded contracts pursuant to the IFB, to supply JP-4 jet fuel to defendant during the contract period. And, while plaintiff alludes to "appropriate adjustments between [domestic] suppliers,” what that phrase means, in connection with this action, is not even hinted at.
Defendant’s arguments present some very real difficulties as well. According to defendant, the "contract cutback” was effectuated simply by repetition, in reverse, of "the contract award evaluation process.” Defendant asserts that
Defendant’s view of the case overlooks indisputable facts: that, in the implementation of the cutback necessitated by defendant’s having under contract, some 399,000,000 gallons of JP-4 jet fuel in excess of needs, defendant competitively evaluated both domestic and foreign suppliers on the basis of price alone; that, given the circumstances of this case, the inevitable result of that evaluation was that the reduction would fall entirely upon domestic rather than upon foreign refiners;
Moreover, the respective arguments of the parties, by their joint failure to recognize either the unitary nature of the IFB and the offshore IFBs, and the multiple contracts defendant awarded to domestic and foreign suppliers as a result of those IFBs, or the significance of the circumstances surrounding the procurements, tend to obscure rather than illuminate.
In reaching any such conclusions, however, it is appropriate to "look both to the written terms and to the surrounding circumstances, availing ourselves 'of the same light which the parties possessed when the contract was
Defendant’s worldwide pattern for procurement of JP-4 jet fuel for the period July 1 to December 31, 1969, serves as a proper and useful starting point for purposes of analyzing the nature of plaintiffs contract, and the mutual rights and obligations thereby created. For that contract term, defendant issued a total of six solicitations for JP-4 jet fuel.
One, the IFB, covered defendant’s estimated needs for such fuel during the contract period at more than 300 specified, and separate, using activities (by location) in the United States, Europe, and the Pacific. The "offshore” portion of the IFB was specifically made subject to balance of payments restrictions, with only domestically refined fuel to be acceptable to defendant thereunder. Moreover, the practical meaning and effect of DFSC’s explicit renunciation of use of DOD’s foreign-refined products import quota in the IFB was that the domestic portion of the procurement (representing some 86 percent of the total gallonage of JP-4 jet fuel covered by the IFB) would also be domestically refined fuel, and the parties necessarily so understood.
As a result of the remaining five "offshore” IFBs, defendant contracted to purchase from foreign refiners fuel (not subject to balance of payments restrictions and not domestically refined) which was, by definition, cheaper than domestically refined fuel, for delivery to various specified, and largely if not entirely different, overseas locations.
The IFB itself resulted, and the parties were necessarily cognizant that it would result, in a considerable number of
In these circumstances, the notion that plaintiff, either alone or in conjunction with others, had an absolute, unconditionally vested contract right to supply JP-4 jet fuel to meet the needs of any particular destination simply ignores reality. Because of the very nature of the procurement (and the product) involved, plaintiffs contract was clearly not such a "requirements” contract, in any customary sense. See Albano Cleaners, Inc. v. United States, 197 Ct. Cl. 450, 455 F.2d 556 (1972); Franklin Co. v. United States, supra; E. H. Sales, Inc. v. United States, 169 Ct. Cl. 269, 340 F.2d 358 (1965); Goldwasser v. United States, 163 Ct. Cl. 450, 325 F.2d 722 (1963).
When plaintiffs contract is scrutinized in light of its terms and defendant’s pattern of procurement under the IFB, however, it is equally clear that the boilerplate "Scope of Contract” clause on which defendant relies in asserting that its maximum obligation to plaintiff was only to purchase $100 worth of JP-4 jet fuel during the contract term, may not properly be so construed. See ITT Arctic Services, Inc. v. United States, supra; Contra Costa County Flood Control and Water Conservation District v. United States, 206 Ct. Cl. 413, 512 F.2d 1094 (1975); Corbino v. United States, 208 Ct. Cl. 1002, 1006 (1976). As this court said in Albano Cleaners, Inc. v. United States, supra, 197 Ct. Cl. at 459, 455 F.2d at 561:
*547 * * * Whatever the permissible scope of such an indefinite quantities provision is * * *, such an unusual and unfair interpretation of the clause here involved as defendant proposes could hardly have been in accord with 'the rational intention of the parties’ when they entered into this contract, * * * and the court would not be justified in adopting it. [Citations omitted.]
One relevant consideration is that at least some crude oils essential to the production of JP-4 jet fuel must be contracted for on an advance basis (and in some cases 6 to 12 months ahead of scheduled production time); such crude oils acquired for JP-4 jet fuel production can be used to make other salable end products (and JP-4 jet fuel use in the United States is limited exclusively to military applications, with no private or commercial demand), but only if the purchaser’s refinery has sufficient, specialized facilities to do so. In 1969, plaintiff did not have sufficient facilities so to process the feed stocks which would be produced from its crude oil purchases made with a view to producing JP-4 jet fuel for defendant. These factors militate strongly against a holding that, while plaintiff was contractually committed to supply to defendant some 1,000,000 gallons of JP-4 jet fuel per day over a 6-month period, defendant’s obligation to plaintiff was only to order $100 worth of such fuel during that same period.
That aside, however, the IFB’s (and the contract’s) terms, construed in light of the contractual history and background, point in that same direction. As the court has held in similar circumstances, there was "a shared understanding infused into the anemic words-of the contract * * Franklin v. United States, supra, 180 Ct. Cl. at 673, 381 F.2d at 420.
Defendant did not advise plaintiff and the other successful domestic bidders pursuant to the IFB that any specific needs would exist at any particular destination, or at all of
In short, in the circumstances of this case, plaintiffs contract, construed in the light cast by its history and background, gave plaintiff, in general terms, a right to compete with those other domestic suppliers awarded contracts pursuant to the IFB, for whatever requirements for JP-4 jet fuel defendant did have during the contract term at the several destinations covered by the IFB.
The foregoing does not say, and should not be understood to mean, that under no circumstances could defendant receive fuel ordered under the offshore IFBs at the destinations covered by the IFB. An absolute necessity for diversion of ordered foreign fuel because of ullage problems at a destination covered by the offshore IFBs, because of military necessity, or other good and sufficient reason for delivery of such ordered foreign fuel to a destination covered by the IFB, must have been within the contemplation of the parties when they entered into the contract in suit. Thus, to any extent defendant’s requirements at the destinations covered by the IFB may have been validly reduced, no breach resulted.
It must be added, however, that to the extent defendant had under contract domestically refined JP-4 jet fuel in excess of needs at the several destinations covered by the IFB, defendant was well within its contractual rights in declining to order such fuel from plaintiff, if it could instead order such fuel for those several destinations covered by the IFB from "lower priced domestic suppliers” who, with plaintiff, had been awarded contracts pursuant to the IFB.
All of the contracts to supply defendant’s estimated needs at the various locations specified in the IFB were awarded as a result of competitive bidding, and on a least-cost basis to defendant. If an excess of domestically refined fuel under contract for such destinations over actual needs at those destinations materialized, defendant was well within its contractual rights in ordering the domestically refined fuel available to it to meet such actual needs (and no more) at the least possible cost.
To the extent, if any, plaintiff here complains that its contract quantities were cut back in consequence of the exercise by defendant of that right, plaintiff is not entitled to recover. On the present record, the effect of that conclusion on the parties cannot really be determined. Since, however, further proceedings to determine the amount of plaintiffs recovery are in any event required, that issue can also be explored in such proceedings.
As plaintiff properly points out, the statements are, at best, ambiguous and amorphous. They were, moreover, made not prior to the onset of controversy between the parties, as defendant suggests, but as part of a post-controversy endeavor to obtain equitable relief. In all the circumstances, they deserve, and are given, no weight in determining the rights of the parties to this litigation.
CONCLUSION OF LAW
For the foregoing reasons, we find that the contract between Coastal States and the United States is an indefinite quantities, open-end contract; we also find that the United States has in good faith met all obligations which it had to plaintiff under the contract. Accordingly, the trial judge’s findings of fact, opinion, and recommended conclusion of law are modified to accord with the facts and law hereinbefore set forth. Since the court concludes that the defendant is not liable to the plaintiff, the petition is dismissed.
In its reply brief, plaintiff in effect concedes that it was not to supply all the needs of any particular destination listed in the IFB, but asserts that this is immaterial.
[The first 14 footnotes were in omitted portion.]
Plaintiff, and 14 other United States firms, were cut back a total of 397,000,000 gallons,' while no foreign supplier was cut back at all.
Because of the nature of the several procurements here relevant, the nature of the product involved, and the worldwide scope of those procurements, fitting the case neatly within a requirements, or indefinite quantities, contract mold, as the parties’ main briefs do, could be done, if at all, only by considerable forcing.
In fact, considerable amounts of plaintiffs origin delivery JP-4 jet fuel, theoretically designated for overseas use, were delivered to, inter alia, Alaska, Florida, Georgia, and South Carolina.
Plaintiffs contract explicitly stated that each pipeline or tanker delivery would be, minimally, 840,000 gallons. While it is unnecessary so to hold, this provision would be difficult to construe as consistent with defendant’s view of the Scope of Contract clause.
Parenthetically, this construction is confirmed by contract modifications between the parties, both before and after implementation of the cutback, decreasing quantities of items awarded to plaintiff, and adding new items. See E. H. Sales, Inc. v. United States, 169 Ct. Cl. 269, 340 F.2d 358 (1965).
